Vessel Repair Entry No. C27-0067829-8; S.S. CHESTNUT HILL, Voyage 157; Application; modifications; 19 U.S.C. 1466; 19 C.F.R. 4.14(d)(1)(iv)

HQ 112438 April 9, 1993 VES-13-18 CO:R:IT:C 112438 BEW CATEGORY: Carriers Deputy Regional Director Commercial Operations Pacific Region One World Trade Center Long Beach, California 90831-0700 RE: Vessel Repair Entry No. C27-0067829-8; S.S. CHESTNUT HILL, Voyage 157; Application; modifications; 19 U.S.C. 1466; 19 C.F.R. 4.14(d)(1)(iv) Dear Sir: This letter is in response to your memorandum which forwards an application for review filed in conjunction with the above- referenced vessel repair entry. FACTS: The record reflects that the subject vessel, the S.S. CHESTNUT HILL, arrived at the port of Los Angeles, California, on May 5, 1992. Vessel repair entry No. C27-0067829-8 was filed on May 8, 1992. The entry indicates that the vessel underwent a foreign repairs in Chittagong, Bangladesh, during November 11, 1991, and in Rotterdam, Netherlands, during January 15 through 21, 1992. We are requested to consider the dutiable character of the following items: ITEM DESCRIPTION 1. Rewind mooring winch motor, 2. Removal of auxiliary diesel generator and installation of portable diesel generator, 5. Services of Aggreko International 6. Services of Aggreko International 7. Services of Geveke Motoren 8. Services of Geveke Motoren 9. Repairs to anchor windless and mooring winch clutch, 10. Repairs entitled Exciter, 11. Repairs entitled ARPA; and 11a. Rewinding steer gear motor. ISSUE: (1) Whether the removal of an auxiliary diesel generator and the installation of portable diesel generator constitutes a modification, the cost of which is not subject to duty under 19 U.S.C. 1466. (2) Whether relief may be granted under the provisions of 19 U.S.C. 1466 for costs for foreign repairs associated with the rewinding of winch and steering gear motors. 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 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 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 nondutiable 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. With regard to items 2, 5 through 8, we find that these invoices relate to the removal of the auxiliary diesel generator and the installation of the portable diesel generator. We find this work to be a non-dutiable modification to the vessels hull and fitting. Customs has held pursuant to C.I.E.'s 518/63, 2045/66, and 478/67 that the coating of a vessel's tanks with substances having protective and preservative qualities which maintain or preserve a vessel's tanks in a good condition is analogous to painting and is therefore considered a repair which is dutiable. With regard to items 1 - rewinding of the mooring winch motor, we find that repairs were performed in that the motor was heated up, varnished, heated up again and dried. Accordingly, the cost incurred for the rewinding and the internal coating of the motor is dutiable. Pursuant to CD 1836 charges for drydocking, for furnishing electricity, air and water, fees paid for the use of tugs and pilots in drydocking and undocking a vessel, staging, and crane expenses are not dutiable repairs if segregated on the invoice. With regard to items 9 through 11a, we find that the costs associated with these invoices were for repairs made to the vessels equipment. Accordingly, all costs associated with these invoices, except transportation and crane charges are dutiable. HOLDINGS: Following a thorough review of the law and analysis of the evidence, we recommend that the application be granted with the exception of the items enumerated above. Sincerely, Acting Chief Carier Rulings Branch