Cigar Distributor Faces Section 592 Liability Despite Not Acting as Importer of Record, CIT Says

A U.S. cigar distributor may have committed import violations and be liable for more than $3 million in unpaid excise taxes even though it did not act as importer of record on the underlying shipments, the Court of International Trade said in a March 7 decision. Denying Good Times’ motion to dismiss the case, partly because Maverick actually imported the cigars, CIT found that Good Times may have controlled the transaction and fraudulently “introduced” the goods in violation of 19 USC 1592.

The government filed the lawsuit in 2017, alleging Maverick and Good Times schemed to underpay federal excise tax on cigars by not declaring their relationship to CBP at the time of entry and seeking $3,339,011.08 worth of unpaid federal excise tax, plus interest. Tobacco excise taxes are calculated based on the price of the first arms-length sale in the United States. Maverick reported its sales price to Good Times after importation, failing to mention that the entire transaction was controlled by Good Times via written agreement, the government said.

Per that agreement, Maverick would create two invoices, one itemizing the price it paid to the exporter, Rolida Investments, plus a one dollar per carton commission, and a second that included other costs associated with importation including excise taxes, customs broker fees and harbor maintenance tax. Good Times would only pay the balance of the second invoice once the funds from the first had been wired to Rolida, financing both transactions and paying for the cigars before they were entered, the government said. Good Times also owned the trademarks for all the imported cigars, the government said.

Among other arguments, Good Times said it could not have violated Section 1592 because it was not the importer or consignee for the cigars at the time of importation, “nor the alter ego of Maverick,” CIT said. “Good Times argues that all the relevant transactions were done at Maverick’s discretion,” including filing of entry documentation, signing power of attorney to a customs broker and paying duties and fees.

But under Section 1592, a violation occurs when a person either enters or introduces merchandise by means of false statements or material omissions. Taking a page from the Federal Circuit’s 2014 decision in Trek Leather (see 14091703), CIT ruled that Good Times may have exercised enough control over the import process that it could be considered to have “introduced” the goods in violation of Section 1592. Denying Good Times’ motion to dismiss, the court ordered Good Times and Maverick to file briefs in the case by April 2 so it can make a judgment on the issue.

(U.S. v. Maverick Marketing, LLC, Slip Op. 18-16, CIT # 17-00174, dated 03/07/18, Judge Kelly)

(Attorneys: Stephen Tosini for plaintiff U.S. government; Barry Boren for defendants Maverick Marketing and Good Times USA)