VES-13-18-RR:IT:EC 113160 CC
Vessel Repair Liquidation Unit
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126
RE: Application for relief; Vessel repair entry no.
110-6461448-7; PRESIDENT HARRISON; 19 U.S.C. 1466
Dear Sir or Madam:
This is in response to a memorandum from the Deputy Regional
Director, Commercial Operations, Pacific Region, dated July 6,
1994, forwarding for our review an application for relief from
duties filed by American President Lines, Ltd., in conjunction
with the above-referenced vessel repair entry. Our findings are
set forth below.
FACTS:
The PRESIDENT HARRISON is a U.S.-flag vessel operated by
American President Lines, Ltd. Subsequent to the completion of
various foreign shipyard work, the vessel arrived at Seattle,
Washington on January 3, 1994. A vessel repair entry was filed
on January 10, 1994.
Pursuant to an authorized extension of time, an application
for relief with supporting documentation was timely filed. You
have asked for our determination with respect to the following
items:
Item No. Description
001 secretarial and clerical services
003 accounting services
004 safety, first aid services,
safety training
1.1-20 asbestos abatement
1.2-10 storekeeper to inventory spares
1.3-1 dockside trial
2.1-1 shipyard diver
2.1-2 strut bearing
2.1-3 tube shaft
2.1-4 rudder pintle
2.1-7 chain locker
2.1-8 sea valves
2.1-11 renewing cap pieces in keel blocks
2.1-17 cargo hold & e/r bilge
2.1-18 ultrasonic test
3.1-1 hull washing
3.1-7 main scoop-dye testing
3.3-1 removing catwalk gratings for access
3.3-5 container bins
3.3-30 cleaning & cropping 1 length of
sounding pipe
3.3-40 no. 3 starboard f.o. tank
4.1-1,2,3 boiler inspections
4.1-7 D.C. heater
4.1-10 air test of ballast tanks
4.1-12 testing & reassembling turbo
generator
4.1-12 turbine rotor
5.1-2 main condenser
5.1-7E condenser expansion joint
5.1-18 f.o. suction heaters
ISSUE:
Whether the subject items are dutiable pursuant to 19 U.S.C.
1466.
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, the Customs
Service has held that modifications, alterations, or additions 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 that 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, 18 C.C.P.A. 137 (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
often be welded or otherwise "permanently attached" to the
ship because ships are subject to constant pitching and
rolling. In addition, some items, the cost of which is
clearly dutiable, operate with other vessel components,
resulting in the need, possibly for that purpose alone, for
a fixed and stable attachment to those vessel parts. It
follows that a "permanent attachment" may take 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.
We note that the subject entry was prior to Texaco Marine
Services, Inc., and Texaco Refining and Marketing, Inc. v. United
States, 815 F.Supp. 1484 (CIT 1993), aff'd. 44 F.3d 1539 (Fed.
Cir. 1994), and therefore that decision is inapplicable to the
subject entry. See Headquarters memorandum 113350, dated March
3, 1995, and published in the Customs Bulletin on April 5, 1995.
The following items were related to or were done in
conjunction with repairs and are therefore dutiable: item 2.1-11,
renewing cap pieces in keel blocks; item 3.3.-1, removing catwalk
gratings for access; 4.1-12, turbine rotor, which consisted of
repairing and renewing one turbine rotor; item 5.1-7E, condenser
expansion joint. Item 1.2-10, storekeeper to inventory spares,
consisted of the cost of "[p]roviding storekeeper to inventory
and control issue of C-8 class storestock spare for drydock use."
This item is similar to item 1.2-10 of Headquarter Ruling Letter
(HRL) 113108, dated May 25, 1994, which we found to be dutiable
because it was a cost incident to or related to repairs. This
item is therefore dutiable.
Item 3.3-30, cleaning and cropping 1 length of sounding pipe
is dutiable since the applicant has not established the reason it
was done and that it was not a repair.
Item 3.3-5, container bins, consisted of providing container
bins onboard for collecting cargo hold rubbish and removing it
ashore. This item relates to the removal of garbage and does not
relate to a specific repair; therefore, this item is not
dutiable.
Item 1.3-1, dockside trial, and item 2.1-1, shipyard diver,
involve general drydocking and related inspections. The charges
associated with these items are nondutiable, as established by
precedent prior to the Texaco decision, which as stated above is
not applicable here.
Several items relate to various services: item 001,
secretarial and clerical services; item 003, accounting services;
item 004, safety, first aid services, safety training. HRL
113108, contained similar items, and we found that such overhead
charges are dutiable if they relate to dutiable repairs; if the
overhead relates to nondutiable items they are nondutiable,
provided that they are included in the cost or expense of the
nondutiable items or are clearly reflected as related to such
nondutiable items on the pertinent invoices. Thus, items 001,
003, and 004 should be similarly treated.
Several items related to the dutiability of survey costs.
Regarding the dutiability of survey costs, C.S.D. 79-277 states,
"[i]f the survey was undertaken to meet the specific requirements
of a governmental entity, classification society, insurance
carrier, etc., the cost is not dutiable even if dutiable repairs
were effected as a result of the survey." We also held in C.S.D.
79-277 that where an inspection or survey is conducted merely to
ascertain the extent of damages sustained or whether repairs are
deemed necessary, the costs are dutiable as part of the repairs
which are accomplished.
That decision exempts from duty only the cost of a required
scheduled inspection by a qualifying entity (such as the U.S.
Coast Guard or the ABS). We note, moreover, that C.S.D. 79-277
does not exempt from duty repair work done by a shipyard in
preparation for a required survey. Nor does it exempt from duty
the cost of any testing by the shipyard to check the
effectiveness of repairs found to be necessary by reason of the
required survey.
For the following items the inspections were done to
ascertain the effectiveness of repairs and are therefore
dutiable: item 2.1-2, strut bearing; item 2.1-3, tube shaft.
Item 2.1-4, rudder pintle; the inspection was performed to
determine whether repairs were deemed necessary, repairs resulted
therefrom, and it is therefore dutiable. The following items are
related to repairs and were done either to ascertain the
effectiveness of repairs or to determine whether repairs were
deemed necessary and are therefore dutiable: item 2.1-8, sea
valves; item 4.1-1,2,3, boiler inspections; item 4.1-7, D.C.
heater; item 4.1-10, air test of ballast tanks; item 4.1-12,
testing and reassembling turbo generator. The following items
are dutiable surveys, not a required scheduled inspection by a
qualifying entity, conducted to determine whether repairs were
necessary or proper: 1.1-20, asbestos abatement; 2.1-18,
ultrasonic test; 3.1-7, main scoop-dye testing; 3.3-40, no. 3
starboard f.o. tank.
Several items relate to cleaning. In analyzing the
dutiability of foreign vessel work, the Customs Service has
consistently held that cleaning is not dutiable unless it is
performed as part of, in preparation for, or in conjunction with
dutiable repairs or is an integral part of the overall
maintenance of the vessel. E.g., HRL 110841, dated May 29, 1990
(and cases cited therein). The Customs Service considers work
performed to restore a part to good condition following
deterioration or decay to be maintenance operations within the
meaning of the term repair as used in the vessel repair statute.
See generally, HRL 106543, dated February 27, 1984; C.I.E.
142/61, dated February 10, 1961. The following items consist of
repair or maintenance work and are therefore dutiable: item 2.1-7, chain locker; item 5.1-2, main condenser.
Item 2.1-17, cargo hold and e/r bilge, relates to pumping
out water from and cleaning the cargo hold bilge wells and engine
room bilge wells. This item does not appear to have been done in
conjunction with dutiable repairs, and it is therefore not
dutiable.
Item 3.1-1, hull washing, constitutes a nondutiable
inspection-related charge rather than a dutiable repair. This
item is similar to item 3.1-1 of HRL 113470, dated July 5, 1995,
which we found to be nondutiable. Consequently, this item is
nondutiable.
The applicant asserts that item 5.1-18, f.o. suction
heaters, is a removal cost which should be nondutiable in
accordance with 107898, dated November 7, 1985. Instead, this
item appears to be cleaning in preparation for repairs and is
therefore dutiable.
HOLDING:
The subject items are dutiable in part and nondutiable in
part as detailed in the Law and Analysis portion of this ruling.
Sincerely,
Acting Chief
Entry and Carrier Rulings Branch