• HQ H179355
• May 08, 2013

• Type : Carriers • HTSUS :
•  Related:   111425; 111747; 113127; 111039; 114289; 116088; 113700; 113798; 115835; 115195; 114600; 115729; 114188; 106543; 110841; 114092; 116264; 112779; H025902; H098068; H184397; H052778; H086244; H031319   

VES-3-18-OT:RR:BSTC:CCR H179355 DAC

Supervisory Import Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street, Suite 246
New Orleans, Louisiana 70130

RE: 19 U.S.C. § 1466; Vessel Repair Entry VR3-0000108-4; Protest 2002-10-100115

Dear Sir:

This is in response to your memorandum of July 19, 2011, and your request of March 1, 2013, forwarding for our review the protest filed on behalf of Horizon Lines; LLC, (hereinafter also “protestant”) with respect to Vessel Repair Entry No. VR3-0000108-4 regarding the HORIZON NAVIGATOR. Our ruling is set forth below.

FACTS:

The subject vessel is the HORIZON NAVIGATOR and it is a U.S. flag vessel. The subject vessel arrived in the United States at the Port of Tacoma, Washington on February 11, 2007. The subject vessel incurred foreign shipyard expenses. On April 13, 2007, Horizon Lines, LLC, submitted Vessel Repair Entry No. VR3-0000108-4, for the HORIZON NAVIGATOR.

The U.S. Customs and Border Protection (“CBP”) Vessel Repair Unit (“VRU”) issued a duty determination letter to Horizon Lines that was dated July 2, 2010.

On December 22, 2010, Horizon Lines, LLC, timely filed the subject Protest No. 2002-10-100115. See 19 U.S.C. § 1514.

The CBP Vessel Repair Unit (VRU) in New Orleans, Louisiana, submitted requests for an application for further review to CBP Regulations and Rulings that are dated July 19, 2011, and March 1, 2013.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable, non-dutiable, or remissible under 19 U.S.C. § 1466?

LAW AND ANALYSIS:

Initially, we note that based upon the record provided, the protest with application for further review, was timely filed under the statutory and regulatory provisions for protests. See 19 U.S.C. § l514(c)(3); 19 CFR § I74.12(e).

Title 19 United States Code section 1466(a) (19 U.S.C. § 1466(a)) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to and equipment for 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.

The relevant statute, 19 U.S.C. § 1466(d)(2), provides, in pertinent part:

If the owner or master of such vessel furnishes good and sufficient evidence that the labor necessary to install such equipments or to make such repairs was performed by residents of the United States … then the Secretary of the Treasury is authorized to remit or refund such duties …

Additionally, 19 U.S.C. § 1466(h)(2) and (3) provide, in pertinent part:

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[.]

The CBP regulations explicitly state exceptions to notice requirements at 19 CFR § 177.12(d)(1), which provides, in pertinent part: (d) Exceptions to notice requirements —(1) Publication and issuance not required. The publication and issuance requirements set forth in paragraphs (b) and (c) of this section are inapplicable in circumstances in which a Customs position is modified, revoked or otherwise materially affected by operation of law or by publication pursuant to other legal authority or by other appropriate action taken by Customs in furtherance of an order, instruction or other policy decision of another governmental agency or entity pursuant to statutory or delegated authority. Such circumstances include, but are not limited to, the following:

(i) Adoption or amendment of a statutory provision, including any change to the Harmonized Tariff Schedule of the United States; (ii) Promulgation of a treaty or other international agreement under the foreign affairs function of the United States; (iii) Issuance of a Presidential Proclamation or Executive Order, or issuance of a decision or policy determination pursuant to authority delegated by the President; (iv) Subject to the provisions of § 152.16 of this chapter, the rendering of a judicial decision which has the effect of overturning the Customs position; (v) Publication of a decision in the Federal Register as a result of a petition by a domestic interested party pursuant to 19 U.S.C. 1516 (see part 175 of this chapter); (vi) Publication of an interim or final rule in the Federal Register in accordance with 5 U.S.C. 553; (vii) Publication of a final interpretative rule in the Federal Register in accordance with 5 U.S.C. 553 following public notice and comment procedures; and (viii) Publication of a final ruling in the Federal Register in accordance with 19 U.S.C. 1315(d) and § 177.10(c) relating to change of established and uniform practice. 19 CFR § 177.12(d)(1)(i-viii);(ii),(iv),(vi),(vii). (emphasis added.)

