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HQ 115969

December 20, 2005

VES-13-18-RR:IT:EC 115969 CK


Chief, Liquidation Branch
U.S. Customs and Border Protection
Post Office Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C30-0109415-1; Protest No. 3001-01-100201; CSX SPIRIT; V-011; 19 U.S.C. § 1466(a)

Dear Sir:

This is in response to your memorandum dated April 8, 2003, which forwarded a protest submitted by CSX Lines (“CSX”) with respect to the above-referenced vessel repair entry.


The CSX SPIRIT completed voyage 011 by arriving at the Port of Tacoma, Washington on November 24, 2000. A vessel repair entry was timely filed on December 1, 2000. By letter dated December 12, 2000, your office requested additional information and documentation regarding certain line items in the vessel repair entry. Pursuant to an authorized extension of time, on March 19, 2001 CSX filed an application for relief regarding certain line items on the vessel repair entry it filed on December 1, 2000. The decision of your office on the aforementioned application was provided by your letter of April 27, 2001. The entry was liquidated on June 8, 2001, and the subject protest was timely filed on June 26, 2001.

Protestant argues that it was improper for U.S. Customs and Border Protection (CBP) to assess duties under 19 U.S.C. §1466(a) by applying the “but for” test enunciated in Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994) with regard to work performed on the CSX SPIRIT while it was dry-docked. The expenses in contention include: transportation, dry-docking, equipment rental, meals, staging, rigging, insurance, administrative expenses, postage, lighting, docking, undocking, electricity, crane services, air, water, travel, lodging, ventilation, and fire watch. Protestant states that the application of Texaco’s “but for” test to these costs amounts to a revocation of CBP Headquarters rulings on the above expenses and is in contravention of section 625(c) of the Customs Modernization Act (19 U.S.C. §1625(c)), which requires notice and comment before modifying or revoking a prior interpretative ruling or decision.


Whether the assessment of duty on the foreign expenditures for which the Protestant seeks relief is in contravention of 19 U.S.C. 1625(c).


Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...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 a vessel documented under the laws of the United States..."

In Texaco Marine Services, Inc., v. United States, 815 F.Supp. 1484 (1993), the U.S. Court of International Trade (CIT) considered whether costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs constituted “expenses of repairs” as that term is used in 19 U.S.C. §1466. In holding that these costs were dutiable as “expenses of repairs” the court adopted the “but for” test proffered by CBP; that is, such operations were an integral part of the dutiable repair process and would not have been necessary “but for” the need to conduct dutiable repairs.

On appeal, the Court of Appeals for the Federal Circuit (CAFC) issued a watershed decision which not only affirmed the opinion of the CIT regarding the specific expenses at issue, but also provided clear guidance with respect to the interpretation of 19 U.S.C. §1466, and thus the CBP administration of that statute. In upholding the “but for” test adopted by the CIT the CAFC stated:

...the language ‘expenses of repairs’ is broad and unqualified. As such, we interpret ‘expenses of repairs’ as covering all expenses (not specifically excepted in the statute) which, but for dutiable repair work, would not have been incurred. Conversely, ‘expenses of repairs’ does not cover expenses that would have been incurred even without the occurrence of dutiable repair work. As will be more clearly illustrated below...the ‘but for’ interpretation accords with what is commonly understood to be an expense of repair. 44 F.3d 1539, 1544.

The Assistant Commissioner, Office of Regulations and Rulings, issued a second memorandum to the Regional Director, Commercial Operations Division, New Orleans (HQ 113350), dated March 3, 1995. This memorandum was published in the CBP Bulletin on April 5, 1995 (See Customs Bulletin and Decisions, vol. 29, no. 14, at p. 24). It provided that all vessel repair entries filed with CBP on or after the date of that decision were to be liquidated in accordance with the full weight and effect of the court decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the “but for” test). Therefore, expenses that are associated with repair charges are dutiable in accordance with the “but for” approach used in Texaco. Without a showing that the charges in question are incident to a non-repair item, they are dutiable under the vessel repair statute.

Protestant’s argument regarding the necessity of revoking previous CBP Headquarters rulings based on the court’s recognition of the “but for” test in Texaco has been litigated, and was rejected by the CAFC in Sea-Land, Inc. and American President Lines, Ltd. v. United States, 239 F.3d 1366 (CAFC 2001), cert. denied, 533 U.S. 931(2001). The court in that case stated, in pertinent part, as follows:

It was this court in Texaco that modified the treatment of vessel repair expenses under §1466(a). We “clarified” the judicial interpretation of 19 U.S.C. §1466(a) in Texaco, explaining that, based on the plain language of the statute, ‘expenses of repairs’ in §1466(a) meant those expenses that would not have been incurred “but for” the ship’s repair. Texaco, 44 F.3d at 1546. With this explicit interpretation of §1466(a), Texaco wiped the slate of decisions under §1466(a) clean, requiring the dutiability of all vessel repair expenses to be determined by the “but for” test. Customs is required to follow and apply the “but for” test.

