Protest and Application for Further Review 5301-08-100301

HQ H043241 December 7, 2009 LIQ-15 OT:RR:CTF:ER H043241 DCC Port Director Port of Houston 2350 N. Sam Houston Parkway E. Houston, TX 77032 RE: Protest and Application for Further Review 5301-08-100301 Dear Port Director: This is our decision on the application for further review (“AFR”) of Protest No. 5301-08-100301, filed against the assessment of Harbor Maintenance Taxes (“HMT”) on the transport of a truss spar known as the Holstein Spar. We have considered the evidence provided and the points raised by your office and the protestant. Our decision follows. FACTS: BP America Production Company (“BP”) protests the assessment of HMT on the domestic movement of the Holstein Spar, from the Gulf Marine Fabricators, Inc. (“GMF”) South Yard in Ingleside, Texas, located on the Corpus Christi Bay, to open seas for installation in Green Canyon area of the Gulf of Mexico. The GMF South Yard is located near the intersection of the Gulf Intracoastal Waterway (“GIWW”) and the Corpus Christi Ship Channel. A spar is a deep-draft floating caisson, which consists of a large-diameter, single vertical cylinder, or caisson, that supports the oil production facilities and crew quarters located on the drilling platform. Truss spars differ from the conventional spars in that the lower section of the caisson hull is replaced with a truss framework. Truss spars may be divided into three distinct sections. The cylindrical upper section, known as the “hard tank,” provides most of the buoyancy for the structure. The middle truss section supports heave plates for increased stability, and provides separation between the keel tank and hard tank. The keel tank, also known as the “soft tank,” contains the fixed ballast that keeps the structure upright. The entire structure is secured to the seabed by a lateral catenary system, a network of taut cables and lines that trail out from the hard tank. At the time it was constructed, the Holstein Spar was the largest spar ever built, measuring 746 feet in length and 150 feet in diameter. BP ordered the Holstein Spar from Technip Offshore Inc. (“Technip”) with a contract delivery date for the hard tank of September 13, 2003. Because of its large size, the Holstein Spar exceeded the capacity of the largest heavy lift dry transport vessels, which are used to transport smaller spars as a single unit. Consequently, Technip assembled the spar from the two largest components—the hard tank, which was fabricated at Technip’s Mantyluoto Works Oy Yard located in Pori, Finland, and the truss section, which was built at the GMF South Yard in Ingleside, Texas. Upon completion in Finland, Technip dry shipped the hard tank to the GMF South Yard in Ingleside where it was offloaded for mating with the truss section in October of 2003. The hard tank arrived at the GMF South Yard on October 23, 2003, and was admitted into the Foreign Trade Zone (“FTZ”) under CBP Form 214 with HMT paid on the FTZ admission. Upon completion on land, the truss section and soft tank were loaded out into adjacent water from the North Quay of the GMF South Yard. BP contracted with Heerema Marine Contractors U.S., Inc. (“Heerema”) to transport the truss from the North Quay to the GMF bulkhead parallel to Corpus Christi Ship Channel (the “Ship Channel Quay”). Due to the weight and size of the truss section, Heerema needed a water depth of at least 75 to 80 feet to launch the truss. Because the water depth at quayside was not deep enough for the launch, Heerema used a launch barge to create essentially a floating bridge across which it conveyed the truss to a dredged deep water offloading basin located approximately 200 yards from the North Quay. Based on BP’s schematic drawing, the deep water basin is located in the GIWW near the Lower East Quay of the GMF South Yard. For the launch of the truss section, Heerema sought to use the H-627, a foreign-built, foreign-flagged barge from the company’s vessel fleet. In order to ensure that the use of a foreign-built barge would not violate section 27 of the Jones Act, Heerema requested a ruling from this office on May 7, 2003. On May 21, 2003, this office issued a ruling letter, HRL 115985, which held that the use of a foreign launch barge would not violate the Jones Act provided that after loading, the barge would only rotate on its central axis, but would otherwise remain stationary. Based on that ruling, HMC used the H-627 to carry the truss from the North Quay to the deep-water offloading basin. HMC modified the launch barge to allow the truss to be on loaded at the bow of the barge. After it was loaded, the barge was rotated around its central axis so that the truss was aligned with the deep water basin. The truss was then offloaded into the deep water basin from the stern of the barge. Aside from the rotation, the barge did not move during the launch and it was not used to wet tow the truss. After offloading, the truss section was transferred to the control of tugs that maneuvered the truss to the mating site alongside the Ship Channel Quay. Between October 2003 and March 2004, the hard tank and truss sections were joined together. This mating operation included: welding structural truss members below and above the water line; and outfitting riser pipes, riser containment tubes, fixed ballast lines and sea chest feed caisson. After completion of the mating operation, the assembled spar was towed from the Ship Channel Quay to the Gulf of Mexico on April 1, 2004. In support of its protest, BP submitted a schematic drawing and tow plan prepared by Heerema. BP claims that the two charts show that the spar was “floated into the intercoastal [sic] waterway.” That tow plan describes the towing operation as follows: Position harbour tugs at designated areas. Using towing tugs 1, 2, 3, 4 to line up spar in Corpus Christi ship channel. Connect tow tug no. 5 on bridge. Orientate tow tugs in preparation for channel tow. Commence channel tow to open sea. In April 2004, the Galveston District of the U.S. Army Corps of Engineers issued its monthly Hydrographic Bulletin, which reported the depths available for navigation in various Federal water projects. According to that report, the surveyed depth of the main channel of the GIWW in Texas from Aransas Bay to the Corpus Christi Ship Channel was twelve feet. This segment of the GIWW includes the area adjacent to the GMF South Yard. On April 2, 2004, BP filed CBP Form 7501 to withdraw, and enter for consumption, the assembled spar from the FTZ under entry C53-XXXX965-4. CBP liquidated that entry on February 11, 2005. On July 30, 2004, BP filed a Quarterly Summary Report (CBP Form 349), for the second quarter of 2004, claiming an exemption from HMT under the intraport exemption for cargo shipped within a single port. According to its report, the value of the shipment was $272,523,555. On September 21, 2007, CBP issued Bill No. 902461169 for HMT owed in the amount of $419,852.10—consisting of $340,779.57 for HMT, and $79,072.53 for interest—which BP paid on October 15, 2007. The bill references “2NDQTR04” for miscellaneous charges incurred during the second quarter of 2004. On March 4, 2008, pursuant to 19 C.F.R. § 24.24, BP filed an HMT Amended Quarterly Summary Report (CBP Form 350) for the second quarter of 2004. According to its amended report, BP claimed that the shipment qualified for an exemption for the value of its shipment, i.e., $272,623,655, for use of a vessel subject to the Inland Waterway Fuel Tax (“IWT”). On line 13 of its amended report, BP reported that the amount of HMT previously paid for the same movement, which was eligible for refund, was $340,779.57. The port did not act on BP’s refund request. On May 15, 2008, BP filed this protest to challenge CBP’s denial of a refund for HMT paid. In its protest, BP claims that Holstein Spar movement was subject to the IWT, and is therefore exempt from HMT on the value of the shipment. BP asserts that because the spar was floated into the GIWW, “the vessel used to make the movement would have been subject to the Inland Waterway Fuel Tax . . . provided for under § 4042 of the Internal Revenue Code.” BP further claims that the regulations implementing section 4042, “only require that the fuel consumed be subject to the IWT, and do not require that the IWT actually be paid, in order to get the exemption from the HMF.” Because it contracted with a third party to arrange towing of the spar, BP claims that it cannot provide evidence that the IWT was in fact paid. On October 17, 2008, the Port of Houston referred the protest to this office for further review and indicated that the claim was not protestable. The port did not make a determination on the substantive issues of BP’s claim. On February 2, 2009, a staff person of the Waterborne Commerce Statistics Center, U.S. Army Corps of Engineers reported that Heerema did not file a Vessel Operation Report (ENG Form 3925) to report movement of the Holstein Spar on or about April 1, 2004. ISSUE: Whether BP timely protested the CBP’s decision to deny its HMT exemption claim and assess a charge or exaction by billing BP for the HMT. Whether the movement of the Holstein Spar from the GMF South Yard in Ingleside, Texas to the Gulf of Mexico on April 1, 2004, was exempt from the Harbor Maintenance Tax pursuant to the exemption for movements by vessels that use fuel subject to the IWT, as provided under 26 U.S.C. § 4462(c). LAW & ANALYSIS: 1. The Protest Filing Initially, we note that although CBP’s regulations establish procedures for claiming refunds of HMT for various types of vessel movements (codified at 19 C.F.R. § 24.24(e)), those procedures do not supersede the standard procedures for protesting CBP decisions pursuant to 19 U.S.C. § 1514(a), or allow refund claimants to restart the protest filing clock by filing a HMT refund request. In this case, because CBP thoroughly considered BP’s claim, made a determination to deny the claim, calculated the amount of HMT due, and gave notice of its decision to BP by issuing the bill on September 21, 2007, CBP’s denial of BP’s initial claim constitutes a protestable customs decision subject to the protest filing requirements of 19 U.S.C. § 1514(a). Before determining whether the protest was timely filed we must determine the applicable protest filing period. In 2004, Congress extended the protest filing period from 90 to 180 days after—but not before—the date of the decision being protested. See 19 U.S.C. § 1514(c)(3), as amended by the Miscellaneous Trade and Technical Corrections Act of 2004 (the “2004 Act”), Pub. L. No. 108-429, § 2103(2)(B)(iii), 118 Stat. 2434, 2598 (2004). In order to ensure the amended protest statute was not applied retroactively, Congress included an effective date provision in section 2108 of the 2004 Act. According to the effective date provision, the amended statute only applies to merchandise entered or withdrawn from a warehouse for consumption 15 days after the date of enactment. Specifically, section 2108 states: “The amendments made by this subtitle [subtitle B (§§ 2101 to 2108) of Title II of Public Law 108-429] shall apply to merchandise entered, or withdrawn from warehouse for consumption, on or after the 15th day after the date of the enactment of this Act.” President George W. Bush signed the 2004 Act on December 3, 2004. Therefore, the 2004 Act became effective for merchandise entered or withdrawn from warehouse for consumption on or after December 18, 2004, which was the fifteenth day following the date of enactment. In this case, however, the protest is related to the assessment of HMT on a domestic movement of merchandise. There was no entry or warehouse withdrawal event that may be used to determine whether the protest statute as amended by the 2004 Act should apply. Consequently, it is necessary to establish the most appropriate alternative event for purposes of the effective date provision of the 2004 Act. Although the instant protest does not involve an entry or withdrawal from warehouse for consumption, it is it is useful to note that these events involve well-established transactions that require the filing of particular CBP forms within certain timeframes. In the case of merchandise subject to entry, the entry must be reported to CBP on CBP Form 3461 within 15 calendar days of the landing of the vessel, aircraft or vehicle. See 19 C.F.R. § 141.5. For merchandise withdrawn from a warehouse for consumption, the regulations require CBP Form 7501 to be filed at the time of withdrawal. See 19 C.F.R. § 141.68(b)(1). In the absence of an entry or warehouse withdrawal for consumption, the most appropriate event for applying the effective date provision of the 2004 Act in this case is the filing of CBP Form 3461. For foreign merchandise transferred from a foreign trade zone, the CBP Form 3461 must be filed within ten business days of the time of entry. See 19 C.F.R. § 146.62(a). Here, BP filed the Entry/Immediate Delivery (CBP Form 3461) on April 1, 2004. Based on the date of the Entry/Immediate Delivery filed when the spar was removed from the foreign trade zone, the movement preceded the effective date of the 2004 Act. Pursuant to 19 U.S.C. § 1514(a) (2004), “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the liquidation or reliquidation of an entry . . . shall be final and conclusive . . . unless a protest is filed in accordance with this section.” For merchandise entered before December 18, 2004, section 1514(c)(3) provides as follows: A protest of a decision, order, or finding described in subsection (a) of this section shall be filed with the Customs Service within ninety days after but not before— notice of liquidation or reliquidation, or in circumstances where subparagraph (A) is inapplicable, the date of the decision as to which protest is made. 19 U.S.C. § 1514(c)(3) (2004). Because the CBP Form 3461 was filed before December 18, 2004, the 2004 Act does not apply and the protest is therefore subject to the ninety-day filing deadline. In this case, the issue presented, i.e., whether HMT is owed on the spar movement, is not related to the liquidation or reliquidation of the entry, and therefore, subparagraph (A) of section 1514(c)(3) is inapplicable. Pursuant to section 1514(c)(3)(B), the protest will be considered timely if it was filed within ninety days after, but not before, the date of the decision that is the subject of the protest. The next issue regarding the timeliness of the protest depends on the date of the decision that started the ninety-day protest filing period under section 1514(c)(3)(B). The issue of whether the assessment of HMT constitutes a protestable customs decision has been considered by the courts. In United States Shoe Corp. v. United States, 523 U.S. 360 (1998), aff’g 114 F.3d 1564, (Fed. Cir. 1997), aff’g 907 F. Supp. 408 (Ct. Int’l Trade 1995), this question arose when the courts reviewed the interpretation of the jurisdictional statute of the U.S. Court of International Trade (“CIT”). In U.S. Shoe, the plaintiff challenged the application of HMT to an export shipment as a violation of the Export Clause of the Constitution, which prohibits the imposition of taxes on exported goods. As a court of exclusive jurisdiction, the CIT must have specific authority within the court’s jurisdictional statute, codified at 28 U.S.C. § 1581, in order to hear the dispute presented by U.S. Shoe. At trial, the CIT determined that its jurisdiction to hear the case resided in 28 U.S.C. § 1581(i) rather than 1581(a), in part, because there was no decision by CBP for the plaintiff exporter to protest. The CIT found that because there was no “decision” regarding the payment of HMT, 28 U.S.C. § 1581(i) was the appropriate basis of jurisdiction. In reaching its conclusion, the court reasoned that in its administration of the HMT, CBP served a mere ministerial function and had no discretion to review the issue of whether the HMT was constitutional. “Customs does not determine the application, policies, or rates of the [HMT], but merely serves to implement its provisions.” 907 F. Supp. at 420. In affirming the CIT’s conclusion that section 1581(a) was inapplicable as a basis of jurisdiction, the Court of Appeals for the Federal Circuit (“CAFC”) noted the requirement that CBP must be a “decision” issued by CBP. The CAFC rejected the government’s contention that the acceptance of the exporter’s HMT payment was a protestable decision. In discussing whether the collection of HMT involved a protestable decision, the CAFC explained as follows: Decisions can refer to, for example, “the classification and rate and amount of duties chargeable” or “all charges or exactions of whatever character within the jurisdiction of the Secretary of the Treasury.” [19 U.S.C. § 1514(a) (1994)]. While the HMT is likely a charge or exaction, we do not believe that the actual payment or receipt of the HMT can be a “decision” of Customs, as Customs has not made any decision -- it merely passively collects money in the amount required by the statute. Customs doesn’t even notify exporters of the need to pay the HMT; rather, the exporter pays all accumulated fees on a quarterly basis by simply mailing a check or money order to Customs along with appropriate forms. See 19 C.F.R. § 24.24(e)(2)(ii) (1996). Typically, “decisions” of Customs are substantive determinations involving the application of pertinent law and precedent to a set of facts, such as tariff classification and applicable rate of duty. Indeed, prior case law indicates that Customs must engage in some sort of decision-making process in order for there to be a protestable decision. Thus, for example, in Dart Export Corp. v. United States, 43 C.C.P.A. 64 (1956), one of our predecessor courts held that Customs’ acceptance of estimated duties paid by an importer upon entry did not constitute a final, protestable decision which would deprive the government of the right to liquidate the entry at a later date, because the payment was based entirely on information provided by the importer, rather than after analysis and adjudication by Customs. Id. at 69 - 70, 74. . . . Thus, Customs merely passively collects payments calculated by the exporters pursuant to statutes and regulations and performs no active role whatsoever. It performs no analysis; it issues no directives or decisions; it imposes no liabilities. 114 F.3d at 1569. The Supreme Court’s analysis regarding the applicability of section 28 U.S.C. § 1581(a) mirrored the reasoning in the two lower court rulings. The Court noted: Section 1581(a) surely concerns customs duties. It confers exclusive original jurisdiction on the Court of International Trade in “any civil action commenced to contest the [Customs Service’s] denial of a protest.” A protest, as indicated in 19 U.S.C. § 1514, is an essential prerequisite when one challenges an actual Customs decision. As to the HMT, however, the Federal Circuit correctly noted that protests are not pivotal, for Customs “performs no active role,” it undertakes “no analysis [or adjudication],” “issues no directives,” “imposes no liabilities”; instead, Customs “merely passively collects” HMT payments. 114 F.3d at 1569. 523 U.S. at 365-66. In another case involving a challenge to the application of HMT to exported goods, the CAFC considered whether CBP’s denial of an exporter’s HMT refund request was a “protestable” decision for purposes of 19 U.S.C. § 1514(a), such that subsequent CIT jurisdiction would be available under 28 U.S.C. § 1581(a). See Swisher International, Inc. v. United States, 205 F.3d 1358 (Fed. Cir. 2000), cert. denied, 531 U.S. 1036 (2000). In Swisher, the exporter initially fil