VES-3-18-RR:BSTC:CCI H070666 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 DG6-0047223-8; Protest 2002-08-100212
Dear Sir:
This is in response to your memorandum of July 24, 2009, forwarding for our review the protest filed by the Department of Transportation, Maritime Administration (“protestant”) with respect to Vessel Repair Entry DG6-0047223-8. Our ruling follows.
FACTS:
The CAPE MOHICAN (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of San Francisco, California on February 4, 2002. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on July 7, 2008 with respect to the application for relief. A protest was subsequently filed seeking remission and relief from duty on numerous expenditures.
The protestant describes certain of the pertinent facts as follows:
On May 22, 2001 while anchored at Chilpo Beach, Republic of Korea, the vessel experienced strong winds and became grounded. The vessel was anchored at this site at the direction of the MSC. The CAPE MOHICAN was unable to get away from the rocky bottom in the high winds and thus unexpectedly hit bottom for approximately 32 hours, suffering extensive damage….
The vessel was finally freed and, unable to safely travel under her own power, was towed to the nearest shipyard in Korea. The damage caused by the grounding was significant, damaging not only the hull of the vessel, but structures and equipment throughout the vessel…. In fact the damage was so extensive that the Korean Shipyard was only able to make temporary repairs on the vessel….The CAPE MOHICAN was therefore approved to be towed to a repair yard in Japan….
The shipyard in Sasebo, Japan was also unable to complete all the repairs which were necessary to make the vessel seaworthy, and the vessel was again approved to be towed, this time to Singapore….In Singapore the final necessary repairs were completed, making the vessel again seaworthy following the grounding.
ISSUE:
The issue presented is 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 equipment for and 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 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.
Section 1466(d)(1)) provides that the Secretary is authorized to remit or refund such duties if the owner or master of the vessel furnishes good and sufficient evidence that the vessel was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. Section 4.14(h)(2)(i), Customs and Border Protection (“CBP”) Regulations (19 CFR § 4.14(h)(2)(i)) provides that "port of destination" means such port in the United States.
Section 1466(d)(1) and 19 CFR § 4.14(h)(2)(i) essentially set forth a three-part test, each of the elements of which must be established by good and sufficient evidence to qualify for remission:
1. a casualty occurrence;
2. an unsafe and unseaworthy condition; and
3. the inability to reach the port of destination in the U.S. without foreign repair.
The term "casualty,” as it is used in the vessel repair statute (19 U.S.C. § 1466) has been interpreted as something which, like stress of weather, “comes with unexpected force or violence, such as that of a fire, or a collision, or an explosion.” See Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 23, 29 (1940).
We also take notice of the following definitions of “casualty.” A serious or fatal accident . . . a disastrous occurrence due to sudden, unexpected or unusual cause. Accident; misfortune or mishap; that which comes by chance or without design. A loss from such an event or cause; as by fire, shipwreck, lightning, etc. Black’s Law Dictionary (5th ed., 1979). A serious or fatal accident. Black’s Law Dictionary (8th ed., 2004).
The protestant has submitted the following documentation in support of its claim for remission under 19 U.S.C. § 1466(d)(1): a survey report of the National Cargo Bureau, Inc., dated August 2, 2001; a Statement of Facts of the period of May 22, 2001 through June 3, 2001 recorded by the master of the vessel; photographs of the vessel taken after the incident; a report prepared by Smit International Singapore Ltd.; an American Bureau of Shipping report concerning the tow of the vessel from Korea to Japan for repairs and a certificate of fitness; a CG-835 dated September 13, 2001 reflecting that the original CG-835 of May 21, 2001 has been cleared and that the vessel is directed to proceed under tow to Singapore and that “all plans for repairs must be approved by the USCG”; and a Nippon Kaiji Kentei Kyokai report dated August 1, 2001 re the transportation of the vessel in tow from Japan to Singapore.
The documentation of record indicates the following: the vessel incurred substantial damage after being grounded in high winds and after repeatedly hitting the sea bottom for an extended period; the damage to the vessel included holes in the bottom of the vessel and buckled plates inside the hull of the vessel; the vessel was unable to travel safely under her own power and was towed to the nearest shipyard in Korea; the vessel was subsequently towed to Japan, as the Korean shipyard was only able to perform temporary repairs; and the vessel was later towed to Singapore where the repairs were completed.
After a consideration of the documentation of record, we find that the protestant has established a basis for remission under 19 U.S.C. § 1466(d)(1) and 19 CFR § 4.14(h)(2)(i), i.e., we find that the protestant has satisfactorily established the three required elements, described above. The protestant has established the occurrence of a casualty; an unsafe and unseaworthy condition of the vessel; and the inability to reach the port of destination in the U.S. without foreign repairs. Remission is therefore granted with respect to the costs associated with this claim.
You have asked this office to review general services costs on a number of invoices (e.g., tabs 66-87, 90, 92, and 94). General services costs (sometimes called drydock costs) include, but are not limited to, the following: transportation services, wharfage, riggers’ assistance, ship-to-shore telephone, gas free certificates, crane service, fire watch and protection, garbage disposal, compressed air, temporary lighting, costs of the port engineer’s office, tug boat
and pilot service, electric power, fresh water supply, and shore power. Subsequent to the Texaco case, supra, the Customs Service (now, Customs and Border Protection (“CBP”)), determined that the most fair and appropriate manner in which to administer the “but for” test of Texaco with respect to general services costs or drydock costs was to prorate these costs between dutiable and nondutiable costs. For example, if, aside from the subject general services costs, fifty percent of the costs of an entry were dutiable and fifty percent of the costs were nondutiable, then, under the proration, fifty percent of the subject general services costs would be dutiable and fifty percent would be nondutiable. Therefore, in a situation such as you posit (i.e., where most of the
costs are nondutiable), the apportionment will reflect this, i.e., if most of the costs on an entry are nondutiable, most of the general services costs will be nondutiable. CBP’s proration of general services costs was strongly endorsed by the court in SL Service, supra. We decline to overturn the judicially-approved method of administering general services costs with respect to 19 U.S.C. § 1466. We concur that the cost of the dock trials should be prorated between dutiable and nondutiable costs as there are dutiable costs such as repairs to engine room machinery which were conceded by the protestant to be dutiable and which are relevant to the dock trials.
You have also asked this office to review the following costs.
Tab 3. Underwater reference marks. We find that this item is eligible for relief under 19 U.S.C. § 1466(d)(1), as it is related to the casualty claim.
Tab 12. Radio Survey. The invoice includes items for a supply printer and hydrostatic release. These items are equipment and are dutiable under 19 U.S.C. § 1466. Because these items are not separately itemized or broken out on the invoice, we find that the costs on this invoice are dutiable.
Tab 15. Test Feed Tanks, Scupper Pipes and Valves. The protestant states that this work is related to the grounding of the vessel. The subject costs involve work to the #11 and #12 port and starboard ballast tanks. An American Bureau of Shipping report (survey status date of June 1, 2001) provides that no damage was noted to the #11 and #12 port and starboard water ballast tanks. Based on this report, we are unable to conclude that the subject work was
related to the May 22-23, 2001 grounding of the vessel. Similarly, the protestant has not provided satisfactory documentary evidence that the other costs were relate to the grounding of the vessel. Therefore, we find that these costs are dutiable.
Tab 17. Interferences to Topsides of Girder. The record indicates that this work (change order 135) was related to item 2.14D (barge elevator blasting and
coating) which was conceded by the protestant to be dutiable. We find that this item is dutiable as it is related to a dutiable item.
Tab 25. No. 12 P/S Valve Spindle. The invoice provides: “Furnish labor, material and equipment to free-up valve stem, bevel gear and reach rods for ballast system valves to #12 port and starboard ballast tank.” An American Bureau of Shipping report (survey status date of June 1, 2001) provides that no damage was noted to the #12 port and starboard water ballast tanks. Based on this report, we are unable to conclude that the subject work was related to the May 22-23 incident. Therefore, we find that this cost is dutiable.
Tab 53. This tab involves numerous items, including items which were serviced (life rafts) and renewed. We find that these costs are dutiable maintenance.
Tabs 54 through 59. These tabs each involve numerous items. We find that the following costs are nondutiable: reinspection certificates; CO2 cylinder leakage test; floor seam test; drinking water; and seasickness tablets. All other items are dutiable as the protestant has not identified a basis for relief.
Tab 60. This invoice involves repairs to the gyro compass. We find no evidence in the documentation of record that the gyro compass was damaged in the incident of May 22-23, 2001 or that the repairs to the gyro compass were necessitated by the incident. Further, the protestant conceded another cost relating to the compass (compass adjustment) to be dutiable. Therefore, we find that this cost is dutiable.
Tab 95. Electrical circuits – megger readings. The documentation of record indicates that this cost is related to the port and starboard transporter and that certain costs relating to the port and starboard transporter were conceded to be dutiable by the protestant. Therefore, we find that this cost is dutiable.
HOLDINGS:
The costs for which the protestant seeks relief are dutiable, nondutiable, 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 costs discussed 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 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