VES-13-18-CO:R:P:C 110569/110653 BEW
X Ref. 110570 through 110575

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
6 World Trade Center
New York, New York 10048-0945

Re: Protest Nos. 1001-5-011484 and 1001-7-017114; Vessel Repair entry Nos. 4601-85-702875-6 and 4601-86-701122-9 dated February 20 and November 5, 1985; Port of Arrival: New York Seaport; Vessel: SEA-LAND PIONEER; Dates of Arrival: February 20, 1985 and November 4, 1985; Voyage Nos. 82 and 91, respectively

Dear Sir:

This is in response to a transmittal, dated September 1, 1989, from your office, which transmitted protest Nos. 1001-5- 011484 and 1001-7-017114, which concerns eight (8) vessel repair entries: entry Nos. 4601-85-702875-6; 4601-85-702941-2; 4601-85- 702956-4; 4601-85-702908-5; 4601-85-702927-6; 4601-85-702972-6; 4601-85-702989-4; and 4601-86-701122-9. Our findings are set forth below.

FACTS:

In 1985, Sea-Land Service, Inc. (Sea-Land), commenced certain foreign shipyard operations to the engine room and bridge systems to convert the vessel, the SEA-LAND PIONEER, from ACC (Automatic Control Console) to ACCU (Automatic Control Console Unattended) to permit unmanned engine room operation. This conversion was to be completed over a series of voyages encompassing entry Nos. 4601-85-702875-6; 4601-85-702941-2; 4601- 85-702956-4; 4601-85-702908-5; 4601-85-702927-6; 4601-85-702972- 6; 4601-85-702989-4; and 4601-86-701122-9. By prior arrangement with the Chief, Residual Liquidation and Drawback Branch, New York and Headquarters, Sea-Land was to declare a pro-rata amount of the conversion cost on each voyage. The invoices for the conversion would be submitted at the completion of the project. Liquidation of the entries was to be suspended until the conversion was completed.

The series of voyages occurred during the period from February 20 through November 4, 1985. Applications for relief were timely filed in all eight entries. The Customs Form 226 filed on the Voyage 82, entry No. 4601-85-702875-6 contained an entry that indicated that $108,452.50 was thirty (30) percent of the prorated amount of the total contract amount of $195,000 for the engine room modifications. On July 5, 1985, Customs liquidated this entry as dutiable in the amount of $1,132,980.50. On July 15, 1985, the Residual Liquidation Section informed the Financial Operations Section, that through inadvertence, the entry was prematurely liquidated, therefore, the bill should be cancelled. The bill was cancelled on July 16, 1985. On August 20, 1985, Sea-land filed a protest on entry No. 4601-85- 702875-6. The protest alleged that:

An Application for Relief was submitted on April 22, 1985, which is presently pending. As this entry covered a drydocking, the final invoice was still under negotiation at the close of the required 60 day submission period. Therefore, in order to conform with the U.S. Customs regulations we submitted the original unsettled invoice together with a request for an extension of an additional 30 days. The settled invoice, which was submitted within the 20 days from the date of the Notice of Action, was not taken into consideration.

We considered the work performed, which conforms with U.S.C.G. requirements for an unattended Engine Room and reduced manning, to be a modification to the vessel's safety and machinery alarm system and therefore free from duty. The entry in question was discussed in a meeting with Vito Gulario and Catherine [sic] Peterson in February in Washington, D.C., and as a result of this meeting the above procedure was followed.

We request you suspend action on this protest pending the resolution by Headquarters of the Application for Relief submitted on April 22, 1985.

Sea-Land filed an application for relief in each of the eight (8) entries. Customs reviewed all eight (8) vessel entries relating to the subject vessel, and on May 1, 1986, stated that Sea-Land had not furnished information in sufficient detail to enable us to determine that the subject work constitutes modifications rather than repairs. The following invoices were submitted with entry No. 4601-86-701122-9, the last of the eight (8) voyages:

Siemens-Allis Invoice No. PE356985, dated September 20, 1985, Siemens-Allis Invoice No. PE356181, dated November 19, 1985, and Ocean Marine Transport & Trading Limited, Invoice No. F.35391, dated March 13, 1985.

When the invoices for the actual conversion costs were submitted, Siemens-Allis Invoice No. PE356985, the primary invoice containing the cost for the modifications, did not contain a breakdown of the work performed and the cost of each item. Listed on the invoice was the following description:

Upgrading of 'MV Sealand Pioneer' from ACC to ACCU in accordance to ABS & USCG regulations $181,032.00

Bell logger 8,000.00

GRAND TOTAL $189,032.00

On August 21, 1986, acting on the Applications for Relief filed in the subject entries Customs ruled as follows:

In entry No. 4601-85-702875-6 (voyage 82) - it was held that the entire amount of the claimed modification including the Lloyd Werft invoice and Siemens invoice will be dutiable on the voyage submitted except for charges attributable to drydocking, survey, and transportation costs.

In entry Nos. 4601-85-702941-2; 4601-85-702956-4; 4601-85- 702908-5; 4601-85-702927-6; 4601-85-702972-6; and 4601-85- 702989-4; - it was held that since the entire amount had been previously charged to entry No. 4601-85-702875-6, we were not prorating the amount suggested in each of the subject entries by the applicant.

In entry No. 4601-86-701122-9, we ruled that:

Upon further review of the file we are unable to find any documentation as to what actual work took place, by whom and where such work was done. As for the Bell Logger, although billed from the United States we are unable to determine where it was actually purchased.

The burden of proof is on an applicant to show that the work performed is non-dutiable. The application failed to furnish such evidence. We therefore find the Siemens invoice dutiable, with the exception of the travel and related expense.

In requesting relief in protest No. 1001-7-017114, the protester asserts that in 1985, Sea-Land modified its four (4) D- 6 Container Ships (ADVENTURE, LEADER, PACER and PIONEER) from ACC (Automatic Control Console) to ACCU (Automatic Central Console Unattended). The purpose of this modification was to allow unattended operation of the engine room. It further alleges that the basis for this protest is twofold:

1. The conversion from ACC to ACCU involved an alteration to the hull and fittings and should not be considered equipment or repairs. To substantiate this claim, Sea-Land submitted a document "Sea-Land Service, Inc., D-6 Class Vessels, drydock specifications 1985" and Headquarters ruling 104358 PH.

It alleges that the basis for this claim is that the modifications meet the requirements of T.D. 44359 (United States v. Admiral Oriental Line et al. (No. 3298), and that Customs liquidated as duty-free the identical permanent modifications made to the SEA-LAND ADVENTURER, a sister ship and one of the four subject vessels. (Entry No. 86-85-7029807).

ISSUE:

Whether the protest of duties on the cost of the installation of a new alarm system and related work on the engine room and bridge system of a vessel to permit unmanned engine room operations, should be granted on the basis of the evidence submitted purporting to establish that the installation and related work are alterations or modifications to the hull and fittings of the vessel.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in part for payment of an ad valorem duty of 50 percent of the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade. Section 1466 (d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

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. 228). That opinion interpreted section 17 of the Act of June 26, 1884 (23 Stat. 57), which allowed drawback on 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 thereof, 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 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.

In its application of the vessel repair statute (19 U.S.C. 1466), Customs has consistently held that modifications/ alterations/additions to the hull and fittings of a vessel which

allow the vessel to operate more efficiently are not subject to vessel repair duties. To be found non-dutiable as a modification/alteration/addition, the work done must involve no element of repair due to damages, deterioration or wear and tear. If those are present, the work will be considered a repair and dutiable.

With regard to the dutiability of entry No. 460185-7029807 (SEA-LAND ADVENTURER, Voyage 86), our records show that this entry has been liquidated as duty-free in error. Our review of the ruling letter issued on July 2, 1986, relating to the Application for Relief filed in entry No. 460185-7029807 reveals that with reference to Siemens-Allis invoice in the amount of $189,032 covering the alleged non-dutiable modification, the ruling held that:

In view of the fact that the files contain an inadequate description of this item the work should be held dutiable upon liquidation. In like manner, the work covered by the invoices from Ocean Marine Limited for "consultancy services" constitutes an integral part of the work by Siemens-Allis and should be held dutiable upon liquidation of the entry. After the nondutiable travel and hotel expenses have been deducted, that portion of the cost for "consultancy services" applicable to the subject vessel should be held dutiable upon liquidation."

We have reviewed the complete record in all eight (8) entries relating to the subject vessel. In a "quotation", Siemens-Allis, the "shipyard", offered to do work described as consisting of the extension of the existing alarm system with ten crew alarm panels for the chief engineer, engineers (5 panels), officer's mess, officer's lounge, bridge console, and engineer gangway. New alarms were to be installed and an existing electrical system, alarm system, and fire pump were to be modified and/or additions were to be made to them. The engine room bilge pump was to be automated and the fire alarm system and the central fire fighting station were to be extended.

According to this quotation, the shipyard offered as an alternative to the extension of the existing alarm system the installation of a new Simos 32 alarm system with "VDU" and data logger. The invoice for this work (Siemens-Allis invoice PE356985) lists two items describing the work as "Upgrading of 'MV Sealand Pioneer' from ACC to ACCU in accordance to ABS & USCG regulations" and "Bell logger" for a total amount of $189,032.00. Also submitted as evidence (with entry

No. 4601-85-702989-4) regarding the engine room work was American Bureau of Shipping (ABS) Report No. RO30,283, dated August 23, 1985. This ABS report describes the work in detail, including the installation of the new Simos 32 alarm system. The description of the work is consistent with that in the shipyard "quotation" and includes no evidence of any repair work done as a part of this work. The ABS report concludes that "the vessel will be eligible to be classed + ACCU." Conversion of the vessel from ACC to ACCU is described in the submitted materials, including other invoices, as the purpose of the work. Other work was also done on the vessel and included in the vessel repair work.

We have thoroughly reviewed all of the evidence relating to the protests filed in these entries, as well as the evidence in the other six (6) entries relating to this vessel. We find that the evidence submitted pertaining to the engine room work described in Siemens-Allis invoice PE356985, in particular the ABS report describing the work done consistently with the offer by the shipyard and concluding that the vessel was eligible to be classed "ACCU", satisfactorily meets the alterations and modifications tests described above. Accordingly, protest No. 1001-5-011484 is granted with regard to the thirty (30) percent of the engine room work described in Siemens-Allis invoice PE356985 apportioned to entry No. 4601-85-702875-6, and protest No. 1100-5-011486 is granted with regard to the remaining 70 percent of the engine room work described in Siemens-Allis invoice PE356985 apportioned to entry No. 4601-86-701122-9.

HOLDING:

The described protest, of duties on the cost of the installation of a new alarm system and related work on the engine room of a vessel as described above, is granted with regard to the portion of the work described in Siemens-Allis invoice PE356985 apportioned to entry Nos. 4601-85-702875-6 and 4601-86-701122-9. The evidence submitted satisfactorily establishes that the installation and related work are alterations or modifications to the hull and fittings of the vessel.

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch

cc: VRLUs LA and NO