VES-13-18:RR:IT:EC 116003 rb
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street, Room 303
New Orleans, LA 70130
RE: Vessel Repair Entry No. C20-0058630-8; PACIFIC WIND; 19 U.S.C. 1466;
Protest No. 2002-03-100270
Dear Sir:
Under cover of your memorandum (VES-13-02:G:NO:VR GEB), dated May 29, 2003, you forwarded, with attachments, an application for further review of a protest concerning the assessment of vessel repair duty under 19 U.S.C. 1466(a). The protest was filed on behalf of Pacific Wind, LLC (PW), and Pacific Island Resources (PIR), LLC, a holding company that owns PW; and it was requested that the protest be handled without regard to the decision in SL Services, Inc. v. United States, 244 F. Supp.2d 1359 (CIT 2002) (which, notably, was reversed on February 4, 2004, by the Court of Appeals for the Federal Circuit (357 F.3d 1358)). Our decision on the protest follows.
FACTS:
A vessel arrived in New Zealand in mid-May 2001, where, at 2 shipyards, it was converted for squid-fishing from mid-June to mid-December 2001, and from mid-December 2001 to late January 2002, respectively. The vessel then left New Zealand to engage in squid-fishing, and after returning to New Zealand in late April 2002 to off-load its catch, the vessel was subject to certain additional work. Thereafter, the vessel proceeded to, and arrived in, Hawaii on May 20, 2002. As a result of the conversion of the vessel and the additional work done to the vessel after off-loading its catch in New Zealand, your office determined on January 10, 2003, that vessel repair duty was due under 19 U.S.C. 1466; this decision was timely protested on April 7, 2003. At issue in the protest is vessel repair duty in the amount of $1,184,202.82, although, for the most part, your office agrees that relief from such duty is warranted. However, you recommend that the protest be partially denied for a number of Items, as reviewed and discussed below.
ISSUE:
Whether the work for which the protestant seeks relief constitutes modifications to the vessel or expenses unrelated to vessel repairs, which are non-dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Under 19 U.S.C. 1466(a), the equipments, or any part thereof, including boats purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country, upon certain vessels, including that involved in the instant protest, are liable to entry and the payment of a 50% ad valorem duty on the costs thereof in such foreign country upon the first arrival of the vessel in any port of the United States.
By contrast, modifications, alterations, or additions to the hull and fittings of a vessel are not repairs and are thus not subject to vessel repair duties under section 1466. The distinction between such modifications, alterations or additions, and work comprising dutiable repairs, has evolved over the years from various court cases and agency precedents (see, e.g., Headquarters ruling (HQ) 112851, dated March 22, 1996, outlining the general rules for determining what constitutes modifications to the hull and fittings of a vessel for purposes of section 1466).
Accordingly, as indicated above, the various costs for which relief from vessel repair duty is sought in this case are addressed, in pertinent part, as follows:
1. Work Performed by York Refrigeration:
Item 130 denoting a labor charge for the period 9/21/01-9/29/01 appears to cover several invoices including those conceded to be dutiable repairs pertaining to the vessel’s refrigeration system. Not being attributed by job, the aggregate labor cost under Item 130 is fully dutiable. This accords with the well-settled practice that when the costs of various items are not separately shown, and are instead lumped together, duty will be assessed on the entire cost even though certain items may be non-dutiable (e.g., HQ 113658, dated November 22, 1996, and decisions there cited).
Also, Item 140 involving “Supply spares plus overhaul 2 shaft seals” does not appear on its face to be a non-dutiable modification as claimed, and, as such, must be considered to be a dutiable repair (e.g., HQ 114878, dated December 24, 1999 (the lack of clear and probative documentary evidence to the contrary renders an item dutiable as a repair under section 1466(a))).
2. Work Performed by Nalder & Biddle:
Items 150 through 155 entitled, respectively, “Solid Waste/Rubbish Removal,” “Berthage - (Wet Berthage),” “Shore Power - Setup/Consumption,” “Shipping Vessel & Services,” “Pilot Services,” and “Deploy/Maintain Oil Spill Boom,” clearly refer to general
drydocking expenses, and thus their costs must be prorated between the costs of the dutiable work and non-dutiable work, this being a longstanding agency position recently reaffirmed by the Federal Circuit in SL Services, Inc. v. United States, supra.
Furthermore, the following operations, based upon their plain descriptions, represent repairs, rather than modifications, and are dutiable: Item 157, the line entitled “Repair Freezer Door/Landing;” Item 159, the line entitled “Repair Bulwarks P/Side Front;” Item 164, the line entitled “Repair Deck Around Capstain;” Item 183, the line entitled “Repairs To Funnel;” Item 188, the lines entitled, respectively, “Inspect & Repair Ventilation Fans,” and “Repair Vent Ducts;” Item 201, the line entitled “Repair Main Fuel Filler Vents;” Item 203, the lines entitled, respectively, “Repair GPS Plotter,” “Other Repairs,” and “Repair Icon Radar;” and Item 212, the line entitled “Replace Floor Passage Entrance.”
Similarly, in Item 182, the line entitled “C450 Refrigerator” appears to represent merely replacement equipment for the galley necessary for repair purposes, rather than a non-dutiable modification to the vessel (see HQ 114878, supra). Hence, this item is properly dutiable. And Item 235 involving the servicing of all fire equipment on the vessel is a dutiable maintenance cost (see HQ 114481, dated October 20, 1998).
3. Work Performed by Parade Hydraulic Engineering:
With reference to Items 257, 264, 282, 307 and 332, the protestant seeks relief for the labor charges for those Jobs that are non-dutiable modifications, by prorating the aggregate labor charges for each Item to those Jobs thereunder based upon a ratio of the non-dutiable and dutiable parts costs for the Jobs. As this is impermissible (see heading “1" above, Item 130), the entire labor charge incurred under Items 264, 282 and 332 is necessarily dutiable, since there is no breakdown of the actual labor costs within each of these Items on a per-Job basis; but for those Jobs under Items 257 and 307 that are non-dutiable modifications, since there is a breakdown of the actual labor charges on a per-Job basis, relief may properly be granted on the actual labor charges incurred for the non-dutiable Jobs.
In addition, under Item 264, based upon the descriptions given, we concur that both Job 6960 (”Repair leaking stern light housing”), and the costs to “replace” both the “missing” high pressure hoses and the “leaking” fresh water lines in connection with Job 7211 (“Check and install watermaker”), are concerned with dutiable repairs; likewise, under Item 282, we agree that Job 7604 (”Check conveyor belt. Reported that belt motor stalls”) is a dutiable repair.
4. General Expenses Incurred in New Zealand:
The protestant seeks relief from duty on Items 28, 32, 33, 53, 274 and 294 on the ground that these Items are general expenses, or that they resulted from the modification of the vessel for squid-fishing.
Specifically, Items 28, 33 and 53 are charges for gasoline incurred during the reconfiguration of the vessel. The protestant states that these charges were incurred either as a consequence of modifying the vessel, or as a general expense of PIR or its agent, with no differentiation being made between these 2 reasons. Item 274 is the cost of disposing of rubbish accumulated during the conversion of the vessel; and Item 294 is the cost of pumping out the vessel’s bilges, which is said to be related to the general operation of the vessel, although it is indicated that this service actually took place during the time that the vessel modifications and other (dutiable) work were being performed.
It is concluded that the foregoing Items must be viewed under the circumstances as general services costs, which must be prorated between the dutiable and non-dutiable charges, in order to determine the correct duty payable in this regard (e.g., HQ 114259, of October 15, 1998), there being insufficient evidence in this case that such general services costs are attributable solely to the non-dutiable charges for modifying the vessel (e.g., HQ 114726, of June 24, 1999). In addition, Item 32, which covers the cost of stationery for a facsimile machine, is a dutiable expense, as noted in HQ 115536, of January 31, 2002 (stationery items (pencils, paper, etc.) are dutiable equipment).
5. Land Line and Mobile Telephone Charges Incurred in New Zealand or at Sea:
The protestant seeks relief from duty on Items 39, 54, 75-77, 84, 85, 93, and 105, which involve charges for telephone calls. No explanation is given as to why Items 39 and 54 should be non-dutiable. However, Items 75-77, 84, 85, 93 and 105 are described as land line telephone charges that are non-dutiable because they are either general expenses, or because they would not have been incurred “but for” the modifications to the vessel, with no differentiation being made between these 2 reasons.
Consequently, as with heading “4,” above, it is concluded that the costs of the telephone calls in the aforementioned Items represent general services costs which must be prorated between the dutiable and non-dutiable charges, in order to determine the correct duty payable in this respect, since there is insufficient evidence under the circumstances that the costs of such telephone calls are attributable solely to the non-dutiable charges for modifying the vessel.
6. Salaries and Expenses Incurred for Crew, Consultants, Agents and Engineers.
The protestant seeks relief from duty on Items 1, 40, 55, 66, 78, 87, and 96. In particular, the line items from the invoices in Items 78, 87, and 96 that are for the services of the “Fishing Master” appear to be crew expenses and salaries. These costs are non-dutiable. However, Items 1, 40, 55, 66 and portions of the invoices in Items 78, 87, and 96 (other than the “Fishing Master”) are salaries and expenses for consultants, agents, and engineers. These are general expenses that were incurred both for the non-dutiable modifications and for the dutiable repairs. These costs should therefore be pro-rated between the dutiable and non-dutiable charges, in order to determine the correct duty payable in this respect.
HOLDING:
Protest No. 2002-03-100270 should be granted in part and denied in part as specified in the LAW AND ANALYSIS section of this decision.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch