19 U.S.C. 1466; Vessel Repair Entry C20-0060861-5; CSX CRUSADER; Protest No. 2002-02-101218

HQ W116237 December 15, 2004 VES-13-18-RR:IT:EC 116237 GOB CATEGORY: Carriers Chief, Vessel Repair Unit U.S. Customs and Border Protection 423 Canal Street New Orleans, LA 70130 RE: 19 U.S.C. 1466; Vessel Repair Entry C20-0060861-5; CSX CRUSADER; Protest No. 2002-02-101218 Dear Sir: This is in response to your memorandum of May 18, 2004, forwarding for our review certain items on the protest filed on behalf of CSX Lines, LLC (“protestant”) with respect to Vessel Repair Entry C20-0060861-5. Our ruling follows. FACTS:The CSX CRUSADER (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. After completion of the work in question, the vessel arrived in Tacoma, Washington on January 25, 2002. A vessel repair entry was filed. Your memorandum states that “the application for relief from duties filed in conjunction with this entry was not considered because it was not filed timely." By submission received on November 27, 2002, the subject protest and application for further review was filed. ISSUE: Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. §1466. LAW AND ANALYSIS: 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 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 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 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. In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. 1466: 1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up. 3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function. 4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel. Our determinations follow with respect to the items for which you have requested our review. We will respond in the order the items are listed in your memorandum. Items 1 (disposal of APHIS plastic waste), 2 (rental of diesel generator), and 3 (rental of diesel generator) should be prorated between dutiable and non-dutiable costs. Item 4 is dutiable as equipment. While the protestant states that this item is for equipment rental, as in items 2 and 3, the invoice for this item (as opposed to the previous two invoices) does not reflect the rental of equipment, nor does it reflect a specific period of time for use of the equipment. Item 5, lay-up survey, is dutiable. The protestant has not established by satisfactory, documentary evidence that this is a nondutiable survey, e.g., an annual or periodic survey performed by a regulatory body. Further, we note that such evidence should include both copies of the invoice and the report of the regulatory body. The following charges on item 6a should be prorated between dutiable and non-dutiable costs: transportation, boat services, agency fees, and port and navigation dues. The remaining charges on this invoice are nondutiable. The charges on item 6b should be prorated between dutiable and non-dutiable costs except for the following, which are dutiable: 6060 – supply manpower for mechanical work; 7380 – heating lamp and bilge alarm installation; 8000 – special shipment for owner’s generator; 8060A - supply flexible cable; and 8060B – supply vent ducting cover. The following charges on item 7a should be prorated between dutiable and non-dutiable costs: telecommunications, port and navigation dues, land transportation for owner’s agent or contractor, and boat services (other than transportation of crew). The following charges on item 7a are nondutiable: crew change, visa on arrival, land transportation or crew, and boat services involving the transportation of crew. The following costs on item 7b1 and 7b2 are dutiable: 2000 – blank vent; 2001 – hawse pipe grating; 2002 – air conditioning installation; 6000 – fabrication and installation of penetration pipe; 8061 – Indonesian flag; and 8070 – special shipment of portable generator. The cost for the port registry mark (1250) is nondutiable. All remaining costs on item 7b1 and 7b2 should be prorated between dutiable and non-dutiable costs. The charges on item 8a and 8b should be prorated between dutiable and non-dutiable costs except for the following, which are nondutiable: 9922- crew change; and 9923 – visa on arrival. The charges on items 9 and 10 for the rental of generators should be prorated between dutiable and nondutiable costs, as with items 2 and 3. The charge on item 11a1 for the purchase of a refrigerated container is dutiable as equipment. The following charges on item 11a2 are nondutiable: crew transit; agent’s land transportation expenses; and transit visa application. The charge for professional services rendered is dutiable; the protestant has not established by satisfactory documentary evidence that it is nondutiable. The charges for main agency fee and telecommunications equipment hire should be prorated between dutiable and non-dutiable costs. The following charges on item 11a3 should be prorated between dutiable and non-dutiable costs: telecommunications charges; supply of night engineer and cook cum steward; and air ticket. The cost of hotel accommodations for crew is nondutiable. The supply of provisions is dutiable; the protestant has not established its nondutiability by satisfactory documentary evidence. The following charges on item 11b1 are nondutiable: crew transit; agent’s land transportation expenses; and transit visa application. The charge for professional services rendered are dutiable; the protestant has not established that they are nondutiable. The charges for main agency fee, telecommunications equipment hire, and ferry tickets should be prorated between dutiable and non-dutiable costs. The following charges on item 11b3 are dutiable: survey of damaged portable generator; supply of television; and supply of provisions & others. The cost of the night engineer should be prorated between dutiable and non-dutiable costs. The following charges on item 11b4 are nondutiable: land transportation of officers and crew and hotel accommodations for crew. The airline ticket is dutiable as there is no indication or satisfactory documentary evidence as to why it might be nondutiable. The cost of the courier services should be prorated between dutiable and non-dutiable costs. The cost of tugs on item 11c should be prorated between dutiable and non-dutiable costs. The following charges on item 11d1 are nondutiable: crew transit and agent’s land transportation expenses. The charge for professional services rendered are dutiable; the protestant has not established that they are nondutiable. The charges for main agency fee and telecommunications equipment hire should be prorated between dutiable and non-dutiable costs. The following costs on item 11d2 should be prorated between dutiable and non-dutiable costs: telecommunications charges; supply of night engineer and cook cum steward; and freight forwarding services. The cost of supply of provisions is dutiable; the protestant has not established its nondutiablity by satisfactory documentary evidence. Items 12, 16, 18, and 21 involve various services provided by U.S. residents. We find that the cost of such services is nondutiable. The port services, port charges, and drydocking time costs on items 22a and 22b should be prorated between dutiable and non-dutiable costs. The cargo holds inspection (item 22b.2.1-9A and B) should be prorated between dutiable and non-dutiable costs. The protestant has not established the nondutiability of this item and we believe it relates, at least in part, to repairs. The rudder inspection (item 22b.2.1-12) is dutiable as it appears to be related to repairs and the protestant has not established that it is directly related to a nondutiable survey. The inspection of the box girder (item 22b.2.1-18) is dutiable as the box girder was involved in the damage repair survey. The cleaning of No. 2 fuel oil tank (port), No. 3 fuel oil tank, and No. 5 fuel oil tank (items 22b.2.1-23, 24, and 25) is dutiable as repairs were performed to these three tanks. We note additionally that the protestant has not established that these costs are nondutiable. The clean up of hydraulic oil from No. 8 cargo hold (item 22b.2.1-28) is dutiable as repairs were performed to this area. The engine and fan room cleaning (item 22b.2.1-34) should be prorated between dutiable and non-dutiable costs. The boiler fireside and waterside inspection (item 22b.4.1-7) is nondutiable as it appears to be related to a nondutiable survey or inspection performed by a regulatory body. The inspection of the main and emergency switchboard (item 22b.4.1-11) and the inspection of the forepeak block valve (item 22b.4.1-16) are dutiable as they appear to be maintenance items and the protest has not established their nondutiability. The invoice does not reflect these items are nondutiable surveys or inspections. The following items are dutiable as there is no evidence on the invoices that these items are periodic inspections or surveys performed for ABS or another regulatory body: 22b.4.2-1, forced draft fan inspection; 22b.4.2-7, boiler stack inspection; 22b.4.2-8, water washed boilers for inspections; 22b.4.2-10, no. 1 and 2 s.w. service pump discharge valve inspection; 22b.5.1-12, combined first stage heater, gland condenser and drain cooler packing inspections; 22b.5.2.1 – staging for boiler inspection; 22b.5.2.3 – inspection of boiler access doors; 22b.5.2.4 – hydrostatic test, port and starboard boiler inspections; 22b.5.2.5, boiler waterside, port and starboard inspection; 22b.5.2.6, desuperheater inspections and hydrotest; and 22b.5.2.7 – superheater port and starboard inspection. As indicated above, the protestant has not established by satisfactory documentary evidence that these items are nondutiable. Additionally, certain of these items appear to be related to dutiable repairs reflected on other invoices. Items 23 through 25 pertain to numerous surveys. The cost of the damage repair survey is dutiable. The costs of the annual or periodic surveys which were performed by the American Bureau of Shipping are nondutiable provided those costs do not include repairs. The costs on item 28, which include services by U.S. resident technicians and materials and equipment provided by the U.S. firm are nondutiable. The following charges on item 31a are nondutiable: crew change and agent’s land transportation expenses. The charges for main agency fee and telecommunications equipment hire should be prorated between dutiable and non-dutiable costs. The charges on item 31b are general service in nature and therefore should be prorated between dutiable and non-dutiable costs. On item 31c, the goods and service tax and freight forwarding services should be prorated between dutiable and non-dutiable costs. The air ticket is dutiable as the protestant has not established by satisfactory documentary evidence that this cost is nondutiable. On item 31d, the costs of ferry tickets for the Indonesian crew and deck and engine store supplies are dutiable. On item 31e, the supply of provisions is dutiable. The invoice states “Supply of Provision.” The protestant states that this charge is for consumables. The protestant has not established its claim by satisfactory documentary evidence, nor has it established the exact nature of this cost. All costs on item 32 are dutiable with the exception of the following which are nondutiable: first aid kit; and seasickness tablets. Item 35, the disposal of APHIS plastic waste, should be prorated between dutiable and non-dutiable costs. HOLDING: As discussed in the Law and Analysis section of this ruling, certain costs are dutiable under 19 U.S.C. 1466, certain costs are nondutiable, and certain costs should be prorated. Accordingly, you are instructed to allow the protest in part and deny the protest in part. 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. Sincerely, Glen E. Vereb Chief Entry Procedures and Carriers Branch