VES-3-18-RR:IT:EC 116501 IDL
Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
New Orleans, LA 70130
Re: Petition for Review; Vessel Repair Entry No. C16-0012140-9;
M/V GALVESTON BAY; 19 U.S.C. § 1466
Dear Sir:
This is in response to your memorandum, dated June 22, 2005, forwarding for our review the petition filed on behalf of Sea-Land Service, Inc. (“petitioner”) with respect to Vessel Repair Entry C16-0012140-9. Our ruling on this matter is set forth below.
FACTS:
The GALVESTON BAY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Charleston, South Carolina on April 16, 1998. A vessel repair entry was filed. Counsel for the petitioner states that your office issued a letter of duty determination on March 29, 2002 with respect to the application for relief.
ISSUE:
Whether the costs for which the petitioner seeks relief are dutiable 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 50 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.
In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int'l Trade 1993), the court stated in pertinent part as follows with respect to the reach of section 1466:
Texaco urges us to reject the Court of International Trade’s “but for” approach and to interpret “expenses of repairs” so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred.
Our determinations follow with respect to the items for which you have requested
our review.
Pursuant to SL Service, supra, we concur with your determination that the following items should be prorated between dutiable and non-dutiable costs:
AHD 6724 (tug services), 6725 (pilotage), and 6726 (line handler services);
AHD 6728 (shipyard services), 6729 (special survey hull items in drydock), and 6730 (special survey tailshaft in drydock); AHD 6745 (local trucking) and 6746 (mobile crane services for landing spares); and AHD 6752 and 6753 (secretary services).
Pursuant to Texaco, supra, we concur with your determination that the following items are dutiable costs: AHD 6727, item 29 (Aft Peak Cleaning) and AHD 6747 (customs clearance and related transportation charges), since the petitioner has not provided satisfactory documentary evidence to support its claim of non-dutiability; AHD 6727, item 46 (temporary skirting/protective covering), since Texaco held protective coverings are dutiable; and AHD 6739 (hotel, meals, travel, etc.), which covers the costs incident to dutiable repairs.
AHD 6731, which includes item 3 (switchboards) and item 5 (fans), is non-dutiable as the invoice does not reflect repair work or dutiable maintenance work. We have previously held that cleaning unrelated to any dutiable repair work does not constitute a dutiable maintenance operation. See HQ 115603 (May 16, 2002), and rulings cited therein.
Finally, we recognize that only actual expenses borne by the vessel should be taken into consideration when liquidating vessel repair entries. See HQ 111792 (January 9, 1992); HQ 111230 (November 8, 1990); and C.I.E. 227/63 (December 20, 1962). The petitioner submitted invoices for AHD 6724 (general services, tugs) that include handwritten revisions of the amounts printed on the invoices. The petitioner alleges that the handwritten notations reflect discount allowances. However, the petitioner also indicated in its petition that the amounts printed on the invoices for this item already reflect discounted expense amounts. Furthermore, the handwritten notations are insufficient evidence of the actual expense incurred by the petitioner. As such, duty should be assessed based upon the amounts printed on the invoices, and the handwritten amounts should be disregarded.
HOLDING:
The costs for which the protestant seeks relief are dutiable in part and non-dutiable in part under 19 U.S.C. § 1466 consistent with the analysis above.
The petition should be GRANTED-IN-PART and DENIED-IN-PART with respect to the items discussed above.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch