AUSTRALIAN FROZEN FOODS PTY LTD and CHIEF EXECTUTIVE OFFICER OF CUSTOMS AND BORDER PROTECTION
[2009] AATA 795
•15 October 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 795
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/4368
GENERAL ADMINISTRATIVE DIVISION ) Re AUSTRALIAN FROZEN FOODS PTY LTD Applicant
And
CHIEF EXECTUTIVE OFFICER OF CUSTOMS AND BORDER PROTECTION
Respondent
DECISION
Tribunal Mr S. Webb, Member Date15 October 2009
PlaceGriffith, NSW
Decision The decision under review is set aside and in place thereof the Tribunal decides that the imported gherkins in brine are classified under sub-heading 0711.40.00 of Schedule 3 of the Customs Tariff Act 1995.
....................[sgd]....................
Mr S. Webb, Member
CATCHWORDS
CUSTOMS TARIFF - importation of gherkins in brine - classification for tariff purposes - appropriate classification - meaning of 'provisionally preserved' - extrinsic materials - international harmonised scheme - goods provisionally preserved and unsuitable for immediate consumption - decision set aside
Customs Tariff Act 1995 ss 6, 7, 15, 16, 167, 273GA, Schedule 2, Schedule 3
Acts Interpretation Act 1901 s 15AB
Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) [1987] FCA 116
Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287
Toyota Tsusho Australia Pty Ltd and Anor v Collector of Customs [1992] FCA 282
Gardner Smith Pty Ltd v Collector of Customs (1986) 66 ALR 377
Re Fernz Speciality Chemicals and Chief Executive Officer of Customs [2001] AATA 537
Collector of Customs v Pressure Tankers Pty Ltd & Pozzolanic Enterprises Pty Ltd [1993] FCA 322
Barry R Liggens Pty Ltd v Comptroller-General of Customs & Ors (1991) 103 ALR 565
REASONS FOR DECISION
15 October 2009 Mr S. Webb, Member 1. Australian Frozen Foods Pty Ltd (the Company) imported barrels of gherkins in brine from India for further processing and sale. The gherkins were classified for tariff purposes.[1] A 5 percent tariff was imposed. The Company is not happy with this result and has applied for review.[2]
[1] T4 folios 21-24 and T5.
[2] T1.
2. I was informed that the present proceedings relate to one batch of imported gherkins and that the facts of that importation are not in dispute. As I understand it the Company has imported other batches of gherkins that will be subject to the same tariff classification as the first batch. The company has paid duty, as required, under protest[3] and these proceedings arise in consequence.[4]
[3] T1 folio 4.
[4] Sections 6, 15, 16, 167 and 273GA, Customs Tariff Act 1995.
3. The issue for determination is the correct tariff classification of the imported gherkins. There are two options: classification as ‘Edible vegetables and certain roots and tubers’[5] or as ‘Preparations of vegetables, fruit, nuts or other parts of plants’. [6]
[5] Chapter 7, Schedule 3, Customs Tariff Act 1995.
[6] Chapters 20, Schedule 3, Customs Tariff Act 1995.
4. At the outset of the hearing the Respondent, Chief Executive Officer of Customs and Border Protection, (Customs) conceded that the imported gherkins in brine were not suitable for immediate consumption. The concession is consistent with the available evidence and I will proceed on that basis.
5. In Customs’ submission the correct tariff classification is under sub-heading 2005.99.00 of Chapter 20, Schedule 3, Customs Tariff Act 1995 (the Tariff Act). Customs asserts that the gherkins are not provisionally preserved: lactic fermentation has taken place and this is not a reversible or temporary process of preservation. Furthermore, Customs says that there is ambiguity attaching to the phrase ‘provisionally preserved’ and reference should be made to the Harmonised System Explanatory Notes (HSEN).[7] Customs asserts that the notes indicate the correct approach: vegetables and fruits treated by lactic fermentation are excluded from Chapter 7 classifications. Thus, in Customs’ submission, classifying the gherkins under Chapter 7 would not be consistent with the standards agreed by international convention as expressed by the HSEN, and it would not be consistent with the approach adopted in other jurisdictions.[8] It follows in the position contended for by Customs that the gherkins should be classified under sub-heading 2005.99.00 of the classifications set out in Chapter 20, Schedule 3 of the Tariff Act.
