Sawtell Nominees Pty Ltd t/a H & R Schwarz and Comptroller-General of Customs
Sawtell Nominees Pty Ltd t/a H & R Schwarz and Comptroller-General of Customs [2016] AATA 993 (6 December 2016)
Division
GENERAL DIVISION
File Number
2015/3208
Re
Sawtell Nominees Pty Ltd t/a H & R Schwarz
APPLICANT
And
Comptroller-General of Customs
RESPONDENT
DECISION
Tribunal Egon Fice, Senior Member
Date 6 December 2016 Place Melbourne The Tribunal sets aside the decision under review and in substitution determines that Opti.Form PD4 is classified as a food preservative under sub-heading 3824.90.10(b) of Chapter 38 of Schedule 3 of the Customs Tariff Act 1995 (Cth).
[sgd]........................................................................
Egon Fice, Senior Member
CUSTOMS - tariff classification - whether or not subject goods are disinfectants - identification of essential character of goods - application of Harmonized Commodity Description and Coding System Explanatory Notes - chemical properties of subject goods - where subject goods alter processed meats to make environment less conducive to bacterial reproduction - appropriate classification of goods as food preservatives - decision set aside
Legislation
Acts Interpretation Act 1901 (Cth) ss. 15AA, 15AB
Customs Act 1901 (Cth) s. 167
Customs Tariff Act 1995 (Cth) s 7, sch 2, sch 3 chs 29, 38
Cases
Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64
Secondary Materials
Shorter Oxford English Dictionary (Oxford University Press, 5th ed, 2007)
Macquarie Dictionary (Macquarie Dictionary Publishers, 6th ed, 2013)
Collins English Dictionary (HarperCollins Publishers, 12th ed, 2014)
A Dictionary of Biology (Oxford University Press, 7th ed, 2015)
Taber’s Cyclopedic Medical Dictionary (F.A. Davis Co, 17th ed, 1993)
Harmonized Commodity Description and Coding System Explanatory Notes (World Customs Organization)
REASONS FOR DECISION
Egon Fice, Senior Member
6 December 2016
Sawtell Nominees Pty Ltd (Sawtell) is an importer and distributor of, amongst other things, spices and kitchen equipment. One of the products which Sawtell imported is described by its trade name, Opti.Form PD4. It is used in food products, often in cured and uncured cooked meat products for the purpose of extending shelf life.
Initially, Sawtell entered shipments of Opti.Form PD4 under heading 2918.11.00 of Schedule 3 of the Customs Tariff Act 1995 (the Tariff Act). Following the lodgement of a Tariff Advice Application on 14 May 2014, Australian Customs and Border Protection Service (Customs) classified the product to heading 3808.99.00. On 14 August 2014 Sawtell lodged another Tariff Advice Application. It had formed the view that the correct heading for its Opti.Form PD4 product was 3824.90.10. On 26 August 2014 Customs rejected Sawtell’s classification. On 29 August 2014 Sawtell requested an internal review of that decision.
In a letter dated 6 February 2015 Customs informed the Sawtell that it had affirmed its decision. Thereafter, Sawtell paid duty under protest in accordance with s. 167 of the Customs Act 1901 (the Customs Act). On 29 June 2015 Sawtell lodged an application seeking review of the decision made by Customs on
6 February 2015.
The only issue I am required to determine is the correct classification of Sawtell’s Opti.Form PD4 product.
IDENTIFICATION OF THE GOODS
The product in question is imported as a concentrated liquid. Being a mixture of chemicals, it is only possible to identify the product by accepting statements made by the manufacturer, Corbion Purac, and from evidence provided by persons qualified to identify the composition of such products.
Corbion makes the following statement regarding this product:
Listeria and pathogen control
Meat, poultry and fish products are highly susceptible to microbiological contamination, including food-borne pathogens. The use of Opti.Form results in improved safety, by inhibiting the growth of Listeria monoctogenes and other pathogens.
Listeria monocytogenes is a major concern for food regulators and meat processors because it is able to grow at refrigerated temperatures and in products with low water activity. While Listeria is inactivated at high temperatures, it can often (re) enter the food supply following heat treatment. Opti.Form inhibits the bacteria’s growth throughout the product’s shelf life and the manufacturers supply chain, ensuring consumer safety and protecting brand image.
I also had in evidence a statement made by Mr Matthew Kazs, who described himself as currently employed by Hela Spice Australia as technical sales specialist. He has qualifications in biological science and has been employed in food technology for the past 15 years. There was no objection to the admission of his statement of evidence.
Mr Katz described the product as a mixture of potassium lactate and sodium di-acetate: the potassium lactate being the active ingredient and the sodium di-acetate a stabilising agent. The product is injected into fresh meat and mixed throughout the product by vacuum tumbling. The meat is then cooked. He said it may also be sold fresh as a moisture infused product. Mr Katz described its function as follows:
Opti.Form is used in the meat and poultry sector, predominantly in ham and small goods to extend the shelf life of meat products, i.e. the length of time during which the cooked meats remain fit and safe for human consumption.
Mr Katz also described the Opti.Form product as being bacteriostatic, that is, it inhibits the growth of bacteria without killing them.
In my opinion, the product in question is properly identified as a preservative. The Shorter Oxford English Dictionary defines preservative as:
2. That which preserves, or tends to preserve or protect from decay, loss, or destruction 1503. 3. spec. A chemical substance or preparation used to preserve perishable food-stuffs, etc. 1875.
In my opinion, the most important words in the above definition are: or tends to preserve or protect. That is because while Opti.Form PD4 is said to inhibit the growth of bacteria, the word inhibit seems to be intended to convey the meaning that it slows down the growth of bacteria, but does not destroy it such that the product into which it is infused is not in fact preserved. The useful life of the meat is simply extended.
CLASSIFICATION
Section 7 of the CustomsTariff Act 1995 (the Tariff Act) relevantly provides:
Rules for classifying goods in Schedule 3
(1) The Interpretation Rules must be used for working out the tariff classification under which the goods are classified.
(2)…
(3) A reference to the Interpretation Rules to Notes includes a reference to Additional Notes.
The general rules for interpretation of Schedule 3 are found in Schedule 2. Relevantly, Schedule 2 provides:
Classification of goods in Schedule 3 shall be governed by the following principles:
1 The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
…
4. Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.
…
6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.
Although initially Customs formed the view that the product in question should be classified under Chapter 29, which deals with organic chemicals, both parties now agree that is incorrect. The Notes to Chapter 29 expressly state that except where the context otherwise requires, the headings of Chapter 29 apply only to, relevantly, separate chemically defined organic compounds, whether or not containing impurities, dissolved in water, with an added stabiliser necessary for their preservation or transport.
The product in question, as I have described above, is a mixture of two chemical compounds dissolved in water. Although the sodium diacetate is a stabilising agent, it is not added for the preservation or transport of the product itself. Therefore, according to the Comptroller-General, the likely possibilities are two headings which fall into
Chapter 38, being 3808 and 3824. Chapter 38 deals with miscellaneous chemical products. The headings and relevant subheadings provide as follows:
3808 INSECTICIDES, RODENTICIDES, FUNGICIDES, HERBICIDES, ANTI-SPROUTING PRODUCTS AND PLANT-GROWTH REGULATORS, DISINFECTANTS AND SIMILAR PRODUCTS, PUT UP IN FORMS OR PACKINGS FOR RETAIL SALE OR AS PREPARATIONS OR ARTICLES (FOR EXAMPLE, SULPHUR-TREATED BANDS, WICKS AND CANDLES, AND FLY-PAPERS):
…
3808.904.00 -- Disinfectants
…
3808.99.00 -- Other
…
3824 PREPARED BINDERS FOR FOUNDRY MOULDS OR CORES; CHEMICAL PRODUCTS AND PREPARATIONS OF THE CHEMICAL OR ALLIED INDUSTRIES (INCLUDING THOSE CONSISTING OF MIXTURES OF NATURAL PRODUCTS), NOT ELSEWHERE SPECIFIED OR INCLUDED:
…
3824.90.10 -- Goods, as follows:
(a) …
(b) food preservatives;
As Mr R Northcote, Director Customs Law and Prosecutions with the Department of Immigration and Border Protection submitted, the two possible headings are mutually exclusive. That is because of the concluding words in Heading 3824, that is, not elsewhere specified or included. Therefore, I should first examined Heading 3808 to see if the product in question may be included under that heading. It is only if the answer to that question is in the negative that I should examine Heading 3824.
