19 U.S.C. 1466; LURLINE, V-812E; Vessel Repair Entry No. C28-0242049-0; Application; Modifications to vessel

HQ 114741 July 1, 1999 VES-13-18-RR:IT:EC 114741 GOB CATEGORY: Carriers Port Director of Customs Attn.: Vessel Repair Liquidation Unit, Room 107 P.O. Box 2450 San Francisco, CA 94126 RE: 19 U.S.C. 1466; LURLINE, V-812E; Vessel Repair Entry No. C28-0242049-0; Application; Modifications to vessel Dear Madam: This ruling is in response to your memorandum of June 16, 1999, which forwarded the application submitted by Matson Navigation Company (“applicant”) with respect to the above-referenced vessel repair entry. FACTS: The LURLINE (the “vessel”), a U.S.-flag vessel owned and operated by the applicant, arrived at the port of San Francisco on December 28, 1998. The subject vessel repair entry was subsequently filed. The vessel underwent certain foreign shipyard work in Korea. ISSUE: Whether the subject items are dutiable pursuant to 19 U.S.C. 1466? LAW AND ANALYSIS: 19 U.S.C. 1466 provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to, and equipment purchased in a foreign country for, vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade. In its application of 19 U.S.C. 1466, Customs has held that (contrary to the treatment of vessel repairs and vessel equipment) modifications, alterations, and additions to the hull of a vessel are not subject to duty under the vessel repair statute. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. See, for example, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); U.S. v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930), and Customs Bulletin and Decisions of June 18, 1997 (Vol. 31, No. 24/25, p. 23) and October 1, 1997 (Vol. 31, No. 40, p. 13). The various factors discussed within those authorities are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. Reference to these and other authorities should not obscure the basic premise of 19 U.S.C. 1466 that vessel repairs performed in a foreign country and vessel equipment purchased in a foreign country are subject to duty under that statute. You have asked for our review of the following item numbers: 11.0, 12.1 through 12.13, 14.0, 14.1, 14.2, 14.2-1, 15.0, 15.8, and 16.0. You have also requested that we rule on the cost of $12,375 on ABS invoice 7620880493 (no. 34 in file). With respect to the items enumerated above, the applicant states: The following sections and the accompanying plans describe the work that the Contractor performed to modify this vessel to provide additional stowage locations for 40 foot containers and new locations for alternate 20 foot container stowage. The primary objective of this vessel conversion period was to increase vessel forty foot container capacity. ... The modifications that were accomplished converted the vessel from a ... twenty-four foot container vessel ... to a ... forty foot container vessel. The most obvious change to observe on the drawings is in the area of No. 2 and No. 3 holds where six rows of twenty-four foot containers have been replaced by four rows of forty foot containers. The applicant also has provided specific explanations with respect to each of the subject items, as well as blueprints of the work. The pertinent invoice descriptions are consistent with the applicant’s statement and explanations and contain no indication of dutiable repairs or equipment. After a consideration of the evidence of record, we find that the subject items are not dutiable because they describe modifications to the hull of the vessel, and do not describe repairs or the purchase of equipment. The ABS item is referenced above ($12,735 on ABS invoice 7620880493) is nondutiable as an item incident to nondutiable modifications. HOLDING: As detailed above, the application is granted with respect to the pertinent items. Sincerely, Jerry Laderberg Chief, Entry Procedures and Carriers Branch