VES 13-18 CO:R:P:C 110581 BEW
Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831
Re: Protest No. 30019-000985; Vessel Repair Entry No. 110-
0103683-6 dated June 13, 1988; Date of Arrival: June 13,
1988; Port of Arrival: Tacoma, Washington; Vessel: SEA-
LAND VOYAGER, Voyage No. 129/130
Dear Sir:
Reference is made to your memorandum of September 21, 1989,
which forwarded the above-captioned protest from the assessment
of vessel repair duties for our determination.
FACTS:
On May 23, 1988, while in Yokohama, Japan,, the vessel SEA-
LAND VOYAGER underwent various shipyard operations. The
dutiability of these operations has previously been considered by
your office. The protestant elected not to file an Application
for Relief. The entry was liquidated on June 9, 1989. The
protest was timely filed on September 6, 1989. Included in your
considerations was the matter of whether the cost associated with
the installation of a Item Nos. 7/87-18 - Lube oil to seals,
7/88-21 - Hull frame markings, 7/88-27 - Experimental stack
modifications, and 7/88-22 - Video recording, is dutiable under
the statute. These are the only items which are presently being
protested.
ISSUES:
Whether the installation of the Item Nos. 7/87-18 - Lube oil
to seals, 7/88-21 - Hull frame markings, and 7/88-27 -
Experimental stack is considered a modification or permanent
addition to the hull and fittings of the vessel so as to render
the cost nondutiable?
Whether a video recording of the vessel's hull which is used
as a survey for a hull frame markings modification, is considered
a survey under the provisions of C.S.D. 79-277 so as to render
the cost nondutiable?
LAW AND ANALYSIS:
Section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466)
provides, in pertinent part, for payment of duty in the amount of
50 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 engage in such
trade.
A leading case in the interpretation and application of
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 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228). That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
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 1466 or a predecessor thereto, 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.
Under long-standing and consistently applied administrative
policy, an installation, even one of a permanent nature, is
considered to be a dutiable repair rather than a modification if
the installation addresses a repair need. Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.
In the present case, the protestant claims that the
installation of Item Nos. 7/87-18 - Lube oil to seals, 7/88-21 -
Hull frame markings, and 7/88-27 - Experimental stack is a
design and operational improvement over the old one. It is
claimed that these items were not found to be damaged at the time
they were replaced, and that the permanent installation of the
subject items is to improve the efficiency of the vessel's
operation and should be properly considered a non-dutiable
modification. In addition, the protestant claims that Item 7/8-
22 - Video recording is a recording of the hull's underwater
condition, and is a part of the underwater hull marking
modification.
Examination of the entire record, including that portion of
the invoice relating to the subject items, reveals that the
subject items were installed to enhance the operation of the
vessel's efficiency and are permanent installations to the
vessel's hull and fittings. Accordingly, we find that the cost
associated with Item Nos. 7/87-18, 7/88-21 and 77/88-27 is non-
dutiable modifications.
Customs has held that where periodic surveys are undertaken
to meet the specific requirements of a classification society,
insurance carrier, etc., the cost of the surveys is not dutiable
even when dutiable repairs are effected as a result thereof;
however, in the liquidation process Customs should go beyond the
mere labels of "continuous" or "ongoing" before deciding whether
the item is dutiable. If an inspection or survey is conducted as
a part of an ongoing maintenance and repair program labelled
"continuous" or "ongoing" the cost is dutiable. Also, if the
survey is to ascertain the extent of damage sustained, or to
ascertain if the work is adequately completed, the costs are
dutiable as part of the repairs which are accomplished pursuant
to holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.
The record shows that the video recording was used as a survey
for the hull frame markings modification and as such Item No.
7/88-22 - Video recording is a survey in the nature of a periodic
survey. Under the circumstances, the cost of the video recording
is not subject to duty under 19 U.S.C. 1466.
HOLDING:
In light of our present findings based upon the evidence
and as stated in the law and analysis section of this ruling, we
find that the installation of Item Nos. 7/87-18, 7/88-21 and
77/88-27 was in the nature of a non-dutiable permanent
modification to the hull and fittings of the vessel, and that
Item No. 7-88-22 is a survey in the nature of a periodic survey.
Accordingly, the protest is allowed and reliquidation is
directed.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch
cc: VRLU, New York
VRLU, New Orleans