VES-13-18-RR:IT:EC 115052 GEV
Chief, Vessel Repair Liquidation Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130
RE: Protest No. 1401-00-100019; Vessel Repair Entry No. C14-
0039209-3; M/V STELLA LYKES; V- 1; Modification; Parts;
19 U.S.C. § 1466(h)(3)
Dear Sir:
This is in response to your memorandum dated May 19, 2000, forwarding for our review the above-referenced protest. Our ruling on this matter is set forth below.
FACTS:
The STELLA LYKES is a U.S.-flag vessel which incurred foreign repair costs. Subsequent to the completion of work in question, the vessel arrived at the port of Norfolk, Virginia, on May 29, 1996. A vessel repair entry was timely filed.
An application for relief with supporting documentation was timely filed which your office granted in part and denied in part. A petition for review of your decision was timely filed. Pursuant to Customs ruling letter 114829, dated October 8, 1999, the petition was granted in part and denied in part.
The subject entry was subsequently liquidated on December 27, 1999. A protest, dated February 22, 2000, with supporting documentation, was timely filed. The items for which the protestant seeks relief are as follows: GAR 18-148; 18-137; 19-100; 19-106; 21-111; 18-102; 23-107; 19-118; 24-131; 25-151; 25-136; and 25-125. The protestant seeks relief pursuant to 19 U.S.C.
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§ 1466(h)(3) for all of these items except items 21-111 (claimed calculation error), and 24-131, 25-136 and 25-125 which the protestant maintains are nondutiable modification costs.
ISSUES:
Whether the items for which the protestant seeks relief are classifiable under subheading 9818.00.05, HTSUS (19 U.S.C.
§ 1466(h)(3)).
Whether the protestant’s claimed recalculation of duty assessed on item 21-111 is correct.
Whether the items for which the protestant seeks relief as
modification costs are nondutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Title 19, United States Code, § 1466 (19 U.S.C. § 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “…equipments, or any part thereof, including boats, 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…”
With respect to the protestant’s claims under 19 U.S.C. § 1466(h)(3), we note that statutory provision provides as follows:
(3) the cost of spare parts necessarily installed before the
first entry into the United States, but only if duty is paid
under appropriate commodity classifications of the
Harmonized Tariff Schedule of the United States upon
first entry into the United States of each spare part
purchased in, or imported from, a foreign country.
A part under § 1466 is determined to be something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to readily identify a part. The term part does not mean part of a vessel, which practically speaking would encompass all elements necessary for a vessel to operate in its designed trade. Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material.
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For purposes of § 1466, the term materials is determined to mean something which is consumed in the course of its use, and/or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a
container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel.
The term equipment is determined to mean something which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators.
Subsection (h)(3) is administered by maintaining the requirement that a vessel repair entry (Customs Form 226) must be filed upon first arrival in the United States of vessels covered by the repair statute. Since issuance of instructions by Customs Headquarters on May 31, 1995 (Headquarters Memorandum 113291), in instances in which a
vessel operator claims certain foreign parts expenditures to be within the terms of subsection (h)(3), it has been required that continuation
sheets normally submitted with entries for consumption (Customs Form 7501-A) be completed and attached to the vessel repair entry form. The continuation sheets must provide all required information necessary to assign the proper duty rate as listed in the Harmonized Tariff. The vessel repair entry number is the sole number assigned to the entry, and such an entry with continuation sheets attached is considered to be a vessel repair entry. For entries which followed the
January 1, 1995, effective date of the statutory amendments, but which preceded the issuance of Headquarters guidance, the form of entry was guided by local Customs practice, and most commonly saw a vessel repair entry accompanied by an entry for consumption.
With respect to the protestant’s § 1466(h)(3) claims, upon further review of the record we concur that the following items qualify for treatment thereunder: 18-137; 19-100; 19-106; 18-102; 23-107; 19-118; and 25-151. Items 18-148 and 19-101 are foreign invoices containing only partial English translations which are not dispositive as to whether the articles listed thereon are parts. In this regard we note that pursuant to 19 CFR § 4.14(d)((1)(iv), documents in a foreign language shall be accompanied by an English translation that is
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certified for accuracy by the translator. Consequently, the protestant has submitted documentation with respect to items 18-148 and 19-101 that is insufficient for treatment under § 1466(h)(3).
In regard to item 21-111, the protestant has alleged an error in the calculation of duty. Upon further review of this matter we are in accord with the protestant’s position. The liquidation of this vessel repair entry will be adjusted accordingly.
As noted above, items 24-131, 25-136 and 25-125 are claimed by the protestant to be nondutiable modification costs. In its application of the vessel repair statute, Customs has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466.
With respect to item 24-131, the documentation submitted in support of the protestant’s claim (Keiso Giken Kaisha Instrumentation Pte Ltd invoice no. 1189 and APL job control form (JCF) # GAR 24-131) not only merely lists the articles in question (i.e., exhaust gas pyrometers), the job control form provides that the existing, “exhaust gas temperature gages [sic] are defective…” It is therefore readily apparent that the work covered under this item was done to rectify a current structure not in good working order. Accordingly, item 24-131 constitutes dutiable repairs rather than a nondutiable modification.
Item 25-136 (Hong Long Marien Service & Engineering Co., Ltd., invoice dated September 24, 1989) covers the re-routing of the sludge drains from the heavy fuel oil purifiers (a potential fire hazard) into the forward engine room bilge wells. Notwithstanding any improvement in the safe and efficient operation of the vessel, we note that the job control form covering this work (JCF #GAR25-136) provides that the existing drain “does not drain well.” It is therefore readily apparent that the work covered under this item was done to rectify a current
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structure not in good working order. Accordingly, item 25-136 constitutes dutiable repairs rather than a nondutiable modification.
Item 25-125 (Hong Long Marien Service & Engineering Co., Ltd., invoice dated September 24, 1989) covers the installation of steel grating and hand rails at the top of the compressor. This grating was a new installation welded into place in order to permit the engine room crew access to this unit for service and installation. We find this item to be a nondutiable modification.
HOLDINGS:
The following items for which the protestant seeks relief are classifiable under subheading 9818.00.05, HTSUS (19 U.S.C.
§ 1466(h)(3): 18-137; 19-100; 19-106; 18-102; 23-107; 19-118; and
25-151.
The protestant’s claimed recalculation of duty assessed on item 21-111 is correct.
The items for which the protestant seeks relief as modification costs are dutiable under 19 U.S.C. § 1466 with the exception of item 25-125.
In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the
protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing this decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Larry L. Burton
Chief
Entry Procedures and Carriers Branch