VES-13-18-RR:IT:EC 114341 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. C31-0005033-6; ARCO INDEPENDENCE, V-191; 19 U.S.C. 1466; Application
Dear Madam:
This is in response to your memorandum of April 3, 1998,
which forwarded the petition submitted by ARCO Marine, Inc.
("applicant") with respect to the above-referenced vessel repair
entry.
FACTS:
The evidence of record indicates the following. The ARCO
INDEPENDENCE (the "vessel"), a U.S.-flag vessel, arrived at the
port of Valdez, Alaska on November 15, 1997. The subject vessel
repair entry was subsequently filed. The vessel underwent
certain foreign shipyard work in Ulsan, Korea in October and
November of 1997.
ISSUE:
Whether the costs of the subject items are dutiable pursuant
to 19 U.S.C. 1466(a).
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.
In its application of 19 U.S.C. 1466, Customs has held that
(contrary to the treatment of vessel repairs and vessel
equipment) modifications, alterations, and additions to the hull
of a vessel are not subject to duty. The identification of work
constituting modifications vis-a-vis work constituting repairs
has evolved from judicial and administrative precedent. See, for
example, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916);
U.S. v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359
(1930), and Customs Bulletin and Decisions of June 18, 1997 (Vol.
31, No. 24/25, p. 23) and October 1, 1997 (Vol. 31, No. 40, p.
13). The various factors discussed within those authorities are
not by themselves necessarily determinative, nor are they the
only factors which may be relevant in a given case.
You have requested our review on the following items which
are listed on pages 33-34 of the spreadsheets.
Item 902.00 - Vapor Recovery System. In its "Statement of
Facts No. 25" signed by its senior port engineer and the master
of the vessel, the applicant states:
This item was 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 section 183
paragraph "F" (tank vessel standards) of the Clean Air
Act. Prior to loading cargoes in the port of Valdez,
Alaska, vessels are required to have an approved vapor
recovery system. The modification consists of new
manifold headers and interconnecting piping to the
inert gas system. In addition, modifications to
existing pipelines, brackets, and deck fittings are
required to accommodate the new piping installation.
The pertinent invoice reflects the installation of a "new
vapor recovery system." The work described on the invoice
appears to be consistent with the work described in the
applicant's statement.
We find that this item is a nondutiable modification. The
work described appears to be typical of a modification and there
is no indication in the record of repair or repair-related work
in connection with this item.
Item 903.00 - Bottom Plate and Internal Structure
Modification. In "Statement of Facts No. 26" signed by its
senior port engineer, the applicant states:
The purpose of this item is to modify the existing
bottom longitudinal's in the cargo spaces. Through the
use of finite element analysis' it has been determined
that the structural detail of the longitudinal's at the
oil-tight and swash bulkheads will initiate fractures
in the hull plating. The existing structural details
consisting of 2 drain holes within close proximity of
the bulkhead forms a discontinuity in the structure.
Such discontinuity may initiate fractures. The
modification calls for the inserting the longitudinal
to eliminate the discontinuity in the weld of the
bottom longitudinal to the hull plating.
The pertinent invoice states: "The intend [sic] of this
modification is to eliminate the rat hole cut out in the bottom
long.'s in way of bottom plate and bottom long.'s master butt
weld joints."
We find that this item is a dutiable repair because it is
preventive maintenance in that it was work undertaken in
anticipation of repairs that would be needed in the future. (As
excerpted above, the applicant states that the "discontinuity may
initiate fractures" and "that the structural detail of the
longitudinal's at the oil-tight and swash bulkheads will initiate
fractures in the hull plating.") We have consistently held
maintenance and/or preventive maintenance items to be dutiable
under 19 U.S.C. 1466. See, for example, Ruling 227063 dated
October 31, 1996.
Items 904.00, 904.01, and 904.02 - Tank Cleaning Reservoir
Installation. In "Statement of Facts No. 27" signed by its
senior port engineer and the master of the vessel, the applicant
states:
The purpose of these items 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 swash bulkhead to provide an oil
tight envelope. Additionally, heating coils and piping
connections were added. When in operation this
segregated section of the tank will enhance the oil
recovery process while reducing the volume of wash-water required to be sent ashore for processing.
The pertinent invoice provides: "Furnish labor and material
to provide a reservoir at the after end of 7C cargo tank to
facilitate the tank cleaning process."
We find that these items are nondutiable modifications. The
work described appears to be typical of a modification and there
is no indication in the record of repair or repair-related work
in connection with these items.
HOLDING:
As detailed above, the application is granted in part and
denied in part with respect to the items upon which you have
requested us to rule.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch