CIT Rules Lay-Up Expenses Associated with Foreign Repairs for US Flag Vessel are Dutiable
In Horizon Lines, LLC v. U.S., the Court of International Trade granted summary judgment to the government under 19 USC 1466 on duties assessed on expenses incurred in Indonesia related to subsequent repairs as well as the actual repair work performed in Singapore on a U.S.-flag vessel, Horizon Crusader.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The Crusader was scheduled for a required inspection by the American Bureau of Shipping by September 25, 2001. On its arrival in Hong Kong, it was determined that the inspection could not be completed by the deadline.
On September 7, 2001, the Crusader went into lay-up (taken out of service and certain work perform to both de-activate and protect the vessel's equipment), in a shipyard in Indonesia.
On November 29, 2001, the Crusader was towed to a dry-dock facility in Singapore and subsequently underwent the ABS inspection and necessary repair work.
On January 26, 2002, the Crusader arrived back in the U.S., making a report to U.S. Customs using CF 226 on the work performed both in Indonesia and Singapore for the ABS inspection and the repairs. Foreign repair costs are dutiable at a 50% duty rate.
After Customs liquidated the CF 226 repair entry and made the final determination of the duties owed, Horizon filed suit to obtain a refund of all excess duties paid for expenses not associated with the repair work.
In cases involving expenses solely for the purpose of repairs, the court has applied a "but for" test to determine whether a particular expense is dutiable. Thus, expenses incurred by repairs include all expenses, which but for dutiable repair work, would not have been incurred.
This standard, however, does not apply in cases involving so-called "dual purpose" expenses. The CIT stated that in this instance, it is the purpose for which the lay-up was made that would determine whether any costs may be considered expenses of repairs. The CIT determined that the lay-up in Indonesia occurred because of its proximity to Singapore where the repair work was done.
The CIT therefore ruled that expenses that occurred during the lay-up, that were not necessary solely to de-activate or protect the vessel, would be considered expenses associated with the repairs and would be dutiable on a pro-rated basis.
CIT Slip Op. 07-172 (dated 11/20/07) available at http://www.cit.uscourts.gov/slip_op/Slip_op07/07-172.pdf