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HQ 116609

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March 30, 2006

VES-13-18-RR:BSTC: 116609 CK

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
P.O. Box 1389
Kenner, Louisiana 70063

RE: Protest and AFR 2002-02-101083; Vessel Repair Entry No. C20-0055656-6; SS CLEVELAND; Discount; Proration; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated January 24, 2006, forwarding the above-numbered protest. Our ruling on this matter is set forth below.

FACTS:

The SS CLEVELAND is a U.S.-flag vessel, which incurred foreign repair costs during the period of December 27, 1997 to January 17, 1998. Subsequent to the completion of the work in question, the vessel arrived at the port of Lake Charles, Louisiana, on February 4, 1998. A vessel repair entry was timely filed. An application for relief with supporting documentation was timely filed, which your office granted in part and denied in part. A petition for review of your decision was timely filed, which we denied in HQ 115627, dated May 16, 2002. The vessel repair entry was liquidated on August 30, 2002, and the subject timely protest was filed on November 6, 2002.

ISSUES:

1. Whether the discount on the shipyard invoice for which the protestant seeks relief can be allowed under 19 U.S.C. § 1466.

2. Whether the charges on invoices 1, 3, and 10 were correctly prorated.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466 (19 U.S.C. § 1466), 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 regard to the first issue for our determination, the protestant has submitted a copy of a letter from Dorbyl Marine Ship Repair with the notation, “Dorbyl will further offer a 10% discount on the full final invoice subject to payment within 30 days of invoiced date.” This letter was sent to their agent in the United States, Midland Marine Corporation, and referenced the SS CLEVELAND yard period.

Protestant has also submitted a letter dated February 10, 1998 from Sealift, Inc. to Dorbyl Marine Ship Repair confirming the 10% discount along with a copy of a bank draft in the same amount as the amount owed according to this confirming the 10% discount to Dorbyl.

CBP recognizes discounts provided they are acknowledged by the foreign shipyard, with respect to such discounts it is also our position that only the actual expenses borne by the operator should be taken into consideration in the liquidation of a vessel repair entry. (C.I.E. 227/63) The discount requested in this case has been sufficiently proven and should be granted.

With respect to the second issue for our consideration, since the subject entry contains both dutiable and nondutiable costs, the general services and drydocking costs at issue were correctly 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 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.

Pursuant to SL Service, supra, we concur with your determination that the costs listed on invoices 1, 3, and 10 should be prorated between dutiable and non-dutiable costs.

HOLDINGS:

1. The discount on the shipyard invoice for which the protestant seeks relief should be allowed under 19 U.S.C. § 1466.

2. Pursuant to SL Service, supra, those costs listed in invoices 1, 3, and 10 attributable to both dutiable and nondutiable costs should be prorated.

Accordingly, the protest should be DENIED IN PART and GRANTED IN PART, consistent with the analysis above.

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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