Supreme Court of the Netherlands has made a reference for a preliminary ruling to the Court of Justice of the European Union on the CN classification of processed byproducts (“Soybean Meal”).
On 13 March 2015 the Dutch Supreme Court decided to make a reference for a preliminary ruling to the Court of Justice of the European Union (ECJ) on the CN-classification of soy-protein concentrate.
During the production of soybean oil a solid residue by-product is created. This by-product is known as “Soybean Meal” or “Soybean Oil Cake” (Dutch: “Sojaschroot”) and is widely used as a source of protein in animal diets, including pig, chicken, cattle, horse, sheep, and fish feed.
Because of the high concentration of carbohydrates this Soybean Meal is not suitable as an animal feed ingredient destined for newborn calves. Only after the processing (extraction) of this Soybean Meal into a soy-protein concentrate is it suitable to use as an ingredient in this specific type of animal feed.
Plaintiff applied for a Binding Tariff Information (BTI) of this soy-protein concentrate at the Dutch customs authorities. In the application plaintiff requested classification under CN post heading 2304 0000. (The 0% tariff; “solid residues resulting from the extraction of soya-bean oil"). The Dutch customs agency issued a BTI with CN post heading 2309 90 31 (The € 23 / t(1) tariff; “Preparations of a kind used in animal feeding").
The customs chamber of the High Court of Amsterdam ruled that the Soybean Meal had to be considered as a byproduct as mentioned in CN post 2304. The High Court found that the processing (reduction) of this Soybean Meal into a soy-protein concentrate did not change the basic characteristics of the byproduct. The High Court also ruled that the basic characteristics of the product remained the same (animal feed) and that there was no change in the basic components of the product, only the composition itself. The Dutch government appealed this decision at the Supreme Court of the Netherlands.
Advocate-General M.E. van Hilten concluded on 9 September 2014 that the appeal to the Supreme Court should be denied. The A-G ruled that the High Court had explained thoroughly and sufficiently that the processing of the Soybean Meal into a soy-protein concentrate did not lead to a substantial change in the essential characteristics of the Soybean Meal. The A-G also indicated that the “Cargill”-case (ECJ 22 september 1988, 268/87) did not apply to this case since the CN post 2304 was not applicable in that specific procedure. According to the A-G the “Fancon”-case (ECJ 11 march 1982, 129/81) indicates that both the product itself and the result of the processed product can be classified under CN post 2304.
The Supreme Court decided to makes a reference for a preliminary ruling to the ECJ on the following questions (unofficial translation of HR 13 march 2015, ECLI:NL:HR:2015:558):
“Does the CN post 2304 include the soy-protein concentrate that is created after the removal of residual fats, carbohydrates (or dietary fiber) and damaging components from solid waste (so-called “Sojaschroot”) – which results from the production of oil from soybeans – and because of this extraction is suitable to be used as an ingredient for Animal Feed destined for young calves?
If this question is answered negatively; does post 2308 or 2309 of the CN apply to the soy-protein concentrate that is created with the procedure described in the previous question?”
The result of this preliminary ruling is of importance since the processing of byproducts and waste – where only the basic composition is altered – often leads to discussion with Custom Authorities on the CN classification of this processed product. The basic question is as follows: does the processing (extraction) of a certain product result in the creation of a new product which therefore justifies a CN classification under a more specific (rest)post as 2308 or 2309? Hopefully the ECJ will provide an answer.
Do you have a conflict with VAT/Customs Authorities and are you looking for legal support? Do not hesitate to contact Roelof Vos or any of the other VAT and Customs specialists of Hertoghs Tax Attorneys. We specialize in litigation and are not tax accountants/advisors.