Ceramic Oxide Fabricators Pty Limited and Comptroller-General of Customs
[2021] AATA 2770
•9 August 2021
Ceramic Oxide Fabricators Pty Limited and Comptroller-General of Customs [2021] AATA 2770 (9 August 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2020/1093
Re:Ceramic Oxide Fabricators Pty Limited
APPLICANT
AndComptroller-General of Customs
RESPONDENT
DECISION
Tribunal:Senior Member A Poljak
Date:9 August 2021
Place:Sydney
The decision under review is affirmed.
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Senior Member A Poljak
CATCHWORDS
CUSTOMS – application for tariff concession order – whether the applicant discharged its responsibility under s.269FA – whether the tariff application contains a full description of the subject goods – whether the tariff application has described the subject goods in terms of their intended end use – decision under review affirmed
LEGISLATION
Customs Act 1901 (Cth) ss 269B, 269C, 269D, 269E, 269F, 269FA, 269H, 269HA, 269J, 269P, 269SJ
CASES
Newbridge Civil Pty Ltd and Comptroller-General of Customs [2016] AATA 81; 68 AAR 305
Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721
SECONDARY MATERIALS
Explanatory Memorandum to the Customs Amendment Bill 1996
Macquarie On-line Dictionary
REASONS FOR DECISION
Senior Member A Poljak
9 August 2021
Ceramic Oxide Fabricators Pty Limited, the applicant, is an Australian-owned and operated company with more than 45 years of history in the manufacture and export of alumina and zirconia based ceramic products. The applicant alleges to be the Australian expert in the field of technical ceramics and zirconia oxygen sensors and to be a world leader in the manufacture of high temperature oxygen sensors (500°C to 1750°C), used in science and industry. Due to an alleged shortage of industrial equipment that has both temperature and stability and technical capability to reach 1650°C < 1700°C, they were obliged to manufacture their own equipment.
In early January 2020, the applicant sought advice from a customs broker about a subject good, namely a kiln, which they say was specifically designed to sinter alumina at temperatures of 1650°C, transforming the powder to a sapphire that could be used at extremely high temperatures. The applicant was advised that the goods were subject to a 5% customs duty.
On 15 January 2020, the applicant’s broker lodged an Application for Tariff Concession Order (TCO) attaching Illustrative Descriptive Material (IDM); and Relevant searches for substitutable goods (the tariff application). The tariff application was allocated number TCO 2008829 with the following wording:
KILNS, Alumina, gas powered, with or without ventilation units having ALL of the following:
(a) Minimum 2.4M height AND ISM
(b) Operating Temperature exceeding 1600 C
(c) Heating units
(d) Control units
(e) Cooling AND heat exchanging units
(f) Loading AND unloading units
On 29 January 2020, the respondent advised the applicant’s broker that the tariff application had been rejected under s.269H(1) of the Customs Act1901 (Cth) (the Act) on the basis that the applicant has not discharged its responsibility under s.269FA to make all inquiries that the applicant has made, or can reasonably be expected to make, that there are reasonable grounds for the applicant asserting that the TCO application meets the core criteria. This is the decision under review in these proceedings.
As agreed between the parties, this matter was heard on the papers.
Issues
The issues for the Tribunal to determine are:
(a)Whether the applicant discharged its responsibility under s.269FA;
(b)Whether the application for the TCO contains a full description of the goods to which the application relates as required by s.269F(3)(a); and
(c)Whether the application for the TCO has described the subject goods in terms of their intended end use contrary to s.269J(1)(a) and should be rejected on that basis.
Relevant Legislative Provisions
Subsection 269H(1) of the Act provides that the Comptroller-General of Customs is required to be satisfied, having regard to the information disclosed in the TCO application and the inquiries made by applicant, there are reasonable grounds for believing that the applicant has discharged the applicant’s responsibility to establish, to the satisfaction of the Comptroller-General of Customs, the matters set out in s.269FA of the Act.
Subsection 269H(1) provides:
(1) Not later than 28 days after a TCO application is lodged, the Comptroller-General of Customs must:
(a) if he or she is satisfied:
(i) that the application complies with section 269F; and
(ii) that, having regard to the information disclosed in the application and to the particulars of the inquiries made by the applicant, there are reasonable grounds for believing that the applicant has discharged the responsibility referred to in section 269FA; and
(b) if he or she is not aware of any producer in Australia of substitutable goods;
by notice in writing given to the applicant, inform the applicant that the application is accepted as a valid application; and
(c) if he or she is not so satisfied; or
(d) if he or she is aware of such a producer;
by notice in writing given to the applicant, inform the applicant that the application is rejected and of the reasons for the rejection.
