VES-13-18-RR:IT:EC 115568 RSD
Chief, Residual Liquidation and Protest Branch
ATTN: Vessel Repair Unit
New York Region
1210 Corbin Street
3rd Floor
Elizabeth, New Jersey 07201
RE: Vessel repair; Protest; Vessel SEA-LAND QUALITY; V.52; Vessel Repair Entry No. WK9-0065595-2-; Protest number 0401-01-100101
Dear Sir:
Reference is made to your memorandum of December 3, 2001, regarding the above-captioned protest that concerned the assessment of duty under the vessel repair statute. U.S. Ship Management, Inc., on behalf of the vessel operator, filed the Protest.
FACTS:
The SEA-LAND QUALITY, a United States-flag vessel operated by U.S. Ship Management, Inc. of Charlotte, North Carolina, arrived at the port of Boston, Massachusetts on July 12, 2000. The date of entry for the vessel was July 12, 2000. According to the vessel repair entry and other documents in the file, the vessel underwent work in Rotterdam, The Netherlands.
An application was timely filed on October 4, 2000. Pursuant to a ruling letter from the Residual Liquidation and Protest Branch dated October 20, 2000, the application was denied in full.
On November 1, 2000, the operator agents, United States Ship Management, Inc. submitted a petition for relief identifying certain items as non-dutiable. The petition requested relief regarding the dutiability of travel expenses pursuant to Texaco Marine Services, Inc. v. United States, 44 F3d 1539 (Fed. Cir. 1994). Customs Headquarters reviewed the petition, and issued Headquarters Ruling Letter 115222 dated February 26, 2001. In that ruling, we determined that the petitioner did not show that the expenses in question were incidental to a non-repair item. We pointed out that the SEA-LAND QUALITY received foreign repairs in October 2000, well after the Texaco “but for” test approach took effect.
Therefore, we found that foreign repair expenses were fully dutiable.
In response, to our decision denying the petition, U.S. Ship Management filed a protest on May 3, 2001 against the liquidation of this vessel repair entry.
ISSUE:
Whether the travel expenses and allowances incurred by foreign repair technicians while working on repairs to a U.S. flag vessel while outside of the United States are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. §1466(a)) provides, in pertinent part, that:
The equipments, or any part thereof ... purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.
In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (1993), the U.S. Court of International Trade (CIT) considered whether costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs constituted “expenses of repairs” as that term is used in 19 U.S.C. §1466. In holding that these costs were dutiable as “expenses of repairs” the court adopted the “but for” test proffered by Customs; that is, such operations were an integral part of the dutiable repair process and would not have been necessary “but for” the need to conduct dutiable repairs.
On appeal, the Court of Appeals for the Federal Circuit (CAFC) issued a watershed decision which not only affirmed the opinion of the CIT regarding the specific expenses at issue, but also provided clear guidance with respect to the interpretation of 19 U.S.C. §1466, and thus the Customs administration of that statute. In upholding the “but for” test adopted by the CIT the CAFC stated:
...the language ‘expenses of repairs’ is broad and unqualified.
As such, we interpret ‘expenses of repairs’ as covering all
expenses (not specifically excepted in the statute) which,
but for dutiable repair work, would not have been incurred.
Conversely, ‘expenses of repairs’ does not cover expenses
that would have been incurred even without the occurrence
of dutiable repair work. As will be more clearly illustrated
below...the ‘but for’ interpretation accords with what is
commonly understood to be an expense of repair.
44 F.3d 1539, 1544.
The Assistant Commissioner, Office of Regulations and Rulings, issued a second memorandum to the Regional Director, Commercial Operations Division, New Orleans (file no. 113350), dated March 3, 1995. This memorandum was published in the Customs Bulletin on April 5, 1995 (see Customs Bulletin and Decisions, vol. 29, no. 14, at p. 24). It provided that all vessel repair entries filed with Customs on or after the date of that decision were to be liquidated in accordance with the full weight and effect of the court decision (i.e., 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). Therefore, expenses that are associated with repair charges are dutiable in accordance with the “but for” approach used in Texaco. Without a showing that the charges in question are incident to a non-repair item, they are dutiable under the vessel repair statute.
In its protest U. S. Ship Management requests relief from vessel repair duties on transportation expenses and allowances. However, the Protestant has not presented any additional documentation to support its claim that the transportation expenses and allowances should not be dutiable. Accordingly, we find that our decision in Headquarters Ruling Letter 115222 should be affirmed, and thus the transportation expenses and allowances remain fully dutiable.
HOLDING:
Following a thorough review of the evidence presented as well as analysis of the law and relevant judicial and administrative precedents, we have determined that this Protest should be denied in full for the reasons specified in the Law and Analysis portion of this ruling.
In accordance with §3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any new billing (the equivalent of the reliquidation of an 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 take steps to
make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.
Sincerely,
Larry L. Burton
Chief
Entry Procedures and Carriers Branch