HQ 116462 - 19 U.S.C. §1466; Vessel Repair Entry NB3-1041013-0; Protest 2002-02-100998 - United States International Trade Commision Rulings

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HQ 116462

May 16, 2005

VES-3-18-RR:IT:EC 116462 GOB

CATEGORY: CARRIER

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

RE: 19 U.S.C. §1466; Vessel Repair Entry NB3-1041013-0; Protest 2002-02-100998

Dear Sir:

This is in response to your memorandum of May 3, 2005, forwarding for our review the protest filed by Marine Transport Lines, Inc. (“protestant”) with respect to Vessel Repair Entry NB3-1041013-0. Our ruling follows.

FACTS:

The SMT CHEMICAL EXPLORER (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Houston on October 18, 2001. A vessel repair entry was filed. The vessel repair entry (CF 226) indicates that Francis Owner Corporation is the owner of the vessel.

By letter of June 7, 2002, your office responded to the application for relief.

ISSUE:

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

LAW AND ANALYSIS:

Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e).

Title 19, United States Code, section 1466(a) (19 U.S.C. §1466(a)) 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.

We stress that it is the burden of the protestant to establish, by adequate, clear, and satisfactory documentary evidence, any exemption or exception which it may claim, or appear to claim, from dutiability under 19 U.S.C. 1466. Brief, handwritten notes on invoices do not constitute adequate, clear, and satisfactory documentary evidence, nor do worksheets unaccompanied by a thorough narrative explanation.

You have requested our review with respect to many items. We will use the groupings (and titles) which you employed in your memorandum. We will list the items in the order and manner in which they are presented in your memorandum.

We find that the following items on the Sembawang Shipyard invoice are dutiable: 15, 18, 38, 40, and 316.

We find that the following items on the Sembawang Shipyard invoice should be prorated between dutiable and nondutiable costs: 17.1, 39, 143, 198, and 270.

We find that the miscellaneous materials on item 2D on the Port Marine Contractors invoice no. 12544 are dutiable.

Cleaning

It is the position of Customs and Border Protection (CBP) that cleaning operations which perform a restorative function are dutiable under 19 U.S.C. 1466. A restorative function would include the removal of rust, deterioration, or worn parts, as well as operations which would return the vessel to its former state of preservation. Cleaning incident to dutiable operations is dutiable. Cleaning which is maintenance in nature (e.g., the removal of carbon deposits, oily deposits, etc.) is dutiable.

We find that the following items on the Sembawang Shipyard invoice are dutiable: 16.16, 19.2, 32, 199, 301, 325, 363, 254, 303, 8061U, and 1331D.

We find that the following items on the Port Marine Contractors invoice no. 12544 are dutiable: 39, 40, 41, 42, and 43.

Consumables

In HQ 113404 dated April 21, 1995, we stated in pertinent part as follows:

With respect to consumables, Customs has long-held that such items are duty-free when not used in connection with dutiable repairs (see C.I.E. 196/60). In regard to whether a particular article is considered to be a non-dutiable consumable as opposed to dutiable equipment for purposes of administering 19 U.S.C. § 1466, the courts have held that “consumable supplies” are “supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage.” H.E. Warner, Trustee, American Mail Line, Ltd. v. United States, 22 CCPA 143, at 150, quoting from Southwestern Shipbuilding Co. v. United States, 13 Ct. Cust. App. 74 T.D. 40934 (1925).

We find that the following items are dutiable, i.e., they do not qualify for duty-free treatment as consumables: 15496 on James Walker Singapore invoice; 12568, 10459, and 12569 on Kelvin Hughes Limited invoice; 17914 on Kopcke Asia invoice; items 15134 and 38871 on Marine Supply Kopoke Singapore invoice; 37877 on Premier Engines invoice; 39296, 15406, 38959, and 38183 on Sealtex (Pte) Ltd. invoices; and 17707, 38656, 37602, 39651, 39653, 39658, 39654, 39656, and 15066 on the Unitor invoices.

The costs on the following invoices are dutiable in part and nondutiable in part: 38872 on Marine Supply Kopoke Singapore invoice – absorbent granules, absorbent pads, lifeboat provisions including water are nondutiable; all other costs are dutiable; 38270 on Sealtex Pte. invoice – paper and plastic cups are nondutiable; all other costs are dutiable; 17706 on Unitor invoice – acetylene, oxygen, and argon cylinders are nondutiable; all other costs are dutiable; 39651 on Unitor invoice – electrodes are dutiable; all other costs are nondutiable; 39657 on Unitor invoice – acetylene, oxygen, and refrigerant are nondutiable; all other costs are dutiable; 14753 on Unitor invoice – electrodes are dutiable; all other costs are nondutiable; 39648 on Unitor invoice – the following items are nondutiable: enviroclean, nitrite tablets, paper test kit, oxygen, acetylene, condensate control, oxygen control, hand cleaner, descalex, disclean, metal brite, electrosolv, dieselguard, vaptreat, and alkalinity control; all other items on this invoice are dutiable; and 39649 on Unitor invoice - acetylene and oxygen are nondutiable; all other items are dutiable.

Labor Expenses

In Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff’g 815 F. Supp. 1484 (CIT 1993), the court stated:

Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. (Emphasis supplied.)

The labor costs on the following items are dutiable as expenses of foreign repairs: FT Engineering - 39606, 39096, 39097, 39098, 15734, 15401, 15064, 38164, 10475, and 18849; Goltens Marine - 38220; and Unitor – 12012.

Freight

We find that the freight charges on the Horizon Air Freight (14407, 14848, 13489, 13490, 13860, 13861, 13862, and 13914) and Premier Engines (15023 and 17542) invoices should be prorated between dutiable and nondutiable costs.

Inspections

Certain inspections may qualify for nondutiable treatment under 19 U.S.C. 1466 if they are periodic inspections performed by regulatory bodies and if such inspections are not related to repairs. Inspections which are incident to dutiable repairs (e.g., damage repair surveys or the like, or inspections of work which is dutiable) are dutiable under 19 U.S.C. 1466.

We find that the following inspections, referenced in most cases by item number, are dutiable: AB Independent Inspection Services – 15953, 14135, 13373, and 13741; ABS Americas – 15445, 12284, 15820, 13386, and 15805; McFarlane International (all invoices which you provided); Shipscan Marine – 15457; EM Electro Marine – 18908; Sembawang Shipyard – 14.2, 15.12, 16.5, 16.6, 16.11, 17.4, 18.1, 18.3.1, and 47; and ABS - item 15989.

Claimed Modifications

In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel may not be subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs and the purchase of dutiable equipment has evolved from judicial and administrative precedent. We stress that vessel equipment is dutiable under 19 U.S.C. 1466(a). In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors 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 nondutiable under 19 U.S.C. 1466:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 CCPA 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.

Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.

We find that the following items are dutiable: Appleton Marine – 15879, 7948, and 7653; ABS Americas – 15989;
Sembawang Shipyard – 15.13, 159, 269, 265; Foam Technology – 9154 and 38245;
Frank Mohn – 9830, 12528, 12722, 12759, 13957, 14410, 14653, 15731, 37573, 37606, 37869, 39167, 39603, 39604, 39605, 39646, 39647, and 98174; Progressive Hydraulics – 37538;
Pres-Vac Engineering A/G – 14393;
Sembawang Shipyard – 6, 329, 350, 8061R; Port Marine Shipyard – 78, 141, 211, 225, and 85; SAAB – 16600, 16601, 16599, 16598, 39644, and 39645; Manning Electric – 40648;
Sembawang Shipyard – 14.4, 14.5.1, 15.8, 18.7.1, 125, 137, 214, 242, 244, 257, 272, 273, 276, 309, 347, and 366; and Port Marine – 53 and 134; 54 and 137; 61; 115; 116; 119; 172 and 185; and 173.

We find that the following costs are nondutiable: Port Marine – 176; Sigma Coatings USA invoices - 37938, 37885, 38720, and 37672.

Claimed U.S. Parts

We find that the following items are dutiable: Argo International Corporation – 38208; Alfa Laval Separation – 38707; Sea Safety International – 37316, 12409, and 38797.

We find that the costs on K. Connelly Corporation item 37709 are nondutiable.

Claimed U.S. Labor

We find that the following items identified in your memorandum are dutiable: Introl Company, Inc. – 15767 (Todd wrench set, ignitor assembly, and boiler burner management system); 15873 (retractable ignitor with drive assembly and power pack, Moore Products chart recorder, set of scrubber wet filters and Daiichi Nekken oxygen analyzer); and 39900 (Dell Inspirion 8000 Notebook Pentium III Processor).

HOLDING:

The costs for which the protestant seeks relief are dutiable in part and nondutiable in part under 19 U.S.C. § 1466, as discussed in the Law and Analysis section of this ruling.

You are instructed to deny the protest with respect to the dutiable items and grant the protest with respect to the nondutiable items.

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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