VES-13-18-CO:R:IT:C 112461 GEV

Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831

RE: Vessel Repair Entry No. 808-0515062-2; SYOSSET; V-388; 19 U.S.C. 1466

Dear Sir:

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, 1991.

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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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:

Invoice/Item Description

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 Transmitters 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 Legs

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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 Hasps 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 subsection:

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).

Invoice/Item Description

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. - 6 -

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