VES-13-18 CO:R:IT:C 111782 JBW
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
6 World Trade Center
New York, New York 10048-002980
RE: Vessel Repair; United States Parts; Modification; M/V
AMERICAN EAGLE, Voyage 132; Protest No. 1001-90-006967.
Dear Sir:
This letter is in response to your memorandum of June 27,
1991, which forwards for our review and ruling the above-
referenced protest against the assessment of vessel repair
duties.
FACTS:
The record reflects that the subject vessel, the M/V
AMERICAN EAGLE, arrived at the port of Bayonne, New Jersey, on
August 27, 1989. Vessel repair entry, number C10-4907884-8, was
filed on November 3, 1989 and indicates that shipyard work was
performed in Goteborg, Sweden. By letter dated October 24,
1989, the vessel operator requested an extension to file its
application and supporting documentation. The vessel operator
submitted by letter dated December 13, 1989, copies of invoices
relating to the shipyard work performed in Sweden. Responding to
a letter dated December 28, 1989, the vessel operator submitted
further cost evidence on January 23, 1990.
This office denied the request for relief in Headquarters
Ruling Letter 110895, dated June 1, 1990. We ruled that the
entry was untimely filed and recommended that the entry be
referred for penalty action. Further, we determined that the
request for relief met neither the sufficiency criteria for an
application for relief nor the time requirements for the filing
of an application and supporting documentation. We therefore
directed that the entry be liquidated in accordance with the
instructions contained in the ruling. The record shows that the
entry was liquidated on July 13, 1990. A protest was filed on
August 16, 1990, and the protestant filed further arguments on
February 5, 1991.
ISSUES:
(1) Whether parts or materials used in repairs to the
vessel are dutiable if such parts are documented to be of United
States origin or to have been imported into the United States,
duty-paid.
(2) Whether work performed to install a deflector plate to
the chain locker and to install a stern tube head tank
constitutes a modification to vessel that is 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.
The protestant seeks relief for the cost of paint used in
repairs to the vessel. The vessel repair statute exempts from
duty spare repair parts or materials that have been manufactured
in the United States or entered the United States duty-paid and
are used aboard a cargo vessel engaged in foreign or coasting
trade. See 19 U.S.C. 1466(h). For purposes of this section,
where a part is purchased from a party unrelated to the vessel
owner, a United States bill of sale constitutes sufficient
evidence to demonstrate that the part was either manufactured in
the United States or entered in the United States, duty-paid. In
cases in which the vessel operator or a related party has acted
as the importer of foreign materials, or where materials were
imported at the request of the vessel operator for later use by
the operator, the vessel repair entry will identify the port of
entry and the consumption entry number for each part installed on
the ship which has not previously been entered on a Customs Form
226.
We have reviewed the Hempel invoices. These invoices
indicate that paint was shipped from points in the United States
to the vessel at various United States ports between December,
1988, and April, 1989. The paint was used in the foreign
shipyard during August, 1989. This evidence is sufficient to
demonstrate that the paint was either manufactured in the United
States or imported into the United States, duty-paid. The cost
of the paint is not subject to duty pursuant to 19 U.S.C.
1466(h).
The protestant also claims that certain work performed at
the Cityvaret Shipyard is not subject to duty, for the work
constitutes modifications to the vessel. 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 protestant seeks relief from duty for the installation
of a deflector plate to the chain locker. (Cityvaret Shipyard
Invoice No. 206). The repair requisition indicates that the work
was performed to permit the proper stowage of the chain without
having a man in attendance, which may present a danger. The work
involved installing a plate to deflect the chain to one side of
the locker. From this description and from the plans submitted,
we conclude that the work resulted in a new design feature that
is not repair related. The costs appearing under this invoice
item are not dutiable.
The protestant also seeks relief from duty for the
installation of a stern tube head tank. (Cityvaret Shipyard
Invoice No. 903). The work was required to address a problem
resulting from the original design of the stern tube head tank.
This work resulted in an improvement to the vessel that is not
repair related; the costs appearing under this invoice item are
therefore not dutiable.
HOLDINGS:
(1) The paint used in the foreign shipyard operations are
documented to be of United States manufacture or to have been
imported into the United States, duty-paid. The cost of the
paint is therefore not subject to duty pursuant to 19 U.S.C.
1466(h).
(2) The installation of a deflector plate in the chain
locker and the installation of the stern tube head tank are
modifications that are not subject to duty under 19 U.S.C.
1466.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch