HQ 113024: Petition for Review; Vessel Repair Entry No. H24-0014520-5; ALASKA JURIS; 19 U.S.C. 1466; Modification

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 113024

July 15, 1996

VES-13-18-RR:IT:EC 113024 BEW/CC

CATEGORY: Carriers

Vessel Repair Liquidation Unit
U.S. Customs Service
300 S. Ferry St.
Terminal Island, CA 90731

RE: Petition for Review; Vessel Repair Entry No. H24-0014520-5; ALASKA JURIS; 19 U.S.C. 1466; Modification

Dear Sir or Madam:

This is in response to a memorandum from the Deputy Regional
Director, Commercial Operations, Pacific Region, dated February
4, 1994, forwarding for our review a petition for review filed in
conjunction with HQ 112725, relating to the above-referenced
vessel repair entry. Our findings are set forth below.

FACTS:

The ALASKA JURIS ("vessel") is a U.S.-flag vessel owned and
operated by the Fishing Company of Alaska, Inc. The vessel
underwent foreign shipyard work in Ishinomaki City, Japan, during
December 1992. The vessel arrived at the port of Dutch Harbor,
Alaska on January 7, 1993. A vessel repair entry was filed on
the day of arrival.

An application for relief from vessel repair duties was
timely filed. In HQ 112725, dated October 20, 1993, Customs
allowed in part and denied in part the application for relief.
Pursuant to an authorized extension of time under 19 CFR
4.14(d)(2)(ii), a petition for review was timely filed.

The following items are the subject of this petition:

Holding Tank (Item I, Number 21)
Head Cutter (Item III, Number 6)
Tail Roller (Item IV, Number 1)
Trans Marine Propulsion Invoices 003977 (Nov. 30, 1992), and 004089 (Jan. 19, 1993)
Elliott Bay Design Group (Apr. 6, 1993, facsimile)
Det Norske Veritas invoice

In HQ 112725 we made the following determinations concerning
the items the subject of this petition. For the holding tank
(Item I, Number 21) we stated that the invoice indicated that it
was under strain which necessitated its renewal and
reinforcement. We determined, therefore, that the work performed
on the holding tank was indicative of a restoration operation,
making it dutiable. For the head cutter (Item III, Number 6)
and tail roller (Item IV, Number 1), the details and information
contained in the invoices were inadequate to conclude that these
items were modified. The invoices for the items Trans Marine
Propulsion and the invoice for Elliott Bay Design Group contained
brief descriptions, showing that the work related to repair
operations. In addition the Elliott Bay Design Group facsimile
offered no explanation of the work performed.

In support of its claims, the petitioner has submitted an
affidavit of Herb Roeser, President of Trans Marine Propulsion
Systems, Inc., Seattle, Washington. In the affidavit, Mr. Roeser
makes specific statements concerning the claimed modification
work on the items discussed above. In addition, Mr. Roeser
states:

2. I regularly provide advice to the Fishing Company of
Alaska, Inc., about modifications that can be made to the
company's vessels to improve their operating efficiency and
to enhance their safety. I specifically provided advice to
the company with respect to the modifications made to the
ALASKA JURIS in late 1992 at the Tohoku Dock Tekko shipyard.

3. I was not present at the shipyard when the modifications
were made to the vessel. However, I have reviewed the
invoice of the Tohoku Dock Tekko shipyard, dated March 19,
1993 and I am familiar with the type of activities
undertaken generally by shipyards in making modifications to
vessels of the type described below. (See above). Having
been involved in the planning process before the vessel
entered the shipyard, I also know what types of
modifications were contemplated and when a first-time
installation of equipment was envisioned. After the vessel
returned to the United States, I confirmed that the
modifications described below had in fact been made.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C.
1466?

LAW AND ANALYSIS:

Title 19, United States Code, 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, 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
modification processes 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
often be welded or otherwise "permanently attached" to the
ship because ships are subject to constant pitching and
rolling. In addition, some items, the cost of which is
clearly dutiable, operate with other vessel components,
resulting in the need, possibly for that purpose alone, for
a fixed and stable attachment to those vessel parts. It
follows that a "permanent attachment" may take 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 non-dutiable
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.

Our analysis in this matter is based on the pertinent
invoices. The assertions contained in the petition are not
considered to be documentary evidence. As stated by the Court of
International Trade in Bar Bea Truck Leasing Co., Inc. v. United
States, 5 CIT 124, 126 (1983), assertions of counsel are not
evidence.

With respect to the holding tank, counsel, in the letter of
January 13, 1994, repeated the statement of Mr. Roeser in his
affidavit of January 17, 1994:

The shipyard boxed off piping running through the
holding tank with steel bulkheads to avoid the risk of
contamination of the lube oil in the lower tank and the
fuel oil in other tanks if a pipe were to burst. This
presented a first-time installation of these bulkheads
to ensure that pipe ruptures or leaks would be
contained. As a result of adding the steel bulkheads,
some of the pipes had to be replaced, insulation had to
be removed, and related efforts were undertaken, as
further described in the invoice. The purpose of the
work was not to effectuate repairs, but to avoid
problems in the future by creating the containment
areas.

In HQ 112725 we found:

The invoice that describes the work performed on
the holding tank (Item I, Number 21) is indicative of a
restoration operation. Customs has consistently
determined that work performed to restore deteriorating
items are repairs. It appears that the holding tank,
in its pre-operative condition was under strain which
necessitated its renewal and reinforcement.

The invoice on the work done describes the work as a
"modification and reinforcement." That invoice lists among the
tasks the following items:

renewed center side with manhole permanently
renewed permanent current plate
renewed suction pipe
renewed insulation
washed and cleaned inside the tank and painted
tar-epoxy paint.

The affidavit states that the purpose of the work was not to
effectuate repairs, but to avoid problems in the future by
creating containment areas. The statement that the work was not
a repair is more of a conclusion on the legal issue in
controversy rather than a statement of fact. The affidavit does
not explain how the work described on the invoice as renewals of
various items is new work. The affiant simply concludes that the
work is not a repair. In view of the lack of linkage between the
invoice descriptions and the affidavit, we find that the
petitioner has not met its burden to show entitlement to the duty
exemption. See Admiral Oriental Line v. U.S., T.D. 43585 (Cust.
Ct. 1929).

In order to show that work is a modification and exempt from
duty, the claimant must show that not only that the vessel was
modified, but that the work was not connected to work to cure
decay, wear, use or a physical defect. Admiral Oriental Line v.
U.S., T.D. 45453 (Cust. Ct. 1932). In that case, the plaintiff
met its burden by the testimony of its superintendent in court on
the point in dispute. With respect to the weight given an
affidavit, the case of Andy Mohan Inc. v. U.S., 74 Cust. Ct. 105,
C.D. 4593, 396 F.Supp. 1280 (1975), aff'd. 63 C.C.P.A. 104,
C.A.D. 1173, 537 F.2d 516 (1976) provides guidance. The court
there discounted an affidavit as persuasive where it found that
it consisted of statements based on conclusions which are totally
unsupported by evidentiary facts. In order to be exempt from
duty, the petitioner must satisfactorily rebut or otherwise
explain why the work described as renewals was work that did not
cure decay, wear, use or a physical defect, particularly since
the affidavit was based solely on the affiant's review of the
invoice in issue.

Concerning the head cutter and tail roller, counsel, in the
letter of January 13, 1994, repeated the statements of Mr. Roeser
in his affidavit of January 17, 1994:

[Head Cutter] When the company acquired the vessel
initially, the head cutter operated manually. Its
continued operation manually was considered a safety
risk to the crew. The company therefore decided to
convert it to being a fully automated head cutter that
would operate without the crew putting their limbs at
risk in operating it. In addition, the shipyard added
guards to further reduce the risk of injury to crew
members.

[Tail Roller] The shipyard adjusted the conveyor
belts to improve their operating efficiency.

In HQ 112725 we found the following concerning these items:

The invoice description of the work performed with
respect to the head cutter (Item III, Number 6) and the
tail roller (Item IV, Number 1) are inadequate. They
simply state that the head cutter and the tail roller,
respectively, were modified. This claim is a legal
conclusion and should be left to the Customs Service to
determine. The applicant is instructed to provide
details of the operations. No such details of the
operation were provided.

As with the above item, no additional invoices or
documentary evidence, such as drawings, was submitted for the
head cutter (Item III, Number 6) and tail roller (Item IV, Number
1). Again, all that was submitted were additional arguments in
the petition and the affidavit. As discussed above, assertions
by counsel contained in the petition are not evidence. In
addition, the affidavit consists more of legal conclusions rather
than statements of fact, and does not show that the work done on
the above items were modifications rather than repairs. We have
reviewed our findings in HQ 112725 that the information contained
was inadequate to conclude that these items were modified and
agree with those determinations. Consequently, we affirm our
findings in HQ 112725 that the head cutter (Item III, Number 6)
and tail roller (Item IV, Number 1) are dutiable.

The petitioner contends that the cost attributable to two
employees of Trans Marine Propulsion is not dutiable since the
expenses relate to United States resident employees acting in a
consulting capacity and whose cost was paid by a United States
Company. The petitioner cites HQ 112907 of November 12, 1993 in
support of its claim.

Specifically, the petitioner claims that the cost of
$9,123.08 of two Trans Marine Propulsion employees is not
dutiable. The subject invoices list costs of $2,843.75 (invoice
003977) and 12,008.75 (invoice 004089); therefore, we are unsure
what costs the petitioner believes are not dutiable. Until the
petitioner clarifies what costs are claimed to be non-dutiable,
we are unable to approve any claim for non-dutiable treatment.

Concerning the expenses for the Elliot Bay Design Group
employees, the petitioner claims they were incurred for the
performance of inclining experiments and vessel surveys in order
to prepare stability calculations for each vessel. These
employees also provided assistance to the Det Norske Veritas
surveyor for the load line assignment for the ALASKA VICTORY and
the ALASKA SPIRIT. The claim again is that the employees were
United States residents. The petitioner cites 11117 [sic]
(presumably HQ 111117) and Texaco Marine Services, Inc. v. United
States in support of this claim.

In HQ 112725 we found those costs dutiable "because the
applicant has not demonstrated that the work invoiced is non-dutiable. Based on the brief descriptions contained in the
invoices, it is apparent that the work performed relates to
repair operations. The Elliott Bay Design Group facsimile offers
no explanation of the work performed. Customs cannot grant
relief absent a description of the work performed."

For the expenses for the Elliot Bay Design Group employees,
the petitioner has claimed what this work entailed. But the
petitioner has failed to submit any additional documentary
evidence in support of these claims, and, in fact, the evidence
submitted with the application consisted only of a facsimile; no
invoice, bill, etc., was submitted. Consequently, we affirm HQ
112725 that these expenses are dutiable.

The Det Norske Veritas work consisted of an inclining
experiment and lightship survey. The petitioner states "[i]n
ruling on our initial submission, Headquarters apparently
overlooked this item and consequently did not determine its
dutiability." In addition, the petitioner claims that in ruling
on the VICTORY, Headquarters found that the Det Norske Veritas
survey certification work was free of duty.

The invoice in that case, presumably HQ 112726, related to
load line certification and survey. The invoice before us lists
"witnessing of inclining experiment and lightship survey," and
the petitioner has failed to provide any supporting evidence that
these surveys are similar. In addition, regarding the
dutiability of survey costs, C.S.D. 79-277 states, "[i]f the
survey was undertaken to meet the specific requirements of a
governmental entity, classification society, insurance carrier,
etc., the cost is not dutiable even if dutiable repairs were
effected as a result of the survey. The petitioner has submitted
no documentary evidence to show that the survey was done pursuant
to a required scheduled inspection by a qualifying entity, such
as the U.S. Coast Guard or the American Bureau of Shipping (ABS).
Consequently, we find this item to be dutiable.

HOLDING:

The evidence presented is insufficient to show that the
foreign shipyard costs for which the petitioner seeks relief are
non-dutiable. Accordingly, the petition is denied.

Sincerely,

William G. Rosoff
Chief
Entry and Carrier Rulings Branch

HQ 113024: Petition for Review; Vessel Repair Entry No. H24-0014520-5; ALASKA JURIS; 19 U.S.C. 1466; Modification

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