VES-13-18-RR:IT:EC 112444 BEW/PH

Chief, Liquidation Section
U. S. Customs Service
P. O. Box 2450
San Francisco, California 94126

RE: Vessel Repair; Application for relief; M/V PRESIDENT LINCOLN, Voyage 87; Entry No. C27-0061057-2; Modifications; Inspection; Staging; Cleaning; Survey; Air Scavenger Space; Maintenance; Timeliness; 19 CFR 4.14(d); 19 U.S.C. 1466

Dear Sir:

This letter is in response to your memorandum dated August 25, 1992, which forwarded for our review an application for relief from duties relating to the above-referenced vessel repair entry. Our ruling follows.

FACTS:

The vessel PRESIDENT LINCOLN, a United States-flag vessel owned and operated by American President Lines (APL) of Oakland, California, arrived at the port of San Pedro, California, on November 26, 1991. A vessel repair entry was timely filed (November 27, 1991, according to Customs records). According to the vessel repair entry and other documents in the file, the vessel underwent certain work at the China Shipbuilding Corporation shipyard in Kaohsiung, Taiwan.

The vessel operator requested a 30 day extension to file an application for relief (see 19 CFR 4.14(d)) and the extension was granted until March 27, 1992. On February 6, 1992, the vessel operator submitted an application for remission of duty (dated February 15, 1992) on the cleaning of scavenger spaces. On March 26, 1992, the vessel operator submitted an application for remission of duty (dated the same date) on other invoice items listed below (except item 530)). On April 7, 1992, the vessel operator submitted an application for remission of duty (dated April 2, 1992), stated to "supplement" the March 26, 1992, application, for item 530 (bow thruster space piping modification).

In the above-referenced applications, the applicant identified certain items as non-dutiable modification work, and claimed that certain other items were non-dutiable as consisting of staging, inspection, or cleaning. You requested that we review certain items in the entry and provide you with our determination as to the dutiability of those items. Those items, with descriptions and other information from the invoice and other materials in the file, are listed below:

The following items have been referred for our review.

Item no. Invoice description, etc.

509 Bow thruster survey. The portions of this item in controversy are stated to consist of: (1) erection of and removal of staging; and (2) opening and closing blade hatch for working. The remaining portions in this item are conceded to be dutiable. The time, material, and cost for item (1) (staging) are segregated from time, material, and costs for the other items, but the remaining time, material, and costs are not segregated. According to ABS Survey KS 7365-A, the thrusters were cleaned as necessary, examined and considered satisfactory. There is no indication in the ABS Surveys that the survey was performed to ascertain the extent of damages.

509.3 Bow thruster tunnel bar removal. This item is stated to consist of the removal of bow thruster tunnel bars from tunnel entrances, the grounding of tunnel and hull surfaces flush and smooth, and the carrying out of a dye check for ABS inspection. This item is not referred to in the pertinent ABS Reports (KS 7365-A and KS 7365-B).

514 Installation of lashing padeyes. This item is stated to consist of cropping D-rings and installation of new solid lashing padeyes as per drawing 8616512-05-30 Alt. 2 (supplied with the Application). The padeyes are stated to change the container lashing system to increase the allowable stack weight of on-deck containers, improve operating efficiency, and reduce maintenance and repair of deck/pedestal fittings. This item is referred to in ABS Report KS 7365-G as "Installation of Lashing Padeyes." In item 514 and many other items in the invoice, it is stated that "[d]estroied area were disc-grinded or sandsweeped then applied the coats as the specification."

515 Removal and replacement of hatch covers. This item is stated to consist of the handling and crane service for inspection of the hatch covers. Included in this item are the arrangement of blocks for each hatch cover, the provision of riggers and crane to remove the hatch covers, and the welding of temporary "lifting pieces" for three of the hatch covers. ABS Report KS 7365-G reports on "hatch covers and hatch coamings modification and repair ..."

515.1 Hatch coamings. The portions of this item in controversy ("modification of longitudinal hatch coaming at expansion joint" and "longitudinal hatch coaming repaired at row 12, aft (P/S)") are stated to consist of the modification of the hatch coaming as per drawing HEC8803-4 in the first case and the cropping and renewal of the longitudinal hatch coaming top plate as per drawing HEC9106-3 in the second case. In the case of row 12, this work is described as repair in ABS Report KS 7365-G (hatch covers and hatch coamings modification and repair survey) (this ABS report distinguishes between repairs and modifications). In the same ABS Report, we could find no reference to the work at the expansion joint.

515.2 Hatch covers. The portions of this item in controversy ((1) modification of bearing pads, (2) modification of cover no. 8 (referred to in the invoice as "hatch cover #8(P/S)") in way of 20 foot stowage outboard, (3) modification of hatch covers 2 - 9 starboard of sliding base socket, (4) modification of hatch covers 10 and 11, (5) modifications to hatch cover bearing pads) are stated to consist of modifications for which drawings are supplied ((1) - drawing 9106-5, (2) - drawing 9106-7, (3) - drawing 9106-6, (4) - drawing 9106-2) and, in the case of (5), modifications to reinforce the hatch cover bearing pad with additional "stifference" behind the bearing pad. In the case of the bearing pads the ABS report describing this work (ABS Report KS 7365-G) states that "[a]ll bearing pads were re-positioned at this time on hatch cover Nos. 1 [through] 9 to take over existing worn down ones". In the case of cover no. 8, this work is described in ABS Report KS 7365-G as modifications (adding two new girders) and there is no reference to repairs. In the case of covers 2 - 9 (sliding base sockets), this work is described in ABS Report KS 7365-G as modifications (installation of sliding twistlock foundations) and there is no reference to repairs. In the case of hatch cover 10 and 11, this work is described in ABS Report KS 7365-G as "Modifications/Repairs" (as noted above, the ABS Report distinguishes between modifications and repairs). In the case of the reinforcement of the hatch cover bearing pads, we could find no reference in the ABS Report.

516 Tailshaft survey. The portions of this item in controversy are stated to consist of (1) erection and removal of staging and various inspections; and (2) removal and reinstallation of the rope guard, welding and cutting lifting pieces for propeller removal, disconnection of the propeller, certain tests and checks, force fitting the propeller, cleaning certain tanks, and other work (the applicant concedes that the portion of this item consisting of the grinding smooth of an area of pitting and/or corrosion on the tailshaft is dutiable, as repairs). There is no indication in the ABS Survey (KS 7365-B) that the survey was performed to ascertain the extent of damages.

519 Modification at bulkhead at frame Nos. 59 & 61. Both this item and item 519.1 (below) are stated to be "modification[s] ... as a consequence of failures arising from a basic design deficiency[;] [the initial design is stated to have] lacked the fundamental requirement of structural continuity ..." In regard to this item and item 519.1, there are references in the ABS Survey Reports to repairs which appear to relate to these items (Report KS 7365-G refers to "Repairs and Modifications of Longitudinal Bulkhead Transition Between Fr. 60 and Transverse Bulkhead at Fr. 65; Report KS 7365-D notes Report KS 7365-G for the detail of "repairs" for transverse watertight bulkhead at fr. 65; and there are references to the "buckled transverse floor in way at fr. 61" in Report KS 7365).

519.1 Modification at bulkhead at frame Nos. 61 & 65. See item 519, above.

520 Fuel oil tank cleaning. This item is stated to include the cleaning of the tanks to be safe for men and surveys (disposal of oily water or dead oil, removal of sludge, and supplying of chemical cleaner). The ABS Report for this item (Report KS 7365-D) refers to repairs to the following tanks among the tanks enumerated in this item: fuel oil wing tank 3A (starboard), fuel oil wing tank 1 (starboard), and fuel oil wing tank 1 (port). Report KS 7365-D refers to Report KS 7365-F for details of the repairs. There is no reference to fuel oil wing tank 3A in Report KS 7365-F, but the report describes the finding of fractures and the repair thereof in regard to fuel oil tank no. 1 on the port and starboard side (the frames for these tanks indicate that they are the same as cited above). Time, material, and costs are not segregated in this item.

521 Relocate aft hose crane. This item is stated to consist of cutting off and removal of table, locker, and support, draining and renewal of hydraulic oil, removal and installation of newly made handrail, filling hydraulic oil (supplied by yard), and erection and removal of staging (only the last portion is segregated). The reason given for the relocation is "to improve the accessibility, reliability and to extend the life of the equipment [as] [i]t was an initial design deficiency to place such equipment in an area exposed to weather and exhaust stack gasses." We could find no reference related to this item in the ABS Reports in the file.

522 Stores & hose crane. This item is stated to consist of the replacement of the rubber hoses on stores and hose cranes with stainless steel tubing and fittings. We could find no reference related to this item in the ABS Reports in the file.

525 Ballast tank inspection & survey. This item is stated to consist of opening up bolted manhole covers for the tanks, testing oxygen contents, furnishing temporary lighting and ventilator for one of the tanks, and providing qualified inspectors to inspect the tanks. The ABS Report for this item (Report KS 7365-D) refers to repairs to the following tanks among the tanks enumerated in this item: deep water ballast tanks 6B (port and starboard). Report KS 7365-D refers to Report KS 7365 for details of the repairs. The latter report refers to outstanding recommendation in a November 8, 1989, report for this vessel and describes the permanent "repairs" made to the vessel "at this time." Time, material, and costs are not segregated in this item.

525.1 Ballast tank inspection. The portions of this item in controversy ((1), (2), and (3)) are stated to consist of cleaning out, (disposing of oily water, removal of sludge, and supplying chemical cleaner, and other cleaning operations) as well as replacement of broken and missing cover studs and bolts (No. 6A D.B. tank starboard) and replacement of new grommets (66 pieces supplied by the yard). The ABS Report for this item (Report KS 7365-D) refers to repairs to deep upper fuel oil tank No. 2 (port) among the tanks enumerated in this item. Report KS 7365-D refers to Report KS 7365-F for details of the repairs. The latter report states that the tank top plating for that tank "was found holed and heavily wasted and was partly cropped and renewed ...". Time, material, and costs are not segregated in this item.

530 Bow thruster space piping. This item is stated to consist of rerouting bilge piping. We could find no reference related to this item in the ABS Reports.

531 Anchor chain & chain locker. The portions of this item in controversy ((1) and (3)) are stated to consist of (portion (1)) ranging out anchor chains for examination, washing down chain to removal scale and foreign materials to allow for examination, calibration of chains, restowing chains, and arranging crane to chains; and (portion (3)) opening manhole cover of chain lockers, cleaning chain lockers, mud removal, and closing manhole cover with new gaskets. The applicant concedes that portion (2) of this item is dutiable. ABS Reports KS 7365-A and KS 7365-D pertain to this item. There is no indication in the Reports that the survey was performed to ascertain the extent of damages.

532 Main engine sump survey. This item is stated to consist of opening manhole covers, cleaning and drying all engine parts and sump interior (removal and disposal of dead oil, removal of sludge, supplying chemical cleaner) and closing manhole covers after survey. The foregoing is consistent with the ABS Report pertaining to this item (Report KS 7365-E). There is no indication in the Report that the survey was performed to ascertain the extent of damages.

556 Salt water piping. This item is stated to consist of gauging and recording all overboard pipes and all pipes below floor plating in narrow spaces and tank. In regard to this item and item 561 (below), the only reference we could find related to these items in the ABS reports was for the survey of "[a]ll openings to the sea ..." in Report KS 7365-E. No repairs are referred to in this regard in that Report.

561 No. 1, 2, & 3 sumps. This item is stated to consist of opening and closing manhole covers, cleaning (removal of sludge and supplying chemical cleaner) the tank to be safe for men and surveys.

8 Cleaning air scavenger space. This item is stated to consist of opening main engine scavenger space access doors for complete cleaning, removal of all oily deposits and waste material, and (upon completion of inspection by vessel engineers), closing up of all access doors. Also included are crating, packing and shipment, tool rental, fees or taxes, transportation of materials and men, meals of labor crews, and materials and equipment (rags and PVC bags).

ISSUES:

Whether the work described in the FACTS portion of this ruling is dutiable under the vessel repair statute (19 U.S.C. 1466).

LAW AND ANALYSIS:

Initially we note, in regard to the timeliness of the application for relief in this matter, that the Customs Regulations governing such applications for relief (see 19 CFR 4.14(d)(1)(ii)), issued under 19 U.S.C. 1466, require the application for relief, with supporting evidence, to be filed within 90 days (with authority for an extension of 30 additional days) from the first arrival of the vessel. As stated above, an extension of the 90-day period was granted until March 27, 1992. Therefore, the application for relief (including the February 15 and March 26, 1992, letters and materials submitted with them) was timely. However, since the cited Customs Regulation requires the application for relief, with supporting evidence, to be filed within the time period, and since there is no provision for supplementing the application for relief after expiration of the time period in regard to an issue not previously raised, the April 2, 1992, letter (filed April 7, 1992) was untimely and is not being considered (see ruling HQ 111688).

Under 19 U.S.C. 1466:

The equipments, or any part thereof ... purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

Section 1466 also provides, generally, for remission or refund of such duties if it is established that the purchases or repairs were compelled by stress of weather or other casualty, that the equipments or repairs were manufactured or produced in the United States and the labor necessary to install them or make the repairs was performed by United States residents or members of the regular crew of the vessel, or that the equipments or materials or labor were used as dunnage for cargo, or similar purposes. In addition, section 1466 provides for the exemption from vessel repair duties for certain materials with respect to a vessel which arrives in a United States port two years or more after its last departure from a United States port, and for certain materials for LASH (Lighter Aboard Ship) barges, or certain spare parts or materials subject to various specified conditions. The Customs Regulations issued under section 1466 are found in 19 CFR 4.14.

The Customs Service has issued many rulings applying and interpreting 19 U.S.C. 1466. See, e.g., HQ 112851, dated March 22, 1996. Ruling HQ 112851, includes statements of the general rules for the determination of what are modifications to the hull and fittings of a vessel (held not to be dutiable under section 1466), and the dutiability under section 1466 of the cost of inspections or surveys done by the American Bureau of Shipping (ABS). Generally, qualifying modifications to the hull and fittings of a vessel involve a permanent incorporation into the hull or superstructure of a vessel, provide an improvement or enhancement in operation or efficiency of the vessel, and may not involve the replacement of a current part, fitting, or structure which is not in good working order.

In regard to surveys or inspections, the general rule is that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a survey. When an inspection or survey is conducted to ascertain the extent of damages sustained or whether repairs are necessary, the costs are dutiable as part of the repairs which are accomplished. The LAW AND ANALYSIS portion of ruling HQ 112851 is incorporated by reference into this ruling, in regard to its description of the interpretation of these issues (i.e., the dutiability of modifications to the hull and fittings of a vessel and surveys or inspections).

Insofar as cleaning operations are concerned, Customs has held that cleaning operations which remove rust and deterioration or worn parts, and which are a necessary factor in the effective restoration of a vessel to its former state of preservation, constitute vessel repairs. Analogous to Customs position regarding the dutiability of surveys, Customs has long held that the cost of 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 (see C.I.E.'s 18/48; 125/48; 910/59; 820/60; 51/61; 569/62; and 698/62).

Also pertinent in this case are Customs positions regarding the segregation of dutiable and non-dutiable costs and the dutiability of accessing work. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs. Where accessing work is integral to dutiable repairs, the accessing work is also dutiable (see HQ ruling 108366).

(As for the possible applicability of the decision in Texaco Marine Services, Inc. v. United States, 44 F. 3d 1539 (Fed. Cir. 1994), to surveys or inspections (see above), we note that, except for post-repair cleaning and protective coverings, the decision in that case will not apply to vessel repair entries filed prior to the date of that decision (December 29, 1994). Since the vessel repair entry under consideration was filed prior to that date, Texaco would not affect Customs position regarding surveys in the entry under consideration.)

