Alstom Transport Australia Pty Ltd and Comptroller-General of Customs - [2019] AATA 1308

Alstom Transport Australia Pty Ltd and Comptroller-General of Customs [2019] AATA 1308 (17 June 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2018/3711
Re:Alstom Transport Australia Pty Ltd
APPLICANT

AndComptroller-General of Customs
RESPONDENT

DECISION
Tribunal:Deputy President B W Rayment OAM QC
Date:17 June 2019
Place:Sydney

The reviewable decision is affirmed.
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Deputy President B W Rayment OAM QC
CATCHWORDS
CUSTOMS – TARIFF CONCESSION ORDER – whether applicant meets core criteria – whether substitutable goods produced in Australia that are put, or capable of being put to a use that corresponds with a use to which the goods the subject of the TCO can be put – description of use in defining substitutable goods – specificity in describing use – reasonable use – whether uses correspond – decision affirmed
LEGISLATION
Customs Act 1901 (Cth) Pt XVA, ss 273GA, 269B, 269C, 269D, 269E, 269L, 269P
Customs and Other Legislation Amendment Act 2017 (Cth)
Customs Tariff Act 1995 (Cth) Sch 3
CASES
Chief Executive Officer of Customs v Toyota Material Handling Australia Pty Ltd and Anor [2012] FCAFC 78; (2012) 203 FCR 129
Comptroller-General of Customs v Vestas-Australian Wind Technology Pty Ltd [2015] FCAFC 185; (2015) 236 FCR 499
Downer EDI Rail Pty Ltd and Chief Executive Officer of Customs [2010] AATA 866
Nufarm Australia Ltd v Dow AgroSciences Australia Ltd (No 2) [2011] FCA 757; (2011) 282 ALR 24
Re Thirco Pty Ltd and Comptrolller of Customs (1994) 35 ALD 665
Re Vulcan Australia Pty Ltd and Comptroller-General of Customs (1994) 34 ALD 773
Vestas-Australian Wind Technology Pty Ltd and Comptroller-General of Customs [2017] AATA 791
SECONDARY MATERIALS
Tariff Classification 8603.10.00
REASONS FOR DECISION
Deputy President B W Rayment OAM QC
17 June 2019

The applicant has applied for a review of the decision of the respondent to refuse its application for a tariff concession order (TCO) in relation to driverless trains. The question arising is whether the TCO application meets the core criteria. It does so if, on the day the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business. The part of the Customs Act 1901 (Cth) (the Act) which applies to tariff concession orders is Part XVA.
The applicant desires to import driverless trains from India, which are exported from India by a related company. The applicant is part of a French group trading worldwide. If the TCO is granted, the applicant’s importation will be free of duty. Otherwise each train imported will attract duty of 5% under Tariff Classification 8603.10.00. The applicant has supplied to the NSW government authorities the driverless trains recently introduced in the Sydney metro system, and if the TCO is granted, those trains are examples of what will fall within the TCO. The lodgement date of the application for the TCO was 4 August 2017.
EDI Downer Pty Ltd (Downer) and the applicant itself manufacture in Australia electric passenger trains but no driverless passenger trains have yet been produced in Australia.
The 5% duty protects local industry against overseas manufacture. Part XVA permits the grant of a TCO in limited circumstances and when its provisions are satisfied, goods may be imported without payment of duty. The question in this review is whether those limited circumstances apply in this case.
Prior to the gazettal of the application lodged on 4 August 2017, the terms of the TCO for which the applicant applies were restated by agreement in the following terms:
TRAINS, driverless, single deck, including ALL of the following:
(a)six integrated AND interdependent AND electronically interfaced cars including ALL of the following:
(i)     two trailer cars;
(ii)    two motor cars;
(iii)    two motor cars with pantograph,
(b)maximum carrying capacity of NOT less than 1540 passengers;
(c)under-frame mounted driverless train control AND management systems interfaced with ALL of the following:
(i)     traction AND braking system;
(ii)    (door operation system;
(iii)    remote train control AND monitoring system,
(d)closed circuit television;
(e)passenger announcement AND information display units with route maps;
(f)roof mounted heating AND ventilation AND air conditioning (HVAC) with a cooling capacity of NOT less than 35 kW per unit AND a heating capacity of NOT less than 10 kW per unit;
(g)maximum speed NOT less than 100 km/h
Downer objected to the TCO and the applicant made submissions in relation to the objection. The respondent refused the TCO under s.269P of the Act. The applicant applied for internal review and the respondent affirmed the decision to refuse the TCO. The applicant then lodged an application for review with the Tribunal in accordance with s.273GA(1)(n) of the Act. Downer was invited by the respondent to join these proceedings as a party interested, and it declined to do so. Nevertheless, the respondent called two witnesses from the employ of Downer, who were cross-examined on behalf of the applicant.
Sections 269B, 269C, 269D and 269E (at the beginning of Part XVA of the Act) are in the following terms so far as relevant:
269B Interpretation
1In this Part, unless the contrary intention appears:
capital equipment means goods, which if imported into Australia, would be goods to which Chapters 84, 85, 86, 87, 89 or 90 of Schedule 3 to the Customs Tariff Act 1995 would apply.
…
goods produced in Australia has the meaning given by section 269D.
…
ordinary course of business has the meaning given by section 269E.
…
substitutable goods, in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.
…
3In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first mentioned goods compete with the second mentioned goods in any market.
269C Interpretation—core criteria
For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.
269D Interpretation—goods produced in Australia
1For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if the goods are wholly or partly manufactured in Australia.
2For the purposes of this Part, goods are to be taken to have been partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.
3Without limiting the meaning of the expression substantial process in the manufacture of the goods, any of the following operations or any combination of those operations does not constitute such a process:
(a)operations to preserve goods during transportation or storage;
(b)operations to improve the packing or labelling or marketable quality of goods;
(c)operations to prepare goods for shipment;
(d)simple assembly operations;
(e)operations to mix goods where the resulting product does not have different properties from those of the goods that have been mixed.
269E Interpretation—the ordinary course of business
1For the purposes of this Part, other than section 269Q, goods (other than made to order capital equipment) that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:
(a)they have been produced in Australia in the 2 years before the application was lodged; or
(b)they have been produced, and are held in stock, in Australia; or
(c)they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;
(d)and a producer in Australia is prepared to accept an order to supply them.
2For the purposes of this Part, substitutable goods, in respect of goods the subject of a TCO application, are taken to have been produced in Australia in the ordinary course of business if:
(a)a producer in Australia could produce substitutable goods, in respect of goods the subject of the TCO application, with existing facilities; and
(b)the substitutable goods the producer could produce would be made to order capital equipment; and
(c)in the 5 years before the application was lodged, the producer has made goods requiring the same labour skills, technology and design expertise as the substitutable goods the producer could produce; and
(d)the producer is prepared to accept an order to supply substitutable goods in respect of goods the subject of the TCO application.
3In this section:
made to order capital equipment means a particular item of capital equipment:
(a)that is made in Australia on a one off basis to meet a specific order rather than being the subject of regular or intermittent production; and
(b)that is not produced in quantities indicative of a production run.
Light was cast on an earlier form of these provisions by the Full Court of the Federal Court in Comptroller-General of Customs v Vestas-Australian Wind Technology Pty Ltd [2015] FCAFC 185; (2015) 236 FCR 499. Since that case was decided, sections 269D(1), (4) and (5) and section 269E(2) were repealed and replaced by the Customs and Other Legislation Amendment Act (No. 19 of 2017). The ratio of that decision appears to concern the former s.269E(2), which has since been repealed and replaced.
The current sections 269B-269E use a number of terms, some of which are defined and others of which are the subject of deeming provisions. In s.269C, the “core criteria” which must be met by the applicant are taken to be met if, on the day when the application was lodged (here 4 August 2017) no substitutable goods (a term defined in s.269B) were produced in Australia (an expression the subject of a deeming provision in s.269D) in the ordinary course of business (an expression the subject of a deeming provision in s.269E).
The term “substitutable goods” is defined in s.269B as goods produced in Australia (again the expression the subject of the deeming provision in s.269D) that are put (a question of fact about actual use) or are capable of being put (a different question of fact) to a use which corresponds with a use (including a design use) to which the goods the subject of the application or the TCO can be put. (The distinction between goods the subject of the application and goods the subject of the TCO may be made because it is possible for the TCO to be in different terms to the application if the description of the goods is altered after gazettal under s.269L. That did not happen in this case. Perhaps the distinction is drawn to make it clear that the respondent will be considering whether to accept the application as conformable with the statutory requirements, before any TCO is gazetted.)
Section 269B(3) states that in determining whether goods produced are put, or are capable of being put, to a use corresponding to a use to which the goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.
Section 269D(1) provides that goods are taken to be produced in Australia is they are wholly or partly manufactured in Australia (the latter expression being the subject of a deeming provision in s.269D(2)).
Section 269D(2) deems the goods to be partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.
Section 269D(3) without limiting the meaning of the expression “substantial process in the manufacture of the goods”, lists a series of operations which alone or in combination will not be enough to constitute such a process.
Section 269E(1) applies only to goods other than made-to-order capital equipment (capital equipment is defined in s.269B so as to include the subject goods, which are within chapter 86 of Schedule 3 to the Customs Tariff Act 1995 (Cth), and made-to-order capital equipment is defined in s.269E(3)) that are substitutable goods (defined as set out in [10] above) actually produced in Australia subject to certain conditions specified in the sub-section.
Section 269E(2) specifies conditions under which substitutable goods (again as defined in [10] above) are taken to have been produced in Australia in the ordinary course of business.
Section 269E(3) defines the expression “made to order equipment” for the purposes of the section according to two conditions.
In its statement of facts, issues and contentions the applicant submitted that the only use to which the goods the subject of the TCO are put or can be put is the transport of passengers on a driverless metropolitan train line system, and that since no such goods were produced in Australia at the relevant time, the core criteria were met.
The respondent makes a number of assertions and submissions in its statement of facts, issues and contentions. One contention is that the use to which goods within the proposed TCO description can be and is put is the transport of passengers by rail. The respondent submits that that use is to be distinguished from the means by which the use is achieved, which it submits is by driverless train. If the submission about use is correct, there is no doubt that other, non-driverless trains were produced in Australia at the relevant date and the applicant fails. In particular the applicant fails because substitutable goods were manufactured in Australia, so that the core criteria were not met. That submission is a principal submission of the respondent.
The applicant also submits that the stated and only potential use of the TCO goods is to transport passengers on a high capacity, high frequency, driverless metropolitan train line system. The applicant asserts that no goods having that use were at the relevant date produced in Australia. The applicant also submits that the driverless trains within the TCO description are not capable of any use whatsoever outside the driverless network or system within which they function. They cannot be switched on or even “woken up” by any independent means or device that is external to the system.
The applicant submits that previous cases involving substitutability have considered use of the TCO goods and the putative substitutable goods in a common environment or context, and that this is a proper approach. It also submits that the use to which goods can be put is to be identified with some degree of specificity.
Issue was also joined between the parties about the applicability of s.269E(2) in the case. The resolution of this issue requires a detailed consideration of the evidence called on both sides. The respondent submits that the TCO description is apt to describe what is known as a GoA4 train and a GoA3 train. It is next submitted that trains within the description of the TCO can operate on systems which trains with a driver also use. It is said that GoA1 trains made by Downer in the 5 years before August 2017 require the same labour skills, technology and design expertise as GoA3 trains, and that s.269E(2)(c) is satisfied.
The applicant denies most of the submissions just mentioned, including that GoA3 trains are within the TCO description. Much evidence has been called by both sides about the application of s.269E.
I will discuss first the respondent’s submission that because driven, electric passenger trains were produced in Australia in the relevant period, both by the applicant itself and by Downer, the substitutable goods question should be answered favourably to the respondent, and that the core criteria question specified in s.269C should be answered favourably to the respondent. If that is correct, it is not necessary to discuss the s.269E issues.
SUBSTITUTABLE GOODS AS DEFINED IN S.269B.
It is true that, as the respondent submits, goods within the TCO are used for the transport of passengers by rail. They are of course also capable of being put to that use. The “use” to which the goods are capable of being put, and to which they are put is also, as the applicant submits, the transport of passengers on a driverless metropolitan train line system, or more particularly, to transport passengers on a high capacity, high frequency, driverless metropolitan train line system. The word “use” in the definition of “substitutable goods” is said in the definition section to include a design use to which the goods the subject of the application or the TCO can be put.
One submission made by the respondent is that the Tribunal should choose a meaning of the language used in Part XVA which favours local industry, because the protection of local industry is a focus of the Part. I am not sure that any such presumption should be adopted, because one is concerned with limitations in Part XVA. To treat the words in which the limitations are expressed as to be interpreted otherwise than as the text requires, may be to introduce a stricter set of limitations than the text has stipulated. Of course, while it is true to say that the purpose of Part XVA is to render free of tax that which will not protect local manufacturers, it also needs to be borne in mind that the legislation has specified in s.269B(3) that market competition between the TCO goods and the substitutable goods is irrelevant. The question whether or not the definition of substitutable goods should be interpreted liberally was discussed in a Tribunal decision mentioned later, Downer EDI Rail Pty Ltd and Chief Executive Officer of Customs [2010] AATA 866.
Technological advancement has made the use of algorithms as a substitute for human intervention almost a commonplace, with driverless cars, trucks, planes, including drones, robots and a spectrum of computer operated support systems and satellite transmissions used by modes of transportation which are or now are not driven by a person, including for navigation purposes. The analogy according to which such algorithms have been designed is commonly that which a competent human actor formerly or still employs in performing like functions. That consideration may make it natural to draw a conclusion favourable to the respondent about the use to which the TCO goods are put. Just as one would say that a driven passenger train has the purpose of transportation of passengers, or transportation of passengers by rail, one may say the same about a driverless passenger train such as the TCO describes.
On the other hand, the use put forward by the applicant, set out in [25] above is also a true proposition about the use of the TCO goods. One difference between the two formulations lies in their specificity. Is it enough that one use, of the two mentioned in [25] describes the use of the TCO goods and the putative substitutable goods, even if the other formulated use applies only to the TCO goods? An affirmative answer to that question, on the literal terms of the definition in s.269B, is suggested by the words “a use” in two places in the definition. The transportation of passengers by rail is a use to which both categories of goods is put.
A number of decisions in the Tribunal have suggested that the focus in determining the use of goods is on the “ultimate use” of the goods and not on the means by which that use is achieved. One such case is Re Thirco Pty Ltd and Comptrolller of Customs (1994) 35 ALD 665, following in this respect an earlier decision in Re Vulcan Australia Pty Ltd and Comptroller-General of Customs (1994) 34 ALD 773. That statutory background was then different from the present statute. It is well recognised today that correspondence of one of a number of different uses is sufficient.

