HQ 110802: Protest No. 312689-000021; M/V EXXON HOUSTON, Voyage No. 09; Vessel Repairs; Modifications; Inspection and Cleaning

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 110802

                       September 21, 1990

VES-13-18 CO:R:P:C  110802 BEW

CATEGORY:  Carriers

Chief, Technical Assistant
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831

RE:  Protest No. 312689-000021; M/V EXXON HOUSTON, Voyage No.
     09; Vessel Repairs; Modifications; Inspection and Cleaning

Dear Sir:

     This is in reference to a memorandum from your office which
transmitted protest No. 312689-000021, relating to vessel repair
entry No. C320005005, concerning the M/V EXXON HOUSTON, Voyage
Nos. 09, which arrived at the port of Valdez, Alaska, on July 4,
1988.  The entry was filed on July 4, 1988.

FACTS:

     In June 1988, while in Ulsan, Korea, the vessel EXXON
HOUSTON underwent various shipyard operations.  The dutiability
of these operations has previously been considered by your
office.  The protestant file an Application for Relief which was
denied on August 30, 1989, on the basis of procedural and
substantive defect.  The entry was liquidated on October 13,
1989.  The protest was timely filed on October 25, 1989.
Included in your considerations was the matter of whether the
cost associated with the installation of the following items is
dutiable under the statute:

     Item 25 Aft Peak tank

     Item 30 Lifeboats

     Item 160 Wake Improvement

     Item 192 Incinerator

     Lips Invoice No. 100504 - Wake Improvement Duct

     These are the only items which are presently being
protested.

ISSUES:

     Whether certain work performed in a foreign country
constitutes modifications/alterations/additions to the hull and
fittings rather than equipment purchases or repairs within the
meaning of 19 U.S.C. 1466?

     Whether certain other work performed in a foreign country
constitutes inspections and cleaning rather than repairs within
the meaning of 19 U.S.c. 1466?

LAW AND ANALYSIS:

     Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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 as defining permanent additions to the hull and fittings
of a vessel.

     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.  Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.

     In the present case, the protestant claims that the
installation of the subject items is a design and operational
improvement over the old one.  It is claimed that these items
were not found to be damaged at the time they were replaced and
that the permanent installation of the subject items is to
improve the efficiency of the vessel's operation and should be
properly considered a non-dutiable modification.

     Examination of the entire record, including that portion of
the invoice relating to the subject items, reveals that the
subject items were installed to enhance the operation of the
vessel's efficiency and are permanent installations to the
vessel's hull and fittings.  Accordingly, we find that the cost
associated with certain items is non-dutiable.  The following
items are non-dutiable modifications to the vessel's hull and
fittings:

     Item 160 Wake Improvement

     Item 192 Incinerator

     Lips Invoice No. 100504 - Wake Improvement duct

     In Headquarters ruling 106543 JM, we held that mere cleaning
operations are not dutiable.  However, 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 (See
C.I.E. 429/61).

     The Hyundai invoice reveals that the aft peak tank was
inspected and cleaned.  The tank was hosed down with high
pressure water hose and then scaled of the badly rusted areas.
There is no evidence of repairs.  The cost for inspection and
cleaning operations absent repairs is non-dutiable.
Accordingly, the cost associated with Item 25 is non-dutiable.
The protest is granted as to Item 25 - Aft Peak tank.

     The Hyundai invoice reveals that the davits were removed
from the lifeboats and the lifeboats were move to a safe stowage
area in the shipyard.  The davits were disassemble, blasted and
coated with Exxon paint.  All rollers and pulleys on the davits
and all releasing gear in the boats were freed up and greased.
The bearings and sheave pins were renewed where necessary.  The
life boats were restored in the davits.  The invoice summary
shows the costs for this item to be $800 for transportation,
$2,633 for inspection and testing and $500 for repairs and
coating.  Since repairs were done to the davits, the costs
associated with the inspection and cleaning and the repairs in
item 30 are dutiable.  The transportation cost associated with
this item is non-dutiable.  The protest is denied in part as to
Item 30 Lifeboats (2) Davits.

     The protest is granted in part and denied in part as set
forth in the findings above.

HOLDINGS:

     1.  In light of our present findings based upon the evidence
     as stated in the law and analysis section of this ruling, we
     find that the installation of Items 160, 192, and the Wake
     improvement duct listed on Lips Invoice No. 100504 was in
     the nature of a non-dutiable permanent modification to the
     hull and fittings of the vessel.  The said items
     constitute modifications/alterations/additions to the hull
     and fittings rather than repairs.  As such, the cost of this
     work in not dutiable under 19 U.S.C. 1466.  The protest is
     granted as to these items.

     2.  The cost associated with the inspection and cleaning of
     item 25 - Aft Peak Tank is not subject to duty under 19
     U.S.C. 1466.  The protest is granted as to Item 25.

     3.  Repairs were accomplished as a part of the installation
     of Item 30 - Life Boat (2) Davits.   The cost associated
     with the repairs and the inspection and cleaning of this
     item is subject to duty under 19 U.S.C. 1466.  The protest
     is denied as to Item 30, with the exception of the
     transportation cost.

                                        Sincerely,




                                        B. James Fritz
                                        Chief
                                        Carrier Rulings Branch