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HQ 112435

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March 15, 1995

VES-13-18-CO:R:IT:C 112435 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. T99-0045985-8; OVERSEAS VIVIAN; V-1/91; 19 U.S.C. ? 1466 Protective coverings; Administrative costs

Dear Sir:

This is in response to your memorandum dated August 31, 1992, forwarding a petition for review of Customs ruling no. 112091, dated May 20, 1992. You request our review of seven items contained within the above-referenced entry. Our findings are set forth below.

FACTS:

The record reflects that the OVERSEAS VIVIAN arrived in the port of San Francisco, California on July 25, 1991, filed a timely vessel repair entry, and supplemented that entry as required by the Customs Regulations. While in Singapore the vessel underwent extensive foreign shipyard work. Subsequent to the filing of a timely application for relief, Customs issued ruling no. 112091, dated May 20, 1992, allowing in part and denying in part the claims contained within the aforementioned application. A timely petition for review was filed with Customs seeking relief for the following items: Invoice 3, Items 10-14 (Fire Protection Cloth); Invoice 3, Item 40 (Administrative Services); and Invoice 68 (Salvage Association survey).

ISSUE:

Whether the foreign shipyard costs for which the petitioner seeks relief are dutiable under 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466, provides in pertinent part for payment of duty in the amount of 50 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 engage in such trade.

In regard to Invoice 3, Items 10-14, we note that the charges incurred are for fire protection cloth used to cover various areas of the vessel to protect cables, electrical wires, boilers, etc. in the way of hotwork. Pursuant to the decision of the U.S. Court of Appeals in Texaco Marine Services, Inc. and Refining and Marketing, Inc., v. United States, (Docket No. 93-1354, decided December 29, 1994), protective coverings necessitated by dutiable repairs are dutiable. Accordingly, in view of the aforementioned court decision, Invoice 3, Items 10-14 remain dutiable.

Invoice 3, Item 40 covers administrative services. It is Customs position that administrative/overhead costs relating to repair work are dutiable as part of the cost of the repair. These costs are part of the shipyard's cost of doing business. The total shipyard cost of each repair item is dutiable; that total cost includes any administrative/overhead charges.

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

In support of its position that administrative services are non-dutiable, 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 this 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. Accordingly, Invoice 3, Item 40 remains dutiable.

Invoice 68 covers a survey conducted by The Salvage Association on the subject vessel. Despite the petitioner's contentions to the contrary, a review of the survey indicates that with respect to the main engine, turbo alternator and cargo pump, it was performed "...for the purpose of ascertaining the cause, nature and extent of damage..." Furthermore, there were in fact "recommended" repairs listed on the right-hand side of the report. Accordingly, in the absence of evidence supporting counsel's bald claim that the survey had no nexus to the dutiable repairs performed and/or the petitioner was not charged for it, the survey remains dutiable.

HOLDING:

The foreign shipyard costs for which the petitioner seeks relief are dutiable as discussed in the Law and Analysis portion of this ruling.

Accordingly, the petition is denied.

Sincerely,

Arthur P. Schifflin

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