VES-13-18-CO:R:P:C 110569/110653 BEW
X Ref. 110570 through 110575
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
6 World Trade Center
New York, New York 10048-0945
Re: Protest Nos. 1001-5-011484 and 1001-7-017114; Vessel Repair
entry Nos. 4601-85-702875-6 and 4601-86-701122-9 dated
February 20 and November 5, 1985; Port of Arrival: New York
Seaport; Vessel: SEA-LAND PIONEER; Dates of Arrival:
February 20, 1985 and November 4, 1985; Voyage Nos. 82 and
91, respectively
Dear Sir:
This is in response to a transmittal, dated September 1,
1989, from your office, which transmitted protest Nos. 1001-5-
011484 and 1001-7-017114, which concerns eight (8) vessel repair
entries: entry Nos. 4601-85-702875-6; 4601-85-702941-2; 4601-85-
702956-4; 4601-85-702908-5; 4601-85-702927-6; 4601-85-702972-6;
4601-85-702989-4; and 4601-86-701122-9. Our findings are set
forth below.
FACTS:
In 1985, Sea-Land Service, Inc. (Sea-Land), commenced
certain foreign shipyard operations to the engine room and bridge
systems to convert the vessel, the SEA-LAND PIONEER, from ACC
(Automatic Control Console) to ACCU (Automatic Control Console
Unattended) to permit unmanned engine room operation. This
conversion was to be completed over a series of voyages
encompassing entry Nos. 4601-85-702875-6; 4601-85-702941-2; 4601-
85-702956-4; 4601-85-702908-5; 4601-85-702927-6; 4601-85-702972-
6; 4601-85-702989-4; and 4601-86-701122-9. By prior arrangement
with the Chief, Residual Liquidation and Drawback Branch, New
York and Headquarters, Sea-Land was to declare a pro-rata amount
of the conversion cost on each voyage. The invoices for the
conversion would be submitted at the completion of the project.
Liquidation of the entries was to be suspended until the
conversion was completed.
The series of voyages occurred during the period from
February 20 through November 4, 1985. Applications for relief
were timely filed in all eight entries. The Customs Form 226
filed on the Voyage 82, entry No. 4601-85-702875-6 contained an
entry that indicated that $108,452.50 was thirty (30) percent of
the prorated amount of the total contract amount of $195,000 for
the engine room modifications. On July 5, 1985, Customs
liquidated this entry as dutiable in the amount of $1,132,980.50.
On July 15, 1985, the Residual Liquidation Section informed the
Financial Operations Section, that through inadvertence, the
entry was prematurely liquidated, therefore, the bill should be
cancelled. The bill was cancelled on July 16, 1985. On
August 20, 1985, Sea-land filed a protest on entry No. 4601-85-
702875-6. The protest alleged that:
An Application for Relief was submitted on
April 22, 1985, which is presently pending.
As this entry covered a drydocking, the final
invoice was still under negotiation at the
close of the required 60 day submission
period. Therefore, in order to conform with
the U.S. Customs regulations we submitted the
original unsettled invoice together with a
request for an extension of an additional 30
days. The settled invoice, which was
submitted within the 20 days from the date of
the Notice of Action, was not taken into
consideration.
We considered the work performed, which conforms
with U.S.C.G. requirements for an unattended
Engine Room and reduced manning, to be a
modification to the vessel's safety and machinery
alarm system and therefore free from duty. The
entry in question was discussed in a meeting with
Vito Gulario and Catherine [sic] Peterson in
February in Washington, D.C., and as a result of
this meeting the above procedure was followed.
We request you suspend action on this protest
pending the resolution by Headquarters of the
Application for Relief submitted on April 22,
1985.
Sea-Land filed an application for relief in each of the
eight (8) entries. Customs reviewed all eight (8) vessel entries
relating to the subject vessel, and on May 1, 1986, stated that
Sea-Land had not furnished information in sufficient detail to
enable us to determine that the subject work constitutes
modifications rather than repairs. The following invoices were
submitted with entry No. 4601-86-701122-9, the last of the eight
(8) voyages:
Siemens-Allis Invoice No. PE356985, dated September 20,
1985, Siemens-Allis Invoice No. PE356181, dated November 19,
1985, and Ocean Marine Transport & Trading Limited, Invoice
No. F.35391, dated March 13, 1985.
When the invoices for the actual conversion costs were
submitted, Siemens-Allis Invoice No. PE356985, the primary
invoice containing the cost for the modifications, did not
contain a breakdown of the work performed and the cost of each
item. Listed on the invoice was the following description:
Upgrading of 'MV Sealand Pioneer' from ACC to ACCU in
accordance to ABS & USCG regulations $181,032.00
Bell logger 8,000.00
GRAND TOTAL $189,032.00
On August 21, 1986, acting on the Applications for Relief filed
in the subject entries Customs ruled as follows:
In entry No. 4601-85-702875-6 (voyage 82) - it was held that
the entire amount of the claimed modification including the
Lloyd Werft invoice and Siemens invoice will be dutiable on
the voyage submitted except for charges attributable to
drydocking, survey, and transportation costs.
In entry Nos. 4601-85-702941-2; 4601-85-702956-4; 4601-85-
702908-5; 4601-85-702927-6; 4601-85-702972-6; and 4601-85-
702989-4; - it was held that since the entire amount had
been previously charged to entry No. 4601-85-702875-6, we
were not prorating the amount suggested in each of the
subject entries by the applicant.
In entry No. 4601-86-701122-9, we ruled that:
Upon further review of the file we are unable
to find any documentation as to what actual
work took place, by whom and where such work
was done. As for the Bell Logger, although
billed from the United States we are unable
to determine where it was actually purchased.
The burden of proof is on an applicant to
show that the work performed is non-dutiable.
The application failed to furnish such
evidence. We therefore find the Siemens
invoice dutiable, with the exception of the
travel and related expense.
In requesting relief in protest No. 1001-7-017114, the
protester asserts that in 1985, Sea-Land modified its four (4) D-
6 Container Ships (ADVENTURE, LEADER, PACER and PIONEER) from ACC
(Automatic Control Console) to ACCU (Automatic Central Console
Unattended). The purpose of this modification was to allow
unattended operation of the engine room. It further alleges that
the basis for this protest is twofold:
1. The conversion from ACC to ACCU involved an alteration
to the hull and fittings and should not be considered
equipment or repairs. To substantiate this claim, Sea-Land
submitted a document "Sea-Land Service, Inc., D-6 Class
Vessels, drydock specifications 1985" and Headquarters
ruling 104358 PH.
It alleges that the basis for this claim is that the
modifications meet the requirements of T.D. 44359 (United States
v. Admiral Oriental Line et al. (No. 3298), and that Customs
liquidated as duty-free the identical permanent modifications
made to the SEA-LAND ADVENTURER, a sister ship and one of the
four subject vessels. (Entry No. 86-85-7029807).
ISSUE:
Whether the protest of duties on the cost of the
installation of a new alarm system and related work on the
engine room and bridge system of a vessel to permit unmanned
engine room operations, should be granted on the basis of the
evidence submitted purporting to establish that the installation
and related work are alterations or modifications to the hull and
fittings of the vessel.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in
part for payment of an ad valorem duty of 50 percent of the cost
of foreign repairs to vessels documented under the laws of the
United States to engage in the foreign or coastwise trade.
Section 1466 (d)(1) provides that the Secretary of the Treasury
is authorized to remit or refund such duties if the owner or
master of the vessel was compelled by stress of weather or other
casualty to put into such foreign port to make repairs to secure
the safety and seaworthiness of the vessel to enable her to
reach her port of destination.
A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished
between equipment and repairs on one hand and permanent
additions to the hull and fittings on the other, the former being
subject to duty under section 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 228). That
opinion interpreted section 17 of the Act of June 26, 1884 (23
Stat. 57), which allowed drawback on vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials. In
defining equipment of a vessel, the Attorney General found that
items which are not equipment are:
... those appliances which are permanently
attached to the vessel, and which would remain on
board were the vessel to be laid up for a long
period ... [and] are material[s] used in the
construction of the vessel ....
While the opinion of the Attorney General interpreted a
provision of law other than section 1466 or a predecessor
thereof, it is considered instructive and has long been cited in
Customs Service rulings as defining permanent additions to the
hull and fittings of a vessel.
For purposes of section 1466, dutiable equipment has been
defined as:
... portable articles necessary or
appropriate for the navigation, operation, or
maintenance of a vessel, but not permanently
incorporated in or permanently attached to
its hull or propelling machinery, and not
constituting consumable supplies. (T.D.
34150 (1914)).
It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of statute or
code, is not a relevant consideration. Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings of the
vessel, would be dutiable under section 1466.
In its application of the vessel repair statute (19 U.S.C.
1466), Customs has consistently held that modifications/
alterations/additions to the hull and fittings of a vessel which
allow the vessel to operate more efficiently are not subject to
vessel repair duties. To be found non-dutiable as a
modification/alteration/addition, the work done must involve no
element of repair due to damages, deterioration or wear and
tear. If those are present, the work will be considered a
repair and dutiable.
With regard to the dutiability of entry No. 460185-7029807
(SEA-LAND ADVENTURER, Voyage 86), our records show that this
entry has been liquidated as duty-free in error. Our review of
the ruling letter issued on July 2, 1986, relating to the
Application for Relief filed in entry No. 460185-7029807 reveals
that with reference to Siemens-Allis invoice in the amount of
$189,032 covering the alleged non-dutiable modification, the
ruling held that:
In view of the fact that the files contain an
inadequate description of this item the work
should be held dutiable upon liquidation. In like
manner, the work covered by the invoices from
Ocean Marine Limited for "consultancy services"
constitutes an integral part of the work by
Siemens-Allis and should be held dutiable upon
liquidation of the entry. After the nondutiable
travel and hotel expenses have been deducted, that
portion of the cost for "consultancy services"
applicable to the subject vessel should be held
dutiable upon liquidation."
We have reviewed the complete record in all eight (8)
entries relating to the subject vessel. In a "quotation",
Siemens-Allis, the "shipyard", offered to do work described as
consisting of the extension of the existing alarm system with ten
crew alarm panels for the chief engineer, engineers (5 panels),
officer's mess, officer's lounge, bridge console, and engineer
gangway. New alarms were to be installed and an existing
electrical system, alarm system, and fire pump were to be
modified and/or additions were to be made to them. The engine
room bilge pump was to be automated and the fire alarm system and
the central fire fighting station were to be extended.
According to this quotation, the shipyard offered as an
alternative to the extension of the existing alarm system the
installation of a new Simos 32 alarm system with "VDU" and data
logger. The invoice for this work (Siemens-Allis invoice
PE356985) lists two items describing the work as "Upgrading of
'MV Sealand Pioneer' from ACC to ACCU in accordance to ABS &
USCG regulations" and "Bell logger" for a total amount of
$189,032.00. Also submitted as evidence (with entry
No. 4601-85-702989-4) regarding the engine room work was
American Bureau of Shipping (ABS) Report No. RO30,283, dated
August 23, 1985. This ABS report describes the work in detail,
including the installation of the new Simos 32 alarm system. The
description of the work is consistent with that in the shipyard
"quotation" and includes no evidence of any repair work done as a
part of this work. The ABS report concludes that "the vessel
will be eligible to be classed + ACCU." Conversion of the vessel
from ACC to ACCU is described in the submitted materials,
including other invoices, as the purpose of the work. Other work
was also done on the vessel and included in the vessel repair
work.
We have thoroughly reviewed all of the evidence relating to
the protests filed in these entries, as well as the evidence in
the other six (6) entries relating to this vessel. We find that
the evidence submitted pertaining to the engine room work
described in Siemens-Allis invoice PE356985, in particular the
ABS report describing the work done consistently with the offer
by the shipyard and concluding that the vessel was eligible to
be classed "ACCU", satisfactorily meets the alterations and
modifications tests described above. Accordingly, protest No.
1001-5-011484 is granted with regard to the thirty (30) percent
of the engine room work described in Siemens-Allis invoice
PE356985 apportioned to entry No. 4601-85-702875-6, and protest
No. 1100-5-011486 is granted with regard to the remaining 70
percent of the engine room work described in Siemens-Allis
invoice PE356985 apportioned to entry No. 4601-86-701122-9.
HOLDING:
The described protest, of duties on the cost of the
installation of a new alarm system and related work on the
engine room of a vessel as described above, is granted with
regard to the portion of the work described in Siemens-Allis
invoice PE356985 apportioned to entry Nos. 4601-85-702875-6 and
4601-86-701122-9. The evidence submitted satisfactorily
establishes that the installation and related work are
alterations or modifications to the hull and fittings of the
vessel.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch
cc: VRLUs LA and NO