HQ 110696: Application for relief from vessel repair duties filed on entry number C20-0022252-4, New Orleans, Louisiana, concerning the vessel ACADIA FOREST (Voyage 70)

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 110696
                         April 12, 1990

VES-13-18-CO:R:P:C 110696 LLB

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Commercial Operations Division
ATTN:  Regional Vessel Repair Liquidation Unit
New Orleans, Louisiana 70130

RE:  Application for relief from vessel repair duties filed on
     entry number C20-0022252-4, New Orleans, Louisiana,
     concerning the vessel ACADIA FOREST (Voyage 70)


Dear Madam:

     Reference is made to your memorandum of December 12, 1989,
which forwards for our consideration the application for relief
from the assessment of vessel repair duties filed by Forest
Lines, Inc.

FACTS:

     The vessel, a Lighter Aboard Ship (LASH) vessel, arrived
with a complement of LASH barges which had undergone various
operations while abroad.  The application seeks specific relief
from the assessment of duties on this entry, as well as agreement
from Customs that certain types of charges, to be specified
below, are not dutiable, are recurring, and need not be declared
or entered on future arrivals.

ISSUE:

     Whether the items to be considered in this ruling constitute
duty-free modifications and inspections rather than dutiable
repair costs.  Further, whether, such recurring items need be
entered on future vessel repair entries.

LAW AND ANALYSIS:

     Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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.

     A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)).  That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fitting on the other, the former being subject to
duty under section 1466.

     The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288).  That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57), which allowed drawback on vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:

     ...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...[and] are
     material[s] used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision
of law other that section 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.

     Customs has held that for an item to be characterized as a
nondutiable modification, it must encompass the installation of
an item as a new design feature, not as a replacement for, or
restoration of, parts now performing a similar function.  We have
also 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.

     Customs also holds that the costs of certain surveys and
inspections are not dutiable, even though dutiable repair may be
performed in connection with their execution.  Such operations
are generally limited to surveys required to keep a vessel in
class.  Other surveys or inspections, such as those performed to
ascertain whether repairs are either necessary or adequately
accomplished, are dutiable.

     One early case (United States v. George Hall Coal Co., 134
F. 1003 (1905)), was the first to find any of various types of
expenses associated with foreign shipyard operations to be
classifiably free from the assessment of vessel repair duties.
Certain administrative costs assessed abroad may be included in
the definition of classifiably free items, but these generally
fall into the category of clerical expenses.

     In this particular case we are asked to rule upon the
following categories of charges:

     1.   Vents (The inspection of LASH barge vents which must
          be taped closed to prevent sea spray and splash from
          entering.  The inspection was made to ascertain whether
          re-taping was needed).

     2.   Sounding Plugs (as with the vents, the inspection was
          made to ascertain whether re-taping of sounding plugs
          was needed).

     3.   Technical Services (The salary paid a particular
          individual in the foreign repair port, whose job it is
          to inspect completed repairs to ensure that they meet
          company standards).

     4.   Lash Points (Pad eyes which are welded in place.  The
          locations of these lash points may need to be changed
          from time to time to accommodated different cargo
          needs.  Cargo is lashed to these points in order to
          secure it for transit.)

     5.   Burning and Welding Holes (Holes are burned in the
          false bottom of barges in order to drain trapped water.
          The holes are then welded shut).

     The inspection-related elements under consideration (vents,
sounding plugs, and technical services), are all of the type
performed in order to either ascertain whether maintenance type
work is necessary (taping of vents or sounding plugs), or whether
actual repairs performed were adequately done (technical
services).  These are all clearly dutiable expenses under the
statute.

     The addition of lash points in order to secure cargoes is
accomplished by welding them into place.  When in place, they are
considered to be permanent under the standards employed by
Customs and are, therefore, modifications or additions to the
hull and fittings and are considered duty-free.

     The burning and welding of drain holes is performed as a
maintenance procedure to address the accumulation of water which
has found its way into the false bottom areas of LASH barges.
Barge operation is obviously more efficient absent the
accumulated water weight, thus the need to perform occasional
maintenance by draining the trapped water.


     In regard to the question about the need to inform Customs
concerning these recurring charges in the future, the Customs
Regulations provide, at section 4.14(b)(1) (19 CFR 4.14(b)(1),
that such is required:

          ... regardless of the dutiable status of such
          items or expenses.

There should, therefore, be no question as to the obligation to
report those expenses, especially so in light of the fact that
they are, for the most part, considered dutiable.

HOLDING:

     After a thorough review of the evidence and analysis of the
facts and applicable law, we recommend that the application for
relief be denied in part and allowed in part, as specified in the
Law and Analysis section of this ruling.

                                Sincerely,




                                B. James Fritz
                                Chief
                                Carrier Rulings Branch


















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