HQ 111685: Vessel Repair; Modification; Fish Processor; United States Parts; 19 U.S.C. 1466; 19 C.F.R. 4.14; M/V ARCTIC TRAWLER; Entry No. C31-0007663-8.

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 111685

                         January 6, 1992

VES-13-18   CO:R:IT:C  111685  JBW

CATEGORY:   Carriers

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE:  Vessel Repair; Modification; Fish Processor; United States
     Parts; 19 U.S.C. 1466; 19 C.F.R. 4.14; M/V ARCTIC TRAWLER;
     Entry No. C31-0007663-8.

Dear Sir:

     This letter is in response to your memorandum dated May 2,
1991, which forwards for our review the application for relief
filed in conjunction with the above-referenced vessel repair
entry.

FACTS:

     The record reflects that the subject vessel, the M/V ARCTIC
TRAWLER, arrived at the port of Anchorage, Alaska, on December
20, 1990.  Vessel repair entry, number C31-0007663-8, was filed
on December 26, 1990.

     In 1987, the vessel underwent shipyard work in Japan to
convert the vessel from a catcher/processor fishing vessel to a
surimi factory trawler.  The vessel operated in the Bering Sea
from late-1987 until mid-1990 as a surimi factory trawler.
During this time, the vessel returned twice to Japan for further
modifications or repairs.  In October, 1990, the vessel again
sailed for Japan for the purpose of installing integrated roe
removal machinery in the vessel.  This work was performed between
November and December 1990.  The applicant, stating the work
constituted a modification to the vessel, seeks relief from
vessel repair duty on the cost of such work.  The applicant also
seeks relief for certain parts used in the foreign shipyard work.


ISSUES:

     (1)  Whether work performed in a foreign shipyard to install
an integrated roe removal system results in a modification to the
vessel that is not subject to duty under 19 U.S.C. 1466.

     (2)  Whether parts used in the repair of the vessel are
dutiable, if such parts are documented to be of United States
origin or to have been imported into the United States, duty-
paid.

LAW AND ANALYSIS:

     Title 19, United States Code, section 1466, provides in
pertinent part for payment of duty in the amount 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 engage in such trade.

     The applicant claims that certain work performed is not
subject to duty, for the work constitutes modifications to the
vessel.  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.  Over the course of years, the
identification of work constituting modifications on the one hand
and repairs on the other has evolved from judicial and
administrative precedent.  In considering whether an operation
has resulted in a modification that 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, 18 C.C.P.A. 137 (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 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 under consideration provides an
          improvement or enhancement in operation or efficiency
          of the vessel.

     For purposes of section 1466, 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.

T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval
in Admiral Oriental).

     The Customs Service has held that the decision in each case
as to whether an installation constitutes a nondutiable 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 applicant seeks relief from duty for work performed to
install integrated roe removal machinery in the vessel at the
Shin Hayashikane Co.  We have examined the eight-seven items
contained in the Shin Hayashikane invoice that were referred to
this office for review.  We find that the work described in
eighty-five of those items, coupled with the drawings submitted,
support the applicant's claim that such work constitutes a
modification to the vessel.  In item 21A, work was performed to
the boiler that the applicant acknowledges was dutiable as a
repair; however, the applicant claims that items 21B and 21C,
which involve accessing the boiler, are not dutiable.  We have
held that where accessing work is integral to dutiable repairs,
then the accessing work is itself dutiable.  Headquarters Ruling
Letter 108366, dated March 4, 1987.  These charges appear to be
integral to the boiler repairs performed in item 21A, and we find
the costs appearing under items 21B and 21C to be subject to
duty.

     You have requested review of Takuma Hanyo Kikai invoice
which relates to the repair of a heating coil.  The applicant
acknowledges that the entire invoice is subject to duty except
items 10 (transportation expenses), 11 (stay expenses), and 12
(general expenses relating to communications and freight
charges).  It is well settled law that items relating to
transportation, lodging, and communications are items or services
that have been recognized as free of duty.  Items 10, 11, and 12
of the Takuma Hanyo Kikai invoice are not subject to duty.

     The Mayekawa Marine Plant Co., Ltd., invoice, items one
through 8, represents work performed to increase the freezer
plates and to enlarge the refrigeration capacity.  The Mikasa
Trading Company invoice represents in part items required to
operate the roe removal machinery.  The work or the equipment
contained in these invoices are related to the installation of
the roe removal machinery.  These costs are not subject to duty.
However, the costs appearing under items 9 through 21 of the
Mayekawa Marine Plant invoice and the costs for parts identified
as "spare parts" or "additional supplies" appearing in the Mikasa
Trading Company invoice are subject to duty.

     Two Toyo Suisan Kikai Co., Ltd., invoices are submitted for
review.  The first invoice, which is not numbered, reflects costs
for machinery used in the installation of the roe removal
machinery.  These costs are related to the modification and are
not subject to duty.  The second invoice, number 90-1552-1,
represents costs for spare parts purchased for the newly
installed machinery.  The applicant acknowledges that these items
are subject to duty.

     The applicant seeks relief for parts it claims are of United
States origin or have been imported into the United States, duty-
paid.  The vessel repair statute 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.  19 U.S.C.
1466(h).  The Customs Service interprets the use of the term
cargo to limit the exception contained in the amendment 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.  Headquarters Ruling Letter
110953, dated September 19, 1990.  This interpretation excludes
vessels such as factory processors that process, store, and
transport as cargo marine products, but does not exclude those
bona fide cargo vessels that may incidentally carry that number
of passengers allowed under Coast Guard guidelines.  The ARCTIC
TRAWLER is a surimi factory trawler 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 the petitioner's claims regarding 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.  T.D. 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.  Id.;
Headquarters Ruling Letter 111065, dated February 4, 1991.  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 in the United
States.  See Headquarters Ruling Letter 110953, dated September
19, 1990.  Absent such documentation, the material is deemed
foreign and consequently is dutiable.

     We have reviewed the invoices and determine that the
evidence in the West Marine Sales Company and Bearing
Incorporated invoices is insufficient to establish United States
manufacture.  The Pacific Fisherman, Inc., letter attests that
the net reel pedestal was manufactured in the United States, but
that the hydraulic valve was manufactured in Italy.  The invoice
does not segregate these costs, and the entire invoice is subject
to duty.  Likewise, of the parts supplied by Kaman Industrial
Technologies Corporation, only parts listed under invoice B237829
(A39 Belt), invoice B237512, and invoice B237512 are of United
States origin.  These parts are not subject to duty, but all
other parts listed in the Kaman invoices are subject to duty.

HOLDINGS:

     We find that the installation of integrated roe removal
machinery constitutes a modification to the vessel, the cost of
which is not subject to duty.  Evaluation of specific invoices
is contained in the body of this ruling.

     The vessel is a surimi factory trawler and consequently does
not qualify for the exceptions accorded to cargo vessels
contained in 19 U.S.C. 1466(h).  Pursuant to T.D. 75-257, 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.  Evaluation of whether specific invoices meet the
evidentiary requirements is contained in the body of this ruling.


                              Sincerely,



                              B. James Fritz
                              Chief
                              Carrier Rulings Branch