Protest No. 1601-03-100187; Vessel Repair Entry No. C16-0012180-5; M/V MAERSK CALIFORNIA; V-99-11; Proration; General Services;19 U.S.C. § 1466

HQ 116218 January 4, 2005 VES-13-18-RR:IT:EC 116218 IDL CATEGORY: Carriers Chief, Vessel Repair Unit U.S. Customs and Border Protection 423 Canal Street New Orleans, LA 70130 Re: Protest No. 1601-03-100187; Vessel Repair Entry No. C16-0012180-5; M/V MAERSK CALIFORNIA; V-99-11; Proration; General Services; 19 U.S.C. § 1466 Dear Sir: This is in response to your memorandum dated April 20, 2004, forwarding for our review the above-referenced protest of vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Our ruling on this matter is set forth below. FACTS: The M/V MAERSK CALIFORNIA is a U.S.-flag vessel operated by Maersk Line, Ltd. (“Maersk”) of Norfolk, VA. During the voyage in question, this vessel incurred foreign shipyard costs. On June 9, 1999, subsequent to the completion of the work in question, the vessel arrived at Charleston, South Carolina. A vessel repair entry, No. C16-0012180-5, was timely filed. On October 12, 1999, U.S. Customs and Border Protection (CBP) received an application for relief of duties. On April 14, 2003, the application for relief of duties was denied due to untimely submission. On May 16, 2003, the entry was liquidated. On May 28, 2003, a protest was timely filed. Maersk is protesting assessment of duties on various expenses for which your office seeks our review. ISSUE: Whether the vessel repair costs incurred by the protestant for which our review is sought are dutiable under 19 U.S.C. § 1466? LAW AND ANALYSIS: We note that the protest was timely filed under the statutory and regulatory provisions for protests, 19 U.S.C. 1514(c)(3)(A) and 19 CFR 174.12(e)(1). 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...". The drydocking and general services items have been appropriately prorated. The record does not corroborate the protestant’s claim that these costs were related solely to a non-dutiable survey. In SL Service, Inc. v. United States, 357 F.3d 1358, 1362, 1363 (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 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. Accordingly, the drydocking and general services costs in question remain dutiable on a prorata basis. Specifically, Invoice No. 1, Items 1 through 6, and Invoice No. 13, Items 1 through 17.02, 19.01 through 22.02, 23.1 through 23.3, and 33.1 and 33.2 are to be prorated between dutiable and nondutiable costs. The protestant has offered nothing to compel a change of our position in this matter. Invoice 13, Item 31 covers sea suction filters, which involve a maintenance cleaning operation. Such cleaning operations that remove rust and deterioration, or worn parts, and that are a necessary factor in effective restoration of a vessel to its former state of preservation, constitute vessel repairs that are subject to duty. HQ 112124 (March 14, 1995). Accordingly, this expense remains dutiable. Invoice No. 13, Item 46 covers the painting of plimsoll marks on the hull of the ship. The protestant asserts that painting of the marks “was necessary because the ship was reflagged from Danish-flag to U.S.-flag. The existing plimsoll marks referred to the Danish registry and Danish vessel certification agencies. The change to the new letters was because of a change to U.S. certification agencies. There was no deterioration or other repair items involved in this change”. Pursuant to C.D. 1430 (41 C.C.P.A. 57, C.A.D. 529), painting that is ornamental in nature and in no sense performed for the preservation of the vessel cannot be considered dutiable maintenance painting. The record indicates that the painting at issue was in the nature of the former, not the latter, and is therefore non-dutiable. Invoice 13, Item 50 covers car rental expenses, which are attributed to both dutiable and non-dutiable work. This cost is therefore prorated. Invoice 14, Item 1 lists a cleaning operation, and is not specific in details regarding the operation. Absent evidence to the contrary, invoices that are non-descriptive are held fully dutiable. Invoice 15, Item 1, and Invoice 16, Items 1 and 2 contain cleaning expenses that are attributed to both dutiable and non-dutiable work. These costs should therefore be prorated. HOLDING: Accordingly, the protest should be DENIED IN PART and GRANTED IN PART, consistent with the analysis above. 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. Sincerely, Glen E. Vereb Chief Entry Procedures and Carriers Branch