20 December 2002 Excise Interpretation 42338 - Duty Paid Stamping and Excise Tax Issues Surrounding the Importation of Sheet Tobacco

The purpose of this memorandum is to respond to the information and documents that we received from you XXXXX concerning the duty paid stamping and excise tax issues surrounding the importation of the XXXXX by XXXXX. The sample sent by you for our consideration, which was imported from XXXXX was sent to Mr. Sawab Nekiar, of the Tariff Programs Division, Customs Branch, and was submitted by him to the Laboratory and Scientific Services Division (LSSD).

The sample you submitted consists of a paper-like sheet tobacco wrapped around a plastic tube and packaged in a retail pouch labelled as XXXXX. It may contain various flavouring substances and is advertised to consumers for use primarily in wrapping cigar filler.

We received an electronic version of the laboratory report, XXXXX a copy of which is attached to this memorandum for your reference. Based on this report, the product is said to warrant consideration as a "reconstituted tobacco". Sawab Nekiar has since advised me that the appropriate tariff classification for importations of the XXXXX is tariff item 2403.91.10.00 (copy attached)

Based upon the LSSD's analysis and Sawab Nekiar's advice to us on the tariff classification of this product, the XXXXX may be regarded as manufactured tobacco. However, it has also been confirmed to us that it is not subject to the application of additional duty equivalent to excise under the provisions of subsection 21(1) of the Customs Tariff, since the applicable tariff item is not one of those specifically identified under subsection 21(4) of that Act. Accordingly, this product is not subject to the duty stamping provisions of subsection 201(2) of the Excise Act and paragraph 11(1)(c) of the Tobacco Ministerial Regulations that would normally apply to manufactured tobacco products other than cigarettes or tobacco sticks.

Nonetheless, since this product is regarded as a manufactured tobacco product, it is our view that the XXXXX is properly subject to excise tax at the current rate of $35.648 cents per kilogram, under the provisions of subsection 23(1) of the Excise Tax Act, and as proposed in the Ways and Means Motion of June 17, 2002.

Once the Excise Act, 2001 is implemented, however, all importations of manufactured tobacco product, regardless of their tariff classification, will be considered to be subject to excise duty at the then prevailing rates under Schedule 1 to that Act. They will also be subject to the normal excise duty stamping provisions that will apply to other importations of manufactured tobacco products.

As for the news item you re-printed from the XXXXX newspaper on the duty stamping and health warnings issues, you may wish to discuss with XXXXX the possibility of advising the newspaper publisher of our current and future approach to the duty stamping and excise tax issues. The question of the health warning labels must be addressed by Health Canada.

As you are aware, we are currently considering the same duty stamping and excise tax issues in relation to another, similar product known as XXXXX. Richard Crompton will be preparing an interpretation letter to XXXXX in relation to the excise tax and duty stamping issues affecting that product. A copy of that response will be provided to you. We will also be preparing an ED Communiqué to address the duty stamping and excise tax issues for the XXXXX and related products.

If you have any questions on any of the matters discussed herein, please contact me, at (613) 954-4208, or Steve Mosher, at (613) 941-1497.

Preston Gallant, CGA
Manager
Excise Duty Operations
Excise Duties and Taxes Division