VES-3-18-RR:BSTC:CCI H097723 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 MQ8-1000512-3; Protest 2002-10-100001; Remission under 19 U.S.C. §1466(d)(2)
Dear Sir:
This is in response to your memorandum of March 1, 2010, forwarding for our review the protest filed on behalf of Alaska Tanker Company (“protestant”) with respect to Vessel Repair Entry MQ8-1000512-3. Our ruling is set forth below.
FACTS:
The S/S KENAI (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Valdez, Alaska on October 26, 2003. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on October 2, 2009 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, with application for further review, 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) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of 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.
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 the Customs and Border Protection (“CBP”) 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, 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.
You request our review with respect to the items discussed below.
Sembawang Shipyard Invoice S031010175, item 069. Your office held this cost to be dutiable at the application stage. The protestant states that this work “was done to allow the ABS inspectors to conduct their survey.” The shipyard invoice provides, in pertinent part: “Applied high pressure jet blast water wash (30,000 psi) and mechanically cleaned firesides of each of two boilers. Generating tubes, superheater tubes, water well tubes, screen tubes and primary and secondary economizer tubes jet blasted with 30,000 psi water wash and mechanically cleaned to bare metal … Stack, steam air heaters and uptakes washed down with low pressure fresh water … All soot, slag and debris removed from superheater vestibule, boiler exit vestibule, economizer, economizer casings, and fire box including furnace floor upon completion of washing …” An American Bureau of Shipping (“ABS”) Class Survey Report for the vessel (Report No. SG374129) contains a section entitled “Damage –
Repair Survey (Class) – Structural Damage.” This section of the ABS report provides, in pertinent part: “3. Partially renewed port and starboard superheater tubes at this time.” Another ABS document (Report No. SG374129-H2, dated October 8, 2003) provides, in pertinent part: “Existing port and Starboard Main boiler superheater tubes were partially renewed at this time during boiler survey.” We find that the subject costs are related to both dutiable and nondutiable work. Therefore, we determine that the subject costs should be prorated between dutiable and nondutiable costs.
Inchcape Shipping Services Invoice SGADA 6960, Voucher Nine. The cost at issue here is the lodging expense of a crewmember during the period of drydocking. Your office prorated this cost at the application stage. CBP has consistently held that the lodging and local transportation costs of crewmembers during a drydocking are general services or drydocking costs and, as such, are to be prorated between dutiable and nondutiable costs with the other general services and drydocking costs. See, for example, HQ H008155, dated April 16, 2008, where we held crew expenses to be “general expenses” which are to be prorated. Accordingly, we affirm your determination that this cost should be prorated between dutiable and nondutiable costs.
William Drury Company, Inc. Invoice 9178. The cost at issue is for five watertight doors. The protestant claims that the doors are eligible for remission as parts under 19 U.S.C. § 1466(d)(2). We find that the doors are equipment, not parts. See HQ 115117, dated October 26, 2000, where we held that lashing bridge access doors were equipment. However, as equipment, the doors are potentially eligible for remission under 19 U.S.C. § 1466(d)(2), which provides for remission from duties under 19 U.S.C. § 1466(d)(2) “[i]f the owner or master of such vessel furnishes good and sufficient evidence that … 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[.]” [Emphasis supplied.] CBP has held that remission from vessel repair duties under 19 U.S.C. § 1466(d)(2) may be granted with respect to the cost of equipment or parts where the vessel owner or operator furnishes good and sufficient evidence that the equipment or parts were manufactured or produced in the United States. Because we find that the subject doors are equipment, the remaining inquiry with respect to eligibility for remission under 19 U.S.C. § 1466(d)(2) is whether the protestant has provided good and sufficient evidence that the doors were manufactured or produced in the United States. The invoice for the doors was issued by William Drury Company, Inc. of Tacoma, Washington (invoice 9178, dated July 8, 2003). A certification that “[a]ll items on referenced invoice are of U.S. origin” was provided by The Williams & Wells Co., i.e., the line is “checked” under “Parts/Material (check one) … All items on referenced invoice are of U.S. origin.” The “Dutiable/Non-Dutiable Customs Certification” (hereinafter, the “certification sheet”) was dated February 10, 2004 and signed by an account representative of The Williams & Wells Co.; no address, phone number, or other information with respect to The Williams & Wells Co. is provided on this certification sheet. Attached to the certification sheet are three sheets which contain a list of 121 invoices (the date, invoice number, amount, and vendor for each of the 121 invoices). Research has disclosed that The Williams & Wells Co. is a purchasing and logistics organization located in Linden, New Jersey. The range of services it offers includes “Spare Parts & Machinery … [and] General Marine Supplies…” We find the certification sheet to be deficient with respect to the good and sufficient evidence required for remission pursuant to 19 U.S.C. § 1466(d)(2) because there is no satisfactory, documentary evidence establishing what specific knowledge, if any, The William & Wells Co. possesses with respect to the origin of all of these goods. For example, it appears that the actual vendor of these goods is William Drury Company, Inc., and not The Williams & Wells Co. Therefore, we find that the subject cost is dutiable under 19 U.S.C. § 1466 and is not eligible for remission pursuant to 19 U.S.C. § 1466(d)(2).
HOLDING:
The costs for which the protestant seeks relief are dutiable and non-remissible or to be prorated under 19 U.S.C. § 1466 as discussed 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 items discussed above.
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