VES-13-18 CO:R:IT:C 111307 JBW

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE: Vessel Repair; Modification; Stack Mist Box; 19 U.S.C 1466; 19 C.F.R. 4.14; PRESIDENT ADAMS; Protest No. 27040 002774.

Dear Sir:

This letter is in response to your memorandum of September 26, 1990, which forwards for our review and ruling the above- referenced protest from the assessment of vessel repair duties.

FACTS:

The record reflects that the subject vessel, the PRESIDENT ADAMS, arrived at the port of San Pedro, California, on September 26, 1989. Vessel repair entry, number C27-0075295-2, was filed on the same day as arrival and indicated foreign shipyard work. The entry was liquidated on May 11, 1990, and the vessel owner timely filed the protest on June 26, 1990.

Hongkong United Dockyards Ltd. invoices submitted by the vessel owner indicate that the vessel underwent the installation of a new stack mist box. The vessel owner likewise submitted drawings to demonstrate the extent of the alteration. The vessel owner claims the alteration is a permanent addition to the vessel and is therefore non-dutiable.

ISSUE:

Whether the work performed in a foreign country on the subject vessel is dutiable under 19 U.S.C. 1466 (1988).

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides 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.

The Customs Service, in its interpretation of 19 U.S.C. 1466 and in accord with the logic established in United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930), distinguishes between equipment and repairs on the one hand and permanent additions to the hull and fittings on the other. The court in Admiral Oriental cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288) that defined the scope of the term equipment in examining a statute that permitted drawback on vessels built in the United States for foreign account, wholly or in part of duty-paid materials. The Attorney General found that items that are not equipment are:

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...[and] are material[s] used in the construction of the vessel....

Admiral Oriental, 18 C.C.P.A. at 140 (quoting the opinion of the Attorney General).

For purposes of section 1466, dutiable equipment has been defined as:

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.

T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval in Admiral Oriental).

Customs has held that for an item to be characterized as a nondutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function. Further, we have held that the removal of an existing, operational system for the purpose of improving the efficient performance of the vessel is not dutiable provided that the work was not performed in conjunction with dutiable repairs. Headquarters Ruling Letter 109971, dated June 12, 1989. The decision in each case as to whether an installation constitutes a nondutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties.

This office has recently ruled that, subject to proper documentation and demonstration, the installation of stack mist boxes is a modification and is not subject to duty. Headquarters Ruling Letter 110747, dated March 27, 1990. The facts relating the installation of the stack mist box are similar to those presented in this ruling. We conclude therefore that the cost of installing the stack mist box is not dutiable. This protest is granted in full.

HOLDING:

The installation of a new stack mist box on the PRESIDENT ADAMS constitutes a nondutiable addition. The protest is granted in full.


Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch