HQ 113609 - Vessel Repair Entry No. C29-0013354-0; SEARIVER BATON ROUGE; V-19; Petition; Revised invoice; Reduction in cost; 19 U.S.C. ? 1466 - United States International Trade Commision Rulings

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HQ 113609

December 12, 1995

VES-13-18-RR:IT:EC 113609 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C29-0013354-0; SEARIVER BATON ROUGE; V-19; Petition; Revised invoice; Reduction in cost; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated September 26, 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 BATON ROUGE (formerly the EXXON BATON ROUGE) 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 October 6 - December 30, 1991. Subsequent to the completion of the repairs, the vessel arrived in the United States at Portland, Oregon, on January 22, 1992. A vessel repair entry was timely filed on January 27, 1992.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. The supporting documentation included an invoice from Keppel dated March 4, 1992. Customs decision on the application for relief was held in abeyance pending litigation of the vessel repair issues 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 112517, dated March 14, 1995, forwarded to SeaRiver Maritime, Inc., from the Deputy Regional Director, Pacific Region, by letter dated June 12, 1995.

By letter dated June 16, 1995, and pursuant to 19 CFR ? 4.14(d)(2)(ii), SeaRiver Maritime, Inc. sought and received an extension of time until August 11, 1995, in which to file its petition. The aforementioned petition was timely filed. The petitioner does not take exception with Headquarters ruling letter 112517 with respect to its determinations as to the dutiability of the specific items addressed therein. 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 49 of the 319 total invoiced Keppel repair items (the charges for the remaining 270 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 aforementioned 49 items are as follows: Item 2-Services; Item 4-Overspeed Trips; Item 5-Cargo/Ballast Pump Relief Valves; Item 6-Reach Rod and Bearings; Item 7-Cargo Piping Survey and Repairs; Item 12-Docking Plugs; Item 15-Double Bottom Clean and Coat; Item 17-Sea Strainers & Chests; Item 18-Sea Valves; Item 22-Rudder Post Packing; Item 24-Cathodic Protection System; Item 26-Starboard/Port Lifeboats; Item 40-Boiler Waterside Cleaning & Hydrotest; Item 41-Fireside Cleaning; Item 43-Boiler Refractory; Item 49-Propellers; Item 51-Tailshaft Survey; Item 55-Main Condensate Pump; Item 60-Waste Pieces; Item 67-Main Condenser; Item 71-Deaerating Tank; Item 74-Auxiliary Turbines; Item 78-Electric Motors; Item 87-Main Deck Coating Repairs; Item 91-Forepeak Tank; Item 92-Cargo Pump Right Angle Drives; Item 93-Cargo & Ballast Valves; Item 98-Cargo Piping; Item 101-Port & Starboard IG Blower Suction Ducts; Item 104-'E' and F' Ballast Pump Casing; Item 106-Diesel Oil Storage Tank; Item 109-Bow Thruster Pod Removal; Item 121-#2 Port Ballast Pump Can; Item 127-Roller & Pallister Chocks; Item 128-Composition Deck Renewal on Bridge Wings; Item 130-Officers' Laundry Deck; Item 131-Stack & House Coating; Item 132-Underside of Bridge & Bridge Wings; Item 138-Lagging Main Engine; Item 143-'C' Fwd Drop Inboard Drain Piping; Item 151-Deck Steam Supply Swivel Joints; Item 164-Steelwork Repairs; Item 166-Deep Well Pumps; Item 178-Valve in 16" Dirty Ballast Line; Item 205-After Sea Suction Dresser Coupling; Item 244-Cargo Tank Butt & Seam Welding; Item 274-Half Collars on Vertical Girder Web IWO Horizontal Stiffener; Item 281-Cargo Tank Pitting Repair in No. 2 Stbd Aft & No. 2 Stbd Fwd.; and Item 282-Cargo Tank Pitting in No. 1 Center & No. 5 Port.

In regard to the above items, we note that the revised shipyard invoice reflects an increase of duty with respect to Item 106 and no change in duty with respect to Item 127. In addition, under Item 2 the petitioner is claiming as nondutiable the $3,045 charge for garbage removal found dutiable by Customs Vessel Repair Liquidation Unit (VRLU) in San Francisco.

In addition to the cost reductions of the 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 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 March 4, 1992, submitted therewith, in addition to submitting the following documentation with the petition: copies of relevant portions of the revised Keppel invoice dated August 17, 1992, covering the 49 items in question (Exhibits A through WW); relevant provisions of the petitioner's contract with Keppel describing both the nature and appropriate circumstances of the price reductions (Exhibit XX); and the final page of the revised Keppel invoice showing the application of the "lump sum" and "volume discount" reductions (Exhibit YY).

ISSUES:

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

2. Whether the $3,045 charge for garbage removal under Item 2 of the revised shipyard invoice is dutiable under 19 U.S.C. ? 1466.

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 March 4, 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. We also find significant the fact that the revised invoice (dated August 17, 1992) was finalized less than 6 months subsequent to the original invoice (dated March 4, 1992), less than 4 months subsequent to the application for relief (dated April 21, 1992) and approximately 2 years and 7 months prior to Customs ruling on the application for relief (Headquarters ruling letter 112517, dated March 14, 1995). Thus, it is readily apparent that the finalization of the costs of the 49 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 cost of one of the aforementioned 49 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 WW) reflect the prices for 49 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 XX), and the "lump sum" and "volume" reductions recognized by Keppel (Exhibit YY) which will be prorated over both the dutiable and nondutiable items contained within the revised invoice.

With respect to the $3,045 charge for garbage removal under Item 2 of the revised shipyard invoice (which did not change from the amount listed for Item 2 on the original invoice), we note that pursuant to the decision of the CAFC in Texaco, supra, and reiterated in our ruling on the application for relief, foreign expenses are subject to duty if they would not have been necessary "but for" the occurrence of dutiable repairs. (See 44 F.3d at 1544 and Headquarters ruling no. 112517 at pp. 2-3) However, Customs has determined that with respect to vessel repair entries filed prior to the decision date (December 29, 1994), Texaco will not apply except as to the two issues directly decided by the court (i.e., post-repair cleaning and protective coverings). (See Headquarters memorandum 113350, dated March 3, 1995, published in the Customs Bulletin of April 5, 1995) Consequently, since this particular charge appears on a vessel repair entry filed on January 27, 1992, and was for the removal of garbage not connected to a specific repair item, the court's decision in Texaco will not apply and the charge will remain a nondutiable drydocking charge (C.D. 1836 and T.D.s 27154, 49531).

HOLDINGS:

1. The evidence presented supports reductions in foreign shipyard costs, and consequently the reduction of duty assessed pursuant to 19 U.S.C. ? 1466, on the following: Item 4-Overspeed Trips; Item 5-Cargo/Ballast Pump Relief Valves; Item 6-Reach Rod and Bearings; Item 7-Cargo Piping Survey and Repairs; Item 12-Docking Plugs; Item 15-Double Bottom Clean and Coat; Item 17-Sea Strainers & Chests; Item 18-Sea Valves; Item 22-Rudder Post Packing; Item 24-Cathodic Protection System; Item 26-Starboard/Port Lifeboats; Item 40-Boiler Waterside Cleaning & Hydrotest; Item 41-Fireside Cleaning; Item 43-Boiler Refractory; Item 49-Propellers; Item 51-Tailshaft Survey; Item 55-Main Condensate Pump; Item 60-Waste Pieces; Item 67-Main Condenser; Item 71-Deaerating Tank; Item 74-Auxiliary Turbines; Item 78-Electric Motors; Item 87-Main Deck Coating Repairs; Item 91-Forepeak Tank; Item 92-Cargo Pump Right Angle Drives; Item 93-Cargo & Ballast Valves; Item 98-Cargo Piping; Item 101-Port & Starboard IG Blower Suction Ducts; Item 104-'E' and F' Ballast Pump Casing; Item 109-Bow Thruster Pod Removal; Item 121-#2 Port Ballast Pump Can; Item 128-Composition Deck Renewal on Bridge Wings; Item 130-Officers' Laundry Deck; Item 131-Stack & House Coating; Item 132-Underside of Bridge & Bridge Wings; Item 138-Lagging Main Engine; Item 143-'C' Fwd Drop Inboard Drain Piping; Item 151-Deck Steam Supply Swivel Joints; Item 164-Steelwork Repairs; Item 166-Deep Well Pumps; Item 178-Valve in 16" Dirty Ballast Line; Item 205-After Sea Suction Dresser Coupling; Item 244-Cargo Tank Butt & Seam Welding; Item 274-Half Collars on Vertical Girder Web IWO Horizontal Stiffener; Item 281-Cargo Tank Pitting Repair in No. 2 Stbd Aft & No. 2 Stbd Fwd.; and Item 282-Cargo Tank Pitting in No. 1 Center & No. 5 Port.

2. The $3,045 charge for garbage removal under Item 2 of the revise shipyard invoice is nondutiable under 19 U.S.C. ? 1466.

Sincerely,

William G. Rosoff

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