HQ 112936: Vessel Repair Entry No. 514-3004613-9; M/V RALEIGH BAY; V-040; Modifications; U.S. Parts; 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 112936

                        Februaru 2, 1994

VES-13-18-CO:R:IT:C 112936 GEV

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945

RE:  Vessel Repair Entry No. 514-3004613-9; M/V RALEIGH BAY;
     V-040; Modifications; U.S. Parts; 19 U.S.C.   1466

Dear Sir:

     This is in response to your memorandum dated October 22, 1993,
transmitting an application for relief from duties assessed
pursuant to 19 U.S.C.   1466.  Our findings on this matter are set
forth below.

FACTS:

     The M/V RALEIGH BAY is a U.S.-flag vessel owned and operated
by Sea-Land Service, Inc. ("Sea-Land").  The subject vessel had
foreign shipyard work performed during October of 1991.  Subsequent
to the completion of the work the vessel arrived in the United
States at Elizabeth, New Jersey on November 8, 1991.  A vessel
repair entry covering the work in question was made on November 12,
1991.

     Pursuant to an authorized extension of time, an application
for relief with supporting documentation was filed on February 6,
1992.  Among the items for which the applicant seeks relief are
work alleged to be modifications to the vessel's container
capacity, foremast and navigation lights.  In addition, the
applicant seeks relief for various vessel parts alleged to be
either manufactured in the United States or imported into the
United States, duty paid.

ISSUE:

     Whether the costs for which the applicant seeks relief are
dutiable pursuant to 19 U.S.C.   1466.
                              - 2 -

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 the foreign or coastwise trade,
or vessels intended to engage in such trade.

     In its application of the vessel repair statute, Customs has
held that modifications 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 which 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 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 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.


                              - 3 -

     "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.
 
     Item 11 of the application references Fincantieri invoice no.
15050590 which states, "001) 20' Capacity increase modification
works carried out as per your specification and drawings." 
Referenced in the application under this item are Attachments B
(Specifications for Modifications) and E (a copy of a letter from
Sea-Land requesting an advisory ruling prior to the actual work,
Specifications for Modifications, and drawings of the work in
question).

     Accordingly, upon reviewing the record in its entirety with
respect to Item 11, we find it to constitute a non-dutiable
modification and therefore free of duty.

     Items 19A and 19B of the application reference documentation
from a Mr. Antonio Spicuzza purportedly covering his charges for
supervising the modification of hatch #8 for 20 foot containers,
and the modification of the navigation lights, respectively.  The
documentation does not, however, specify the service he performed
(it merely references his "attendance"), is not corroborated by
the remaining documentation, and merely lists various costs for  - 4 -

meals, lodging, travel, per diem, report preparation, photocopying,
film development and mail.  Accordingly, absent further evidence
to the contrary, only those itemized charges for meals, lodging and
travel which are covered by an accompanying receipt are non-
dutiable.

     Item 20 of the application references Fincantieri invoice no.
15050589 which states, "002) Shortening of foremast and
modifications to navigation lights carried out as per your
specification and drawings."  Referenced in the application under
this item is Attachment B (Specification for Shortening of Foremast
and Modifications to Navigation Lights on the Atlantic Class
Vessels).  

     We note that upon reviewing the aforementioned specifications
as they pertain to the work covered in Item 20, Section II of the
specifications contains, in addition to the modification work,
numerous references to cleaning and refurbishing the navigation
lights (see    1.1.2, 1.3.1, and 2.3) which constitutes dutiable
work.  Accordingly, in view of the fact that Fincantieri invoice
no. 15050589 contains no segregation between dutiable and non-
dutiable costs, the entire cost of Item 20 is dutiable. 
     
     In addition to the above claims, the applicant requests duty-
free treatment with respect to various vessel parts pursuant to 19
U.S.C.   1466(h) (see Items 8A, 33 - 40 listed on Attachment A). 
In this regard we note that the Customs and Trade Act of 1990 (Pub.
L. 101-382) which amended 19 U.S.C. 1466, exempts from duty under
the statute, the cost of spare repair parts or materials which have
been previously imported into the United States as commodities with
applicable duty paid under the Harmonized Tariff Schedule of the
United States (HTSUS).  The amendment specifies that the owner or
master must provide a certification that the materials were
imported with the intent that they be installed on a cargo vessel
documented for and engaged in the foreign or coasting trade.  

     The certification required by 19 U.S.C.   1466(h)(2) as to
the vessel's documentation (foreign or coasting trades) and
service, will be made by the master on the vessel repair entry (CF
226) at the time of arrival.  The fact of payment of duty under the
HTSUS for a particular part must be evidenced as follows.  In cases
in which the vessel operator or a related party has acted as the
importer of foreign materials, or where materials were imported at
the request of the vessel operator for later use by the operator,
the vessel repair entry will identify the port of entry and the
consumption entry number for each part installed on the ship which
has not previously been entered on a CF 226.  In cases in which the
vessel operator has purchased imported materials from a third party
in the United States, a bill of sale for the materials shall
constitute sufficient proof of prior importation and HTSUS duty
payment.  This evidence of proof of importation and payment of duty
must be presented to escape duty and any other applicable
consequences.

     In addition, we require certification on the CF 226 or an
accompanying document by a person with direct knowledge of the fact
that an article was imported for the purpose of either then-
existing or intended future installation on a company's vessels. 
Ordinarily, the vessel's master would not have direct knowledge of
that fact, and an agent may also be without such knowledge.  

     Customs has in the past linked this duty remission provision
to the duty assessment provision in subsection (a) of the statute. 
In the face of argument to the contrary we have held that a two-
part test must be met in order for remission of duty to be granted: 
first, that the article must be of U.S. manufacture; and, second,
it must be installed by a U.S.-resident or regular vessel crew
labor.  The reason for this position is 
that (d)(2) refers to "such equipments or parts...", etc., without
any other logical placement for the word "such" occurring in that
subsection. We inferred that "such" articles must refer to those
installed under subsection (a), absent any other reasonable
predication.  The new amendment puts this issue to rest; it is
clear that as concerns foreign-made parts imported for consumption
and then installed on U.S. vessels abroad, the labor required for
their installation is separately dutiable.  A part may now be
considered exempt from vessel repair duty albeit the foreign cost
labor is dutiable.  

     Uniform treatment will be accorded to parts sent from the
United States for use in vessel repairs abroad, regardless of
whether they are proven to be produced in the U.S., or have been
proven to have been imported and entered for consumption with duty
paid.  In both cases, the cost of the materials is duty exempt and
only the cost of foreign labor necessary to install them is subject
to duty.  Crew member or U.S.-resident labor continues to be free
of duty when warranted.  

     The effective date of this amendment makes this section
applicable to any entry made before the date of enactment of this
Act that is not "finally liquidated" (i.e., for which a timely
protest was filed or court action initiated) on the date of
enactment of this Act, and any entry made--

          (A) on or after the date of enactment of this 
              Act [August 20, 1990], and       
          (B) on or before December 31, 1992.
 
     Since the subject entry was made on November 12, 1991, 
  1466(h) is applicable to this entry as it relates to spare parts. 
Furthermore, upon reviewing the record we find the documentation
sufficient to support the applicant's claim that Items 8A, 33 - 40
listed on the application for relief are entitled to duty-free
treatment pursuant to 19 U.S.C.   1466(h).

HOLDING:

     The application for relief is granted in part and denied in
part as discussed in the Law and Analysis portion of this ruling.

                              Sincerely,




                              Arthur P. Schifflin
                              Chief
                              Carrier Rulings Branch