19 U.S.C. 1466; Vessel Repair; Modification

HQ 113770 December 5, 1996 VES-13-18-RR:IT:EC 113770 GOB CATEGORY: Carriers Kevin C. O'Rourke Senior Vice President and General Counsel Matson Navigation Company P.O. Box 7452 San Francisco, CA 94120-7452 RE: 19 U.S.C. 1466; Vessel Repair; Modification Dear Mr. O'Rourke: This is in response to your letter of November 21, 1996 in which you request a ruling as to whether certain foreign shipyard work performed on the CHIEF GADAO (formerly PRESIDENT GRANT) will be dutiable under 19 U.S.C. 1466. FACTS: In your letter of November 21, 1996, you state as follows: Matson Navigation Company, Inc. ("Matson") intends to make certain modifications to the C-8 class containership CHIEF GADAO (ex-PRESIDENT GRANT) (Official No. 530138) in order to allow the vessel to bring its speed in line with the other four ships in Matson's Pacific Alliance Service with which it rotates. The modification will increase the vessel's speed by roughly « knot and will also allow it to be more fuel efficient when operating at lower power... ... Matson intends to remove and scrap CHIEF GADAO's existing bow section which extends aft from the forward perpendicular to frame 40, approximately 26.3 m. aft, and vertically from the base line to an existing weld seam at about 10 m. A new bow section will be prefabricated and inserted within the same envelope. In response to our request for additional information, you submitted specifications and drawings. The specifications state: Provide labor, material and equipment to replace the original bulbous bow with one of more efficient design. This work involves: Removal of the existing bow section... Fabrication and installation of a new bow section... Interior and exterior painting of new and affected structure. Removal and renewal of piping and miscellaneous outfitting components within the affected area. Weight Reporting, Various Tank and Piping Testing and Lightweight Survey. ISSUE: Whether the foreign shipyard work described herein would constitute modifications to the hull and fittings of the vessels so as to render the work non-dutiable under 19 U.S.C. 1466. LAW AND ANALYSIS: 19 U.S.C. 1466 provides for the payment of duty at a rate of fifty 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 be employed in such trade. In its application of the vessel repair statute, the Customs Service 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. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered: 1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment, so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair. 2. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up. 3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function. 4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel. After a review of the documentation submitted, we conclude that the work described therein is a modification which is nondutiable under 19 U.S.C. 1466. The work appears to fit within each of the four criteria stated supra. We note that there is no indication from the description of the work that repairs will be involved. Vessel repairs and repair-related items are dutiable under 19 U.S.C. 1466. HOLDING: After a review of the documentation submitted, we conclude that the work described therein is a modification which is nondutiable under 19 U.S.C. 1466. We note that there is no indication from the brief description of the work that repairs will be involved. Vessel repairs and repair-related items are dutiable under 19 U.S.C. 1466. This ruling does not eliminate the requirement of 19 CFR 4.14(b) to declare and enter work performed abroad at the vessel's first port of arrival. Customs' final determination as to dutiability of foreign shipyard work will be made in the procedure outlined in 19 CFR 4.14. Sincerely, Chief, Entry and Carrier Rulings Branch cc: Port Director of Customs Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450 San Francisco, CA 94126