HQ 111756: Vessel Repair; Modification; Survey; Inspection; AMERICAN TRADER; Entry No. 779-1515437-9; 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 111756

                        January 14, 1992

VES-13-18   CO:R:IT:C  111756  JBW

CATEGORY:   Carriers

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE:  Vessel Repair; Modification; Survey; Inspection; AMERICAN
     TRADER; Entry No. 779-1515437-9; 19 U.S.C. 1466.

Dear Sir:

     This letter is in response to your memorandum of June 12,
1991, which forwards for our review the application for relief
filed in conjunction with the above-referenced vessel repair
entry.

FACTS:

     The record reflects that the subject vessel, the AMERICAN
TRADER, arrived at the port of Bellingham, Washington, on January
27, 1991.  Vessel repair entry, number 779-1515437-9, was filed
on January 28, 1991.  The entry indicates that the vessel
underwent shipyard work in Vancouver, British Columbia, Canada.
Specifically, work was performed in the Versatile Pacific
Shipyard on the ship's number 3 port saltwater ballast tank, the
number 1 port cargo tank bulkhead number 93, and the number 4
center to the number 4 port cargo tank.  The applicant claims
that such work constitutes modifications to the vessel, the cost
of which is not subject to duty.  The applicant also seeks relief
for the cost of a survey carried out by the American Bureau of
Shipping (ABS) in Vancouver.

ISSUES:

     (1)  Whether the work performed in the Versatile Pacific
Shipyard constitutes a modification to the vessel that is not
subject to duty under 19 U.S.C. 1466.

     (2)  Whether the American Bureau of Shipping survey
performed in Vancouver was repair related and is consequently
subject to duty under 19 U.S.C. 1466.

LAW AND ANALYSIS:

     Title 19, United States Code, section 1466, provides in
pertinent part for payment of duty in the amount of fifty 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.

     The applicant seeks relief for work that the applicant
claims is not dutiable as a modification.  In its application of
the vessel repair statute, the Customs Service has held that
modifications, alterations, or additions to the hull and fittings
of a vessel are not subject to vessel repair duties.  Over the
course of years, the identification of work constituting
modifications on the one hand and repairs on the other has
evolved from judicial and administrative precedent.  In
considering whether an operation has resulted in a modification
that 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, 18 C.C.P.A. 137 (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 constitutes a new design feature
          and does not merely replace a part, fitting, or
          structure that is performing a similar function.

     4.   Whether an item under consideration provides an
          improvement or enhancement in operation or efficiency
          of the vessel.

     The Customs Service has 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.

     Versatile Pacific Shipyards invoice items 5 and 6 relate
costs for "steel modifications" performed in the area of the
number 3 port salt water ballast tank.  The applicant claims that
during the course of a Coast Guard inspection on January 18,
1991, it was discovered that changes in the Coast Guard
regulations "required" these "modifications" to the hull of the
vessel.  However, the ABS survey (No. VA10751-A) that was
performed in Vancouver indicates that shell plating fractures
were discovered during the January 18, 1991, inspection.  The
work description of items 5 and 6 and the ABS description of the
areas in which fractures were discovered match exactly.  We
therefore find the costs for steel modifications appearing under
Versatile Pacific Shipyard invoice items 5 and 6 to be repair
related and subject to duty.

     Versatile Pacific Shipyards invoice items 7 and 8 relate
costs for work on two cargo tanks.  The applicant claims that
this work was performed to meet Coast Guard and ABS requirements,
but the applicant did not specify what those requirements are.
Moreover, no drawings were submitted to show what work was
performed.  Absent such descriptions, we cannot conclude that the
work performed under these items was not repair related.  The
costs appearing under these items are therefore subject to duty.

     The Customs Service has held that where periodic surveys are
undertaken to meet the specific requirements of a governmental
entity, a classification society, or insurance carrier, the cost
of the surveys is not dutiable even when dutiable repairs are
effected as a result thereof.  Headquarters Ruling Letter 110368,
dated July 26, 1989.  In a recent case, we emphasized that this
interpretation exempts from duty only the cost of a required
scheduled inspection by a qualifying entity.  Headquarters Ruling
Letter 111328, dated August 7, 1991.  If, however, the survey is
to ascertain the extent of damage sustained or whether repairs
are deemed necessary, then the costs are dutiable as part of the
repairs that are accomplished.  C.I.E. 429/61; C.S.D. 79-2, 13
Cust. B. & Dec. 993 (1979); C.S.D. 79-277, 13 Cust. B. & Dec.
1395, 1396 (1979).  In the liquidation process, Customs should
look beyond the mere labels of "continuous" or "ongoing" before
deciding whether the item is dutiable.  If an inspection or a
survey is conducted as a part of a maintenance and repair program
labelled "continuous" or "ongoing," the cost of such survey is
dutiable if it is in fact repair related.

     ABS invoice, number 15551839164, itemizes costs for three
inspections undertaken by the ABS while the vessel was in
Vancouver:  Special Continuous Survey of Machinery and Electrical
Equipment; Hull Damage Repairs; Survey on Drydocks.  Other costs
appeared on the invoice for "time outside of normal working
hours" and "total expenses."  From the previous paragraph, we
conclude that the cost of the hull damage repair survey is
dutiable.  Further, the reports relating to the machinery and
electrical equipment survey and the survey on drydocks were not
included with the application.  Other than the general
descriptions offered by the titles of these surveys, we do not
know the nature, purpose, or contents of these surveys.  Without
such information, we cannot determine whether the surveys were
repair related; we conclude therefore that the costs for these
surveys are also dutiable.  Finally, the applicant claims that
duty on the overtime expenses and total expenses should be
proportionate to the dutiable and non-dutiable charges.  The
Customs Service has held that the cost for expenses must be
segregated between dutiable and non-dutiable charges or else the
entire cost for the expenses will be subject to duty.
Headquarters Ruling Letter 111266, dated December 20, 1990.
Thus, even if we had found that the machinery and electrical
equipment survey and the survey on drydocks were not subject to
duty, the overtime and total expenses, which were not segregated,
would nevertheless have been subject to duty.

HOLDINGS:

     (1)  The ABS survey indicates that work performed in
Versatile Pacific Shipyards invoice items 5 and 6 was for the
repair of shell plating fractures.  We therefore find the costs
for steel modifications appearing under Versatile Pacific
Shipyards invoice items 5 and 6 to be repair related and subject
to duty.  The description of the work performed in items 7 and 8
of the Versatile Pacific Shipyards was not of sufficient detail
to permit this office to conclude that the work constituted a
non-dutiable modification.  The costs appearing under this item
are therefore subject to duty.

     (2)  We find dutiable the costs appearing under ABS invoice,
number 15551839164, for the three inspections undertaken by the
ABS while the vessel was in Vancouver.  Other costs appearing on
the invoice for "time outside of normal working hours" and "total
expenses" are also subject to duty.

                              Sincerely,



                              B. James Fritz
                              Chief
                              Carrier Rulings Branch