Vessel Repair Entry No. C15-0020477-1; Protest No. 1512-02-100257; S/S WILSON; 19 U.S.C. § 1466; Dry-docking; Proration

HQ 116427 April 15, 2005 VES-13-18-RR:IT:EC 116427 CK CATEGORY: Carriers Chief, Vessel Repair Unit U.S. Customs and Border Protection 423 Canal Street, Room 303 New Orleans, Louisiana 70130 RE: Vessel Repair Entry No. C15-0020477-1; Protest No. 1512-02-100257; S/S WILSON; 19 U.S.C. § 1466; Dry-docking; Proration Dear Sir: This is in response to your memorandum dated March 11, 2005, which forwarded for our review the above-referenced vessel repair protest. Our ruling on this matter is set forth below. FACTS: The SS WILSON is a U.S.-flagged vessel which incurred foreign repair costs during the period of February 25, 1997 to March 24, 1997. Subsequent to the completion of the work in question, the vessel arrived at the port of Wilmington, N.C. on April 24, 1997. A vessel repair entry was timely filed. An application for relief with supporting documentation was timely filed, which was granted in part and denied in part. A petition for review of the Vessel Repair Unit (VRU) decision was filed, and that petition was also granted in part and denied in part by HQ 115549, dated March 6, 2002. The subject protest was timely filed on November 22, 2002. The sole issue in this protest is whether U.S. Customs and Border Protection (CBP) correctly prorated incurred dry-docking and general expenses. The protestant, in support of its claim, is relying on a decision of the U.S. Court of International Trade (CIT) which was subsequently reversed by the U.S. Court of Appeals for the Federal Circuit (CAFC). ISSUE: Whether the prorated assessment of duty on the foreign expenditures for which the protestant seeks relief was in accordance with 19 U.S.C. 1466. LAW AND ANALYSIS: Title 19, United States Code, § 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 SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), reh. denied, reh. en banc denied, 2004 U.S. App. Lexis 10322 (Fed. Cir. April 12, 2004), rev’g 244 F.Supp. 2d 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 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 bean 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 regard to the costs at issue, our review of the vessel repair entry and the invoices contained therein indicates that the general services/dry-docking costs at issue were incurred in conjunction with both dutiable and nondutiable work. These charges are therefore to be prorated pursuant to the CAFC in SL Service, Inc. v. United States, supra. HOLDING: The prorated assessment of duty on the foreign expenditures for which the protestant seeks relief was in accordance with 19 U.S.C. 1466. 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. The protest should be denied. Sincerely, Glen E. Vereb Chief Entry Procedures and Carriers Branch