VES-13-18-RR:IT:EC 226968 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 416
P.O. Box 2450
San Francisco, CA 94126
RE: 19 U.S.C. 1466; MAHIMAHI, V-127; Vessel Repair Entry No.
C27-0147635-3;
Hatch cover modifications; Change of name markings
Dear Sir:
This ruling is in response to your memorandum dated May 9,
1996, which forwarded the application for relief submitted by
American President Lines, Inc. ("applicant") with respect to the
above-referenced vessel repair entry. The subject vessel,
MAHIMAHI, was previously known as the PRESIDENT WASHINGTON.
FACTS:
You have requested our determination with respect to the
following two items: hatchcover modifications and change of name
markings.
The application states in part:
As part of this sale agreement it was necessary to make
certain improvements to the vessels to increase their
efficiency and to make the vessels suitable for this new
deployment. These improvements are described in Enclosure A
and were required to allow for the stowage of the Matson 24
foot type containers at six rows on deck.
...
Item No. 2 of this entry covers the costs only of changing
the vessel's name, hailing port, slack insignia, and stack
coating and the addition of the "Matson" insignia. As such,
these changes resulting from a change of ownership of this
vessel constitutes [sic] a duty free modification.
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.
Hatchcover Work
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.
In its application dated April 24, 1996, the applicant
states:
Matson and APL announced their intent to operate a joint
service that would benefit both carriers by producing
significant cost savings. To accomplish these efficiencies
and cost savings, APL sold the above subject vessels to
Matson...
As part of this sale agreement it was necessary to make
certain improvements to the vessels to increase their
efficiency and to make the vessels suitable for this new
deployment. These improvements...were required to allow for
the stowage of the Matson 24 foot type containers at six
rows on deck.
The applicant has submitted an "AGREEMENT FOR MODIFICATIONS
AND IMPROVEMENTS TO VESSELS" and "SPECIFICATION FOR C9 CLASS
VESSELS 24ft CONTAINER STOWAGE MODIFICATIONS." The latter
document states, in part:
3. SCOPE OF WORK
3.1 Overview
This specification describes the conversion of deck stowage
to carry six rows of 24ft containers in combination with the
existing 40ft container stowage. This work involves the
construction and installation of eight new 40ft hatch covers
per ship, contract plan 1), and modification on hatch covers
and pedestals for 24ft container stowage, contract plan 2),
and modifications to the hatch coamings, contract plan 3).
...
Pres. Washington: Eight newly constructed hatch covers shall
be installed at rows 4 and 5, 14 and 16. The existing port
cover at row 5 shall be relocated without modification to
the port side location at row 9, and the existing port cover
at row 4 shall be relocated without modification to the
starboard side location at row 9. The row 4 and 5 row
starboard covers, row 9 P/S covers and rows 14 and 16 shall
be removed and scrapped.
After a consideration of the record, we find that this item
is a nondutiable modification. The work described supra, the
conversion of stowage to carry six rows of 24ft containers in
combination with the existing 40ft container stowage, is the type
of work which is a nondutiable modification, as opposed to a
repair dutiable under 19 U.S.C. 1466. This item appears to fall
squarely within the description of a nondutiable modification,
supra. There is no indication of any repairs.
Change of Name and Related Markings
In Ruling 112513 dated March 30, 1993, we stated with
respect to the painting of the ship's name (item 16 in that
ruling):
Pursuant to C.D. 1430 (41 CCPA 57, C.A.D. 529), painting
that is strictly ornamental and in no sense performed for
the preservation of the vessel, cannot be considered
"maintenance painting." With respect to the above items, as
the painting performed pursuant to item 16 was ornamental in
nature, it is entitled to remission.
In H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430
(1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953), the court
stated:
Relative to painting the hull of the vessel black between
the decks and repainting the ship's name thereon, as well as
the expenses of cartage of materials and labor, this court
is of the opinion that the cost thereof is properly dutiable
under the provisions of section 466 as "repairs." Although
it is contended that the painting in question is strictly
ornamental and in no sense performed for the preservation of
the vessel and, therefore, cannot be considered "maintenance
painting," it remains a fact that, irrespective of the
intention behind the act, the painting of the ship black in
order to present a better appearance to the public had the
effect of restoring the old and rusted surfaces, and since
the repainting of the hull covered the ship's name, it
became necessary thereafter to paint the name Gretna Victory
over the new black paint.
The painting of the words "Christmas Ship Pacific Northwest
U.S.A." does not appear to be in the nature of a restoration
of the vessel or a necessary act after the performance of
painting, such as the repainting of the name of the ship.
The words were painted upon the sides of the ship purely for
advertisement purposes to show the nature of the voyage.
The words were neither applied to the sides of the vessel as
an ornamentation, as a preservation of the vessel, nor as a
restoration...we do not believe that the cost of lettering
the words "Christmas Ship Pacific Northwest U.S.A." on the
port and starboard sides of the hull in 4-foot white
letters, is a dutiable item...or is included within the
provisions of section 466, supra, as the expenses of repairs
made in a foreign country.
Pursuant to H.C. Gibbs and Ruling 112513, we determine that
the change of name and related markings is not dutiable pursuant
to 19 U.S.C. 1466. The work here is similar to the painting of
the words "Christmas Ship Pacific Northwest U.S.A." in H.C. Gibbs
in that there is no indication that such work was in the nature
of a restoration of the vessel or a necessary act after painting
of the vessel. The painting of the name of the vessel, Gretna
Victory, described supra in the first excerpted paragraph of H.C.
Gibbs, is distinguishable from the work here in that the work
here was not accomplished incident to maintenance or restorative
painting. Accordingly, as stated supra, this item is not
dutiable.
HOLDING:
The subject items are not dutiable pursuant to 19 U.S.C.
1466.
Sincerely,
William G. Rosoff
Chief,
Entry and Carrier Rulings Branch