VES-13-18-OT:RR:BSTC:CCI H057909 JLB
Supervisory Import Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112
RE: Protest No. 2002-08-100216; Vessel Repair Entry No. C20-0056768-8; MATSONIA; 19 U.S.C. § 1466; Modification; Proration
Dear Sir:
This is in response to your memorandum of April 8, 2009, forwarding the above-referenced application for further review. We have reviewed the arguments set forth by your office and by counsel on behalf of the protestant. Our decision follows.
FACTS
The subject protest involves foreign shipyard work undergone by the MATSONIA. The vessel arrived at the COSCO Shipyard in Nantong, China for various shipyard work and returned to the United States at the port of Long Beach, California on October 12, 2006. A vessel repair entry was timely filed.
Matson Navigation Company filed an application for relief of the vessel repair duties assessed on the costs covered in the subject vessel repair entry. In response thereto, your office issued a decision on April 11, 2008, which denied in part, and granted in part, the application for relief. Accordingly, your office assessed vessel repair duties in the amount of $766,558.97. A timely protest was filed thereto for the duties assessed for numerous items.
ISSUE
Whether the costs for which the protestant seeks relief are subject to duty under 19 U.S.C. § 1466?
LAW AND ANALYSIS
Pursuant to 19 U.S.C. § 1466(a), there must be a payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trades.
Exhibit 1—Item 852—Deck Winch Modification
In its application of the vessel repair statute, U.S. Customs and Border Protection (CBP) has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The factors considered in identifying work constituting modifications, vis-à-vis work constituting repairs, have evolved from judicial and administrative precedent. See Otte v. United States, 7 Ct. Cust. Appls. 166, Treasury Decision (T.D.) 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, Treasury Decision (T.D.) 44359 (1930); see also Cust. Bull. and Dec., Vol. 31, No. 40 (Oct. 1, 1997). These factors include:
1. Whether there is a permanent incorporation into the hull or superstructure of a vessel.
2. Whether in all likelihood an item under consideration would remain aboard a vessel during an extended lay-up. 3. Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order.
4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.
To determine whether a particular replacement is a modification as opposed to a repair, the appropriate inquiry is to analyze the condition of the structure prior to being replaced. See Headquarters Ruling Letter 112926, dated November 29, 1993. CBP has held that the removal of an existing operational system to improve the efficient performance of the vessel is not dutiable if the work was not performed in conjunction with dutiable repairs. See Headquarters Ruling Letter 109971, dated June 12, 1989. If a permanent addition is a first-time installation, or if it replaces an existing structure that is in good working order at the time of its replacement and an enhancement in operating efficiency is provided, the operation may be considered a non-dutiable modification. See Headquarters Ruling Letter 111224, dated Feb. 19, 1991. If the work done involves an element of repair due to damages, deterioration or wear and tear then it is a dutiable repair. See Headquarters Ruling Letter 110569, dated April 12, 1990.
This invoice is for the work involved in fabricating and installing split drum cams on five (5) deck winches. See Protest at Exhibit 1, Section 852. While the invoice provides a detailed description of the work to be performed to remove the steel wiring from the winches, clean the grease from the drums and weld two (2) split plates to the drums, it does not provide a description of the condition of the deck winches at the time of removal. See Protest at Exhibit 1, Section 852. Additionally, only one picture was included to demonstrate that the deck winches were not rusted, deteriorated or in need of repair before the work was performed. This picture was of the split drum plates being installed on one of the mooring winch drums. See Protest at Exhibit 1. The protestant asserts that the work performed was not a repair but a modification since the deck winches were fully operational when they were replaced and since the mooring system was being strengthened by replacing wire rope with new synthetic line that will last longer. See Protest at 2. However, the only other evidence provided by the protestant that the deck winches were installed as modifications and not repairs are affidavits by their own port engineer and senior port engineer. See Exhibit A; Protest at Exhibit B.
The burden rests on the protestant to establish, by adequate, clear, and satisfactory documentary evidence, that an item is non-dutiable under 19 U.S.C. § 1466. See Headquarters Ruling Letter 116462, dated May 16, 2005. Our review depends to a great extent on the invoice descriptions of the actual work performed by the shipyard and an unbiased description is required. See Headquarters Ruling Letter 112128, dated June 29, 1992; Headquarters Ruling Letter 111554, dated October 11, 1991; Headquarters Ruling Letter 113233, dated February 23, 1996. The protestant has not met this burden of proof as the shipyard invoice does not provide a sufficient description of the item to determine the scope of the work performed.
It is CBP’s position that internally-generated documents, without more, do not constitute sufficient evidence that the item is non-dutiable. See Headquarters Ruling Letter 111942, dated March 15, 1995 (an internal memorandum is not sufficient evidence and thus, the work in question was held to be dutiable); Headquarters Ruling Letter 110717, dated June 28, 1990 (when the submission contains no statement by the shipyard as to the condition of the vessel prior to the commencement of the work or exact nature of the work performed and the only proof offered is a set of barely-intelligible, hand-drawn sketches and a self-serving statement as to the nature of the work signed by an employee of the petitioner, this is not sufficient evidence of non-dutiability). Furthermore, testimony or other evidence such as affidavits must be supported by evidentiary facts. See Andy Mohan v. United States, C.D. 4593, citing Brooks Paper Co. v. United States, 40 CCPA 38, C.A.D. 495 (1952). Both of the affidavits from the port engineer and the senior port engineer are self-serving documents. Considering that there is no third-party corroborating evidence, the documentation provided is insufficient to support non-dutiability. Accordingly, these items are held dutiable.
Exhibit 1—Item 853—Roller Chock Modification
This invoice is for the work involved in sealing and welding 2mm stainless steel sheeting to fifteen (15) roller chocks. See Protest at Exhibit 1, Item 853. While the invoice provides a detailed description of the work to be performed to clean and smooth the roller chocks prior to welding the stainless steel sheeting, it does not provide a description of the condition of the roller chocks at the time of removal. See Protest at Exhibit 1, Section 853. Additionally, only one picture was provided to determine the condition of the roller chocks before the work began and that picture was of a new roller chock fitted on a different vessel. See Protest at Exhibit 1. The protestant asserts that the work performed was not a repair but a modification since the roller chocks were fully operational at the time the work was performed and that the cleaning, smoothing and fitting of the liners on the vessel’s existing roller chocks eliminated the need for new roller chocks to be purchased. See Protest at 2-3. The only other evidence offered to prove that the roller chocks were installed as modifications and not repairs are affidavits by Matsons’ own port engineer and senior port engineer. See Exhibit A; Protest at Exhibit B.
As stated above, it is CBP’s position that internally-generated documents, without more, do not constitute sufficient evidence that the item is non-dutiable. See Headquarters Ruling Letter 111942, dated March 15, 1995; Headquarters Ruling Letter 110717, dated June 28, 1990. Both of the affidavits from the port engineer and the senior port engineer are self-serving documents. In addition, we note that the shipyard invoice indicates that the roller chocks were “cleaned and smoothed” prior to welding the stainless steel sheeting. This seems to indicate that the roller chocks were in a state of disrepair prior to the work being performed. Thus, considering that there is no third-party corroborating evidence that the installation of the roller chocks were a modification, the documentation provided is insufficient to support non-dutiability. Accordingly, this item is held dutiable.
Exhibit 5, 6, 11—Aalborg Industries
In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F.Supp. 2d 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 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’ [now CBP] 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.
See, e.g., Headquarters Ruling Letter 113474, dated October 24, 1995; Headquarters Ruling Letter 112045, dated March 10, 1992. Exhibits 5, 6 and 11 include several Aalborg Industries invoices indicating charges related to items 101 and 102 of the Matsonia’s Boiler Survey, Maintenance and Repair Specifications. See Protest at Exhibit 5, 6 and 11. The protestant claims that the copy of the boiler survey specifications provided contains the details of the inspections. They also contend that the shipyard segregated the inspection expenses by providing different invoices for expenses related to the survey work and the maintenance/repair work. Therefore, the protestant states that since the subject Aalborg Industries invoices only contain the expenses applicable to non-dutiable inspections, these items should be held completely non-dutiable. See Protest at 6-11.
However, it is CBP’s longstanding position that duties will not be remitted in the absence of segregation of dutiable and non-dutiable costs. See C.I.E. 1325/58; C.I.E. 565/55; Headquarters Ruling Letter 112024, dated February 3, 1992; Headquarters Ruling Letter 111622, dated December 11, 1991. If the invoice clearly differentiates the non-dutiable inspections from dutiable repairs, this segregation of expenses provides satisfactory evidence that the dry docking costs in question are incurred solely in conjunction with non-dutiable inspections, thus the costs are non-dutiable. See Headquarters Ruling Letter 115539, dated January 24, 2001. In this case, the invoices merely state “ABS survey,” “item 101,” “item 102” and the expense without providing a description of the work performed. See Protest at Exhibits 5, 6 and 11. Conversely, the Matsonia’s Boiler Survey, Maintenance and Repair Specifications provide a detailed description of the work performed for each item but does not provide the breakdown of the expenses. See Protest at Exhibit 5. Upon examination, it appears that some of the expenses incurred were for dutiable repair work and some were dual-purpose in nature, required for both the ABS inspection and the dutiable repairs that were performed. Accordingly, we found that there was insufficient evidence that all of the expenses in question were related to non-dutiable inspections, thus the costs are held fully dutiable.
Exhibit 29—ETW Services
Exhibits 29 and 30 from ETW Services cover the costs of providing lodging, meals, laundry and transportation for Aalborg Industries boilermakers during the dry dock period in China. See Protest at Exhibit 29 and 30. The protestant argues that the invoices are segregated with the contractor providing different invoices for expenses related to the survey work and the maintenance/repair work. They assert that the invoices in Exhibit 29 were for services related to the survey and that the invoices in
Exhibit 30 were for services related to maintenance and repair. See Protest at 12. The Aalborg Industries invoices provided in Exhibit 29 that the protestant claims are related to the survey are those invoices from Exhibits 5, 6 and 11. These invoices were held to be fully dutiable above, consequently, the Exhibit 29 invoices for the boilermakers expenses are also held fully dutiable.
HOLDING
After a thorough review of the record, the protest is denied as detailed above.
In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 26 and 29), 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
Cargo Security, Carriers and Immigration Branch