Vessel Repair; Modifications; Inspection; Survey; Cleaning; United States Parts; 19 U.S.C. 1466; GLACIER BAY, v-9115; Entry No. C31-0005022-9.

HQ 112451 April 9, 1993 VES-13-18 CO:R:IT:C 112451 JBW CATEGORY: Carriers Deputy Regional Director Commercial Operations Pacific Region 1 World Trade Center Long Beach, CA 90831 RE: Vessel Repair; Modifications; Inspection; Survey; Cleaning; United States Parts; 19 U.S.C. 1466; GLACIER BAY, v-9115; Entry No. C31-0005022-9. Dear Sir: This letter is in response to your memorandum that forwards for our review the application for relief filed in conjunction with the above-referenced vessel repair entry. FACTS: The record reflects that the subject vessel, the GLACIER BAY, arrived at the port of Valdez, Alaska, on December 14, 1991. Vessel repair entry, number C31-0005022-9, was filed on December 16, 1991. The entry indicates that the vessel underwent foreign shipyard work while in Singapore. The applicant seeks relief for certain invoice costs that it claims are not subject to duty as modifications. Also forwarded for our review are charges for inspections, cleaning, and United States spare parts. ISSUES: (1) Whether certain work performed to the vessel in the Jurong Shipyard resulted in modifications to the vessel and is therefore not subject to duty under 19 U.S.C. 1466. (2) Whether inspections identified by the applicant are subject to duty under 19 U.S.C. 1466. (3) Whether cleanings identified by the applicant are subject to duty 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 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. I. Modifications to the Vessel. In its application of the vessel repair statute, the Customs Service has held that modifications 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 lay up. 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 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, by 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 is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery. 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. After reviewing the evidence regarding the specific items submitted for our consideration, we find the following: Jurong Item 103(c) & (d): Sea Chest Blowing Valve and Limotorque Valve Modification: Item 103(c) involved the removal and blanking of the sea chest steam blowing valve, which had become obsolete. The removal of these valves resulted in an improvement to the vessel that is not subject to duty. Item 103(d) involved the removal, remachining, and replacement of limotorque actuators from the valves. As described in the application, "old motor driven 'remotorue' valve actuating mechanisms were replaced by better reliable ones...." The work appearing under this item appears to have resulted in the repair or replacement of current parts that are not in good working order. The cost of this item is therefore subject to duty. Jurong Item 212c: Johnson Package Boiler: The work performed under this item involved the replacement of supports to avoid stress concentration on the boiler drum. The reason for the replacement was the discovery of cracks in the boiler drum of a sister ship. The work description and the invoice in this case do not indicate that the boiler drum was in disrepair at the time of the dry docking. We therefore determine that this work was required to address a problem resulting from the original design of the ship. This work resulted in an improvement to the ship that was not repair related. The costs appearing under this item are not subject to duty. Jurong Item 212d: Stack Damper: This item involved the installation of a stack damper for the emergency boiler. This work involved the installation of a new design feature that is not subject to duty. Jurong Item 402: New Pipe Installation and Removal: A jumper was provided between the scrubber cooling water pump and the vessel's sea water service system. This item represents a new design feature that was installed to meet SOLAS requirements. The cost of this installation is not subject to duty. Jurong Item 514: Spare 24" Angle Valve: The invoice indicates that a foundation was built to secure the vessel's spare 24" angle valve located in the pump room. The invoice is ambiguous, however, as whether a new angle valve was purchased for the vessel or whether the foundation was merely constructed to hold an existing spare. Absent clarification, we find this item to be dutiable. Jurong Item 605: Hand Railings: Under this item, new hand railings were installed around the steering gear (Item 605(b)). This item represents a new design feature that is not subject to duty. The other subheadings appearing under this item, 605(a) & (c), represent costs for repairs and are subject to duty. Jurong Item 805: L. BHD Modifications: Under sub-items (a) through (d)(1) of this item, work was performed to correct areas subject to potential cracking by stiffeners. The Customs Service has held that where the costs of welding cracks and of installing support brackets to address the structural cause of the cracks are segregated, the cost of the latter work is not subject to vessel repair duty. Headquarters Ruling Letter 106199, dated August 12, 1983. The invoice indicates that crack repairs to the bulkhead were covered under a different item. The work performed under this item constitutes an improvement to the vessel. The cost of the related repair work was properly segregated. The cost for the work under sub-items (a) through (d)(1) is not subject to duty. The work performed under the following items is similar to that performed in Item 805, and the cost of the work is not subject to duty where modification and repair costs are properly segregated: Jurong Item 807: Bottom Side Girder Modification in Way of Ordinary Frames. Jurong Item 808: Bottom Center/Side Girder Connection to Swash and Trans-BHDs. Jurong Item 810: #3 WBT - Modification of