HQ 111748: Vessel Repair; 19 U.S.C. 1466; Modification; Parts

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 111748

                        October 10, 1991

Ves-13-18-CO:R:IT:C 111748 RAH

CATEGORY:  Carriers

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE:  Vessel Repair; 19 U.S.C.  1466; Modification; Parts

Dear Sir:

     This is in response to your memorandum of June 15, 1991,
regarding the ALASKA 1.

FACTS:

     The record reflects that the ALASKA 1 arrived at the port of
Dutch Harbor, Alaska, on January 1, 1991.  Vessel repair entry
number H24-0010244-6 was filed on January 3, 1991, reflecting
foreign work to the vessel at Shiogama City, Japan.  An extension
of time in which to file cost documents and an application was
granted until May 3, 1991.

     The ALASKA 1 was originally designed as a tuna purse seiner
for tropical water fishing operations.  In 1985, it was
converted into a stern trawler in a U.S. shipyard.  In 1987 and
again in 1989, the vessel underwent additional modifications at
the Yamanishi shipyard to improve the operating efficiency of the
vessel.  In the Fall of 1990, additional modifications  were made
to further improve the vessel's efficiency.  As part of the
modifications, crew areas were expanded to accommodate additional
crew members.  The factory areas was gutted and expanded and
substantially modified.  New machinery was installed and many
conveyors were lengthened or shortened and repositioned.
Hatches and shutes were modified to improve the operating
efficiency in the factory area.

     The subject of this ruling is an application for relief
dated May 2, 1991.  You specifically request our advice on
whether the following items constitute duty free modifications:

                              - 2 -

     1.   Expanded factory into area previously occupied by
     flume tank, including installing new bulkhead,
     installing manholes, current plate, and sea water
     suction piping, and related work.  Items 8(1)-8(11).

     2.   As part of factory expansion, reduced coamings on
     no. 2, 5, 6, and 7 hold in size in order to be able to
     accommodate more equipment in the factory area.  Items
     9(1)-(9).

     3.   As part of enlargement of crew area, installed
     stage and piping for washing machine in crew  quarters,
     including associated electrical work.  Item 18; Item
     11.

     4.   Expanded crew area on upper deck to accommodate
     six crew members rather than four, including shifting
     steel wall, installing new plate of control room floor,
     installing new bulkhead and roof in shower room and
     associated plumbing work, building and installing new
     bunks and storage areas, and associated electrical
     work.  Items 19(1)-(9); Item 8(2).

     5.   Expanded crew area on bridge deck to accommodate
     six crew members rather than four, including building
     and installing new bunks and additional storage areas
     and associated electrical work.  Item 20; item 8(3).

     6.   Expanded radio room on bridge deck to accommodate
     two additional crew members, including building and
     installing new bunks and additional storage areas.
     Item 21; Item 8(1).

     7.   Built and installed new hydraulic hatch cover and
     installed new hatch on trawl deck and associated work,
     including electrical work.  Items 23(1)-(15); Item 10.

     8.   Modified factory area to improve efficiency,
     including installing new depanning machine and new
     grazing machine; expanding work area of cutting table;
     installing new partitions, floor plats, duster shutes,
     fish bin and fish piping; installing new florescent
     lights; expanding or shortening length of conveyors and
     repositioning them; and related plumbing and electrical
     work.  Items  24(1); Item 31; Item 34; Item 3; Item 4;
     Item 7; Item 9; Item 12; Item 13; Item 13; Item 2; and
     Items 7-11.

     9.   Converted no. 1 fish holding tank to hold fresh
     water rather than sea water, including installation of
     new pipe and associated plumbing work and filling with
     fresh water.  Items 25 and 30; Item 12.
                              - 3 -

     10.  Extended vent from boatswain's store to weather
     deck.  Item 28.

     11.  Extended bilge pipe from chain locker.  Item 32.

     12.  Built and installed storage box in control room.
     Item 23.

     13.  Built and installed new shelves in control room.
     Item 33.

     14.  Executed new design for foundation bolts on port
     and starboard sides and related work.  Item 10.

     15.  Modified design and operation of head tank for
     hydraulics and moved its location.  Item 1.

     16.  Installed new oil pressure cooler and related
     work.  Item 2.

     17.  Installation of new monitoring camera and monitors
     in factory and control room to improve efficiency and
     safety of vessel.  Item 4; Item 6.

     You also seek are advise on the dutiability of the spare
parts in question.

ISSUES:

     Whether the work performed on the subject vessel constitutes
dutiable repairs under 19 U.S.C.  1466, or non-dutiable
modifications.

     Whether the purchase of the spare parts in question are
dutiable under 29 U.S.C.  1466.

LAW AND ANALYSIS:

     Title 19, United States Code, section 1466(a), 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 the foreign or
coastwise trade, or vessels intended to be employed in such
trade.

     Over the course of years, the identification of modification
processes has evolved from judicial and administrative prece-
dents.  In considering whether an operation has resulted in a
modification which is not subject to duty, the following
elements may be considered:

                              - 4 -

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 hull and
fittings took place for the purposes 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 an 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
                              - 5 -

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.

     In the instant case, we have reviewed the Tohoku Doctokko
K.J.K. invoice (ref. # 112-0196) dated March 25, 1991 and find
the following items to be duty free modifications:

     Part A:  8; 9 ; 18; 19(1)-(4),(6),(9); 21; 23; 24(5);
    26; 28; 29; 31;32; 33; 34

     Part B:  A10

     Part C:  3; 4; 6; 7; 8(1)(2)(3); 9; 10; 11; 12; 13

     Part D:  2; 7; 8; 9; 10; 11

     The following items constitute dutiable repairs:

     Part A:  19(5),(7),(8); 20; 24(1)-(4); 25;

     Part B:  B(1),(2)

     Part E:  4

     Furthermore, the applicant claims that the spare parts for
work on the ALASKA 1 totalled $55,301.89, of which $5,697.40 are
of U.S. origin ( as shown on the invoice from Fraser Boiler).
The applicant claims that these spare parts were installed by the
regular crew of the vessel under the supervision of the chief
engineer and should be non-dutiable.

                              - 6 -

     On August 20, 1990, the President signed into law the
Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of
which amends the vessel repair statute by adding a new subsection
(h).  Subsection (h) provides in part:

     (h) The duty imposed by subsection (a) of this section shall
not apply to--

          (2) the cost of spare repair parts or
          materials (other than nets or nettings) which
          the owner or master of the vessel certifies
          are intended for use aboard a cargo vessel,
          documented under the laws of the United
          States and engaged in the foreign or coasting
          trade, for installation or use on such
          vessel, as needed, in the United States, at
          sea, or in a foreign country, but only if
          duty is paid under appropriate commodity
          classifications of the Harmonized Tariff
          Schedule of the United States upon first
          entry into the United States of each such
          spare part purchased in, or imported from, a
          foreign country.

     Since the ALASKA 1 is not a cargo vessel it is not governed
by subsection (h).  Thus, in order to receive duty-free
treatment the spare parts in question must comply with 19 C.F.R.
 4.14(c)(3)(ii).  That provision provides for remission or
refund of duty if:

          The equipment, equipment parts, repair parts
          or materials used on the vessel were
          manufactured or produced in the Untied States
          and purchased by the owner of the vessel in
          the United States, and the labor necessary to
          install such equipment or to make such
          repairs was performed by residents of the
          United States or by members of the regular
          crew of the vessel.

     In the instant case, the Fraser Boiler & Diesel, Inc.
invoice (0010909-IN) has a handwritten notation that the parts in
question are "US".  The invoice, however, is not accompanied by a
certification from the vendor, or other relevant proof, that the
parts were manufactured in the United States.  Invoice
00109999981-IN has a handwritten notation that the parts are
"Aus" and invoice 0010884-IN is an invoice reflecting parts sold
and shipped to Trans Marine Prop. Systems Inc., not the vessel
operator in question.  Invoice YS02640 from Vilter and invoices
                              - 7 -

574084, 575286 and 576417 from NC Machinery Company do not
indicate whether the parts were manufactured in the United
States.  Furthermore, the applicant has not submitted evidence
that any of the parts were installed by U.S. residents or members
of the regular crew of the ALASKA 1.  Accordingly, the parts are
dutiable.

HOLDINGS:

     The work performed on the subject vessel constitute both
dutiable repairs under 19 U.S.C.  1466, and non-dutiable
modifications as discussed above.

     The purchase of the spare parts in question are dutiable
under 29 U.S.C.  1466.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch