VES-13-18-RR:IT:EC 113798 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415
P.O. Box 2450
San Francisco, CA 94126
RE: Vessel Repair Entry No. C31-0015282-7; ARCO SPIRIT, V-160;
19 U.S.C. 1466;
Modifications; Vessel equipment
Dear Madam:
This is in response to your memorandum of December 23, 1996,
which forwarded the application for relief submitted on behalf of
ARCO Marine, Inc. ("applicant") with respect to the above-referenced vessel repair entry.
FACTS:
The evidence of record indicates the following. The ARCO
SPIRIT ("vessel"), a U.S.-flag vessel owned and operated by the
applicant, arrived at the port of Valdez, Alaska on July 29,
1996. The subject vessel repair entry was timely filed. The
vessel underwent certain foreign shipyard work in Korea in June
and July of 1996.
You request our determinations with respect to numerous
items contained within the application.
ISSUE:
Whether the costs of the subject items are dutiable pursuant
to 19 U.S.C. 1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate of
fifty percent ad valorem on the cost of foreign repairs to
vessels documented under the laws of the United States to engage
in foreign or coastwise trade, or vessels intended to be employed
in such trade.
We note initially that this entry is a "post-Texaco" entry,
i.e., an entry filed after the appellate decision in Texaco
Marine Services, Inc., and Texaco Refining and Marketing, Inc. v.
United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484
(CIT 1993). In Memorandum 113350 dated March 3, 1995, published
in the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29,
No. 14, p. 24), we stated in pertinent part:
All vessel repair entries filed with Customs on or after the
date of that decision [the CAFC decision in Texaco, December
29, 1994] are to be liquidated in accordance with the full
weight and effect of the decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant
to dutiable repairs are dutiable and all other foreign
expenses contained within such entries are subject to the
"but for" test).
The applicant makes certain claims with respect to the
applicability of the Texaco decision. We have considered these
claims in depth previously, including in Ruling 227063 dated
October 31, 1996 which involved a vessel repair entry filed by
ARCO Marine, Inc., the applicant in this matter. It is
unnecessary for us to reiterate that consideration here. Our
position is stated in the above excerpt from Memorandum 113350.
In its application of the vessel repair statute, the Customs
Service has held that modifications, alterations, or additions to
the hull and fittings of a vessel are not subject to vessel
repair duties. The identification of work constituting
modifications vis-a-vis work constituting repairs has evolved
from judicial and administrative precedent. In considering
whether an operation has resulted in a nondutiable modification,
the following factors have been considered:
1. Whether there is a permanent incorporation into the hull
or superstructure of a vessel, either in a structural sense or as
demonstrated by means of attachment so as to be indicative of a
permanent incorporation. See United States v. Admiral Oriental
Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent
incorporation or attachment does not necessarily involve a
modification; it may involve a dutiable repair.
2. Whether in all likelihood an item would remain aboard a
vessel during an extended lay-up.
3. Whether an item constitutes a new design feature and
does not merely replace a part, fitting, or structure that is
performing a similar function.
4. Whether an item provides an improvement or enhancement
in operation or efficiency of the vessel.
Items Specifically Identified in Your Memorandum
ABS Survey. We find that the following survey items are
nondutiable: drydocking survey, tailshaft survey, annual hull,
machinery, and load line survey, annual IGS survey, special hull
survey, special machinery survey, special IGS survey, boiler
survey, and gauging review. We find that the following items are
dutiable: "repairs/modifications", administrative surcharge,
S.A.F. (overtime), and expenses. The latter three items are
dutiable in the absence of evidence that they pertain solely to
nondutiable items.
U.S. Coast Guard Overseas Vessel Inspection. The invoice
reflects that this item is for the inspector's travel services
relative to a U.S. Coast Guard inspection. There is no
indication that the inspection related to repairs. We find that
this item is nondutiable.
