HQ 0113108 - Vessel Repair Entry No. 110-6461445-3; 19 U.S.C. 1466; Application; PRESIDENT HOOVER, V-140 - United States International Trade Commision Rulings

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HQ 113108

May 25, 1994

VES-13-18-CO:R:IT:C 113108 GOB

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel Repair Entry No. 110-6461445-3; 19 U.S.C. 1466; Application; PRESIDENT HOOVER, V-140

Dear Sir:

This is in response to your memorandum dated May 11, 1994, which forwarded the application for relief submitted by American President Lines, Ltd. ("applicant") with respect to the above- referenced entry.

FACTS:

The record reflects the following. The PRESIDENT HOOVER ("vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel on voyage 140. The vessel arrived at the port of Seattle, Washington on December 4, 1993 and filed a vessel repair entry dated December 10, 1993.

You ask for our determination with respect to the following items:

Item No. Description

005 transportation
1.1-7 floating dock bottom cleaning
3.3.5 deck modification
5.1-34 asbestos removal
5.1-37 joint renewal
N.A. cost of removing articles for access (p. 2 wksht) clerical expenses
1.2-10 storekeeper
2.1-8 sea valves
2.1-22 stern tube shaft

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

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.

The transportation charges (item 005) are nondutiable.

The floating dock bottom cleaning (item 1.1-7) appears to be a drydock expense and is nondutiable.

The deck modification (item 3.3.5) is nondutiable because it does not involve a repair.

The asbestos removal (item 5.1-34) is a dutiable repair because it appears to be incident to or directly related to a repair work.

The joint renewal (item 5.1-37) is a dutiable repair.

As we determined in Ruling 108366 dated March 4, 1987 and Ruling 111642 dated August 9, 1991, the cost of removing articles for access is dutiable when such removal is incident to or related to a repair. Such a cost is nondutiable if it is related to nondutiable work.

The cost of "[p]roviding storekeeper to inventory and control issue of C-8 class storestock spare for drydock use" (item 1.2- 10) is dutiable because it appears to be a cost incident to or related to repairs.

The costs related to sea valves (item 2.1-8) are dutiable because they appear to be incident to or related to sea valve repairs (item 3.1-10).

The costs of the stern tube shaft removal - inspection is dutiable because it appears to be incident to or related to a repair of the stern tube bearing outer seal (item 3.1-13).

Various Services - Clerical, Accounting, First Aid, Training

On page two of its worksheet, the applicant has listed certain items such as the following: "secretarial and clerical services ... to support and to accomplish the shipyard repair task"; "all necessary accounting services to compile all charges incurred
during the performance of the work done by the shipyard on this vessel"; "all necessary safety and first aid services..."; and "all educational and training costs such as apprentice training and welder certification costs as related to this shipyard repair are to be charged to this item."

In its application, the applicant states:

Clerical services are analogous to the cost of drydocking and general services and thus are non-dutiable. See Headquarters Rulings 108953, dated January 7, 1988, and 109308, dated May 26, 1988.

As we have stated in recent rulings, e.g., Ruling 113029 dated March 22, 1994, Ruling 112900 dated November 4, 1993 and Ruling 112861 dated October 19, 1993, it is Customs position that overhead relating to repair work is dutiable as part of the cost of the repair, i.e., the total cost or expense of the repair is dutiable. In contrast, overhead relating to a nondutiable item such as a modification is nondutiable, i.e., the total cost or expense of a nondutiable item is nondutiable. While Customs does not wish to see overhead broken-out or segregated as a separate item, our position on the dutiability of overhead, as stated supra, holds whether or not overhead is a separate item.

In Ruling 112861, we stated as follows:

It is Customs position that overhead relating to repair work is dutiable as part of the cost of the repair. Overhead is
part of the shipyard's cost of doing business. The total shipyard cost of each repair is dutiable; that total cost includes overhead.

Customs does not wish to see overhead broken-out or segregated as a separate item. Customs believes that overhead should be included within the cost of the work performed, whether that work be a dutiable repair or a nondutiable modification. As stated supra, the total shipyard cost of each repair item is dutiable; that cost includes overhead.

In support of its position that the overhead is nondutiable, the petitioner has cited two previous rulings, Ruling 109308 dated May 26, 1988 and Ruling 108953 dated January 7, 1988.

In Ruling 112214 dated September 16, 1992, Customs stated as follows with respect to the overhead issue:

Upon further review of this matter, we are of the opinion that our interpretation of T.D. 55005(3) as set forth in ruling 111170 and discussed above is correct. Accordingly, rulings 108953 and 109308 are hereby modified to hold that the costs of "overhead" and/or

"administrative" charges as described therein are dutiable in their entirety in the absence of an apportionment of such expense between dutiable and non- dutiable work.

The two rulings cited by the petitioner, Ruling 109308 and Ruling 108953, are not, and were not at the time they were issued, accurately reflective of Customs position. These two rulings were effectively overruled by Ruling 112214.

In the subject case, the petitioner's claim for relief on this issue is granted with respect to any overhead charges which are associated with nondutiable charges and which are clearly reflected as such on the pertinent invoices. The petition is denied with respect to all other overhead charges. [End of excerpt from ruling 112861.]

Thus, as stated in Ruling 112861 and Ruling 112900, Ruling 108953 and Ruling 109308 were effectively overruled by Ruling 112214, which was not cited by the protestant.

Our position herein is consistent with numerous other rulings issued in recent years, e.g., Ruling 111170 dated February 21, 1991 and subsequent rulings which cite Ruling 111170.

Accordingly, any overhead related to dutiable repairs is dutiable. Any overhead related to nondutiable items is nondutiable, provided that it is included in the cost or expense of the nondutiable items or clearly reflected as related to such nondutiable items on the pertinent invoices.

The applicant receives no benefit by continuing to cite Ruling 108953 and Ruling 109308. The applicant has received a number of rulings which clearly state that these rulings were effectively overruled and are not being followed.

HOLDING:

As detailed supra, the application is granted in part and denied in part.

Sincerely,

Arthur P. Schifflin
Chief

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