VES-13-18 CO:R:IT:C 111506 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repairs; Modification; Military Sealift Command;
AUSTRAL RAINBOW; Entry No. C27-189032-2.
Dear Sir:
This letter is in response to your memorandum of January 22,
1991, which forwards for our review the application for relief
filed in conjunction with the above-referenced vessel repair
entry.
FACTS:
The record reflects that the subject vessel, the AUSTRAL
RAINBOW, arrived at the port of Los Angeles, California, on
October 6, 1990. Vessel repair entry, number C27-189032-2, was
filed on October 10, 1990.
The AUSTRAL RAINBOW had been operating outside of the United
States since April 6, 1987, when it departed from Charleston,
South Carolina. The vessel has been under charter to the
Military Sealift Command since May 20, 1987. The vessel repair
entry indicates that the vessel underwent foreign work in the
following shipyards during the following periods of time:
Sembawang Shipyard Singapore May 3-17, 1987
I.H.I. Shipyard Yokohama March 23-April 9, 1988
I.H.I. Shipyard Yokohama February 13-22, 1989
I.H.I. Shipyard Yokohama May 10-21, 1990
ISSUE:
Whether the work performed in the Sembawang Shipyard results
in modifications to the vessel and is therefore not subject to
duty under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in
pertinent part for payment of duty in the amount 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 engage in such trade. If
a vessel has operated in international or foreign waters two
years or more after its last departure from the United States,
then generally only repairs made during the first six months
following the last departure of the vessel or purchases of fish
nets and netting for the vessel are dutiable. 19 C.F.R.
4.14(a)(2)(iii)(A) (1990). The subject vessel was operated in
international or foreign waters for a period of three years and
six months, and the only foreign shipyard work performed during
the first six months since the departure of the vessel from
Charleston was at the Sembawang Shipyard in Singapore. All other
work is not subject to duty.
The applicant claims that certain work performed at the
Sembawang Shipyard is not subject to duty, for the work
constitutes modifications to the vessel required by the Military
Sealift Command. 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. Over the course of
years, the identification of work constituting modifications on
the one hand and repairs on the other has evolved from judicial
and administrative precedent. In considering whether an
operation has resulted in a modification that is not subject to
duty, the following elements may be considered:
1. Whether there is a permanent incorporation into the
hull or superstructure of a vessel (see United States
v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)),
either in a structural sense or as demonstrated by the
means of attachment so as to be indicative of the
intent to be permanently incorporated. This element
should not be given undue weight in view of the fact
that vessel components must be welded or otherwise
"permanently attached" to the ship as a result of
constant pitching and rolling. In addition, some
items, the cost of which is clearly dutiable, interact
with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts. It follows that a
"permanent attachment" takes place that does not
necessarily involve a modification to the hull and
fittings.
2. Whether in all likelihood an item under consideration
would remain aboard a vessel during an extended lay-up.
3. Whether, if not a first time installation, an item
under consideration 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 under consideration provides an
improvement or enhancement in operation or efficiency
of the vessel.
For purposes of section 1466, dutiable equipment has been
defined to include:
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, 26 Treas. Dec. 183, 184 (1914)(quoted with approval
in Admiral Oriental).
The Customs Service has held that the decision in each case
as to whether an installation constitutes a nondutiable addition
to the hull and fittings of the vessel depends to a great extent
on the detail and accuracy of the drawings and invoice
descriptions of the actual work performed. Even if an article is
considered to be part of the hull and fittings of a vessel, the
repair of that article, or the replacement of a worn part of the
hull and fittings, is subject to vessel repair duties.
The applicant seeks relief from duty for claimed
modifications to install port and starboard gangway platforms
(Sembawang Shipyard Item 1841). The invoice distinguishes
between repairs (p. 16) and modifications (p. 21). From the
invoice description, the latter work represents the installation
of new platforms placed shipside in the area of the number 5
port and starboard fuel oil tanks. These platforms do not
replace parts of the vessel serving similar purposes in terms of
location and use. We find that this work is a modification, and
the cost of the work is not subject to duty.
Likewise, the applicant seeks relief for the installation of
deck dehumidification piping and ductwork (Sembawang Invoice Item
1610) and for the conversion of a rest room into a
decontamination chamber (Sembawang Invoice Item 1620). Each of
these items represents a new design feature constituting an
enhancement to the vessel to improve its military capabilities.
The cost of these items is therefore not subject to duty.
Finally, the applicant claims that work performed to the sea
chests (Sembawang Invoice Item 1481) are also not dutiable as
modifications. From the invoice description, we cannot
determine whether the work resulted in a new design feature or
in the replacement parts performing similar functions. Absent
further details on the nature and purpose of the work, we find
the costs contained in Sembawang Invoice Item 1481 to be
dutiable.
HOLDINGS:
We find the fabrication and installation of new gangway
platforms (Sembawang Invoice Item 1841), the installation of
deck dehumidification piping and ductwork (Sembawang Invoice Item
1610), and the conversion of a rest room into a decontamination
chamber (Sembawang Invoice Item 1620) to be modifications, and
the costs of such modifications are not subject to vessel repair
duties. From Sembawang Invoice Item 1481, we cannot determine
whether the work resulted in a new design feature or in the
replacement of parts performing similar functions; we therefore
find this item to be dutiable.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch