VES-13-18:RR:IT:EC 115996 TLS
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
New Orleans, Louisiana 70130
RE: Vessel Repair Entry No. C20-0058628-2; PACIFIC BALLAD; 19 U.S.C. § 1466; Protest No. 2002-03-100183.
Dear Sir:
This is in response to your memorandum of May 13, 2003. The memorandum forwards an application for further review of a protest, filed by Neville Peterson LLP on behalf of Pacific Island Resources (PIR), pursuant to 19 U.S.C. § 1466. The protest specifically seeks further relief from vessel repair duties that were payable upon the filing of an entry dated May 18, 2002.
Your office assessed duties upon the above-noted entry on December 6, 2002 in the amount of $46,473.38. The protestant filed for relief from those duties on March 6, 2003. Upon review of the filing, you recommend that the protestant be denied relief in part and granted relief in part regarding the $11,380.50 in duties that are the subject of this protest.
FACTS:
PIR bought, through its holding company Pacific Ballad Resources, LLC (PBR), the vessel PACIFIC BALLAD in year 2001. According to the protestant, the vessel was designed, at the time of purchase, for catching Alaskan King Crabs and storing them in live wells and was thus used. Upon purchase, the vessel was moved to New Zealand to be reconfigured to fish for, process, and blast-freeze squid. This work was completed in the summer of 2001. Additional work was done on the vessel in New Zealand in 2002.
The protestant claims that the reconfigurations resulted in a vessel outfitted as a squid jigger rather than a crab vessel, as it had be used before. The protestant further claims that the work done in New Zealand constitutes modifications of the vessel that are non-dutiable. Your office seeks our advice with respect to certain of these costs, which are listed on various invoices as follows:
ITEM # INVOICE NAME; NUMBER(S) DATE(S)
8 Parade Hydraulic Engineering 1999 Ltd.; 846 1-26-02
9 Parade Hydraulic Engineering 1999 Ltd.; 846 1-26-02
29 Parade Hydraulic Engineering 1999 Ltd.; 914 2-16-02
30 Parade Hydraulic Engineering 1999 Ltd.; 914 2-16-02
63 Parade Hydraulic Engineering 1999 Ltd.; 2078 4-30-02
64 Parade Hydraulic Engineering 1999 Ltd.; 2078 4-30-02
20 Legend-Nautilus; 10058, 10059, 10062, 9956 1-13-02,
1-14-02,
12-19-01.
78 Legend-Nautilus; 10417 4-28-02
114 Nalder & Biddle (Nelson) Ltd.; 609111, 609110, 5-20-02
609113 5-22-02
ISSUE:
Whether the work in question for which the protestant seeks relief constitutes expenses unrelated to vessel repairs and is therefore non-dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) (19 U.S.C. § 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…"
In its application of the vessel repair statute, Customs has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority 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.
The United States Court of Appeals for the Federal Circuit has ruled that expenses that would not have been incurred “but for” the dutiable repair work done are themselves dutiable, and, conversely, expenses that would not have been incurred but for the non-dutiable work done are themselves non-dutiable. Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994). The same court recently ruled that the U.S. Customs and Border Protection’s (CBP’s) method of prorating duties based on the ratio of dutiable work versus non-dutiable work in regard to dual-purpose expenses is consistent with the “but for” test and section 1466(a). SL Service, Inc. v. United States, Slip Op. 03-1174 (Fed. Cir. 2004), panel reh’g and reh’g en banc denied, 2004 U.S. App. LEXIS 10322 (April 19, 2004).
Considering each cost for which relief is sought in the order listed above, we first consider Item 8, in which the invoice lists various repairs to the vessel. The protestant concedes the dutiability of these repairs, but they are noted here because they are related to the work listed in Item 9, as they appear on the same invoice.
Item 9 consists of work the protestant contends are modifications which are non-dutiable, with which we agree. You find that the list of jobs done here does not segregate the labor costs of the work done in Item 8 from the work done here in Item 9. To the extent that the labor costs for Items 8 and 9 cannot be segregated, they are wholly dutiable. The cost of the parts used to do the work described in Item 9, however, is non-dutiable.
Item 29 consists of two repair jobs done to the vessel that the protestant concedes are dutiable. This item is noted for the same reason as Item 8; it is related to Item 30, which is listed on the same invoice and involves the same labor costs.
Item 30 is described as “modify fresh water tank breather/overflow pipes.” We find this to be consistent with work constituting a modification, and it is therefore non-dutiable. As with Item 9, the costs of the parts used to do this work are non-dutiable, as they can be clearly distinguished from other costs noted on the subject invoice. The labor costs, however, cannot be segregated from labor costs associated from the dutiable work listed on the invoice. Thus, the labor costs for this item are dutiable.
Item 63 is similar to Items 8 and 29 in that the protestant concedes that the work described here is dutiable, but the work is related to work described in Item 64 in that it is listed on the same invoice and involves the same labor costs.
Item 64 is similar to Items 9 and 30 in that it involves work that we find constitutes modifications to the vessel. The cost of the parts used to do the work described here is therefore non-dutiable. The labor costs, however, cannot be segregated from the labor costs associated with the dutiable work done in Item 63. Thus, the labor costs for this item are dutiable.
Item 20 consists of consumables, equipment, and spare parts. The protestant has conceded the dutiability of some of these articles. For the articles the protestant contends are non-dutiable, you agree except for a certain list of articles listed on page one of invoice 10059. These articles cannot be considered consumables because they are not used up as a result of their use on the vessel. These articles also cannot be considered spare parts, as they are not incorporated into a larger whole. In fact, these articles are equipment. We cannot determine from the submitted documents whether or not these articles were used in conjunction with repairs or modifications. Consequently, in the absence of evidence to the contrary, we must consider these articles as dutiable equipment.
Item 78 consists of articles that are similar in nature to those at issue in Item 20. As with the articles in Item 20, these articles are equipment. We also cannot determine from the submitted documents whether or not these articles were used in conjunction with repairs or modifications. Consequently, in the absence of evidence to the contrary, we must also consider these articles as dutiable equipment.
Item 114 is disputed as non-dutiable by the protestant. The protestant contends that the line item amount of $3,611.91 was already reported as dutiable items in the original petition for relief under three separate invoices from Nalder & Biddle. The protestant concedes the discrepancy in the amount between what is listed on the three other invoices and what is listed here as Item 114. The protestant claims that the discrepancy is a mistaken overstatement of the total of the three invoices. We have no basis to compare this item with the other three invoices, as they were not included with this protest for our review. You note that the protestant has not provided evidence indicating just how the error in calculation was made. Given the lack of verification of the correlation between the three invoices and this particular item, we find the cost of this item to be dutiable.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest for relief with respect to the
items considered above should be denied and granted 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
Entry Procedures and Carriers Branch