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HQ 116205

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December 15, 2004

VES-13-18-RR:IT:EC 116205 GOB

CATEGORY: CARRIER

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

RE: Vessel Repair Entry C20-0038546-1; CSX CHALLENGER; 19 U.S.C. 1466; Protest No. 2002-02-101207

Dear Sir:

This is in response to your memorandum of April 14, 2004, forwarding for our review certain items on the protest filed by CSX Lines, LLC (“protestant”) with respect to Vessel Repair Entry C20-0038546-1. Our ruling follows.

FACTS:

The CSX CHALLENGER (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. After completion of the work in question, the vessel arrived in San Juan, Puerto Rico on June 30, 2001. A vessel repair entry was timely filed.

In HQ 115681 dated July 15, 2002, this office found that certain work on Invoice 1B (i.e., item nos. 5.1-35, 5.1-37, and 8.9000-27) constituted nondutiable modifications to the vessel.

By letter of August 30, 2002, your office granted in part and denied in part the application. By submission received on November 14, 2002, the subject protest and application for further review was filed.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. §1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466 (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.

In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F. Supp. 1359 (Ct. Int’l Trade 2002), cert. denied December 13, 2004, the Court of Appeals for the Federal Circuit upheld CBP’s proration of certain expenses. The court stated in pertinent part as follows:

. . . apportionment is consistent with section 1466(a) and the “but for” test. In the context of dual-purpose expenses, it is rational to impose the duty on only that portion of the expense that is fairly attributable to the dutiable repairs. Indeed, to impose the 50% ad valorem duty on the entire costs of dry-docking in this case would exceed the mandate of the statute. The logical appeal of apportionment has been recognized in other areas of the law . . . . . .
Customs’ long-standing practice of apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications comports with both the statute and common sense.

Our determinations follow with respect to the items for which you have requested our review.

Items 1c, 1-1 through 2.1-1 are general services items which should be prorated between dutiable and nondutiable costs.

Items 5b and 5i are charges for pilotage and tugs which should be prorated between dutiable and nondutiable costs.

The costs within item 5j which you have asked us to consider are costs for freight forwarding and transportation for removal of containers from Jurong Shipyard. We find that these costs should be prorated between dutiable and nondutiable costs.

Item 5n is a charge for freight forwarding which should be prorated between dutiable and nondutiable costs.

Item 5o is for the storage of four 40 foot containers and two 40 foot oil tanks. We find these items to be dutiable.

Item 14 is for general cleaning work. We find that this cost should be prorated between dutiable and nondutiable costs as we believe it pertains to both.

Item 1c, 4.1-2a involves “main reduction gear coupling and gear inspections (ABS SSM).” We find these costs to be dutiable because they involve certain work that is clearly repair and/or maintenance in nature (i.e., “Cleaned and dressed gear teeth of couplings and quill shaft.”) and because the protestant has not established that this work is nondutiable.

Item 1c, 4.1-2 (1&2) involves the removal and retrofitting of H.P. nozzle blocks. We find that this item is dutiable as it involves work that is repair and/or maintenance in nature.

Item 1d, 4.1-11 involves the following: “Main switchboard thoroughly cleaned. All connections checked and tightened.” We find this item is dutiable as it exceeds mere cleaning and involves maintenance. See Headquarters rulings 112761, 109569, and 110047.

Item 1d, 5.1-6 involves cleaning of the main switchboard. This cost is nondutiable.

Items 1d, 5.1-50, 5.1-51, and 5.1-52 are costs for the cleaning of the settling tank, cleaning of no. 5 fuel oil tank, and cleaning of no. 4 fuel oil tank, respectively. We find that items 5.1-50 and 5.1-51 are dutiable as such work is related to dutiable repair work. We find that item 5.1-52 is nondutiable.

Item 3 involves Suncrest Engineering Pte Ltd. Invoice no. S01-2147A dated June 6, 2001. The protestant states:

This item covers A.B.S. required turbine generator inspections under Continuous Machinery survey and is noted as well under the A.B.S. survey report and is highlighted for your reference. Any repairs associated with the turbines is [sic] covered under a separate invoice, item 12a secondary invoice where Suncrest Engineering has separated inspection assistance from any generator maintenance or repairs.

The invoice itself provides in pertinent part as follows:

Furnished one Foreman and Mechanical Technicians as needed to assist Turbine Specialist for opening and inspection for ABS special survey on both units . . . . . .
Removed out all stationary turbine diaphragms on both SSTG for workshop cleaning by fly ash blasting. Drill out all broken bolts and make good all threads. Partial alignment of diaphragms on some stages found necessary as directed. Disconnected steam lines and interference and removed both SSTG nozzle chambers and rig to deck. Removed nozzle plates and drill both broken nozzle holding bolts. Stone clean nozzle seat landings. Blue contact checks on repaired nozzles. Install with new owner furnished boltings. Opened and inspected No. 1 & 2 SSTG trip throttle and governor valve assembly for inspection and survey. NDT seats and plugs. Drilled out broken bolts. Cleaned and reassembled with owner furnished gaskets. . . .
No. 2 SSTG gear box – Opened up and removed complete gear element. Replace with owner furnished spare gear set. Fit bearings to obtain good contact, stone bull gear and pinion to remove nicks and dents. Disassembled all attachments and removed out both electrical generator rotor and exciter stator and rig cleared to deck. Prepared, cleaned end bells and stator. Removed paint and chips in way of joints. Installed new owner furnished foam seal strips. . . . . . .
SSTG Turbine Stationary Diaphragms – 20 pcs Provided labour and transport to offload all diaphragms from ship to our workshop. Furnish labour, equipment and material to carry out fly ash blasting with glass bead material to remove all rust, etc from nozzle blades. Mechanically cleaned out the hardened rust flakes in between nozzles in order to be able to perform MPI checks. [All emphasis supplied.]

We find that the costs on this invoice are dutiable because this work involves repair and/or maintenance items which are not separately itemized. Examples of work which indicates repair and maintenance are underlined above.

Item 5f (c) is for “supply of deck/engine stores.” In the absence of a clear description of goods which would be nondutiable, we find this cost is dutiable.

Item 1c, 2.1-20 involves the removal of “bottom plugs on all double bottoms and ballast deep tanks in order to drain tanks for examination.” This invoice also states “ABD required inspection.” As you point out, however, other invoices indicate that repairs were performed on the double bottom and double bottom ballast tanks. We agree with your proration of this cost between dutiable and nondutiable costs.

HOLDING:

As discussed in the Law and Analysis section of this ruling, certain costs are dutiable under 19 U.S.C. 1466, certain costs are nondutiable, and certain costs should be prorated. Accordingly, you are instructed to allow the protest in part and deny the protest in part.

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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