Vessel Repair Entry No. VR3-0000123-3; HORIZON TRADER; Protest No. 2002-11-100067; 19 U.S.C. § 1466(a); 19 U.S.C. § 1466(d)(2)

HQ H208838 November 27, 2012 VES-13-18:RR:BSTC:CCR H208838 CATEGORY: Carriers Assistant Port Director, Trade U.S. Customs and Border Protection 423 Canal Street, Suite 246 New Orleans, Louisiana 70130 RE: Vessel Repair Entry No. VR3-0000123-3; HORIZON TRADER; Protest No. 2002-11-100067; 19 U.S.C. § 1466(a); 19 U.S.C. § 1466(d)(2) Dear Sir: This is in response to your memorandum of February 27, 2012. The memorandum forwards an Application for Further Review of a Protest, filed on behalf of Horizon Lines, LLC (“Protestant” or “Horizon”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466(a). You have asked us to review numerous items listed in your memorandum. Our ruling follows. FACTS: The HORIZON TRADER (the “vessel”), a vessel owned by the Protestant, incurred foreign shipyard costs. The vessel arrived in the port of Jacksonville, Florida on August 27, 2007. A vessel repair entry was timely filed. The Protestant filed an application for relief from duties on the entry. Upon review of that filing, your office determined that the application for relief should be granted in part and denied in part, and notified the Protestant of that decision via a letter dated January 28, 2011. The Protestant then filed the subject Application for Further Review, seeking additional relief. ISSUE: Whether the costs for which the Protestant seeks relief are dutiable under 19 U.S.C. § 1466(a). LAW AND ANALYSIS: Title 19, United States Code, section 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 . . .” Under 19 U.S.C. § 1466(d)(2), The following items, specifically referred to verbatim as they are referred to in the application for further review, are at issue: b. First-time installation of bilge water pre-treatment system and related cleaning of slop tank 17, with oil tank cleaning waste removal… Item 22(a) and (e); Item 27, Protest page 7. This item is granted because we have previously found similar work to be a non-dutiable modification. In CBP Ruling HQ H188715 (July 26, 2012), we found that alterations to and relocation of overflow piping of fuel oil tanks was a modification. See also CBP Ruling HQ 115132 (June 15, 2001) (relocation of piping to allow for further modifications to the vessel). We find the work described in this case to be similar. Furthermore, CBP has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. See, e.g., CBP Ruling 111204 (December 7, 1990); CBP Ruling HQ112124 (March 14, 1995). See also Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994). We therefore find this item to be non-dutiable. e. First-time installation of Simplified Voyage Date Recorder (SVDR). Protest page 16. These items are dutiable as either vessel equipment or the cost of installation of vessel equipment. The protestant claims that the installation of the SVDR should be considered a nondutiable modification. The installation of an SDVR has been repeatedly ruled to be dutiable equipment rather than a modification. As evidence of CBP precedents, the protestant cites a ruling that addresses a service involving cleaning off of accumulated oil, not the installation of equipment. We do not find this ruling to be on point. An SVDR is the equivalent of an aircraft’s “black box.” A ruling which thoroughly discusses the installation of an SVDR is CBP Ruling HQ H052778, dated May 7, 2009. That ruling states the following: “Tab 25. This item is for the cost to provide and install a Furuno simplified voyage date recorder system (“SVDR”). We find that the SVDR is vessel equipment and is therefore dutiable under 19 U.S.C. § 1466. The invoice for this item provides that the item includes the following: data collecting unit (removable); date collecting unit (fixed); remote alarm panel; indoor microphone; radar interface PCB “frame grabber” for recording radar data; and LivePlayer Pro Software. Internet research provides the following information for the Furuno SVDR: “Records essential navigational status, command, and control of ship. Helps locate casualty causes and promote education for safe navigation… S-VDR records data and events occurred during navigation, which include: date and time, ship’s position, speed, hearing, bridge audio, communication audio, radar/ECDIS images and others…” This issue, or this particular type of issue, has been thoroughly considered by CBP. See, for example, the discussion, including the authorities, in the following rulings; HQ 113798, dated January 9, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 226688, dated July 29, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 114092, dated September 12, 1997 (revoking HQ 111425), where we found a radar system and a satellite communications systems to be dutiable as vessel equipment. In these rulings, we considered whether the item at issue in each ruling was dutiable under the vessel repair statute as vessel equipment. We find similarly in this entry and protest—the SVDR is dutiable under 19 U.S.C. § 1466 as vessel equipment. We believe the SVDR is similar in nature to certain of these items. Much more importantly, however, we believe it constitutes vessel equipment, dutiable under 19 U.S.C. § 1466.” The Northrup Grumman invoice indicates that the unit is a Voyage Master II. The protestant states that HQ H052778 is not applicable because the SVDR at issue in that ruling was not permanently incorporated. The protestant also states that VDR components are bolted to bulkheads