Sludge Removal by Mi Sung Corporation Ltd. The invoice
reflects that most of this cost is for "sludge mucking" and
"sludge disposal." The applicant states; "The sludge removal ...
was necessary for drydocking for the A.B.S. and U.S.C.G. surveys
and inspections." We find that this cost appears to be a drydock
cost or general cost which would relate to both dutiable and
nondutiable items. Accordingly, it should be prorated between
dutiable and nondutiable items. The proration concept was put
forth in Ruling 113474 dated October 24, 1995, and has been
reiterated in numerous rulings, including Ruling 227063 dated
October 31, 1996.
Item 002 C. 3. Potable Water. This item is included
(although separately itemized) with items such as shore power,
garbage removal and other drydock costs or general service costs.
It should be prorated in the same manner as those other costs
because it is a drydock cost or general service cost.
Item 326. IGS Fan Steam Exhaust Isolation Valve. The
invoice reflects the modification of an exhaust line and the
installation of a flanged gate valve. The applicant states that
"[t]he permanent installation of gate valve in the exhaust line
allows for maintenance of the individual exhaust valves for the
inert gas fan turbines." We find that this item is a nondutiable
modification.
Items 410 and 411. Pad Eye Installation for Handling
Medical Stretcher (410) and for Lower Pump Room (411). The
applicant states that these items were new installations. It
states that "[t]he purpose of the pad eye [410] was to facilitate
rigging of medical stretcher fro [sic] machinery space" and that
item 411 was performed "to enable the ship's staff to remove
heavy objects from pump room to main deck and to facilitate the
removal of valves from ballast piping systems when required." We
find that these items are nondutiable modifications.
Item 452. Bow Fairleads Relocation. The applicant states
that the "relocation of the mooring line fairlead is to
facilitate the handling of new style mooring lines installed on
the vessel during subject yard period." We find that this item
is a nondutiable modification.
Item 507. Unlicensed State Room New Heaters Installation
(14). The applicant states: "The purpose of this item was to
install electric heaters in the unlicensed crew rooms. The rooms
were previously heated by steam coil as part of the ventilation
system. It was determined that the previous method was
inadequate to meet the needs when the vessel is in North Pacific
waters." We find that this item is a nondutiable modification.
Item 604. Galley Exhaust Ducting. The invoice states:
"Scrape all loose debris and grease from ductwork. Clean filter
screens and re-install." We find this to be a maintenance item
which is dutiable under 19 U.S.C. 1466.
Item 708. Bilge Keels Modification. The invoice reflects
the following: "Renewed B/keel plate & pad plate." and "Crack
repairs". The applicant states that this work "is necessary to
prevent the initiation of fractures in the hull plating." We
find that this item is a dutiable repair. The invoice reflects
repairs and renewal. The applicant's statement reflects
preventive maintenance which is dutiable under 19 U.S.C. 1466.
Item 902. Cargo Tank Gauging Modification. The invoice
states: "The intent of this item is to add a second Metritape
sensor to be used for the High [sic] level alarm install [sic] in
the same deck mounting head and stilling pipe of the existing
gauging system." The applicant states: "The purpose of this item
is to install an independent high level alarm system for the
existing cargo control system. This enhancement is necessary
because the vessel was also required to install a vapor recovery
system (see item 903). Installation of subject equipment meets
the requirements outlined in 33CFR [sic] 155.480." We find that
this item is a nondutiable modification.
Item 903. Vapor Recovery System New Installation. The
applicant states: "The purpose of this item is to modify the
Inert Gas System piping to accommodate the addition of a vapor
recovery system. The installation is a result of requirements
adopted by the Alyeska Pipeline Co. to comply with; [sic] section
183. paragraph F' (Tank Vessel Standards) of the Clean Air Act.
Prior to June 1997, vessels loading cargoes in the Port of Valdez
Alaska are required to have an approved vapor recovery system."
We find that this item is a nondutiable modification.
Item 905. Stern Towing Modification. The invoice states:
"Furnish labor and materials to modify the stern of vessel by
strengthening the deck, underdeck and transom internal structure
in order to install one stern towing system capable to stand for
a minimum of one (1) million pound towing force." The applicant
states: "This specification was written for the purpose of
installing a stern towing system to comply with IMO Resolution A
535 (13) and SOLAS Regulation V/15-1." We find that this item is
a nondutiable modification.
Item 907. Bottom Longitudinals Modification. The invoice
states: "The intent of this modification is to eliminated [sic]
the cut out in the bottom long'.s in way of bottom plate and
bottom long'.s master butt welded joints." The applicant states:
"The purpose of this item is to modify the existing bottom
longitudinals in the cargo spaces. Through the use of "Finite
Element Analysis" it has been determined that the structural
detail of the longitudinals at the oil-tight and swash bulkheads
will initiate fractures in the hull plating. The existing
structural details consisting of two (2) drain holes within close
proximity of the bulkhead forms a discontinuity in the structure.
This discontinuity will initiate fractures." We find that this
item is a nondutiable modification.
Item 908. Radar Installation. The invoice states: "remove
existing radar system and install new upgraded system." The
applicant states: "The purpose of the new radar installation is
to upgrade the navigation equipment on the bridge. The new radar
system has the ability to provide electronic charting in addition
to enhanced collision avoidance technology. The older radars
although still operating could not be modified or upgraded to
provide the same level of technology as the new system."
We find that this item is dutiable under 19 U.S.C. 1466 as
vessel equipment. This finding is based on the following
authorities.
In Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489
(1916), the court stated:
That the Congress intended to distinguish between equipment
and the vessel itself is apparent from a reading of the two
subsections above quoted. The line of distinction between
equipment and the vessel is somewhat difficult to mark.
The question was considered by the Board of Naval
Construction, and their report in part reads as follows:
Equipment, used in a general sense, may be defined as any
portable thing that is used for, or provided in, preparing a
vessel whose hull is already finished for service. It is
the furniture of whatsoever nature which is put into a
finished ship in equipping her. The Queen's Regulations and
Admiralty Instructions give the following definition:
"Equipment, in relation to a ship, includes the furnishing a
ship with any tackle, apparel, furniture, provisions, arms,
munitions, or stores, or any other thing that is used in or
about a ship for the purpose of fitting or adapting her for
the sea or for naval service."
In estimating the displacement of a ship naval constructors
use the term "hull and fittings" in contradistinction to
"equipment," the fittings of the hull being understood to be
any permanent thing attached to the hull which would remain
on board were the vessel to be laid up for a long period.
Adopting these definitions, the board is of the opinion that
the term "equipment" would not include donkey engines,
pumps, windlasses, steam steerers, and other machinery but
that it would include anchors, chain cables, boats, life-saving apparatus, nautical instruments, signal lights, and
similar articles.
In Ruling 105414 dated May 24, 1982, we stated:
It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or
for the purpose of complying with the requirements of
statute or code, is not a relevant consideration.
Therefore, any change accomplished solely for these reasons,
and which does not constitute a permanent addition to the
hull and fittings of the vessel, would be dutiable under
section 1466.
Any new areas to the vessel, that is, bulkheads, permanent
ballast, decks, staterooms, bars, storerooms. etc., are
considered to be qualifying additions to the hull and
fittings. Likewise, the extension of existing services into
new areas would also be free of duty. This would include
piping, air conditioning, ventilation, electrical service,
glazing, etc., as well as final finishing for the new areas
(such as painting).
On the other hand, among the dutiable operations would be
providing furniture for any of the areas (new and old);
providing new electronic navigation equipment; providing new
lifesaving apparatus ... providing computer apparatus...
[Emphasis supplied.]
In Memorandum 105807 dated December 28, 1982, we stated:
The characterization of an article as vessel equipment, as
opposed to fittings or hull/structural parts, is manifestly
difficult in cases where the article has many of the
attributes of both classes cited in the leading cases. For
example, because a vessel pitches and rolls when at sea all
radio gear is securely fastened, yet is classified as
equipment even when such articles are usually too large to
be considered (in ordinary parlance) "portable". [Emphasis
supplied.]
Item 909. Hull Stress Monitor. The applicant states: "The
purpose of this item is to install equpment [sic] to monitor the
stresses encountered in different sea states. With this
information coupled with weather data, the Master is better
informed on the performance of the vessel. With this information
the Master can adjust the speed or course of the vessel to reduce
the stresses on the vessel itself."
We find that this item is dutiable under 19 U.S.C. 1466 as
vessel equipment. The authorities cited with respect to item
908, above, are equally applicable here.
Item 910. Tank Cleaning Reservoir. The invoice states:
"Provide area to store and recircularing [sic] water for C.O.W.
tank cleaning system while providing area for sludge
accumulation." The applicant states: "The purpose of this item
is to section-off a portion of No. 7 center cargo tank for the
collection of sludge and oil residue during tank cleaning
operations. The modification includes inserting the center
vertical keel (CVK) and the sawash bulkhead to provide an oil
tight envelope. Additionally, heating coils and piping
connections were added. While in operation this segregated
section of the tank will enhance to [sic] oil recovery process
while reducing the volume of wash-water required to be sent
ashore for processing." We find that this item is a nondutiable
modification.
Item 911. GMDSS Installation. The applicant describes this
item as "Global Marine Distress Safety System" and states: "The
purpose of this specification is to install new communication
equipment to comply with IMO Assembly Resolution A.283 (VIII) and
1974 SOLAS Convention amendments concerning radio communications
for the GMDSS. The new installation provides enhanced search and
rescue data for shoreside rescue authorities as well as to other
vessels within the immediate area of the distressed ship."
We find that this item is dutiable under 19 U.S.C. 1466 as
vessel equipment. The authorities cited with respect to item
908, above, are equally applicable here.
You also requested our review of certain other items which
were not specifically described in your forwarding memorandum,
but were marked on the spreadsheet.
Item 109 A.1 - A.16. Tailshaft Inspection and Stern Tube
After Seal Renewal - Stern Bearing Wear Down Reading. The
invoice reflects that this item relates to an ABS Tailshaft
Survey and USCG Tailshaft Inspection. We find that it is
nondutiable. The staging which accompanies this item is also
nondutiable.
Item 201 A.1 - A.6. Fire Side Cleaning for ABS/USCG Boiler
Survey. We find that this item is nondutiable. The staging which
accompanies this item is also nondutiable.
Item 205 A.1 - A.2. Boiler Mountings Inspection - Open
Valves for USCG 4-year Inspection. The invoice reflects that
this item relates to an ABS Boiler Survey and a USCG Boiler Four
Year Mounting Inspection. We find that this item is nondutiable.
The staging which accompanies this item is also nondutiable.
Item 427. IGS Deck Isolation & Mast Riser Valve: Remote
Operator Installation. The invoice reflects the installation of
tubing and cable. The applicant has not provided evidence which
would support a claim that this item is nondutiable. We find
that this item is dutiable.
Item 439. IGS Scrubber Modification. The applicant has not
provided evidence which would support a claim that this item is
nondutiable. We find that this item is dutiable.
Item 448. Stern Transom Modification. The applicant has
not provided evidence which would support a claim that this item
is nondutiable. We find that this item is dutiable.
Item 449. Bridge Window Washing System. The applicant has
not provided evidence which would support a claim that this item
is nondutiable. We find that this item is dutiable.
Item 602 A. Inspection (USCG Biennial Inspection). The
invoice reflects that this item involves a U.S. Coast Guard
biennial inspection. We find that this item is nondutiable. As
the spreadsheet indicates, the "Additional Work" (item 602 B) is
dutiable.
Item 603. Lifeboat Weight Test. The invoice reflects that
this item relates to a U.S. Coast Guard biennial survey. We find
that this item is nondutiable.
HOLDING:
As detailed above, the application is granted in part and
denied in part.
Sincerely,
Chief,
Entry and Carrier Rulings Branch