19 U.S.C. §1466; Vessel Repair Entry NF4-4361018-5; Protest 2002-10-100104

HQ H144058 February 17, 2011 VES-3-18-OT-RR:BSTC:CCI H144058 GOB CATEGORY: Carriers 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 NF4-4361018-5; Protest 2002-10-100104 Dear Sir: This is in response to your memorandum of January 7, 2011, forwarding for our review the protest filed on behalf of Interocean American Shipping Corporation (“protestant” or “Interocean”) with respect to Vessel Repair Entry NF4-4361018-5. Our ruling follows. FACTS: The INDEPENDENCE II (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Baltimore, Maryland on October 18, 2009. A vessel repair entry was timely filed. In the course of considering the application for relief, your office requested a copy of the shipyard project specifications. By letter of April 12, 2010, Interocean provided the “INDEPENDENCE II 2009 Scheduled Drydocking Specification Package” (the “shipyard specifications”). Your office issued a letter of duty determination on June 4, 2010 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(a) (19 U.S.C. §1466(a)) 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. Title 19, United States Code, section 1466(d)(2) (19 U.S.C. § 1466(d)(2)) provides in pertinent part: “If 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 … then the Secretary of the Treasury is authorized to remit or refund such duties …” Title 19, United States Code, sections 1466(h)(2) and (3) provide as follows: The duty imposed by subsection (a) of this section shall not apply to- . . . (2) The cost of spare parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country, or (3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country[.] 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 U.S. Court of Appeals for the Federal Circuit 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. You request our determination with respect to the following items which we will address in the order they are presented in your memorandum and in the protest. Item 216. Sea Valves. The protestant claims that this cost should be prorated between dutiable and nondutiable costs. The shipyard invoice indicates that the sea valves were overhauled. It provides, in pertinent part: “Overhaul Butterfly: Remove, clean, inspect, and refit with new gaskets. Overhaul: Remove cover valves in place, clean, inspect, lap seat and discs and paint internally.” The sub-items on this invoice further reflect that the various valves were overhauled. The overhaul of an item is maintenance which constitutes a dutiable repair. We find that this cost is dutiable. Item 402-1. Clean Steam Side of the Atmospheric Condenser. The protestant claims that this cost should be prorated between dutiable and nondutiable costs. The shipyard invoice provides: “Removal, transport the covers to workshop, ultrasonic cleaning of casing, pressure test and fitting on board.” The shipyard specifications provide in pertinent part as follows with respect to the statement of work: “Atmospheric Condenser and Feed Water Heater: Unbolt and remove inlet and outlet headers from each unit and recondition same. Reconditioning shall consist of abrasive grit blast of all existing coatings (interior and exterior). Allow for inspection by IAS representative. Following successful inspection, apply glass/ceramic epoxy to the exterior of each head, extending out to each connection/flange face….Clean each tube sheet and inside of tubes, to remove all marine growth, by use of tube cleaning brushes, water, and compressed air….Hydro test tube bundle for leaks and repair as necessary (costs for necessary repairs will be funded by IAS Change Order).” We note that, in numerous rulings, we have held that “the removal of carbon and oil deposits from the main engine scavenger spaces is a maintenance operation the cost of which is subject to duty under 19 U.S.C. 1466.” HQ 112280, dated February 3, 1993. See also HQ 116217, dated October 5, 2004, and HQ 112651, dated May 25, 1993. Similarly, in HQ 116178, dated December 14, 2004, we held that numerous items which involved maintenance cleaning were dutiable. Ultrasonic cleaning, abrasive grit blasting, and the removal of marine growth by tube cleaning brushes are all actions which are indicative of dutiable repair and maintenance. We find that this cost is dutiable. Item 403 and 403-1. Boiler Survey and Additional Boiler Maintenance and Machining. The protestant claims that these costs should be prorated between dutiable and nondutiable costs. At the application stage, your office determined as follows: the first five sub-items in item 403 were to be prorated between dutiable and nondutiable costs; the cost of the “Supply of spirometalic joints” was dutiable; the costs in item 403 4.3 were dutiable; and the costs in item 403-1 were dutiable. We make the following determinations. The cost for the supply of spirometalic joints is dutiable as equipment or repair parts. The costs in item 403 4.3 are dutiable as the shipyard invoice reflects the removal and overhaul of the steam valves. An overhaul constitutes maintenance which is dutiable under 19 U.S.C. § 1466. The shipyard invoice for item 403-1 (“Additional Boiler Maintenance and Machining”) provides in pertinent part as follows: “1. Remove existing fire brick and replace with new . . . 2. Conduct mechanical cleaning of the water tube internals[.] Cleaning with high pressure (180 bar) hot water (90 degrees C) washing the inside of pipe boiler aprox [sic] 600 tubes. 3. Machine the sealing surfaces of six (6) hand hole covers and the inside sealing surfaces of six (6) hand holes. 4. Machine the sealing surfaces of four (4) inspection covers and the inside sealing surfaces of four (4) inspection holes.” We find that the costs in item 403-1 are maintenance costs which are dutiable under 19 U.S.C. § 1466. See, for example, HQ H086244 (dated December 15, 2009), HQ 112480 (dated March 16, 1993), and HQ 112478 (dated March 30, 1993) where we found high pressure water washing to be dutiable under 19 U.S.C. § 1466. See also HQ 116178, dated December 14, 2004, where we held that numerous items which involved maintenance cleaning were dutiable. Item 601-1. Synchro Breakers. The protestant claims that this cost should be prorated between dutiable and nondutiable costs. The shipyard invoice provides in pertinent part as follows: “Removal of breakers, transport to workshop, opening, overhauling and carry out safety test in workshop . . .” This cost involves the overhaul of the breakers, which is dutiable maintenance. We find that this cost is dutiable under 19 U.S.C. § 1466. Item 501. Inspection of Various Main Engine Components. The protestant claims that these costs (with the exception of one cost which it concedes is dutiable) are nondutiable as they were for “entirely for opening, closing, regasketing, testing, inspection, and related cleaning in connection with classification society inspection.” The shipyard specification provides that “[v]arious Main Engine Components require inspection for the ship’s Classification Society.” We find that this cost is nondutiable as, on balance, the record does not indicate that dutiable operations were performed. Item 503. Clean and Inspect Main Engine Air Coolers. The protestant claims that one of the costs is nondutiable because it does not involve a repair. The shipyard specification provides in pertinent part as follows: “The contractor shall provide all labor, material, services, staging and equipment necessary to disconnect two (2) Main Engine charge air coolers, extract the tube nest/bundle and bring ashore to the contractor’s work shop for mechanical and chemical cleaning to remove all deposits, scale etc. to fully restore proper heat transfer.” We find that the subject cost is for restoration (including dutiable maintenance and cleaning) and is dutiable under 19 U.S.C. § 1466. See, for example, HQ 112280, HQ 116217, and HQ 112651 where the removal of carbon and oil deposits was held to be a dutiable maintenance operation. See also HQ 116178, dated December 14, 2004, where we held that numerous items which involved maintenance cleaning were dutiable. Item 503-1. Cleaning Holes in Main Engine Air Cooler. The protestant states that “[t]his is either non-dutiable cleaning, or should be pro-rated as a repair performed in connection with shipyard assistance rendered to the air cooler classification survey …” The shipyard invoices provides: “Cleaning, scraping and brushing in situ the holes of port and starboard air cooler.” We find that this cost is for maintenance which is dutiable under 19 U.S.C. § 1466. See, for example, HQ 112280, HQ 116217, and HQ 112651 where the removal of carbon and oil deposits was held to be a dutiable maintenance operation. See also HQ 116178, dated December 14, 2004, where we held that numerous items which involved maintenance cleaning were dutiable. Similarly, an operation involving scraping and brushing is dutiable maintenance. Item 503-2. Auxiliary Engine Cooler. The shipyard invoice provides in pertinent part as follows: “Ultrasonic cleaning in water and air chamber[.] High pressure with hot water the cooler in both sides …” We find that this cost is for maintenance which is dutiable under 19 U.S.C. § 1466. See HQ H086244 (dated December 15, 2009), HQ 112480 (dated March 16, 1993), and HQ 112478 (dated March 30, 1993) where we found high pressure water washing to be dutiable under 19 U.S.C. § 1466. Item 601-2. Alternator Cleaning. The protestant claims that this cost is for the opening and cleaning of the alternator. The shipyard invoice provides as follows: “Removal [sic] access cover for access to the alternator. Carry out the cleaning with the certified products. For the drying process will be used air and infrared lamps, varnishing and put the access covers in plate.” We find that this cost is maintenance which is dutiable under 19 U.S.C. § 1466. See, for example, HQ 112280, HQ 116217, and HQ 112651 where the removal of carbon and oil deposits was held to be a dutiable maintenance operation. See also HQ 116178, dated December 14, 2004, where we held that numerous items which involved maintenance cleaning were dutiable. Item 802. Galley Exhaust Cleaning. The protestant claims that this cost is nondutiable cleaning. The shipyard invoice provides: “The intent of this item is to remove grease buildup in supply/exhaust trunks inaccessible to ships force during normal operating conditions. Allow for 10 meter of 300 mm diameter exhaust ductwork to be degreased and cleaned, to include removal of the axial exhaust fan.” We find that this cost is maintenance which is dutiable under 19 U.S.C. § 1466. See, for example, HQ 112280, HQ 116217, and HQ 112651 where the removal of carbon and oil deposits was held to be a dutiable maintenance operation. See also HQ 116178, dated December 14, 2004, where we held that numerous items which involved maintenance cleaning were dutiable. Tab 16. Invoice for Order 09R-0310. The protestant claims that the cost of grease is nondutiable as a consumable. We find that this cost is dutiable as a cost incident to dutiable repair or dutiable maintenance. Tabs 28 and 31. Wilhelmsen Ships Services Invoices. The subject costs are for hoses, spray guns, and tornado lances. Your office held these costs dutiable as costs for equipment. The protestant states: “This material was either imported duty-paid to the United States or manufactured in the United States, as certified by the vendor, attached as Tab D, and delivered in Baltimore, as the invoices state. As such they are not dutiable under 19 U.S.C. § 1466.” In H052778, dated May 7, 2009, we stated: The protestant has submitted a statement from the vendor that the articles “were either made in the United States or products imported into the United States with duty paid.” This certification is not sufficient for items such as these which are equipment. See the definition of equipment, above. Equipment is not eligible for relief under 19 U.S.C. § 1466(h)(2) and/or (h)(3). Equipment is eligible for relief under 19 U.S.C. § 1466(d)(2) if it was “manufactured or produced in the United States.” The protestant has not established this. The equipment contained herein is dutiable. We make the same findings here. The subject costs are dutiable. Tabs 29, 30, and 39. R. S. Stern Invoices. Your office held the large majority of the many costs listed on these invoices to be dutiable as costs for equipment. As we stated in H052778, excerpted above, equipment is not eligible for relief under 19 U.S.C. § 1466(h)(2) and/or (h)(3). Equipment is eligible for relief under 19 U.S.C. § 1466(d)(2) if it was “manufactured or produced in the United States.” The protestant has not established this. We affirm the determination of your office that the subject costs are dutiable equipment. Tab 57. Agent’s Expenses. The protestant requests relief for four items on the invoice in tab 57 which your office prorated between dutiable and nondutiable expenses. We find that the expenses for the airfare of Mr. Ackerman (one item) and the hotel for Messrs. Ackerman and Smith (a second item) are nondutiable based upon the documentation submitted with respect to their U.S. residency. Relief is denied with respect to the two other items. The protestant has not established that the rental car expense (“Master, Smith, Corydon”) is solely attributable to U.S. residents. The crewmember expense is not exempt from duty as it is not a compensation expense. HOLDING: 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, George Frederick McCray Supervisory Attorney-Advisor/Chief Cargo Security, Carriers and Immigration Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection