VES-3-02:RR:BSTC:CCI H007026 ALS
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Vessel Repair Entry No. C20-0060899-5; CSX TRADER; V-181; Protest No. 2002-06-101421; 19 U.S.C. § 1466(d)(2)
Dear Sir:
This is in response to your memorandum of February 9, 2007. The memorandum forwards an application for further review of a protest, filed on behalf of Horizon Lines, LLC (“Horizon”), 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 CSX TRADER (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Tacoma, Washington on April 6, 2002. A vessel repair entry was timely filed. Horizon 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 Horizon of this decision via a letter dated September 15, 2006. Horizon timely filed the subject application for further review, seeking relief based on a myriad of claims, including 19 U.S.C. § 1466(d)(2) and 19 U.S.C. § 1466(h)(3).
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.
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 . . . “
Pursuant to 19 U.S.C. § 1466(d)(2), if the owner or master of a vessel produces good and sufficient evidence that equipment, parts, or materials purchased to make necessary repairs to the vessel were manufactured or produced in the United States, and the labor used to install such equipment or to make such repairs was performed by U.S. residents, or by members of the regular crew, then the Secretary of Homeland Security is authorized to remit or refund such duties.
Pursuant to 19 U.S.C. § 1466(h)(3), the duty imposed by section 1466(a) shall not apply to “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 Schedule of the United States (HTSUS) upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.”
Invoice 1, Item 1-8, Crane Service
The protestant contends that this item is not related to repairs or expenses of repairs. Your office found this item to be dutiable on a prorated basis because the use of the crane is related to the drydocking of the vessel, which your office found involved both dutiable and non-dutiable repairs.
We find that the crane service itself is directly related to drydocking activities, which involved both dutiable and non-dutiable costs. The protestant cites to CBP Ruling HQ 113836 (February 20, 1997) to support its claim that the use of the crane itself is non-dutiable. That case is distinguished from the present because the crane in that case was clearly used for a non-dutiable cost only. We have consistently held that drydocking costs are to be prorated when they involve both dutiable and non-dutiable activities. See, e.g., CBP Ruling HQ 116638 (April 10, 2006). As such is the case here, the crane service costs are to be prorated accordingly.
Invoice 1, Item 1-D, Ballast and De-Ballast
The protestant contends that this item is non-dutiable because water was supplied for ballast only for the purpose of conducting tests and inspections pursuant to an ABS (American Bureau of Shipping) survey. Your office found this item to be dutiable on a prorated basis because Invoice 21 indicates that repairs were also made to the ballast tank. We find in fact that repairs were also made to the ballast tank. Consequently, consistent with our approach to proration as noted above, the costs of this item are to be prorated.
Invoice 1, Item 2.1-20, Bottom Plugs Inspection
The protestant contends that the costs for this item should be prorated because the invoice indicates that they were related to both dutiable repairs and non-dutiable inspections. Your office found this item to be fully dutiable because the invoice description “is indicative of a repair” and “[t]here is no breakdown of costs.”
The invoice description does clearly indicate that repairs were done in conjunction with the bottom plugs inspection. The description also indicates that the plugs were removed “for examination,” which suggests that the inspection referred to in the Item title was actually carried out. With no evidence of a breakdown between non-dutiable and dutiable costs for this item, the costs of this item are dutiable in their entirety.
Invoice 1, Item 3.2-16, Hatch Cover Transport
The protestant contends that the costs for this item should be prorated because the invoice indicates that this was done in conjunction with both dutiable repairs and non-dutiable inspections. In particular, the protestant quotes the item description, which reads “[p]rovided labour and crane facilities and lifted hatch covers from vessel to the ground... Placed all hatch covers on stands for owner’s inspection and repair works.” Your office found this item to be fully dutiable specifically because the invoice description states that it was done “for owner’s inspection and repair works.” Your office in particular noted that it was done for the “owner’s inspection,” not an ABS inspection. Your office also noted that the hatch cover transport work is noted in detail on the ABS Damage and Repair Survey Report (Report). As noted on the Report, it specifically deals with “damage/repairs carried out on hull platings, pipings, and miscellaneous items.”
We agree that the invoice description and the Report both indicate in detail that the hatch cover transport was done only in conjunction with repair work or an owner-mandated inspection. Given such, the costs for this item are fully dutiable.
Invoice 1, Item 1-20, Sea Trial
The protestant contends that this item should be prorated because the sea trial was conducted to confirm that an engine disassembled for inspection was in fact working properly. The item description on the invoice includes the statement “[u]pon completion of all repair works, carried out sea trial for main engine.” Your office found this item to be fully dutiable because the invoice, while specifically noting repairs in this case, does not mention any relation to survey work.
We have recognized that otherwise dutiable costs may be carried out in conjunction with a mandated survey without those costs being actually dutiable. See C.S.D. 79-277 (1979). In following C.S.D. 79-277, we have noted that “[i]n regard to the dutiability of inspection/survey costs, C.S.D. 79-277 provides that, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey." CBP Ruling HQ 112908 (October 9, 1996).
In this instance, however, no documented relationship of the ABS survey to the sea trial has been presented in this case. The protestant only presents its assertion that such is the case. This does not prove, however, that the sea trial was done in conjunction with the ABS inspection. Consequently, the costs of the sea trial are fully dutiable.
Invoice 1, Item 2.1-5, Sea Valves and Overboard Valves; Inspection
The protestant contends that this item is not dutiable because the invoice description states the costs were for “[f]urnished labor and material to open valves to comply with ABS inspection,” and the Report indicates that the sea valves were inspected. Your office found this item to be fully dutiable because dutiable repairs were noted throughout the invoice description and there was not a breakdown of costs between dutiable repairs and non-dutiable inspection tasks.
As you have correctly noted, we have previously held that an item should remain fully dutiable when there is no segregation with respect to dutiable and non-dutiable costs. See CBP Ruling HQ 114005 (September 3, 1997). We find such to be the case here. Therefore, the costs for this item are fully dutiable.
Invoice 1, Item 2.1-15, Tailshaft and Stern Tube Seal Inspection
After careful consideration of the protestant’s claims and your findings, this item is fully dutiable for the reasons given for Invoice 1, Item 2.1-5, Sea Valves and Overboard Valves; Inspection.
Invoice 1, Item 4.1-1, Main Turbine (HP/LP) Inspection for ABS Special Survey Machinery
After careful consideration of the protestant’s claims and your findings, this item is fully dutiable for the reasons given for Invoice 1, Item 2.1-5, Sea Valves and Overboard Valves; Inspection.
Invoice 1, Item 4.1-9, Turbo Generator Inspection
The protestant contends that this item is not dutiable because the invoice states that the costs were incurred because of “inspections” (the protestant did not specify the nature of the “inspections”). The protestant cites to CBP Ruling HQ 116205 (December 15, 2004) to claim that we have previously held a similar “inspection” of a turbo generator to be non-dutiable. Your office found this item to be fully dutiable because dutiable repairs were noted on the invoice.
We read the invoice description as consistent with inspection activity. The description also suggests, however, that dutiable repairs were done to the turbo generator. The costs of the inspection activity and the repairs have not been segregated, however. Furthermore, HQ 116205 involved an inspection where the costs of such were delineated on a separate invoice from the repairs. Therefore, the costs for this item are fully dutiable.
Invoice 2, Item 4.2-5, First Stage Heater Hydro
The protestant claims here that C.D. 79-277, as cited above, applies. The invoice description, however, does not indicate at all that this work was done pursuant to an inspection. Since this item appears to constitute an overhaul or dutiable maintenance, the costs of this item are therefore dutiable.
Invoice 2, Item 4.2-3, Main Circulator Pump Inspection
The protestant contends that this item represents an inspection, while your office notes that the invoice description states that the pump was “overhauled.” This item is dutiable, as the invoice describes repair work.
Invoice 4, Mac-Quip Engineering Invoice # A1616-4
The protestant claims that the spare parts listed in this invoice are not dutiable pursuant to section 1466(h)(3) as cited above. Your office found these spare parts to be dutiable because the HTSUS classification numbers and/or duty rates listed on separate submitted document are incorrect or incomplete, and no Customs Form 7501a was submitted.
The spare parts list submitted by the protestant is in fact either incomplete or inaccurate with respect to proper HTSUS classification of every spare part listed therein. Therefore, the spare parts at issue in Invoice 4 are dutiable.
Invoice 20, Metro Tours & Travel Invoice # 21213, Residency Requirements for Travel Expenses
The protestant provides a list of 26 individuals that it claims are United States residents because “all travel [for the listed individuals] originated and ended in the United States.” Of those, your office had previously verified that four of them are in fact U.S. residents. The protestant has submitted a letter from Walashek Industrial & Marine that states that “service representative Michael Walashek” and “work crew” are United States residents. The protestant claims to have also submitted “a certification by Walashek and Walashek documents with employees’ names” under Exhibit 1. No such document has been presented, however.
Your office is not persuaded by the assertion that the listed crew members are U.S. residents because their travel “originated and ended” in the United States. Neither are we. Furthermore, the letter attesting to the U.S. residency of Michael Walashek and “work crew” is not supported by relevant documentation, such as copies of passports, driver’s licenses, or similar documentation. Therefore, with the exception of the four individuals for which relief has already been granted, the travel expenses are dutiable.
Invoice 22a, SL Marine Services Invoice # SL-CSX-02-03/02, Crew’s Transportation Expenses
The protestant claims that these costs are non-dutiable, citing CBP Ruling HQ 116096 (January 6, 2005) for support. Your office determined these costs to be dutiable on a prorated basis because the transportation was necessitated by both dutiable and non-dutiable work.
The costs here are dutiable, as the protestant does not provide any evidence to the contrary. The mere citation of a previous CBP ruling where we found such costs non-dutiable, without any explanation, is insufficient.
Invoice 22b, SL Marine Services Invoice # SL-CSX-03-03/02, Towage and Related Expenses
The protestant contends that tug service is not dutiable pursuant to American Ship Management, LLC v. United States, 162 F. Supp.2d 671 (CIT 2001). The court explicitly held that the tug costs in that case were non-dutiable as the result of “an inevitable expense of a mandatory inspection.” The protestant also contends that American Ship Management was not affected by SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), cert. denied December 13, 2004.
As we noted in CBP Ruling HQ 116501 (August 11, 2005), the Federal Circuit in SL Service upheld CBP’s “long-standing practice apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications[, which] comports with both the statute and common sense.” (Quoted from SL Service, supra.) In HQ 116501, we determined that tug services may be prorated between dutiable and non-dutiable costs. Thus, the tug services and related expenses in the case are to be prorated accordingly.
Invoice 23, CMP Coatings, Inc. (CAH) Invoice # 37656, Paint
After careful consideration of the protestant’s claims that this paint was previously imported, duty-paid, and therefore not dutiable pursuant to 19 U.S.C. § 1466(h)(2), and your findings which are that section 1466(h)(2) is inapplicable since the paint was delivered to the vessel from a Singapore warehouse and the invoice indicates such, this item is fully dutiable.
Invoice 24, Jurong Shipyard Ltd., Item 9.1.1, Work done to Container Entry Guides
The protestant claims that the work done here constitutes non-dutiable modifications, citing CBP Ruling HQ 111225 (February 21, 1991). Your office found this work to be dutiable because the invoice indicated that the replaced parts were in disrepair or not working properly, and that some parts seemed to not have been permanently incorporated into the hull.
The protestant fails to explain how HQ 111225 supports its contention that this work constitutes modifications. Absent such explanation or any kind of evidence or analysis to support its contention or challenge your findings, we find this item to be dutiable.
Invoice 24, Jurong Shipyard Ltd, Invoice # 01122-MO, Item 5.1.21, Modifications and Cleaning
The protestant claims that the costs for this item are non-dutiable because the work is a modification to replace an existing structure that was in good working order. As your office correctly notes, the submitted statement from the Port Engineer of the Fleet Repair Group indicates that the work was done to address “a history of failure aboard the C8 class vessels of the cargo lashing on the hatch cover....” Thus, the costs for this item are dutiable, as the work was clearly done to correct a deficiency.
Invoice 24, Jurong Shipyard Ltd., Invoice # 01122-MO, Item A012, Forward Bilge Piping Work, Item 8.8-25 and CSX M002 10 A+B Pipe Penet Renewal; Fill (FO) Pipes Work [(R)H020], A015
After careful consideration of the protestant’s modification claims, and your findings that the documentation submitted indicates that this was repair work to correct a design deficiency, we agree that these items are fully dutiable.
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