HQ 226924: Vessel Repair Entry No. C46-0015886-8; M/V KANSAS TRADER, V-008; 19 U.S.C. 1466; Modification; Protest; CO2 System;Insulation

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  226924

                              July 3, 1996

VES-13-18-RR:IT:EC   226924 GOB

CATEGORY:   Carriers

Port Director of Customs
Attn.: Chief, Residual Liquidation and Protest Branch
U.S. Customs Service
6 World Trade Center
New York, NY. 10048-0945

RE:  Vessel Repair Entry No. C46-0015886-8; M/V KANSAS TRADER, V-008; 
     19 U.S.C. 1466; Modification; Protest; CO2 System;
Insulation

Dear Sir:

     This is in response to your memorandum dated April 19, 1996,
which forwarded the protest filed on behalf of Penn Attransco
Corp. (the "protestant") with respect to the above-referenced
vessel repair entry.

FACTS:

     The record reflects the following.  The M/V KANSAS TRADER
(the "vessel") is a U.S.-flag vessel operated by the protestant. 
The vessel had foreign shipyard work performed in Germany and
Greece in October and November of 1994.  On December 13, 1994,
the vessel arrived in New York, N.Y.  A vessel repair entry was
timely filed on December 19, 1994.

     In Ruling 113378 dated March 28, 1995, we stated in
pertinent part with respect to the application for relief:  

     In reviewing the record in its entirety, it is apparent that
     while the documentation generated by the applicant and the
     applicant's counsel tend to support the claim that the work
     in question constitutes non-dutiable modifications, the
     invoices submitted do not.  They are devoid of any
     description of the work done and essentially constitute a
     mere listing of various parts and expenses (e.g., travel
     costs, freight charges, etc.).  Accordingly, the applicant's
     claims with respect to the work alleged to be non-dutiable
     modifications is denied.

     In Ruling 113487 dated November 29, 1995 with respect to the
petition, we affirmed Ruling 113378 for the same reason as is
stated supra.  We stated:

     After a complete review of the additional documents
     submitted, we affirm our decision of March 28, 1995.  In
     reviewing the record in its entirety, including the new
     documentation, it is apparent that while the documentation
     generated by the petitioner and counsel for the petitioner,
     tend to support the claim that the work in question
     constitutes non-dutiable modifications, the documents and
     invoices submitted are devoid of any description of the work
     that was actually performed.

ISSUE:

     Whether the subject costs are dutiable pursuant to 19 U.S.C.
1466?

LAW AND ANALYSIS:

     19 U.S.C. 1466 provides for the payment of duty at a rate 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 be employed
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.  The identification of work constituting
modifications vis-a-vis work constituting repairs has evolved
from judicial and administrative precedent.  In considering
whether an operation has resulted in a nondutiable modification,
the following factors have been considered:

     1.  Whether there is a permanent incorporation into the hull
or superstructure of a vessel, either in a structural sense or as
demonstrated by means of attachment so as to be indicative of a
permanent incorporation.  See United States v. Admiral Oriental 
Line, 18 CCPA 137 (1930).  However, we note that a permanent
incorporation or attachment does not necessarily involve a
modification; it may involve a dutiable repair.

     2.  Whether in all likelihood an item would remain aboard a
vessel during an extended lay-up. 

     3.  Whether an item 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 provides an improvement or enhancement
in operation or efficiency of the vessel.

     In its protest, the protestant states, in pertinent part:

     In our Application we stated:
     "Some of the above invoices were for work relating to two
     permanent modifications which were necessary to prepare and
     enable the vessel for the carriage of ammunition cargo for
     the Military Sealift Command...

     The costs which are the subject of this protest were
     described in the Petition as:

     For Installation of New Fixed CO2 System (Modification A):
     ...
     For Installation of New Fireproof Structural Insulation
     (Modification B):
     ...
     ...we provide herein additional documents from the vendor
     that further describe the work done to accomplish the
     modifications.  Those documents contain the Statutory
     Declaration of Stephen John Ray, the Director of Matatec
     Marine (see Protest Exhibit 3).  The affidavit includes two
     letters written by Mr. Ray that reference the invoices and
     describe the work performed by Matatec Marine to accomplish
     the modifications.  The letters deal with two modifications.
     [end of excerpt from protest.]

     Mr. Ray's "Statutory Declaration" includes the following:

          1.  An declaration (similar to an affidavit) that the
information and facts contained in two letters is true.
          
          2.  A letter dated March 13, 1996, which states, in
pertinent part:

          Installation of New Fixed Cargo Hold CO2 System
          Invoice #4644 $13,098    

          Matatec was contracted by Penn-Attransco to install a
          fixed CO2 system on board the MV Kansas Trader from 7th
          October to 18th October 1994...

          The installation involved installing a new CO2 manifold
          in the CO2 room...
     
          ...Upon completion of the system, a hydrostatic and
          operational test was performed for the United States
          Coast Guard.

          Enclosed is invoice #4644 which represents the labour
          to install the subject Cargo Hold Fixed CO2 system on
          the MV Kansas Trader.
          
