> HQ 115969
>
> December 20, 2005

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

CATEGORY: Carriers

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.

**FACTS:**

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]{.underline}, 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]{.underline} "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.

**ISSUE:**

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).

**LAW AND ANALYSIS:**

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), provides
in pertinent part for the payment of an [ad valorem]{.underline} 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]{.underline}, 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]{.underline}
[Customs Bulletin and Decisions]{.underline}, 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]{.underline}.
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]{.underline} has been litigated, and was rejected by the
CAFC in [Sea-Land, Inc. and American President Lines, Ltd. v. United
States]{.underline}, 239 F.3d 1366 (CAFC 2001), [cert.
denied]{.underline}, 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.]{.underline} 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]{.underline}, 357 F.3d 1858
(Fed. Cir. February 4, 2004), [cert. denied,]{.underline} \_\_U.S. \_\_
(2004) recently upheld CBP's proration of "dual-purpose expenses."

The CAFC in [SL Service]{.underline} 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]{.underline} "but for" test which was for single-purpose
expenses is inapplicable in cases, such as those in [SL
Service]{.underline}, 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,]{.underline}

> [Texaco]{.underline} 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).

[Id.]{.underline}

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.]{.underline} 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.

[Id.]{.underline}

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]{.underline}*,*
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.]{.underline},
[supra]{.underline}

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.]{.underline}, [supra]{.underline}.

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.]{.underline},
[supra]{.underline}. Also in HQ 113585, dated June 6, 1995 costs such as
air, electricity, crane services, and equipment rental, are all subject
to the [Texaco]{.underline} "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.]{.underline}, [supra]{.underline}.

**HOLDING:**

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,]{.underline} 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,]{.underline} 357 F.3d 1858 (Fed. Cir. February 4, 2004),
[cert. denied,]{.underline} \_\_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.

Sincerely,

Glen E. Vereb

Chief

Entry Procedures and Carriers Branch