Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. C31-0009908-5; S/S CORNUCOPIA V-261

HQ 112176 July 22, 1992 VES-13-18 CO:R:IT:C 112176 CATEGORY: Carriers Deputy Regional Director Commercial Operations Pacific Region One World Trade Center Long Beach, California 90831 RE: Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. C31-0009908-5; S/S CORNUCOPIA V-261 Dear Sir: This letter is in response to your memorandum of March 24, 1992, which forwards for our consideration the above-referenced Application for Relief from the assessment of vessel repair duties submitted by Mr. George L. Stiehl III, of West Coast Shipping Company. FACTS: The record reflects that the subject vessel, the CORNUCOPIA, arrived at Anchorage, Alaska, on November 22, 1991. Vessel repair entry, number C31-0009908-5, was filed on November 25, 1991, indicating work performed on the vessel at Yokohama, Japan. The vessel owner was granted a 30 day extension to file an application for relief which was subsequently filed on February 20, 1992. We are asked to review the dutiability of the following items: Description Worksheet Item No. Main Deck Reinforcement Page 2 20 Inspection around Cargo Tank Page 3 26 Dry Nitrogen Supply Mod. Page 3 31 #3 Mooring Winch Page 3 34 ABS Survey CF 226 2 ISSUE: Whether the foreign work performed on the subject vessel for which the applicant seeks relief is dutiable under 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 50 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. Item 3 - Gas Free Certificate Item 20 - Main Deck Reinforcement Item 20a - Main Deck Reinforcement Coating Item 21 - Acid Pipe Cleaning Item 22 - Structural Repairs in the Interbarriers Item 27 - Caustic Tank and Pipe Cleaning ABS Survey Relative to Reinforcement of Main Deck at No. 2 Hold Applicant asserts that item 20 constitutes a main deck structural modification whereby longitudinal and transverse girders were installed. In its application of the vessel repair statute, Customs has held that modifications/alterations/additions to the hull and fittings of a vessel are not subject to vessel repair duties. Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification which 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 cost of which is 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 layup. 3. Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order. 4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel. We find that as to item 20, the foregoing elements have been satisfied and the work constitutes a non-dutiable modification. As noted in item 20, it appears that all costs associated with any repairs are segregated in item 22 (structural repairs in the interbarriers). We find that item 20a (main deck reinforcement coating) is dutiable because the painting of damaged coatings is not segregated from the coating of the new modified structures. Applicant asserts that item 21 (acid pipe cleaning) was required for the main deck reinforcement modification because the sulfuric acid pipe had to be gas freed for hot work. We agree and hold this item non-dutiable. Further, we find item 27 (caustic tank and deck piping cleaning) non-dutiable. Item 27 involved the cleaning of the caustic lines on the main deck for the installation of the new deck girders, and the cleaning of the caustic tank for an ABS and USCG inspection. We find that the cleaning of the caustic tank for inspection purposes is not required to be segregated from the cleaning of the caustic lines for installation purposes because the latter is considered a part of the non-dutiable modification. The ABS "Survey Relative to Reinforcement of Main Deck at No.2 Hold" is also non-dutiable as part of a non-dutiable modification. Further, the gas freeing operations detailed in item 3 should be prorated accordingly. Item 26 - Void Space Inspection Around Cargo Tank No. 3 ABS Special Continuous Survey of Hull No. 7 ABS Special Continuous Survey of Machinery & Electrical Equipment ABS Special Continuous Survey of Liquified Gas Cargo Features ABS Damage Survey of Nos. 2 thru 4 Void Space ABS Boiler Survey Certain vessel inspection operations are generally considered non-dutiable. Where periodic surveys are undertaken to meet the specific requirements of, for example, a classification society or insurance carrier, the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof. C.S.D. 79-277. With increasing frequency, this ruling has been utilized by vessel owners seeking relief not only from charges appearing on an ABS or U.S. Coast Guard invoice (the actual cost of the inspection), but also as a rationale for granting non-dutiability to a host of inspection-related charges appearing on a shipyard invoice. In light of this continuing trend, we offer the following clarification. C.S.D. 79-277 discussed the dutiability of certain charges incurred while the vessel underwent biennial U.S. Coast Guard and ABS surveys. That case involved the following charges: ITEM 29 (a) Crane open for inspection. (b) Crane removed and taken to shop. Crane hob and hydraulic unit dismantled and cleaned. (c) Hydraulic unit checked for defects, OK. Sundry jointings of a vessel's spare renewed. (d) Parts for job repaired or renewed. (e) Parts reassembled, taken back aboard ship and installed and tested. In conjunction with the items listed above, we held that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of the survey. We also held that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished (emphasis added). It is important to note that only the cost of opening the crane was exempted from duty by reason of the specific requirements of the U.S. Coast Guard and the ABS. The dismantling and cleaning of the crane hob and hydraulic unit was held dutiable as a necessary prelude to repairs. Moreover, the testing of the hydraulic unit for defects was also found dutiable as a survey conducted to ascertain whether repairs were necessary. Although the invoice indicated that the hydraulic unit was "OK," certain related parts and jointings were either repaired or renewed. Therefore, the cost of the testing was dutiable. We emphasize that the holding exempts from duty only the cost of a required scheduled inspection by a qualifying entity (such as the U.S. Coast Guard or the American Bureau of Shipping). In the liquidation process, Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" is dutiable. Moreover, we note that C.S.D. 79-277 does not exempt repair work done by a shipyard in preparation of a required survey from duty. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey. Turning to the case before us, upon careful review of the ABS survey detailed as "Special Continuous Survey of Hull No. 7", it appears that the survey is a period survey undertaken to meet the specific requirements of the classification society. The shipyard work associated with this survey is detailed in item 26. We find the work associated with item 26 solely involves opening and removing perlite insulation from cargo tank no. 3 to enable inspection; accordingly, item 26 is non-dutiable. After reviewing ABS "Special Continuous Survey of Machinery and Electrical Equipment" and ABS "Special Continuous Survey of Liquified Gas Cargo Features", it appears that these surveys do not contain elements that check the effectiveness of any repairs made; consequently, these surveys are non-dutiable surveys to meet the specific requirements of the ABS. However, the cost for ABS "Damage Survey of Nos. 2 thru 4 Void Space" is dutiable as a survey conducted to check the effectiveness of repairs. We also find the Boiler Survey to be dutiable because the ABS Report indicates that welding work performed on the water-steam side boiler, as detailed in item 47 of the Mitsubishi Heavy Industries Invoice, was examined and found free from defects. This segment of the survey is akin to examining the effectiveness of repairs and is not segregated from the required periodic inspection segment; accordingly, the entire cost is dutiable. Item 31 - Dry Nitrogen Supply System Modification Item 34 - #3 Mooring Winch, New Inspection Plate Applicant asserts that items 31 and 34 are modifications which enhance the operation of the ship. Item 31 indicates that a new gas check valve and a new ball valve on the high pressure nitrogen supply to the bubblers and emergency deepwell pump columns were installed. The ball valve will secure the H.P. nitrogen system without securing the nitrogen supply to the inner barrier spaces. The gas check valve will prevent the possible reverse flow of inerting nitrogen back into the holds via the hold pressure regulator. Item 34 indicates that an opening on the mooring winch cover was cut and that a new inspection plate was installed. After reviewing items 31 and 34 we agree that they are non-dutiable modifications and do not constitute a repair of a defect or deficiency. HOLDING: The application for relief is denied and granted in part as detailed in the Law and Analysis portion of this ruling. All other items, not specifically discussed in this letter, were reviewed and we agree with the determinations of dutiability made. Sincerely, B. James Fritz Chief Carrier Rulings Branch