Aldi Stores (A Limited Partnership) and Chief Executive Officer of Customs
[2012] AATA 151
•8 March 2012
[2012] AATA 151
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2011/1212
2011/4168
Re
Aldi Stores (A Limited Partnership)
APPLICANT
And
Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Deputy President R P Handley
Date 8 March 2012 Place Sydney Decision Summary: The decision under review is affirmed.
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Deputy President R P Handley
CATCHWORDS
CUSTOMS – tariff concession order – requirements of tariff concession order (TCO) 0800042 – meaning of TCO 0800042 – child napkins (nappies) – ‘pants, disposable’ – delayed fluid absorbency – duty – duty paid under protest – decision affirmed
LEGISLATION
Acts Interpretation Act 1901 (Cth)
Customs Act 1901 (Cth)
Freedom of Information Act 1982 (Cth)
Legislative Instruments Act 2003 (Cth)
CASES
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389
STI Tyres and Chief Executive Officer of Customs (2009) 112 ALD 381
Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 76 ALR 313
SECONDARY MATERIALS
Commonwealth of Australia Tariff Concessions Gazette
REASONS FOR DECISION
Deputy President R P Handley
8 March 2012
Aldi Stores (the Applicant) has applied for the review of decisions of a delegate of the Chief Executive Officer of Customs (the Respondent) to refuse to apply a tariff concession order (TCO) to goods imported by the Applicant and described as “Disposable pants Mamia brand refastenable and prefastened” (referred to hereafter as the ‘Mamia goods’). If the TCO applies, the Mamia goods will be imported free of duty rather than being subject to duty of 5% of their value.
BACKGROUND
On about 2 January 2008, the Applicant’s customs broker applied to the Respondent on its behalf for a TCO in respect of disposable pants for babies and toddlers which the Applicant imports for sale in its supermarkets. In doing so, it was following an application made on 26 September 2007 by Kimberly-Clark Australia Pty Ltd for a TCO in respect of similar goods, for which TCO 0716337 was granted on 7 December 2007.
Notice of the granting of TCO 0800042 to the Applicant in respect of such goods was published in the Commonwealth of Australia Tariff Concessions Gazette on 23 January 2008. (The process of applying for a TCO and the making and operation of TCOs is regulated by Part XVA, Divisions 2 and 3 of the Customs Act 1901.)
On 9 December 2010, the Applicant’s broker lodged a request for a Tariff Advice for “Disposable pants Mamia brand re-fastenable and prefastened”, submitting that TCO 0800042 applied. The relevant description of goods to which this TCO applies is:
PANTS, DISPOSABLE, comprising ALL of the following:
(a)Pre-fastened and/or re-fastenable stretch side panels;
(b)Delayed fluid absorbency;
(c)Outer cover graphics
Op. 02.01.08
Stated Use:
Designed for use by small children to assist in toilet training
The effect of goods coming within the terms of TCO 0800042 is that the goods may be brought into Australia free of duty.
The parties agree that the Mamia goods are classified under subheading 4818.40.90 in Schedule 3 of the Customs Tariff Act 1995. Subheading 4818 states (emphasis added):
4818
TOILET PAPER AND SIMILAR PAPER, CELLULOSE WADDING OR WEBS OF CELLULOSE FIBRES, OF A KIND USED FOR HOUSEHOLD OR SANITARY PURPOSES, IN ROLLS OF A WIDTH NOT EXCEEDING 36 cm, OR CUT TO SIZE OR SHAPE; HANDKERCHIEFS, CLEANSING TISSUES, TOWELS, TABLECLOTHS, SERVIETTES, NAPKINS FOR BABIES, TAMPONS, BED SHEETS AND SIMILAR HOUSEHOLD, SANITARY OR HOSPITAL ARTICLES, ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, OF PAPER PULP, PAPER, CELLULOSE WADDING OR WEBS OF CELLULOSE FIBRES:
4818.10.00
-Toilet paper
5%
4818.20.00
-Handkerchiefs, cleansing or facial tissues and towels
5%
4818.30.00
-Tablecloths and serviettes
5%
4818.40
-Sanitary towels and tampons, napkins and napkin liners for babies and similar sanitary articles:
4818.40.10
---Tampons
Free
4818.40.90
---Other
5%
4818.50.00
-Articles of apparel and clothing accessories
5%
4818.90.00
-Other
5%
The right hand column shows the applicable rate of duty which, in the case of the relevant classification for the Mamia goods is 5%.
On 24 December 2010, a delegate of the Respondent decided that TCO 0800042 did not apply and issued Tariff Advice 20010100 to this effect. The delegate said, first, the goods were not considered to be pants but rather a disposable nappy for a baby and, second, there were no pre-fastened and/or re-fastenable stretch side panels – the Velcro type tabs fasten at the front and back of the nappy and perform the same function as safety pins and cloth nappies. These were not products designed to imitate underpants which can be pulled up and down to help toilet train toddlers.
On 24 March 2011, the Applicant paid the duty “under protest” (Customs Act 1901, s 167) and, on 1 April 2011, applied to the Tribunal for a review of the delegate’s decision. On 27 September 2011, the Applicant filed a further application with the Tribunal in respect of a further 161 customs entries for which the Applicant also paid duty under protest. This application has been joined with the first application, the goods in question being the same as the Mamia goods which are the subject of the first application.
THE ISSUE
The issue is whether the Mamia goods come within the terms of TCO 0800042, namely whether they are ‘PANTS, DISPOSABLE’ and whether they have (a) pre-fastened and/or re-fastenable stretch side panels, (b) delayed fluid absorbency, and (c) outer cover graphics.
The Respondent contends that the Mamia goods are not ‘pants’ but, rather, are nappies. While accepting that the Mamia goods are disposable, are re-fastenable by way of tab fasteners and have outer cover graphics, the Respondent contends the Mamia goods do not have “stretch side panels” or “delayed fluid absorbency”. Thus, the Respondent contends that TCO 0800042 does not apply to the Mamia goods.
The Applicant confirmed that the Mamia goods in respect of which it is seeking the application of TCO 0800042 are marketed as ‘Mamia Toddler Unisex Nappies’. These disposable nappies have re-fastenable sides and have a koala graphics on the front and rear.
THE EVIDENCE
The Applicant relies on the evidence of Professor Michael Pailthorpe, formerly Head of the Department of Textile Technology at the University of New South Wales (UNSW), and currently Senior Principal Scientist and Senior Consultant, Food and Textiles Group, AgResearch Limited. In a report dated 24 August 2011, Professor Pailthorpe states that in terms of the Schedule 3 subheading 4818, the Mamia goods are most simply described as “disposable nappies and similar sanitary articles”. He states that the Mamia goods possess all three of the qualifying characteristics referred to in TCO 0800042, namely (a) pre-fastened and/or re-fastenable stretch side panels, (b) delayed fluid absorbency, and (c) outer cover graphics. Professor Pailthorpe said that in his opinion each Mamia goods item “is a single use refastenable sanitary Disposable Pant”. The overlapping side panels are fixed with Velcro type material and the composite rear side panels have an elasticised component that provides stretch.
Professor Pailthorpe states, at [19]:
The composite elasticized stretchable side panels allow for a good fit; and the sanitary Disposable Pants to be unfastened and refastened; and pulled up and down; to facilitate toilet training.
To test the delayed fluid absorbency, Professor Pailthorpe devised a test to measure the ‘delayed fluid absorption’ using a centrifuge. He compared the Mamia goods (Toddler 7 - 16kgs size) with Kimberly-Clark ‘Huggies Pull-Ups’ sanitary disposable pants. Based on his test results, Professor Pailthorpe found “the Mamia Toddler refastenable sanitary disposable pants exhibited the best delayed fluid absorbency”.
Professor Pailthorpe gave oral evidence at the hearing by videoconference. He said that what he examined for the purpose of preparing his report was a Mamia re-fastenable disposable nappy. He said the terms ‘disposable nappies’ and ‘disposable pants’ seemed to be used interchangeably and the use of the term ‘nappy’ appeared to be an historical hangover from what used to be terry towelling nappies. He acknowledged, however, that he has no marketing expertise.
Professor Pailthorpe was asked about delayed fluid absorbency. He said this absorbed fluid might comprise mechanically bound fluid – fluid filling the space between the fibres of the material from which the nappy is made and which can be mechanically squeezed out – and chemically bound fluid – fluid absorbed by ‘super absorbing particles’ which is more permanently bound, and requires heat energy to reverse the process. Professor Pailthorpe said that he did not undertake any experiments designed to test whether the surfaces of the nappies were wet to touch at various intervals: he said all the nappies felt wet to touch when fluid was applied. He also noted that Mamia nappies are not marketed as having a delayed fluid absorbency and, so far as he is aware, have the same fluid absorbency as other nappies.
Professor Pailthorpe agreed that ‘pants’ are marketed as a product that can be pulled up and down while the child is standing without the pants being unfastened, like underpants. By contrast, nappies are designed to be put on while the child is lying down and then the sides fastened. He agreed that Mamia Toddler Unisex Nappies are designed to be put on while the child is lying down but said that once the sides are fastened they form a pair of pants with enough elasticity to allow them to be pulled up and down as required. He also agreed that Mamia Toddler Unisex Nappies are not designed to be used in toilet training.
The Respondent relies on a witness statement from Rodney Butler, dated 1 November 2011. Mr Butler is the Product Development Manager of Baby and Child Care products at Kimberly–Clark Australia, the largest manufacturer of nappies in Australia. He states that he is responsible for the product development of products such as Huggies nappies, nappy pants and ‘Pull-Ups’ training pants. Mr Butler said in his opinion Mamia Toddler Unisex Nappies cannot be described as pants: they do not have enough stretch property to enable them to be pulled up and down like pants. He noted that the packaging of Mamia products differentiates between some products that are described as nappies and others that are described as pants. Those described as nappies have no stretch on the sides of the nappy and there are no stretch side panels, whereas those described as ‘nappy pants’ or ‘first pants’ do have stretch elastic side panels which are fully bonded.
With regard to delayed fluid absorbency, Mr Butler said the Kimberly-Clark’s ‘Pull-Ups’ training pants include a rayon fibre that remains wet to the touch for some time. Mamia toddler nappies do not have this, instead using paper pulp close to the surface which means that while the surface may remain wet, this is because of the low level of absorbency of the pulp. He also said because the Mamia toddler nappies comprise at least 50% paper pulp, as opposed to 40% in Huggies Pull-Ups, the Mamia toddler nappies are thicker, and that “‘thinness’ is an important element in delivering an underwear-like fit for the child to aid the toilet training process”.
Mr Butler also gave oral evidence at the hearing. He said that, in his opinion, a Mamia Toddler Unisex Nappy would usually be described as a ‘nappy’ or a ‘disposable’ and not as ‘pants’. He did not agree with Professor Pailthorpe that the terms ‘disposable nappies’ and ‘disposable pants’ are used interchangeably, saying that disposable pants are a more complicated product to manufacture and it is common for such a product to be more expensive. Mr Butler said consumers would mostly use the generic term ‘pull-ups’ when referring to pants type products. Pants typically have a pre-fastened waist like a pair of underpants, whilst nappies are not usually pre-fastened at the side, so that the nappy can be put on and fastened while the child is lying down. Pants are usually different to nappies because pants have more stretch in order to allow them to be pulled on, and to expand while on the child (for example to allow the child’s stomach to expand).
Mr Butler said nappies are available in different sizes, from those for a newborn baby to those for a three or four year old child. Because it is difficult to stand a child up to pull on pants, pants are not generally available for a child aged 12 months or less: a nappy is more useful because it is fastened while the child is lying down. Pants are most commonly available for children aged from 18 months to three years. Mr Butler also said that, unlike pants, standard disposable nappies are not marketed as having delayed fluid absorbency because consumers want nappies to absorb liquid quickly. He said the term ‘delayed fluid absorbency’ is one generally understood in the industry, and gave the example of the wetness liner used by Kimberley-Clark in its ‘Pull-Ups’ training pants, which disperses the fluid and holds moisture so that the surface retains a wet feel. It was his understanding that the tests performed by Professor Pailthorpe did not take into account giving a child some toilet training experience.
Mr Butler acknowledged that the Huggies Pull-Ups do have re-fastenable sides but said they are sold pre-fastened so that they can be pulled on. They can, however, be unfastened and re-fastened and could be used as a disposable nappy or as nappy pants.
SUBMISSIONS
Mr Rodda, for the Applicant, submitted that the term ‘pants’ should not be considered separately from the term ‘disposable’. Disposable pants are a disposable article used on toddlers and smaller children. He noted that Kimberly-Clark’s website has disposable nappies referred to as disposable pants. He contended that since Kimberly-Clark’s Huggies Pull-Ups are sold in Australia in competition with the Mamia goods, they should be accorded the same treatment in relation to customs duty.
Mr Rodda said advertising material is irrelevant to the identification of the Mamia goods, and that it is the wharfside test that is relevant. Both the Mamia goods and Huggies Pull-Ups are, as Mr Butler acknowledged, used for trapping and holding bodily excrement. Mr Rodda also said it should be noted that Mr Butler is an employee of Kimberly-Clark, which has a vested interest in the outcome of these proceedings.
Mr Rodda referred to documents obtained by the Applicant pursuant to a request under the Freedom of Information Act 1982. He said it appears from these documents that Kimberly-Clark did not object to the Applicant’s application for a TCO in 2008.
Ms Azzopardi, for the Respondent, submitted that the history of the granting of the TCO is irrelevant. Once a TCO is made, an application can be made to apply that TCO to any goods that fall within the TCO’s description of goods. She stated that, in this case, the Mamia goods do not fall within the description of the goods in TCO 0800042 because are not ‘pants’, they do not have stretch side panels, instead using tab fasteners, and they do not have delayed fluid absorbency.
Ms Azzopardi further contended that the Mamia goods accord with the Macquarie Dictionary definition of a nappy, being “a piece of cotton towelling, or some disposable material, fastened round a baby to absorb and contain its excrement”. By contrast, ‘pants’ are ordinarily defined as trousers, underpants or knickers. Child sanitary products are ordinarily described as either nappies or pants, with the word pants referring to ‘training pants’ or ‘first pants’ which have a continuous waistband, holes for the legs, and are pulled on. Nappies do not have these features and are put on a child and fastened while the child is lying down. Moreover, the commercial descriptions used in relation to the Mamia goods in commercial invoices, bills of lading or import declarations and on the packaging for the goods, and in the Applicant’s marketing, accords with the description ‘nappies’. This is consistent with the description used for similar goods by other manufacturers.
Referring to relevant extrinsic material for the purpose of determining the applicability of TCO 0800042, Ms Azzopardi said to the notice of the making of the TCO published in the Gazette and the terms of the application for the TCO, both state that the goods are “Designed for use by small children to assist in toilet training”. Ms Azzopardi said there was no suggestion that the TCO was to apply in respect of standard disposable nappies which have, in any event, been manufactured in Australia by Kimberly-Clark since approximately 1986. For a TCO to extend to such goods would be contrary to the purpose of the Customs Act 1901 that a TCO should not be granted in respect of goods manufactured in Australia.
DISCUSSION
To determine whether goods come within the terms of a TCO a decision-maker must first ascertain the identity of the goods as at the time and port of entry: “The characteristics of the goods, their get-up, colour, decoration, labelling and packaging are all relevant considerations” (per Lockhart J, with whom Woodward and Ryan JJ agreed, in Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591, at 599.). The determination must be made objectively without reference to the intentions of the manufacturer, the exporter or the importer. In Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449, at 462, the majority of the Federal Court, Morling and Wilcox JJ said:
The authorities make it clear that in determining what is the essential character of goods it is the state or condition of the goods at the time of importation that is the determining factor and that it is wrong to classify goods or to determine their essential character by reference to the purpose of the importer or of the purchaser. Regard must be had to the characteristics of the goods themselves, as they would present themselves to an informed observer …
And at 463:
It must always be remembered that the classification of goods for tariff purposes is a practical "wharfside" task. Upon some occasions it will be necessary for the classifier to obtain information to enable identification of the goods but it is entirely inappropriate that he or she should enter into enquiries upon matters such as cost, commercial advantage and purchaser preference which the Tribunal undertook. It ought normally be possible to classify goods merely by looking at them and by considering their nature and the function which they were designed to serve.
TCOs are considered a “species of delegated legislation” to which the general principles of statutory interpretation apply: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389, at 398. These principles require that words should be interpreted according to their natural and ordinary meaning in the context in which the words are used. In interpreting statutory provisions, regard must also be had to relevant provisions of the Acts Interpretation Act 1901 (the AIA): pursuant to s13 of the Legislative Instruments Act 2003 and s 46 of the AIA; see for example, STI Tyres and Chief Executive Officer of Customs (2009) 112 ALD 381.
Section 15AA(1) of the AIA provides that in the interpretation of a statutory provision, a construction that would promote the purpose or object of the legislation shall be preferred to one that would not do so. Section 15AB(1) permits reference to extrinsic material:
(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
(b) to determine the meaning of the provision when:
(i) the provision is ambiguous or obscure; or
(ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.
As stated above, the first issue to be determined is whether the Mamia goods are ‘Pants, Disposable’. The word ‘pants’ is defined as meaning trousers or underpants (for example, Macquarie Dictionary, revised 3rd edition). The word has a different meaning from the word ‘nappy’, which originally meant a piece of cotton fastened around a baby to absorb and contain its excrement, but which these days is an item made of disposable material.
An examination of the Mamia goods by an informed observer would indicate that the principal purpose of the goods is to absorb and contain a child’s excrement. The packaging describes the goods as ‘nappies’ with no reference to the word ‘pants’, and makes no specific claim that the ‘toddler nappy’ is designed to assist in toilet training. (By contrast, another Mamia product advertised in the Applicant’s catalogue is described as ‘training pants’.)
The Mamia goods also appear to have the characteristics of nappies, as described by Mr Butler. While Mr Butler is employed by Kimberly-Clark which is a competitor with the Applicant in the market for the sale of nappies and training pants, I accept that he has extensive experience in relevant product development and in the marketing of such goods. Professor Pailthorpe is an expert in textile technology but, as he acknowledged, has no expertise in the description and marketing of such goods.
The Mamia goods are supplied with the sides of the goods in an unfastened state, and appear to be intended for placing around a child’s bottom when the child is lying down, at which time the side tabs are fastened. While once the side tabs are fastened, the Mamia goods could be pulled up and down like ‘pants’, the characteristics of the goods otherwise appear to accord with those of nappies, as described by Mr Butler, rather than those of pants. However, I note Professor Pailthorpe’s acknowledgement that the fluid absorbency of the Mamia goods is generally the same as that of nappies, and that pants, unlike nappies, are pre-fastened at the waist, and intended to be put on a child and pulled up and down while the child is standing.
It is appropriate to refer to extrinsic material – in this instance the Commonwealth of Australia Tariff Concessions Gazette – to confirm the ordinary meaning of ‘Pants, Disposable’. The notification of the TCO published in the Gazette, gives the stated use of ‘Pants, Disposable’ as “Designed for use by small children to assist in toilet training”. This confirms that the meaning of ‘pants’ in the context of the TCO was not that of ordinary nappies, which were in any event already being manufactured in Australia. Mr Butler’s evidence is that training pants have delayed fluid absorbency and remain wet to the touch in order to assist children in their toilet training. He said that Kimberly-Clark’s product, ‘Huggies Pull-Ups’, achieves this by, in addition to the usual fluid absorbing material, using a layer of rayon fibre which remains wet to the touch for some time. While Professor Pailthorpe’s tests addressed the fluid absorbent properties of both the Mamia goods and Huggies Pull-Ups and found their properties to be similar, his tests did not address the wet to the touch characteristics of the goods at intervals after the application of fluid.
I am satisfied from the above that an informed observer would conclude that the Mamia goods should be identified as disposable nappies and not as ‘Pants, Disposable’. Thus, TCO 0800042 is not applicable. Even if this were not the case and the Mamia goods were identified as ‘pants’, the Mamia goods do not, in my view, meet the requirements for the application of the TCO that such goods have stretch side panels and delayed fluid absorbency. The Mamia goods have an elasticised rear section of the waistband and the part of the goods that fits around the child’s legs is also elasticised. Whilst the side tabs, which employ a Velcro type fastener used to secure the front to the rear portion of the nappy when placed around the child’s bottom, have an elasticised stretchable component, the side panels themselves are neither elasticised nor stretchable, and cannot be considered to be ‘stretch side panels’. By contrast, ‘Huggies Pull-Ups’, to which TCO 0716337 was found to apply (see paragraph 2, above), have fully elasticised stretchable side panels.
With regard to the requirement for delayed fluid absorbency, I note no claim is made for such a property on the packaging for the Mamia goods and also Professor Pailthorpe’s acknowledgement that the fluid absorbency of the goods is the same as that of nappies generally. Delayed fluid absorbency is a feature of pants used to assist small children in toilet training. The Mamia goods have no such special feature, unlike, for example, Huggies Pull-Ups, which include a special layer of rayon fibre that remains wet to the touch for some time after the application of fluid in order to assist toilet training.
In conclusion, the Mamia goods do not meet the description of goods to which TCO 0800042 applies and the decisions under review must be affirmed.
DECISION
The decisions under review are affirmed.
I certify that the preceding 40 (forty) paragraphs are a true copy of the reasons for the decision herein of Deputy President R P Handley.
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Associate
Dated 8 March 2012
Date of hearing 27 February 2012 Date final submissions received 27 February 2012 Advocate for the Applicant I Rodda Solicitors for the Applicant Rodda Coburn & Co Advocate for the Respondent R Azzopardi Solicitors for the Respondent Australian Customs and Border Protection Service
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