VES-13-18-CO:R:IT:C 112461 GEV
Deputy Regional Director
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair Entry No. 808-0515062-2; SYOSSET;
V-388; 19 U.S.C. 1466
This is in response to your memorandum dated September 11,
1992, forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You have requested our advice
regarding nineteen items listed on the first page of your
memorandum. You further request that we review forty-one
additional items listed on the second page of your memorandum.
Our opinion on these items is set forth below.
The SYOSSET is a U.S.-flag vessel owned by Mobil Oil
Corporation. The vessel had foreign shipyard work done in
Malaysia from August 7, 1991, until September 25, 1991.
Subsequent to the completion of the work the vessel arrived in
the United States at San Francisco, California on October 14,
1991. A vessel repair entry was timely filed on October 17,
Pursuant to an authorized extension of time, an application
for relief with supporting documentation was timely filed. In
support of its claims the applicant has submitted shipyard
invoices, sketches, photographs, damage reports and affidavits
from the Mobil Port Engineer and Engineering Superintendent in
Malaysia at the time of the work in question.
Whether the foreign shipyard work in question for which the
applicant seeks relief is dutiable under 19 U.S.C. 1466.
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LAW AND ANALYSIS:
Title 19, United States Code, 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 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. This element
should not be given undue weight in view of the fact that vessel
components must be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling. In
addition, some items, the cost of which is clearly dutiable,
interact with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts. It follows that a "permanent
attachment" takes place that does not necessarily involve a
modification to the hull and fittings.
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
Very often when considering whether an addition to the hull
and fittings took place for the purpose of 19 U.S.C. 1466, we
have considered the question from the standpoint of whether the
work involved the purchase of "equipment" for the vessel. It is
not possible to compile a complete list of items that might be
aboard a ship that constitute its "equipment". An unavoidable
problem in that regard stems from the fact that vessels differ as
to their services. What is required equipment on a large
passenger vessel might not be required on a fish processing
vessel or offshore rig.
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"Dutiable equipment" has been defined to include:
...portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, but 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))
By defining what articles are considered to be equipment,
the Court attempted to formulate criteria to distinguish non-
dutiable items which are part of the hull and fittings of a
vessel from dutiable equipment, as defined above. These items
might be considered to include:
...those appliances which are permanently
attached to the vessel, and which would
remain on board were the vessel to be laid
up for a long period... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).
A more contemporary working definition might be that which
is used under certain circumstances by the Coast Guard; it
includes a system, accessory, component or appurtenance of a
vessel. This would include navigational, radio, safety and,
ordinarily, propulsion machinery.
In regard to the nineteen items listed on the first page of
your memorandum for which our review is requested, we find that
the record supports the applicant's claim that the work detailed
under the eighteen items listed below constitutes non-dutiable
modifications and/or costs associated therewith:
4/7 E007.0 IBS-VMS Command
4/8 E008.0 VRS-Pressure Sensor System
4/9 E009.0 VRE-Level Alarms
4/10 E010.0 IBS-A/C Installation
4/13 E013.0 GYRO Repeaters
3/27 M027.0 Boiler Water Level
3/59 M059.0 Sampling Boiler Valve
3/61 M061.0 Expansion Bellows
3/71 M071.0 Lagging and Insulation
3/72 M072.0 Lagging and Insulation
3/75 M075.0 Insulation Blankets
2/34 H034.0 Shifting of Life Raft
2/59 H059.0 Stanchions Support
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2/101 H101.0 Smoke Stack Decal
2/116 H116.0 Captain's Room Closet's
Ceiling and Cleaning
2/119 H119.0 Installation of Padlock
2/146 H146.0 Steam Supply-Winch #6,7
2/159 H159.0 VRS-Manifolds and Mains
In regard to Item 2/15 (H015.0 Anchor Hawse Pipe), we find
it to be an otherwise non-dutiable cost incurred.
Of the additional forty-one items forwarded for our review
which are listed on the second page your memorandum, several are
claimed to have been necessitated by a casualty. In this regard
we note that section 1466(d)(1) of the vessel repair statute
provides that the Secretary of the Treasury is authorized to
remit or refund duties if the owner or master of the vessel was
compelled by stress of weather or other casualty to put into such
foreign port to make repairs to secure the safety and
seaworthiness of the vessel to enable her to reach her port of
destination. It is Customs position that "port of destination"
means a port in the United States. (19 CFR 4.14(c)(3)(i))
The statute thus sets forth the following three-part test
that must be met in order to qualify for remission under the
1. The establishment of a casualty occurrence.
2. The establishment of unsafe and unseaworthy conditions.
3. The inability to reach the port of destination without
obtaining foreign repairs.
The term "casualty" as it is used in the statute, has been
interpreted as something which, like stress of weather, comes
with unexpected force or violence, such as fire, spontaneous
explosion of such dimensions as to be immediately obvious to
ship's personnel, or collision (Dollar Steamship Lines, Inc. v.
United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this
sense, a "casualty" arises from an identifiable event of some
sort. In the absence of evidence of such casualty event, we must
consider the repair to have been necessitated by normal wear and
tear (ruling letter 106159, dated September 8, 1983).
In addition, if the above requirements are satisfied by
evidence, remission is restricted to the cost of the minimal
repairs necessary to enable the vessel to reach her port of
destination. Repair costs beyond that minimal amount are not
subject to remission.
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The applicant states that the damage in question occurred to
underwater parts of the vessel at some unknown time and was not
discovered until after it was drydocked. In C.I.E. 1202/59,
Customs held that damage to underwater parts of vessels is
usually not easily detectable or susceptible of definite proof
respecting date and place of occurrence. We held that relief
under 19 U.S.C. 1466(d)(1) is therefore warranted for such
damage in the absence of evidence showing that the damage in
question occurred prior to the commencement of the voyage
provided other necessary factors are established.
Accordingly, pursuant to C.I.E. 1202/59, the record supports
the establishment of a casualty occurrence as discussed above,
as well as the remaining criteria requisite for obtaining
remission under 19 U.S.C. 1466(d)(1) (i.e., unsafe and
unseaworthy conditions in the vessel's damaged state, and its
inability to reach its United States port of destination without
obtaining foreign repairs). The following items are therefore
remissible pursuant to 19 U.S.C. 1466(d)(1).
1/33.01 Dock Trials
2/110 Damage Steering Gear
3/8 Damage Stern Tube
3/9 Damage Main Shaft Bearings
3/13 Damage Rudder Ram
4/77 Damage Reduction Gear
67/1 Repair Casualty
68/1 Repair Prop
73/1 Thordon Stave
73/5 Thordon Stave
74/1 Repair Casualty to Tailshaft
79/1 Plummer Block Bearing
We note that of the items listed on the second page of your
memorandum, many cover clerical expenses, also known as
"overhead." It is Customs position that overhead relating to
repair work is dutiable as part of the cost of the repair.
Overhead is part of the shipyard's cost of doing business. The
total shipyard cost of each repair item is dutiable; that total
cost includes overhead.
Customs does not wish to see overhead broken-out or
segregated as a separate item. Customs believes that overhead
should be included within the cost of the work performed, whether
that work be a dutiable repair or a non-dutiable modification.
As stated supra, the total shipyard cost of each repair item is
dutiable; that cost includes overhead.
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In support of its position that overhead is non-dutiable,
the applicant has cited two previous rulings, Ruling 109308,
dated May 26, 1988 and Ruling 108953, dated January 7, 1988.
In Ruling 112214 dated September 16, 1992, Customs stated as
follows with respect to the overhead issue:
Upon further review of this matter, we are of the
opinion that our interpretation of T.D. 55005(3) as
set forth in ruling 111170 and discussed above is
correct. Accordingly, rulings 108953 and 109308
are hereby modified to hold that the costs of
"overhead" and/or "administrative" charges as
described therein are dutiable in their entirety
in the absence of an apportionment of such expense
between dutiable and non-dutiable work.
The two rulings cited by the applicant, Ruling 109308 and
Ruling 108953, are not, and were not at the time they were
issued, accurately reflective of Customs position. These two
rulings were effectively overruled by Ruling 112214.
In the subject case, the applicant's claim for relief on
this issue is granted with respect to any clerical (i.e.,
"overhead") charges which are associated with non-dutiable
charges and which are clearly reflected as such on the pertinent
invoices. Furthermore, pursuant to C.I.E. 301/60, such relief is
contingent upon the invoices reflecting a specific dollar amount,
not a percentage of the overall total sum listed on the invoices.
Of the remaining items listed on the second page of your
memorandum, we note that Items 2/5 (Additional Eye Pieces Anchor)
and 2/129 (Pipeline Aft) constitute non-dutiable modifications.
Item 10/1 (Thordon Bearings Stave) is subject to remission in
view of the fact that it was integral to the casualty-related
repairs discussed above. The remaining items on this page
constitute dutiable repairs and/or costs associated therewith.
The foreign shipyard work for which the applicant seeks
relief is dutiable in part as discussed in the Law and Analysis
portion of this ruling.
Arthur P. Schifflin
Carrier Rulings Branch