HQ 110461: Petition for Review on Valdez Vessel Repair Entry No. C31- 0005003-9 dated 5/31/88, SS ARCO CALIFORNIA V-CF-157

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 110461

                         June 14, 1990

VES-13-18 CO:R:P:C  110461 BEW

CATEGORY:  Carriers

Chief, Technical Assistant
Pacific Region
Commercial Operations
One World Trade Center
Long Beach, California 90853

RE:  Petition for Review on Valdez Vessel Repair Entry No. C31-
     0005003-9 dated 5/31/88, SS ARCO CALIFORNIA V-CF-157

Dear Sir:

     This is in reference to a transmittal from your office
which forwards a petition for relief filed by ARCO Marine Inc.,
on a partial denial of an application for relief for duties
assessed on repairs made to the SS ARCO CALIFORNIA V-CF-157.

FACTS:

     The petitioner's request for review centers primarily on
the cost for repairs on Sasebo Heavy Industries Co., Ltd.,
invoice number 3S-0369, item No. 102 - Hull Treatment and
Painting; item No. 008 - Inspection and Repair Record; and the
American Bureau of Shipping invoice No. 70933 - Drydock Survey
made to the subject vessel at the Sasebo Heavy Industries Co.,
LTD., shipyard in  Nagasaki-Ken, Japan, during the period of
May 3 through May 20, 1988, alleged to be inspections and
cleaning and modifications/alterations/additions to the hull
and fittings, and items which are non-dutiable under the
provisions of 19 U.S.C. 1466.

     The original ruling held that the repairs performed in
Item 102 constitutes cleaning in preparation of painting, and
as such the cost of this work is dutiable.

     In addition, the ruling held that the work performed in
certain items was for the purpose of improving the operation of
the vessel, and that some of the work is permanent
modifications to the hull and fittings.  However, in each
instance, certain repairs had to be made prior to the
installation of the modifications/alterations/additions.
These repairs were made due to damage and deterioration of the
vessel.  The invoice segregated the repair cost from the
modification cost.  Accordingly, the cost of the repairs was
held to be dutiable and the cost of the modifications was held
to be non-dutiable.

     The petitioner makes the following allegations:

     1.  That the cost of anti-fouling coating does not include
     or require hull cleaning as it is applied over a fresh
     coat of anti-corrosive.  The anti-fouling coating does not
     have any substance of a protective or preservative quality
     in respect to the steel hull of the vessel.  It claims
     that the purpose of the anti-fouling is to act against
     animal and plant fouling of the bottom thus assisting with
     speed of the vessel as well as with fuel savings.

     2.  That the inspection cost and repair cost were
     separated on the invoice, and that under the provisions of
     C.S.D. 79-277 a survey undertaken to meet specific
     requirements of a government entity, classification
     society, insurance carrier, etc., is not dutiable even
     when dutiable repairs are effected as a result thereof.
     It claims that the inspection records were a part of the
     ABS AND USGS surveys and inspections.

     3.  That the drydocking survey is in the nature of a
     periodic survey therefore its cost should be considered
     non-dutiable.

ISSUE:

     Whether sufficient evidence is presented to establish that
the subject repairs are modifications, inspections and or
surveys which are remissible under the vessel repair statute
(19 U.S.C. 1466).

LAW AND ANALYSIS:

     Title 19, United States Code, section 1466, provides in
part for payment of an ad valorem duty of 50 percent of the
cost of foreign repairs to vessels documented under the laws of
the United States to engage in the foreign or coastwise trade.
Section 1466 (d)(1) provides that the Secretary of the Treasury
is authorized to remit or refund such duties if the owner or
master of the vessel was compelled by stress of weather or
other casualty to put into such foreign port to make repairs to
secure the safety and seaworthiness of the vessel to enable her
to reach her port of destination.

     In its application of the vessel repair statute (19 U.S.C.
1466), Customs has consistently held that modifications/altera-
tions/additions to the hull and fittings of a vessel which
allow the vessel to operate more efficiently are not subject to
vessel repair duties.  Alterations to the hull and fittings of
vessels are not within the purview of section 1466, and the
cost of the work is not subject to duty.  An article must be
permanently attached to the vessel and it most be essential to
the successful operation of the vessel (see Otte v. United
States, 7 C.C.P.A. 166 (1916), and United States v. Richard &
Co., 8 Ct. Cust. App. 231, T. D. 37496 (1917).  To be found
non-dutiable as a modification/alteration/addition, the work
must involve no element of repair due to damages, deterioration
or wear and tear.  If those are present, the work will be
considered a repair and dutiable.

     A review of item 102 - Hull Treatment and Painting reveals
that the hull was cleaned in preparation for painting.
Petitioner alleges that the cleaning was done in preparation
for the anti-corrosive painting, and not for the anti-fouling
paint.  It claims that the anti-fouling paint is not a
preservative coating, but is applied over the anti-corrosive
coating as a protective coating to protect the vessel's hull
from animal and plant growth.  Pursuant to C.I.E. 125/48,
cleaning in preparation for painting is dutiable.  In addition,
C.I.E 518/63 held that in applying a protective and
preservative coating to a vessel's tanks, the charges for labor
for erection and use of equipment, the cleaning incidental
thereto, and materials used, all in connection with such
repairs are dutiable as repairs.  Pursuant to C.D. 1430 (41
CCPA 57, C.A.D. 529), painting that is strictly ornamental and
in no sense performed for the preservation of the vessel,
cannot be considered "maintenance painting".  Since the anti-
fouling painting is not strictly ornamental, we conclude that
the anti-fouling coating is "maintenance painting", and as such
is dutiable.  Accordingly, the petition is denied as to item
102.

     A review of the invoice reveals that item 008 - inspection
and repair record contains a breakdown of the inspection cost
and the repair cost.

     Customs has held that where periodic surveys are
undertaken to meet the specific requirements of a
classification society, insurance carrier, etc., the cost of
the surveys is not dutiable even when dutiable repairs are
effected as a result thereof; however, in the liquidation
process Customs should go beyond the mere labels of
"continuous" or "ongoing" before deciding whether the item is
dutiable.  If an inspection or survey is conducted as a part of
an ongoing maintenance and repair program labelled
"continuous" or "ongoing" the cost is dutiable.  Also, if the
survey is to ascertain the extent of damage sustained, or to
ascertain if the work is adequately completed, the costs are
dutiable as part of the repairs which are accomplished pursuant
to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-
277.

     Where a survey is undertaken to meet the specific
requirements of a governmental entity, classification society,
insurance carrier, etc., the cost is not dutiable (see CSD 79-
277).  However, C.I.E. 429/61 held among other things, that
when inspections in the nature of surveys disclose items which
result in the repairs, the charges therefor are dutiable as a
part of the costs of repairs.

     A review of the subject invoice reveals that the
inspection cost and the repair cost is separated.  However, the
inspection cost for those items which were repaired is not
separated from those items where only inspections were made.
Customs has consistently held that where the charges for
dutiable and no-dutiable items are not segregated within an
invoice, all of the charges in that invoice must be deemed
dutiable.  Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties
may not be remitted where the invoice does not segregated the
dutiable costs from the non-dutiable costs.  Accordingly, item
008 is dutiable.  The petition is denied as to item 008.

     A review of the ABS drydocking survey reveals that during
the course of the drydocking operation, the vessel's five (5)
blade nickel aluminum bronze propeller was examined and found
in satisfactory condition upon completion of repairs to blades
by straightening bent edges and welding up eroded surface of
the blades.  Accordingly, the drydocking survey is dutiable.
The petition is denied as to this survey.

HOLDING:

     Based on the foregoing, the petition is denied as set
forth above.

                                Sincerely,




                                Stuart P. Seidel
                                Director, Regulatory Procedures
                                and Penalties Division