HQ 112202

May 20, 1992

VES-13-18-CO:R:IT:C 112202 LLB

CATEGORY: Carriers

Deputy Assistant Regional Commissioner

Commercial Operations

ATTN: Regional Vessel Repair Liquidation Unit

423 Canal Street

New Orleans, Louisiana 70130-2341

RE: Vessel repair; Repairs; Modifications; Survey; Protest;

Vessel OVERSEAS MARILYN; Protest number 1801-92-100004;

Entry number C18-0016789-7

Dear Sir:

Reference is made to your memorandum of April 8, 1992,

which forwards for our consideration the Protest from the

assessment of vessel repair duties filed by counsel on behalf of

the operators of the vessel OVERSEAS MARILYN. Duties were

assessed in connection with the above-referenced vessel repair

entry. The items associated with this entry have not previously

been considered at Customs Headquarters.

FACTS:

The record reflects that the OVERSEAS MARILYN arrived in the

port of Tampa, Florida, on November 14, 1990, filed a timely

vessel repair entry, and supplemented that entry as required by

the Customs Regulations. While abroad, the vessel underwent

drydocking, repair, survey, and modification operations.

Headquarters recommendations have been sought on a total of

fifteen (15) invoice items. We will refer to our 1 to 15

numbering scheme in later discussing our findings. The fifteen

items are:

1\. Item 20 - Tailshaft inspection (seal replacement)

2\. Item 24 - Anchor chain ranging (painting of shots)

3\. Item 25 - Anchor windlass (claimed ABS/USCG inspection)

4\. Item 27 - Gritblasting (staging cost)

5\. Item 32 - Dwarf king post vents (staging cost)

6\. Item 38 - Life boat inspection (steel pin renewal)

7\. Item 39 - Main engine survey (crank bearing overhaul)

8\. Item 40.01 - Transportation costs (no such item located)

9\. Item 44 - Main engine cylinder relief valve (survey)

10\. Item 45 - Main camshaft drive chain (claimed survey only)

11\. Item 46 - Reversing motor (claimed survey only)

12\. Item 49 - Main engine air coolers (plugs manufactured)

13\. Item 52 - Generator uptake exhaust trunks bolted (staging)

14\. Anchor chain kit (origin question)

15\. ABS invoices (survey reports not provided)

ISSUE:

Whether the items under review constitute properly

segregated non-dutiable operations due to association with

modification or inspectional operations rather than repair

services.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in

pertinent part for payment of duty in the amount 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 engage 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. Over the course of years, the

identification of work constituting modifications on the one hand

and repairs on the other has evolved from judicial and

administrative precedent. In considering whether an operation

has resulted in a modification that is not subject to duty, the

following elements may be considered:

1\. Whether there is a permanent incorporation into the

hull or superstructure of a vessel (see United States

v\. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)),

either in a structural sense or as demonstrated by the

means of attachment so as to be indicative of the

intent to be permanently incorporated.

2\. Whether in all likelihood an item under consideration

would remain aboard a vessel during an extended lay-up.

3\. Whether, if not a first time installation, an item

under consideration 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 under consideration provides an

improvement or enhancement in operation or efficiency

of the vessel.

In regard to the dutiability of ABS surveys it should be

noted that Customs has held pursuant to C.S.D. 79-277 that where

periodic surveys are undertaken to meet the specific requirements

of a classification society, insurance carrier, etc., the cost of

the survey is not dutiable even when dutiable repairs are

effected as a result thereof. This is as distinguished from a

survey, regardless of how titled, whose source is a carrier-

initiated maintenance and repair or other program, scheduled or

otherwise. Applicants seeking a nondutiable determination

regarding ABS surveys must submit both the invoice and the

corresponding report (Ruling Letter 110710). We note that there

was no report accompanying the ABS invoice in this matter.

Customs has consistently held that where the charges for

dutiable and non-dutiable items are not segregated within an

invoice, all of the charges in that invoice must be deemed

dutiable (Ruling Letter 108567). Among those items traditionally

considered non-dutiable if properly segregated are the cost of

staging and transportation.

The courts and Customs have held (See American Viking Corp.

v\. United States, C.D. 1830 (1956), and Customs Ruling Letter

104952, December 17, 1980), that the replacement of parts or

materials which are necessarily destroyed during the course of an

inspection where no repairs resulted, may be replaced without

duty consequence under section 1466 (Ruling Letter 111185).

With specific reference to the items for which our review

was requested, we find that items 1 and 14 are duty-free. Item 1

is for a non-repair inspection during which the seal was

necessarily destroyed, and item 14 is shown (in the attachment to

exhibit number 6) to be manufactured in Chester, Pennsylvania,

and shipped from the United States. Portions of items 7 and 12

are subject to duty. These include the segregated costs of

overhauling the crank bearing in 7 and the segregated cost of

manufacturing shown in 12.

The balance of the items are considered subject to duty. In

item 2, the chain shots were painted and are considered dutiable

(Ruling Letter 111337). For items 3, 9, 10, and 11, there are no

ABS reports in the file to substantiate the claims of connection

with non-repair-related inspections only. In regard to numbers

4, 5, and 13, the listed staging costs are not segregated from

other operations and are, therefore, dutiable. Item number 6

includes a renewal/manufacturing cost which is not segregated

from otherwise non-dutiable operations, which renders the

entirety of the item dutiable. Finally, item 15 is dutiable

because there are no ABS survey reports accompanying the ABS

invoices as required under the Customs precedential decision

previously discussed.

HOLDING:

Following a thorough review of the evidence as well as

analysis of the applicable law and precedents, we have determined

that, for the reasons set forth in the Law and Analysis portion

of this ruling, the Protest under consideration is allowed in

part and denied in part.

Sincerely,

B. James Fritz

Chief

Carrier Rulings Branch