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HQ 115990

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June 15, 2004

VES-13-18:RR:IT:EC 115990 TLS

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street, Room 303
New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. C20-0058534-2; PACIFIC VENTURE; 19 U.S.C. § 1466; Protest No. 2002-02-100996.

Dear Sir:

This is in response to your memorandum of May 1, 2003, forwarding an application for further review, filed by Neville Peterson LLP on behalf of Pacific Island Resources, Inc., of a decision of your office assessing vessel repair duties pursuant to 19 U.S.C. § 1466. You specifically seek our advice with respect to the merits of the protestant’s claims covering work listed on several different documents. Our determination is set forth in this ruling.

FACTS:

Pacific Island Resources, LLC (hereafter also referred to as PIR) owns Pacific Venture Resources, LLC (hereafter also referred to as PVR), which operates the vessel PACIFIC VENTURE. The vessel departed from New Zealand on August 27, 2001. While in New Zealand, the vessel underwent various shipyard work. The vessel arrived in the United States at Honolulu, Hawaii on September 14, 2001. A vessel repair entry was timely filed. An application for relief was not filed in conjunction with this entry. The entry liquidated on June 28, 2002, in the amount of $772,256.69. On September 27, 2002, PIR’s legal counsel filed an application for further review.

The protestant seeks relief from vessel repair duties associated with various costs. Your office seeks our advice with respect to certain of these costs, which are listed on various invoices as follows:

ITEM ## INVOICE NAME, NUMBER DATE
32, 33, 35, 37, Sea Resources, 9787 5-1-01 38, and 39

135 Nalder & Biddle (Nelson) Ltd., 568202 9-13-01

136 Nalder & Biddle (Nelson) Ltd., 568203 9-12-01

137 Nalder & Biddle (Nelson) Ltd., 568204 9-12-01

138 Nalder & Biddle (Nelson) Ltd., 568205 9-12-01

139 Nalder & Biddle (Nelson) Ltd., 568206 9-13-01

140 Nalder & Biddle (Nelson) Ltd., 568207 9-12-01

28 Mobil, xxxx442

 This invoice number is partially illegible. 4-16-01

53 McCully Mobil, 020181 5-19-01

211 Legend-Nautilus (NZ) Ltd., 9529 8-24-01

203 Parade Hydraulic Engineering 1999 Ltd., 482 8-30-01

54 Sea Resources Co., Ltd., 9820 6-1-01

75-77 Sea Resources Co., Ltd., 9957 8-5-01

84 and 85 Sea Resources Co., Ltd., 9968 8-31-01

93 Sea Resources Co., Ltd., 9991 10-5-01

105 Sea Resources Co., Ltd., 10001 11-8-01

1 Sea Resources Co., Ltd., 9783 5-1-01

40 Sea Resources Co., Ltd., 9816 6-1-01

55 Sea Resources Co., Ltd., 9828 7-1-01

66 Sea Resources Co., Ltd., 9950 8-5-01

78 Sea Resources Co., Ltd., 9966 8-31-01

87 Sea Resources Co., Ltd., 9985 10-6-01

96 Sea Resources Co., Ltd., 9997 11-7-01

193 Sea Resources Co., Ltd., 9784 5-1-01

202 Sea Resources Co., Ltd. (no number) 8-20-01

97 Hilton Sydney Airport, 319594 10-14-01

214 CentrePort Ltd., 75803 9-12-01

213 CentrePort Ltd., 75713 8-31-01

217 Denis Taylor Plumbing Ltd., 896084 no date

We note that the protestant acknowledges that some of the work listed within these items constituted dutiable repairs. Our review is therefore limited to those costs alleged to constitute non-dutiable work.

ISSUE:

Whether the work in question for which the protestant seeks relief constitutes expenses unrelated to vessel repairs and is therefore non-dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) (19 U.S.C. § 1466(a)), 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 its application of the vessel repair statute, Customs has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is non-dutiable under 19 U.S.C. § 1466.

The United States Court of Appeals for the Federal Circuit has ruled that expenses that would not have been incurred “but for” the dutiable repair work done are themselves dutiable, and, conversely, expenses that would not have been incurred but for the non-dutiable work done are themselves non-dutiable. Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994). The same court recently ruled that the U.S. Customs and Border Protection’s (CBP’s) method of prorating duties based on the ratio of dutiable work versus non-dutiable work in regard to dual-purpose expenses is consistent with the “but for” test and section 1466(a). SL Service, Inc. v. United States, Slip Op. 03-1174 (Fed. Cir 2004), panel reh’g and reh’g en banc denied, 2004 U.S. App. LEXIS 10322 (April 19, 2004).

We should note at this juncture that Items 1-115 in the protestant’s submission in this case are identical to the same-numbered Items in Customs Ruling HQ 115975 (July 16, 2004). By reference to that ruling, the conclusions with regards to any Items discussed in HQ 115975 that are within the numbers range of 1-115 apply to the corresponding Item numbers in this case as well. In this case, those numbers include Items 32-39, 28, 53, 54, 75-77, 84, 85, 93, 105, 1, 40, 55, 66, 78, 87, 96, and 97.

Item 135 is described on the invoice as “check battery chargers in engineroom.” This description is indicative of work performed during routine maintenance of a vessel. As such, it is dutiable.

Item 136 is described on several line items under the line description “Materials” as “pump out vessel,” “skip hire,” and six different line items described as “hire skip.” There is another line description entitled “Labour.” These are costs for general services, which may be prorated consistent with the ratio of dutiable versus non-dutiable work. Items 137 through 140 also describe general services of various types, the costs of which should also be prorated.

In regard to Item 211, you state that the protestant was not charged duty on invoices 9543, 9540, 9537, and 9529, included within this item. Consequently, relief is not appropriate for this item.

Item 203 is described as “general engineering work,” and is further described in detail as various types of “labour” and “parts.” Job No. 6402 is described as “straighten bent framing... repair broken welds on framing... modify spool mount on one frame... (new mount made to replace existing mount which was too small).” The work refers to the repair of welds on a framing, repair of the framing itself, and the replacement of a spool mount. The work is indicative of dutiable repairs. While it is noted that the spool mount was modified during this work, the costs for the modification were commingled with the costs for dutiable repairs. Therefore, the total costs for this work are dutiable.

Items 193 and 202 include invoices listing the salaries for several vessel crew workers over the course of several months. As such, these costs are non-dutiable expenses. Therefore, relief is granted on these Items.

Item 214 covers expenses for the transport and tip disposal of bins at Kings Wharf on August 1, 2001. This expense qualifies as a dual-purpose expense and therefore should be prorated accordingly.

Item 213 covers expenses for a berth hire, water connection fee, and ships water usage. These expenses qualify as dual-purpose expenses and therefore should be prorated accordingly.

Item 217 is described on the invoice as “pipe water to drawer shower and whb [sic] as requested.” This expense qualifies as a dual-purpose expense and therefore should be prorated accordingly.

HOLDING:

Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest for relief with respect to the items considered above should be denied and granted in part as specified in the Law and Analysis portion of this ruling.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief

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