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HQ 116418

May 10, 2005

VES-13-18-RR:IT:EC 116418 CK


Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street, Room 303
New Orleans, Louisiana 70130

RE: Protest No. 2002-04-100800; Vessel Repair Entry No. C20-0055042-9; GREEN ISLAND: V-32; 19 U.S.C. § 1466; Towing

Dear Sir:

This is in response to your memorandum dated February 22, 2005 which forwarded for our review the above-referenced vessel repair protest. Our ruling on this matter is set forth below.


The GREEN ISLAND completed voyage number 32 when it arrived at the Port of New Orleans, Louisiana on October 17, 1999. A timely vessel repair entry and an application for relief from duties were filed. The application for relief was denied in part and granted in part. Waterman Steamship Corp. (“Waterman”) filed a timely petition for a review of the decision and the petition was denied by HQ 116094, dated January 28, 2004. The entry was liquidated and a timely protest was filed.

The only item at issue is the Camden Oil Services (U.K.) Limited invoice for towage of the vessel from Balboa, Panama to Ulsan, Korea.

In the original application for relief Waterman sought relief for the towing and other “general services.” It was claimed that the vessel was under distress and ordered by the U.S. Coast Guard (USCG) to enlist towing services to Panama. However, subsequently in its petition, Waterman stated it was not the USCG, which gave it permission to proceed, but rather was the American Bureau of Shipping (ABS). Nevertheless, the application for relief did not mention any events that would have placed the vessel in a state of distress. Thus, the Vessel Repair Unit (“VRU”) found that as the vessel was not put into dry-dock for required inspections and because there was not a casualty event, the general charges, including the charge for towing services, were fully dutiable.

In the aforementioned petition for review (HQ 116094) a claim of a casualty-related event was made. Waterman claimed that on the previous voyage heavy weather caused damage that was minimally repaired so as to allow the vessel to return to the United States. The vessel then departed the United States for Korea for a scheduled dry-docking. Upon arrival in Panama it was determined that a tow was needed to escort the vessel to Korea. CBP in HQ 116094 followed long-held precedent that a casualty-related event may not be deferred to another voyage to make a casualty remission claim, thus the petition was denied and the towing held fully dutiable.

In the subject protest, no further evidence of a casualty has been submitted. Instead, protestant argues that towing is not “a repair or expense of repair” under 19 U.S.C.§1466(a) that should be prorated.


Are the towing charges subject to proration.


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 SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), reh. denied, reh. en banc denied, 2004 U.S. App. Lexis 10322 (Fed. Cir. April 12, 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 bean 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 regard to the costs at issue, it appears from the vessel repair entry and invoices under consideration that the towing fees were incurred in conjunction with both dutiable and nondutiable work performed while it was in its scheduled dry-docking.

Protestant had argued that CBP has already held that towing is not a dutiable expense under 19 U.S.C. 1466 in C.S.D. 89-61, dated January 26, 1989. While that position was true in 1989, the “but for” test in Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994) changed the criteria for determining dutiability, and the CAFC stated it was unnecessary to revoke previous CBP Headquarters rulings based on the court’s recognition of the “but for” test in Texaco. See, 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, CBP is not required to 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. The protestant’s argument is therefore incorrect, and as noted above, has already been addressed and rejected by the CAFC. Thus, the towing fees at issue, which were incurred in order to facilitate the performance of both dutiable and non-dutiable work, should be prorated.


The towing fees should be prorated between the dutiable and non-dutiable work performed during the scheduled dry-docking.

According, the protest is granted in part and denied in part.

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.


Glen E. Vereb

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