VES-13-18-CO:R:IT:C 112871 BEW
Chief, Residual Liquidation and Protest Branch
U.S. Customs Service
New York Region
6 World Trade Center
New York, New York 10048
RE: Vessel Repair; Bayonne, New Jersey, Vessel Repair Entry No.
514-3004562-8; MAERSK CONSTELLATION; Petition for Relief;
modifications; 19 U.S.C. 1466; 19 CFR 4.14
Dear Sir:
This is in response to your memorandum dated August 27,
1993, which forwards for our consideration a petition for relief
filed in connection with the above-referenced vessel repair
entry. Our findings are set forth below.
FACTS:
The MAERSK CONSTELLATION is owned by the Maersk Line,
Limited. It is an American-flag container vessel. The vessel
arrived at the port of Bayonne, New Jersey, on August 23, 1991.
While abroad, the vessel underwent repairs in Dubai, United Arab
Emirates during the period of May 8 through July 30, 1991. The
operators of the vessel contend that various foreign shipyard
operations were modifications or non-dutiable repairs.
An application for relief dated November 15, 1991, seeking
relief from vessel repair duties assessed on the above-referenced
foreign repairs was timely filed. By your decision dated
June 25, 1993, you denied the application for relief in part.
With respect to Dubai Drydocks invoice #2, you found that the
documentation submitted with items 66 and 146 was insufficient to
sustain nondutiable repairs. You also found that items 69, 70,
71, 72, 74, 116, 130, 142, & 164, which were alleged to be
modifications, were not supported by drawings, specifications or
other documentation to sustain a claim of nondutiable
modifications. Lastly, you found that the repairs survey listed
on ABS survey invoice #1560-1513398 was dutiable (item 117).
The petition is centered around the Dubai Drydock #2
invoice. The petitioner contends that the above stated invoices
represent costs for modifications/alterations/additions to the vessel's hull and fittings.The petitioner does not request
relief from items 66 and 146, but admits to their dutiability.
ISSUES:
(1) Whether certain work performed in a foreign country
constitutes modifications/alterations/additions to the
hull and fittings rather than equipment purchases or
repairs within the meaning of 19 U.S.C. 1466?
(2) Whether the costs associated with an ABS drydocking
survey constitute dutiable repair costs.
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. This element
should not be given undue weight in view of the fact
that vessel components must often be welded or
otherwise "permanently attached" to the ship which is
subject to constant pitching and rolling.
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.
For purposes of section 1466, 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.
T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval
in Admiral Oriental).
In the present case, the petitioner claims that the
installation of the following:
Item No. 69, 70, 71, 72, and 74 - Installations of Cargo
Hold Heat Detectors
Item No. 116 Suez Light Connection
Item No. 130. Ventilation Deck House C.
Item No. 142. Heeling System
Item No. 164. Crane Hook Cradle Moving.
is a design and operational improvement over the old one. It is
claimed that these items were not found to be damaged at the time
they were replaced and that the permanent installation of the
subject items is to improve the efficiency of the vessel's
operation and should be properly considered a non-dutiable
modification.
Examination of the entire record, and the documentation
submitted with the petition, including that portion of the
invoice relating to the said items, reveals that these items were
installed to enhance the operation of the vessel's efficiency and
are permanent installations to the vessel's hull and fittings.
Accordingly, items 69-72, 74, 116, 103, 142, and 164 are non-
dutiable modifications/additions/alterations to the hull and
fittings of the vessel remissible under the statute.
With regard to item 117 - ABS invoice No. 1560-1513393,
drydocking survey, Customs has held that where periodic surveys
are undertaken to meet the specific requirements of a
classification society, insurance carrier, etc., the cost of the
surveys is not dutiable even when dutiable repairs are effected
as a result thereof; however, in the liquidation process Customs
should go beyond the mere labels of "continuous" or "ongoing"
before deciding whether the item is dutiable. If an inspection
or survey is conducted as a part of an ongoing maintenance and
repair program labelled "continuous" or "ongoing" the cost is
dutiable. Also, if the survey is to ascertain the extent of
damage sustained, or to ascertain if the work is adequately
completed, the costs are dutiable as part of the repairs which
are accomplished pursuant to holdings in C.I.E. 429/61, C.S.D.
79-2, and C.S.D. 79-277. Accordingly, the surveys listed on the
ABS docking survey invoice are non-dutiable, with the exception
of the hull repairs survey. The cost associated with the hull
repairs survey is dutiable.
HOLDING:
1. The installation of items 69-72, 74, 116, 103, 142, and 164
constitutes modifications/alterations/additions to the hull and
fittings of the vessel rather than repairs. As such, the cost of
this work is not dutiable under 19 U.S.C. 1466.
2. The costs for the surveys listed on the ABS drydocking
survey invoice are non-dutiable, with the exception of the hull
repairs survey. The cost associated with the hull repairs survey
is dutiable as a part of the hull repairs.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch