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HQ 116601

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January 30, 2006

VES-3-18-RR:BSTC:CCI 116601 GOB

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
Louis Armstrong International Airport
900 Airline Highway
Room W-103-400
Kenner, LA 70062

RE: 19 U.S.C. §1466; Vessel Repair Entry C16-0012140-9; Protest 1601-05-100367; GALVESTON BAY

Dear Sir:

This is in response to your memorandum of January 3, 2006, forwarding for our review the protest filed on behalf of Sea-Land Service, Inc. (“protestant”) with respect to Vessel Repair Entry C16-0012140-9. Our ruling follows.

FACTS:

The GALVESTON BAY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Charleston, South Carolina on April 16, 1998. A vessel repair entry was filed.

Your office issued a letter of duty determination on March 29, 2002 with respect to the application for relief. In HQ 116501, dated August 11, 2005, the petition for relief was granted in part and denied in part.

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 (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.

Proration of Certain Costs

The protestant states that certain items (i.e., telephone, towing, and temporary clerical assistance) are incorrectly included in the proration calculation.

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 shipyard 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 find that the three subject costs are typical general services or drydock costs which fall well within the scope of items to be prorated. Therefore, we find that these costs were appropriately prorated.

The protestant also asserts that the proration methodology is irrational.

In HQ 116517, dated August 8, 2005, we stated as follows:

In essence, it appears that the petitioner claims that the proration should be performed with respect to each particular item, as opposed to a cumulative proration across all costs incurred.

We find that the petitioner's claim is without merit in that it is our determination that the proration was correctly calculated based on the cumulative amounts of the expenses.

Your office advises that the proration calculations have been performed on a cumulative basis, as specified in HQ 116517. We find that this is the appropriate (and equitable) manner to perform the proration.

AHD 6724

This item pertains to discounts reflected on the invoices. We find that these discounts should be recognized and the costs reduced accordingly.

AHD 6727 (item 29 – aft peak cleaning)

The protestant’s claim is that the cleaning on this item is nondutiable. The invoice includes charges for material, cleaning, and labor. The protestant concedes that the material and labor are dutiable. The protestant has not established the nondutiability of the cleaning, especially where such cleaning is related to dutiable work and materials. We find that the cleaning is dutiable.

AHD 6745

The protestant states that these costs “were the charges for unloading and trucking containers in the port, before the vessel went into the shipyard and totally unrelated to any repairs.” The invoices indicate that these costs relate to the trucking of spare parts. We find that the protestant has not established the nondutiability of these costs, which appear to be general services costs. We find that these costs should be prorated.

AHD 6746

The protestant claims that these costs are nondutiable because they relate to the loading of cargo. We concur that these costs are not subject to the vessel repair duty. They are nondutiable.

AHD 6752 and 6753

The protestant states that: “These Manpower invoices were originally denied because there was no certified translation. . . . They are for foreign language correspondence and unrelated to any repairs.” The invoices reflect that these costs are for secretarial services. The protestant has not established that these are not general services costs which are subject to proration. We find that they should be prorated.

HOLDING:

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

You are instructed to grant the protest in part and deny the protest in part in accordance with the determinations in the Law and Analysis section.

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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