Shah Bros. Inc v. United States, Court No. 09-00180

CourtU.S. Court of International Trade
Writing for the CourtPogue, In this action, Plaintiff Shah Bros. challengesthe Defendant's classification of its imported merchandise, and theresulting tariff duties and excise taxes imposed. Plaintiff seeksreclassification of its goods, a return of said duties and taxe
PartiesSHAH BROTHERS, INC., Plaintiff, v. UNITED STATES, Defendant.
Docket NumberCourt No. 09-00180
Decision Date06 October 2010


Court No. 09-00180


Dated: October 6, 2010


Before: Pogue, Judge

[Motion to dismiss Plaintiff's Amended Complaint granted.]

Stein Shostak Shostak Pollack & O'Hara (Elon A. Pollack, Bruce N. Shulman, and Juli C. Schwartz) for the Plaintiff.

Tony West, Assistant Attorney General; Jeanne E. Davidson, Director; Barbara S. Williams, Attorney-in-Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice (Claudia Burke and Edward F. Kenny) for the Defendant.

Pogue, Judge: In this action, Plaintiff Shah Bros. challenges the Defendant's classification of its imported merchandise, and the resulting tariff duties and excise taxes imposed. Plaintiff seeks reclassification of its goods, a return of said duties and taxes, with interest thereon, and further declaratory relief. In response to Plaintiff's Complaint, the Defendant confessed judgment to Plaintiff's classification claim, agreeing to refund, with interest, the contested duties and excise taxes. See USCIT R. 54(b). The court then dismissed, subject to a right to amend,

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Plaintiff's claim for further declaratory relief.

Plaintiff has now filed an amended complaint, alleging a continuing dispute, based on the Alcohol and Tobacco Tax and Trade Bureau's ("TTB") classification of Plaintiff's merchandise, prior to the Defendant's confession of judgment, and U. S. Customs and Border Protection's ("Customs") implementation thereof. In further response, the Defendant now moves to dismiss Plaintiff's amended complaint for lack of subject jurisdiction, claiming that its confession of judgment has rendered Plaintiff's complaint moot.

As explained below, the court concludes that the responsibility for the administration and enforcement of the duties and taxes at issue lies with Customs-not TTB. Therefore, it is Customs' decisions that are at issue. As Plaintiff has not established that the statutory protest procedure, and the special provisions for judicial review thereof, provide an inadequate remedy for these Customs' decisions, the court dismisses Plaintiff's Amended Complaint.

I. Background

Five entries1 of Plaintiff's merchandise (imported through the port of Memphis) are at issue.2 Specifically, in 2007, Plaintiff

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began importing "gutkha", a tobacco product that "include[s] crushed betel nuts, aromatic spices (viz., lime, saffron and cardamom), menthol and/or catechu additives (optional) and crushed tobacco leaf." (Pl.'s First Am. Compl. ("Am. Compl.") 55 26, 27.) The specific gutkha product, contained in the five entries, "is a grayish/beige substance consisting of dry rough chunks of betel nut pieces and bits of tobacco leaf, coated with a powdered blend of the spices." (Id. ¶ 27.) According to Plaintiff, "[t]he tobacco leaf is not finely cut, ground or powdered" and "[w]hen the gutkha is rinsed in a fine mesh strainer, the spice coating is washed off, and the remaining components, i.e. crushed betel nut and tobacco leaf, are plainly visible and identifiable as such." (Id.)

As a "smokeless tobacco," Gutkha is subject both to import tariffs in accordance with the Harmonized Tariff Schedule of the United States ("HTSUS") and to federal Internal Revenue excise taxes in accordance with 26 U.S.C. § 5701(e)(2006). Title 26 defines "smokeless tobacco" as "any snuff or chewing tobacco." 26 U.S.C. § 5702(m)(1).3 Although the tariff rate for either snuff or chewing tobacco is the same, the excise tax for snuff is higher than that for chewing tobacco. Customs is responsible for collecting both the tariffs and the excise taxes. See 6 U.S.C. §

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215(1); 27 C.F.R. § 41.62; Treas. Order 100-16 (May 15, 2003).

Upon entry, Shah Bros. classified the subject gutkha as "chewing tobacco" under HTSUS Subheading 2403.99.2030.4 (Am. Compl. ¶ 32.) According to the amended complaint, in November 2007, a TTB investigator collected samples of the gutkha from Shah Bros.' premises. The investigator then submitted these samples to the TTB Regulations and Rulings division ("RRD"). (Id. ¶ 33.) In January 2008, Customs, in a CF 29 Notice of Action, changed the gutkha tariff classification to HTSUS 2403.99.3070 "tobacco... other."5 (Id. ¶ 34.) It appears that this classification ultimately resulted from a typographical error, as Customs in fact liquidated the merchandise as "snuff, "6 under HTSUS 2403.99.2040.(Id. ¶ 34.)7

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Subsequently, as a result of the reclassification and liquidation, Customs issued a bill to Shah Bros. for $4,706.30. (Id. ¶ 35) Shah Bros. protested this classification and assessment in Protest Nos. 2006-08-1005098 and 2006-08-1005169; in November 2008, Customs denied Plaintiff's Protests and Application for Further Review. (Id. ¶¶ 40-41.)

Concurrent with Shah Bros.' dispute with Customs, in February 2008, Shah Bros. also requested a ruling from RRD on the tax classification of the subject merchandise. (Id. ¶ 36.) RRD issued Priv. Ltr. Rul. 5200:2008R-122P, 10 which classified Shah Bros.' gutkha as "snuff." (Id.) According to RRD, "upon visual inspection," the gutkha contained "no discernible leaf tobacco." (Id.) In its January/February reclassification mentioned above,

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Customs relied upon this RRD ruling. (Id. ¶ 41.)

Plaintiff then moved for reconsideration, requesting that TTB perform the Alcohol Tobacco and Firearms ("ATF") Procedure 87-4 ("ATF Proc. 87-4") sieve test11 "in order to ascertain an objective result" because (1) "certain products like gutkha can be difficult to classify" and (2) "gutkha is universally marketed and consumed as chewing tobacco" (Id. ¶ 37.) TTB denied Shah Bros.' petition on the ground that "no 'fibrous' leaf material was visible." (Id. ¶ 42.) According to the Plaintiff, TTB did not, either in its rulings or in other communications, provide Plaintiff the results of any sieve test on the subject gutkha, if such test was even performed at all. (Id. ¶¶ 38, 42.)12

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In addition, other of Plaintiff's gutkha entries, entered at the same time as those at issue here, are currently subject to seizure and judicial forfeiture, as well as a (recently dissolved) criminal investigation by U.S. Immigration and Customs Enforcement.13 14 (Am. Compl. ¶¶ 46-47.) Plaintiff alleges that these entries are (a) identical to those at issue in this case and (b) "aris[e] out of the same series of...transactions occurring during the same time frame." (Pl.'s Br. in Opp'n to Def.'s Mot. to Dismiss ("Pl.'s Br.") 12.) The Defendant has not challenged the veracity of either of these two factual assertions.

Having paid all duties and taxes, Shah Bros. filed its Summons and initial Complaint on April 29, 2009. As noted above, the Defendant moved to confess judgment as to the entries at issue, i.e., to reclassify the goods under HTSUS Subheading 2403.99.2030 as "chewing tobacco" and to reliquidate the entries accordingly, refunding the excess Internal Revenue tax paid, together with

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interest. Plaintiff objected to this motion. Ultimately, the court granted the Defendant's motion and partial judgment was issued for Shah Bros.

Remaining before the court is Plaintiff's First Amended Complaint with the court, asserting jurisdiction under 28 U.S.C. § 1581(a), (i)(1) and (i)(4) (2006). The amended complaint makes two allegations. First, Shah Bros. challenges TTB's "erroneous administration and enforcement of the relevant statutes, regulations and test procedures in determining the classification of imported gutkha for tax assessment and revenue collection purposes." (Am. Compl. ¶ 5.) In this charge, Plaintiff claims that "TTB and [Customs] have treated gutkha inconsistently in the past," (id. ¶ 50,) and have acted arbitrarily and contrary to law in imposing "discernable leaf tobacco" and "fibrous leaf material" requirements. (Id. ¶¶ 51, 54.) Again according to the complaint, as a result of TTB's actions, Shah Bros. "has [been] adversely affected... because [TTB's] decision has resulted in the imposition of a higher excise tax, a seizure and a criminal investigation." (Id. ¶ 53.)

Second, Shah Bros. alleges that Customs "improperly performed its... role[15] with respect to the determination of the tax

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status of gutkha and the exaction of additional tax because it erroneously relied on TTB's arbitrary classification of gutkha as 'snuff.'" (Id. ¶ 55.) Plaintiff also references a more recent summons and complaint that address Customs' classification of other "identical" entries. (Pl.'s Br. 12; Notice of Errata to Pl.'s Opp'n to Def.'s Mot. to Dismiss 1-2 (informing the court that it has filed a summons and complaint for Court. No. 10-00205 which covers Protest No. 1601-10-100051).) Shah Bros. seeks declaratory and equitable relief.

The Defendant asserts, that because of its confession of judgment, Plaintiff has received complete relief in the form of reclassification of the gutkha imports at issue. As a consequence, the Defendant argues, Shah Bros. cannot assert any claim under either section 1581(a) or section 1581(i). Further, because the Defendant confessed judgment as to Plaintiff's classification claim, the Defendant argues that no case or controversy exists, and therefore this matter is not justiciable under Article III of the Constitution.


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