VES-13-18-RR:IT:EC 113883 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. C27-0158612-8; 19 U.S.C. 1466;
MOKIHANA, V-8B; Application
Dear Madam:
This is in response to your memorandum dated March 10, 1997,
which forwarded the application submitted by Matson Navigation
Co., Inc. (the "applicant") with respect to the above-referenced
vessel repair entry.
FACTS:
The MOKIHANA (the "vessel") is a U.S.-flag vessel owned and
operated by the applicant. Certain foreign shipyard work was
performed on the vessel in late 1993. The vessel arrived at the
port of Los Angeles, California on October 28, 1996. The subject
entry was filed on November 5, 1996.
ISSUE:
Whether 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.
Post-Texaco Entry
The subject 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).
Accordingly, the Texaco decision applies to this entry.
The applicant claims that Texaco should not be applicable,
citing 19 U.S.C. 1625(c) and 19 CFR 177.10. As we have stated on
numerous occasions previously, this claim is without merit.
In Ruling 226873 dated October 29, 1996, we stated:
The subject vessel repair entry was filed after the
CAFC decision in Texaco. 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).
Memorandum 113350 was preceded by Memorandum 113308
dated January 18, 1995. Memoranda 113350 and 113308
were both published in the Customs Bulletin.
In Ruling 113474 dated October 24, 1995, we stated:
... the applicant contends that the CAFC decision
in Texaco, supra, should not be applicable to the
subject vessel repair entry and by doing so
Customs has violated 19 U.S.C. 1315(d). Title
19, United States Code, 1315(d) provides, in
pertinent part, as follows:
No administrative ruling resulting in the
imposition of a higher rate of duty or charge than
the Secretary of the Treasury shall find to have
been applicable to imported merchandise under an
established and uniform practice shall be
effective with respect to articles entered for
consumption or withdrawn from warehouse for
consumption prior to the expiration of thirty days
after the date of publication in the Federal
Register of notice of such ruling... (emphasis
added)
The applicable Customs Regulations governing this
matter are found at 19 CFR Part 177 (entitled
"Administrative Rulings"). With respect to the
applicability of 19 CFR Part 177, we note that neither
of the two Headquarters memoranda published in the
Customs Bulletin are "rulings" within the meaning of
that part. Pursuant to 177.1(d)(1), Customs
Regulations, a "ruling" is defined as a "...written
statement issued by the Headquarters Office or the
appropriate office of Customs as provided in this part
that interprets and applies the provisions of the
Customs and related laws to a specific set of facts."
(Emphasis added) Neither memorandum applied 19 U.S.C.
1466 or 19 CFR 4.14 (the applicable Customs
regulations promulgated pursuant to 1466) to a
specific set of facts (i.e., no single vessel repair
entry containing foreign expenses was discussed).
Rather, they provided notice to the public that Customs
will administer 19 U.S.C. 1466 in accordance with the
explicit guidelines set by the CAFC in interpreting the
term "expenses of repairs" within the meaning of the
statute as determined by the "but for" test. Such
guidelines, prior to the date of that decision, were
non-existent. Accordingly, 19 U.S.C. 1315(d) is
inapplicable in these circumstances.
In Ruling 113500 dated October 24, 1995, we stated:
Specifically, the applicant contends that the
publication in the Customs Bulletin of memorandum
113308, subsequently clarified by memorandum
113350, without the solicitation of public
comments, constitutes a violation of 19 U.S.C.
1625(c).
...
... the aforementioned memoranda did not modify or
revoke any prior interpretive ruling or decision
or have the effect of modifying the treatment
Customs previously accorded certain foreign
expenses under 19 U.S.C. 1466. Rather, the
memoranda, in conjunction with the publication of
the CAFC decision in the Customs Bulletin, merely
provided notice to the public that the impetus
behind any change in Customs interpretation of the
term "expenses of repairs" within the meaning of
the vessel repair statute is the CAFC itself, not
Customs.
...
With respect to the applicability of 19 CFR Part
177, we note that neither of the two Headquarters
memoranda published in the Customs Bulletin are
"rulings" within the meaning of that part.
Pursuant to 177.1(d)(1), Customs Regulations, a
"ruling" is defined as a "...written statement
issued by the Headquarters Office or the
appropriate office of Customs as provided in this
part that interprets and applies the provisions of
the Customs and related laws to a specific set of
facts." (Emphasis added) Neither memorandum
applied 19 U.S.C. 1466 or 19 CFR 4.14 (the
applicable Customs regulations promulgated
pursuant to 1466) to a specific set of facts
(i.e., no single vessel repair entry containing
foreign expenses was discussed). Rather, they
provided notice to the public that Customs will
administer 19 U.S.C. 1466 in accordance with the
explicit guidelines set by the CAFC in
interpreting the term "expenses of repairs" within
the meaning of the statute as determined by the
"but for" test. Such guidelines, prior to the
date of that decision, were non-existent.
Further in regard to the applicability of 19 CFR
Part 177, it is noteworthy that since neither
memorandum was a "ruling" as defined in 19 CFR
177.1(d), the mere fact that they were published
in the Customs Bulletin does not, as the
protestant suggests, render either a "published
ruling" within the meaning of 19 CFR 177.1(d).
Furthermore, in view of the fact that 19 CFR
177.1(d) also defines a "ruling letter" as "a
ruling issued in response to a written request
therefor and set forth in a letter addressed to
the person making the request or his designee",
neither memoranda, which were issued at the behest
of the Assistant Commissioner, Office of
Regulations and Rulings to the Regional Director,
Commercial Operations Division, New Orleans,
constituted a "ruling letter" for purposes of 19
CFR Part 177. The delayed effective date
provisions of 19 CFR 177.9(d)(3), applicable to
a "ruling letter" are therefore of no consequence.
Accordingly, the provisions of 19 U.S.C. 1625
and 19 CFR Part 177 are inapplicable to the
subject application.
Based on the above authorities, we find that the
petitioner's claims with respect to 19 U.S.C. 1315(d)
and 1625(c) are without merit.
[End of excerpt from Ruling 226873.]
Accordingly, as stated above, the applicant's claim is
without merit.
Modifications
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 Protested
After a consideration of the documentation of record we make
the following determinations. For the most part, we have
followed the numbering and grouping of items used in your
forwarding memorandum.
Items 101-119. General Services. These items should be
prorated as that concept was stated in Ruling 113474 and
subsequent rulings.
Item 121. Sea Trial. This item is nondutiable as the
invoice reflects that the sea trial was incident to the main
engine and auxiliary support system inspections and
modifications.
Item 501. Drydock of Vessel. This item should be prorated
in the same manner as the general services items.
Items 502-513. These items are nondutiable as ABS/U.S.
Coast Guard inspection or survey items except for the following.
Item 504-1 is dutiable because it involves piping renewal. Items
506 and 510 involve the replacement of anodes which is dutiable.
Item 507-1 is dutiable because it involves post-repair coating.
Item 509-1 is dutiable because it involves the repair and
maintenance of bow thruster blades.
Item 515. Tank Inspection and Survey. This item is
nondutiable as an ABS/U.S. Coast Guard inspection and survey
item.
Items 517, 519, 521, 523, and 523-1. No. 2 P/S Deep Upper
FO Tank Modifications, No. 1 FO Wing Tank P/S Modifications, No.
2 FO Wing Tanks P/S Modifications, No, 3A, 3B, and 3C FO Wing
Tanks P/S Modifications, and No. 3A, 3B and 3C P/S FO Tank
Modifications at Additional Locations. These items are
nondutiable modifications.
Item 525. Hatch Cover Survey. This item is nondutiable as
a ABS survey.
Item 527. Hatch Cover Load Pad Water Plate Modification.
This item is a nondutiable modification.
Item 531. Modifications to Upper Longitudinal Hatch
Coaming. The applicant states that this item: "...entails the
permanent installation by welding of previously non-existing
brackets to add strength to the longitudinal hatch coamings to
eliminate the flexing of the hatch covers and fracturing of the
container base sockets." We find that this item is dutiable
because it involves an operation to cure the fracturing of
certain articles. As such, it appears to be a repair and
maintenance item.
Item 535. Modifications to Transverse Box Girder. The
invoice reflects that this item was undertaken as a result of
various fractures and cracks. Therefore, it is a dutiable
repair.
Items 537 and 538. Engine Room Tanks Survey and "Air
Ceivers." The invoices indicate that these items are ABS/U.S.
Coast Guard survey and/or inspection items. Accordingly, they
are nondutiable.
Items 539 and 541. Isolation Valves for HFO Purifiers
Modification and Back Flush Connections Modification. These
items are nondutiable modifications.
Items 542 and 547. Main Engine Vibration Dampener and
Inspection of Bilge Wells. The invoices indicate that these
items are ABS/U.S. Coast Guard survey and/or inspection items.
Accordingly, they are nondutiable.
Item 549. Reefer Modifications. This item is a nondutiable
modification.
Item 550. Main Electrical Switchboard. The invoice
reflects that this item is an ABS inspection item. Therefore, it
is nondutiable.
Items 553, 557, and 558. Stack Lighting Modification,
Removal of Twist Box Modification, and Portlight Modifications.
These items are nondutiable modifications.
Item 561. Hull wash for Inspection. This item is
nondutiable as incident to an ABS/U.S. Coast Guard inspection.
Items 569, 570, 572, and 705. Safety Rail Extension
Modification, Underdeck Pedestal Modifications, Stern Seal
Modification, and No. 1 Deep "Swb" Tank Modifications. These
items are nondutiable modifications.
Items 710, 719, 733-1, and 734. Cleaning of F.O. Service
and Blended Oil Tank Vents, Cleaning of Crankcase Vent Plenum,
Waste Heat Boiler Survey, and Auxiliary Boiler Survey. The
invoices indicate that these items are ABS/U.S. Coast Guard
survey and/or inspection items, or operations incident to such
surveys or inspections. Accordingly, they are nondutiable.
The applicant claims that prefabricated steel which is
referenced as being involved in 14 repair items is dutiable under
19 U.S.C. 1466(h)(3), which provides:
The duty imposed by section (a) of this section shall
not apply to -
...
(3) the cost of spare parts necessarily installed
before the first entry into the United states, but only
if duty is paid under appropriate commodity
classifications of the Harmonized Tariff Schedules of
the United States upon first entry into the United
States of each such spare part purchased in, or
imported from, a foreign country.
For the purpose of 19 U.S.C. 1466(h), we have defined a
"part" as follows:
A part is determined to be something which does not
lose its essential character or its identity as a
distinct entity but which, like materials, is
incorporated into a larger whole. It would be possible
to disassemble an apparatus and still be able to
identify a part. The term part does not mean part of a
vessel, which practically speaking would encompass all
elements necessary for a vessel to operate in its
designed trade. Examples of parts as defined are seen
in such items as piston rings and pre-formed gaskets,
as opposed to gaskets which are cut at the work site
from gasket material.
The applicant has submitted an entry summary continuation
sheet on which it lists the 14 items of steel. The steel was
used on 14 invoice items. There is no indication or statement as
to what "spare parts" the applicant seeks relief for pursuant to
19 U.S.C. 1466(h)(3). The applicant has not established that the
prefabricated steel is a part under 19 U.S.C. 1466(h)(3).
Therefore, the steel is dutiable under 19 U.S.C. 1466(a).
HOLDING:
As detailed above, the application is granted in part and
denied in part.
Sincerely,
Jerry Laderberg
Acting Chief,
Entry and Carrier Rulings Branch