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HQ 113122

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March 20, 1996

VES-13-18-RR:IT:EC 113122 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. 110-6461446-1; 19 U.S.C. 1466; PRESIDENT TYLER, V-137; Application

Dear Sir:

This is in response to your memorandum dated May 19, 1994, which forwarded the application for relief submitted by American President Lines, Ltd. ("applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The PRESIDENT TYLER ("the vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel in late 1993. The vessel arrived at the port of Seattle, Washington on December 22, 1993. The subject entry was timely filed on December 30, 1993.

You ask for our determination with respect to the following items, which are listed and analyzed in the order in which they are presented in your letter:

Item No. Description

001 secretarial and clerical
003 accounting
004 safety costs
005 transportation
008 training and education
1.1-7 floating dock bottom cleaning
1.3-2 dock sea trial
3.3-5 misc. deck steel discards
4.1-20 condenser expansion
5.1-8 fuel oil valves for #3 P/S tanks
5.1-30 asbestos abatement
5.1-32 SSTG rotor
1.2-10 owner's spare parts
2.1-10 propeller polishing
5.1-20 removing discarding

ISSUE:

Whether the subject costs 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.

Our analysis in this matter is based primarily on the pertinent invoices. The assertions of the application are not considered to be documentary evidence. In this regard, we note the statement of the court in Bar Bea Truck Leasing Co., Inc. v. United States, 5 CIT 124, 126 (1983):

Again, plaintiff has presented no affidavit or other evidence in support of its counsel's bald assertion...

There is no evidence submitted to establish that the individual submitting the application has specific knowledge with respect to the work performed such that the statements of the application would constitute acceptable documentary evidence.

If we are unable to determine the precise nature of certain work because of the lack of clear and probative documentary evidence, and are thus unable to determine that it is nondutiable, such work will be found dutiable. In this regard, we note the statement of the Customs Court in Admiral Oriental Line v. United States, T.D. 43585 (1929):

The evidence is conflicting upon that point, and the plaintiff has not proved the collector's classification to be wrong. The burden is upon the plaintiff to show not only that the collector was wrong in his classification but that the plaintiff was right.

In A Manual of Customs Law by Ruth F. Sturm, 1974 edition, p. 173-174, the author states, in pertinent part:

Where Congress has carved out special privileges or exemptions from the general provisions levying duties upon imported articles, the courts have strictly construed such exceptions and have resolved any doubt in favor of the government. Swan & Finch Company v. United States, 190 U.S. 143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co. v. United States, 17 CCPA 305, T.D. 43718 (1929)... ...
An exception which carves out something which would otherwise be included must be strictly construed. Goat & Sheepskin Import Co., et al. v. United States, 5 Ct. Cust. Appls. 178, T.D. 34254 (1914); [et al.]

Items 001, 003, 004, and 008. Because the entry at issue was filed prior to the C.A.F.C. decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (CIT 1993), 44 F.3d 1539 (CAFC 1994), we find that these costs are nondutiable pursuant to the authority of T.D. 39443 (1923). We note that our rulings with respect to entries filed on and after the date of the C.A.F.C. decision in Texaco, December 29, 1994, will follow the analysis of In Ruling 112900 dated November 4, 1993, where we stated as follows:

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.
...
...It is Customs position that the total cost or expense of a foreign repair is dutiable. That total cost includes overhead attributable to the repair. Overhead is part of the shipyard's cost of doing business. In many cases in various businesses, overhead expense incurred by the vendor is recouped by including a provision for it in other costs, such as the labor cost.

HOLDING: [of Ruling 112900]

The protest is granted only with respect to any overhead which is related to nondutiable items; that overhead must be included in the cost or expense of the nondutiable items or clearly reflected as related to such nondutiable items on the pertinent invoices. The protest is denied with respect to all other overhead. [end of excerpt from Ruling 112900.]

Item 005. All transportation costs which are segregated are nondutiable. The "but-for test" enunciated by the court in Texaco, supra, does not apply to transportation costs herein per Headquarters memorandum 113350 dated March 3, 1995 (published in the Customs Bulletin on April 5, 1995), since the subject entry was filed prior to the date of the C.A.F.C. decision in Texaco.

Item 1.1-7 - floating dock bottom cleaning. The invoice states: "This is an environmental requirement." The applicant states: "This is a Hong Kong Environmental Protection requirement to prevent harbor water pollution." This appears to be a general drydock cost which, with respect to vessel repair entries such as this which were filed before the date of the appellate decision in Texaco, have been treated as nondutiable. Accordingly, we find this item to be nondutiable.

Item 1.3-2 - dock sea trial. The invoice reflects a "sea trial," but it does not reflect the purpose of the trial. In fact the invoice states, in part: "Describe and detail what trials." The applicant states: "At this drydock availability we were required to maintain this twenty-one year old vessel in class under the American Flag Registry to conduct the ABS 5th Special Periodical Survey...No vessel operator is going to accept a new vessel without a prior successful dock and sea trial and, by the same token, we will demand a dock and sea trial after a 5th special survey." There is insufficient evidence to support the allegation of the application that this item is nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 3.3-5 - miscellaneous deck structure removals (job no. 265). This work appears to have been accomplished in conjunction with dutiable repairs, and the record does not establish a sufficient and clear reason why this sub-item is not related to dutiable work. There is insufficient evidence to support the allegation of the application that this item is nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 4.1-20 - condenser expansion. The invoice states: "Renewing with Owner's supplied one off condenser outlet rubber expansion joints; including adjustment and re-alignment by hyd. jack condenser outlet pipe lines to suit new rubber expansion joints...marking and drilling bolt holes one side of each new rubber expansion joints to
suit." The applicant states: "This review is a U.S. Coast Guard requirement that must be accomplished every 10 years during the life of the vessel." It cites section 61.15-12 of the U.S. Coast Guard regulations with respect to the examination of nonmetallic expansion joints. We note, however, that the invoice indicates that the work involved is beyond a mere examination or inspection. There is insufficient evidence to support the allegation of the application that this item is nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 5.1-8 - fuel oil valves. The applicant states: "The segregated and priced separately amounts of HK $1,440 for cutting out and discarding 14 pieces of pipe lugs is considered to be a permanent removal and, therefore, to be duty-free." We note, however, that this work appears to have been accomplished in conjunction with dutiable repairs, and the record does not establish a sufficient and clear reason why this sub-item, cutting out and discarding pipe lugs, is not related to dutiable work. There is insufficient evidence to support the allegation of the application that this item is nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 5.1-30 - asbestos abatement. The invoice states: "Analyzing engine room airborne dust samples prior before [sic] and after engine room work..." The applicant states: "This is a Hong Kong Government Environmental Protection requirement." We find that the asbestos abatement is dutiable. It is essentially akin to a repair/maintenance operation. The fact that the asbestos abatement may have been required by the Hong Kong government does not take it out of the dutiable repair/maintenance category. (We note that the applicant has not submitted documentary evidence establishing that the asbestos abatement was in fact required by the Hong Kong government.) In this regard, we note Ruling 111642 dated August 9, 1991, in which we held that the removal of asbestos insulation in order to gain access to a repair area and the subsequent installation of new insulation is dutiable under 19 U.S.C. 1466. Further, in Ruling 1113108 dated May 25, 1994, we stated that asbestos removal is a dutiable repair because it appears to be incident to or directly related to a repair.

Item 5.1-32 - SSTG rotor. The applicant states: "This item includes the manufacture of a special fixture to handle the SSTG turbine motor and pinion shafts to the workshop and return...Upon return of the SSTG rotor and pinion shaft to the vessel, the fixture is scraped. Since the fixture is not incorporated in the vessel, it is not considered to be dutiable." The invoice is not sufficiently clear with respect to the precise nature of the work performed. There is insufficient evidence to support the allegation of the application that this item is nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 1.2-10 - owner's spare parts. The invoice states, in part: "Providing storekeeper to inventory and control issue of C-8 class storestock spare for drydock use." This item is dutiable pursuant to 19 U.S.C. 1466. The applicant has not asserted or established a reason for a different determination.

Item 2.1-10 - propeller polishing. We find that this item is nondutiable because the invoice reflects that it is an "ABS/USCG Inspection Item." In general, surveys or inspections are nondutiable under 19 U.S.C. 1466 if they are periodic surveys or inspections which are required by a governmental entity or classification society and if they are not resultant from, or associated with, dutiable repairs.

Item 5.1-20 - removing discarding. The invoice for this sub-item states: "Blanking off above removal pipes' [sic] openings by making & fitting a total 6 off ...m.s. blank flanges with rubber joints." Because this sub-item was directly related to dutiable repairs, it is dutiable pursuant to 19 U.S.C. 1466. The application did not specifically discuss this item.

HOLDING:

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

Sincerely,

William G. Rosoff
Chief,
Entry and Carrier Rulings Branch

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