VES-3-02:RR:BSTC:CCI H041636 ALS
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Vessel Repair Entry No. C20-0058543-3; M/V MANOA; Protest No. 2002-08-100129; 19 U.S.C. § 1466(a)
Dear Sir:
This is in response to your memorandum of October 9, 2008. The memorandum forwards an application for further review of a protest, filed on behalf of Matson Navigation Company (“Matson”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466(a). You have asked us to review numerous items listed in your memorandum. Our ruling follows.
FACTS:
The MANOA (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Los Angeles, California on September 26, 2001. A vessel repair entry was timely filed that same day. Matson filed an application for relief from duties on the entry. Upon review of the filing, your office determined that the application should be granted in part and denied in part, and notified Matson of this decision, through its legal counsel, via a letter dated February 1, 2008. Matson timely filed the subject application for further review, seeking additional relief.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466(a).
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) 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 . . . “
The following items are at issue:
Items 401, 403, and 404, Hull Coating Conversion
The protestant contends that this work was done pursuant to an International Maritime Organization (IMO) resolution, and therefore is not dutiable. Your office found this item dutiable because we had previously ruled that the application of anti-fouling tin-free paint is not a modification, but rather a repair. See CBP Ruling H015615 (October 23, 2007); CBP Ruling HQ 116589 (January 6, 2006); and CBP Ruling HQ 115763 (September 30, 2002).
Work done pursuant to a requirement of a code or statute is not by itself dispositive of a modification claim. CBP has consistently held as such, as exemplified by the following:
It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under section 1466.
CBP Ruling HQ 114092 (September 12, 1997), citing CBP Ruling HQ 111230 (November 8, 1990) and CBP Ruling HQ 111272 (November 2, 1990).
Just as we noted in HQ 116589, the documentation submitted by the protestant in this case does not establish that the newly-applied "tin free" paint was replacing paint that was in other than a deteriorated condition. Therefore, these items do not constitute modifications and remain dutiable.
Item 701, Container Socket and Hatch Cover Lifting Socket
The protestant contends that the work at issue constitutes modifications to the hatch cover, citing CBP Ruling HQ 115132 (June 15, 2001). We noted in that case that work would be considered a non-dutiable modification if there was no need to repair the existing hatch cover. The submitted invoice describes in detail the work done in this case, specifically that new parts were installed of different types than were previously installed. Your office found this item to be related to Item 445 from the same invoice, which refers to dutiable repairs to the deck socket storage container. We also find these two items to be related. To that extent, this item remains dutiable.
Item 702, Hatch Cover Bearing Pad
The protestant contends that the work at issue constitutes modifications to the hatch cover bearing pad, citing CBP Ruling HQ 114782 (August 20, 1999). We found the work done in that case to be a non-dutiable modification because sufficient evidence was submitted to show that a new type of bearing pad was replacing fully functioning bearing pads. The submitted invoice does not indicate such. Furthermore, your office found this item to be related to Item 414 from the same invoice, which refers to dutiable repairs to the hatch cover. We also find these two items to be related. To that extent, this item remains dutiable.
Item 704, Diesel Fuel Oil Overflow Line
The work done here was to the fuel oil overflow line so that it would no longer interfere “with the athwart ship crane movement.” The protestant’s submission further states that the line was re-routed “to improve vessel operations and prevent possible interference with the movement of the athwartship crane.” The protestant does not, however, submit any evidence that corroborates these statements. Therefore, this item remains dutiable.
Item 705, Control and Monitoring System
The work done in this case was a replacement of the original control and monitoring system with an entirely new system. The new system was allegedly put in place because the old system “was not scalable to include additional alarm monitoring parameters that contribute to the efficient operation and safety of the vessel.” The protestant contends that the work represents an improvement over the old system, and as such is a modification. Your office finds this to be a dutiable installation of equipment.
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. This element should not be given undue weight in view of the fact that vessel components must be welded or otherwise "permanently attached" to the ship as a result of constant
pitching and rolling. In addition, some items, the costs of which is clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes place that does not necessarily involve a modification to the hull and fittings. 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 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.
When considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. § 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel.
"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. Admiral Oriental, supra, (quoting T.D. 34150, (1914); HQ 113393, supra.
By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non-dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include: ...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra, quoting 27 Op. Atty. Gen. 228). A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery. HQ 113393, supra.
In this instance, the invoice indicates that two new electrical data cables were installed to provide data signals to two new computer workstations. We find that the documentation submitted is insufficient to prove that the work done under this item qualifies as a modification. Given such, we find the work done here to be dutiable.
Item 706, Bulkhead 65 Structural Work
The protestant claims that work done here was to extend the bulkhead to strengthen the hull and distribute the possible stresses on the vessel more evenly. Item 440 indicates, however, that a “300mm fracture at the connection of the longitudinal bulkhead” was repaired. It is readily apparent that this item is related to those dutiable repairs. Therefore, this item remains dutiable.
Item 706-01, Lashing Gear Stowage Assistance
The work done here is related to the work done in Item 706, discussed above. Therefore, this item also remains dutiable.
Item 711, Starting Air Compressor Modification
The work done here was to replace the original air compressor with a newly-designed model. The protestant claims that the original air compressor was fully functional at the time it was replaced, and the new model improves the vessel’s Main Starting Air System. The submitted invoices, however, do not indicate the condition the original air compressor was in at the time of replacement. Furthermore, we have only the protestant’s claims that the new model improves the vessel’s operations. Thus, without documentation to corroborate the protestant’s claims, this item remains dutiable.
Exhibit 11, John Crane-Lips Invoice 00025116
This item involves the installation of a bellow assembly. The protestant maintains that the assemblies are parts of the stern tube seal system that is required by the U.S. Coast Guard. The protestant further contends that the parts were purchased in the United States “from an unrelated third party vendor.” The documentation submitted for this work does not indicate that the assemblies were manufactured in the United States. Therefore, this item remains dutiable.
Exhibit 20, Hamworthy Invoice No. 3799
This item covers articles purchased to complete the work described in Item 702. Therefore, this item remains dutiable.
Exhibit 21, Hamworthy Invoice 3927
This item is also dutiable for the same reason as Exhibit 20.
Exhibit 26, International Paint Invoice 772285
Exhibit 27, International Paint Invoice 775207
These items concern articles purchased to complete work done under Items 401, 403, and 404. Those items are dutiable because the invoice does not indicate that the new paint replaced paint that was in other than deteriorated condition. Therefore, we find these to be dutiable as well.
Exhibit 32, Kongsberg Invoice SLO/20003229
This item consists of an alarm control and monitoring system, which is the subject of Item 705. In view of the fact that we found Item 705 to be dutiable, we find that that this equipment is dutiable as well.
Exhibit 35, Mac-Quip Engineering Invoice C-1379-8
This item consists of articles for the bulkhead structural work, which is the subject of Item 706. In view of the fact that we found that Item 706 to be dutiable, we find this cost to be dutiable as well.
Exhibit 47, Sperre Industri Invoice 338794
This item is consists of articles for the work done to replace the vessel’s air compressor, which is the subject of Item 711. In view of the fact that we found that Item to be dutiable, we find these articles to be dutiable as well.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered above should be denied as specified in the Law and Analysis portion of this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP
personnel, and to the public on the CBP Home Page on the World Wide Web at
www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers, and Immigration Branch