Vessel Repair Entry No. C20-0041392-5; M/V MOKIHANA; Protest No. 2002-11-100060; 19 U.S.C. § 1466(a)

HQ H188715 July 26, 2012 VES-13-18:RR:BSTC:CCI H188715 ALS CATEGORY: Carriers Supervisory Import Specialist U.S. Customs and Border Protection 1515 Poydras Street, Suite 1700 New Orleans, Louisiana 70112 RE: Vessel Repair Entry No. C20-0041392-5; M/V MOKIHANA; Protest No. 2002-11-100060; 19 U.S.C. § 1466(a) Dear Sir: This is in response to your memorandum of October 4, 2011. The memorandum forwards an Application for Further Review of a Protest, filed on behalf of Matson Navigation Company (“Protestant” or “Matson”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466(a). You have asked us to review numerous items listed in your memorandum. Our ruling follows. FACTS: The M/V MOKIHANA (the “vessel”), a vessel owned by the Protestant, incurred foreign shipyard costs. The vessel arrived in the port of Long Beach, California on May 4, 2007. A vessel repair entry was timely filed. The Protestant filed an application for relief from duties on the entry. Upon review of that filing, your office determined that the application for relief should be granted in part and denied in part, and notified the Protestant of that decision via a letter dated December 27, 2010. The Protestant then filed the subject Application for Further Review, seeking additional relief. ISSUE: Whether the costs for which the Protestant seeks relief are dutiable under 19 U.S.C. § 1466(a). LAW AND ANALYSIS: Title 19, United States Code, section 1466(a) provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “. . . equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States . . .” The following items are at issue: Exhibit 1: China Overseas Shipping Co. (COSCO) 853: Tank Level Indicating System This item is denied because we have consistently ruled that tank level indicating systems are dutiable vessel equipment, and are not considered to be duty free modifications, as the Protestant claims. See, e.g., CBP Ruling HQ H071240 (March 16, 2010), citing CBP Ruling HQ 114481 (October 20, 1998) and CBP Ruling HQ 114259 (October 15, 1998). We are not persuaded by Protestant’s citing of CBP Ruling 115735 (October 15, 2002) and CBP Ruling HQ 113585 (June 6, 1996), neither of which refers to a tank level indicating system. Therefore, this item remains dutiable as vessel equipment. 854: Fuel Oil Overflow & Vent Modifications – Removals & Inserted This item is granted because we have previously found similar work to be a non-dutiable modification. In CBP Ruling HQ H143219 (February 22, 2011), we cited CBP Ruling HQ H115132 (June 15, 2001) in finding that a Main Seawater System Isolation Valve Installation was a non-dutiable modification. HQ 115132 involved alterations to and relocation of overflow piping of fuel oil tanks, as does the item at issue. Therefore, this item is non-dutiable. 860: High Pressure Air Compressor Upgrade 860-01: Ingersol Rand- New LP Compressor Upgrade Exhibit 118: Sperre These items are denied because we have previously found similar work to be dutiable. In CBP Ruling HQ H016492 (October 17, 2007), we found that the air compressor that the Protestant claimed was fully operational at the time it was replaced, as is claimed here, was in fact in need of replacement because of deterioration. We specifically noted that “the high pressure air compressor that was replaced had reduced its maximum operating pressure, dropping from 30 to 23 Bar in the last several years… This demonstrates that the compressor was replaced due to wear and tear and deterioration. Accordingly, we find that the installation of the compressor constitutes a dutiable repair." The Protestant uses similar language to describe the functionality of the replaced air compressor. Furthermore, the Protestant has provided verbatim statements from two different vendors that claim “[a] drawback of the original RIX air compressors was the utilization of a graphite piston ring and backing ring which could cause a decrease in capacity and the inability to reach maximum pressure,” which we find to be indicative of the deterioration of the Air Compressor, despite the Protestant’s claims to the contrary. Therefore, these items remain dutiable as a repair. 865: Kyma Shaft Power Meter Exhibits 68 & 69: KYMA These items are granted because the evidence submitted indicates that the previous Shaft Power meter was in good working order before it was replaced, and the new Shaft Power meter has enhanced features that provide more accurate meter readings for the engine monitoring/alarm system. See Horizon Lines, LLC v. United States, 626 F.3d 1354, 1360 (Fed. Cir. 2010). Specifically, we note that the Protestant has provided two expert statements, one from the President/Marine Engineering Consultant who supervised the work done in this case, and the other from a Marine Engineer/Consultant who provided language translation for the Chinese-speaking and English-speaking crew. The first statement states that “[t]he existing Shaft Power meter was fully operational and functioning at arrival to the shipyard in Nantong[, China]. Since the installation of the original Shaft Power meter there has been a marked improvement in technology (solid state circuitry) that provides more accuracy, requiring less frequent calibration, and provides more reliability.” The second statement states that “[i]t is my understanding that this modification was a Matson C-9 Class modification, planned in advance for all Matson C-9 Class vessels.” We find these statements to be credible, particularly in light of the fact that we find nothing in the record that would contradict them. See Horizon Lines v. United States, supra. Given that the replaced Shaft Power meter was in proper working order before being replaced by a new Shaft Power meter that provides enhanced performance, these items are non-dutiable. Exhibit 1(c): 950 C9G Garage Conversion 951.6: Upper Deck – Aft of 173 – Starboard This item is granted because we have previously found similar work to be a non-dutiable modification. In CBP Ruling HQ 115160 (January 25, 2001), we found that the installation of a permanent roof to replace a badly-designed, but fully operational, temporary roof was a modification. In doing so, we cited another CBP ruling in which we held that the permanent addition of a first-time installation may be considered a modification. See CBP Ruling HQ 112779 (July 26, 1993). The work done is the case appears to be preparation for an addition to the garage of refrigerated container receptacles and the installation of a new garage ventilation system. We find this work to be consistent with the other work done under the heading “951 Garage Modification Removals,” and distinguished from the cropping and installing work done under items 600 and 608 in the provided COSCO (Nantung) Shipyard Company, Ltd. Survey Report. Items 600 and 608 are explicitly characterized as repair or renewal work. Therefore, this item is non-dutiable. 958.3: Hold #2 – Bilge System Modifications (both line items protested) This item is granted because we have previously found similar work to be a non-dutiable modification. In HQ H115132, supra, we found that alterations to and relocation of overflow piping of fuel oil tanks was a modification. That case involved the relocation of piping to allow for further modifications to the vessel, which we find to be similar to the present case. See also Item 854, discussed above. Therefore, this item is non-dutiable. 959.3: GARAGE ADDITIONAL: RELOCATION OF HATCH COVERS, ROWS 14 & 15 TO ROWS 8 & 9; Item 3 C9 Additional Relocate of Hatch Covers 14 & 15 to Rows 8 & 9 –Pedestals This item is granted for the same reasons given for Items 854 and 958.3, discussed above. This item is non-dutiable. Exhibit 1(d): OWS [Oil Water Separator tank] Installation Exhibit 5: Alfa Laval invoice 10377987 Exhibit 6: Alfa Laval invoice 10402010 These items are granted because we find this work to be similar to that which we have previously found to be a modification. See HQ 115132, supra. We also find the reasons given in Item 951.6, discussed above, to be applicable here in that we find this work to be a permanent addition of a first-time installation and therefore a modification. See HQ 112779, supra. In particular, we note again the expert testimony of the President/Marine Engineering Consultant and Marine Engineer/Consultant discussed in Item 865. See Horizon Lines, supra. In this case, they both state that the Oil Water Separator tank is a permanent addition to the existing Oil Water Separator system, which they state was fully functional at the time of the installation and remains on the vessel. Given such, these items are therefore non-dutiable. Exhibit 1(e): Main Saltwater Pump Installation Exhibit 70: Leistritz Corp. These items are granted because we find this work to be similar to that which we have previously found to be a modification. See CBP Ruling HQ 115735 (October 15, 2002) (found the replacement of a fully-functional Cargo Hold Bilge Pump system to be a non-dutiable modification). Conversely, we have not found any previous CBP ruling in which we had ruled that such pumps are generally to be considered dutiable equipment. We also find the reasons given in Item 865, discussed above, to be applicable here in that we find this installation to be an operation enhancement that replaces a fully-functional unit. See Horizon Lines v. United States, supra. In particular, we note again the expert testimony of the President/Marine Engineering Consultant and Marine Engineer/Consultant discussed in Item 865. See Horizon Lines, supra. In this case, they both state that the previous pump was “and related systems” were fully functional and operational, but the new pump provides improved temperature control with more efficiency. Given such, these items are therefore non-dutiable. Exhibit 1(f): Simplified Voyage Data Recorder (S-VDR) Exhibits 46 – 49: Kongsberg These items are dutiable as either vessel equipment or the cost of installation of vessel equipment. Vessel equipment and the installation of such are dutiable under 19 U.S.C. § 1466(a) and do not constitute a non-dutiable modification of the vessel. In finding such, we reiterate here our most recent ruling on this issue: This issue, or this particular type of issue, has previously been thoroughly considered by CBP. See, for example, the discussion, including the authorities cited, in the following rulings: HQ 113798 dated January 9, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 226688, dated July 29, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 114092, dated September 12, 1997 (revoking HQ 111425), where we found a radar system and a satellite communications system to be dutiable as vessel equipment; and HQ 114093, dated September 12, 1997 (modifying Memorandum 109936), where we found a satellite communications system to be dutiable as vessel equipment. In these rulings, we considered whether the item at issue was a non-dutiable modification to the vessel or vessel equipment. We concluded that the item at issue in each ruling was dutiable under the vessel repair statute as vessel equipment. We find similarly in this entry and protest - these items are dutiable under 19 U.S.C. § 1466(a) as vessel equipment. See also HQ H102480, dated, May 24, 2010; HQ H071240, dated March 16, 2010; HQ H052778, dated May 7, 2009; HQ H047587, dated June 1, 2009; and, H068756, dated August 5, 2009, where we found SVDRs to be dutiable under 19 U.S.C. § 1466(a) as vessel equipment. Because the SVDR system is vessel equipment, it is not eligible for treatment under 19 U.S.C. § 1466(h)(2), which applies to parts and materials. CBP Ruling HQ 171856 (December 1, 2011). Therefore, these items remain dutiable as vessel equipment. Exhibits 85 and 86: Pacific Marine and Industrial These items are dutiable as parts of vessel equipment. The Protestant contends that these items are parts of Instruments of International Traffic (IITs) and therefore should be non-dutiable pursuant to 19 U.S.C. § 1322 and 19 CFR 10.41a. An Application for Further Review of Protest is not the appropriate procedure by which to obtain a determination on whether or not any equipment, or parts of any equipment, qualifies as an IIT or as accessories of an IIT. In any case, such determinations are made on a case-by-case basis. The proper procedures for seeking such a determination are set forth in 19 CFR 177.2. Absent any evidence to the contrary, these items remain dutiable as parts of vessel equipment. Exhibits 111, 111(a), 112, 113, 114: Sinocean Ship Management These items are to be prorated between dutiable and non-dutiable costs as drydocking expenses. See, e.g., CBP Ruling HQ H097723 (March 30, 2010). The Protestant claims that these items are directly related to the garage conversion work discussed above, and has submitted a statement from Sinocean Ship Management, dated June 20, 2011, to support this view. The Sinocean statement lists all the line items from the subject invoices and states that the costs were “related to the garage modification on the Mokihana.” The line items are general descriptions of various drydocking services, such as “Ships Spare Parts Logistics,” “Electric Engineer Wages,” “Transportation,” “Cell-Phone Charges,” and “Terminal fee for shipper’s barges.” None of these descriptions indicate that these costs were incurred because of the garage conversion work. Rather, they are more similar to expenses that are reported under Section 100 of the COSCO Survey Report, entitled “General Services For Drydocking Surveys.” Among the services discussed therein are services for “Line Handlers, Tugs & Pilots,” “Office & Telephone Service,” and “Owner’s Spare Parts Containers,” all of which are consistent with line item descriptions on the invoices. Furthermore, we are not persuaded by the Sinocean statement, as it is dated four years after the invoices and does not explain how these line items specifically relate to the garage conversion. Therefore, these items remain dutiable on a prorated basis as drydocking costs as noted above. HOLDING: Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered above should be granted in part and denied in part as specified in the Law and Analysis section of this ruling. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), 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 final duty determination of this entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, 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, George Frederick McCray Supervisory Attorney-Advisor/Chief Cargo Security, Carriers and Immigration Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection