ENT 1-12
OT:RR:CTF:ER
H240589 RGR
Port Director
U.S. Customs and Border Protection
Port of Norfolk
101 East Main Street
Norfolk, VA 23510
Attn: Sandra Love-Arrington, Entry Specialist
Re: Application for Further Review of Protest No. 1401-2013-100034; Concerning Unmanufactured Tobacco from India
Dear Port Director:
This is in response to the application for further review (“AFR”) for Protest Number 1401-2013-100034 (“protest”), filed on behalf of Kenton Tobacco (“Kenton Tobacco”), on April 2, 2013. The protest is in response to U.S. Customs and Border Protection’s (“CBP”) reliquidation of four entries of tobacco from India.
FACTS:
Between July 5, 2012 and July 10, 2012, Kenton Tobacco entered four shipments of unmanufactured tobacco from India. The tobacco was initially entered as cigar filler under subheading 2401.20.2990, Harmonized Tariff Schedule of the United States (“HTSUS”), free of duty. On September 14, 2012, the import specialist issued a Notice of Action on two of the entries, explaining that the invoice description of “Indian unmanufactured flue-cured Tobacco does not support the tariff classification that you’ve used.” Thus, the import specialist proposed to change the classification to HTSUS subheading 2401.20.8510 (37.5¢ per kilogram if quota is not filled) or HTSUS subheading 2401.20.8710 (350% if quota is filled), which are tariff rate quota (“TRQ”) provisions. After receiving the Proposed Notice of Action, Kenton Tobacco contacted CBP and acknowledged that this was not the proper classification because it was based on an incorrect description of the tobacco at the time of entry. On September 18, 2012, the import specialist issued a Request for Information (“RFI”) on the other two entries, asking for more descriptive information about the merchandise (e.g., specific variety of tobacco for each of the grades identified on the invoice, condition of the unmanufactured product, the type of leaf from which it originates, etc.).
Because of Kenton Tobacco’s admitted misclassification of the entries, Kenton Tobacco coordinated with and instructed its broker to re-declare the entries in HTSUS subheadings 2401.20.8310 (flue-cured) and 2401.20.8320 (burley), as threshed or similarly processed tobacco “[t]o be used in products other than cigarettes.” Kenton Tobacco argues that the broker did not follow its instructions, and instead, filed the post-entry amendments for all four entries under HTSUS subheading 2401.20.8510 at 37.5¢ per kilogram, a TRQ provision outlined in U.S. note 5 to chapter 24 of the HTSUS, which sets forth the same duties as HTSUS subheadings 2401.20.8310 and 2401.20.8320 if entered before the quota for that subheading was filled. The broker submitted Post-Entry Amendments (“PEAs”) for the entries on September 20, 2012 in response to correct the misclassification. Along with the PEAs, the broker submitted a document titled “Model Rag Exports,” which stated that much of the tobacco grades of the merchandise were suitable for cigar or cigarette use. According to Kenton Tobacco, it did not realize that the broker had done this until November 2012.
On September 25, 2012, the four entries were rejected on the basis that the quota for HTSUS subheading 2401.20.8510 was filled. Thus, on October 4, 2012, two of the entries were rate advanced to HTSUS subheading 2401.20.8710. See Final Notice of Action, dated October 4, 2012 (stating that the low quota rate was no longer available so the entries would be rate advanced to HTSUS subheading 2401.20.8710, at 350%). On October, 11, 2012, Kenton Tobacco responded to the Notice of Action, dated September 14, 2012, which had stated that the invoice description of the tobacco was inaccurate and proposed TRQ classifications under HTSUS subheadings 2401.20.8510 (low rate if quota not filled) or 2401.20.8710 (high rate if quota is filled). It responded to the Request for Information on October 15, 2012. Kenton Tobacco argued its position in its October 11 and 15, 2012 submissions that the entries should have been re-classified under HTSUS subheadings 2401.20.8310 and 2401.8320, which are actual use tariff provisions. Kenton Tobacco’s responses in support of its assertion that the merchandise should be classified under the actual use tariff provision included letters from the parties that purchased tobacco from Kenton Tobacco. In addition, Kenton Tobacco included a letter declaring its intent to sell the remaining tobacco for processing into pipe tobacco and cigars. Subsequently, CBP also rate advanced the other two entries to HTSUS subheadings 2401.20.87 and 2401.10.65 for tobacco not stemmed or stripped in a Final Notice of Action, dated November 9, 2012. In that notice, CBP denied Kenton Tobacco’s attempt to reclassify the entries to an “actual use” tariff provision under HTSUS subheadings 2401.20.8310 and 2401.20.8320 because the actual use declaration was not made at the time of entry.
Kenton Tobacco asserts in its protest that CBP ignored its declarations of intent in its October 11, 2012 response to the September 14, 2012 Proposed Notice of Action and its October 15, 2012 response to the September 18, 2012 Request for Information that the tobacco would be used in products other than cigarettes. In arguing that it submitted declarations of intended use in accordance with 19 C.F.R. § 10.134 through its October 11 and October 15, 2012 letters, Kenton Tobacco emphasizes the following: (1) that its broker failed to follow its instructions to declare the tobacco in HTSUS subheading 2401.20.85; (2) that its broker’s attempted amendments to classify under the HTSUS subheadings for the TRQ tariff provisions resulted from miscommunications between the broker and CBP; and (3) that actual use was demonstrated by sales of the already imported tobacco for processing and use as pipe tobacco. Thus, Kenton Tobacco argued its position in its October 11, 2012 response to the September 14, 2012 Proposed Notice of Action and its October 15, 2012 response to the September 18, 2012 Request for Information that the entries should have been re-classified under HTSUS subheadings 2401.20.8310 (flue cured) and 2401.20.8320 (burley). Furthermore, Kenton Tobacco argues that even if its declarations in its October 1, 2012 and its October 15, 2012 responses did not constitute declarations of intended use in accordance with CBP regulations because they were not timely filed, these declarations were timely under 19 C.F.R. § 10.112, which allows an importer to file documents late.
It is the Port of Norfolk’s (“Port’s”) position that the entries were properly classified under HTSUS subheadings 2401.20.87 and 2401.20.65, which are higher rate TRQ provisions. It explained that under 19 C.F.R. §§ 10.133 and 10.134, the actual use tariff provision can only be used where an actual use declaration was made at the time of the entry. Because the actual use declaration was not made at the time of entry as required by the regulations, the actual use tariff provision is no longer an option.
ISSUE:
Whether “actual use” declarations may be made after entry of the merchandise.
LAW AND ANALYSIS:
As an initial matter, we note that Kenton Tobacco timely filed its protest on April 2, 2013, within 180 days of the November 30, 2012, liquidation. See 19 U.S.C. § 1514(c). A decision on liquidation and the rate and amount of duties chargeable is protestable under 19 U.S.C § 1514(a)(2) and (5). In addition, we determine that further review is warranted pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts. We agree that further review is warranted as the protest involves questions of law or fact which at the time of filing had not previously been ruled upon. Accordingly, the criteria for further review by this office are satisfied per 19 C.F.R.
§ 174.24(b) and 174.26(b)(1)(iv).
HTSUS subheadings 2401.20.8310 and 2401.20.8320 are “actual use” provisions. Specifically, HTSUS subheading 2401.20.8310 provides for “[u]nmanufactured tobacco...tobacco, partly or wholly stemmed/stripped: threshed or similarly processed: Other: Other: to be used in products other than cigarettes: flue-cured” (emphasis added). In addition, HTSUS 2401.20.8320 provides for “[u]nmanufactured tobacco...tobacco, partly or wholly stemmed/stripped: threshed or similarly processed: Other: Other: to be used in products other than cigarettes: burley” (emphasis added). Therefore, actual use must be demonstrated in accordance with CBP Regulations.
CBP Regulations, 19 C.F.R. § 10.131 through § 10.139, provide the requirements that must be met in order for Kenton Tobacco’s entries to qualify under the actual use tariff provisions. In particular, 19 C.F.R. § 10.133 states that when the tariff classification of any article is controlled by its actual use, three conditions must be met in order to qualify for free or a lower rate of duty. The three conditions are:
(a) Such use is intended at the time of importation.
(b) The article is so used.
(c) Proof of use is furnished within 3 years after the date the article is entered or
withdrawn from warehouse for consumption.
Intended use at the time of importation as required under 19 C.F.R. § 10.133(a) must be evidenced by a declaration of intent that is filed with the entry for consumption or for warehouse, or by entering the proper actual use subheading of the HTSUS on the entry form or file a declaration of intended use at the time of entry. See 19 C.F.R. § 10.134; HQ 967880 (Dec. 21, 2005) (where the importer filed a post-summary adjustment to correct its broker’s clerical error, we held that the protested entries were ineligible for duty-free entry under an actual use tariff provision because the declaration of intent was not filed at the time of entry).
According to the Court of International Trade, “[w]hichever option [under 19 C.F.R. § 10.134] an importer chooses, the action must be made at the time of entry.” Tradewind Farms, Inc. v. United States, 31 CIT 664, 670 (Ct. Intl Trade 2007). In Tradewind Farms, the importer entered certain container goods under a non-actual use provision. After the goods were liquidated at a 3% ad valorem tariff rate, the importer filed a protest against the liquidation and sought to classify the goods under an HTSUS actual use subheading for agricultural or horticultural use. In that case, the importer did not file a declaration of intended use when it entered the subject goods, and it did not enter the goods under an actual use provision. Instead, the importer argued that it satisfied the requirements of the actual use regulations by filing its protest as evidence of its intent to use the goods for agriculture or horticultural purpose. Tradewind Farms, 31 CIT at 669. In rejecting the importer’s arguments, the court explained that whether an importer decides to file a separate declaration of intended use or enters the goods under an actual use provision, either action must be made at the time of entry. Id. at 670. It further explained that “the law and regulations make clear that the importer must have the intention to use its merchandise for a particular actual use at the time of entry. A protest filed one year after entry is simply not evidence of the presence of the necessary intention at the time of entry.” Id. at 671. Therefore, if an importer does not enter the goods under actual use provision or file a separate declaration of intended use at the time of entry, then it cannot enter its goods under actual use tariff provisions.
As occurred in Tradewind Farms, Kenton Tobacco did not file any declaration of intent at the time of entry to use the imported tobacco for manufacture in products other than cigarettes. The broker classified the merchandise as “cigar filler” under HTSUS subheading 2401.20.2990, and later attempted to amend its error by filing under the low duty rate TRQ provision under HTSUS subheading 2401.20.85. However, Kenton Tobacco waited until October 11, 2012 when it responded to CBP’s Notice of Action, several months after entry, to declare the entries under HTSUS subheading 2401.20.83, an actual use tariff provision. Thus, the broker never declared the intended use of the entered merchandise at the time of entry. Because neither an actual use tariff provision nor a separate declaration of intent was filed at the time of entry, HTSUS subheading 2401.20.83 is not applicable.
Kenton Tobacco argues that the Port deprived it of its ability to correct its erroneous tariff declarations because it asserts that 19 C.F.R. § 10.134 does not require the identification of an actual use provision in the original entry summary as opposed to an amended entry summary. Kenton Tobacco argues that under the deemed liquidation statute, 19 U.S.C. § 1504, information asserted in an amended entry summary is considered by CBP to have been asserted “at the time of entry.” It cites to a ruling where CBP allowed the entry to be deemed liquidated at the rate asserted in an amended entry summary. See HQ 229761 (Feb. 12, 2003) (where alterations to the antidumping duty rates on the CF 7501 are in red ink and made by CBP officials pursuant to 19 C.F.R. § 141.90(d), the entries were deemed liquidated at the antidumping duty rate asserted in the amended entry summary). Therefore, Kenton Tobacco asserts that because under the deemed liquidation statute, CBP allows information asserted in an amended entry summary to have been asserted “at the time of entry,” then CBP should also allow the identification of an actual use tariff provision in an amended entry summary to be considered a declaration of intent “at the time of entry.” However, in that case, it was apparent that CBP officers amended the entry summaries at the time of entry. There was no PEA filed later. If the importer rather than CBP officials had tried to amend the documents after entry, as in this case, CBP would not accept those amendments if the entries deemed liquidated. For example, in HQ H118347 (Sept. 19, 2011), we noted that “if the entry liquidated by operation of law . . . , then CBP’s change in the tariff classifications was improper, because it should have liquidated at the tariff rate asserted at the time of entry. See 19 C.F.R. § 1504(a)(1).”
In asserting that it complied with the requirements of 19 C.F.R. § 10.134, Kenton Tobacco faults its broker for the error and argues: (1) that its attempt to declare the tobacco under the low duty rate TRQ provision resulted from alleged miscommunications between the import specialist and its broker where the broker did not follow Kenton Tobacco’s entry instructions; and (2) that it was selling the tobacco for pipe use before the broker learned that the low duty rate under TRQ provision no longer applied. As a preliminary matter, the courts have already recognized that a licensed customs broker is the agent of an importer. For example, “the importer and his surety remain liable in duties owed to the government regardless of the malfeasance or misfeasance of a broker.” See United States v. Fed. Ins. Co., 805 F.2d 1012, 1013 (Fed. Cir. 1986) (holding that a licensed customs broker is an agent of the importer, not of the government, and that no equitable estoppel can arise against the government in connection with an obligation to pay taxes); United States v. Yip, 930 F.2d 142, 143-144 (2d Cir. 1991) (noting that brokers act as agents for importers in the import/export business and that although importing companies routinely rely on brokers to act as their agent; secure safe passage through a maze of customs regulations; and pay the dues owed on their goods, brokers are only the agents of the importers and importers remain liable to the United States for duties). In addition, CBP has previously determined that a broker’s failure to follow classification instructions in a case involving an actual use tariff provision under 19 C.F.R. § 10.133 and § 10.134 is no excuse for failing to declare intent at time of entry. See HQ 967880 (Dec. 21, 2005) (holding that failure of the broker to follow the importer’s instructions regarding classification did not amount to proper grounds for voiding the port’s denial of the protest where declaration of intent was not filed at the time of entry). Further, even if the importer can show actual use by providing evidence that it sold the tobacco for pipe use, the importer is still required to declare intended use at the time of entry in order to proceed under an actual use tariff provision pursuant to 19 C.F.R. § 10.134. Therefore, Kenton Tobacco’s requested relief that the Port withhold action until it submits certificates of actual use is moot since Kenton Tobacco did not properly declare intent at time of entry. Every action that Kenton Tobacco cites to in support of its argument regarding actual use happened after entry, which is immaterial under 19 C.F.R. § 10.134.
Kenton Tobacco also cites to various rulings where importers sought duty-free treatment under agricultural actual use tariff provisions after misclassifying the items under different agricultural actual use provisions at time of entry. In the cited rulings, the entered classifications, though incorrect, were nonetheless actual use tariff provisions that were sufficient to establish intent for agricultural use at the time of entry. For example, in one of Kenton Tobacco’s cited rulings, the agricultural product at issue was entered under HTSUS subheading 8436 and liquidated under HTSUS subheading 8419. See HQ 953859 (Feb. 25, 1994). In that case, we found that the merchandise was classifiable under HTSUS subheading 8419, but that it might also be classifiable under HTSUS subheading 9817.00.50, which is an actual use provision granting duty-free treatment to “[m]achinery, equipment and implements to be used for agricultural or horticultural purposes.” In that case, we explained that although the subject merchandise was entered under 8436, and was precluded from classification under that heading, we found that the importer had the intent of entering the merchandise for agricultural use. If the importer could comply with all of the actual use requirements of 19 C.F.R. § 10.131 through 19 C.F.R. § 10.139, then the merchandise would be eligible for duty-free entry under subheading 9817.00.50, HTSUS. Similarly, in HQ 958753 (Mar. 19, 1996), the importer initially selected an “actual use” HTSUS classification that although not correct, did demonstrate “actual use” intent at the time of entry. In the instant case, the goods were not entered under a use provision and without a declaration of intent at time of entry. Therefore, unlike in the cited cases, intent was not established through the entered classification under the cigar filler subheading.
Kenton Tobacco’s argument that it satisfied the declaration of intent requirement through its October 11 response to CBP’s Proposed Notice of Action and its October 15 response to CBP’s Request for Information falls short of the requirements under 19 C.F.R. § 10.134. Specifically, Kenton Tobacco asserts that its October 11 and October 15 responses satisfy the requirement in 19 C.F.R. § 10.134 in which the port director requires a written declaration to be filed if he is not satisfied that merchandise entered under an actual use provision will be used for the purposes stated in the HTSUS. However, this provision of 19 C.F.R. § 10.134 is not meant to circumvent the basic requirement that intent must be established at the time of entry, either by entering the merchandise under an actual use provision or by filing a declaration of intent at time of entry. In particular, 19 C.F.R. § 10.134 states that:
[e]ntry made under an actual use provision of the HTSUS may be construed as a declaration that the merchandise is entered to be used for the purpose stated in the HTSUS, provided the port director is satisfied the merchandise will be so used. However, the port director shall require a written declaration to be filed if he is not satisfied that merchandise entered under an actual use provision will be used for the purposes stated in the HTSUS.
(emphasis added). Thus, 19 C.F.R. § 10.134 states that the port director will require a written declaration only after the importer initially made entry under an actual use provision. Therefore, the language that Kenton Tobacco cites to in 19 C.F.R. § 10.134 is inapplicable because Kenton Tobacco never entered the protested merchandise under actual use provisions and never filed an intent declaration at the time of entry.
Lastly, Kenton Tobacco argues that even if CBP finds that its submitted declarations are not timely under 19 C.F.R. § 10.134, the declarations are sufficient under 19 C.F.R. § 10.112. Under 19 C.F.R. § 10.112:
[w]henever a free entry or a reduced duty document, form, or statement required to be filed in connection with the entry is not filed at the time of the entry or within the period for which a bond was filed for its production, but failure to file it was not due to willful negligence or fraudulent intent, such document, form, or statement may be filed at any time prior to liquidation of the entry or, if the entry was liquidated, before the liquidation becomes final.
In the past, importers have relied on this provision when the required declaration of intended use to support an actual use claim was not filed with the entry summary. However, in 2002, CBP revoked an earlier ruling, HQ 961431 (Dec. 1, 1998) (holding that 19 C.F.R. § 10.112 allows a duty-free entry or reduced duty document or statement required to be filed in connection with the entry to be filed at any time prior to liquidation or, if the entry was liquidated, before the liquidation becomes final), which had allowed a late filing of the intent declaration in connection with actual use to establish that intent existed at the time of entry. CBP explained that its earlier ruling, which stated that “declaration of intended use may be filed at any time prior to liquidation or before the liquidation becomes final,” was no longer correct. See HQ 965354 (Feb. 14, 2002). In the 2002 ruling, in which the declaration of intent was filed twenty-one days after the date of the entry summary, CBP concluded that failure to file the required intent declaration with entry indicates noncompliance with 19 C.F.R. § 10.133. Id. Moreover, such noncompliance is “not curable under section 10.112 as this provision relates merely to the late filing of documents.” Id. Accordingly, contrary to Kenton Tobacco’s argument, its post-entry intent declarations are not deemed timely under 19 C.F.R. § 10.112.
HOLDING:
Consistent with the decision set forth above, we find that the Port of Norfolk properly denied Kenton Tobacco’s request to reclassify the merchandise under HTSUS subheadings 2401.20.8310 and 2401.20.8320, actual use tariff provisions. Therefore, you are hereby directed to DENY the protest.
In accordance with Section IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision to counsel for the protestant, together with the Customs Form 19, no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page and the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division