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HQ 114203

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October 13, 1998

VES-13-18-RR:IT:EC 114203 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107 P.O. Box 2450
San Francisco, CA 94126

RE: 19 U.S.C. 1466; LIHUE, V-11; Vessel Repair Entry No. C27-0158615-1; Petition

Dear Madam:

This ruling is in response to your memorandum dated December 12, 1997, which forwarded the petition submitted by Matson Navigation Company ("Matson" or "petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The LIHUE (the "vessel"), a U.S.-flag vessel owned and operated by the petitioner, arrived at the port of San Pedro, California on November 19, 1996. The subject vessel repair entry was timely filed. The vessel underwent certain foreign shipyard work in Korea in October and November of 1996.

In Ruling 113908 dated October 23, 1997, the application for relief with respect to the subject entry was granted in part and denied in part.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C.

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.

The subject entry is a "post-Texaco" entry, i.e., an entry filed after the appellate decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993). Accordingly, the Texaco decision applies to this entry.

The petitioner requests relief with respect to the following: general services costs; drydock costs; prefabricated steel; and painting.

General Services Costs and Drydock Costs

It is Customs oft-repeated position that general services costs and drydock costs are to be prorated between dutiable and nondutiable costs. This position was fully explained in Ruling 113908, the application ruling with respect to the subject entry. Our position remains in full force and effect. Accordingly, this claim of the petitioner is denied.

The petitioner has asked questions with respect to how the costs are to be prorated.

In Ruling 226873 dated October 29, 1996, which also involved a Matson vessel repair entry, we stated:

In accordance with Ruling 113474 and Memorandum 113350, and as your forwarding memorandum states, the drydocking charges should be prorated between the dutiable and nondutiable costs associated with the drydocking. The method of prorating was described in Ruling 113474, supra: the drydocking costs "should be apportioned to reflect the dutiable and non-dutiable foreign costs in this entry." For example, if, aside from the subject "drydocking costs," as described supra, fifty percent of the costs of that particular drydocking were dutiable and fifty percent were nondutiable, then fifty percent of the subject "drydocking costs," as described supra, would be dutiable and fifty percent would be nondutiable.

The costs of general services and/or drydock costs to be prorated are not involved in the calculation of what portion of the costs is dutiable and what portion is nondutiable.

With respect to the inclusion of 19 U.S.C. 1466(h)(3) duties in the proration calculation, in Ruling 226873 we stated:

Duty assessed under 19 U.S.C. 1466(h)(3) is vessel repair duty (i.e., 19 U.S.C. 1466 duty), albeit assessed at a rate of duty different from the fifty percent rate of 19 U.S.C. 1466(a). As such, the dutiable amount with respect to duty assessed under 19 U.S.C. 1466(h)(3) is to be included in the dutiable component for the purpose of the proration calculation which is described supra on pages four through six of this ruling.

Prefabricated Steel

The petitioner claims that many prefabricated steel items are eligible for treatment under 19 U.S.C. 1466(h)(2) and (3).

The claim with respect to 19 U.S.C. 1466(h)(3) was thoroughly discussed in Ruling 113908, the application ruling with respect to the subject entry. Similarly, the claim with respect to 19 U.S.C. 1466(h)(2) and (3) was discussed in Ruling 226873 dated October 29, 1996, which also involved a Matson vessel repair entry. Therein we stated:

With respect to 19 U.S.C. 1466(h)(2), it is our position that 19 U.S.C. 1466(h)(2) contemplates duty-paid entry of eligible spare repair parts or materials having been made prior to the vessel repair entry at issue. The petitioner has not established that this occurred.

Prefabricated steel is not a "part" eligible for 19 U.S.C. 1466 (h)(3).

Accordingly, the work herein is dutiable under 19 U.S.C. 1466(a).

Painting - item 413

In Ruling 113908 (the ruling on the application with respect to this entry), we held item 414 (the painting of the vessel name, hailing port and Matson logo) to be nondutiable, and held item 413 (the preparation and painting of the freeboard and fashion plate area) to be dutiable. Ruling 113908 cited Ruling 113681 where we held similarly, i.e., the painting of the vessel name, hailing port and Matson logo was nondutiable, but the repainting of the hull in the Matson colors was dutiable.

The petitioner claims that "if the logo is considered duty free, then the hull painting scheme should also be considered as part and parcel of the logo and therefore also duty free." It states that the subject painting of the hull in the three unique Matson colors was "to conform with new company fleet colors, name, logo, and hailing port."

The invoice heading for item 413 provides as follows: "413 - DEEP LOADLINE TO RAIL [;] Prepared and painted the freeboard and fashion plate area."

Per the invoice, the surface preparation included sealing; the removal of grease, oil, oil film, soot and other contaminants prior to coating by chemically cleaning; a high pressure water wash of the hull area; spot grit blasting of areas of active corrosion, including areas of the port and starboard outboard stack surfaces; and the blowing down of the entire area with high pressure air to remove all dust and spent abrasive.

The painting is described on the invoice as follows: ...
2. Applied one (1) touch-up coat Interturf Epoxy Red No. KHA303 / KHA062 at 5.0 mils dry, 7.0 mils wet film thickness. Interval before overcoating was maintained at a minimum of sixteen (16) hours.

3. Applied one (1) touch-up coat Intergard Intermediate Coat Gray No. FAJ034 / FAA262 at 5.0 mils dry, 7.0 mils wet film thickness. Interval before overcoating was maintained at a minimum twenty four (24) hours.

4. Applied one (1) full coat Intersheen Finish Matson Gray No. LAH053 at 2.0 mils dry, 5.0 mils wet film thickness. Interval before overcoating was maintained at a minimum of eight (8) hours.

5. Applied one (1) full coat Intersheen Finish Matson Gray No. LAH053 at 2.0 mils dry, 4.0 mils wet film thickness.
...

We affirm our earlier finding that item 413 is dutiable under 19 U.S.C. 1466. The invoice clearly reflects dutiable vessel repair work which goes well beyond mere "ornamental" painting.

This position is supported by H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953), where the court stated:

Relative to painting the hull of the vessel black between the decks and repainting the ship's name thereon, as well as the expenses of cartage of materials and labor, this court is of the opinion that the cost thereof is properly dutiable under the provisions of section 466 as "repairs." Although it is contended that the painting in question is strictly ornamental and in no sense performed for the preservation of the vessel and, therefore, cannot be considered "maintenance painting," it remains a fact that, irrespective of the intention behind the act, the painting of the ship black in order to present a better appearance to the public had the effect of restoring the old and rusted surfaces ...

HOLDING:

As detailed above, the petition is denied.

Sincerely,

Jerry Laderberg
Chief,

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