Bulkheads and Shell Longitudinals. Jurong Item 811: #63, 69, 77, 85 T. BHD Intercostal Stiffener Ends. Jurong Item 814: Breakwater Modification: The invoice indicates that riders and additional brackets were added to the breakwaters. The purpose for these items was to strengthen the breakwaters. However, no repairs were made. The cost of this item is not subject to duty. Jurong Item 816.1 & .7: Additional Steel Work: Under Item 816.1, strength compensation plates were installed to certain deck openings. The drawing that accompanies this item states a crack was required to be gouged and welded. This operation was a repair and is therefore subject to duty. Under Item 816.7, the invoice again indicates that a crack was repaired. The cost of this operation is therefore subject to duty. Jurong Item 901: Heating Coil System Retrofit in Engine Room: The work performed under this item involved the installation of a heating coil system in the engine room. It is unclear from the invoice and the accompanying descriptions whether the installation of the heating coil system represents a new design feature or whether it replaces an existing system. Absent further clarification, we find this item to be subject to duty. Jurong Item 902: Tank Heating Steam/Drain Mains: Expansion joints that caused freezing were removed and were replaced by sleeve joints with a different design. There is no indication in the invoice that the original expansion joints were in disrepair. The installation of the new sleeve joints represents an improvement to the vessel that is not subject to duty. Jurong Item 904: Vapor Recovery Collecting Line: The work performed under this item involved the reconfiguration of the vapor recovery collecting line system as required by the United States Coast Guard. The work resulted in an improvement to the ship that was not repair related. The costs appearing under this item are not subject to duty. II. Inspection Charges. The applicant also seeks relief for items that it identifies as non-dutiable inspections. The Customs Service has held that where periodic surveys are undertaken to meet the specific requirements of a governmental entity, a classification society, or insurance carrier, the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof. Headquarters Ruling Letter 110368, dated July 26, 1989. In a recent case, we emphasized that this interpretation exempts from duty only the cost of a required scheduled inspection by a qualifying entity. Headquarters Ruling Letter 111328, dated August 7, 1991. If, however, the survey is to ascertain the extent of damage sustained or whether repairs are deemed necessary, then the costs are dutiable as part of the repairs that are accomplished. C.I.E. 429/61; C.S.D. 79-2, 13 Cust. B. & Dec. 993 (1979); C.S.D. 79-277, 13 Cust. B. & Dec. 1395, 1396 (1979). In the liquidation process, Customs should look beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or a survey is conducted as a part of a maintenance and repair program labelled "continuous" or "ongoing," the cost of such survey is dutiable if it is in fact repair related. Item 106 of the Jurong Shipyard invoice reflects charges for the inspection of the tailshaft. Section (b) of this item indicates that minor compression cracks were ground out to the satisfaction of the American Bureau of Shipping and Coast Guard inspectors. This procedure qualifies as a dutiable repair and the related costs appearing under item 106 are therefore subject to duty. Item 201(c) list the cost of a hydrostatic test of the boiler. We find no repairs related to this test, and we consequently conclude that the cost of this item is not subject to duty. Likewise, items AAA, BBB, and CCC of the Suncrest Engineering PTE Ltd Invoice are inspections that are not related to repairs. The costs of these items are not subject to duty. III. Cleaning Charges. The applicant seeks relief for costs for the cleaning of the bilges and boiler. The Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., Headquarters Ruling Letter 110841, dated May 29, 1990 (and cases cited therein). The costs appearing under item 012 for bilge cleanings are unrelated to repairs and are therefore not subject to duty. The Customs Service has held that the cleaning of boilers is not subject to duty provided that such cleaning is not in preparation for repairs. C.I.E. 51/61, dated November 25, 1960. We find numerous references in the invoice to boiler repairs. The boiler cleaning therefore appears to be in preparation for repairs; the costs appearing under items 201(a) and (b), relating to boiler cleaning, are subject to duty. IV. Miscellaneous Items. The applicant seeks relief for Jurong Item 506. This item reflects the cost of removing and installing new pipes. The applicant claims relief for this work under 19 U.S.C. 1466(h), which exempts from vessel repair duties foreign manufactured parts that have previously entered the United States duty paid. We find that this invoice item reflects the cost for both parts and labor. Without proper segregation, we find the entire cost of this item to be subject to duty. Further, we do not find in the record evidence that the parts used in this operation were either manufactured in the United States or entered duty-paid in the United States. You have referred for our consideration Jurong Item 005. This item lists costs for maintaining a fire watch. This office has determined that a fire watch is a non-dutiable dry docking expense. Headquarters Ruling Letter 110743, dated July 25, 1990. The cost appearing under item 005 is therefore not subject to duty. HOLDING: Following a thorough review of the evidence submitted as well as an analysis of the applicable law and precedents, we have determined that the Application for Review should be allowed in part and denied in part as set forth in the Law and Analysis section of this ruling. Sincerely, Acting Chief