Becker Vale Pty Ltd and Chief Executive Officer of Customs
[2014] AATA 625
•2 September 2014
[2014] AATA 625
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/4754
Re
Becker Vale Pty Ltd
APPLICANT
And
Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Deputy President J W Constance
Date 2 September 2014 Place Sydney The decision of the Respondent dated 19 July 2013 is affirmed.
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Deputy President J W Constance
Catchwords
CUSTOMS AND EXCISE – tariffs – description of goods – competing classifications - whether goods should be classified under tariff classification 8504.34.00 or 8537.20.90 – principal function of the goods is transformation of electricity – decision affirmed
Legislation
Customs Tariff Act 1995 (Cth) s 7(1); Sch 2; Sch 3
Cases
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615
Times Consultants Pty Ltd v Collector of Customs (1987) 76 ALR 313REASONS FOR DECISION
DEPUTY PRESIDENT J W CONSTANCE
INTRODUCTION
Under the Customs Tariff Act 1995 (“The Tariff Act”) the rate of duty payable on goods imported into Australia varies according to their classification.
Becker Vale Pty Ltd (“The Applicant”) has imported goods which I shall describe in detail later in these reasons. The Applicant disputes the classification given to the goods by the Chief Executive Officer of Customs (“The Respondent”).
The classification for which the Applicant argues attracts duty at the rate of 5%, as does the classification determined by the Respondent. However, if the goods are classified as the Applicant argues, it may be entitled to the benefit of a Tariff Concession Order (“TCO”) under which no duty is payable; the TCO does not apply if the goods are classified in the manner argued for by the Respondent.
For the reasons which follow, the decision under review will be affirmed.
APPLICABLE PRINCIPLES
The following principles are applicable in determining the correct classification of goods.
(i)Classification under Schedule 3 of the Tariff Act is to be determined in accordance with the Rules set out in Schedule 2.[1]
(ii)As a first step, the subject goods should be objectively identified in the condition in which they are imported; identification is not determined by the intention of the importer in importing the goods or of the manufacturer in producing them.[2]
(iii)Visual inspection will not necessarily be sufficient to identify the goods; further evidence may be required “to ascertain the relevant characteristics of the goods.”[3]
(iv)Identification of the goods “cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff.”[4]
(v)Evidence of how goods are described by those who trade in or use the goods may be relevant, but not conclusive, in identifying the goods.[5]
(vi)In identifying the goods, reference may be had to their design features.[6]
(vii)Once the goods have been identified it is necessary to match the goods as identified to the correct classification in Schedule 3.
(viii)“All the descriptive terms, both specific and generic, by which the goods may fairly be identified may be relevant to the classification of the goods within the Tariff”.[7]
(ix)In classifying the goods, evidence of the characteristics of the goods and/or the use to which the goods are to be put after importation may be relevant, depending upon the wording of the classification heading.[8]
[1] Customs Tariff Act 1995 (Cth) s 7(1).
[2] Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591, 599.
[3] Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) supra.
[4] Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615, 620.
[5] Re Tridon Pty Ltd and Collector of Customs (1982) supra at 620.
[6] Re Tridon Pty Ltd and Collector of Customs (1982) supra at 621.
[7] Re Tridon Pty Ltd and Collector of Customs (1982) supra at 620.
[8] Re Tridon Pty Ltd and Collector of Customs(1982) supra at 621.
ISSUES FOR DETERMINATION
There are three issues for determination:
1.What is the correct description of the goods?
2.What is the correct classification of the goods?
3.Is the Applicant entitled to the benefit of TCO 0918490 in respect of the goods?
CONSIDERATION
Issue 1: What is the correct description of the goods?
In Times Consultants Pty Ltd v Collector of Customs, [9] the Full Court of the Federal Court stated:
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”. [Emphasis added].
[9] (1987)76 ALR 313 at 327.
Mr Becker, the Chief Executive Officer of the Applicant, gave evidence that “the goods can take power from several inputs at one end (the high voltage end) and distribute power to several locations from several outputs at the other end (the low voltage end).” He described the goods as a substation. The goods are attached to a base.
Based on the evidence of Mr Wylie, Chief Technology Officer, I am satisfied that the goods are properly described as “a combination of three machines all of which work together for the purpose of transforming higher voltage to a lower voltage.”[10]The three machines are bolted together. On one end is a red inlet unit which receives the cable carrying 11,000 volts. At the other end is a blue unit which has several outlets for cables which take approximately 1,000 volts each from the machine. Between these units is a black unit which reduces the voltage from 11,000 volts to 1,000 volts.
[10] Exhibit R2, p.3.
The red and blue units contain equipment which permits the black unit to be operated with greater safety than otherwise would be the case. The red unit contains a power circuit breaker module and protects the transformer in the black unit. The blue unit contains switchgear which is a combination of electrical disconnect switches, fuses or circuit breakers used to control, protect and isolate the electrical supply to equipment using the reduced voltage.[11]
[11] Exhibit R1 p.58.
The red and blue units cannot operate individually to transform electricity. The black unit could so operate without the addition of the other units but would need modification to do so.
The description of the goods given by Mr Becker was in part consistent with that given by Mr Wylie. The determining factor, however, is the state of the goods at the point of importation. Mr Becker’s description of the goods as a “substation” goes beyond a description of the essential character of the goods and is a reference to the use to which the goods may be put after importation.
Issue 2: What is the correct classification of the goods?
The competing classifications
The classification contended for by the Applicant is:
8537BOARDS, PANELS, CONSOLES, DESKS, CABINETS AND OTHER BASES, EQUIPPED WITH TWO OR MORE APPARATUS OF 8535 OR 8536, FOR ELECTRIC CONTROL OF THE DISTRIBUTION OF ELECTRICITY, INCLUDING THOSE INCORPORATING INSTRUMENTS OR APPARATUS OF CHAPTER 90, AND NUMERICAL CONTROL APPARATUS, OTHER THAN SWITCHING APPARATUS OF 8517:
…
8537.20 -For a voltage exceeding 1 000 V:
…
8537.20.90 --- Other.
The Respondent contends that the correct classification is:
8504 ELECTRICAL TRANSFORMERS, STATIC CONVERTERS (for example, rectifiers) and inductors:
…
8504.34.00 -- Having a power handling capacity exceeding 500 kVA
The Act and Rules
The various classifications, including those set out above, are contained in Schedule 3 of the Tariff Act.
Subsection 7(1) of the Tariff Act provides :
The Interpretation Rules must be used for working out the tariff classification under which goods are classified.
The Interpretation Rules are set out in Schedule 2 of the Tariff Act. They relevantly provide:
Classification of goods in Schedule 3 shall be governed by the following principles:
1. The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
…
3. When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
…
(c)When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
…
6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.
The Applicant’s argument
The Applicant argued that “the goods in question are so closely described in the relevant TCO that there is no question that this TCO applies to the goods. …… Having chosen and gazetted the tariff heading 8537.20.90 and keyed the TCO to this tariff heading, Customs cannot now reasonably say that another tariff heading applies to the goods, the more so when the goods are so clearly described in the TCO.” [12]
[12] Applicant’s Submissions p.4.
The Applicant argues further that Rule 3 of the General Rules for Interpretation does not apply as the terms of tariff heading 8537.20.90 contemplates multiple goods being included in that heading. It is argued that the goods are not, prima facie, classifiable under two headings.
I cannot accept this argument as it approaches the task of classification incorrectly. The approach advocated for by the Applicant involves first determining that the goods come within the Tariff Concession Order, and then arguing that the goods are properly described as being within the tariff heading which is keyed to that order. It is clear from the provisions of the Act and the cases to which I have referred that the description of the goods must first be determined, and then the appropriate tariff heading for those goods decided. It is only when the goods have been classified within the correct tariff heading that the applicability of the relevant Tariff Concession Order can be determined.
Reasoning
The goods are properly described as three machines bolted together which together operate to reduce the voltage of, and distribute, electricity. Although the blue unit in part fulfils the role of electricity distribution, this is secondary to the role of the black unit. As noted above, the role of the red and blue units is chiefly to enable the black unit to be operated safely and effectively. I am satisfied that the principal function of the three machines combined is the transformation of the voltage of electricity.
Note 3 to Section XVI of Schedule 3 (which includes Chapter 85) provides:
Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
In accordance with note 3, the subject goods are to be classified as being that component which performs the principal function. That component is the black unit which is the transformer.
The Applicant submitted that note 3 does not apply where the heading clearly envisions a composite machine that falls under heading 8537. Although the goods do technically satisfy the heading to 8537, they do not squarely fall within it. The heading refers to apparatus for electrical control and distribution. It does not include reference to transformers.
Note 3 is clearly directed towards resolving the classification of composite goods whose combined characteristics are not specified under a single heading in Section XVI of Schedule 3. To hold that any composite good that partially falls within 8537 is to be immediately classified under that heading would nullify the operation of Note 3. In the present application, the goods are to be classified according to their principal function.
Turning to consider the headings 8504.34.00 and 8537.20.90, the Applicant is correct that the goods consist of a base which is equipped with three apparatus. It is not in dispute that these apparatus come within heading 8535. However the goods are also prima facie classified under heading 8504.34.00. In this situation Interpretative Rule 3(a) applies and the heading which provides the most specific description shall be preferred.
The heading 8504.34.00 specifically refers to “electrical transformers” whereas heading 8537.20.90 refers generally to various bases equipped with various apparatus. As the principal function of these goods is the transformation of electricity, they are properly classified under heading 8504.34.00.
Issue 3:Is the Applicant entitled to the benefit of TCO 0918490 in respect of the goods?
The Tariff Concession Order only applies to goods classified under heading 8537.20.90. The Applicant, in this case, cannot benefit from TCO 0918490.
CONCLUSION
The reviewable decision of the Respondent dated 19 July 2013 will be affirmed.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for the decision herein of Deputy President J W Constance.
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Associate
Dated 2 September 2014
Dates of hearing 22 August 2014 Solicitor for the Applicant
J Law; Down Under Legal Counsel for the Respondent J Millea; Customs Legal Services Branch
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