The Comptoller-General contended that Opti.Form PD4 is correctly classified as a disinfectant. Mr Northcote referred to the Macquarie Dictionary definition of the word disinfectant where it is said it is: any chemical agent that destroys bacteria. He also referred to the Collins Dictionary definition which is: an agent that destroys or inhibits the activity of microorganisms that cause disease. Further, Mr Northcote submitted that the product or subject goods are a disinfectant due to their bacteriostatic action. He referred to A Dictionary of Biology (7th ed, 2015) where a disinfectant is described as: any substance that kills or inhibits the growth of disease-producing microorganisms and is in general toxic to human tissues.
Mr Northcote also submitted that dictionaries are merely guides to the ordinary meaning of words, the ordinary meaning being determined by current usage. He contended that the current usage of the word disinfectant extends to agents whose antimicrobial properties are bacteriostatic rather than bactericidal. That is, a disinfectant is a substance which disinfectants in that it prevents dangerous infections by controlling microorganisms whether by killing those microorganisms or inhibiting reproduction. Mr Northcote referred me to the Federal Court of Australia (Young J) decision in Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64. That case involved the classification of goods which fell under Heading 3808.10.90 of the Tariff Act. The goods in question were described as insect mating disruption products. Customs classified them as insecticides.
Although in Biocontrol the parties came to an agreement regarding the error of law made by the Tribunal, his Honour nevertheless, correctly, explained that it was his duty to identify the error of law rather than simply accept what the parties had agreed. He explained that the Tribunal’s adoption of a relatively narrow meaning of the word insecticide, that is, a substance or preparation for the killing of insects either by direct or indirect means, was incorrect. Young J was of the opinion that the word can be applied to substances which control or repel insects. His Honour also said this about the context in which the word insecticide appeared in Chapter 38 of the Tariff Act, at 76 – 77:
What is of much greater significance is that heading 3808 and its subheadings contain other indications that the word “insecticide” is used in a way that embraces products that are designed to exterminate, reduce, repel or control targeted insect populations. Subheading 3808.10, “Insecticides”, is elaborated by subheadings 3808.10.10 and 3808.10.90. Subheading 3808.10.10 provides that certain types of insecticides, namely camphor, fly papers and mosquito spirals and coils, are to be free of duty, whereas other insecticides attract duty at the rate of 5%.
…
By treating camphor and mosquito coils as insecticides, it is apparent that heading 3808 and its subheadings use the term “insecticide” so as to include chemicals or products which repel or deter insects. The term is not used in a way which is confined to chemicals which directly or indirectly kill or exterminate insects.
…
The Tribunal failed to take these contextual indications into account. Both sets of indications support a wider meaning of “insecticide” than that adopted by the Tribunal.
The Tribunal in that case also did not refer to the Harmonized Commodity Description and Coding System Explanatory Notes (HSEN). Young J said, at 77:
In my opinion, it would have been permissible for the Tribunal to have regard to the Harmonised System Notes as an extrinsic aid to the interpretation of heading 3808. Where the language of a heading is ambiguous or susceptible to different interpretations, the Harmonised System Notes are an appropriate extrinsic aid to interpretation: Gardner Smith Pty Ltd v Collector of Customs (Vic) (1986) 66 ALR 377 at 383-384; Barry R Liggins Pty Ltd v Comptroller-General of Customs (1991) 32 FCR 112 at 118-120; and Toyota Tsusho Australia Pty Ltd v Collector of Customs [1992] FCA 282 at [22]-[30].
By way of analogy, Mr Northcote argued that a broader approach should be taken to interpreting the descriptive words used in heading 3808. In other words, the expressions insecticides, rodenticides, fungicides, herbicides and disinfectants should not be restricted to agents which kill the respective organisms. The ordinary meaning of each of those words can extend to agents which control the relevant undesirable organisms whether by killing or by other means.
In the alternative, Mr Northcote submitted that if the ordinary meaning of the word disinfectant were restricted to agents which kill pathogenic microorganisms, then the subject goods are similar products to such disinfectants because they control bacteria by inhibiting their reproduction rather than by killing them, with a similar practical result of bacteria not being present in dangerous levels.
Mr Northcote also submitted that I should have regard to the HSEN as an extrinsic aid. He explained that the HSEN are maintained by the World Customs Organisation (WCO) as guidance material for WCO members in the interpretation of the Harmonized System. Mr Northcote referred to s. 15AA of the Acts Interpretation Act 1901 (the Interpretation Act) which provides:
In the interpretation of the provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.
Mr Northcote submitted that the General Rules of Interpretation in Schedule 2; the Section and Chapter Notes, apart from Additional Notes; all the terms of headings (including headings 3808 and 3824); and all the subheadings down to a six-figure level are taken directly from the Harmonized System. The purpose of enacting those provisions was to enact the Harmonized System in the interests of international uniformity of tariff classification. I accept that submission. Mr Northcote also referred to s. 15AB (1) of the Interpretation Act which provides:
(1) Subject to subsection (3), in the interpretation of a provision of an Act, if any material it forming part of the Act is capable of assisting in the ascertainment of the meaning of that provision, consideration may be given to that material:
(a)to confirm that the meaning of the provision is the ordinary meaning conveyed by the texts of the provision taking into account its context in the Act and the purpose or object underlying the act; or
(b)to determine the meaning of the provision when:
(i) the provision is ambiguous or obscure; or
(ii) the ordinary meaning conveyed by the texts of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to result that is manifestly absurd or is unreasonable.
I accept Mr Northcote’s submissions regarding the use of the HSEN. I have, on a number of occasions when dealing with Customs matters, referred to the difficulty in ascertaining the meaning of words and expressions used in headings, essentially because they are invariably ungrammatical and the Notes frequently contain exclusions. This case is no exception. In fact, it has added complications to which I will refer presently.
The HSEN provides that the products of heading 38.08 can be divided into a number of groups. At (IV), it refers to disinfectants, stating:
Disinfectants are agents which destroy or irreversibly inactivate undesirable bacteria, viruses or other micro-organisms, generally on inanimate objects.
Disinfectants are used, for example, in hospitals for cleaning walls, etc, or sterilising instruments. They are also used in agriculture for disinfecting seeds and in the manufacture of animal feeds to control undesirable micro-organisms.
The group includes sanitisers, bacteriostats and sterilisers.
Mr Northcote placed considerable weight on the fact that the HSEN refers to bacteriostats. That was undoubtedly because Mr Kazs used that description for the Opti.Form PD4 product. Corbion’s advertising material also refers to Opti.Form as inhibiting the growth of bacteria throughout the product’s shelf life. Used as a verb, inhibit has a wide range of meanings including: 1. trans. To forbid, prohibit, interdict (a person);… 2. To forbid, prohibit (a thing, action etc.). Now rare. 1494. 3. To restrain, check, hinder, prevent, stop 1535 (The Shorter Oxford English Dictionary).
Although I accept that Mr Kazs described the goods in question as bacteriostatic and that Corbion’s advertising material describes its product as inhibiting the growth of bacteria, I believe some care should be taken with those descriptions given that Mr Kazs is a sales specialist, not a microbiologist. In my opinion, the witness statement which I took into evidence made by Mr Elize Willem Bontenbal, who holds a Master’s degree in Food Science & Biochemistry, probably provided the most accurate description of the product in question. He described the composition of the product being 56% potassium lactate, 4% sodium die-acetate and 40% water. He described its use as to extend the shelf life of cooked meat products… without any risk to the consumer of illness caused by microorganisms.
More particularly, Mr Bontenbal said:
Opti.Form prolongs the shelf life of products by restricting the growth of bacteria that are present in the cooked meat. When meat products are cooked bacteria are destroyed by the heat of the cooking process. However, when the cooked products are sliced and/or re-packaged new bacteria are introduced which will multiply and can cause spoilage or illness.
Opti.Form is introduced prior to cooking by addition to meat, such as ham, in a vessel with moisture and tumbling to ensure thorough mixing. The meat is then placed in a plastic bag and cooked. When it has cooled it is removed from the plastic bag and repackaged for sale.
The Opti.Form is introduced before cooking so that it can be thoroughly mixed distributed throughout the meat. If it was introduced after cooking it would only be possible to coat the outside of the cooked product and would therefore be less effective (e.g. spots can be missed). Regulatory authorities do not object to the presence of lactate inside the product because it does not kill organisms (it can not mask bad hygiene) or harm consumers, its only effect being to restrict the growth of microorganisms.
Opti.Form affects the growth of microorganisms by:
(a) increasing the lag phase before growth begins to occur; and
(b) slowing the rate of growth that takes place after the lag phase.
If the meat is not used for an extended period of time the microorganisms will adapt to their altered environment and eventually resume a growth rate similar to their normal unrestricted growth rate. …
What is clear from Mr Bontenbal’s evidence is that Opti.Form PD4 does not kill microorganisms, nor does it prevent them multiplying in their host product. It simply restricts the rate of growth of pathogens in cooked meat. Therefore, in the sense that it significantly slows down the rate of growth of pathogens, it may be said to inhibit their reproduction. However, as I have pointed out above [27], the word inhibit is also subject to a range of meanings. It may mean to prohibit or prevent something from occurring or, in a broader sense, to act as a restraint or to hinder something taking place.
In my opinion, the answer lies in determining the sense in which the word disinfectant is intended to be understood having regard to the context in which appears in Heading 3808. It is undoubtedly correct that all of those words appearing in that Heading which have the Latin root of the suffix cide, are intended to convey the meaning that they kill. That would of course also apply to disinfectants. As Taber’s Cyclopedic Medical Dictionary describes the word disinfectant: A substance that prevents infection by killing bacteria. However, it is reasonably clear that the heading is also intended to apply to chemicals which deter the particular organisms affected by those chemical substances. It may also apply to chemicals which prevent reproduction in unwanted micro-organisms, without killing them.
My understanding of the sense in which the word disinfectant is used in Heading 3808 is supported by the HSEN dealing with disinfectants. As the HSEN states, disinfectants may destroy or irreversibly inactivate undesirable bacteria, viruses or other microorganisms. It also supports my understanding of the sense in which the word inhibit should be understood in the context of that Heading. It is likely to mean to forbid, prohibit, prevent or stop an event from taking place. By inactivating bacteria such that they cannot multiply, that has an effect similar to killing the micro-organism. It is only when bacteria multiply and reach a particular level that they become a danger to humans ingesting them.
The expert evidence before me clearly indicates that Opti.Form PD4 neither kills nor inactivates bacteria in foods. It does not irreversibly inactivate undesirable bacteria, viruses or other micro-organisms. It alters the environment of a food product so as to slow down the reproductive process and by doing so, it extends the shelf life of the food product.
Mr Northcote’s alternative argument was that if the ordinary meaning of the word disinfectant was restricted to agents which kill pathogenic microorganisms, then the subject goods were similar products to such disinfectants because they control bacteria by inhibiting their reproduction rather than killing them. Young J, in Biocontrol discussed the application of those words. The Tribunal in that case had held it was necessary to find a class or genus of goods common to all of the particular descriptive words which preceded the expression and similar products in Heading 3808. Young J said that the approach is commonly referred to as an application of the ejusdem generis rule but that it overstated its proper function to call it a rule. It was no more than a guide to interpretation and should be used cautiously.
After discussing the operation of the so-called rule, his Honour said, at 79:
All in all, the surest approaches to give meaning to the general words which follow particular words in a statutory provision by determining the meaning of those words in their context and by reference to the purpose of the provision, in the same way as meaning is given to other words in a statute.
Although Mr Northcote submitted that it may be necessary to determine the class or genus that includes all seven items in Heading 3808 and similar products, as Young J said in Biocontrol, there will be occasions when it is not appropriate to apply the rule having regard to the context and purpose of the particular statutory provision. In that case, which dealt with insecticides specifically, his Honour said, at 79:
When account is taken of all the contextual features I have described, it would be more appropriate to describe the class as products that have a controlling, deterring, inhibiting or exterminating effect on insects, rodents, fungi, plants or bacteria.
That broad description offered by Young J does not alter my opinion regarding the applicability of Heading 3808 to the goods in question. Opti.Form PD4 does not have a controlling, deterring, inhibiting or exterminating effect on bacteria. Mr Bontenbal describe the mechanisms of action of Opti.Form PD4 as:
(a)lowering water activity in the environment which increases stress on microorganisms;
(b)the transport of un-disassociate of lactate across the cell membranes of pathogens. When this occurs the cells have to use energy to maintain their internal pH and therefore lack sufficient energy for growth;
(c)most common microorganisms produce lactate and if the environment is saturated with lactate from an external source it inhibits production of lactate by the organisms and thus frustrates their energy production.
Effectively, what Opti.Form PD4 does is to create an environment which is less conducive to the reproduction of bacteria than would ordinarily be the case. It is not practically dissimilar to placing meat in a freezer. That cannot sensibly be described as disinfecting the meat.
There is one other factor which I believe points strongly to Heading 3808 being inapplicable to the Opti.Form PD4 product. That is the presence of Heading 3824 which applies to chemical products not elsewhere specified or included. While clearly this Heading can only be applied after all other headings or subheadings have been excluded, subheading 3824.90.10 refers to goods described as food preservatives. That subheading is itself a generic description of chemicals based on their purpose and function. Opti.Form PD4 is a product whose sole function and purpose is to extend the shelf life of food, particularly cooked meats. It is clearly a food preservative.
While I accept unquestionably that one cannot argue that because the goods in question, by description, seemed to fall under subheading 3824.90.10(b), one should simply disregard heading 3808 and arrive at the conclusion that the subheading I have referred to above applies. However, it surely begs the question as to why the description food preservatives appears as a subheading to 3824. If food preservatives in general were capable of being and intended to be classified as a disinfectant and hence within Heading 3808, the purpose of including food preservatives in subheading 3824.90.10 would be redundant. That would be the case irrespective of the chemical composition of the substance. Plainly, the expressions food preservatives and disinfectants are mutually exclusive.
CONCLUSION
I have found that the goods, the subject of this application, should be identified as food preservative. I have based that finding on the literature provided by Sawtell in support of its application as well as expert evidence which described, in considerable detail, its purpose and function. There was no evidence that they served any other purpose.
Although the Comptroller-General contended that the goods should be classified under Heading 3808 as they satisfied the description of being a disinfectant or similar product, respectfully, I disagree. Taking into account the context in which the description disinfectant appears in Heading 3808 and the general context of the goods found in Chapter 38, I have found that classification to be incorrect. Further, that classification is inconsistent with the explanation given in the HSEN dealing with disinfectants.
I find that the goods known as Opti.Form PD4 are correctly classified to heading 3824 and in particular, subheading 3824.90.10(b). That is the express sub-classification which deals with food preservatives and that classification is not specified or included elsewhere in the Tariff Act.
I would set aside the decision under review and in substitution determine that Opti.Form PD4 is classified as a food preservative under sub-heading 3824.90.10(b) of Chapter 38 of Schedule 3 to the Customs Tariff Act 1995 (Cth).
45. I certify that the preceding 44 (forty-four) paragraphs are a true copy of the reasons for the decision herein of Egon Fice, Senior Member
[sgd]......................................
Associate
Dated 6 December 2016
Date of hearing 25 July 2016 Counsel for the Applicant Mr J Slonim Representatives for the Applicant J K Trade Consultancy Pty Ltd Advocate for the Respondent
Mr R Northcote
Solicitors for the Respondent Customs and Border Protection,
Legal Services Branch
Sawtell Nominees Pty Ltd t/a H & R Schwarz and Comptroller-General of Customs [2016] AATA 993
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