Section 269F specifies requirements in relation to an application for a TCO, including, relevantly:
Making a TCO application
(2) An application must:
(a) be in writing; and
(b) be in an approved form; and
(c) contain such information as the form requires; and
(d) be signed in the manner indicated in the form.
(3) Without limiting the generality of paragraph (2) (c), a TCO application must contain:
(a) a full description of the goods to which the application relates;
(d) particulars of all the inquiries made by the applicant (including
inquiries made of prescribed organisations) to assist in establishing that
there were reasonable grounds for believing that, on the day on which
the application was lodged, there were no producers in Australia of
substitutable goods. (Emphasis added)
Section 269FA provides:
The applicant's obligation
It is the responsibility of an applicant for a TCO to establish, to the satisfaction of the Comptroller-General of Customs, that, on the basis of:
(a) all information that the applicant has, or can reasonably be expected to have; and
(b) all inquiries that the applicant has made, or can reasonably be expected to make;
there are reasonable grounds for asserting that the application meets
the core criteria.
A TCO application cannot be granted unless the Comptroller-General of Customs is “satisfied that the application meets the core criteria” (s.269P(1) & (3)). The “core criteria” are met “if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.” (s.269C).
"Substitutable goods" are defined in s.269B(1) of the Act in terms of corresponding use:
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.
“Goods produced in Australia” is defined in s.269D(1) of the Act which provides:
Interpretation--goods produced in Australia
(1) For 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.
(2) For 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.
(3) Without 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.
Section 269E provides:
Interpretation--the ordinary course of business
(1) For 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;
and a producer in Australia is prepared to accept an order to supply them.
The CEO must not make a TCO in respect of goods if he is satisfied under s.269SJ(1) that the goods the subject of the TCO are:
(a) described in terms of their intended end use.
If the goods described by the TCO are in terms that describe their intended “end use”, Subsection 269HA(1) provides:
If, at any time during the period starting from the receipt of a TCO application and ending with the making of a TCO, the Comptroller-General of Customs becomes satisfied that the goods to which the application relates are goods in respect of which, under subsection 269SJ(1), the Comptroller-General of Customs is prevented from making a TCO, the Comptroller-General of Customs must:
(a) reject the application; and
(b) by notice in writing given to the applicant, inform the applicant that the application is rejected and the reason for the rejection.
Particulars of inquiries made by the applicant
The applicant performed searches on 13 and 14 January 2020 on three online search engines including Google, Hotfrog, and Australianmade to locate the possible existence of Australian manufacturers of substitutable goods (internet searches).
The applicant’s Google searches for “Furnace Manufacturers in Australia” and “Kiln Manufacturers in Australia” returned over 3.8 million and 2 million hits respectively, with several links to local manufacturers that claim to manufacture either furnaces or kilns in Australia. A Hotfrog search for “kilns” and “furnaces” in Australia also disclosed a number of manufacturers of kilns and furnaces. No potential local manufacturers were disclosed by the applicant under the search terms “Australian Made Furnace, Kiln”.
No evidence was provided by the applicant in the tariff application of any inquiries to any of the local Australian manufacturers listed in the applicant’s internet searches. The applicant has stated that it reviewed the manufacturers shown in its internet searches and that “given the importer’s knowledge on the local manufacturing capabilities we did not find them as potential manufacturers and therefore we lodged the application without inquiries” and that, “although a few businesses with similar capabilities were identified via the searches however after discussion with Mr. Crowhurst (general manager of the applicant), none of those businesses were even considered potentially capable of manufacturing substitutable goods”.
On 31 January 2020, the applicant states that Mr Crowhurst again reviewed the list of relevant businesses, which came up in the search results and he confirmed with absolute confidence that none of those listed businesses has the capability of manufacturing the size and temperature capacity of such custom designed kiln in Australia. The applicant states that to ensure Mr Crowhurst’s expertise and knowledge was proven right he made several phone calls and sent correspondences to those listed businesses. However, as expected, none of those businesses claimed to have the capability of manufacturing the subject goods given the technical specifications requirements. Copies of email correspondence from 7-10 February 2020 and an excel spreadsheet recording a list of phone calls made to manufacturers confirms that Mr Crowhurst indeed contacted a number of manufacturers as stated.
Despite the applicant later undertaking inquiries of potential producers of substitutable goods in Australia, these were conducted after the tariff application was lodged and after the tariff application had been rejected under s.269H(1) of the Act.
On 7 February 2020, the applicant’s broker sent an email to the respondent explaining why the application was lodged without inquiries to local manufacturers. He stated:
The Importer is a very well knowledgeable person for these types of Kilns. He already had looked into the local markets for these Kilns and that is why he does not believe that there is any potential local manufacturer for the kilns of this size and this operational temperature. We specifically added below two parameters in the application to ensure this TCO protects any potential manufacturers of the smaller and lower operational temperature. Again, I had reviewed all those manufacturers and discussed them with the importer and he is very confident that none of those pulled up in the search results have the capability of manufacturing this Kiln with below specific parameters.
Therefore, given the importers' knowledge on the local manufacturing capabilities we did not find them as potential manufacturers and therefore we lodged the application without inquiries.
a) Minimum 2.4M height AND ISM
b) Operating Temperature exceeding 1600 C
The internet searches conducted by the applicant merely suggested that there were multiple Australian entities that assert to manufacture either furnaces or kilns that could and should have been approached by the applicant prior to lodging the tariff application. The inquiries that the applicant can reasonably be expected to make are more than a simple internet search that lists multiple Australian entities but includes the obligation to undertake proactive inquiries to potential local producers of substitutable goods.
Discharging the responsibility under s.269FA requires more than an applicant asserting that it honestly believes that the application meets the core criteria. It is explicit from the TCO form and s.269H(1)(ii) and s.269FA of the Act which requires the applicant to make “inquiries”. The ordinary and common meaning of the word “inquiry” is to make an investigation. The Macquarie On-line Dictionary defines “inquiry” as:
noun (plural inquiries) 1. an investigation, as into a matter.
2. the act of inquiring, or seeking information by questioning; interrogation.
The effect of s.269H(1) was explained by Deputy President Forgie in Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721 at [50]:
I must identify the factors to which s 269H(1) says I must expressly have regard. They are the “information disclosed in the application” and the “particulars of the inquiries made by the applicant”. What is clear when s 269F(3)(d) and the obligation in s 269FA are read together is that the inquiries must have been made before the TCO application was lodged and details of those inquiries included in the TCO application. (Emphasis added)
As the Explanatory Memorandum to the Customs Amendment Bill 1996, which led to the enactment of these provisions, said at Item 6:
The second of the new requirements for valid TCO applications is the inclusion of particulars of all the inquiries made by the applicant to assist in establishing that there are reasonable grounds for believing that there were no producers in Australia of substitutable goods (new paragraph 269F(3)(d) refers). This amendment, in combination with those proposed in items 7 and 8 below, is intended to place an "up-front" obligation on TCO applicants to demonstrate that there are reasonable grounds for believing that substitutable goods are not produced in Australia. It is intended to prevent the situation which regularly arises at the moment where, after importing the relevant goods, TCO applicants lodge applications with Customs which are technically complete (and therefore must be processed to completion) but have little information of substance. These applications do nothing more than fix a commencement date for a concession in the event the gamble that no local manufacturers object proves to be the case. The amendment, in combination with Customs power to reject an application where reasonable inquiries have not been made, proposed in item 8, is intended to ensure that applicants only lodge TCO applications where reasonable efforts to establish the nonexistence of Australian producers of substitutable goods have already been made.
The applicant plainly did not discharge its obligations under s.269FA of the Act and the tariff application was correctly rejected under s.269H(1) for that reason.
Description of Goods
The importance of the “use to which goods may be put” was discussed by Deputy President Forgie in Newbridge Civil Pty Ltd and Comptroller-General of Customs [2016] AATA 81; (2016) 68 AAR 305 where she observed at [67] to [70]:
[67]…If the Comptroller-General decides to make a TCO, he must, in accordance with s 269P(4)(a), include a reference to the “… description of the goods the subject of the order including a reference to the Customs tariff classification …” that he considers applies to the goods. As I have said, in doing so, the Comptroller-General must comply with s 269SJ(1)(b) and “… not make a TCO in respect of goods … described in terms of their intended end use”.
[68] These provisions lead me to conclude that a statement of the use or uses to which goods may be put is not part of their description. That conclusion is also consistent with the nature of the task of ACBPS officers and importers to decide whether particular goods come within a TCO or not. It is a task that runs side by side with the task of determining whether goods come within a particular tariff classification or not. That latter task has been described as a practical wharf side task requiring identification of the goods and one to be “… determined by an objective test not by the intentions of the manufacturer … or of the exporter or importer.” The former task is no different. When considering whether a description of goods put forward by a TCO applicant, met the requirements of s 269SJ(1)(a), Deputy President McMahon found in Re SMS Autoparts and Chief Executive of Customs (SMS Autoparts) that it did not. The case concerned cylinder heads for diesel engines that had been described in the TCO application in those terms but excluding cylinder heads designed for six vehicles specified by make and model. In finding that the description did not meet s 269SJ(1)(a), Deputy President McMahon said, in part:
Again, applying the wharf-side test, it should be possible for any officer charged with the administration of the Act, or for any importer relying upon the proposed TCO, to decide, on an objective inspection, whether or not the cylinder heads fall within the description of the TCO, a description of which the TCO is the sole author. In my view, a full description for TCO purposes must offer this ease of objective identification. This is the reason for the requirement in the statute. … [A] description by reference to brand names and model numbers does not permit a decision to be made on a wharf-side inspection as to whether any particular cylinder heads fall within the terms of the TCO. It would be necessary, for example, for a customs officer to obtain a Toyota manual for model H diesel engines, to compare the imported cylinder head with those described in the manual, to measure and chart the imported heads and to ascertain whether they fell within the exceptions proposed in the TCO. A full description of the goods is intended to obviate such procedures. A full description is required in order to make the TCO system practical and workable. A full description is required for purposes of certainty of administration and for purposes of notification to other importers who may take advantage for the TCO…
[69] The same reasoning applies to uses. Part XVA has clearly distinguished between the description of goods and their uses so that the practical task of identifying whether goods fall, or do not fall, within a TCO may be carried out with relative ease. In Re SMS Autoparts Pty Ltd and Chief Executive Offıcer of Customs (1996) 23 AAR 44, Deputy President McMahon adopted the example that had been given by the Chief Executive Officer of Customs, as the Comptroller-General was then known. It illustrates the distinction between a description and a statement of uses:
Care should be taken with describing multi purpose machines for which a single use is nominated. A TCO application for a general purpose peeler able to perform many different fruit peeling functions, which the applicant intends to use for pineapple peeling, should not be described as “PEELING MACHINE, pineapple”. This will be regarded as a description in terms of intended end use.
A more suitable description (as appropriate to the machine) would be “PEELING MACHINE, having ALL of the following”,
(a) ID (inner diameter) of peeling knives between 70mm and 95mm.
(b) OD (outer diameter) of coring tube between 26mm and 40mm.
However, a machine which only had the identity of a pineapple peeling machine because of its design and construction would be acceptably described as a “PEELING MACHINE, PINEAPPLE, having ALL of the following ….”. [There would then follow an objective list of its component parts.]
[70] The example is very apt in the context of the goods for which a TCO is sought. They are goods for which there are various uses. Unlike the pineapple peeling machine referred to in the example, those uses do not depict what they are…
In the tariff application, under the heading ““Provide a full description of the goods to which the application relates” the applicant wrote:
KILNS, Alumina, gas powered, with or without ventilation units having ALL of the following:
(a) Minimum 2.4M height AND ISM
(b) Operating temperature exceeding 1600 C
(c) Heating units
(d) Control units
(e) Cooling AND heat exchanging units
(f) Loading AND unloading units
Regarding the uses of the kiln, the applicant wrote:
This kiln is specifically used to sinter Alumina at temperatures of 1650 C. Sintering means transforming the powder to a sapphire that can be used at extremely high temperatures. The product produced is then exported in the form of an oxygen sensor.
The IDM attached to the tariff application described the kiln as a “Shuttle kiln” or “Shuttle kiln HWO 2.4m3 – 1650°C”. It appears the kiln shown in the IDM could be used to heat anything that could fit in the kiln to high temperatures of about 1650 or less. The IDM makes no specific reference to sintering alumina or to alumina. As the kiln shown in the applicant’s IDM is not specific to “alumina”, then “KILN, alumina” in the proposed TCO is clearly a description of goods in terms of its intended end-use.
The applicant states in its statement of facts and contentions that it could have proposed an alternative word for the term “alumina” such as “sintering” in the proposed TCO wording because the intention was not to have an emphasis on the end-use rather it was intended to describe the sintering function or process.
Accordingly, I am satisfied that describing the kiln in the terms proposed in the tariff application is not a full description of the goods to which the application relates as required by s.269F(3)(a); and clearly describes the goods “in terms of their intended end use” prohibited by s.269SJ(1)(a).
Decision
For all the above reasons, the decision under review is affirmed.
I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of Senior Member A Poljak
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Associate
Dated: 9 August 2021
Date of hearing on the papers: 4 December 2020 Solicitors for the Applicant: Mr A Parvar, Agility Logistics Solicitors for the Respondent: Mr J Millea, Department of Home Affairs
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