VES-13-18-RR:IT:EC 114663 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;
Protest No. 2704-99-100455
Dear Madam:
This is in response to your memorandum dated March 26, 1999, which forwarded the protest submitted by Matson Navigation Company (the “protestant”) with respect to the above-referenced vessel repair entry.
FACTS:
The LIHUE (the “vessel”), a U.S.-flag vessel owned and operated by the protestant, 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.
In Ruling 114203 dated October 13, 1998, the petition was denied.
ISSUE:
Whether the subject items are dutiable pursuant to 19 U.S.C. 1466(a)?
LAW AND ANALYSIS:
19 U.S.C. 1466(a) 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.
We note that the protest was timely filed under the statutory and regulatory provisions for protests, 19 U.S.C. 1514(c)(3)(A) and 19 CFR 174.12(e)(1).
The subject entry is a “post-Texaco” entry, i.e., an entry filed after the appellate decision in Texaco Marine Services, Inc. v. United States, 44 F.3d. 1539 (CAFC 1994), aff’g 815 F.Supp. 1484, 17 CIT 139 (CIT 1993).
In Texaco, the CIT held the costs of cleaning and protective coverings to be dutiable under 19 U.S.C. 1466. The court stated that “[t]he cleaning in this case was indeed an integral part of the repair process since the cleaning would not have been necessary but for the repairs” and “[t]he protective coverings ... are an integral part of the repair process and would not have been necessary but for the repairs.” Texaco Marine Services, Inc. v. United States, 815 F. Supp. 1484, 1487, 17 CIT 139, 142 (CIT 1993).
In affirming the CIT, the CAFC held “that the Court of International Trade properly used a ‘but for’ standard for ‘expenses of repairs’ when it evaluated the expenses at issue in this case.” Texaco Marine Services, Inc. v. United States, 44 F.3d 1539, 1548 (CAFC 1994).
As a post-Texaco entry, the Texaco decision applies to this entry. Our position with respect to post-Texaco entries has been stated in detail in many rulings, as well as in Memorandum 113350 of March 3, 1995, which was published in the Customs Bulletin and Decisions on April 5, 1995 (vol. 29, No. 14, p. 24). That position is that all vessel repair entries filed on or after the date of the Texaco decision (December 29, 1994) are to be liquidated in accordance with the full weight and effect of the decision - costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the “but for” test, i.e., costs which would not have been incurred but for dutiable repairs are dutiable.
The protestant requests relief with respect to general services costs and drydock costs.
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 Rulings 113908 and 114203, the application and petition rulings with respect to the subject entry, as well as in many previous rulings. Our position remains in full force and effect. Accordingly, the claim of the protestant is denied.
As we have stated previously, the proration concept is an attempt to administer the vessel repair statute in as fair a manner as possible.
The method of proration was fully explained in Ruling 114203. It was also previously explained in Ruling 226873 dated October 29, 1996, wherein 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 ...
HOLDING:
As detailed above, the protest is DENIED.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, 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 reliquidation 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
Customs personnel, and to the public on the Customs Home Page on the World Wide
Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Sandra L. Bell
Director,
International Trade Compliance Division