The applicant claims that items 509.3, 514, 515.1 (portions only), 515.2 (portions only), 519, 519.1, 521, 522, and 530 (as noted, the application for item 530 was untimely; no relief may be granted in regard to this item) are non-dutiable, as modifications to the hull and fittings of the vessel. Item 509.3 is non-dutiable on that basis (see rulings 111881 and 111884; contrast to ruling 112864, in which the same work by the same shipyard on the same class of vessel was held dutiable because the work included a welding build-up of corroded areas, as described in an invoice from the same shipyard as is involved in this case). Item 514 is non-dutiable on the same basis (see rulings 112454 (invoice from same shipyard as in this case relating to the same work on the same class of vessel) and 112851) (in the case of the work in this item and other items described as "[d]estroied area were disc-grinded or sandsweeped then applied the coats as the specification", we assume that this work consists of restoring the area where the modifications were made to its original condition so that it is not dutiable as repairs (see C.I.E. 1043/60, see also, e.g., rulings 112851 and 112454)). The portion of item 515.1 consisting of work on the "longitudinal hatch coaming at expansion joint" is non-dutiable as a modification (see ruling 112454 in which the same work on the same class of vessel, described in an invoice from the same shipyard as is involved in this case, was held non-dutiable). The portion of item 515.1 consisting of "longitudinal hatch coaming repaired at row 12 ..." is dutiable as a repair (as described in the invoice and ABS Report KS 7365-G).

The portions of item 515.2 under consideration are dutiable or non-dutiable as follows. The portion of item 515.2 consisting of modification of bearing pads is dutiable (note that ABS Report KS-7365-G describes the existing pads as "worn down" (see discussion of modifications in ruling HQ 112851 - qualifying modifications may not involve the replacement of a current part, fitting, or structure which is not in good working order). The portions of item 515.2 consisting of work on (1) cover no. 8; and (2) sliding base sockets are nondutiable as modifications (see ruling HQ 112454 in which similar work on the same class of vessel by the same shipyard as is involved in this case was held non-dutiable (note also that the same drawing of the modification (No. HEC9106-6 is referred to in both case and that the applicable ABS Report describes the work as modifications)). The portion of item 515.2 consisting of work on hatch covers 10 and 11 is dutiable, on the basis of the description of the work as "Modifications/Repairs" in ABS Report KS 7365-G (note that the ABS report distinguishes between repairs and modifications). The portion of item 515.2 consisting of reinforcement of the bearing pads (with the addition of "stifference") is dutiable in the absence of satisfactory evidence to establish that it is a non-dutiable modification (we note that it is not referred to in the ABS Reports).

In regard to items 519 and 519.1, as noted in the FACTS portion of this ruling about these items, references to related areas and/or work in the referenced ABS Reports appear to indicate that this work may have involved the modification of structures of the hull and fittings which were not in good working order. We note that in ruling HQ 112864 we held similar work to be non-dutiable, as modifications, on the basis of communication between the vessel operator and the ABS and the U.S. Coast Guard (the communication referred to the vessel involved in that case as well as the M/V PRESIDENT LINCOLN). However, on the basis of the above-described evidence indicating that this work may have involved the modification of structures not in good working order, we must hold this work to be dutiable.

Item 521, consisting of the relocation of the aft hose crane, and item 522, consisting of the replacement of rubber hoses on stores and hose cranes with stainless steel tubings and fittings, are non-dutiable (see ruling HQ 112864; note that the work held non-dutiable in that case was the same work on the same class of vessel in the same shipyard; note further that there is no evidence of repairs regarding these items).

The applicant claims that items 509 (portions only), 515, 516 (portions only), 520, 525, 525.1 (portions only), 531 (portions only), 532, and 561 are non-dutiable, as relating to surveys or inspections. In the case of item 509, the costs for staging are segregated from the other costs but the costs for opening and closing the blade hatch are not segregated from the costs conceded by the applicant to be dutiable. The costs for staging are non-dutiable (see C.I.E. 1822/58). The remaining costs are dutiable (see the rulings cited above in this regard, C.I.E. 1325/58 and C.I.E. 565/55 (failure of an invoice to segregate dutiable costs from non-dutiable costs) and HQ ruling 108366 (accessing work which is integral to dutiable repairs)). Item 515 is dutiable, as involving unsegregated costs other than transportation (see rulings HQ 112454, HQ 112864, and HQ 113085, in which the same work by the same shipyard on the same class of vessel was held dutiable on the same basis).

In the case of item 516, the costs for staging are segregated from the other costs and are non-dutiable (see C.I.E. 1822/58). The costs for removing and reinstalling the rope guard, disconnecting the propeller, and other work under the second portion of this item are dutiable, as work performed, in part, in preparation for repairs in the third portion of this item, conceded by the applicant to be dutiable (see rulings HQ 112454, HQ 112864, and HQ 113085, in which the same work by the same shipyard on the same class of vessel was held dutiable on the same basis).

Items 520, 525, and 525.1 are dutiable as including unsegregated preparation for dutiable tank repairs (see ABS Reports describing such repairs and referred to in the FACTS portion of this ruling) (see rulings HQ 112454, HQ 112864, and HQ 113085, in which similar work by the same shipyard on the same class of vessel was held dutiable on the same basis; see also, above discussion of cleaning and segregation of dutiable and non-dutiable work). (In regard to item 525.1, we note that part of the unsegregated costs in this item were for the replacement of broken and missing cover studs and bolts, which has been held dutiable (ruling HQ 112894).)

In item 531, the portion of that item including ranging out anchor chains for examinations and other work is dutiable as including preparation for repairs conceded to be dutiable by the applicant (see rulings HQ 112454, HQ 112864, and HQ 113085, in which the same work by the same shipyard on the same class of vessel was held dutiable on the same basis; see also, above discussion of cleaning and segregation of dutiable and non-dutiable work). The portion of item 531 consisting of opening the manhole cover of the chain lockers and related work is non-dutiable, as not done in conjunction with repair work (see rulings HQ 112454, HQ 112864, and HQ 113085, in which the same work by the same shipyard on the same class of vessel was held non-dutiable on the same basis).

Items 532 and 561 are non-dutiable, as cleaning and preparation for inspections (see ruling HQ 112454, in which similar work by the same shipyard on the same class of vessel was held non-dutiable on the same basis; see also, above discussion of cleaning and surveys or inspections).

In regard to item 556, we note that it is Customs position that gauging for the purpose of ascertaining whether repairs are required is considered an integral part of the repair work performed and is dutiable (ruling HQ 109144). When the result of gauging is that all readings are satisfactory and no repairs are connected with the gauging, the cost of gauging is non-dutiable (see, e.g., rulings HQ 112756, HQ 112222). In this case, the invoice describes this item as "SALT WATER PIPING, REPAIRS ABS & USCG INSPECTION" (emphasis added). Since the invoice describes the work as "repairs" (we note that the invoice describes other gauging items without referring to repairs (see item 571)) and since the ABS Reports in the file do not clarify this matter, we are unable to grant relief for this item. Item 556 is dutiable.

The dutiability of cleaning air scavenger spaces (item 8) has been thoroughly considered by Customs (see, e.g., rulings HQ 111700 and HQ 112454). It is Customs position that this operation is the correction (by cleaning) of a deterioration (the collection of carbon and oil deposits in air scavenger spaces). Therefore, this operation is a maintenance operation and is dutiable.

HOLDING:

Among the items about which you requested advice, items 509 (staging), 509.3, 514, 515.1 (longitudinal hatch coaming at expansion joint), 515.2 (cover no. 8), 515.2 (sliding base sockets), 516 (staging), 521, 522, 531 (opening manhole cover of chain lockers and related work), 532, and 561 are NON-DUTIABLE. Items 509 (portions other than staging), 515, 515.1 (longitudinal hatch coaming repaired at row 12), 515.2 ("modification" of bearing pads), 515.2 (hatch covers 10 and 11), 515.2 (reinforcement of bearing pads), 516 (portions other than staging), 519, 519.1, 520, 525, 525.1, 530, 531 (ranging out anchor chains for examinations and other work), 556, and 8 (cleaning air scavenger spaces) are DUTIABLE.

Sincerely,

William G. Rosoff Chief
Entry and Carrier Rulings Branch