VES-13-18-RR:IT:EC 114203 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107
P.O. Box 2450
San Francisco, CA 94126
RE: 19 U.S.C. 1466; LIHUE, V-11; Vessel Repair Entry No. C27-0158615-1; Petition
Dear Madam:
This ruling is in response to your memorandum dated December
12, 1997, which forwarded the petition submitted by Matson
Navigation Company ("Matson" or "petitioner") with respect to the
above-referenced vessel repair entry.
FACTS:
The LIHUE (the "vessel"), a U.S.-flag vessel owned and
operated by the petitioner, arrived at the port of San Pedro,
California on November 19, 1996. The subject vessel repair entry
was timely filed. The vessel underwent certain foreign shipyard
work in Korea in October and November of 1996.
In Ruling 113908 dated October 23, 1997, the application for
relief with respect to the subject entry was granted in part and
denied in part.
ISSUE:
Whether the subject items are dutiable pursuant to 19 U.S.C.
1466(a)?
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.
The subject entry is a "post-Texaco" entry, i.e., an entry
filed after the appellate decision in Texaco Marine Services,
Inc., and Texaco Refining and Marketing, Inc. v. United States,
44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993).
Accordingly, the Texaco decision applies to this entry.
The petitioner requests relief with respect to the
following: general services costs; drydock costs; prefabricated
steel; and painting.
General Services Costs and Drydock Costs
It is Customs oft-repeated position that general services
costs and drydock costs are to be prorated between dutiable and
nondutiable costs. This position was fully explained in Ruling
113908, the application ruling with respect to the subject entry.
Our position remains in full force and effect. Accordingly, this
claim of the petitioner is denied.
The petitioner has asked questions with respect to how the
costs are to be prorated.
In Ruling 226873 dated October 29, 1996, which also involved
a Matson vessel repair entry, we stated:
In accordance with Ruling 113474 and Memorandum 113350,
and as your forwarding memorandum states, the
drydocking charges should be prorated between the
dutiable and nondutiable costs associated with the
drydocking. The method of prorating was described in
Ruling 113474, supra: the drydocking costs "should be
apportioned to reflect the dutiable and non-dutiable
foreign costs in this entry." For example, if, aside
from the subject "drydocking costs," as described
supra, fifty percent of the costs of that particular
drydocking were dutiable and fifty percent were
nondutiable, then fifty percent of the subject
"drydocking costs," as described supra, would be
dutiable and fifty percent would be nondutiable.
The costs of general services and/or drydock costs to
be prorated are not involved in the calculation of what
portion of the costs is dutiable and what portion is
nondutiable.
With respect to the inclusion of 19 U.S.C. 1466(h)(3)
duties in the proration calculation, in Ruling 226873
we stated:
Duty assessed under 19 U.S.C. 1466(h)(3) is vessel
repair duty (i.e., 19 U.S.C. 1466 duty), albeit
assessed at a rate of duty different from the
fifty percent rate of 19 U.S.C. 1466(a). As such,
the dutiable amount with respect to duty assessed
under 19 U.S.C. 1466(h)(3) is to be included in
the dutiable component for the purpose of the
proration calculation which is described supra on
pages four through six of this ruling.
Prefabricated Steel
The petitioner claims that many prefabricated steel items
are eligible for treatment under 19 U.S.C. 1466(h)(2) and (3).
The claim with respect to 19 U.S.C. 1466(h)(3) was
thoroughly discussed in Ruling 113908, the application ruling
with respect to the subject entry. Similarly, the claim with
respect to 19 U.S.C. 1466(h)(2) and (3) was discussed in Ruling
226873 dated October 29, 1996, which also involved a Matson
vessel repair entry. Therein we stated:
With respect to 19 U.S.C. 1466(h)(2), it is our
position that 19 U.S.C. 1466(h)(2) contemplates duty-paid entry of eligible spare repair parts or materials
having been made prior to the vessel repair entry at
issue. The petitioner has not established that this
occurred.
Prefabricated steel is not a "part" eligible for 19
U.S.C. 1466 (h)(3).
Accordingly, the work herein is dutiable under 19 U.S.C.
1466(a).
Painting - item 413
In Ruling 113908 (the ruling on the application with respect
to this entry), we held item 414 (the painting of the vessel
name, hailing port and Matson logo) to be nondutiable, and held
item 413 (the preparation and painting of the freeboard and
fashion plate area) to be dutiable. Ruling 113908 cited Ruling
113681 where we held similarly, i.e., the painting of the vessel
name, hailing port and Matson logo was nondutiable, but the
repainting of the hull in the Matson colors was dutiable.
The petitioner claims that "if the logo is considered duty
free, then the hull painting scheme should also be considered as
part and parcel of the logo and therefore also duty free." It
states that the subject painting of the hull in the three unique
Matson colors was "to conform with new company fleet colors,
name, logo, and hailing port."
The invoice heading for item 413 provides as follows: "413 -
DEEP LOADLINE TO RAIL [;] Prepared and painted the freeboard and
fashion plate area."
Per the invoice, the surface preparation included sealing;
the removal of grease, oil, oil film, soot and other contaminants
prior to coating by chemically cleaning; a high pressure water
wash of the hull area; spot grit blasting of areas of active
corrosion, including areas of the port and starboard outboard
stack surfaces; and the blowing down of the entire area with high
pressure air to remove all dust and spent abrasive.
The painting is described on the invoice as follows:
...
2. Applied one (1) touch-up coat Interturf Epoxy Red
No. KHA303 / KHA062 at 5.0 mils dry, 7.0 mils wet film
thickness. Interval before overcoating was maintained
at a minimum of sixteen (16) hours.
3. Applied one (1) touch-up coat Intergard
Intermediate Coat Gray No. FAJ034 / FAA262 at 5.0 mils
dry, 7.0 mils wet film thickness. Interval before
overcoating was maintained at a minimum twenty four
(24) hours.
4. Applied one (1) full coat Intersheen Finish Matson
Gray No. LAH053 at 2.0 mils dry, 5.0 mils wet film
thickness. Interval before overcoating was maintained
at a minimum of eight (8) hours.
5. Applied one (1) full coat Intersheen Finish Matson
Gray No. LAH053 at 2.0 mils dry, 4.0 mils wet film
thickness.
...
We affirm our earlier finding that item 413 is dutiable
under 19 U.S.C. 1466. The invoice clearly reflects dutiable
vessel repair work which goes well beyond mere "ornamental"
painting.
This position is supported by H.C. Gibbs v. United States,
28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D.
529 (1953), where the court stated:
Relative to painting the hull of the vessel black
between the decks and repainting the ship's name
thereon, as well as the expenses of cartage of
materials and labor, this court is of the opinion that
the cost thereof is properly dutiable under the
provisions of section 466 as "repairs." Although it is
contended that the painting in question is strictly
ornamental and in no sense performed for the
preservation of the vessel and, therefore, cannot be
considered "maintenance painting," it remains a fact
that, irrespective of the intention behind the act, the
painting of the ship black in order to present a better
appearance to the public had the effect of restoring
the old and rusted surfaces ...
HOLDING:
As detailed above, the petition is denied.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch