HQ 112946: Vessel Repair Entry No. 110-0104416-0; Modification; Guarantee; SEA-LAND TRADER; V-58; 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 112946

                        February 2, 1994

VES-13-18-CO:R:IT:C 112946 GEV

CATEGORY:  Carriers

Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 98031

RE:  Vessel Repair Entry No. 110-0104416-0; Modification;
     Guarantee; SEA-LAND TRADER; V-58; 19 U.S.C.   1466

Dear Sir:

     This is in response to your memorandum dated October 25, 1993,
forwarding a petition for review of Headquarters Ruling 112808. 
Our ruling on this petition is set forth below.

FACTS:

     The SEA-LAND TRADER is a U.S.-flag vessel owned by Connecticut
National Bank and operated by Sea-Land Service, Inc. ("Sea-Land"). 
The vessel underwent foreign shipyard work at Kaohsiung, Taiwan in
February of 1993.  Subsequent to the completion of this work the
vessel arrived in the United States at Tacoma, Washington on
February 19, 1993.  A vessel repair entry was timely filed.

     An application for relief from vessel repair duties was timely
filed.  By Headquarters letter 112808, dated August 16, 1993, the
aforementioned application was granted in part and denied in part. 
Sea-Land subsequently filed a petition for review regarding work
alleged to be modifications to the wheelhouse and several hatches. 
Specifically, the height of the wheelhouse was to be increased so
as to be in compliance with regulatory visibility requirements
while allowing the vessel to carry additional cargo, and hatches
7, 9 and 11 were modified to allow the carrying of 45 foot
containers.  In support of these claims, the petitioner submitted
the following documentation:  (1) Exhibit A-1  Specifications for
Modifications to Sea-Land Class C Vessels; (2) Exhibit A-2  China
Shipbuilding invoice no. IK-81-053; (3) Exhibit B-1  Contract for
Modification of the SEA-LAND TRADER; (4) Exhibit B-2  China
Shipbuilding invoice IK-81-052; (5) Exhibit B-3  China Shipbuilding
Guarantee Work; (6) 

                              - 2 -

Exhibit B-4  Letter from John Keenan to U.S. Customs dated June
25, 1993 for clarification of the work in question; (6) Exhibit B-
5  Letter from John Keenan to U.S. Customs pertaining to work
performed on another Sea-Land vessel.

ISSUE:

     Whether the foreign shipyard work in question for which the
petitioner seeks relief is dutiable under 19 U.S.C.   1466.

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 the 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
                              - 3 -

     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.

     "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 work in question, we stated in Ruling 112808
that the claim for duty-free treatment for work performed under a
warranty for an alleged modification and not a warranty relating
to the original construction of the vessel was inapposite. 
Consequently the application was denied.  Upon further review of
the record, we remain of the opinion that relief should not be
granted pursuant to a warranty claim as discussed in Sea-Land
Service, Inc. v. United States, 683 F.Supp. 1404 (1988) inasmuch
the work in question was not performed within one year of the
completion of the vessel's original construction.  However, we note
that although the work listed in Exhibit B-3 is stated to be
"GUARANTEE WORK", the shipyard has noted that it was performed
pursuant to "NO CHARGE".  

                              - 4 -

Furthermore, the remainder of the documentation submitted by the
petitioner indicates that the work in question meets the requisite
criteria for a modification as discussed above and therefore should
be accorded duty-free treatment. 

HOLDING:

     The foreign shipyard work for which the petitioner seeks
relief is non-dutiable under 19 U.S.C.   1466 as discussed in the
Law and Analysis section of this ruling.

     Accordingly, the petition is granted.

                                   Sincerely,




                                   Arthur P. Schifflin
                                   Chief