Sacré bleu! How to interpret tariff classifications following new High Court ruling

Importers risk misclassifying goods if they only use the text and context of the Customs Tariff Act 1995 (Cth). The recent High Court decision in Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd confirms that the correct tariff classification should also be consistent with the French version of the International Convention.

What happened in Pharm-A-Care?

The question in Pharm-A-Care was whether vitamin and weight loss pastilles should be classified as duty free ‘medicaments’, rather than ‘food preparations’ or ‘sugar confectionary’. The vitamin pastilles contained sucrose, glucose syrup, gelatin and flavours in addition to vitamins. The weight loss pastilles contained garcinia cambogia.

Pharm-A-Care contended that the pastilles were properly classified under heading 3004. This broadly applied to medicaments consisting of mixed products for therapeutic or prophylactic uses put up in measured doses. The Tribunal at first instance, and the Full Federal Court on appeal, agreed with Pharm-A-Care’s classification.

The Comptroller-General appealed to the High Court on the grounds that the pastilles were excluded from heading 3004 by Note 1(a) to Chapter 30, which stated:

This Chapter does not cover: … Foods or beverages (such as dietetic, diabetic or fortified foods, food supplements, tonic beverages and mineral waters), other than nutritional preparations for intravenous administration (Section IV);

The Comptroller-General argued that, having regard to the French version of Note 1(a) to Chapter 30 of the Convention, the pastilles were excluded from Chapter 30 if they were ‘food supplements’, even if they did not also answer the description of ‘food’. This was because the opening words of the Note – ‘[f]oods or beverages (such as)’ – were notably absent from the French text. These features of the English text were not, therefore, intended to control the meaning of the words that were common to both versions of Note 1(a).

The High Court accepted the Comptroller-General’s argument. Applying the rules of treaty interpretation, the English and French versions of Note 1(a) are presumed to have the same meaning, and a meaning that gives simultaneous effect to all of the terms of both texts must be preferred. The High Court found that this could be achieved if Note 1(a) was interpreted to exclude only goods of the kind specified within the parentheses, and not ‘foods or beverages’ as a broader class.

The High Court also accepted the Comptroller-General’s argument that the inclusion of ‘(Section IV)’ at the end of the Note was merely a convenient reference, indicating where goods excluded by Note 1(a) might otherwise be classified. It did limit the Note’s exclusion to goods that were classifiable under Section IV (being ‘prepared foodstuffs’ etc.).

Although the Tribunal incorrectly found that Note 1(a) only excluded the pastilles from Chapter 30 if they met the description of ‘foods’ as well as ‘food supplements’, this did not produce the wrong result. The High Court noted that nothing in the French text indicated that the expression ‘food supplements’ had anything other than its ordinary meaning. The Court upheld the Tribunal’s finding that the pastilles were not ‘food supplements’. They were properly classified under heading 3004 and, therefore, free from customs duty.

How should importers classify goods following Pharm-A-Care?

The approach to tariff classification endorsed by the High Court may cause uncertainty for importers and brokers who have the practical role of classifying large numbers and varieties of products.

The High Court approved the conventional two-step approach to tariff classification that involves:

1. identifying the goods (including the composition of the goods and the functions they were designed to serve)
2. classifying the goods as identified (according to the terms of the headings and any applicable section or chapter notes and, provided there is no inconsistency with those requirements, the rules of interpretation in Schedule 2).

In some cases, the wording of the French and English texts will be practically identical. However, where there are material differences between the texts, the risk of misclassifying goods under the second step is high.

Importers should review the tariff classifications they commonly apply to their goods and seek advice, or consider applying for an advance ruling, if there is a potential interpretation issue.

Please contact a member of our team if you would like to discuss.