VES-13-18-CO:R:IT:C 112869 GOB
Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel Repair Petition; 19 U.S.C. 1466; PRESIDENT GRANT, V-120; Entry No. 110-0104128-1; Overhead; Repairs; Propeller
Work; Cleaning; Transportation
Dear Sir:
This is in response to your memorandum dated August 4, 1993,
which forwarded the petition submitted by American President
Lines, Ltd. ("petitioner") with respect to the above-referenced
entry.
FACTS:
The vessel PRESIDENT GRANT ("vessel") arrived at the port of
Seattle, Washington on February 14, 1992 and filed a timely
vessel repair entry. The vessel underwent foreign shipyard work
in Taiwan and Hong Kong during January and February of 1992.
By Ruling 112480 dated March 16, 1993, Customs allowed in
part and denied in part the application for relief with respect
to this entry.
Petitioner's Claims
The petitioner contends that certain overhead costs are not
dutiable. In support of its claim, the petitioner cites Ruling
108953 dated January 7, 1988 and Ruling 109308 dated May 26,
1988. It has performed a "Billing Rate Analysis" which
constructs a billing rate which includes the following three
elements: direct labor cost, overhead, and margin and profit.
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The petitioner also requests relief with respect to the
following items:
Item 2.1-7 Anchor Chains/Locker
Item 2.1-8 Sea Valve Inspection
Item 2.1-9 Sea Chest Strainers
Item 2.1-10 Propeller
Item 2.1-11 - 2.2-2 Inspection Items
Item 3.1-1 Hull Cleanings
Item 3.1-2 Temporary Protection
Item 3.1-7 Sea Chest Strainer Studs
Item 3.1-10 Sea Valve Repairs
Item 3.3-1 Hatch Covers
Item 4.1-11 Testing Ballast System
Item 4.1-12 H.P. Turbine Inspection
Item 4.1-12 Main Steam Strainer
Item 5.1-7 Starb. Boiler Bottom Casing
Seal
ISSUE:
Whether the costs at issue are dutiable pursuant to 19
U.S.C. 1466.
LAW AND ANALYSIS:
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.
Overhead
In Ruling 112861 dated October 19, 1993, Customs considered
the issue of the dutiability of overhead. In that ruling, we
stated:
It is Customs position that overhead relating to repair work
is dutiable as part of the cost of the repair. Overhead is part
of the shipyard's cost of doing business. The total shipyard
cost of each repair is dutiable; that total cost includes
overhead.
Customs does not wish to see overhead broken-out or
segregated as a separate item. Customs believes that overhead
should be included within the cost of the work performed, whether
that work be a dutiable repair or a nondutiable modification. As
stated supra, the total shipyard cost of each repair item is
dutiable; that cost includes overhead.
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In support of its position that the overhead is nondutiable,
the petitioner has cited two previous rulings, Ruling 109308
dated May 26, 1988 and Ruling 108953 dated January 7, 1988.
In Ruling 112214 dated September 16, 1992, Customs stated as
follows with respect to the overhead issue:
Upon further review of this matter, we are of the opinion
that our interpretation of T.D. 55005(3) as set forth
in ruling 111170 and discussed above is correct.
Accordingly, rulings 108953 and 109308 are hereby modified to
hold that the costs of "overhead" and/or "administrative" charges as described therein are dutiable in
their entirety in the absence of an apportionment of such
expense between dutiable and non-dutiable work.
The two rulings cited by the petitioner, Ruling 109308 and
Ruling 108953, are not, and were not at the time they were
issued, accurately reflective of Customs position. These two
rulings were effectively overruled by Ruling 112214.
In the subject case, the petitioner's claim for relief on
this issue is granted with respect to any overhead charges
which are associated with nondutiable charges and which are
clearly reflected as such on the pertinent invoices. The
petition is denied with respect to all other overhead charges.
[End of excerpt from Ruling 112861.]
Thus, as stated in Ruling 112861, Ruling 109308 and Ruling
108953 were effectively overruled by Ruling 112214, which was not
cited by the petitioner in the subject case, nor was it cited by
the petitioning party in its petition in the case involving
Ruling 112861.
As we stated in Ruling 112861, supra, it is Customs position
that overhead relating to repair work is dutiable as part of the
cost of the repair, i.e., the total cost or expense of the repair
is dutiable. In contrast, overhead relating to a nondutiable
item
such as a modification is nondutiable, i.e., the total cost or
expense of a nondutiable item is nondutiable. While Customs does
not wish to see overhead broken-out or segregated as a separate
item, our position on the dutiability of overhead, as stated
supra, holds whether or not overhead is a separate item.
Our position herein is consistent with numerous rulings
issued in recent years, e.g., Ruling 112861 and Ruling 112214,
both cited supra. See also Ruling 111170 dated February 21,
1991, which was cited in Ruling 112480 (the ruling on the
application for this vessel repair entry), and subsequent rulings
which cite Ruling 111170.
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Accordingly, the petitioner's claim for relief is granted
with respect to any overhead charges which are associated with
nondutiable charges and which are clearly reflected as such on
the pertinent invoices. The petition is denied with respect to
all other overhead charges.
Additional Items
After a careful review of the evidence of record, we find
that the following items are nondutiable inasmuch as the record
reflects that they are not repair items: item 2.1-7; item 2.1-8;
item 2.1-9; items 2.1-11 through 2.2-2; item 4.1-11; and item
4.1-12 (H.P. turbine inspection); and item 4.1-12 (main steam
strainer).
With respect to item 3.1-10, we find that job no. 259 is
nondutiable because it is not a repair.
With respect to item 3.1-7, we find that job no. 235 is a
dutiable repair; we find that job nos. 088 (sea chest strainer
studs) and 211 (outboard corner of main scoop) are nondutiable
because they are not repairs.
We find that the following items are dutiable repairs: item
2.1-10; item 3.1-1; item 3.1-2; item 3.3-1; and item 5.1-7.
We affirm the finding of our ruling on the application for
this entry, referenced supra, that the propeller work in item
2.1-10, including waterblasting and the polishing of propeller
blades, is dutiable maintenance. Our reasoning was thoroughly
described in our previous ruling.
The "Hull High Pressure Water Wash" in item 3.1-1 is
dutiable because it is cleaning in preparation for dutiable
repairs, i.e., hull gritblasting and painting.
Item 3.1-2, which is described on the invoice as "temporary
plywood on main deck" and "temporary covers" is dutiable. The
Court of Appeals for the Federal Circuit in Texaco Marine
Services, Inc. v. United States, Case No. 93-1354, decided
December 29, 1994, held that the cost of protective coverings
related to repairs is dutiable under 19 U.S.C. 1466.
The petitioner contends that two of the charges (HK$1,440
and HK$55,100) under item 3.3-1 for Hatch Cover Repairs are
nondutiable because they are crane and transportation costs. We
find that these costs are dutiable. The record does not reflect
that these costs are solely for transportation and cranage. As
we stated in our previous decision in this case, it is Customs
position that "transportation" does not include operations
relative to preparing an item for shipping. Labor for work such
as removing
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a part from its housing or mounting, or disconnecting an item, is
not transportation. Such labor is dutiable.
The petitioner claims that a charge in the amount of
HK$4,050 in item 5.1-7 is nondutiable because it does not involve
any repair. We find that that charge is dutiable as a component
of dutiable repairs.
HOLDING:
The petition is granted in part and denied in part, as
detailed supra.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch