VES-3-18-RR:BSTC:CCI H052778 GOB
Supervisory Import Specialist
c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112
RE: 19 U.S.C. §1466; FREEDOM; Vessel Repair Entry NF4-4310414-8; Protest 2002-08-100228
Dear Sir:
This is in response to your memorandum of January 27, 2009, forwarding for our review the protest filed on behalf of Interocean American Shipping Corporation (the “protestant”) with respect to Vessel Repair Entry NF4-4310414-8. Our ruling follows.
FACTS:
The FREEDOM (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of New York on April 14, 2007. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on May 9, 2008 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
The issue presented is whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466?
LAW AND ANALYSIS:
Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. § 1514(c)(3) and 19 CFR § 174.12(e).
Title 19, United States Code, section 1466 (19 U.S.C. §1466) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of equipment purchased for and 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 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 19 U.S.C. § 1466:
Texaco urges us 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. [Emphases supplied.]
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.
Before addressing specific items, below, we note that, with respect to numerous of the items, the protestant claims that “… 19 U.S.C. §1466 does not apply at all to purchases made in the United States under subsection 1466(a) …” This claim appears to involve situations where goods were shipped from foreign vendors to a U.S. location and then shipped to a foreign location for use in the foreign shipyard work. We do not agree with this claim. We believe parts, materials, or equipment purchased in the U.S. can be expenses of foreign repairs. In this regard we note the following: 1. The language of the vessel repair statute (19 U.S.C. § 1466(a) – “… expenses of repairs made in a foreign country …”); 2. The language of the Texaco decision, excerpted above – “Aside from the inapplicable statutory exceptions, the language ‘expenses of repairs’ is broad and unqualified.” [Emphasis supplied.]; and 3. The fact that there are various statutory exceptions (e.g., subsections (d)(2) and (h)(2)-(3)) to the general rule of dutiability of 19 U.S.C. § 1466(a). If the protestant’s claim were correct, there would be no need for these exceptions.
In its administration of the vessel repair statute, Customs and Border Protection (“CBP”) has frequently used the following definitions:
Equipment – An article which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples would include winches and generators.
Material – An item which is consumed in the course of its use and/or loses its identity as a distinct entity when incorporated into the larger whole, e.g., paint and sheets of steel.
Part – An article which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. Examples would include piston rings and pre-formed gaskets.
We note that, with respect to many of the items for which the protestant requests relief, it has not identified the specific statutory provision under which it requests such relief.
You request our review with respect to the items discussed below.
2.13 Stern Tube Seal and Wear Down Readings. The protestant states that this item is nondutiable because it consists solely of assisting the DNV surveyor in performing the classification survey. However, the statement of work reflects the servicing of the inner and outer stern tube seals and the renewal of seals. The statement of work also provides: “Move inboard liner assembly slightly forward or aft of previous running position as per the seal Manufacturer’s service representative’s recommendations to allow new seals to run on a different position on liner.” We find that this cost covers more than the mere performance of a survey and includes repairs and/or maintenance which are dutiable under 19 U.S.C. § 1466. We find this cost to be dutiable.
3.02 Engine Room Bilge and Sludge Tank Cleaning. The protestant states that “[t]his work consisted of preparing the tanks to be entered safely by workers, and cleaning the tanks.” We believe that this work relates to the performance of dutiable and nondutiable work. In HQ 113798, dated January 9, 1997, we found that sludge removal in preparation for ABS and U.S. Coast Guard surveys and inspections should be prorated between dutiable and nondutiable costs. We find that this cost should be treated similarly, i.e., prorated between dutiable and nondutiable costs.
3.06 Thickness Measurements. The protestant states that DNV requires that these measurements be made as a survey requirement. We find that this cost is nondutiable, as it does not appear to involve an activity within the scope of 19 U.S.C. § 1466 and appears to have been performed pursuant to a required survey.
4.01 Boiler Survey. There is a separate item (4.01-01) for “exhaust gas boiler and other repairs.” We are not satisfied that the boiler survey is completely unrelated to repairs as item 4.01-01 involves the cost of repairs to the exhaust gas boiler and other repairs. We find that the cost of the boiler survey should be prorated between dutiable and nondutiable costs.
4.04 General Labor and Assistance. The statement of work provides that “[t]he contractor shall provide various materials, labor, services and equipment . . . in support of various Owner-furnished Service Engineers, Classification Surveys, Flag State Inspections and Ship Force jobs not already discussed somewhere in this specification package.” We find that this item is akin to “general services,” and should be prorated between dutiable and nondutiable costs.
6.01 Switchboards and Engine Room Control Console Cleaning. Based upon a consideration of the work performed and the precedents, we find that this cost is nondutiable. For example, we found this type of work to be nondutiable in HQ 116492 dated June 27, 2005 and HQ 115603 dated May 16, 2002.
6.02 Gauge Testing and Gauge Calibration. The protestant states that “[t]his work is shipyard assistance for the DNV renewal survey of the boilers, propulsion, generators, and switchboard and is done at every survey renewal.” The invoice corroborates this claim. We therefore find that this cost is nondutiable, as it does not appear to involve an activity within the scope of 19 U.S.C. § 1466.
7.08 Yard Assistance. The protestant states that “[t]his work consisted of providing general assistance to the entire shipyard project that is not covered by other specific work items in this invoice.” We find that this item is equivalent to “general services,” and should be prorated between dutiable and nondutiable costs.
9.01 Lifeboat Falls and Weight Test. The statement of work includes the following language: “. . . inspect and service the Life Boat releasing gear and inspect and overhaul the Port and Stbd life boat winch.” This language is indicative of maintenance work which is dutiable under 19 U.S.C. § 1466. We find that this cost is dutiable.
9.04 Fire Extinguisher Service. This work consists of inspecting, emptying, and refilling fire extinguishers. We find this to be dutiable, as we did in HQ 111040, dated March 25, 1991.
Tabs 20, 23. The protestant has submitted a statement from the vendor that the articles “were either made in the United States or products imported into the United States with duty paid.” This certification is not sufficient for items such as these which are equipment. See the definition of equipment, above. Equipment is not eligible for relief under 19 U.S.C. § 1466(h)(2) and/or (h)(3). Equipment is eligible for relief under 19 U.S.C. § 1466(d)(2) if it was “manufactured or produced in the United States.” The protestant has not established this. The equipment contained herein is dutiable.
Tab 25. This item is for the cost to provide and install a Furuno simplified voyage data recorder system (“SVDR”). We find that the SVDR is not a modification to the hull and fittings of the vessel. We find that the SVDR is vessel equipment (See the definitions of equipment, above) and is therefore dutiable under 19 U.S.C. § 1466. The invoice for this item provides that the item includes the following: data collecting unit (removable); data collecting unit (fixed); remote alarm panel; indoor microphone; radar interface PCB “frame grabber” for recording radar data; and LivePlayer Pro Software. Internet research provides the following information for the Furuno SVDR: “Records essential navigational status, command and control of ship. Helps locate casualty causes and promote education for safe navigation . . . S-VDR records data and events occurred during navigation, which include: date and time, ship’s position, speed, hearing bridge audio, communication audio, radar/ECDIS images and others . . .” This issue, or this particular type of issue, has been thoroughly considered by CBP. See, for example, the discussion, including the authorities cited, in the following rulings: HQ 113798 dated January 9, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 226688, dated July 29, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 114092, dated September 12, 1997 (revoking HQ 111425), where we found a radar system and a satellite communications system to be dutiable as vessel equipment; and HQ 114093, dated September 12, 1997 (modifying Memorandum 109936), where we found a satellite communications system to be dutiable as vessel equipment. In these rulings, we considered whether the item at issue was a nondutiable modification to the vessel or vessel equipment. We concluded that the item at issue in each ruling was dutiable under the vessel repair statute as vessel equipment. We find similarly in this entry and protest – the SVDR is dutiable under 19 U.S.C. § 1466 as vessel equipment. We believe the SVDR is similar in nature to certain of these items. Much more importantly however, we believe it constitutes vessel equipment, dutiable under 19 U.S.C. § 1466. Further, we find that the protestant has not established an alternative basis for relief. See the analysis for Tabs 20 and 23, above.
Tab 27. The record indicates that relief was granted pursuant to 19 U.S.C. § 1466(h)(3) at the application stage, i.e., duty was paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States (“HTSUS”). The protestant now claims that the subject articles should be duty-free. We find that the documentary evidence is not sufficient to support this claim. We find that this item is dutiable.
Tab 29. The protestant requests relief from duty on the basis that “[a]s a U.S. purchase, it is not dutiable.” The protestant has not established a basis for relief. Further, as your office points out, a lamp is vessel equipment and therefore does not qualify for relief under 19 U.S.C. § 1466(h)(3). Relief is denied.
Tab 31. The protestant has submitted a CBP Form 7501a with respect to relief under 19 U.S.C. § 1466(h)(3). We find that, in certain circumstances, relief may be granted under this provision, i.e., duty paid under the appropriate commodity classification of the HTSUS. However, we agree with your office that the protestant has not established a basis for duty-free relief for these particular articles. Relief is therefore denied.
Tab 32. These items are described as “wire & [closed or open] spelter socket[s].” The protestant claims that these items are parts and eligible for relief under 19 U.S.C. § 1466(h)(2). We find that these items are not parts and therefore fully dutiable.
Tab 35. The record indicates that relief was granted pursuant to 19 U.S.C. § 1466(h)(3) at the application stage, i.e., “. . . duty was paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States . . .” The protestant now claims that the subject articles should be duty-free. We find that the documentary evidence is not sufficient to support this claim. We therefore find that this item is dutiable.
Tab 43. The items at issue are “undervoltage trips.” The record supports a determination that they are parts, eligible for treatment under 19 U.S.C. § 1466(h)(3). Relief is therefore granted.
HOLDING:
The costs for which the protestant seeks relief are dutiable, nondutiable, or to be prorated under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling.
You are instructed to grant the protest in part and deny the protest in part with respect to the costs discussed in this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the CBP 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