[7] Referring to Explanatory Notes as approved by the Customs Co-operation Council from time to time for the International Convention on the Harmonized Commodity Description and Coding System (Brussells, 14 June 1983), to which Australia is a party.
[8] Examples of primary classification decisions made in other jurisdictions were handed up.
6. I do not agree.
7. The first task is to accurately describe the goods as imported by applying the objective ‘wharfside test’.[9] The goods were described in the Tariff Advice as “Indian whole gherkins in bulk drums in 10% salt brine grade 10/20”.[10] This is consistent, in general terms, with the description provided by Emeritus Professor Ken Buckle following an examination of one barrel of the imported gherkins on 23 April 2009.[11] A detailed chemical analysis was obtained by Customs, revealing the presence of lactic acid and smaller amounts of acetic and sorbic acid in an 11.8 percent brine solution with a pH of 3.6.[12] Emeritus Professor Buckle and Mr Parle described the goods as ‘salt-stock gherkins’, apparently this is a trade term that is commonly used in the food industry to describe gherkins kept in high salt brine solutions for storage or transport pending further treatment and processing for market. These descriptions are not in dispute and I accept that they accurately describe the goods as imported.
[9] Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449 at 462-463; Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) [1987] FCA 116 at [26].
[10] T4 folio 23.
[11] Exhibit 5, p6.
[12] Exhibit 5, p19.
8. I note in passing that the ordinary meaning of the word ‘gherkin’ is a young green cucumber, or a cucumber of a small kind, used for pickling.[13]
[13] Oxford English Dictionary, Online Edition, 2009.
9. The next task is to classify the goods by applying the relevant headings and sub-headings and Chapter Notes in Schedule 3 to the Tariff Act.[14] In so doing it is necessary to use the Interpretation Rules set out in Schedule 2.[15]
[14] Section 6, Customs Tariff Act 1995.
[15] Section 7, Customs Tariff Act 1995.
10. The parties agree, correctly in my view, that the first step is to determine whether the goods are within the terms of the headings and sub-headings of Chapter 7, Schedule 3. The reason for this is that Note 1(a) to Chapter 20 excludes ‘Vegetables, fruit or nuts, prepared or preserved by the processes specified in Chapter 7…’. Curiously, however, Note 3 to Chapter 20 provides that classification 2005 (within Chapter 20) may cover ‘those products of Chapter 7 … which have been prepared or preserved by processes other than those referred to in Note 1(a)’. This is a matter to which I will return.
11. There are two Chapter 7 headings that refer to gherkins:
“0707.00.00 – Cucumbers or gherkins, fresh or chilled”; and
“0711 – Vegetables provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption:
…0711.40.00 – Cucumbers and gherkins”
12. Plainly enough, the salt stock gherkins in question are not fresh or chilled; they are not within the terms of heading 0707.00.00.
13. Customs concedes that the salt stock gherkins as imported are not suitable for immediate consumption.
14. The evidence is that the imported gherkins have been preserved in brine. But have they been ‘provisionally preserved’?
What is the meaning of ‘provisionally preserved’?
15. In order to properly decide this question it is necessary to determine whether there is any indication that the words ‘provisionally preserved’ are used in a sense that is not their ordinary sense or with a meaning other than their ordinary meaning.[16] This is to be done by construing the words and the Chapter 7 heading 0711 in the legislative context in which they appear.
[16] Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287 at 293-295.
16. There is no indication in the 0711 heading or in the Chapter 7 notes that the term ‘provisionally preserved’ is used in a sense other than the ordinary sense, or that the words have a meaning other than their ordinary meaning in common usage. The phrase ‘provisionally preserved’ is not a term of art or trade, or a phrase that has a special or technical meaning for the purposes of the Tariff Act. ‘Provisionally preserved’ is not a technical legal term. The Tariff Act does not require or provide any special meaning to these words. The notes to Schedule 3, Chapter 7 and the Interpretation Rules in Schedule 2 do not confer any guidance on this point. Noting that subsection 15AB(1)(a) of the Acts Interpretation Act 1901 (the Interpretation Act) and authoritative cases[17] permit reference to extrinsic materials in certain circumstances. The HSEN notes concerning Chapter 7 do not indicate that any meaning other than the ordinary meaning conveyed by the text of the 0711 heading in Chapter 7 – taking into account the context in which they appear and the purposes of the Act – should apply. Thus, I am satisfied that it is sufficient to apply the ordinary meaning of these words in the context in which they appear at Chapter 7 of Schedule 3 to the Tariff Act.
[17] Toyota Tsusho Australia Pty Ltd and Anor v Collector of Customs [1992] FCA 282 at [23]-[28]; Gardner Smith Pty Ltd v Collector of Customs (1986) 66 ALR 377 at 383-384.
17. What is the ordinary meaning of ‘provisionally preserved’?
18. In Customs’ submission there is an inherent definitional tension between the ordinary meaning of ‘provisional’ and ‘preserved’ – if something is provisional, it is temporary, whereas if something is preserved, it is made to last or keep. In Customs’ submission this tension gives rise to ambiguity, whereby it is appropriate to refer to the HSEN to determine the meaning of the term and the content of the 0711 heading. I do not agree. As it appears to me the phrase ‘provisionally preserved’ is one that can readily be understood in ordinary usage: the two words are relational and there is no inherent ambiguity. The adverb ‘provisionally’, meaning “as a temporary measure”, and the adjective (or past participle verb) ‘preserved’, meaning (relevantly) “treated so as to prevent decomposition, fermentation or decay”, must be read together.[18] Thus, in ordinary usage an article of food is provisionally preserved if it is treated, as a temporary measure, to prevent decomposition, fermentation or decay. This approach is consistent with the approach adopted by the Tribunal in Re Fernz Speciality Chemicals and Chief Executive Officer of Customs.[19] The temporary nature of the preservative treatment has the quality of impermanence, transience or incompleteness and may be characterised by temporal or other factors. That being so it is not necessary to refer to the extrinsic HSEN to determine the meaning or content of the 0711 heading. With regard to subsection 15AB(1)(b) of the Interpretation Act the particular provision and the words and phrases in the text are not ambiguous or obscure, and the result of applying the ordinary meaning, having proper regard to the context and purposes of the Tariff Act, does not give rise to a result that is manifestly absurd or unreasonable.
[18] Definitions from the Oxford English Dictionary, Online Edition, Draft Revision, March 2009.
[19] [2001] AATA 537 at [15]-[17].
19. Customs asserts that the meaning of these words is a question of law and the opinions of expert or other witnesses should not be taken into account. It can be accepted, and it is well settled law, that the question whether a word or phrase is to be given its ordinary meaning or a special or technical meaning is a question of law, whereas the ordinary meaning of a word or phrase is a question of fact.[20] In any event, it is not necessary or appropriate to refer to any opinions expressed by Mr Parle or Emeritus Professor Buckle on this definitional point.
[20] Collector of Customs v Pressure Tankers Pty Ltd & Pozzolanic Enterprises Pty Ltd [1993] FCA 322 at [23].
Have the imported gherkins been ‘provisionally preserved’?
20. In Customs’ submission Mr Parle is not an independent or an expert witness and his evidence should be disregarded or discounted. I accept that Mr Parle is not an impartial witness; he is the principal of the applicant Company. Nevertheless, I will not discount his evidence entirely, but will carefully consider the weight it should be given in relation to matters that are disputed.
