Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 134402
June 16, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Calculation of Duties on Imported Cigars
Thank you for your email of [mm/dd/yyyy] and our subsequent telephone conversation on [mm/dd/yyyy], concerning the application of the Excise Act, 2001 to imported cigars.
All legislative references are to the Excise Act, 2001 and the regulations therein, unless otherwise specified.
We understand that you are preparing to respond to [...] concerning excise duty amounts on imported cigars. The [...] apply to importations that occurred between [mm/dd/yyyy] and [mm/dd/yyyy] (the importation period).
Interpretation Requested
[...] you have asked us to explain how duty imposed on cigars that are imported under the Excise Act, 2001 is calculated. The cigars are stamped in accordance with the Excise Act, 2001 and are imported by a commercial importer.
Interpretation Given
Imposition of duty under section 42
Duty is imposed on imported cigars under section 42 at the rate set out in section 4 of Schedule 1. However, this rate was amended twice during the importation period noted above. Therefore, depending on the date of importation, one of three rates would have applied:
• From July 1, 2003 to June 30, 2006, inclusive, the rate applicable to imported cigars was $14.786 per 1,000 cigars.
• From July 1, 2006 to December 31, 2007, inclusive, the rate applicable to imported cigars was $16.60 per 1,000 cigars.
• As of January 1, 2008, the rate applicable to imported cigars is $18.50 per 1,000 cigars.
The duty imposed under section 42 on imported cigars is payable by the person who is liable under the Customs Act to pay duty levied under section 20 of the Customs Tariff or who would be liable to pay that duty on the tobacco or products if they were subject to that duty.
Imposition of additional duty under section 43
In addition to the duty imposed under section 42, duty is also imposed on imported cigars under section 43. This additional duty applies at the rate set out in Schedule 2. However, this rate was also amended twice during the importation period noted above. Therefore, depending on the date of importation, one of three rates would have applied:
• From July 1, 2003 to June 30, 2006, inclusive, the applicable rate of additional duty imposed on imported cigars under Schedule 2 was the greater of: (a) $0.065 per cigar and (b) 65% computed on the "duty-paid value" of the imported cigars.
• From July 1, 2006 to December 31, 2007, inclusive, the applicable rate of additional duty imposed on imported cigars under Schedule 2 was the greater of: (a) $0.066 per cigar and (b) 66% computed on the "duty-paid value" of the imported cigars.
• As of January 1, 2008, the rate of additional duty imposed on imported cigars under Schedule 2 is the greater of: (a) $0.067 per cigar and (b) 67% computed on the "duty-paid value" of the imported cigars.
According to section 2, "duty-paid value" means:
(a) in respect of imported cigars, the value of the cigars as it would be determined for the purpose of calculating an ad valorem duty on the cigars in accordance with the Customs Act, whether or not the cigars are subject to ad valorem duty, plus the amount of any duty imposed on the cigars under section 42 of this Act and section 20 of the Customs Tariff; and
(b) in respect of imported cigars that, when imported, are contained in containers or otherwise prepared for sale, the total of the value of the cigars as determined in accordance with paragraph (a) and the value similarly determined of the container in which they are contained.
As is the case with the duty imposed under section 42, the duty imposed under section 43 is payable by the person who is liable under the Customs Act to pay duty levied under section 20 of the Customs Tariff or who would be liable to pay that duty on the cigars if they were subject to that duty.
Calculation of duty
To illustrate how duties on imported cigars are calculated, we will provide two examples. For each example, we will make the following assumptions regarding the application of the Customs Act and the Customs Tariff:
• The value of each cigar as it would be determined for the purpose of calculating an ad valorem duty on the cigar in accordance with the Customs Act is $1.00
• The value of each cigar container as it would be determined for the purpose of calculating an ad valorem duty on the container in accordance with the Customs Act is $2.00
• Neither the cigars nor containers are subject to duty under section 20 of the Customs Tariff (CT)
Example 1
A company imports 10,000 stamped cigars on January 1, 2008. The cigars are not contained in containers or otherwise prepared for sale. In this example, the total duty would be calculated as follows:
Duty imposed under section 42 (i.e., $18.50 per 1000 cigars):
Quantity of cigars:
10,000
Divided by:
1000
Equals:
10
Multiplied by:
$18.50
Duty Payable:
$185.00
Additional duty imposed under section 43 (i.e., the greater of (a) 0.067 per cigar and (b) 67% of the "duty-paid value" of the cigars):
Quantity of cigars:
10,000
Multiplied by:
$0.067
Duty Payable (a):
$670.00
Quantity of cigars:
10,000
Multiplied by value per cigar for customs duty:
$1.00
Duty Payable (a):
$670.00
Equals:
$10,000.00
Plus s. 42 duty:
$185.00
Plus s. 20 duty (CT) :
$0.00
Equals "duty-paid value":
$10,185.00
Multiplied by:
.67
Duty Payable (b):
$6,823.95
Greater of duty payable under (a) & (b):
$6,823.95
Total Duty Payable under sections 42 and 43:
Total duty payable
[$185.00 (s. 42) plus $6,823.95 (s. 43)]:
$7,008.95
Example 2
A company imports 10,000 stamped cigars on January 1, 2008. The cigars are contained in containers in preparation for sale. In this example, the total duty would be calculated as follows:
Duty imposed under section 42 (i.e., $18.50 per 1000 cigars):
Quantity of cigars:
10,000
Divided by:
1000
Equals:
10
Multiplied by:
$18.50
Duty Payable:
$185.00
Additional duty imposed under section 43 (i.e., the greater of (a) 0.067 per cigar and (b) 67% of the "duty-paid value" of the cigars):
Quantity of cigars:
10,000
Multiplied by:
$0.067
Duty Payable (a):
$670.00
Quantity of cigars:
10,000
Multiplied by value per cigar for customs duty:
$1.00
Equals:
$10,000.00
Plus s. 42 duty:
$185.00
Plus s. 20 duty (CT) :
$0.00
Equals "duty-paid value" (cigars):
$10,185.00
Quantity of containers:
10,000
Multiplied by value per container for customs duty:
$2.00
Equals:
$20,000.00
Plus s. 42 duty:
$0.00
Plus s. 20 duty (CT):
$0.00
Equals "duty-paid value" (containers):
$20,000.00
Total "duty-paid value" (cigars & containers):
$30,185.00
Multiplied by:
.67
Duty Payable (b):
$20,223.95
Greater of duty payable under (a) & (b):
$20,223.95
Total duty payable under sections 42 and 43:
Total duty payable [$185.00 (s. 42) plus $20,223.95 (s. 43)]:
$20,408.95
Payment and Collection of Duty
According to section 44, the duties imposed under sections 42 and 43 on imported cigars are to be paid and collected under the Customs Act, and interest and penalties shall be imposed, calculated, paid and collected under that Act, as if the duties were a duty levied under section 20 of the Customs Tariff, and, for those purposes, the Customs Act applies with any modifications that the circumstances require.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Act, 2001, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-5897.
Yours truly,
Susan Tonolini
Litigation, Information Management and Tobacco Initiatives
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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