HQ 110869: Protest No. 312689-000026; CHEVRON WASHINGTON, Voyage No. 618; Vessel Repairs; Modifications; Inspection and Cleaning; Non-segregated cost

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 110869

                        December 7, 1990


VES-13-18 CO:R:P:C  110869 BEW

CATEGORY:  Carriers

Chief, Technical Branch
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831

RE:  Protest No. 312689-000026; CHEVRON WASHINGTON, Voyage No.
     618; Vessel Repairs; Modifications; Inspection and Cleaning;
     Non-segregated cost

Dear Sir:

     This is in reference to a memorandum from your office which
transmitted protest No. 312689-000026, relating to vessel repair
entry No. C31-0001009-0, concerning the CHEVRON WASHINGTON,
Voyage No. 618, which arrived at the port of Valdez, Alaska, on
November 29, 1987.  The entry was filed on November 29, 1987.

FACTS:

     In October 1987, while in Singapore, the vessel CHEVRON
WASHINGTON underwent various shipyard operations.  The
dutiability of these operations has previously been considered.
The protestant filed an Application for Relief which was denied
on July 25, 1988, on the basis of procedural and substantive
defect.  The protestant filed a corrected application.  Customs
issued a decision on May 15, 1989 (HQ 109736 BEW) in which we
found the following as to the items which are the subject of this
protest:

          With regard to Item 23-9 - Auxiliary Gas Turbine
          Inspection, it appears that a portion of the repair
          work is a modification to the hull and fittings, and a
          portion of the repair work is dutiable repairs.  The
          beam and trolley installation is a modification and
          addition to the hull and fittings.  Although the "legs"
          of the crane travel back and forth over the hatches on
          the rails and thus are not permanently attached to the

          hull in a literal sense, the rails are permanently
          attached to the vessel and they are integral
          components of the crane when viewed as whole
          (Headquarters memorandum 216.131, dated September 9,
          1967).  Accordingly, the beam and trolley installation
          is a modification to the hull and fittings and is not
          dutiable.  On the other hand, the wooden deck bencher
          storage table is equipment and is dutiable.

          In addition, a part of the inspection and service
          engineer's cost could be non-dutiable as a part of the
          cost of alterations or modifications to the hull and
          fittings of the vessel; also, a portion of the work on
          the subject item appears to be non-dutiable as
          relating to work other than repairs.  We note that the
          invoice does not separate the non-dutiable costs from
          those costs that are dutiable.  Pursuant to C.I.E.
          1325/58 and C.I.E. 565/55, cost may not be remitted
          where the invoice does not segregate the dutiable cost
          from the non-dutiable cost.  Accordingly, the entire
          cost in the inspection and service engineer's cost
          under Item 23-9 is dutiable....

          The invoice indicates that repairs were made in Item
          21-7 - Main Gas Turbine Major Inspection.  The invoice
          does not separate the cost of the inspection for
          dutiable repairs from the non-dutiable repairs.
          Accordingly, pursuant to C.I.E. 1325/58 and C.I.E.
          565/55 the entire cost of the repairs is dutiable.

          It appears that Item 39-5 - Form line drains,  could be
          free as alterations or modifications to the hull and
          fittings of the vessel, however, if an article is
          considered to be a 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 repairs duties (See C. I. E. 233/60).
          Accordingly, item 39-5 is dutiable.

     The entry was liquidated on August 25, 1989.  The protest
was timely filed on November 20, 1989.  These are the only items
which are presently being protested.

ISSUES:

     1.  Whether certain work performed in a foreign country
     constitutes modifications/alterations/additions to the hull
     and fittings rather than equipment purchases or repairs
     within the meaning of 19 U.S.C. 1466?

     2.  Whether certain work preformed in a foreign country
     constitutes non-dutiable inspection cost.

LAW AND ANALYSIS:

     Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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.

     A leading case in the interpretation and application of
1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)).  That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under 1466.

     The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228).  That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:

          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...[and] are material[s]
          used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision
of law other than 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.

     Under long-standing and consistently applied administrative
policy, an installation, even one of a permanent nature, is
considered to be a dutiable repair rather than a modification if

the installation addresses a repair need.  Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.

     In the present case, the protestant claims that the
installation of Item No. 39-5 is a design and operational
improvement over the old one.  It is claimed that these items
were not found to be damaged at the time they were replaced and
that the permanent installation of the subject items is to
improve the efficiency of the vessel's operation and should be
properly considered a non-dutiable modification.

     Examination of the entire record, and additional
documentation submitted with the protest, including that portion
of the invoice relating to the subject item, reveals that Item
No. 39-5 - Form line drains, were installed to enhance the
operation of the vessel's efficiency and are permanent
installations to the vessel's hull and fittings.  Accordingly,
the protest is granted as to this item.

     Cleaning operations which remove rust and deterioration or
worn parts, and which are a necessary factor in the effective
restoration of a vessel to its former state of preservation,
constitute vessel repairs (See C.I.E. 429/61).   Customs has
long held the cost of cleaning is not dutiable unless it is
performed as part of, in preparation for, or in conjunction with
dutiable repairs or is an integral part of the overall
maintenance of the vessel; see C.I.E.'s 18/48, 125/48, 910/59,
820/60, 51/61, 429/61; 569/62, 698/62; C.D. 2514; T.D.'s 45001
and 49531.

     With regard to items 21-7 - Main Gas Turbine Major
Inspection and 23-9 - Auxiliary Gas Turbine Inspection, the
invoice did not separate the cost of the inspection for dutiable
repairs from the inspection cost for the non-dutiable repairs
which were performed in both of these items.  The inspection cost
listed in item 21-7 is $275,500 and the inspection cost listed in
item 23-9 is $59,030.  We have again reviewed the invoice and the
additional documentation submitted with the protest and we find
that the inspection cost in both items is not segregated.

     As stated in our previous ruling, cleaning and inspections
were performed on several of the subject items.  Some of these
operations were done in conjunction with the installation of the
subject modifications and would be duty free as a part of the
modification.  Pursuant to C.I.E. 1325/58 and C.I.E. 565/55,
duties may not be remitted where the invoice does not segregate
the dutiable costs from the non-dutiable costs.  Inasmuch as the
inspection cost for dutiable repairs associated with the subject
items is not segregated, these items of cost are dutiable.  The
protest is denied as to Items 21-7 and 23-9.

     The protest is granted in part and denied in part as set
forth in the findings above.

HOLDINGS:

     1.  In light of our present findings based upon the evidence
     as stated in the law and analysis section of this ruling, we
     find that the installation of Item 39-5 - Form line drains,
     is in the nature of a non-dutiable permanent modification
     to the hull and fittings of the vessel.  The said item
     constitutes modifications/ alterations/additions to the hull
     and fittings rather than repairs.  As such, the cost of this
     work is not dutiable under 19 U.S.C. 1466.

     2.  Repairs were accomplished as a part of the installation
     of Items 21-7 and 23-9.  Inasmuch as the inspection cost
     associated with the repairs is not segregated from the
     nondutiable inspection cost, the entire inspection costs in
     both items are subject to duty under 19 U.S.C. 1466.  The
     protest is denied as to items 21-7 and 23-9.

                                     Sincerely,




                                     Stuart P. Seidel
                                     Director
                                     Regulatory Procedures
                                     and Penalties Division