CBP Ruling H047367

HQ H047367 May 16, 2011 OT:RR:CTF:ER H047367 DCC Diana L. Jackson Fines, Penalties and Forfeiture U.S. Customs and Border Protection 101 E. Main Street Norfolk, VA 23510 Dear Ms. Jackson: This letter is in response to your request for internal advice of December 15, 2008, regarding the importation of cigarettes by Philip Morris USA, Inc. (“PM USA”). The subject of your request is a prior disclosure, dated September 17, 2008, filed by PM USA with Customs and Border Protection’s (“CBP”) office in Richmond, Virginia. PM USA also filed a request for a prospective ruling, dated September 18, 2008. Because the prospective ruling request involved pending transactions we closed that case pursuant to 19 C.F.R. § 177.7(a). Your December 15, 2008, request concerns the applicable entry procedures when a U.S. business retains third-party investigators to place on-line orders for cigarettes for private investigative purposes. FACTS: PM USA manufactures and imports several brands of cigarettes bearing PM USA branded trademarks. Based on Appendix B of its prior disclosure, PM USA retained third-party investigators to place orders for PM USA cigarettes through internet websites operated by on-line retailers between January 2004 and June 2008. Although the investigatory cigarette purchase program began before that date, PM USA states that it did not begin recording detailed information in electronic form until that time. PM USA acknowledges that although paper records of the importations may have been retained, “it would be time consuming and expensive to gather and tabulate such data, and we request that we not be required to do so for purposes of this disclosure.” From 2004 to 2008, PM USA investigators placed on-line orders for one to four cartons of PM USA-branded cigarettes. According to PM USA the total value of the transaction was generally less than $200, but sometimes between $200 and $2,000. Once received by the investigators, the ordered cigarettes were transferred to PM USA for analysis to determine whether they were counterfeit. PM USA also examined the packaging to determine how the cigarettes entered the United States. PM USA used information gathered through these purchases to investigate internet sales of cigarettes and defend the trademark of its branded cigarettes against infringement by manufacturers of counterfeit cigarettes. Through its investigations, PM USA developed information regarding the identity and business methods used by other companies to sell counterfeit cigarettes. When PM USA determined that a party was retailing counterfeit cigarettes, PM USA initiated lawsuits against that party. See, e.g., Philip Morris USA Inc. v. Veles Ltd., 2007 U.S. Dist. LEXIS 19780 (S.D.N.Y. 2007); and Philip Morris, Inc. v. Otamedia, 2004 U.S. Dist. LEXIS 10930 (S.D.N.Y. 2004). Although PM USA states that the information collected through its investigations could have been provided to law enforcement authorities for public enforcement actions, it is unclear whether the company has provided such information to CBP. According to PM USA, the cigarettes purchased by third-party investigators were used only for analysis, investigation, and enforcement purposes, and the imported cigarettes were not sold in, or distributed into, U.S. commerce. PM USA claims the imported cigarettes were not subject to duty or formal entry requirements. PM USA argues that pursuant to CBP’s regulations concerning informal entry of mail importations, 19 C.F.R. Part 145, the foreign shipper, not the U.S. importer, has the obligation to provide a description of the merchandise shipped. Because it does not control the shipping process, PM USA argues it cannot control whether the shipment complies with U.S. laws governing the importation of cigarettes. PM USA further claims that for low-value shipments under $200, formal entry was not required. As part of its prior disclosure, and pursuant to 19 U.S.C. § 1681a(b)(3), PM USA filed a signed certification, dated August 20, 2008, which states that: The undersigned certifies under penalty of perjury on behalf of Philip Morris USA Inc. that Philip Morris USA Inc. is a manufacturer of cigarettes, that it holds the United States trademark rights on the cigarette brands described in Appendices A and B [of PM USA’s prior disclosure] that it consents to the importation of the specific cigarettes listed on Appendices A and B, and that all of the cigarettes listed on such Appendices A and B have been acquired for noncommercial use and will not be sold or distributed into domestic commerce. In order to determine whether PM USA properly imported merchandise under PM USA’s investigatory cigarette purchase program, we must determine whether the import transactions qualified for an administrative exemption from duty, informal entry, and importation by mail. We also review whether the transaction was subject to the requirements of the Imported Cigarette Compliance Act of 2000. We consider each of these issues in turn. ISSUES: Whether the cigarettes qualified for an administrative exemption from formal entry requirements. Whether the cigarettes were eligible for informal entry procedures. Whether the cigarettes qualified for importation by mail. Whether the cigarettes were subject to the Imported Cigarette Compliance Act of 2000. LAW & ANALYSIS: Administrative Exemption Section 321(a)(2)(C) of the Tariff Act of 1930, codified at 19 U.S.C. § 1321(a)(2)(C), authorizes CBP to allow duty-free entry of low-value shipments valued at $200 or less for articles that are imported by one person on one day. The purpose of this provision, as stated in the statute, is to “avoid expense and inconvenience to the government disproportionate to the revenue that would otherwise be collected.” 19 U.S.C. § 1321(a). Notwithstanding the general statutory exemption, the CBP regulation implementing the administrative exemption under section 1321(a)(2)(C) of the Tariff Act of 1930 specifically excludes all shipments of cigarettes from the exemption. See 19 C.F.R. §§ 10.151 and 10.153. Although section 10.151 contains a general exemption from duty for shipments valued at $200 or less, that provision is subject to the limitations set out in 19 C.F.R. § 10.153, which states that, “No . . . cigarettes shall be exempted from the payment of duty and tax under § 10.151 or § 10.152.” 19 C.F.R. § 10.153(e). Therefore, pursuant to 19 C.F.R. § 10.153(e), cigarettes are not eligible for the administrative exemption from the payment of duty and tax. Informal Entry As originally enacted, section 498 of the Tariff Act of 1930, codified at 19 U.S.C. § 1498, authorized the Secretary of Treasury to prescribe rules and regulations for the declaration and entry of, among other things, imported merchandise when the aggregate value of the shipment did not exceed a certain amount. As subsequently amended, 19 U.S.C. § 1498 authorized informal entry for shipments valued at less than $2,500. The CBP regulations implementing 19 U.S.C. § 1498 are contained in 19 C.F.R. Part 143, Subpart C, which is entitled “Informal Entry.” The informal entry procedures set forth in the regulations have few requirements than the formal entry procedures prescribed in Part 142 of the regulations. Although 19 U.S.C. § 1498 authorizes CBP to set the maximum at up to $2,500, the CBP regulations currently establish a limit of $2,000. The pertinent regulation provides as follows: § 143.21 Merchandise eligible for informal entry. The following types of merchandise are among those which may be entered under informal entry (see §§ 141.52 and 142.22 of this chapter): (a) Shipments of merchandise not exceeding $2,000 in value. 19 C.F.R. § 143.21. PM USA states that most of the shipments were valued at less than $200, and in no event did the value of the shipments exceed $2,000. The cigarettes would, therefore, fall within 19 C.F.R. § 143.21(a) (merchandise valued at $2,000 or less). Importation by Mail In addition to limitations on informal entry and the administrative exemption for low-value shipments, we must also analyze whether the subject transaction satisfies the requirements for importation by mail. The CBP regulations concerning mail importations do not allow the release of imported cigarettes before the applicable federal excise tax is paid. Specifically, 19 C.F.R. § 145.13(b) states, “A mail entry may not be used to release a shipment of cigars, cigarettes, or cigarette papers or tubes for a manufacturer without the payment of tax as provided for in 27 CFR part 275 and § 11.2a of this chapter.” Although 19 C.F.R. § 145.13(b) indicates that cigarettes may be released under a mail entry, that release must be done in accordance with 19 C.F.R. § 11.2a, which explicitly disallows release without payment of tax for cigarettes under a mail entry. See 19 C.F.R. § 11.2a. Therefore, because federal taxes were not paid at the time of importation, the imported cigarettes were not eligible for release from CBP’s custody pursuant to 19 C.F.R. §§ 11.2a and 145.13(b). Imported Cigarette Compliance Act Finally, we review whether the imported cigarettes were subject to the additional importation requirements in the Imported Cigarette Compliance Act (“ICCA”). See Title IV, Tariff Suspension and Trade Act of 2000 (“Tariff Act of 2000”), Public Law 106-476. Based on the provisions of the ICCA, we determine that the cigarettes acquired through PM USA’s investigatory purchase program are not covered by the noncommercial use exemption of the ICCA pursuant to 19 U.S.C. § 1681a(b)(3). Section 4004 of the Tariff Act of 2000 amended the Tariff Act of 1930 by adding a new Title VIII, entitled “Requirements Applicable to Imports of Certain Cigarettes,” codified at 19 U.S.C. § 1681 – 1681a. Under the new statute, unless covered by an exemption, cigarettes may be imported into the United States only when the manufacturer and importer meet certain specifically enumerated conditions. See 19 U.S.C. § 1681a(a). Among those provisions are the requirements to submit certain certificates to CBP. In addition, the ICCA provides for the imposition of civil penalties on any person who violates any of the conditions attaching to the importation of cigarettes, as well as the forfeiture and destruction of products imported in violation of the law. The ICCA established three exemptions from the requirement to file the certificates specified in 19 U.S.C. § 1681a(c). PM USA claims the cigarettes acquired through its investigatory purchase program are not subject to the ICCA’s general certification