HQ 113023: Petition for Review; Vessel Repair Entry No. H24-0014521-3; ALASKA VICTORY; 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 113023

July 15, 1996

VES-13-18-RR:IT:EC 113023 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. H24-0014521-3; ALASKA VICTORY; 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 112726, relating to the above-referenced
vessel repair entry. Our findings are set forth below.

FACTS:

The ALASKA VICTORY ("vessel") is a U.S.-flag vessel owned
and operated by the Fishing Company of Alaska, Inc. The vessel
underwent foreign shipyard work in Miyagi, Japan at the Yamanishi
Shipbuilding & Iron Works, Ltd. Shipyard, 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 112726, 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:

Handrail (Item I, Number 1-6(4)(a))
Chutes (Item I, Number 1-6(4)(d))
Inside Plates (Item I, Number 1-6(4)(i))
Fish Hatch (Item I, Number 13)
Processing Lines (Item I, Number 26)
Tail Roller (Item IV, Number 1)
Conveyor Bottom Board (Item IV, Number 2)
Conveyor Belt (Item IV, Number 4)
Trans Marine Propulsion Invoices 003980 (Nov. 30, 1992), and 004094 (Jan. 19, 1993)
Elliott Bay Design Group (Apr. 6, 1993, facsimile)

In HQ 112726 we made the following determinations concerning
the items the subject of this petition. For Item I, Number 6,
subparts 4(a), 4(d), and 4(i), we found the above items to be
dutiable absent evidence detailing the work associated with these
claimed "modifications" were the result of a survey undertaken to
meet the specific requirements of a governmental entity,
classification society, insurance carrier, etc. For Item I,
Numbers 13 and 16, and Item IV, Numbers 1, 2, and 4, we
determined that there was insufficient evidence to support a
finding that these items were modifications. 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 VICTORY in late 1992 at the Yamanishi 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 Yamanishi 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 and other documentary evidence. 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 Item I, Numbers 13 and 26, and Item IV,
Numbers 1, 2, and 4, counsel, in the letter of January 13, 1994,
repeated the statements of Mr. Roeser in his affidavit of January
17, 1994:

[Item 1, Number 13-Fish Hatch]
To operate the vessel efficiently as a processor,
the [company] lowered the opening of the fish hatch by
modifying the frame and installed a roller on the trawl
deck. By doing so, the crew could more efficiently
move a catch from the trawl deck into the factory for
processing. The purpose of the work was not to
effectuate a repair, but rather to improve
efficiency....

[Item 1, Number 26-Processing Lines]
This work involved modifying the belt conveyors in
the factory area to improve efficiency. Similar work
was done on the SPIRIT and the JURIS, in each instance
to make the factory area operate more efficiently.

[Item IV-Belt Conveyors; Number 1-Tail roller,
Number 2-Conveyor bottom board, Number 4-Conveyor Belt]
When the VICTORY operated as a head and guts
vessel, the belt conveyor tail roller had been a fixed
one. With the modifications necessary in the factory
area to permit the vessel to operate as a processor,
the [company] converted the tail roller into a
removable one. Although removable, the tail roller
when in operation is bolted to the vessel floor. The
conveyor board bottom was modified to increase the
stability of the conveyor belt. Minor adjustments also
were made to the belts to operate more efficiently.
The purpose of the work was not to effectuate a repair,
but rather to modify the conveyor belts to operate more
efficiently in the factory area.

In HQ 112726 we found the following:

[I]t is Customs position that the applicant has
not provided sufficient evidence supporting a finding
that these items [including Item I, Numbers 13 and 26,
and Item IV, Numbers 1, 2, and 4] are modifications.
The Customs Service has held that the decision in each
case as to whether an installation constitutes a non-dutiable 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. No drawings were submitted
and the invoice descriptions provided an insufficient
amount of detail precluding the Customs Service to make
a decision. Accordingly, these items shall remain
dutiable unless and until evidence detailing the work
performed is provided and found to be a bona fide
modification.

The invoices on the work done on most of these items
describe the work as "modification." The description of Item 1,
Number 26 is "remove and install processing lines," and the
description of Item IV, Number 2 is "execute permanent doubling
and reinforcement for conveyor bottom board in front of freezing
room."

The affidavit states that the purpose of the work was not to
effectuate repairs, but to improve efficiency. The statement
that the work was not repairs 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 listed on the invoices
constituted modifications rather than repairs. 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 listed as modifications 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.

With respect to all the subparts of Item I, Number 6,
counsel, in the letter of January 13, 1994, repeated the
statements of Mr. Roeser in his affidavit of January 17, 1994:

[Subpart 4(a)-Handrail]
To meet the [classification society] requirements
under the new load line, the outside handrail on all
the decks and gantries was raised approximately 6
inches and spacer bars were installed for the first
time to reduce the risk of men being swept overboard.
The handrail was not broken.... The spacer bars were
added as a first-time installation.

[Subpart 4(d)-Chutes]
Under the new load line, the company was required
to make a first-time installation of watertight doors
for the chutes on both the port and starboard sides of
the vessel that could be operated both from within the
factory area and from the upper deck. The
modifications made to the doors necessitated
modifications to the chutes themselves, including
raising them. In addition, the conveyor belts that
transport the waste to the chutes [had to be] modified.

[Subpart 4(i)- Inside plates]
To establish the new load line, the inside plates
at the forepeak bulkhead (the "collision" bulkhead) had
to be strengthened with the permanent affixing of
additional steel. Had the company not been
establishing the new load line, this work would not
have been required. Routine repair work in this area
would have been deferred.

For all the subparts of Item I, Number 6, the petitioner
claims that they were installed under the requirements of a
load line survey. 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."
In HQ 112726 we found the above items to be dutiable absent
evidence detailing the work associated with these claimed
"modifications" were the result of a survey. For subpart 4(a),
there has been no new documentary evidence submitted that shows
the work was done as the result of a required survey. In
addition, the affidavit discusses the survey more in terms of
conclusive statements rather than statements of fact; thus, as
discussed above, the affidavit is insufficient to show
entitlement to the duty exemption.

Concerning subparts 4(d) and 4(i), the petitioner has
submitted drawings in support of its claim. These drawings, by
themselves, do not show how these items relate to the survey or
that they were modifications, nor has any other documentary
evidence been provided to show this. The affidavit submitted
does not include any statements about these drawings, and the
affiant states that he was not present at the shipyard when the
work was done and his knowledge related to the "type of
activities undertaken generally" to the shipyard work. As
discussed above, the affidavit is insufficient to show
entitlement to the duty exemption, and, consequently, we affirm
HQ 112726 that these items 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
$35,225.00 (the sum listed on two invoices, 003980 and 004094)
for two Trans Marine Propulsion employees is not dutiable.
In Texaco Marine Services, Inc., and Texaco Refining and
Marketing, Inc. v. United States, 815 F.Supp. 1484 (CIT 1993),
aff'd. 44 F.3d 1539 (Fed. Cir. 1994) for determining what
constitutes "expenses of repairs" pursuant to 19 U.S.C. 1466, the
court adopted the "but for" test. Essentially this test is that
expenses of repairs covers costs that are an integral part of the
dutiable repair process and would not have been necessary but for
the dutiable repairs. In Headquarters memorandum 113350, dated
March 3, 1995, and published in the Customs Bulletin on April 5,
1995, we determined that the court's decision in Texaco would
only be applicable to entries made after the date of that
decision, December 29, 1994. Since the subject entry was prior
to that date, the Texaco decision is not applicable.
Consequently, although the ruling cited by the petitioner, HQ
112907, may no longer be valid for entries subject to the "but
for" test of Texaco, that ruling is applicable to the subject
entry. Thus, based on HQ 112907, we find the costs listed for
the Trans Marine Propulsion employees to be non-dutiable.

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 has submitted a letter
from the Elliot Bay Design Group, dated December 6, 1993,
attesting to the above claims. In addition, the petitioner cites
11117 [sic] (presumably HQ 111117) and Texaco Marine Services,
Inc. v. United States in support of this claim.

In HQ 112726 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 and submitted
a letter from the Elliott Bay Design Group explaining the work.
But the evidence submitted with the application consisted only of
a facsimile; no invoice, bill, etc., detailing what the expenses
were for the specific work performed was submitted, and no such
documentary evidence has been submitted with this petition.
Absent such evidence that could support the claims made in the
letter from the Elliot Bay Design Group, the finding of HQ 112725
that these expenses are dutiable is affirmed.

HOLDING:

For the Trans Marine Propulsion invoices the petition is
granted. For all over items the petition is denied, since the
evidence presented is insufficient to show that the foreign
shipyard costs for which the petitioner seeks relief are non-dutiable.

Sincerely,

William G. Rosoff Chief
Entry and Carrier Rulings Branch

HQ 113023: Petition for Review; Vessel Repair Entry No. H24-0014521-3; ALASKA VICTORY; 19 U.S.C. 1466; Modification

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