CIT Rules CBP is Final Decision-Maker for Tax Collection on Smokeless Tobacco

The Court of International Trade has ruled in Shah Brothers, Inc., v. U.S., that a 2009 amendment to 19 USC 1514 regarding U.S. Customs and Border Protection's tax collection authority over tobacco products, imported gutkha in this case, does not alter CBP's responsibility as the final agency decision-maker, and as a result, jurisdiction is not available under 28 USC 1581(i).

(Imported gutkha, a "smokeless tobacco," is subject to tariffs¹ under the Harmonized Tariff Schedule (HTS) and to federal excise taxes under the Internal Revenue Code (IRC), which defines "smokeless tobacco" as "any snuff or chewing tobacco."

In an earlier CIT decision, CBP confessed that gutkha was chewing tobacco, and as such, is subject to a lower excise tax rate of 50.33¢/lb. The excise tax rate for snuff is $1.51/lb. The earlier decision also determined that the court had no jurisdiction over the Alcohol and Tobacco Tax and Trade Bureau's (TTB) actions under either 28 USC 1581(a) or (i).)

Shah Says 2009 Amendment Divested CBP of Tax Authority, CIT Has Jurisdiction

Shah Bros. challenges TTB's involvement in the classification and taxation of the gutkha. Shah Bros. contends that the CIT has jurisdiction over TTB under 28 USC 1581(i), as a 2009 amendment² to 19 USC 1514 divests CBP of final authority regarding tax collection.

Shah Bros. claims that the amended statute excludes TTB tax assessment decisions from review under 28 USC 1581(a), leaving 28 USC 1581(i) jurisdiction as the only remaining avenue for judicial relief. This statute states that the CIT has exclusive jurisdiction over any civil action against the U.S. that arises out of any U.S. law providing for revenue from imports, or tariffs, duties, fees on the importation of merchandise other than for revenue, etc.

CBP Says CIT Lacks Jurisdiction to Review Shah's Challenge to TTB Authority

CBP asks the CIT to dismiss Shah's complaints regarding the TTB's authority for lack of subject matter jurisdiction. In the earlier case, CBP stated that the CIT cannot review actions taken by TTB, because regardless of TTB’s ruling policy, CBP is the entity ultimately responsible for classifying merchandise and assessing excise tax, although CBP may consider TTB’s rulings in those determinations. As such, CBP’s reliance upon TTB’s rulings would naturally be a part of the inquiry in a typical protest case arising under section 1581(a), and is therefore not reviewable under section 1581(i).

CIT Rules Amendment Doesn't Affect CBP, Lacks Jurisdiction over TTB Actions

The CIT ruled that the amendment to 19 USC 1514 does not alter CBP's authority to assess and collect taxes as it does not change the substance of the types of protestable actions.

Rather, the CIT states the amendment only affects the statute of limitations for the assessment and collection of taxes for tobacco products. The CIT states that neither the amendment, nor the legislative history surrounding it, make any mention of CBP's authority to assess such taxes or of granting TTB any additional authority. According to the CIT, the amendment is a procedural alteration and is not a substantive change in the law.

Therefore, the CIT rules that it lacks 1581(i) jurisdiction to review Shah Bros' complaint regarding TTB's alleged actions and grants CBP's motion to dismiss the complaint.

(The CIT also ruled that it has jurisdiction and will review Shah Bros.' challenges to CBP's classification and taxation of its goods because this complaint concerns CBP's protestable decisions.)

¹The HTS duty rate for both chewing tobacco under HTS 2403.99.2030 and snuff under HTS 2403.99.2040 is the same, 24.7¢/kg.

²The Children's Health Insurance Program Reauthorization Act (CHIPRA) of 2009 amended 19 USC 1514, which concerns protests of CBP decisions, including classification and taxation. It was amended to state, among other things, that CBP decisions are final and conclusive except with respect to taxes imposed under chapters 51 and 52 of the IRC (on tobacco products and distilled spirits), etc. This changed the law so that tobacco taxes must be assessed within three years after a return is filed (previously one year).

(In a previous and almost identical case involving Shah Bros., the CIT ruled that CBP, not TTB, administers and enforces the taxes at issue in this case. CBP "confessed judgment" and reliquidated the gutkha as "chewing tobacco" and not as "snuff." See ITT's Online Archives or 10/12/10 news, 10101217, for BP summary.)

(CIT Slip Op 11-56, dated 05/17/11)