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HQ 115735





October 15, 2002

VES-13-18 RR:IT:EC 115735 RSD

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
Room 306
New Orleans, Louisiana 70130

RE: Vessel repair; Application; MV PRESIDENT POLK; Vessel Repair Entry Number C20-0038557-8; Modifications

Dear Sir:

This is in response to your memorandum dated June 26, 2002, forwarding for our consideration an application for relief from vessel repair duties assessed pursuant to 19 U.S.C. 1466 that is referenced above. American Ship Management LLC., filed the application. Your office requests our review with respect to alleged modifications that are specified on pages 8-11 of the application for relief. Our findings are set forth below.

FACTS:

The M/V PRESIDENT POLK is a US flag container vessel that trades primarily between the West Coast of the United States and the Far East. American Ship Management is the ship manager for the M/V PRESIDENT POLK. On the subject voyage, the vessel underwent work at a foreign shipyard. On June 2, 2001, the vessel returned to the United States from the subject voyage. On June 10, 2001, a vessel repair entry was timely filed. Subsequently, a request for extension was filed and granted by your office. The application for relief was filed on September 27, 2001. You have asked us to review the alleged modifications that were delineated on pages 8-11of the application for relief.

ISSUE:

Whether the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are modifications and therefore are non-dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, 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 the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States”

MODIFICATIONS:

In its application of the vessel repair statute, Customs 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-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors that may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is non-dutiable under 19 U.S.C. § 1466.

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 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 costs of which are 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 that is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

SLIN 34

Seal Cover Ring

This item involves changing the underwater survey port used for taking underwater surveys of the tailshaft wear down. Access to the tailshaft was changed to provide a more accurate tailshaft wear downreading during future surveys.

We find that this item is not a repair and should be considered a non-dutiable modification.

SLINs 168 and 169

Safety Guards at Void Openings

This is a first time installation which provided additional safety at voids spaces in tunnels and forecastle preventing crew and visitors from inadvertently falling into the void spaces. The work was permanent and provides for increased operational safety of the vessel. We find that the items are permanent enhancements to the vessel and not repairs. Therefore, we conclude that these items are non-dutiable modifications.

SLIN 305

This item concerns work done to the vessel’s main engine to allow for enhanced fuel viscosity monitoring. The work was completed so that the fuel temperature and heating of fuel products of varying viscosity could be more effectively monitored. This will result in better fuel efficiency for the vessel and better control of fuel products introduced into the main engine.

In Headquarters Ruling 226993, dated June 10, 1996, we ruled that the application of full time atmospheric monitoring of spaces on tankers was a non-dutiable modification. We explained that prior to the system's installation, the atmosphere was not normally monitored, and that full time electronic monitoring of this normally unmanned space for low levels of hydrocarbons and small decreases in normal oxygen levels provided the early warning of an abnormal situation, which was a safety improvement to the vessel. Accordingly, we conclude that the viscosity- monitoring enhancement also represents a non-dutiable modification.

SLINs 299, 306, and 361

SAT “A” Removal and SAT “B” Installation

This item involves two elements; the removal of an obsolete Satellite “A” system and the first time installation of a Satellite “B” system. The work was accomplished under separate yard shift supervisor. According to the applicant, the satellite communication systems are a required integral part of the ship’s navigation, distress, communication functionality and operations. Using a space satellite as the intermediary transfer hub for signal transmissions, as those datasets, digital transmissions enabled by the SAT “B” and other features provide an enhancement to the operating tempo of the vessel in additional to being a Global Marine Distress Satellite System.

In Headquarters 114092 dated September 12, 1997, we ruled that a radar system and a satellite communications system are dutiable as vessel equipment under 19 U.S.C. 1466. Accordingly, we find that these items will be dutiable as equipment.

SLINs 285 through 290

Hull and Structural Changes to the Vessel

The applicant explains that the PRESIDENT POLK was built in 1988 at the HDW shipyard in Germany. Since that time, certain design deficiencies have been brought to light. The work regarding these items was undertaken to extend the useful life of the vessel and to enhance the ability of the vessel to take various loads more efficiently while fulfilling its mission of carrying cargo. Excepting the above is the fishplate work done to prevent an over flow situation during fueling operations. The existing height was lower than the surrounding containments, therefore these items were done solely as a pollution prevention measure. The escort towing bit work provides a new structural towing point on the stern of the ship by tugboats, providing an enhanced and important additional towing point.

We are satisfied that these items constitute non-dutiable modifications.

SLIN 291

Hatch Cover Striking Plates

The hatch cover plates were permanently attached to the hatch cover with securing pins and only replaced if damaged while performing their function. The purpose of this enhancement was to protect the hatch-covers from damage during cargo operations.

We find that this item constitutes a non-dutiable modification.

SLINs 292 and 300

Reefer Capacity Enhancement

This item concerns an increase in the cargo capacity for refrigerated containers on deck by removing 220-volt transformers and replacing them with 440-volt transformers. This allowed for greater flexibility in the types of refrigerated containers that could be carried on the vessel. In addition, due to the placement of reefer transformers, certain areas of handrails had to be modified to accommodate the equipment and parts.

We find that changing of the transformers to increase the efficiency of the refrigerated containers that could be carried is a non-dutiable modification.

SLINs 293 and 295

Remote Mooring Winch Control Stands and removal of Main and Reserve Radio Transmitting Antennas

This item addresses an environmental protection issue. The vessel was originally equipped with remote winch control stands on the after mooring platform and on the stern of the vessel. The vessel does not use the winch control stands, but they were by design integrated into the electrical and hydraulic systems of the mooring systems. There was a problem because the remote stands were not attended during cargo operation in port or maneuvering operations when berthing/unberthing. The applicant points out that an incident occurred to another vessel of the same class as the PRESIDENT POLK, which resulted in a small quantity of hydraulic oil going over the side of the vessel when a line on the remote stand ruptured. As a result of this incident, the decision was made to isolate the remote stands permanently from all vessels of the same class as the PRESIDENT POLK. The hydraulic lines were disconnected from the coupling in the steering room. The oil was drained by using plastic bags and saw powder. The lines were plugged with yard’s stainless steel compressure couplings and caps.

We find that this item is a non-dutiable modification.

We also find that item 295 which was the removal of antennas to be non-dutiable.

SLINs 294 and 301

Echo Sounder

This item concerns the installation of a new echo-sounding system. The vessel was originally outfitted with an echo sounding system to determine proximity of the keel to the ocean floor. While the originally equipped system functioned as designed, its inherent sensitivity to vibration, temperature fluctuations and water conditions caused intermittent unreliability. While this performance was state of the art and acceptable 10 to 15 years ago, it is now unacceptable for safe navigation of the vessel. The new echo sounder system allows the master and pilot an enhanced real time indication of the actual water depths and underwater obstructions contributing to safer and more efficient operations while avoiding touching bottom or grounding the vessel.

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 the Coast Guard uses under certain circumstances; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery. Based on the description submitted, we believe that the echo sounder system is a navigational system, similar to the radar system cited above. Therefore, we conclude that this item will be considered dutiable as equipment and not a modification.

SLIN 296

Reefer Monitoring System

This item is part of Reefer Capacity Enhancement. The previous refrigerated container monitoring system was designed for 220VAC containers. It was incapable of providing monitoring for the new enhancement 440 VAC reefers. The new monitoring is capable of both 220 VAC and 440 VAC system monitoring and provides enhanced operation as detailed in the documents

In Headquarters Ruling 226993 June 10, 1996, we determined that the installation of systems of full time electronic monitoring of normally unmanned space for low levels of hydrocarbons and small decreases in normal oxygen levels to provide early warning of an abnormal situation was a non-dutiable modification. Based on the invoice description, we find the new reefer monitoring system also constitutes a non-dutiable modification.

SLIN 297

IDD Shipboard Ethernet Wiring Installation

The vessel was originally equipped with token ring network wiring which was insufficient in design to handle ethernet architecture used by the company. The wiring represents a first time ethernet wiring installation. It is permanent, non-removable, and it represents a significant enhancement to the data handling and management capabilities of the vessel.

We find that the wiring installation represents a permanent enhancement of the vessel and thus constitutes a non-dutiable modification.

SLINs 298 and 302

Sewage Tank Modification

This work was completed to ensure an enhanced MARPOL compliance on gray water and sewage discharges into water, and to provide for enhanced venting and vacuum collection rating. In addition, the work enhanced circuit breaker protection which reduced down line spare parts usage. The existing treatment plant functioned as designed and was not in need of repair, however it did not possess adequate features. Additionally the C-10 vessels call Alaskan water (Dutch Harbor) where owners, by modifying sewage systems to enhanced levels, demonstrate proactive environmental protection, with a goal of less inspection delays and to further articulate the company’s position as good stewards of the seas.

We find the Sewage Tank work constitutes a non-dutiable modification.

SLIN 303

Stack Height Modification

This item concerns the increasing of the stack height in order to extend the level of exhaust gases away from the ship and upward. Exhaust gases are hot and can contain combustible elements in the form of sparks and small hot particulate matter. Frequently, open top containers with canvas covers are carried on the vessel. Both fore and aft of the funnel stack can present a fire hazard and a restriction on where such containers can be carried. The stack height extension increased both fire safety and enhances cargo-loading flexibility.

We are satisfied that this item is not a repair but a permanent enhancement to the structure of the vessel, and thus is a non-dutiable modification.

SLIN 304

Cargo Hold Bilge System Modification

The previous cargo hold bilge pump system did not provide adequate service simply because the requirement exceeded the design of the existing system. The work was undertaken to enhance the pumping system and to extend the areas of the bilge to which the pump draws access.

We find that this item constitutes a non-dutiable modification.

SLINs 332 and 333

Engine Monitoring System

This item represents components replacing the existing (original outfitted) black and white engine monitoring with a color system. Because the vessel is certified AMS and operated unattended, engineers and bridge watches monitor the engine space from remote location by closed circuit monitors. While the original B&W system performed as designed, it did not provide the ability to distinguish between colors, i.e. the difference between steam and smoke, or between green and red on alarm panels. The enhancement means that less time will be spent answering false alarms and the possibility to overlook a fire, alarm, spill or other event is greatly enhanced adding to both the operational efficiency and safety of the vessel.

As we explained above, Customs has previously determined that installation of components that improve monitoring of the vessel’s systems are considered non-dutiable modifications, and therefore, we conclude that this item will also be considered a non-dutiable modification.

HOLDING:

Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the Application for Relief with respect to the items
considered should be denied in part and granted in part as specified in the Law and Analysis portion of this ruling.

Sincerely,

Glen E. Vereb
Acting Chief

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