VES-13-18-RR:IT:EC 226826 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. C31-0015281-9; 19 U.S.C. 1466; ARCO
INDEPENDENCE, V-152; Application; Drydocking
charges
Dear Sir:
This is in response to your memorandum dated March 12, 1996,
which forwarded the application for relief submitted by ARCO
Marine, Inc. ("applicant") with respect to the above-referenced
vessel repair entry.
FACTS:
The ARCO INDEPENDENCE ("the vessel") is a U.S.-flag vessel
owned and operated by the applicant. Certain foreign shipyard
work was performed on the vessel in 1995. The vessel arrived at
the port of Valdez, Alaska on October 18, 1995. The subject
entry was subsequently filed. It was untimely by one day in that
it was filed on the sixth business day (October 26, 1995) after
arrival of the vessel (October 18, 1995).
The applicant has submitted letters dated February 6, 1996
and February 9, 1996, and certain "Explanatory Statements," in
addition to the pertinent invoices.
The narrative, or non-heading, part of the February 9, 1996
letter is less than one full page. It contains certain
certifications and states when the vessel sailed from the U.S.
and returned. The letter of February 9, 1996 also states:
The vessel sailed...to accomplish American Bureau of
Shipping and U.S. Coast Guard required dry-dock surveys, and
certain modifications. Other maintenance work was also
accomplished.
The letter of February 6, 1996 is four pages. It contains
certain of the information in the February 9, 1996 letter, and
includes a list of 13 American Bureau of Shipping surveys which
were conducted. The February 6, 1996 letter also contains
certain allegations and statements based at least in part on the
requirements of 19 CFR 4.14(d)(1)(iii) with respect to the
supporting evidence to be submitted with an application for
relief. These allegations and statements do not contain
allegations and statements which are specific to the subject
vessel repair entry, but they recite, essentially verbatim, the
language of 19 CFR 4.14(d)(1)(iii)(A) through (G).
Also included with the applicant's materials is a twelve
page document entitled "Explanatory Statements." This document
contains explanations with respect to many of the specific items
involved in this vessel repair entry.
You have asked for our determination with respect to the
following items:
Item No. Description
N.A. ABS Survey
N.A. ABS Survey - administrative
surcharge
Hyundai drydocking
408 mooring line
424 IGS and mast valve
433 IGS scrubber
450 power water line
ISSUE:
Whether the costs at issue 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.
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.
Our analysis in this matter is based primarily on the
pertinent invoices. The assertions of the application are not
considered to be documentary evidence. In this regard, we note
the statement of the court in Bar Bea Truck Leasing Co., Inc. v.
United States, 5 CIT 124, 126 (1983):
Again, plaintiff has presented no affidavit or other
evidence in support of its counsel's bald assertion...
If we are unable to determine the precise nature of certain
work because of the lack of clear and probative documentary
evidence, and are thus unable to determine that it is
nondutiable, such work will be found dutiable. In this regard,
we note the statement of the Customs Court in Admiral Oriental
Line v. United States, T.D. 43585 (1929):
The evidence is conflicting upon that point, and the
plaintiff has not proved the collector's classification to
be wrong. The burden is upon the plaintiff to show not only
that the collector was wrong in his classification but that
the plaintiff was right.
In Sturm, A Manual of Customs Law (1974 ed.), p. 173-174,
the author states, in pertinent part:
Where Congress has carved out special privileges or
exemptions from the general provisions levying duties upon
imported articles, the courts have strictly construed such
exceptions and have resolved any doubt in favor of the
government. Swan & Finch Company v. United States, 190 U.S.
143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co.
v. United States, 17 CCPA 305, T.D. 43718 (1929)...
...
An exception which carves out something which would
otherwise be included must be strictly construed. Goat &
Sheepskin Import Co., et al. v. United States, 5 Ct. Cust.
Appls. 178, T.D. 34254 (1914); [et al.]
After a consideration of the documentation of record we make
the following determinations.
ABS modification survey. In its application letters, the
applicant does not specifically address this item. The item is
included among the numerous ABS surveys listed in the February 6,
1996 letter, but no representations are made with respect thereto
by the applicant. In the absence of any acceptable documentary
evidence to the contrary, we determine that this item is
dutiable.
ABS survey - administrative surcharge. The applicant has
not made any representations with respect to this item. In the
absence of any acceptable documentary evidence to the contrary,
we determine that this item is dutiable.
Hyundai drydocking charges. Your forwarding memorandum
states "prorated all drydocking charges except insurance."
Drydocking charges include, but are not limited to, such charges
as berthing costs, refuse removal, electrical hook-up, and water-hook-up. In Ruling 113474 dated October 24, 1995, we stated in
pertinent part:
A "but for" test was utilized by the court in the Texaco
[case], supra [Texaco Marine Services, Inc. and Texaco
Refining and Marketing, Inc. v. United States, 815 F. Supp.
1484 (CIT 1993), 44 F.3d. 1539 (CAFC 1994)] which test bases
dutiability under the vessel repair statute upon findings
that but for dutiable repair operations, an associated
expense would not have been incurred. To be sure, in a
great many vessel repair cases which include dry dock
expenses there is at least some non-dutiable element which
could justify placing a vessel in dry dock. We understand
from the decision of the CAFC in Texaco, supra, that dock
charges are non-dutiable if the underlying reason for dry-docking is not subject to duty, and that such charges are
dutiable if dutiable operations underlie the docking.
Proper implementation of the decision of the court requires
that we consider the duty consequences in circumstances in
which a mixed justification for dry-docking is present.
Customs has experience in duty determinations in another
area involving a mixed-purpose vessel repair expense. Under
the rationale provided by a long-standing published ruling
(C.I.E. 1188/60) the cost of obtaining a gas-free
certification, a necessary precursor to the initiation of
any hotwork (welding) which may be necessary, constitutes an
expense which is associated with shipyard operations. Since
the expense is incurred without respect to whether the hot
work to follow might constitute dutiable repair work, or is
in connection with duty-free modification work, it is the
practice of Customs in liquidating such expenses to
apportion the gas-freeing charges between the cost of items
which are remissible and those which are subject to duty.
We are guided by the determination of the court in Texaco,
supra, to apply the same formula to mixed-purpose dry-dock
expenses. Accordingly, the cost associated with item 14
should be apportioned to reflect the dutiable and non-dutiable foreign costs in this entry.
The 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).
In accordance with Ruling 113474 and Memorandum 113350, and
as your forwarding memorandum states, the drydocking charges
should be prorated between the dutiable and nondutiable costs
associated with the drydocking. The method of prorating was
described in Ruling 113474, supra: the drydocking costs "should
be apportioned to reflect the dutiable and non-dutiable foreign
costs in this entry." For example, if, aside from the subject
"drydocking costs," as described supra, fifty percent of the
costs of that particular drydocking were dutiable and fifty
percent were nondutiable, then fifty percent of the subject
"drydocking costs," as described supra, would be dutiable and
fifty percent would be nondutiable.
Item 408 - mooring line. The invoice for item 408 describes
the work on the mooring line installation. Item 408.1, as
amended by item 408.5, involved the removal of the old wire line
for scrapping. Item 408.2 involved connecting the new line.
Item 408.3 involved the removal of the roller chocks, replacement
of thrust bearings, addition of a bar to prevent snapping of the
line, cleaning and epoxy coating the chocks. Although there was
a change to this item, the invoice does not show any reduction in
cost as a result in the reduction of work ordered by item 408.5.
As shown by the change, 12 of the removed roller chocks had to
have the corroded area built up and had to be machined before
being painted. Additional item 01 involved the addition of a rub
bar for the port aft mooring line. Additional item 02 involved
the addition of tubing to allow the winches to be greased from
the deck. Additional item 03 involved enlarging the holes in the
drums to accept the larger diameter line. Additional item 04
involved the repair of one fairlead and two standard chocks.
The letter of the vessel's captain of February 7, 1996
states that the existing lines were still usable but that the new
lines were safer to use and were more efficient.
In Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct.