          
          3.  A second letter dated March 13, 1996, which states,
in pertinent part:

          Installation of New A-60 Structural Insulation

          Invoice  #4642 $19,514
                  #4643 $ 7,293
                  #4652 $ 4,970
                  #4763 $ 2,434

          Matatec was contracted by Penn Attransco to install a
          new A-60 Fireproof Insulated bulkhead between the
          engine room machinery spaces and the #6 cargo hold...
          ...
          ...The installation was surveyed by the American Bureau
          of Shipping on 11th November and accepted as an A-60
          fireproof insulated bulkhead.

          Attached are invoices # 4642, 4643, 4652 & 4763 which
          reflects [sic] the labour, equipment & material to
          perform the subject A-60 fireproof insulated bulkhead
          aboard the MV Kansas Trader.

     As indicated supra, the protestant claims that the work at
issue was required by the U.S. Coast Guard in order for the
vessel to carry ammunition.

     At an oral conference on June 19, 1996, representatives of
the protestant provided a further explanation of the work
performed.  This explanation is consistent with the written
submissions in this case.

     To supplement the representations made at the oral
conference, John P. Love, marine superintendent and general
counsel of Van Ommeren Shipping (USA) Inc. (the financial,
administrative, and commercial agent for the limited partnership
which owns the vessel) stated in writing:

     The undersigned has personal knowledge of all the facts
     discussed herein with respect to the modifications made to
     the vessel to make her suitable to carry ammunition and
     certain other cargoes.

     This is to affirm my verbal advices to you that:

     1.  at all times prior to the claimed modification, the
     vessel had a CO2 system which did not extend to the cargo
     holds and the modification claimed, to wit, installation of
     the CO2 system in the cargo holds, was a new and permanent
     addition to the vessel...

     2.  at all times prior to the claimed modification, the
     vessel had insulation between the engine room and the
     accommodations which did not extend to the bulkhead between
     the engine room and the aft cargo hold and the modification
     claimed, to wit, installation of welded steel pins,
     fasteners and insulation to said bulkhead, was a new and
     permanent addition to the vessel...

     The photographs submitted by the protestant with the protest
and at the oral conference tend to support its assertion that the
work at issue pertained to a new system.

     Previously, with its petition for relief, the protestant
submitted an affidavit of Mark Amundsen, which states in
pertinent part:

     As a Port Engineer for Penn-Attransco I am familiar with the
     operations and the overall condition of the M/V Kansas
     Trader and the work that is the subject of a petition for
     V.R. Entry #C-46-0015886-8.  The subject work involved two
     permanent modifications required by CFR 95.05-10 to prepare
     and enable the vessel to carry ammunition cargoes for the
     Military Sealift Command.  This statement is to provide
     additional description of the subject work.

     MODIFICATION A  This modification was a design feature.  The
     work involved the installation of new fixed carbon dioxide
     systems for cargo holds 1-6 which previously had none. [The
     invoices identified by Mr. Amundsen include Matatec Marine
     invoice #4644.]

     MODIFICATION B This modification involved the permanent
     installation of structural insulation in the bulkhead of the
     vessel in the machinery spaces between the #6 cargo hold and
     the engine room at frame #39.  The work was required by the
     IMDG Code and CFR Chapter 39 for the carriage of ammunition
     cargoes. [The invoices identified by Mr. Amundsen include
     Matatec Marine invoice #4642, 4643, 4652, and 4763.] 

     The Matatec Marine invoices are for the labor.  The invoices
from Kopcke Holland Supply Services, Rockwood Denmark, and
Pirotek are for parts and materials for the subject work.  The
American Bureau of Shipping invoice is for a survey of the
insulation.
 
     After a consideration of the documentation submitted by the
protestant, including the statements of Messrs. Love, Amundsen
and Ray, we conclude that the protestant has satisfactorily
established that the items at issue are related to nondutiable
modifications.  The protestant has provided a satisfactory
explanation with respect to the items at issue.  The statements
of Love,  Amundsen and Ray support the protestant's position. 
The pertinent Coast Guard regulation cited by the protestant, 46
CFR 95.05-10, is consistent with the protestant's claims.  The
documentation with respect to the items at issue does not reflect
any repairs.  Accordingly, we find that the costs of these items
are nondutiable pursuant to 19 U.S.C. 1466.  

     Judicial authority for this determination is found in U.S.
v. Admiral Oriental Line, 18 CCPA 137 (1930), where the court
held that the addition of swimming pools for the comfort of
passengers in the Pacific trade routes was outside of the scope
of 19 U.S.C. 1466.  The court found the work to be modifications
of the hull rather than repairs based on the blueprints and
testimony of the appellee's superintendent.

     As the protestant points out, in Ruling 110206 dated
September 19, 1989, we found the costs of thermal insulation and
firemain insulation to be nondutiable.

HOLDING:

     The subject items are nondutiable pursuant to 19 U.S.C.
1466.  The protest is granted.

     In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by
your office to the protestant no later than 60 days from the date
of this letter.  Any reliquidation of the entry in accordance
with the decision must be accomplished prior to mailing of the
decision.  Sixty days from the date of the decision the Office of 
Regulations and Rulings will take steps to make the decision
available to Customs 
personnel via the Customs Rulings Module in ACS and the public
via the Diskette 
Subscription Service, the Freedom of Information Act and other
public access channels.


                              Sincerely,


                              
                              Director,
                              International Trade Compliance
Division