FEDERAL COURT OF AUSTRALIA

Transcription

1 FEDERAL COURT OF AUSTRALIA Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525 Citation: Appeal from: Parties: Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525 Becker Vale Pty Ltd v Chief Executive Officer of Customs [2014] AATA 625 BECKER VALE PTY LTD v CHIEF EXECUTIVE OFFICER OF CUSTOMS File number(s): NSD 984 of 2014 Judge(s): YATES J Date of judgment: 29 May 2015 Catchwords: ADMINISTRATIVE LAW appeal from a decision of the Administrative Appeals Tribunal appeal dismissed TAXATION customs and excise tariff classification whether goods classified correctly under the Customs Tariff Act 1995 (Cth) TAXATION customs and excise availability of tariff concession order definition of comprising whether goods precisely meet description of tariff classification order Legislation: Cases cited: Customs Act 1901 (Cth) Customs Tariff Act 1995 (Cth) Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs [2015] AATA 215 Toro Australia Group Sales Pty Ltd v Chief Executive Officer of Customs [2014] AATA 187 Date of hearing: 11 May 2015 Place: Division: Category: Sydney GENERAL DIVISION Catchwords Number of paragraphs: 65

2 - 2 - Counsel for the Applicant: Solicitor for the Applicant: Counsel for the Respondent: Solicitor for the Respondent: Mr PG Cutler Down Under Legal Mr GR Kennett SC Australian Government Solicitor

3 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 984 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: AND: BECKER VALE PTY LTD Applicant CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent JUDGE: YATES J DATE OF ORDER: 29 MAY 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The applicant pay the respondent s costs. Note: Entry of orders is dealt with in Rule of the Federal Court Rules 2011.

4 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 984 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: AND: BECKER VALE PTY LTD Applicant CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent JUDGE: YATES J DATE: 29 MAY 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an appeal from a decision of the Administrative Appeals Tribunal (the Tribunal) concerning the tariff classification of certain goods, which the Tribunal found were properly described as a combination of three machines, all of which work together for the purpose of transforming higher voltage of electricity to a lower voltage (the goods). 2 The applicant s case is that the goods fall to tariff classification and that, consequently, Tariff Concession Order (the TCO) is available, with the result that the goods have a free rate of duty. 3 The respondent s case is that the goods fall to tariff classification , with the result that the goods are subject to a general rate of duty of 5%. Further, even if the goods fall to tariff classification , the TCO is not available and the goods would still be subject to a general rate of duty of 5%. 4 The Tribunal, contrary to the applicant s case, found that the goods fall to tariff classification In the circumstances, it was not necessary for the Tribunal to consider, and the Tribunal did not consider, the applicability of the TCO. 5 The respondent has filed a notice of contention to the effect that, even if the goods are properly classified under heading , they do not come within the terms of the TCO.

5 6 For the reasons that follow, I have concluded that the goods fall to classification and that the appeal should be dismissed. LEGISLATIVE BACKGROUND 7 The tariff classifications under which particular goods are classified for the purposes of the Customs Tariff Act 1995 (Cth) (the Act) are to be found in Sch 3 to the Act. 8 Section 7(1) of the Act provides: (1) The Interpretation Rules must be used for working out the tariff classification under which goods are classified. 9 The Interpretation Rules are found in Sch 2 to the Act. 10 Interpretation Rule 1 provides: 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: 11 The Section relevant to the present matter is Section XVI Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles. 12 Interpretation Rule 3 relevantly provides: 3. When goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. 13 Notes 3 to 5 to Section XVI provide:

6 Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function. 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. 5. For the purposes of these Notes, machine means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or Heading 8504 is: 8504 ELECTRICAL TRANSFORMERS, STATIC CONVERTERS (FOR EXAMPLE, RECTIFIERS) AND INDUCTORS: 15 Subheading , in its relevant context, is: Other transformers [other than certain specified transformers not presently relevant]: Having a power handling capacity exceeding 500 kva 16 Heading 8537 is: 8537 BOARDS, PANELS, CONSOLES, DESKS, CABINETS AND OTHER BASES, EQUIPPED WITH TWO OR MORE APPARATUS OF 8535 OR 8536, FOR ELECTRIC CONTROL OR THE DISTRIBUTION OF ELECTRICITY, INCLUDING THOSE INCORPORATING INSTRUMENTS OR APPARATUS OF CHAPTER 90, AND NUMERICAL CONTROL APPARATUS, OTHER THAN SWITCHING APPARATUS OF 8517: 17 Subheading , in its relevant context, is: For a voltage exceeding V: Programmable controllers Other 18 It is also necessary to refer to heading 8535 and heading Heading 8535 is: 8535 ELECTRICAL APPARATUS FOR SWITCHING OR PROTECTING ELECTRICAL CIRCUITS, OR FOR MAKING CONNECTIONS TO OR IN ELECTRICAL CIRCUITS (FOR EXAMPLE, SWITCHES, FUSES, LIGHTNING ARRESTERS, VOLTAGE LIMITERS, SURGE SUPPRESSORS, PLUGS AND OTHER CONNECTORS, JUNCTION BOXES), FOR A VOLTAGE EXCEEDING VOLTS:

7 Heading 8536 is: 8536 ELECTRICAL APPARATUS FOR SWITCHING OR PROTECTING ELECTRICAL CIRCUITS, OR FOR MAKING CONNECTIONS TO OR IN ELECTRICAL CIRCUITS (FOR EXAMPLE, SWITCHES, RELAYS, FUSES, SURGE SUPPRESSORS, PLUGS, SOCKETS, LAMP-HOLDERS AND OTHER CONNECTORS, JUNCTION BOXES), FOR A VOLTAGE NOT EXCEEDING VOLTS; CONNECTORS FOR OPTICAL FIBRES, OPTICAL FIBRE BUNDLES OR CABLES: THE TRIBUNAL S FINDINGS OF FACT 21 The Tribunal found that the three machines comprising the goods were, at one end, a red inlet unit, at the other end, a blue unit and, between the red unit and blue unit, a black unit. The three machines the red unit, the black unit and the blue unit are bolted together. The red unit receives a cable carrying 11,000 volts. The black unit reduces the voltage from 11,000 volts to 1,000 volts. The blue unit has several outlets for cables, each of which takes approximately 1,000 volts from the goods. 22 The black unit the transformer performs the principal function of the goods, namely the transformation of the voltage of electricity. The red and blue units contain equipment which permits the black unit to be operated with greater safety than would otherwise be the case. Specifically, the red unit contains a power circuit breaker module and protects the transformer in the black unit. The blue unit contains switchgear used to control, protect and isolate the electrical supply to equipment using the reduced voltage. The red and blue units cannot operate individually to transform the voltage of electricity. The black unit could so operate without the addition of the other units, but would need modification to do so. 23 The Tribunal found (at [21]): 21. The goods are properly described as three machines bolted together which together operate to reduce the voltage of, and distribute, electricity. Although the blue unit in part fulfils the role of electricity distribution, this is secondary to the role of the black unit. As noted above, the role of the red and blue units is chiefly to enable the black unit to be operated safely and effectively. I am satisfied that the principal function of the three machines combined is the transformation of the voltage of electricity. THE TRIBUNAL S REASONING 24 Having found that the principal function of the three machines combined is the transformation of the voltage of electricity, the Tribunal had regard to Note 3 (quoted at [13] above), which directs attention to the component of a composite machine that performs the machine s principal function. The Tribunal noted, but rejected, a submission by the applicant

8 - 5 - that Note 3 does not apply where a heading envisions a composite machine that falls to heading In rejecting the applicant s submission, the Tribunal accepted (at [24]) that the goods technically satisfy the heading to 8537, but do not squarely fall within it. The Tribunal reasoned (at [25]) that: 25. Note 3 is clearly directed towards resolving the classification of composite goods whose combined characteristics are not specified under a single heading in Section XVI of Schedule 3. To hold that any composite good that partially falls within 8537 is to be immediately classified under that heading would nullify the operation of Note 3. In the present application, the goods are to be classified according to their principal function. 25 The Tribunal further reasoned that the goods were classifiable under both subheading and subheading In that connection, the Tribunal found (at [26]) that the applicant was correct to contend that the goods consist of a base which is equipped with three apparatus. The Tribunal also said: It is not in dispute that these apparatus come within heading In the present appeal, the respondent contended that this broadly-expressed statement was mistaken. He said that the correct position, taken by him before the Tribunal, was that the red unit and the blue unit, if considered on their own, would come within heading 8537, since each of those units contained apparatus of However, the respondent said that it was in dispute that any of the three units would come within heading Indeed, the respondent s principal argument before the Tribunal was that the black unit is a transformer described by heading 8504, not by heading 8535 or by heading It does seem that the Tribunal s broadly-expressed statement does not accurately reflect the respondent s position before it. Conformably with the position the respondent says he took before the Tribunal, the applicant s position on this appeal was that it was common ground that the red unit and the blue unit fell within heading Regardless of what seems to have been the Tribunal s mistaken view of the respondent s position, it did apply Interpretation Rule 3(a) (quoted at [12] above) correctly, according to the respondent to conclude that subheading provides the most specific description of the goods and should be preferred. 29 Having found that the goods fall to subheading , the Tribunal further concluded that the applicant could not benefit from the TCO.

9 - 6 - THE PARTIES SUBMISSIONS 30 At the hearing of this appeal, the applicant advanced five principal arguments as to why it said the Tribunal had erred. The respondent, while supporting the Tribunal s ultimate conclusion, supported the correctness of that conclusion by reasoning that was somewhat different to the Tribunal s reasoning. The applicant s submissions The first argument 31 The applicant submitted that it was common ground that the red unit and the blue unit fall within heading 8537 (see [27] above). Further, relying on the finding in [26] of the Tribunal s reasons that the applicant was correct to contend that the goods consist of a base which is equipped with three apparatus, the applicant submitted that it must follow that the goods are a base equipped with two or more apparatus of 8535 or 8536, regardless of the function of the black unit. 32 The applicant submitted that, if this be accepted, it follows that the Tribunal erred and that the goods must fall to classification This argument appears to proceed on the assumption that Note 3 does not apply (the applicant s third argument: (see [35]-[37] below)) and, having regard to the Tribunal s description of the goods (see [1] above), that Interpretation Rule 3(c) does apply (the applicant s fifth argument: (see [40] below)). The second argument 34 The applicant referred to the Tribunal s finding at [24] of its reasons that although the goods technically satisfy the heading to 8537, they do not squarely fall within it. The applicant submitted that there is no rule of construction about whether goods squarely fall within a heading or not. Further, the applicant submitted, there is nothing in the terms of heading 8537 which provides an exception to goods falling within that heading simply because some component part, if separately imported, would fall within another heading. In oral submissions, the applicant related this part of its argument to a submission that the Tribunal erred by having regard to Note 3.

10 - 7 - The third argument 35 The applicant submitted that, even if Note 3 was to be considered, its application was excluded by the opening words, unless the context other requires 36 The applicant submitted that this was so either because the goods include two or more apparatus of 8535 or 8536, or because the goods fall within heading 8537 in any event. 37 This argument appears to be the one rejected by the Tribunal in [25] of its reasons: see [24] above. The fourth argument 38 The applicant submitted that Note 3 cannot be applied to the goods, having regard to the Tribunal s finding that the black unit the transformer could operate without the other two units, but only after modification: see [22] above. 39 The applicant submitted that the goods do not have a principal function unless the units are put together to form the composite machine. It submitted that it is erroneous to assert that the black unit has a principal function. Further, the goods cannot be described as a transformer because one of the functions of the goods is the function of a transformer. The fifth argument 40 The applicant submitted that if none of its earlier arguments is accepted, resort must be had to Interpretation Rule 3. It submitted that sub-paragraphs in (a) and (b) of that rule do not apply, but sub-paragraph (c) does apply, and therefore, because heading 8537 is later than heading 8504 in numerical order, heading 8537 must apply. The respondent s submissions 41 As I have noted (at [30] above), the respondent supported the correctness of the Tribunal s conclusion, but by somewhat different reasoning. 42 The respondent submitted that under Interpretation Rule 1, the terms of headings and any relative Section or Chapter Notes determine the correct classification of goods and prevail over other Interpretation Rules which are of a subordinate nature in the sense that they only apply provided the headings or Notes do not otherwise require. 43 Thus, the respondent submitted, Interpretation Rule 1, in the present case, directs attention, in the first instance, to the headings and Notes to Section XVI. The Tribunal was

11 - 8 - correct, therefore, to classify the goods by application of Note 3, which requires composite machines fitted together to form a whole to be classified as if consisting only of that component or as being that machine which performs the principal function. Given the Tribunal s finding that the principal function of the three machines combined is the transformation of the voltage of electricity, the goods fell within heading 8504 and not heading It followed, in the respondent s submission, that no occasion arose for the Tribunal to apply Interpretation Rule 3. The respondent submitted that when the Tribunal observed that the goods technically satisfy the heading of 8537, it must have been responding to the applicant s argument that Note 3 cannot apply. 44 The respondent addressed each of the five arguments advanced by the applicant. I will deal with the substance of the respondent s submissions when considering whether the applicant s arguments should be accepted. CONSIDERATION 45 The Tribunal did not err by considering Note 3. This approach was in accordance with Interpretation Rule There is no dispute that the goods are a composite machine as described in Note 3, namely one consisting of two or more machines fitted together to form a whole. This required the Tribunal to identify the machine s principal function. The Tribunal concluded, as a matter of fact, that the machine s principal function was the transformation of the voltage of electricity. Once the Tribunal reached that conclusion, it was required to undertake the classification of the goods as if they consisted only of the component the black unit that performs that function. 47 I do not accept the applicant s argument that, in the present case, Note 3 does not apply because of its opening words ( Unless the context otherwise requires ). I do not accept that the opening words of Note 3 are engaged, and that Note 3 is thereby excluded from consideration, simply because a composite machine may, in a general sense, fall within the description of heading I accept the respondent s submission that the terms of heading 8537 may also include an assembly of apparatus mounted on a base that is not a composite machine. One example of such an assembly would be a fuse box. It follows that there is no necessary tension between Note 3 and the content of heading 8537, such that Note 3 deprives heading 8537 of its content. In short, the context provided by heading 8537 does not otherwise require. I therefore reject the applicant s third argument.

12 In my respectful view, this is what the Tribunal was endeavouring to explain when it said that, although the goods technically satisfy heading 8537, they do not squarely fall within it. So understood, no error is demonstrated in this reasoning. I therefore reject the applicant s second argument. 49 Further, I do not accept that Note 3 cannot be applied to the goods simply because of the Tribunal s finding that the black unit could operate to transform the voltage of electricity without the addition of the red and blue units, but only with modification. Note 3 is not applied by disaggregating a composite machine to find a component and then asking whether that component in its disaggregated state can perform the principal function of the composite machine. Relevantly, Note 3 requires an assessment of the composite machine. It directs attention to the component that performs the principal function as part of that composite. I therefore reject the applicant s fourth argument. 50 Once it is accepted that Note 3 applies, the Tribunal was correct to conclude that the goods fall within heading 8504, having regard to their principal function. The goods do not fall within heading I therefore reject the applicant s first argument. 51 In my respectful view, there was no occasion for the Tribunal to further consider heading Note 3 required the goods to be classified according to their principal function, namely as a transformer. A transformer does not fall within heading It may be, as the respondent suggested, that the Tribunal was merely engaging in an alternative line of reasoning on the assumption that Note 3 does not apply. However, to the extent that the Tribunal considered that it was necessary, as a matter of law, to have regard to Interpretation Rule 3(a) in the present case, it erred. 53 That said, the Tribunal was correct to conclude that heading 8504 provides a more specific description of the goods. 54 Relatedly, I accept the respondent s submission that Interpretation Rule 3(b) (assuming Interpretation Rule 3 to be applicable in the present case) would also dictate that the goods fall within heading 8504 on the basis of their essential character as a transformer. In my view, this finding would be covered by the Tribunal s finding that the goods are properly describe as a combination of three machines all of which work together for the purpose of transforming higher voltage to a lower voltage, and that the principal function of

13 the three machines combined is the transformation of the voltage of electricity. Thus, one never gets to Interpretation Rule 3(c). I therefore reject the applicant s fifth argument. 55 For these reasons, the applicant s appeal does not succeed. THE TCO 56 My conclusion that the goods fall to classification makes it unnecessary for me to consider whether, according to its terms, the TCO applies. Nevertheless, I will briefly state my conclusion on that question. 57 There is a line of authority which holds that, in order to fall within a tariff concession order, the goods must precisely meet the description of that order: see, in that regard, the Tribunal s decision in Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs [2015] AATA 215 at [29]-[44] and, in particular, the cases cited at [31]. Neither party suggested that this line of authority should not be followed in the present case. 58 The respondent submitted that goods which include an item that falls within the terms of a tariff concession order along with some additional element, whose overall character is not captured by the terms of the tariff concession order, should not be regarded as within the scope of the order. According to the respondent, this is especially so where the additional element is a major part of the subject goods. 59 The terms of the TCO are as follows: ELECTRICAL PROTECTION AND DISTRIBUTION SYSTEMS, comprising ALL of the following: (a) switchgear; (b) busbars; (c) air circuit breaker panels; (d) withdrawable unit panels; (e) withdrawable units; (f) DC switchgear panels; (g) power supply systems; (h) step up transformers; (i) DC/DC converter; (j) battery; (k) battery charger; (l) power control centres 60 It is not disputed in this appeal that the blue and red units together contain all the items referred to in (a)-(l) of the TCO, including some small step-up transformers. However, the component of the goods that provides their function of transforming higher voltage to a lower voltage (ie a step-down transformer) is not listed.

14 The respondent submitted, therefore, that the goods are not described by the TCO given that their major component, both in terms of physical composition and functionality, is not listed. The submission proceeds on the basis that the word comprising, as used in the TCO, is an exhaustive term. The applicant, on the other hand, submitted that comprising is used in the TCO as an inclusive term, so that it was not necessary for the TCO to refer to the step-down transformer that provides the principal function of the goods. 62 Section 269F(3)(a) of the Customs Act 1901 (Cth) provides that an application for a tariff concession order must contain a full description of the goods to which the application relates. In Toro Australia Group Sales Pty Ltd v Chief Executive Officer of Customs [2014] AATA 187, the Tribunal reasoned (at [31]) that a full description in this context necessarily means a precise description. This reasoning supports a construction of comprising that exhaustively states the essential components making up the concessional goods as an electrical protection and distribution system. Otherwise, the description would not be a full description. 63 The TCO does not, therefore, describe an electrical protection and distribution system that functions to transform higher voltage to a lower voltage. It follows, in my view, that the TCO cannot cover the goods. The contrary conclusion would be a curious outcome in the sense that it would provide a tariff concession for goods whose function is not secured by any of the components that are specifically listed in the TCO. 64 Accordingly, had it been necessary for me to decide whether the goods are covered by the TCO, I would have accepted the respondent s submission and concluded that they are not covered. DISPOSITION 65 The appeal should be dismissed with costs. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 29 May 2015