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HQ 226924

July 3, 1996

VES-13-18-RR:IT:EC 226924 GOB


Port Director of Customs
Attn.: Chief, Residual Liquidation and Protest Branch U.S. Customs Service
6 World Trade Center
New York, NY. 10048-0945

RE: Vessel Repair Entry No. C46-0015886-8; M/V KANSAS TRADER, V-008; 19 U.S.C. 1466; Modification; Protest; CO2 System; Insulation

Dear Sir:

This is in response to your memorandum dated April 19, 1996, which forwarded the protest filed on behalf of Penn Attransco Corp. (the "protestant") with respect to the above-referenced vessel repair entry.


The record reflects the following. The M/V KANSAS TRADER (the "vessel") is a U.S.-flag vessel operated by the protestant. The vessel had foreign shipyard work performed in Germany and Greece in October and November of 1994. On December 13, 1994, the vessel arrived in New York, N.Y. A vessel repair entry was timely filed on December 19, 1994.

In Ruling 113378 dated March 28, 1995, we stated in pertinent part with respect to the application for relief:

In reviewing the record in its entirety, it is apparent that while the documentation generated by the applicant and the applicant's counsel tend to support the claim that the work in question constitutes non-dutiable modifications, the invoices submitted do not. They are devoid of any description of the work done and essentially constitute a mere listing of various parts and expenses (e.g., travel costs, freight charges, etc.). Accordingly, the applicant's claims with respect to the work alleged to be non-dutiable modifications is denied.

In Ruling 113487 dated November 29, 1995 with respect to the petition, we affirmed Ruling 113378 for the same reason as is stated supra. We stated:

After a complete review of the additional documents submitted, we affirm our decision of March 28, 1995. In reviewing the record in its entirety, including the new documentation, it is apparent that while the documentation generated by the petitioner and counsel for the petitioner, tend to support the claim that the work in question constitutes non-dutiable modifications, the documents and invoices submitted are devoid of any description of the work that was actually performed.


Whether the subject costs are dutiable pursuant to 19 U.S.C. 1466?


19 U.S.C. 1466 provides for the payment of duty at a rate 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 be employed 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. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 CCPA 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair.

2. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item 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 provides an improvement or enhancement in operation or efficiency of the vessel.

In its protest, the protestant states, in pertinent part:

In our Application we stated:
"Some of the above invoices were for work relating to two permanent modifications which were necessary to prepare and enable the vessel for the carriage of ammunition cargo for the Military Sealift Command...

The costs which are the subject of this protest were described in the Petition as:

For Installation of New Fixed CO2 System (Modification A): ...
For Installation of New Fireproof Structural Insulation (Modification B):
...we provide herein additional documents from the vendor that further describe the work done to accomplish the modifications. Those documents contain the Statutory Declaration of Stephen John Ray, the Director of Matatec Marine (see Protest Exhibit 3). The affidavit includes two letters written by Mr. Ray that reference the invoices and describe the work performed by Matatec Marine to accomplish the modifications. The letters deal with two modifications. [end of excerpt from protest.]

Mr. Ray's "Statutory Declaration" includes the following:

1. An declaration (similar to an affidavit) that the information and facts contained in two letters is true.

2. A letter dated March 13, 1996, which states, in pertinent part:

Installation of New Fixed Cargo Hold CO2 System Invoice #4644 $13,098

Matatec was contracted by Penn-Attransco to install a fixed CO2 system on board the MV Kansas Trader from 7th October to 18th October 1994...

The installation involved installing a new CO2 manifold in the CO2 room...

...Upon completion of the system, a hydrostatic and operational test was performed for the United States Coast Guard.

Enclosed is invoice #4644 which represents the labour to install the subject Cargo Hold Fixed CO2 system on the MV Kansas Trader.

3. A second letter dated March 13, 1996, which states, in pertinent part:

Installation of New A-60 Structural Insulation

Invoice #4642 $19,514
#4643 $ 7,293
#4652 $ 4,970
#4763 $ 2,434

Matatec was contracted by Penn Attransco to install a new A-60 Fireproof Insulated bulkhead between the engine room machinery spaces and the #6 cargo hold... ...
...The installation was surveyed by the American Bureau of Shipping on 11th November and accepted as an A-60 fireproof insulated bulkhead.

Attached are invoices # 4642, 4643, 4652 & 4763 which reflects [sic] the labour, equipment & material to perform the subject A-60 fireproof insulated bulkhead aboard the MV Kansas Trader.

As indicated supra, the protestant claims that the work at issue was required by the U.S. Coast Guard in order for the vessel to carry ammunition.

At an oral conference on June 19, 1996, representatives of the protestant provided a further explanation of the work performed. This explanation is consistent with the written submissions in this case.

To supplement the representations made at the oral conference, John P. Love, marine superintendent and general counsel of Van Ommeren Shipping (USA) Inc. (the financial, administrative, and commercial agent for the limited partnership which owns the vessel) stated in writing:

The undersigned has personal knowledge of all the facts discussed herein with respect to the modifications made to the vessel to make her suitable to carry ammunition and certain other cargoes.

This is to affirm my verbal advices to you that:

1. at all times prior to the claimed modification, the vessel had a CO2 system which did not extend to the cargo holds and the modification claimed, to wit, installation of the CO2 system in the cargo holds, was a new and permanent addition to the vessel...

2. at all times prior to the claimed modification, the vessel had insulation between the engine room and the accommodations which did not extend to the bulkhead between the engine room and the aft cargo hold and the modification claimed, to wit, installation of welded steel pins, fasteners and insulation to said bulkhead, was a new and permanent addition to the vessel...

The photographs submitted by the protestant with the protest and at the oral conference tend to support its assertion that the work at issue pertained to a new system.

Previously, with its petition for relief, the protestant submitted an affidavit of Mark Amundsen, which states in pertinent part:

As a Port Engineer for Penn-Attransco I am familiar with the operations and the overall condition of the M/V Kansas Trader and the work that is the subject of a petition for V.R. Entry #C-46-0015886-8. The subject work involved two permanent modifications required by CFR 95.05-10 to prepare and enable the vessel to carry ammunition cargoes for the Military Sealift Command. This statement is to provide additional description of the subject work.

MODIFICATION A This modification was a design feature. The work involved the installation of new fixed carbon dioxide systems for cargo holds 1-6 which previously had none. [The invoices identified by Mr. Amundsen include Matatec Marine invoice #4644.]

MODIFICATION B This modification involved the permanent installation of structural insulation in the bulkhead of the vessel in the machinery spaces between the #6 cargo hold and the engine room at frame #39. The work was required by the IMDG Code and CFR Chapter 39 for the carriage of ammunition cargoes. [The invoices identified by Mr. Amundsen include Matatec Marine invoice #4642, 4643, 4652, and 4763.]

The Matatec Marine invoices are for the labor. The invoices from Kopcke Holland Supply Services, Rockwood Denmark, and Pirotek are for parts and materials for the subject work. The American Bureau of Shipping invoice is for a survey of the insulation.

After a consideration of the documentation submitted by the protestant, including the statements of Messrs. Love, Amundsen and Ray, we conclude that the protestant has satisfactorily established that the items at issue are related to nondutiable modifications. The protestant has provided a satisfactory explanation with respect to the items at issue. The statements of Love, Amundsen and Ray support the protestant's position. The pertinent Coast Guard regulation cited by the protestant, 46 CFR 95.05-10, is consistent with the protestant's claims. The documentation with respect to the items at issue does not reflect any repairs. Accordingly, we find that the costs of these items are nondutiable pursuant to 19 U.S.C. 1466.

Judicial authority for this determination is found in U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930), where the court held that the addition of swimming pools for the comfort of passengers in the Pacific trade routes was outside of the scope of 19 U.S.C. 1466. The court found the work to be modifications of the hull rather than repairs based on the blueprints and testimony of the appellee's superintendent.

As the protestant points out, in Ruling 110206 dated September 19, 1989, we found the costs of thermal insulation and firemain insulation to be nondutiable.


The subject items are nondutiable pursuant to 19 U.S.C. 1466. The protest is granted.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette
Subscription Service, the Freedom of Information Act and other public access channels.


International Trade Compliance

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