VES-3-18-RR:BSTC:CCI H102480 GOB
Supervisory Import Specialist
c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112
RE: 19 U.S.C. §1466; Vessel Repair Entry V72-1660000-7; Protest 2002-09-100146; MANOA, V-147E
Dear Sir:
This is in response to your memorandum of April 15, 2010, forwarding for our review the protest filed on behalf of Matson Navigation Company (the “protestant”) with respect to Vessel Repair Entry V72-1660000-7. Our ruling is set forth below.
FACTS:
The M/V MANOA (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Long Beach, California on April 4, 2008. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on May 22, 2009 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466?
LAW AND ANALYSIS:
Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e).
Title 19, United States Code, section 1466 (19 U.S.C. §1466) provides for the payment of duty at a rate of fifty 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 be employed in such trade.
Section 1466(d)(2) (19 U.S.C. § 1466(d)(2)) provides in pertinent part: “If the owner or master of such vessel furnishes good and sufficient evidence that … such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States … then the Secretary of the Treasury is authorized to remit or refund such duties …”
In its administration of the vessel repair statute, CBP has frequently used the following definitions:
Equipment – An article which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples would include winches and generators.
Material – An item which is consumed in the course of its use and/or loses its identity as a distinct entity when incorporated into the larger
whole, e.g., paint and sheets of steel.
Part – An article which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. Examples would include piston rings and pre-formed gaskets.
In its administration of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue as to whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466:
1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.
Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.
3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.
Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.
Additionally, we note that in order to qualify as a nondutiable modification rather than a repair the documentation of record must reflect that the element which was replaced was in good and full working order at the time the work was performed.
You have requested our review with respect to the following items.
Item 876. Piston No Flow Box and Wiring Installation. The invoice provides that “COSCO provided assistance to wire and test the Piston No Flow Box and Wiring Installation.” The protestant states that “[t]he work in this item was a modification of the vessel which required the installation of a new Piston No Flow Box from the existing location (as originally installed directly on the engine) to a new location on the bulkhead adjacent to the engine. The original location on the engine was a harsh operating environment including excessive heat and potential contamination from fuel or oil leaks…. The existing Piston No Flow Box was operating as designed and fully functional at the time that it was removed.” We find that this cost is nondutiable under 19 U.S.C. § 1466 as the record does not reflect that it involves repairs or the dutiable installation of equipment, but instead the work exhibits the characteristics of a nondutiable modification, as discussed above.
Item 877. New Bridge Wing Telegraph Boxes. The invoice provides: “Provided labor, equipment and material to remove and scrap existing and install new bridge wing telegraph boxes.” The protestant states: “The work in this item was a modification of the vessel which required the installation of new bridge wing telegraph boxes and new panels which are easier to use, have lighter covers which are easier to open and provide better protection to the control system components from the weather.” We find that this cost is dutiable under 19 U.S.C. § 1466(a) as equipment of the vessel, as it meets the definition of “equipment,” stated above.
Item 882. New Ship Service Air Compressor Installation. The invoice provides: “Provided all labor and material to install the … ship service air compressor in the New Starboard Side Engine Room Annex.” The protestant claims that this cost is a nondutiable “modification of the vessel which involved the installation of a new and additional ships service air compressor where none previously existed.” We find that the air compressor is equipment of the vessel. See the definition of equipment, stated above. Therefore, this cost is dutiable under 19 U.S.C. § 1466(a).
Cosco (Nantong) Shipyard Co., Ltd. Invoice No. N07033009B11-E. Marinfloc CD 5.0 Installation. The invoice provides: “Provide assistance to install the Marinfloc Model MKIII Type CG 5.0 emulsion breaking bilge water cleaning system under the direction of the Owner’s Representative.” The protestant states: “… when the new MarinFloc system was installed, the original Heli-Sep system remained functional and operating independently as part of the vessel’s OWS System added to increase the capacity of the bilge water filtering systems of the vessel.” We found this type of cost to be nondutiable in HQ H053686 dated October 13, 2009 and HQ 115132 dated June 15, 2001. Consequently, we find that this cost is nondutiable under 19 U.S.C. § 1466.
We further find that the following costs on the following invoices are nondutiable as they are costs directly related to the Marinfloc CD 5.0 installation: Harris Pye, Inc. invoice #5058c (Exhibit 84); Kwok Shing Co. invoice #KWSIV08-2008 (Exhibit 114); SinOcean Ship Management invoice (Exhibit 231); and Total Marine Solutions Inc. invoice #10163 (Exhibit 245).
Cosco (Nantong) Shipyard Co., Ltd. Invoice No. N07033009B11-F. Molasses Tank and Transfer System Modification. The invoice provides: “Provided assistance to convert the No. 2 Lower Ballast Deep Tank and the No. 2 Upper F.O. Deep Tank to Molasses Tanks in accordance with Owner’s drawings. Both tanks required cleaning and blasting in preparation for food grade liquid cargo service. Installation of new molasses transfer piping, pumps and associated electrical outfitting was part of this modification.” The protestant has provided a revised invoice with cost breakdowns as to the numerous costs within this work. It has also provided statements from two individuals who state that they have personal knowledge as to this work. The protestant states that “[o]ther than the repair to the sounding tube … all of the other work described in this section was part of the conversion work and not a repair.” With the exception of the cost for cropping and inserting “a section of the port void sounding tube between the 2nd and 3rd decks” within the “Vents & Sounding Tubes” section of the invoice (conceded by the protestant to be dutiable) and the cost for “FB Stiffeners on Longitudinal Girders” (there is evidence of wasted steel throughout the vessel), we find that the work on this invoice exhibits the characteristics of nondutiable modifications to the vessel, discussed above. There is no evidence in the documentation of record which indicates that these costs are dutiable under 19 U.S.C. 1466.
Cosco (Nantong) Shipyard Co., Ltd. Invoice No. N07033009B11-G. SVDR Installation. The invoice provides: “Provided assistance to install the Simplified Voyage Data Recorder (S-VDR) under the direction of Matson’s Owner Representative. Made all electrical installations for the float free S-VDR storage unit.” The protestant claims that this cost is a modification to the vessel. We find that these costs are dutiable as vessel equipment or the cost of installation of vessel equipment. Vessel equipment is not a nondutiable modification to the vessel. This issue, or this particular type of issue, has previously been thoroughly considered by CBP. See, for example, the discussion, including the authorities cited, in the following rulings: HQ 113798 dated January 9, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 226688, dated July 29, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 114092, dated September 12, 1997, where we found a radar system and a satellite communications system to be dutiable as vessel equipment; and HQ 114093, dated September 12, 1997 (modifying Memorandum 109936), where we found a satellite communications system to be dutiable as vessel equipment. In these rulings, we considered whether the item at issue was a nondutiable modification to the vessel or vessel equipment. We concluded that the item at issue in each ruling was dutiable under the vessel repair statute as vessel equipment. See also HQ H052778 dated May 7, 2009, H068756 dated August 5, 2009, and HQ H086244 dated December 15, 2009, where we found simplified voyage data recorders (“SVDRs”) to be dutiable under 19 U.S.C. § 1466(a) as vessel equipment. We find similarly in this entry and protest – this cost is dutiable under 19 U.S.C. § 1466(a) as vessel equipment.
We further find that the cost on Kongsberg Maritime invoice #08040447S (Exhibit 105) is dutiable as it is a cost directly related to the SVDR installation.
Stanley Vidmar invoice #199546 (Exhibit 245). This invoice concerns five cabinets. The protestant has provided a certification indicating that three of the cabinets were manufactured in the United States. We find that the cost of the first three cabinets on the invoice is eligible for remission of duties under 19 U.S.C. § 1466(d)(2). The cost of the two additional cabinets is dutiable under 19 U.S.C. § 1466(a).
HOLDING:
The costs for which the protestant seeks relief are dutiable, nondutiable, or remissible under 19 U.S.C. § 1466, as discussed in the Law and Analysis section of this ruling.
You are instructed to grant the protest in part and deny the protest in part with respect to the costs discussed in this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any final duty determination of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers and Immigration Branch