DRA-2-02 RR:CR:DR
229245 RDC
Port Director
U.S. Customs Service
Los Angeles-Long Beach Seaport
301 East Ocean Blvd.
Long Beach, California, 90802
Att: Richard M. Andrejko
RE: Ampac Trading – Protest number 2704-01-101115; Application for Further Review of Protest No. 2704-01-101115; 19 USC § 1514; subheading 9801.00.80; cigarettes; federal excise tax; internal revenue tax; drawback; 19 USC § 1313(j); 26 USC § 5701.
Dear Mr. Andrejko:
The above-referenced Protest was forwarded to this office for further review. We have considered the points raised by your office and the Protestant. Our decision follows.
FACTS:
The Protestant, PTI, Inc., doing business as Ampac Trading Company (“Ampac”), is the importer of record and drawback claimant for two entries of U.S. origin cigarettes. The following entry information is according to the two CF 7501s included with the protest. The cigarettes were entered under 9801.00.80, HTSUS. Entry 565-xxxxx59-8, importing 200 cases, was entered on November 5, 1999, and liquidated on September 15, 2000. A total of $24,837.90 was collected on this entry. Entry 565-xxxxx22-0, importing 280 cases, was entered on December 1, 1999, and liquidated on October 13, 2000. A total of $34,773.06 was collected on this entry. Customs Automated Computer System verifies that the entries were liquidated as entered for these amounts. During a telephone conversation with an employee of Ampac’s broker, Howard Hartry, Inc. the employee stated that drawback had been allowed on the cigarettes when they were exported.
A completed CF 7553 evidences that on November 16, 2000, Customs witnessed the destruction of 285 cases of the imported cigarettes: all 280 cases of the cigarettes imported with entry 565-xxxxx22-0 and 5 cases of the cigarettes imported with entry 565-xxxxx59-8. Ampac filed drawback claim 565-xxxx746-0 per 19 USC 1313(j)(1), direct identification unused merchandise drawback, on January 10, 2001. The imported duty paid, designated merchandise for this claim was the 285 cases of cigarettes entered with the above described entries and destroyed under Customs supervision. Ampac claimed drawback in the amount of $35,040.07: $34,425.33 for the 280 cases and $614.74 for the five cases. These dollar amounts represent 99 percent of the totals paid for each entry as stated above.
The dispute arises from the characterization of the amounts collected. According to the port’s statement on the CF 6445A: for import entry 565-xxxxx22-0 Ampac paid $33,600 in federal excise tax (internal revenue tax) and $1,173.06 in duty - a total of $34,773.06. For import entry 565-xxxxx59-8 Ampac paid $24,000 in federal excise tax and $837.90 in duty - a total of $24,837.90. However, the total amounts paid by the Protestant as shown on the CF 7501s and according to Customs’ Automated Computer System (ACS) are duty. Ampac contends that both sums deposited are duty. The Protestant further states, “the classification (9801.00.8000) required for the consumption entries does not allow payment of IR tax. It only allows payment of duty.”
Subsequent to the filing of the Protestant’s drawback claim 565-xxxx746-0, the port informed Ampac that there was no authority for Customs to pay drawback on internal revenue tax collected by Customs and thus the drawback claim was going to be denied. Ampac then, by letter dated January 24, 2001, abandoned its drawback claim so that the original paperwork could be returned and a claim filed with the Bureau of Alcohol, Tobacco and Firearms. Thereafter, the drawback claim was liquidated for zero dollars on February 9, 2001.
By letter to Customs dated March 7, 2001, the Protestant’s broker stated that no internal revenue tax had been paid with the designated consumption entries and requested that the drawback claim be processed as filed. In its Protest Ampac also states,
upon discussion with the ATF and examination of the original consumption entries [ ] we found that there was no IR tax paid with these entries and thus the ATF would not have received any IR tax for these entries.
On May 1, 2001, Ampac filed the instant protest stating, “protest is hereby made against the denial and abandonment of [ ] drawback entry [565-xxxx746-0].”
ISSUE:
Is the Protestant entitled to drawback per 19 USC § 1313(j) on the amounts deposited for the two consumption entries at issue?
LAW AND ANALYSIS:
Initially we note that this protest was timely filed pursuant to 19 USC § 1514(c)(3), i.e. within 90 days of the decision protested. The drawback claim was liquidated on February 9, 2001, and the protest was filed on May 1, 2001. In addition, the denial of a claim for drawback is a protestable matter pursuant to 19 USC § 1514(a)(6). It is the opinion of your office that the Protestant’s Request for Further Review meets the requirements of 19 C.F.R. §174.24 and is therefore entitled to review by this office. We agree notwithstanding that the Protestant makes no argument to support its position that the protest is entitled to further review as required by Customs Regulations.
Section 313(j) of the Tariff Act of 1930, as amended (19 USC § 1313(j)(1)), unused merchandise drawback
If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law because of its importation - (A) is, before the close of the 3-year period beginning on the date of importation - (i) exported, or (ii) destroyed under customs supervision; and (B) is not used within the United States before such exportation or destruction; then upon such exportation or destruction 99 percent of the amount of each duty, tax, or fee so paid shall be refunded as drawback. The exporter (or destroyer) has the right to claim drawback under this paragraph, but may endorse such right to the importer or any intermediate party.
Thus § 1313(j)(1) provides for a refund of 99 percent of the amount of each duty, tax or fee imposed under federal law because of importation of merchandise which is not used within the U.S. and exported or destroyed under Customs supervision, within three years from the date of importation. The language of § 1313(j)(1) notwithstanding, Customs has determined that drawback of the tax imposed on cigarettes under 26 USC § 5701 is provided by 26 USC § 5706 and not by 19 USC § 1313 based on HRL 227347 (April 18, 1997)). HRL 227347 stated,
drawback under 19 USC 1313 does not apply [to tax imposed per 26 USC § 5701] since the exclusive provisions for both importation taxes on tobacco products and drawback were established by Congress in 26 USC §§ 5701-5706.
The port denied the Protestant’s drawback claim because it concluded that the major portion of the amounts collected was a federal excise tax and as such not subject to drawback per 19 USC § 1313(j). The Protestant contends that the total amounts paid on disputed entries are duty per the language of subheading 9801.00.8000, HTSUS, and as duty these amounts are subject to drawback per 19 USC § 1313(j).
The “General” sub-column of subheading 9801.00.8000, HTSUS, “Other” provides for:
A duty (in lieu of any other duty or tax) equal to the sum of any duty and internal-revenue tax imposed upon the importation of like articles not previously exported, but in no case in excess of the sum of (a) any customs drawback proved to have been allowed upon such exportation of the article, and (b) any internal-revenue tax imposed, at the time such article is entered, upon the importation of like articles not previously exported[.]
Thus this subheading provides for a duty in place of any other duty or tax. The amount of duty required under 9801.00.8000, HTSUS, is to be calculated with reference to the duty required on non-U.S. goods imported into the U.S. plus a duty amount equal to the federal excise tax required, (if any is required) and this sum cannot be more than the drawback paid when the articles were originally exported plus any tax required upon the importation of the merchandise.
In determining the amount of duty under this subheading, it is noted that the term like articles refers to foreign articles not previously exported. Foreign cigarettes of the kind at issue here and not previously exported would be classified under 2402.20.80, HTSUS, (1999) with a duty rate of $1.26/kg plus 2.8 percent of the value. Imports under this provision are also subject to a federal excise tax per 26 USC § 5701. 26 USC § 5701 (1999) imposes a tax on cigarettes, such as those at issue here which are imported into the United States of $12 per thousand.
Therefore, the duty on the entries at issue would have been calculated at $1.26/kg plus 2.8 percent of the value plus an amount equal to the excises tax: $12 per thousand. But, the sum of these two totals would have been more than the sum of drawback allowed and the excise tax imposed on the cigarettes when originally exported in 1999. This amount would have been impermissible per 9801.00.8000, HTSUS. Thus, the amounts collected were equal to the federal excise tax imposed and the amount of drawback allowed when the cigarettes were previously exported.
From the plain language of subheading 9801.00.8000, HTSUS, which states that it provides for a duty instead of any other duty or tax and the entry documents and ACS which characterize the amounts collected for the entries as duty, it seems clear that the amounts are duty. The amount collected was measured by 26 USC § 5701 but is not characterized as a federal excise tax. We agree with the Protestant that the $33,600 and $24,000 paid on the entries respectively was duty and as such subject to drawback per 19 USC 1313(j)(1).
HOLDING:
Amounts collected upon the importation of tobacco products under subheading 9801.00.8000, HTSUS, are duty and subject to drawback under 19 USC § 1313(j). The protest should be GRANTED IN FULL.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.treas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division