HQ 113471 - Vessel Repair Entry No. 110-6461445-3; PRESIDENT HOOVER; V-140; 19 U.S.C. 1466; Protest No. 3001-95-100297 - United States International Trade Commision Rulings

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HQ 113471

December 28, 1995

VES-13-18:R:IT:EC 113471 LLB

CATEGORY: CARRIER

Chief, Liquidation Section
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126

RE: Vessel Repair Entry No. 110-6461445-3; PRESIDENT HOOVER; V-140; 19 U.S.C. 1466; Protest No. 3001-95-100297

Dear Sir:

This is in response to your memorandum of June 6, 1995, forwarding the above-captioned protest filed by American President Lines, Ltd. Our determination is provided in this ruling.

FACTS:

The American-flag vessel PRESIDENT HOOVER arrived in the Port of Seattle, Washington, on December 4, 1993, and submitted a vessel repair entry (CF-226) detailing foreign shipyard operations in Taiwan, Hong Kong, and Japan. An Application for Relief from the assessment of vessel repair duty was submitted by the operator and was considered by Customs Headquarters (Case No. 113108 GOB). Certain elements of that decision were the subject of an appeal in the form of a Petition for Review submitted under regulations, decided in case number 113200 GEV dated November 15, 1994.. The entry was liquidated in accord with the November 15 ruling, and the present protest was filed less than 60 days later.

The protest under consideration seeks reliquidation on the cost of 9 elements included in the vessel repair entry and detailed in the invoice of Hong Kong United Dockyards, Limited. These items, the first 8 of which are for American Bureau of Shipping survey costs, are:
1. Invoice item 2.1-8 relating to sea valves, appearing at pages 27-29.
2. Invoice item 2.1-4 relating to the rudder pintle, appearing at page 23.
3. Invoice item 2.1-7 relating to the anchor chain and locker, appearing at page 26.
4. Invoice item 2.1-11 relating to the ballast tanks, appearing at pages 34-36.
5. Invoice item 2.1-14 relating to the fuel oil tanks, appearing at page 39.
6. Invoice item 2.1-19 relating to the propeller, appearing at page 45.
7. Invoice item 4.1-10 relating to ballast piping, appearing at page 173.
8. Invoice item 5.1-9 relating to megger testing, appearing at page 218.
9. Overhead charges appearing throughout the invoice.

ISSUE:

Whether sufficient evidence is presented to refute the determinations made by Customs in considering the Petition for Review in this matter (Case No. 113200), that items 1 through 9, above, were sufficiently connected with repair operations to themselves be considered dutiable.

LAW AND ANALYSIS:

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

As previously indicated, the first 8 items under consideration involve survey costs. In previously reviewing claims for relief from duty on this entry, Customs was of the opinion that the charges in question were part of the cost of repairing the same items surveyed. In regard to the dutiability of surveys themselves, Customs has held pursuant to C.S.D. 79-277 that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the survey is not dutiable even when dutiable repairs are effected as a result thereof. This result is to be distinguished from a survey whose source is carrier-initiated maintenance and repair, scheduled or otherwise. The present matter involved a required U.S. Coast Guard inspection, carried out on behalf of that agency by the American Bureau of Shipping.

In such cases, in order to gain remission of duty on the cost of the permissible survey it is necessary to completely segregate the cost of any attendant repairs from the actual cost attributable to the survey itself. This is part of a long-standing practice in which Customs has held that when costs of various items are not segregated or separately shown, but are lumped together, duty will be assessed on the entire cost even though certain items may be non-dutiable (see C.I.E. 565/55, C.I.E. 1325/58 and C.D. 1836). We note that the portions of the invoice under consideration here detail only direct survey costs. Repairs which may have followed specific survey elements are detailed in separate portions of the invoice and are accompanied by their own cost figures. We find the segregation to be complete, and thus have determined that the survey costs being protested in items 1 through 8 are to be considered duty-free.

Item 9 as detailed in the Facts portion of this ruling concerns what is termed "administrative overhead" costs, an amorphous and ill-defined class of expenditures. These charges typically include clerical, data processing, accounting, insurance, education, and general corporate costs. It is claimed that our findings which hold these costs to be dutiable are contrary to Treasury Decision 39443, 43 Treas. Dec. 99 (1923).

The cited Treasury Decision is one in a line extending from the court decision in United States v. George Hall Coal Company, 134 Fed. 1003, T.D. 26038 (1903). This case, among others, has been thoroughly discredited by the opinion issued by the Court of Appeals for the Federal Circuit in the case of Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, Appeal No. 93-1354 (decided December 29, 1994). Customs has determined that the decision rendered in Texaco, supra., will be applied from the decision date forward for all issues except for repair-related cleaning and protective coverings. Therefore, since the entry under consideration dates from December 10, 1993, the protest should be allowed in this case for administrative overhead charges. These same types of charges will be held as dutiable for all entries filed on or after December 29, 1994.

HOLDING:

Following a thorough review of the evidence submitted as well as analysis of the law and applicable precedents, we have determined that for the reasons stated in the Law and Analysis portion of this ruling, the protest under consideration must be granted it its entirety.

We have determined that the vessel survey conducted in connection with this matter was of the type required for vessel certification and retention in class. Further, the cost of the survey elements subject to this protest were thoroughly segregated from repair elements addressed as a result of the survey. As such, the protested cost of the survey must be reliquidated as free of duty under section 1466. Additionally, the administrative overhead charges under protest, having been incurred prior to the December 29, 1994, decision date in the Texaco matter, supra., should be reliquidated as duty-free charges under section 1466.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later that 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Ruling Module in ACS, and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access means.

Sincerely,

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