Direct Fire Supplies Pty Ltd and Comptroller-General of Customs

[2023] AATA 2909

Direct Fire Supplies Pty Ltd and Comptroller-General of Customs [2023] AATA 2909 (13 September 2023)

Division:GENERAL DIVISION

File Numbers:         2022/7107 and 2022/7118

Re:Direct Fire Supplies Pty Ltd

APPLICANT

AndComptroller-General of Customs

RESPONDENT

DECISION

Tribunal:Deputy President Britten-Jones

Date:13 September 2023

Place:Melbourne

The Tribunal affirms the decision under review

.......................[sgd].................................................

Deputy President Britten-Jones

CATCHWORDS

CUSTOMS – Tariff classification – whether imported pipes fall within the classification of ‘line pipe of a kind used for oil and gas pipelines’ – consideration of the phrase ‘of a kind used for’ - imported pipes do not fall within the genus of line pipe used for oil or gas pipelines – decision under review affirmed

LEGISLATION

Customs Act 1901 (Cth)

Customs Tariff Act 1995 (Cth)

CASES

Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615

Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Customs v Savage River Mines (1988) 79 ALR 258
Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396

Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149

REASONS FOR DECISION

Deputy President Britten-Jones

13 September 2023

1. The applicant, Direct Fire Supplies Pty Ltd, seeks review of two decisions of the respondent dated 5 August 2022 to refuse applications for refund of duties paid in respect of steel pipes imported from China and Thailand. The applicant disagrees with the tariff classification given to the pipes which results in a higher level of duty payable by it when compared to the tariff classification contended for by the applicant. The applicant contends that the imported pipes fall within the classification of ‘line pipe of a kind used for oil and gas’ which is a phrase used as a subheading in Schedule 3 of the Customs Tariff Act 1995 (the Act). For the reasons which follow, I do not accept the applicant’s contention.

   BACKGROUND

2. The applicant imports steel pipes and other equipment for use in fire protection sprinkler systems.

3. From November 2016 to October 2018, the applicant imported pipes from China and Thailand. The pipes from China were manufactured by Hengshui Jinghua Steel Pipe Co (Hengshui Pipe). The pipes from Thailand were manufactured by Pacific Pipe Public Co Ltd (Pacific Pipe). I will refer to the pipes together as the imported pipes.

4. The imported pipes are black steel pipes and galvanised steel pipes of various diameters imported in 3.25 metre or 6.5 metre lengths.

5. A decision was made on 9 July 2019 to classify the imported pipes under the Act. The applicant sought an internal review and a further decision maintaining the classification decision was made on 27 October 2020. The applicant disagreed with the decision made on internal review and arrangements were made between the parties for the applicant to access the Tribunal for merits review.

6. The Tribunal has jurisdiction by s 273GA(haaa) of the Customs Act 1901 to review a decision made in relation to an application for a refund, rebate or remission of duty. In order to enliven jurisdiction of the Tribunal, the applicant paid some of the duty assessed and then sought refund applications which were refused by decisions dated 5 August 2022. There is no dispute that the Tribunal has jurisdiction to review that decision.

7. The applicant contends that the imported pipes are line pipes of a kind used for oil and gas pipelines and therefore should be classified under subheading 7306.19.00 of Schedule 3 of the Act at a free rate of duty.

   THE LEGISLATIVE FRAMEWORK

8. The Act imposes customs duty on goods imported into Australia. To work out the duty payable on particular goods, reference must be made to a tariff that is set out in Schedule 3. This tariff classifies goods in accordance with Australia’s international obligations as a party to the World Trade Organization Agreement. The rate of duty applicable to particular goods is determined by the classification to which those goods belong by reference, in this case, to Schedule 3.

9. I reproduce below the relevant provisions of the Act noting that it makes an important distinction between a heading and a subheading:

   4 Headings in Schedule 3

   (1)  In Schedule 3:

   (a)  either:

   (i)4 digits in the first column; or

   (ii)8 digits in the first column not opposite to a dash or dashes in the second column;

   indicate the beginning of a heading; and

   (b)  5, 6, 7 or 8 digits in the first column opposite to a dash or dashes in the second column indicate the beginning of a subheading of the heading in which the digits appear.

   (2)  In this Act or in any Act that amends, or in any Tariff instrument that relates to, this Act:

   (a)  a heading may be referred to by the digits with which the heading begins; and

   (b)  a subheading of a heading may be referred to by the digits with which the subheading begins.

   6 Tariff classification

   A reference in this Act to the tariff classification under which particular goods are classified is a reference to the heading or subheading:

   (a)in whose third column a rate of duty is set out; and

   (b)under which the goods are classified.

   7 Rules for classifying goods in Schedule 3

   (1)  The Interpretation Rules must be used for working out the tariff classification under which goods are classified.

   (2)  If the letters “NSA” are specified in relation to a description of goods in the second column of a subheading of a heading, the goods described do not include any goods prima facie classified under a preceding subheading of that heading whose second column begins with the same number of dashes as the first-mentioned subheading.

   (3)  A reference in the Interpretation Rules to Notes includes a reference to Additional Notes.

   Note 1: The text in Schedule 3 is based on the wording in the Harmonized Commodity Description and Coding System that is referred to in the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983.

   Note 2: The text of the Convention is set out in Australian Treaty Series 1988 No. 30. In 2006, the text of a Convention in the Australian Treaty Series was accessible through the Australian Treaties Library on the website ( Rates of duty—ad valorem duties

   (1)Unless the contrary intention appears, if, in a rate column in Schedule 3, 4, 4A, 5, 6, 6A, 7, 8, 8B, 10, 10A, 11, 12, 14 or 15, reference is made to a percentage in relation to goods or in relation to a part, component or ingredient of goods:

   (a)the reference is to that percentage of the value of the goods, or of that part, component or ingredient of the goods, as the case may be; and

   (b)the percentage is a rate of duty.

   (2)The value of a part, component or ingredient of any goods for the purposes of this Act is, unless the contrary intention appears, such proportion of the value of the goods as the Comptroller-General of Customs determines.

10. I reproduce below Schedule 2 of the Act containing the general rules for the interpretation of Schedule 3 which I will refer to as the Schedule 2 Interpretation Rules:

    Schedule 2—General rules for the interpretation of Schedule 3

    Section 7

    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:

    2.

    (a)Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.

    (b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

    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.

    (b)Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

    (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.

    4.Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

    5.In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein:

    (a)Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character;

    (b)Subject to the provisions of Rule 5(a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

    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.

11. I reproduce below the notes to, and the relevant extract from, Schedule 3 of the Act which contains what is referred to as the tariff nomenclature:

    Schedule 3—Classification of goods and general and special rates of duty

    Note 1: See sections 15 and 16.

    Note 2: The text in this Schedule is based on the wording in the Harmonized Commodity Description and Coding System that is referred to in the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983.

    Note 3: The text of the Convention is set out in Australian Treaty Series 1988 No. 30. In 2006, the text of a Convention in the Australian Treaty Series was accessible through the Australian Treaties Library on the website ( cellpadding="0" cellspacing="0"> 7306 OTHER TUBES, PIPES AND HOLLOW PROFILES (FOR EXAMPLE, OPEN SEAM OR WELDED, RIVETED OR SIMILARLY CLOSED), OF IRON OR STEEL: 7306.1 ‑Line pipe of a kind used for oil or gas pipelines: 7306.11.00 ‑‑Welded, of stainless steel 5%
    DCS:4%
    DCT:5% 7306.19.00 ‑‑Other 5%
    DCS:4%
    DCT:5% 7306.2 ‑Casing and tubing of a kind used in drilling for oil or gas: 7306.21.00 ‑‑Welded, of stainless steel 5%
    DCS:4%
    DCT:5% 7306.29.00 ‑‑Other 5%
    DCS:4%
    DCT:5% 7306.30.00 ‑Other, welded, of circular cross‑section, of iron or non‑alloy steel 5%
    DCS:4%
    DCT:5% 7306.40.00 ‑Other, welded, of circular cross‑section, of stainless steel 5%
    DCS:4%
    DCT:5% 7306.50.00 ‑Other, welded, of circular cross‑section, of other alloy steel 5%
    DCS:4%
    DCT:5% 7306.6 ‑Other, welded, of non‑circular cross‑section: 7306.61.00 ‑‑Of square or rectangular cross‑section 5%
    DCS:4%
    DCT:5% 7306.69.00 ‑‑Of other non‑circular cross‑section 5%
    DCS:4%
    DCT:5% 7306.90.00 ‑Other 5%
    DCS:4%
    DCT:5%

    THE ISSUE FOR THE TRIBUNAL TO DETERMINE

    1. The applicant and the respondent agree, and it is accepted by the Tribunal, that the appropriate heading under which to classify the imported pipe is 7306.

    2. The applicant contends that the appropriate subheading is:

       7306.1            -Line pipe of a kind used for oil and gas pipelines

    3. Further, the applicant contends that the appropriate tariff classification under that subheading is:

       7306.19.00      --Other

    4. The respondent contends that the appropriate tariff classification is under the subheading as follows:

       7306.30.00     -Other, welded, of circular cross-section, of iron or non-alloy steel

    5. The fundamental issue for determination is whether the imported pipe is ‘line pipe of a kind used for oil and gas pipelines’ and should therefore be classified under 7306.1. If so, the respondent accepts that the applicant will succeed on its application. If I determine that the imported pipe is not ‘line pipe of a kind used for oil and gas pipelines’, then the applicant accepts that the appropriate classification is under 7306.30.00 and that the decision under review should be affirmed. The ultimate issue is one of construction of the heading in 7306.1 namely ‘line pipe of a kind used for oil and gas pipelines’.

       How to classify goods under the Act

    6. Classification of goods in Schedule 3 is governed by the Schedule 2 Interpretation Rules. In this case, there is no dispute about the applicable heading within the tariff nomenclature of Schedule 3. It is agreed that the imported pipes fall within the terms of the heading in 7306 which includes other tubes, pipes and hollow profiles of iron or steel. It follows that paragraph 1 to 5 in Schedule 2 do not have immediate application because they relate to headings.

    7. Paragraph 6 of the Schedule 2 Interpretation Rules is relevant as it applies to the subheadings of a heading. It provides that the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and, mutatis mutandis, to the rules in paragraphs 1 to 5, on the understanding that only subheadings at the same level are comparable. This reference to ‘subheadings at the same level’ reflects that there is a hierarchy of subheadings which include subheadings at different levels.

    8. The first level of subheadings within the tariff nomenclature of Schedule 3 include relevantly:

       (a)

       7306.1            -Line pipe of a kind used for oil or gas pipelines

       
       

       (as contended for by the applicant)

       (b)

       7306.30.00      -Other, welded, of circular cross-section, of iron or non-alloy steel

       
       

       (as contended for by the respondent)

    9. The principle at paragraph 6 calls for a comparison between the above two subheadings.  For reasons that will become apparent, I will not conduct that comparison at this stage.  Suffice it to say that depending on the outcome of that comparison, it may be necessary to consider the next level down of subheading under 7306.1 in order to complete the process of tariff classification.

    10. I will now move on from the above preliminary consideration of the tariff nomenclature in Schedule 3 and consider the principles arising from the case law applicable to the classification of goods under the Act. The seminal case is Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 (Tridon) which has been favourably cited by the Full Court of the Federal Court in Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 at 599.

    11. Tridon confirms that the first task in resolving questions of tariff classification is to identify the goods in their condition as imported. The second task is to determine a classification in Schedule 3. However, whilst undertaking the identification process involved with the first task, it is necessary to be aware of the structure of the tariff nomenclature in Schedule 3[1] and it may be appropriate to consider the meaning of subheadings therein.[2] It is for this reason that I introduced the terms of the relevant subheadings above.

        [1] Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 at 620.

        [2] Customs v Savage River Mines (1988) 79 ALR 258 at 265.

    12. Returning to the first task of identification, the relevant principles arising from Tridon and subsequent authorities are:

        (a)the goods should be identified in their condition as imported;

        (b)the identification of goods cannot be controlled by the descriptions of goods adopted in the tariff nomenclature;

        (c)in the identification of goods, knowledge of how those who trade in the goods describe them will usually be relevant, but not necessarily conclusive;

        (d)identification will frequently extend to characterisation of goods by reference to their design features or by reference to their suitability for a particular use. The extent to which these characteristics may be relevant to the ultimate classification of the goods and whether evidence of the use to which goods are put after importation is relevant, will depend upon the language of the tariff nomenclature.

    13. The second task of classification requires application of the Schedule 2 Interpretation Rules. Section 7(1) of the Act provides that the Schedule 2 Interpretation Rules must be used for working out the tariff classification under which goods are classified. This involves, firstly, a consideration of the headings into which the goods as identified may fall so as to determine the correct classification of the goods at the four-digit heading level by reference to the Interpretative Rules[3] and, secondly, a determination of the correct subheading under which the goods are classified.

        [3] Not in dispute in this case as the parties agree the appropriate heading is 7306.

        CONSIDERATION

    14. The pipes imported from Thailand are welded black steel pipes with red painted finish. The pipes from China are welded galvanised steel pipes. This description of the goods is common ground and a more detailed description is set out in the respondent’s written submissions dated 13 February 2023 at [8] and [9]. The applicant conceded that the pipes were imported for use in fire protection sprinkler systems and that they do not comply with the international standard for line pipes for use in the oil or gas industry.[4]

        [4] Transcript P-20.

    15. The correct classification of the goods at the four-digit heading level is not in dispute. Both parties agree that the appropriate heading in Schedule 3 is 7306. Where the parties differ is at the subheading level of tariff classification. The applicant contends for a broad interpretation such that the imported pipe is line pipe of a kind used for oil or gas pipeline and therefore comes within the subheading at 7306.1 and should be classified under the next level of subheading at 7306.19.00. The respondent contends for a narrower interpretation such that the pipe is not of a kind used for oil or gas pipelines and that it should be classified under the subheading at 7306.30.00.

        Case Law

1. I turn now to consider the authorities that bear upon the crux of the dispute, namely whether the imported pipe is line pipe of a kind used for oil or gas pipelines.

2. In Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 (Hygienic Lily), the applicant manufactured paper cups on which were printed designs particular to customers. The question of tariff classification in that case was whether the goods were ‘of a kind ordinarily used for household purposes’. The Deputy Commissioner argued that the cups in question were manufactured solely or substantially for the purpose of McDonald’s restaurants to contain beverages for customers. When in this way, one looks to the purpose of manufacture, the conclusion, so submitted by the Deputy Commissioner, was that the cups were not ‘of a kind ordinarily used for household purposes’. Gummow J said at 399:

   … the setting in which the phrase “goods of a kind” appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of goods in the class or genus in question. Thus, goods are “of a kind ordinarily used for household purposes” if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes.

   (citations omitted)

3. Gummow J rejected the submission of the Deputy Commissioner and concluded at 400:

   In my view, the cups involved in this case, are of a kind ordinarily used for household purposes because they are members of a class or genus (paper cups) which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes (viz the carrying of beverages and the consumption thereof). In my view, a purpose may be a household purpose even if not exclusively or principally pursued in situ a dwelling.

   In any event, even if one looks to the provenance of the particular goods and to the purpose for which they were manufactured, that does not, in my view, take them outside the genus of goods ordinarily used for household purposes. The cups have printed upon them “McDonald's” and many stylised representations of the letter “M”; it readily may be conceded that these goods are manufactured to fill orders placed upon the applicant to supply McDonald's Restaurants for use in filling with beverages sold to customers. However, in my view, that does not deprive them of the character of goods of a kind ordinarily used for household purposes. Item 1 does not predicate the criteria for exemption upon so single faceted a method of characterisation.

4. I pause to note that the adverb ‘ordinarily’ does not appear in the phrase ‘line pipe of a kind used for oil or gas pipelines’. The absence of an adverb directs attention not to the goods identified by the purposes for which goods of that kind are used but more immediately to the goods in question themselves.[5]

   [5] Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 at 400.

5. In Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149, the Full Court of the Federal Court was considering whether goods were ‘of a kind used as replacement components in passenger motor vehicles’. Tamberlin J, with whom O’Loughlin J agreed, said at [46]:

   In answering this question, it is necessary to construe the quoted expression as a whole. The intent or purpose of the manufacturer or importer is not the criterion to be applied. Nor is it necessary that the goods should in fact have been used or be used as replacement components. It is sufficient if they are “of a kind” which can be so used. That is to say, if they come within the genus of “goods used as replacement components”.

6. Tamberlin J goes on to cite Gummow J in Hygienic Lily and says that in order to determine whether the goods are within the genus, it is necessary to examine the ‘nature, quality and adaptation of the goods in the class’.[6]

   [6] Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 at [47].

7. As to the relevance of the actual use to which the goods are put, Tamberlin J said[7] that this may point to a conclusion that they are ‘of a kind’ so used but he added:

   The words “of a kind” add a further level of generality to the expression “used” so that even if…the goods are not so used but are within a range of goods of a type which are used, then they satisfy the required description.

   [7] Ibid at [53].

   Applicant Contentions

8. The applicant places significant weight on the above proposition, which is clear from the authorities, that actual use is not a prerequisite to determination as to whether goods are of a certain kind. The applicant makes a strong submission, which I accept, that the undisputed fact that the pipes in question were not used for oil or gas pipelines does not necessarily cause the applicant to fail. This submission is supported further by Tamberlin J who noted that the words ‘of a kind used’ which were under consideration in the Hygienic Lily case did not include any qualification. In that regard, it is the same as the case before the Tribunal. Accordingly, the applicant relies upon what Tamberlin J said at [54]:

   It is important to note that the context in which the expression “of a kind used as” does not include any qualifications such as those found in expressions like “actually used as” or “commonly used as” or “partly used as”. The expression “used as” has no quantitative limitation in the sense of any particular degree or level of use as one finds in the use of an expression such as “ordinarily” or “commonly”. The description can apply where there is no actual use of a good as a replacement component if the goods are of that genus. That is to say they are of the same type of component which is used to replace components of passenger motor vehicles. The genus, in my view, is a relatively broad one and the word “kind” should be so construed.

9. The applicant before the Tribunal made the same point as that expressed above by Tamberlin J by referring me to numerous expressions in other headings in Schedule 3 where the words ‘of a kind’ are qualified by ‘commonly’, ‘principally’ or ‘generally’. The applicant also differentiated the subject phrase ‘of a kind used for’ from the phrase found in other headings ‘of a kind suitable for’. If the drafters of the tariff nomenclature in Schedule 3 wanted to limit the pipes that fall within 7306.1 to those that are suitable for use as oil or gas pipelines then the word ‘suitable’ would have been included, as it has been in other headings. The applicant says there is no suitability for use criteria in 7306.1. It follows that the genus would include pipes that as imported (at the notional wharf side) would not be suitable to be used for oil and gas pipelines. That submission can only be taken so far and it does not follow that the genus is so wide as to include all pipes irrespective of whether they are suitable to be used for oil and gas pipelines.

10. The applicant argues that if one adopts its interpretation of the phrase in 7306.1 then it does not matter that the pipes as imported have not been certified as being compliant with the applicable standards for use as an oil or gas pipeline. This is raised to contradict the respondent’s submission that the goods as imported must be certified as compliant with the applicable standards in order to be classified as line pipe of a kind used for oil or gas pipelines in 7306.1. The applicant says 7306.1 cannot be interpreted as requiring compliance because of the inclusion of the next level down of subheading in 7306.11.00 which is ‘Welded, of stainless steel’. The applicant says that a line pipe that is made of stainless steel could never be compliant with the applicable standards and that stainless steel pipes are not used in the construction of line pipes in the oil or gas industry. If that is the case, then a stainless steel pipe could never in fact be a subclass of a line pipe of a kind used for oil or gas pipelines. The outcome of the statutory interpretation contended for by the respondent is, on the applicant’s submission, nonsensical because the tariff classification in 7306.11.00 would be left with no work to do and could never have application because all stainless steel pipes are noncompliant with the applicable standards.

11. The applicant contends that the genus of goods described in 7306.1 must be very broad because it includes stainless steel pipes that can in fact never be used in oil and gas pipelines. The applicant relies upon the expert evidence of Dr Piper under cross examination who accepted that stainless steel pipes are not used in oil or gas pipelines.[8] If the genus captures stainless steel pipes then pipes of a kind used for oil or gas pipelines must be given a broad interpretation. In other words, it should not be limited to pipes used in oil or gas pipelines or pipes that are suitable or certified for use in oil or gas pipelines.  The applicant accepts that the imported pipes must have some of the characteristics of the genus of goods described in 7306.1. It contends that if it can be established that the imported pipes have some of the characteristics of line pipes used for oil or gas pipelines then they fall within the genus of goods described in 7306.1. 

    [8] Transcript P-30 lines 43-44 and P-31 lines 1-2; see also the applicant’s oral closing submissions at Transcript P-53.

12. The respondent says that it would be erroneous for me to interpret a subheading by reference to a lower level of subheading because it is only subheadings at the same level that are comparable.

    Expert Evidence of Dr John Piper

13. Where the parties do agree is that I must determine the nature, quality and adaptation of the goods in the class of 7306.1. The respondent draws upon the expert testimony of Dr John Piper who was asked to give his opinion in relation to the imported pipes.

14. Dr John Piper has a PhD in materials engineering and about 29 years professional experience regarding linepipe for oil and gas pipelines. There was no issue with respect to his experience and his ability to give expert evidence about the imported pipes in this case.

15. With respect to linepipe within the oil and gas industry he said:

    The term ‘linepipe’ refers to steel pipe used in the construction of an oil or gas pipeline. The quality of manufacture of the line pipe is important to the industry as the fluids conveyed are hazardous and can cause death or environmental damage if they escape. As such, the industry is highly engineered and regulated to ensure low risk. Meeting the requirements of the Australian design code of practice for construction and operation of oil and gas pipelines is fundamental to pipeline safety. This code, AS2885.1 has much to say about the minimum quality of materials used in the constructions of a pipeline. Indeed, it calls up just 4 types of pipe which may be used without further justification, these being pipe to API Spec 5L, ISO 3183, ASTM A106, ASTM A333 and ASTM A671. Even these grades of pipe may not be used in all applications as they are subject to further caveats, depending on usage, within the standard.

16. It was conceded by the applicant that the pipes as imported do not comply with API 5L, the international standard for line pipes for use in the oil or gas industry.[9]

    [9] Applicant oral opening submissions at Transcript P-20 and oral closing submissions at Transcript P-48 lines 5 to 9.

17. Dr Piper was asked a series of questions about certain features of the imported pipes namely that they were galvanised, had a red painted finish and were groove ended. Dr Piper said pipes with these features are not used in oil and gas pipelines.

18. Dr Piper was also asked to comment on the Australian Standard AS1074 which was marked on the imported pipes. He said:

    AS1074 steel tubulars are generally used in structural applications, or for the conveyance of non-hazardous fluids such as compressed air or water. This is because the standard does not require the same limits on steel composition, dimensions, weldability or seam weld integrity as found in more stringent standards such as API 5L.

    Importantly, AS1074 is not a standard listed in the Australian Petroleum Pipeline design code, AS2885, as permissible for oil and gas construction.  Tubulars which are only certified to this standard are not used as line pipe in oil and gas pipeline.

19. Under cross examination Dr Piper was asked to consider the Mill Test Certificates that were provided with the imported pipes. There are two certificates, one for the Pacific Pipe[10] and one for the Hengshui Pipe.[11] They provide details, inter alia, of the chemical composition of the pipes by listing the percentages of each of five elements within the pipes. The five elements listed are carbon, silicon, manganese, phosphorus and sulfur. Dr Piper accepted that the percentage levels of these elements were within the required standards including API 5L but he qualified his answer by saying that the certificates did not include three micro alloying elements, namely vanadium, niobium and titanium.  He explained that they are:

    alloying elements which are provided and effective in extremely small amounts. They are deliberately added to many steels and very necessary for controlling strength and weldability and the fracture toughness of steel.

    … So in order to be conforming with API 5L for Grade B, you need to list the chemical analysis for vanadium, niobium and titanium and demonstrate that those limits are achieved. That information, among that other information, is missing from the Chinese test certificate.[12]

    [10] Exhibit 1 at T22.1 p.375.

    [11] Exhibit 1 at T22.2 p.418.

    [12] Transcript P-34.

20. Dr Piper also noted under cross examination that in terms of containing the necessary elements for compliance with international standards for oil or gas pipelines, the certificates were deficient in many other ways.[13] In his written report, Dr Piper set out the deficiencies in the certificates compared to what is required for compliance with the international standard of API 5L.[14]

    [13] Transcript P-33 lines 16-17.

    [14] Exhibit 4 at pp.7-8.

    CONCLUSION

21. The applicant contends that the expert evidence of Dr Piper supports its case because the imported pipes share some of the characteristics of the pipes described in 7306.1. It points to the five elements in the required percentages contained within the imported pipes as evidence of the shared characteristics. The applicant says that ‘the essential character of these goods is of the kind of line pipe that Dr Piper describes.’[15] In my opinion this is where the argument of the applicant falls down. Dr Piper described the missing micro alloying elements as ‘very necessary for controlling the strength and weldability and the fracture toughness of steel’.[16] He said that they were effective ‘in extremely small amounts.’[17] The applicant contends that it is not surprising that these micro alloying elements were not recorded on the certificates because there was no need to. It said that the imported pipes did not need to be certified for use in oil and gas pipelines because they were imported for another purpose. The applicant seemed to suggest that the missing micro alloying elements may in fact be present but simply not recorded. However, there is no evidence that the imported pipes contained the micro alloying elements which, in the opinion of Dr Piper, are a ‘very necessary’ characteristic of a line pipe used in oil or gas pipelines. Absent evidence of the micro alloying elements, one cannot say that the imported pipes share the essential characteristics of the genus of pipes in 7306.1.

    [15] Transcript P-60 line 31.

    [16] Transcript P-34 lines 29-30.

    [17] Transcript P-34 line 28.

22. Further, the applicant did not provide any evidence that the imported pipes or other pipes from the same manufacturers had been used in or were suitable for use in oil or gas pipelines. There is no dispute that the imported pipe is not going to be used for oil or gas pipelines.  In fact, the imported pipe is going to be used in fire protection sprinkler systems.  Nevertheless, the actual use to which the imported pipe will be put is not determinative of the matter. The inclusion of the words ‘of a kind’ gives the subheading a broader application and potentially covers line pipe not intended to be used for oil or gas pipelines. In other words, it covers line pipe that may be used in other applications potentially even fire protection sprinkler systems. However, the line pipe must be of a kind used for oil or gas pipelines even if it is not so used. 

23. The applicant has not established that the imported goods are, to adopt the language of Tamberlin J, ‘within a range of goods of a type which are used’[18] in oil or gas pipelines. As set out above, the applicant relies upon the fact that the imported goods contain certifiable amounts of carbon, silicon, manganese, phosphorus and sulfur but it cannot be said that the presence of these elements brings the imported goods within a range of goods of a type used in oil or gas pipelines. Dr Piper’s evidence was clear that the missing micro alloying elements were ‘very necessary’ and would need to be included in the chemical composition of the pipes for them to be compliant with the international standards for use in oil or gas pipelines. I am not satisfied that the imported goods are within the genus of line pipe used for oil or gas pipelines. I conclude that the imported pipe is not line pipe of a kind used for oil or gas pipelines.

    [18] Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 at [53].

24. The fact that the imported pipes were only certified as AS1074 compliant, had been galvanised or painted red, and had either grooved or threaded ends is not determinative of the question as to the genus of the pipes but it is consistent with my conclusion because pipes with these features are not used in oil or gas pipelines. The applicant in the Hygienic Lily case was successful because it established that the goods were of a kind ordinarily used for household purposes and it was held that the placement of the McDonald’s logo on the cup did not deprive them of that characteristic. The applicant relies upon Hygienic Lily to support its argument that the fact that the imported pipes had been galvanised or painted red and had either grooved or threaded ends should not deprive the imported pipes of their essential character, but the problem with this argument is that the applicant has failed to establish (leaving aside the question of the pipes being galvanised, painted or grooved) that the imported pipes are within the genus of line pipe used for oil or gas pipelines.

    DECISION

25. I find that the reviewable decision to classify the imported pipes under the subheading 7306.30.00 was the correct or preferable decision and should be affirmed. The applicant is not entitled to any refund of duty paid.

I certify that the preceding 51 (fifty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President Britten-Jones

............................[sgd]............................................

Associate

Dated: 13 September 2023

Date of hearing:	14 June 2023
Counsel for the Applicant:	Jonathan Slonim
Solicitors for the Applicant:	Bowman & Knox Lawyers
Advocate for the Respondent:	Roger Northcote