HQ 113545 - Vessel Repair Entry No. C31-0005021-1; SEARIVER NEW ORLEANS; V-9; Petition; Revised invoice; Reduction in cost; 19 U.S.C. ? 1466 - United States International Trade Commision Rulings

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HQ 113545

November 8, 1995

VES-13-06-R:I:EC 113545 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C31-0005021-1; SEARIVER NEW ORLEANS; V-9; Petition; Revised invoice; Reduction in cost; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated August 17, 1995, forwarding a petition for review pertaining to the above-referenced vessel repair entry. Our findings on this matter are set forth below.

FACTS:

The SEARIVER NEW ORLEANS (formerly the EXXON NEW ORLEANS) is a U.S.-flag vessel owned by SeaRiver Maritime, Inc. (known as the Exxon Shipping Company prior to August 1, 1993). The vessel had foreign repairs performed at Keppel Shipyard ("Keppel") in Singapore during the period of July 6 - September 23, 1991. Subsequent to the completion of the repairs, the vessel arrived in the United States at Valdez, Alaska on October 12, 1991. A vessel repair entry was timely filed on October 15, 1991.

Pursuant to an authorized extension of time (see Headquarters memorandum 112052, dated January 8, 1992), an application for relief with supporting documentation was timely filed. The supporting documentation included an invoice from Keppel dated February 20, 1992. Customs decision on the application for relief was held in abeyance pending litigation of the post-repair cleaning issue 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). Subsequent to the CAFC decision, Customs rendered its decision on the application for relief pursuant to Headquarters ruling letter 112377, dated March 14, 1995, forwarded to SeaRiver Maritime, Inc., from the Deputy Regional Director, Pacific Region, by letter dated May 23, 1995.

By letter dated June 2, 1995, and pursuant to 19 CFR ? 4.14(d)(2)(ii), SeaRiver Maritime, Inc. sought and received an extension of time until July 24, 1995, in which to file its petition. The aforementioned petition was timely filed. The petitioner does not take exception with Headquarters ruling letter 112377 with respect to Customs determinations as to the dutiability of the specific items addressed in the application for relief. Rather, the petitioner seeks a reduction in the total amount of vessel repair duty originally assessed by Customs. This request is based on the petitioner's contractual negotiations with Keppel concerning the costs of 19 of the 406 total invoiced Keppel repair items (the charges for the remaining 387 items are unchanged from the original invoice submitted with the application for relief) as well as contractual set-offs that had not been finalized at the time within which the application for relief was to be filed. The specific items in question are as follows: Item 5-Deepwell Pumps; Item 63-Main Circulators; Item 117-Wire Roller Chocks; Item 163-Main Deck Line Various Expansion Joint; Item 174-Chloropac Distribution Piping Renewal; Item 196-Steel Repairs; Item 197-House Machinery Casting, Coating; Item 199-Coating for Bottom and Upper 6" of Cargo Tanks; Item 203-Deepwell Pump Castings; Item 207-Riveted Seams; Item 221-Deck Steam Line Installation; Item 224-Main Steam Line to HP Turbine; Item 281-Crane Ladder Modification; Item 286-Anchor Windlass Steam/Exhaust Penetration; Item 336-Engine Room Ducting; Item 374-Deck Coating; Item 375-Uninterrupted Power Supply Base; and Item 382-Ship Refrigeration System. The revised Keppel invoice submitted with the petition indicates that the final negotiated charge for all but two of these items results in a duty reduction. The two items for which there is a slight increase in dutiable costs are Items 281 and 286.

In addition to the cost reductions of the 19 individual items specified above, the petitioner seeks further "lump sum" and "volume" reductions in the total duty amount owed Customs. The former is based on Keppel being awarded a three-vessel repair package from the petitioner. The latter is based on the total amount of dollars spent on the three-vessel repair package (i.e., as greater sums were spent, reductions were to be made on a sliding scale that included 4, 6, and 8% "volume discounts"). The petitioner suggests that it is appropriate to prorate these reductions over both dutiable and nondutiable items.

