VES-13-18-OT:RR:BSTC:CCR H246931 KLQ
Supervisory Liquidation Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street, Suite 246
New Orleans, Louisiana 70130
RE: 19 U.S.C. § 1466; Vessel Repair Entry C20-0082712-4; Protest 2002-2013-100049; STUYVESANT.
Dear Ms. Borden:
This ruling is in response to your October 2, 2013, memorandum in which you request further review of the protest filed by the Stuyvesant Dredging Company (“Stuyvesant”) with respect to Vessel Repair Entry No. C20-0082712-4. Our decision follows.
FACTS
The STUYVESANT (hereinafter “the vessel”), departed from the United States (“U.S.”) on November 7, 2010, from New Orleans, Louisiana, incurred foreign shipyard expenses in Bremerhaven, Germany, and Rotterdam, the Netherlands, and returned to the United States on August 27, 2011. On August 27, 2011, Stuyvesant submitted Vessel Repair Entry No. C20-0082712-4. On December 20, 2011, Stuyvesant submitted an Application for Relief requesting relief from duty for, inter alia, parts that were “necessarily installed,” parts purchased in and shipped from the United States, U.S. - made parts, work done on the drag arm, and work done on the turtleboxes. The Vessel Repair Unit (VRU) made a final determination of duties assessed on March 15, 2013, in which it granted the application in part; however, it denied relief for the work done to the turtleboxes. On August 30, 2013, Stuyvesant filed an application for further review.
ISSUE
Whether the costs relating to the turtleboxes, for which the protestant seeks relief, are a dutiable repair or a non-dutiable modification under 19 U.S.C. § 1466?
LAW AND ANALYSIS
Title 19, United States Code, section 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. In its administration of the vessel repair statute, 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 HQ 111425 (June 26, 1991); HQ 111747 (Feb. 19, 1992); and HQ 113127 (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 modification under 19 U.S.C. § 1466, 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. The factors are:
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, 139 (C.C.P.A. 1930) citing Otte v. United States, 7 Ct. Cust. 166, 169 (Ct. Cust. App. 1916) and 27 Op. Atty Gen. 228.
However, 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. Admiral Oriental, 18 C.C.P.A. at 140, and 27 Op. Atty Gen. 228 at 19.
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. Horizon Lines, LLC v. United States, 626 F.3d 1354, 1360 (Fed. Cir. 2010), citing Admiral Oriental, 18 C.C.P.A. at 141.
4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel. Id.
Additionally, in order to qualify as a modification, rather than 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. See HQ H246435 (Dec. 9, 2013), HQ H188678 (April 2, 2012), HQ H171856 (December 1, 2011).
In the instant case, the work at issue was done on the turtleboxes, which are “cage-like metal structures,” which serve to catch turtles that are caught in the dredge spoils. They are an effort to ensure compliance with the Endangered Species Act of 1973. The VRU denied relief for the work performed on the turtleboxes because it found that references to rust and corrosion in the shipyard’s description of the work indicated that the turtleboxes were in a state of deterioration, and were in need of repair. In support of its position, the VRU cites the shipyard’s invoice at item VO 80 Exhibit C, Book 1 of 2, which describes the work on the turtleboxes:
The original expected removal as understood from photos and meeting before the arrival of the ship was completely different to what we found on board. […]
Therefore, Due[sic] to the condition of the Loader and turtle boxes we had to attempt to remove them together in one piece including the transverse H-beams attached. […] Also, for safety measures we had to install four h-beams to stabilise the hopper. […] The next step was to weld transport eyes on to areas in the boxes where the steel would hold as most areas where[sic] too badly corroded and strops fitted. Working from the crane basket. […] The thick rust causing a problem for the burner.
Based on these descriptions, the VRU concluded that the work constituted a dutiable repair as opposed to a non-dutiable modification.
Stuyvesant argues that the work performed on the turtleboxes qualifies as a non-dutiable modification because: (1) the turtleboxes were in working order at the time of the dry docking; (2) the turtleboxes were redesigned and repositioned in order to improve the operation of the delivery system; and (3) the turtleboxes were redesigned and repositioned in order to improve the overall operational efficiency of the vessel. In support of their argument, Stuyvesant submitted two sworn declarations. The first is a declaration from the Assistant Manager [of] Technical Services employed by Baggermaatschappij Boskalis in Holland. This individual observed the work performed on the vessel. He explained that turtleboxes function in harsh conditions and are of a rugged design; therefore, the presence of normal rust and corrosion does not affect the operation of the turtleboxes. He also stated that “prior to the modification work, the turtleboxes were in good working order.” The turtleboxes were only modified and redesigned to improve the system’s handling of finer spoils, as well as to improve the stability and operation of the vessel. The second declaration is from the General Manager of Dredge Operators, Inc. and the Port Engineer of the vessel. He stated that “prior to the work, the turtleboxes were in full proper working order.” The original turtleboxes were replaced with new, lighter models and were relocated from underneath the discharge hopper line to the sides of the hopper line. The declaration indicates that the purpose of the work was to improve the operation, efficiency, and stability of the vessel.
Both of these declarations are self-serving statements. The declaration from the Assistant Manager of Technical Services is self-serving because Stuyvesant is ultimately owned by Boskalis in Holland. The second declaration is from the Port Engineer of the STUYVESANT. Both individuals are affiliated with the requesting party. CBP has traditionally held that internally generated documents, without more evidence, do not constitute sufficient proof in support of the position postured. See HQ H110717 (June 28, 1990), HQ H111942 (March 15, 1995), and HQ H057909 (March 2, 2010). However, the shipyard invoice, in tandem with the self-serving statements, provide sufficient evidence to indicate that the work done on the turtleboxes constitutes a modification because: (1) any rust or corrosion was incidental to the work on the turtleboxes and (2) the turtleboxes appear to have been functioning properly at the time of the work.
The description of the work in the shipyard invoice indicates that in the process of removing the original turtleboxes, the workmen encountered rust and corrosion. However, the shipyard invoice does not indicate that the presence of rust and corrosion was the reason for the work performed. In fact, the invoice only indicates that the rust and corrosion made the removal of the turtleboxes difficult. Invoice item VO 80, discusses the difficult removal of the turtleboxes. However, a difficult removal is not in and of itself, indicative of an item in need of repair. In the present case, the two statements provided by Stuyvesant, in tandem with the shipyard invoice, support the argument that the rust and corrosion on the turtleboxes was a matter of incidental presence, as opposed to an impetus for the subject workmanship. The only mention of rust and corrosion in the invoice is that it made the removal of the turtleboxes difficult. Therefore, the presence of rust and corrosion was not tied to the purpose of the work performed.
The two statements from Stuyvesant and the description of the work on the shipyard’s invoice, also suggest that the turtleboxes were in good working order at the time of their removal. The supporting documentation does evidence rust and corrosion; however, it does not indicate that this rust and corrosion necessitated the work that took place. The mere presence of rust and corrosion in this instance is not evidence that the work performed constitutes a repair as opposed to a modification. Therefore, absent evidence to the contrary, the work completed on the turtleboxes constitutes a non-dutiable modification.
HOLDING
The costs relating to the turtleboxes, for which the protestant seeks relief, constitutes a non-dutiable modification. Accordingly, the protest is granted.
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 this decision must be accomplished prior to the 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,
Lisa L. Burley
Chief/Supervisory Attorney-Advisor
Cargo Security, Carriers and Restricted Merchandise Branch
Office of International Trade, Regulations and Rulings
U.S. Customs and Border Protection