Modification; Transportation, preparation for; Vessel Repair; 19 U.S.C. 1466; M.V. GALVESTON BAY; Entry No. 559- 1237219-4

HQ 111733 July 22, 1992 VES-13-18 CO:R:IT:C 111733 GFM CATEGORY: Carriers Deputy Assistant Regional Commissioner Classification and Value Division ATTN: Regional Vessel Repair Liquidation Unit New York NY 10048-0945 RE: Modification; Transportation, preparation for; Vessel Repair; 19 U.S.C. 1466; M.V. GALVESTON BAY; Entry No. 559- 1237219-4 Dear Sir: This letter is in response to your memorandum of June 7, 1991, which forwards for our review the application for relief filed pursuant to the above-referenced vessel repair entry. FACTS: The record reflects that the subject vessel, the M.V. GALVESTON BAY, arrived at the port of Boston, Massachusetts, on January 23, 1991. Vessel repair entry, number 559-1237219-4, was filed on January 25, 1991. The entry indicates that the vessel underwent foreign shipyard work while in Rotterdam, Netherlands, during January and February of 1991. Specifically, the record indicates that the vessel undertook modification of its port gangway. The vessel operator had previously sought a prospective ruling in which this office concluded that the described work would constitute a modification to the vessel (Headquarter Ruling Letter 110703, January 23, 1990). ISSUE: Whether the cost of foreign shipyard work completed aboard the subject vessel is dutiable pursuant to 19 U.S.C. 1466. LAW AND ANALYSIS: Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount 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 engage 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. Over the course of years, the identification of work constituting modifications on the one hand and repairs on the other has evolved from judicial and administrative precedent. 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, 18 C.C.P.A. 137 [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 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 under consideration provides an improvement or enhancement in operation or efficiency of the vessel. For purposes of section 1466, 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. T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval in Admiral Oriental). The Customs Service has held that the decision in each case as to whether an installation constitutes a non-dutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties. In the present case, the application in question represents charges incurred relative to the installation of a port-side gangway. The invoices state that a new extension with accompanying hardware was fabricated, that certain ship features were modified to accommodate the new modification, and that testing of the new modification was performed. After thorough review, we are convinced that the operations undertaken do indeed satisfy the above enumerated criteria and do in fact constitute a modification. Accordingly, we find that the operation itself may be afforded non-dutiable status. However, we also find that this application contains two objectionable charges which are not entitled to duty-free status. These charges are discussed below: Item 98/9006 MODIFICATION OF PORT-SIDE GANGWAY Sub-item 7.....................................$ 6,353.57 This item represents charges for repairs effected in preparation for the modification. With respect to this item, the invoice clearly states that the work was completed "prior to modification of P.S. accommodation ladder * * * same repaired as follows:" As previously stated, according to Title 19, United States Code, section 1466, vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trade, which undergo foreign repairs are subject to payment of duty in the amount of fifty percent ad valorem on the cost of those repairs. As the operations undertaken in this particular sub-item clearly constitute repairs, the cost of these charges ($6,353.57) is fully dutiable. Item 98/9006 MODIFICATION OF PORT-SIDE GANGWAY Sub-item 2.....................................$ 3,690.47 This item contains a charge for transportation of the old gangway and installation of the new one. According to the invoice, a modified port accommodation ladder was "transported from (the) yard's premises to vessel. Existing port accommodation ladder unrigged, disconnected, removed and transported to our premises and unloaded. Modified accommodation ladder installed, rigged and operation test carried out." The invoice further indicates that the old gangway was then repaired prior to being fitted with the modifications. According to C.I.E. 1325/58, in the context of vessel repair, charges for transportation of parts and materials between a vessel and a workshop are not dutiable if itemized separately. Moreover, it is the position of the Customs Service that "transportation" does not include operations relative to preparing the item for shipping (see, Customs Ruling Letter 112211, June 30, 1992). Thus, labor for such services as removing a part from its housing or mounting, or disconnecting an item, etc., does not constitute transportation and is thus, dutiable. With respect to this portion of the item, charges representing costs for such services may not be included in transportation costs. Thus, the charge of ($3,690.47) is dutiable. Item 227/9006 MODIFICATION OF PORT-SIDE GANGWAY Sub-item 1.....................................$ 6,353.57 This item represents a charge for repairs effected in preparation for a modification which were already submitted in invoice 98/9006. As this item has already been addressed, it will be disregarded here. HOLDING: After thorough review of the evidence presented, and as detailed in the Law and Analysis portion of this ruling, the application for relief is granted in part and denied in part. Sincerely, B. James Fritz Chief Carrier Rulings Branch