VES-13-18-CO:R:IT:C 111789 LLB
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Vessel repair; Repairs; Modifications; Cleaning;
Inspections; United States parts; Transportation; Vessel
CHABLIS, V-126; Vessel repair entry number C11-00270250;
Port of arrival, Philadelphia, Pennsylvania
Dear Sir:
Reference is made to your memorandum of June 21, 1991, which
forwards for our review and recommendation the Application for
Relief from the assessment of vessel repair duties filed on
behalf of Crest Tankers, Inc., in regard to the above-captioned
vessel repair entry.
FACTS:
The vessel CHABLIS arrived in the United States after having
had extensive work performed on the ship while abroad. Customs
and the vessel operator are in substantial agreement on the issue
of dutiability, and only fifteen items are offered for our
review. These items, listed below by shipyard invoice item
number, are as follows:
103 Opening, cleaning, and repair (in subsection (a)(2) of the
invoice) relating sea suction and overboard valves.
110 Repairs to the vessel Doppler Speed Log, including
transducer replacement.
202 Testing of boiler safety valves with no associated repairs.
203 Cleaning of boiler mounting valves with no repairs.
301 Segregated transportation costs for taking lube oil cooler
housings from the vessel to the shop.
308 Opening and testing of machinery relief valves.
309 Renewal of rubber expansion joints with use of United
States parts.
402 Modification of deck piping systems, with unsegregated
repairs intermingled.
442 Modification of the forward ballast system with no
associated repairs.
517 Replacement of watertight doors with United States parts,
with no indication of the reason for the replacement.
530 Replacement of stay wires and turnbuckles with United States
parts, with no indication of the reason for the replacement.
606 Cleaning of main and emergency switchboards with no
associated repairs.
709 Stringer modifications and crack repairs, with segregation
provided.
711 Structural modification of the transverse web with no
related repairs.
714 Modification of the aft starboard fuel oil wing tank with no
associated repairs.
715 Funnel repairs.
ISSUE:
Whether the evidence reveals that the operations specified
in the Facts portion of this ruling are subject to vessel repair
duty, or whether they might qualify for remission or refund
under a statutory, judicial, or administrative exception.
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.
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 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)).
Pursuant to published Customs Service rulings (C.I.E.
1325/58 and C.I.E. 565/55), duties may not be remitted in
circumstances in which invoices fail to segregate dutiable from
non-dutiable expenditures.
In the case of United States v. George Hall Coal Co., 134 F.
1003 (1905), it was held that any of various types of expenses
associated with foreign shipyard operations are classifiably free
from the assessment of duty, regardless of the character of the
overall shipyard work (repair vs. modification). The case found
that the expense of drydocking a vessel is not a repair cost.
Drydocking is not an isolated expense, and is commonly associated
with numerous others. These may include, but are not limited to,
sea water supply (for firefighting capability), fresh water
supply, hose hook-up and disconnection, fire watch services,
shore power hook-up, etc.
On August 20, 1990, the President signed into law the
Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of
which amends the vessel repair statute by adding a new subsection
(h). Subsection (h) has two elements, which are as follows:
(h) The duty imposed by subsection (a) of this section shall
not apply to--
(1) the cost of any equipment, or any part of
equipment, purchased for, or the repair parts
or materials to be used, or the expense of
repairs made in a foreign country with
respect to, LASH (Lighter Aboard Ship) barges
documented under the laws of the United
States and utilized as cargo containers, or
(2) the cost of spare repair parts or
materials (other than nets or nettings) which
the owner or master of the vessel certifies
are intended for use aboard a cargo vessel,
documented under the laws of the United
States and engaged in the foreign or coasting
trade, for installation or use on such
vessel, as needed, in the United States, at
sea, or in a foreign country, but only if
duty is paid under appropriate commodity
classifications of the Harmonized Tariff
Schedule of the United States upon first
entry into the United States of each such
spare part purchased in, or imported from, a
foreign country.
The effective date of the amendment is stated as follows:
Effective Date.--The amendment made by this
section shall apply to--
(1) any entry made before the date of
enactment of this Act that is not liquidated
on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this
Act, and
(B) on or before December 31, 1992.
Subsection (d)(2) of section 1466 provides that:
(d) If the owner or master of such vessel
furnishes good and sufficient evidence
that...
(2) such equipments or parts thereof or
repair parts or materials, were manufactured
or produced in the United States, and the
labor necessary to install such equipments or
to make such repairs was performed by
residents of the United States, or by members
of the regular crew of such vessel...
then the Secretary of the Treasury is authorized to
remit or refund such duties...
Customs has in the past linked this duty remission
provision to the duty assessment provision in subsection (a) of
the statute. We have held that a two-part test must be met in
order for remission of duty to be granted: first, that the
article must be of U.S. manufacture; and, second, it must be
installed by U.S.-resident or regular vessel crew labor. The
reason for this position is that (d)(2) refers to "such
equipments or parts...", etc., without any logical association
for the word "such" occurring in that subsection. We inferred
that "such" articles must refer to those installed under
subsection (a), absent any other reasonable predication. The new
amendment puts this issue to rest by making it clear that as
concerns foreign-made parts imported for consumption and then
installed on U.S. vessels abroad, the labor required for their
installation is separately dutiable. A part may now be
considered exempt from vessel repair duty albeit the foreign
labor cost is dutiable.
In all cases which meet the conditions imposed by the
statutory amendment, uniform treatment will be accorded to parts
sent from the United States for use in vessel repairs abroad.
This will be so regardless of whether they are proven to have
been produced in the U.S., or to have been imported and entered
for consumption with duty paid. In both cases, the cost of the
materials is duty exempt and only the cost of foreign labor
necessary to install them is subject to duty. Crew member or
U.S.-resident labor continues to be free of duty when warranted,
in cases which qualify under the new law.
In the case under consideration, we find that item 103, 110,
309, 517, and 530 involve the use of United States-origin parts
which qualify under the newly amended subsection (h) of the
vessel repair statute. The exemption from duty is applicable
only to the cost of the materials used, however, since foreign
labor was employed. Items 202, 203, 301, 308, and 606 are
cleaning operations with no associated repair elements. Items
402, 442, 711, and 714 are modifications which are considered
duty free. Of the remaining two items, number 715 is a repair
operation and item 709 is split between repair and modification.
The costs of this latter item is segregated with subelements a),
b), and c) being repairs and d), e), and f), being modifications.
HOLDING:
Following a thorough review of the evidence as well as an
analysis of the law and applicable precedents, we have determined
that the Application for Relief submitted in this case should be
allowed in part and denied in part, as detailed in the Law and
Analysis portion of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch