HQ 112825 - Vessel Repair Entry No. 110-0104125-7; 19 U.S.C. 1466; PRESIDENT HOOVER, V-121; Overhead - United States International Trade Commision Rulings

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HQ 112825

March 14, 1995

VES-13-18-CO:R:IT:C 112825 GOB

CATEGORY: CARRIER

Deputy Regional Director of Customs
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831-0700

RE: Vessel Repair Entry No. 110-0104125-7; 19 U.S.C. 1466; PRESIDENT HOOVER, V-121; Overhead

Dear Sir:

This is in response to your memorandum dated July 27, 1993, which forwarded the petition submitted by American President Lines, Ltd. ("petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The record reflects that the PRESIDENT HOOVER ("the vessel") arrived at the port of Seattle, Washington on January 24, 1992, and filed the subject vessel repair entry.

In Ruling 112478 dated March 30, 1993, the application for relief was allowed in part and denied in part.

The following items are now submitted for our determination:

Item No. Description

2.1-7 anchor chains
3.1-1 H.P. water wash - hull cleaning
3.1-2 temporary protection
3.1-10 overboard spool pipe cleaning
3.3-1 hatch cover (taking ashore and reinstalling)

Item No. Description

3.3-9 port side bridge wing
3.3-10 P/S gravity davit roller assembly
3.3-11 staging (protective covering included) 5.1-30 megger testing various overhead

ISSUE:

Whether the subject items are dutiable pursuant to 16 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.

Overhead

In Ruling 112861 dated October 19, 1993, Customs considered the issue of the dutiability of overhead. In that ruling, we stated:

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 re view of this matter, we are of the opinion that our interpretati on 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, Ruling 109308 and Ruling 108953 were effectively overruled by Ruling 112214, which was not cited by the petitioner in the subject case, nor was it cited by the petitioning party in its petition in the case involving Ruling 112861.

As we stated in Ruling 112861, supra, 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.

Our position herein is consistent with numerous rulings issued in recent years, e.g., Ruling 112861 and Ruling 112214, both cited supra. See also Ruling 111170 dated February 21, 1991, which was cited in Ruling 112480 (the ruling on the application for this vessel repair entry), and subsequent rulings which cite Ruling 111170.

Accordingly, the petitioner's claim for relief 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.

Other Items

We find that the cost of the following items is dutiable: 3.1-2 - temporary protection; and 3.3-1 - hatch cover (taking ashore and reinstalling). Item 3.1-2 is dutiable pursuant to the decision of the Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc. v. United States, Case No. 93-1354, decided on December 29, 1994, in which the court found that the costs of post-repair cleaning and protective coverings related to repairs are dutiable under 19 U.S.C. 1466.

With respect to item 2.1-7 - anchor chains, only the stated repairs are dutiable; the other sub-items are not dutiable.

We find that the costs of the following items are not dutiable: 3.1-1 - H.P. water wash - hull cleaning; 3.1-10 - overboard spool pipe; and 5.1-30 - megger testing. The finding that item 3.1-1 is not dutiable is based on the assertion of the petition and the indication of the invoice that this item is more akin to a nondutiable inspection-related item than to a dutiable repair.

The staging for items 3.3-9 and 3.3-11 is not dutiable. The access charges in item 3.3-9 are not dutiable. The cost of removals in item 3.3-11 is dutiable.

With respect to item 3.3-10, the repairs are dutiable and the transportation cost is not dutiable.

HOLDING:

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

Sincerely,

Arthur P. Schifflin
Chief

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