VES-13-18-CO:R:IT:C 112696 DEC
Regional Director
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair; Protest No. 1803-92-100023
Vessel Repair Entry No. C18-0016852-3
Date of Arrival: August 21, 1991
Port of Arrival: Jacksonville, Florida
Vessel: S.S. GREEN ISLAND V-27/28
Dear Sir:
This ruling is in response to your memorandum dated April 19,
1993, which forwards a protest from the assessment of vessel repair
duties which was filed in connection with the above-referenced
vessel.
FACTS:
The protestant states that the S.S. GREEN ISLAND was scheduled
for drydocking in October, 1991. In early 1989, the United States
Coast Guard ("U.S.C.G.") inspected the subject vessel and found
wastage of steel in her ballast tanks. In April, 1989, the GREEN
ISLAND's operators contacted a naval architecture firm which
indicated that the vessel could operate with a four percent
reduction in the vessel's stress level. The U.S.C.G. concurred in
this assessment and approved continued operation of the vessel
until the expiration of its Military Sealift Command charter, her
next cargo downloading, or scheduled drydocking, whichever occurred
first.
In April, 1991, the American Bureau of Shipping ("ABS") placed
restrictions on the GREEN ISLAND regulating the levels for the
ballast tanks and bending moments when loading. ABS did allow the
vessel to continue to operate until its next scheduled drydocking.
After the vessel's participation in the Military Sealift
Command concluded, the GREEN ISLAND returned to the U.S. for cargo
operations. At that time, the U.S.C.G. insisted that arrangements
be made to have the wastage of steel in the ballast tanks corrected
and only allowed the vessel to move towards that objective.
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The vessel operator's claim that they were unsuccessful in
locating a U.S. shipyard with sufficient and immediately available
space to accommodate the GREEN ISLAND. The U.S.C.G. granted a
single round trip voyage from the U.S. to the Persian Gulf so that
the vessel operator could find a U.S. shipyard capable of performing
the required work. Since an appropriate shipyard could not be
found, the GREEN ISLAND stopped in Malta for the required work.
The application for relief from the assessment of vessel repair
duties was filed late and, therefore, not considered. Accordingly,
the entry was liquidated with only those items subject to duty in
accordance with established precedents included in the duty
calculation.
ISSUES:
1. Whether work that the United States Coast Guard requires
to be completed is justification to remit vessel repair duties
associated with compliance.
2. Whether the lack of an available American shipyard to
timely perform the required operations is an exception justifying
remission of vessel repair duties.
3. Whether the work performed was a modification to the
vessel's hull making the assessment of vessel repair duties
inappropriate.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides, in
pertinent part, for payment of duty in the amount of fifty percent
ad valorem on the cost of foreign repairs to a vessel documented
under United States law to engage in the foreign or coastwise trade,
or to a vessel intended to be employed in such trade.
The protestant's contention that the United States Coast
Guard's requirement to have the vessel repaired is justification for
remission is without merit. The Customs Service has ruled that
Coast Guard regulations requiring surveys are not determinative of
the dutiability of the repairs that are affected as a result
thereof. C.S.D. 82-95 (1982). An examination of the shipyard
invoice and other submitted evidence that depicts the work actually
performed is the appropriate method to determine whether an item is
subject to vessel repair duty.
The protestant's argument that vessel repair duty should be
remitted because there was no U.S. shipyard available to timely
perform the required operation is contrary to the vessel repair
statute. There is no authority under Title 19, United States Code,
section 1466, to remit duty assessed on the cost of repairs effected
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in foreign ports because the work load at U.S. ports precluded
performance of the necessary work within a specific time. Remission
of duty on repairs obtained in a foreign shipyard for reasons of
commercial expediency have been rejected. Headquarters Ruling
110828 (Mar. 28, 1990).
The protestant's final argument for remission of vessel repair
duties is that the work performed on the GREEN ISLAND is a
modification and, therefore, not subject to the vessel repair
statute. Over the course of years, the identification of
modification processes has evolved from judicial and administrative
precedents. 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.
(2) Whether the item under consideration would remain
aboard a vessel during an extended layup.
(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.
Before an item is to be construed as a part of the vessel, it must
be (1) a permanent attachment and (2) essential to the successful
operation of the vessel. Otte v. United States, 7 C.C.P.A. 166,
169 (1916).
To determine whether a particular operation is a modification
as opposed to a repair, the appropriate inquiry is to analyze the
condition of the structures prior to being replaced. Customs has
determined that even though an operation might, under normal
circumstances, be considered a permanent duty-free modification, the
benefit of such a finding is not extended to operations which
encompass the replacement of existing structures which are in need
of repair at that time. If a permanent addition is a first-time
installation, or if it replaces an existing structure which is in
good working order at the time of its replacement and an enhancement
in operating efficiency is provided, the operation may be considered
a bona fide duty-free modification. Headquarters Ruling 111224
(Feb. 19, 1991).
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The evidence submitted clearly indicates that work performed on
the GREEN ISLAND was to repair several of the badly wasted parts of
the vessel. In a letter dated November 27, 1990, Captain James Mac
Donald, U.S.C.G., Chief, Merchant Vessel Inspection and
Documentation Division, stated that the "underdeck, sideshell, and
bulkhead longitudinals in numbers 2,3, and 4 port and starboard
water ballast tanks" were severely wasted. The protestant's
argument that since an upgraded steel was used as a replacement of
the original high tensile steel angle iron transforms this operation
into a modification is without merit. It is clear that the
operations carried out in Malta were performed upon items that were
in need of repair. Consequently, these operations come within the
purview of the vessel repair statute (19 U.S.C. 1466).
HOLDINGS:
1. Work that the United States Coast Guard requires to be
completed is not, in and of itself, sufficient justification to
remit vessel repair duties.
2. The lack of an available American shipyard to timely
perform various operations is not an exception justifying remission
of vessel repair duties.
3. An operation which encompasses the replacement of an item
or structure in need of repair does not constitute a modification.
Rather, such an operation is a repair and subject to duty in
accordance with 19 U.S.C. 1466. The Customs Service finds that the
operations performed in Malta on the GREEN ISLAND were repairs.
Accordingly, this protest is denied.
Sincerely,
Acting Chief
Carrier Rulings Branch