VES-3-18-RR:BSTC:CCI H053686 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; Vessel Repair Entry NF4-2360121-2;
Protest 2002-09-100003
Dear Sir:
This ruling is in response to your memorandum of February 13, 2009, forwarding for our review the protest filed on behalf of Interocean American Shipping (“protestant”) with respect to Vessel Repair Entry NF4-2360121-2. Our ruling follows.
FACTS:
The M/V HONOR (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Charleston, South Carolina on January 21, 2007. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on July 18, 2008 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
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 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; sometimes referred to hereinafter as “the vessel repair statute”) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of equipment 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.
Title 19, United States Code, sections 1466(h)(2) and (3) provide as follows:
The duty imposed by subsection (a) of this section shall not apply to-
. . .
(2) The cost of spare parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country, or
(3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country[.]
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.
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.
In its administration of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-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. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466:
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 or dutiable equipment.
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.
You request our review with respect to the items discussed below.
Tab 6. We find that the costs for water ballast tank inspection should be prorated between dutiable and nondutiable costs as the documentation of record reflects costs for the repair of cracks in the water ballast tank.
We find that the cost for the oily water separator installation is nondutiable as this work is a modification to the vessel. We held similarly in HQ 115132 dated June 15, 2001.
We find that the cost related to the load testing of the engine room overhead crane is dutiable, as the documentation of record does not establish that this cost is unrelated to the dutiable installation of the new engine room crane.
We find that the cost of the main engine tie rod bolts inspection is dutiable as a maintenance item, as this cost includes the retightenening of tie rods, which is a dutiable maintenance operation.
We find that the cost of service support for the bridge electronic systems is dutiable as it relates to the dutiable costs in tabs 30 and 99, below, the Furuno simplified data recorder system.
Tab 10. We find that the costs of the pump assembly items are dutiable under 19 U.S.C. § 1466(a). These items are equipment and are not eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 26. We find that the cost of the A/C unit – jalousie/vent louvre replacement is dutiable under 19 U.S.C. § 1466(a), as it is equipment and is not eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 28. This invoice covers the cost of items purchased in the United States. Because it is not clear from the invoice what these items are, it is not clear that they are eligible for treatment under 19 U.S.C. § 1466(h)(2). We find that the costs on this invoice are dutiable under 19 U.S.C. § 1466(a).
Tabs 30, 31, and 99. Tab 30 includes an invoice for a Furuno simplified voyage data recorder system (“SVDR”). Tab 31 includes an invoice for a “Nera Fleet 77,” which is satellite communications equipment. Tab 99 includes an invoice for the installation of the SVDR, the Nera Fleet 77, and GP90 GPS. We find that these costs are dutiable as vessel equipment or the cost of installation of vessel equipment. These items do not represent a modification to the vessel. 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 – these items are dutiable under 19 U.S.C. § 1466(a) as vessel equipment. See also HQ H052778 dated May 7, 2009 and H068756 dated August 5, 2009. Further, we find that the protestant has not established an alternative basis for relief. Because these items are costs for vessel equipment, they are not eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 32. The parts in this invoice are not correctly classified. Therefore, we find that they are not eligible for treatment under 19 U.S.C. § 1466(h)(3).
Tab 33. The parts in purchase order No. taka/06r-0174 are not correctly classified. Therefore, we find that they are not eligible for treatment under 19 U.S.C. § 1466(h)(3). The doors in purchase order taka/06r-0211 are not parts which are eligible for treatment under 19 U.S.C. § 1466(h)(3).
Tab 37. The parts in this invoice are not correctly classified. Therefore, we find that they are not eligible for treatment under 19 U.S.C. § 1466(h)(3).
Tabs 41 and 42. We find that these costs are dutiable under 19 U.S.C. § 1466(a), as the documentation of record is not sufficient for us to conclude that they are eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 43. Relief was granted at the application stage for all items on these invoices except the outlets. We find that the outlets are eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 52. The invoice reflects “Repair Procedures” and “Main Engine air box crack repair.” We find that this item is dutiable as a repair item and/or an item incident to repairs.
Tab 53. We find that the pertinent costs are dutiable under 19 U.S.C. § 1466(a), as the documentation of record is not sufficient for us to conclude that they are eligible for treatment under 19 U.S.C. § 1466(h)(2).
Tab 89. The parts in this invoice are not correctly classified. Therefore, we find that they are not eligible for treatment under 19 U.S.C. § 1466(h)(3). A revised CF 7501a was not submitted with the protest with respect to this invoice.
Tab 100. We find that the pertinent costs on Total Marine Solutions Inc. invoices 7228 and 7294 and the K.T.S. Technical Services GmbH invoice are dutiable under 19 U.S.C. § 1466(a), as the documentation of record is not sufficient for us to conclude that they are eligible for treatment under 19 U.S.C. § 1466(h)(2) or (3). Equipment is not eligible for treatment under 19 U.S.C. § 1466(h)(2) or (3).
HOLDINGS:
The costs for which the protestant seeks relief are dutiable, nondutiable, or to be prorated under 19 U.S.C. § 1466, as described 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 Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any final duty determination 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