Vessel Repair Entry No. C18-0026096-5; DIANA T; General Services/Drydocking Costs; Proration; 19 U.S.C. § 1466

HQ 115539 January 24, 2001 VES-13-18-RR:IT:EC 115539 GEV CATEGORY: Carriers Chief, Vessel Repair Unit U.S. Customs Service 423 Canal Street New Orleans, Louisiana 70130 RE: Vessel Repair Entry No. C18-0026096-5; DIANA T; General Services/Drydocking Costs; Proration; 19 U.S.C. § 1466 Dear Sir: This is in response to your memorandum dated November 26, 2001, which forwards for our consideration a petition for review of our decision on an application for relief from duties assessed pursuant to 19 U.S.C. § 1466. Our finding is set forth below. FACTS: The DIANA T is a U.S.-flag barge that incurred foreign shipyard costs in 1997. Subsequent to the completion of the work the vessel arrived in the United States at Tampa, Florida, on September 20, 1997. A vessel repair entry was timely filed as was an application for relief with supporting documentation. By letter dated August 7, 2001, your office rendered its decision on the application for relief, granting it in part and denying it in part. Your decision was premised in part on Headquarters ruling letter 115175, dated June 26, 2001, which addressed various modification claims and the cost of ballast tank mud removal. Your letter also informed the applicant of the right to file a petition for review of this decision. A petition for review was timely filed and forwarded to this office for our consideration. At issue is Customs assessment of duties (using a pro-rata basis method of apportionment) on certain costs for general services and drydocking which were incurred to accomplish - 2 - inspections required by the American Bureau of Shipping (ABS). The petitioner contends that such an assessment of duty in this case ignored the fact that the shipyard invoice had segregated the general services/drydocking costs related to the aforementioned inspections from those related to repair work. ISSUES: Whether the general services/drydocking costs for which the petitioner seeks relief are dutiable on a pro-rata basis. LAW AND ANALYSIS: Title 19, United States Code, § 1466(a), provides in part for payment of an ad valorem duty of 50 percent of the foreign 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 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 trade. With respect to general services/drydocking costs, in those instances where such costs are attributed to both dutiable and nondutiable work (i.e., a “mixed purpose” vessel repair expense), it is Customs position that they are to be prorated pursuant to Customs ruling letter 113474 and memorandum 113350 both of which addressed Customs implementation of the decision of the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994) In regard to the general services/drydocking costs at issue in this case, the shipyard invoice clearly reflects two groups of such costs: one allocated to scheduled ABS inspections; the other allocated to dutiable repairs. Aside from the decision of the CAFC in Texaco, supra, Customs has long-held that relief will not be granted in the absence of segregation of dutiable and nondutiable costs. (C.I.E.s 1325/58 and 565/55) Inasmuch as the shipyard invoice evidences such segregation, and substantiates the claim that the particular general services/drydocking costs in question were incurred solely in conjunction with nondutiable ABS inspections, in accordance with our long-standing position and the CAFC decision in Texaco, they are nondutiable. - 3 - HOLDING: The general services/drydocking costs for which the petitioner seeks relief are not dutiable and therefore should not be calculated on a pro-rata basis in the duty assessment of costs covered in this vessel repair entry. Accordingly, the petition is granted. Sincerely, Larry L. Burton Chief Entry Procedures and Carriers Branch