Trustee for the Kurowski Family Trust and Chief Executive Officer of Customs - [2010] AATA 974

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 974

ADMINISTRATIVE APPEALS TRIBUNAL )

) Nos: 2009/3408, 2010/0338

GENERAL ADMINISTRATIVE DIVISION ) 2010/4882, 2010/4893

ReTrustee for the Kurowski Family Trust

Applicant

AndChief Executive Officer of Customs

Respondent

DECISION

TribunalMr R P Handley, Deputy President
Dr T M Schafer, Member

Date6 December 2010
PlaceSydney
DecisionThe Tribunal sets aside the decisions under review and substitutes decisions that the goods should be classified under subheading 3004.50.00 of Schedule 3 of the Customs Act 1901.
......................[sgd]....................
Mr RP Handley
Deputy President

CATCHWORDS

CUSTOMS AND EXCISE – tariffs – classification of goods – medicaments used for the prevention of treatment of any disease or ailment – medicaments containing vitamins or other products – medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses - food preparations not elsewhere specified or included - effervescent tablets - food supplements that maintain health and well-being – provitamins and vitamins – decision under review set aside

WORDS AND PHRASES – ‘food’, ‘food preparations’, ‘diet’, ‘dietary’, ‘vitamin’, ‘supplement’

RELEVANT LEGISLATION

Customs Act 1901 (Cth): ss 167, 273GA

Customs Tariff Act 1995 (Cth): Schs 2, 3

Therapeutic Goods Act 1989 (Cth)

Therapeutic Goods Regulations 1990 (Cth): Sch 4

Acts Interpretation Act 1901 (Cth): s15AB

CITATIONS

Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449; (1987) 76 ALR 313

Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 12 ALD 313; (1987) 72 ALR 591

Re Forever Living Products Australia Pty Ltd & Collector of Customs (1986) 9 ALD 271; No. N85/139 AAT No. 2525

Barry R Liggins Pty Ltd v Comptroller-General of Customs (1991) 32 FCR 112; (1991) 103 ALR 565

O.R. Cormack Pty Ltd and Collector of Customs (1983) 6 ALN N15

Nutri (Imports & Exports) Ltd and Commissioner of Customs and Excise decision number C00166 of June 2002

Unigreg Ltd v HM Customs and Excise [1998] EWHC Admin 725

OTHER AUTHORITIES

Australian Regulatory Guidelines for Complementary Medicines: Part II

International Convention on the Harmonized Commodity Description and Coding System (14 June 1983, Brussels, entered into force 1 January 1988)

International Convention on the Harmonized Commodity Description and Coding System Explanatory Notes (4th edition, World Customs Organization, 2007)

Canadian Customs Notice N-536 ‘Tariff Classification of Vitamin Preparations as Medicaments’, 18 September 2003

REASONS FOR DECISION

6 December 2010

Mr R P Handley, Deputy President

Dr T M Schafer, Member

The Trustee for the Kurowski Family Trust (the Applicant) has applied for the review of decisions of the Chief Executive Officer of Customs (the Respondent) to classify effervescent vitamin tablets (the goods) imported by the Applicant as subject to a rate of duty of 4% pursuant to Schedule 3 of the Customs Tariff Act 1995 (the Act).

Background

The tablets, which were manufactured and supplied by the Italian company E‑Pharma Trento SpA, were imported into Australia by the Applicant. While the goods are marketed under different brand names and with different packaging according to the retail outlets where they are sold, they are identical in composition.
On arrival of the goods in Australia, the Applicant’s representative lodged an application claiming that the goods should be classified under subheading 3004.50.00 of Schedule 3 of the Act because they were medicaments for therapeutic or prophylactic use, with the consequence that the goods would be free of duty. However, on 24 June 2009, the Customs and Border Protection Service decided to classify the goods under subheading 2106.90.90 of Schedule 3 because the goods were not considered to be medicaments used for the prevention or treatment of any disease or ailment but, rather, food supplements that maintain health and well-being. As a consequence of this decision, duty of 4% was applied. The Applicant paid the duty ‘under protest’ on 22 July 2009 and, on 10 August 2009, lodged an application for the review of this decision with the Tribunal.
On 25 January 2010 and 10 November 2010, the Applicant lodged applications with the Tribunal in respect of further importations of the same goods in August and September 2009 and July and November 2010, respectively, to which duty at a rate of 4% was also applied pursuant to the Respondent’s earlier decision of 24 June 2009. In each instance, the Applicant paid the duty ‘under protest’. The Applicant requested, and the Tribunal agreed, that the four applications should be heard together.

Relevant Legislation

Where duty is “paid under protest” pursuant to s 167 of the Customs Act 1901, the owner of the goods who has paid the duty under protest may apply to the Tribunal pursuant to s 273GA(2) of that Act for review of the decision requiring the payment of duty.
The issue for the Tribunal to determine is under which of the headings in Schedule 3 the goods should be classified. The general rules for the interpretation of Schedule 3 are set out in Schedule 2 of the Act. Rule 1 states:
… 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: …
We note that the Act gives effect to the International Convention on the Harmonized Commodity Description and Coding System (the Harmonized System), adopted in Brussels on 14 June 1983, and which entered into force for Australia on 1 January 1988. Mr Northcote, for the Respondent, informed the Tribunal that the interpretative rules in Schedule 2 of the Act and the nomenclature of Schedule 3 are a direct transposition from the Harmonized System.
In this case, there were initially three headings identified as possibly applicable to the goods: headings 2106, 2936 and 3004. However, at the hearing, the parties agreed that the applicability of heading 2936 was no longer in issue.
Heading 3004, which the Applicant contends is applicable in this case, applies in respect of:
MEDICAMENTS (EXCLUDING GOODS OF 3002, 3005 OR 3006) CONSISTING OF MIXED OR UNMIXED PRODUCTS FOR THERAPEUTIC OR PROPHYLACTIC USES, PUT UP IN MEASURED DOSES (INCLUDING THOSE IN THE FORM OF TRANSDERMAL ADMINISTRATION SYSTEMS) OR IN FORMS OR PACKINGS FOR RETAIL SALE:

More specifically, the Applicant contends that the goods should be identified as vitamins and that subheading “3004.50.00 – Other medicaments containing vitamins or other products of 2936” is applicable, which would result in the goods being free of duty (heading 2936 applies in respect of provitamins and vitamins.)
Heading 2106 is a residual heading applicable to “FOOD PREPARATIONS NOT ELSEWHERE SPECIFIED OR INCLUDED”, including, at 2109.90.90 “Other”. It is this subheading under which the Respondent classified the goods, which are thereby subject to duty of 4%. The Respondent maintains that the goods should be identified as food supplements and that 2109.90.90 is the applicable subheading.
The Tribunal must first make objective findings as to how the goods, as imported, should be identified. Secondly, the Tribunal must determine under which of the subheadings in Schedule 3 the goods should be classified.

How should the goods be identified?

As stated above, the Tribunal must first make objective findings as to how the goods, as imported, should be identified. It is well established “that the classification of goods for tariff purposes is a practical ‘wharfside’ task”: Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449, at 463; see also Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 12 ALD 313. The shipping invoices for the goods describes them as “effervescent tablets”, and the retail labelling of the goods also includes reference to “effervescent tablets”. The active ingredients of each tablet are stated by the manufacturer to be:
·Thiamine nitrate (vitamin B1) – 15 mg
·Riboflavine sodium phosphate (vitamin B2) – 15 mg
·Nicotinamide (vitamin B3) – 50 mg
·Calcium pantothenate (vitamin B5) – 25 mg
·Pyridoxine hydrochloride (vitamin B6) – 10 mcg
·Cyanocobalamin (vitamin B12) – 10 mcg
·Biotin (vitamin H) – 150 mcg
·Ascorbic acid (vitamin C) – 1000 mg

In addition, the tablets contain excipients to bind the ingredients, to make the tablets effervescent when dissolved in water, and to add sweetness, flavour and colour.

The Italian manufacturer’s statement refers to the goods as “food supplements in the form of effervescent tablets”. The retail labelling for the goods, which are sold under different brands names in Australia, describes the goods as effervescent tablets containing B group vitamins with vitamin C. The retail labelling for some brands includes a description of the goods as a ‘vitamin supplement’ or ‘dietary supplement’.
The Tribunal notes the evidence of Brenley Milsom, “a pharmacist and regulatory affairs consultant”, that particular brands of the goods which are also sold in New Zealand, may be labelled to meet the requirements for retail sale in both Australia and New Zealand, and that in New Zealand the goods are classified as dietary supplements under the New Zealand food legislation.
Mr Milsom provided a statement for the Applicant dated 28 January 2010, a supplementary statement dated 15 July 2010 and also gave evidence at the hearing. He said that in his experience (of 40 years involvement with retail pharmacies), the goods are purchased by consumers wanting a vitamin supplement, and the terms ‘food supplement’ or ‘dietary supplement’ are unlikely to be used either by consumers or health professionals in Australia. However, while he did not dispute that, “in some circumstances, it may be acceptable and correct to describe the Applicant’s products as food supplements”, he said they “cannot be correctly described, identified and classified as ‘food’”.
Mr Milsom said that food is specifically excluded from the definition of therapeutic goods for the purposes of the Therapeutic Goods Act 1989. The goods are, however, classified by the Therapeutic Goods Administration (TGA) as complementary medicines. The product labelling for the goods bears the TGA listing (AUST L) number. The Tribunal notes that Schedule 4 of the Therapeutic Goods Regulations 1990 requires the goods, being preparations containing vitamins as their therapeutically active ingredients, to be listed as complementary medicines.
Mr Milsom was referred to Part II of the Australian Regulatory Guidelines for Complementary Medicines, p 58, Table 3, where the indications and claims permitted for listed complementary medicines are summarised. These include health maintenance, health enhancement and nutritional support. He agreed that in this case the specific indications for the goods listed by the TGA appear word for word on the labelling for the goods.
Mr Milsom noted that the goods are presented as tablets and that tablets are not normally consumed as food. He said there are three distinguishing features that indicate the goods are not foods: their presentation in tablet form, in measured unit doses and with health-related claims of a kind not permitted for food. He further said if the goods were classified as ‘food’, the Australian Food Standards Code would require that they meet food labelling requirements including a nutrition information panel on the retail labelling for the product specifying nutrient content information such as carbohydrates, fats, protein and energy. The packaging for the goods did not include a nutrition information panel. It included a list of the active ingredients and their quantities, in the labelling requirements for therapeutic goods.
Dr Rosemary Stanton, Nutritionist, provided a report for the Respondent dated 1 June 2010 and gave evidence at the hearing. In her report, she expressed the opinion that “a vitamin supplement is either a ‘dietary supplement’ or a ‘food supplement’ … terms that are commonly used to describe vitamin supplements such as the subject goods”. She concluded that “it is accurate to describe the subject goods as dietary or food supplements”.
In oral evidence, Dr Stanton agreed that the goods could also be classified as ‘complementary medicines’ and acknowledged that this is how they are listed by the TGA under the Therapeutic Goods Act 1989. She acknowledged that if the goods were marketed as food in Australia, their retail labelling would be required to include a nutrition information panel.
We note that ‘food’ is defined in the Macquarie Dictionary in terms of “what is eaten, or taken into the body, for nourishment”. ‘Nourishment’ is that which sustains. A ‘supplement’ is “something added to complete a thing, supply a deficiency, or reinforce or extend a whole”. ‘Diet’ is “food considered in terms of its qualities, composition, and its effects on health”. ‘Dietary’ means “relating to diet”. A ‘vitamin’ is defined as:
any of a group of food factors essential in small quantities to maintain life, but not themselves employing energy. The absence of any one of them results in a characteristic deficiency disease.
In the Tribunal’s view, these definitions indicate that ‘vitamins’ do not fall within the ordinary meaning of the word ‘food’. Vitamins are certainly contained in food and a vitamin supplement could be said to reinforce the quantity of vitamins taken into the body as part of everyday food consumption. However, we are not satisfied that products such as the goods, containing specific vitamins, should be identified as food or food supplements. This is not how such products would be identified by the reasonable person. As Mr Milsom said, such a person would not eat vitamin tablets as food for the purpose of sustenance, but rather to supplement the vitamin content of food eaten. As he also pointed out, products of this kind which are sold in tablet form with a recommended unit dosage and with health-related claims would not ordinarily be thought of as food.
Given that a vitamin deficiency could lead to disease associated with that deficiency, a vitamin supplement taken to address such a deficiency will also in such an instance come within the definition of a ‘medicine’, meaning a substance used in treating disease.
We are therefore satisfied that the goods should be identified as vitamin supplements and not as food or food supplements. Our finding is reinforced by the fact that the goods are listed under the Therapeutic Goods Regulations 1990 as complementary medicines. We note that while the classification attributed to a product in a statutory scheme is not definitive of meaning, it is, nevertheless, an indication of meaning and it would be anomalous if a product is classified according to a specific meaning under one statutory scheme and according to a different meaning under another statutory scheme unless there is good reason for doing so.

How should the goods as identified be classified?

Having decided that the goods should be identified as vitamin supplements and not as food or food supplements, the Tribunal must turn to the second issue: under which of the subheadings in Schedule 3 the goods should be classified? As stated above, Rule 1 of the general rules for the interpretation of Schedule 3, set out in Schedule 2, states:
… 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:
Rule 2(b) states:
Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other material or substances. … The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.
Rule 3(a) states that the heading which provides the most specific description shall be preferred to headings providing a more general description.
Rule 4 states:
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.
The parties have asked the Tribunal to determine under which of two headings the goods should be classified: heading 3004 in respect of medicaments, specifically subheading 3004.50.00, or heading 2106 in respect of food preparations, specifically subheading 2109.90.90. The wording of the headings is set out above at paragraphs 9 to 11. The Applicant contends that subheading 3004.50.00 is applicable and the Respondent contends that subheading 2109.90.90 is applicable.
The chapter notes for Chapter 30, “Pharmaceutical Products”, state that the Chapter does not cover foods, including food supplements. Heading 3004 refers to medicaments for therapeutic or prophylactic uses put up in measured doses. According to the Macquarie Dictionary, the word ‘medicament’ can be used as a synonym for the word ‘medicine’, any substance or substances used in treating disease. ‘Therapeutic’ means “relating to the treating or curing of a disease”. ‘Prophylactic’ means “1. defending or protecting from a disease, as a drug. 2. preventive; preservative; protective …”.
Mr Northcote said that in relation to heading 3004 and whether the goods in question are medicaments for therapeutic or prophylactic purposes, the approach adopted by the Tribunal in Re Forever Living Products Australia Pty Ltd and Collector of Customs (1986) 9 ALD 271 (Forever Living) is still appropriate. In that case, at [41] to [42], the Tribunal said that its task was not to undertake a comprehensive scientific examination of the properties of a substance, but rather to consider the bona fide claims made for the goods by the seller and the purposes for which consumers purchase the product.
The retail packaging for the goods typically states that the tablets contain “a balanced formulation of B group vitamins plus vitamin C” (Amcal and Pharmacy Choice label goods). In our view, vitamin supplements have both therapeutic and prophylactic qualities: a vitamin supplement can be used to treat a disease arising from a deficiency of that vitamin; and vitamin supplements can be used to supplement the intake of vitamins from food - vitamins being essential in small quantities for the maintenance of life - and thereby prevent or protect against the development of diseases associated with vitamin deficiencies. While, undoubtedly, vitamin supplements are used by consumers who do not, in fact, need an additional intake of particular vitamins, consumers commonly take vitamin supplements as a preventive or protective measure, in order to ward off or avoid disease.
Mr Northcote referred us to the Explanatory Notes to the Harmonized System published by the World Customs Organization (4^th edition 2007) as an aid to how we should interpret the meaning of the provisions of Schedule 3. He noted that the Full Federal Court has recognised that the Explanatory Notes are an acceptable extrinsic aid for construing the headings in the Act: see, for example, Barry R Liggins Pty Ltd v Comptroller-General of Customs (1991) 103 ALR 565 (Barry Liggins). We note, however, that in Barry Liggins, at 573, Beaumont J said:
although it may be permissible to refer to extrinsic material where the statute is ambiguous, it does not follow that extrinsic material can be used to contradict the meaning of an Act of parliament, that meaning being taken from its proper statutory context.
The Tribunal in Forever Living, at [45], adopted a similar approach, following what was said by the Tribunal in O.R. Cormack Pty Ltd and Collector of Customs (1983) 6 ALN N15, where the Tribunal stated that the correct approach to interpreting the domestic legislation is to take as a starting point the ordinary language used and:
… it is simply not open by resort to extrinsic materials, in this case the Explanatory Notes, to create a doubt as to the meaning of the Tariff and to seek then to resolve that doubt by going to the self-same materials, here the Notes, already used to create the doubt.

Thus, in interpreting legislation, in this instance the relevant provisions of Schedule 3 of the Act, the Tribunal must first consider the ordinary meaning of the words in issue in the context in which they are used. Reference to extrinsic material can be for the purpose of confirming the ordinary meaning conveyed by the text of the provision taking into account its context, or to determine the meaning of the provision when its meaning is ambiguous or obscure, or if the ordinary meaning conveyed by the text of the provision taking into account its context and the purpose or object underlying the Act leads to a result that is manifestly absurd or unreasonable (s 15AB(1) of the Acts Interpretation Act 1901).
In our view, the ordinary meaning of the words used in heading 3004 is clear enough and we do not see the need to refer to extrinsic material to confirm that meaning. However, if we were to do so, it would make no difference to the outcome. The Explanatory Notes to the Harmonized System in relation to ‘30.04 Medicaments …’ state among other matters:
Further, this heading excludes food supplements containing vitamins or mineral salts which are put up for the purpose of maintaining health or well-being but have no indication as to use for the prevention or treatment of any disease or ailment. These products which are usually in liquid form but may also be put up in powder or tablet form, are generally classified in heading 21.06 or Chapter 22.

We have already concluded above that the goods are not food supplements and, in our view, this exclusion does not therefore apply.

Turning to subheading ‘21.06 - Food preparations not elsewhere specified or included’, it must follow since we have found that the goods are not food supplements that subheading 21.06 is not the appropriate classification. However, for the sake of completeness, we note that the Explanatory Notes, at note (16), state that this subheading includes:
Preparations, often referred to as food supplements, based on extracts from plants, fruit concentrates, honey, fructose etc. and containing added vitamins and sometimes minute quantities of iron compounds. These preparations are often put up in packagings with indications that they maintain general health and well-being. Similar preparations, however, intended for the prevention or treatment of diseases or ailments are excluded (heading 30.03 or 30.04).

Thus, even if we were to classify the goods as food supplements, they might still be excluded by this note.

Mr Northcote referred the Tribunal to two British decisions concerning the classification of vitamin capsules/tablets for the application of customs tariffs. In one case, a tribunal of three and in the other a single judge of the High Court found the vitamin capsules/tablets were not ‘medicaments’ classifiable under heading 3004 but rather ‘food preparations’ classifiable under heading 2106: respectively, Nutri (Imports & Exports) Ltd and Commissioner of Customs and Excise, decision number C00166 of June 2002; Unigreg Ltd v HM Customs and Excise [1998] EWHC Admin 725. These decisions, which are, of course, not binding on the Tribunal, do not dissuade us from our view.
We also note the Canadian Customs Notice N-536 ‘Tariff Classification of Vitamin Preparations as Medicaments’, dated 18 September 2003, to which we were referred by Mr Law, for the Applicant. This explains that as a result of a Canadian Federal Court of Appeal decision, the Canada Customs and Revenue Agency cannot comply with the World Customs Organisation opinion that a certain vitamin C preparation should be classified according to heading 2106.90. The Notice states:
… it is uncontested that vitamins have therapeutic and prophylactic value. Vitamins have been proven effective in the treatment and prevention of certain diseases (eg vitamin C for scurvy and vitamin B12 for pernicious anemia).

As stated above, we have reached a similar view.

While some would consider vitamin supplements are not of the same character as medicines developed to treat specific diseases, in our view, they are not ‘food preparations’ as that term is commonly understood and should not be classified under Heading 2106. We are mindful of Rule 4 of the interpretative rules set out above: in our view, even if the goods are not squarely medicines developed to treat specific diseases, their classification under heading 3004 is the most appropriate given the use to which products such as the goods are put.
We also note that subheading 3004.50.00 is applicable in respect of “Other medicaments containing vitamins or other products of 2936”. Heading 2936 is applicable in respect of provitamins and vitamins. In the case of the goods, the parties do not contend that heading 2936 is applicable and Chapter 29, ‘Organic Chemicals’, note 1, which sets out the categories of chemical to which the Chapter applies, would appear to exclude its application to the goods. Nevertheless, we note that the heading might otherwise be applicable because of the specific composition of the goods comprising measured quantities of specific vitamins.
We conclude, therefore, that the goods should appropriately be classified under subheading 3004.50.00 and not 2106.90.90.

Decision

The Tribunal sets aside the decisions under review and substitutes decisions that the goods should be classified under subheading 3004.50.00 of Schedule 3 of the Act. This means that the goods are free of duty on importation.

I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President and Dr T M Schafer, Member.

Signed: ................[sgd].........................................................
A Veness, Associate

Date of Hearing:  11 November 2010
Date of Decision:  6 December 2010
Applicant representative:                   Mr J Law, Down Under Legal
Respondent representative:              Mr R Northcote, Australian Government Solicitor