In Downer EDI Rail Pty Ltd and Chief Executive Officer of Customs [2010] AATA 866 the TCO referred to a passenger train without a driver cab module. The applicant’s intention was to import from China an incomplete train, and then add the driver’s cab after importation together with some major subsystems. Complete passenger trains manufactured locally were said to be substitutable goods, The Tribunal (DP Tamberlin QC and Senior Member Ettinger) followed Re Vulcan Australia Pty Ltd and Comptroller-General of Customs (1994) 34 ALD 773, although noting that the wording of the definition had since changed., which had the effect of broadening the definition. It was held that an incomplete train corresponded with the use of a complete train. It was remarked by DP Tamberlin QC and Senior Member Ettinger at [28] that the reference to “design use” indicates a broader concept of use than a use to which goods are in fact being put at any particular time.
The Tribunal said that the concepts of design use, corresponding use, and capacity to use all pointed to a liberal approach to construction.
The “ultimate use” test advanced in Vulcan and adopted in later decisions of the Tribunal would favour the description of use suggested by the respondent. A passenger train is understood as a vehicle for the transportation of persons by rail, and that is a description of the use of both driverless and driven passenger trains. It is what one would understand as their most important use. Questions of frequency and efficiency, such as are raised by the applicant’s proposed description of use do not seem to arise as more than selling points, rather than as part of a description of use. No doubt, as society becomes more used to driverless trains, it will no longer occur to people to stress their driverless feature when describing them.
Moreover, as was pointed out in Downer, it is not necessary to find that the use is precisely applicable to both the TCO goods and the putative substitutable goods. Rather, the question is whether the uses correspond. It is arguable that the uses “correspond” even if one considered only the description of use proposed by the applicant.
In Chief Executive Officer of Customs v Toyota Material Handling Australia Pty Ltd and Anor [2012] FCAFC 78; (2012) 203 FCR 129, the Full Court (Finn, Gilmour and Perram JJ) examined the present form of definition in s.269B of the Act. The Court said at [4] that “the potential uses of the TCO goods and the [suggested] local goods is not one in which any conceivable use will suffice. A spoon may well be used to dig a trench, but Parliament cannot have intended for a spoon to be substitutable goods for an excavator”. The potential uses to which the definition adverts are, therefore, only reasonable ones. At [19] the Court said that the word “use” is not a reference to sensible commercial uses. In the application of Toyota, I think it may be said that each of the competing descriptions of use which are under consideration is a “reasonable use”.
In Nufarm Australia Ltd v Dow AgroSciences Australia Ltd (No 2) [2011] FCA 757; (2011) 282 ALR 24 Robertson J set aside a decision of this Tribunal inter alia because it had required that the TCO goods and the locally produced goods not only have the same use but achieved that use by the same means. His Honour held that in the application of the definition of substitutable goods to herbicides, merely to say that one herbicide operates in a different manner to another does not establish that the goods were not substitutable because it leaves open that the good have a corresponding use, that is, in killing the same weeds in the same crops.
In Comptroller-General of Customs v Vestas – AustralianWind Technology Pty Ltd [2015] FCAFC 185; (2015) 236 FCR 499 the full Court (Jessup, Logan and Perram JJ) construed an earlier version of s.292E(2) of the Act but did not discuss the word “use” in the definition of substitutable goods.
In Vestas-Australian Wind Technology Pty Ltd and Comptroller-General of Customs [2017] AATA 791, the decision of this Tribunal following remission by the Full Court decision mentioned in [33] above, DP Forgie and Member Mr Ermert discussed at [109] a matter which touches on the degree of specificity in which use should be described when considering the substitutable goods definition, in a case involving a TCO for gear boxes for wind turbines. The respondent argued that the relevant use was of converting “high torque to low torque for use by generators to produce a power output of 3MW”. The Tribunal held that this use was too broadly stated and added: “On the evidence we have, we find that they can only be put to a more limited use that might be thought to be a sub-set of that more broadly stated use, but it is the only use to which the they can be put, i.e. as a gearbox converting high torque from low turbine rotations to higher rotation low torque revolutions for use by a wind turbine generator to produce a power output of 3MW.”
That more limited use stemmed from the evidence called in the case. The contending statements of use, to which reference is made in [25] above, both stem from the evidence in this case, so neither party is assisted by what is said in the Vestas decision just referred to.
I now deal with the submission of the applicant referred to in [21] above. In its written submissions dated 9 April 2019, the applicant submitted at [26], [29] and [30]:
26The TCO goods are driverless passenger trains that conform to the GoA4 standard for Urban Guided Transport. They are an integral component of a complex integrated system of, among other things, rolling stock, platforms, power supply, door systems and signals, all of which are operated by a Computer Based Train Control System. The ‘brain’ that operates the train, i.e. the Automatic Train Control, has two components, one of which is installed within the rolling stock and integrated with every system and sub-system, the other being a part of the external infrastructure. Driverless trains have no means of operation and are not capable of any use whatsoever outside the driverless network or system within which they function. The trains cannot operate on any other type of network or rail system and cannot even be “woken up” or switched on by any independent means or device that is external to the system. Their production requires a unique process of design, manufacture, integration and testing processes which inform and guide their production [2].
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29In every case in which substitutability has been considered, including several in which substitutability was conceded [5], the goods were used in a common environment or context in which there was an overlap of use.
30Examples where use has been narrowed to a particular environment or context when determining or considering substitutability include –
(a)Domestic space or room heating NOT space or interior heating.[6]
(b)Drying hands in wash rooms in industrial, hospital and commercial premises NOT drying hands.[7]
(c)Producing packaging of canned beer and aerated soft drinks NOT making containers.[8]
(d)Bags for fertiliser NOT bags for every kind of use.[9]
(e)Forklifts and “walker stackers” that can fill shelves to a height of 5m, irrespective of the full range and capacity of each type of good.[10]
[2] The design and production process is described in detail in the statement of Pavan Denahalli and the statement and supplementary evidence in chief of Pankaj Johri
[5] Many of the earlier decisions considered market and competition criteria which have subsequently been removed from the legislation
[6] Vulcan Australia Pty Ltd v Comptroller-General of Customs [1994] 20 AAR 116
[7] Thirco Pty Ltd and Comptroller-General of Customs (1994) 35 ALD 665
[8] Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs & Anor (1997) 77 FCR 493
[9] Re Bag & Jute (T’Wth) Co Pty Ltd and Comptroller-General of Customs and SouthCorp Australia (1995) 38 ALD 357
[10] Toyota Material Handling Australia Pty Ltd, supra
The legislation makes no reference to context or environment. No such general principle is asserted in any of the decisions to which the applicant refers. The different environment in which the putative substitutable goods operate is a rail system without beacons and other equipment necessary to the operation of driverless trains. What seems to me to be important is that the substitutable goods are manufactured in Australia and their purpose or object, rather than details of the context or environment in which they are operated.
In the result, I am satisfied that the description of use advanced by the respondent is appropriate to be considered in applying the definition of substitutable goods, and that at the relevant time substitutable goods were manufactured in this country, so that the application for the TCO was correctly refused.
The reviewable decision will therefore be affirmed.

I certify that the preceding 42 (forty -two) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment OAM QC

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Associate
Dated: 17 June 2019

Date(s) of hearing: 26, 27, 28 and 29 March 2019

Date final submissions received: 15 April 2019

Counsel for the Applicant: Mr J H Slonim

Solicitors for the Respondent: Mr R Northcote, Department of Home Affairs

Date(s) of hearing:	26, 27, 28 and 29 March 2019
Date final submissions received:	15 April 2019
Counsel for the Applicant:	Mr J H Slonim
Solicitors for the Respondent:	Mr R Northcote, Department of Home Affairs