VES-3-18-RR:BSTC:CCI H057060 GOB
Supervisory Import Specialist
c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112
RE: 19 U.S.C. §1466; Vessel Repair Entry C20-0058750-4; Protest 2002-08-100238
Dear Sir:
This is in response to your memorandum of March 26, 2009, forwarding for our review the protest filed on behalf of Transocean Inc. (“protestant”) with respect to Vessel Repair Entry C20-0058750-4. Our ruling follows.
FACTS:
The GSF EXPLORER (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Mobile, Alabama on March 18, 2006. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on May 30, 2008 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
The issue presented is whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Initially, we note that the information in the file indicates that the protest was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. § 1514(c)(3) and 19 CFR § 174.12(e).
Title 19, United States Code, section 1466 (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.
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 19 U.S.C. § 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. [Emphases supplied.]
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.
You request our review with respect to the items discussed below.
Regulatory Inspections and certain other costs (Part C of the protest submission). You have requested our review with respect to numerous items within this section. The documentation includes the following: (1) An American Bureau of Shipping (“ABS”) Class Survey Report No. MT606586 (first visit date of May 9, 2005 and a last visit date of June 13, 2005) which lists the following surveys: intermediate hull survey 7; annual machinery survey 3; annual hull survey 3; survey for compliance – class; drydocking survey; tailshaft surveys (port and starboard); and modification survey; and (2) An ABS Class Survey Report (with the same report number and visit dates as above) which lists the following: annual load line survey 3; survey for compliance – statutory; initial IOPP Annex I survey; initial survey – MODU; other survey (statutory) – USCG ACP; and cargo gear survey. We find that the specific costs of these surveys (i.e., the costs paid to ABS for the performance of these surveys, as opposed to any additional shipyard work performed relative to the surveys) are nondutiable, as periodic surveys undertaken to meet the specific requirements of a governmental entity or classification society are generally nondutiable under 19 U.S.C. § 1466.
You have requested our review with respect to certain of the items in the third section of the worksheet which lists many items relative to the surveys, i.e., this section of the worksheet begins with the item for “range and inspect anchor chains.” We find that the following items are dutiable under 19 U.S.C. § 1466 as they reflect repairs or dutiable maintenance: the repair of the rudder stop plates; material and labor to fabricate brass bushings; reconditioning of galley damper coils; bid to overhaul stern tubes and strut bearings; overhaul of the valves in place and in the workshop; tailshaft eye plate repairs; rewelding of cool pipe access in generator room; manufacture of the padeyes; high pressure wash of the anchors and chains; and high pressure wash of the tanks.
The ABS report provides as follows with respect to the anchor chains: “Port and starboard anchor chains were ranged, cleaned, gauged, required lengths verified and found satisfactory.” We find that this cost is nondutiable. We further find that the costs of the tailshaft full pull and the check of the rudder clearances is nondutiable.
We find that the costs in the invoices found in tabs 10-14 and tabs 27-29 of protest binder C are dutiable as the protestant has not provided satisfactory documentary evidence that they are nondutiable survey costs.
Title 19, United States Code, section 1466(h)(4) (19 U.S.C. § 1466(h)(4)) provides as follows:
The duty imposed by subsection (a) of this section shall not apply to –
(4) the cost of equipment, repair parts, and materials that are installed on a vessel documented under the laws of the United States and engaged in the foreign or coasting trade, if the installation is done by members of the regular crew of such vessel while the vessel is on the high seas, in foreign waters, or in a foreign port, and does not involve foreign shipyard repairs by foreign labor.
Declaration and entry shall not be required with respect to the installation, equipment, parts, and materials described in paragraph (4).
With the exceptions noted, we find the following costs (all contained in invoices in Binder C) are eligible for nondutiable treatment under 19 U.S.C. § 1466(h)(4), as they appear to meet the terms of that provision: the costs in the invoices in tab 34; tab 35 (except for bunker coat and pants and any other articles of clothing); and tab 39.
With the exception of the lifelines, sensors, and respirators, we find that the costs in the invoices found in tabs 46-50 of protest binder C are dutiable under 19 U.S.C. § 1466(a) as they are purchases for the vessel, e.g., bunker coats, bunker pants, caps, boots, eyewear, gas, hearing protectors, full body life vest/harness, etc. We find that these items are not eligible for treatment under 19 U.S.C. § 1466(h)(4) as they are not within the class of goods which are typically “installed” on a vessel, as is required for the application of 19 U.S.C. § 1466(h)(4). We find that the lifelines, sensors, and respirators are nondutiable pursuant to 19 U.S.C. § 1466(h)(4), as they appear to meet the terms of that provision.
With the exception of the cost of the life rafts, the annual certificate, and the U.S. Coast Guard tag fee, we find that the costs in the invoices found in tab 51 of protest binder C are dutiable under 19 U.S.C. § 1466(a) as they are purchases for the vessel (e.g., flares, straps, stickers, etc.). We find that these items are not eligible for treatment under 19 U.S.C. § 1466(h)(4) as they are not within the class of goods which are typically “installed” on a vessel, as is required for the application of 19 U.S.C. § 1466(h)(4). The cost of the life rafts, the annual certificate and the U.S. Coast Guard tag fee are nondutiable pursuant to 19 U.S.C. § 1466(h)(4), as they appear to meet the terms of that provision.
We find that the costs in the invoices found in tabs 53-60 of protest binder C are nondutiable pursuant to 19 U.S.C. § 1466(h)(4), as they appear to meet the terms of that provision.
Azimuth and Tunnel Thrusters (Part E of the protest submission). We find that this work constitutes repairs dutiable under 19 U.S.C. § 1466. For example, the documentation of record provides in pertinent part as follows: “Lips Azimuth Thruster Repairs[.] This section describes the Work that is to be carried out in drydock to disassemble, rebuild and reassemble the four Lips Azimuth thrusters”; “Harbormaster Tunnel Thruster Repairs[.] This section describes the work that is to be carried out in drydock to open the (5) tunnel thrusters, remove and replace the propellers, remove and replace the prop shaft seals and input oil shaft seals, and close back.” This work is clearly described on the invoices as repairs, e.g., “Repair Thrusters,” “Thruster Repair,” etc. We further find that the breakdown of costs provided by the protestant with respect to Smit Heavy Lift invoice 07705.21064, dated July 13, 2005, and the work performed for the thrusters and for the derrick is acceptable.
Detachment and Reattachment of the Derrick (Parts G and H of the protest submission). The protestant states in pertinent part as follows:
. . . the derrick was in good working order. The top portion of the derrick and the CMC [crown motor compensator] were detached for the sole purpose of enabling the Explorer to traverse safely under a bridge in the Bosporus straits in order to reach the BP job site in the Black Sea. . . . [T]he equipment was not purchased while the Explorer was abroad or on the high seas in 2005. The Explorer was fitted with the derrick in the late 1990s when the vessel was reconfigured to a deep-sea drilling ship and was installed on the vessel when it departed from Louisiana in 2005 for the Black Sea. In addition, the top portion of the derrick and CMC were detached for safety purposes only, and no repairs were performed prior to the reattachment of the derrick.
The documentation of record includes a report of June 10, 2005 by the Marine and Industrial Consultancy Services Limited, which provides in pertinent part as follows:
The vessel [identified in the report as the subject vessel] will be employed for a drilling operation in the Black Sea. To arrive at the destination the vessel has to navigate through the Bosporus. The air draft of the “GSF Explorer” would make it impossible to navigate under the Bosporus bridges. To allow this safe navigation it was necessary to remove roughly the top half of the drilling derrick. The Owners hired Smit Engineering to carry out this task. . . . The operation was carried out successfully . . . without any damages being sustained.
The court in Northern Steamship Company, Inc. v. U.S., 54 Cust. Ct. 92, 100-101 (1965) held that the removal of equipment which was not related to any damage or repairs was not dutiable under 19 U.S.C. § 1466. CBP held similarly in HQ 114493, dated November 17, 1998 and rulings cited therein.
The pertinent documentation, including the specification of work, does not indicate any repairs relative to the detachment and reattachment of the derrick. We find that this work is not dutiable under 19 U.S.C. § 1466. As stated above, we find that the breakdown of costs provided by the protestant with respect to Smit Heavy Lift invoice 07705.21064, dated July 13, 2005, is acceptable.
Repairs to the Azimuth Thruster Motors in Turkey (Part I of the protest submission). 19 U.S.C. § 1466(d)(1)) provides that the Secretary is authorized to remit or refund such duties if the owner or master of the vessel furnishes good and sufficient evidence that the vessel was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. Section 4.14(h)(2)(i), Customs and Border Protection (“CBP”) Regulations (19 CFR § 4.14(h)(2)(i)) provides that "port of destination" means such port in the United States.
Section 1466(d)(1) and 19 CFR § 4.14(h)(2)(i) essentially set forth a three-part test, each of the elements of which must be established by good and sufficient evidence to qualify for remission:
1. a casualty occurrence;
2. an unsafe and unseaworthy condition; and
3. the inability to reach the port of destination in the U.S. without foreign repair.
The protestant states as follows:
In the present instance, the GSF Explorer departed Malta on June 14, 2005 for Turkey after completing a thorough ABS inspection, which resulted in a finding that each of the vessel’s thrusters were “found or placed in a satisfactory condition” before the vessel departed Malta. . .
. . . [O]n June 18, 2005, the Explorer’s thrusters suddenly failed while in transit from Malta to Turkey.
. . . In sum, the damage to the thruster motors was a direct result of the inadvertent supply of field current to the motors with all blowers and other auxiliary systems powered off, which allowed heat to build up in the motors and caused the coils to burn up. This root cause is supported by both the contemporaneous Report of Marine Accident, Injury or Death, as well as the certification of [the] Master of the GSF Explorer.
