VES-13-18-CO:R:IT:C 111641 GEV
Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731
RE: Vessel Repair; Entry No. C31-0008394-9; M/V ARCTIC HERO V-1;
Conversion; Modification
Dear Sir:
This is in response to your memorandum dated April 9, 1991,
forwarding an application for relief of duties assessed pursuant
to 19 U.S.C. 1466. You request that we review twenty-four items.
Our findings are set forth below.
FACTS:
The M/V ARCTIC HERO is a U.S.-flag vessel owned and operated
by Palmco Pacific Corporation of Seattle, Washington. The
applicant states that the subject vessel was converted from an
oil rig supply vessel to a stern trawler head and gut fish
factory processing vessel at the Murakami Shipyard in Ishinomaki,
Japan, during the period of July 21, 1989 - July 9, 1990.
Subsequent to the completion of this conversion work the vessel
arrived in the United States at Dutch Harbor, Alaska, on
September 22, 1990. A vessel repair entry was filed on September
28, 1990.
Pursuant to an authorized extension of time, an application
for relief, dated December 18, 1990, was filed. The basis for
the relief requested is that the conversion work in question
constituted a nondutiable modification to the vessel. The
conversion work purportedly entailed the following: (1)
lengthening the vessel to create increased freezer storage space,
a larger area for a processing deck and a longer net deck to
repair and work the nets; (2) increasing the power,
maneuverability and control standards of the propulsion system;
(3) increasing the electrical and hydraulic power of the
auxiliary engine systems to run processing, refrigeration and
hydraulic machinery; (4) installation of a hydraulic system
- 2 -
including hydraulic pumps, motors, and winches to operate the
trawl net and to unload cargo; (5) installation of a processing
plant to produce a marketable product; (6) installation of a
refrigeration plant to freeze and preserve fish; and (7)
increasing the number and size of all accommodation areas to
house a substantially larger crew, including processing crewmen.
In support of its claim for relief the applicant has submitted
various documentation including invoices, lease agreements,
statements of corporate officers of Palmco Pacific Corporation,
and prior Customs rulings.
ISSUE:
Whether evidence is presented sufficient to prove that the
foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications/alterations/
additions so as to render the work nondutiable under 19 U.S.C.
1466.
LAW AND ANALYSIS:
Title 19, United States Code, 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.
In its application of the vessel repair statute, Customs has
held that modifications/alterations/additions to the hull and
fittings of a vessel are not subject to vessel repair duties.
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 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
- 3 -
For purposes of section 1466, dutiable equipment has been
defined to include:
...portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, by 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))
In the present case, the applicant claims that certain items
contained in the Aizawa Shipping Company invoices, are
nondutiable modifications. The record shows that the Aizawa
Shipping Company managed the conversions, which actually took
place at Murakami Shipyards, Ishinomaki, Japan. The Customs
Service has held that the decision in each case as to whether on
installation constitutes a nondutiable modification/alteration/
addition to the hull and fittings of a vessel depends to a great
extent on the detail and accuracy of the drawings and invoice
descriptions of the actual work performed. Even if an article is
considered to be part of hull and fittings of a vessel, the
repair of that article, of the replacement of a worn part of the
hull and fittings, is subject to vessel repair duties.
In the present case, we find the Aizawa invoice descriptions
do not enable us to determine conclusively that the work
performed to the vessel is not dutiable as a modification. The
invoices contain only the most general summary of the work
carried out by the shipyard. Without details provided by the
architectural plans and shipyard invoice descriptions of the work
performed, we can only speculate on the actual work carried out.
In the absence of such information, we find the costs contained
in the Aizawa invoices to be dutiable with the exception of the
charges for dockage on p. 1 (see C.I.E. 429/61) and domestic
packing and freight on p. 19-A (see C.D. 1830).
HOLDING:
The evidence presented is insufficient to prove that the
foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications/alterations/
additions so as to render the work nondutiable under 19 U.S.C.
1466. Accordingly, the charges listed on the Aizawa Shipping
- 4 -
Co., Ltd. invoices under consideration are dutiable with the
exception of those discussed above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch