VES-13-18:RR:BSTC:CCI H031016 CK
Supervisory Import Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Vessel Repair Entry No. NN3-0000330-2; SSG EDWARD A. CARTER, JR.; V-1B; Protest No. 2002-08-100127
Dear Sir:
This is in response to your memorandum of June 12, 2008. The memorandum forwards an application for further review of a protest by Maersk Line Limited seeking relief for duties assessed pursuant to 19 U.S.C. § 1466. You have asked us to review numerous items listed in your memorandum. Our ruling follows.
FACTS:
The SSG EDWARD A. CARTER, JR. (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Wilmington, NC on July 25, 2006. A vessel repair entry and application for relief were timely filed. The latter was granted in part. A determination of duty was issued on November 2, 2007, and the subject protest was timely filed on April 29, 2008.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Generally, under 19 U.S.C. §1466(a), the equipments, or any part thereof, including boats purchased for, or the repair parts or materials to be used, or the expenses of repairs made, in a foreign country, upon certain vessels, including that involved in the instant protest, are liable to entry and the payment of a 50%
ad valorem duty on the costs thereof in such foreign country upon the first arrival of the vessel in any port of the United States. By contrast, it has long been held that modifications, alterations, or additions to the hull and fittings of a vessel are not repairs and are thus not dutiable under section 1466(a).
In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F. Supp. 1359 (Ct. Int’l Trade 2002), cert. denied December 13, 2004, the Court of Appeals for the Federal Circuit upheld CBP’s proration of certain shipyard expenses. The court stated in pertinent part as follows:
. . . apportionment is consistent with section 1466(a) and the “but for” test. In the context of dual-purpose expenses, it is rational to impose the duty on only that portion of the expense that is fairly attributable to the dutiable repairs. Indeed, to impose the 50% ad valorem duty on the entire costs of dry-docking in this case would exceed the mandate of the statute. The logical appeal of apportionment has been recognized in other areas of the law. . .
. . .
Customs’ long-standing practice of apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications comports with both the statute and common sense.
In Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int’l Trade 1993), the court stated in pertinent part as follows with respect to the reach of section 1466:
Texaco urges to reject the Court of International Trade’s “but for” approach and to interpret “expenses of repairs” so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred.
Our determinations follow with respect to the items for which you have requested our review.
ITEM 1.23: This item is part of an April 15, 2006 Braswell Shipyard Panama invoice. This item consists of 9 line items; the first seven line items are the costs for cleaning and demucking of tanks, and the sump cofferdam. The last two lines are for the removal of the oil sludge from the cleaning by both barge and road tanker. Protestant concedes that the first seven items are “dual use expenses” and should be prorated. However, protestant states the cost of the removal is only attributable to non-dutiable inspections. However, since the documentation submitted is not probative of that claim, we agree with the New Orleans Vessel Repair Unit (“VRU”) that the removal of the oily sludge is subject to the same proration applicable to the cleaning and demucking described in the seven line items discussed above.
ITEM 1.24: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Engine Room Bilge Disposal” and is for both the cleaning out/discharging of oily bilge water and the disposal of waste. Protestant argues that the cleaning is all nondutiable since no repairs or painting were done in connection with this item. However, the VRU correctly points out that in addition to the inspections performed, there were numerous repairs made to the engine room and therefore the cleaning and disposal of the bilge water is a “dual use expense” that should be prorated. We agree that relief should be denied on this item and it therefore remains subject to proration.
ITEM 2.1-1.2: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Stern Tube L.O Head Tank and Sump Tank.” The item includes the removal and disposal of lube oil from the head tank and sump tank and refilling using new oil supplied by the owner together with the ship’s crew. This was one line item under the work section entitled, “Tailshaft and Propeller.” Protestant seeks relief that no repairs were undertaken, that the oil residues were removed and disposed of, and tanks refilled. However, no argument is set forth why this work is not in and of itself nondutiable, rather than a dutiable maintenance operation as the VRU stated. We agree with the VRU that this is a dutiable maintenance operation.
ITEM 2.1-3.1: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Anchor Chain Inspection.” The item includes two subsections and sub-items under each section. The sub-item at issue is “ranging anchor and chains onto dockfloor [sic] only and restowing same afterwards.” The inspection of the anchor chain is nondutiable, and Protestant has conceded that the separated sub-item of cleaning is dutiable. Protestant seeks to have the ranging declared nondutiable since the repair was broken out, but the VRU held the ranging was subject to proration since it was necessary for both the nondutiable inspection and the dutiable cleaning and repairs. We agree that the ranging was a “dual use expense” and is subject to proration.
ITEM 21.-3.2: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Chain Lockers Inspection.” This item consists of numerous sub-items. Protestant argues that the work was either nondutiable because it was performed in advance of a nondutiable inspection, or simply constituted nondutiable actions. The VRU held three sub-items as “dual use expenses” and subject to proration, stating some of the work was performed
prior to dutiable painting and as result of testing a repair. The three items were the lifting, cleaning, and refitting of the bottom gratings; the mucking and disposal of solid mud; and the operational test of the draining system. We agree that the items at issue are “dual use expenses” and should be prorated.
ITEM 2.1-5: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Sea Chests.” This item includes opening up, cleaning and reclosing. This work was performed for the ABS nondutiable inspection, but it was also performed so that the separate line item painting could be performed. We agree with the VRU that this item should be prorated as a “dual use expense.”
ITEM 2.1-7.1: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Tank Inspection.” The item is described as removal, rejointing, and refitting covers, and involves 63 pieces. Protestant argues that this line item is nondutiable because opening and closing tanks for inspection is nondutiable. The VRU points out that the tanks at issue had a multitude of deficiencies and repairs that were performed as per the ABS survey. The repairs are dutiable, thus the item at issue is a “dual use expense” attributable to both the nondutiable inspection and dutiable repairs, and was correctly prorated.
ITEM 4.1-1.5: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Main Engine Scaveenge [sic] Air Spaces.” This item consists of opening up cylinder scavenging air spaces, disassembling and removal of reed valves, cleaning and reassembling back; inspection of air chamber bypass mechanism and connection of air supply for actuators test. Protestant argues this is nondutiable because no repairs were made. However, the VRU points to the numerous headquarters rulings which have held that the cleaning of scavenging air spaces is dutiable maintenance. See, HQ 118823, dated June 16, 1992; HQ 111824, dated January 7, 1992; HQ 111864, dated February 3, 1992; and HQ 112280, dated February 3, 1993. As no breakdown has been made between any inspection work and the dutiable maintenance, the entire cost is dutiable.
ITEM 2.1-8A: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Speed Log Inspection.” This item consists of opening/closing manhole, furnishing lights and ventilation, cleaning and wiping dry speed log cofferdam for Class and Owner’s representative inspection. While a repair was performed after access was available, the repair was separately broken out and listed on its own line and given a separate cost. Thus, this item at issue is attributable to a nondutiable inspection and is nondutiable.
ITEM 5.1-2: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Main and Emergency Switch Boards.” There are two sub-items in this item and they are described as cleaning behind the main and emergency switchboards, examination of all connections and retightening as necessary, and report. Protestant points to HQ W116467, dated July 7, 2007, in which mere switchboard cleaning was found nondutiable. However, in this case the ABS survey shows that numerous breakers in the main switchboard, including the emergency switchboard breaker, were serviced. Thus, in this case the switchboards were cleaned and numerous portions were overhauled, which are dutiable repairs, so the cleaning, examining and tightening are actually “dual purpose expenses.” Consequently, the costs of this item should be prorated.
ITEM 7.29: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Port and Stbd Life Boats.” This item consists of numerous sub-items and lines of work. Two new larger life boats were purchased and these were conceded dutiable equipment. Protestant claimed that the work performed to the vessel and davits to accommodate the new life boats should be nondutiable modifications, to which the VRU agreed. Three sub-items remain at issue. The first is the line that states “transport and installation of new life boats.” Protestant claims this is part of the nondutiable modification, but we agree with the VRU that this is an expense attributable to both the nondutiable modification and the dutiable equipment. Thus it is an expense that should be prorated, and because it is not broken out in cost, the entire cost is subject to the proration. The second sub-item is the painting of the life boat hulls orange. We agree with the VRU that this initial painting of the life boats is part of the equipment costs and is dutiable. The third item is the customs clearance costs of the lifeboats and davits. These are general expenses that are attributable to both the nondutiable davits and dutiable life boats and should be prorated as a “dual use expense.”
ITEM 7.32: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Container Leveling Plan.” There are numerous sub-items to this item, but the purpose of the work is to make a correction in height differential only by fitting and welding of leveling plates, for correction of the longitudinal and transverse stacks differential, based on burning out welds and removal of the existing mid-hold container fittings on tank top. Protestant argues this is a modification.
It has long been held that modifications, alterations, or additions to the hull and fittings of a vessel are not repairs and are thus not dutiable under section 1466(a). A claim for duty-free modification must address four areas:
whether there was a permanent incorporation into the hull or fittings;
whether the item would remain aboard during an extended lay-up;
if not a first-time installation, whether an item that was not in good working order was replaced; and
whether the item provided an improvement in operation or efficiency.
In this case it has not been demonstrated, as required for a finding of non-dutiability, that the expenses incurred for the “Container Leveling Plan” involved only modifications or enhancements and were not otherwise needed as well to correct the admittedly deficient performance (see Headquarters ruling (HQ) 115964, dated July 24, 2003); HQ 113474, of October 24, 1995). And, to this same effect, see HQ 114140, of November 18, 1997 (emphasis added):
If it is necessary that shipyard services be sought in order to address a deficiency in a
vessel, the fact that the component ultimately replaced is of improved design or results in
increased efficiency or performance is not a relevant consideration.
Thus, in this case, the item remains dutiable as the vessel’s ability to stack containers for transport was deficient and this item was incurred to address this insufficiency. The item does not qualify as a nondutiable modification.
ITEM 7.38: This item is also part of an April 15, 2006 Braswell Shipyard Panama invoice. The item is entitled, “Radar.” This item is described as fabricate and install new base for radar scanner as per attached drawing. Protestant argues that this item is a nondutiable modification. The VRU points to the attached drawing for the new base which states the work is to renew the radar base. It terms the work a repair and involves cropping and grinding out the old base plate and welding the new plate. We agree that the only evidence points to the fact that the old radar base needed replacement. There is no evidence that the work was only an enhancement rather than a replacement to correct a deficiency. Thus, no relief should be granted for a modification.
TAB 19: This item contains numerous invoices and Customs and Border Protection entry summary forms (CBPF 7501) for the forms attached thereto. Protestant seeks remission of duties on these items claiming they were imported and duty paid parts entitled to duty-free entry at the time of the vessels arrival. The VRU denied the claim noting the import date on each entry summary form is August 6, 2006, and that the vessel’s arrival was July 25, 2006, weeks prior to the U. S. entry of the goods listed on the entry summary forms. We agree with the VRU that we have previously held in HQ 116452, dated May 10, 2005,
documentation dated after the date of the vessel’s arrival is not probative that such merchandise is entitled to previously imported duty-paid treatment at the time of the vessel’s arrival. The merchandise on that entry summary cannot be entitled to duty free treatment under section 1466(h)(2) and (h)(3) since the vessel had arrived weeks prior to the entry of the merchandise itself.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the
items considered above should be partially granted and partially denied as specified in the Law and Analysis portion of this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP
personnel, and to the public on the CBP Home Page on the World Wide Web at
www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers, and Immigration Branch