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HQ 116509

April 4, 2006

VES-13-18-RR:BSTC:CCI 116509 IDL


Chief, Vessel Repair Unit
U.S. Customs and Border Protection
P.O. Box 1389
Kenner, LA 70063

RE: 19 U.S.C. § 1466; Vessel Repair Entry 906-0077002-9; Protest No. 2002-05-100578; ITB GROTON

Dear Sir:

This is in response to your memorandum of July 5, 2005, forwarding for our review the protest filed on behalf of Amerada Hess Corporation, whose bond was posted to secure the subject Vessel Repair Entry 906-0077002-9. Our ruling on this matter is set forth below.


The ITB GROTON, a U.S.-flagged vessel, incurred foreign shipyard costs. On September 20, 2001, the vessel arrived in the port of Los Angeles, California. A vessel repair entry was timely filed. On September 9, 2002, this office granted an Application for Relief on various items submitted (HQ 115717). On April 1, 2005, a determination of duty occurred. On June 8, 2005, the protestant filed Protest No. 2002-05-100578.


Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466?


Title 19, United States Code, section 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), 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.

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 section 1466:

Texaco urges 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.

Our determinations follow with respect to the items for which you have requested our review.

Exhibit 1, Item G2H (Slop Removal and Disposal), appears to be a drydock cost or general cost relating to both dutiable and non-dutiable items. Accordingly, this item should be prorated between dutiable and non-dutiable expenses. See SL Service.

The protestant claims that Exhibit 1, Item G7 (Firefighting System Disconnect/Connect) was required for American Bureau of Shipping (ABS)/U.S. Coast Guard (USCG) inspections, and should be non-dutiable. However, there is no evidence that the firefighting system was examined by ABS or USCG. This item is dutiable as equipment.

Exhibit 1, Item H1 (Haul Day and Launch; Lay Days, 19 Days; Special Blocking), involves expenses relating to both dutiable and non-dutiable events, and should be prorated between dutiable and non-dutiable costs. (See Texaco and SL Service).

The protestant seeks relief from duties on Exhibit 69 (Marine Spares Supply, Ltd.) under the provisions of 19 U.S.C. 1466(h)(2), as previously imported, duty-paid parts. Section 1466(h)(2) exempts the cost of certain spare repair parts from duty, but “only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States.” The protestant provided as evidence the invoice from the foreign-based manufacturer containing an order number. The protestant also provided an “owners items manifest,” referencing the order number from the invoice, and indicating that “Fed Ex” delivered three boxes from Marine Spares Supply on May 29, 2001. In addition, the protestant provided a certification from the vice president of the vessel operator that the parts listed in the invoice “were purchased in the United States or imported duty-paid into the United States.” However, because the three boxes listed on the manifest referencing the order number on the invoice may represent only a partial shipment of the order, it is possible that duties have only been paid on a partial shipment. Therefore, it is our position that the protestant has failed to provide documentation proving it paid proper duties on the items in question. Therefore, this item is dutiable.

Exhibit 111-116 (SINO-American) covered the costs to transport items from the United States to a foreign location. In HQ 113813 (October 15, 1998), we stated that U.S. prepaid freight/shipping costs for identified non-dutiable parts are non-dutiable. The protestant provided a bill of lading for Exhibit 111, which indicates the shipment of paint from Long Beach to China. Exhibit 111 is non-dutiable. The protestant provided no evidence to support what items were shipped on Exhibits 112 through 116. Exhibits 112 through 116 should be prorated between dutiable and non-dutiable costs. (See Texaco and SL Service; see also HQ 116418 (May 10, 2005), where we held that towing fees incurred to facilitate the performance of both dutiable and non-dutiable work should be prorated).

Exhibit 135 (Total International Shipping), covering Items C (Rental of Containers) and E (Lease of Compressor) should be prorated between dutiable and non-dutiable costs. (See Texaco and SL Service).

Finally, the protestant protests the methodology used by the Vessel Repair Unit in determining the proration percentage for certain drydocking costs in Exhibit 1, Items G2H, G2A, H1. The protestant contends, without basis, that proration should be “split50/50 for inspections and repairs.” We have held that proration is properly calculated based on the cumulative amounts of the expenses incurred. See HQ 116517 (August 8, 2005).


Accordingly, the costs for which the protestant seeks relief are dutiable or non-dutiable under 19 U.S.C. § 1466 consistent with the analysis above. The protest should be 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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