Air International Pty Ltd and Chief Executive Officer of Customs
[2000] AATA 1149
•21 December 2000
CATCHWORDS – CUSTOMS – duty paid under protest by applicant for fan assemblies, condensers and evaporators for automotive air conditioning systems – whether subject goods are of a "kind used as replacement components in passenger motor vehicles" – consideration of the application of the essential character test – decision affirmed.
Customs Act 1901- ss. 3, 7, 15, 16, 17, 18, 20, 22, 167, 273GA(2),
Customs Tariff Act 1995 - Schedule 2 Rule 2(a), Rule 6, Schedule 3 heading 8414, 8419 and 8419.50, subheadings 8414.5, 8414.59.10, 8414.59.90, 8419.50.10, 8419.50.90
Sales Tax (Exemptions and Classifications) Act 1935 - Third Schedule, Item 1, paragraph (c)
Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1972) 46 ALJR 32
Federal Commissioner of Taxation v Kentucky Fried Chicken Pty Ltd (1988) 12 NSWLR 643; (1988) 81 ALR 35; (1988) 91 FLR 242; (1988) 19 ATR 1141; (1988) 88 ATC 4363
Waterscheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555; (1988) 14 ALD 785
Zendel Australia v Federal Commissioner of Taxation (1993) 46 FCR 14; (1993) 94 ATC 4022; (1993) 27 ATR 352
Re Transaction Australia Pty Ltd and Collector of Customs (Vic) (1981) 4 ALN N89
Pirelli Tyres Australia Pty Ltd v Collector of Customs (1999) 58 ALD 517
Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450; (1993) 116 ALR 420; (1993) 93 ATC 9703; (1993) 44 FCR 450
Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85; (1988) 88 ATC 4916; (1988) 19 ATR 1896
Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396; (1987) 71 ALR 441; (1987) 18 ATR 619; (1987) 87 ATC 4327
DECISION AND REASONS FOR DECISION [2000] AATA 1149
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2000/840;
GENERAL ADMINISTRATIVE DIVISION ) V2000/841
Re AIR INTERNATIONAL PTY LTD
Applicant
AndCHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
DECISION
Tribunal: Miss S A Forgie (Deputy President)
Brigadier C Ermert (Member)
Mr W G McLean (Member)
Date: 21 December, 2000
Place: Melbourne
Decision:The Tribunal affirms the decision of the respondent to demand payment of the duty in respect of the subject goods.
S A FORGIE
Deputy President
REASONS FOR DECISION
Between December, 1998 and June, 1999, the applicant, Air International Pty Ltd ("Air International"), paid customs duty under protest pursuant to s. 167 of the Customs Act 1901 ("Customs Act") in relation to several entries of goods. Those goods are fan assemblies, condensers and evaporators, which are major components of automotive air conditioning systems ("the subject goods"). On 4 June, 1999, it applied under s. 273GA(2) for review of the decision of the respondent, the Chief Executive of Customs ("Chief Executive") to demand payment of that duty.
At the hearing, Air International was represented by Dr Churches of counsel and the Chief Executive by his solicitor, Mr Northcote. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence together with affidavits of Mr John Barry dated 3 August, 2000 and 16 October, 2000, an air conditioner kit for a Lancer 1.5LT (SS10MT), a print out of Air International's web site, an extract from the 1998 annual report of Futuris Corporation Limited ("Futuris"), an extract from Report No. 58 (The Automotive Industry) prepared by the Industry Commission, an extract from Schedule 4 of the Working Tariff, catalogues of Jayair, Ingram and Lovelocks relating to automobile air conditioning products, a bundle of invoices, affidavits of Mr Andrew Petley sworn on 23 October, 2000 and of Mr Martin Keith Feil sworn on 20 October, 2000 and statements of Mr Ross Webster dated 27 October, 2000 and of Mr Aidan Carter dated 30 October, 2000. In support of Air International's case, oral evidence was given by Mr Barry, Mr Petley and Mr Feil. Oral evidence was given by Mr Webster and Mr Carter in support of the Chief Executive's case.
THE ISSUES
The issue in this case is whether the subject goods, in so far as they comprise condensers and evaporators and have been classified under tariff subheading 8419.50.10 of Schedule 3 of the Customs Tariff Act 1995 ("the Tariff Act") and in so far as they comprise fan assemblies and have been classified under tariff subheading 8414.59.10, are goods "of a kind used as replacement components in passenger motor vehicles". If they are not of such a kind, their correct classification is under subheadings 8419.50.90 and 8414.59.90 respectively. Resolution of that issue requires a consideration of whether the subject goods are "components" of a passenger motor vehicle and, if so, whether they are "replacement components" such that they are "of a kind used as replacement components in passenger motor vehicles".
BACKGROUND
Having considered both the written and oral evidence, we have made a number of findings of fact that we will set out in the following paragraphs.
Air International is Australia's largest supplier of automotive air conditioning systems and components. The subject goods are imported by Air International for inclusion in air conditioning kits. The air conditioning kits also include a compressor, filter/dryer/receiver and pipes, hoses, screws and brackets. Air International supplies those air conditioners to the Australian automotive industry. Particular kits are designed for particular models, or sub-models, of motor vehicles to ensure that the air conditioners fit the cavity available in each model, meet the manufacturers' requirements and achieve their optimal level of function in Australian conditions. Where the air conditioners are designed for locally manufactured motor vehicles, Air International's design engineers work in close cooperation with those of the manufacturer. Where the motor vehicles are manufactured overseas, there is no consultation between them and Air International's engineers must design the air conditioners to fit the specifications determined by the manufacturers. All manufacturers leave sufficient room for an air conditioner to be installed. Air conditioning units are not necessarily interchangeable even between models or sub-models made by the same manufacturer. Generally, instruction sheets for assembly are included in each air conditioning kit. Some manufacturers, however, prefer that dealers are sent more detailed instruction manuals.
Air International's business is divided into three: original equipment, accessory kits and spare parts. In its original equipment business, Air International provides air conditioners for installation into Australian manufactured motor vehicles during their assembly on the production line. Of those vehicles currently manufactured in Australia (the Holden Commodore, Mitsubishi Magna, Toyota Camry, Toyota Avalon and Ford Falcon), Air International currently provides air conditioners for installation as original equipment in the Holden Commodore (other than the left hand drive export model) and the Mitsubishi Magna. In the past, and until October 1999, some Magnas came off the production line with, and some without, air conditioning. Air International provided air conditioning kits to Mitsubishi both to install as original equipment and to meet the demand for optional air conditioning. Since October, 1999, all Magnas have been fitted with air conditioning as original equipment. Air conditioning fitted as original equipment is not subject to duty.
Of the other motor vehicles sold in Australia, all other models must be imported. Some are imported with air conditioning as original equipment and some without. Air International provides air conditioning kits for particular models of imported passenger motor vehicles manufactured by Ford, General Motors Holden, Hyundai, Mazda, Mitsubishi and Suzuki where they are imported without air conditioning. It supplies them to vehicle manufacturers or to importer/distributors of those vehicles.
As part of its contracts with motor vehicle manufacturers, Air International either provides, or is able to provide, replacement air conditioner parts for air conditioners installed as original equipment or from accessory kits. In addition, it provides air conditioner parts to non-manufacturers in minimal quantities. This represents the spare parts business of Air International. That business is only a small part of its overall business.
Other businesses, such as DENSO International Australia ("DENSO"), design and supply air conditioners for installation in motor vehicles. DENSO is the second largest supplier of automotive air conditioning systems and components in Australia and the largest manufacturer of automotive air conditioning units. It also manufactures and supplies automotive radiators, heaters, air cleaners, instruments, electric motors, cables and washers. It designs and supplies air conditioning systems for Toyota Camry and Avalon and a heating, ventilation and air conditioning ("HVAC") unit for left hand drive export models of the Holden Commodore.