The Report of Marine Accident, Injury or Death of July 7, 2005 cites machinery or equipment failure. The Description of Casualty section of this report provides: “16 June 2005 Port Aft Thruster motor failed during commissioning. 18 June 2005 Starboard Forward and Port Forward Thrusters overheated to dead ground, because VMS programming caused field current to be left on thruster motors without blowers on.”
The documentation submitted contains an email message of July 5, 2005 from the protestant’s operations manager, which provides, in pertinent part:
It has been determined that the damage to the 3 Azmuthing Thruster Motors on the Explorer was not due to wear and tear. There was an issue in the assignment of field current to the motors without ventilation running that overheated the coils in the motors.
The documentation also contains a statement of November 23, 2008 by the master of the vessel in which he certifies:
. . . on June 18, 2005, while in transit from Valletta, Malta to Eregli, Turkey, the GSF Explorer’s thruster motors were suddenly and unexpectedly damaged as a direct result of the supply of field current to the motors while all blowers and other auxiliary systems were powered off. This resulted in the overheating of the coils in the motors. This damage was directly caused by a crew member’s (or crew members’) act in failing to isolate current to the thrusters while they were powered off in contravention of proper procedures. This single act resulted in extensive damage and necessitated the immediate repair of the vessel’s thruster motors, replacement of motor thruster parts, and repair to related systems. In order to accomplish these repairs, the motors were required to be removed from the vessel, reassembled and reinstalled following completion of the necessary repairs.
Due to the inoperability of the thrusters in their damaged state, in the absence of repairs, the vessel would have been unable to safely carry out its intended operations.
In a statement of November 21, 2008, the rig manager of the vessel provided information which is consistent with the statements of the master and operations manager.
The documentation includes an ABS Class Survey Report, reflecting a “first visit” of May 9, 2005 and a “last visit” of June 13, 2005, which provides in pertinent part as follows:
All vessel’s thrusters were examined by makers’ representative at this time and all oil seals renewed at this time. Also the Port Forward, Port Aft, Stbd. Forward and Stbd. Aft thrusters, were removed from vessel to work shop, opened up, cleaned, examined, NDT carried out on gears and all found or placed in satisfactory condition. All units replaced on board, tested by makers’ representative and all found satisfactory.
CBP’s position with respect to remission under 19 U.S.C. § 1466(d)(1) and crew negligence was stated in C.S.D. 82-42 and affirmed in numerous subsequent rulings such as C.S.D. 82-120, HQ 112914 dated January 21, 1994, HQ 110665 dated June 28, 1990, and HQ 110200 dated September 7, 1989. In C.S.D. 82-42, CBP stated:
. . . single acts of negligent crew members which cause damage to vessels, whether attributable to officers or not, will be considered ‘other casualties’ within the meaning of 19 U.S.C. 1466(d)(1), provided no evidence of owner direction or inducement is present. The petitioner/ship company will retain the burden of showing that the negligent act was committed by an officer or crew member.
After a consideration of the documentation of record, we find that the protestant has established a basis for remission under 19 U.S.C. § 1466(d)(1) and 19 CFR § 4.14(h)(2)(i), i.e., we believe that the protestant has satisfactorily established the three required elements, described above. Remission is therefore granted with respect to the costs associated with this claim.
Amendment to Protest – Claim I, Tabs 1 and 2. We find that these costs should be prorated between dutiable and nondutiable costs, with the exception of job order 2140, dated June 3, 2005 (cropping, grinding, rewelding, coatings repairs), which we find to be a dutiable repair.
Amendment to Protest – Claim II, Tabs 3 and 4. The invoice in Tab 3 is a Malta Shipyards invoice (#2110) which provides, in pertinent part: “HPFW Washing to be carried out on ship’s hull on arrival and after blasting.” The invoice in Tab 4 is a Malta Shipyards invoice (#2156) which provides, in pertinent part: “The azimuth thrusters to be thoroughly cleaned internally.” We find that these costs should be prorated between dutiable and nondutiable costs as we believe these costs relate to both dutiable repairs and nondutiable costs.
Amendment to Protest – Claim III, Tab 5. As indicated above, we find that the breakdown of costs provided by the protestant with respect to Smit Heavy Lift invoice 07705.21064, dated July 13, 2005, and the work performed for the thrusters and for the derrick is acceptable.
Amendment to Protest – Claim IV, Tabs 12-15. The subject costs are for the use of a mobile crane in connection with the derrick operation in Turkey, crane demurrage, and associated costs. The protestant has submitted a certification that the mobile crane described on the subject invoice “was used for the sole purpose of detaching and reattaching the top portion of the derrick and the CMC [crown motor compensator] to pass through the Bosporus Straits on the vessel’s return voyage to the United States.” We find that this work is not dutiable under 19 U.S.C. § 1466.
HOLDINGS:
The costs for which the protestant seeks relief are dutiable, nondutiable, or to be prorated under 19 U.S.C. § 1466, as discussed in the Law and Analysis section of this ruling.
You are instructed to grant the protest in part and deny the protest in part with respect to the costs discussed in this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), 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 final duty determination 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
Cargo Security, Carriers and Immigration Branch