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HQ 115313

April 27, 2001

VES-13-18:RR:IT:EC 115313 LLO


Vessel Repair Liquidation Unit
U.S. Customs Service
New Orleans, Louisiana 70130

RE: Vessel Repair C53-0028034-0; Petition for Review; M/V DUCHESS; V-125; 19 U.S.C. §1466; 19 C.F.R. §4.14; Duty Remission

Dear Sir:

We received your memorandum dated February 23, 2001, requesting that we review a petition relating to the M/V DUCHESS, regarding the dutiability of inspections and modifications. Our ruling on this matter is set forth below.


The M/V DUCHESS, a United States-flag vessel operated by Ocean Duchess, Inc. of Houston Texas arrived at the port of Houston Texas on September 7, 1996.

A petition for review, which includes the allowance of one extension, was timely filed on November 13, 2000. According to the vessel repair entry and other documents in the file, the vessel underwent repairs in Mexico.

The operator agents, Ocean Duchess, Inc. submitted a petition for review, identifying certain items as non-dutiable. The following items are reviewed in this ruling:

-the modification of cargo tanks
-the cost of Close Up & Special Survey


Whether the cost of foreign shipyard work completed aboard the subject vessel is dutiable pursuant to 19 U.S.C. §1466.


Title 19 of the United States Code, 1466 (19 U.S.C. 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “equipments, or any part thereof, including boats purchased for, or the repair parts or materials to be used, or expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States”

On March 3, 1995, the Assistant Commissioner, Office of Regulations and Rulings, issued a memorandum that was published in the Customs Bulletin on April 5, 1995 (Customs Bulletin and Decisions vol. 29, no. 14 at pg. 24). It provided that all vessel repair entries filed with Customs on or after the date of Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (1994), were to be liquidated in accordance with the full weight and effect of the court decision. Texaco holds that the costs of post repair cleaning and protective covering incurred pursuant to dutiable repairs, are dutiable and indeterminate foreign expenses contained within such entries are subject to the “but for” test.

Ocean Duchess, Inc. argues in the petition that the cargo tanks, which it deems modifications as opposed to repairs, should be duty free. In considering whether an operation has resulted in modification, which is not subject to duty, the following elements must be considered:

-whether there is a permanent incorporation into the hull or superstructure of a vessel

-whether the item under consideration would remain aboard a vessel during an extended lay up

-whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure that is not in good working order

-whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel

The petitioner indicates in the petition for review that the cargo tanks are in fact permanent parts of the hull of the vessel. The petition notes that the modifications for which duty free treatment is sought, are permanent parts of the vessel’s hull and fittings which would not be removed in the event the ship is put in lay-up. (p. 2 petition for review). The cargo tanks are a permanent part of the hull, fulfilling the first element used in determining whether a repair is a modification, and they are also parts that will remain aboard during an extended lay up, thus fulfilling the second element used in determining whether or not a repair constitutes a modification. The petitioner’s contentions on this matter are supported by documentary evidence in the form of drawings for the modification (exhibit 114(a)(2)) and an affidavit by the Manager of Technical Services.

The petitioner goes on to note that “[t]he vessel’s cargo tanks were in satisfactory condition for their originally designed service when the vessel arrived at the shipyard prior to the modifications. The modification work was done for the operating advantages of the new design, as required by new regulationsnot because of any problem with the existing cargo tanks.” This statement, along with the documentary evidence presented in the form of drawings for the modifications and an affidavit by the Manager of Technical Services, fulfill the last two elements outlined above for determining the eligibility of a modification for duty free treatment.

With regards to the Close Up & Special survey, the petitioner states that the costs for scaffolding and readings were a part of the costs incurred to accomplish the required periodic ABS inspection of the vessel’s tanks. The petitioner then goes on to argue that in HQ 103480 Customs held “if items were conducted as part of a required ABS or U.S. Coast Guard required survey, they are not dutiable (even when dutiable repairs are effected as a result thereof.)” Petitioner also notes that C.S.D. 80-195 “requires only that the items were conducted as part of a required survey, it does not require that the costs be payable only to the ABS or USCG.” Petitioner notes that this argument is supported by the fact pattern involved in C.S.D. 79-277 which involved costs on a shipyard invoice (as opposed to an ABS invoice), which the petitioner argues bolsters its view that the costs for the work to perform the inspection or survey clearly may be payable to anyone performing the required service not just the ABS or USCG.

Under C.S.D. 79-277, “[w]here a survey is undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc. the cost is not dutiable even when dutiable repairs are effected as a result thereof.” The petitioner notes that the costs associated with the Close Up & Special survey (i.e. costs for scaffolding and readings) were a part of the costs incurred to accomplish the periodic ABS inspection of the vessel’s tanks. Both an affidavit by the Manager of Technical Services, and an exhibit provided by the petitioner verifies the fact that the scaffolding and readings were required for an ABS inspection. For this reason, the cost of the Close Up & Special survey is duty free.


Following a thorough review of the facts in this case as well as an analysis of the law and applicable precedents that bear upon those facts, we have determined that the petition for review should be granted in full for the reasons set forth in the Law and Analysis section of this ruling.


Larry L. Burton
Entry Procedures and Carriers Branch

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