HQ 226814 - Protest 4115-92-100008; Interest; Tax on Distilled Spirits; 26 U.S.C. 5001; 26 U.S.C. 5061; 26 U.S.C. 6601; 27 CFR 251.40; T.D. 85-93 - United States International Trade Commision Rulings

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HQ 226814

December 30, 1996

LIQ-12/LIQ-14/WAR-1-RR:IT:EC 226814 PH

CATEGORY: LIQUIDATION

Port Director
U.S. Customs Service
6747 Engle Road
Middleburg Heights, Ohio 44130
ATTN: Ms. Jackie Sprungle

RE: Protest 4115-92-100008; Interest; Tax on Distilled Spirits; 26 U.S.C. 5001; 26 U.S.C. 5061; 26 U.S.C. 6601; 27 CFR 251.40; T.D. 85-93

Dear Madame or Sir:

The above-referenced protest was forwarded to this office for further review. Our decision follows.

FACTS:

According to the file and Customs records, on November 28, 1990, there were imported for the protestant, as consignee, 1,372 cases of 80 proof whiskey, with each case containing 12 750 milliliter bottles. A transportation entry, on Customs Form (CF) 7512, was filed at the port of Detroit, Michigan, on that date, with the port of destination being Louisville, Kentucky. In the file there is a warehouse entry for the merchandise, filed on December 4, 1990. According to this warehouse entry, the net quantity of imported merchandise was 2,597.48 proof gallons.

There is a withdrawal for consumption for the merchandise. According to this form, the merchandise withdrawn consisted of 2,597.48 proof gallons, with an effective tax rate under 26 U.S.C. 5010 of $13.16 per proof gallon, and a total tax amount of $34,182.84. According to documents in the file, the date of withdrawal was January 7, 1991.

According to Customs records, the liquidation of the withdrawal for consumption was extended, with the date of the extension notice being November 2, 1991. The reason given for the extension of liquidation was "Code 1", which at the time under consideration meant that information needed for the proper appraisement or classification of the merchandise was not available to the appropriate customs officer. The extension of liquidation is not in controversy.

According to Customs records, the entry was liquidated on November 13, 1992, with a tax amount of $34,342.20. According to materials in the file, the reason for the increase in the tax amount was that the protestant was incorrectly calculating proof gallons. The entry was reliquidated on November 27, 1992, with the same tax amount, but with a charge for interest in the amount of $30.31 (the initial liquidation had included no interest charge). The date of the bill for the reliquidated amount (including interest) was November 27, 1992.

On December 17, 1992, the protestant filed the protest under consideration. The protest is only against the interest charge of $30.31 (the protestant specifically states that "[the] protest is not against the method of calculating proof liters & proof gallons"). The protestant cites and includes as a part of the protest Bureau of Alcohol, Tobacco and Firearms (BATF) Industry Circular No. 86-4, dated January 21, 1986, which provided the instructions under which the protestant calculated proof gallons for the entry.

In the file there is a copy of BATF Industry Circular No. 86-4. The Circular was addressed to importers of distilled spirits and others concerned. Also in the file is an April 22, 1987, Customs telex referring to Circular No. 86-4 and stating that the instructions therein and subsequent instructions had resulted in some controversy over the correct conversion (from proof liters to proof gallons) factor to use for bottled distilled spirits. The correct procedure to determine proof gallons in bottled distilled spirits was described in this April 22, 1987, telex, and the official conversion factor was set forth. Also in the file is an August 4, 1987, telex referring to the foregoing instructions and modifying the April 22, 1987, telex by, among other things, changing the official conversion factor (from 1 liter = 0.26417 U.S. gallon to 1 liter = 0.264172 U.S. gallon). The "Action" in both of these telex's is described as "advis[ing] all Customs officers and interested parties" of the contents of the telex's.

According to the protest, on October 23, 1992, it was noticed by a Customs officer that Circular No. 86-4 had been rescinded. The protestant states that its proof gallon calculations since then have been in accordance with the new instructions. The protestant states that prior to the October 23, 1992, date, "... to the best of [its] knowledge & belief, [it] had received no rescission notice from Cleveland Customs." The protestant contends that:

Inasmuch as the underpayment was a non[-]willful act caused in part by the fact that Customs had not notified us to discontinue our method of calculation, we feel that the interest charge is improper and respectfully request that $30.31 be refunded.

The protest was forwarded to this office for further review (date of receipt in this office: March 14, 1996).

ISSUE:

May the protest in this case be granted?

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed (i.e., within 90 days of the date of the bill for interest; see 19 U.S.C. 1514(c)(3) and New Zealand Lamb Co., Inc. v. United States, 40 F. 3d 377, 382 (Fed. Cir. 1994), "[t]hat decision [i.e., Customs billing of New Zealand Lamb for interest], by virtue of ? 1514(c)(2)(B) [ now ? 1515(c)(3)(B)], commenced the running of the ninety-day limitations period"). The decision protested is a protestable decision (see New Zealand Lamb, supra, in which the Court, citing Syva Co. v. United States, 12 CIT 199, 681 F. Supp. 885 (1988), stated that "[w]e start from the premise that interest on the underpayment of duties is a charge within the jurisdiction of the Secretary of the Treasury'" (40 F. 3d at 382). Note also, that in Treasury Decision (T.D.) 85-93, Customs determined that the refund of overpayments or underpayments of excise taxes would be subject to the assessment of interest. (See also, 27 CFR 251.48, under which "[i]nternal revenue taxes payable on imported distilled spirits ... are collected, accounted for, and deposited as internal revenue collections by directors of customs in accordance with customs requirements ..."; United States v. Westco Liquor Products Co., 38 CCPA 101, 107, C.A.D. 446 (1951); and Flagstaff Liquor Co. v. United States, 73 Cust. Ct. 132, C.D. 4563 (1974).)

Treasury Decision 85-93 (see above) refers to 26 U.S.C. 6423. Section 6423 defines (in subsection (d)(1)) the term "alcohol or tobacco tax" as "any tax imposed by chapter 51 (other than part II of subchapter A, relating to occupational taxes) or by chapter 52 or by any corresponding provision of prior internal revenue laws ...." Treasury Decision 85-93 provides for the rate of the interest to be paid or charged, the date from which interest on overpayments will be computed, and that "[f]or underpayments, interest will be computed from the date the initial payment was due to the date full payment is made."

Under 26 U.S.C. 5001 (in chapter 51, subchapter A, part I of title 26, referred to above in 26 U.S.C. 6423), there is imposed on all distilled spirits produced in or imported into the United States a tax, at a stated rate, and a proportionate tax at the like rate on all fractional parts of a proof gallon. Under 26 U.S.C. 5061(d)(2)(B), the time for collecting tax on distilled spirits, wines, and beer, in the case of such merchandise imported into the United States (other than in bulk containers) is provided. According to this provision, "in the case of an entry for warehousing, the last day for payment of tax shall not be later than the 14th day after the last day of the semimonthly period during which the article is removed from the 1st such warehouse." Under 26 U.S.C. 6601(a):

If any amount of tax imposed by this title (whether required to be shown on a return, or to be paid by stamp or by some other method) is not paid on or before the last date prescribed for payment, interest on such amount at the underpayment rate established under [26 U.S.C. 6621] shall be paid for the period from such last date to the date paid.

In this case, the protestant concedes that it incorrectly calculated the proof gallons, and therefore the applicable internal revenue tax, for the merchandise involved. The protestant explicitly states that the protest is not against the method of calculating proof liters and proof gallons. The applicable statute (26 U.S.C. 6601(a)) requires that "[i]f any amount of tax imposed by this title ... is not paid on or before the last date prescribed for payment, interest on such amount ... shall be paid for the period from such last date to the date paid" (emphasis added). Under 26 U.S.C. 5061(d)(2)(B), the last date prescribed for payment of the tax under consideration is no later than the 14th day after the last day of the semimonthly period during which the article was removed from the warehouse. Under these statutory provisions, Customs has no choice but to charge interest on the amount of underpayment from that date to the date paid, as determined in T.D. 85-93 (see above). Accordingly, the protest must be DENIED.

HOLDING:

The protest in this case may not be granted because the applicable statutes (26 U.S.C. 6601(a) and other statutory provisions cited above) require that interest be charged on the amount of underpayment of the tax involved from the last date prescribed for payment of the tax to the date paid.

The protest is DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office, with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

Director, International

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