VES-13-18-CO:R:IT:C 112926 DEC
Deputy Assistant Regional Commissioner
Classification and Value Division
Attention: Residual Liquidation and Protest Branch
New York, New York 10048-0945
RE: Vessel Repair; Petition for Review; Modification;
Vessel Repair Entry: 514-3004561-0
Date of Arrival: August 29, 1991
Port of Arrival: Elizabeth, New Jersey
Vessel: SEA-LAND INTEGRITY V-42
Dear Sir:
This is in response to your memorandum dated October 8, 1993,
which forwards the petition for review of the assessment of vessel
repair duties filed in connection with the above-referenced vessel.
FACTS:
The SEA-LAND INTEGRITY is owned by the Connecticut National
Bank and operated by Sea-Land Service, Incorporated. It is an
American-flag vessel. While abroad, the SEA-LAND INTEGRITY stopped
in Rotterdam where it underwent various operations. In Headquarters
Ruling 112731 (Jul. 8, 1993), Customs denied, in part, relief from
the assessment of vessel repair duties. The following items have
been submitted in the vessel operator's petition for review.
Wilton Fijenoord Invoice W.B. Arnold Co., Inc.
(Invoice No. 6954/10790 (8/23/91) Invoice No.
Item No.
119 21016 (9/3/91)
119A
ISSUE:
Whether the cost of foreign shipyard work completed aboard the
subject vessel is dutiable pursuant to Title 19, United States Code,
section 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides, in
pertinent part, for payment of a fifty percent ad valorem duty on
the cost of foreign repairs to a vessel documented under United
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States law to engage in the foreign or coastwise trade, or to a
vessel intended to be employed in such trade.
Wilton Fijenoord Invoice No. 6954/10790 - Item 119
The petitioner contends that the cost of this operation is not
subject to duty because it is a permanent incorporation into the
vessel. The vessel operator received an advisory ruling from
Customs holding that the upgrade of the existing seven Bar service
compressor to a thirty Bar topping-up air compressor would
constitute a modification. In its advisory ruling letter, Customs
did stress that "any final ruling on this matter is contingent on
Custom's review of the evidence submitted pursuant to section
4.14(d)(1), Customs Regulations (19 CFR 4.14(d)(1)." Headquarters
Ruling 110993 (May 2, 1990).
Item 119 details operations performed upon the vessel's air
compressor. The petitioner maintains that this item represents a
modification. Notwithstanding the petitioner's submission of a
revised shipyard invoice, the Customs Service continues to find that
this item contains dutiable repair operations. Customs has held
that the removal of an existing operational system to improve the
efficient performance of the vessel is not dutiable if the work was
not performed in conjunction with dutiable repairs. Headquarters
Ruling 109971 (Jun. 12, 1989). The invoice description indicates
that a safety valve was found leaking during an inspection and that
the valve was overhauled and reinstalled. This operation is a
repair and is subject to the assessment of vessel repair duties
pursuant to 19 U.S.C. 1466.
The petitioner argues that this item should not be subject to
duty because Customs did not assess duty on an allegedly similar
operation from a previous entry. The petitioner cited the SEA-LAND
ATLANTIC and enclosed Headquarters Ruling 112024 (Feb. 3, 1993). An
examination of this entry revealed that while an allegedly similar
operation did escape the assessment of vessel repair duty, it was
not reviewed in the Headquarters Ruling. Headquarters is not bound
by a determination of dutiability made in the field. On the other
hand, Customs is aware of Headquarters Ruling 112025 (Feb. 20, 1993)
that held a similar operation performed on the air compressor system
dutiable.
In addition, Customs has consistently held that where the
charges for dutiable and non-dutiable items are not segregated
within an invoice item, all of the charges contained in that invoice
item must be deemed dutiable. Customs Memorandum 108567 (Sept. 10,
1986). Consequently, the revised invoice of section 4.2053 is
dutiable.
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Wilton Fijenoord Invoice No. 6954/10790 -Item 119A
Item 119A describes the expense associated with the removal of
electric cables and the installation of new cables. To determine
whether a particular replacement operation is a modification as
opposed to a repair, the appropriate inquiry is to analyze the
condition of the structure(s) 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 structure(s) that are in need
of repair at that time. If a permanent addition is a first-time
installation, or if it replaces an existing structure that 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 duty-free modification. Headquarters Ruling 111224 (Feb. 19,
1991).
Based on a further review of the submitted evidence, the
Customs Service is satisfied that the replacement of these electric
cables is a modification. The purpose of the installation of the
new cables is to enable the vessel to comply with United States
Coast Guard electrical-cable requirements and not to repair the
vessel's existing cable.
W.B. Arnold Co., Inc., Invoice No. 21016
This invoice is for work performed on the vessel's air
compressors. While the general concept of upgrading the air
compressor would be considered a modification, as indicated to the
applicant in Headquarters Ruling 110993 (May 2, 1990), the actual
description of the work associated with this concept included repair
work to various items as described in item 119. Since invoice 21016
is for work performed on the vessel's air compressor, which has been
ruled dutiable (see item 119 above), the labor charge included in
this invoice is fully dutiable absent evidence segregating the labor
cost associated with item 119A which was deemed non-dutiable.
HOLDING:
After a thorough review of the submitted evidence, this
petition for review is granted in part and denied in part for the
reasons detailed in the Law and Analysis section of this ruling.
The petitioner should be informed of the right to file a protest
following liquidation of this entry, as evidenced by the posting of
the bulletin notice of liquidation.
Sincerely,
Arthur P. Schifflin
Chief