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 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. lnt'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 c1ean-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. (emphasis added.)

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 Horizon Lines v. United States, regarding the HORIZON CRUSADER, the Court of International Trade held that all the services performed were modifications, stating the following:

The work performed on the Horizon Crusader was solely undertaken to comply with the Convention, and as a matter of law, any repairs effected were incidental and irrelevant to the nature of the work. Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 11-141, 08-cv-00009, p. 5, November 18, 2011. (emphasis added.)

Additionally, the Court of International Trade entered judgments including the following:

“…ORDERED, ADJUDGED and DECREED… …that judgment be, and hereby is, entered in favor of the Plaintiff [Horizon Lines, LLC]; …that the vessel expenses at issue in this case are non-dutiable…” Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 11-141, 08-cv-00009, p. 5, November 18, 2011. (emphasis added.)

The Court of Appeals for the Federal Circuit affirmed the above judgment of the CIT. See Horizon Lines, LLC v. United States, (Fed. Cir.) 2012-1163, November 9, 2012. See also HQ H025902, November 21, 2012; HQ H098068, November 27, 2012; HQ H184397, December 1, 2012.

In Horizon Lines v. United States, regarding cell entry guides on the HORIZON HAWAII, the Court of International Trade held that the services performed were modifications, with statements that include the following:

FINDINGS OF FACT 31. The Cell Entry Guide Modifications constitute non-dutiable modifications and not dutiable repairs.

CONCLUSIONS OF LAW 14. CBP incorrectly assessed duties under 19 U.S.C. § 1466(a) for the Cell Entry Guide Modifications because such work constituted non-dutiable modifications as opposed to dutiable repair work. 15. Horizon is entitled to a refund in the amount of [amount omitted dollars] plus interest as provided by law for duties imposed on the Cell Entry Guide Modifications. Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 09-111, 07-cv-00039, pp. 7-9, October 7, 2009. (emphasis added.)

Subsequently, the Court of Appeals for the Federal Circuit affirmed the judgment of the CIT. See Horizon Lines, LLC v. United States, (Fed. Cir.) 2010-1138, December 6, 2012. See also HQ H098068, November 27, 2012.

In its administration of the vessel repair statute, U.S. Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. See HQ 111425, dated June 26, 1991, HQ 111747, dated February 19, 1992, and HQ 113127, dated June 14, 1994. 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, several 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 as to whether certain work may be a modification of a vessel, which is nondutiable under 19 U.S.C. § 1466. The factors are as follows:

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 may not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment. 2. 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 other structure that is performing a similar function. 4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.

Additionally, we note that in order to qualify as a nondutiable modification, rather than as a repair, the documentation of record must reflect that the element which was replaced, if any, was in good and full working order at the time the work was performed.

You request our advice with respect to the following items:

Protest page 9, Section d., Item No. 10a, Ref. No. 107000(1):

This item refers to work done on the No. 17 Slop Tank. The work description can be found at the bottom of Page 3 of 31 on invoice 10a. The invoice description is as follows: “No. 17 Slop Tank. Removed and disposed of oil sludge total: 5 tons (05/01/07, 06/01/07). Cleaned the tank total: 244 cub.m (05/01/07).” The cost breakdown for this work consists of two items: $650, listed as “Removed and disposed of oil sludge,” and $1,220, listed as “Cleaned the tank.” The $650 charge for “Removed arid disposed of oil sludge” is being protested. The protestant requests relief for the removal and disposal of sludge on the basis that is was related to the oily water pretreatment modification.

The Modification Narrative drawn up by the Horizon Lines Port Engineer, serving as the dry-docking project leader (hereinafter “Modification Narrative” ), discusses the work done on the No. 17 Slop Tank as part of the Oily Water Separator (“OWS”) modification. The OWS is more accurately described as a pre-treatment of oily waste water. All slops are processed by a centrifugal separator, which separates the water from the oil. The separated water is discharged from the centrifugal separator into the original No. 17 S1op Tank, while the separated oil sludge is discharged from the separator into a different tank. The water is then processed through the vessel’s original OWS. In order for the No. 17 Slop Tank to perform its new function as a tank for receiving the separated water, it was necessary to remove the oil sludge. The record provided does not indicate that repairs to the No. 17 Slop Tank were necessary.

CBP has previously ruled on the subject of the dutiable status of sludge removal. In CBP ruling HQ 111039, dated October 4, 1990, CBP held that sludge removal is analogous to a cleaning operation when unaccompanied by any repair work, and is therefore non-dutiable under section 1466. CBP also found in another case that sludge removal is non-dutiable-when done irrespective of any dutiable repairs. See CBP ruling HQ 114289, dated June 4, 1998. Similarly, in CBP ruling HQ 116088, dated March 3, 2004, we held that sludge removal undertaken in the absence of dutiable repairs was non-dutiable. In this case, we are of the opinion that the sludge removal from the No. 17 Slop Tank was a necessary part of the installation of the new OWS system and is a non-dutiable modification. Thus, in accordance with CBP rulings HQ 111039, 114289, and 116088, we find that the sludge removal done in this case is non-dutiable.

Protest page 9, Section d., Item No. 10a, Ref. No. 107000(3):

This item refers to work done on Fuel Oil Tank #8P. The description of the work can be found at the bottom of Page 3 of 31 on invoice 10a. The invoice description is as follows: “F.O.T. #8P. Cleaned the tank for repairs. Removed and disposed of oil sludge total: 0.5 ton (31/12/06).” The cost breakdown for this work lists a charge of $1,065 for “Cleaned the tank for repairs,” and a charge of $65 for “Removed and disposed of oil sludge total: 0.5 ton (31/12/06),” which is being protested. This description indicates that it was clearly related to repairs.

As in the preceding item, the protestant claims this sludge removal is related to the oily water pre-treatment modification. We referred to the specifications provided by letter dated June 7, 2011. It appears that this “section d.” of the protest relates to Enclosure A of the letter, pages 17-27, section 9.1-13 Oily Water Treatment Unit - Modification. The tanks discussed in the specifications include Tanks 13 P/S, 14 P/S, and 17. This protested item refers to F.O.T. #8P, which is not addressed in the OWS modification specifications.

In the present case, the invoice clearly states that the cleaning was related to repairs to the tank, and the OWS modification work does not discuss F.O.T. #8P. It does not appear that this line is related to the oily water pre-treatment modification and cleaning of Slop Tank No.17. Accordingly, we find that the sludge removal done in this case is related to repairs and dutiable.

Protest page 13, Section g.:

This section of the protest relates to the modification of holds 7 and 8 to accommodate the carrying of refrigerated containers below deck. See Suppl. Docs. Ex. 2 (Suppl. Mod. Narr.) at 17. The protest states that this modification enabled the carriage of refrigerated containers below deck for the first time. The work required permanent removals of existing structures and permanent incorporations of new ones, which performed different functions than the old functions. The protestant claims that this work constituted a new installation rather than a replacement. At this time, we point out the findings, conclusions and decision regarding the HORIZON HAWAII in Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 09-111, 07-cv-00039, pp. 7-9, October 7, 2009, provided, in pertinent part, above. We also note the affirming decision of the Court of Appeals for the Federal Circuit in Horizon Lines, LLC v. United States, (Fed. Cir.) 2010-1138, December 6, 2012, also provided, in pertinent part, above. Accordingly, we find the services performed for the HORIZON NAVIGATOR and the HORIZON HAWAII in the aforementioned Court decisions are similar and not significantly distinguishable. Therefore, we are of the opinion that this work is considered a nondutiable modification. See also H098068, November 27, 2012.

Protest page 15, Section h.:

Protestant states in its Memorandum in Support of Protest that this work installed new support structures, cell guides, pedestals and access platforms, so that the vessel could carry a stack of 48-foot containers, five tiers high, ten containers per tier above deck at hold 12. Additionally, this work installed new independent container pedestals, foundations, underdeck reinforcement, cell guides, deck sockets and lashing padeyes to permit 45-foot container stowage in tier 1 at Hold 12, 48-foot container stowage in tier 2, and above and above Hold 13, and alternating 40-foot and 45 foot container stowage above decks above hold 13. At this time, we again point out the findings, conclusions and decision regarding the HORIZON HAWAII in Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 09-111, 07-cv-00039, pp. 7-9, October 7, 2009, provided, in pertinent part, above. We also note the affirming decision of the Court of Appeals for the Federal Circuit in Horizon Lines, LLC v. United States, (Fed. Cir.) 2010-1138, December 6, 2012, provided, in pertinent part, above. Accordingly, we find the services performed for the HORIZON NAVIGATOR and the HORIZON HAWAII in the aforementioned Court decisions are similar and not significantly distinguishable. Therefore, we are of the opinion that this work is considered a nondutiable modification. See also H098068, November 27, 2012.

Protest page 17, Section j.:

Section j. of the protest relates to the integrated bridge system instruments. It included adding two new mapping radars, an electronic chart display and information system (ECDIS) and a voyage data recorder (VDR). This determination concerns the definitions of equipment, materials and parts, provided above. While taking into consideration your recommendations, we will determine whether each article falls within one of these definitions. With respect to a determination of an article as equipment or materials or parts, an article that is determined to be “equipment” is dutiable and relief shall not be granted. An article that is determined to be materials or parts is exempt from duty, and relief shall be granted. See HQ 113700, March 26, 1998. With regards to the ECDIS, we agree with your determination that this item is equipment within the meaning of the definition of equipment provided above and as applied in prior CBP rulings. See HQ 113798, January 9, 1997; HQ H052778, May 7, 2009. With regards to the VDR, we agree with your determination that this item is equipment within the meaning of the definition of equipment provided above and as applied in prior CBP rulings. See HQ H052778, May 7, 2009. Accordingly, we determine that these items fall within the meaning of equipment above, and in accordance with 19 U.S.C. § 1466(h)(2), these items are dutiable and relief should be denied.

Protest page 18, Section k.:

The protestant claims that the cost of the Modification Survey on the ABS invoice at Tab 12 should be nondutiable. This modification survey included the reefer modifications in Holds 7 and 8 discussed above as Section g. The survey also included the work performed on the cargo, container foundation and support structure at cargo holds 12 & 13 as discussed above as Section h. The protestant claims that this work constituted new installations rather than a replacement. At this time, we again point out the findings, conclusions and decision regarding the HORIZON HAWAII in Horizon Lines, LLC v. United States, (Ct. Int’l Trade), Slip Op. 09-111, 07-cv-00039, pp. 7-9, October 7, 2009, provided, in pertinent part, above. We also note the affirming decision of the Court of Appeals for the Federal Circuit in Horizon Lines, LLC v. United States, (Fed. Cir.) 2010-1138, December 6, 2012, provided, in pertinent part, above. Accordingly, we find the services performed for the HORIZON NAVIGATOR and the HORIZON HAWAII in the aforementioned Court decisions are similar and not significantly distinguishable. Therefore, we are of the opinion that the work performed in this instance is similarly nondutiable. See also H098068, November 27, 2012. Protest pages 18-20. U.S. Materials plus U.S. Labor. Item 29.

Item 29 is an Invoice from Walashek Industrial & Marine which includes $210,476 in labor charges and over $38,000 in other costs. The protestant provided a signed letter from Walashek that all attendees provided by Walashek are U.S residents. We find that the protestant has submitted satisfactory evidence that the individuals who performed the work are U.S. residents. Therefore, these costs are remissible pursuant to 19 U.S.C. § 1466(d)(2).

We also note that the invoice includes a charge of $24,315.78 for “Miscellaneous Expenses.” There is no explanation what this charge covered. There is also a charge of $500 for “Handjole seat Grinder Rental” with no further explanation. Title 19 U.S.C. § 1466(d) provides, in pertinent part, “(r)emission for necessary repairs. If the owner or master of such vessel furnishes good and sufficient evidence [emphasis added] that (2) such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel; …” As the owners of the vessel have not provided any explanation of the nature of these charges as required by statute, we are of the opinion that they have not met their burden of furnishing good and sufficient evidence. Accordingly, we are of the opinion that these costs are dutiable.

Protests pages 21-24, “Dual Purposes” Expenses Subject to Proration

Page 22, Item, China Marine Shipping Agency. You seek our advice with regard to this invoice; the transportation fee; the handling charges; and the sundries. The protestant did not provide an itemized list from the vendor related to these expenses or provide an explanation as to what these charges cover.

With regard to the transportation fee, protestant has provided no information with regard to this fee, and it is impossible to determine whether it is applicable to dutiable costs, non-dutiable costs, or costs subject to proration. In CBP ruling HQ 115835, dated October 28, 2002, we held unexplained transportation expenses to be dutiable. We are of the opinion that this transportation fee must be held to be dutiable in the absence of more detailed information furnished by the protestant.

Regarding the cost listed as handling charges, protestant has provided no information with regard to this fee, and it is impossible to determine whether it is applicable to dutiable costs, non-dutiable costs, or costs subject to proration. Therefore, we are of the opinion that these handling charges must be held to be dutiable in the absence of more detailed information furnished by the protestant.

The “Sundries” charge in this item lists costs as “Q.D.A. charges and handling charges, charts.” Regarding all of the items described as such “Sundries,” the protestant has provided no information and it is impossible to determine whether it is applicable to dutiable costs, non-dutiable costs, or costs subject to proration. Therefore, we are of the opinion that these items must be held to be dutiable in the absence of more detailed information furnished by the protestant. See also HQ 115195, April 2, 2001.

Page 23, Item 10e, Guangzhou CSSC – Oceanline – GWS Marine Engineering Co.: You request our advice with regard to two items; 303002 (Boiler service for ABS Inspection) and 309003 (Bilge service). Protestant asserts that these items should be considered dual purpose expenses subject to duty on a prorated basis. In this case, protestant admits that they caused dutiable repairs to be undertaken during the drydocking, but assert that the drydocking was necessitated by non-dutiable modifications and inspections. A review of the American Bureau of Shipping Class Survey Report, dated 11 April 2007, indicates that boiler surveys were completed as part of the class compliance survey.

Item 303002 consists of two charges. We note that dutiable repairs were performed on the boilers. The ABS Class Survey Report indicates that water wall tubes 1 through 3 were found to be leaking, partly cropped and renewed by qualifies welders with approved welding procedure and consumables. The first charge of $150 is listed as “stage inside port stab boiler inside: 26 sets.” Staging appears to be a dual purpose expense associated with both inspection and repair of the boilers. Therefore, we are of the opinion that this cost should be held dutiable on a prorated basis as requested by the protestant. The second charge consists of $1296 for the cost of supplying sludge containers for boiler brick fireclay, as well as lifting the full containers and disposing of the brick fireclay. As dutiable repairs were performed on the boilers, we are of the opinion that the $1296 charge is also dutiable on a prorated basis.

Item 309003 covers two separate line item charges; one for $1800 and another for $8500. The first charge for $1800 is described as “pumped out oily water near tailshaft port, 20T x 1 time x 09.01” $8500. We note on the ABS report that a tailshaft survey was conducted. Therefore, charge of $1800 appears to be associated with both the ABS classification survey and repairs. Therefore, we are of the opinion that this cost should be held dutiable on a prorated basis as requested by the protestant.

However the second charge for $8500 specifically states “pumped out stbd side oily water because of need to do hot work.” (emphasis added.) Hot work generally involves welding, which is generally associated with repairs. The interpretation that repairs were associated with this item is generally supported by the statements on the shipyard receipt that oily water was pumped out of this location nine times: twice on January 3rd, 4th, 6th, and 12th, and once on January 5th. Therefore, we are of the opinion that this cost is associated with repairs and is fully dutiable.

Protest pages 24-29, “Non-Dutiable Inspections”

There is considerable jurisprudence on the subject of non-dutiable inspections. In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), the United States Court of Appeals for the Federal Circuit described American Bureau of Shipping and United States Coast Guard required inspections and modifications as non-dutiable, 357 F. 3d at 1359, language which was recently cited by the Court of International Trade in Horizon Lines, LLC v. United States, 752 F.Supp. 2d 1305, 1311 (Ct. Int’l Trade 2010).

Item 4, Ref. No. 2, Class survey: This invoice indicates that the report number is GH782679. Only a portion of the report is included behind tab 4 of the protest. The remainder of the report can be found in the section of the protest labeled “Suppl. Docs. For Protest,” behind Tab 5. Page 1 of 29 shows that the Survey for Compliance – Class is associated with section GS7882679.R1_C, which can be found on pages 15-17 of 29. Four items are shown for this survey, namely 68 Bottom Plating, 108 Aft Peak Tank – C, 466 Double Bottom Ballast 05PI, and 467 Hold No. 10 (Tween Deck; Bhds; Framing; Tanktop). Each of these items was opened in a prior survey, deficiencies were found, and repairs were recommended. The repairs were inspected in this survey and the deficiencies were found to be rectified. In prior CBP ruling HQ 114600, dated March 27, 2000, we stated in pertinent part:

“[W]e should be examining the survey elements themselves in order to determine whether the need for some dutiable repair has been discovered or verified and whether remedial action was taken. In other words, we believe that determinations of dutiability should accompany the discovery of dutiable repairs associated with the surveys and inspections and should not be made based solely upon the manner in which a survey or inspection is captioned.”

