VES-13-18 CO:R:P:C 110932 BEW
Chief, Technical Assistant
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831
RE: Protest No. 30019 001219; M/V SEA-LAND FREEDOM, Voyages
78/79/80; Vessel Repairs; Modifications; Surveys
Dear Sir:
This is in reference to a memorandum from your office which
transmitted protest No. 30019 001219, relating to vessel repair
entry no. 110-0103656-2, concerning the M/V SEA-LAND FREEDOM,
Voyage Nos. 78/79/80, which arrived at the port of Tacoma,
Washington on October 8, 1987. The entry was filed on October 8,
1987.
FACTS:
In September 1987, while in Kobe, Japan,, the vessel SEA-
LAND FREEDOM underwent various shipyard operations. The
dutiability of these operations has previously been considered
by your office. The protestant elected not to file an
Application for Relief. The entry was liquidated on August 11,
1989. The protest was timely filed on November 7, 1989.
Included in your considerations was the matter of whether the
cost associated with the installation of the following items is
dutiable under the statute:
Item 7/87-1 - Rope Guard,
Item 7/87-3 - New door on Economizer preheating casing,
Item 7/87-4 - Stern Tube Bearing Lube Oil System
Item 7/87-6 - Gas Economizer drain,
Item 7/87-7 - Stern Tube Boss,
Item 7/87-11 - Stern Tube Seal Modification,
Item 7/87-13 - Purifier Separator Driven Feed pumps,
Item 7/87-18 - Lube Oil Filing Line,
These are the only items which are presently being
protested.
ISSUES:
Whether certain work performed in a foreign country
constitutes modifications/alterations/additions to the hull and
fittings rather than equipment purchases or repairs within the
meaning of 19 U.S.C. 1466?
LAW AND ANALYSIS:
Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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
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 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228). That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
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 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.
Under long-standing and consistently applied administrative
policy, an installation, even one of a permanent nature, is
considered to be a dutiable repair rather than a modification if
the installation addresses a repair need. Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.
In the present case, the protestant claims that the
installation of the subject items is a design and operational
improvement over the old one. It is claimed that these items
were not found to be damaged at the time they were replaced and
that the permanent installation of the subject items is to
improve the efficiency of the vessel's operation and should be
properly considered a non-dutiable modification.
Examination of the entire record, including that portion of
the invoice relating to the subject items, reveals that the
subject items were installed to enhance the operation of the
vessel's efficiency and are permanent installations to the
vessel's hull and fittings. Accordingly, we find that the cost
associated with the subject items with the exception of Item No.
7/87-7, Stern Tube Boss is non-dutiable. The following items are
nondutiable modifications to the vessel's hull and fittings:
Item 7/87-1 - Rope Guard,
Item 7/87-3 - New door on Economizer preheating casing,
Item 7/87-4 - Stern Tube Bearing Lube Oil System
Item 7/87-6 - Gas Economizer drain,
Item 7/87-11 -Stern Tube Seal Modification,
Item 7/87-13 - Purifier Separator Driven Feed pumps,
Item 7/87-18 - Lube Oil Filing Line,
In Headquarters ruling 106543 JM, we held that mere cleaning
operations are not dutiable. However, cleaning operations which
remove rust and deterioration or worn parts, and which are a
necessary factor in the effective restoration of a vessel to its
former state of preservation, constitute vessel repairs (See
C.I.E. 429/61). The Drydocking survey states:
a) The stern boss was examined and found physically
damaged by cavitation over the entire surface and
circumference in way.
b) The all erroded [sic] cavities on end surface and
circumfernce [sic] of stern boss were cleaned and
smoothly ground out to the sound metal and stern
boss end in way was built up by welding using lqw
hydrogen electrodes....
Upon completion of repairs mentioned above, stern
boss end was visually examine and tested by dye
penetrant inspection and all found satisfactory.
Accordingly, the cost associated with the inspection and
installation of Item 7/87-7 Stern tube boss is dutiable.
Customs has held that where periodic surveys are undertaken
to meet the specific requirements of a classification society,
insurance carrier, etc., the cost of the surveys is not dutiable
even when dutiable repairs are effected as a result thereof;
however, in the liquidation process Customs should go beyond the
mere labels of "continuous" or "ongoing" before deciding whether
the item is dutiable. If an inspection or survey is conducted as
a part of an ongoing maintenance and repair program labelled
"continuous" or "ongoing" the cost is dutiable. Also, if the
survey is to ascertain the extent of damage sustained, or to
ascertain if the work is adequately completed, the costs are
dutiable as part of the repairs which are accomplished pursuant
to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-
277. Accordingly, the cost of item 9, Drydocking survey
associated with the inspection of Item 7/87/-7 Stern tube boss is
dutiable.
The protest is granted in part and denied in part as set
forth in the findings above.
HOLDINGS:
1. In light of our present findings based upon the evidence
and as stated in the law and analysis section of this
ruling, we find that the installation of the most of the
subject items was in the nature of a non-dutiable permanent
modification to the hull and fittings of the vessel. Items
Nos. 7/87-1, 7/87-3, 7/87-4, 7/87-6, 7/87-11, 7/87-13, and
7/87-18 constitutes modifications/alterations/additions to
the hull and fittings rather than repairs. As such, the
cost of this work in not dutiable under 19 U.S.C. 1466. The
protest is granted as to these items.
2. The Drydocking Survey shows that repairs were
accomplished as a part of the installation of Item 7/87/7
Stern Tube Boss. Under the circumstances in this case, the
cost associated with the inspection and installation of Item
7/87/7 Stern Tube Boss and that portion of the survey
relating to Item 7/87/7 is subject to duty under 19 U.S.C.
1466. The protest is denied as to Item 9 - Drying Docking
Survey and Item 7/87/7 Stern Tube Boss.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch