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HQ 113939

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October 23, 1997

VES-13-18-RR:IT:EC 113939 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. 110-6461448-7; PRESIDENT HARRISON; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated April 30, 1997, forwarding a petition for review of Customs ruling letter 113160, dated February 20, 1997. You request our review of the petitioner's claims for relief. Our findings in this matter are set forth below.

FACTS:

The PRESIDENT HARRISON is a U.S.-flag vessel operated by American President Lines, Ltd. Subsequent to the completion of various foreign shipyard work, the vessel arrived in Seattle, Washington, on January 3, 1994. A vessel repair entry was filed on January 10, 1994.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. By Customs ruling letter 113160, dated February 20, 1997, the application was granted in part and denied in part. A petition for review of the aforementioned decision was timely filed seeking relief with respect to numerous items listed on the spreadsheets and contained within the above-referenced vessel repair entry.

ISSUE:

Whether the costs for which the petitioner seeks relief are dutiable under 19 U.S.C.

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 application of the provisions of the above-cited statute in this case, we note that the subject entry was filed prior to the December 29, 1994, decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539. Customs has determined that it will not retroactively apply that decision to such "pre-Texaco" entries except for the assessment of duty on the costs of post-repair cleaning and protective covers incurred pursuant to dutiable repairs. (See Customs memorandum 113350, dated March 3, 1995, and published in the April 5, 1995, edition of the Customs Bulletin) Consequently, our findings regarding the items specified for our review are as follows.

Item No. 1.1-7 includes a cost for "[g]eneral cleaning of main deck and engine room debris." In addition to Customs position on post-repair cleaning discussed above, it should be noted that Customs has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. (Customs ruling letter 110841, dated May 29, 1990, and cases cited therein) Notwithstanding the petitioner's claims to the contrary, our review of the record indicates that these cleaning costs were performed in preparation for and/or in conjunction with dutiable repair work to both the main deck and the engine room (see, e.g., Item Nos. 3.1-5, 5.1-14, 5.1-16, 5.1-22 and 5.1-23). Accordingly, the cleaning cost under consideration in Item No. 1.1-7 is dutiable.

Item No. 1.1-19 covers the cost of "[f]itting and removing temporary protection covers on engine room console." Pursuant to Customs application of Texaco discussed above, expenses for protective covers incurred pursuant to dutiable repairs constitutes "expenses of repairs" as that term is used in the vessel repair statute (19 U.S.C. ? 1466). In view of the fact that dutiable repairs were performed in the engine room (see, e.g., Item Nos. 5.1-14, 5.1-16, 5.1-22 and 5.1-23), the cost of the protective covers in Item No. 1.1-19 is dutiable.

Item Nos. 001 (secretarial and clerical services), 003 (accounting services), 004 (safety and safety related costs) and 008 (educational & training) are collectively known as administrative overhead. Such charges incurred pursuant to nondutiable work (e.g., a modification or casualty-related repairs) are consequently non-dutiable as part of that work. If such charges are related to dutiable work they are non-dutiable pursuant to Treasury Decision (T.D.) 39443 for those entries that predate the opinion of the CAFC in Texaco. Although T.D. 39443, among others, has been
thoroughly discredited by Texaco, supra, as noted above Customs has determined that the court's decision will only be applied from the decision date (December 29, 1994) forward for all issues other than repair-related cleaning and protective coverings. Therefore, since this entry pre-dates the Texaco decision, the administrative charges in this case are non-dutiable. (See also Headquarters rulings 113085 and 113540 holding such charges to be nondutiable.) These same types of charges will be held dutiable for all entries filed on or after December 29, 1994.

Item No. 1.2-10 includes an itemized cost for "[p]roviding storekeeper to inventory and control issue of C-8 class storestock spare for drydock use." For "pre-Texaco" entries such as this, Item No. 1.2-10 is considered a non-dutiable drydock cost. (Customs ruling letter 113200, dated November 15, 1994)

The petitioner alleges that work done under the following items detailed in the invoice of Hong Kong United Dockyards, Limited is non-dutiable costs incurred pursuant to mandatory ABS/USCG inspections/surveys:

Item No. 2.1-2 - Strut Bearing Weardown
Item No. 2.1-3 - Tube Shaft Weardown
Item No. 2.1-4 - Rudder Pintle Clearance
Item No. 2.1-7 - Anchor Chain Locker
Item No. 2.1-8 - Sea Valves
Item No. 2.1-9 - Sea Chest Strainers
Item No. 2.1-14 - Fuel Oil Tank Inspection Item No. 2.1-18 - Ultra Sonic Testing
Item No. 3.1-1 - Hull High Pressure Water Wash Item No. 3.1-7 - Main Scoop Corner
Item No. 3.3-30 - Void 1A & 1B Cleaning
Item No. 4.1-1 - Port Boiler Inspection
Item No. 4.1-2 - Stbd Boiler Inspection
Item No. 4.1-3 - Port Boiler Hydrostatic Test Item No. 4.1-4 - Stbd Boiler Hydrostatic Test Item No. 4.1-5 - Main Steam Line Hydrostatic Test Item No. 4.1-7 - D.C. Heater
Item No. 4.1-10 - Ballast Piping
Item No. 4.1-11 - L.P. Turbine Protection Tests Item No. 4.1-12 - Main Turbine Generation Tests Item No. 4.1-17 - Kingsbury Thrust
Item No. 5.1-3 - Main Condenser

In regard to these items, it should be noted that Item No. 3.1-1 (Hull High Pressure Wash) was held to be non-dutiable in Customs decision on the application in this case (see the fourth paragraph on page 5 of ruling 113160). We therefore reiterate that this item is non-dutiable.

With respect to the remainder of the above-listed items, as noted above all of them involve inspection/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 involves the aforementioned periodic surveys.

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 above-listed survey costs for which the petitioner seeks relief are to be considered duty-free.

Item No. 2.1-11 includes a cost for "[r]emoving and re-erecting 7 sets of keel blocks including renewing cap pieces in way of bottom drain plugs removal for access." The petitioner states that this work is "a replacement to a keel block that has been damaged during an inspection and should be afforded the same duty-free treatment of the replacement of a gasket upon R/R a manhole cover." We agree. (See Customs ruling letter 113839, dated March 3, 1997) Accordingly, Item No. 2.1-11 is non-dutiable.

HOLDING:

The costs for which the petitioner seeks relief are dutiable in part and non-dutiable in part under 19 U.S.C. ? 1466 as discussed in the Law and Analysis portion of this ruling.

Accordingly, the petition is granted in part and denied in part.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers

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