Jayair, Ingram and Lovelocks supply parts for air conditioners for motor vehicles. Among those parts are condensers, evaporators and fan assemblies. Each catalogue sets out a part number and the type of motor vehicle which each fits. So, for example, a condenser CNX080 in the Ingram catalogue is stated as suiting a Mitsubishi Magna TE (Exhibit 6, page 156). Some set out the supplier's part number and that of the manufacturer of the motor vehicle. Again in relation to a condenser suiting a Magna TE, Lovelocks sets out its own Item No. NL0049 and the manufacturer's Part No. CN5512 (Exhibit 7, page 104) as does Ingram (Exhibit 6, page 156). Jayair sets out only the part number. In relation to a Magna TE, that number is CN5512, which equates with the manufacturer's part number in the two other catalogues (Exhibit 5, page 98). The references to the manufacturers' part numbers do not indicate that they are the parts used by the manufacturers on the assembly line or by the manufacturers or importer/distributors post assembly. The references simply indicate that the parts sold by Jayair, Ingram or Lovelocks are equivalent to those parts. Where the suppliers sell a part that is the part used by the manufacturer or importer/distributors, this is noted in the catalogues by reference to the "genuine" number. A condenser for a Magna TS Dual Circuit in the Lovelocks' catalogue is given three numbers: Lovelocks Item No. NL00412; Manufacturer's Part No.CN5412; and Genuine No. AW335845 (Exhibit 7, page 104 and see also Jayair catalogue, Exhibit 5, page 98).
LEGISLATIVE FRAMEWORK
Part II of the Tariff Act provides for imposition of duties of customs. Section 15 of the Act provides that duties of customs are imposed on goods imported into Australia on or after 1 July, 1996 and on goods which are imported into Australia before 1 July, 1996 and entered, or again entered, for home consumption on or after that day. The duty payable upon such goods is worked out in the manner provided for in ss. 16, 17, 18, 20 and 22. Paragraph 16(a) provides that:
"if the goods are not the produce or manufacture of a Preference Country – [the duty is worked out] by reference to the general rate set out in the third column of the tariff classification under which the goods are classified;"
A reference to the tariff classification under which the goods are classified is a reference to the heading or subheading in whose third column a rate of duty is set out and under which the goods are classified (s. 6). The reference to a heading and a subheading is a reference to those appearing in Schedule 3 to the Act (s. 3(1)).
Heading 8419 in Schedule 3 reads "MACHINERY, PLANT OR LABORATORY EQUIPMENT, WHETHER OR NOT ELECTRICALLY HEATED, FOR THE TREATMENT OF MATERIALS BY A PROCESS INVOLVING A CHANGE OF TEMPERATURE SUCH AS HEATING, COOKING, ROASTING, DISTILLING, RECTIFYING, STERILISING, PASTEURISING, STEAMING, DRYING, EVAPORATING, VAPORISING, CONDENSING OR COOLING, OTHER THAN MACHINERY OR PLANT OF A KIND USED FOR DOMESTIC PURPOSES; INSTANTANEOUS OR STORAGE WATER HEATERS, NON-ELECTRIC". Heading 8419.50 reads "Heat exchange units" and sub-heading 8419.50.10 specifies rates of duty ranging from 11% to 10% on goods "Of a kind used as replacement components in passenger motor vehicles" entering after 1 January, 1998 and 1 January, 1999 respectively. Subheading 8419.50.90 specifies a rate of duty of 5% in respect of "Other" goods.
Heading 8414 reads "AIR OR VACUUM PUMPS, AIR OR OTHER GAS COMPRESSORS AND FANS; VENTILATING OR RECYCLING HOODS INCORPORATING A FAN, WHETHER OR NOT FITTED WITH FILTERS". Subheading 8414.5 reads "Fans" and subheading 8414.59.10 specifies a rate of duty ranging from 12% to 10% on goods "Of a kind used as replacement components in passenger motor vehicles" entering after 1 January, 1998 and 1 January, 1999 respectively. Subheading 8414.59.90 specifies a rate of duty of 5% in respect of "Other" goods.
Schedule 2 of the Tariff Act sets out the General Rules for the Interpretation of the Harmonized System provided for by the Convention ("Interpretation Rules"). They must be used in working out the tariff classification under which goods are classified (s. 7(1)). Rule 2(a) provides that:
"Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled."
Rule 6 is concerned with subheadings and applies the rules in relation to headings mutatis mutandis to subheadings.
