VES-3-12-RR:IT:EC 115718 LLO
Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130
RE: Application for Relief; Entry No. 906-0308530-0; M/V
SEAFISHER; 19 C.F.R. §4.14; 19 U.S.C. §1466;
Modification
Dear Sir:
We received your memorandum dated June 18, 2002, requesting that we advise your office as to whether the work covered by invoiced items constitute modifications of the vessel. Additionally, you request an analysis of applicant’s argument that, “although the dutiable items occurred during the drydocking, none of those items required that the vessel be placed in drydock.” The applicant further contends that the general drydocking services should be held as non-dutiable, being associated with only the non-dutiable work rather than being pro-rated between the dutiable and non-dutiable costs. Our ruling on this matter is set forth below.
FACTS:
The M/V SEAFISHER, a United States-flag vessel operated by Cascade Fishing, Inc. of Seattle, Washington, arrived at the port of Dutch Harbor on January 14, 2002.
According to the vessel repair entry and other documentation in the file, the vessel underwent work in Shiogama-City, Japan. An application for relief has been timely filed. This particular application is requesting relief from the dutiability of the invoiced items, as well as the applicant’s arguments regarding proration of drydocking costs.
ISSUE:
Whether the work covered by the subject items performed at a foreign shipyard aboard the subject vessel is dutiable pursuant to 19 U.S.C. §1466 or constitutes non-dutiable modifications.
Whether the costs of drydocking the subject vessel should be prorated.
LAW AND ANALYSIS:
Title 19 of the U.S. Code, section 1466 (19 U.S.C. §1466), provides in pertinent part for 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 expenses of repairs made in a foreign country upon a vessel documented under the laws of the U.S…”
With regard to the applicant’s claim that the work covered by the 34 items in question constitutes non-dutiable modifications, we note that 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-a-vis work constituting repairs has evolved from judicial and administrative precedent. (See, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); U.S. 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 that 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 non-dutiable under 19 U.S.C. §1466.
Cascade Fishing, Inc. contends in its application that the subject invoiced items under consideration that it deems modifications, as opposed to repairs, should be duty free. In considering whether an operation has resulted in a modification, which is not subject to duty, the following elements must be considered:
-whether there is a permanent incorporation into the hull or superstructure of a vessel;
-whether the item under consideration would remain aboard a vessel during an extended lay-up;
-whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure that is not in good working order;
-whether an item under consideration provided an improvement or enhancement in operation or efficiency of the vessel
The applicant has denoted the following items as modifications:
Item # Merchandise
H-1 DRY DOCKING AND UNDOCKING, MOORING, AND UNMOORING
AD-3 REMOVE & REFUEL M/V SEAFISHER
AD-9-1 MAN HOLE OPENED FUEL OIL TANK
H-4-1 MODIFY SEA CHEST COVER
H-52-1-H-52-22 INSTALLATION OF SAVCOR SYSTEM
EL-42-EL-42-5 INSTALL WIRE FOR SAVCOR SYS.
AD-121 INSTALL STAINLESS BOX FOR SAVCOR SYS.
AD-128 NH3 PIPE IN FREEZER HOLD
H-34-H-34-2 INSTALLATION OF NEW PLATE FREEZER ROOMS
H-35-H-35-2 INSTALL NEW REFRIGERATOR
H-36 WOODEN DECK REMOVAL & REPLACE
H-37 WOODEN DECK REMOVAL & REPLACE
H-39 WOODEN DECK REMOVAL & REPLACE
H-39-1 WOODEN DECK REMOVAL & REPLACE
H-40-H-40-8 INSTALL NEW REFRIGERATION CONDENSER & RECEIVER
H-57 SAND BLAST AND PAINT AROUND NEW HYDRUALIC PIPE
RF-1 REMOVE REFRIGERATOR & INSTALL NEW REFRIGERATOR
RF-2 & RF-2-4 REMOVE AND INSTALL CONNDENSOR AND RECIEVER
RF-3-RF-3-3 REMOVE OLD CONDENSER PUMP & INSTALL NEW
RF-4 MODIFY NH3 PIPE AND INSULATION
RF-13-RF-19 INSTALLATION OF FLAT FREEZER & HYDRAULIC OIL PUMP
MYC-1-MYC-95 HIGH PRESSURE CONDENSER & INSTALLATION
EL-36 MODIFY ELECTRIC WIRE FOR NEW CONDENSER PUMP
EL-39-1-EL-39-4 TESTING EMERGENCY ALARM SYS.
EL-43 REDUCING POWER SYS. #3 GENERATOR
EL-43-1 REDUCING POWER SYS, #3 GENERATOR
EL-44-EL-44-9 MODIFY ELECTRIC WIRE AND PANELS
ADEL-7 CRANE FEE
AD-43 MODIFY FREEZER WASH DOWN PIPE
AD-51 INSPECT CONCRETE ON DECK IN FREEZING AREA
AD-149 CONDENSER AND RECEIVER TRANSPORTATION
EL-41 EMERGENCY STOP SYS. TEST
SP1-SP-25 MODIFICATION OF FREEZER BRAKE AREA
AD-3 REMOVE AND RE-FUEL SEAFISHER
AD-117 CONVEYOR BELT ABOVE FOT #3
AD-9-1 MAN HOLE OPENED FUEL OIL TANK
AD-9 & AD-10 RELOCATE AND INSTALL BLISTER AND WIRING
H-21-3 BOTTOM PLUG INSTALLED
H-33 INSTALL NEW EYE PLATE AT #1 STBD. BOOM
ME-2 MODIFY SUPPORT FOR EXHAUST PIPE PORT MAIN ENGINE
WH-2 MODIFY EXPANSION TANK IN MID-SHIP GANTRY
EL-39-5 INSTALL NEW INTERIOR TELEPHONE FROM PILOTHOUSE TO …
ADEL-1 INSTALL NEW WIRE FOR MONITOR OF GRADING SYS.
ADEL-5 INSTALL WIRE FOR NEW SERVICING MACHINE & BELT/CONVEYOR
AD-24 INSTALL WHEELHOUSE FAN FOR SMOKE REMOVAL
AD-24-1 INSTALL WHEELHOUSE FAN FOR SMOKE REMOVAL
AD-24-2 INSTALL WHEELHOUSE FAN FOR SMOKE REMOVAL
AD-48 INSTALL STORAGE RACKS IN BOW THRUSTER ROOM
AD-52 MODIFY FIRE LINE
AD-52-1 MODIFY FIRE LINE
AD-153 MODIFY FIRE LINE
AD-55 MODIFY STEERING GEAR SIGNAL MOUNT
AD-63 FABRICATE AND INSTALL OFFLOAD CAGE
AD-13O INSTALL PAD EYE TO MID-SHIP GANTRY
AD-132 INSTALL NEW GUARD PIPE AT #2 CARGO WINCH AFT
AD-133 INSTALL GUARD PIPE AT AIR VENT PIPE
AD-151 OPEN SHELL OF MID-SHIP MAST PORT & STBD. –ADD…
The application for relief contains a statement for each and every item above by the applicant indicating that the alleged modifications listed are ”… permanently affixed to the hull and fittings…” and “…would not be apt to be removed if the vessel was placed in extended lay-up.” Following each of these identical assertions is a statement outlining how each item enhances the operation of the vessel.
The other materials provided with the application for relief indicates which invoices match the items in question. These operations performed on the vessel meet the prerequisites for a modification and are therefore duty-free.
In regard to the general services/drydocking costs at issue in this case, the applicant asserts that reference # H-1 is entitled to duty free treatment as part of the cost of the modification operation. The applicant further asserts that the M/V SEAFISHER was not in need of repairs requiring that the vessel withdraw from working operations, and that the specific reason for putting the vessel in drydock was to install the significant modifications (installation of the Savcor System increase in freezing capacities, modifications of the Case-Up area, and relocation of the Blister) mentioned above. However, the applicant has submitted no documentation to support the claim. The lack of clear and probative documentary evidence renders an item dutiable under the vessel repair statute. (See, Headquarters ruling 114740, dated June 30, 1999, citing Admiral Oriental Line v. United States, T.D. 43585 (1929)) In addition, conclusive statements offered in support of a position which are unsupported by evidentiary facts are not determinative as to the issue under consideration. Andy Mohan, Inc. v. United States, 74 Cust. Ct. 105, 396 F. Supp. 1280 (1975), aff’d, 63 CCPA 104, 537 F.2d 516 (1976). Furthermore, the applicant notes that “…[c]ertain maintenance items were accomplished since the vessel was in drydock merely for economic reasons.”
With respect to general service/drydocking costs, in those instances where such costs are attributed to both dutiable and non-dutiable work (i.e., a “mixed purpose” vessel repair expense), it is Customs position that they are to be prorated pursuant to Customs ruling letter 113474 and memorandum 113350, both of which addressed Customs implementation of the decision of the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994). Accordingly, the drydocking costs at issue are to be prorated.
HOLDINGS:
ISSUE 1:
Following a thorough review of the facts in this case as well as an analysis of the law and applicable precedents that bear upon those facts, we have determined that the items under consideration are not dutiable since their installations meet the prerequisites necessary to be deemed a modification and are therefore non-dutiable under 19 U.S.C. §1466.
ISSUE 2:
The costs of drydocking the subject vessel should be prorated. The application for relief is denied in part and granted in part.
Sincerely,
Glen E. Vereb
Acting Chief
Entry Procedures and Carriers Branch