VES-13-18-RR:IT:EC 113681 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Vessel Repair Entry No. C27-0147654-4; Modification; General
Service; Parts; Survey; CHIEF GADAO; V-162; 19
U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated June 14, 1996,
forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466 with supporting documentation. You
request our review of Items 1, 3 and 8 listed on the CF 226. Our
findings are set forth below.
FACTS:
The CHIEF GADAO is a U.S.-flag vessel, formerly owned by
American President Lines, Inc. ("APL"), and known as the
PRESIDENT GRANT, now owned by Matson Navigation Company
("Matson"). The vessel was sold by APL to Matson on January 2,
1996, and underwent foreign shipyard work during March of 1996.
Subsequent to the completion of the work the vessel arrived in
the United States at San Pedro, California, on March 26, 1996. A
vessel repair entry was untimely filed on April 10, 1996.
An application for relief, dated May 20, 1996, was timely
filed. Included with the application was the following
supporting documentation: shipyard invoices; drawings; an Entry
Summary Continuation Sheet (CF 7501-A); a spreadsheet prepared by
the applicant; and documentation from the American Bureau of
Shipping (ABS).
ISSUE:
Whether the foreign costs contained within the subject entry
for which our review is sought are dutiable under 19 U.S.C.
1466.
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LAW AND ANALYSIS:
Title 19, United States Code, 1466 (19 U.S.C. 1466),
provides in pertinent part for the payment of an ad valorem duty
of 50 percent of the cost of "...equipments, or any part thereof,
including boats, purchased for, or the repair parts or materials
to be used, or the expenses of repairs made in a foreign country
upon a vessel documented under the laws of the United States..."
The Customs Regulations promulgated pursuant to 19 U.S.C.
1466 are set forth in title 19, Code of Federal Regulations,
4.14 (19 CFR 4.14). With respect to the filing of a vessel
repair entry, we note that 4.14(b)(2) provides, in pertinent
part, that an "entry shall be filed with the appropriate Customs
officer at the port of first arrival within five working days
after arrival." The entry in this case was filed 11 working days
after the arrival of the vessel. Consequently, the failure to
make an entry as required necessitated your referral of this
matter to the Fines, Penalties & Forfeitures Officer in the Port
of Los Angeles for appropriate penalty action (see 19 CFR
4.14(g)(1)).
Item 1 on the CF 226 designated for our review covers work
alleged to be modifications to not only the galley of the vessel,
but also to its container stowage capacity thereby enabling the
vessel to carry eleven rows of 24' containers in combination with
the existing 40' container stowage. This work, which is stated
to improve the vessel's utilization and efficiency, is depicted
on the aforementioned drawings (Enclosures A-D) and detailed on
Hyundai Mipo Dockyard Co., Ltd., "Hyundai" invoice nos. 960013-A
and 960013-B (Enclosures E and F).
In regard to these claims, we note that in its application
of the vessel repair statute, Customs has held that modifications
to the hull and fittings of a vessel are not subject to vessel
repair duties. Over the course of years, the identification of
modification processes has evolved from judicial and
administrative precedent. In considering whether an operation
has resulted in a modification which is not subject to duty, the
following elements may be considered.
1. Whether there is a permanent incorporation into the hull or
superstructure of a vessel (see United States v. Admiral Oriental
Line et al., T.D. 44359 (1930)), either in a structural sense or
as demonstrated by the means of attachment so as to be indicative
of the intent to be permanently incorporated. This element
should not be given undue weight in view of the fact that vessel
components must be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling. In
addition, some items, the cost of which is clearly dutiable,
interact with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts. It follows that a "permanent
attachment" takes place that does not necessarily involve a
modification to the hull and fittings.
2. Whether in all likelihood, an item under consideration would
remain aboard a vessel during an extended lay up.
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3. Whether, if not a first time installation, an item under
consideration replaces a current part, fitting or structure which
is not in good working order.
4. Whether an item under consideration provides an improvement
or enhancement in operation or efficiency of the vessel.
Very often when considering whether an addition to the hull
and fittings took place for the purpose of 19 U.S.C. 1466, we
have considered the question from the standpoint of whether the
work involved the purchase of "equipment" for the vessel. It is
not possible to compile a complete list of items that might be
aboard a ship that constitute its "equipment". An unavoidable
problem in that regard stems from the fact that vessels differ as
to their services. What is required equipment on a large
passenger vessel might not be required on a fish processing
vessel or offshore rig.
"Dutiable equipment" has been defined to include:
...portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, but not permanently incorporated
in or permanently attached to its hull or
propelling machinery, and not constituting
consumable supplies. Admiral Oriental,
supra., (quoting T.D. 34150, (1914))
By defining what articles are considered to be equipment,
the Court attempted to formulate criteria to distinguish non-dutiable items which are part of the hull and fittings of a
vessel from dutiable equipment, as defined above. These items
might be considered to include:
...those appliances which are permanently
attached to the vessel, and which would
remain on board were the vessel to be laid
up for a long period... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).
A more contemporary working definition might be that which
is used under certain circumstances by the Coast Guard; it
includes a system, accessory, component or appurtenance of a
vessel. This would include navigational, radio, safety and,
ordinarily, propulsion machinery.
Upon reviewing the documentation submitted to support the
applicant's modification claims, we have determined that the work
done to the galley meets the requisite criteria for such a
designation (see Enclosures D and F). With regard to the alleged
container stowage modification, Items 1-5 and 10 on Hyundai
invoice no. 960013-A (Enclosure E) also appear to support such a
claim. Items 6-9 on the aforementioned invoice involve work
alleged to be necessitated as a
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result of a change in the vessel's ownership and are therefore
claimed to be nondutiable. Upon reviewing these items, it is
readily apparent that Items 8 (changing the vessel's name,
hailing port, stack insignia, etc.) and 9 (replacing the APL logo
with that of Matson) are a direct result of the ownership change
and were not accomplished incident to maintenance or restorative
painting. Consequently, these items are not dutiable (see
Headquarters ruling letter 226968, dated May 31, 1996, holding
the same such costs nondutiable). However, our review of the
record does not lead us to the same conclusion with respect to
the costs listed in Items 6 and 7 which cover dutiable painting
and cleaning in preparation thereof.
Item 11 of Hyundai invoice 960013-A (Enclosure E) covers
what is described as "General Service for Modification" and
includes costs for the following services: wharfage; tuggage and
mooring/unmooring; fire main service; fire patrol; and garbage
disposal. We note, however, that Item 12 on the same invoice
covers additional work which is conceded by the applicant on its
own spreadsheet to be dutiable. With respect to general/port
services, Customs has held that such costs should be prorated
between dutiable and nondutiable costs (See Headquarters Ruling
226729, dated June 7, 1996). Accordingly, in view of the fact
that Enclosure E covers both dutiable and nondutiable costs, the
costs covered by Item 11 should be prorated as well.
Item 3 on the CF 226 designated for our review covers
various articles listed on a Customs Entry Summary Continuation
Sheet (CF 7501-A) with the notation at the top of the sheet that
it is a "GATT ENTRY." The applicant's claim for relief is
apparently based on the provisions of the General Agreement on
Tariffs and Trade ("GATT"), specifically 19 U.S.C.
1466(h)(3) which accords duty-free treatment to the following:
(3) the cost of spare parts necessarily installed
before the first entry
into the United States, but only if duty is paid under
appropriate com-
modity classifications of the Harmonized Tariff
Schedule of the United
States upon first entry into the United States of each
spare part
purchased in, or imported from, a foreign country.
(Emphasis added)
With respect to Item 3, while we are in accord with the
applicant's claim for relief regarding some of the items listed
on the Entry Summary Continuation Sheet, relief is denied under
this claim with respect to the following item nos. in view of the
fact that they do not constitute "parts" within the meaning of
1466(h)(3): 8 (oxygen gas); 9 (acetylene gas); 10 (welding rod);
11 (copper wire); 13 (steel plate) and 16 (silicon sealant).
Item 8 on the CF 226 designated for our review covers a
service listed on ABS invoice no. 7620860059 as a "MODIFICATION
SURVEY." However, it is not readily apparent that this service
covers only that work deemed to be a modification as discussed
above and is therefore nondutiable as part of the modification
costs, or also includes dutiable repair work which would render
it dutiable (see Enclosure E which covers both dutiable and
nondutiable work). Consequently, in the absence of evidence to
the contrary, Item 8 is dutiable.
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HOLDING:
The foreign costs contained within the subject entry for
which our review is sought are dutiable in part under 19 U.S.C.
1466 as discussed in the Law and Analysis portion of this ruling.
Sincerely,
Jerry Laderberg
Acting Chief
Entry and Carrier Rulings Branch