VES-13-18-CO:R:P:C 111340 LLB
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel repair; Petition for review; Modifications; Cleaning;
Drydocking; Valdez Vessel Repair Entry No. C31-0005013-8,
MOBIL MERIDIAN V-360
Dear Sir:
This is in reference to your memorandum dated September 26,
1990, transmitting a Petition for Review of an earlier decision
regarding the assessment of duties pursuant to 19 U.S.C. 1466
(Ruling Letter 110769). It is requested that we review seven
items covered by the above entry. Our findings are set forth
below.
FACTS:
The MOBIL MERIDIAN is a U.S.-flag vessel, owned by Mobil Oil
Corporation of New York, N.Y. The vessel had foreign shipyard
work performed on her by Keppel Shipyard, Ltd. in Singapore
during the period of June 28, 1989 through July 26, 1989.
Subsequent to the completion of this work the vessel arrived in
the United States at Valdez, Alaska, on August 13, 1989. A
vessel repair entry (not marked as complete or incomplete)
covering the work in question was filed on the date of arrival.
Customs reviewed an Application for Relief filed to cover
the entry and held seven items to be subject to duty which are
the subject of the current appeal. The items and the reasons for
holding them to be dutiable are as follows:
Item 110, radar system installation. Necessary specifications
missing.
Item 111, satellite communication system installation. Necessary
specifications missing.
Item 112, fathometer system installation. Necessary
specifications missing.
Item 113, single sideband antenna mount installation for
relocation of antenna. Invoice contained other segregated
miscellaneous radar expenses.
Item 63, cargo vent system operations. Cleaning and repair
operations, segregated by cost, were presented on the same
invoice.
Item 204, drydocking survey. The evidence indicated that the
survey, with which repairs were associated, was part of an on-
going maintenance program and not merely a required periodic
survey.
Item 208, tank cleaning for hot work. Evidence pointed to
association of the invoiced cleaning operations to dutiable
repairs.
ISSUE:
Whether the evidence presented on appeal cures the
deficiencies noted in the record regarding the Application for
Relief, to include necessary specifications, sufficient cost
segregation, and character of surveys performed.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), 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 the foreign or
coastwise trade, or vessels intended to be employed in such
trade.
A question exists as to whether certain of the above-
mentioned items are subject to duty under section 1466 as
equipment, or whether they might be considered non-dutiable
modifications. In its application of the vessel repair statute,
Customs has held that modifications/alterations/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 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.
2. Whether in all likelihood, an item under consideration would
remain aboard a vessel during an extended layup.
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.
For purposes of section 1466, 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)).
Customs has held that where periodic surveys are undertaken
to meet the specific requirements of a classification society,
insurance carrier, etc., the cost of the surveys is not dutiable
even when dutiable repairs are effected as a result thereof;
however, in the liquidation process Customs should go beyond mere
labels such as "continuous" or "ongoing" before deciding whether
an item is dutiable. If an inspection or survey is conducted as
a part of an ongoing maintenance and repair program, regardless
of how it is labelled, the cost thereof is dutiable. Also, if
the survey is to ascertain the extent of damage sustained, or to
ascertain if the work is adequately completed, the costs are
dutiable as part of the repairs which are accomplished pursuant
to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.
Under the rationale provided by a long-standing published
ruling (C.I.E. 1188/60) the cost of obtaining a gas free
certification, a necessary precursor to the initiation of any hot
work (welding) which may be necessary, constitutes an ordinary
dutiable expense which is associated with repair operations. In
liquidating such an expense, however, its cost is apportioned
between those items which are remissible and those which remain
subject to duty.
By defining what articles are considered to be equipment,
the Court in Admiral Oriental, supra., formulated criteria which
distinguish those items deemed to be non-dutiable modifications
under section 1466 from equipment which is dutiable under the
statute. These items include:
...those applications 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).
In regard to the cost of installing the radar system, the
satellite communications system, and the fathometer (including a
digital depth indicator), we believe that the named articles are
considered vessel equipment. This being the case, their cost is
considered dutiable under section 1466(a). (Customs Ruling
107819).
Concerning the relocation of the 35 foot single sideband
antenna, while it is true that various repair operations were
recorded on the same invoice, it is also the case that the
operation in question is properly segregated from other invoiced
expenses. Since the antenna relocation is in the nature of a
modification rather than a repair, we find this item to be duty-
free.
The cargo vent system invoice details a matter which
includes both cleaning and repair components. Even though these
elements are segregated as to cost, it is the Customs position
that regardless of whether cleaning is performed before, during
or after a dutiable repair operation it is dutiable as a part of
that operation. The cleaning costs associated with the item
under consideration are therefore dutiable.
In regard to the drydocking survey costs, we find in the
case file a copy of a United States Coast Guard Certificate of
Inspection. This document lists the date of the last-occurring
required periodic drydock inspection as July 25, 1989, which is
concurrent with the date of the inspection under consideration.
In light of this fact, we find that this cost is not associated
with any company-ordered maintenance and repair program, but is
instead a required survey which should be considered duty-free.
The last item under consideration is the cost of tank
cleaning in preparation for "hot work". As previously mentioned,
costs associated with making the vessel gas free are to be
apportioned. The problems in the present matter, however, are
two-fold. Firstly, gas freeing the vessel is never mentioned in
the invoice submissions. Secondly, the item relating to the
cleaning for hot work is only one among numerous unsegregated
costs on the same invoice. Even if it were possible to
denominate the entry as related to gas free charges, there is no
separate cost for the item upon which to base an apportionment of
duties. Accordingly, this item must be considered subject to
duty.
HOLDING:
Following a thorough review of the facts and evidence, and
after an analysis of the law and applicable precedent decisions,
we have determined to partially allow and partially deny the
Petition for Review, as specified in the law and analysis portion
of this decision.
Sincerely,
Stuart P. Seidel
Director, International
Trade Compliance Division