CAMERON AUSTRALASIA PTY LTD and CHIEF EXECUTIVE OFFICER OF CUSTOMS
[2012] AATA 865
•10 December 2012
[2012] AATA 865
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2010/4411
Re
CAMERON AUSTRALASIA PTY LTD
APPLICANT
And
CHIEF EXECUTIVE OFFICER OF CUSTOMS
RESPONDENT
DECISION
Tribunal Ms G Ettinger, Senior Member
Date 10 December 2012 Place Sydney The Tribunal affirms the decision under review.
............[sgd SM Ettinger]............................................................
Ms G Ettinger, Senior Member
CATCHWORDS
CUSTOMS AND EXCISE – tariffs – Tariff Concession Order – umbilicals imported with reelers – whether product meets definition in the TCO – decision under review affirmed
LEGISLATION
Customs Act 1901 Pt XVA
CASES
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389
Re Akai Pty Ltd and Collector of Customs (AAT 8075, 2 July 1992)
Re Pacific Film Laboratories Pty Ltd and Collector of Customs (1979) 2 ALD 144
Re Sheldon & Hammond Pty Ltd and Chief Executive of Customs (2007) 67 ATR 731; [2007] AATA 1929
Times Consultants Pty Ltd v Collector of Customs (QLD) (1987) 16 FCR 449Voxson Sales Pty Ltd v Collector of Customs (1993) 19 AAR 129; [1993] FCA 609
REASONS FOR DECISION
Ms G Ettinger, Senior Member
10 December 2012
SUMMARY
Cameron Australasia Pty Ltd (Cameron) has applied to this Tribunal for review of decisions of the Chief Executive Officer of Customs, (the CEO Customs) to reject applications for the refund of duty in relation to three 2007 imports of composite goods, being umbilicals wound on reelers (as variously described), for use in the underwater gas and oil industry, on the basis the goods did not fall within the terms of Tariff Concession Orders (TCOs).
The Applicant was represented by Mr T Greenwood and Mr B Greedy, of Tradewin, and the Respondent, CEO Customs, by Mr J Millea, Senior Lawyer of the Australian Customs and Border Protection Service. Both parties relied on written and oral evidence by persons well qualified to do so, and made submissions.
Ultimately, I preferred the evidence of the Chief Executive Officer of Customs, the Respondent in these proceedings, finding that the TCOs specified umbilicals, whereas the subject goods were umbilicals with reelers, and accordingly did not fit exactly within the description of the relevant TCO. My reasons follow.
ISSUE BEFORE THE TRIBUNAL
The issue before the Tribunal was whether any of the subject goods, viewed objectively, in their condition as imported, are eligible for entry under the Tariff Concession Orders (TCOs) mentioned below.
(a)First shipment:
WOCS (Workover Control System) Reeler, being a 20-core umbilical wound on a reeler for deployment in the subsea environment to control the Christmas tree (valves) functions.
(b)Second shipment:
THRT (Tubing hanger running tool) umbilical reel, being a 9-core umbilical wound on a reeler for deployment in the subsea environment to control the tubing hanger running tool.
(c)Third shipment:
A Malampaya Replacement Reeler (Line 1); and
TRT/Workover Umbilical Reel (Line 2).
The tariff classifications for the goods are not in dispute. The first two shipments are classified to subheading 3917.39.90 and the third, to subheading 8544.42.29.
Subheading 3917.39.90 states as follows:
3917TUBES, PIPES AND HOSES, AND FITTINGS THEREFOR (FOR EXAMPLE, JOINTS, ELBOWS, FLANGES), OF PLASTICS
3917.3- Other tubes, pipes and hoses:
3917.39-- Other
3917.39.90--- Other
Subheading 8544.42.29 states as follows:
8544INSULATED (INCLUDING ENAMELLED OR ANODISED) WIRE; CABLE (INCLUDING CO-AXIAL CABLE) AND OTHER INSULATED ELECTRIC CONDUCTORS, WHETHER OR NOT FITTED WITH CONNECTORS; OPTICAL FIBRE CABLES, MADE UP OF INDIVIDUALLY SHEATHED FIBRES, WHETHER OR NOT ASSEMBLED WITH ELECTRIC CONDUCTORS OR FITTED WITH CONNECTORS
8544.4- Other electric conductors, for a voltage not exceeding 1000 V
8544.42-- Fitted with connectors
8544.42.29---- Other
I have to decide:
·whether TCO 0210565 (revoked 12 April 2010 and reissued as TCO 1036819) and TCO 0912065 apply to the goods in the first two shipments; and
·whether TCOs 0614492 and 0617294 apply to the third shipment.
