VES-13-18- RR:IT:EC 115175 RSD
Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
Room 306
New Orleans, LA 70130
RE: Vessel Repair Entry No. C18-00269096-5, DIANA T; Modification; Ballast Tank Mud Removal; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated September 27, 2000, which forwards for our consideration an application from relief from vessel repair duties assessed pursuant 19 U.S.C. § 1466 filed by Givens and Associates on behalf of Gulfcoast Transit. Your office requests our review with respect to alleged modifications, which you have flagged and labeled accordingly. Additionally, item 3 referenced in the application letter covering Ballast Tank Mud Removal exceeds your monetary authority in granting relief from duty. Our findings are set forth below.
FACTS:
Gulfcoast Transit is the operator of the barge DIANA T. The DIANA T was pushed to the Talleres Navales Golfo Shipyard in Veracruz, Mexico by the tug, DEBBIE RANKIN, and left there for the work on the vessel while the tug returned to the United States. According to the applicant, the barge was put into drydock to accomplish modifications and the required ABS and USCG inspections. Many of the parts and materials used during the drydock were purchased in the United States and then sent on to Mexico for use in the work in Veracruz. In addition, the applicant claims that many of the supervising technicians were from the United States. On September 20, 1997, the DIANA T arrived at the port of Tampa, Florida. A vessel repair entry was timely filed on September 30, 1997. The entry contains several alleged modifications. In addition you have ask to review the Ballast Tank Mud Removal done in connection with a vessel survey.
ISSUES:
Whether the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are modifications and therefore are non-dutiable under 19 U.S.C. 1466.
Whether the Ballast Tank Mud Removal done in connection with a vessel survey would be dutiable pursuant to 19 U.S.C. 1466.
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…”
MODIFICATIONS:
In its application of the vessel repair statute, Customs 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-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors that may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is non-dutiable under 19 U.S.C. § 1466
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. In considering whether an operation has resulted in a modification that 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 are 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.
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.
ITEM 500 Port Rudder:
This item involved the installation of a new port rudder hydraulic cylinder to provide a longer stroke and more rudder travel. The work resulted in an additional range of adjustment giving the tug/barge unit more speed and control when towing astern. The invoice indicates that the work performed included disconnecting the hydraulic hose connections on two hydraulic cylinders and providing temporary plugs. The cylinder live ends were then disconnected. The welded cylinder dead end connections had to be unbolted and cleaned burned. The existing dead end connections in their entirety were cleaned burn and discarded. A dead end assembly similar to the starboard rudder hydraulic cylinder installation was fabricated. The owner-furnished cylinders were rigged aboard the vessel and installed. The hydraulic hoses as originals were reconnected.
We believe that the work was completed in order to improve the performance by increasing the speed and control. There is no indication that the work was done in order to fix or replace an existing part. Accordingly, we conclude that it should be considered a non-dutiable modification.
ITEM 529 Notch Plating
This work involved permanent installation of steel plates where none previously existed, to facilitate pushing at sea and to allow the unit to push longer in higher sea states. The addition of the steel plating created a firm notch fit on the barge for a tug, which allows for greater speed and seakeeping ability. We believe that this work represents a permanent addition to the structure of the barge and thus constitutes a non-dutiable modification.
Item 530 FWD Plating
This item involved the permanent installation of a steel bar to the strake plate where none had been previously to prevent chafing of mooring line during discharge of cargo. Based on this description, it is unclear whether the work was primarily performed as preventative maintenance. No information has been submitted to indicate whether the mooring lines are now chafing and if the work was done to stop further chafing. 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. Accordingly, based on information presented, we find that this item is a dutiable repair because it appears to be preventive maintenance in that it was work undertaken in anticipation of repairs that would be needed in the future.
Item 551 Main…Chock Modification
This item concerned the permanent installation of closed chocks, a new design, which allowed the barge to accommodate the docks in the Houston ship channel and on the Mississippi River where the vessel now serves its client base. The new closed chocks provide for safer operations. The work involved installing two (2) 23” x 20” x 1” deck doublers, one on each of the after outboard corners of the vessel’s main deck. In addition, work included installing two (2) owner furnished, closed single Panama style chocks on fitted doublers. We find that the item does constitute a modification, which enhances the operation and efficiency of the barge in accordance with the previously enumerated guidelines.
Item 552 Cargo Tunnel Emergency Escape Hatch
This item involves the permanent installation of an escape hatch and lighting where none had previously existed. The new escape hatch provides an emergency exit out of the aft 2/3 of the conveyor spaces for use in the event of fire or flooding. We find that item is a modification to the structure of the vessel and would not be dutiable.
Item 556 Starboard Notch…pigeon hole modification
This item involved the permanent installation of a new pigeon hole assembly where none had previously existed to allow a safe means of accessing the tug from the barge during the push mode operation. Drawings for the work were attached. The work was done to improve performance with increased safety. We find that this work constitutes a non-dutiable modification.
Item 552.1 Work Extension #2
This item was an additional part of the previously discussed installation of the escape hatch and lighting where none had existed previously. The additional work involved the relocation of the ballast line and the installation of bracing for the line. The new escape hatch provides an emergency exit out of aft 2/3 of the conveyor space for use in the event of fire or flooding. We find that this item is a non-dutiable modification.
Item 552 Work Extension #6
This was also an additional part of the previously discussed installation of the escape hatch and lighting where none had been previously. The additional work involved the installation of three additional stringers to the escape hatch through the after cargo hold bulkhead in the tunnel area to the main deck level. We find this item to be a non-dutiable modification.
Item Work Extension #31
This item involved the permanent installation of drain holes in the ballast tank where none had been previously. It was completed to facilitate deballasting capabilities and shorten the time required to ballast the barge. Better ballast movement also reduces the amount of residual mud left in the tanks. This provides for greater cargo capacity while hauling full draft cargoes like phosphate rock. We find this item to be a non-dutiable modification.
Item 529 Work Extension #37
This item involves the additional work performed to complete the previously discussed item 529.1, which had to do with the permanent installation of steel plates where none had previously been, in order to facilitate pushing at sea and to allow the unit to push longer in higher sea states. The addition of the steel plating created a firm notch fit on the barge for the tug, which allows for greater speed and sea keeping ability. Because this item is part of work performed in completing item 529, for the reasons previously specified we find that this item constitutes a non-dutiable modification.
Item Work Extension #43
First we note that in its application for relief, the applicant mislabeled this item as work extension #37, when in fact it should have been specified as work extension #43. The item involves the permanent installation of piping to facilitate cleaning of tanks of residual cargo and for improved pumping out capability. This facilitates the changing of cargoes and reduces the operational time required to load a new cargo. We agree that this item is a non-dutiable modification.
Item 552 Work Extension #45 Modification
This was an additional part of the previously discussed installation of an escape hatch and lighting where none had been previously. The additional work involved the installation of the additional lighting. For the reasons discussed in item 552, we agree that this item would be part of a non-dutiable modification.
ABS SURVEY
Item 801 Ballast Tank Mud Removal
You have also asked us to review item 801 on the ABS survey. This concerns the ballast tank mud removal and cleaning for ABS inspection. The invoice describes the work as descaling and cleaning for ABS inspection and staging inside of ballast tanks. With respect to surveys or inspections, the general rule is that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a survey. When an inspection or survey is conducted to ascertain the extent of damage sustained or whether repairs are necessary, the surveys cost is dutiable as part of the repairs which are accomplished. In this case, the information submitted establishes the ABS survey was undertaken as a result of a required annual survey, rather than to ascertain the extent of any damage sustained. Even though the ABS survey revealed that certain repairs were necessary, the costs connected with the survey are not dutiable. In this instance, ballast tank mud removal and cleaning were performed pursuant to the required ABS survey on the vessel. We therefore find that these expenses are not dutiable.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the Application for Relief should be granted in part, and denied in part, as specified in the Law and Analysis portion of this ruling.
Sincerely,
Larry L. Burton
Chief
Entry Procedures and Carriers Branch