CLA-2 RR:CR:SM 562276 MLR
Terrie A. Gleason, Esq.
Baker & McKenzie
815 Connecticut Ave., N.W. Washington, DC 20006-4078
RE: Applicability of subheading 9801.00.80; drawback; cigarettes
Dear Ms. Gleason:
This is in reference to your letter dated October 30, 2001, and email dated February 22, 2002, requesting a ruling on behalf of Brown & Williamson Tobacco Corp. (hereinafter “B & W”), concerning the applicability of subheading 9801.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to returned cigarettes using an average drawback calculation.
FACTS:
It is stated that B & W manufactures cigarettes in the U.S. using certain imported, dutiable materials, such as tobacco, filter rods, menthol, film and paper. When the cigarettes are exported from the U.S., B & W will often claim duty drawback and obtain an exemption from the payment of internal-revenue taxes. Occasionally, B & W returns some of the exported cigarettes to the U.S. because they may be damaged, or could be an excess order. B & W wishes to reimport the cigarettes under subheading 9801.00.80, HTSUS.
In the past, B & W has paid duties in the amount of drawback claimed upon export, if this amount is known, or upon the full dutiable amount on the cigarettes. It is claimed that sometimes it can be difficult to determine the amount of drawback claimed upon export because the original order number is needed to trace the applicable drawback claim which is often not known until after the cigarettes are physically viewed after return to B & W’s U.S. facility. Therefore, B & W wishes to pay an average drawback amount that would be calculated every six months by adding the total amount of drawback claimed, and dividing this by the number of cigarettes (in 1000s) exported under the claims. This average calculation would then be used for cigarettes returned for the following next six months.
ISSUE:
Whether the cigarettes may be imported under subheading 9801.00.80, HTSUS, with the assessment of the average drawback calculation previously allowed upon exportation.
LAW AND ANALYSIS:
Subheading 9801.00.80
U.S. note 1(a) of Subchapter I, Chapter 98, HTSUS, states that the provisions in the subchapter (except subheadings 9801.00.70 and 9801.00.80) shall not apply to any article:
Exported with benefit of drawback;
Of a kind with respect to the importation of which an internal-revenue tax is imposed at the time such article is entered, unless such article was subject to an internal-revenue tax imposed upon production or importation at the time of its exportation from the United States and it shall be proved that such tax was paid before exportation and was not refunded.
Subheading 9801.00.80, HTSUS, provides as follows:
Articles previously exported from the United States which--except for U.S. note 1 of this subchapter--would qualify for free entry under one of the foregoing items and are not otherwise free of duty . . .
The rate of duty is as follows:
…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.
In this ruling, we are only addressing the question of the duty amount as it related to the drawback calculation and not to the internal revenue tax calculation.
Section 10.3(a), Customs Regulations (19 CFR 10.3(a)), provides in pertinent part that no free entry shall be allowed under Chapter 98, Subchapter 1, HTSUS, in the final liquidation of an entry unless the port director is satisfied by the certificate of exportation or other evidence or information that no drawback was allowed in connection with the exportation from the U.S. Furthermore, 19 CFR 10.3(a) provides that:
…when it is impracticable, because of the destruction of Customs records or other circumstances, to determine whether drawback was allowed, or the amount of drawback allowed, with respect to an article established to be a returned product of the United States which has not been advanced in value or improved in condition while abroad, there shall be assessed on the returned article an amount of duty determined as follows:
(1) If there is any likelihood that drawback was allowable on the exportation of like articles at any time when the imported article may have been exported from the United States, the estimated amount of any drawback which would have been allowable if duty had been paid on any foreign merchandise likely to have been used in the manufacture of the returned article at the rate or rates applicable to such foreign merchandise on the date of importation of the returned article.
Furthermore, 19 CFR 10.3(c)(3) provides that articles which the port director determines that the collection of duty under subheading 9801.00.80 would involve an expense and inconvenience to the Government disproportionate to the probable amount of such duty may be admitted free of duty, even though they were exported from the U.S. with benefit of drawback.
In HRL 559161 dated September 19, 1995, Customs found that cigarettes, neither advanced in value nor improved in condition while abroad, and the type of merchandise normally subject to a drawback allowance in connection with its exportation from the U.S., were classifiable in subheading 9801.00.80, HTSUS. In determining the duty to be paid upon importation, it was incumbent upon Customs to determine the drawback allowed upon exportation of the cigarettes, either from actual records, or in accordance with the methodology provided in 19 CFR 10.3(a)(1).
As provided in 19 CFR 10.3(a)(1), when it is impracticable to determine whether drawback was claimed or the amount of drawback allowed, the duty may be assessed in part based on the “estimated amount of any drawback which would have been allowable.” In this instance, B & W asserts that the drawback amount for the particular cigarettes cannot be calculated with specificity until the cigarettes are later physically viewed after importation. In accordance with 19 CFR 10.3(a)(1), the amount to be assessed may be based on an estimated amount. We also note that, although not specifically directed to cigarettes, 19 CFR 10.3(b) allows duty on certain enumerated articles to be assessed based on the fair average amount of drawback where the amount of drawback allowed is not known. It is also noted that in 19 CFR 191.14, which provides for the “identification of merchandise or articles by accounting method” for purposes of calculating drawback, the use of an “average” method is permitted. Therefore, we believe that the calculation of duty on returned articles under subheading 9801.00.80, HTSUS, could be based on average amounts as opposed to pinpointing the exact amount for a specific article exported. Accordingly, it is our opinion that to the extent the port director determines that it is impracticable to calculate the exact drawback amount allowed, a calculation of the duty based on an average drawback calculation (as set forth in your letter of October 30, 2001) would be within the parameters set by 19 CFR 10.3(a)(1).
HOLDING:
On the basis of the information submitted, it is our opinion that to the extent the port director determines that it is impracticable to calculate the exact drawback amount allowed, the cigarettes may be imported under subheading 9801.00.80, HTSUS, with the assessment of the average drawback calculation previously allowed upon exportation.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division