HQ 112525: Protest No. 0401-91-100832; Boston Vessel Repair Entry No. 559-1237226-9, dated April 25, 1991; M/V NEDLLOYD HUDSON; Voyage 35; Modification; Air Compressor; Advisory Ruling; 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 112525

                          April 15 1993


VES-13-18-CO:R:IT:C  112525 BEW

CATEGORY:   Carriers

Chief, Residual Liquidation  Protest Branch
New York Region
6 World Trade Center
New York, New York 10048-002980

RE:  Protest No. 0401-91-100832; Boston Vessel Repair Entry No.
     559-1237226-9, dated April 25, 1991; M/V NEDLLOYD HUDSON;
     Voyage 35; Modification; Air Compressor; Advisory Ruling; 19
     U.S.C.  1466

Dear Sir:

     This is in response to a memorandum dated November 10, 1992,
that forwards protest No. 0401-91-100832, concerning vessel repair
entry No. 559-1237226-9, relating to the M/V NEDLLOYD HUDSON,
Voyage 35.

FACTS:

     The record reflects that the subject vessel, the NEDLLOYD
HUDSON, arrived at the port of Boston, Massachusetts, on 
April 24, 1991.  Vessel repair entry, number 559-1237226-9, was
filed on April 24, 1991.  The entry indicates that the vessel,
among other items, had a complete compressed air system installed
while the vessel was in Rotterdam, Holland.  An application for
relief was filed on June 24, 1991.  This application was denied in
part by your office, for no documentation was included with the
application to establish the claim that the installation of the air
compressor is not subject to duty as a modification.

     The entry was liquidated on October 4, 1991.  Sea-Land filed
a protest on December 30, 1991, claiming that the service to the
air compressor was under warranty and of no cost to Sea-Land.  It
claims that Item No. 5 - W.B. Arnold Co., Inc. invoice Nos. 201017
and 20196 for the installation of a 2TM6 Compressor and upgrading
of the existing compressor were submitted for information only. 
The protestant references an advisory ruling in which this office
stated that given the information submitted, the prospective work
would be considered a modification that is not subject to duty. 
Headquarters Ruling Letter 110993, dated May 2, 1990.
 ISSUE:

     Whether the court established elements for warranty
recognition are present in this case, as detailed in the case of
Sea-Land Service, Inc. v. United States, 683 F. Supp. 1404 (1988).

     Whether the foreign shipyard work described herein would
constitute modifications to the hull and fittings of the vessel so
as to render the work nondutiable under 19 U.S.C. 1466.

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.

     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.

     In the case of Sea-Land Service, Inc. v. United States, 683
F. Supp. 1404 (1988), the Court addressed whether repair work
performed on a newly constructed vessel subsequent to its delivery
to the owner might be considered to be part of the new construction
contract.  Simply put, the Court considered whether "completion of
construction" is a viable concept so as to render the duty
provisions of 19 U.S.C. 1466(a) inapplicable if proven. The Court
found completion of new construction to be a valid concept, subject
to specific conditions, which are:

     1.   "All work done and equipment added [must be] pursuant to
          the original specifications of the contract for the
          construction of the vessel ...."
     2.   "This basic standard is limited to work and equipment
          provided within a reasonable period of time after
          delivery of the vessel."

     The contract for construction of the subject vessel contained
clauses guaranteeing for twelve (12) months any area of the vessel
for which the builder accepted responsibility under the contract
and specifications, conditioned upon written notification from the
owner of any covered defect within the agreed upon 12-month period.

     In reviewing the warranty case on remand from the Court,
Customs had the opportunity to review the contract, the
specifications, and a so-called "guarantee notebook."  This
document consisted of numerous guarantee items, some generic in
nature and some specific, and represented the written notification
of defects from the owner to the builder as required by the
contract.  Each noted defect was recorded on a separate sheet and
assigned a "G" guarantee number.  Each was dated, signed by an
owner's representative and a builder's representative, and
contained a short narrative of the specific complaint.

     In that case, we found that the court-ordered criteria had
been satisfied and that the "reasonable period of time" for the
warranty period was the one-year period specified in the contract. 
We have since held likewise in similar cases, and have adopted the
one-year limit as the benchmark for honoring new construction
warranties which otherwise qualify.

     The question now to be addressed is whether the Sea-Land
Service, Inc., supra., court-ordered criteria and/or contract
requirements have been satisfied in this case.

     In the case under consideration, the protestant has not
submitted the new construction contract.

     We note that the repair bill being protested in this case does
not contain any information to the effect that the subject work was
done as a part of the new construction warranty.  None of the
elements of the Sea-Land case has been demonstrated to exit as to
the work claimed to be performed under warranty  Accordingly, since
the record does not contain evidence which satisfies the criteria
established in the case of Sea-Land Service, Inc., supra., the
protest in this case must be denied.
     In Headquarters Ruling Letter 110993, this office held that,
based on the work order description and accompanying drawing, the
proposed installation of the air compressor would be a modification
to the vessel that is not subject to duty.  However, this advisory
ruling stressed that any final determination would be contingent
on review of the evidence submitted as part of the entry and
procedure for review.  The only evidence submitted as part of the
protest is an invoice stating that the air compressor was
installed.  Given the frequency with which work orders are changed,
we cannot assume that the work actually performed to install the
air compression system was identical to the work proposed in the
work order.  Without further description of the actual installation
process, we are unable to conclude that the installation of the air
compressor constitutes a modification to the vessel.   Accordingly,
protest is denied as to the modification claim.

HOLDING:

     Inasmuch as there is no evidence that the foreign shipyard
operations claimed to be covered by warranty were performed
pursuant to the conditions of the warranty clause of the contract
for construction under consideration, the protest is denied. 

     Notwithstanding the advisory ruling stating that the
installation of an air compression system would constitute a
modification to the subject vessel, without further description of
the actual installation process, we are unable to conclude that the
installation of the air compressor constitutes a modification to
the vessel.   

                                     Sincerely,




                                     Acting Chief
                                     Carrier Rulings Branch