VES-3-18-RR:IT:EC 116517 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 C53-0035054-9;
M/V ADVANTAGE; Proration of Costs
Dear Sir:
This is in response to your memorandum of July 27, 2005, forwarding for our review the petition filed on behalf of Fortune Maritime, the owner of the M/V ADVANTAGE (the "vessel"), and Sealift, Inc., the operator of the vessel, with respect to Vessel Repair Entry C53-0035054-9. Fortune Maritime and Sealift, Inc. are jointly referred to hereinafter as "petitioner." Our ruling follows.
FACTS:
The U.S.-flagged vessel incurred foreign shipyard costs in Malta. The vessel arrived in the port of Houston on April 10, 2001. A vessel repair entry was timely filed.
The application for relief was granted in part and denied in part by your letter of June 8, 2005.
ISSUE:
Whether certain costs were correctly prorated in the calculation of duties 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.
The petitioner states in pertinent part as follows:
We only file a petition on one issue which involves the ABS survey, invoice 18. For this invoice we believe the methodology is incorrect. . . . However Customs used a prorata percentage based upon work by the shipyard instead of the logical prorata percentage based upon the invoice and work at question. . . .
In essence, it appears that the petitioner claims that the proration should be performed with respect to each particular item, as opposed to a cumulative proration across all costs incurred.
We find that the petitioner's claim is without merit in that it is our determination that the proration was correctly calculated based on the cumulative amounts of the expenses.
Therefore, the petition should be denied.
HOLDING:
The proration was correctly calculated based on the cumulative amounts of the expenses incurred in Malta.
You are instructed to deny the petition.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch