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HQ 115993





July 26, 2004

VES-13-18:RR:IT:EC 115993 TLS

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C20-0058541-7; PACIFIC STAR; 19 U.S.C. § 1466; Protest No. 2002-02-100995.

Dear Sir:

This is in response to your memorandum of May 8, 2004. The memorandum forwards an application for further review of a protest, filed by Neville Peterson LLP on behalf of Pacific Island Resources (PIR), of a decision of your office assessing vessel repair duties pursuant to 19 U.S.C. § 1466. The protest specifically seeks further relief from those vessel repair duties, which were payable upon the filing of the subject entry.

Your office assessed duties upon the above-noted entry on July 5, 2002 in the amount of $472,664.81. The protestant filed for relief from those duties on September 27, 2002. The initial filing was supplemented and revised with additional filings on October 4, 2002 and April 4, 2003. Upon review of the filing, you recommend that the protestant be denied relief from duties in the amount of $357,358.20.

FACTS:

PIR bought the PACIFIC STAR in year 2001. According to the protestant, the vessel was designed, at the time of purchase, for catching Alaskan King Crabs and storing them in live wells and was thus used. Upon purchase, the vessel was moved to New Zealand to be reconfigured to fish for, process, and blast-freeze squid. This work was completed in the summer of 2001.

The protestant claims that the reconfigurations resulted in a vessel outfitted as a squid jigger rather than a crab vessel, as it had been used before. The protestant further claims that the work done in New Zealand constitutes modifications of the vessel that are non-dutiable. Your office seeks our advice with respect to certain of these costs, which are listed on various invoices as follows:

ITEM ## INVOICE NAME(S); NUMBERS DATE(S)
127 Nalder & Biddle (Nelson) Ltd.; 565200-07. 8-10-01

28, 33, 53, 181, Mobil Oil Company, ExxonMobil; xxx442 , 4-16-01, 202 7505/01, 7507/01, 0857/01, 020181, 4-28-01, 40022212; Sea Resources Co., Ltd. 9851. 4-30-01, . 5-19-01, 7-31-01,
8-5-01.

176 and 196 Sea Resources Co., Ltd.; 9829; and 7-1-01 Legend-Nautilus; 9454. 7-26-01

192 City Medical Centre; 69-196-233 8-1-01

194 Legend-Nautilus; 9456 7-31-01

189-190 Parade Hydraulic Engineering 1999 Ltd.; 8-20-01 401, 417.

39, 54, 75-77, Sea Resources Co., Ltd.; 9786 5-1-01 84-85, 93, and 7-31-01

1, 40, 55, 66, 78 Sea Resources Co., Ltd.; 9783, 9816 5-1-01, 87, 96, 169, 171, 9828, 9950, 9966, 9985, 9997, and 9829. 6-1-01, 182, and 183. 7-7-01,
8-5-01,
8-31-01,
10-6-01,
11-7-01,
7-23-01.

180 Legend-Nautilus; 9386. 6-30-01

184, 199 Sea Resources Co., Ltd.; 9956, 9969. 8-5-01, 8-31-01

206 CentrePort; 75803. 9-12-01

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 28, 33, 53, 39, 54, 75-77, 84, 85, 93, 105, 1, 40, 55, 66, 78, 87, and 96.

Considering each cost for which relief is sought in the order listed above, we first consider Item 127, which the invoice describes as “materials.” The materials (or services) listed on the invoice include corrugated cardboard, “service 60hp yamaha,” fuel filter, “simply green per 20ltr,” and “further service to 60hp motor.” The use of the cardboard, the filter, and the “simply green,” has not been clearly attributed to the modification of the vessel. Therefore, the costs for these articles must be considered dutiable. See Customs Ruling HQ 114878 (December 24, 1999). The costs for the service and further service of the 60hp Yamaha motor also cannot be clearly distinguished as wholly attributable to either repairs or modifications. Thus, these costs are also dutiable.

Item 129 consists of a list of services described as “pump bilge,” “skip hire,” and “skip hire.” These are general/drydocking services which are to be prorated. See SL Service Inc. v. United States, supra.

Item 130 is consists of a list of services described as “berthage,” and “phone charges per day x 52.” These general/drydocking services cannot be distinguished between repair work and modification work and are attributed to both. Thus, these costs should be prorated.

Item 131 consists of a list of services described generally as either “connect power” or “supply power.” These general/drydocking services cannot be distinguished between repair work and modification work and therefore are attributable to both. Thus, these costs should be prorated.

Item 132 consists of a line item described as “pilot services-15.04 & 08.06.” This general/drydocking service cannot be distinguished between repair work and modification work and is therefore attributable to both. Thus, this cost should be prorated.

Items 176 and 196 are invoices for various food items, deodorant, and a cleaner. You note that no duty has been charged on these items. Therefore, no relief is warranted for these costs.

Item 192 is a receipt from City Medical Center, and contains a note which refers to “Dr A Lear” and “Patient.” We surmise that this cost was for medical services rendered. You note that no duty has been charged on this item. Therefore, no relief is warranted for this cost.

Item 194 is listed as “deck & engine stores” on an invoice entitled “New Zealand Dollar Charges.” The protestant submitted no further information about this item; we therefore cannot grant relief in this instance.

Items 189-190 include invoices that clearly state “repairs” were done in these instances. The costs associated with this work are therefore dutiable.

Items 169 and 183 are included on an invoice listing the salaries for several vessel crew workers and consultants over the course of several months. These items relate to the salaries of crew workers; as such, these costs are non-dutiable expenses. Therefore, relief is granted on these items.

Items 171 and 182 are included on an invoice listing the salaries for several vessel crew workers and consultants over the course of several months. These items relate to the salaries of consultants; as such, these costs should be prorated consistent with SL Service, Inc. v. United States, supra.

Item 207 is an invoice for “electrical spareparts.” This item cannot be distinctively associated with either repair work or modification work. Thus, the cost associated with this item is dutiable. HQ 114878, supra.

Item 180 is an invoice for “labour charges” and “cartage.” The invoice indicates that labor charges and cartage charges are attributable to modification work and therefore non-dutiable. These items cannot be distinctively associated with either repair work or modification work. Thus, the costs associated with these items are dutiable. HQ 114878, supra. The invoice also includes a line item for “coca cola cans.” The coca cola cans are consumables and therefore non-dutiable.

Items 184 and 199 cover various charges for the vessel’s use of the New Zealand port. These costs are general drydocking expenses that cannot be distinctively associated with either repair work or modification work and are therefore attributable to both. Thus, these costs should be prorated consistent with SL Service, Inc. v. United States, supra.

Item 206 is an invoice for the transport and tip disposal of trash from the vessel. This cost qualifies as a general service/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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