VES-3-18-RR:BSTC:CCI H095417 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; M/V LIBERTY SEA; Vessel Repair Entry NK7-0500098-3; Protest 2002-09-100141
Dear Sir:
This ruling is in response to your memorandum of February 11, 2010, which forwarded for our review the application for further review of a protest filed by Liberty Maritime Corporation (“protestant”) with respect to Vessel Repair Entry NK7-0500098-3. Our ruling follows.
FACTS:
The M/V LIBERTY SEA (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of New Orleans, Louisiana on February 25, 2004. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on August 28, 2009 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable or remissible 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 equipment for and 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 its administration of the vessel repair statute, Customs and Border Protection has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue as to whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466:
1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.
Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.
3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.
Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.
Additionally, we note that in order to qualify as a nondutiable modification rather than a repair the documentation of record must reflect that the element which was replaced was in good and full working order at the time the work was performed.
You request our review with respect to the items discussed below.
Exhibit I, item 17. Sea Valves. The protestant states: “Sea Valve Survey, the invoice shows that the sea valves were opened and closed for inspection, the sea valves were inspected and cleaned and repairs were made to certain sea valves. The sea valves repair cost is listed separately in Item 18. The Survey of the sea valves are a part of the ABS required Drydocking/Special Continuous Survey. The repairs were made as a result of this inspection.” The shipyard invoice for item 17 provides in pertinent part as follows: “SEA VALVES A) SURVEY B) REPAIRS … After inspection by regulatory bodies and O/R, and prior to closing valve, renew gaskets with new hard gasket material and on all valves unless otherwise specified by the O/R and provide new teflon stem packing. Paint all steel valve internal parts with two coats of Apexior No. 3…. Also allow for the renewal of approx 300 studs of ½” – ¾” in diameter and 3” long with associated nuts C) ACCESS FOR SURVEY OF VALVES…. As per specification ’A’+’B’+’C’[.]” Item 18, which is not at issue in this ruling, is entitled “Sea Valves Repairs.” Our review of the invoice indicates that repairs were included in item 17. As excerpted above, the invoice specifically references repairs, i.e., “SEA VALVES A) SURVEY B) REPAIRS … C) ACCESS FOR SURVEY OF VALVES … As per specification ‘A’+’B’+’C’[.]” The repairs were not separately itemized in item 17. We find that this item is dutiable under 19 U.S.C. § 1466.
Exhibit I, item 37. Crane Testing. The protestant states: “This item was for the test of the Stores Handling Crane and E/R Parts Handling Crane which is a regulatory and Class requirement. There were no repairs associated with this item. We submit that this item should be treated as an Inspection and/or Survey and as such be non dutiable.” The shipyard invoice provides, in pertinent part: “Provide labor, material and equipment to accomplish a dynamometer test on the ship’s stores’ crane and engine room crane.” We find that this cost is nondutiable because it is for testing which does not involve a repair.
Exhibit I, item 54. Ballast Tank Anode Installation. In support of its claim that this item is a nondutiable modification, the protestant states: “This item was for the installation of approximately 130 zinc anodes throughout the vessel’s ballast tanks. The anodes were installed by means of welding to the various ballast tank structural members and plating. These Anodes are installed for corrosion control of the steel in the ballast tanks that [are] exposed to salt water … As described above they are part of a larger corrosion control “system” that includes the coatings on the steel inside each of the ballast tanks.” We find that this cost is dutiable. See HQ 103327, dated September 28, 1978, where we held that anodes installed to prevent corrosion are dutiable as repairs; HQ 110924, dated September 11, 1989, where we held the replacement of anodes to be a dutiable operation; HQ 114676, dated May 10, 1999, where we held that an operation including the removal of anodes was a dutiable repair and maintenance operation; and HQ 115654, dated July 5, 2002, where we held zinc anode replacements to be dutiable maintenance.
Exhibit I, items 56/59, Work to the Steel Structure at Bulkhead; item 57, Work to the Steel Structure IWO Frame 142; and Exhibit VII. The protestant states: “This item was for the modification of certain structural members in the hull in way of Frame 169 and 142. Based on experience with this same class of ship in the Owner’s fleet it was found that there was elevated stresses in certain places in the hull under certain conditions, specifically while the vessel was in a ballast condition….[A] modification was proposed by the Naval Architect consisting of removing certain structural sections of the hull and replacing them with material of a greater thickness thereby making these areas stronger.” The shipyard invoice reflects extensive cropping and renewing. The American Bureau of Shipping (“ABS”) Class Survey Report provides, in pertinent part, the following with respect to the main hull of the vessel: “Found [:] Wasted lower part of upper stool transverse plating at frame nos. 139, 141, 169 & 171 together with attached parts of underdeck girders & brackets. Recommendation [:] To be cropped and renewed. Rectification (Full) [:] Cropped & renewed at this time.” The ABS Class Survey Report provides, in pertinent part, the following with respect to the upper wing tank 04 P: “Found [:] The following items found wasted: part of outer stiffener & bracket of transverse bulkhead at frame 169…. Recommendation [:] to be cropped and renewed.
Rectification (Full) [:] cropped and renewed.” Thus, the ABS Class Survey Report indicates wastage in frame 169 (i.e., wasted lower part of upper stool transverse plating at frame no. 169 and wasted part of outer stiffener and bracket of transverse bulkhead at frame 169). In view of the condition of frame 169, we are unable to conclude that this work is a nondutiable modification to the vessel. We find that these costs are for repairs, which are dutiable under 19 U.S.C. § 1466.
Exhibit I, item 70. Hatch Coaming Reinforcement. The protestant states that this work is “a permanent modification to the structure of both the coaming and covers themselves … This is in fact a new design from MacGregor incorporating additional steel to satisfy International Association of Class Society (IACS) Universal Requirement - Strength of Ships (URS) 30 to modify the securing arrangements of the forward two hatches … The modification allows for the forward two hatch covers to be stowed more securely in inclement weather …” The shipyard invoice provides, in pertinent part: “As per ABS requirements hatch coaming of No.1 and No. 2 holds strengthened as well as respective hatch covers securing plates have been modified to comply with new IACKS UR S30 regulation.” We find that the protestant has not provided satisfactory documentary evidence that this work constitutes a nondutiable modification to the vessel. The full scope and substance of this work is not clear from the record. We find that this cost is dutiable under 19 U.S.C. § 1466.
HOLDING:
The costs for which the protestant seeks relief are dutiable or nondutiable 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