CIT Says CBP in Charge of Excise Taxes, Another CBP "Confession"

In an October 6, 2010 decision, Shah Brothers, Inc. v. U.S., the Court of International Trade stated that U.S. Customs and Border Protection has “confessed judgment” to Shah Brother’s claim that imported gutkha is chewing tobacco under HTS 2403.99.2030 and not snuff under 2403.99.2040, and is therefore subject to a lower excise tax rate.

The CIT also ruled that the authority to assess excise taxes on tobacco imports and to determine their classification lies with CBP, and not the Alcohol and Tobacco Tax and Trade Bureau (TTB).

Whether Gutkha is Chewing Tobacco or Snuff Affects Excise Taxes

Gutkha is a smokeless tobacco product from India containing crushed betel nuts, aromatic spices (namely, lime, saffron, and cardamom), menthol and/or catechu additives (optional), and crushed tobacco leaf.

Same HTS rate, but snuff has higher excise tax. The HTS duty rate for both snuff and chewing tobacco is $0.247 per kilogram. While TTB considers smokeless tobacco as “any snuff or chewing tobacco,” the excise tax is $0.585 per pound for snuff and only $0.195 per pound for chewing tobacco.

Gutkha Entered as Chewing Tobacco, but CBP Liquidated as Snuff

In 2007, Shah Brothers made five entries of gutkha, classifying it as chewing tobacco; but in 2008, CBP changed the classification and liquidated the entries as snuff under Subheading 2403.99.2040.

TTB ruled Gutkha is snuff. Shah Brothers requested a ruling from TTB, which ruled that the gutkha contained no discernible leaf tobacco and was snuff, not chewing tobacco.

CBP ruled Gutkha is chewing tobacco, then revoked ruling. On January 27, 2009, CBP issued its own ruling, holding that gutkha is chewing tobacco. CBP stated that the 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. In a highly unusual action, Customs revoked this ruling approximately sixty days later.

Importer Files Suit and Wins, as CBP “Confesses Judgment”

Shah Brothers then filed a complaint at the CIT seeking a reclassification of gutkha as chewing tobacco and a refund of excess taxes paid. CBP responded by confessing judgment that the original claim by Shah Brothers that gutkha was chewing tobacco was correct, and CBP agreed to refund the contested excise taxes along with interest.

Importer Then Amends Suit to Challenge TTB and Loses

Shah Brothers then amended its complaint to challenge TTB’s administration and enforcement of the relevant statutes, regulations and test procedures in determining the classification of chewing tobacco for gutkha and alleged that Customs improperly relied on the TTB classification of gutkha as snuff.

No CIT jurisdiction over TTB’s actions. However, the CIT ruled that it did not have jurisdiction to review TTB’s actions, as it is CBP not TTB, that administers and enforces the excise taxes imposed on tobacco imports.

Excise tax authority now with CBP. According to the CIT, the authority to assess excise taxes on tobacco imports and to determine their classification now lies with CBP, which is a part of the Department of Homeland Security, and not with Treasury Department of which it is no longer a part.

(Treasury Department Order 100-16 delegated to the Secretary of Homeland Security the authority related to the Customs “revenue functions” that were previously vested in the Secretary of the Treasury. TTB remains part of the Department of Treasury.)

(CIT Slip Op 10-115, dated 10//06/10)