In support of its claim, the petitioner has provided an item-by-item analysis of the changes in the final charges assessed for the 19 repair items in question (Subsection II(A) of the petition). Subsection II(B) of the petition provides a description of the "lump sum" and "volume" reductions requested. Furthermore, the petitioner incorporates by reference its application for relief and the original Keppel invoice dated February 20, 1992, submitted therewith, in addition to submitting the following documentation with the petition: copies of relevant portions of the revised Keppel invoice dated August 25, 1992, covering the 19 items in question (Exhibits A through S); relevant provisions of the petitioner's contract with Keppel describing both the nature and appropriate circumstances of the price reductions (Exhibit T); and the final page of the revised Keppel invoice showing the application of the "lump sum" and "volume discount" reductions (Exhibit U).

ISSUE:

Whether the evidence presented supports the reductions in foreign shipyard costs requested by the petitioner.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466 (19 U.S.C. ? 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States..."

With respect to the cost evidence of the work in question, we note that at both the application and petition stages it was submitted to Customs within the allotted time period (see 19 CFR ? 4.14(d)(1)(ii) and (d)((2)(ii), respectively). We further note that the petitioner references the following statement contained within the application for relief (submitted prior to Exxon Shipping Company becoming SeaRiver Maritime, Inc.) pertaining to the total cost of the repairs appearing on the original Keppel invoice dated February 20, 1992:

"...this sum is not the price that has been or will be paid by the company for the Keppel repairs. Many of the Keppel repair items remain unsettled (and are so designated on the pertinent invoice pages). Exxon continues to negotiate with Keppel to finalize these charges. In addition, by contract Keppel is obligated to deduct certain sums from the overall charges, including, inter alia, liquidated damages, a 4% discount, and a lump sum discount. The calculation of these amounts is also currently a source of disagreement between Exxon and Keppel and has not been settled with finality. Clearly, at such time as these reductions have been finalized (and all repair items have been settled), Exxon's overall duty liability will be reduced proportionally." (See the application for relief at p. 4, note 1)

Thus, it is readily apparent that Customs was notified in the application that the price of the work in question was not yet finalized. Furthermore, the original invoice corroborated the above statement in view of the fact that it contained the words "PRELIMINARY INVOICE (UNSETTLED)" at the top of page 1 and the word "**UNSETTLED**" with the total cost listed on the last page. We also find significant the fact that the revised invoice (dated August 25, 1992) was finalized approximately 6 months subsequent to the original invoice (dated February

20, 1992) and the application for relief (dated February 22, 1992) and approximately 2 years and 7 months prior to Customs ruling on the application for relief (Headquarters ruling letter 112377, dated March 14, 1995). Thus, it is readily apparent that the finalization of the costs of the 19 particular work items in question as well as the additional discount reductions (accepted in vessel repair liquidations pursuant to C.I.E. 227/63 dated March 5, 1963) were done without regard to Customs ruling on the application for relief. Indeed, the costs of two of the aforementioned 19 items actually increased on the revised invoice.

Accordingly, upon reviewing the record in its entirety we conclude that the cost evidence presented by the petitioner is sufficient to grant the requested reduction in vessel repair duty assessment. The relevant portions of the revised Keppel invoice (Exhibits A through S) reflect the prices for 19 items that Customs will accept in liquidating the subject vessel repair entry. Furthermore, the aforementioned liquidation will reflect both the price reductions expounded by the relevant contract provisions to which Keppel and the petitioner agreed (Exhibit T), and the "lump sum" and "volume" reductions recognized by Keppel (Exhibit U) which will be prorated over both the dutiable and nondutiable items contained within the revised invoice.

HOLDING:

The evidence presented supports the reductions in foreign shipyard costs requested by the petitioner.

Sincerely,

William G. Rosoff

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