OT:RR:CTF:FTM HQ H323927 TJS

Center Director
Agriculture & Prepared Products CEE
U.S. Customs and Border Protection
1800 Eller Drive, Suite 104
Fort Lauderdale, FL 33316

Attn: Ashley A. McDonough, Senior Import Specialist

Re: Application for Further Review of Protest No. 5203-21-100349; Tariff classification of cigars

Dear Center Director:

The following is our decision regarding the Application for Further Review ("AFR") of Protest No. 5203-21-100349, timely filed on November 17, 2021, on behalf of Congo Import and Export LLC ("Protestant" or "Congo"), contesting U.S. Customs and Border Protection's ("CBP") tax assessment and tariff classification under the Harmonized Tariff Schedule of the United States ("HTSUS") of certain cigars. This decision takes into consideration meetings with the Protestant's counsel on April 6, 2022, and July 28, 2022, as well as supplemental emails, dated June 6, 2022, June 28, 2022, and July 29, 2022.

FACTS:

The merchandise at issue consists of cigars manufactured in Brazil. The cigars comprise of two brands in a total of four styles. The two brands are (1) Calf and (2) A2. The four styles are (1) Calf Red, (2) Calf Green, (3) A2 Red, and (4) A2 Green. The cigars are composed of a tobacco blend, stems, and additives. In an email dated June 6, 2022, Protestant's counsel provided the value of the cigars. Counsel stated that the sale price at the individual cigar unit level is between $0.02 and $0.03. The cigars are sold in packs each containing 20 cigars.

The subject protest covers nine entries of the cigars entered between April and December 2020. The merchandise was entered under subheading 2402.10.8080, HTSUSA ("Annotated"), which provides for "Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes: Cigars, cheroots and cigarillos, containing tobacco: Each valued 23 or over: Other." In April 2021, CBP sent a sample of the cigars from entry HG8-15826331 to the U.S. Treasury Department's Alcohol and Tobacco Tax and Trade Bureau ("TTB") laboratory for weighing. The sample included 9 sealed hard packs of 20 sticks from the full carton of A2 Red cigars. The TTB laboratory found that the cigars weighed an average of 2.32 pounds per 1000 sticks, thereby meeting the definition of "small cigars" for excise tax and tariff classification purposes.[1] Accordingly, on May 18, 2021, CBP issued two CF-29 Notices of Action Taken for entry HG8-15826331 and an additional eight entries[2] in which CBP determined that the subject merchandise comprised entirely of "small cigars". CBP reclassified the merchandise under subheading 2402.10.3030, HTSUSA, which provides for "Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes: Cigars, cheroots and cigarillos, containing tobacco: Each valued less than 15: Small cigars, cheroots and cigarillos (weighing not more than 1.36 kg/1000)." The entries were liquidated on May 21 and 28, 2021.

After liquidation, Congo independently submitted a sample of 800 cigars (200 of each brand)[3] to the TTB for additional weighing. On June 29, 2021, the TTB reported most of the samples met the appropriate weight threshold of 3 pounds per 1000 sticks for large cigars as set forth in the Internal Revenue Code at 26 U.S.C. 5701(a) and TTB's implementing regulations. However, one pack of Calf Red cigars weighed significantly less, at 2.382 pounds per 1000 sticks. Upon learning that a quality control issue may have existed, Congo initiated an internal investigation and implemented several remedial measures. Congo reviewed weight testing records from 2019 to 2021 and determined that no more than 4.5% of the cigars imported into the United States weighed under 3 pounds per 1000 sticks, while the remaining 95.5% weighed over 3 pounds per 1000 sticks. Congo included copies of the weight testing records[4] and the TTB assessment in its protest submission.

ISSUE:

What is the tariff classification of the cigars at issue?

LAW AND ANALYSIS:

Initially, we note that the matter is protestable under 19 U.S.C. 1514(a)(2) as a decision on classification. The protest was timely filed, within 180 days of liquidation of the first entry. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, 2103(2)(B)(ii), (iii) (codified as amended at 19 U.S.C. 1514(c)(3) (2006)). Further Review of Protest No. 5203-21-100349 is properly accorded to Protestant pursuant to 19 C.F.R. 174.24(b) because Protestant alleges that the protest involves questions which have not been ruled upon by the Commissioner of CBP or his designee or by the Customs courts. Specifically, Protestant alleges that the protest concerns whether CBP must consider weight quality control issues when classifying imported cigars under the HTSUS.

Classification of goods under the HTSUS is made in accordance with the General Rules of Interpretation ("GRIs"). 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 GRIs 2 through 6 may then be applied in order. GRI 6 requires that the classification of goods in the subheadings of headings shall be determined according to the terms of those subheadings, any related subheading notes and, mutatis mutandis, to GRIs 1 through 5.

The 2020 HTSUS provisions under consideration are as follows:

2402: Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes:

2402.10: Cigars, cheroots and cigarillos, containing tobacco:

2402.10.30: Each valued less than 15...

2402.10.3030: Small cigars, cheroots and cigarillos (weighing not more than 1.36 kg/1000)

2402.10.3070: Other

* * *

2402.10.80: Each valued 23 or over...

2402.10.8080: Other

* * *

As the subject cigars contain tobacco and cost approximately 2 to 3 cents each, there is no dispute that the merchandise is classified in subheading 2402.10.30, HTSUS, as "Cigars, cheroots and cigarillos, containing tobacco: each valued less than 15." The remaining issue lies at the 10-digit statistical level of classification, which is divided based on cigar size. Subheading 2402.10.3030, HTSUSA, applies to small cigars, which weigh not more than 1.36 kg/1000. Subheading 2402.10.3070, HTSUSA, applies to cigars that weigh more than 1.36 kg/1000.

Congo claims that due to quality control issues, only 4.5% of the imported cigars weighed less than 3 pounds per 1000 sticks, including the sample taken by CBP. Therefore, Congo requests that, for excise tax and duty purposes, 95.5% of the cigar imports be treated as large cigars and 4.5% of the cigar imports be treated as small cigars. Congo made this calculation after examining weight testing records from various months between 2019 and 2021. Upon reviewing the records provided, we find they do not sufficiently corroborate Congo's assertion and calculation. The weight records, which reflect an intermittent production schedule, do not clearly account for the imported entries of cigars. Additionally, Congo's calculation takes into consideration weight testing results that post-date the entries at issue. Including weights beyond the scope of the entries affects the accuracy of Congo's assessment. Thus, in our opinion, Congo's calculation is unreliable. Regardless of whether Congo intended to manufacture large cigars, they have not provided substantive proof that the imported entries were composed of 95.5% large cigars.

To further support its position, Congo sought another TTB weight assessment in June 2021, after the subject entries were liquidated. Although the TTB found most of the packs weighed over 3 pounds per 1000 sticks, one pack weighed significantly less. That CBP is not bound by this TTB assessment notwithstanding, we note that the report was limited to the samples submitted and did not include any cigars from the protested entries. As TTB explained to Congo's counsel, "if cigars of a different weight were imported under these brands, then of course the actual weights would apply to any classification analysis." CBP is also not required to accept a sample from the protestant months after liquidation as a representative sample of the entire disputed entry. See Headquarters Ruling Letter ("HQ") 957062 (Apr. 5, 1995); HQ H025872 (June 3, 2009); See also HQ 965177 (Aug. 29, 2002) (finding that treating a sample other than as representative would create an unworkable burden for the trade and on CBP). The sample of imported cigars taken by CBP met the terms of subheading 2402.10.3030, HTSUSA, since their actual weight upon importation was less than 3 pounds per 1000 sticks.

Based on the foregoing, we find that Congo's quality control records and the TTB's June 2021 assessment fail to substantiate their claim that only 4.5% of the imported cigars weighed under 3 pounds per 1000 sticks. Congo's approximation does not override the actual weights assessed from CBP's sample, which we find is representative of the contested shipments. Accordingly, the cigars are properly classified under subheading 2402.10.3030, HTSUSA, which provides for "Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes: Cigars, cheroots and cigarillos, containing tobacco: Each valued less than 15: Small cigars, cheroots and cigarillos (weighing not more than 1.36 kg/1000)."

Congo filed this protest to seek a refund of excise taxes. Although we find that the cigars remain classified under subheading 2402.10.3030, HTSUSA, we note the proper procedure for filing a claim for a credit or refund of tobacco tax. 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). 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. 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.

HOLDING:

By application of GRIs 1 and 6, the subject cigars are properly classified under subheading 2402.10.3030, HTSUSA, which provides for "Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes: Cigars, cheroots and cigarillos, containing tobacco: Each valued less than 15: Small cigars, cheroots and cigarillos (weighing not more than 1.36 kg/1000)." The 2020 general, column one duty rate is $1.89/kg + 4.7%.

You are instructed to DENY the protest.

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

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[1] Cigars that weigh not more than 3 pounds per 1,000 units are subject to a different tax rate than cigars weighing over 3 pounds per 1,000 units. 26 U.S.C. 5701(a).
[2] The eight entries are: HG8-15812117; HG8-15830648; HG8-15824658; HG8-15820979; HG8-15822298; HG8-15811812; HG8-15824005; and HG8-15811333.
[3] In an email dated July 29, 2022, Congo's counsel clarified that TTB received 800 cigars, but weighed only 400 cigars (100 of each brand).
[4] The records provided include weight testing from November 2019, January 2020, March 2020, August 2020, September 2020, October 2020, December 2020, January 2021, and February 2021.