Shah Bros., Inc. v. United States

Slip Op. 11-56

UNITED STATES COURT OF INTERNATIONAL TRADE

SHAH BROTHERS, INC.,

Plaintiff,

Before: Pogue, Chief Judge
v.
Court No. 10-00205

UNITED STATES,

Defendant.

OPINION

[Defendant’s motion to dismiss Count 3 and Count 4 of Plaintiff’s
Amended Complaint granted.]

Dated: May 17, 2011

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, Chief Judge: This case concerns the U.S. Customs and

Border Protection’s (“Customs” or “CBP” or “the government”)

classification of Plaintiff Shah Bros.’ imported merchandise, a

smokeless tobacco product called “gutkha,” that is subject to taxes

as well as tariffs under the Harmonized Tariff Schedule of the
Court No. 10-00205 Page 2

United States (“HTS”) 2403.99.1 The facts at issue here are

similar to those in Shah Brothers v. United States, Slip Op. 10-

115, Court No. 09-00180, issued on October 6, 2010, which involved

different entries of the same merchandise. See Shah Brothers v.

United States, __ CIT __, 751 F. Supp. 2d 1303 (2010)(“Shah Bros.

I”).

The issues in the two cases are also almost identical. See

Amend. Compl. ¶ 54 (alleging that the cases “involve[] identical

issues”). In both cases, Plaintiff’s complaints challenge CBP’s

classification and taxation of Plaintiff’s gutkha (Counts 1 and 2),

as well as the Alcohol and Tobacco Tax and Trade Bureau’s (“TTB”)

“erroneous administration and enforcement” in the classification

and taxation of said goods (Counts 3 and 4).

In Shah Bros. I, the government confessed judgment with regard

to the classification and taxation of the goods, and the court

dismissed the action with regard to TTB, concluding that

jurisdiction pursuant to 28 U.S.C. § 1581(a) provided the

appropriate remedy where Customs, not TTB, both administers and

enforces the classification and taxation of Plaintiff’s goods. Shah

Bros. I at 1314-15.

Following the analysis in Shah Bros. I, the government now

asks the court to dismiss Counts 3 and 4 of Plaintiff’s amended

complaint in this action for lack of subject matter jurisdiction.

1
Under the HTS, smokeless tobacco is further classified as
chewing tobacco (2403.99.2030) or snuff (2403.99.2040). 26 U.S.C.
§§ 5701(e), 5702(m)(1)-(3)(2006).
Court No. 10-00205 Page 3

Plaintiff contends that, unlike the situation in Shah Bros. I,

jurisdiction over Counts 3 and 4 exists in this action because a

recent amendment to 19 U.S.C. § 1514 divests Customs of final

authority regarding tax collection, rendering section 1581(a)

unavailable.

Because the court concludes that the amendment at issue does

not alter Customs’ responsibility as the final agency decision-

maker, the court grants the government’s request.

BACKGROUND
Shah Bros. I2

Gutkha, a “smokeless tobacco,” is subject both to import

tariffs in accordance with the HTS and to federal Internal

Revenue excise taxes in accordance with 26 U.S.C. § 5701(e).

Title 26 defines “smokeless tobacco” as “any snuff or chewing

tobacco.” 26 U.S.C. § 5702(m)(1).3 Although the tariff rate for

snuff and chewing tobacco is the same, the excise tax for snuff

is higher than that for chewing tobacco. See id. at § 5701(e).

Customs is responsible for collecting both the tariffs and

the excise taxes. See 6 U.S.C. § 215(1); 27 C.F.R. § 41.62;

Treas. Order 100-16 (May 15, 2003). Nonetheless, in classifying

2
Familiarity with the court’s decision in Shah Bros. I is
presumed. Some facts are summarized here for the reader’s
convenience.
3
Title 26 also defines “chewing tobacco” as “any leaf
tobacco that is not intended to be smoked.” 26 U.S.C.
§ 5702(m)(3).
Court No. 10-00205 Page 4

smokeless tobacco either as chewing tobacco or snuff, Customs

considers determinations made by the TTB.

In Shah Bros. I, Shah Bros. classified its gutkha as

“chewing tobacco” under HTSUS Subheading 2403.99.2030. Shah Bros.

I at 1306. Customs changed the gutkha tariff classification and

then liquidated the merchandise as “snuff,” under HTSUS

2403.99.2040. Id. In response, Shah Bros., after using the

statutory protest procedures, filed an action in this court

challenging the government’s decision. The government confessed

judgment, agreeing to re-liquidation of the entries as chewing

tobacco under HTS Subheading 2403.99.2030, and the court, in

January 2010, entered judgment and ordered the re-liquidation of

the entries. Def.’s Partial Mot. to Dismiss 3 (“Def.’s Mot. to

Dismiss”).

Following the court’s entry of judgment, Shah Bros. then

filed an amended complaint, alleging jurisdiction under 28 U.S.C.

§§ 1581(i)(1) and (i)(4),4 and claiming economic harm as a result

4
In addition to the jurisdiction conferred upon the Court
of International Trade by subsections (a)-(h) of this section and
subject to the exception set forth in subsection (j) of this
section, the Court of International Trade shall have exclusive
jurisdiction of any civil action commenced against the United
States, its agencies, or its officers, that arises out of any law
of the United States providing for--

(1) revenue from imports or tonnage;

(2) tariffs, duties, fees, or other taxes on the
importation of merchandise for reasons other than the
raising of revenue;

(3) embargoes or other quantitative restrictions
Court No. 10-00205 Page 5

of TTB and CBP’s actions. Specifically, Shah Bros. challenged

TTB’s administration and enforcement of the relevant regulations

and procedures in determining the classification of imported

gutkha, claiming that TTB and Customs acted arbitrarily and

contrary to law. The court dismissed for lack of jurisdiction,

concluding that CBP, not TTB, administers and enforces the taxes

at issue here. Therefore, Plaintiff’s proper relief followed the

statutory protest procedures, and since jurisdiction under 28

U.S.C. § 1581(a) was available and adequate, the court lacked

jurisdiction under section 1581(i).

In addition to the entries in the prior lawsuit and the

entries at issue here, other of Plaintiff’s gutkha entries are

currently subject to seizure and judicial forfeiture. Amend.

Compl. ¶ 56.

Shah Bros. II

The merchandise at issue in this matter was entered in 2009

under Entry No. BGG-5253247-6. CBP classified this entry as

“snuff” under HTS Subheading 2403.99.2040, assessing a tax of

$1.51/lb. Plaintiff timely protested Customs’ decision and the

protest was denied. Amend. Compl. ¶ 57. Plaintiff then filed its

on the importation of merchandise for reasons other
than the protection of the public health or safety; or

(4) administration and enforcement with respect to
the matters referred to in paragraphs (1)-(3) of this
subsection and subsections (a)-(h) of this section.

28 U.S.C. § 1581(i).
Court No. 10-00205 Page 6

complaint in this action, alleging jurisdiction under both

section 1581(a) and 1581(i), and again challenging both CBP’s

denial of the protest as well as TTB’s alleged actions. In its

amended complaint,5 Plaintiff claimed that an amendment to 19

U.S.C. § 1514 now requires the court to review TTB’s decisions,

thus rendering Shah. Bros. I inapplicable as of April 2009, when

the amendment was enacted. Amend. Compl. ¶ 9.

Plaintiff alleges that the statute, as amended, excludes tax

assessment decisions from review by protest, thus precluding

Plaintiff from exercising jurisdiction under 1581(a), and leaving

1581(i) jurisdiction as the only remaining avenue for judicial

relief.

STANDARD OF REVIEW

Whether jurisdiction exists is a question of law. Sky Techs.

LLC v. SAP AG, 576 F.3d 1374, 1378 (Fed. Cir. 2009). In

resolving such a question, where the Defendant has moved to

dismiss part of Plaintiff’s action for lack of jurisdiction, the

court accepts as true all factual allegations Plaintiff asserts,

construing all material facts in the complaint in Plaintiff’s

favor. Warth v. Seldin, 422 U.S. 490, 501 (1975); Ritchie v.

Simpson, 170 F.3d 1092, 1097 (Fed. Cir. 1999). Nonetheless, Shah

Bros., “[the] party seeking the exercise of jurisdiction in its

favor[,] has the burden of establishing that [] jurisdiction

5
Plaintiff filed its complaint before the court issued its
decision in Shah Bros. I, but filed its amended complaint after
that decision.
Court No. 10-00205 Page 7

exists.” Rocovich v. United States, 933 F.2d 991, 993 (Fed. Cir.

1991) (citing KVOS, Inc. v. Associated Press, 299 U.S. 269, 278

(1936)).6

DISCUSSION

Shah Bros. I controls the result here. Here, as in Shah

Bros. I, CBP’s actions are reviewable under section 1581(a),

which provides an available and adequate remedy.

As noted above, while Plaintiff concedes that the issues

here are “identical” to those in Shah Bros. I, it contends that a

2009 amendment to 19 U.S.C. § 1514 divests Customs of final

authority regarding tax collection, rendering section 1581(a)

unavailable by impairing the court’s ability to review TTB’s

“substantive” decisions. Amend. Compl. ¶¶ 9, 28. The court

disagrees.

The 2009 amendment does not alter CBP’s authority to assess

6
As a consequence, “[i]f a motion to dismiss for lack of
subject matter jurisdiction[] . . . challenges the truth of the
jurisdictional facts alleged in the complaint, the [] court may
consider relevant evidence in order to resolve the factual
dispute.” Reynolds v. Army & Air Force Exchange Service, 846 F.2d
746, 747 (Fed. Cir. 1988). Nonetheless, it remains Plaintiff’s
burden to present evidence to establish jurisdiction. Thomson v.
Gaskill, 315 U.S. 442, 446 (1942) (“if a plaintiff’s allegations
of jurisdictional facts are challenged by the defendant, the
plaintiff bears the burden of supporting the allegations by
competent proof.” (citation omitted)); Ritchie, 170 F.3d at 1099
(“a [plaintiff’s] allegations alone do not conclusively establish
standing. If challenged, the facts alleged which establish
standing are part of the [plaintiff’s] case, and[] . . . must be
affirmatively proved.” (citation omitted)).
Court No. 10-00205 Page 8

and collect taxes; rather, the amendment only affects the statute

of limitations regarding tax collection. 19 U.S.C. § 1514 itself

concerns protests of Customs’ decisions, including classification

and taxation. As the government correctly explains, the

Children’s Health Insurance Program Reauthorization Act of 2009

(“CHIPRA”), which, in February 2009 amended 19 U.S.C. § 1514,

“did not change the substance of the types of protestable

actions.” Def.’s Reply in Supp. of Partial Mot. to Dismiss 2.

Rather, the amendment changed only the statute of limitations for

the assessment and collection of taxes for tobacco products. The

relevant portion of the statute currently reads:

Except as provided in subsection (b) of this section,
section 1501 of this title (relating to voluntary
reliquidations), section 1516 of this title (relating to
petitions by domestic interested parties), section 1520 of
this title (relating to refunds), and section 6501 of title
26 (but only with respect to taxes imposed under chapters 51
and 52 of such title)...decisions of the Customs Service
...shall be final and conclusive upon all persons (including
the United States and any officer thereof) unless a protest
is filed in accordance with this section...

19 U.S.C. § 1514(a)(emphasis added to reflect the amended

section).7

7
“(1) IN GENERAL.--Section 514(a) of the Tariff Act of 1930
(19 U.S.C. 1514(a)) is amended by striking ‘and section 520
(relating to refunds)’ and inserting ‘section 520 (relating to
refunds), and section 6501 of the Internal Revenue Code of 1986
(but only with respect to taxes imposed under chapters 51 and 52
of such Code)’.” Children’s Health Insurance Program
Reauthorization Act of 2009, Pub. L. No. 111-3, § 702(c)(1),123
Stat. 8, 110 (2009); see also TTB Federal Excise Tax Increase and
Related Provisions, available at
http://www.ttb.gov/main_pages/schip-summary.shtml (last visited
April 15, 2011).
Court No. 10-00205 Page 9

The exception added to the statute, for “section 6501,"

refers to 26 U.S.C. § 6501, concerning limitations on assessment

and collection of taxes under the Internal Revenue Code (“IRC”).

Under section 6501, taxes must be assessed within three years

after a return is filed. 26 U.S.C. § 6501(a). The exception is

limited to Chapter 52 of the IRC, which concerns tobacco

products, and thus, after the 2009 amendment, these tobacco

products, along with the distilled spirits delineated under

chapter 51 of the IRC, are now subject to section 6501. This

change allows for a three-year statute of limitations for the

assessment of taxes on such tobacco products.

The plain language of Section 6501 – which provides, in

relevant part, that “any tax imposed by this title shall be

assessed within 3 years after the return was filed . . . .” 26

U.S.C. §6501(a)– does not alter the protestability of Customs’

assessment.

The legislative history confirms that the amendment changes

only time limitations. Previously, there was a one-year time

limit regarding these tobacco taxes; the 2009 amendment replaces

the one-year limit with a three-year time limit previously

applied to distilled spirits. A Congressional description of the

provisions of the 2009 amendment explains the changes, clearly

indicating that these changes address the applicable statute of

limitations:
Court No. 10-00205 Page 10

[t]he provision clarifies the tax and customs law in the
area of alcohol and tobacco products by providing that,
notwithstanding customs law, the general statute of
limitations for assessment under the Code (sec. 6501)
applies with respect to taxes imposed under chapters 51
(relating to distilled spirits, wines, and beer) and 52
(relating to tobacco products and cigarette papers and
tubes) of the Code.

Joint Comm. on Taxation, DESCRIPTION OF THE REVENUE PROVISIONS OF THE

CHILDREN’S HEALTH INSURANCE PROGRAM REAUTHORIZATION ACT OF 2009 11 (JCX-1-

09) (Comm. Print Jan. 13, 2009), available at www.jct.gov (last

visited Apr. 15, 2011)(emphasis added).

Despite the language of the amendment, and the legislative

history it reflects, Plaintiff contends that the plain language

of the statute and amendment dictate that the tobacco tax

assessment is not a final Customs decision, thus triggering

1581(i) jurisdiction since 1581(a) becomes unavailable if the tax

assessment is now non-protestable. Pl.’s Br. in Opp’n to Def.’s

Mot. to Dimiss at 6-7 (“Pl.’s Br.”). Plaintiff also argues that

even if the language is not clear, the “statutory scheme as a

whole” supports a view that if Congress meant to amend only time

limits, the amendment would have fallen under § 1514(c)(3), and

that legislative history and the heading of the amendment are not

as persuasive as the placement of the amendment under § 1514(a).

Id. at. 7-8. Again the court disagrees.

Neither the language of the amendment itself nor the

legislative history surrounding it make any mention of Customs’

authority to assess such taxes or of granting TTB any additional
Court No. 10-00205 Page 11

authority. Rather, the amendment is a procedural alteration; it

is not a substantive change in the law.

It follows that Customs’ authority regarding the issues here

remains as it was in Shah Bros. I. So too does the court’s lack

of jurisdiction to review Counts 3 and 4 of Plaintiff’s amended

complaint, because these counts concern TTB’s alleged actions,

which are not final authority with regard to the issues

presented.8 Plaintiff’s adequate 1581(a) remedy thus remains,

and 1581(i) jurisdiction is inapplicable.

Therefore, the jurisdictional issues presented in this case

remain identical to the issues in Shah Bros. I. With regard to

the classification and taxation of Plaintiff’s goods, however,

because issue preclusion does not apply to classification cases,

each entry is treated de novo in ensuing litigation before the

court as to those entries. See United States v. Stone & Downer

Co., 274 U.S. 225, 233-34 (1927) (“[T]he finding of fact and the

construction of the statute and classification thereunder as

against an importer [is] not res judicata in respect of a

subsequent importation involving the same issue of fact and the

same question of law.”); Avenues in Leather, Inc. v. United

States, 317 F.3d 1399, 1403 (Fed. Cir. 2003) (“Under the public

policy adopted by the Supreme Court in Stone & Downer, each new

entry is a new classification cause of action, giving the

importer a new day in court.”); Schott Optical Glass v. United

8
See Shah Bros. I at 1310-12.
Court No. 10-00205 Page 12

States, 750 F.2d 62, 64 (Fed. Cir. 1984) (“The opportunity to

relitigate applies to questions of construction of the

classifying statute as well as to questions of fact as to the

merchandise.” (citation omitted)). Therefore, because these

counts concern CBP’s protestable decisions, the court has

jurisdiction over and will review Counts 1 and 2 of Plaintiff’s

amended complaint.

CONCLUSION

Accordingly, upon consideration of Defendant United States’

Partial Motion to Dismiss Counts 3 and 4 of Plaintiff’s Amended

Complaint, Defendant’s motion is hereby GRANTED.

/s/ Donald C. Pogue
Donald C. Pogue, Chief Judge

Dated: May 17, 2011
New York, N.Y.