Vessel Repair; Entry No. 335-0100603-6; SS PRESIDENT JOHNSON; V-241; Petition for Relief; Modification

HQ 112249 January 27, 1993 VES-13-18-CO:R:IT:C 112249 BEW CATEGORY: Carriers Chief, Technical Branch Commercial Operations Pacific Region One World Trade Center Long Beach, California 90731 RE: Vessel Repair; Entry No. 335-0100603-6; SS PRESIDENT JOHNSON; V-241; Petition for Relief; Modification Dear Sir: This is in response to your memorandum dated April 15, 1992, transmitting a petition for relief from duties assessed pursuant to 19 U.S.C. 1466. FACTS: The SS PRESIDENT JOHNSON is a U.S.-flag vessel owned by American President Lines, Ltd., of Oakland, California. The subject vessel underwent foreign shipyard work during the period of June and July 1991. After the completion of the work, the vessel arrived in the United States at Seattle, Washington, on August 10, 1991. Formal entry was timely filed on August 15, 1991. Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed on November 7, 1991. The applicant alleged that the two items in question (Item 3.3-2, Propeller Net Cutter Installation; and Item 3.3-3, Rudder Side Plates Modification) constituted nondutiable modifications to the subject vessel. Based on the evidence submitted, in ruling No. 112036 GEV, dated February 11, 1992, it was held that: Upon reviewing the record with regard to this particular work, we note that both items appear on pp. 111-113 of Hongkong United Dockyards Ltd. invoice No. 0011/09, dated July 11, 1991, under the heading, "NON STANDARD HULL AND UNDERWATER REPAIR AND MAINTENANCE." The invoice descriptions for both items further evidence repair work rather than modifications. Accordingly, Items 3.3-2 and 3.3-3 are dutiable. The petition for review centers primarily around Item 3.3- 2, Propeller Net Cutter Installation. The petitioner alleges that this item is a permanent modification to the hull and fittings of the vessel. ISSUE: Whether the foreign work performed in Item 3.3-2, for which the petitioner seeks relief constitutes a modification so as to render the work nondutiable 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. In its application of the vessel repair statute, Customs has held that modifications 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 lay up. 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. Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment." An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig. "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)) By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include: ...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... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228). A more contemporary working definition 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. The Customs Service has held that the decision in each case as to whether an installation constitutes a nondutiable modification/alteration/addition to the hull and fittings of a 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. A review of the documents submitted with the petition shows that the propeller net cutter is a permanent addition to the hull and fittings of the vessel. We find that the propeller net cutter was installed to prevent the vessel propeller from becoming tangled with fish nets during it operations in Japanese and Chinese waters. Accordingly, we find that Item 3.3-2 is a permanent modification installed to enhance the vessel's operational efficiency. The petition is granted as to Item 3.3.2 -Propeller Net Cutter. HOLDING: Following a thorough review of the evidence as well as the applicable law and analysis of the evidence, we have determined that item 3.3.2- Propeller Net Cutter installation is a nondutiable modification/alteration/addition to the hull and fittings of the vessel that is remissible under the statute. Sincerely, Acting Chief Carrier Rulings Branch