Sponsors of complementary medicines and importers of goods with therapeutic or prophylactic purposes that are put up in "food-like" dosage forms should consider the impact on their business of the High Court's decision in Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd [2020] HCA 2 (Clayton Utz acted for the successful respondent, Pharm-A-Care).
In unanimously dismissing the Comptroller-General's appeal from the Full Federal Court, the High Court's judgment calls into question the appropriate classification of similar goods.
The sticky situation for vitamin and weight loss gummies under the Customs Tariff Act
Schedule 3 of the Customs Tariff Act 1995 details the rates of duty on goods imported into Australia. Goods are classified to a heading within the Schedule and that classification determines the applicable rate of duty for the import of those goods.
PharmaCare imports into Australia a number of different types of pastilles containing active ingredients: either vitamins or garcinia cambogia, plus a number of excipients including sucrose, glucose syrup, gelatin, and flavours. PharmaCare applied to the Administrative Appeals Tribunal for a review of the Comptroller's decision to classify the subject goods to a heading which attracted duty, and not as medicaments for therapeutic or prophylactic purposes (3004), which does not attract duty. The Tribunal found that the subject goods were classifiable under heading 3004 and were therefore duty-free.
The Comptroller appealed to the Full Court of the Federal Court of Australia, contending that the Tribunal had erred and that subject goods ought to have been classified as either confectionery (1704) or food preparations (2106), which attract rates of duty of 5% and 4% respectively. Heading 3004, the Comptroller argued, excluded the subject goods because they were alleged to be "food supplements" within the ambit of Note 1(a) of Chapter 30 which says Chapter 30 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 Full Court endorsed the Tribunal's reasoning but also went one step further, finding that the parenthetical reference to "Section IV" at the end of the Note also had the effect of importing a further limitation on the coverage of the Note. That is, the Note only excludes foods or beverages that were otherwise within Section IV of the Schedule.
The Comptroller sought and was granted special leave to appeal to the High Court.
The High Court appears to narrow exclusions from Heading 3004: medicaments
The High Court found that both the Tribunal and the Full Federal Court had erred in their understanding of the Note. However, the finding by the Tribunal that the subject goods were not "food supplements" was determinative and disclosed no error, such that the exclusionary note on which the Comptroller relied, did not apply. The High Court also accepted the AAT's findings as regards the applicability of the relevant medicaments heading (3004).
As the Australian tariff is part of an international approach to tariff classification that is intended to be harmonized, the treaty from which the Schedule derives has been reproduced in English and French, with both texts regarded as "equally authentic". The difficulty in this case is that the French text to the relevant Note does not include the words "Foods or beverages (such as…".
The High Court held that because the English text is presumed to have the same meaning as the French, "a meaning that gives simultaneous effect to all of the terms of the English text and of the French text is to be preferred to a meaning that does not".
The High Court held that this could be achieved by reading the words "such as" to mean "of the following kind", so that Note 1(a) does not exclude foods or beverages, but only those goods that meet the description of "dietetic, diabetic or fortified foods, food supplements, tonic beverages and mineral waters". The High Court also added that goods that meet any of those descriptions are excluded from Chapter 30 and there is no requirement that they also be regarded as foods or beverages in some wider classification.
This approach to the coverage of Note 1(a) is significant as, contrary to conventional approaches, it does not exclude food or beverages generally as might have been the case from a strict reading of the Schedule as enacted in Australia. The High Court's approach appears to considerably narrow the scope of the exclusion.
Also notable is the High Court's interpretation of the use of the words "Section IV" at the end of Note 1(a). The High Court held that these words were nothing more than an "ease of reference" indicating where goods excluded by Chapter Notes might otherwise be classified. They did not limit the scope of the Note to exclude only foods or beverages of a kind that fell within Section IV of the Schedule.
The High Court otherwise endorsed the generally accepted two-stage approach to classification, but left the door open as regards the scope and meaning of heading 3004, declining to make any findings as regards the construction or application of the words "products for therapeutic or prophylactic uses". However, in accepting the AAT's reasoning that the essential character of the garcinia preparations was cosmetic and that they could fall to be classified as medicaments in heading 3004, it appears to have allowed for the possibility of a broader interpretation of the heading than might otherwise previously have been considered.
Importers: check if your products are food and beverage or medicament
Given the High Court's findings, sponsors of complementary medicines and importers of goods with therapeutic or prophylactic purposes, (particularly those that are put up in "food-like" dosage forms) are encouraged to review their portfolio and consider whether they might be entitled to:
- recover duty paid for goods classified as foodstuffs that should otherwise have been classified as medicaments;
- have future imports classified as medicaments so as to be duty free.
If you have any questions about the implications of the decision or would like advice on these issues, please contact Clayton Utz.