HQ 226826

May 2, 1996

VES-13-18-RR:IT:EC 226826 GOB

CATEGORY: Carriers

Port Director of Customs

Attn.: Vessel Repair Liquidation Unit, Room 415

P.O. Box 2450

San Francisco, CA 94126

RE: Vessel Repair Entry No. C31-0015281-9; 19 U.S.C. 1466; ARCO

INDEPENDENCE, V-152; Application; Drydocking

charges

Dear Sir:

This is in response to your memorandum dated March 12, 1996,

which forwarded the application for relief submitted by ARCO

Marine, Inc. (\"applicant\") with respect to the above-referenced

vessel repair entry.

FACTS:

The ARCO INDEPENDENCE (\"the vessel\") is a U.S.-flag vessel

owned and operated by the applicant. Certain foreign shipyard

work was performed on the vessel in 1995. The vessel arrived at

the port of Valdez, Alaska on October 18, 1995. The subject

entry was subsequently filed. It was untimely by one day in that

it was filed on the sixth business day (October 26, 1995) after

arrival of the vessel (October 18, 1995).

The applicant has submitted letters dated February 6, 1996

and February 9, 1996, and certain \"Explanatory Statements,\" in

addition to the pertinent invoices.

The narrative, or non-heading, part of the February 9, 1996

letter is less than one full page. It contains certain

certifications and states when the vessel sailed from the U.S.

and returned. The letter of February 9, 1996 also states:

The vessel sailed\...to accomplish American Bureau of

Shipping and U.S. Coast Guard required dry-dock surveys, and

certain modifications. Other maintenance work was also

accomplished.

The letter of February 6, 1996 is four pages. It contains

certain of the information in the February 9, 1996 letter, and

includes a list of 13 American Bureau of Shipping surveys which

were conducted. The February 6, 1996 letter also contains

certain allegations and statements based at least in part on the

requirements of 19 CFR 4.14(d)(1)(iii) with respect to the

supporting evidence to be submitted with an application for

relief. These allegations and statements do not contain

allegations and statements which are specific to the subject

vessel repair entry, but they recite, essentially verbatim, the

language of 19 CFR 4.14(d)(1)(iii)(A) through (G).

Also included with the applicant\'s materials is a twelve

page document entitled \"Explanatory Statements.\" This document

contains explanations with respect to many of the specific items

involved in this vessel repair entry.

You have asked for our determination with respect to the

following items:

Item No. Description

N.A. ABS Survey

N.A. ABS Survey - administrative

surcharge

Hyundai drydocking

408 mooring line

424 IGS and mast valve

433 IGS scrubber

450 power water line

ISSUE:

Whether the costs at issue 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

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 the vessel repair statute, the Customs

Service has held that modifications, alterations, or additions to

the hull and fittings of a vessel are not subject to vessel

repair duties. The identification of work constituting

modifications vis-a-vis work constituting repairs has evolved

from judicial and administrative precedent. In considering

whether an operation has resulted in a nondutiable modification,

the following factors have been considered:

1\. Whether there is a permanent incorporation into the hull

or superstructure of a vessel, either in a structural sense or as

demonstrated by means of attachment so as to be indicative of a

permanent incorporation. See United States v. Admiral Oriental

Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent

incorporation or attachment does not necessarily involve a

modification; it may involve a dutiable repair.

2\. Whether in all likelihood an item would remain aboard a

vessel during an extended lay-up.

3\. Whether an item constitutes a new design feature and

does not merely replace a part, fitting, or structure that is

performing a similar function.

4\. Whether an item provides an improvement or enhancement

in operation or efficiency of the vessel.

Our analysis in this matter is based primarily on the

pertinent invoices. The assertions of the application are not

considered to be documentary evidence. In this regard, we note

the statement of the court in Bar Bea Truck Leasing Co., Inc. v.

United States, 5 CIT 124, 126 (1983):

Again, plaintiff has presented no affidavit or other

evidence in support of its counsel\'s bald assertion\...

If we are unable to determine the precise nature of certain

work because of the lack of clear and probative documentary

evidence, and are thus unable to determine that it is

nondutiable, such work will be found dutiable. In this regard,

we note the statement of the Customs Court in Admiral Oriental

Line v. United States, T.D. 43585 (1929):

The evidence is conflicting upon that point, and the

plaintiff has not proved the collector\'s classification to

be wrong. The burden is upon the plaintiff to show not only

that the collector was wrong in his classification but that

the plaintiff was right.

In Sturm, A Manual of Customs Law (1974 ed.), p. 173-174,

the author states, in pertinent part:

Where Congress has carved out special privileges or

exemptions from the general provisions levying duties upon

imported articles, the courts have strictly construed such

exceptions and have resolved any doubt in favor of the

government. Swan & Finch Company v. United States, 190 U.S.

143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co.

v\. United States, 17 CCPA 305, T.D. 43718 (1929)\...

\...

An exception which carves out something which would

otherwise be included must be strictly construed. Goat &

Sheepskin Import Co., et al. v. United States, 5 Ct. Cust.

Appls. 178, T.D. 34254 (1914); \[et al.\]

After a consideration of the documentation of record we make

the following determinations.

ABS modification survey. In its application letters, the

applicant does not specifically address this item. The item is

included among the numerous ABS surveys listed in the February 6,

1996 letter, but no representations are made with respect thereto

by the applicant. In the absence of any acceptable documentary

evidence to the contrary, we determine that this item is

dutiable.

ABS survey - administrative surcharge. The applicant has

not made any representations with respect to this item. In the

absence of any acceptable documentary evidence to the contrary,

we determine that this item is dutiable.

Hyundai drydocking charges. Your forwarding memorandum

states \"prorated all drydocking charges except insurance.\"

Drydocking charges include, but are not limited to, such charges

as berthing costs, refuse removal, electrical hook-up, and
water-hook-up. In Ruling 113474 dated October 24, 1995, we stated in

pertinent part:

A \"but for\" test was utilized by the court in the Texaco

\[case\], supra \[Texaco Marine Services, Inc. and Texaco

Refining and Marketing, Inc. v. United States, 815 F. Supp.

1484 (CIT 1993), 44 F.3d. 1539 (CAFC 1994)\] which test bases

dutiability under the vessel repair statute upon findings

that but for dutiable repair operations, an associated

expense would not have been incurred. To be sure, in a

great many vessel repair cases which include dry dock

expenses there is at least some non-dutiable element which

could justify placing a vessel in dry dock. We understand

from the decision of the CAFC in Texaco, supra, that dock

charges are non-dutiable if the underlying reason for dry-docking is not
subject to duty, and that such charges are

dutiable if dutiable operations underlie the docking.

Proper implementation of the decision of the court requires

that we consider the duty consequences in circumstances in

which a mixed justification for dry-docking is present.

Customs has experience in duty determinations in another

area involving a mixed-purpose vessel repair expense. Under

the rationale provided by a long-standing published ruling

(C.I.E. 1188/60) the cost of obtaining a gas-free

certification, a necessary precursor to the initiation of

any hotwork (welding) which may be necessary, constitutes an

expense which is associated with shipyard operations. Since

the expense is incurred without respect to whether the hot

work to follow might constitute dutiable repair work, or is

in connection with duty-free modification work, it is the

practice of Customs in liquidating such expenses to

apportion the gas-freeing charges between the cost of items

which are remissible and those which are subject to duty.

We are guided by the determination of the court in Texaco,

supra, to apply the same formula to mixed-purpose dry-dock

expenses. Accordingly, the cost associated with item 14

should be apportioned to reflect the dutiable and non-dutiable foreign
costs in this entry.

The vessel repair entry was filed after the CAFC decision in

Texaco. In Memorandum 113350 dated March 3, 1995, published in

the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29, No.

14, p. 24), we stated in pertinent part:

All vessel repair entries filed with Customs on or after the

date of that decision \[the CAFC decision in Texaco, December

29, 1994\] are to be liquidated in accordance with the full

weight and effect of the decision (i.e., costs of post-repair cleaning
and protective coverings incurred pursuant

to dutiable repairs are dutiable and all other foreign

expenses contained within such entries are subject to the

\"but for\" test).

In accordance with Ruling 113474 and Memorandum 113350, and

as your forwarding memorandum states, the drydocking charges

should be prorated between the dutiable and nondutiable costs

associated with the drydocking. The method of prorating was

described in Ruling 113474, supra: the drydocking costs \"should

be apportioned to reflect the dutiable and non-dutiable foreign

costs in this entry.\" For example, if, aside from the subject

\"drydocking costs,\" as described supra, fifty percent of the

costs of that particular drydocking were dutiable and fifty

percent were nondutiable, then fifty percent of the subject

\"drydocking costs,\" as described supra, would be dutiable and

fifty percent would be nondutiable.

Item 408 - mooring line. The invoice for item 408 describes

the work on the mooring line installation. Item 408.1, as

amended by item 408.5, involved the removal of the old wire line

for scrapping. Item 408.2 involved connecting the new line.

Item 408.3 involved the removal of the roller chocks, replacement

of thrust bearings, addition of a bar to prevent snapping of the

line, cleaning and epoxy coating the chocks. Although there was

a change to this item, the invoice does not show any reduction in

cost as a result in the reduction of work ordered by item 408.5.

As shown by the change, 12 of the removed roller chocks had to

have the corroded area built up and had to be machined before

being painted. Additional item 01 involved the addition of a rub

bar for the port aft mooring line. Additional item 02 involved

the addition of tubing to allow the winches to be greased from

the deck. Additional item 03 involved enlarging the holes in the

drums to accept the larger diameter line. Additional item 04

involved the repair of one fairlead and two standard chocks.

The letter of the vessel\'s captain of February 7, 1996

states that the existing lines were still usable but that the new

lines were safer to use and were more efficient.

In Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct.

1932), the court held that the addition of the vessel\'s emergency

generator house, when coupled with testimony that the

installation was not caused by any wear or physical defect in the

existing house and that it was for the sole purpose of providing

additional machinery, was an addition to the vessel\'s hull and

fittings rather than a repair or the purchase of equipment that

would have been dutiable under 19 U.S.C. 1466. The court also

held that the addition of an independent fitting line from a

double bottom fresh water tank to separate potable and non-potable fresh
water tanks was a modification rather than a

repair.

In Admiral Oriental Line v. U.S., T.D. 43585 (Cust. Ct.

1929), maintenance painting to prevent deterioration and to keep

the vessel and equipment clean was dutiable pursuant to 19 U.S.C.

1466\. Temporary passenger partitions were held not to be

additions to the hull because of their temporary nature, and

therefore were found dutiable.

In U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930), the

court held that the addition of swimming pools for the comfort of

passengers in the Pacific trade routes was outside of the scope

of 19 U.S.C. 1466. The court found the work to be modifications

of the hull rather than repairs based on the blueprints and

testimony of the appellee\'s superintendent.

In C.S.D. 79-278, Customs held that the installation of

gantry cranes and the work performed to accommodate the cranes

were not dutiable under 19 U.S.C. 1466. In the same decision,

Customs held that work performed on existing ladders, furniture

modifications, and painting parts of the vessel other than the

parts affected by the addition of the cranes were dutiable under

19 U.S.C. 1466.

Ruling 106768 dated June 19, 1984 dealt with the

replacement of synthetic mooring lines for the wire rope lines.

Customs held that the work on the winches to accommodate the new

synthetic lines was not subject to duty under 19 U.S.C. 1466.

The evidence in that ruling consisted of the yard\'s invoice and

the vessel\'s job order. The job order called for the

modification of the fore and aft tension winches and the fairlead

blocks to allow use of the synthetic line. The invoice shows

that the yard did the work in one day. There is nothing in the

invoice to show any restorative work. The only machinery work

performed was to accommodate the synthetic line. The total cost

there was nearly one-third of the total cost involved here.

In this case, the letter of the captain merely states that

the existing lines were still usable. The letter does not

discuss the reasons for the need to overhaul the existing chock

rollers to replace material lost through corrosion or the work

described on the invoice as the repair of one fairlead and two

standard chocks. The case of Admiral Oriental Line v. U.S., T.D.

45453 (Cust. Ct. 1932) does not support the applicant\'s position

in that, in Admiral Oriental, there was undisputed testimony to

the effect that there was no existing defect to the generator

house. Here, the invoice describes work done to cure existing

defects: building up corroded areas, grinding smooth sharp areas,

painting damaged coating around the chock foundations, and

repairing a fairlead and chocks.

Maintenance painting to prevent deterioration and to

maintain appearance was held by the court in Admiral Oriental

Line v. U.S., T.D. 43585 (Cust. Ct. 1929) to be dutiable under 19

U.S.C. 1466. U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930)

and C.S.D. 79-278 do not appear to be directly on point except

for the general proposition that work performed to modify a

vessel is not within the scope of 19 U.S.C. 1466.

Customs has held (C.S.D. 79-278) that the work done to

accommodate new types of mooring lines is a modification outside

of the scope of 19 U.S.C. 1466 when there is no evidence of

repair work. Here, as noted, the evidence of the invoice shows

repair work. Also, the cost of the work in this case is almost

three times greater than the cost of the work in C.S.D. 79-278.

Customs has held that if dutiable and nondutiable charges

are segregated or separately itemized, Customs will allow the

nondutiable portions. See CIE 1325/58, CIE 565/55 and C.S.D. 79-277.

Consequently, the separately itemized charges for removal of

the old wire (item 408.1 as amended by item 408.50), connecting

the new line to the winches (item 408.20, the addition of the

stern line rub bar (additional item 408.01), the addition of

greasing tubes (additional item 408.02) and the enlargement of

the holes in the winch drums to accept the new lines (additional

item 408-3) should be allowed.

The work described as repair in item 408.3 and the repair

work in additional item 408.04 is dutiable as a repair based on

the foregoing analysis.

Item 424 - IGS deck isolation and mast riser valve. In its

Explanatory Notes, the applicant states: \"The IGS valves were

previously manually operated\...By modifying the valves for remote

control, operating efficiency and control was greatly improved.

The VPI readout is now available on the console in the cargo

control room. This is a permanently installed modification\...and

is not a replacement of new for old.\" The invoice indicates that

this item includes the retrofitting of an owner-furnished

hydraulic actuator in place of the existing manual actuator, and

related tubing and valve position indicator work with respect to

the desk isolation valve and the mast riser valve.

There is insufficient evidence to support the allegation of

the application that this item is nondutiable. We note that

there is no statement or affidavit of the master with respect to

this item. The work described appears to be within the scope of

dutiable repairs and support for a contrary determination has not

been documented. See the excerpts on page three of this ruling

from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental

Line v. U.S. Therefore, we find that it is dutiable. The case

of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932)

does not support the applicant\'s position in that, in Admiral

Oriental, there was undisputed testimony to the effect that there

was no existing defect to the generator house. Here, there is no

undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137

\(1930\) and C.S.D. 79-278 do not appear to be directly on point

except for the general proposition that work performed to modify

a vessel is not within the scope of 19 U.S.C. 1466.

Item 433 - IGS Scrubber. In its Explanatory Notes, the

applicant states: \"The prior scrubber performance was inferior in

comparison with the improved design of the modification

scrubber\...This is a permanently installed modification,

installed to improve the efficiency of vessel operation\...\" The

first two sheets of the invoices for this item clearly reflect

repairs (\"IGS Scrubber Repairs\" is the heading for these sheets

and the work described reflects repairs); these items are

dutiable and are so reflected on the applicant\'s speadsheet. The

next two sheets (pp. 484-485) contain the heading \"IGS Scrubber

Modification.\" These sheets are superseded by the following two

sheets (pp. 486-487), which are headed \"CHG\' 433A. 01 I.G.

Scrubber Mod. (W/A 150),\" and which indicate that the work on pp.

484-485 is cancelled and that the item is revised. The revised

item includes removing and disposing of filter beds, spray pipes,

and water supply lines; installing a sheet liner; fabricating a

quenching spool; bending a pipe; welding; cleaning; installing

grating and packing; fabricating new spray manifolds; and

connecting the sea water supply. The final sheet of this

invoice, which is headed \"433B IGS Recirc, Modification\" (p.

488), includes removing the recirculating piping from the

circulation valve to the scrubber; installing a blank flange; and

prefabricating new piping.

There is insufficient evidence to support the allegation of

the application that this item is nondutiable. We note that

there is no statement or affidavit of the master with respect to

this item. The work described appears to be within the scope of

dutiable repairs and support for a contrary determination has not

been documented. See the excerpts on page three of this ruling

from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental

Line v. U.S. Therefore, we find that it is dutiable. The case

of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932)

does not support the applicant\'s position in that, in Admiral

Oriental, there was undisputed testimony to the effect that there

was no existing defect to the generator house. Here, there is no

undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137

\(1930\) and C.S.D. 79-278 do not appear to be directly on point

except for the general proposition that work performed to modify

a vessel is not within the scope of 19 U.S.C. 1466.

Item 450 - power water line maintenance. In its Explanatory

Notes, the applicant states: \"This was not a repair. It involved

a 180 degree roll-over of the piping to insure uniform life.\"

The invoice, as well as the applicant\'s statement, reflects that

this item is a maintenance item. Maintenance items are dutiable

pursuant to 19 U.S.C. 1466. In Ruling 111571 dated March 4,

1992, we stated, in pertinent part:

The dutiability of maintenance operations has undergone

considerable judicial scrutiny. The United States Court of

Customs and Patent Appeals, in ruling that the term repair

as used in the vessel repair statute includes \"maintenance

painting,\" gave seminal recognition to the dutiability of

maintenance operations. E.E. Kelly & Co. v. United States,

55 Treas. Dec. 596, T.D. 43322 (C.C.P.A. 1929).

Accordingly, this item is dutiable.

HOLDING:

As detailed supra, the application is granted in part and

denied in part.

Sincerely,

William G. Rosoff

Chief,

Entry and Carrier Rulings Branch