Id. at 1372-73.

Hence, Protestant’s argument that CBP must revoke previous Headquarters rulings pursuant to 19 U.S.C. §1625(c) that are in contradiction to the “but for” test before applying the “but for” test in the assessment of duty on foreign vessel repair expenses is incorrect, and as noted above, has already been addressed and rejected by the CAFC.

In regard to the costs at issue, it appears from the vessel repair entry and invoices under consideration that the general services/dry-docking costs were incurred in conjunction with both dutiable and nondutiable work. These charges are therefore to be prorated pursuant to our position set forth in HQ 113474, dated October 24, 1995; and HQ memorandum 113350, dated March 3, 1995. Regarding this CBP position, the CAFC in SL Service, Inc. v. United States, 357 F.3d 1858 (Fed. Cir. February 4, 2004), cert. denied, __U.S. __ (2004) recently upheld CBP’s proration of “dual-purpose expenses.”

The CAFC in SL Service reversed the CIT (244 F. Supp. 2d 1359 (2002)) by holding that dry-docking that is attributable to both dutiable and non-dutiable work is an “expense of repair,” and therefore CBP’s use of apportionment is permissible. The court stated the Texaco “but for” test which was for single-purpose expenses is inapplicable in cases, such as those in SL Service, and in the present case, where dry-docking and associated costs and services were incurred because of both dutiable and non-dutiable expenses.

The CAFC stated in regard to Texaco,

Texaco did not hold that dry-docking is always non-dutiable when required by inspections and modifications. In fact, there is no basis upon which to contend that it even considered dual-purpose expenses. Dry-docking that is required by dutiable repairs is, therefore, rightly considered an “expense of repairs” and is subject to 19 U.S.C. §1466(a).


Regarding the use of apportionment, the court stated that as it had been used by CBP for some time, it was entitled to deference, and this “long-standing practice of apportioning the cost of various expenses between dutiable repair and non-dutiable inspections and modifications comports with both the statute and common sense.” Id. The CAFC stated specifically,

[A]pportionment 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.


Several of the costs at issue, such as transportation costs, meals, and lodging expenses, have previously been held dutiable when no evidence has been submitted rebutting that these costs were incurred as part of dutiable repairs. Without the submission of evidence proving that the charges in question were incident to a non-dutiable item, they are subject to duties under the vessel repair statute. See, HQ 115804, dated November 11, 2002; HQ 115792, dated November 6, 2002; HQ 115568, dated February 19, 2002 (affirming HQ 115222, dated February 26, 2001); HQ 115415, dated September 27, 2001; HQ 115231, dated February 20, 2001; HQ 115135, dated November 8, 2000; HQ 115100, dated October 26, 2000; and HQ 113977, dated November 12, 1997. Furthermore, those costs incurred pursuant to dutiable and non-dutiable work are “dual-purpose expenses” and therefore are subject to proration pursuant to the CAFC holding in SL Service, Inc., supra

With respect to the other general service costs incurred, such as postage expenses and dock costs, in HQ 114686, dated September 7, 1999, we stated that costs such as port charges (e.g., wharfage, pilotage, towage, etc.), cargo expenses (e.g., forwarding, overload, stevedoring, etc.), owner’s expenses (e.g., car rental, repair copy machine, hotel tickets, etc.), and miscellaneous expenses (e.g., postage, faxes, copying, etc.) are general services, and except for the repatriation expenses and the cost of the bus for the repatriation of the crew (both of which are listed under the owner’s expenses and are nondutiable) the evidence submitted is insufficient to support the claim that such costs were attributed solely to nondutiable work. Hence, in this protest, since the subject entry contains both dutiable and nondutiable costs, the general services at issue (with the exception of the aforementioned repatriation costs) are to be prorated pursuant to the CAFC holding in SL Service, Inc., supra.

With respect to the costs of rigging, staging, and standby time, in HQ 227095, dated April 10, 1997 we stated that such costs are dutiable when they can be attributed to dutiable work. If these costs are attributable to both dutiable and nondutiable work, they too should be prorated pursuant to the CAFC holding in SL Service, Inc., supra. Also in HQ 113585, dated June 6, 1995 costs such as air, electricity, crane services, and equipment rental, are all subject to the Texaco “but for” test, and if incurred due to dutiable work, or if no evidence is submitted that these costs were due to nondutiable work, they too are dutiable. Additionally, they are subject to proration pursuant to the CAFC holding in SL Service, Inc., supra.


The assessment of duty on the foreign expenditures for which the Protestant seeks relief is not in contravention of 19 U.S.C. §1625(c). The “but for” test set out by the CAFC in Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (1994) is applicable to the expenses listed in this vessel repair entry. The “dual-use expenses” listed in the vessel repair entry are to be prorated in accordance with CBP policy pursuant to the decision of the CAFC in SL Service, Inc. v. United States, 357 F.3d 1858 (Fed. Cir. February 4, 2004), cert. denied, __U.S. __ (2004).

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.

The protest should be denied.


Glen E. Vereb

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