HQ 109859: Dutiable Status of Foreign Work Done to U.S.-flag Vessels under 19 U.S.C. 1466

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 109859

                                   December 2, 1988

            VES-13-18 CO:R:P:C 109859 GV

            CATEGORY: Carriers

            Gerard S. Doyle, Jr.
            Senior Counsel
            Sea-Land Service, Inc.
            10 Parsonage Road
            Post Office Box 800
            Iselin, New Jersey 08830

            RE:  Dutiable Status of Foreign Work Done to U.S.-flag
                 Vessels under 19 U.S.C. 1466

            Dear Mr. Doyle:

                 This is in reference to your letter of November 3,
            1988, in which you request a ruling as to whether
            certain work done to two U.S.-flag vessels is dutiable
            under 19 U.S.C. 1466.

            FACT:

                 Sea-Land Service, Inc. ("Sea-Land"), is the owner of
            two U.S.-built, U.S.-flag vessels:  S.S. SEA-LAND PRODUCER;
            and S.S. SEA-LAND CONSUMER.  These vessels are fully
            cellularized container vessels.  As presently configured
            they can carry containers of both 35 and 40 foot lengths.
            The work under consideration will convert five original 35
            foot container groups to one new 40 foot container group
            and three new 45 foot container groups above and below
            deck.  In addition, one original 35 foot container group
            below deck will be modified for general cargo use.  Work in
            question shall include, but not be limited to:

                  1.  Relocation of one existing watertight bulkhead
                      and three transverse hatch girders complete with
                      cell guide structure;

                  2.  Fabrication and installation of removable 20
                      foot cell plugs in new hatch groups;

                  3.  Fabrication of new 45 foot hatch covers at new
                      hatch groups 4, 5 and 7;

                  4.  Providing new 20 foot ISO lifting fittings on
                      hatch covers at hatch No. 1;

                  5.  Reinforcement and outfitting of existing hatch
                      covers at hatch group 3 and 9 for one tier of
                      2 x 20 foot containers across;

                  6.  Extension, reinforcement and outfitting of
                      existing 35 foot hatch covers for use as new 40
                      foot covers at new group 6;

                  7.  Removal of existing buttress towers at frames
                      125, 141, 158 and 173;

                  8.  Modification of stacking frames on new groups 2,
                      3, 8, 9 and 10;

                  9.  Fabrication and installation of new deck
                      pedestals outboard in way of new groups 4, 5, 6
                      and 7;

                 10.  Modifying hatch No. 1 for general cargo below
                      deck;

                 11.  Reinforcement and outfitting of hold tank tops
                      for 20 foot, 40 foot and 45 foot containers;

                 12.  Relocation of vents, sounding tubes, and bilge
                      wells as necessary;

                 13.  Relocation of refrigerated container electrical
                      outlets; and

                 14.  Completion of inclining and deadweight surveys,
                      if required.

            In addition to the above information, Sea-Land has submitted
            specifications and a drawing detailing the work to be done.

            ISSUE:

                 Whether the conversion of two container vessels as
            described herein, which will result in greater carrying
            capacity and commercial flexibility for the vessels, would
            constitute a modification to the hull and fittings so as to
            render the work non-dutiable under 19 U.S.C. 1466.


            LAW AND ANALYSIS:

                 Title 19, United States Code, section 1466, provides
            in pertinent part for payment of an ad valorem duty of 50
            percent of the cost of foreign repairs to or equipment
            purchased for a vessel documented under the laws of the
            United States to engage in the foreign or coastwise trade.

                 In its application of the vessel repair statute (19
            U.S.C. 1466), Customs has held that modifications/alter-
            ations/additions to the hull and fittings of a vessel are
            not subject to vessel repair duties.  A leading case in the
            interpretation and application of section 1466 is United
            States v. Admiral Oriental Line et al, T.D. 44359 (1930)
            where the Court considered the issue of whether steel
            swimming tanks installed on a U.S.-flag vessel in a foreign
            port constituted equipment or repairs within the meaning of
            section 1466.  In holding that the installation of these
            tanks did not constitute either equipment or repairs and
            therefore was not dutiable, the Court in Admiral Oriental
            cited earlier court decisions which define equipment,
            promulgations by the Board of Naval Construction, and
            regulations of the Treasury Department, as well as opinions
            of the Attorney General.

                 Accordingly, for purposes of section 1466, dutiable
            equipment has been defined as:

                      ... 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 authority cited above formulated
            criteria which distinguish those items deemed to be
            modifications/alterations/additions to the hull and
            fittings and therefore not dutiable under section 1466.
            These items include:

                      ...those applications 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)



            Furthermore, the Court in Otte v. United States, T.D. 36489
            (1916) stated that before an item can be regarded as part
            of a vessel, it must be "essential to the successful
            operation" of the vessel.

                 It is apparent that the work described in your letter
            would constitute a non-dutiable modification to the subject
            vessel rather than dutiable equipment or repairs.

            HOLDING:

                 The conversion of two container vessels as described
            herein, which will result in greater carrying capacity and
            commercial flexibility for the vessels, would constitute a
            modification to the hull and fittings so as to render the
            work non-dutiable under 19 U.S.C. 1466.

                 It is noted, however, that this ruling is merely
            advisory in nature and does not eliminate the requirement
            to declare work done abroad at the subject vessel's first
            United States port of arrival, nor does it eliminate the
            requirement of filing the entry showing this work (see
            sections 4.14 (b)(1)(2), Customs Regulations).
            Furthermore, any final ruling on this matter is contingent
            on Customs review of the evidence submitted pursuant to
            section 4.14 (d)(1), Customs Regulations.

                                         Sincerely,




                                         B. James Fritz
                                         Chief
                                         Carrier Rulings Branch