DOWNER EDI RAIL PTY LIMITED AND CHIEF EXECUTIVE OFFICER OF CUSTOMS
[2010] AATA 866
•5 November 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 866
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/0459
GENERAL ADMINISTRATIVE DIVISION ) Re DOWNER EDI RAIL PTY LIMITED Applicant
And
CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
And UNITED GROUP RAIL
SERVICES LIMITED
Party Joined
DECISION
Tribunal The Hon. B Tamberlin, QC, Deputy President and
Ms G Ettinger, Senior Member
Date5 November 2010
PlaceSydney
Decision The decision under review is affirmed. ..................[sgd]............................
The Hon. B Tamberlin, QC
Deputy President
CATCHWORDS
CUSTOMS AND EXCISE – tariffs – tariff concession order revoked – “substitutable goods” –use to which the goods subject to the TCO can be put – decision under review affirmed
Customs Act 1901 s 269B, 269C, 269P, 269SB, 269SC
Acts Interpretation Act 1901
Re General Merchandise & Apparel Group Pty Ltd and CEO of Customs (2009) 114 ALD 289 Re Tetra Pak Imports Pty Ltd and Chief Executive Officer of Customs and Anor (AAT 11466, 11 December 1996)
Re Vulcan Australia Pty Ltd and Comptroller-General of Customs (1994) 20 AAR 116
Seguin Moreau, Australia v Chief Executive Officer of Customs (1997) 77 FCR 410
REASONS FOR DECISION
5 November 2010 The Hon. B Tamberlin, QC, Deputy President and Ms G Ettinger, Senior Member
1. This is an application for review of a decision of a delegate of the Chief Executive Officer of Customs (CEO) made on 15 January 2009 affirming a decision under section 269SC(1) and (3) of the Customs Act 1901 (the Act) to revoke a tariff concession order (TCO) granted to the Applicant (Downer).
2. The amended TCO application which was granted was for:
8603.10.00TRAINS, PASSENGER, electric, double deck, comprising BOTH of the following:
(a) minimum of one driver trailer car without driver cab module;
(b) NOT greater than six passenger cars.
3. Because the TCO was expressed to be “without driver cab”, it is said by Downer that the application was in respect of a “partially complete passenger train”.
4. The relevant tariff classification (8603.10.00) included in the above description is:
8603 SELF-PROPELLED RAILWAY ... COACHES ...
8603.10.00 Powered from an external source of electricity.
5. On 3 February 2009 an application was made to this Tribunal by Downer to review the decision to affirm the revocation of the TCO.
Issue
6. The primary question in this case is whether on 27 August 2008 the party joined (United Group Rail Services) produced, in the ordinary course of business in Australia, goods that are substitutable goods in relation to or for the TCO goods described above.
7. If the Tribunal is satisfied that the question should be answered in the affirmative, the TCO will remain revoked. Downer accepts that if, contrary to its submission, complete passenger trains are “substitutable goods” for the TCO goods, then the goods are produced in the ordinary course of business in Australia.
Customs Act – Relevant Provisions
8. Section 269SB of the Act enables a person to make a request for revocation of a TCO by the CEO. Under s 269SC a request will be granted if the CEO is satisfied that on the day of lodgement, in this case 27 August 2008, the person requesting the revocation (United) is a producer in Australia of goods that are: (i) substitutable goods in relation to the goods the subject of the TCO; and that (ii) if the TCO were not in force on that day but that day was the day on which the application for that TCO was lodged the CEO would not have made the TCO.
9. The term “substitutable goods” is defined in section 269B in respect to goods the subject of a TCO application to mean 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.
10. Under sections 269C and 269P there is provision, for what are known as “core criteria”. A TCO application is taken to meet the “core criteria” if on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business: see s 269C.
Background and Evidence
11. United Group Rail Services Limited, the party joined (United), is a manufacturer of passenger trains in Australia, and has done so during the two year period to 27 August 2008 and is still manufacturing such trains.
12. Downer has adduced evidence from Mr Bradley Johnson, a Project Director, that at the time of importation into Australia the partially complete train sets without the driver cab module which are the subject of the TCO will consist of two driver trailer cars, four motor cars and two trailer cars and each partially complete set will contain subsystems and components, including body shell, traction propulsion system, bogies, doors, couplings, windows, lighting, heating, ventilation and air-conditioning and temporary transportation braking system. However, at the time of importation into Australia, the train sets will not contain some major subsystems enabling the sets to operate immediately including driver cab modules and driver controls, permanent braking systems, devices collecting electrical power from overhead wires to enable the train to operate, auxiliary power supplies, a circuit breaker, a traction inverter, gangways and a train operating system in the form of a computer system providing and collecting information and communications and surveillance systems. There will be a driver trailer cab car at each end of the set supplied to Downer by a Chinese manufacturer which will be imported into Australia by Downer.
13. Mr Johnson’s evidence says that each partially complete set comprising eight carriages will not be physically capable of immediately operating under its own power, because none of the active control equipment, such as driver control modules and driver brakes, are fitted to the sets at the time of importation. The sets will be imported into Australia at the port of Newcastle where they will be shunted by locomotives to the Applicant’s facility at Cardiff, New South Wales, where they will undergo further manufacturing. It is expected that the time required in undertaking these ongoing manufacturing processes will decrease following the completion of the initial sets, to the extent that further manufacturing to render the sets complete and suitable for commissioning will approximately take four weeks per set, but in the initial stages the period will be substantially longer.
14. In oral testimony he said that the series of adaptation and commissioning activities at Cardiff will involve six stations manufacturing the crew cab, each one taking four days. Initially the manufacturing could take approximately eleven weeks, that would come down for ongoing manufacturing. Attempts would be made to try to reduce that by about 20 days for the exercise to fit the cab to the trailer driver’s car as received from China. He said that the actual fitting of the crew cab to the trailer driver car was a relatively short operation, but there needs to be a connection of that cab into the control system of the train.
15. Cross-examination of Mr Johnson by the CEO disclosed that the total weight of each individual train set of eight carriages was in the order of 395 tonnes, including the driver cab module and that the driver cab module itself was only about two tonnes. The passenger accommodation in the carriages as imported in an eight carriage set would carry 2,150 passengers, including 896 persons seated. The trains would already have all passenger seats installed fully fitted for passengers. He agreed that the sets include four motor cars which are the cars that actually have motors and gearboxes attached to bogies and that the set consists of a trailer driver car, two motor cars, two trailer cars then two motor cars and a completing trailer driver car. The total length of the train is in the order of 163 metres and that the motor car would have a length of approximately 20½ metres. The train as imported has all the features necessary for full passenger comfort, including provision for air-conditioning, comfortable seats with lumbar supports, grab rails and the like. The air-conditioning, although provided for, is not connected or commissioned at the stage of importation but it is installed.
16. Downer tendered a series of 13 photographs as Exhibit A. These include photographs of a driver trailer car in manufacture and the driver cab modules which are added in Australia to which we have had careful regard. The photographs include pictures taken in China showing the state of completion of the front of the driver trailer car at the time it is despatched from China. Photographs 11 and 12 of this exhibit show the module.
17. An affidavit was read from Mr Matthew Hinchcliffe, who is the Executive General Manager of Sales and Marketing for United. He gave evidence that as at 27 August 2008, subject to agreement on price and other conditions, United would have been prepared to accept an order to supply incomplete train sets, comprising a minimum of one driver trailer car without driver cab module, and not greater than six passenger cars, and incomplete trains comprising a minimum of one driver trailer car without a driver cab module and not greater than six passenger cars or otherwise incomplete trains, where the ultimate use of the goods produced would be the transport of passengers on the Sydney rail network.
18. United also filed an affidavit from Mr Christopher Huggins who is a business and contract consultant to United. His evidence was to the effect that United builds complete passenger train sets on a production line with 21 major manufacturing workstations. He sets out the various operation stages for such manufacturing. He says that United has produced modular driver cabs for the locomotive sector of its rolling stock manufacturing operations, and that the cab is produced, tested and substantially commissioned as a separate unit and fitted to the body of the locomotive. He says that United has not in the past produced passenger trains with a modular driver cab, but has produced its passenger trains with a driver cab forming part of the body of the train. He says that there is no reason from an engineering or manufacturing point of view why a driver’s cab module for an electric double deck passenger train cannot be designed and manufactured as a module as is done with the United Rail locomotives. In passenger train projects involving United the approach by that company has been directed to achieve technical compliance and on time delivery, and the focus is on designing trains to meet specifications, rather than on adopting a rigid specific manufacturing process.
19. He says United manufactures and did at 27 August 2008 electric double deck passenger trains comprising minimum one driver trailer car with not greater than six passenger cars. This has been done over a period of seven years and is continuing. These trains have driver cabs built as part of the car during the manufacturing process. United could use its existing labour, skills, technology and design expertise to build a control trailer car without a driver’s cab, but this would involve redesigning the interface of the cab module with the car structure, and redesigning wiring harnesses to incorporate modular plugging and other minor matters of a cosmetic nature. He said it would be possible to take a completed trailer car manufactured by United and cut out the driver’s cab components, and make any necessary modifications and then add another modular driver’s cab. He also said that because trains are significant manufactured pieces of equipment, it is common when one manufacturer, such as Downer, wins a contract to supply trains, that United employees or contractors leave United and join Downer to assist in the manufacturing of the trains. This has applied in reverse, so there is effectively a mobility in the skills and experience of those in the relevant workforce. This latter point is not a relevant consideration in our view.
20. There was also an affidavit by Mr John Janik, the General Manager, Strategic Projects for United, who gave evidence as to the history of United’s proposals for the design and manufacture of train sets in Australia. He indicated that most passenger trains in the CityRail network consisted of four car sets that can be coupled to make an eight car set, thereby allowing greater flexibility, in that four car sets can be coupled together to carry more passengers at peak times. He said that the design of a fixed eight car set is simpler than a four car set because there’s no need to inbuild the capability to co-ordinate and control two sets of four cars each with independent train operating systems, brakes, power, traction and other subsystems from a single driver’s cab. He said that the modular nature of a driver cab was irrelevant as the layout and performance of the driver cab is substantively set by RailCorp specifications.
21. There was no cross-examination of any of the witnesses called on behalf of United.
22. As regards the driver car and the driver cab module this is shown in particular in photograph 11 of Exhibit A which depicts the cab being fitted to the trailer driver car and shows that it becomes part of that car by sliding it in onto the stainless steel car body so that the fibreglass element is fixed against the stainless steel. This is done as shown in photograph 12 by being suspended from a crane and then slid onto the front of the trailer driver car.
Submissions for Downer
23. Downer refers to and relies on the oral and affidavit evidence of Mr Johnson in relation to the time and cost involved in completing the manufacture, commissioning and installing the driver cab module and associated equipment. Downer points to the lack of a driver cab module in the TCO goods and emphasises its important role in controlling the operation of the passenger train so as to enable it to function immediately. Because the train at the point of importation cannot be immediately and presently put to the use of carrying passengers, then it cannot be properly said to be a passenger train in contrast to the completed passenger train set products in fact produced by United. It lacks motor power and self propulsion. The ultimate or intended use of the TCO train sets after the further manufacturing processes have been carried out is irrelevant. It cannot be said that the “design use” of the train without the driver cab module is a use as a passenger train, because there can be no immediate transportation. Train sets which are the subject of the TCO are said to be in effect like a “body without the brain”.
24. The only use to which the TCO goods could then be put when imported, contends Downer, is the use as a component in a further manufacturing process to bring the train into a completed state capable of present operation.
25. The goods produced in Australia by United are not “incomplete” passenger trains, but are complete passenger trains with driver cabs already installed and complete which are capable of immediate use. It is said to be clear that a completed passenger train with a driver’s cab module capable of immediate use cannot be put to use in a manufacturing process because that process is completed and therefore such a complete train cannot be said to be put to a use which corresponds with a use, including a design use, to which the partially completed TCO trains can be put. Accordingly, United produced trains are not “substitutable” for the TCO train sets. The use as a complete train which can immediately carry passengers is not a use which corresponds to the use of an incomplete passenger train set. The Applicant says that it is clear that a complete passenger train is not capable of being put to use in a manufacturing process, but rather the only relevant use for complete passenger trains is to carry passengers by rail. The ultimate purpose or intention in the case of both partially complete passenger trains and complete passenger trains may be said to be the carriage of people by train, but that does not determine the present use to which the goods as identified in the TCO can be immediately put.
Reasoning
26. The resolution of this case depends on the application of the definition of “substitutable goods” in section 269B which is in the following terms:
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.
27. Turning first to the language used, the definition of “substitutable goods” contains no reference or requirement to the use the goods the subject of the TCO can presently or immediately be put. The reference is rather to uses to which the goods are in fact put or are capable of being put and to a use that corresponds with a use to which the goods the subject of the application TCO can be put. The word “can” draws attention to the future or potential use or range of uses of the goods of United.
28. The language of the definition is broad because it refers to uses to which the goods are “capable” of being put. It also refers to a use that “corresponds” with a use which the goods the subject of the application can be put. Furthermore, the reference to the inclusion of a “design use” indicates a broader concept of use than a use to which goods are in fact being put at any particular point in time. Put another way, there is nothing in the definition which limits the use to an immediate or present use at the time of importation.
29. The breadth of the language used in the definition was considered by the Tribunal in Re Vulcan Australia Pty Ltd and Comptroller-General of Customs (1994) 20 AAR 116 at 125 - 127 which is in the following terms:
Many meanings of the word “use” appear in the dictionaries. That meaning which is relevant in the Shorter Oxford Dictionary … is that of “A purpose, object, or end, esp of useful or advantageous nature …”. The Macquarie Dictionary … defines it, again in so far as it is relevant, as
“1.to employ for same purpose; put into service; turn to account: use a knife to cut, use a new method. 2. to avail oneself of; apply to one’s own purposes: use the front room for a conference …”
What is apparent from both of these definitions is that the focus of the word “use” when used in isolation without reference to a context is upon the end result ie the purpose, object or service. It is not upon the means of achieving that purpose, object or service. If the word is intended to encompass those means, it must come from the context in which the word “use” appears. When we look at the context in which the word is used in the Act, we can find nothing which suggests that we should give the word “use” anything other than its ordinary meaning. The definition of substitutable goods refers to “a use (including a design use) to which [TCO] goods … can be put”. Clearly, the definition is not simply confining itself to a use for which the TCO goods were designed but is looking to the use to which they can be put. There seems to be no suggestion in this that the means by which that use is achieved have any relevance at all.
We also note that the definition refers to the goods produced in Australia being “put to a use … that corresponds with a use” to which the TCO goods can be put. Again the emphasis is upon the ultimate use and not the means by which it is achieved and this is not altered by the use of the word “corresponds”. That word has been defined, again in so far as it is relevant, in the Shorter Oxford Dictionary as:
“1.To answer to something else in the way of fitness; to agree with; be conformable to; be congruous or in harmony with. 2. To answer to in character or function …”
and in the Macquarie Dictionary as:
“1.to be in agreement or conformity (aft. fol. by with or to): his words and actions do not correspond. 2. to be similar or analogous; be equivalent in function, position, amount etc …”
These definitions do focus in part on the function or process but that is not the appropriate focus of the word “correspond” in the definition of “substitutable goods”. Reference must be made to the two things which must correspond. Those two things are the use to which the TCO goods can be put and a use of the substitutable goods. The ordinary meaning of “correspond” in that context is that one use conforms with or is in harmony with the other use. It would be reading too much into the words “corresponds with” to say that the function or process of the use of one must conform with or be in harmony with the other. It follows that, we can find no suggestion in the definition that the means by which the goods achieve any such use is of any relevance at all. We consider, therefore, that we should give the word “use” its ordinary meaning.
Having done that, we must decide the use (including a design use) to which the goods described in the TCO can be put. We find that they are used for providing domestic space or room heating. In determining their use, we have not included a reference to their use of liquid fuel for that is the means by which they achieve that use and not the use itself. We have reached the same conclusion in respect of their connection to any external fuel although that aspect, in so far as it impinges upon portability, has caused us more concern. We have concluded, however, that the aspect of portability relates essentially to the way in which the TCO goods achieve their overall purpose of providing domestic heating of a space or room rather than to a use to which they can be put.
30. The Tribunal emphasises in the above quote that the word “use” should be given its ordinary, natural English meaning.
31. These observations as to the breadth of the definition have been noted and applied in the case of Re General Merchandise & Apparel Group Pty Ltd and CEO of Customs (2009) 114 ALD 289.
32. Although the definition of “substitutable goods” has been amended since the decision of Vulcan by the insertion of the words “or are capable of being put”, which if anything broadened the definition, in our view those remarks are apposite in the present case.
33. We note, in particular, the reference to “ultimate use” in Vulcan. In Re Tetra Pak Imports Pty Ltd and Chief Executive Officer of Customs and Anor (AAT 11466, 11 December 1996) the Tribunal also considered, in the context of an application for a TCO in respect to goods that would undergo further manufacture upon import into Australia, that the definition of substitutable goods required that regard had to be had to the ultimate end use of the goods.
34. Further, we consider that the reference to the expression “corresponds with a use” is pertinent in this case because in our view the “use” of the TCO train sets, although incomplete, which contain everything except the driver’s cab module are capable of use which is conformable to, congruous with or in harmony with use as a completed passenger train. There is no requirement in the concept of “correspond” that the goods should be identical or exactly limited in use or exactly the same use. It is common ground that evidentiary questions of fact and degree are significant in determining the issue.
35. The concepts of “design use”, corresponding use, and capacity to use all point to a liberal approach to the interpretative exercise.
36. The approach taken by Downer to the interpretation of substitutable goods as a matter of ordinary English usage carries a certain artificiality and literalness by limiting the only use of the imported goods to a “use in a manufacturing process” leading to a completed train. This is especially so given the cross-examination of Mr Johnson as to the extent of manufacture of the train sets when imported, together with the photographic evidence of the driver cab module and the description of the overall scale of the manufacturing process and the numerous features of the TCO goods which makes them suitable for the carriage of passengers. These features include the passenger seats, air-conditioning, grab rails, motor cars and driver cars.
37. As a matter of fact and degree we consider that the extent, scale and characteristics of the TCO goods point to the conclusion that a use to which the TCO goods can be put is use as a passenger train. Such use corresponds to a use to which the United goods can be put. The size of the imported train, the number of carriages, the weight of the train, the installation of passenger seats, the accommodation for 2,150 passengers, the air-conditioning, the grab rails, all point to the relevant use as being properly characterised as a use for a passenger train. Considerable weight must be given to the scale and extent the TCO goods are adapted to passenger transport use. This is not a case where the TCO goods have characteristics which are consistent with a range of uses other than as a passenger train. It is difficult to conceive of any other use for the TCO goods as imported, apart from use for passenger transport by rail.
38. The TCO goods are virtually a complete passenger train missing the driver cab module described in the TCO. The goods as imported are eight cars in a row, each car being 20 metres in length and the set being 160 metres long. There is easy access for passengers by way of wide stairways, facilities for elderly persons and special needs groups, together with upholstered seats. Motors and transmission and the gear box and the doors and almost all mechanical features of the train will already be in place in the TCO goods.
39. The CEO submitted that United produces incomplete passenger trains in the process of its manufacture of complete passenger trains (albeit, the Tribunal notes, without provision being made for the fitting of a driver cab module) and this points to a conclusion that United produces goods that are capable of being put to a use, namely to make complete trains, that corresponds with a use to which the goods the subject of the application or of the TCO can be put.
40. Further, under s 15AA of the Acts Interpretation Act 1901 (Interpretation Act) the Tribunal is required to favour a construction that would promote the purpose or object underlying the Act. The purpose of the TCO scheme is to remove the cost of customs duty where the imposition of duty serves no protective function for Australian industry or, in the words of Drummond J in Seguin Moreau, Australia v Chief Executive Officer of Customs (1997) 77 FCR 410 (although the relevant date for his purposes predated the amendment of the core criteria), “the object of Part XVA of the Act continues to be to protect all Australian-made goods from competition of any significance from imported goods”. The narrow approach advanced by Downer does not give sufficient effect to this purpose: see Second Reading Speech to the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Bill 1992, Senate Hansard 28 May 1992 at pages 2858 and 2859.
41. It is unlikely, in our view, that Parliament would have intended that where there is an Australian manufacturer of complete passenger train sets a TCO could properly be granted for “almost complete” passenger trains. This consequence points away from the interpretation suggested on behalf of Downer in this case although in each case the degree to which the TCO goods are completed is a relevant consideration.
42. Accordingly, in the circumstances of this case and having regard to the evidence as to the nature and characteristics of the TCO goods, and taking into account the need for a purposive approach and to ordinary usage of the expressions used in the definition of “substitutable goods”, we are satisfied that the relevant characterisation of the use of the TCO goods is as a passenger train and that the goods manufactured in Australia by United correspond with such a use including a design use to which the imported goods can be put.
43. Having decided this, it follows that the TCO was lawfully revoked. Although Downer made a formal submission that the Tribunal should, in the alternative, exercise its discretion under section 269SC(4) of the Act, no persuasive grounds or evidence have been advanced which would provide any proper basis for the making of a narrower TCO. In particular this matter was not pressed with any force on the hearing or supported by any substantial argument, and it is not necessary to consider the making of the narrower TCO. In particular, the exercise of this power under section 269SC(4) requires satisfaction that at 27 August 2008 another TCO in respect only of goods covered by the TCO that are not produced in Australia be made and we have not been so satisfied.
Conclusion
44. The preferable and correct decision is that the decision under review is affirmed.
I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon. B Tamberlin, QC, Deputy President and Ms G Ettinger, Senior Member.
Signed: ........[sgd].......................................................................
AssociateDate of Hearing 2 August 2010
Date of Decision 5 November 2010
Counsel for the Applicant Mr A Robertson SC and Mr S Free
Solicitor for the Applicant Mr A Korbel, Corrs Chambers WestgarthSolicitor for the Respondent Mr R Northcote, Australian Customs and Border Protection Service
Counsel for the Joined Party Mr C Lenehan
Solicitor for the Joined Party Mr G Johnson, Freehills
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