HQ 112870: Vessel Repair Entry No. 110-0104423-6; SEA-LAND VOYAGER V-189/192; Modifications; Inspection

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 112870

                       September 27, 1993

VES-13-18-CO:R:IT:C 112870 GEV

CATEGORY:  Carriers

Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831

RE:  Vessel Repair Entry No. 110-0104423-6; SEA-LAND VOYAGER
     V-189/192; Modifications; Inspection

Dear Sir:

     This is in response to your memorandum dated August 5, 1993,
forwarding an application for relief from duties assessed pursuant
to 19 U.S.C. 1466.  You have requested our advice regarding seven
items contained within the above-cited vessel repair entry.  Our
opinion on these items is set forth below.

FACTS:

     The SEA-LAND VOYAGER is a U.S.-flag vessel operated by Sea-
Land Service, Inc.  The subject vessel had foreign shipyard work
performed during February and March of 1993.  Subsequent to the
completion of the work the vessel arrived in Tacoma, Washington on
March 28, 1993.  A vessel repair entry was filed on the date of
arrival.

     Pursuant to an authorized extension of time, an application
for relief was timely filed on June 23, 1993.  The applicant claims
that various work constitutes modifications or is otherwise
considered non-dutiable.  In support of these claims the applicant
has submitted shipyard invoices and drawings depicting the work in
question.

ISSUE:

     Whether the costs of the foreign shipyard operations for which
the applicant seeks relief are dutiable pursuant to 19 U.S.C.  
1466.
                              - 2 -

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, Customs has
held that modifications 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 which 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 et al., T.D. 44359 (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 be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling.  In
addition, some items, the cost of which is clearly dutiable,
interact with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts.  It follows that a "permanent
attachment" takes 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.


                              - 3 -

     "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.

     In regard to the particular items forwarded for our review,
we find that the record supports the applicant's claim that the
work detailed under the following items constitutes non-dutiable
modifications:

          Item 11  - Hinge Frame
          Item H10 - Faceplate
          Item H11 - Faceplate
          Item H-7 - Foremast Foam Monitor
          Item M-3 - Stern Tube Piping
          Item 26  - Communication System

     Item 2.1-4 on Mitsubishi Heavy Industries, Ltd. (MHI) bill
no. 3142-547100-02 covers an anchor chains inspection.  In regard
to the dutiability of inspection/survey costs, we note that C.S.D.
79-277 stated that, "[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."
                              - 4 -

     With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on an
American Bureau of Shipping (ABS) or U.S. Coast Guard invoice (the
actual cost of the inspection) but also as a rationale for granting
non-dutiability to a host of inspection-related charges appearing
on a shipyard invoice.  In light of this continuing trend, we offer
the following clarification.

     C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard and
ABS surveys.  That case involved the following charges:

          ITEM 29
               (a) Crane open for inspection
               (b) Crane removed and taken to shop.  Crane
                   hob and hydraulic unit dismantled and 
                   cleaned
               (c) Hydraulic unit checked for defects, OK.
                   Sundry jointings of a vessel's spare
                   renewed.
               (d) Parts for job repaired or renewed.
               (e) Parts reassembled, taken back aboard ship
                   and installed and tested.

     In conjunction with the items listed above, we held that a
survey undertaken to meet the specific requirements of a
governmental entity, classification society, or insurance carrier
is not dutiable even when dutiable repairs are effected as a result
of a survey.  We also held that where an inspection or survey is
conducted merely to ascertain the extent of damages sustained or
whether repairs are deemed necessary, the costs are dutiable as
part of the repairs which are accomplished (emphasis added).

     It is important to note that only the cost of opening the
crane was exempted from duty by reason of the specific requirements
of the U.S. Coast Guard and the ABS.  The dismantling and cleaning
of the crane hob and hydraulic unit was held dutiable as a
necessary prelude to repairs.  Moreover, the testing of the
hydraulic unit for defects was also found dutiable as a survey
conducted to ascertain whether repairs were necessary.  Although
the invoice indicated that the hydraulic unit was "OK," certain
related parts and jointings were either repaired or renewed. 
Therefore, the cost of the testing was dutiable.

     We emphasize that the holding exempts from duty only the cost
of a required scheduled inspection by a qualifying entity (such as
the U.S. Coast Guard or the ABS).  In the liquidation  - 5 -

process, Customs should go beyond the mere labels of "continuous"
or "ongoing" before deciding whether a part of an ongoing
maintenance and repair program labelled "continuous" or "ongoing"
is dutiable.

     Moreover, we note that C.S.D. 79-277 does not exempt repair
work done by a shipyard in preparation of a required survey from
duty.  Nor does it exempt from duty the cost of any testing by the
shipyard to check the effectiveness of repairs found to be
necessary by reason of the required survey.

     In regard to Item 2.1-4, we note that although the MHI invoice
states that the work was a "Required Inspection for USCG and ABS",
the record contains no corroborating documentation from either the
USCG or the ABS.  Absent evidence to that effect, we hold the
anchor chains inspection covered by Item 2.1-4 to be dutiable.

HOLDING:

       Upon reviewing the record in its entirety, we have
determined to allow in part and deny in part the application for
relief in this matter as specified in the Law and Analysis portion
of this ruling.

                              Sincerely,




                              Arthur P. Schifflin
                              Chief