21. The evidence of Mr Parle[21] and Emeritus Professor Buckle[22] is that the process of preserving gherkins (or cucumbers) in a high salt solution is one that is commonly employed for the purposes of transporting or storing gherkins, as an interim measure, pending final processing for market. Emeritus Professor Buckle gave evidence that immersion of gherkins in a salt solution stimulates a natural process of fermentation, whereby naturally occurring bacteria on the skin of the gherkin convert sugars contained in the gherkin into lactic and other acids. On his evidence, the process of fermentation will continue until all the sugars (nutrients) in the immersed gherkins have been used by the acid-forming bacteria. Emeritus Professor Buckle’s evidence indicates that the fermentation process following immersion of gherkins in brine is spontaneous, but the duration of fermentation may be affected by variations in temperature, salt levels and the amount of bacteria on the washed gherkins prior to immersion. On his evidence the fermentation process is dynamic and is unlikely to be brought to an end by simply varying the salt concentration. Importantly, however, the longevity and quality of the immersed gherkins may be affected by variations in salt concentration: if the salt concentration is low, for example 4%-6%, fermentation will commence but the gherkins would be prone to spoilage by salt-resistant yeasts and other organisms, whereas if the salt concentration is high, more than 15% for example, the immersed gherkins would be expected to last longer. Professor Buckle gave evidence that gherkins treated in this manner may have a shelf life of up to one year, subject to environmental variables. On his evidence, the shelf life of gherkins that are preserved in this manner may be substantially increased by hermetic sealing and heat treatment.
[21] Oral evidence and Exhibits 1 and 2.
[22] Oral evidence and Exhibit 5.
22. Mr Parle gave evidence that placing gherkins in high salt brine initially causes the immersed gherkins to assume an undesirable colour and a leathery texture – for this reason the process of ‘brining’ involves varying the salt concentration. On his evidence, the Company imports salt stock gherkins for further processing and preparation for market. The imported gherkins are transported and stored in barrels. On receipt of the barrels at the Company’s premises the gherkins are removed and washed in fresh water for a period of 2-3 days, whereupon they are removed, drained, spiced, sliced, packed and hermetically sealed in bags, and heat treated prior to sale.
23. On this evidence, it appears that the ‘brining’ process of preserving the imported gherkins is an interim process of preservation, pending further preservation that involves de-salting, spicing, washing, draining, slicing, bagging, hermetic sealing and heat treatment. I so find.
24. It is relevant to note that the salt-stock gherkins are not suitable for immediate consumption (because of the salt content) on importation.
25. As it appears to me, the imported gherkins have been provisionally preserved in barrels, as salt stock – they have been treated, as a temporary or interim measure, by immersion and storage in brine to prevent decomposition, fermentation or decay. In preparation for market, additional preservative processes are employed in the form of hermetic sealing and heat treatment. It follows that the gherkins are within the scope of Schedule 3, Chapter 7 heading 0711 and sub-heading 0711.40.00.
26. In Customs’ submission, however, the gherkins are not properly classified in the 0711.40.00 heading because lactic fermentation has occurred,[23] thereby preserving the gherkins in a manner that is not provisional – it is of longer duration than provisional preservation in brine and cannot be undone.
[23] See Exhibit 2, p36.
27. There are a number of things to say about this. The evidence of Emeritus Professor Buckle is that salt-stock gherkins that have undergone complete lactic fermentation, whereby sugars in the gherkins are converted to acid and have a limited shelf life of up to one year. This can be extended by additional preservative treatments that include hermetic sealing and heat treatment. Those are processes employed by the Company when manufacturing sliced gherkin products for market.
28. The Chapter 7 Notes and headings do not exclude gherkins that have been subject to a lactic fermentation process consequent to immersion in brine. The Chapter 20 Note 3 states that “2001, 2004 and 2005 [headings] cover, as the case may be, only those products of Chapter 7 … which have been prepared or preserved by processes other than those referred to in Note 1(a) [being processes specified in Chapter 7, 8 or 11]”. It is plain enough that the 0711 heading in Chapter 7 specifies processes for the provisional preservation of gherkins in brine and, therefore, those products are not covered by the 2005 heading.