“In invoking this approach in the present matter, we have examined the surveys conducted and find dutiable elements only in connection with survey invoice (F), the “Special Continuous Survey of Hull No. 3.” This survey is the only one of the several submitted for our review which contains references to repair elements discovered necessary and addressed. Since there is no separate cost segregation provided for these repairs, the cost of the underlying survey is dutiable as part of the repair.” HQ 114600, March 27, 2000.

We find the present submission to be a similar situation to that described in HQ 114600, dated March 27, 2000, and in accordance with SL Service and Horizon Lines, we are of the opinion that this item is dutiable on a prorated basis.

Item 10d (GWS) Ref. No. 102015, ABS bottom plugs inspections: The specifications provided under cover of Williams Mullen letter dated June 7, 2011, provide, “Once vessel is drydocked, remove bottom plugs on all double bottoms and ballast deep tanks to drain tanks for examination and in preparation for painting. Upon completion of repairs, close up plugs as original.” In prior CBP ruling HQ H086244, dated December 15, 2009, we stated, in pertinent part:

“Item 16. Bottom plugs. The protestant states: “The bottom plugs in question were removed in order to drain the tanks of liquid prior to inspection by the American Bureau of Shipping as required for Drydocking Survey.” The invoice provides: “Bottom plugs. Removed / refitted, vacuum tested and cemented.” The documentation of record provides for … repairs with respect to the tanks. We find that this cost should be prorated between dutiable and nondutiable costs.”

We find the present submission to be a similar situation to that described in HQ H086244, dated December 15, 2009, and in accordance with SL Service and Horizon Lines, we are of the opinion that this item is dutiable on a prorated basis.

Item 10d (GWS) Ref. No. 102017. Anchor Chain & Chain Locker ABS Inspections: The protestant claims this item should be considered a nondutiable inspection item. CBP has long held that inspections performed by regulatory bodies for classification purposes are nondutiable expenses. However, the restorative repairs were carried out on the anchor chain and chain locker.

The specifications provided under cover of Williams Mullen’s letter dated June 7, 2011, clearly indicate that some of the work the shipyard did was restorative repairs. See Enclosure B to that letter, page [2-1]-6, paragraph 2:1-4 B which states, “Coat entire chain with owner provided black epoxy one coat.” Further, in paragraph 2.1-4 C, the shipyard is instructed, “After inspection, power wire brush all rusted or bare areas” [of the chain locker].

Also, on the next page in paragraph E, the specifications state, “Change out bitter end shot of 22.5 fathoms with owner supplied chain.” In HQ 115729, dated October 8, 2002, CBP stated an anchor chain, constitutes equipment pursuant to T.D. 40934 (Southwestern Shipbuilding Co. v. United States) which specifies that the term “equipment” includes anchors, chain cables and other articles. (27 Atty. Gen. Opinions, 228, 238.) As the replacement anchor chain is considered dutiable equipment, the replacement of it would be a dutiable repair, and the inspections thereof dutiable.

It is noteworthy that the specifications for the work anticipated replacement of this shot of anchor chain. The ABS report indicated that “the last length of port and starboard anchor chains were found wasted below the allowable limit. The affected length of anchor chains were renewed with ABS approved anchor chains.” (See Protest, “Suppl. Docs. For Protest,” Tab 5, page 15 of 29, Paragraph 592.) Clearly, this portion of the inspection was undertaken to determine the need for dutiable repairs to the anchor chain and locker, and logically, at least a portion of the inspection was attributable to the dutiable repairs. However, the ABS receipt does not break the cost down in that manner. Accordingly, we are of the opinion that the entire $3500 cost of the Anchor Chain & Chain Locker ABS Inspections must be held to be dutiable in the absence of more detailed information furnished by the protestant.

Item 10d (GWS) Ref. No. 301002(a). Main reduction gear coupling and gear inspections. The shipyard specifications provided under cover of protestant’s letter dated June 7, 2011, for this item included the language “Stone smooth and dress any high spots.” See Tab C, pages [4-1]-[8 & 9]. We are of the opinion that this is a non-dutiable inspection item.

Item 10d (GWS) Ref. No. 301003(a). Steam chest inspections. The specifications for this item are on page [4-1]-[1 0] in paragraph a. The specifications state, “If noted, polish as required to remove any blue blush (steam scale) from the lifting beam spindles or nozzle valve stems. Check freeness of operation of all remaining linkage, etc. … Stone and blue contact the steam chest cover to steam chest joint, until 95% contact is achieved. Final bluing to be witnessed and accepted by Owner’s Representative and Port Engineer.” This description appears to include some work that went beyond preparation and assistance for a regulatory inspection and included dutiable maintenance. In prior CBP ruling HQ 114188, dated April 23, 1998, we stated in pertinent part:

“Item 0340 is entitled, “Turbines Survey - Main Turbine Starboard Survey by U.S.C.G. and A.B.S.” Upon reviewing this item it is readily apparent that a portion of the work listed thereunder constitutes maintenance (e.g., blueing, ...scraping, ...honing,...reblueing). Customs considers work performed to restore a part to good condition following deterioration or decay to be maintenance operations within the meaning of the term repair as used in the vessel repair statute. (See generally, Customs ruling letter 106543, dated February 27, 1984; C.I.E. 142/61, dated February 10, 1961). In addition, we note that although only a portion of the work covered by this item constitutes dutiable maintenance, there is only one price listed for the entire item. Customs will not grant relief where there is not a sufficient breakdown between dutiable and nondutiable costs. (See, C.I.E.s 565/55, 1325/58, and C.D. 1836). Accordingly, this Item 0340 is dutiable in its entirety.”

Although there are inspections involved in this item, we find the present submission to be a similar situation to that described in HQ 114188, dated April 23, 1998, therefore, we are of the opinion that this item is fully dutiable.

Item 10d (GWS) Ref. No. 302000 SSTG Inspection. This protested item consists of seven line items on the shipyard invoice. The specifications for the work are on pages [4-1]-[15-18] behind Tab B of the Williams Mullen letter dated June 7, 2011. Some language contained therein appears to indicate that some dutiable maintenance and repairs were also included. You specifically ask our advice regarding the following items:

Page [4-1]-[16] Part II a. SSTG Bearing Inspection, “Visually inspect rotor journals and polish disturbed areas.”

Part III a. SSTG Turbine Internal Inspection, “Any interstage or shaft seal packing rings requiring renewal will be supplied by owners. Assist with fitting of any new rings.”

Page [4-1]-[17] Paragraph e., “Polish and dress any parts as necessary.” Paragraph f., “Pump then … disassembled, measurements and clearances to be taken, then cleaned and re-assembled using owner supplied renewal parts if necessary.” And, “[a]t the conclusion of repairs wipe sump clean with a lintfree cloth.” CBP has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel.” (See Headquarters Ruling Letter 110841, dated May 29, 1990, and cases cited therein.) Paragraph g., “Hand dress and polish journals as necessary.”

We are of the opinion that Item 10d (GWS) Ref. No. 302000, SSTG Inspection, appears to be associated with both non-dutiable inspection and dutiable repairs. Therefore, we are of the opinion that this cost should be held dutiable on a prorated basis. Item 11. Shipscan Marine (S) PTE Ltd. Ref. No. NVJG13453: This invoice relates to an ultrasonic thickness inspection, namely, “To furnish engineer and equipment to carry out Ultrasonic Thickness Measurement on board subject vessel at the above location.” In prior CBP ruling HQ H031319, dated September 26, 2008, ultrasonic thickness measurement performed for an ABS Class Survey was nondutiable as it was required by the periodic survey. Therefore, in accordance with HQ H031319, dated September 26, 2008, we are of the opinion that this item is nondutiable.

