VES-13-01/13-07/13-18 CO:R:IT:C 112191 JBW
Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Modification; General Services; Scavenger Air
Spaces; 19 U.S.C. 1466; SEA-LAND MARINER, V-116; Vessel
Repair Entry 110-0104151-3.
Dear Sir:
This letter is in response to your memorandum that 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 SEA-LAND
MARINER, arrived at the port of Tacoma, Washington, on June 11,
1991. A timely vessel repair entry, number 110-0104151-3, was
filed on June 17, 1991. The entry indicates that the vessel
underwent foreign shipyard work while in Singapore. The
applicant seeks relief for certain invoice costs that it claims
are not subject to duty as modifications. The applicant also
seeks relief for the cost of cleaning the main engine air
scavenger spaces and of certain shipyard services.
ISSUES:
(1) Whether certain work performed to the vessel in the
Jurong Shipyard to permit the use of ISO standard spreader bars
to load or unload hatch covers and to allow carriage of twenty
foot containers is a modification.
(2) Whether the cost of checking tanks for combustible gas
and oxygen is subject to duty under 19 U.S.C. 1466.
(3) Whether removing carbon and oil deposits from diesel
air scavenger spaces constitutes a nondutiable cleaning or
dutiable maintenance operation 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.
I. Modifications to the Vessel.
In its application of the vessel repair statute, the Customs
Service 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, but 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.
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 for work performed to the vessel
to permit the use of ISO standard spreader bars to load or unload
hatch covers and to allow carriage of twenty foot containers is a
modification. This office issued a prospective ruling on the
proposed modification and concluded that such work qualifies as a
nondutiable modification. Headquarters Ruling Letter 110835,
dated April 25, 1990. We have reviewed the invoices relating to
the work actually performed and now conclude that the work
results in a new design feature that qualifies as a modification.
The cost of the modification is therefore not subject to duty.
II. Cost of Checking for Combustible Gas.
You have referred for our consideration the cost for
checking two tanks for combustible gas and oxygen as contained in
Item 6 of Jurong Shipyard Invoice Number 21-6202. The Customs
Service has held that such cost constitutes an ordinary and
necessary expense incident to repair and is dutiable. C.I.E.
1188/60, dated September 8, 1960. In liquidation, this charge
should be apportioned between dutiable and nondutiable charges.
III. Cleaning of the Main Engine Scavenger Air Spaces.
The applicant seeks relief for the cleaning of certain main
engine air scavenger spaces. The scavenging spaces of a diesel
engine are steel chambers that are permanently attached to the
cylinders of the engine. The scavenging spaces serve two
functions. First, the scavenging spaces receive the discharge
from the turbo-chargers and deliver the charged air to each
cylinder via reed valves and intake ports. Second, air from the
piston underside is pumped into the scavenging space via reed
valves to supplement turbo-charger-delivered air. This air
enters the cylinders via inlet ports uncovered when the piston
gets to the bottom end of its stroke and serves to "scavenge" the
burnt gasses out of the cylinder. This process cleans the
cylinders of spent energy and provides a clean air discharge for
the next fuel injection. As a result of this process, some
gasses containing unburnt carbon may be left and deposited in the
scavenging spaces.
These carbon deposits and other oily deposits in the
scavenger spaces may result in fire or explosion. They also
reduce the efficient operation of the engine. Diesel engine
maintenance manuals therefore require periodic cleaning of the
scavenger spaces to permit the safe and efficient operation of
the vessel. The maintenance of a scavenger space involves
removing access plates and scraping, wire brushing, and wiping
the inside of the space. This operation is labor intensive and
would take a single worker up to two working days to clean a
single cylinder.
In analyzing the dutiability of foreign vessel work, the
Customs Service has consistently held that cleaning is not
dutiable unless it is performed as part of, in preparation for,
or in conjunction with dutiable repairs or is an integral part of
the overall maintenance of the vessel. E.g., Headquarters Ruling
Letter 110841, dated May 29, 1990 (and cases cited therein). The
Customs Service considers work performed to restore a part to
good condition following deterioration or decay to be maintenance
operations within the meaning of the term repair as used in the
vessel repair statute. See generally, Headquarters Ruling
Letter 106543, dated February 27, 1984; C.I.E. 142/61, dated
February 10, 1961.
The dutiability of maintenance operations has undergone
considerable judicial scrutiny. The United States Court of
Customs and Patent Appeals, in ruling that the term repair as
used in the vessel repair statute includes "maintenance
painting," gave seminal recognition to the dutiability of
maintenance operations. E. E. Kelly & Co. v. United States, 55
Treas. Dec. 596, T.D. 43322 (C.C.P.A. 1929). The process of
chipping, scaling, cleaning, and wire brushing to remove rust and
corrosion that results in the restoration of a deteriorated item
in preparation for painting has also been held to be dutiable
maintenance. States Steamship Co. v. United States, 60 Treas.
Dec. 30, T.D. 45001 (Cust. Ct. 1931).
Most recently, the United States Customs Court examined
whether the scraping and cleaning of Rose Boxes constituted
dutiable repairs. Northern Steamship Company v. United States,
54 Cust. Ct. 92, C.D. 1735 (1965). Rose Boxes are parts fitted
at the ends of the bilge suction to prevent the suction pipes
from being obstructed by debris. In arriving at its decision,
the court focused on whether the cleaning operation was simply
the removal of dirt and foreign matter from the boxes or whether
it resulted in the restoration of the part to good condition
after deterioration or decay. Id. at 98. The court determined
that the cleaning did not result in the restoration of the boxes
to good condition following deterioration and consequently held
that the work was not subject to vessel repair duties. Id. at
99. The Customs Service has ruled that the regular cleaning of
filters in most instances does not result in liability for duty.
See Headquarters Ruling Letter 107323, dated May 21, 1985.
From these authorities, we determine that the cost of
cleaning the air scavenger spaces is subject to duty under 19
U.S.C. 1466. The term deterioration is defined to mean
degeneration, which in turn denotes declined function from a
former or original state. See The American Heritage Dictionary
of the English Language 376, 387 (2d ed. 1985). The principal
function of the air scavenger spaces is to either deliver turbo-
charged air to the cylinders or receive spent gasses from the
cylinders. The collection of carbon and other oily deposits
poses a fire or explosion hazard and results in a diminished
engine function. The removal of the carbon deposits through
scraping, wire brushing, and wiping results in a restoration of
the scavenger spaces to good condition following a decline in
function of the scavenger spaces. Such an operation can be
distinguished from cleaning a Rose Box or other filter, for the
collection of debris by these parts results not in a diminution
of function, but alternatively demonstrates the proper function
of the part.
HOLDING:
(1) The work performed to the vessel in the Jurong Shipyard
to permit the use of ISO standard spreader bars to load or unload
hatch covers and to allow carriage of twenty foot containers is a
modification and is not subject to duty under 19 U.S.C. 1466.
(2) The cost of checking tanks for combustible gas and
oxygen is a dutiable cost. In liquidation, this charge should be
apportioned between dutiable and nondutiable charges.
(3) The removal of carbon and oil deposits from the main
engine scavenger spaces is a maintenance operation the cost of
which is subject to duty under 19 U.S.C. 1466.
Sincerely,
Acting Chief