29. I was taken to a number of decisions concerning imported gherkins in other jurisdictions. Those decisions were of a primary nature, having been made by Customs officers in different jurisdictions applying legislative provisions that are said to be consistent with those in the Tariff Act. Such decisions simply serve to indicate the approach adopted in those particular cases in those jurisdictions. Evidence concerning the applicable legislative provisions in those jurisdictions was not adduced. There are many difficulties with references to decisions of this kind and I do not propose to consider them in detail. Nevertheless, it appears that the approach adopted was to classify imported salt-stock gherkins under heading 2005.99.00 of Chapter 20. This approach is said to be consistent with the HSEN concerning Chapter 7 at note 07.11:
“This heading applies to vegetables which have been treated solely to ensure their provisional preservation during transport or storage prior to use (eg. by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), provided they remain unsuitable for immediate consumption in that state.
Vegetables covered by this heading are generally packed in casks or barrels, and are mainly used as raw materials for manufacturing purposes; the principal varieties are onions, olives, capers, cucumbers, gherkins and tomatoes.
However the heading excludes goods which, in addition to having been provisionally preserved in brine, have also been specially treated (eg. by soda solution, by lactic fermentation); these fall in Chapter 20 (for example, olives, sauerkraut, gherkins and green beans).” Original emphasis.
30. As can be seen, this note introduces classification criteria that are not contained within the legislative provisions of the Tariff Act. The words “solely to ensure their provisional preservation during transport or storage prior to use” appear to import a sole purpose test that does not appear in the plain language of the 0711 heading in Chapter 7 of Schedule 3 to the Tariff Act. The HSEN note 07.11 purports to exclude goods that have been specially treated by processes that are additional to provisional preservation in brine. No such exclusion appears in the plain words of the Chapter 7 provisions as enacted.
31. While it may be appropriate to refer to extrinsic materials in order to discern the meaning of a provision and the matters to which regard must be had in so doing,[24] pursuant to section 15AB of the Interpretation Act, it is not appropriate to create doubt about the meaning of a provision by the use of extrinsic material, in this case the HSEN, and then to seek to resolve that doubt by reference to that extrinsic material.[25] Nor is it appropriate to introduce tariff classification criteria without proper authority that go beyond or purport to limit the scope of the legislative provisions that have been enacted. As I have said, the HSEN notes confirm that the meaning of the 0711 heading is the ordinary meaning conveyed by the text of the heading taking into account its context. HSEN note 0711 goes beyond the legislative provision as enacted and introduces classification criteria in the form of explanatory notes that lack legislative force. These ‘explanatory notes’ cannot be used to influence the interpretation of the plain words of the 0711 heading as it appears in Schedule 3 to the Tariff Act.
[24] Toyota Tsusho Australia Pty Ltd and Anor v Collector of Customs [1992] FCA 282 at [23]-[28]; Gardner Smith Pty Ltd v Collector of Customs (1986) 66 ALR 377 at 383-384.
[25] Barry R Liggens Pty Ltd v Comptroller-General of Customs & Ors (1991) 103 ALR 565 at 573.
32. Setting those considerations concerning additional tariff classification criteria that lack legislative force to one side, as it appears to me, even if the HSEN note 07.11 to which I have referred is applied in terms, it does not necessarily exclude the imported gherkins from the 0711 heading in Chapter 7 of Schedule 3 to the Tariff Act. First, the additional sole purpose test is satisfied in the circumstances arising from the evidence before me – the imported gherkins have been treated solely to ensure provisional preservation during transportation and storage prior to further processing. Second, the imported gherkins are imported in barrels and are used as raw materials in the manufacture of sliced gherkins, that is, gherkins that have been de-salted, washed, spiced, sliced, hermetically sealed and heat-treated. Third, on the evidence before me the purported exclusionary notation concerning lactic fermentation is ambiguous and possibly contradictory when it comes to gherkins (or cucumbers) that have been provisionally preserved in brine. Such ambiguity does not assist understanding the meaning of the plain text of the legislation in the 0711 heading of Chapter 7.
33. The words ‘in addition’, ‘specially treated’ and ‘by lactic fermentation’ clearly refer to a process of treatment that is special and additional to provisional preservation in brine. The evidence of Emeritus Professor Buckle is that the immersion of gherkins (or cucumbers) in brine causes a spontaneous natural process of lactic fermentation to occur as a result of particular naturally occurring bacteria on the skin of the gherkin or cucumber. As it appears to me a spontaneous natural process of lactic fermentation may be differentiated from an additional special treatment by lactic fermentation. Simply put, if gherkins are immersed in brine, lactic fermentation is a natural consequence and no special treatment is required.
34. On Emeritus Professor Buckle’s evidence it is not possible to provisionally preserve gherkins in brine without a natural lactic fermentation process occurring – the duration of that fermentation process is subject to variables including temperature, fruit quality, the presence of other bacteria and yeasts, and salt concentration. It follows, therefore, that lactic fermentation in salt-stock gherkins of the present kind is not an additional special treatment but is the natural consequence of provisional preservation in brine. Even if the lactic fermentation process is additional to the provisional preservation of the gherkins in brine, as plainly it is, the consequent natural lactic fermentation is not an additional special treatment.
35. Thus, as it appears to me, even if HSEN note 07.11 is applied, it does not produce the result contended for by Customs. Even if I am wrong about that, it does not change the decision, as note 07.11 cannot be used to override or contradict the meaning in plain language of the legislative provision as enacted.
36. Nevertheless, in Customs’ submission gherkins that have been provisionally preserved in brine and subject to lactic fermentation are said to be excluded from the 0711 heading under HSEN note 07.11. If that approach is adopted, no gherkins that have been provisionally preserved in brine would be accommodated within the 0711.40.00 heading, despite the explicit inclusion of gherkins and cucumbers that have been provisionally preserved in brine within that heading. Conversely the 2005 heading in Chapter 20 makes no explicit reference to gherkins or cucumbers. On that basis classifying salt-stock gherkins under the general heading 2500.99.00 rather than the specific heading 0711.40.00 does not appear to be consistent with the plain language of those headings. It is unlikely that the legislature intended any such result.
37. The General Rules for the Interpretation of Schedule 3 to the Tariff Act provide that “classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes” and subject to subsequent provisions.[26] I note that gherkins in brine may be considered to be a mixture of substances to which provisions 2(b) and 3(a) may apply. Provision 3 is not simply contingent on application of provision 2(b), however, but applies “When … for any other reason, goods are, prima facie, classifiable under two or more headings”, in which case “The heading which provides the most specific description shall be preferred to headings providing a more general description…”.[27] On that basis, it would appear that the specific 0711.40.00 heading should be preferred to the general 2500.99.00 heading, contrary to the HSEN note to which I have referred.
[26] Provision 1, Schedule 2, Customs Tariff Act 1995.
[27] Provision 1, Schedule 2, Customs Tariff Act 1995.
38. Finally, Customs contended that if salt-stock gherkins are classified under the 0711.40.00 heading, difficulties will arise for Customs officers when determining the appropriate tariff classification. That submission has little merit. As it appears to me, there is no difficulty in determining whether lactic fermentation has occurred in salt-stock gherkins of the present kind – the evidence reveals that it will occur in all cases. There is no present evidence that any additional special treatment has occurred. The task of determining whether lactic fermentation is the result of any additional special treatment must properly be a matter for evidence in each case. One can appreciate that such evidentiary considerations may present difficulties for Customs officers, but those difficulties are not unusual in cases concerning tariff classifications for a variety of goods on importation.
39. In sum, the decision under review must be set aside. The correct tariff classification of the imported salt-stock gherkins is 0711.40.00.
I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Member S. Webb.
Signed: ...............................[sgd]………….........................
J. Lakin, AssociateDate of Hearing 22 September 2009
Date of Decision 15 October 2009
Solicitor for Applicant Mr A. Rowe, Mackenzie & Vardanega Solicitors
Solicitor for Respondent Mr L. Kennedy, Australian Government Solicitor
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