HQ 110803: Protest No. 312689-000020; ARCO SAG RIVER, Voyage No. CF- 377; Vessel Repairs; Modifications; Administrative and Clerical Services; Inspection Records; Inspection and Cleaning

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 110803

                         October 9, 1990


VES-13-18 CO:R:P:C  110803 BEW

CATEGORY:  Carriers

Chief, Technical Assistant
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831

RE:  Protest No. 312689-000020; ARCO SAG RIVER, Voyage No. CF-
     377; Vessel Repairs; Modifications; Administrative and
     Clerical Services; Inspection Records; Inspection and
     Cleaning

Dear Sir:

     This is in reference to a memorandum from your office which
transmitted protest No. 312689-000020, relating to vessel repair
entry No. C31-0005006-2, concerning the ARCO SAG RIVER, Voyage
No. CF-377, which arrived at the port of Valdez, Alaska, on
July 8, 1988.  The entry was filed on July 8, 1988.

FACTS:

     In June 1988, while in Ulsan, Korea, the vessel ARCO SAG
RIVER underwent various shipyard operations.  The dutiability of
these operations has previously been considered by your office.
The protestant file an Application for Relief which was denied on
August 30, 1989, on the basis of procedural and substantive
defect.  The entry was liquidated on October 6, 1989.  The
protest was timely filed on October 26, 1989.  Included in your
considerations was the matter of whether the cost associated with
the installation of the following items is dutiable under the
statute:

     Item 008 Inspection records
     Item 108 Rudder Stock
     Item 201 P/S boilers
     Item 406 Electrical locker
     Item 408 Pump room
     Item 414 Trolley beam
     Item 416 Salt water supply
     Item 811 Cargo pipe systems
     Item 901 Steam winches
     Item 904 I.G.S.
     ABS Survey Invoice No. 612234 - modifications

     These are the only items which are presently being
protested.

ISSUE:

     Whether certain work performed in a foreign country
constitutes modifications/alterations/additions to the hull and
fittings rather than equipment purchases or repairs within the
meaning of 19 U.S.C. 1466?

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
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 fittings on the other, the former being subject
to duty under 1466.

     The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228).  That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
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 than 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.

     Under long-standing and consistently applied administrative
policy, an installation, even one of a permanent nature, is
considered to be a dutiable repair rather than a modification if

the installation addresses a repair need.  Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.

     In the present case, the protestant claims that the
installation of the subject items is a design and operational
improvement over the old one.  It is claimed that these items
were not found to be damaged at the time they were replaced and
that the permanent installation of the subject items is to
improve the efficiency of the vessel's operation and should be
properly considered a non-dutiable modification.

     Examination of the entire record, including that portion of
the invoice relating to the subject items, reveals that several
of the subject items were installed to enhance the operation of
the vessel's efficiency and are permanent installations to the
vessel's hull and fittings.

     In Headquarters ruling 106543 JM, we held that mere cleaning
operations are not dutiable.  However, cleaning operations which
remove rust and deterioration or worn parts, and which are a
necessary factor in the effective restoration of a vessel to its
former state of preservation, constitute vessel repairs (See
C.I.E. 429/61).  We note that cleaning and inspections were
performed on several of the subject items.  Some of these
operations were done in conjunction with the installation of the
subject modifications.

     Accordingly, we find that the following items are non-
dutiable modifications to the vessel's hull and fittings:

     Item 406 Electrical locker
     Item 408 Pump room
     Item 414 Trolley beam
     Item 416 Salt water supply
     Item 811 Cargo pipe systems
     Item 901 Steam winches
     Item 904 I.G.S.

The protest is granted as to the above cited items.

     With regard to Item 108 Rudder Stock and Pintle the Hyundai
invoice reveals that in addition to the fairwater and rudder
modifications, cleaning and inspections were done for the
purpose of applying coating.  The cost for cleaning,  inspection
and coating associated with the modifications are not segregated
from the costs for cleaning, inspection and coating relating to
the repairs made to the rudder.  Pursuant to C.I.E. 1325/58 and
C.I.E. 565/55, duties may not be remitted where the invoice does
not segregate the dutiable costs from the non-dutiable costs.
Accordingly, the cost of the modification associated with Item
108 is non-dutiable.  Inasmuch as the costs for cleaning, testing
and coating associated with this item is not segregated, these
items of cost are dutiable.  The protest is granted in part and
denied in part as to Item 108.

     The Hyundai invoice reveals that refractory repairs and
miscellaneous repairs were performed in item 201 Port and
Starboard Boilers' Fire Sides Cleaning and Refractory.  Since
repairs were done, the costs associated with this item are
dutiable, with the exception of staging, lighting and
transportation.  The protest is granted in part and denied in
part as to Item 201.

     With regard to Item 008 Inspection Records.  Inasmuch as the
dutiable status of expenses such as these has never been
determined by either the courts or Customs, we find them to be
analogous to the costs of drydocking and general services (which
are non-dutiable pursuant to C.I.E. 1188/60) in that they are not
part of the actual repair work done.  Accordingly, the cost
associated with Item 008 Inspection records is non-dutiable.  The
protest is granted as to this item.

     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.  Accordingly, the cost of the ABS survey for modifications
is a non-dutiable expense.  The protest is granted as to this
item.

     The protest is granted in part and denied in part as set
forth in the findings above.

HOLDINGS:

     1.  In light of our present findings based upon the evidence
     as stated in the law and analysis section of this ruling, we
     find that the installation of Item 406 Electrical locker,
     Item 408 Pump room, Item 414 Trolley beam, Item 416 Salt
     water supply, Item 811 Cargo pipe systems, Item 901 Steam
     winches, and Item 904 I.G.S. was in the nature of a non-
     dutiable permanent modification to the hull and fittings of
     the vessel.  The said items constitute modifications/
     alterations/additions to the hull and fittings rather than
     repairs.  As such, the cost of this work in not dutiable
     under 19 U.S.C. 1466.

     The installation cost associated with the modification
     performed in Item 108 Rudder Stock is non-dutiable.  Since
     the petitioner has not submitted sufficient evidence to
     sustain a finding of non-dutiabilty based on segregation of
     the dutiable from the non-dutiable costs, the costs for
     cleaning, testing and coating for this item are dutiable.
     The protest is granted in part and denied in part.

     2.  Repairs were accomplished as a part of the installation
     of Item 102.  The cost associated with the repairs with the
     exception of staging, lighting and transportation performed
     in this item is subject to duty under 19 U.S.C. 1466.  The
     protest is denied in part and granted in part.

     3.  The cost associated with Item 008 Inspection Records is
     not subject to duty under 19 U.S.C. 1466.  The protest is
     granted as to Item 008.

     4.  The cost associated with the ABS Invoice No. 612234 -
     Survey for modifications is non-dutiable.  The protest is
     granted as to cost for modifications listed on this invoice.

                                     Sincerely,




                                     Stuart P. Seidel
                                     Director
                                     Regulatory Procedures
                                     and Penalties Division