An issue which has troubled customs authorities around the world is whether vitamin tablets should be classified as food (usually attracting duty) or a medicament (usually duty free). The Australian Full Federal Court has recently been required to rule on the tariff classification of a vitamin, marketed as a chewable VitaGummies. The Court unanimously ruled that the goods were duty free medicaments. The decision creates the possibility of duty refunds for importers of health products that have previously been treated as food.
Comptroller General of Customers v Pharm-A-Care Laboratories Pty Ltd
AAT Decision
The Pharm-A-Care decision was an appeal from the Administrative Appeals Tribunal (AAT) regarding the classification of two types of products:
1. pastilles containing vitamins and marketed as "VitaGummies". There were varieties marketed separately to adults and children ("VitaGummies").
2. weight loss gummies which did not contain vitamins, but did contain garcinia cambogia ("Garcina Gummies").
Then importer claimed that the VitaGummies fell within subheading 3004.50.00 which covered medicaments containing vitamins. However, the notes to Chapter 30 provide that the chapter does not cover "food or beverages (such as dietetic, diabetic or fortified foods, food supplements, tonic beverages and mineral waters), other than nutritional preparations for intravenous administration".
The AAT classified the VitaGummies as medicaments, finding that the goods prevented certain diseases and were not correctly identified as food.
The Garcina Gummies were also classified as medicaments. However, there products were only found to have cosmetic benefits, and not general health benefits. At the same time, the AAT found that the goods were not food. As the Tribunal did not find that the product fit into either heading, it applied interpretation rule 4 which requires classification according to the heading to which the goods are most akin.
Full Federal Court – VitaGummies
Customs argued that the VitaGummies should be classified under either chapter 1704 (sugar confectionary) or 2106 (food preparations not elsewhere specified or included). The importer argued that the AAT was correct to classify the VitaGummies to heading 3004 (medicaments ... consisting of mixed or unmixed products for therapeutic or prophylactic uses).
The key issue for the Court was whether the vitamins were a food or "food supplement". Crucially, the Full Federal Court held that a food supplement must itself be a food or beverage. This would mean that something which is not identified as a food, but is a supplement to your diet, or an additive to food, could not itself be a food supplement. This was contrary to an earlier AAT decision that held that a food supplement did not itself have to be food and could be something added to food that is in addition to what is normally found in one's diet.
The Full Federal Court rejected the previous interpretation of the term "food supplement" on the basis that it was the result of an interpretation of the word "food" that was too routed in dictionary definitions, without regard to the purpose of the legislation.
The Court did not define the word food, stating that it has no absolute definition. The meaning will always depend on the relevant legislation in which it is found.
The Court did not go into great detail, but simply agreed with the AAT finding that the imported goods would be described as vitamin preparations, and as such, would not ordinarily be described as food. The Court also agreed that the focus should be on the vitamin content and not the substance in which the vitamins were contained. This reflects an approach based on everyday knowledge rather than resort to technical definitions and expert evidence.
This narrower meaning of the terms food and food supplement could be of relevance to importers of health products and food additives that have previously been classified as food. If the good is not normally something one would eat as a normal part of a diet, there may be an argument that the good is not food or a food supplement.
It may not automatically follow that the goods are classified as a duty free medicament, this would depend on the health properties of the goods. However, the exclusion of the goods from classification as a food can open up other duty free headings.
General approach to classification
While there will be limited importers of vitamins, this case does provide general classification guidance. While some of the below points are well established, they are worth repeating and keeping in mind when applying for a tariff advice.
First and foremost, you are interpreting legislation
The Full Federal Court decision was very routed in principles of statutory interpretation. This meant that the primary purpose of the Court was not to determine the meaning of the words food or food supplement, but rather, the meaning of those words as they appear in the legislation. This meant that the Court did not merely look at the dictionary, but rather had to consider the purpose of the legislation and adopt an interpretation that would best achieve this purpose.
It was found that the purpose of the legislation was to exclude from Chapter 30 foods within section IV, not foods generally. As a result, the Court looked at the items in section IV (particularly chapter 21) to set the limits of what is food for the purpose of the notes to Chapter 30. Relevantly, the Court looked at the items listed in heading 2106 and found that those items were each edible and probably food, or an ingredient of food. The Court found that there was no intention in the legislation that vitamins be taxed in the same manner as goods listed in chapter 21.
Relatedly, the Court found that goods with prophylactic and therapeutic properties are generally not subject to duty, while many of the items in chapters 17 and 21 are subject to duty. This again was said to be consistent with a legislative intent that vitamins be classified as a medicament.
Use of the HSEN
Customs sought to rely on the harmonised system explanatory notes (HSEN) to assist its case. The Court held that the HSEN should be considered cautiously. The HSEN are not part of Australian law. However, the HSEN can be considered if their content is capable of assisting the meaning of a provision in the tariff. It is important to remember that the HSEN cannot replace the words of the legislation. Specifically, if the words of the legislation are clear, the HSEN cannot be used to create ambiguity.
In this case the Court did consider the HSEN, but found that they were of little help. It is also important to note that an argument of Customs based on the HSEN was rejected as the wording of the legislation was contrary to the HSEN. The important lesson is that the words of the tariff will always trump the words of the HSEN. The HSEN cannot be used to import additional requirements not present in the wording of the tariff.
Goods are interpreted as they appear at the time of import
The goods were imported without labels attached. Customs argued that the AAT should have had regard to the labels when classifying the goods. The general position is well established – goods are identified and classified by reference to their objective properties at the time of import – and not by the importer's description of those goods.
Evidence as to how the goods may be used can be relevant if the tariff describes the goods by reference to use. Labels may be relevant to a "use" inquiry. However, the inquiry must still be directed to the state of the goods at the time of import.
In this case, the Court held that there was no need to look at the labels to be applied post importation as, at the time of import, the objective features of the goods demonstrated that the vitamins had prophylactic and therapeutic properties. The labels could not alter this.
It would be surprising if Customs considered that the objective features of a good could be overridden by the addition of a label, especially a label not present at the time of importation.
Sometimes creative arguments will win – Garcinia Gummies
That a vitamin was classified as a medicament was not surprising. This has occurred previously in Australia and in other jurisdictions. However, it was very surprising that the Garcina Gummies were classified as a medicament. The goods were found to have no prophylactic or therapeutic properties. Rather, the goods were consumed for cosmetic weight loss reasons.
The AAT only considered classification of the goods as a food under chapters 17 or 21 or as a medicament. When it was found that the goods did not fit into either category, it classified the goods as a medicament, as this was the good to which it was most akin.
It was held that the garcinia cambogia content, and not the glucose content, gave the good its essential character. In these circumstances, consideration could have been given as to whether good was most akin to a garcinia cambogia extract and classified as a plant extract.
Alternatively, it is a surprising outcome that a product made of glucose and a plant extract and containing no therapeutic properties, was not classified as a food.
The finding creates opportunities for importers of weight loss products in tablet, capsule or pastille form to have their goods classified to the duty free medicament heading.
A copy of the decision can be found here.
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Customs may still apply to appeal the decision to the High Court. If it does not, importers of vitamins and dietary products should seek advice as to how this decision affects the classification of their products.
Please contact Russell Wiese (03 8602 9231, rwiese@huntvic.com.au) if you would like to discuss how this decision applies to your imports.