VES-13-18:RR:IT:EC 115964 TLS
Chief, Vessel Repair Unit
Bureau of Customs and Border Protection
423 Canal Street, Room 303
New Orleans, Louisiana 70130
RE: Vessel Repair Entry No. C2-0058629-0; PACIFIC VENTURE; 19 U.S.C. §1466; Protest No. 2002-03-100185.
Dear Sir:
This is in response to your memorandum of April 1, 2003, forwarding an application for further review, filed by Neville Peterson LLP on behalf of Pacific Island Resources, Inc., of a decision of your office assessing vessel repair duties pursuant to 19 U.S.C. §1466. You specifically seek our advice with respect to the merits of the protestant’s claims covering work listed in Items 12, 13, 57, 58, and 87. Our determination is set forth in this ruling.
FACTS:
Pacific Island Resources, LLC (hereafter also referred to as PIR) owns Pacific Venture Resources, LLC (hereafter also referred to as PVR), which operates the vessel PACIFIC VENTURE. The vessel departed from New Zealand in late August 2001 and returned to New Zealand via Hawaii in January 2002. While in New Zealand, the vessel underwent various shipyard work. The vessel arrived in the United States at Barbers Point, Hawaii on May 18, 2002. A vessel repair entry was timely filed. On September 13, 2002, PIR’s legal counsel filed an application for relief of the vessel repair duties assessed on the costs covered in the aforementioned entry. On December 6, 2002, your office issued a decision on the application. That decision denied the application for relief in its entirety and assessed vessel repair duties in the amount of $33,701.42. In response to the denial of the application for relief, counsel timely filed a protest on March 6, 2003, which you have forwarded to us for review.
The protestant seeks relief from vessel repair duties associated with various costs. As noted above, your office seeks our advice with respect to certain of these costs, which are listed under the following: Items 12, 13, 57, 58, and 87, as designated on the invoices submitted with the protest. We note that the protestant acknowledges that some of the work listed within these items constituted dutiable repairs. Our review is therefore limited to that work alleged to constitute modifications and costs that are otherwise non-dutiable.
There are three different invoices associated with the costs in question that are contained within Exhibit 4 of the protest. For Items 12 and 13, an invoice from Parade Hydraulic Engineering 1999 Ltd. dated January 26, 2002 is provided. For Items 57 and 58, an invoice from Parade Hydraulic Engineering 1999 Ltd. dated April 30, 2002 is provided. For Item 87, an invoice from Legend-Nautilus (NZ) Ltd. dated April 29, 2002 is provided.
ISSUE:
Whether the work in question for which the protestant seeks relief constitutes modifications to the subject vessel or expenses unrelated to vessel repairs and is therefore non-dutiable under 19 U.S.C. §1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) (19 U.S.C. §1466(a)), 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…"
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 which 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.
For the purposes of 19 U.S.C. §1466, the term materials is determined to mean something which is consumed in the course of its use, and/or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel. The term equipment is defined as something that constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators.
Considering each cost for which relief is sought, we first look at Item 12, Job No. 6911, which is described as “Plumbing, engine room...Plumbing captains bathroom... Plumbing, kitchen,” and the work is further described as “Replace PVC plumbing with galvanized pipe. Add water filters, and outlets to upper decks.” In this instance, PVC plumbing was replaced; however, we are unable to determine whether this replacement indicated that the existing plumbing was in disrepair or that the galvanized pipe was added to the existing PVC plumbing to enhance it. See Customs ruling HQ 113585 (June 6, 1996, citing Admiral Oriental Line, supra). In view of the fact that the invoice description is “Repairs and maintenance” and this particular job is described as “Items Repaired,” in absence of evidence to the contrary, we conclude that the work performed in this case is a repair and is therefore dutiable.
The next work in Item 12 is Job No. 6884, described as “Bilge pump suction line,” and the work is further described as “Pump not priming. Bilge pump need [sic] to be hard piped and have check valve installed.” This is a case where an article was installed to replace something that was not in full working order at the time. This work therefore constitutes a dutiable repair.
The next work in Item 12 is Job No. 6885, described as “Forepeak fuel tank vent” and the work is further described as “Fuel tank vent needs containment and a ball check valve installed. Currently getting fuel in reefer falt.” We deem this activity to be a repair rather than a modification. The fuel tank vent was not functioning properly, which is why the ball check valve was installed.
Item 12, Job No. 6877 is described as “Water tank sigt [sic] glasses,” and the work is further described as “Install sight glasses in fresh water tanks (with only 3500 gal. capacity). Investigate connecting after voids to tanks. Fit oil tank sockets.” The invoice further provides that, “Sockets welded to tanks and sight glasses fitted. Oil tank sockets fitted.” In this instance, the sight glasses and oil tank socket fittings were permanent additions. There is no indication that the fresh water tanks or the oil tanks were in need of repair. Thus, this work constitutes modifications of fully operational systems rather than repairs.
Item 12, Job No. 6890 is described as “Engine room, air tank drain.” It further provides that this work was done to “make air tank drain more accessible.” This is insufficient information on which to base a claim for relief. Consequently, this work is dutiable.
Item 12, Job No. 6892 is described as “Make cover for stern trough” and “Stern trough cover,” and the work is further described as “Stern trough empties at Scania room fan intake and fan blows onto electrical panel.” As we concluded with Job No. 6890 above, this is insufficient evidence on which to grant relief.
Item 12, Job No. 6935 is described as “Mess room air conditioner vent,” and the work is further described as “Checked vents for attachment of louvre screens. Rejected screen idea and made up vent pipes instead.” The invoice entry indicates that this was done to “modify air intake for air conditioning unit in mess room.” Notwithstanding the use of the term “modify” in describing the work done in this case, this is insufficient evidence on which to grant relief.
Item 13, Job No. 6975a is described as follows: “Scale tables.” This particular cost item is not well-described. The only other information provided is the fact that there were three scale tables manufactured. We cannot deem this to be a modification based on such scant information. Thus, this cost item is considered to be dutiable equipment.
Item 13, Job No. 6971 is described as “Wash trough tap,” and the work is further described as “Move hand basin and install foot controlled tap for wash trough.” This is an addition to the wash trough that improves its operability. We consider this to be a modification, not a repair.
Item 13, Job No. 6991a is described as follows: “Install new Scania water pump,” “Scania engine water pump,” and the work is further described as “Make up pump mount. Make and install new pipework. Fit pump.” As with several other cost items discussed above, we do not have enough information to consider this a modification. There is no indication of whether the pipework replaced old or worn pipework or was added to existing pipework. The same for the pump and pump mount; we do not know if they are replacements or additions. Therefore, this work is indicative of a repair and remains dutiable.
Items 57-58, Job No. 7918b is described as “Squid frame top roller brackets” and “Nil,” and the work is further described as “Stainless steel brackets 10 L/H 10R/H.” Here again, we do not have enough information to determine whether this is a modification or a repair. As such, we deem it a repair in absence of evidence to the contrary.
Items 57-58, Job No. 7959 is described as “Scania engine room exhaust vent,” and the work is further described as “Install new exhaust /vent for scania engine room.” This is not enough information to determine whether this is a modification or a repair. Thus, we deem it a repair and it is therefore dutiable.
Item 87 covers numerous costs, including sponges, mop heads, and mops with handles. The protestant contends that these items have in the past been regarded as non-dutiable consumables and general operating expenses, citing HQ 115536 for support. As noted in 115536, a consumable or general operating expense must be consumed on board the vessel for which it has been purchased and must not be used for repair purposes. See C.I.E. 196/60; see also Customs memorandum 104352 (January 10, 1980), citing T.D. 39340, as modified by T.D. 39507. We cannot determine from the submitted documents whether or not these articles were used in conjunction with repairs or modifications. Consequently, in the absence of evidence to the contrary, we must consider these articles as dutiable equipment.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest for relief with respect to the
items considered above should be denied and granted in part as specified in the Law and Analysis portion of this ruling.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch