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HQ W116467

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July 7, 2006

VES-13-18:RR:BSTC:CCI 116467 rb

CATEGORY: CARRIER

Patricia Burke, Supervisory Entry Officer U.S. Customs and Border Protection
P.O. Box 1389
Kenner, LA 70063

RE: Vessel Repair Entry No. C20-0058605; CSX HAWAII; 19 U.S.C. 1466; Protest No. 2002-05-100387

Dear Ms. Burke:

Under cover of a memorandum (VES 13-02:G:NO:VR GEB), dated May 5, 2005, the former chief of the Vessel Repair Unit (VRU) forwarded an application, with attachments, for further review of a protest, which was timely filed (on April 20, 2005) on behalf of Horizon Lines, LLC (formerly CSX Lines), following the January 21, 2005, VRU decision that both granted and denied relief concerning the assessment of vessel repair duties in this case under 19 U.S.C. 1466(a). Our review of this matter follows.

FACTS:

The vessel arrived in Portugal, and entered a shipyard there for her regularly scheduled drydock on March 29, 2002. During this drydock, the vessel underwent inspections and surveys, as well as a variety of overhauls, repairs and modifications. Thereafter, the vessel resumed normal service, arriving in San Juan, Puerto Rico, on May 7, 2002. A vessel repair entry and application for relief were subsequently filed. On January 21, 2005, the VRU issued its decision both granting and denying relief in part. The protestant, on April 20, 2005, timely filed a Memorandum in support of its application for further review. Principally at issue in the protestant’s Memorandum are vessel repair duties that were assessed under 19 U.S.C. 1466(a) for expenses related to: cell guides; entry guides; container stowage; main and emergency switchboards; boilers and main condenser; certain charges concerning required inspections, towage and associated costs; U.S.-origin equipment and labor; travel; and miscellaneous charges for U.S. residents. It is specifically the expenses that were denied relief by the VRU that are the subject of review herein.

ISSUE:

Whether or not the work for which protestant seeks relief is dutiable under the vessel repair statute, 19 U.S.C. 1466(a).

LAW AND ANALYSIS:

Generally, under 19 U.S.C. 1466(a), the 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 certain vessels, including that involved in the instant protest, are liable to entry and the payment of a 50% ad valorem duty on the costs thereof in such foreign country upon the first arrival of the vessel in any port of the United States. By contrast, it has long been held that modifications, alterations, or additions to the hull and fittings of a vessel are not repairs and are thus not dutiable under section 1466(a).

Cell, Entry Guides

The protestant maintains that work conducted with respect to cell guides and entry guides (10 items listed on p. 2 of protestant’s Memorandum) were non-dutiable modifications that enhanced loading and cargo operations. While this is true, it also distinctly appears, however, that this work was needed to address problematical or deficient performance occurring in connection with these components. To this end, statements made in ABS (American Bureau of Shipping) Report LB 8634-E, and in inter-office correspondence dated June 2, 2002, from the port engineer, as quoted and/or referenced in the VRU’s January 21, 2005, decision in this case, indicate that these items were “excessively wasted or damaged otherwise” and in need of repair (ABS Report, supra, “1;" and see sections 1.22.6, 1.22.35 and 1.22.37 thereof); were subject to “failure” and “caused” “container jamming” (see inter-office correspondence, supra, “1"); and, thus, were not functioning properly or were performing problematically.

Accordingly, it has not been demonstrated, as required for a finding of non-dutiability, that the expenses incurred for the cell guides and entry guides clearly involved only modifications or enhancements to portions of the vessel already in full proper working order, and were not otherwise needed as well to correct deficient performance (see Headquarters ruling (HQ) 115964, dated July 24, 2003); HQ 113474, of October 24, 1995). And, to this same effect, see HQ 114140, of November 18, 1997 (emphasis added):

If it is necessary that shipyard services be sought in order to address a deficiency in a vessel, the fact that the component ultimately replaced is of improved design or results in increased efficiency or performance is not a relevant consideration.

Container Stowage

Concerning the new generator (p. 5 of protestant’s Memorandum; owner’s reference 9.1.6A, Diesel Generator Set Modification Installation), it is essential that this generator be permanently incorporated into the hull or superstructure of the vessel, in order to be non-dutiable as a modification (see, e.g., HQ 112851, dated March 22, 1996, outlining the general rules for determining what constitutes modifications to the hull and fittings of a vessel under section 1466). In the present case, however, it could not be ascertained if the new generator were permanently incorporated into the vessel’s hull or superstructure, given statements made in ABS Reports LB 8634 and LB 8634-E, reflecting that the generator was “contained in a container which was fitted on deck with some reinforcing flat bar stiffeners under it” (ABS Report LB 8634-E, at section 2.1.1 (emphasis added); see also sections 2.1.10 and 2.1.11 thereof; and see ABS Report LB 8634 at p.5).

As a result, under these circumstances, the generator must be held to be dutiable. In addition, the associated expenditures for the fuel piping (Owner’s Ref. No. 9.1.6E, Fabricate Install DG Fuel Piping), and the ABS survey (Inst. Add Generator Reefer Cont) would of course be dutiable as well.

Proration

Three items (p. 8 of protestant’s Memorandum) were dutiable on a prorated basis, but protestant believes that two of these items (bottom plugs for the water ballast tanks, Owner’s Ref. No. 2.1-20; and motorboat attendance, Owner’s Ref. No. 3538) should be non-dutiable because: (1) the bottom plugs were required by the ABS surveys; and (2) the motorboat attendance charge was for operating a motorboat to shuttle personnel to and from the vessel for inspections and launch service.

However, the shipyard invoice (00173/2002/LISN, 2.1-20) as well as ABS Report LB-8634-E both establish that extensive repairs were performed on the double bottom water ballast tanks. Since the water ballast tanks had to be drained for both the ABS surveys/inspections and the dutiable repairs, the cost for the water ballast bottom plugs in this regard would clearly comprise a dual-purpose expense, which should as such remain dutiable on a pro-rata basis pursuant to SL Services, Inc. v. United States, 357 F.3d 1358 (2004), cert. den., 543 U.S. 1034 (December 13, 2004) (SL Services). As to motorboat attendance, no information was provided as to what personnel were transported and for what purposes. Hence, this expense must remain dutiable, there being insufficient evidence that such cost was in any way attributable to non-dutiable vessel work.

Main and Emergency Switchboards

The protestant believes that the cleaning of the switchboards was non-dutiable because it was necessary for the conduct of the required ABS survey. The shipyard invoice for this item reflects simply: “Switchboard panels, vacuum cleaned and checked tightness of all connections” (Invoice 00173/2002/LISN; 4.1-11). The cleaning of a switchboard not specifically related to a dutiable repair or maintenance operation, as is the situation here, has recently been held to be a non-dutiable operation (HQ 116492, of June 27, 2005, citing HQ 115603, of May 16, 2002). This item is therefore non-dutiable.

Towage

Although the cost for tug towage (Invoice 2201495/Barwil; 1507) is contended to be a “single-purpose” expense (i.e., “an inevitable expense of a mandatory [non-dutiable] inspection”), it would clearly appear that a general service charge of this nature (for towage) was in fact a “dual-purpose” expense which was also required as a prelude to undertaking the dutiable vessel repairs in this case, and, as such, it is analogous to the costs for dry-docking which were held to be dual-purpose expenses in SL Services, supra. In any event, from the information submitted, it cannot be said that the towage costs were due solely to the non-dutiable inspection; on this basis, then, as the vessel repair entry includes both dutiable and non-dutiable work, it must perforce be concluded that the costs for tug towage were general services expenses which remain dutiable on a pro rated basis (see HQ 114276, supra; and see HQ 114686, of September 7, 1999).

Stores FM/To Abroad in Transit

This item (Stores FM/To Abroad in Transit) (Invoice 2201495/Barwil; 5.1-3) covers shipping and customs charges for materials for the vessel, that were sent to the shipyard. It is asserted that the “majority” of these materials were of U.S. origin, and not dutiable. While it is true that U.S. prepaid freight/shipping costs for “identified” non-dutiable parts are likewise non-dutiable (HQ 113813 of October 15, 1998), in the present context, relief from duty may not be granted, and the item is fully dutiable, because there is no breakdown under this item between those materials that are dutiable and those which are non-dutiable as being of U.S.-origin (HQ 116061, of November 17, 2003). This determination is grounded generally upon the long settled practice that when the costs of various items are not separately shown, and are instead lumped together, as in this instance, duty will be assessed on the entire cost even though certain items may be non-dutiable (e.g., HQ 113658, dated November 22, 1996, and decisions there cited).

Materials; Travel Expenses; 19 U.S.C. 1466(d)(2)

Relief is requested under 19 U.S.C. 1466(d)(2) for certain equipment and travel expenses for the work crew of U.S. vendors, including Walashek. A remission of duty may be made under section 1466(d)(2), if the owner or master of the vessel furnishes good and sufficient evidence that equipments or parts thereof, or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of the vessel.

First, the protestant’s Memorandum (p.12; Invoice No. 12595/Walashek) lists “Material” for which a multitude of invoices were furnished in Exhibit 17 of the protestant’s submission. Those articles under review herein have been highlighted by the VRU in the invoices in Exhibit 17 as being items of equipment.*

(* Cutting tip, soapstone, rod oven, chipping hammer, goggles, lens, collet body, fleetweld, striker three flint, three flint renewal, cut-off wheel, cup wheel, carbide bur, adapter, flap wheel, mounted points, mirror (magnetic base), oiler pistol, filer flat bastard, grinder, wrench (impact), arch punch, stamp set number, band-it tool, clover comp, brush acid, taper tap, dry cutsaw, master padlock (universal), hoist (hand), chisels, paintbrushes, die grinders, face shield refills, diamond dressers, adjustable wrenches, punch & chisel set, tool box, water pump pliers, sledge hammer, ball pein hammer, hacksaw, outlet (banana cord), air hoses, wrench/gorilla grip set, impact chisel, nut driver sets, rope assorted, trouble light, chain hoists, alignment punches, gun with rubber tip, gloves, flashlights, face shields, face pieces, coveralls (tyvek), mandrels, handhole seat cleaning kit)

Absent acceptable evidence of U.S. production or manufacture for equipment, a party cannot claim remission under section 1466(d)(2). In this instance, the documentation submitted, while consisting of domestic invoices (from U.S. vendors), did not indicate the country of origin (U.S. manufacture or production) of the subject equipment. As such, these items of equipment must remain fully dutiable (see, e.g., HQ 115877, of February 3, 2003 (printers and locks (Items 13 and 18, respectively, therein) considered to be equipment, and covered by U.S. invoices which did not indicate their country of origin, thereby found not entitled to duty-free treatment under section 1466(d)(2))).

Furthermore, an invoice (No. 22285 “Metro Tours & Travel) set forth on p.13 of the protestant’s Memorandum was for travel expenses assertedly for employees of U.S. vendors, including Walashek. In this respect, on a declaration submitted by Walashek with its invoices, it was certified that its work crew were U.S. residents, although the names of this work crew were not provided therein. However, an in-depth perusal of the extensive documents presented in Exhibit 17 of the protest established the names of Walashek’s work crew; yet, there was still no corroboration that the following were part of Walashek’s work crew: C. Marques, J. Montoya, J. Ramos, S. Tarabokija, M. Santos, and B. Barbour. Consequently, the travel expenses for these individuals must remain dutiable.

HOLDING:

Protest No. 2002-05-100387 should be granted in part and denied in part pursuant to section 1466, as specified in the LAW AND ANALYSIS section of this decision.

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,

/S/ Glen E. Vereb

Glen E. Vereb

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