VES-13-18-CO:R:IT:C 112202 LLB
Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel repair; Repairs; Modifications; Survey; Protest;
Vessel OVERSEAS MARILYN; Protest number 1801-92-100004;
Entry number C18-0016789-7
Dear Sir:
Reference is made to your memorandum of April 8, 1992,
which forwards for our consideration the Protest from the
assessment of vessel repair duties filed by counsel on behalf of
the operators of the vessel OVERSEAS MARILYN. Duties were
assessed in connection with the above-referenced vessel repair
entry. The items associated with this entry have not previously
been considered at Customs Headquarters.
FACTS:
The record reflects that the OVERSEAS MARILYN arrived in the
port of Tampa, Florida, on November 14, 1990, filed a timely
vessel repair entry, and supplemented that entry as required by
the Customs Regulations. While abroad, the vessel underwent
drydocking, repair, survey, and modification operations.
Headquarters recommendations have been sought on a total of
fifteen (15) invoice items. We will refer to our 1 to 15
numbering scheme in later discussing our findings. The fifteen
items are:
1. Item 20 - Tailshaft inspection (seal replacement)
2. Item 24 - Anchor chain ranging (painting of shots)
3. Item 25 - Anchor windlass (claimed ABS/USCG inspection)
4. Item 27 - Gritblasting (staging cost)
5. Item 32 - Dwarf king post vents (staging cost)
6. Item 38 - Life boat inspection (steel pin renewal)
7. Item 39 - Main engine survey (crank bearing overhaul)
8. Item 40.01 - Transportation costs (no such item located)
9. Item 44 - Main engine cylinder relief valve (survey)
10. Item 45 - Main camshaft drive chain (claimed survey only)
11. Item 46 - Reversing motor (claimed survey only)
12. Item 49 - Main engine air coolers (plugs manufactured)
13. Item 52 - Generator uptake exhaust trunks bolted (staging)
14. Anchor chain kit (origin question)
15. ABS invoices (survey reports not provided)
ISSUE:
Whether the items under review constitute properly
segregated non-dutiable operations due to association with
modification or inspectional operations rather than repair
services.
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.
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.
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.
In regard to the dutiability of ABS surveys it should be
noted that Customs has held pursuant to C.S.D. 79-277 that where
periodic surveys are undertaken to meet the specific requirements
of a classification society, insurance carrier, etc., the cost of
the survey is not dutiable even when dutiable repairs are
effected as a result thereof. This is as distinguished from a
survey, regardless of how titled, whose source is a carrier-
initiated maintenance and repair or other program, scheduled or
otherwise. Applicants seeking a nondutiable determination
regarding ABS surveys must submit both the invoice and the
corresponding report (Ruling Letter 110710). We note that there
was no report accompanying the ABS invoice in this matter.
Customs has consistently held that where the charges for
dutiable and non-dutiable items are not segregated within an
invoice, all of the charges in that invoice must be deemed
dutiable (Ruling Letter 108567). Among those items traditionally
considered non-dutiable if properly segregated are the cost of
staging and transportation.
The courts and Customs have held (See American Viking Corp.
v. United States, C.D. 1830 (1956), and Customs Ruling Letter
104952, December 17, 1980), that the replacement of parts or
materials which are necessarily destroyed during the course of an
inspection where no repairs resulted, may be replaced without
duty consequence under section 1466 (Ruling Letter 111185).
With specific reference to the items for which our review
was requested, we find that items 1 and 14 are duty-free. Item 1
is for a non-repair inspection during which the seal was
necessarily destroyed, and item 14 is shown (in the attachment to
exhibit number 6) to be manufactured in Chester, Pennsylvania,
and shipped from the United States. Portions of items 7 and 12
are subject to duty. These include the segregated costs of
overhauling the crank bearing in 7 and the segregated cost of
manufacturing shown in 12.
The balance of the items are considered subject to duty. In
item 2, the chain shots were painted and are considered dutiable
(Ruling Letter 111337). For items 3, 9, 10, and 11, there are no
ABS reports in the file to substantiate the claims of connection
with non-repair-related inspections only. In regard to numbers
4, 5, and 13, the listed staging costs are not segregated from
other operations and are, therefore, dutiable. Item number 6
includes a renewal/manufacturing cost which is not segregated
from otherwise non-dutiable operations, which renders the
entirety of the item dutiable. Finally, item 15 is dutiable
because there are no ABS survey reports accompanying the ABS
invoices as required under the Customs precedential decision
previously discussed.
HOLDING:
Following a thorough review of the evidence as well as
analysis of the applicable law and precedents, we have determined
that, for the reasons set forth in the Law and Analysis portion
of this ruling, the Protest under consideration is allowed in
part and denied in part.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch