VES-3-18-OT-RR:BSTC:CCI H171856 WRB
Supervisory Import Specialist
C/o Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
Suite 246
New Orleans, LA 70130
RE: 19 U.S.C. §1466; Vessel Repair Entry NB3-8825441-0; Protest 2002-10-100088
Dear Sir:
This is in response to your memorandum of June 8, 2011, forwarding for our review the protest filed on behalf of Marine Transport Management, Inc. (hereinafter “protestant”) with respect to Vessel Repair Entry NB3-8825441-0. Our ruling is set forth below.
FACTS:
The M/V PHILADELPHIA EXPRESS (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Houston, Texas on February 4, 2008. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on March 5, 2010 with respect to the application for relief for the subject entry. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable, non-dutiable, or remissible 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(a) (19 U.S.C. §1466(a)) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to and equipment for 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 ... the labor necessary to install such equipments or to make such repairs was performed by residents of the United States ... then the Secretary of the Treasury is authorized to remit or refund such duties...
Title 19, United States Code, section 1466(h)(2) provides:
The duty imposed by subsection (a) of this section shall not apply to-
…
(2) The cost of spare parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country[.]
In its administration of the vessel repair statute, U.S. Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. See, for example, HQ 111425 dated June 26, 1991, HQ 111747 dated February 19, 1992, and HQ 113127 dated June 14, 1994. 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, several 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. The factors are:
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 may not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.
2. 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.
4. 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 as a repair, the documentation of record must reflect that the element which was replaced, if any, was in good and full working order at the time the work was performed.
You request our determination with respect to the following items:
Item 14.5a. ME Turbocharger I-Beam: The protestant states that this “... work should ... be treated as a non-dutiable modification” because it “did not replace a nonfunctioning comparable part, but corrected a design deficiency in the Vessel’s original design and enhances its operation.” In HQ 114302, dated March 25, 1998, CBP stated that “[w]ork which is performed to correct a problem, deficiency, or state of repair is dutiable under 19 U.S.C. 1466.” In HQ 114140, dated November 18, 1997, we discussed the distinction between modifications and repairs in a case involving proposed modification of hatch covers to remedy friction-related stress problems, saying:
…[I]n order to qualify as a modification rather than a repair it must be made clear that the element which has been replaced was in full working order at the time of the enhancement. If it is necessary that shipyard services be sought in order to address a deficiency in a vessel, the fact that the component ultimately replaced is of improved design or results in increased efficiency or performance is not a relevant consideration.
In HQ H031016, dated August 6, 2008, CBP continued the line of reasoning found in HQ 114140. That matter, in pertinent part, involved shipyard work for a “Container Leveling Plan” to make a correction in container height differential by fitting and welding leveling plates for correction of longitudinal and transverse stack height differential in the vessel’s container holds, which involved burning out welds and removal of the existing mid-hold container fittings on the tank top. In HQ H031016, CBP held that a finding of non-dutiability as a modification would require that the expenses incurred involve only modifications or enhancements and were not otherwise needed as well to correct admittedly deficient performance. We went on to find:
“Thus, in this case, the item remains dutiable as the vessel’s ability to stack containers for transport was deficient and this item was incurred to address this insufficiency. This item does not qualify as a nondutiable modification.”
With regard to item 14.5a, we are of the opinion that this work was undertaken to correct a design deficiency. Protestant states in its submission, “[t]his item is additional structure to correct a deficiency in the vessels (sic) original design (emphasis supplied) and enhances its operation.” Accordingly, we find that this cost is dutiable pursuant to the CBP position that work performed to correct a design deficiency is dutiable under 19 U.S.C. § 1466(a). See HQ 114302, HQ 114140, and HQ H031016.
Item 14.5b. AE I Beam: The protestant states that this “... work should ... be treated as a non-dutiable modification” because it “did not replace a nonfunctioning comparable part, but corrected a design deficiency in the Vessel's original design (emphasis supplied) and enhances its operation.” It further states: “The AE I beams were permanently modified by installing new I beam sections and supports from Frame 23 to Frame 29. The I beams were extended to allow for the movement of parts over the generator section to a position forward of each generator.”
As in the Turbocharger I-Beam discussion, supra, we are of the opinion that this work was undertaken to correct a design deficiency. Protestant states in its submission, “[t]his item is additional structure to correct a deficiency in the vessels (sic) original design and enhances its operation.” Accordingly, we find that this cost is dutiable pursuant to the CBP position that work performed to correct a design deficiency is dutiable under 19 U.S.C. § 1466(a). See HQ 114302, HQ 114140, and HQ H031016.
Item 16.6. Central CFW Cooler Backflush Piping: In its application for relief, the protestant stated: “This item includes labor costs and material charges to permanently correct a deficiency in the vessels [sic] original design (emphasis supplied) and this addition improves the performance and operation of the vessel. This required extensive piping to be added to the vessel.”
As in the Turbocharger I-Beam discussion, supra, we are of the opinion that this work was undertaken to correct deficient design. We find that this cost is dutiable pursuant to the CBP position that work performed to correct a design deficiency is dutiable under 19 U.S.C. § 1466(a). See HQ 114302, HQ 114140, and HQ H031016.
Item 16.8. Salt Water Strainer: The protestant states, “[t]his item includes labor costs and material charges to permanently correct a deficiency in the vessels (sic) original design (emphasis supplied) and this addition improves the performance and enhances the operation of the vessel.” Consequently, we are of the opinion that the work was undertaken to correct deficient design. Protestant has not established that the subject work was a nondutiable modification. Accordingly, we find that this cost is dutiable pursuant to the CBP position that work performed to correct a design deficiency is dutiable under 19 U.S.C. § 1466(a). See HQ 114302, HQ 114140, and HQ H031016.
Item 17.6a-e. Steering Gear: The protestant states: “The addition of these supports was not a repair but clearly comprised a modification to the steering gear that corrected a design deficiency.” As in the Turbocharger I-Beam discussion, supra, we are of the opinion that this work was undertaken to correct deficient performance and is not a repair. We find that this cost is dutiable pursuant to the CBP position that work performed to correct a design deficiency is dutiable under 19 U.S.C. § 1466(a). See HQ 114302, HQ 114140, and HQ H031016.
Item 18.6. and Item 7.12. Installation of Simplified Voyage Data Recorder (“SVDR”) System: The protestant states that this item should be nondutiable because “[t]he SVDR system was added to the Vessel as a modification to comply with a new regulatory requirement.” The protestant also claims that this cost is subject to relief under 19 U.S.C. § 1466(h)(2). The protestant further contends that the cost of the labor of one individual is eligible for remission under 19 U.S.C. § 1466(d)(2). In support of this claim, it has submitted a copy of the U.S. passport of this individual.
We find that this cost is dutiable as vessel equipment or the cost of installation of vessel equipment. Vessel equipment is dutiable under 19 U.S.C. § 1466(a); it 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 (revoking HQ 111425), 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. We find similarly in this entry and protest - these items are dutiable under 19 U.S.C. § 1466(a) as vessel equipment. See also HQ H102480, dated, May 24, 2010; HQ H071240, dated March 16, 2010; HQ H052778, dated May 7, 2009; HQ H047587, dated June 1, 2009; and, H068756, dated August 5, 2009, where we found SVDRs to be dutiable under 19 U.S.C. § 1466(a) as vessel equipment. Because the SVDR system is vessel equipment, it is not eligible for treatment under 19 U.S.C. § 1466(h)(2), which applies to parts and materials. With respect to the protestant’s claim for remission under 19 U.S.C. § 1466(d)(2), it has not provided any documentary evidence which would establish that the individual named on the copy of the passport is the individual who performed some or all of the relevant labor. Under this circumstance, we are not able to grant remission under 19 U.S.C. § 1466(d)(2).
ABS Reports: At issue are the costs on ABS Invoice No. 015132197914. We find that the protestant has submitted satisfactory evidence that the individual who performed this work is a U.S. resident. Therefore, these costs are remissible pursuant to 19 U.S.C. § 1466(d)(2).
HOLDING:
The costs for which the protestant seeks relief are dutiable or remissible under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling. You are instructed to deny the protest in part and grant 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.
Should you have any questions regarding this matter, please contact W. Richmond Beevers, of my staff, at (202) 325-0084.
Sincerely,
George Frederick McCray
Supervisory Attorney-Advisor/Chief
Cargo Security, Carriers and Immigration Branch
Office of International Trade, Regulations & Rulings
U.S. Customs and Border Protection