VES-13-18-CO:R:P:C 110294 LLB
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Request for opinion regarding the dutiability of certain
foreign shipyard operations performed on the U.S.-flag
vessel OMI MISSOURI
Dear Sir:
Reference is made to your undated correspondence forwarding
for our consideration the July 27, 1988, application for relief
from vessel repair duties files by the OMI Corporation relative
to the May 15, 1988 arrival of the vessel in the port of Albany,
New York. Duty was assessed upon the cost of foreign shipyard
operations pursuant to section 466, Tariff Act of 1930, as
amended (19 U.S.C.1466), under vessel repair entry number 336-
0062171-9.
FACTS:
The vessel underwent routine drydocking and repair
operations in Portugal from April 16 to April 26, 1988. The
invoices presented are divided into five categories. These are:
1. Setenave shipyard invoice I/80/047 (general drydocking
and repair services).
2. Triton Marine Services invoice 87/88/047 (O ring, gasket,
and seal ring sets).
3. Catonave (cathodic protection) invoice 071/88 (supply of
anodes to the vessel).
4. Catonave (cathodic protection) invoice 075/88 (anode
maintenance and protective applications).
5. American Bureau of Shipping (ABS) survey report.
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ISSUE:
Whether evidence is presented sufficient to permit refund of
duties.
LAW AND ANALYSIS:
Section 1466 provides, in pertinent part, for payment of
duty in the amount of 50 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.
A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under section 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288). That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57, which allowed drawback on the vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:
...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...
[and] are material[s] used in the construction of
the vessel...
While the opinion of the Attorney General interpreted a provision
of law other than section 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.
For purposes of section 1466, dutiable equipment has been
defined as:
...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 (1914)).
It should be noted that the fact that a change or addition
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of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of statute or
code, it 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.
One early case (United States. v. George Hall Coal Co., 134
F. 1003 (1905)), was the first to find any of various types of
expenses associated with repairs to be classifiably free from the
assessment of vessel repair duties. The case established that
the expenses of drydocking a vessel (regardless of the underlying
need to drydock) is not an element of dutiable value in foreign
repair costs. Drydocking is a major, but not isolated, expense
in general ship repair operations. Many other associated
expenses and services are necessary adjuncts to drydocking and
are logically inseparable from the drydocking rule. These
include such items as drydock block arrangement, sea water supply
(for fire-fighting equipment), hose hook-up and disconnection
charges, fire watch services, the services of a crane for
drydocking-related operations, the provision of compressed air,
cleaning of the drydock following repairs, and numerous others.
Under the above-cited precedent, some of the items are
classifiably free, some are clearly dutiable repairs, and some
are insufficiently described to permit a determination. The
items which we find to be dutiable repairs are:
Invoice Page Item Description
004 seachest painting
004 replace anodes
006 replace outboard seal
007 new life raft falls/wires
012 main sea valves
014 washing/painting/blasting
014 cleaning/blasting/painting
014 propeller repairs
015 plate renewals
017 frame 2 crane grab reel
017 crane grab reels
017 crane grease line
018 fore mast stays
018 lifeboat falls
018 fish plate
018 aft draft gauge
019 echo sounder
019 doppler speed log
020 machinings
024 access work
024 hydraulic gauge
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BB Triton Marine Services
CC Catonave (anodes)
DD Catonave (protective coat)
EE ABS survey (incomplete)
The items for which insufficient information has been
submitted and which will therefore be considered dutiable are
shown as numbers 01,02, and 03 on page 015 of the main invoice.
The other items not specified in this ruling are considered free
of duty either as modifications or, in the case of items 1-15 on
the first 4 invoice pages, as classifiably free charges.
HOLDING:
Following a thorough review of the evidence as submitted, we
recommend that the application be allowed in part and denied in
part, as specified in this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch