Protest No. 5301-06-100430; Vessel Repair Entry No. C53-0029875-5; S.S. MORMACSUN; 19 U.S.C. § 1466

HQ H005702 November 14, 2007 VES-13-18-RR:BSTC:CCI H005702 JLB CATEGORY: Carriers Supervisory Entry Officer Vessel Repair Unit U.S. Customs and Border Protection 1515 Poydras Street, Suite 1700 New Orleans, Louisiana 70112 RE: Protest No. 5301-06-100430; Vessel Repair Entry No. C53-0029875-5; S.S. MORMACSUN; 19 U.S.C. § 1466 Dear Sir: This is in response to your memorandum of January 17, 2007, forwarding the above-referenced protest for further review. We have reviewed the arguments set forth by your office and by the protestant, Crowley Petroleum Services/Marine Transport Lines, Inc. Our decision follows. FACTS The subject protest involves various shipyard work undergone by the vessel S.S. MORMACSUN. The vessel is owned by Crowley Petroleum Services (“CPS”) and is operated by Marine Transport Lines (“MTL”). In May 2000, the vessel arrived in Athens, Greece for various shipyard work and returned to the United States at the port of Corpus Christi, Texas on July 17, 2000. A vessel repair entry was timely filed. On October 16, 2000, MTL filed an application for relief of the vessel repair duties assessed on the costs covered in the subject vessel entry. In response thereto, your office issued a decision on April 12, 2006, which denied in part, and granted in part, the application for relief. Accordingly, your office assessed vessel repair duties in the amount of $592,981.70. A timely protest was filed thereto, specifically, the duties assessed for items 35, 102, 117, 123, 137, 153, 168, 170, and 171. You request further review of each of the foregoing items with the exception of items 117 and 137. ISSUES (1) Whether Items 35, 123, 153, 168, 170 and 171 performed on the vessel while in a foreign shipyard constitute modifications to the vessel and therefore are not dutiable under 19 U.S.C. § 1466? (2) Whether Item 102 performed on the vessel while in a foreign shipyard is dutiable under 19 U.S.C. § 1466? LAW AND ANALYSIS Pursuant to 19 U.S.C. § 1466(a), there must be a 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 the foreign or coastwise trade, or vessels intended to engage in such trades. In its application of the vessel repair statute, U.S. Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The factors considered in identifying work constituting modifications, vis-à-vis work constituting repairs, have evolved from judicial and administrative precedent. See Otte v. United States, 7 Ct. Cust. Appls. 166, Treasury Decision (T.D.) 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, Treasury Decision (T.D.) 44359 (1930); see also Cust. Bull. and Dec., Vol. 31, No. 40 (Oct. 1, 1997). These factors include: 1. Whether there is a permanent incorporation into the hull or superstructure of a vessel. 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. The factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is non-dutiable under 19 U.S.C. § 1466. A leading case in the interpretation and application of § 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other. “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.” See Admiral Oriental, supra., (quoting T.D. 34150, (1914)). The court attempted to distinguish non-dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. Non-dutiable items might 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.” See Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228). Item 35, Tank Anodes Installation The burden is on the protestant to establish, by adequate, clear, and satisfactory documentary evidence, that the item is non-dutiable under 19 U.S.C. § 1466. See Headquarters Decision 116462, dated May 16, 2005. CBP has held that our review of documentation submitted to determine whether an installation constitutes a modification depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. See Headquarters Decision 111554, dated October 11, 1991; Headquarters Decision 113233, dated February 23, 1996. The protestant provided insufficient documentation in support of Item 35, the tank anodes installation, being a modification. The shipyard invoice merely states “for the installation of 100 pcs anodes for new corrosion control system per Wilson Walton Engineering.” See Protest at Exhibit 2. The protestant did not provide the invoice from Wilson Walton Engineering or any description of the corrosion control system or specify the work performed. Therefore, since there is a clear lack of probative documentation for item 35, the tank anodes installation, the work is held to be dutiable. Item 102, Polish Propeller The protestant claims that this item represents the costs of polishing the propeller pursuant to an ABS inspection. CBP has held that inspections not resulting in repairs are not dutiable. See Headquarters Decision 110395, dated September 7, 1989; American Viking Corp. v. United States, 37 Cust. Ct. 237, 247, C.D. 1830 (1956). 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. See Customs Service Decision (C.S.D.) 79-277. 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. See C.I.E. 429/61; C.S.D. 79-2, 13 Cust. Bull. and Dec. 993 (1979); C.S.D. 79- 277, 13 Cust. Bull. and Dec. 1395, 1396 (1979). The burden is on the protestant to establish, by adequate, clear, and satisfactory documentary evidence, that the item is non-dutiable under 19 U.S.C. § 1466. See Headquarters Decision 116462, dated May 16, 2005. The protestant claims that the polishing of the propeller was necessary in order to facilitate the required ABS inspection. However, CBP has already allowed duty-free treatment for cleaning in preparation for the ABS inspection and duty-free treatment for the inspection itself (see Item 101 of the Shipyard Invoice). In fact, no evidence has been provided to show that the work in item 102 was done to facilitate the ABS inspection. The shipyard invoice for item 102 merely states “for the propeller cleaning and super polishing RZ-scale grade “B” as specified” while the invoice specifies that item 101, the propeller removal, was performed “for inspection by ABS.” See Protest at Exhibit 2. In Headquarters Decision 112045, dated March 10, 1992, we stated that cleaning operations which remove rust and deterioration or worn parts, and which are a necessary factor in the effective restoration of a vessel to its former state of preservation, constitute vessel repairs. Accordingly, in view of the fact that the evidence submitted as discussed above indicates that the polishing of the propeller in item 102 constitutes dutiable repairs, the cost of this item is dutiable. Item 123, Conduit at C.O.T. Skarpenord Units If a permanent addition is a first-time installation, or if it replaces an existing structure that is in good working order at the time of its replacement and an enhancement in operating efficiency is provided, the operation may be considered a duty-free modification. See Headquarters Decision 111224, dated Feb. 19, 1991. CBP has held that for an item to be characterized as a non-dutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function. See Headquarters Decision 109971, dated June 12, 1989. Dutiable repairs include repairs or replacements for “any wasted, deteriorated, or defective equipment, materials, or areas of the vessels.” See Headquarters Decision 108998, dated February 1, 1988. In his declaration, the fleet manager states that the installation of the conduit piping to protect the existing electrical cables “did not replace or repair an existing system; the cables previously were not housed within a conduit.” See Protest at Exhibit 4. The shipyard invoice adequately specifies the work performed as “fabricated from 100 mm diameter steel split pipes and welded to deck on new brackets to protect existing electrical wires and plastic pipe from damage.” See Protest at Exhibit 2. The protestant asserts that the conduit piping is permanently incorporated into the hull of the vessel and will remain onboard during any extended lay-up. Since the cables were previously unprotected, there was no previous part that performed a similar function, therefore, the conduit piping constitutes a new design feature. Accordingly, we find that item 123 constitutes a non-dutiable modification. Item 153, Panel Breakers, FR. #58, FWD Pump Room Bulkhead Item 168, Ballast Tanks No. 4 Across Steel Mods Item 153, the panel breakers, were installed in the cargo tanks to “modify the existing ship structure for additional supports and strength.” See Protest at Exhibit 2. Item 168, the installation of new softening brackets, was performed “to reduce stress and fatigue in areas.” See id. The modifications for item 168 were made “to each bottom longitudinal stiffener by installing new brackets.” See id. This establishes that both items were installed to provide additional strength to allow for the safe and efficient operation of the vessel under stress. See Protest at Exhibit 4. These installations do not replace existing parts on the vessel but alter the vessel’s structure to enhance its efficiency and safety. It should also be noted that CBP has held that adding a steel plate to the cargo hold in order to correct a deficiency in the vessel’s design and to enhance the vessel’s operation is a non-dutiable modification. See Headquarters Decision 116178, December 14, 2004. Accordingly, we find that items 153 and 168 constitute non-dutiable modifications. Item 170, Aft Roller Chocks-Mooring Modification CBP has held that work done to accommodate new types of mooring lines is a modification when there is no evidence of repair work. See Headquarters Decision 226826, dated May 2, 1996. In Headquarters Decision 227063, dated October 31, 1996, we ruled that when the vessel’s roller chocks were in acceptable condition but required modification because the wire mooring ropes were replaced with synthetic spectra lines, it was a non-dutiable modification. In the present case, the mooring chocks were changed so that they could pass larger mooring cables through to provide for safe offshore mooring. See Protest at Exhibit 2. Accordingly, the roller chocks are a non-dutiable modification. Item 171, Installation of Additional Anchor Chains It should be noted that under long-standing and consistently applied administrative policy, an installation, even one of a permanent nature, is considered to be a dutiable repair rather than a modification if the installation addresses a repair need. If the work done involves an element of repair due to damages, deterioration or wear and tear, then it is a dutiable repair. See Headquarters Decision 110569, dated April 12, 1990. In this case, item 171 is for the installation of additional lengths in the starboard anchor chain to enable the vessel to serve extra terminals and to comply with off-shore mooring requirements. See Protest at Exhibit 4. Since the anchor lengths were not installed due to any damage or deterioration, item 171 constitutes a non-dutiable modification. HOLDINGS (1) Items 123, 153, 168, 170 and 171 performed on the vessel while in a foreign shipyard constitute modifications to the vessel and therefore are not dutiable under 19 U.S.C. § 1466. (2) Item 102 performed on the vessel while in a foreign shipyard is dutiable under 19 U.S.C. § 1466. After a thorough review of the record, the protest is denied in part and granted in part as detailed above. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Glen E. Vereb, Chief Cargo Security, Carriers and Immigration Branch