Earlier this month the solicitors for the Comptroller-General of Customs appeared before 5 judges of the High Court to make submissions about the correct tariff classification of vitamins (Click here for the transcript). The arguments put forward by Customs represent radical departures from the approach to tariff classification that has been previously adopted by customs brokers, Customs and the Administrative Appeals Tribunal.
Classification of goods has for a long time been seen as a two stage approach. First identify the goods according to the objective characteristics of the goods. Secondly, once identified, classify the goods to the appropriate tariff heading.
This was the approach the Tribunal took when classifying the vitamins in dispute. Customs has told the High Court that this is the wrong approach. Their barrister said the following to the High Court:
"The Tribunal has approached it from a completely different viewpoint. It started with the good and said, how would this be described, rather than starting with the tariff. It has come at it completely the wrong way around."
Rather than first identifying the goods according to natural and ordinary meaning, Customs argued you look for the closest description in the tariff. The High Court directly asked Customs:
"Your point is that, at the first step you do not apply natural and ordinary meaning to a good, you look to the closest description within the tariff", to which customs replied "Yes".
Even in identifying the goods, Customs called for a completely different approach. Rather than look at a good and identify what it would ordinarily be called, Customs seemed to argue that every good needed to be dissected and its dominant ingredient identified. When discussing a lollipop Customs submitted to the High Court:
"Likewise, a lollipop has certain characteristics: you do have to identify them. If there are multiple ingredients, then there is a question of which is dominant. In no circumstances do you start with the ordinary description, in our submission" (emphasis added).
This seems an absurd approach. Is a lollipop to be identified not as a lollipop but as a combination of sugar, food colouring, glucose, whey powder, acids and colouring, and if so, should it then be classified by the ingredient that gives it its essential character? Should all confectionary simply be classified as sugar? This cannot be what was intended.
You need to start with ordinary description of goods and classify accordingly as most goods have an identity that is greater than its individual ingredients/components. Which ingredient gives a lollipop its essential character is not a necessary question as it should be identified as a lollipop and classified as confectionary. It would be different if was a composite goods, such as a cake that had lollipops sticking out of the top. In that case it would be correct to argue whether the cake or the lollipop gave the good its essential character.
The High Court is yet to hand down its decision. But the actual decision is less important than the arguments put forward by Customs. The arguments put forward by Customs are what Customs informed the High Court represented the correct approach to tariff classification. The statements were general in nature and not merely confined to the classification of vitamins.
Customs needs to inform its own staff, customs brokers and importers what its expectations are when goods are classified. Should those classifying the goods ignore the ordinary description of the goods? Should goods that have an ordinary meaning be instead identified and classified by their dominant ingredient?
Customs would only have put forward arguments to the High Court that it believed were legally correct and represented the correct approach to classification. Customs needs to explain how the approach it has advocated to the High Court can be reconciled with the approach traditionally taken to tariff classification. In Re Tridon Pty Ltd and Collector of Customs the Tribunal identified 8 principles relevant to identifying goods. The first two were:
"(i) Identification must be objective, having regard to the characteristics which the goods, on informed inspection, present ...;
(ii) The identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff ...;
Does Customs now reject this approach?
I will be discussing this case in detail at the upcoming Freight & Trade Alliance (FTA) Legal Forums (Click here for registration details) and we will update the industry once a decision is handed down by the High Court.
Please contact Russell Wiese (03 8602 9231, rwiese@huntvic.com.au) if you would like to discuss how this decision applies to your imports.