HQ 109908: Duty liability under 19 U.S.C. 1466 and the Harmonized Tariff Schedule of the United States for certain operations associated with foreign and domestic conversation of a vessel

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 109908

                         March 16, 1989


VES-13-18 CO:R:P:C 109908 LLB

CATEGORY: Carriers

Douglas M. Fryer, Esq.
Mikkelborg, Broz, Wells & Fryer
Seattle, Washington 98154

RE:  Duty liability under 19 U.S.C. 1466 and the Harmonized
     Tariff Schedule of the United States for certain operations
     associated with foreign and domestic conversation of a
     vessel

Dear Mr. Fryer:

     This is in response to your letter of December 9, 1988, in
which you request a ruling concerning the duty consequences (both
vessel repair and tariff duties) associated with the United
States and foreign shipyard conversion of a vessel from an oil
drilling vessel to a fishing and fish processing vessel.  That
which follows is advisory in nature.

FACTS:

     The vessel MV GLOMAR GRAND ISLE was acquired on November 1,
1988, by All Alaska Seafoods, Inc., from the United States
Maritime Administration.  The vessel was constructed in the
United States in 1967 as an oil drilling vessel and last departed
a port of the United States more than two years ago.

     The present owner intends to convert the vessel into a
United States fisheries-documented fishing and processing ship by
accomplishment of the following steps, in the following order:

     1. In a foreign shipyard, overhaul the engines, remove all
drilling apparatus, seal the hull where necessary following
equipment removal, remove the bulk cement tanks forward, and seal
'tween deck areas with steel plate.

     2. In a United States shipyard, add a shelter deck which
will be built from pre-cut sections which will be imported.

     3. In a foreign shipyard, add all apparatus necessary to
make the vessel a complete fish processing factory.  It is stated
that the equipment will be bolted to foundations and will be
removable.  In addition, it is stated that refrigeration
equipment will be installed and certain holds will be
refrigerated.

     It is stated that the best information indicates that "no
significant work was performed on the vessel during the first
six months of its extended absence from the United States,
earlier stated to be more than two years in duration.

ISSUE:

     Whether and which of the operations discussed above are
subject to duty consequences under either the Harmonized Tariff
Schedule of the United States, or the vessel repair statute
codified at 466, Tariff Act of 1930, as amended (19 U.S.C.
1466).

LAW AND ANALYSIS:

     Section 1466 provides, in pertinent part, for 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 foreign or coastwise trade, or vessels
intended to engage in such trade.

     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, the former being subject.
to duty under 1466.

     The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228).  That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:

          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...[and] are material[s]
          used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision
of law other than 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings a defining permanent additions to the hull and fittings
of a vessel.

     For purposes of 1466, dutiable equipment has been defined
as:

               portable articles necessary or
          appropriate for the navigation, operations,
          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 (1914))

     It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of state or code,
is not relevant consideration.  Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings of the
vessel, would be dutiable under 1466.

     Section 1466 was amended by the Act of January 5, 1971 (Pub.
L. 91-654), to exempt from duty consideration any repairs to
special purpose vessels (those used for other than passenger or
merchandise carriage), remaining continuously outside the United
States for a period of two years, except for those repairs
occurring during the first six months after United States
departure.

     The Act of October 30, 1984 (Pub. L. 98-573), further
amended the statute by extending to all vessels, regardless of
the character of their service, the benefits previously offered
only to "special purpose" vessels by the 1971 amendment, except,
in the case where a passenger or cargo vessel departed the United
States expressly for the purpose of obtaining equipment or
repairs abroad.

     Under the amended law, duty applies only to those repairs
made and materials purchased for vessels during the first six
months away from the United States.  The history of any such
repairs can usually be found in the vessel's deck and/or Chief
Engineer's logs which remain aboard at all times.  If no repairs
were made during the first six months of a vessel's absence,
there would be no duty liability under 19 U.S.C. 1466.

     In the first of the enumerated items above, the kinds of
operations listed, with one exception, are commonly held to be
non-repair-related modifications to the hull and fittings.  The
item largely involves removal of apparatus with no replacement,
and the permanent addition to the hull of steel plates.  The
exception is found in the stated "overhaul" of the main and
auxiliary engines.  This indicates that operating deficiencies
are being addressed which are in the nature of repairs.  This
item wold in all likelihood be held to be dutiable under 1466.

     In regard to the second category of operations, if the
materials, pre-cut steel deck house sections, arrive aboard the
GLOMAR GRAND ISLE for United States installation, their cost is
dutiable under 1466 as a foreign purchase for the vessel,
notwithstanding the fact that actual installation would take
place in the United States.

     From the information supplied, it appears that the bulk of
the items and procedures listed in connection with the third
category of operations would be considered dutiable equipment
purchases within the meaning of the previously cited T.D. 34150
(1914), as it is stated that the items are bolted down
(temporarily installed), and will be removable. The exception to
this may be any piping, etc., which is permanently installed as
part of the hold refrigeration system.  If such operations are
undertaken, they may well be considered duty-free modifications
to the hull and fittings.  A determination on this issue will be
made after the entry is filed.

     In regard to the statement that "no significant work" was
done on the vessel during the first six months of its extended
absence from the United States, duty would be due on any
otherwise non-remissible work done during that period, no matter
how insignificant.  It is incumbent upon the vessel operator to
show through presentation of the best available evidence exactly
what work, if any, was performed on the vessel.  It is also
necessary to prove that the vessel last departed a United States
port two or more years prior to its first arrival in order to
benefit from the provisions of the exemption (1466(e)).  In any
event, all work and purchases must be declared and entered at the
time of the vessel's arrival in the United States.

HOLDING:

     The findings stated in this ruling are advisory in nature,
and specific determinations regarding dutiability must
necessarily await the arrival of the vessel and an examination of
the actual invoices.

                              Sincerely,




                              B. James Fritz
                              Chief
                              Carrier Rulings Branch