Chinese Food & Wine Suppliers Pty Ltd v Collector of Customs (Vic)

[1987] FCA 154

Re: CHINESE FOOD and WINE SUPPLIES PTY. LIMITED.
And: COLLECTOR OF CUSTOMS (VIC.)
No. VG 367 of 1986
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Woodward J.
Lockhart J.
Ryan J.

CATCHWORDS

Administrative Law - appeal from Administrative Appeals Tribunal - Customs tariff - liquids used as medicines in China imported to Australia in brightly labelled 500ml bottles - high alcohol content - assessed as spiritous beverages rather than medicaments - manufactured in accordance with China Pharmacopoeia - whether mixed or compounded together for a therapeutic use - relevant time when intended use must be determined - whether subjective or objective test to be applied in assessing character of goods under Customs Tariff Act.

Customs Act 1901 s.273GA

Customs Tariff Act 1982, Schedules

HEARING

MELBOURNE

#DATE 6:4:1987

ORDER

The appeal be dismissed with costs.

(NOTE: Settlement and entry or orders is dealt with in O.36 of the Federal Court Rules.)

JUDGE1

I have had the advantage of reading the draft reasons for judgment of Lockhart J. in this matter. I agree with the conclusion he has reached and with his reasons for the conclusion.

JUDGE2

In the First Letter of Paul the Apostle to Timothy, Chapter 5 Verse 23 (Revised Standard Version), St. Paul said:

"No longer drink only water, but use a little wine for the sake of your stomach and your frequent ailments."

1. Although of ancient origin, St. Paul's precept to Timothy is, strange as it may seem, relevant to-day, even to the intricacies of the Customs Tariff Act 1982 ("the Tariff Act") with which this case is concerned.

2. In June 1985 the applicant, Chinese Food and Wine Supplies Pty. Limited, imported into Australia from The Peoples' Republic of China a quantity of goods of two kinds, one known as Wu Chia Pi Chiew and the other as Chu Yeh Ching Chiew, both of which were liquid contained in 500ml bottles. The applicant says that the goods are medicaments and as such are properly classified under Item 30.03 of Schedule 3 to the Tariff Act. The Collector maintains that the goods are properly classified under paragraph 22.09.91 which relates to certain spirits, liqueurs and other spirituous beverages and to compound alcoholic preparations for the manufacture of beverages, containing not more than 57% by volume of alcohol. On analysis in Australia the liquid known as Wu Chia Pi Chiew was found to contain about 53% by volume of ethyl alcohol at 20 degrees centigrade, and the liquid known as Chu Yeh Ching Chiew about 44%. If the goods fall within Item 30.03 as medicaments a far lower rate of duty is attracted than if they fall under paragraph 22.09.91.

3. The goods were entered for home consumption on 23 July 1985 under paragraph 22.09.91. The applicant paid the duty appropriate to that classification under protest. The applicant then applied to the Administrative Appeals Tribunal, pursuant to s. 273GA of the Customs Act 1901, for review of the decision to demand duty on the basis of that classification. The Tribunal found that the goods were not medicaments and were therefore properly classified by the Collector under paragraph 22.09.91, with the consequence that the higher rate of duty was payable. The applicant appealed to this Court from the Tribunal's decision.

4. Chapter 30 of Schedule 3 to the Tariff Act deals with Pharmaceutical Products. Item 30.03 relates to medicaments. Note 1 to Chapter 30 is in the following terms (the emphasis is mine; it is for the purpose of highlighting the words that are most relevant for present purposes):
   
   

"1. (1) In 30.03, 'medicaments' means goods (other than dietetic, diabetic or fortified foods, tonic beverages, spa water or similar foods or beverages) that are -

(a) goods comprising 2 or more constituents that have been mixed or compounded together for a therapeutic or prophylactic use; or

(b) unmixed goods suitable for such a use that have been put up in measured doses or in forms or in packs of a kind sold by retail for therapeutic or prophylactic purposes,

but does not include goods falling within 30.02 or 30.04.

(2) For the purposes of this note and paragraph 3(d) -

(a) the following goods shall be deemed to comprise two or more constituents that have been mixed or compounded together:

(i) colloidal solutions and suspensions (other than colloidal sulphur);

(ii) vegetable extracts obtained by the treatment of mixtures of vegetable materials;

(iii)salts and concentrates obtained by evaporating natural mineral waters; and

(b) the following goods shall be deemed to be unmixed goods:

(i) unmixed products dissolved in water;

(ii) goods falling within Chapter 28;

(iii) goods falling within Chapter 29; and

(iv) simple vegetable extracts that have not been prepared, or that have been standardised or dissolved in any solvent but not further prepared, being goods falling within 13.03."

1. It was not disputed before the Tribunal that if the goods are not properly classified under Item 30.03 they fall for classification under paragraph 22.09.91. It was not suggested that the goods were unmixed goods or deemed by virtue of Note 1(2)(b) to be unmixed goods. It was not disputed that the goods comprised more than two constituents that had been mixed or compounded together.

2. There were two issues before the Tribunal which it described in these terms:
   
   

"whether:-

(a) in the case of the subject goods, those constituents have been mixed or compounded together for a therapeutic use, and

(b) if they have, whether they are tonic beverages."

The reference to tonic beverages is to certain products which are excluded from the definition of medicaments by Note 1(1) to Chapter 30. The Tribunal found that the goods were not tonic beverages and that finding was not challenged before us.

1. The sole question argued on this appeal was whether the goods, which admittedly comprise two or more constituents that have been mixed or compounded together, attract the description "for a therapeutic use". If they do, then the appellant succeeds and the lower rate of duty relating to the importation of medicaments applies.

2. It is common ground that both products were manufactured in China in accordance with the requirements of two books in Chinese script, the China Pharmacopoeia and Chinese Tinctures. The latter is referred to in the evidence also as Chinese Elixirs or Chinese Elixirs (Tonics). The precise standing or authority of these two books is not clear from the evidence, although it appears that the China Pharmacopeia provides methods for the preparation of medicinal products for use in Chinese traditional medicine. Doubtless this fact underlies the finding of the Tribunal that, although the goods in question in this case were manufactured for export and sale as beverages, goods of the same type are manufactured in China for therapeutic purposes.

3. The critical findings of the Tribunal that led it to conclude that the goods with which this case is concerned were manufactured for export and sale as beverages were expressed by the Tribunal in these terms:
   
   

"42. If, when the goods imported were prepared, their constituents were mixed or compounded together for a therapeutic purpose, they did not, in our view, lose their character as medicaments by being exported from China and imported into Australia. However, although much of the evidence was directed to showing that in China goods of the types of those which are the subject of review in these proceedings are prepared for a therapeutic purpose, there was other evidence before the Tribunal indicating that the goods imported were prepared, or manufactured, for another purpose, namely for the purpose of export from China as a beverage.

43. The evidence of that is, first, the sales catalogue issued by the manufacturer with the title "Wines" on its cover and with both types of goods included in it. The display of goods of those types in the liquor department of the supermarket in Hong Kong is not of itself alone evidence of the manufacturer's purpose in preparing them; but, when viewed in combination with the sales catalogue, it has significance. Finally, there are the labels and the general presentation of the goods as imported into Australia. The bottles in which they are contained are not of the size or type generally used for medicinal products but rather such as are used for beverages, and particularly alcoholic beverages. The carton in which each Wu Chia Pi Chiew bottle is packed is of the type and appearance used for bottles of spirituous liquor; they are fairly attractive and in no way resemble the type of cartons in which bottles of medicinal products are generally packed. The statement on the Wu Chia Pi Chiew bottles that it is 'an excellent drink very relishable and refreshing' is appropriate to a beverage, not to a medicinal product."

44. We have come to the conclusion, therefore, that, although the goods which the applicant imported are of the same type as goods manufactured in China for therapeutic purposes, they themselves were manufactured for a different purpose, that is to say for export and sale as beverages. That being so, we find that they are not medicaments. They are both beverages containing respectively about 53% and 44% by volume of ethyl alcohol. That is their identity."

1. The two kinds of goods were imported into Australia in 500ml bottles each of which is similar in appearance to a wine bottle. The bottles of Wu Chia Pi Chiew were contained in cardboard cartons. Each carton bears the name of the product and two identical statements in Chinese script. Each carton also bears the following label in the English language which has been affixed to the carton:
   
   

"WU CHIA PI CHIEW

Ingredients:

Kao Liang Chiew, granulated sugar, red wine yeast, radix angelicae sinensis, rhizoma ligustici, root bark of Chinese silkvine, citrus peel, rhizoma polygonati odorati.

Direction of use:

Regular use recommended any quantity as desired.

Imported & distributed by:

Chinese Wine & Food Supplies Pty. Ltd. 206 Lt. Bourke St., Melbourne, Australia.

Volume 500ml. B."

The bottle of Wu Chia Pi Chiew contained in each cardboard carton bears two labels. One label is brightly coloured in gold and green and is written in both Chinese script and the English language. At the bottom of the label is the following statement in the English language:

"'Wu Chia Pi Chiew' red and transparent in colour, fragrant in flavour, slightly sweet and without stimulants is an excellent drink very relishable and refreshing."

1. The other label on the carton has a white background with black print, is written in the English language and states:
   
   

"WU CHIA PI CHIEW

Ingredients:

Kao Liang Chiew, granulated sugar, red wine yeast, radix angelicae sinensis, rhizoma ligustici, root bark of Chinese silkvine, citrus peel, rhizoma polygonati odorati.

Direction of use:

Regular use recommended any quantity as desired.

Imported & distributed by:

Chinese Wine & Food Supplies Pty. Ltd. 206 Lt. Bourke St., Melbourne, Australia.

Volume 500ml. B."

1. The bottles of Chu Yeh Ching Chiew were not in individual cartons when imported. Each bottle bears two labels. One label is deep green in colour with a gold rim containing mainly Chinese script but with the name of the product in English as "Chu Yeh Ching Chiew". The Tribunal found that the second label on the bottle had clearly been put on to it for the purposes of its importation into Australia. This label is in the English language and reads as follows:
   
   

"CHU YEH CHING CHIEW

Ingredients:

Feng Chiew, sugar, bamboo leaf, citrus peel, radix angelicae sinensis, christin loosestrife, rhizoma kaemferiae, flos caryophylli.

Directions of use:

To be taken any quantity as desired.

Imported and distributed by:

Chinese Wine & Food Supplies Pty. Ltd. 206 Lt. Bourke St., Melbourne, Australia.

Volume 500 ml. B."

1. The Tribunal was critical of certain statements on the labels of the bottles of Chu Yeh Ching Chiew and of the cartons. Some of the statements were described by it as "seriously misleading". The Tribunal said:
   
   

"It is totally incorrect to say the product is 'without stimulants', as the analysis made on 5 September 1985 shows that it contains 53.3% by volume of ethyl alcohol at 20 degrees C. It is doubtful whether, if the flavour is the same as the smell which comes from the product when the bottle is opened, many persons in Australia would regard the flavour as fragrant; however that is essentially a matter of taste. The combination of the recommendation on the carton label of regular use in 'any quantities as desired", the omission of any clear reference to alcohol from the list of ingredients and the statements that it is 'without stimulants' and that it 'is an excellent drink very relishable and refreshing' are misleading in the extreme. In the statement of the ingredients the reference to Kao Liang Chiew is to the alcoholic base but to a person not familiar with Chinese medicinal products that would not convey the information that there was an alcohol base and certainly not one of 53.3%. To a person unfamiliar with Chinese medicinal products, the impression given by the labelling would be that the product is an aromatic non-alcoholic drink without medicinal qualities."

1. The Tribunal was also critical of certain of the statements on the bottles of Chu Yeh Ching Chiew. It said:
   
   

"... there is no reference to alcohol among the ingredients, only a reference to Feng Chiew, and the directions for use in terms that it is to be taken in any quantity as desired might well lead a person not familiar with Chinese medicinal products to believe that the product was a non-alcoholic drink; the contents of the labels would certainly not alert such a person to the very high percentage of alcohol, 45% by analysis on 5 September 1985."

1. One of the witnesses, Mrs. L.G. Cartwright, a lecturer within the University of Sydney, described the alcohol content of both preparations in more basic terms. When asked whether she saw any problems with preparations with the concentration of alcohol of 53% in one case and 45% in the other being used as tonics she said:
   
   

"If they are going to take it as they feel like it I think they certainly will feel no pain very shortly."

1. It was not disputed that in Chinese traditional medicine both types of preparation were regarded as having therapeutic value; but different views were expressed by various witnesses as to whether the preparations in suit had any therapeutic value. The Tribunal comprehensively stated and analysed the evidence of the witnesses and found that:-
   
   

- the goods were probably manufactured in accordance with the methods provided for in the China Pharmacopeia for the preparation of medicinal products for use in Chinese traditional medicine; - the names which they bear are those of products the ingredients and medicinal uses of which are set out in Chinese Tinctures; - the goods comprise more than two constituents that have been mixed or compounded in China; - goods of the same type are mixed or compounded in China for medicinal use; - goods of the same type have a therapeutic use within the meaning of that phrase in the Therapeutic Goods Act 1966 (Cth); and - goods of the same type are standard preparations manufactured in accordance with the China Pharmacopeia and Chinese Tinctures.

1. The Tribunal stated the issue before it as being whether the constituents were mixed or compounded together for a therapeutic use and it regarded the relevant time to determine this issue as being the time of the mixing or compounding together of the constituents.

2. The Tribunal interpreted Note 1 to Chapter 30 in Schedule 3 of the Tariff Act as if the constituents that have been mixed or compounded together must themselves be for a therapeutic use in order that the goods may qualify as medicaments. The Tribunal does not appear to have interpreted the Note so that it is the goods that have been produced, following the mixing or compounding together of two or more constituents, that must be for a therapeutic use. It is not entirely clear to me whether the Tribunal perceived any relevant difference between the two tests in the circumstances of this case because, although, interpreting Note 1 as I have indicated, it appears at times to have posed the question as being whether the goods were manufactured or produced for therapeutic use.

3. The Tribunal's finding that the goods in suit were manufactured not for therapeutic use, but for the purpose of export and sale as beverages, was challenged by the applicant. Counsel for the applicant submitted that there was no evidence that the goods were manufactured in China as a separate "batch" to be used for purposes other than that for which goods of that kind were normally used. There was no basis on which a reasonable tribunal, properly instructed, could conclude that the goods were manufactured in China for a use different from that for which Wu Chia Pi Chiew and Chu Yeh Ching Chiew were normally manufactured there. Counsel submitted that the fact that the goods contain a high percentage of alcohol is irrelevant and that on its primary findings of fact the Tribunal could not reasonably have reached the conclusion that the relevant agency of the Peoples' Republic of China mixed or compounded the goods for a use not being a therapeutic use.

4. Item 30.03 assigns a much lower rate of duty to medicaments than would otherwise be applicable to them under paragraph 22.09.91. To qualify for the lower rate the medicaments must be goods, other than certain specified foods or beverages, that are goods for a therapeutic or prophylactic use. Goods are treated as being of two kinds: mixed and unmixed. Mixed goods are goods comprising two or more constituents that have been mixed or compounded together. Certain deeming provisions determine whether some goods comprise two or more constituents that have been mixed or compounded together (see Note 1(2)(a) to Chapter 30) and whether other goods are unmixed goods (see Note 1(2)(b) to Chapter 30).

5. The requirement in the case of goods comprising two or more constituents that those constituents "have been mixed or compounded together" plainly means that the mixing or compounding together shall have taken place before the importation of the goods. In the present case there is no dispute that the goods were mixed together in China before importation. In my opinion it is the goods resulting from the mixing or compounding process that must be for a therapeutic or prophylactic use in order that the goods answer the description of medicaments for the purposes of Item 30.03. The language of Note 1 to Chapter 30 is perhaps susceptible either of that construction or the construction that the two or more constituents, as distinct from the goods which result from the mixing or compounding together, have been mixed or compounded together for a therapeutic or prophylactic use; but any ambiguity is resolved when Note 1 is construed as a whole and in the light of the evident purpose of Item 30.03. If the relevant part of Note 1 were recast in an unambiguous form it might read as follows:
   
   

"1(1) In 30.03 'medicaments' means goods ... that are -

(a) goods (comprising 2 or more constituents that have been mixed or compounded together) for a therapeutic or prophylactic use;"

1. I cannot discern any convincing reason why the Tariff Act would fasten on the therapeutic or prophylactic use of constituents that have been mixed or compounded together to produce goods as determinative of the character of the goods as medicaments and therefore afford a far more favourable rate of customs duty. There is no sound reason why Item 30.03 in Schedule 3 of the Tariff Act would be concerned with therapeutic or prophylactic use of the constituents of goods as distinct from the goods themselves. The requirement that the constituents have been mixed or compounded together is descriptive of the resultant goods exigible to duty rather than determinative of the question of therapeutic or prophylactic use. It is the goods to which Item 30.03 is directed; not any goods, but goods for therapeutic or prophylactic use produced by the mixing or compounding together of two or more constituents. Of course, the goods are the sum of their components and are produced by the mixing or compounding together of two or more constituents. In one sense if the goods have a therapeutic or prophylactic use they merely reflect the like use of their constituents. If, contrary to my view of Chapter 30, the note is directed to the therapeutic or prophylactic use of the constituents as distinct from the goods produced then the anomalous result would follow that the goods could be manufactured outside Australia by mixing or compounding at least two constituents together for a therapeutic or prophylactic use, but the goods themselves exported to Australia for another use. For example, goods may be manufactured in the country of origin following a mixing or compounding together for a therapeutic use but exported to Australia for a quite different use because of perhaps some special feature or peculiarity of the local market. Item 30.03 was not intended to apply to goods answering that description.

1. Note 1(1)(b) gives some guidance to the interpretation of Note 1(1)(a). Note 1(1)(b) speaks of "unmixed goods suitable for such a use that have been put up in measured doses or in forms or in packs of a kind sold by retail for therapeutic or prophylactic purposes". It thus plainly is directed to the therapeutic or prophylactic use of the unmixed goods themselves. It would be odd if the two paragraphs ((a) and (b)) were speaking of different uses; in the case of paragraph (a) the use to which the constituents which produce mixed goods are to be put and in the case of paragraph (b) the use to which the unmixed goods themselves are to be put.

2. It is the goods themselves in the condition in which they are imported here to which it is generally necessary to look under the Tariff Act to determine the identification of goods for purposes of customs duty. See Chandler & Co. v. The Collector of Customs (1907) 4 CLR 1,719; Re Gissing and Collector of Customs (1977) 1 ALD 144 at p 146; and Re Tridon Pty. Ltd. and Collector of Customs (1982) 4 ALD 615 at p 620ff. Conformity with this general approach is achieved in the case of Chapter 30 if, on its proper interpretation, it is the therapeutic or prophylactic use to which the goods will be put in Australia to which the Chapter is directed.

3. Whether the goods in suit properly fall within Item 33.03 of the customs tariff is determined by an objective test not by the intentions of the manufacturer in China or of the exporter or the importer. The test is applied at the port of entry of the goods and at the time of entry. The characteristics of the goods, their get-up, colour, decoration, labelling and packaging are all relevant considerations. In some cases a visual inspection of the goods and their packaging will disclose characteristics of the goods and enable a judgement to be made as to whether they are for therapeutic or prophylactic use. But visual inspection will not necessarily provide the answer in each case. Tests may have to be carried out and enquiries made to ascertain the relevant characteristics of the goods. In the present case samples were taken and sent for chemical analysis. As the Tribunal noted, the paucity of the information contained in the labelling of the goods necessitated further enquiries being made in respect of them.

4. The critical elements upon which the Tribunal relied, namely, the labelling and the general presentation of the goods as imported into Australia, the analysis of the liquid contained in the bottles, the contents of the sales catalogue issued with the title "Wines" on its cover with both kinds of goods included in it and the display of goods of those kinds in the liquor section of a supermarket in Hong Kong are in my view all relevant matters which the Tribunal was entitled to consider whichever of the two interpretations of Note 1(1)(a) was applied by it.

5. There is abundant evidence to support the finding that the two kinds of goods were not for therapeutic use in Australia.

6. There is no precise evidence as to who manufactured or produced either class of goods; but there was ample evidence that a Chinese corporation, the China National Cereals, Oils and Foodstuffs Import and Export Corporation, was the exporter of the goods and that they were manufactured for it and under its authority. There was no evidence to the contrary and no evidence suggesting that anybody else was the manufacturer. In these circumstances, even if the correct question is (which I do not think it is) whether the mixing or compounding together of the constituents took place in China for a therapeutic purpose there is evidence sufficient to support the Tribunal's finding that the mixing and compounding was not for therapeutic use. The finding that the goods in suit were manufactured in China for the purpose of export and sale as beverages is supported by the evidence and should not be disturbed.

7. I would dismiss the appeal with costs.

JUDGE3

I have had the advantage of reading in draft the reasons for judgment of Lockhart J. I agree that, for the reasons he has expressed, the appeal should be dismissed with costs.