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HQ 116219

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November 17, 2004

VES-13-18-RR:IT:EC 116219 IDL

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
New Orleans, LA 70130

RE: Protest No. 1601-03-100446; Vessel Repair Entry No. C16-0017374-9; M/V LYKES LIBERATOR; V-17; Modification; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated April 20, 2004, forwarding for our review the above-referenced protest of vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Our ruling on this matter is set forth below.

FACTS:

The M/V LYKES LIBERATOR is a U.S.-flag vessel operated by Marine Transport Corporation (“MTC”) of Weehawken, NJ. During the voyage in question, this vessel incurred foreign shipyard costs. On September 30, 1999, subsequent to the completion of the work in question, the vessel arrived at Charleston, SC. A vessel repair entry, No. C16-0017374-9, was timely filed.

U.S. Customs and Border Protection (CBP) received an application for relief of duties. On April 14, 2003, the application for relief of duties was denied due to the failure to offer a basis or justification for such relief. On May 16, 2003, the entry was liquidated. On August 14, 2003, a protest was timely filed concerning assessment of duties on various expenses for which your office seeks our review.

ISSUE:

Whether the vessel repair costs incurred by the protestant for which our review is sought are dutiable under 19 U.S.C. § 1466?

LAW AND ANALYSIS:

We note that the protest was timely filed under the statutory and regulatory provisions for protests, 19 U.S.C. 1514(c)(3)(A) and 19 CFR 174.12(e)(1).

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), 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”.

In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull 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. (See Otte v. United States, 7 Ct. Customs Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930)). In considering whether an operation has resulted in a non-dutiable modification, the following factors have been considered. These factors 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:

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. However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.

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.

Exhibit 1 contains four Items for which our review is sought where the protestant has sought non-dutiable treatment pursuant to a modification claim. Exhibit 2 contains another three Items for our review concerning costs alleged to be non-dutiable pursuant to an inspection. With respect to these Items, our comments are as follows.

Exhibit 1, Item 172, Install New Duplex Strainer and Piping, involves the provision and installation of a 100 mm duplex, 30 micron strainer in place of a simplex strainer and the necessary piping work to accommodate the new strainer. We find this cost is dutiable as the record contains no evidence probative of a possible modification.

Item 426, Modify Wing Tank No. 6 Starboard and Install New Plates, Bracket, Stiffener, and Web Frames, covers costs for work done in order to correct an alignment deficiency in the vessel’s design. The evidence submitted does not support a modification claim. As such, this item is a dutiable repair.

Item 430, Cracks Rewelded Up to Next Frame on Hatch Coaming Top Plates & Container Head Guides, covers repairing and welding of cracks in the vessel. This operation constitutes a dutiable repair.

Item 486, Modify Intrafone Waste Heat Boiler, covers costs for work done to permanently remove the elbow from the INTRAFONE wall box, fabricate and install steel blank to take its place. This is work done to remove an article that is no longer in use and does not involve a replacement of an article, nor does it constitute a repair. As such, this is a non-dutiable item.

Exhibit 2, Item 196, labeled as Clean Miscellaneous Main Engine Spaces, provides for labor relating to accessing and cleaning of scavenging air spaces, underside piston spaces, crankcase and bilge tank. MTC claims that such labor was conducted to allow for duty-free inspection by a classification society survey or the U.S. Coast Guard. There is no indication on the shipyard invoice that anyone, other than the chief engineer, inspected the area after such cleaning. Furthermore, the cleaning of scavenging air spaces has long been held to be dutiable. (See ruling letter 111917, dated February 3, 1992). Consequently, this item should remain dutiable.

Item 199, Inspect Main Engine Reversing Cylinder, involves removing “reversing cylinders from engine and dray to shop for repairs. Disassemble for cleaning and inspection. Measure all components for manufacture tolerances. Repair or renew necessary parts to make as original.” [Emphasis added.] We find that this item is a dutiable repair and/or maintenance.

Item 412, Unload 20 45’ Containers in Yard, involves removal of certain cargo containers. Protestant states that this operation was necessary to facilitate a required inspection of the bulkheads in the cargo. There is no evidence, however, that the area was inspected. Furthermore, the American Bureau of Shipping (ABS) report indicates that repairs were made in several cargo hold areas. Consequently, in the absence of evidence to the contrary, and in applying the "but for" test from the decision in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), this item was done in conjunction with dutiable repairs and, therefore, is subject to duty.

HOLDING:

Accordingly, the protest should be DENIED IN PART and GRANTED IN PART, consistent with the analysis above.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, 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 make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief
Entry Procedures and Carriers Branch

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