Item 12. Ref. No. 4. Other statutory survey: The ABS report (Tab 12, page 2 of 3) indicates that this survey was performed incident to the installation of navigation (radar) equipment, GMDSS (INMARSAT ship earth station) equipment, and replacement of the steering control at the wheel house. The survey states that, during and upon completion, these items were operationally tested and found satisfactory. This determination concerns the definitions of equipment, materials and parts, provided above. While taking into consideration your recommendations, we will determine whether the article falls within one of these definitions. With respect to a determination of an article as equipment or materials or parts, an article that is determined to be “equipment” is dutiable and relief shall not be granted. An article that is determined to be materials or parts is exempt from duty, and relief shall be granted. See HQ 113700, March 26, 1998. With regards to the GMDSS, we agree with your determination that this item is equipment within the meaning of the definition of equipment provided above and as applied in prior CBP rulings. Accordingly, we determine that this item falls within the meaning of equipment above, and in accordance with 19 U.S.C. § 1466(h)(2), this item is dutiable and relief should be denied. See HQ 113798, January 9, 1997; HQ 114092, September 12, 1997; HQ H052778, May 7, 2009. We are of the opinion that the testing resulted from the installation of dutiable vessel equipment and that this is a dutiable survey.

Item 12. Ref. No. 2. Time outside of normal working hours: This charge is related to the Shipscan Marine (S) PTE Ltd. Ref. No. NVJG13453, and the Other statutory survey, both discussed above. We are of the opinion that one survey is non-dutiable and the other dutiable. The invoice does not differentiate the time devoted to each survey, and the protestant has provided no further information on this item. This charge appears to be associated with both dutiable and non-dutiable surveys. Therefore, we are of the opinion that this cost should be held dutiable on a prorated basis.

Protest Page 29. Instruments of International Traffic

The protestant claims that Item 14, Buffers USA, covers the costs of lashing gear which should be nondutiable instruments of international traffic. Invoiced items include two types of lashing bars, extension hooks, turnbuckles, and semi-automatic twistlocks. A prior CBP ruling HQ 116264, dated July 30, 2004, is cited by protestant as authority for holding such lashing gear as non-dutiable instruments of international traffic (IIT). Insofar as HQ 116264, dated July 30, 2004, identified lashing bars, turnbuckles and twistlocks for hatch covers as instruments of international traffic, we are of the opinion that it serves as an adequate determination regarding these items in this matter and such articles may be treated as nondutiable. However, we are unable to identify any prior rulings that have held the last item listed on the Buffers USA invoice, described as “Extension Hook Hi Cube” as instruments of international traffic. We note that prior CBP ruling 112779, dated July 26, 1993, states, in pertinent part:

“The applicant’s claim for relief with respect to these items (Item 110 – bridge fitting, cone plate, and quick release shackles and Item 126 – steel shackles) is based upon the premise that these items are instruments of international traffic [IIT]. To qualify as an IIT within the meaning of 19 U.S.C. § 1322(a) and the regulations issued thereunder (19 C.F.R. 10.41a et seq.) an article must be used as a container or holder. Additionally, the article must be substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic.”

“An application for relief from vessel repair duties is not the appropriate forum for an IIT determination. Since the applicant’s chief concern is liability for vessel repair duties, a thoughtful evidentiary presentation concerning the key attributes of an IIT is typically overlooked. The present case is no exception. The applicant claims that the bridge fitting, cone plate, quick release shackles, and steel shackles are IITs without providing any supporting analysis. These items may or may not be granted IIT status depending on how they are used. Absent any supporting documentation specifically depicting their use, we are compelled to conclude that these items are dutiable pursuant to 19 U.S.C. § 1466.”

We are of the opinion that the claims made in this situation are similar to those described in CBP ruling 112779, dated July 26, 1993, and we find the same result in this instance. There has been no thoughtful evidentiary presentation concerning whether the “Extension Hook Hi Cube” satisfies the statutory and regulatory requirements to be designated as an IIT. These items may or may not be granted IIT status depending on how they are used. Absent any supporting documentation specifically depicting their use, we are compelled to conclude that these “Extension Hook Hi Cube” items are dutiable pursuant to 19 U.S.C. § 1466.

HOLDING:

The costs for which the protestant seeks relief are dutiable or nondutiable and remissible under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling. You are instructed to deny the protest in part and to grant the protest in part with respect to the discussion and analysis of the costs addressed above 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 sixty 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 Trade, 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,

George Frederick McCray
Supervisory Attorney-Advisor/ Chief
Cargo Security, Carriers and Restricted Merchandise Branch
Office of Trade, Regulations and Rulings
U.S. Customs and Border Protection