VES-13-18:RR:BSTC:CCI H071240 ALS
Supervisory Import Specialist
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Vessel Repair Entry No. C20-0041397-4; M/V R.J. PFEIFFER; Protest No. 2002-09-100020; 19 U.S.C. § 1466(a)
Dear Sir:
This is in response to your memorandum of July 31, 2009. The memorandum forwards an application for further review of a protest, filed on behalf of Matson Navigation Company (“protestant” or “Matson”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466(a). You have asked us to review numerous items listed in your memorandum. Our ruling follows.
FACTS:
The M/V R.J. PFEIFFER (the “vessel”), a vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Long Beach, California on October 7, 2007. A vessel repair entry was timely filed. The protestant filed an application for relief from duties on the entry. Upon review of the filing, your office determined that the application should be granted in part and denied in part, and notified the protestant of this decision via a letter dated August 15, 2008. The protestant timely filed the subject application for further review, seeking additional relief.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466(a).
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “. . . 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 a vessel documented under the laws of the United States . . . “
The following items are at issue:
Section 800, Exhibit 1-“General Services for Modification Items”
This item concerns the costs of general services as documented in the invoice presented as Exhibit 1. The protestant contends that this item is non-dutiable because modification costs have been segregated from general services repair costs, which are documented in Section 400 of the invoice. The protestant cites to CBP Ruling HQ 115539 (January 24, 2001) to support its contention. Your office prorated the costs despite the fact that the protestant conceded that Section 400 is dutiable. You cite to CBP Ruling HQ 116637, in which we prorated costs based on an understanding that the protestant had disproportionately attributed drydocking costs as modifications because “the protestant’s attribution of general services coasts is not reflective of economic reality and does not comport with our ‘common sense’ review of these matters.”
We note that items listed under Section 800, such as “lay berth services” and garbage removal,” are identical or virtually identical in description to the identically-titled items listed under Section 400, which is entitled “General Services for Maintenance and Repairs.” We agree with your assessment that since CBP determines whether a particular work item is considered a modification, the shipyard that prepared the invoice cannot reasonably segregate the costs for modifications from the costs for repairs. Thus, SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F. Supp. 1359 (CIT 2002), cert. denied December 13, 2004, is applicable in this instance. The Court of Appeals for the Federal Circuit in SL Service 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.
Accordingly, this item remains dutiable on a prorated basis.
Section 871-“Hull Painting—Keel to Deep Loadline,” Exhibit 1
This item concerns the costs of blasting and repainting the hull of the vessel from the keel to the deep load line with a new silicon flouropolymer foul release coating. The protestant contends that this is a modification of the vessel’s hull to improve the performance of the vessel by reducing the drag of the hull in the water and preventing marine organisms from building up on the underwater hull. Your office found this item to be dutiable because no documentation has been submitted to indicate that this work was not a repair or done to replace something that was not in good working order.
With respect to protestant's claim that this installation constitutes a modification, it is well-settled that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The factors considered in identifying work constituting modifications, vis-a-vis work constituting repairs, have evolved from judicial and administrative precedent. See Otte v. United States, 7 Ct. Cust. Appls. 166, Treasury Decision (T.D.) 36489 (1916); United States v. Admiral Oriental Line et aI., 18 C.C.P.A. 137, Treasury Decision (T.D.) 44359 (1930); see also Cust. Bull. and Dec., Vol. 31, No. 40 (Oct. 1, 1997).
These factors include:
Whether there is a permanent incorporation into the hull or superstructure of a vessel;
Whether in all likelihood an item under consideration would remain aboard a vessel during an extended lay-up;
Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order;
Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.
The protestant has submitted an affidavit from the Senior Port Engineer for Matson in which he states that the work was not a repair and that the existing system was fully operational prior to the work being done. You find this statement to be self-serving, citing CBP Ruling HQ 113474 to note that we have previously ruled that a self-serving claim of modification with no substantive support is not sufficient evidence that factor number 3 listed above has been met. We agree that no supporting evidence has been presented in this case. We also agree with your finding that the rulings the protestant has cited (CBP Rulings HQ 111170, HQ 109936, and HQ 113366) are not dispositive in this case. It should be noted that we have long-held maintenance painting to be a dutiable operation within the meaning of the vessel repair statute. See CBP Ruling HQ 116589 (January 6, 2006), citing E.E. Kelly & Company v. United States, 55 Treas. Dec. 596, T.D. 43322 (CCPA 1929). The fact that the new paint may have been an upgrade from the paint it replaced on the vessel is of no consequence. Therefore, this item remains dutiable.
Section 864-“Tank Level Indicating System Modification,” Exhibit 1
This item concerns the costs of the installation of tubing fittings in several engine room oil tanks. The protestant claims that the tank level indicating system was an addition to the engine room oil tanks, not a repair or replacement. Your office found these costs to be dutiable as repairs because they appear to be related to dutiable repair costs under section 655. Your office now finds these costs to be dutiable pursuant to CBP Ruling HQ 114481 and CBP Ruling HQ 114259.
In HQ 114481, we upheld our earlier decision in HQ 114259 in which we found the installation of a fuel oil tank leveling indicating system to be dutiable as equipment rather than a modification of the vessel hull. We are not persuaded by protestant’s citing of CBP Ruling HQ 226993 and CBP Ruling HQ 114650, both of which refer to several installations that were found to be modifications, but neither refers to a tank level indicating system. Therefore, this item remains dutiable as vessel equipment.
Section 900-“General Services for Cargo Hold Slot Conversion Items,” Exhibit 1
This item remains dutiable on a prorated basis for the same reasons given under Section 800.
Exhibits 49 and 50 (Kongsberg invoices ## 07080663F and 07100844S)
The protestant contends that this item is non-dutiable because the installation of the simplified voyage data recorder (SVDR) is a modification of the vessel. Your office found this item dutiable because we have repeatedly ruled that the installation of an SVDR is dutiable as vessel equipment. You cite to CBP Rulings HQ H047587, HQ H052778, and HQ H051395, all of which do in fact find that the installation of an SVDR is dutiable as vessel equipment. We are not persuaded by the protestant’s citing of CBP Rulings HQ 108366 and HQ 115735, neither of which refer to an SVDR in any sense. Therefore, this item remains dutiable as vessel equipment.
Exhibit 51 (Kongsberg invoice # N070471e)
Your office denied relief in this instance because the value ($45,532.68) as indicated on the initially submitted invoice (hereafter referred to as the “U.S. invoice”) did not match the value as indicated on the CBP Entry Summary ($29,781). The protestant contends that relief should be granted because the discrepancy is attributable to “an error” that “Matson was not aware of.” The protestant has subsequently submitted another Kongsberg invoice (# N070471p, hereafter referred to as “the Norwegian invoice.”), which indicates a value of NOK 181,642, which you confirm converts to $29,781. You note that the U.S. invoice lists two articles* that are not listed on the Norwegian invoice.
The protestant has not submitted proof of payment of duty for the two items not listed on the Norwegian invoice. Pursuant to 19 U.S.C. § 1466(h)(2), the duty imposed by 19 U.S.C. § 1466(a) shall not, with certain exceptions not applicable here, apply to the cost of spare repair parts or materials certified by the vessel owner or master for installation or use aboard a U.S.-documented cargo vessel engaged in the foreign or coasting trade, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States of each such part or material purchased in, or imported from, a foreign country. Furthermore, a cabinet is equipment and therefore not eligible for relief under 19 U.S.C. § 1466(h)(2). Consequently, the two items not listed on the Norwegian invoice remain dutiable.
You also note that the U.S. invoice lists “Fastening equipment” and “Exh. Rail,” which you believe are descriptions for equipment. Fastening equipment is listed twice, once under the heading “Main Bearing Temp. sensors and install. hardware,” and once under Crank and Crosshead Temp. sensors and install. hardware.” The “Exh. Rail” is listed under the heading “Exh. Gas Temp. for: DG’s- 3 x Wartsilla 6R32; total of 21 sensors (8 cyl. +3 T/Chgr.).” The protestant cites to CBP Ruling HQ 115561, in which we reiterated previous rulings that defined a part “as something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole.”
Upon review, we find these heading descriptions to be more indicative of articles that would not lose their essential character but would be incorporated into a larger whole. See CBP Ruling HQ H008903 (discussing the installation of bearing temperature sensors as a modification); CBP Ruling HQ 112911 (discussing the installation of bearing sensors as a modification); and CBP Ruling HQ (discussing the installation of exhaust gas temperature gauges as a possible modification). The descriptions of the articles listed under the headings indicate that they are hardware associated with the articles described in the headings and are used to assemble or install the articles. The submitted documentation indicates that duty has been paid on these articles. Therefore, relief is granted with respect to the articles listed on the U.S. invoice, excepting the two items not listed on the Norwegian invoice as noted above.
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 granted in part and denied in part 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