1932), the court held that the addition of the vessel's emergency
generator house, when coupled with testimony that the
installation was not caused by any wear or physical defect in the
existing house and that it was for the sole purpose of providing
additional machinery, was an addition to the vessel's hull and
fittings rather than a repair or the purchase of equipment that
would have been dutiable under 19 U.S.C. 1466. The court also
held that the addition of an independent fitting line from a
double bottom fresh water tank to separate potable and non-potable fresh water tanks was a modification rather than a
repair.
In Admiral Oriental Line v. U.S., T.D. 43585 (Cust. Ct.
1929), maintenance painting to prevent deterioration and to keep
the vessel and equipment clean was dutiable pursuant to 19 U.S.C.
1466. Temporary passenger partitions were held not to be
additions to the hull because of their temporary nature, and
therefore were found dutiable.
In U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930), the
court held that the addition of swimming pools for the comfort of
passengers in the Pacific trade routes was outside of the scope
of 19 U.S.C. 1466. The court found the work to be modifications
of the hull rather than repairs based on the blueprints and
testimony of the appellee's superintendent.
In C.S.D. 79-278, Customs held that the installation of
gantry cranes and the work performed to accommodate the cranes
were not dutiable under 19 U.S.C. 1466. In the same decision,
Customs held that work performed on existing ladders, furniture
modifications, and painting parts of the vessel other than the
parts affected by the addition of the cranes were dutiable under
19 U.S.C. 1466.
Ruling 106768 dated June 19, 1984 dealt with the
replacement of synthetic mooring lines for the wire rope lines.
Customs held that the work on the winches to accommodate the new
synthetic lines was not subject to duty under 19 U.S.C. 1466.
The evidence in that ruling consisted of the yard's invoice and
the vessel's job order. The job order called for the
modification of the fore and aft tension winches and the fairlead
blocks to allow use of the synthetic line. The invoice shows
that the yard did the work in one day. There is nothing in the
invoice to show any restorative work. The only machinery work
performed was to accommodate the synthetic line. The total cost
there was nearly one-third of the total cost involved here.
In this case, the letter of the captain merely states that
the existing lines were still usable. The letter does not
discuss the reasons for the need to overhaul the existing chock
rollers to replace material lost through corrosion or the work
described on the invoice as the repair of one fairlead and two
standard chocks. The case of Admiral Oriental Line v. U.S., T.D.
45453 (Cust. Ct. 1932) does not support the applicant's position
in that, in Admiral Oriental, there was undisputed testimony to
the effect that there was no existing defect to the generator
house. Here, the invoice describes work done to cure existing
defects: building up corroded areas, grinding smooth sharp areas,
painting damaged coating around the chock foundations, and
repairing a fairlead and chocks.
Maintenance painting to prevent deterioration and to
maintain appearance was held by the court in Admiral Oriental
Line v. U.S., T.D. 43585 (Cust. Ct. 1929) to be dutiable under 19
U.S.C. 1466. U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930)
and C.S.D. 79-278 do not appear to be directly on point except
for the general proposition that work performed to modify a
vessel is not within the scope of 19 U.S.C. 1466.
Customs has held (C.S.D. 79-278) that the work done to
accommodate new types of mooring lines is a modification outside
of the scope of 19 U.S.C. 1466 when there is no evidence of
repair work. Here, as noted, the evidence of the invoice shows
repair work. Also, the cost of the work in this case is almost
three times greater than the cost of the work in C.S.D. 79-278.
Customs has held that if dutiable and nondutiable charges
are segregated or separately itemized, Customs will allow the
nondutiable portions. See CIE 1325/58, CIE 565/55 and C.S.D. 79-277.
Consequently, the separately itemized charges for removal of
the old wire (item 408.1 as amended by item 408.50), connecting
the new line to the winches (item 408.20, the addition of the
stern line rub bar (additional item 408.01), the addition of
greasing tubes (additional item 408.02) and the enlargement of
the holes in the winch drums to accept the new lines (additional
item 408-3) should be allowed.
The work described as repair in item 408.3 and the repair
work in additional item 408.04 is dutiable as a repair based on
the foregoing analysis.
Item 424 - IGS deck isolation and mast riser valve. In its
Explanatory Notes, the applicant states: "The IGS valves were
previously manually operated...By modifying the valves for remote
control, operating efficiency and control was greatly improved.
The VPI readout is now available on the console in the cargo
control room. This is a permanently installed modification...and
is not a replacement of new for old." The invoice indicates that
this item includes the retrofitting of an owner-furnished
hydraulic actuator in place of the existing manual actuator, and
related tubing and valve position indicator work with respect to
the desk isolation valve and the mast riser valve.
There is insufficient evidence to support the allegation of
the application that this item is nondutiable. We note that
there is no statement or affidavit of the master with respect to
this item. The work described appears to be within the scope of
dutiable repairs and support for a contrary determination has not
been documented. See the excerpts on page three of this ruling
from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental
Line v. U.S. Therefore, we find that it is dutiable. The case
of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932)
does not support the applicant's position in that, in Admiral
Oriental, there was undisputed testimony to the effect that there
was no existing defect to the generator house. Here, there is no
undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137
(1930) and C.S.D. 79-278 do not appear to be directly on point
except for the general proposition that work performed to modify
a vessel is not within the scope of 19 U.S.C. 1466.
Item 433 - IGS Scrubber. In its Explanatory Notes, the
applicant states: "The prior scrubber performance was inferior in
comparison with the improved design of the modification
scrubber...This is a permanently installed modification,
installed to improve the efficiency of vessel operation..." The
first two sheets of the invoices for this item clearly reflect
repairs ("IGS Scrubber Repairs" is the heading for these sheets
and the work described reflects repairs); these items are
dutiable and are so reflected on the applicant's speadsheet. The
next two sheets (pp. 484-485) contain the heading "IGS Scrubber
Modification." These sheets are superseded by the following two
sheets (pp. 486-487), which are headed "CHG' 433A. 01 I.G.
Scrubber Mod. (W/A 150)," and which indicate that the work on pp.
484-485 is cancelled and that the item is revised. The revised
item includes removing and disposing of filter beds, spray pipes,
and water supply lines; installing a sheet liner; fabricating a
quenching spool; bending a pipe; welding; cleaning; installing
grating and packing; fabricating new spray manifolds; and
connecting the sea water supply. The final sheet of this
invoice, which is headed "433B IGS Recirc, Modification" (p.
488), includes removing the recirculating piping from the
circulation valve to the scrubber; installing a blank flange; and
prefabricating new piping.
There is insufficient evidence to support the allegation of
the application that this item is nondutiable. We note that
there is no statement or affidavit of the master with respect to
this item. The work described appears to be within the scope of
dutiable repairs and support for a contrary determination has not
been documented. See the excerpts on page three of this ruling
from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental
Line v. U.S. Therefore, we find that it is dutiable. The case
of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932)
does not support the applicant's position in that, in Admiral
Oriental, there was undisputed testimony to the effect that there
was no existing defect to the generator house. Here, there is no
undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137
(1930) and C.S.D. 79-278 do not appear to be directly on point
except for the general proposition that work performed to modify
a vessel is not within the scope of 19 U.S.C. 1466.
Item 450 - power water line maintenance. In its Explanatory
Notes, the applicant states: "This was not a repair. It involved
a 180 degree roll-over of the piping to insure uniform life."
The invoice, as well as the applicant's statement, reflects that
this item is a maintenance item. Maintenance items are dutiable
pursuant to 19 U.S.C. 1466. In Ruling 111571 dated March 4,
1992, we stated, in pertinent part:
The dutiability of maintenance operations has undergone
considerable judicial scrutiny. The United States Court of
Customs and Patent Appeals, in ruling that the term repair
as used in the vessel repair statute includes "maintenance
painting," gave seminal recognition to the dutiability of
maintenance operations. E.E. Kelly & Co. v. United States,
55 Treas. Dec. 596, T.D. 43322 (C.C.P.A. 1929).
Accordingly, this item is dutiable.
HOLDING:
As detailed supra, the application is granted in part and
denied in part.
Sincerely,
William G. Rosoff
Chief,
Entry and Carrier Rulings Branch