19 U.S.C. § 1466; Vessel Repair Entry C20-0056698-7; Protest No. 2002-07-101536; M/V MANOA

HQ H020377 April 14, 2008 VES-13-18-RR:BSTC:CCI H020377 CK CATEGORY: Carriers Supervisory Import Specialist U.S. Customs and Border Protection 1515 Poydras Street, 17th Floor New Orleans, Louisiana 70112 Re: 19 U.S.C. § 1466; Vessel Repair Entry C20-0056698-7; Protest No. 2002- 07-101536; M/V MANOA Dear Sir: This is in response to your memorandum of November 28, 2007, forwarding for our review the above-numbered protest filed by counsel on behalf of Matson Navigation Company, with respect to Vessel Repair Entry C20-0056698-7. You seek advice on numerous costs listed in your memorandum. Our ruling is set forth below. FACTS: The M/V MANOA, a U.S.-flagged vessel owned by the protestant, incurred foreign shipyard costs. On January 22, 2005, the vessel arrived in Terminal Island, CA. On June 1, 2007, a determination of duty occurred in the amount of $611,418.65. On August 24, 2007, the protestant filed Protest No. 2002-07-101536. ISSUE: Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466? LAW AND ANALYSIS: Title 19, United States Code, section 1466(a) (19 U.S.C. 1466(a)) 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 or repairs made in a foreign country upon a vessel documented under the laws of the United States….” In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull 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. These factors 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: 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 or dutiable equipment. Whether in all likelihood an item 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 provides an improvement or enhancement in operation or efficiency of the vessel. ITEMS 201, 203, 204, and 205: These items cover work done to hatch coamings. The original application for relief argued that the work constituted non-dutiable modifications. The New Orleans Vessel Repair Unit (“VRU”) found the work to be dutiable repair work based on the submitted American Bureau of Shipping (“ABS”) survey report. The protestant revised its claim and states that these items represent 12 work locations consisting of 2 locations on each of six frames (73, 77, 85, 81, 89 and 93). Protestant has submitted a revised COSCO Shipyard Co., Ltd. invoice dividing the work done on the 6 frames. The new shipyard invoices states “Section 200A Hatch Coaming Structural Repair Frame Nos. 73, 77 and 85.” The second page states “Section 200B Hatch Coming Structural Modifications Frame Nos. 81, 89 and 93). The ABS survey is divided into six different numbered reports. One relevant report is number “SQ568172_B” described as “Damage- Repair Survey (Class).” Some of the items listed in that “Damage” report number include: frame 73 port side; bulkhead 73; 73 port and starboard; 77 forward port; 77 aft port; 77 forward, starboard; frame 83 aft starboard; and frame 97 aft starboard. Each line item of work describes wasted and fractured coamings. We note in addition work detailed under the ABS “Modification Survey” is “Longitudinal Hatch Coaming Modifications.” That item refers to and describes modifications to hatch coamings in way of frames 73, 77, 81, 85, 89, and 93. In this case, the ABS survey reports both repairs and modifications to frames 73, 77, and 85, and based on this report it is apparent that frames 73, 77, and 85 were in need of repairs even if the work was described as modifications. Thus these frames cannot satisfy the third criteria above since the items were not in good working order when the work was performed and are therefore dutiable repairs. However, there is no indication in the ABS report that frames 85, 89, and 93 were in need of repairs due to wasted or fractured coamings, and are listed in the “Modification Survey.” The work constitutes permanent incorporations into the structure of the vessel and these items are improvements. There is no indication that the work was also done because repairs were needed. Accordingly, the work on frames 85, 89, and 93 constitute non-dutiable modifications. ITEMS 301-305: Items 301-304 consist of preparation work related to the larger work item number 305. Section 305 was entitled in the invoice, “Modifications of Side Shell Brackets at Web Frames.” Items 301 to 304 included transferring and storing the oil on board, fuel oil tank opening, gas freeing, temp lighting and ventilation, fuel oil tank cleaning and staging. These items were all related to the work performed in item 305, thus they are either dutiable as “expenses of repairs” or non-dutiable depending on the determination on item 305. Item 305 includes work to the connection