CAFC Should Rule Against CBP's Weighing Method for Tobacco Wraps, Importer Argues
The U.S. Court of Appeals for the Federal Circuit should reverse a Court of International Trade decision that found that CBP's "indirect method" for weighing importer New Image Global's tobacco wraps that included the weight of additives was legally and scientifically valid, New Image argued in its Nov. 1 opening brief. The Federal Circuit should remand the case to instruct the trade court that the original test for weighing the tobacco wraps was valid, the importer said.
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New Image is fighting for a lower excise tax on its tobacco wraps, since the wraps were classified by the government as roll-your-own tobacco, subjecting them to the excise tax following a law change in 2009. The importer's wraps are made with ethanol, which "gasses off" when the package is opened and the wrap is exposed to air, the company said. This process will shed around 10%-13% of the wraps' weight by the time they reach the final consumer after packaging and storage. New Image found that 0.86 grams is the prime weight for the tobacco wraps at the packaging stage, but ultimately declared a weight of 0.75 grams per wrap when paying the excise taxes.
To determine the weight of the wraps, CBP originally removed the wraps from the package and allowed them to "gas off" for nearly 24 hours to achieve a stable state for weighing them. This process was known as Test 1. The following year, CBP rejected this test and instead subtracted the weight of the packaging from the total weight of the sealed package to find the weight of the wraps, skipping the gassing off portion. The result of this Test 2 was a 26% increase in weight, resulting in a total of 0.915 grams per wrap.
CIT found Test 1 was illegal since the wraps were not suitable for use after 24 hours of gassing off (see 1907240009). The trade court also found that Test 2 was in fact reliable even though the weights were "always" higher than the weight of the wraps at the time they were made in the factory in Mexico. The importer appealed to the Federal Circuit.
CIT erred when it found that the wraps were not suitable for use after 24 hours of evaporation, New Image said. Rather, there are genuine disputes of fact over whether the wraps were suitable for use after this time and whether the chemicals that gas off are "integral." The trade court relied on the testimony of New Image's quality control supervisor, who said that he "anticipated" that the weight lost during Test 1 would be similar to the weight lost by the time the wraps reached their final customer.
"If the wraps were suitable for use when they reached the ultimate customer (after gassing off), then they may have been suitable for use after gassing off for 24 hours under Test #1," the brief said. "These facts are material. If the wraps were suitable for use after gassing off for 24 hours, then Lab Test #1 was proper and should be used to calculate the excise taxes because taxability should be in favor of the importer."
New Image also went through the cited case law to dispute CBP's notion that the tobacco wraps needed to be weighed immediately upon opening, in their "condition as imported." For instance, CIT ignored the exact language of 19 C.F.R. Section 158.7 which says that "Customs shall allow for weight loss due to evaporation," despite relying on the regulation to back its finding that the merchandise shall be appraised in its condition as imported.
The final portion of the brief attacked the reliability of Test 2 on the grounds that CBP's weight calculation for the wraps exceeds the factory weight every time. "How did the wraps gain weight in storage and transit?" New Image asked. "... These numbers should have given the court pause about the reliability of Test #2. ... There is simply no logical or physical explanation for any increase in weight. Recognizing the flaw in its own methodology, the Government was even willing to concede to the .874 grams/per wrap."