VES-3-18-RR:IT:EC 116492 GOB
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
New Orleans, LA 70130
RE: 19 U.S.C. §1466; Vessel Repair Entry C16-0012142-5;
M/V SEA-LAND QUALITY, V-626
Dear Sir:
This is in response to your memorandum of June 10, 2005, forwarding for our review the petition filed on behalf of Sea-Land Service, Inc. (“petitioner”) with respect to Vessel Repair Entry C16-0012142-5. Our ruling follows.
FACTS:
The SEA-LAND QUALITY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Charleston, South Carolina on May 28, 1998. A vessel repair entry was filed. Your office issued a letter of determination on August 30, 2002 with respect to the application for relief
ISSUE:
Whether the costs for which the petitioner seeks relief are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
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.
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.
In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int'l Trade 1993), the court stated in pertinent part as follows with respect to the reach of 19 U.S.C. § 1466:
Texaco urges us to reject the Court of International Trade’s “but for” approach and to interpret “expenses of repairs” so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. (Emphases supplied.)
Our determinations follow with respect to the items for which you have requested our review.
Pursuant to SL Service, supra, we find that the following items should be prorated between dutiable and nondutiable costs (i.e., we concur with your proration): QLD 6724, 6725, and 6726 (tug services, pilotage, and mooring dues); QLD 6728, 6729, and 6730 (various general services costs, including the drydocking and re-ballasting fees); QLD 6745 (unloading containers); QLD 6748 (services of translator); and 6752 (ship reporting service - "essentially vessel traffic reporting enroute to and leaving the drydock area").
We find that the discounts indicated on invoices for QLD 6724 (for general services items such as tugs and pilotage) may be recognized, i.e., duty should be assessed based upon the discounted amount. See HQ 111792, dated January 9, 1992; HQ 111230, dated November 8, 1990; and C.I.E. 227/63, dated December 20, 1962..
QLD 6727, item 17 is for the cleaning of certain cargo holds. QLD 6727 includes dutiable work with respect to cargo holds. We find that the item at issue is dutiable as work incident to dutiable repairs. See Texaco, supra.
QLD 6731 includes "item 4.1.5.2 Main and emergency switchboards." We find that this item is nondutiable as the invoice does not reflect repair work or dutiable maintenance work. We have previously held that the cleaning of a switchboard unrelated to any dutiable repair work does not constitute a dutiable maintenance operation. See HQ 115603, dated May 16, 2002, and rulings cited therein.
We concur with your analysis that the costs for hotel, meals, travel, etc. on QLD 6739 are dutiable as costs incident to dutiable repairs. See Texaco, supra.
QLD 6751 includes the expense for loading, stowage, and securing of the ship's propeller which was removed and replaced. We find that this cost is dutiable as a cost incident to a dutiable cost. See Texaco, supra.
HOLDING:
The costs for which the protestant seeks relief are dutiable in part and nondutiable in part under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling.
The petition should be granted in part and denied in part with respect to the items discussed above.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch