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HQ 115627

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May 16, 2002

VES-13-18-RR:IT:EC 115627 GEV

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. C20-0055656-6; SS CLEVELAND; Drydocking and General Services Charges; Propeller Polishing; Discount; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated February 19, 2002. forwarding a petition for our review of your decision on an application for relief from duty. Our ruling on this matter is set forth below.

FACTS:

The SS CLEVELAND is a U.S.-flag vessel which incurred foreign repair costs during the period of December 27, 1997 to January 17, 1998. Subsequent to the completion of work in question, the vessel arrived at the port of Lake Charles, Louisiana, on February 4, 1998. A vessel repair entry was timely filed.

An application for relief with supporting documentation was timely filed which your office granted in part and denied in part. A petition for review of your decision was timely filed. The petitioner claims relief for the following: (1) a 10% discount on the Dorbyl Marine Ship Repair invoice; (2) all prorated drydocking and general services costs on Invoice nos. 1, 3, and 10; and (3) propeller blade polishing covered by Invoice 1, Item 37.

ISSUES:

Whether the discount on the shipyard invoice for which the petitioner seeks relief is acceptable in the liquidation of this entry under 19 U.S.C. § 1466.

Whether the drydocking and general services costs for which the petitioner seeks relief are dutiable under 19 U.S.C. § 1466.

Whether the costs for propeller polishing for which the petitioner seeks relief are 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”

In regard to the first issue for our determination, the petitioner has submitted a copy of a letter from Dorbyl Marine Ship Repair with the notation, “Dorbyl will further offer a 10% discount on the full final invoice subject to payment within 30 days of invoiced date.” This letter was sent to their agent in the United States, Midland Marine Corporation, and referenced the SS CLEVELAND yard period.

Although Customs recognizes discounts provided they are acknowledged by the foreign shipyard, with respect to such discounts it is also our position that only the actual expenses borne by the operator should be taken into consideration in the liquidation of a vessel repair entry. (C.I.E. 227/63) Consequently, rather than discounting the entire invoice amount, only that portion of the discounted amount which is attributable to dutiable repairs is permitted to be deducted from the cost of those repairs. (see, e.g., Customs ruling letters 111230, dated November 8, 1990; 111170, dated February 21, 1991; 111792, dated January 9, 1992; and 112311, dated April 1, 1993) The aforementioned letter from the shipyard does not provide the requisite apportionment. The discount requested in this case is therefore denied.

With respect to the second issue for our consideration, since the subject entry contains both dutiable and nondutiable costs, the general services and drydocking costs at issue are to be prorated pursuant to Customs ruling letter 113474 and memorandum 113350 both of which addressed Customs implementation of the decision of the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994). The record does not corroborate petitioner’s claim that these costs were related solely to a non-dutiable survey. Accordingly, the drydocking and general services costs in question remain dutiable on a prorata basis.

Invoice 1, Item 37, covers propeller blade polishing which, the petitioner contends, was done as part of a nondutiable survey. In support of this position the petitioner cites two prior Customs rulings (108365, dated February 12, 1987, and 227171, dated December 9, 1997) wherein it was determined that since the propeller polishing in question was done pursuant to a non-dutiable survey, it was non-dutiable as well.

We note, however, that other than the petitioner’s mere assertion, the record in this case is devoid of any indicia that the subject propeller polishing was done pursuant to a non-dutiable survey. Furthermore, Invoice 1, Item 37, contains no cross-reference to a non-dutiable ABS survey. Absent such a nexus, Customs has determined that propeller polishing is dutiable maintenance (see, e.g., Customs ruling letters 112045, dated March 10, 1992, 112480, dated March 16, 1993, and 112778, dated March 14, 1995). We so hold with respect to the propeller polishing covered by Invoice 1, Item 37.

HOLDINGS:

The discount on the shipyard invoice for which the petitioner seeks relief is not acceptable in the assessment of duty under 19 U.S.C. § 1466.

The drydocking and general services costs for which the petitioner seeks relief are dutiable on a prorata basis under 19 U.S.C. § 1466.

The costs for propeller polishing for which the petitioner seeks relief are dutiable under 19 U.S.C. § 1466.

Accordingly, the petition is denied in full.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch

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