requirements because the imported cigarettes meet the requirements for the noncommercial use exemption contained in 19 U.S.C. § 1681a(b)(3). PM USA argues that the noncommercial use exemption applies because its investigators only purchased cigarettes to which PM USA was the registered U.S. trademark owner and because none of the cigarettes were imported for distribution into the domestic commerce of the United States. The third exemption of the ICCA, upon which PM USA relies, allows for the importation of cigarettes for “noncommercial use.” That exemption, codified at 19 U.S.C. § 1681a(b)(3), exempts from the ICCA’s entry requirements: § 1681a. Requirements for entry of certain cigarettes or smokeless tobacco products * * * (b) Exemptions Cigarettes or smokeless tobacco products satisfying the conditions of any of the following paragraphs shall not be subject to the requirements of subsection (a): * * * (3) Cigarettes or smokeless tobacco products intended for noncommercial use, reexport, or repackaging. Cigarettes or smokeless tobacco products— (A) for which the owner of such United States trademark registration for cigarettes or smokeless tobacco products (or a person authorized to act on behalf of such owner) has consented to the importation of such cigarettes or smokeless tobacco products into the United States; and (B) for which the importer submits a certificate signed by the manufacturer or export warehouse (or a person authorized by such manufacturer or export warehouse) to which such cigarettes or smokeless tobacco products are to be delivered (as provided in subparagraph (A)) stating, under penalties of perjury, with respect to those cigarettes or smokeless tobacco products, that it will not distribute those cigarettes or smokeless tobacco products into domestic commerce unless prior to such distribution all steps have been taken to comply with paragraphs (1), (2), and (3) of subsection (a), and, to the extent applicable, section 5754(a)(1) (B) and (C) of the Internal Revenue Code of 1986. 19 U.S.C. § 1681a(b) (emphasis added). Therefore, two conditions must be met in order for the imported cigarettes to qualify for the noncommercial use exemption. First, if the imported cigarettes bear a U.S. registered trademark, the owner of that trademark must consent to the importation. See 19 U.S.C. § 1681a(b)(3)(A). As described in 19 U.S.C. § 1681a(c)(3), the U.S. trademark owner’s consent must be contained in a certificate signed by the trademark owner and filed by the importer at the time of entry. See 19 U.S.C. § 1681a(c)(3)(A). Second, the importer must present a certificate signed by the manufacturer to which the cigarettes are to be delivered stating that the imported cigarettes will not be distributed into the domestic commerce of the United States. See 19 U.S.C. § 1681a(b)(3)(B). We find that the cigarettes imported under PM USA’s investigatory purchase program do not qualify for the noncommercial use exemption of the ICCA because PM USA failed to file the two required certificates, i.e., the Trademark Owner Consent and the No Domestic Commerce Certification, at the time of entry. Because the general entry requirements of 19 U.S.C. § 1681a(a) must be complied with at the time of entry, parties seeking an exemption must establish that they qualify for an exemption from those requirements at the time of entry as well. For cigarette importations subject to the general requirements of 19 U.S.C. § 1681a(a), the statute requires that all certifications required for importation under 19 U.S.C. § 1681a(c) be filed at the time of entry. See 19 U.S.C. § 1681a(a)(5). Thus, in order to avoid the requirement of filing those certifications in 19 U.S.C. § 1681a(c) at the time of entry, the importer must be able to demonstrate it is exempt. The documentation to establish an exemption from the entry requirements would, therefore, need to be supplied to CBP at the time of entry in order to demonstrate that an exemption applies and that the other entry requirements, such as those in 19 U.S.C. § 1681a(c), are not required. The certification that PM USA filed with its prior disclosure was not filed until August 20, 2008, which was after the time of entry for the subject import transactions that occurred between January 2004 and June 2008. Therefore, at the time of entry it would have had to satisfy the other requirements of 19 U.S.C. § 1681a(a) or demonstrate that it was exempt from those requirements. Because it did not establish that it was exempt at the time of entry, PM USA would have had to comply with all of the requirements of 19 U.S.C. § 1681a(a), which it failed to do. HOLDING: For the reasons discussed above, the cigarettes acquired through PM USA’s investigatory purchase program did not qualify for an administrative exemption from duty, were eligible for informal entry procedures, and were not eligible for release before the payment of taxes. Further, PM USA did not establish at the time of entry that these cigarettes were exempt from the general ICCA certification requirements codified at 19 U.S.C. § 1681a(a). You are to mail this decision to counsel for the inquirer no later than 60 days from the date of this letter. On that date, the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division