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HQ W116751

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November 9, 2006

VES-3-18-RR:BSTC:CCI W116751 GOB

CATEGORY: CARRIER

Supervisory Entry Officer c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112

RE: 19 U.S.C. §1466; Vessel Repair Entry C20-0056840-5; Protest 2002-06-100067

Dear Madam:

This is in response to your memorandum of October 25, 2006, forwarding for our review the protest filed on behalf of Catcor Services, Inc. (“protestant”) with respect to Vessel Repair Entry C20-0056840-5. Our ruling follows.

FACTS:

The VERONICA (the “vessel”), a U.S.-flag barge, incurred foreign shipyard costs. The vessel arrived in the port of Guayanilla, Puerto Rico on October 8, 2005. A vessel repair entry was filed.

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 equipment for and 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.

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.

Your office has requested our review of the following items.

Gas Free Certificates and Hull Thickness Gauging. These items are on the Ciramar invoice, nos. 13 and 25, respectively. In connection with the protestant’s claim that U.S. parts and labor are not subject to the vessel repair duty, the pertinent Ciramar invoice contains the following handwritten notations: “NFPA U.S. Marine Chemist Philip Jiles #670” (gas free certificates) and “Done by a U.S. company Ultrasonics & Magnetics Corp. P.O. Box 8707 New Orleans, LA” (hull thickness gauging). However, the protestant has not submitted invoices, or any other documentation, from Ultrasonics & Magnetics Corp. or from Philip Jiles which would corroborate its claim. Therefore, we make the following findings: the cost of the gas free certificates should be prorated between dutiable and nondutiable costs (see, e.g., HQ 114034, dated October 16, 1998 and HQ 114686, dated September 7, 1999); and the cost of the hull thickness gauging is dutiable.

Ciramar invoice, nos. 7,8, 9, 12, and 13. The invoice with respect to items 8 and 9 provides: “Crop and renew . . .” The invoice with respect to items 7, 12, and 13 provides: “C & R . . .” We assume that “C & R” indicates cropping and renewing. Cropping and renewing is generally indicative of dutiable repairs. The protestant has not provided satisfactory, documentary evidence that these items are not dutiable. Therefore, we find that they are dutiable repairs.

Ciramar invoice, nos. 16, 20, 22, 24, 32, 38, 39, 49, and 56. These items relate to the installation of a new forward pump, e.g., the protestant’s explanation for item 16 provides: “This is the first of several expenditures made in connection with the addition of a forward pump permanently bolted into the vessel as a new fitting necessary for her optimal functioning.” Vessel equipment is dutiable under 19 U.S.C. § 1466. We find that these costs are for vessel equipment or costs incident to the installation of vessel equipment. Therefore, we find that they are dutiable.

HOLDING:

The costs for which the protestant seeks relief are dutiable in their entirety under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling, with the exception of the costs of the gas free certificates which are to be prorated between dutiable and nondutiable costs.

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 final duty determination 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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