VES-13-18-CO:R:IT:C 112356 MLR
Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel Repair; 19 U.S.C. 1466; Application for Relief;
Vessel Repair Entry No. H24-0012461-4; F/V ALASKA PIONEER
Dear Sir:
This letter is in response to your memorandum of June 25,
1992, which forwards for our consideration the above-referenced
application for relief from the assessment of vessel repair
duties submitted by Jeffrey L. Turner, of Patton, Boggs & Blow,
on behalf of Fishing Company of Alaska, Inc.
FACTS:
The record reflects that the subject vessel, the F/V ALASKA
PIONEER, arrived at Dutch Harbor, Alaska, on December 30, 1991.
Vessel repair entry number H24-0012461-4 was filed on December
31, 1991, indicating work performed on the vessel in Miyagi,
Japan. The application for relief was timely filed on February
26, 1992.
The applicant states that the vessel was converted from a
mud boat into a factory long liner in 1988, and that
modifications were made in 1989, at Yamanishi Shipbuilding and
Iron Works, Ltd., in Ishinomaki, Japan (the subject of Customs
Ruling 110855). The applicant now seeks relief for further
modifications made at Tohoku Dock Tekko K.K. shipyard in 1991.
The applicant alleges that the modifications to the hull and
fittings should be considered non-dutiable since "such work
provides the serviced portion of the vessel, or the vessel as a
whole, with a new feature and does not merely replace or restore
parts that perform a similar function", and improves or enhances
the operation or efficiency of the vessel.
We are asked to review the dutiability of numerous
items (numbers correlate to the worksheet). We also address
additional items not forwarded for our review.
ISSUE:
Whether the foreign work performed on the subject vessel for
which the applicant seeks relief is dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 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.
TOHOKU DOCK TEKKO K.K. INVOICE:
I. HULL PART
3. Bottom Washing & Painting:
Customs has held that painting performed on existing
portions of a vessel is in the nature of a dutiable maintenance
operation. C.I.E. 1043/60, and Treasury Decisions 21670, 39507,
and 43322. Customs has also held that coating with substances
which have protective and preservative qualities is analogous to
painting and therefore is dutiable. C.I.E.s 1203/60, 518/63 and
2045/66. The process of chipping, scaling, cleaning, and wire
brushing to remove rust and corrosion that results in the
restoration of a deteriorated item in preparation for painting
has also been held to be dutiable maintenance. States Steamship
Co. v. United States, 60 Treas. Dec. 30, T.D. 45001 (Cust. Ct.
1931). This item is similar to these precedents in that the
bottom plate, side-plating, superstructure, and several tanks of
the vessel were cleaned, sanded or scraped, and painted with
owner-supplied paint; it is therefore dutiable.
I. HULL PART
8. Bowthruster Hydraulic Driving:
The applicant indicates that a new hydraulic drive was
installed to absorb shocks, because the existing mechanical drive
was unable to absorb them.
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. 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.
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. Customs Ruling
108871. 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.
Returning to the hydraulic drive, the applicant states that
the shipyard's use of the word "renewed" is inaccurate because
the new hydraulic drive is substantially different from the old
one and improves the safety and efficiency of the vessel. The
new hydraulic drive may be more efficient; however, the fact that
it replaces a non-functioning article, makes this item dutiable.
I. HULL PART
13. Fish Pond:
The applicant states that a new removable aluminum fish pond
was installed in the factory area. 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. United States v.
Admiral Oriental Line et al., T.D. 44359 (1930)
{quoting T.D. 34150, (1914)}.
Unlike the non-dutiable swimming tanks addressed in Admiral
Oriental, supra., this item is portable and similar to things
used in or about a vessel for the purpose of fitting or adapting
it for the sea. See United States v. Richard & Co., 8 Ct. Cust.
Appls. 231, T.D. 37496. Consequently, this item is considered to
be dutiable equipment.
II. MACHINERY PART - GENERAL WORKS
2. Main Engine FW pump:
The applicant states that new, larger main engine freshwater
pumps were installed because they are able to handle larger
volumes of water than the old pumps. Insufficient evidence is
presented to show that the new pumps do not replace worn
irreparable pumps. Also, from the record it is not clear that
any changes were made to the engine that would require larger
volumes of water; however, the record does reflect the overhaul
of several other pumps while the vessel was docked. Absent
further evidence, this item is dutiable.
II. MACHINERY PART - GENERAL WORKS
5. Main Engine Pumps:
This item pertains to the manufacture of a permanent main
engine SW pump delivery line. The applicant states that a new
pump delivery line was installed to feed the new main engine
freshwater pumps. Because inadequate evidence is presented for
number 2, directly above, the nature of these operations is
unclear as well.
II. MACHINERY PART - GENERAL WORKS
9. FO Piping:
Applicant states that new, more efficient piping was
installed to service the fuel oil purifier. A portion of this
item indicates that the existing pipes were removed and
"blinded", and that "the said pipings" were "pickled" and
"painted". Although the invoice does not make it clear whether
the "said pipings" are the new or old pipes, it is assumed that
the old pipes were painted and pickled, since it is not likely
that new pipes would require such work. Having assumed this, as
discussed above, painting and operations that remove rust and
corrosion are dutiable maintenance operations. These maintenance
operations have not been segregated from the total item amount.
Furthermore, as to the new piping being more efficient than the
old piping, this has not been satisfactorily established.
Accordingly, this item is dutiable.
IV. BELT CONVEYOR
1. Head cutter:
The invoice indicates that the head cutter was "modified",
and that "operation adjustment works" were made. The applicant
only states that the head cutter was moved. The decision in each
case as to whether an installation constitutes a non-dutiable
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. The description provided is insufficient to determine
how the head cutter was "modified"; accordingly, this item is
dutiable.
IV. BELT CONVEYOR
2. Belt conveyor:
The invoice indicates that the belt conveyor was "modified"
and "improved". The applicant states that the belt conveyors
were relocated as part of related work that improved the
efficiency of the factory room. No other details are provided.
Viewing this item with item 1, Electric Part, where wiring work
was conducted for the deck belt conveyor motor and for which the
applicant does not seek relief, absent further details regarding
the improvements made, the item under consideration is denied in
that some non-segregated dutiable repairs appear to have been
included.
V. REFRIGERATING PART
1-13. Ceiling Coil
1-14. Suction Valve
1-16. Water Pipe
2-6. Cooling Coil
The applicant states that new freezer space was added to
increase the vessel's frozen storage capacity. As discussed
above, the decision in each case as to whether an installation
constitutes a non-dutiable 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. Absent further evidence to this effect, this item is
dutiable.
VI. NAVIGATION EQUIPMENT
3. Transceiver:
The applicant states that a new amateur transceiver for
radio equipment was installed, and that in all likelihood it
would be left on board the vessel during an extended layup. The
invoice does not provide further details.
As discussed above, dutiable equipment has been defined as
"...portable articles necessary or appropriate for the
navigation...of a vessel, but not permanently incorporated in or
permanently attached to its hull or propelling machinery...."
United States v. Admiral Oriental Line et al., T.D. 44359 (1930)
{quoting T.D. 34150, (1914)}. A more contemporary working
definition of equipment 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 Customs Ruling 109936, we determined that a satellite
communications system was a non-dutiable permanent addition to
the fittings of the vessel. However, in that case, three letters
from three different enterprises were presented to show that not
only was the system designed for permanent installation and was
left on board during layup, but specific examples of other
vessels were cited to show that the system did, in fact, remain
on board the vessels during an extended layup. In light of the
fact that we have consistently held that such delicate electronic
equipment is dutiable, the evidence submitted is insufficient for
relief to be granted.
VI. NAVIGATION EQUIPMENT
4. Sell-call Buoy:
Again, the applicant claims that this article would remain
on board the vessel. For the same reasons as number 3, directly
above, this item is denied.
We agree with the applicant as to the following items, and
find them to be non-dutiable modifications:
I. HULL PART:
7. Wheel House Battery Box (parts 1, 2, and 3)
11. Lining of Bathtub
12. Bait Room Hatch
14. Duster Shoot
15. Crew's Cabin
III. ELECTRIC PART
2. Wiring works
4. Fan
VI. NAVIGATION EQUIPMENT
5. Whip antenna
VII. MISCELLANEOUS INVOICES
The applicant states that many of the materials used were
shipped from the United States on the ALASKA PIONEER and the
ALASKA VOYAGER. Invoices are presented to show that most of the
items were purchased in the United States.
Title 19, United States Code, section 1466(h) exempts from
duty spare repair parts or materials that have been manufactured
in the United States or entered the United States duty-paid and
are used aboard a cargo vessel engaged in foreign or coasting
trade. As discussed in Customs Ruling 111464, the Customs
Service interprets the use of the term cargo to limit the
exception contained in the statute to vessels whose sole service
is the transportation of cargo and which are actually engaged in
that service while documented for the foreign or coasting trade.
The ALASKA PIONEER, at the time of arrival, was a long liner and
consequently does not qualify for the exceptions contained in 19
U.S.C. 1466(h).
Failing qualification for the exceptions accorded to cargo
vessels, we must evaluate duty treatment of parts under the
previously established statutory rules. Customs administration
of duty assessment issues under section 1466 regarding United
States manufactured materials purchased in the United States has
been guided by the terms of Treasury Decision 75-257, 9 Cust. B.
& Dec. 576 (1975). That decision provides that when materials of
United States manufacture are purchased by the vessel owner in
the United States for installation abroad by foreign labor, the
labor cost alone is subject to duty under 19 U.S.C. 1466. The
owner or master must submit written documentation or other
physical evidence, such as an affidavit by the equipment
manufacturer, that the equipment was manufactured and purchased
in the United States. Customs Ruling 110953. Absent such
documentation, the material is deemed foreign and consequently is
dutiable.
With the exception of Dynamic invoice #D3052, and O. Mustad
& Son (Can) Ltd. invoice #3480 (worksheet numbers 6 and 7,
respectively), the applicant has satisfied the second element;
however, the first element (i.e., that the items were
manufactured in the United States) has not been satisfied.
Accordingly, miscellaneous invoices 1-5, and 8-17 are dutiable.
HOLDING:
The application for relief is denied and granted in part as
detailed in the Law and Analysis portion of this ruling.
All other items, not specifically discussed in this letter,
were reviewed and we agree with the determinations of duty made
by the San Francisco Vessel Repair Liquidation Unit.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch