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HQ 111427

February 22, 1991

VES-13-18-CO:R:IT:C 111427 GEV


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

RE: Vessel Repair Entry No. C31-0008329-5; VERONICA M; Conversion Work; U.S. Parts; U.S. Labor; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated November 21, 1990, transmitting an application for relief from duties assessed pursuant to 19 U.S.C. 1466. Our findings our set forth below.


The VERONICA M is a U.S.-flag vessel built in New Orleans, Louisiana, in 1968 as an oil field supply vessel primarily used to transport drilling mud. The vessel was documented as a fishing vessel in April of 1987. In May of 1989 the vessel was sold by California Diesel & Equipment, Inc. to Premium Alaska Fishing Corporation and departed Los Angeles, California, for Vancouver, British Columbia, Canada, for the purpose of undergoing a conversion from an oil field supply vessel to a vessel used exclusively as a fishery and fish packing vessel. The record does not indicate when the subject vessel was purchased by the current owner, Veronica M, Inc.

Subsequent to the completion of this conversion work, which took place during the period of May, 1989, through June 23, 1990, the vessel arrived in the United States on July 1, 1990. A vessel repair entry was filed on July 6, 1990. An application for relief, dated July 6, 1990, was timely filed. The applicant claims that the conversion work performed and related costs are nondutiable, and that various equipment purchased in the United States and placed on board the vessel prior to its departure for Canada was installed by members of the regular crew and U.S. residents and therefore is also nondutiable. In support of these claims the applicant has submitted invoices and various other documentation.


1. Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable under 19 U.S.C. 1466.

2. Whether evidence is presented sufficient to prove that the parts and materials for which the applicant seeks relief were purchased in the U.S., placed aboard the vessel prior to its departure and installed by members of the regular crew and U.S. residents thereby rendering such costs nondutiable under 19 U.S.C. 1466.


Title 19, United States Code, section 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.

A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other, the former being subject to duty under section 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288). That opinion interpreted section 17 of the Act of June 26, 1884, (23 Stat. 57, which allowed drawback on the vessels built in the U.S. for foreign account, wholly or in part of duty-paid materials. In defining equipment of a vessel, the Attorney General found that items which are not equipment are:

...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... [and] are material[s] used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision of law other than section 1466 or a predecessor thereto, it is considered instructive and has long been cited in Customs Service rulings as defining permanent additions to the hull and fittings of a vessel.

For purposes of section 1466, dutiable equipment has been defined as:

...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 (1914)).

It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings to the vessel, would be dutiable under section 1466.

The Customs and Trade Act of 1990 (Pub. L. 101-382) which amends 19 U.S.C. 1466, exempts from duty under the statute, the cost of spare repair parts or materials which have been previously imported into the United States as commodities with applicable duty paid under the Harmonized Tariff Schedule of the United States (HTSUS). The amendment specifies that the owner or master must provide a certification that the materials were imported with the intent that they be installed on a cargo vessel documented for and engaged in the foreign or coasting trade. In view of the fact that the VERONICA M is a fisheries vessel rather than a cargo vessel, the applicant cannot avail itself of the benefits of this amendment.

Upon reviewing the record in its entirety, we note the following.

What the applicant refers to as Invoice no. 1 actually consists of seven invoices of Pacific Western Shipbuilders Co. Ltd. It is alleged that these seven invoices cover a myriad of work, including both materials and labor, included in the conversion of the subject vessel. While the application itself provides a detailed explanation of the work stated to be performed, the invoices themselves do not. Instead, the invoices merely state "Conversion of Veronica "M" to Fish Packer" at the top and list itemized costs of material and labor with no description of the work involved. This, without more, is insufficient to prove that the these costs were in fact performed in conjunction with nondutiable modifications/alterations/ additions to the vessel.

Accordingly, the costs listed on the Pacific Western Shipbuilders Co. Ltd. invoices referenced by the applicant as Invoice no. 1 are dutiable with the exception of the following: transportation costs, and the costs of cranes and electrical services (invoice 0022 to June 11, 1989); the costs described as "Berth Vessel" and "Turn Vessel" (invoice 0023 to June 18, 1989); the cost of vessel moorage (invoice 0024 to July 2, 1989); the costs of recharging galley fire extinguishers, steam cleaning tanks, electrical services, and a dumper truck to clean port fuel tanks (invoice 0026 to July 7, 1989); and the cost of water and electrical services (invoice 0028 of July 10-18, 1989.

Invoice no. 2 of the application is stated to cover all services and labor to set up for mounting of materials to provide the vessel with two one hundred and twenty ton refrigeration units. The eight page invoice from Reliance Machine Works Ltd. which comprises Invoice no. 2 merely lists materials and labor with the statement that they were used "...in the conversion of F.V. Veronica M from an oil rig supply vessel to a fish packer suitable for brine packing of West Coast Salmon." We note, however, that Invoice no. 24, also from Reliance Machine Works Ltd., is a two page letter expounding upon this conversion work and describes the systems installed. Accordingly, the costs listed on Invoice nos. 2 and 24 are nondutiable with the exception of the costs of sand sweeping the hull, supplying zincs, and priming and painting the hull, all of which are listed on Invoice no. 24.

Invoice no.3 from Pacific Urethane Systems Ltd. covers the installation of urethane foam in the eight fish holds of the subject vessel. The invoice merely lists a cost of this material and does not substantiate the claim that these costs are part of nondutiable conversion work. Accordingly, these costs are dutiable.

Invoice no. 4 allegedly represents the costs charged by Grimwood Yachts to manufacture and supply eight hatch covers, to supply and install kiln dried wooden subsurfaces to the eight fish tanks, to install fiberglass liner in seven fish tanks, to remove wooden blanks from vessels decks and prepare the surfaces of eight ballast tanks for application of the foam installation by Pacific Urethane (see above), to supply and fasten wooden strapping and to secure plywood subsurfaces. We note that this alleged "invoice" consists of sixteen handwritten pages with sporadic descriptions of the work done, none of which appear on Grimwood Yachts' letterhead, one of which is unsigned and undated, and the others contain a signature (or just the first name) of an unidentified individual. These submissions are insufficient documentation upon which to grant relief. Accordingly, Invoice no. 4 is denied in its entirety.

Invoice no. 5 is from Steelhead Industries. Ltd, and appears to cover labor and materials for hatch coamings, crane base plates, air vent extensions and exhaust stack extensions. This invoice consists of a handwritten, unsigned, undated worksheet containing figures representing what are supposed to be the costs of this work, and a formal invoice dated July 31, 1989, which appears to cover somewhat related charges. As to the former, it is insufficient documentary evidence upon which to grant relief, as to the latter, it appears to contain unsegregated costs of repairs. Accordingly, Invoice no. 5 is dutiable in its entirety.

Invoice nos. 6 through 13 cover charges from Rotor Electric Ltd. Invoice nos. 8, 9, 10, and 13 cover repairs to existing equipment which the applicant agrees are dutiable. In regard to the remaining invoices, we note the following. Invoice nos. 6 and 7 are itemized lists of electronic materials and equipment (including a transformer), and the installation and mounting of a transformer bracket and switch. These costs appear to be related to the repairs to the existing equipment listed on Invoice nos. 8 and 13 and therefore are dutiable. Invoice 11 covers the machining of piping for what the application states is a new brine circulation system, however, this invoice does not refer to any specific system and in the absence of evidence to the contrary this cost is considered to be dutiable. Invoice no. 12 covers a 25 horsepower electric motor. The application states that this motor is needed to drive hydraulic pumps on two new cranes. However, other than the applicant's statement to this effect, the only other evidence to substantiate the use of this motor is an unsigned, handwritten sentence on the invoice. This is insufficient evidence to grant relief and therefore Invoice no. 12 is dutiable.

Invoice no. 14 consists of two unsigned, undated, handwritten worksheets not on company letterhead, and a one page invoice from J & J Metal Works Ltd., dated January 17, 1990. These three pages purportedly cover the removal of existing hatches. While a mere removal without more would not be considered dutiable if adequately documented, we cannot accept as cost evidence the two handwritten pages referenced above. Accordingly, we will grant relief only for the J & J Metal Works Ltd., invoice dated January 17, 1990.

Invoice nos. 15-19 are from J & J Metal Works Ltd. The application states that the work covered by these invoices includes the following: the removal of existing ballast lines, decking, hatches and bulkheads; the fabrication and installation of new framework to support new refrigeration equipment; and the addition of four eight foot eight inch steel brine lines. The invoices, however, do not reflect these claims. Invoice no. 15 only states, "Supply men & equipment to burn piping." In addition, Invoice nos. 16-19 all state only, "Supply men, equipment & material." Accordingly, in view of the fact that this documentation does not support the applicant's claims, the costs listed on Invoices 15-19 are dutiable with the exception of the cost of a crane on Invoice no. 16.

Invoice nos. 20 and 21 cover engineering and consulting services all claimed to be nondutiable as part of the conversion of the vessel. Invoice no. 20 references the conversion work covered by Invoice nos. 2 and 24 (discussed above) and therefore is nondutiable. Invoice no. 21 contains no description of the charges with the exception of an unsigned, handwritten reference to engineering and travel. This is insufficient to support a finding that these costs are nondutiable.

Invoice no. 22 consists of one unsigned, handwritten, worksheet not on company letterhead, and four separate invoices from Ross Supply Ltd. allegedly for supplying parts for the piping in the new brine system. These are merely itemized lists with no nexus to the conversion work in question. Accordingly, the costs listed on Invoice no. 22 are dutiable.

Invoice no. 23 references owner supplied equipment which was stated to be placed on board the vessel in Los Angeles and installed on the vessel in Vancouver by members of the regular crew and/or U.S. residents hired to install the equipment. The documentation submitted does not support this statement, nor does it support a finding that such costs constitute nondutiable modifications/alterations/additions. Furthermore, as previously stated, in view of the fact that this is a cargo ship, section 1466(h) is inapplicable. Accordingly, relief as to Invoice no. 23 is denied.


1. The evidence presented is insufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable under 19 U.S.C. 1466 with the exception of those items discussed above.

2. The evidence presented is insufficient to prove that the parts and materials for which the applicant seeks relief were purchased in the U.S., placed aboard the vessel prior to its departure and installed by members of the regular crew and U.S. residents thereby rendering such costs nondutiable under 19 U.S.C. 1466.


B. James Fritz

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