CONSIDERATION
Mr Churches submitted that the subject goods are necessarily components in that they are components of an air conditioning unit that is in kit form. They are not, however, components of a passenger motor vehicle. He acknowledged that similar items may be assembled in, and be part of, passenger motor vehicles. When assembled according to a manufacturer's specifications at the outset, they may be components of a passenger motor vehicle. The subject goods, however, are designed by Air International for specific models of motor vehicles (some of which are passenger motor vehicles) and are installed post the motor vehicles' assembly. They are used almost exclusively, Mr Churches submitted, as after market accessories for particular motor vehicles that do not have air conditioners when they leave the assembly line.
The meanings of the word "accessory" include:
"… 1. a subordinate part or object; something added or attached for convenience, attractiveness etc., such as a spotlight, heater, driving mirror, etc., for a vehicle. …" (The Macquarie Dictionary, 2nd edition, 1991)
"… 1 An additional or subordinate thing; an adjunct, an accompaniment; a minor fitting or attachment; …" (The New Shorter Oxford English Dictionary, 1993)
The word "accessories" has also been considered in a number of authorities to which Mr Churches referred (Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1972) 46 ALJR 32 (Gibbs J), Federal Commissioner of Taxation v Kentucky Fried Chicken Pty Ltd (1988) 12 NSWLR 643 (Hope, Samuels, McHugh JJA), Waterscheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555 (Davies J) and Zendel Australia v Federal Commissioner of Taxation (1993) 46 FCR 14 (Lockhart, Beaumont and Gummow JJ). In the Polaroid case, for example, Gibbs J considered whether a roll of film could be an accessory to a camera. In rejecting the proposition that it could, his Honour said:
"… The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it. It was because the Deputy Commissioner regarded the goods as essential to the use of a Polaroid camera that he preferred to submit that they are parts rather than accessories. In my opinion, however, the goods in question cannot be regarded as accessories for a Polaroid camera. An accessory for a camera is an extra and additional part of the equipment of the camera itself, such as a light meter, a filter or a wide angle lens, and in the ordinary course of language a film would not be referred to as an accessory for a conventional camera, nor a film pack or a picture roll as an accessory for a Polaroid camera." (page 35)
In the Kentucky Fried Chicken case, Hope JA, with whom Samuels and McHugh JJA agreed, considered the meaning of "accessory" and said:
"… even without a context which may confirm such a conclusion, the word 'accessory' whether used as an adjective or a noun does not necessarily connote that the accessory must be joined to something else. An object that is joined to another may well be an accessory although it will not necessarily be so. However, it may still be an accessory even though it is not joined. Adopting as a basis the meaning given in the Macquarie Dictionary, an article will be an accessory if it is a subordinate part or object, added or attached for convenience or effectiveness or other such reason.
I do not regard the word 'added' in this meaning to require conjunction nor do I suggest that this meaning is exhaustive. However, it is enough for present purposes. The word thus may apply to a subsidiary article whether joined or not joined to the principal article; it must be subordinate or subsidiary to that principal article and is added or attached for reasons such as convenience or effectiveness." (page 41)
Both the Polaroid and Kentucky Fried Chicken cases were considered by Lockhart J, with whom Beaumont and Gummow JJ agreed, in Zendel Australia:
"Ultimately, the meaning of the word 'accessory' must acquire its meaning from the particular context in which it is used. In my opinion, for an item to be an accessory within the meaning of the Act, it must contribute to the working of some principal item or its general effect or appearance. The aluminium foil, for example, with which this case is concerned, does not, in my view, contribute to the stove or its function, or its effect or appearance.
A stove functions and performs in the same way irrespective of the use of aluminium foil. Foil certainly may improve the effect of cooking on the food, just as freezer bags may modify the effect of freezing on food; but that simply says that the product in question assists in the process of cooking or freezing. They are an adjunct to the process, rather than an adjunct to the appliance itself, and unless they are an adjunct to the appliance – which in my view they are not – they cannot fall within the relevant position." (page 18)
In view of the interpretation of the word "accessory" in these authorities, the subject goods may or may not be accessories to a motor vehicle. When combined with other items such as a hose assembly, tube assemblies and a compressor, they form an air conditioner for a motor vehicle. The air conditioner may be an accessory in that it may be added for the convenience or effectiveness of a motor vehicle and it may contribute to its function. Whether or not the individual items making up that air conditioner can also be said to add to its convenience, effectiveness or functionality is another question and not one that we need to answer. We do not need to answer it for the fact that an item may be an accessory is not determinative of whether or not it is a component. The two terms are not mutually exclusive and it is to the meaning of "component" (as used in the expression "of a kind used as replacement components in passenger motor vehicles") to which we must have regard and not to the meaning of "accessory".
Although we recognise that the whole of the expression "of a kind used as replacement components in passenger motor vehicles" must be considered, we will start by considering the meanings of the individual words within it. In so far as they are relevant, the ordinary meanings of the word "component" are:
"… - n. 2. a constituent part. …" (The Macquarie Dictionary, 2nd edition, 1991)
"… 2. A constituent ; spec.: (a) any of the separate parts of a motor vehicle, machine, etc. …" (The New Shorter Oxford English Dictionary, 1993)
As the word "component" is defined by reference to the word "part", it is relevant to consider also the meanings given to that word:
"…1. a portion or division of a whole, separate in reality, or in thought only; a piece, fragment, fraction, or section; a constituent. … 5. each of a number of more or less equal portions comprising a whole: a third part …" (The Macquarie Dictionary, 2nd edition, 1991)
"… I Portion or division of a whole. … 2 A quantity which together with others makes up a whole (whether actually separate from the rest or not); an amount, but not all, of a thing or a number of things; a portion. …" (The New Shorter Oxford English Dictionary, 1993)
The word "part" was considered by Gibbs J in the Polaroid case in the context of whether a film pack and picture roll, which were designed to fit only one type of camera and were required for the use of the camera, were "parts" within the meaning of Item 38. Item 38 was concerned with "accessories and parts for goods …" covered by certain specified items. His Honour said:
"… Obviously a part is something which with others makes up a whole, and counsel for the Deputy Commissioner was obliged to submit that both the film pack and picture roll must be regarded as a part of the cameras for use in which they are respectively designed. The evidence showed that the picture roll can be used only in one particular sort of Polaroid camera – a model known as 'the Swinger' – and that to take a picture with that model it is necessary to use a picture roll. Similarly a film pack can be used in only one type of camera, although there are several versions of that type. Moreover when either the film pack or the picture roll is placed in position in its camera it is fixed firmly in position by a strong clip. This evidence did not however establish that a film pack or picture roll is part of a camera. One thing does not become part of another simply because the latter thing cannot be put to proper use without the aid of the former, even if, in use, the two things are fixed together. In my opinion a film is not part of a camera, nor a bullet of a gun, nor petrol of a motor vehicle. a (sic) Polaroid camera is a different thing from a film pack or a picture roll, and is complete even though it has no pack or roll in it. A person who contracted to buy a camera could not, in my opinion, successfully contend that his contract entitled him to the supply of a film as well, or, if he had contracted to buy a Polaroid camera, to the supply of a film pack or a picture roll. The fact that the film pack and the picture roll are each designed to fit only one type of camera, which cannot be worked with any other type of photographic material, merely reinforces the view that the pack and the roll are essential aids to the use of the cameras, but does not show that the pack or roll is part of the camera itself. In Deputy Commissioner of Taxation v. Fowler Rex (N.S.W.) Pty. Ltd. (1967), 118 C.L.R. 160, at p.163, Owen J, held that the word 'parts' appearing in the definition of 'aids to manufacture' in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935-1962 (Cth) did no more than describe those things which in ordinary parlance would be described as spare parts for the various classes of goods mentioned. I take the same view of the word 'parts' in item 38." (pages 34-35)
A "vehicle" is defined to mean:
"… a means of conveyance …" (The Macquarie Dictionary, 2nd edition, 1991)
"… II … 2. A means of conveyance provided with wheels or runners and used for the carriage of persons or good; a carriage, cart, wagon, sledge, etc. 1656 …" (The New Shorter Oxford English Dictionary, 3rd edition, 1993)
A "motor vehicle" is "a road vehicle driven by a motor … as a motor car … (The Macquarie Dictionary, 2nd edition, 1991) or, in the case of a "motor car", a "… carriage propelled by a motor, for use on ordinary roads …" (The New Shorter Oxford English Dictionary, 3rd edition, 1993). A "passenger" is "… one who travels by some form of conveyance …" (The Macquarie Dictionary, 2nd edition, 1991) It would follow that a "passenger motor vehicle" is a road vehicle driven by a motor for the conveyance of people.
Ignoring for the moment the words "of a kind" and "replacement", Mr Churches submits that the subject goods are not "components in passenger motor vehicles" if they are not installed at the time of the vehicle's assembly but subsequently. At the time the vehicles left the assembly line, they were complete. Regard must be had, he continued, to the essential character test to determine what constitutes "components in passenger motor vehicles". He referred to the judgement of Davies J in Watershcheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555. Watersheid had imported PTO shafts used to connect the PTS stub of a tractor. In that way, it could harness the power of the tractor and transmit it to other implements. It claimed that it should be classified under Item 87.06 being "parts and accessories for motor vehicles of a kind falling within 87.01" which, in turn, encompassed "agricultural wheeled tractors".
Davies J rejected the proposition that "… a PTO shaft would not be part for a tractor unless it was essential to the functioning of the tractor." (page 564) In saying that, though, he was not saying that function is entirely irrelevant. Function could be relevant in determining whether or not it was part of an entity. That was the case in Re Transaction Australia Pty Ltd and Collector of Customs (Vic) (1981) 4 ALN N89 (Senior Member Hall, Mr Tickle and Mr Pascoe, Members). As Gibbs J had said in Polaroid, "One thing does not become part of another simply because the latter thing cannot be put to proper use without the aid of the former, even if, in use, the two things are fixed together." (page 34 and see paragraph 18 above). Davies J continued:
"In one sense, therefore, a part is something which is essential to complete the whole." (page 564)
He emphasised, however, that the part need not be essential to the functioning of the whole for:
"Ashtrays and armrests incorporated into motor vehicles during manufacture are examples." (page 563)
"If a cigarette lighter is built into a tractor in the course of manufacture, that lighter will be part of the tractor and a replacement lighter will be a part for the tractor. It will be of no significance that the lighter is simply incorporated into the tractor for the convenience of the driver and in no way assists the hauling or pushing function of the tractor. …" (page 565)
In Pirelli Tyres Australia Pty Ltd v Collector of Customs (1999) 58 ALD 517 (Deputy President Forgie, Senior Member Muller and Mr Horrigan, Member) the Tribunal considered the expression "of a kind used as replacement components in passenger motor vehicles" used in Item 53. It concluded that:
"30. … Item 53 is concerned with goods of a kind used to replace certain parts of a motorised means of a conveyance which has wheels or runners of some type for use on ordinary roads and which is used to carry people. The certain parts to which reference is made are those parts of the vehicle which, when combined with other parts, make the object a passenger motor vehicle. It matters not whether the goods are found in the vehicle (as, for example, in the cabin or engine compartment of the vehicle) or whether they are on the vehicle (as, for example, the outside of the vehicle in the sense of being attached to its exterior surfaces). As is apparent from the Polaroid case, the object need not actually work as a passenger motor vehicle to be such a vehicle. A passenger motor vehicle requires petrol in order to operate but petrol is not a part which, combined with other parts, gives an object its essential characteristic of a passenger motor vehicle. Without petrol, an object which is otherwise a passenger motor vehicle is simply a passenger motor vehicle which cannot be driven.
…
33. It follows in view of our conclusion that tyres must be parts which, when combined with other parts, give an object its essential characteristic as a passenger motor vehicle. Tyres must, therefore, be goods of a kind used as replacement components in passenger motor vehicles. They are, therefore, goods to which Item 53 does not apply." (pages 522-523)
Mr Northcote submitted that Pirelli is incorrect in so far as it suggests that a component is something essential to a passenger motor vehicle. We are not so sure that Pirelli suggests that or that it is inconsistent with the authorities. In order to be a component of a passenger motor vehicle, the part must, when combined with other parts, complete the whole and the whole must be a passenger motor vehicle. In the words of Davies J in Waterscheid, "In one sense, therefore, a part is something which is essential to complete the whole." (page 564). That is so even though it need not be essential to its functioning. Equally, something, such as petrol or other fuel essential for the operation of a passenger motor vehicle is not a component of a passenger motor vehicle in the same way that a roll of film is essential for the operation of the camera under consideration in that case but is not part of it (Polaroid).
Just as a cigarette lighter, arm rests and the like are parts of a passenger motor vehicle, an air conditioning unit incorporated in the manufacture of a passenger motor vehicle is a part of the whole and the whole is a passenger motor vehicle. By the same token, a passenger motor vehicle manufactured without an air conditioning unit, cigarette lighter, arm rests and the like is no less a passenger motor vehicle for the absence of those items. There must come a point, however, where the whole that is made up of its parts is no longer a passenger motor vehicle. Where that point is will depend upon the facts. It will certainly be arrived at if it has no means of conveying itself from one point to another for it can no longer be a vehicle. Whether that means that it has to have wheels will depend upon the state of technological advances at the time the question has to be decided. Whether it means that it has to have seats or whether it is sufficient that its passengers are forced to kneel, lie, squat or sit is a matter of conjecture. It can still be used to convey people however uncomfortably. It is again a matter of characterisation and of fact but, at the end of it all, the whole must still be identifiable as a passenger motor vehicle. In other words, in order to be a component of a passenger motor vehicle an item must be a part "… which, when combined with other parts, give[s] an object its essential characteristic as a passenger motor vehicle." (Pirelli, page 523) The whole object that is made up of the various items, including the item under consideration, must have the "essential characteristic as a passenger motor vehicle".
The notion of the "essential characteristic" is derived from rule 2(a) of the Interpretation Rules as applied by rule 6 to the interpretation of subheadings. As is clear from rule 2(a) itself and from the authorities such as Waterscheid, it has nothing to do with completeness or functionality of the whole that is made up of the parts. It has to do with an "essential character" and that is an issue regarding a quality rather than a function. As French J said in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 (French, Hill and Whitlam JJ) after referring to the judgement of Davies J in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85:
"… As explained by his Honour at 86, the essential character of goods is 'what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part'." (page 462)
Returning to the facts of the case we must consider, an air conditioner (and so the subject goods comprised in that air conditioner) installed during manufacture is a component of a passenger motor vehicle. It is a part that, when taken with other parts installed or assembled during manufacture, goes towards making a whole and the whole has the essential characteristic of a passenger motor vehicle. It follows that the subject goods are components of a passenger motor vehicle if installed during manufacture.
Mr Churches submitted that the passenger motor vehicles to which the subject goods are fitted are complete according to the manufacturer's specifications when they leave the assembly line in their country of manufacture. Once a passenger motor vehicle is complete, it cannot have additional components.
Again omitting the word "replacement" from the expression "of a kind used as replacement components in passenger motor vehicles", the issue we must consider is not whether the components have been used in particular passenger motor vehicles assembled by particular manufacturers but whether the subject goods are "of a kind used as … components in passenger motor vehicles" (emphasis added). The words "of a kind" were considered in Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 by Gummow J. His Honour did so in considering whether goods were "of a kind ordinarily used for household purposes" within the meaning of Item 1, paragraph (c) of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 and said:
"… Further, the setting in which the phrase 'goods of a kind' appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of goods in the class or genus in question. Thus, goods are 'of a kind ordinarily used for household purposes' if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes; cf Customs and Excise Commissioners v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305 at 312-313, 315, 316-317." (page 399)
The focus upon the class or genus of goods and not upon the particular goods was emphasised by Hill J, with whom Whitlam J agreed, in Diethelm:
"Once it is appreciated that the question for issue is concerned with the kind of goods in question rather than the actual goods, it is clear that evidence such as was given in the case as to the market into which the actual goods are sold will be of little relevance. The fact that a high proportion of the chairs in question were bought for office use would tell little as to the use of the kind of goods, the genus, of which the particular goods in question form a part. Similarly, it seems to me that a finding that the goods are of high quality making them too expensive for general sale for use in households will be of little or no significance. This will be particularly so if the class of goods in question is capable of encompassing goods of high quality as well as goods of lesser quality.
The use of the words "goods of a kind" entails the determination of a relevant genus. Therein lies an initial difficulty. The wider the genus is stated, the more likely it will be that it will be found that that class of goods is commonly used for a particular household function. …" (pages 470-471)
Applying these principles to the subject goods, we must look not to whether they have been designed or manufactured for particular passenger motor vehicles, whether they have been installed in passenger motor vehicles before or after they leave the assembly line or whether they have been installed by a dealer prior to delivery to the purchaser (even though coming under the umbrella of the manufacturer's warranty) but to whether they belong to a class or genus of goods used as components of passenger motor vehicles. In order to consider that issue, we have looked to the catalogues of Jayair, Ingram and Lovelocks (Exhibits 5, 6 and 7). Fan assemblies, condensers and evaporators available in the catalogues of Jayair, Ingram and Lovelocks are all parts that are used in motor vehicles, some of which are passenger motor vehicles. They are intended to replace components in those vehicles or, in some instances, to install a new feature. For whatever purpose a purchaser uses the parts, they are parts that are commonly used as components in passenger motor vehicles and are commonly used as components involved in cooling the temperature in those passenger motor vehicles. They are goods of that kind. So too are the subject goods. They may be intended to be used for a particular purpose by Air International but, even so, they belong to a class or genus of goods used as components in passenger motor vehicles. They are goods of that kind.
It follows that we are satisfied that the subject goods are goods of a kind used as components in passenger motor vehicles. Are they also goods "of a kind used as replacement components in passenger motor vehicles" (emphasis added)? The meanings of the word "replacement" that are relevant in this context are:
"… that which replaces another …" (The Macquarie Dictionary, 2nd edition, 1991)
"… A thing which replaces … another" (The New Shorter Oxford English Dictionary, 1993)
Bearing in mind that the subject goods need only be of a genus or class that are used as replacement components in passenger motor vehicles in order to come within the relevant tariff classifications, it does not matter whether the subject goods are themselves used to replace another. It is enough that they be of a genus or class that does so. The genus or class of goods under heading 8419.50.10 comprises heat exchange units of a kind used as replacement components in passenger motor vehicles. Heat exchange units, we find, warm or cool the temperature or may have both functions. On the facts of this case, we are satisfied that a certain proportion of the subject goods are actually used to take the place of (i.e. replace) condensers and evaporators that are involved in cooling the temperature in passenger motor vehicles, that are components of passenger motor vehicles and that need to be changed. Even if they were not, we are satisfied that the subject goods are of a genus or class that are used to replace condensers and evaporators that are involved in cooling the temperature in passenger motor vehicles and are used as components in passenger motor vehicles.
The genus or class under heading 8414.59.10 comprises fans of a kind used as replacement components in passenger motor vehicles. On the facts of this case, we are satisfied that a certain proportion of the subject goods are actually used to take the place of (i.e. replace) fans that are components of passenger motor vehicles and that need to be changed. Even if they were not, we are satisfied that the subject goods are of a genus or class that are used to replace fans in passenger motor vehicles and are used as components in passenger motor vehicles.
It follows that we are satisfied that the subject goods are goods "of a kind used as replacement components in passenger motor vehicles" and that the subject goods, in so far as they comprise condensers and evaporators, have been correctly classified under tariff subheading 8419.50.10 of Schedule 3 of the Tariff Act and, in so far as they comprise fan assemblies, have been correctly classified under tariff subheading 8414.59.10.
For these reasons, we affirm the decision of the respondent to demand payment of the duty in respect of the subject goods.
I certify that the forty two preceding paragraphs are a true copy of the reasons for the decision herein of
Miss S A Forgie (Deputy President),
Brigadier C Ermert (Member),
Mr W G McLean (Member)Signed: …………………………………
D De Andrade Personal AssistantDates of Hearing 1 and 2 November, 2000
Date of Decision 21 December, 2000
Counsel for the Applicant Dr S C Churches
Solicitor for the Applicant Ms Newell
Solicitor for the Respondent Mr R Northcote
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