The High Court of Australia on 5 February 2020 delivered a much-awaited judgment in a long-running tariff classification dispute.
The dispute arose about the correct classification under the Customs Tariff Act 1995 (Tariff Act) of garcinia preparations and vitamin gummies (the goods) imported into Australia. The importer contended that the products were to be classified as “medicaments” and therefore duty-free. Customs argued that the goods were properly classified as either “sugar confectionary” or “other food preparations.” If so classified, the amount of duty payable would be either 5% or 4% of the customs value, respectively.
Customs supported its argument by reference to the legal note to Chapter 30 of the Tariff Act, where medicaments are classified, which states that the chapter does not cover “foods or beverages.” Customs referred to the International Convention on the Harmonized Commodity Description and Coding System (Harmonized Convention) that has been adopted in Schedule 3 of the Tariff Act, observing that the Harmonized Convention was translated to both the French and English. Customs emphasised that the French version of the applicable Note to the “medicaments” chapter did not contain the same exclusion of "[f]oods or beverages" as it did in the English text. It followed, in Customs’ view, that those exclusions in the English version were not intended to control the meaning.
The High Court, however, found that the Harmonized Convention is presumed to have the same meaning in each text. Accordingly, it requires that: “every effort should be made to find a common meaning for the texts before preferring one to another.”
The High Court found that the common meaning of the relevant Note to Chapter 30 was to exclude “foods or beverages” given the examples that immediately follow in the Note.
Accordingly, the High Court found that the items were “medicaments” and were duty-free. In doing so, the High Court discussed the methodology to apply when determining how the interpretation rules (set out in Schedule 2 of the Tariff Act) apply in cases, as here, when the imported products may fall within the description of competing classifications.
According to trade professionals, the utility of the judgment spans far beyond the correct classification of the particular imported goods that are the subject of this appeal and provides key guidance for all importers on the principles for navigating the complex classification schedule contained in the Tariff Act. This case highlights the often difficult and nuanced decisions that need to be made by importers when self-assessing the classification of imported goods.
The outcome of this case also requires importers of similar goods to re-assess the tariff classification of historic importations for accuracy and provides opportunity to identify whether refunds and/or prospective duty savings are available due to a change in tariff classification. However, due to the complexity of the case and interpretation of which products this case may apply to, importers need to consider seeking professional advice in order to determine an appropriate course of action for similar goods.
With the risk of high penalties being levied by Customs when importers self-assess incorrectly, the High Court’s decision is a welcome guidance to importers and their advisors.
For more information contact a KPMG professional in Australia:
Leonie Ferretter | +61 2 9455 9330 | firstname.lastname@example.org
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.