Factors affecting the tariff classification of goods

The Court of Justice of the European Union (CJEU) confirmed in its judgment of 16 November 2023 (C-366/22 Viterra Hungary) that it is not only the objective characteristics and properties of the goods that affect their classification, but also the processing or treatment process and their intended use.

What does the case involve?

The case concerns the importation of so-called soybean meal from Brazil by a Hungarian Company, which classified the goods under CN heading 2304 ‘Oilcake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of soybean oil’.

After the goods were imported into the importing country, the Hungarian expertise bureau concluded that this classification was incorrect and the product should be classified under CN heading 2309 ‘Preparations of a kind used in animal feeding’.

The opinion of the expertise bureau was taken into account in both the decision of the tax authority and the appealing court, which indicated that the product was intended exclusively for animal feeding, that it was a preparation and that it had undergone final processing.

The company, disagreeing with the position, challenged the judgment of the appealing court before the Hungarian Supreme Court, which stayed the proceedings and referred as many as seven questions to the CJEU. The answers to these questions led to the question of whether the Combined Nomenclature (CN) can be interpreted without regard to the intended use of the imported goods and the processing or treatment processes.

CJEU position

The CJEU, in the justification of the judgment, mainly clarifies the criteria to be applied for the correct classification of goods under the CN.

It noted that, in accordance with established CJEU practice, the decisive criterion for the tariff classification of goods should be their objective characteristics and properties, which are set out in the wording of the CN heading and the coresponding section or chapter notes. In doing so, the CJEU emphasised that the intended use of the goods and the processes involved in their production should also constitute an objective criterion for their classification.

The CJEU, referring to the Explanatory Notes to heading CN 2304, pointed out that the extraction of the oil by means of a solvent is the normal technical process for the production of soybean meal and the process following the extraction, namely toasting, is a processing which deprives the goods of the character of residues and is suitable for animal feeding (either on its own or when added to other mixtures). The exclusion of the toasting process from the classification of the goods would lead to the deprivation of the essence of this heading and the heat treatment of the goods does not deprive them of the character of residues under CN heading 2304.

In addition, the Company’s reasoning regarding the destination of the imported goods was recognised by the CJEU, which confirmed that the Explanatory Notes to CN heading 2304 also cover products which, after importation, can be ground and incorporated into a mixture so that it can be consumed by animals.

The Court agreed with the Company’s argument and confirmed that, in view of all the circumstances, the product in question should be classified under CN heading 2304 ‘Oilcake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of soya-bean oil’.

Impact of processing on tariff classification

The CJEU’s considerations, although partly confirming the practice adopted so far, confirm for traders that both the processing and treatment processes and the intended use of the goods after importation have an impact on the tariff classification.

This judgment demonstrates that the issue must be approached comprehensively and all factors that may, in our view, affect the tariff classification and consequently the amount of customs duty must always be taken into account.