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HQ 116213

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December 15, 2004

VES-13-18-RR:IT:EC 116213 GOB

CATEGORY: CARRIER

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

RE: Vessel Repair Entry C20-0038577-6; NOBLE STAR; 19 U.S.C. 1466; Protest No. 2002-02-101084

Dear Sir:

This is in response to your memorandum of April 19, 2004, forwarding for our review certain items on the protest filed on behalf of Sealift Tankships, Inc. (“protestant”) with respect to Vessel Repair Entry C20-0038577-6. Our ruling follows.

FACTS:

The NOBLE STAR (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 Lake Charles, Louisiana on August 6, 2001. A vessel repair entry was timely filed.

By letter of August 30, 2002, your office granted in part and denied in part the application. By submission received on November 8, 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.

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

The general services items which you have prorated have been appropriately prorated.

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.

We make the following findings with respect to the ABS survey items on Invoice 7 for which you have requested our determinations. The Special Periodical Survey (item 4, SSH No. 5), the Safety Equipment Survey (item 8, SLE renewal), and the administrative surcharge relating to the Safety Equipment Survey (item 17) are nondutiable. The Repairs Survey (item 8) and Overtime (item 18) are dutiable.

The cost of item 28.3 on invoice 1 is dutiable as the invoice indicates a repair, i.e., rewelding.

The cost of item 31.01 on invoice 1 is dutiable as it indicates work performed incident to repairs, i.e., tailshaft weardown before and after repairs.

The cost of item 32.1 on invoice 1, rudder pintles clearances, is dutiable as a repair and/or maintenance item. The invoice indicates this item may be directly related to repair and/or maintenance items. The protestant has not established the nondutiable status of this item.

The cost of item 33 on invoice 1, for normal polishing of the four blades of the propeller, is dutiable maintenance. This issue was thoroughly discussed in HQ 112276 dated September 4, 1992, and ruled upon in numerous other rulings, including HQ 112777 dated October 4, 1993 and HQ 114017 dated July 27, 1997.

The cost of item 34.3, for overhauling and pressure testing the emergency air receiver valves, is dutiable as it reflects maintenance and/or repair.

The cost of item 50, for sea trials, is dutiable as it appears it is related to repairs. The protestant has not provided evidence to establish that the sea trial is not dutiable. Sea trials have previously been ruled upon and/or discussed in HQ 107106, 108858, 110197, 113187, and 226873.

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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