CAFC Rules that CBP Must Refund Duty as Vessel Guides Were Modified, Not Repaired
On December 6, 2010, the Court of Appeals of the Federal Circuit affirmed the Court of International Trade’s determination that the government owed Horizon Lines, LLC a refund for duties imposed on certain work performed on the ocean carrier Hawaii while the ship was overseas.
CBP Imposed Duties on Ship’s Guides Which were Replaced Overseas
Horizon operates the Hawaii, a cargo ship that transports shipping containers. In 2002, while at a shipyard in Portugal, Horizon had the Hawaii’s entry guides for cells 5, 6, 7, together with top portions of the integrally connected cell guides, replaced with modified guides. The modified guides incorporated new design features that made it easier for a crane operator to lower containers into the guides. When the Hawaii returned to the U.S., U.S. Customs and Border Protection imposed duties on the modified guides under 19 USC 1466(a), which requires CBP to assess duties on the expenses of repairs made in a foreign country. Horizon filed a protest, which CBP denied, and paid the assessed duties.
Horizon Claims Work is Non-Dutiable Modification, Not Repairs from Damage
Horizon filed a complaint with CIT, alleging that the modified guides constituted a non-dutiable modification, rather than a dutiable repair made in a foreign country. Horizon asserts that it installed the new guides to reduce the potential for future damage and to improve the speed and efficiency of container loading, not to repair old damage. Horizon further asserts that prior to the modification, the old cell entry guides were in full proper working order in that they were able to accept cargo and were actually being used for that purpose.
Government Argues that “Repairs” Should Include Work to Fix a Systemic Problem
The Government asserted that the CIT erred by interpreting “repairs” to include work that puts something that has sustained damage back into working condition, but to exclude work that addresses a systemic problematic feature. The government argued that the term “repairs” should be broadly construed.
CIT Ruled Work Was Modifications, CBP Incorrectly Assessed Duties
The CAFC agreed with the CIT, stating that the term “repairs” describes putting something that has sustained damage back into working condition, whereas the term “modifications” describes work addressing a systematic problematic feature.
The CAFC stated that nothing in the law indicates that the term “repairs” has a special meaning apart from its plain and ordinary meaning, and cited 1929 case law for its definition. CAFC concluded that CBP incorrectly assessed duties for the new guides and owed Horizon a refund of $104,560.
Court Notes that CIT Erred in Ignoring Prior Condition of Replaced Parts
CAFC also noted that the CIT’s determination was partially in error because it held the prior condition of replaced parts irrelevant to the determination of whether work constitutes a non-dutiable modification or a dutiable repair. However, because the cell entry guides were in full proper working order when they were replaced with the substantially upgraded guides, the facts of this case support the CIT’s conclusion that the replacement of the cell guides constituted a non-dutiable modification, and this error was harmless.
(DN 1138, issued 12/06/10)
CIT Slip Op. 09-111 (dated 11/07/2009), available here.