VES-13-18 CO:R:IT:C 112079 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Modification; Anchor Chain Marking; Casualty;
Volcanic Ash; 19 U.S.C. 1466; 19 C.F.R. 4.14; PRESIDENT
MADISON; Entry No. 110-0104113-3.
Dear Sir:
This letter is in response to your memorandum dated January
8, 1992, 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 PRESIDENT
MADISON, arrived at the port of Seattle, Washington, on August
23, 1991. A timely vessel repair entry, number 110-0104113-3,
was filed on August 30, 1991. The entry indicates that the
vessel underwent foreign shipyard work while in Hong Kong. The
applicant seeks relief for certain invoice costs that it claims
are not subject to duty as modifications. The applicant also
seeks relief for repairs to damage caused by volcanic ash from
the Mount Pinatubo eruption. Finally, repairs were made to the
main switch board, which caught fire for unknown reasons while
the vessel was in dry dock.
ISSUES:
(1) Whether certain work performed to the vessel in the
Hongkong United Dockyards resulted in modifications to the vessel
and is therefore not subject to duty under 19 U.S.C. 1466.
(2) Whether the marking of anchor chains and whether the
freeing of shackles of the chains are dutiable operations.
(3) Whether damages to the vessel resulting from the
volcanic ash and the switchboard fire are remissible casualties.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in
pertinent part for payment of an ad valorem duty of fifty percent
of the cost of foreign repairs to or equipment purchased for a
vessel documented under the laws of the United States to engage
in the foreign or coastwise trade.
I. Modifications to the Vessel.
In its application of the vessel repair statute, Customs has
held that modifications to the hull and fittings of a vessel are
not subject to vessel repair duties. Over the course of years,
the identification of modification processes has evolved from
judicial and administrative precedent. In considering whether an
operation has resulted in a modification which 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 et al., T.D. 44359 (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 replaces a current part, fitting or structure which
is not in good working order.
4. Whether an item under consideration provides an improvement
or enhancement in operation or efficiency of the vessel
Very often when considering whether an addition to the hull
and fittings took place for the purpose of 19 U.S.C. 1466, we
have considered the question from the standpoint of whether the
work involved the purchase of "equipment" for the vessel. It is
not possible to compile a complete list of items that might be
aboard a ship that constitute its "equipment". An unavoidable
problem in that regard stems from the fact that vessels differ as
to their services. What is required equipment on a large
passenger vessel might not be required on a fish processing
vessel or offshore rig.
"Dutiable equipment" has been defined to include:
...portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, by not permanently incorporated
in or permanently attached to its hull or
propelling machinery, and not constituting
consumable supplies. Admiral Oriental,
supra., (quoting T.D. 34150, (1914))
By defining what articles are considered to be equipment,
the Court attempted to formulate criteria to distinguish non-
dutiable items which are part of the hull and fittings of a
vessel from dutiable equipment, as defined above. These items
might be considered to include:
...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... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).
A more contemporary working definition might be that which
is used under certain circumstances by the Coast Guard; it
includes a system, accessory, component or appurtenance of a
vessel. This would include navigational, radio, safety and,
ordinarily, propulsion machinery.
After reviewing the evidence regarding the specific items
submitted for our consideration, we find the following:
HUD Item Number 3.3-1: Bow Thruster Bar Removal:
This item involved the removal of the strainer bars on
the port and starboard side shell. No repairs were
made. The item represents an alteration in the design
of the vessel that may be characterized as an
improvement. The cost of this item is not subject to
duty.
HUD Item Number 3.3-2: Propeller Net Cutter:
This item involved the installation of a net cutter
that is designed to cut fish net that becomes entangled
in the propeller rope guard, thus preventing damage to
the stern tube seal. This installation constitutes a
new design feature and is not subject to duty.
II. Marking Anchor Chains and Freeing Cable Shackles.
Hongkong United Drydock invoice item number 2.1-5 provides
as follows:
Anchor Chains - ABS/USCG Inspection
Ranging out anchor & cables, hosing clean by
high pressure salt water, reversing &
calibrating cables, hammer testing all links
marking cable shackles with paint and seizing
wire, restowing wire to chain locker.
Labour: 160 hrs
Material: $800 13,600.00
The applicant claims that this item is not subject to duty, for
"[t]here is no scaling and/or painting in this item only
marking." The Customs Service has held, however, that the
painting of marks on the anchor chains is subject to duty.
C.I.E. 233/60, dated March 11, 1960. We find the cost of this
item to be subject to duty.
