Over the past few years, Customs has had some major, and at times, surprising losses in Australian Court and Tribunals (in one case wheelie bins were classified as vehicles). The most high profile loss concerned the classification of vita-gummies where the High Court held that they should be classified as a medicament rather than food.
Legislation has been introduced to parliament to prevent a replication of outcomes in respect of future imports. The outcome will mean that future imports will be taxed as Customs intended. However, the legislation does not undo the judicial reasoning that resulted in Customs losing those cases. Most significantly, we are still stuck with the position that the French text of the HS Code needs to be considered when interpreting the Customs Tariff Act (which, incidentally, is in English).
Customs Tariff Amendment (Incorporation of Proposals and Other Measures) Bill 2020
A copy of the proposed legislation can be found here. The proposed legislation seeks to change the tariff outcome in a number of important cases as set out below:
· Pharma-Care – Vitamins and other supplements – In this case health products being vitamins and garcina extracts were held to fit within Chapter 30 as a medicament. Although Customs lost the case at the High Court, the Court did uphold Customs' argument that when interpreting the Australian HS code, the corresponding provisions of the French text of the code must be considered. The legislation amends the classification outcome of the case by seeking to add a new note that specifically exclude vitamins and other supplements from chapter 30. The goods will be classified to heading 2106 unless another more specific provision applies. This amendment is consistent with the amendments to the explanatory notes made by the World Customs Organisation (WCO) HS Committee in 2019.
· Sulo – Wheelie Bins - In this case, the AAT held that wheelie bins should be classified in chapter 87 as vehicles, as they are essentially designed for the movement of goods, being waste. Customs had argued for classification to chapter 39 on the basis of explanatory notes that stated that dustbins fall in chapter 39. The AAT criticised this approach, holding that the explanatory notes should not be used to create ambiguity where there is no ambiguity in the terms of the headings. Since this decision, the WCO has expressly changed the explanatory notes so that wheelie bins are expressly excluded from chapter 87. On this basis, Customs has sought that chapter notes be added to 87 of the Australian legislation stating that the heading does not cover wheelie bins.
· Smoothflow – Fire pipes – The classification outcome in this case was driven by an attempt to avoid dumping duties on HSS. The importer sought classification to heading 7308 on the basis that the heading applied to pipes used in connection with a structure (as opposed to forming part of the structure). The AAT agreed with the importer following consideration of the French text of the HS code. Customs is in the process of appealing this decision. The outcome for future importers will be decided not by that case, but by this legislation which provides that tubes and pipes prepared for the conveyance of fluids (water, oil and gas) are not included in heading 7308.
· Solu - Goods cut to size after import – This case concerned the tariff classification of various aluminium extrusions to be used as rails and handles. The goods would almost always be cut to size after importation. The AAT held that the need to cut to size did not alter the classification of the goods. This was because at the time of import, those goods had the essential character of a complete or finished article. This case had a significant dumping duty impact as the aluminium extrusions were not classified to chapter 76 which attract dumping duties. Rather than appealing the AAT finding regarding parts versus finished goods, Customs has instead sought legislative amendment so that headings 7308 (iron/steel structures), 7610 (aluminium structures), 8302 (mountings/fittings) and 9403 (furniture parts) do not include goods that require further modification before use, including but not limited to, cutting, drilling and bending.
Customs overreach
The proposed amendment based on "further modification" to plates,, rods, angles, shapes, sections, tubes and pipes seems to go much further than was necessary to address the issues arising from the Solu case. For instance, if cabinetry rails were cut to the precise size at the time of import, but did not have screw holes, the item would require drilling and would now be excluded from heading 9403.
The term "further modification" is too wide and goes beyond established identification principles. Some modification will be so minor that the good should rightly be classified to heading 7308, 7610, 8302 or 9403 as applicable. The proposed amendments could prevent this outcome.
The answer may be for importers to argue that a particular good has such features that it is correctly identified as a furniture or building part, rather than a mere "plate, rod, angles, shape, section, tube or pipe". If this is the case, the new notes would not exclude the good, despite the need for further modification, as the new notes only apply to goods identified as mere " plates, rods, angles, shapes, sections, tubes or pipes". These arguments will be strongest where the required modification is very minor.
Commencement of new classifications
The new classification rules will only apply to goods imported after the date that the legislation commences. This is the 28th day after the Act receives royal assent. At this stage the bill has not passed the Senate. The changes will take effect some time in 2021.
Implications
Importers need to consider the following:
· tariff concessions orders that rely on a classification that will change after the bill is passed
· duty free vitamin and health supplements that will in the future be classified as a food that attracts duty
· dumping duty payable on steel pipes and aluminium extrusions that are currently classed as parts of a building or furniture
· steel and aluminium products that require some minor further modification before use that may in the future (perhaps inadvertently) be classified to a different heading
· the HS code on certificates of origin for affected goods
· tariff advices applying to affected products – legislative amendment is a ground on which Customs can revoke a TA