VES-13-18-0T:RR:BSTC:CCI H047587 ALS
Supervisory Import Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Protest No. 2002-08-100205; Vessel Repair Entry No. NF4-4331010-9; M/V LIBERTY; 19 U.S.C. § 1466
Dear Sir:
This is in response to your memorandum of December 10, 2008, forwarding the above-referenced application for further review. We have reviewed the items for which you request our advice. Our decision follows.
FACTS:
The M/V LIBERTY underwent foreign repairs and incurred associated foreign costs while drydocked at the Remontowa Shipyard in Gdansk, Poland, for scheduled U.S. Coast Guard (USCG) and Classification Society inspections, surveys, and general repairs. The vessel returned to the United States at the port of Bayonne, New Jersey, on October 10, 2006. A vessel repair entry was timely filed on October 12, 2006.
Protestant filed an application for relief of the vessel repair duties assessed on the costs covered in the subject vessel entry. Your office responded by issuing a determination of duty letter on April 4, 2008, which denied in part and granted in part the requested claims for relief. Accordingly, your office assessed vessel repair duties in the amount of $1,287,541.14. The protestant timely filed the subject application for further review on September 22, 2008, for the duties assessed for certain items.
ISSUE:
Whether the costs for which the protestant seeks relief are subject to duty under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Pursuant to Title 19, United States Code, section 1466(a) (19 U.S.C. § 1466(a)), there must be a payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trades. The U.S. Customs and Border Protection (CBP) regulations issued under section 1466 are found in 19 CFR 4.14. The burden rests on the protestant to establish, by adequate, clear, and satisfactory documentary evidence, that an item is non-dutiable under 19 U.S.C. § 1466. See CBP Ruling HQ 116462 (May 16, 2005).
Insurance Costs.
In the initial application for relief, protestant did not address insurance costs. Therefore, it was determined that these costs were fully dutiable. In the subject protest, the protestant asserts that the cost for insurance charged by the shipyard should not be dutiable as it is not related to repairs, or at the very most, it should be prorated. It is CBP's longstanding position that insurance costs are dutiable if they are directly related to repairs. See CBP Ruling HQ 113221 (November 2, 1994). See also CBP Ruling HQ 112442 (August 19, 1993), citing Treasury Decision (T.D.) 55005(3) (December 21, 1959). Furthermore, CBP has consistently held that "insurance costs are included in the category of overhead and administrative expenses, of the type which are subject to proration." See CBP Ruling HQ 115160 (January 25, 2001). Moreover, costs of overhead and/or administrative charges are dutiable in their entirety when they are associated with dutiable work. See HQ 112442, supra. However, to the extent that these costs are associated with and apportioned between dutiable and non-dutiable work, they are subject to proration. See CBP Ruling HQ 115160, supra.
The record in this instance indicates that both dutiable and non-dutiable work was performed while the vessel was in the foreign shipyard. As such, the insurance cost charged during the shipyard period should be considered a dual-purpose expense and held dutiable on a pro-rated basis. See CBP Ruling HQ 115160, supra. Since the evidence in the record supports a finding that the subject insurance costs were allocable to both dutiable and non-dutiable work, the cost of insurance should be pro-rated accordingly.
Simplified Voyage Data Recorder (SDVR) System
The items in question involve two invoices related to the purchase and installation of the SVDR system, two watertight microphones, and one data recording unit. The protestant sets forth two arguments as the basis for the relief requested. First, the protestant claims that the purchases were made in the United States, and secondly, that the work involved constituted a modification.
Section 1466(d)(2) provides in pertinent part for remission or refund of duties for necessary repairs if it is established that "such equipment 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." In order to receive remission under 19 U.S.C. § 1466(d)(2), U.S. manufacture or production must be established for the item under consideration. See CBP Ruling HQ 112069 (May 21, 1992). In addition, it must also be established that the labor was performed by U.S. residents or members of the regular crew of the vessel. See CBP Ruling HQ 115877 (February 3, 2003).
The record reflects that the subject SVDR system, microphones and data recording unit were not manufactured or produced in the U.S. The mere purchase of goods in the U.S. does not satisfy the statutory requirement of U.S. manufacture or production under § 1466(d)(2).
With respect to protestant's claim that the subject SVDR system constituted 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 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 non-dutiable under 19 U.S.C. § 1466.
A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et. aI, supra. That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other. "Dutiable equipment" has been defined to include: "...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies." The court in Admiral attempted to distinguish non-dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. Non-dutiable items might include: "...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period."
In the present case, the protestant asserts that the SVDR system "is a permanent incorporation into the hull or superstructure of the vessel." In support of this assertion, protestant states that the SVDR system involves installing electronic sensors in various parts of the vessel machinery through wires, and that "it would be very difficult to remove all of the wiring and sensors." As evidence, protestant has provided images of the SVDR system where it has been bolted in place.
According to the International Maritime Organization, an SVDR is similar to the black box carried on aircraft. Its purpose is to "enable accident investigators to review procedures and instructions in the moments before an accident and to help to identify the cause of any accident." See Maritime Safety Committee Circ. 1024 (May 29, 2002). The SVDR should maintain and store, in a secure and retrievable form, information concerning the position, movement, physical status, command and control of a vessel over the period leading up to and following an incident.
In this instance, the SVDR, is vessel equipment which is merely bolted in place. CBP has held that the term equipment is determined to mean something 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. See CBP Ruling HQ 115639 (June 24, 2002). Bolting an item in place does not necessarily constitute a permanent incorporation into the hull or superstructure of the vessel. Likewise, nor does the difficulty in removing wires and sensors necessarily render an item a modification.
Furthermore, the SVDR system is similar to radar systems and satellite communications systems, which are considered to be dutiable vessel equipment. CBP has long held that radar units are dutiable vessel equipment. See CBP Ruling HQ 114092 (September 12, 1997). Thus, upon careful consideration of the record, we conclude that the evidence submitted is insufficient to support a finding that the installation of the SVDR system constitutes a modification. Accordingly, the cost of this item represents a dutiable purchase of equipment under 19 U.S.C. § 1466(a).
Radio Holland Invoice.
Protestant requests relief for labor costs on the basis of U.S. residency. As evidence, protestant has provided an undated "certification" naming the technician, which it submitted in conjunction with an invoice covering only labor. The certification states that the work was "done by a U.S. resident who went from the United States to work on the vessel."
Section 1466(d)(2) provides, in pertinent part for remission or refund of duties for necessary repairs if it is established that "the labor necessary to install such equipment or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel." In this regard, "good and sufficient evidence" must be submitted in order to prove that the repairs were performed by a U.S. resident or regular crew. See CBP Ruling HQ 113827 (July 8, 1997). In the instant case, there is no other identifying information regarding the named technician to establish that the individual is a U.S. resident. Furthermore, the invoice for the labor does not provide a connection between the named individual and the repairs. This item therefore remains dutiable.
Regulatory Expenses, "Lloyd's Register."
Relief was denied because the initial application did not contain a survey report. Protestant has now provided an "Interim Certificate" in lieu of a survey report. The interim certificate lists the surveys undertaken by Lloyd's Register while the vessel was drydocked in Gdansk, Poland. Therefore, we find this interim certificate is the equivalent of a survey report in this instance.
CBP has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the survey is not dutiable even when dutiable repairs are affected as a result. See CBP Ruling HQ 112222 (May 27, 1992). Thus, the expenses associated with such surveys listed on the interim certificate are non-dutiable. However, the cost for the "Hull Repairs" listed thereon remains fully dutiable. In addition, the figure for the line item labeled "Expenses" also listed on the interim certificate is dutiable on a prorated basis.
Barwil Unitor.
Protestant initially sought treatment under the appropriate commodity classification rate of the Harmonized Tariff Schedule of the United States Annotated for the items in this invoice. Relief was denied on the basis that the nitrogen and cylinders were not parts and therefore not eligible for treatment as such pursuant to 19 U.S.C. § 1466(h)(3).
Protestant now asserts that the "Nitrogen N-5030 Filling" is a consumable supply used for fire fighting. The protestant further claims that the "Cylinder Deposit N-50" is not a purchase, but rather "a deposit for an integral part of the firefighting system" for the vessel.
CBP has long-held that consumable items are duty-free when not used in connection with dutiable repairs. The courts have held that "consumable supplies" are "supplies" for the consumption, sustenance, and medical needs of the crew and passengers during the voyage." See HQ 116462, supra, citing H.E. Warner, Trustee, American Mail Line. Ltd. v. United States, 22 C.C.P.A. 143, 150.
With regard to fire fighting equipment, CBP has held that fire extinguishers are dutiable equipment. See CBP Ruling HQ 111654 (December 24, 1991). Moreover, testing and servicing of fire fighting equipment is regarded as a dutiable maintenance cost. See CBP Ruling HQ 114639 (June 25, 1999). The protestant claims that both the nitrogen and the cylinders are used for the fire fighting system. However, neither the invoice nor the protest provides information on how the nitrogen and cylinders are used within the fire fighting system. Based on the foregoing, these items would either constitute dutiable equipment if used as fire extinguishers, or as maintenance of fire fighting equipment, which is subject to duty. Thus, these items remain dutiable.
HOLDING:
After a thorough review of the record, the protest should be granted in part and denied in part as detailed above.
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 recalculation of duties of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of International Trade, Regulation & 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