Page 22: of Maritime Reporter Magazine (November 2001)

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Fax: 281/470 - 6380 22 Circle 313 on Reader Service Card or visit www.maritimereporterinfo.com total cost of non-dutiable inspections and modifications, and then multiplied the resulting percentage by the total dry-dock- ing expenses.

Contrary to American Ship Manage- ment's contention, the court held that an apportionment of dry-docking expenses is not per-se illegal, so long as the dutiable dry-docking expenses undertaken solely for the purpose of repair and the non- dutiable dry-docking expenses undertaken for a purpose either unrelated to repair or for a mixed purpose are clearly identified.

However, the court condemned the partic- ular apportionment used by Customs as arbitrary and in violation of Texaco.

The court noted that the Texaco decision specified that "[tjhe mere drawing up of a vessel on a dry dock is not a part of her repairs, but is rather a method of making an inspection of her to determine whether any repairs are necessary." Again citing

Texaco, the court stated that "the cost of tugs is an inevitable expense of a manda- tory inspection and, thus, is not dutiable."

The court added that all maintenance charges in connection with the dry-dock- ing during the period of mandatory inspection and/or modifications are non- dutiable under Texaco, notwithstanding whether or not any repair was performed during the same period. The court stressed the importance of the timing of dutiable repairs relative to the completion of non-dutiable inspections and/or modifi- cations, holding that "only the mainte- nance expense of dry-docking for the peri- od of time in excess of that necessary for a mandatory inspection and/or modifica- tions are dutiable under the Texaco test."

Judging from the Customs Service's past treatment of challenges to its interpreta- tion and application of the Texaco case, a settlement in American Ship Management is unlikely. If the CIT's holdings are upheld, Customs may be forced to move from a percentage-based apportionment to a simple examination of timing in assess- ing duties related to dry-docking.

As a result, dry-docking expenses would not be dutiable where dry-docking is per- formed to carry out duty-free inspections and/or modifications, even if dutiable repairs are performed simultaneously. If, however, dutiable repairs are conducted after the time necessary for duty-free inspections and/or modifications has expired, then the cost of continuing the dry-docking from that point forward would be dutiable.

Thomas Cheplo is an attorney at Dyer

Ellis c£ Joseph, P.C., a Washington, D.C. based law firm with a domestic and inter- national practice involving transporta- tion, shipping, finance, corporate, securi- ties, legislative, environmental, and trade matters.

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