CLA-2 OT:RR:CTF:TCM H022646 IDL
John M. Peterson, Esq.
Neville Peterson, LLP
17 State Street
19th Floor
New York, New York 10004
Re: Classification of Tropicana Twister Tropical Fruit Boost Flavor Concentrate
Dear Mr. Peterson:
This is in response to your request for a ruling on behalf of your client, Pepsi-Cola Manufacturing International Ltd. (“PCMIL”), dated December 11, 2007. You requested a binding ruling on the classification of a certain “flavor concentrate” under the Harmonized Tariff Schedule of the United States (HTSUS). A conference was held with you and your client in our offices on April 29, 2008. Our ruling on this matter is set forth below.
FACTS:
PCMIL describes the merchandise as a flavor concentrate used to manufacture a beverage called “Tropicana Twister Tropical Fruit Boost”. In its imported condition, the flavor concentrate consists of various ingredients, including water, citric acid, sucralose, apple juice concentrate, grape juice concentrate, coloring, essential oils, and over 1.5% of ethyl alcohol by volume.
ISSUE:
Whether the flavor concentrate should be classified as a non-alcoholic preparation under subheading 3302.10.10, HTSUS, or as an alcoholic preparation under subheading 3302.10.20, HTSUS?
LAW AND ANALYSIS:
Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that most goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. GRI 6 provides that “for legal purposes”, classification of goods in the subheading of a heading shall be determined according to the terms of those subheadings and any related subheading notes, and mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. GRI 6 thus incorporates GRIs 1 through 5 in classifying goods at the subheading level.
In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes (ENs) may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The HTSUS provisions under consideration are as follows:
3302 Mixtures of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more of these substances, of a kind used as raw materials in industry; other preparations based on odoriferous substances, of a kind used for the manufacture of beverages:
Of a kind used in the food or drink industries:
Not containing alcohol
Containing alcohol
3302.10.20 Containing not over 20 percent of alcohol by weight
…
Note 2 to Chapter 33, HTSUS, provides that “[t]he expression ‘odoriferous substances’ in heading 3302 refers only to the substances of heading 3301, to odoriferous constituents isolated from those substances or to synthetic aromatics.” EN 33.02 provides the following:
This heading covers the following mixtures provided they are of a kind used as raw materials in the perfumery, food or drink industries (e.g., in confectionery, food or drink flavourings) or in other industries (e.g., soap-
making) :
Mixtures of essential oils. [Emphasis added]
Mixtures of resinoids.
Mixtures of extracted oleoresins.
Mixtures of synthetic aromatics.
Mixtures consisting of two or more odoriferous substances (essential oils, resinoids, extracted oleoresins or synthetic aromatics). [Emphasis added]
Mixtures of one or more odoriferous substances (essential oils, resinoids, extracted oleoresins or synthetic aromatics) combined with added diluents or carriers such as vegetable oil, dextrose or starch.
Mixtures, whether or not combined with a diluent or carrier or containing alcohol, of products of other Chapters (e.g., spices) with one or more odoriferous substances (essential oils, resinoids, extracted oleoresins or synthetic aromatics), provided these substances form the basis of the mixture.
…
The heading also includes solutions in alcohol (e.g., ethyl alcohol, isopropyl alchohol) of one or more odoriferous substances provided these solutions are of a kind used as raw materials in the perfumery, food, drink or other industries.
The heading also includes other preparations based on odoriferous substances, of a kind used for the manufacture of beverages. These preparations may be either alcoholic or non-alcoholic and may be used to produce either alcoholic or non-alcoholic beverages. They must have a basis of one or more odoriferous substances, as described in Note 2 to this Chapter, which are used primarily to impart a fragrance and secondarily to give a flavour to beverages. Such preparations generally contain a relatively small quantity of odoriferous substances which characterize a particular beverage; [emphasis added] they may also contain juices, colouring matter, acidulants, sweeteners, etc., provided that they retain their character of odoriferous substances. As presented, these preparations are not intended for consumption as beverages and thus can be distinguished from the beverages of Chapter 22.
The heading excludes compound alcoholic and non-alcoholic preparations of a kind used for the manufacture of beverages, with a basis of substances other than odoriferous substances as described in Note 2 to this Chapter (heading 21.06, unless they are more specifically provided for elsewhere in the Nomenclature).
We find that the flavor concentrate, which contains essential oils and is based on odoriferous substances that impart a fragrance and flavor for the manufacture of beverages, meets the requirements of heading 3302, HTSUS, as a “preparation based on odoriferous substances, of a kind used for the manufacture of beverages”, and is classifiable in subheading 3302.10, HTSUS.
At the eight-digit level, the HTSUS provides for such preparations either “not containing alcohol” (subheading 3302.10.10, HTSUS) or “containing alcohol” (subheadings 3302.10.20 through 3302.10.90, HTSUS). The issue presented is at this level, i.e., whether the product contains alcohol.
The U.S. Supreme Court has stated that the “[a]pplication of de minimis is particularly important in cases…where stark, all-or-nothing operation of the statutory language would have results contrary to its underlying purposes.” See, Wisconsin Dept. of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 231, 112 S. Ct. 2447 (1992).
Counsel has taken the position that the flavor concentrate contains a “de minimis” amount of alcohol amounting to over 1.5% by volume, and should be classified as a preparation “not containing alcohol” under subheading 3302.10.10, HTSUS. Counsel submits that the alcohol represents an unsubstantial and unwanted residual quantity of ethanol. It explains that such alcohol stems from the manufacturing processes used to extract odoriferous substances from plants, and that the removal of such alcohol would be uneconomical and/or unfeasible. Counsel further argues that the alcohol “does not affect the properties of the concentrate…and performs no useful function”.
In support of its arguments, counsel cites R.W. Gresham v. United States, 3 Cust. Ct. 308; 1939 Cust. Ct. Lexis 1814, wherein the court held that the alcohol content of sixteen one-hundredths of one percentum in a ginger beer flavor (concentrate) used to manufacture beverages contained an “amount of alcohol [that] is not substantial”; [Emphasis added] and Canada Dry Ginger Ale, Inc. v. United States, 43 Cust. Ct. 1, C.D. 2094 (1959), wherein the court held that ginger ale extract, containing 0.49 per centum of alcohol by weight, was properly classified as a "flavoring extract, not containing alcohol”, because the amount of alcohol was “merely trace material left over from an extraction process…which serve[d] no useful purpose…, [and was] not substantial enough to bring the imported merchandise within a tariff provision for flavoring extract containing alcohol.” [Emphasis added] Nevertheless, the respective courts in Gresham and Canada Dry, the most pertinent cases cited by counsel, failed to define the upper limits of “de minimis”.
In further support of its arguments, counsel cites General Note 3(h)(v)(B), HTSUS, which provides the following:
(h) Definitions. For the purposes of the tariff schedule, unless the context otherwise requires-
…
(v) the term[] “containing”, when used between the description of an
article and a material (e.g., “woven fabrics, wholly of cotton”), have the
following meanings:
…
(B) …”containing” means that the goods contain a significant quantity of
the named material.
With regard to the application of the quantitative concepts specified
above, it is intended that the de minimis rule apply.
…
Counsel also cites Alcan Aluminum Corporation v. United States, 165 F.3d 898 (Fed. Cir. 1999) and argues that “under the de minimis rule implemented by…General Note [3], a component which is merely an incidental or immaterial element of an entire article, does not enhance its value, and has no commercial purpose, is disregarded for classification purposes.” Counsel also cites to our decisions in HQ 085941 (May 11, 1990) and HQ 075363 (February 12, 1985) as favorable to its position.
While we recognize that the manufacturing process used in the instant
case inextricably yields a small amount of alcohol in the flavor concentrate, clearly, the scope of the “de minimis” rule cannot be limitless. Counsel’s argument that the flavor concentrate does not “contain” a significant quantity of alcohol, as defined in General Note 3(h)(v)(B), is misguided. The context of the term “containing”, as provided in General Note 3(h)(v)(B), HTSUS, is inapplicable to heading 3302, HTSUS. The term “containing”, “for the purposes of the tariff schedule, unless the context otherwise requires…when used between the description of an article and a material (e.g., ‘woven fabrics, wholly of cotton’)…mean[s] that the goods contain a significant quantity of the named material.” In the instant case, the term “containing” is not used between the description of an article and a material. Rather, the terms “mixtures with a basis” or “preparations based on”, followed by another limiting phrase, “of a kind used in” form the context in which to consider whether the term “containing” applies.
Further, it is intuitive that the flavor concentrate would contain a relatively low alcohol content, proportionate to the “relatively small quantity of odoriferous substances” that are extracted using the alcohol. (See EN 33.02, above). The issue is whether the flavor concentrate contains a sufficient amount of alcohol to be described as “containing alcohol”. We find that as the essential oils content is small, the alcohol bound to them may be similarly small, and that such amount is sufficiently material enough to warrant exclusion of the “de minimis” rule.
Citing Varsity Watch Co. v. United States, 34 CCPA 155, C.A.D. 359 (1947) and John S. Connor, Inc. v. United States, 54 Cust. Ct. 213 (1965), counsel further argues that “qualitative considerations are more significant” than quantitative ones in determining whether the de minimis rule applies. Counsel contends that the alcohol is an “unintentional adulterant…serv[ing] absolutely no purpose in commerce, nor does it affect the salability of the concentrate….”
We disagree. Clearly, the alcohol that remains in the flavor concentrate is a byproduct of an intentional process that uses alcohol for the purpose of extracting essential oils. Such oils, extracted using the alcohol, largely determine the flavor in the flavor concentrate. As such, the alcohol serves as a vital support in flavoring the preparation. Such flavor, in turn, affects the commerce and salability of the concentrate.
Concerning our classification of tobacco leaf absolutes in HQ 075363, cited by counsel, we held that 4.4% alcohol by weight does not constitute a “de minimis” amount. In contrast, in HQ 085941, concerning floral absolutes, we held that “[s]ince all of the alcohol used in the extraction process cannot be removed,… percentages of ethanol present of 2 percent or less in the end product are considered de minimis.” Notwithstanding our finding of “de minimis” in HQ 085941, the instant case is distinguishable from the two rulings cited. The products and tariff language construed were different than in the instant case. Also, the flavor concentrate is intended to produce a beverage (i.e., for internal consumption), rather than a perfume or other good intended for topical or external use, as in HQ 085941 and HQ 075363. Therefore, those decisions are not compelling in the instant case.
A closer similarity can be found in the provisions of subheadings 2106.90.12, 2106.90.15, and 2106.90.18, HTSUS, which provide guidance with regard to the upper limits of “de minimis” in the context of the class used in the beverage industry. Those subheadings, covering “[c]ompound alcoholic preparations of an alcoholic strength by volume exceeding 0.5 percent vol., of a kind used for the manufacture of beverages” [emphasis added], suggest that alcohol amounting to 0.5 percent by volume or less constitutes “de minimis”.
Although we have often stated that Customs and Border Protection is not bound by the rulings or regulations, and in this case, a statute, administered by other agencies, we find it instructive that other authorities have treated alcohol for internal consumption amounting to one-half of one percent by volume as significant. Section 5001 of Title 26 of the United States Code (26 U.S.C. § 5001), which is cited as a footnote in subheading 3302.10.20, HTSUS, and administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB), imposes a tax on any “volatile fruit-flavor concentrate (or any fruit mash or juice from which such concentrate is produced) containing one-half of 1 percent or more of alcohol by volume….” [Emphasis added]
In addition, it is instructive to consider that section 7.71 of Title 27 of the Code of Federal Regulations (27 CFR § 7.71), the regulations administered by TTB, distinguishes malt beverages containing no alcohol (i.e., “alcohol free”) from those containing some but less than 0.5 percent alcohol by volume (i.e., “non-alcoholic”). Similarly, section 25.11 (27 CFR § 25.11) defines beer and other fermented beverages on the basis of a minimum alcohol content of one-half of one percent.
Furthermore, we note that during the “Prohibition Era”, the Eighteenth Amendment to the Constitution of the United States prohibited the “manufacture, sale, or transportation of intoxicating liquors…for beverage purposes”. After passage of the Amendment, Congress passed the Volstead Act, which set the maximum legal limit at one-half of 1 percent alcohol by volume. We note further that the U.S. Treasury Department, over one hundred years ago, issued a decision stating that “[b]everages containing less than one-half of 1 per cent of alcohol do not come within the consideration of the internal-revenue laws either as to manufacture or sale”. [Emphasis added] See Treasury Decision 1307, dated February 5, 1908.
As stated above, the flavor concentrate contains over 1.5% alcohol by volume. Such alcohol percentage exceeds the alcohol content in Gresham approximately tenfold, and the alcohol content in Canada Dry over threefold. Further, we find it significant that the “de minimis” outcomes in both Gresham and Canada Dry involved alcohol content amounting to less than the one-half of one percent mark, which, as discussed above, has both current and historical legal significance in the context of the commercial meaning of alcohol for internal consumption.
Accordingly, the flavor concentrate is classified under subheading 3302.10.20, HTSUS, containing not over 20% alcohol by weight, and may be subject to Federal Excise Tax under 26 U.S.C. § 5001.
HOLDING:
By application of GRI 1, the flavor concentrate is classified in heading
heading 3302, HTSUS, and provided for under subheading 3302.10.20, HTSUS, as: “[O]ther preparations based on odoriferous substances, of a kind used for the manufacture of beverages: Of a kind used in the food or drink industries: Containing alcohol: Containing not over 20 percent of alcohol by weight”. The column one, general rate of duty under subheading 3302.10.20, HTSUS, is “free”, but the flavor concentrate may be subject to Federal Excise Tax. (See 26 U.S.C. § 5001).
Duty rates are provided for your convenience and are subject to
change. The text of the most recent HTSUS and the accompanying duty rates are provided on the Internet at www.usits.gov/tata/hts/.
Sincerely,
Gail A. Hamill, Chief
Tariff Classification and Marking Branch