HQ 113511: Proposed Cargo Hold Modification; 19 U.S.C. 1466

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 113511

                          August 9, 1995

VES-13-18-CO:R:IT:C 113511 GEV

CATEGORY: Carriers

J.L. Craft, Jr.
Assistant Vice-President
Maritime Overseas Corporation
43 West 42nd Street
New York, N.Y. 10036

RE: Proposed Cargo Hold Modification; 19 U.S.C.  1466

Dear Mr. Craft:

     This is in response to your letter dated July 21, 1995, attaching preliminary drawings,
requesting a ruling as to the dutiable status of the above-referenced foreign shipyard work to one
of your vessels.  Our position on this matter is set forth below.

FACTS:

     Maritime Overseas Corporation wishes to have one of its U.S.-flag bulk carriers carry a
temperature and abrasion-sensitive cargo (i.e., fiber optic cable).  The cargo holds of the subject
vessel are not acceptable in their present construction to meet the stowage requirements of the
cargo.  To address the chafing and heat sensitivities of the intended cargo, it is proposed to
fabricate a cone-shaped structure that would function as a fixed (i.e., welded) dunnage, and an
extensive temperature control system in up to four of the vessel's cargo holds.  The fabrication
would be solely for the safe and proper carriage of the cargo and would most likely be
accomplished outside of the United States, but the cargo would be loaded in the United States
immediately after the work done to the cargo holds is completed.  The cargo would be discharged
at a facility outside of the United States. 

     The subject vessel would be dedicated to carrying this special cargo for approximately one
year after which the cone shaped structure and temperature control system would be removed and
destroyed, most likely at the same facility that initially performed the fabrication.  The vessel
would then return to her present service, that of carriage of bulk grain commodities.

                              - 2 -

ISSUE:

     Whether the proposed foreign shipyard work would constitute a modification to the hull
and fittings of the vessel so as to render the work non-dutiable under 19 U.S.C.  1466.

LAW AND ANALYSIS:

     Title 19, United States Code,  1466, provides in pertinent part for payment of an ad
valorem duty of 50 percent of the cost of foreign repairs to or equipment purchased for a vessel
documented under the laws of the United States to engage in the foreign or coastwise trade, or a
vessel 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                              - 3 -

 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.
          "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.

     Upon reviewing your letter of July 21 and the attached preliminary drawings, it appears
that notwithstanding their subsequent removal the cone-shaped structures functioning as fixed
dunnage meet the requisite criteria of a modification as discussed above and would therefore be
considered non-dutiable.  With respect to the extensive temperature control system, the
information submitted is insufficient for us to reach the same conclusion.  Accordingly, in the
absence of evidence to the contrary, we consider the fabrication of the temperature control system
to be an installation of dutiable equipment.

HOLDING:

     The proposed proposed fabrication of the cone-shaped structure acting as fixed dunnage
would constitute a modification to the hull and fittings of the vessel so as to render the work non-dutiable under 19 U.S.C.  1466.  The fabrication of the temperature control system would
constitute the installation of dutiable equipment.
                              - 4 -

     It is noted, however, that this ruling is merely advisory in nature and does not eliminate
the requirement to declare work done abroad at the subject vessel's first United States port of
arrival, nor does it eliminate the requirement of filing the entry showing this work (see 
 4.14(b)(1)(2), Customs Regulations (19 CFR  4.14(b)(1)(2)).  Furthermore, any final 
ruling on this matter is contingent on Customs review of the evidence submitted pursuant to  
 4.14(d)(1), Customs Regulations (19 CFR  4.14(d)(1)).

                              Sincerely,




                              Arthur P. Schifflin
                              Chief
                              Carrier Rulings Branch