and decks. Bolting is not a permanent incorporation into the hull or fittings of the vessel. A comparison of the components of the SVDR at issue with the components listed in HQ H052778 finds that they are very similar. Thus, based on HQ H052778 and rulings cited therein, the subject SVDR is vessel equipment and therefore dutiable. Duty-paid Materials Intended for Use on Vessel. Protest page 18. This item is dutiable because insufficient proof has been submitted to show that the paint was previously imported and duties paid thereon. Although the protestant has submitted a copy of a CF 7501 as proof, the CF 7501 indicates a different quantity for the paint than does the revised invoice. Furthermore, the original invoice indicates a “Ship To” location as being Singapore, which the protestant claims is a clerical error. The protestant has also submitted a statement from its Purchasing Manager, in which he claims that “[t]he final CMP invoice is adjusted to reflect the paint that was applied to the ship.” Given the pertinent differences in the original invoice, which does not list the paint, and the “final” invoice, we cannot accept the final invoice as sufficient evidence. Thus, we find that the protestant has not established a sufficient link between either version of the invoice and the CF 7501. Therefore, this item is dutiable. U.S. Equipment, Parts, or Materials and U.S. Labor. Protest page 19. This item is dutiable under 19 U.S.C. § 1466(d)(2) because insufficient proof has been submitted to show that the parts were manufactured and produced in the United States. The protestant has submitted invoices indicating that the parts were purchased from a vendor with a United States address, statements from the vendor that it dispatched one of its employees to observe the installation of the parts on the vessel, and a statement from its Finance Manager is “part of the feedwater system.” None of this documentation supports the petitioner’s contention that the parts were manufactured and produced in the United States, however. Therefore this item is dutiable. Non-dutiable Inspections. Protest page 21. The protestant contends that these items are non-dutiable because the work was performed pursuant to an American Bureau of Shipping inspection. 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 (CIT 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. In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F. Supp. 1359 (CIT 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 correctly note that the items at issue clearly indicate that dutiable repair work was done. In Customs Service Decision 79-277, 13 Cust. Bull. And Dec. 1395, 1396 (1979), we stated that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished. We note, moreover, that C.S.D. 79-277 does not exempt from duty repair work done by a shipyard in preparation for a required survey. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey. The protestant has not presented any evidence that specifically addresses your initial findings. Thus, we find that the following line items should remain fully dutiable: 22(b) (GWS) – Ref. No. 102010(4) (3.1-11) 22(b) (GWS) – Ref No. 102017 (2.1-4) 22(b) (GWS) – Ref No. 301001(1a) (4.1-1) 22(b) (GWS) – Ref No. 301001(1b) (4.1-1) 22(b) (GWS) – Ref No. 301002(a) (4.1-2) 22(b) (GWS) – Ref No. 315000(1a) We find that the following line items should be dutiable on a prorated basis: 22(b) (GWS) – Ref No. 102011(2) (2.1-2a) 22(c) (GWS) – Ref No. 102015(1) (2.1-2) Non-Dutiable Consumable Supplies. Second Protest page 29. This item remains dutiable because the protestant has not provided any evidence to address your concerns, specifically that the description of the item, “sundries,” is too broad to distinguish between non-dutiable consumables and dutiable equipment. The description “non-dutiable consumable supplies” provides no more information about the articles in question. It has been long-standing that the lack of clear and probative evidence that prevents CBP from making a determination will leave us no choice but to find the subject item dutiable. See, e.g., CBP Ruling HQ 115718 (September 26, 2002) and CBP Ruling HQ 113122 (March 20, 1996), citing Admiral Oriental Line v. United States, T.D. 43585 (1929). Therefore, no relief should be granted in this case. Mathematical Errors. Second Protest page 32. The protestant contends that a line item on an invoice from China Marine Shipping Agency Guangdong Company, Ltd., dated July 31, 2007, is of a lesser amount than what CBP attributed to it. The invoice has a typewritten amount in a column entitled “Amount (CNY)” for $16,310. The $16,310 has a line crossed through it, and the amount $14,679 is handwritten above it. The protestant claims that the vendor made the handwritten alteration. Aside from making such assertion, the protestant has not presented any evidence to support that claim. As noted with the previous item, the lack of clear and probative evidence that prevents CBP from making a determination will leave us no choice but to find the subject item dutiable. Such is the case here. This item remains dutiable. HOLDING: Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered above should be granted in part and denied in part as specified in the Law and Analysis section of 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 this entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, 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 Restricted Merchandise Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection