Collector of Customs v Advanced Network Management Pty Ltd
[1996] FCA 431
•31 May 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG333 of 1994
GENERAL DIVISION )
On appeal from the General Administrative Division of the Administrative Appeals Tribunal constituted by Deputy President G.L. McDonald, Mr. A. Argent, Member, and Mr. C.G. Woodard, Member.
BETWEEN:COLLECTOR OF CUSTOMS
Applicant
AND: ADVANCED NETWORK MANAGEMENT PTY. LTD.
Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 31 May, 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal be allowed.
The decision of the Administrative Appeals Tribunal be set aside.
The matter of the review of the applicant's delegate's decision be remitted for hearing and determination according to law by the said Tribunal constituted otherwise than as heretofore.
The respondent pay the applicant's costs (including reserved costs) of the appeal.
The respondent be granted a costs certificate in respect of the appeal.
(Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG333 of 1994
GENERAL DIVISION )
On appeal from the General Administrative Division of the Administrative Appeals Tribunal constituted by Deputy President G.L. McDonald, Mr. A. Argent, Member, and Mr. C.G. Woodard, Member.
BETWEEN:COLLECTOR OF CUSTOMS
Applicant
AND: ADVANCED NETWORK MANAGEMENT PTY. LTD.
Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 31 May, 1996
REASONS FOR JUDGMENT
Appeal from a decision of the Administrative Appeals Tribunal that certain goods be classified under heading 8473 in Schedule 3 of the Customs Tariff Act 1987.
The several goods are for use as parts of what is known as an interactive voice response system ("IVRS"). A common use of an IVRS is as a replacement of the human operator who receives by telephone requests for information the source of which is the operation a computer. Instead of manual operation of the computer by the operator to elicit the information, and transmission, of the information thus acquired, by the operator's voice to the enquirer by
telephone, an IVRS receives the request, elicits the information and transmits it by simulated human voice to the inquirer by telephone. An IVRS may also be employed to enable a transaction, which is capable of being processed by a computer (such as the payment of a credit card indebtedness or the reservation of a place or the effecting of banking transactions or the ordering of goods or services) to be effected by telephone without the intervention of a human operator of the computer or a human operator in the required dialogue on the telephone. And an IVRS may be employed in relation to telegraphic as well as telephonic dialogue.
The particular system for which the respondent intended the goods was designed to furnish, by telephone, information to the caller whose telephone call activated the system. The system enabled a computer to determine by reference to its own database or to another computer the information the caller required and enabled the information to be given by recorded human speech transmitted to the caller. If the caller's expression of his requirement is not so phrased as to elicit the information sought without a further statement by the caller, the system will generate enquiries in human speech transmitted to the caller to elicit that further statement. The system enables communication of the caller's enquiry to the computer in a way which evokes the computer's response. The computer is programmed to furnish the required information. The system enables the information thus provided to be expressed in a way which is transmissible by telephony to the caller who receives the information as audible speech.
The responsive speech which the caller hears is selected by the system from a menu of digitally recorded speech stored on a hard disc. No such a disc was the subject of the Tribunal's review. Nor was a computer or the software by which the system was programmed. The subject of review was a set of hardware modules. These were an analogue interface card, a voice card digital controller, two host computer interface boards, two shared resource devices and a fonetower controller interface card and an expansion chassis. They were said to have been imported connected by wiring.
The analogue electrical signals by which the caller's speech is transmitted on the telephone line are converted by the analogue interface card to digital form and the digitally recorded speech in response to the caller is converted by that card to analogue signals for transmission to the caller's telephone.
The voice card digital controller was said by a witness, and was found by the Tribunal, to act "as a controller of the analogue interface cards" and to "form an interconnection system so that information to be accessed from the computer can be passed around the [interactive voice response] boards".
The host computer interface boards enable information (the source of which is the caller) to be transmitted to the host computer in which the information is to be processed to enable the host computer to calculate the appropriate response to the caller. That is achieved by simulating, by the operation of the interface boards, the actions which operation of a computer keyboard would effect to make the transmission of the information.
The shared resource devices were described in evidence which it may be inferred the Tribunal accepted as digital signal processing boards which under the control of application software perform specific functions, such as pulse detection and speech recognition. These devices were
described by one witness as "companion processors to the main computer processor".
The computer with which the interactive voice response system is combined has a small number of expansion slots to which the modules may be connected. The fonetower expansion chassis provides a further 18 expansion slots and the fonetower controller interface card controls the interaction of additional modules with the computer through those additional expansion slots.
The Tribunal stated in its reasons for decision that the applicant classified the goods to tariff heading 8517 in Schedule 3 of the Customs Tariff Act 1987 ("the Act") and that the respondent sought classification to heading 8473. Heading 8471 is in these terms:
"AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF; MAGNETIC OR OPTICAL READERS, MACHINES FOR TRANSCRIBING DATA ONTO DATA MEDIA IN CODED FORM AND MACHINES FOR PROCESSING SUCH DATA, NOT ELSEWHERE SPECIFIED OR INCLUDED:"
Heading 8473 reads:
"PARTS AND ACCESSORIES (OTHER THAN COVERS, CARRYING CASES AND THE LIKE) SUITABLE FOR USE SOLELY OR PRINCIPALLY WITH MACHINES OF 8469 TO 8472:"
Heading 8517 reads:
"ELECTRICAL APPARATUS FOR LINE TELEPHONY OR LINE TELEGRAPHY, INCLUDING SUCH APPARATUS FOR CARRIER-CURRENT LINE SYSTEMS:"
The applicant's delegate, whose decision the Tribunal had for review, had classified the goods to the residual sub-heading 8517.90.90 : "Parts-Other".
The Tribunal reasoned thus:
"7. The question to be determined by the Tribunal is: what is the identity of the goods? To do that, the Tribunal must objectively characterise the goods in the condition in which they were imported (Times Consultants Pty. Ltd. and Collector of Customs (Qld)(1987) 76 ALR 313 (particularly at 327 per Morling and Wilcox JJ)). In this case, the Tribunal is careful, given the demonstration before it of the assembled IVR system, to distinguish the suitability of the goods for use (or uses) as
distinct from the actual use demonstrated. In order to identify the goods, regard may be had to the physical characteristics, as well as to the function or suitability for a particular use or uses, of those goods (Collector of Customs and Savage River Mines (1988) 79 ALR 258, particular ly at 265-266). Once identified, they can be classified to see whether they fall into one or more of the relevant tariff headings.8. There was no dispute about the essential nature of the IVR to facilitate the functioning of a computerised response to a telephone or other indirect inquiry. The IVR seeks to replace the need for a human operator of a telephone switchboard, who receives and answers telephone calls and, via a keyboard, enters and/or retrieves information from a computer as requested over the telephone by the caller. The IVR seeks to carry out these combined functions, which have traditionally been carried out by such an operator. The system is programmed to connect an incoming call and to give limited responses to the caller's inquiries. The extent of the responses that are able to be given is governed by the programming of the computer software."
(Paragraph 9 summarised the evidence of a witness as to the function of each of the goods.)
"10. It was Mr Bernhard's evidence (trans. p.6) that the telephony/telegraphy network transmits information whereas the imported goods, used conjunctively with the other equipment, are programmed to provide information to a caller which, while it is conveyed via the telephone network, is not part of it. Mr Bernhard described the IVR as able to carry out other tasks in a multi-tasking environment (e.g. word processing, retaining and transferring information while simultaneously `conversing' with the caller). Similar evidence was given by Dr Cubitt (see exh C). Mr Radcliffe (trans, pp.51-52) agreed that other tasks could theoretically be carried out, but he doubted the practicality of following this course. The Tribunal accepts the imported goods may be part (but not a necessary part (see Dr Cubitt, trans, p.45)) of the mechanisms in fulfilling the multi-function capability of an automatic data processing machine.
11. Dr Seidl is also an engineer with
expertise in speech synthesis, speech coding and speech recognition, as well as the application of such technology to telecommunication services. His report (exh B) sets out functions carried out by the system (including the imported goods) and concludes:'... an IVR system is one which can conduct a dialogue with the user of the system. As a result of this dialogue information is requested from the user and further action proceeds upon the basis of this information. As well information is supplied to the user which influences the information supplied to the system by the user. Telecommunication systems on the other hand do not require any such information nor do they act upon any information pass from one end user to the other once a call has been established. The IVR is a decision-making system which utilises computer technology to implement the decision-making process. The types of the decisions are dictated by the specific applications to which the IVR system is applied.' (exh B, p.3)
In cross-examination, Dr Seidl was asked a number of questions about add-on functions which the telecommunication system can provide, e.g. re-dialling, notification by tonal sound of an incoming call whilst a caller is talking on another call, abbreviated dialling, in order to establish that telecommunications can incorporate some computer functions and still be described as fulfilling telephonic or telegraphic functions. In re-examination, Dr Seidl interpreted those add-ons as `basically signalling processes which is monitoring the status of what is going on ... .' (trans, p.33).
12. Dr Cubitt, whose extensive qualifications are set out at the end of exhibit C and whom the Tribunal accepts as an independent expert witness in the computer field, concludes in his report on the examination of the imported goods and the IVR system that (exh C, p.3):
`The only part the telephone system plays in the operation of the IVR is to carry the analogue of sound to and from the caller and the computer. If the telephone system was replaced by another sound analogue device, for example microphone/speaker then the IVR will still
operate.'
The functionality of the IVR (including the imported goods) was dependent on the software programming. In this case, the cards were programmed to respond to sound analogue. In Dr Cubitt's view, the imported goods are `part of a sound responsive computer system' (exh C, p.3).
13. The respondent called Mr Radcliffe, who is an engineer and a senior lecturer at the Royal Melbourne Institute of Technology. He has acted as a consultant, principally with respect to computer products. It was Mr Radcliffe's evidence that the equipment was carrying out in a sophisticated form a transfer of information by converting that information from a voice form into a form which could be identified by a computer, i.e. while the format of the information may change in the course of transmission, the underlying function remained the passing of that information over distance. In Mr. Radcliffe's view, the concept of telephony, which he defined, and which the Tribunal accepts, as being `the concept of communication of speech over distance' extended to additional information added by a telecommunication's medium to that already sent by the human user. However, he agreed in cross-examination that he would `find it difficult to say exactly where you draw the line' between the concepts of communication and creating information (trans, p.64).
14. From the above, the Tribunal concludes that whilst the equipment is programmed in this case to receive and respond to telephone calls, it is not dependent on the telephone for its operation. Whereas,regardless of how the system is accessed (i.e. by telephone, microphone or even by keyboard), it is dependent for its operation at all times on the computer. Although the goods as assembled in the demonstration to the Tribunal interacted with a telephone, they may, as the evidence revealed, interact with a keyboard in such a case, it could not be said that the goods could be characterised as telephonic or telegraphic in nature. Consequently, the goods should be identified as forming part of a computer-based system, rather than as telephonic or telegraphic equipment.
15. Since the goods are dependent on the computer for their operations, but in turn they
are not essential for the functioning of the computer, they should be classified as `accessories', rather than as parts. Gibbs CJ in the Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1972) 46 ALJR 32 at 35, defined accessory as:`The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it.'
Note 4 to section XVI of the Third Schedule states:
`The term "accessories" in heading 8448, 8466, 8473 or 8522 does not apply to goods which are otherwise described in any of the headings of Chapters 84 and 85.'
The Tribunal finds that there is no other description in either of Chapters 84 or 85 applicable in this case. The goods, therefore, are appropriately classified to heading 8473."
It was submitted by Mr. Lenczner of counsel for the applicant that the Tribunal had erred in identifying the goods by reference to their dependency for operation on the computer to which they are connected. The dependency contemplated by the Tribunal was apparently that to which the Tribunal referred in paragraph 12 of its reasons : dependency on the software programming. It was submitted that such a dependency is not a consideration relevant to the identification of the goods.
In identifying the goods, the Tribunal correctly found that the goods were either parts or accessories of an automatic data processing machine or electrical apparatus for line telephony. For the purposes of the review the expression by the Tribunal of the meaning of the word "telephony" in heading 8517 as "the concept of communication of speech over distance" was not said by Mr. Lenizner to involve error of law. The error assigned was rather that, in resorting to the concept of dependency, and in failing to recognise that the functions of the goods were, first, to transmit to the computer by digital signal the information sent by the caller so that the computer might so process the information as to provide to the caller responsive information and, second, to transmit to the caller by analogue signal that responsive information and, third, to elicit when necessary by analogue signal to the caller the information necessary to enable the computer to provide the appropriate responsive information, the Tribunal deprived itself of the means of recognising the character of the goods. If the goods had been identified by reference to those functions, they would necessarily have fallen within the meaning of the words of heading 8517, it was submitted.
It is in my opinion certainly true that goods which convert analogue line telephonic signals into digital signals may in some circumstances form part of line telephony. In telephone exchanges equipped with digital switching apparatus there must necessarily be conversion of incoming analogue signals to digital signals. But the process of switching in an exchange is part of the telephony - the communication of speech over distance. It may be correct to identify the analogue interface card in the IVRS as electrical apparatus for line telephony because its function (or, as the evidence suggested, one of its functions) is to continue the communication process. Thereafter, as I understand the evidence, the goods have functions which contribute to recognition of the information conveyed by the caller's speech, to the selection of the appropriate enquiry of the caller to elicit further information from the caller, to the transmission of that enquiry, and to the transmission of the elicited information in machine code to the host computer by the operation of which the appropriate response to the caller's request will be formulated. My understanding is derived principally from the following passage from exhibit B, of which the witness Roland Andreas Seidl was the author:
"An interactive voice response system (IVR) performs the function of an automated attendant or operator. IVRs can perform a variety of services which would replace human operators. Examples of such services include: home banking, payments by credit card, booking of tickets (airline, theatre), etc.
To examine the role of an IVR, consider firstly the manner in which a human operator performs a payment by credit card service. After answering the incoming call (i.e. by lifting the handset or a similar operation), a dialogue such as the following might occur:
Operator: `Good morning, Telecom Pay By Phone. Your Credit Card Number Please'
Customer: `5610 1234 5678 9012'
Operator: `Your Account Number?'
Customer: `03 777 1234 567 9'
Operator: `And the amount?'
Customer: `One hundred and twenty dollars and fifty cents'
Operator: `Please note that you have paid $120.50 on the 30th of June with operator number 16'
Of course while this dialogue is taking place
the operator is entering the information supplied by the customer (i.e. the credit card number, the telephone account number and the amount of payment) into a computer system via a computer keyboard.The functions required by an IVR to perform the above include:
.A mechanism whereby an incoming call is detected, and subsequently answered.
.A mechanism whereby 'voice prints' (i.e the questions or statements which would normally be made by an operator) can be output to the caller.
.A mechanism whereby the caller's responses can be decoded. (This could either involve the detection and decoding of tones such as produced when a telephone keypad button is depressed, or by using speech recognition techniques.)
.And a mechanism which controls the overall sequence of events.
The first of the above functions is performed by a `line interface card'. This is a piece of hardware which detects incoming ring current and must also provide electrical line isolation (i.e. isolate the 240 volts mains required to run the computing equipment from the telephone line) as required by Austel. When an incoming call is detected the hardware signals the software which controls the system that an incoming call needs to be processed.
The second function is performed by digitizing the spoken prompts relevant to the particular application that is required and storing them on computer disk. The controlling software determines which particular prompt is the relevant one during the course of the dialogue and passes the digitized speech (via the computer bus) to the appropriate speech codec (which converts the stored data to a speech signal) whereby the prompt is `played out' on the telephone line. The control program is informed when this process is completed so that the next relevant action can be scheduled.
The third function involves the use of either tone detection hardware or a speech recognizer. Once again this hardware is controlled via software and is invoked at appropriate instances during the course of the dialogue. An appropriate signal is sent to the controlling software to indicate the fact that
a tone has been detected or a `word' recognized (by a speech recognizer). The hardware is then interrogated by the software to determine what the specific response has been received. These responses are stored in the program memory for subsequent action.The overall controlling software is dependent upon the specific application (e.g. airline ticket booking for a specific airline, payment of phone account by credit card, etc.) for which the IVR is intended. It controls the sequence of events, which includes the initiation of playing prompts and the interpretation of the input received by the caller. The sequence of events is determined as a result of this input.
From the above discussion it can be seen that an IVR system is one which conducts a dialogue with the user of the system. As a result of this dialogue information is requested from the user and further action proceeds upon the basis of this information. As well information is supplied to the user which influences the information supplied to the system by the user. Telecommunication systems on the other hand do not require any such information nor do they act upon any information passed from one end user to the other once a call has been established. The IVR is a decision making system which utilizes computer technology to implement the decision making processes. The types of decisions are dictated by the specific applications to which the IVR system is applied.
For a telephone call, the call setup process is completed when the called party lifts the handset. The equivalent point within the IVR lies in the ring detection circuitry of the analog interface, as depicted in the diagram below. When an incoming call is detected an appropriate interrupt signal is sent to the controlling software whereupon a further signal acts to connect the call to the remainder of the system. From a functional viewpoint the interface between the telephone apparatus and the `conversing individuals' is therefore at this connection point. It should be noted that this function is but a small part of the analog interface circuitry.
Interface
A/D
Electrical Point 2w-4w
Telephone X
Line Conversion
Isolation Ring D/A
Detection
Control
Note that the above diagram incorporates (from the telephone line):
.electrical isolation - a regulatory requirement
.ring detection - which is circuitry required to detect an incoming call
.two wire to four wire conversion - which allows for the separation of incoming and outgoing voice signals
.A/D and D/A conversion to convert data between analog and digital domains
.Other functions (e.g. buffering, DMA control, IRQ control, etc.) are not included."
In my opinion the expression of the identification of the goods by reference to their dependence for operation on the computer was evoked, and is justified, by the wording of heading 8473 : "Parts and accessories .... suitable for use solely or principally with [in this case] automatic data, processing machines". The fact of dependence for operation on the computer is what brings the goods within the adjectival phrase in the heading. The Tribunal had quoted heading 8473 in its reasons.
It was submitted by Mr. Lenczner that the Tribunal had erred in law, either by failing to consider whether certain notes in Schedule 3 of the Act operated so as to affect its decision or by failing to state reasons for
concluding that none of the notes did operate to affect the decision. It was submitted that the last two sentences of paragraph 15 of the reasons, quoted above, did not provide such reasons, for those sentences refer to only one of the notes said to require consideration. I uphold these submissions.
The notes to which Mr. Lenczner referred may be considered seriatim. Notes 4 and 5 to Section XVI of Schedule 3, wherein Chapters 84 and 85 are found, read thus:
"4.Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
5.For the purposes of these Notes, `machine' means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or 85."
It was submitted that the apparatus constituted by the goods here in question consists of individual components intended to contribute together to the clearly defined function covered by the expression "line telephony" in heading 8517. The Tribunal's attention had been drawn to those notes. The Tribunal's failure to refer to them in my opinion constituted an error of law.
Note 2 to Section XVI, consideration of which was said to be required, provides:
"2.-Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:
(a)Parts which are goods included in any of the headings of Chapters 84 or 85 (other than 8485 and 8548.00.00) are in all cases to be classified in their respective headings;
(b)Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of 8479 or 8543) are to be classified with the machines of that kind. However, parts which are equally suitable for use principally with the goods of 8517 and 8525 to 8528 are to be classified in 8517;
(c)All other parts are to be classified in 8485 or 8548.00.00."
The Tribunal having decided that the goods were not "parts", but accessories, Note 2 did not in my opinion fall for consideration by the Tribunal.
Reliance was placed by the applicant on the concluding sentences of Note 5 of the Notes to Chapter 84. Note 5 reads:
"(A)For the purposes of 8471, `automatic data processing machines' means:
(a)Digital machines, capable of
(1)storing the processing program or programs and at least the data immediately necessary for the execution of the program;
(2)being freely programmed in accordance with the requirements of the user;
(3)performing arithmetical computations specified by the user; and,
(4)executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run;
(b)Analogue machines capable of simulating mathematical models and comprising at least: analogue elements, control elements and programming elements;
(c)Hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements.
(B)Automatic data processing machines may be in the form of systems consisting of a variable number of separately-housed units. A unit is to be regarded as being a part of the complete system if it meets all the following conditions:
(a)it is connectable to the central processing unit either directly or through one or more other units;
(b)it is specifically designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system).
Such units presented separately are also to be classified in 8471.
8471 does not cover machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines are classified in the headings appropriate to their respective functions or, failing that, in residual
headings."
The Tribunal failed in its reasons for decision to refer to the last two sentences of Note 5, notwithstanding the applicant's advocate's reliance on it. That failure in my opinion constituted an error of law.
The goods in question may be said, in my opinion, to be machines working in conjunction with one or more automatic data processing machines and performing specific functions : the conversion of analogue line telephony signals to digitally expressed information in machine code and the transmission of that information to the processing machine for processing, the conversion of digitally expressed information from the computer to human voice sounds and the conversion of those sounds to analogue line telephony signals to the caller's telephone, and the eliciting from the caller, by enquiry, of any information necessary to enable the processing machine to carry out the processing function desired by the caller. The heading appropriate to each of the first two functions is in my opinion heading 8517. It is to the data processing machine that the caller is directing information and enquiry by line telephony, and it is to the caller that the processing machine is directing responsive information by line telephony. Electrical apparatus the function of which is to overcome the obstacles to use of line telephony which the caller's transmission by sound waves and the processing machine's transmission to humans by the printed word pose, by undertaking the conversions to which I have referred, is a machine working in conjunction with the processing machine and performing specific functions of line telephony, in my opinion. The dependence of the apparatus on the computer software, to which the Tribunal referred, fully satisfies the requirement that the apparatus work in conjunction with the processor. The conversions which the apparatus effects enable the analogue signals carried each way by the telephone line to be received and sent by the processor : the performance of specific functions to which heading 8517 is the appropriate heading, in my opinion. However, the apparatus, or parts of it, can also conduct a dialogue with the caller, to elicit information from the caller. That is a function to which the Tribunal found heading 8517 not the appropriate heading. That finding in itself, and without regard to any part of Schedule 2 or to any Note, is not in my opinion vitiated by any error of law. But that is not to say that a contrary finding would be vitiated by error of law. The matter will have to be heard and determined again according to law, and, for reasons expressed by Davies and Foster JJ. in Northern N.S.W. FM Ltd. v. Australian Broadcasting Tribunal (1990) 26 F.C.R. 39 at 42-43, by a Tribunal differently constituted.
I certify that this and the 18 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Dated: 31 May, 1996
VG333 of 1994
Counsel for the Applicant : Mr. J. Lenczner instructed by Australian Government Solicitor
Counsel for the Respondent : Mr. Louis Gross, Solicitor
Date of Hearing : 8 March, 1996
Date of Judgment : 31 May, 1996
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