CON-9-09 RR:CR:DR 231016 RDC
Mr. Steven F. Gentry
Director, Regulatory Taxes
R.J. Reynolds Tobacco Company
P.O. Box 2959
Winston-Salem, N.C. 27102
RE: Temporary importation under bond; subheading 9813.00.30, HTSUS; cigarettes; Subchapter XIII, Chapter 98; subheading 9813.00.05, HTSUS; testing, experimental or review purposes; repaired, altered or processed.
Dear Mr. Gentry:
This is in response to your letter of 1/20/2005, which requests a ruling per Part 177 of the CBP regulations that cigarettes imported for product development and competitive monitoring as described, are eligible for temporary duty-free entry under 9813.00.30, Harmonized Tariff System of the United States (HTSUS). It is assumed for purposes of this decision that the requirements of 19 U.S.C. § 1681a will be met.
FACTS:
In your letter, you state that R.J. Reynolds Tobacco Company (Reynolds), wants to import cigarettes into the United States for “product development and analytical testing purposes only.” Some of the imported cigarettes will be of foreign origin and others will have been made in the U.S. and exported. Specifically, the imported cigarettes will be used for “product development” and “competitive monitoring.”
After importation, some of the cigarettes used for product development will be “banded with comparable new cigarette products . . .” and then the banded cigarettes will be “masked to hide distinguishing brand markings.” This is done to prevent bias when consumers provide feedback on the two products. After the banding, masking and packaging, these cigarettes will be exported to the overseas market for which the newly developed products are intended. In addition, some of the cigarettes imported for product development will “be used in various analytical testing using mechanical devices.” Excess cigarettes that were intended to be used for product development but found unnecessary “will be broken, ground into refuse and discarded.”
In addition to product development, some of the imported cigarettes will be used for competitive monitoring. These cigarettes will be consumed during analytical testing using mechanical devices.” The residual cigarette butts and filters will be bagged and discarded. Cigarettes intended for competitive monitoring but not needed for such testing will be will be broken, soaked with water, bagged and discarded. The cigarettes imported for competitive monitoring “will not be smoked by humans or resold in the U.S.”
ISSUE:
May the cigarettes be entered temporarily duty-free under subheading 9813.00.30, HTSUS, as articles intended solely for testing, experimental or review purposes?
LAW AND ANALYSIS:
General Note 1, HTSUS, dictates that all merchandise imported into the United States is subject to duty unless specifically exempted from duty. Pursuant to U.S. Note 1(a) to Subchapter XIII of Chapter 98, HTSUS, articles described in Chapter 98, which includes subheading 9813.00.30, HTSUS, may enter the U.S. temporarily free of duty, under bond (see 19 C.F.R. § 10.31), for exportation (see 19 C.F.R. § 10.38) within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years (see 19 C.F.R. § 10.37.) The imported merchandise may not be imported for the purpose of a sale or sale on approval.
Subheading 9813.00.30, HTSUS, provides for temporary duty-free entry, under bond of “articles intended solely for testing, experimental or review purposes . . . .” U.S. Note 3, Subchapter XIII, Chapter 98, HTSUS provides: “Upon satisfactory proof that any article admitted under heading 9813.00.30 has been destroyed because of its use for any purpose provided therein, the obligation under the bond to export such article shall be treated as satisfied.” (See 19 C.F.R. § 10.39.) Thus, articles may be entered under bond duty-free under subheading 9813.00.30, HTSUS, when such articles are intended solely for testing, experimental, or review purposes, not for sale or for sale on approval, if exported or destroyed within one year from the date of importation, unless an extension of the one-year period has been granted.
Some of the cigarettes imported for product development will “be used in various analytical testing using mechanical devices.” We assume, like those cigarettes used for competitive monitoring, these cigarettes will be consumed during the testing by the mechanical devices. Surplus cigarettes, which were intended to be subject to this analytical testing but not actually tested, “will be broken, ground into refuse and discarded.” With respect to the cigarettes imported for competitive monitoring, these cigarettes will be consumed during the testing. The residual cigarette butts and filters will be discarded; we assume the same will be done with the cigarettes consumed during product development testing. Excess cigarettes intended for competitive monitoring but not used for this purpose, will be broken, soaked with water, bagged and discarded.
In HRL 229912 (5/28/2003), we considered whether imported cigarettes that were consumed during toxicity studies using mechanical smoking machines were eligible for entry under subheading 9813.00.30, HTSUS. In that case, the cigarette butts and filters leftover from the testing using mechanical smoking machines were to be “dumped into plastic bags for disposal,” and excess test cigarettes were to be “broken and soaked in water, bagged, and discarded.” HRL 229912 held that the described test cigarettes were eligible for temporary duty-free entry under subheading 9813.00.30, HTSUS. Likewise, the imported cigarettes used by Reynolds for competitive monitoring which are subject to analytical testing, as well as the cigarettes imported for product development and used in “various analytical testing using mechanical devices,” qualify for temporary duty-free entry under subheading 9813.00.30, HTSUS.
However, the imported cigarettes used for product development that are “banded” with other cigarettes, “masked to hide distinguishing brand markings,” then exported, cannot be entered under subheading 9813.00.30, HTSUS, because these imported cigarettes are not tested in the U.S. Subheading 9813.00.30, HTSUS, requires that the article be intended “solely for testing, experimental or review purposes.” A key factor of entry under subheading 9813.00.30, HTSUS, is whether there is a legitimate test, experiment or review of the imported article within the meaning of the law (C.S.D. 82-64, 83-45 and 84-59.) In C.S.D. 83-45 (HRL 214437, 1/11/1983), CBP stated that entry for testing, experimental or review purposes does not require “the performance of ritualized testing operations . . . but also extends to cover less rigorous procedures so long as they are designed to yield information about the imported articles which was not known prior to completion of the procedures.” (See HRL 228619, 9/12/2001).
The banding and masking prior to exportation of some of the product development cigarettes is not a testing, experiment or review within the meaning of subheading 9813.00.30, HTSUS, because the banding and masking are not “designed to yield information about the imported articles which was not known prior to completion of the procedure.” Consequently, these cigarettes are not entitled to temporary duty-free entry under subheading 9813.00.30, HTSUS. Instead, the imported cigarettes that are banded with other cigarettes and masked prior to exportation, may be entered duty-free temporarily under subheading 9813.00.05, HTSUS. Subheading 9813.00.05, HTSUS, permits articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States, to be entered duty-free temporarily subject to the same requirements of U.S. Note 1(a). That is, the articles must be entered under bond, exported or destroyed within one year, unless that period is extended, and the imported merchandise may not be imported for the purpose of a sale or sale on approval.
In Headquarters Ruling Letter (HRL) 224661 (1/11/1994), which pertained to subheading 9813.00.05, we stated that “[t]he processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” In HRL 228509, (4/9/2002) we held that the processing of steel, which involved only slitting and did not alter the characteristics of the imported steel, would constitute a process within the meaning of 9813.00.05, HTSUS. In HRL 229962, (8/1/2003) it was determined that the blending and grading of wheat was a process for subheading 9813.00.05, HTSUS, purposes. In other rulings we have held the following to be a processing for purposes of subheading 9813.00.05: the melting of a cocoa butter equivalent (HRL 223003, 10/15/1991); the cutting and sewing of airline seat covers (HRL 222106, 3/27/1990); embroidery (HRL 223640, 3/2/92). Accordingly, the banding with other cigarettes and masking of some of the product development cigarettes is a process within the meaning of 9813.00.05, HTSUS.
In HRL 221835, (8/27/1990) CBP addressed the entry of pecans under subheadings 9813.00.30 and 9813.00.05, HTSUS. Samples of the imported pecans were taken and sent to a laboratory area for testing. In the laboratory area the pecan shells were cracked and the meat extracted and tested. The testing consisted of weighing and grading the nutmeat as well as testing for moisture content. Visual inspections were conducted to detect unacceptable shape or size, damaged or infested pecans and pecans contaminated with mold or disease. CBP determined that the cracking of the pecan shells and removing the meat was a process within the meaning of subheading 9813.00.05, HTSUS, and thus, that the imported pecans were subject to both processing and testing. Based on C.S.D. 83-45, which determined that an article put to different uses in the U.S. is entitled to entry under more than one TIB provision on a single entry, HRL 221835 held that, since the pecans were to be both processed and tested, the entire importation of pecans was eligible for entry under both subheading 9813.00.05, and 9813.00.30, HTSUS.
With regard to internal revenue (IR), tax, “duty” is defined by the CBP regulations as “Customs duties and any internal revenue taxes which attach upon importation” (19 C.F.R. § 101.1). Pursuant to 26 U.S.C. § 5703(b)(2)(B)(i)-(iii), payment of IR tax on tobacco products that are imported into the United States is not due until the 14th day after the last day of the semi-monthly period during which the article is entered into the Customs territory of the United States, removed from a warehouse, or removed from a foreign trade zone. If none of the foregoing events occurs before the destruction or exportation of the cigarettes, IR taxes will not be assessed on the cigarettes.
HOLDING:
Assuming the requirements of 19 U.S.C. § 1681a are met, since the cigarettes are to be both processed and tested, the entire importation of cigarettes is eligible for temporary duty-free entry under both subheading 9813.00.05, and 9813.00.30, HTSUS.
Sincerely,
William G. Rosoff, Chief
Entry Process and Duty Refund