HQ 112550: Vessel Repair; Baltimore, Maryland, Vessel Repair Entry No. 788-4005878-4, dated May 29, 1992; C.S. GLOBAL LINK; Voyage 10; Application; Modification; Warranty; 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 112550

June 15, 1993

VES-13-18-CO:R:IT:C 112550 BEW

CATEGORY: Carriers

Chief, Residual Liquidation Protest Branch
New York Region
6 World Trade Center
New York, New York 10048-002980

RE: Vessel Repair; Baltimore, Maryland, Vessel Repair Entry No.
788-4005878-4, dated May 29, 1992; C.S. GLOBAL LINK; Voyage
10; Application; Modification; Warranty; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated December 11,
1992, that transmitted an application for relief from duties
filed by Transoceanic Cable Ship Co., in relation to the above
referenced vessel repair entry.

FACTS:

The C.S. GLOBAL LINK is a U.S.-flag vessel owned by
Transoceanic Cable Ship Co. The record shows that the shipyard
work in question was performed on the subject vessel in Falmouth,
United Kingdom, during the period of May 7 through May 12, 1992.

The record reflects that the subject vessel, the C.S. GLOBAL
LINK, arrived at the port of Baltimore, Maryland, on May 22,
1992. Vessel repair entry No. 788-4005878-4 was filed on May 29,
1992. The entry indicates that the vessel, among other items,
had a strut design modification installed while in Falmouth,
United Kingdom. An application for relief was filed on May 28,
1992.

The applicant alleges that the vessel was delivered to
Transoceanic Cable Ship Co., by the builder Far East Levington
Shipbuilding Co., Singapore, on May 30, 1991, with a one-year
warranty for any defects. A copy of the cable ship's
construction agreement which sets forth the warranty clause has
been submitted with the application.
The applicant alleges that in January 1992 while the vessel
was in drydock at Bethlehem Steel, Sparrows Point, Maryland,
fractures were found at the port and starboard struts of the "A"
frame bracket. Repairs were carried out by Bethlehem at that
time as a "warranty item." It claims that subsequently a similar
fracture in the starboard strut of a sistership, the C.S. GLOBAL
SENTINEL was found while the vessel was in Honolulu. It claims
that at this time it was determined that the strut design
required an extensive modification and that the work was to be
accomplished by the builder at no expense to the owner. The
applicant claims that since the vessel was to be in Southhampton,
England, after completing a cable installation, the builder
elected to have Appledore Shipyard, Falmouth, England, perform
the work.

The applicant claims that Appledore invoice No. 631,
represents a "warranty modification" at no cost to the owner. It
also claims that at the same time, a number of improvements that
developed as a result of nearly a year of operation, were
considered to be desirable and were done at the shipyard during
this time. It requests remission of duty on certain items listed
below alleged to be modifications:

Item # Description

18 Hatch Cover (cable highway)

20 Steering Gear Hydraulic pipes

21 S.W. Services Line in E.R.

22 Lifting Eye

26 P & S Funnels

27 P & S Funnels

28 Bridge Wing Gratings

29 M.E.Lube Oil Pipes

30 L.T.O. Compartment

31 "A" Frame Guard

34 Wood doors

35 Sewage Treatment Plant

26 P & S funnels

40 L.C. Room ventilating system

ISSUES:

1. Whether the court established elements for warranty
recognition are present in this case, as detailed in the
case of Sea-Land Service, Inc. v. United States, 683 F.
Supp. 1404 (1988).

2. Whether the foreign shipyard work described herein
would constitute modifications to the hull and fittings of
the vessel so as to render the work nondutiable 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.

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.

For purposes of section 1466, 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.

T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval
in Admiral Oriental).

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.

In the case of Sea-Land Service, Inc. v. United States, 683
F. Supp. 1404 (1988), the Court addressed whether repair work
performed on a newly constructed vessel subsequent to its
delivery to the owner might be considered to be part of the new
construction contract. Simply put, the Court considered whether
"completion of construction" is a viable concept so as to render
the duty provisions of 19 U.S.C. 1466(a) inapplicable if proven.
The Court found completion of new construction to be a valid
concept, subject to specific conditions, which are:

1. "All work done and equipment added [must be] pursuant
to the original specifications of the contract for the
construction of the vessel ...."

2. "This basic standard is limited to work and equipment
provided within a reasonable period of time after
delivery of the vessel."

The contract for construction of the subject vessel
contained clauses guaranteeing for twelve (12) months any area of
the vessel for which the builder accepted responsibility under
the contract and specifications, conditioned upon written
notification from the owner of any covered defect within the
agreed upon 12-month period.

In reviewing the warranty case on remand from the Court,
Customs had the opportunity to review the contract, the
specifications, and a so-called "guarantee notebook." This
document consisted of numerous guarantee items, some generic in
nature and some specific, and represented the written
notification of defects from the owner to the builder as required
by the contract. Each noted defect was recorded on a separate
sheet and assigned a "G" guarantee number. Each was dated,
signed by an owner's representative and a builder's
representative, and contained a short narrative of the specific
complaint.

In that case, we found that the court-ordered criteria had
been satisfied and that the "reasonable period of time" for the
warranty period was the one-year period specified in the
contract. We have since held likewise in similar cases, and have
adopted the one-year limit as the benchmark for honoring new
construction warranties which otherwise qualify.

The question now to be addressed is whether the Sea-Land
Service, Inc., supra., court-ordered criteria and/or contract
requirements have been satisfied in this case.

In the case under consideration, the application has
submitted the new construction contract. The contract for
construction of the subject vessel contains a guarantee clause
which provides that:

1. In the event that any defects on the original
materials or workmanship in the VESSEL, other than those defects which are due to wear and tear or misuse and
other than defects in items furnished by the OWNER, occur
within one year after delivery of the vessel to the OWNER,
such defective parts shall be replaced or the defects
remedied by the BUILDER at the BUILDER's costs....

We note that the repair bill submitted in this case
indicates repairs having been effected before the expiration of
the one year period specified in the warranty clause of the
contract. The fact that repairs were made during the stated
period permits us to assume that notification was given to the
original builder by the vessel operator as specified in the
contract, so long as we find an invoice from the original builder
stating that work was performed at no charge. If repair work is
performed by remote contractors as permitted under the contract,
there must be evidence that the builder was notified before
repair or that the vessel operator was reimbursed by the original
builder. The record in this case shows that Appledore charged
244,841.00 for the services rendered. We note that the
applicant has submitted a copy of an invoice No. 631 for the
amount of 244,841.00, dated May 12, 1992, from Far East
Levingston Shipbuilding Limited for the "A" bracket modification.
Based on our review of this document, it appears that this is a
copy of Appledore's Invoice No. 631 with Far East Levingston's
address either typed or copied on it. Since the record does not
contain evidence which satisfies the criteria established in the
case of Sea-Land Service, Inc., supra., invoice No. 631 must be
denied as to the warranty claim. With regard to the work
performed by Watercraft International Limited, we find the work
which was performed to make various changes and adjustments to
the lifeboat davits to be warranty work.

With respect to the Appledore invoice No. 631/228 we find
that the work associated with this invoice relating to the "A"
Bracket modification provides an improvement or enhancement in
operation or efficiency of the vessel. This work is in the
nature of a modification rather than a repair. Accordingly, we
find that the work associated with the "A" bracket modification
to be remissible under the statute as a nondutiable modification.

With regard to Appledore's invoice No. 631/228, we find that
the following items are permanent installations to the hull and
fittings of the vessel, and are nondutiable modifications
remissible under the statute.