OT:RR:CTF:FTM H312092 TJS
Center Director
Agriculture & Prepared Products Center
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Long Beach, CA 90802
Attn: Bryan F. London, Import Specialist
Re: Application for Further Review of Protest No. 2720-20-101943; RMD Gutkha; excise tax
Dear Center Director:
This is in reference to the Application for Further Review (“AFR”) of Protest No. 2720-20-101943, received on April 21, 2020, on behalf of Evolution Enterprises Holdings Inc. (“Protestant” or “Evolution”), regarding U.S. Customs and Border Protection’s (“CBP”) tax assessment of a certain smokeless tobacco product.
FACTS:
The merchandise at issue is identified as “RMD Gutkha.” The stated ingredients are crushed betel nuts, aromatic spices (lime, saffron, and cardamom), and crushed tobacco leaf. The Protestant states that the product contains 6% tobacco and appears as large, dry, and rough grayish/beige chunks, which are betel nut and tobacco leaf bits coated in the spice mixture. According to the protest documents, the gutkha is packaged in 4-gram pouches. Our research indicates that gutkha is either held in the mouth, sucked, or chewed. The Protestant also provided a declaration from the sole manufacturer of RMD Gutkha, Dhariwal Industries Private Limited, dated August 1, 2021, certifying that the ingredients, manufacturing process, and formula has remained the same from May 2004 until the present.
CBP’s Laboratory and Scientific Services (“CBP Laboratory”) examined a sample of the subject RMD Gutkha. The laboratory report, dated August 17, 2021, determined that the sample was composed of light brown chunks contained in small packets within in a box labeled “RMD Gutkha: Betelnuts with Tobacco Mix.” The contents were a brown substance of various sizes, ranging from a fine chalky powder to up to approximately 1.5 cm diameter hard chunks. Based upon laboratory analysis, the sample contained 7.59% moisture and presumptively contained arecoline and nicotine, which are consistent with betel nut and tobacco ingredients.
Percentage of passage through a sieve:
Size 2000 µm 1250 µm 500 µm 425 µm 315 µm
38.15% 21.06% 5.70% 4.67% 4.08%
This AFR covers ten entries of the merchandise entered and liquidated in 2019. The gutkha was entered under subheading 2403.99.2030 of the Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), which provides for “Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences: Other: Other: Prepared for marketing to the ultimate consumer in the identical form and package in which imported: Chewing tobacco.” CBP liquidated the entries under subheading 2403.99.2040, HTSUSA, which provides for “Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences: Other: Other: Prepared for marketing to the ultimate consumer in the identical form and package in which imported: Snuff and snuff flours.” The applicable duty rate for subheadings 2403.99.2030 and 2403.99.2040, HTSUSA, is 24.7 cents per kilogram. However, in classifying the gutkha in subheading 2403.99.2040, HTSUSA, the port applied the tax rate applicable to snuff, which is higher than the rate for chewing tobacco. The excise tax rate on imported tobacco products is set by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and collected by CBP. Evolution is protesting the assessment of the higher tax rate associated with snuff and requests a refund of taxes paid to CBP.
ISSUE:
What is the tariff classification of the RMD Gutkha?
Whether the protestant is entitled to a refund of tobacco excise taxes from CBP.
LAW AND ANALYSIS:
As an initial matter, we note that the protest was timely filed within 180 days of liquidation. See 19 U.S.C. § 1514(c)(3). Further Review of Protest No. 2704-19-102962 is properly accorded to Protestant 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 CBP or his designee or by the Customs courts. Specifically, Evolution alleges that this protest involves questions of law or fact that have not been ruled upon as to whether Evolution is entitled to a refund of excess TTB taxes paid on importations of RMD Gutkha.
Tariff Classification
Classification under the HTSUS is determined in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined 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 GRI may then be applied. GRI 6 provides that the subheading classification of goods of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to GRI rules 1 to 6, on the understanding that only subheadings at the same level are comparable.
The 2019 HTSUS provisions under consideration are as follows:
2403: Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences:
Other:
2403.99: Other:
2403.99.20: Prepared for marketing to the ultimate consumer in the identical form and package in which imported:
2403.99.2030: Chewing tobacco…
2403.99.2040: Snuff and snuff flours…
* * * * *
Additional U.S. Note 6 to Chapter 24, HTSUS, states as follows:
For the purposes of this chapter, the term “prepared for marketing to the ultimate consumer in the identical form and package in which imported” means that the product is imported in packaging of such sizes and labeling as to be readily identifiable as being intended for retail sale to the ultimate consumer without any alteration in the form of the product or its packaging.
* * * * *
The Harmonized Commodity Description and Coding System Explanatory Notes (“EN”) constitute the “official interpretation of the Harmonized System” at the international level. See 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989). While neither legally binding nor dispositive, the ENs “provide a commentary on the scope of each heading” of the HTSUS and are “generally indicative of [the] proper interpretation” of these headings. See id.
The General EN to Chapter 24, HTSUS, provides as follows:
Tobacco is obtained from various cultivated varieties of the genus Nicotiana of the Solanaceae family. The size and shape of the leaves differ from one variety to another.
The harvesting method and curing process depend on the variety (type) of tobacco. The plant may be cut whole, at average maturity (stalk cutting), or the leaves may be picked separately, according to their state of maturity (priming). Thus, tobacco may be cured either as whole plants (on the stalk) or as separate leaves.
The various methods of curing are sun curing (in the open air), air curing (in closed sheds with free circulation of air), flue curing (in hot air flues), or fire curing (with open fires).
Before packing for shipment, the dried leaves are treated in order to ensure their preservation. This may be done by controlled natural fermentation (Java, Sumatra, Havana, Brazil, Orient, etc.) or by artificial re-drying. This treatment, and the curing, affect the flavour and aroma of tobacco, which undergoes spontaneous ageing after packing.
Tobacco so treated is packed in bundles, bales (of various shapes), in hogsheads or in crates. When so packed, the leaves are either aligned (Orient) or tied in hands (several leaves tied together with a band or with another tobacco leaf), or simply left as loose leaves. They are always tightly compressed in order to ensure preservation.
In some cases, in addition to (or instead of) fermentation, flavouring or moistening substances are added (casing) in order to improve the aroma or keeping qualities.
This Chapter covers not only unmanufactured and manufactured tobacco but also manufactured tobacco substitutes which do not contain tobacco.
* * * * *
The EN to heading 2403, HTSUS, provides in pertinent part as follows:
This heading covers:
Smoking tobacco, whether or not containing tobacco substitutes in any proportion, for example, manufactured tobacco for use in pipes or for making cigarettes.
Chewing tobacco, usually highly fermented and liquored.
Snuff, more or less flavoured.
…
* * * * *
There is no dispute that the gutkha is classified in subheading 2403.99.20, HTSUS, which provides for “Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences: Other: Other: Prepared for marketing to the ultimate consumer in the identical form and package in which imported.” The issue at the ten-digit statistical level of classification is whether the gutkha is chewing tobacco or snuff. The HTSUS does not define the terms “chewing tobacco” or “snuff and snuff flours.” The ENs to heading 24.03 describe chewing tobacco as “usually highly fermented and liquored” and snuff as “more or less flavoured.” We do not have any indication that the product is highly fermented or liquored, but the product is flavored with a spice mixture coating.
A tariff term that is not defined in the HTSUS or in the ENs is construed in accordance with its common and commercial meanings, which are presumed to be the same. Nippon Kogasku (USA) Inc. v. United States, 69 CCPA 89, 673 F. 2d 380 (1982). Common and commercial meaning may be determined by consulting dictionaries, lexicons, scientific authorities and other reliable sources. C.J. Tower & Sons v. United States, 69 CCPA 128, 673 F. 2d 1268 (1982).
Dictionary definitions of “chewing tobacco” include “a type of tobacco that is chewed rather than smoked” and “tobacco that is chewed or held in the mouth, typically between the cheek and gums, rather than smoked.” Snuff is described as “a preparation of pulverized tobacco to be inhaled through the nostrils, chewed, or placed against the gums” and “powdered tobacco that is sniffed up the nostril rather than smoked.” “Gutkha” is defined as “a sweetened mixture of chewing tobacco, betel nut, and palm nut, originating in India as a breath freshener.” Furthermore, the World Health Organization recognizes gutkha as a sweetened and flavored chewing tobacco.
The National Institute of Health’s National Cancer Institute Dictionary of Cancer Terms provides the following definitions:
chewing tobacco: A type of smokeless tobacco made from cured tobacco leaves. It may be sweetened and flavored with licorice and other substances. It comes in the form of loose tobacco leaves, pellets or “bits” (leaf tobacco rolled into small pellets), plugs (leaf tobacco pressed and held together with some type of sweetener), or twists (leaf tobacco rolled into rope-like strands and twisted). It is placed in the mouth, usually between the cheek and lower lip, and may be chewed. Chewing tobacco contains nicotine and many harmful, cancer-causing chemicals. Using it can lead to nicotine addiction and can cause cancers of the mouth, throat, esophagus, and pancreas. Chewing tobacco use may also cause gum disease, heart disease, stroke, and other health problems. Also called spit tobacco.
gutkha: A type of smokeless tobacco that is made in India and is widely used throughout Asia. It is a mixture of tobacco, crushed areca nut (also called betel nut), spices, and other ingredients. It is used like chewing tobacco and is placed in the mouth, usually between the gum and cheek. Gutka contains nicotine and many harmful, cancer-causing chemicals. Using it can lead to nicotine addiction and can cause cancers of the lip, mouth, tongue, throat, and esophagus. Also called betel quid with tobacco.
snuff tobacco: A type of smokeless tobacco that is made of finely ground or shredded tobacco leaves. It may have different scents and flavors and may be moist or dry. Moist snuff tobacco is placed in the mouth, usually between the cheek and gum or behind the upper or lower lip. Dry snuff tobacco is inhaled through the nose. Snuff tobacco contains nicotine and many harmful, cancer-causing chemicals. Using it can lead to nicotine addiction and can cause cancers of the mouth, esophagus, and pancreas. Snuff tobacco use may also cause gum disease, heart disease, stroke, and other health problems. Using snuff tobacco is also called “dipping.”
Based on the foregoing, it appears that the distinction between chewing tobacco and snuff is that generally snuff is in powder form. Both snuff and chewing tobacco are either chewed or sucked, however snuff may also be inhaled.
“Chewing tobacco” and “snuff” are defined in the TTB regulations, 27 C.F.R. § 40.11. “Chewing tobacco” is defined as “Any leaf tobacco that is not intended to be smoked” and “snuff” is defined as “Any finely cut, ground, or powdered tobacco that is not intended to be smoked.” 27 C.F.R. § 40.11. Definitions set forth in the TTB regulations are for purposes of implementing statutes other than the Customs laws and are not definitive as to the classification of the merchandise under the HTSUSA. Nevertheless, these definitions exemplify the distinction in form between chewing tobacco and snuff. That is, chewing tobacco is any leaf tobacco whereas snuff is in the form of finely cut, ground, or powdered tobacco.
We find that gutkha is “chewing tobacco” for tariff classification purposes. It can be chewed as well as sucked, and the tobacco in in the gutkha is in the form of crushed tobacco leaf. Furthermore, the CBP Laboratory reported that the gutkha preparation consisted of particles of various sizes, ranging from a fine powder to up to approximately 1.5 cm diameter hard chunks. We find that based on the definitions and descriptions above, gutkha is not a “snuff” as it is not composed of finely ground particles and is not suitable for inhalation through the nostrils. Accordingly, we find that the RMD Gutkha at issue is classified in subheading 2403.99.2030, HTSUSA, which provides for “Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences: Other: Other: Prepared for marketing to the ultimate consumer in the identical form and package in which imported: Chewing tobacco.”
Whether the protestant is entitled to a refund of tobacco excise taxes from CBP.
Section 6423 of the Internal Revenue Code (“IRC”) of 1954, (as amended 26 U.S.C. § 6423), sets forth the conditions for the allowance of a credit or refund of alcohol or tobacco taxes. A credit or refund is due “only if the credit or refund is claimed on the grounds that an amount of alcohol or tobacco tax was assessed or collected erroneously, illegally, without authority, or in any manner wrongfully, or on the grounds that such amount was excessive.” See 26 U.S.C. § 6423(c). Typically, claims for a credit or refund are filed with TTB under its regulations promulgated under 26 U.S.C. § 6423(b). Pursuant to 27 C.F.R. § 70.504, an individual who wants to claim a refund or credit of tax must file a claim, as provided in 27 C.F.R. § 70.506, and comply with any other provisions of law or regulation which may apply to the claim. Individuals who want to claim a refund or credit of tax with TTB should refer to 27 C.F.R. §§ 70.504 through 70.506, which details the conditions to permit a credit or refund of internal revenue tax and who can file such a claim.
However, in certain situations, CBP is permitted to issue refunds of tobacco taxes. The CBP regulation that covers the refunds of excessive duties and taxes is 19 C.F.R. § 24.36. The regulation establishes when the port director is authorized to issue a refund of such taxes, and when a claim must be made directly to TTB. Pursuant to 19 C.F.R. § 24.36, the port director is only authorized to issue refunds that are exempted from the application of Section 6423 of the IRC, which sets forth the Internal Revenue Service conditions to allow refunds on alcohol and tobacco taxes.
The instances that are exempted from 26 U.S.C. § 6423 refunds are set forth in 19 C.F.R. § 24.36(d). Protestant does not specifically point to an exemption as a basis for why the excise tax should be refunded. In any instance in which a refund of overpaid excise tax is not covered by 19 C.F.R. § 24.36(d), CBP may certify the amount of excise taxes that were overpaid, and the importer may apply for a refund directly with TTB. See 19 C.F.R. § 24.36(e). Under this provision, when CBP is not authorized to issue a refund directly, it may still assist the importer in pursuing a refund from TTB by providing proof of the entry and payment of internal revenue tax deposited via the procedure outlined in the regulation. The notice of refund provided, and the statement issued by CBP (upon request) must be filed directly with the Director of the National Revenue Center of TTB along with the claim filed on the TTB Form 5620.8. Id. See also, 27 C.F.R. § 70.505 and HQ H294599 (Nov. 8, 2019) (identifying the procedure set forth in 19 C.F.R. § 24.36(e) as the proper method to request a refund of overpaid alcohol excise taxes from TTB after final liquidation of the entry).
HOLDING:
By application of GRIs 3(b) and 6, the subject RMD Gutkha is classified under heading 2403, HTSUS, specifically under subheading 2403.99.2030, HTSUSA, which provides for “Other manufactured tobacco and manufactured tobacco substitutes; “homogenized” or “reconstituted” tobacco; tobacco extracts and essences: Other: Other: Prepared for marketing to the ultimate consumer in the identical form and package in which imported: Chewing tobacco.” The 2019 column one, general rate of duty is 24.7 cents per kilogram.
CBP does not have the authority to issue a refund of excise taxes collected on imported tobacco products where the importer has not demonstrated that its case is of a type which is excepted from the application of section 6423, Internal Revenue Code and enumerated in 19 C.F.R. § 24.36(d).
Since reclassification of the merchandise as indicated above would result in no net duty reduction, you are instructed to DENY the protest in full.
You are instructed to notify the protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/ which can be found on the CBP website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division