HQ 111425
June 26 1991

VES-13-18-CO:R:P:C 111425 LLB

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel Repair; Modification; Repair; Vessel SYOSSET, V-184; Entry Number C27-0034962-7

Dear Sir:

Reference is made to your memorandum of November 21, 1990, which forwards for our consideration the Petition for Review from vessel repair duties filed by counsel on behalf of Mobile Oil Corporation, seeking relief from the assessment of vessel repair duties in connection with the March 14, 1989, arrival of the vessel SYOSSET in the port of Los Angeles, California.

FACTS:

The vessel, upon arrival, filed a declaration and entry of vessel repairs as required under section 4.14, Customs Regulations (19 CFR 4.14), reporting work which had been performed in a foreign shipyard. An application for relief from duties sought relief on numerous items for the claimed reason that they involved non-repair-related expenses (modification, cleaning, survey, etc.). Customs Headquarters rendered advice on twenty-two such items in the ruling on case number 110833. These items included the installation of new satellite communications and radar systems (invoice items 613A and 615, respectively).

In ruling on these items we found that, "Items 12 (613A) and 15 (615) detail the installation of a new satellite communication system and radar system, respectively. Normally, some of the items installed (wiring, for instance) would be considered permanent modifications and the cost of that portion would be duty-free. In this case, however, there is no segregation within the items. Since portions of the items concern the installation of sensitive electronic equipment which would in all likelihood be removed from the vessel during extended lay-up, the entire cost of both items should be considered subject to duty." ISSUE:

Whether the evidence presented on appeal cures the deficiencies noted in the record regarding the Application for Relief, to include sufficient cost segregation and evidence of permanency.

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.

Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. 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.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended layup.

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.

In the present matter, the petitioner has submitted additional evidence for consideration. Shipyard invoices are supplied which provide a segregated cost breakdown covering the installation of the radar and communications systems. Also provided is the sworn statement of the Engineering Superintendent for the U.S. Fleet of Mobil Oil Corporation, the person responsible for the supervision of vessel lay-up operations for the company. The statement indicates that the systems are permanently installed on the vessel and, were the vessel to be laid up, the systems would not be removed. Rather, dehumidifiers would be installed on the vessel in order to maintain the systems in good operational condition during any such lay-up period. These additional submissions satisfy the deficiencies noted in our response to the initial Application for Relief.

HOLDING:

Following a thorough review of the facts and evidence, and after analysis of the law and applicable precedents, we have determined to allow the Petition for Review as specified in the Law and Analysis portion of this decision.


Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch