Classification of common household products is not as straightforward as it seems
What do baby wipes, vitamins, weight loss tablets and apple cider have in common? They have all been the subject of Australian legal decisions regarding their tariff classification. The relevance of the decisions goes beyond just the goods the subject of the decision, but extends to all importers for goods into Australia. The classification principles set out in the below cases need to be kept in mind no matter what the product.
Why is tariff classification important
Many would know that the tariff classification of goods drives the customs duty rate. However, the importance of classification goes beyond this and can be important for duty free goods. Classification also impacts:
- the application of free trade agreements
- whether dumping duty applies
- import and export restrictions applying to the goods
- the use of tariff concession orders and by-laws.
Equally as important, the Australian Border Force expects importers to provide the correct information. Penalties can apply for incorrect classifications, even if it does not have a duty impact.
Classification of vitamins
The Full Federal Court of Australia considered in Comptroller General of Customs v Pharm-A-Care Laboratories Pty Ltd [2018] whether vita-gummies should be classified to heading 3004 as a medicament, heading 1704 as sugar confectionary or 2106 as a food preparation. A vita-gummy is a chewable gummy item that contains vitamins.
The vita-gummies should be classified to 3004 if they have a therapeutic or prophylactic use and are not a food (including a food supplement). The Court readily accepted that vitamins have therapeutic or prophylactic uses – they prevent diseases that result from a vitamin deficiency.
The key issue was whether vitamins fit within the definition of food. The Court took a very simply approach to this question. The judges did not rely on experts or dictionary definitions. Rather, the judges felt that when a word in issue is an everyday word, the Court can define that word based on its own experience. The Court found that a vitamin preparation would not ordinarily be described as food in the sense in which the word is ordinarily used. The Court did not define the term food, feeling that it is a word that does not have any absolute definition.
Lesson – if the term in dispute is an everyday item, the decision maker should not apply technical or strained meanings. The decision maker should apply their everyday understanding of the word.
Weight loss gummies
In the Pharm-A-Care case the Court also considered the classification of weight loss gummies. These were gummies that contained a garcinia cambogia extract. Again, the competing classifications were 3004 (medicament), 1704 (confectionary) and 2106 (food preparation). The Court found that the goods did not have a therapeutic or prophylactic use (there was no evidence the goods actually caused weight loss). However, the Court considered that a gummy consumed for cosmetic reasons could not be described as food. The Court upheld the earlier Tribunal’s decision that the goods should be classified according to the heading to which they were most akin. This was held to be medicaments.
Given that the product had no proven health benefits, this outcome is very surprising. The product was not classified as a food as it was taken for cosmetic reasons. There are many foods that are consumed for reasons unrelated to nutrition. Given the weight loss gummies were dusted with sugar and contained sucrose, glucose syrup, gelatine and flavours (together with a plant extract) there is a very good argument that the goods are most akin to confectionary or a food preparation. Alternatively, if the defining feature of the product is the plant extract, perhaps the product was most akin to a plant extract.
Lesson – A product not clearly identifiable as food and consumed for a reason other than nutrition, may not be classified as a food. This has significant impact for the health food industry.
Baby wipes
In Church & Dwight (Australia) Pty Ltd and Comptroller General of Customs [2019] the Administrative Appeals Tribunal (AAT) had to consider whether certain baby wipes were classified under heading 3401 as non-woven impregnated, coated or covered with soap or detergent or under heading 3004 (medicaments). The notes to 3004 set out that if the goods fit within both heading 3401 and 3004, the goods were to be classified to heading 3401.
One product was described as a water wipe and was impregnated with a solution that was 99% water. The solution used in the water wipes also included polysorbate 20 in a concentration of 0.125%. Polysorbate 20 can be used as a detergent, or as an emulsifier. The AAT received evidence from two experts. One expert argued that polysorbate 20 is a detergent regardless of how it is used in a particular product, the other argued that when used in the baby wipes, the polysorbate 20 has limited cleaning properties and should be identified by its use as an emulsifier.
The Tribunal preferred the more scientific approach which identified polysorbate by its objective properties (cleaning) and not the use to which they were put in the baby wipe. The Tribunal found that polysorbate 20 had cleaning properties and was therefore a detergent, even if it was also an emulsifier.
Lesson – A decision maker will focus on the objective properties of a good over the particular use to which the good is put by the importer.
Fun fact – the detergent polysorbate 20 is sometimes used as an ingredient in ice-cream.
Apple cider
In Australia there are certain limited circumstances under which apple cider will not attract large excise equivalent duties. To be an excise free apple cider it must not have had added to it, at any time, any liquor or substance (other than water or the juice or must of apples or pears) that gives colour or flavour. In Woolworths Group Ltd v Comptroller-General of Customs [2019] the AAT had to consider whether apple cider that contained caramelised apple juice concentrate fit this definition.
The caramelised apple juice concentrate was added to enhance the colour and taste of the cider. Custom argued that through caramelisation, the additive could no longer be identified as “apple juice”. Rather, it has been transformed into something else.
The importer produced expert evidence that the caramelised concentrate was still apple juice, just more concentrated. It was argued that only water needed to be added to produce apple juice which could be consumed or sold as apple juice.
The Tribunal held that the caramelised concentrate was still apple juice, it had not been made into something else. Rather, it has just been made more delicious.
Apple juice is a word of ordinary meaning. It is surprising that the Tribunal needed the evidence of an expert to define this term.
Lesson – Cases are inconsistent. Despite the approach advocated by the Full Federal Court, even with words of everyday use, decision makers will still refer to expert evidence to make decisions. If you are unhappy with an outcome by the Australian Border Force, it is worth engaging a lawyer to present your case to the AAT.
Classification can be difficult and it is an area where reasonable people can come to different conclusions. We are happy to review your case and provide you with an honest opinion as to the chances of a successful appeal. Given the complexities of tariff classification and the impact of getting it wrong, this is an area where importers and their customs brokers need to proactively manage the risk and not simply hope that there is never an audit.