to the side shell frames of the fuel oil wing. Work was also performed to the side shell brackets at Web Frames in Fuel Oil Tank Nos. 1, 2, 3A, 3B, and 3C, port and starboard wing tanks, longitudinal numbers L23, L24, L25, L26, and L27 (total of 278 locations). In addition, work was performed at three oil tight bulkheads Nos. 85, 89 and 93, port and starboard. The VRU denied relief on these items based on items 103, 110, and 120 of the ABS survey, which noted numerous repairs needed on wing tanks 1P and 3CS. Protestant in the supplemental shipyard invoice had the work divided into the costs of repair work and modification work. Protestant accedes to dutiable repair work in wing tanks 1P and 3CS, but presents the new shipyard invoice to seek relief stating the work performed on wing tanks 1-S, 2-P/S, 3A-P/S, 3B-P/S, and 3C-P were modifications. The VRU in response to the protest has noted the ABS damage survey report also addresses repairs in all the longitudinal tanks and 6 of the other 8 wing tanks in items 91, 101,104- 109 of the survey report. According to the ABS report, extensive repairs were performed due to wasting in Hold No.6, including SSL 23-27, Hold No. 7, and Bulkhead 73. The report lists Ballast 03C-S as leaking. Wing tank 01-S is listed in the report with numerous fractures, as is wing tank 02-P and 02-S, and tanks 03A-P, 03B-P, and 03C-P. Protestant and the VRU were both correct in noting that the ABS noted modifications to those side shell brackets at issue, but even the “Modification report” notes that the work was done in conjunction with FO tank fracture repairs. Thus, repairs were made and therefore the work cannot pass the third of the modification criteria above. Items 301-305 are therefore dutiable. ITEM 350: This item is the cost of a lightship survey and inclining test. This test is one conducted to determine the new lightship weight and center of gravity after a ship has been modified. It would not be performed if the only work performed were repairs since the basic weight has not been changed. We hold this item non-dutiable. Some of the work performed on the vessel constituted modifications and it is apparent the test would not have been performed without the modifications. ITEM 1001: This item covers cargo hold pedestal base reinforcements The VRU held this item dutiable as repairs based on the shipyard invoice which detailed the work as “Cropped out and replaced the lower portions of 74 (74) existing pedestal base structures and associated tank top plating, located within Cargo holds 1, 2, 6 & 7….” Additionally, they note that the ABS damage survey report in sections 87, 88, 91 and 92 related to cargo holds 1, 2, 6, and 7 respectively, which note multiple areas of structural steel wastage. Protestant argues that the work performed on the cargo holds pedestal bases was modifications. The ABS Survey report states that in holds 6 and 7 the tank top plating was found wasting. The ABS report does not state wasting on the tank top plating was found for cargo holds 1 and 2. The work performed on cargo holds 1 and 2 is non-dutiable, but as the steel was found in poor condition on cargo holds 6 and 7 that work cannot pass the third of the modification criteria discussed above and is therefore dutiable. ITEM 1003: This item covers work for the Tank Level Indicating System for fuel oil tanks 1, 2, 3A, 3B, and 3C. This item includes cleaning, gas freed the holds, remove connections and fittings. This item also includes new fittings and smoothing. Finally, also included is a line that states “Effected additional repairs identified in Change Order Request 96.” We note that in our above discussion we have found work completed on these tanks to be both dutiable repairs and non-dutiable modifications. However, as no effort has been made to breakdown the costs for the work on the tanks, and in light of the repairs noted, but not separately given a cost, the entire item must remain dutiable. ITEM 1011: This item according to the shipyard invoice is for an Auxiliary Boiler Control System Upgrade. It involved replacing the old auxiliary boiler control system, with all attendant work, and installing the new system. The VRU denied relief stating that protestant failed to provide documentary evidence that the old boiler was in good working order when it was replaced by this new system that protestant states is a new design and more efficient. Both the VRU and protestant point to HQ 116627, dated March 16, 2006 which stated that the same new boiler system which was to be installed in a sister ship would be a modification, provided documentary evidence was submitted probative of the fact that the system being replaced was in good working order. Here, an affidavit from the protestant’s port engineer was provided as the documentary evidence. CBP has stated before that affidavits unsupported by invoices, ship maintenance logs, captain’s logs, or other independent documents that the part or item was in good working order is insufficient by itself. See, HQ 226993, dated June 10, 1996. So, while we do not disagree that the boiler system is a new improved and more efficient system, in order for the modification claim to be granted protestant is required to produce independent evidence that the system being replaced was in good working order at the time of replacement. Protestant has not supplied such evidence, therefore this item remains dutiable. ITEM 1012: This item covers the SSDG (Ship’s Service Diesel Generator) Control System Upgrade. The existing system for the vessel’s three generators was removed and an upgraded Norcontrol control and power management system installed. Included in the work were the following: all pneumatic instruments/transducers and wiring on each engine for lube oil, jacket water, etc., were replaced; the existing control cabinets were removed and new “local” cabinet was installed; and DPUs for engine control and safety monitoring were provided and installed in the switchboard. Protestant seeks relief based on a modification claim and that similar work had already been found to be a non-dutiable modification in an entry filed on a sister ship. The VRU denied relief stating that the work appeared to be the installation of equipment or in the alternative, protestant failed to provide documentary evidence that the system was in good working order when it was replaced by this new system. Protestant included an affidavit from its port engineer as documentary evidence that the system was in good working order before the work was performed. For the same reasons expressed above in denying relief on ITEM 1011 that there is no independent evidence presented that the system was in good working order, this item does not meet the requirements of a modification, and therefore remains dutiable. ITEM 1013: This item is the fuel system for the vessel’s three Ship’s Service Diesel Generators discussed above that were removed and an upgraded system installed. The work included the following: installed fuel oil system change-over valves; installed Viscochief; installed fuel oil heater package; assisted with the removal of the fuel oil system components; and the installation of the Owner Furnished upgraded system. Protestant seeks relief based on a modification claim and that similar work had already been found to be a non-dutiable modification in an entry filed on a sister ship. The VRU denied relief stating that the work appeared to be the installation of equipment or in the alternative, protestant failed to provide documentary evidence that the system was in good working order when it was replaced by this new system. Protestant included an affidavit from its port engineer as documentary evidence that system was in good working order before the work was performed. For the same reasons expressed above in denying relief on ITEMS 1011 and 1012 that there is no independent evidence presented that the system was in good working order, this item does not meet the requirements of a modification, and therefore remains dutiable. ITEM 1014: This item is described as an uninterruptible power supply system (UPS) that was installed to provide clean, continuous power to the vessel’s 3CM radar, gyrocompass, speed log, ECDIS, adaptive steering, and other vital navigation devices. The work included the removal of the existing system wiring, piping and components, and the installation of the owner furnished upgraded system. Protestant seeks relief based on a modification claim and that similar work had already been found to be a non-dutiable modification in an entry filed on a sister ship. The VRU denied relief stating that the system appeared to be the installation of equipment or in the alternative, protestant failed to provide documentary evidence that the system was in good working order when it was replaced by this new system. Protestant included an affidavit from its port engineer as documentary evidence that system was in good working order before the work was performed. For the same reasons expressed above in denying relief on ITEMS 1011, 1012, and 1013 that there is no independent evidence presented that the system was in good working order, this item does not meet the requirements of a modification, and therefore remains dutiable. EXHIBIT 2, Item 3: This line item covers the cost of the American Bureau of Shipping (ABS) modification survey. The VRU noted that the survey covers eight items of work carried out at the shipyard. Two items of work were conceded dutiable and six items were part of this protest. The VRU denied relief based on the Texaco “but for” test. Protestant states that they already segregated out the costs of the survey that were attributable to the dutiable repairs and the remaining costs are associated with nondutiable modifications. Some of the work items have been held to be nondutiable in this decision. However, since the costs under this item are not segregated they should all be held dutiable in their entirety. EXHIBIT 2, Item 5: This line item covers the cost of the American Bureau of Shipping (ABS) incline experiment or incline test. A similar cost was discussed n ITEM 350 above. Protestant claims they are not dutiable because the test was only necessary because of modifications. As we held ITEM 350 nondutiable because items in this invoice are nondutiable modifications the same rationale applies to this item and should be held nondutiable. EXHIBIT 3, Aalborg Industries: This invoice covers the costs of parts for the upgrade of the boiler system noted in ITEM 1011 above. The VRU held the invoice and all items dutiable as the upgraded boiler system work was found to be dutiable repairs rather than a modification. Protestant incorrectly attributed the parts to ITEM 1007, but ultimately claims the parts were used in a nondutiable modification. As we held that ITEM 1011 was dutiable, since there was no independent evidence submitted that the system was in good working order when it was replaced, and could therefore not meet all prongs of the modification test, these parts must remain dutiable under 19 U.S.C. 1466(a). EXHIBIT 4, Aalborg Industries: This invoice covers the cost of freight for the preceding exhibit. Since, we found the parts in EXHIBIT 3 dutiable then per Texaco the cost of the freight remains dutiable. EXHIBIT 7, Aalborg Industries: This invoice also covers the cost of parts for the boiler system noted in ITEM 1011 above. Protestant seeks relief based on the claim that the work in ITEM 1011 constitutes a modification so all parts used are nondutiable as part of that modification. The VRU denied relief stating that since the work performed in ITEM 1011 is dutiable, so are the parts as no relief under another subsection of 19 U.S.C. 1466 was claimed. We agree that as ITEM 1011 does not qualify as a modification and is dutiable, the parts in this invoice used in ITEM 1011 are also dutiable. EXHIBIT 13, Alfa Laval: This invoice covers the cost of Viscochief CS 160L, which is an automatic viscosity control system. The Viscochief was installed as part of the work performed in ITEM 1013 described above. The VRU denied the claim stating the item is both equipment and as the work in ITEM 1013 does not qualify as a modification, neither does this invoice. Protestant argues that this invoice is nondutiable since it was used as part of ITEM 1013 which they claim is a modification. We find that this invoice is dutiable because the work performed in ITEM 1013 does not meet the requirements for a modification since protestant offered no independent evidence that the replaced system was in good working order before the work was performed. EXHIBITS 49 and 50, Kongsberg: These invoices represent parts also used in ITEM 1013 (SSDG Fuel Oil System). For the reasons relief was denied for EXHIBIT 13 that ITEM 1013 does not qualify for relief as a modification, relief is also denied for these invoices. EXHIBIT 60, SeaMar Electronics: This invoice is for parts used in the work performed in ITEM 1013. This invoice is dutiable for the same reasons EXHIBITS 13, 49, and 50 are dutiable. EXHIBIT 61, SeaMar Electronics: This invoice is for the parts used in the work performed in ITEM 1014. The VRU denied relief based on the fact that the invoice is for a complete system and is equipment, and that furthermore it is dutiable because the work performed in ITEM 1014 does not qualify as a modification. Protestant disagrees. Because ITEM 1014 does not qualify as a modification since no independent evidence was submitted that the UPS system replaced in ITEM 1014 was in good working order, as required for a modification, this invoice remains dutiable. HOLDING: Following a thorough review of the evidence as well as well as an analysis of the law and applicable precedents, we have determined that the protest should be allowed in part and denied in part, as specified in the Law and Analysis portion of this ruling. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.Sincerely, Glen E. Vereb Chief Cargo Security, Carriers and Immigration Branch