The applicant also contends that disconnecting, freeing,
regreasing, and reconnecting of cable joining shackles is not
subject to duty. The "freeing" of the cable shackles suggests
that the shackles were bound, fastened, or otherwise attached.
As such, they appear to have been in a state of disrepair. We
therefore find the cost of this item to be subject to duty.
III. Remission of Duties for Repairs to Correct
Damages Resulting from Volcanic Ash and Fire.
The vessel repair statute provides for the remission of the
duties in those instances where good and sufficient evidence is
furnished to show that foreign repairs were compelled by "stress
of weather or other casualty" and were necessary to secure the
safety and seaworthiness of the vessel to enable her to reach her
port of destination. 19 U.S.C. 1466(d)(1). The Customs Service
has interpreted the term casualty, as it is used in the vessel
repair statute, to denote an occurrence that, like stress of
weather, comes with unexpected force or violence, such as fire,
explosion, or collision. See Dollar Steamship Lines, Inc. v.
United States, 5 Cust. Ct. 23, 29, C.D. 362 (1940). An
explosion, however, does not result in an automatic determination
of casualty. The Customs Service assumes that such an occurrence
is a casualty unless the cause of the occurrence is attributable
to normal wear and tear or to improper maintenance. C.S.D. 79-
283, 13 Cust. B. & Dec. 44, 45 (1979); T.D. 55670(2), 97 Treas.
Dec. 524 (1962).
This office has previously held that foreign repairs to this
vessel resulting from the Mount Pinatubo volcano were compelled
by casualty. Headquarters Ruling Letter 111879, dated January
24, 1992. The Customs Service has consistently held that repairs
required by a casualty must be made on the same voyage that the
casualty occurred. C.I.E. 1325/58, dated September 18, 1958. In
the present case, the vessel called at a United States port,
filed an entry, and obtained remission of duties for a casualty
experienced during the course of that voyage--an eruption of the
volcano. The vessel then sailed to a foreign shipyard, bypassing
United States shipyards, to undergo a dry docking where further
volcano damage was repaired. The entry under consideration was
therefore filed for repairs made during a voyage subsequent to
the voyage during which the vessel experienced the casualty. The
duty on the cost of repairs made to the vessel related to
volcanic ash damage are consequently not remissible.
While in dry dock, a fire started in the group control
panel "B" of the main engine room; at the time the application
for relief was filed, the cause of the fire was still under
investigation. As described, the fire affected twelve motor
controllers for vital equipment including the fuel oil service
pump, the main air compressor, the control air compressor, the
vacuum pump, the air conditioning compressor, and the domestic
reefer compressor. The Customs Service has held that a fire that
starts as a result of a short circuit in an electric motor
because of lack of proper maintenance or wear and tear does not
constitute a casualty. C.I.E. 777/62, dated August 1, 1962.
However, unless it is established by the evidence that a fire was
caused by the poor condition of the vessel, it should be assumed
that the fire is the result of a casualty. ORR Ruling 511-70,
dated March 6, 1970.
In the case before us, the applicant has only established
that a fire occurred. The applicant states that the cause of the
fire is still under investigation. The applicant included a
telex listing activities that may have contributed to the fire,
but no conclusions are made. While the applicant claims that
repairs were performed to meet the requirements of the American
Bureau of Shipping and the United States Coast Guard, the reports
of these entities do not address the cause of the fire. We have
no further evidence, either positive or negative, on the cause of
the fire. Owing to the lack of evidence and the lack of any
conclusions on the cause of the fire, we cannot determine
whether or not the fire was caused by improper maintenance.
While we are mindful that our previous rulings direct us to
assume that a fire is the result of a casualty unless the
evidence proves improper maintenance, we are reluctant to rely on
this assumption without any evidence of cause. Until such time
that an investigation is concluded and a probable cause for the
fire is established, we find the costs relating to the repair of
the control panel to be dutiable.
HOLDINGS:
(1) The work performed at the Hongkong United Drydock to
remove the strainer bars and to install the propeller net cutter
are modifications to the vessel that are not subject to duty.
(2) The marking of the anchor chains and the freeing of the
shackles of the chains are repairs subject to duty under 19
U.S.C. 1466.
(3) The duty on the cost of repairs that resulted from
volcanic ash damage may not be remitted. The entry under
consideration was filed for repairs made during a voyage
subsequent to the voyage during which the vessel experienced the
casualty.
The investigation into the cause of the switchboard fire had
not been completed at the time the application for relief was
filed. Until such time that an investigation is concluded and a
probable cause for the fire is established, we find the costs
relating to the repair of the control panel to be dutiable.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch