HQ 113798

January 9, 1997

VES-13-18-RR:IT:EC 113798 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. C31-0015282-7; ARCO SPIRIT, V-160;

19 U.S.C. 1466;

Modifications; Vessel equipment

Dear Madam:

This is in response to your memorandum of December 23, 1996,

which forwarded the application for relief submitted on behalf of

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

FACTS:

The evidence of record indicates the following. The ARCO

SPIRIT (\"vessel\"), a U.S.-flag vessel owned and operated by the

applicant, arrived at the port of Valdez, Alaska on July 29,

1996\. The subject vessel repair entry was timely filed. The

vessel underwent certain foreign shipyard work in Korea in June

and July of 1996.

You request our determinations with respect to numerous

items contained within the application.

ISSUE:

Whether the costs of the subject items 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.

We note initially that this entry is a \"post-Texaco\" entry,

i.e., an entry filed after the appellate decision in Texaco

Marine Services, Inc., and Texaco Refining and Marketing, Inc. v.

United States, 44 F.3d 1539 (CAFC 1994), aff\'g 815 F.Supp. 1484

(CIT 1993). 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).

The applicant makes certain claims with respect to the

applicability of the Texaco decision. We have considered these

claims in depth previously, including in Ruling 227063 dated

October 31, 1996 which involved a vessel repair entry filed by

ARCO Marine, Inc., the applicant in this matter. It is

unnecessary for us to reiterate that consideration here. Our

position is stated in the above excerpt from Memorandum 113350.

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.

Items Specifically Identified in Your Memorandum

ABS Survey. We find that the following survey items are

nondutiable: drydocking survey, tailshaft survey, annual hull,

machinery, and load line survey, annual IGS survey, special hull

survey, special machinery survey, special IGS survey, boiler

survey, and gauging review. We find that the following items are

dutiable: \"repairs/modifications\", administrative surcharge,

S.A.F. (overtime), and expenses. The latter three items are

dutiable in the absence of evidence that they pertain solely to

nondutiable items.

U.S. Coast Guard Overseas Vessel Inspection. The invoice

reflects that this item is for the inspector\'s travel services

relative to a U.S. Coast Guard inspection. There is no

indication that the inspection related to repairs. We find that

this item is nondutiable.

Sludge Removal by Mi Sung Corporation Ltd. The invoice

reflects that most of this cost is for \"sludge mucking\" and

\"sludge disposal.\" The applicant states; \"The sludge removal \...

was necessary for drydocking for the A.B.S. and U.S.C.G. surveys

and inspections.\" We find that this cost appears to be a drydock

cost or general cost which would relate to both dutiable and

nondutiable items. Accordingly, it should be prorated between

dutiable and nondutiable items. The proration concept was put

forth in Ruling 113474 dated October 24, 1995, and has been

reiterated in numerous rulings, including Ruling 227063 dated

October 31, 1996.

Item 002 C. 3. Potable Water. This item is included

(although separately itemized) with items such as shore power,

garbage removal and other drydock costs or general service costs.

It should be prorated in the same manner as those other costs

because it is a drydock cost or general service cost.

Item 326. IGS Fan Steam Exhaust Isolation Valve. The

invoice reflects the modification of an exhaust line and the

installation of a flanged gate valve. The applicant states that

\"\[t\]he permanent installation of gate valve in the exhaust line

allows for maintenance of the individual exhaust valves for the

inert gas fan turbines.\" We find that this item is a nondutiable

modification.

Items 410 and 411. Pad Eye Installation for Handling

Medical Stretcher (410) and for Lower Pump Room (411). The

applicant states that these items were new installations. It

states that \"\[t\]he purpose of the pad eye \[410\] was to facilitate

rigging of medical stretcher fro \[sic\] machinery space\" and that

item 411 was performed \"to enable the ship\'s staff to remove

heavy objects from pump room to main deck and to facilitate the

removal of valves from ballast piping systems when required.\" We

find that these items are nondutiable modifications.

Item 452. Bow Fairleads Relocation. The applicant states

that the \"relocation of the mooring line fairlead is to

facilitate the handling of new style mooring lines installed on

the vessel during subject yard period.\" We find that this item

is a nondutiable modification.

Item 507. Unlicensed State Room New Heaters Installation

(14). The applicant states: \"The purpose of this item was to

install electric heaters in the unlicensed crew rooms. The rooms

were previously heated by steam coil as part of the ventilation

system. It was determined that the previous method was

inadequate to meet the needs when the vessel is in North Pacific

waters.\" We find that this item is a nondutiable modification.

Item 604. Galley Exhaust Ducting. The invoice states:

\"Scrape all loose debris and grease from ductwork. Clean filter

screens and re-install.\" We find this to be a maintenance item

which is dutiable under 19 U.S.C. 1466.

Item 708. Bilge Keels Modification. The invoice reflects

the following: \"Renewed B/keel plate & pad plate.\" and \"Crack

repairs\". The applicant states that this work \"is necessary to

prevent the initiation of fractures in the hull plating.\" We

find that this item is a dutiable repair. The invoice reflects

repairs and renewal. The applicant\'s statement reflects

preventive maintenance which is dutiable under 19 U.S.C. 1466.

Item 902. Cargo Tank Gauging Modification. The invoice

states: \"The intent of this item is to add a second Metritape

sensor to be used for the High \[sic\] level alarm install \[sic\] in

the same deck mounting head and stilling pipe of the existing

gauging system.\" The applicant states: \"The purpose of this item

is to install an independent high level alarm system for the

existing cargo control system. This enhancement is necessary

because the vessel was also required to install a vapor recovery

system (see item 903). Installation of subject equipment meets

the requirements outlined in 33CFR \[sic\] 155.480.\" We find that

this item is a nondutiable modification.

Item 903. Vapor Recovery System New Installation. The

applicant states: \"The purpose of this item is to modify the

Inert Gas System piping to accommodate the addition of a vapor

recovery system. The installation is a result of requirements

adopted by the Alyeska Pipeline Co. to comply with; \[sic\] section

183\. paragraph F\' (Tank Vessel Standards) of the Clean Air Act.

Prior to June 1997, vessels loading cargoes in the Port of Valdez

Alaska are required to have an approved vapor recovery system.\"

We find that this item is a nondutiable modification.

Item 905. Stern Towing Modification. The invoice states:

\"Furnish labor and materials to modify the stern of vessel by

strengthening the deck, underdeck and transom internal structure

in order to install one stern towing system capable to stand for

a minimum of one (1) million pound towing force.\" The applicant

states: \"This specification was written for the purpose of

installing a stern towing system to comply with IMO Resolution A

535 (13) and SOLAS Regulation V/15-1.\" We find that this item is

a nondutiable modification.

Item 907. Bottom Longitudinals Modification. The invoice

states: \"The intent of this modification is to eliminated \[sic\]

the cut out in the bottom long\'.s in way of bottom plate and

bottom long\'.s master butt welded joints.\" The applicant states:

\"The purpose of this item is to modify the existing bottom

longitudinals in the cargo spaces. Through the use of \"Finite

Element Analysis\" it has been determined that the structural

detail of the longitudinals at the oil-tight and swash bulkheads

will initiate fractures in the hull plating. The existing

structural details consisting of two (2) drain holes within close

proximity of the bulkhead forms a discontinuity in the structure.

This discontinuity will initiate fractures.\" We find that this

item is a nondutiable modification.

Item 908. Radar Installation. The invoice states: \"remove

existing radar system and install new upgraded system.\" The

applicant states: \"The purpose of the new radar installation is

to upgrade the navigation equipment on the bridge. The new radar

system has the ability to provide electronic charting in addition

to enhanced collision avoidance technology. The older radars

although still operating could not be modified or upgraded to

provide the same level of technology as the new system.\"

We find that this item is dutiable under 19 U.S.C. 1466 as

vessel equipment. This finding is based on the following

authorities.

In Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489

(1916), the court stated:

That the Congress intended to distinguish between equipment

and the vessel itself is apparent from a reading of the two

subsections above quoted. The line of distinction between

equipment and the vessel is somewhat difficult to mark.

The question was considered by the Board of Naval

Construction, and their report in part reads as follows:

Equipment, used in a general sense, may be defined as any

portable thing that is used for, or provided in, preparing a

vessel whose hull is already finished for service. It is

the furniture of whatsoever nature which is put into a

finished ship in equipping her. The Queen\'s Regulations and

Admiralty Instructions give the following definition:

\"Equipment, in relation to a ship, includes the furnishing a

ship with any tackle, apparel, furniture, provisions, arms,

munitions, or stores, or any other thing that is used in or

about a ship for the purpose of fitting or adapting her for

the sea or for naval service.\"

In estimating the displacement of a ship naval constructors

use the term \"hull and fittings\" in contradistinction to

\"equipment,\" the fittings of the hull being understood to be

any permanent thing attached to the hull which would remain

on board were the vessel to be laid up for a long period.

Adopting these definitions, the board is of the opinion that

the term \"equipment\" would not include donkey engines,

pumps, windlasses, steam steerers, and other machinery but

that it would include anchors, chain cables, boats, life-saving
apparatus, nautical instruments, signal lights, and

similar articles.

In Ruling 105414 dated May 24, 1982, we stated:

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

statute or code, is not a 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

section 1466.

Any new areas to the vessel, that is, bulkheads, permanent

ballast, decks, staterooms, bars, storerooms. etc., are

considered to be qualifying additions to the hull and

fittings. Likewise, the extension of existing services into

new areas would also be free of duty. This would include

piping, air conditioning, ventilation, electrical service,

glazing, etc., as well as final finishing for the new areas

(such as painting).

On the other hand, among the dutiable operations would be

providing furniture for any of the areas (new and old);

providing new electronic navigation equipment; providing new

lifesaving apparatus \... providing computer apparatus\...

\[Emphasis supplied.\]

In Memorandum 105807 dated December 28, 1982, we stated:

The characterization of an article as vessel equipment, as

opposed to fittings or hull/structural parts, is manifestly

difficult in cases where the article has many of the

attributes of both classes cited in the leading cases. For

example, because a vessel pitches and rolls when at sea all

radio gear is securely fastened, yet is classified as

equipment even when such articles are usually too large to

be considered (in ordinary parlance) \"portable\". \[Emphasis

supplied.\]

Item 909. Hull Stress Monitor. The applicant states: \"The

purpose of this item is to install equpment \[sic\] to monitor the

stresses encountered in different sea states. With this

information coupled with weather data, the Master is better

informed on the performance of the vessel. With this information

the Master can adjust the speed or course of the vessel to reduce

the stresses on the vessel itself.\"

We find that this item is dutiable under 19 U.S.C. 1466 as

vessel equipment. The authorities cited with respect to item

908, above, are equally applicable here.

Item 910. Tank Cleaning Reservoir. The invoice states:

\"Provide area to store and recircularing \[sic\] water for C.O.W.

tank cleaning system while providing area for sludge

accumulation.\" The applicant states: \"The purpose of this item

is to section-off a portion of No. 7 center cargo tank for the

collection of sludge and oil residue during tank cleaning

operations. The modification includes inserting the center

vertical keel (CVK) and the sawash bulkhead to provide an oil

tight envelope. Additionally, heating coils and piping

connections were added. While in operation this segregated

section of the tank will enhance to \[sic\] oil recovery process

while reducing the volume of wash-water required to be sent

ashore for processing.\" We find that this item is a nondutiable

modification.

Item 911. GMDSS Installation. The applicant describes this

item as \"Global Marine Distress Safety System\" and states: \"The

purpose of this specification is to install new communication

equipment to comply with IMO Assembly Resolution A.283 (VIII) and

1974 SOLAS Convention amendments concerning radio communications

for the GMDSS. The new installation provides enhanced search and

rescue data for shoreside rescue authorities as well as to other

vessels within the immediate area of the distressed ship.\"

We find that this item is dutiable under 19 U.S.C. 1466 as

vessel equipment. The authorities cited with respect to item

908, above, are equally applicable here.

You also requested our review of certain other items which

were not specifically described in your forwarding memorandum,

but were marked on the spreadsheet.

Item 109 A.1 - A.16. Tailshaft Inspection and Stern Tube

After Seal Renewal - Stern Bearing Wear Down Reading. The

invoice reflects that this item relates to an ABS Tailshaft

Survey and USCG Tailshaft Inspection. We find that it is

nondutiable. The staging which accompanies this item is also

nondutiable.

Item 201 A.1 - A.6. Fire Side Cleaning for ABS/USCG Boiler

Survey. We find that this item is nondutiable. The staging which

accompanies this item is also nondutiable.

Item 205 A.1 - A.2. Boiler Mountings Inspection - Open

Valves for USCG 4-year Inspection. The invoice reflects that

this item relates to an ABS Boiler Survey and a USCG Boiler Four

Year Mounting Inspection. We find that this item is nondutiable.

The staging which accompanies this item is also nondutiable.

Item 427. IGS Deck Isolation & Mast Riser Valve: Remote

Operator Installation. The invoice reflects the installation of

tubing and cable. The applicant has not provided evidence which

would support a claim that this item is nondutiable. We find

that this item is dutiable.

Item 439. IGS Scrubber Modification. The applicant has not

provided evidence which would support a claim that this item is

nondutiable. We find that this item is dutiable.

Item 448. Stern Transom Modification. The applicant has

not provided evidence which would support a claim that this item

is nondutiable. We find that this item is dutiable.

Item 449. Bridge Window Washing System. The applicant has

not provided evidence which would support a claim that this item

is nondutiable. We find that this item is dutiable.

Item 602 A. Inspection (USCG Biennial Inspection). The

invoice reflects that this item involves a U.S. Coast Guard

biennial inspection. We find that this item is nondutiable. As

the spreadsheet indicates, the \"Additional Work\" (item 602 B) is

dutiable.

Item 603. Lifeboat Weight Test. The invoice reflects that

this item relates to a U.S. Coast Guard biennial survey. We find

that this item is nondutiable.

HOLDING:

As detailed above, the application is granted in part and

denied in part.

Sincerely,

Chief,

Entry and Carrier Rulings Branch