I am satisfied that TCO 0912065 cannot apply because it came into force on 9 April 2009, which is after the date of each of the shipments. It cannot apply retrospectively.
TCO 0614492, which commenced on 1 January 2007, applies to goods with a tariff classification of 8544.42.29, applies to the third shipment.
Accordingly TCO 0617294 cannot apply at all because it relates to tariff classification 8479.89.90, to which none of the three shipments are classified.
LEGISLATIVE CONTEXT
The relevant legislation is the Customs Act 1901, (the Act). TCOs are considered in Part XVA of the Act.
DESCRIPTION OF THE GOODS IMPORTED
The goods subject of the application have been described by the Applicant in the applications for TCOs, variously as umbilicals wound onto mechanical reels for deployment in the subsea environment (Exhibit R1) and above. The umbilicals/reelers are part of an Installation/Workover Control Systems (IWOCS) used in oil and gas exploration. Mr Kuehn, Engineering Manager for Cameron, also referred to them as umbilical reels and umbilicals, THRT Umbilical Reel and Workover Reel. None of that that is in dispute, nor that an umbilical can be multicored in that it can comprise a number of hoses for the conveyance of liquids or gas for the operation of hydraulic or pneumatic equipment, respectively. Umbilicals can also have electrical cables being cores, as well within the same outer sheath as the hydraulic and gas cores.
There was no dispute between the parties regarding classification of the subject goods, and, as noted above, I have accepted that the first two shipments are classified to subheading 3917.39.90 and the third, to subheading 8544.42.29.
APPLICANT’S EVIDENCE
Mr M Kuehn gave evidence by video link from Perth and provided statements which were Exhibits A1 and A2 before the Tribunal. He has degrees in mechanical engineering and, as noted above, is the Engineering Manager for Cameron. He has been with Cameron or related companies for 26 years. His experience is in the oil and gas exploration industry.
Mr Kuehn stated that in his experience, whilst the term umbilicals may relate to a bundle of hoses or combination of hoses and cables, in the offshore oil and gas industry, the term umbilical reel includes the reeler and the umbilical, and various other components. He explained that the reel or reeler was an essential part of the umbilical, and that the design of both the reel and umbilical were crucial, and varied depending on the requirements of the site. He emphasised that the reel and umbilical are ordered as one complete unit, although they can be provided by different suppliers. Mr Kuehn was at pains to emphasise that each umbilical, and each reel, was custom made for his company according to its specifications, made to exactly suit this umbilical on the reel, reel drum and control panel.
Mr Kuehn stated further that it would make no sense to separate the umbilical and the reeler after importation as each would be useless without the other for the purposes for which it was designed.
Mr Kuehn stated that the offshore gas and oil industry requirements should be differentiated from those in the hose reel industry mentioned by Mr Pawson, the Respondent’s witness whose experience, he noted, has been in the hose reel industry. He emphasised that in the offshore oil and gas industry, the term IWOCS Reel and Umbilical refers to umbilicals on reelers. He stated that once an umbilical was wound onto a reel, it was rarely separated, perhaps only if it was damaged.
Mr Kuehn gave evidence regarding the relative costs of the umbilicals and reels. In regard to the first shipment, he stated that the umbilical costs formed 73 percent of the total cost, whereas the reel represented 27 percent. In relation to the second shipment, the cost of the umbilical was 68 percent, and the reel 32 percent. In relation to the third import, the value of the umbilical was 84 percent, and the reel 16 percent (Exhibit A1).
RESPONDENT’S EVIDENCE
Mr Pawson is the Managing Director of Strata Group Aust Pty Ltd and Recoila Pty Ltd, and manufactures reels for the Australian and export markets, supplying reels to the fire industry, refuelling industry, and the offshore oil and gas industry. His experience in the various industries mentioned, is extensive, and extends beyond the offshore oil and gas industry. His statement was Exhibit R3.
Like Mr Kuehn, Mr Pawson described umbilicals as a bundle of hoses or combination of hoses and cables. He similarly accepted that umbilicals are often used in conjunction with a reeling device. Mr Pawson also emphasised that the function and design of each depended on the customer’s requirements and application. He stated that a reel is often a substantial piece of machinery in its own right, and emphasised that reels could be, and often were, supplied either with or without umbilicals. He agreed that there are companies which supply umbilicals and umbilical reels as complete systems.
Mr Pawson emphasised his disagreement with Mr Kuehn that it was widely accepted in the industry that when referring to umbilicals, the terms referred to umbilicals on reelers.
Mr Kuehn provided a printout from the Umbilical Manufacturers’ Federation (UMF) discussing and defining umbilicals.
SUBMISSIONS AND THE TRIBUNAL’S CONCLUSIONS
I was appreciative of the expertise of both Mr Kuehn and Mr Pawson. I noted the bickering between the representatives regarding the qualifications and experience of each to give authoritative evidence in this matter. I have noted that Mr Pawson’s experience is not in the gas and oil industry except for producing reels for the gas and oil industry, and other industries. However, I am satisfied both witnesses have had extensive and relevant experience, and found the evidence of both of assistance.
My task has been to decide whether the Applicant’s umbilicals as imported, are eligible for entry under the TCOs 0210565 and 0614492.
For the sake of completeness I note as above, that TCO 0912065 cannot apply because it came into force on 9 April 2009 after the date of each of the shipments. TCOs cannot apply retrospectively.
TCO 0617294 cannot apply because the products would have to be classified under tariff classification 8479.89.90, and it was agreed that the shipments were classified under 3917.39.90 and subheading 8544.42.29.
To the topic at hand then; it is not in dispute that in both the hose reel, and the oil and gas exploration industries, umbilicals are made up of a bundle of hoses, or a combination of hoses and cables bound together and contained within an outer protective sheath. Mr Kuehn’s evidence was that they could vary in diameter between 70 and 150 mm. He mentioned that the lengths of these can vary from 200 to 2000 metres. I noted from the Respondent’s evidence that they can also measure up to 200 kms which is when they change from being workover umbilicals to production umbilicals. It is also evident that in Australia, they are imported on reels or reelers, terms which I understand from the parties, can be used interchangeably. Certain reels are produced in Australia.
Ordinary meaning – wharfside test
In order for TCOs 0210565 and 0614492 to apply, the imported goods must be umbilicals, and fit the terms of those TCOs.
TCO 0210565 commenced on 6 November 2002 and applies to goods with a tariff classification of 3917.39.90 and being goods that fit within the following terms:
UMBILICALS, HYDRAULIC, GAS, being EITHER of the following:
(a) onshore;
(b) subsea.
TCO 0614492 commenced on 1 January 2007 (now replaced), and applies to goods with a tariff classification of 8544.42.29 and being goods that fit within the following terms:
CABLES, ELECTRO-HYDRAULIC UMBILICAL, SUBSEA OIL AND GAS SERVICE
The accepted way I must construe a TCO is to give the words their ordinary meaning, unless I am satisfied that they have acquired some generalised meaning in trade or commerce: Re Pacific Film Laboratories Pty Ltd and Collector of Customs (1979) 2 ALD 144 and Re Akai Pty Ltd and Collector of Customs (AAT 8075, 2 July 1992).
The wharfside test as discussed in Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 involves an inspection of the goods, and the condition in which they are imported.
In Voxson Sales Pty Ltd v Collector of Customs (1993) 19 AAR 129; [1993] FCA 609 case Spender J referred to when identification of the goods was to occur:
In identifying goods for customs purposes one looks at the goods themselves and the condition in which they are imported: Chinese Food and Wine Supplies Pty Ltd v. Collector of Customs (Vic) …
This point of identification is also cited in Re Sheldon & Hammond Pty Ltd and Chief Executive of Customs (2007) 67 ATR 731; [2007] AATA 1929:
As to the goods themselves, the “practical wharf side test” applies and one must look at the goods themselves and the condition in which they are imported: see Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591. In characterising goods I am entitled to have recourse to commonsense: see Chief Executive Officer of Customs v ICB Medical Distributors Pty Ltd (2007) 97 ALD 746 at 754 [39].
In Times Consultants Pty Ltd v Collector of Customs (QLD) (1987) 16 FCR 449 it was stated:
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 inquiries 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.
Mr Greenwood submitted that when the umbilicals are identified using the practical wharfside test, the appropriate identification is that of an umbilical. However, I noted that as the umbilicals are always imported on reels, and were indeed so described by the Applicant, I am satisfied that the wharfside test reveals that the imported goods are umbilicals wound on reels or reelers.
The relevant TCOs do not mention reelers. I am therefore satisfied that on a practical wharfside test, the umbilicals as imported, do not fit within the description of TCOs 0210565 and 0614492.
Generalised meaning in trade or commerce
I turned then to consider whether the goods have acquired some generalised meaning in trade or commerce which may then render them eligible for the relevant TCOs.
I am mindful that in any particular case, whether a term should be given a trade or ordinary meaning is a question of construction, that is, it is a question of law. In the High Court case of Collector ofCustoms v Agfa-Gevaert Limited (1996) 186 CLR 389 the High Court stated (at 398) that [w]hen construing revenue statutes that utilise trade or technical terms, therefore, the law generally favours interpretation of the terms as they are understood in the trade to which the statute applies.
Mr Greenwood referred in his submissions to Voxson Sales in relation to determining whether particular goods fall within the terms of a TCO. I noted the Federal Court in that case stated:
… the principles of construction have long been settled. One applies the ordinary rules of construction, and if notwithstanding this a doubt still remains as to the meaning of the words to be interpreted, one resolves that doubt in favour of the taxpayer. In determining the meaning of the words, one gives them their ordinary meaning unless it is proved that they have acquired some generalised secondary meaning through trade usage in commerce. If so, that meaning is to be preferred.
Mr Greenwood also argued that on the basis of Mr Kuehn’s evidence, the Tribunal should find that in the offshore oil and gas industry, when reference is made to umbilicals, that reference is to umbilicals on reelers.
In regard to trade usage, Mr Millea provided definitions from various sources including websites directed towards the oil and gas industry. They follow.
Oilfield Glossary at (1 May 2012):
Umbilical:
1.
Any of various external electrical lines or fluid tubes which connects one portion of a system to another.
2.
A control line attached to a remove piece of equipment, usually a subsea wellhead, to provide hydraulic or electrical control, or inject small amounts of chemicals
Oilfield Wiki at (18 September 2012):
A subsea umbilical is an assembly of hydraulic hoses which can also include electrical cables or optic fibres, used to control subseastructures from an offshore platform or a floating vessel.
EP Magazine website at (18 September 2012):
The umbilical is a long, flexible construction – its length can be anything from a few miles (kilometers) to more than 180 miles (200km) – which consists of tubes, cables, armoring, fillers and wrapping contained within a protective sheath.
Technip a global oil and gas exploration company, on its website at (19 September 2012):
Umbilical
an assembly of steel tubes and/or thermoplastic hoses which can also include electrical cables or optic fibres used to control subsea structures from a platform or a vessel.
The Umbilical Manufacturers’ Federation website at (27 April 2012):
An umbilical is basically a composite cable used by the offshore oil and gas industry for linking various elements of subsea oil and gas production systems or in support of intervention or construction activities.
Chambers Science and Technology Dictionary (W & R Chambers Ltd and Cambridge University Press, 1988):
umbilical cord (Space). Term (frequently umbilical) applied to any flexible and easily-disconnectable cable, e.g. for conveying information, power or oxygen to a missile or spacecraft before launching, for connecting an operational spacecraft with an external astronaut.
The Macquarie Dictionary at (1 May 2012):
umbilical
adjective 1. of the umbilicus or umbilical cord (def. 1).
2. formed or placed like a navel; central.
–noun 3. an umbilical cord (def. 2). [Medieval Latin umbilīcālis, from Latin umbilīcus navel]
umbilical cord
…
2. Also, umbilical connector, umbilical. Aerospace
a. an electrical cable or fluid pipeline conveying supplies and signals from the ground to a rocket before the launch.
b. an air or oxygen line connecting an astronaut to the spacecraft during a walk in space.
Mr Millea submitted that the technical dictionary meanings of the word umbilical indicate that there is a consistent and well understood meaning in the oil and gas subsea industry that an umbilical means a cable used by the offshore oil and gas industry for linking various elements of subsea oil and gas production systems or in support of intervention or construction activities. His submission was that the definition does not include a reeler.
I am mindful of Mr Kuehn’s evidence that the umbilicals are rarely separated from the reels, unless they are damaged. I also noted however, in the attachment to the Respondent’s Statement of Facts and Contentions, an email from a Bojinca Miron to Rebecca Azzopardi dated 27 September 2011 in regard to a query about the TCO application. Bojinca Miron commented in that document regarding reels. He stated:
Umbilicals are transported/imported/stored/installed using various types of reels. … The type of reels used depends on the specific characteristics of the umbilical (length, diameter, allowable bend radius, total weight) in order to ensure the umbilical is not damaged during reel-in/reel-out, transport, storage and installation. For installation it may be required to transfer the umbilical from the transport reel to another reel or device.
The reels are not installed with the umbilicals. Following the umbilical installation the reels are either scrapped, stored or returned to the manufacturer. [Emphasis added]
I am satisfied from the above, that notwithstanding Mr Kuehn’s long experience in the oil and gas industry, and his conviction that umbilicals in that industry are referred to as umbilicals with reels or reelers, the above definitions of umbilicals do not refer to reelers. In addition, the TCOs refer to umbilicals only; there is no mention of reels or reelers.
I note also the email quoted above which indicates that the umbilicals are separated from the reels at installation.
I am satisfied from the definitions noted above, and the evidence of Mr Pawson, that notwithstanding Mr Kuehn’s evidence, trade usage does not extend to referring to umbilicals as umbilicals with reels.
Combinations or sets
However I further considered Mr Greenwood’s argument regarding combinations or sets, which I am mindful were previously specifically excluded at the time when CTCOs preceded the introduction of the current TCO regime. He submitted that the Applicant did not consider umbilicals on reelers as combinations or sets, but that if the Respondent so classified them, that should still not serve to exclude them from the benefit of the TCOs. The Applicant submitted that in a way the Respondent had already accepted that the term umbilical was inclusive of a set in that an umbilical always consisted of a number of hoses and/or conduits contained in an outer sheath. The inclusion of a reel for transport, protection and deployment was part of the umbilical he submitted.
Mr Millea submitted that the goods as imported do not meet the exact wording of the TCOs, which refer to hydraulic umbilicals alone. There is no reference to reels or reelers, whereas the subject goods are umbilicals on reels. He agreed that if a TCO precisely describes the goods, then if the goods exhibit an additional feature that will not disqualify the goods from getting the benefit of the TCO. However, he submitted that in this case, it was not a matter of an additional function or feature. He characterised the reel as an additional good, not an additional function.
I prefer the Respondent’s argument in regard to combinations or sets, and additional features. This is a case like Re Sheldon & Hammond Pty Ltd and Chief Executive of Customs (2007) 67 ATR 731; [2007] AATA 1929 where there is an additional good, in Sheldon & Hammond being the metal or wooden spice rack, and in this case, being the reel around which the umbilical is wound.
THE TRIBUNAL’S CONCLUSIONS
I am satisfied there was no dispute about the function of umbilicals. I am also mindful that umbilicals are not off the shelf items, and are ordered according to specifications. Umbilicals are delivered on reels which may be provided by a different supplier. I am mindful the Applicant considers reels an integral part of umbilicals, further that if they are considered to perform an additional function, then they should not be precluded from the benefit of the relevant TCOs.
I am satisfied that the relevant TCOs 0210565 and 0614492 specify umbilicals, but do not mention reels or reelers. I am satisfied from the evidence that the description of the items by the Applicant to Customs, and the wharfside test indicates in every case, that the imported goods are not just umbilicals, but umbilicals on reels or reelers. Accordingly, the Applicant’s case fails on the wharfside test because the description and the goods do not fit the description in the relevant TCOs exactly.
I next moved to consider whether there is a trade or technical term which might include the combination of umbilicals with reels. I was not satisfied on the evidence of Mr Pawson, and the definitions provided, which I have referred to in the paragraphs above, that that was the case. I accordingly preferred the Respondent’s approach in that regard, which was that umbilicals are not referred to as umbilicals on reels in trade usage.
I have also considered the argument regarding additional functions and combinations or sets, which I find does not assist the Applicant’s case.
Accordingly I am satisfied that the umbilicals with reels as imported do not fit within the definition of the TCOs, and the application must fail.
For the sake of completeness, I have noted that whilst the parties differed in their views regarding the applicability of Item 22 in Part II to Schedule 4 of the Customs Tariff Act 1995 and Customs By-law No. 0440002, this was not pursued at the hearing. I am satisfied that the By-Law is not applicable in this case, and will not comment further on it.
DECISION
The Tribunal affirms the decision under review.
I certify that the preceding 58 (fifty eight) paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger, Senior Member.
.....[sgd]...................................................................
Associate
Dated 10 December 2012
Date of hearing 24 September 2012 Advocate for the Applicant Mr T Greenwood with Mr B Greedy, Tradewin Advocate for the Respondent Mr J Millea, Australian Customs and Border Protection Service
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