VES-13-18-RR:IT:EC 114289 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Vessel Repair Entry No. C31-0005034-4; ARCO ALASKA; V-344;
Modification;
Sludge Removal; Inspection Costs; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated March 9, 1998,
forwarding a petition for review of our decision on an
application for relief from duties assessed pursuant to 19 U.S.C.
1466. Our findings are set forth below.
FACTS:
The ARCO ALASKA is a U.S.-flag vessel owned and operated by
Arco Marine, Inc. Subsequent to the completion of foreign
shipyard work, the vessel arrived in the United States at Valdez,
Alaska, on June 25, 1997. A vessel repair entry was timely filed
as was an application for relief with supporting documentation.
By letter dated December 31, 1997, your office denied the
application in part and granted it in part based on Headquarters
ruling letter 114183 and informed the applicant of the right to
file a petition of this decision pursuant to 4.14(d)(2) of the
Customs Regulations (19 CFR
4.14(d)(2)). Subsequently, a petition was timely filed seeking
relief for the following: Exhibit #57 (Halla Marine Supply Co.
invoice #HM-70509-04); Exhibit# 67(a) (Mi Sung Corp. invoice #MS-97-429); and Exhibit #68 (Hyundai Mipo Dockyard Co. Ltd., p. 100-38, Item #109 C.).
ISSUE:
Whether the costs for which the petitioner seeks relief are
dutiable under 19 U.S.C.
1466.
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LAW AND ANALYSIS:
Title 19, United States Code, 1466, provides in pertinent
part for the payment of an ad valorem duty of 50 percent of the
cost of "...equipments, or any part thereof, including boats,
purchased for, or the repair parts or materials to be used, or
the expenses of repairs made in a foreign country upon a vessel
documented under the laws of the United States..."
Exhibit #57 covers the installation of a new Butterworth
Steam Return System and is alleged to be a nondutiable
modification. In its application of the vessel repair statute,
Customs has held that modifications, alterations, or additions to
the hull and fittings of a vessel are not subject to vessel
repair duties. The identification of work constituting
modifications vis-a-vis work constituting repairs has evolved
from judicial and administrative precedent. (See Otte v. United
States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States
v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359
(1930); and Customs Bulletin and Decisions, Vol. 31, Number 40,
published October 1, 1997.) The factors discussed within the
aforementioned authority are not by themselves necessarily
determinative, nor are they the only factors which may be
relevant in a given case. However, in a given case, these
factors may be illustrative, illuminating, or relevant with
respect to the issue of whether certain work may be a
modification of a vessel which is nondutiable under 19 U.S.C.
1466.
Upon reviewing the petition and the supporting documentation
enclosed therein (i.e., exhibits 1, 2 and 3), at the outset we
note that since the old Butterworth Steam Return System that was
replaced is stated to have been operational and not in a state of
disrepair, the installation of the new Butterworth Steam Return
System (which included a new additional inspection tank as well
as numerous related piping and valves) would not constitute a
dutiable repair. In addition, this new system improves the
efficiency of the vessel by providing more hot water for its
operation and provides a means of visual inspection of the
condensate by the engineers so that any oil may be removed before
the condensate reaches the boiler feed system. The old system
was connected directly to the drain tank whereas the new system
is segregated and can prevent any contamination of the plant. We
note that upon further review of the supporting documentation,
the new system would not constitute a dutiable purchase of
equipment since it is not an operating entity unto itself. It is
therefore readily apparent that the installation of the new
Butterworth Steam Return System covered by Exhibit #57, which
would not be removed from the vessel in the event the vessel is
put in lay-up, constitutes a nondutiable modification.
Exhibit #67(a) covers the cost of sludge removal Customs
previously determined should be prorated. However, upon
reviewing the petition and supporting documentation enclosed
therein (i.e., affidavit exhibits 1(a) and 3), it is readily
apparent that the sludge removal in question was performed
pursuant to a required periodic ABS survey irrespective of any
dutiable repairs. Accordingly, Exhibit #67(a) is nondutiable
pursuant to the holding of the court in Texaco Marine Services,
Inc. v. United States, 44 F.3d 1539 (1994).
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Exhibit #68 covers work incurred pursuant to a required
ABS/USCG tailshaft inspection. Upon further review of the
supporting documentation (specifically, exhibit 3), we have
determined that the work in question was unrelated to any
dutiable repair work. Accordingly, pursuant to Texaco, Exhibit
#68 is nondutiable.
HOLDING:
As detailed above, the petition is granted in full.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch