VES-3-18-RR:BSTC:CCI H093549 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 NK7-0600015-6; Protest 2002-09-100135; Modification
Dear Sir:
This is in response to your memorandum of January 27, 2010, forwarding for our review the protest filed on behalf of Liberty Maritime Corporation (“protestant”) with respect to Vessel Repair Entry NK7-0600015-6. Our ruling follows.
FACTS:
The LIBERTY GLORY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Galveston, Texas on May 23, 2004. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on September 4, 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.
In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int'l Trade 1993), the court stated in pertinent part as follows with respect to the reach of 19 U.S.C. § 1466:
Texaco urges us to reject the Court of International Trade’s “but for” approach and to interpret “expenses of repairs” so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. [Emphases supplied.]
In its administration of the vessel repair statute, Customs and Border Protection 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 request our review with respect to the items discussed below.
Item 1. Generator Foundations. The protestant states: “This item was for the replacement of all of the flexible connections between the various piping systems in generator foundations and the three generator foundations themselves. The Manufacturer…recommended this after experiencing failures of these flexible connections on other engines which constituted a safety hazard especially in the case of flammable liquids.” The shipyard invoice provides in pertinent part that the vendor will “perform the removal of all existing rubber mount foundations around the base of each generator set … Each of the rubber mounts are to be replaced with [vendor] supplied rigid mounts … Shipyard is to remove all existing piping connections … flexible hose connections are to be replaced with ship supplied solid piping spares.” We find that this cost is a nondutiable modification under 19 U.S.C. § 1466.
Item 12. CO2 Fire Extinguishing System. The protestant states: “This item was to correct a design flaw in the CO2 Fire Extinguishing System, specifically the USCG requires the system to have the capacity to be hydro tested to 6000psig. There were certain flanges in the system that did not have the capacity to be hydro tested, these flanges were removed and the proper flanges were installed or the piping was modified to facilitate the flange’s installation.” The shipyard invoice provides in pertinent part: “The intent of this item is to replace undersized pipe flanges throughout the CO2 system in the engine room and
CO2 room in order to meet the regulation ... These flanges are not strong enough to withstand the required pressure. There are also several flanges in the CO2 room on the main system pipelines that are also not strong enough. The flanges on the main system piping in the CO2 room are to be changed out with thicker flanges.” We find that this cost is a nondutiable modification under 19 U.S.C. § 1466.
Item 13. Deck Crane Hydraulic Piping. The protestant states: “This item was for the installation of an additional oil filter in the hydraulic system for the four cargo cranes. This is a new installation of a previously non-existent component.” The shipyard invoice provides, in pertinent part: “The intent of this item is to install a filter on the high pressure side of the hydraulic system for all four (4) deck cranes.” An oil filter is equipment of the vessel. Accordingly, this cost is dutiable under 19 U.S.C. § 1466.
Item 41. Small Access Hatch Cover Renewal. The protestant states: “This item was for the strengthening and modification of the securing arrangements for the two hatches.” The shipyard invoice provides in pertinent part: “Remove from the vessel to the steel fabrication shop the following access hatch covers for renewal as per IACS UR S 26 … The hatch cover to be re-fabricated to the same design as the original in accordance with the regulation … Upon completion of repairs to the covers, transport to the vessel…” [Emphasis added.] We find that this cost is a dutiable repair. The shipyard invoice refers to “repairs” to the covers.
Item 51. ABS Requirements – Fore Peak Vent Heads. The protestant states that this item should be nondutiable as it meets the conditions stated in the four modification factors enumerated above. The shipyard invoice provides in pertinent part: “Nine (9) brackets 300x150x10 mm fitted and welded on vent pipe of fore peak (3 each) on main deck.” The heading of this item on the invoice includes: “… as per IACS URS 27.” We find that this cost is a nondutiable modification under 19 U.S.C. § 1466.
HOLDING:
The costs for which the protestant seeks relief are dutiable or nondutiable 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