Fletcher Insulation Pty Ltd and Chief Executive Officer of Customs
[2015] AATA 748
•25 September 2015
Fletcher Insulation Pty Ltd and Chief Executive Officer of Customs [2015] AATA 748 (25 September 2015)
Division
GENERAL DIVISION
File Number
2014/2347
Re
Fletcher Insulation Pty Ltd
APPLICANT
And
Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Deputy President S E Frost
Date 25 September 2015 Place Sydney The decision under review is affirmed.
.......................[sgd].................................................
Deputy President S E Frost
CATCHWORDS
CUSTOMS – Tariff classification – availability of Tariff Concession Order (TCO) – whether goods covered by Chapter 39, 54 or 56 – woven fabrics – nonwovens – goods covered by Chapter 56 and therefore excluded from Chapter 39 – TCO does not apply – decision under review affirmed
LEGISLATION
Customs Tariff Act 1995 – Schedule 3, headings 3920, 5407, 5603
CASES
Re Gissing and Collector of Customs (1977) 1 ALD 144
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615
Re JM Gillies and Chief Executive Officer of Customs [2014] AATA 868
SECONDARY MATERIALS
Wellington Sears Handbook of Industrial Textiles
Textile Terms and Definitions – Eleventh Edition
Macquarie Dictionary
REASONS FOR DECISION
Deputy President S E Frost
25 September 2015
INTRODUCTION AND ISSUES FOR DETERMINATION
Under the Customs Tariff Act 1995 (the Tariff Act), the rate of customs duty payable on goods imported into Australia varies according to their classification.
The applicant, Fletcher Insulation Pty Ltd, imported goods under the brand name “CLAF”. The applicant claims that the correct tariff classification of the CLAF product is subheading 3920.10.00, as a plastic film. Furthermore, it claims that the product qualifies for concessional entry, free of duty, under Tariff Concession Order (TCO) 9508454, set out later in these reasons, at [10].
The respondent claims, on the other hand, that the goods are properly classified as a woven fabric of synthetic filament yarn, to subheading 5407.30.00, or alternatively as a non-woven under subheading 5603.92.00.
The issues for determination are:
·To which subheading should the CLAF product be classified?
·If the correct subheading is 3920.10.00, does the product answer TCO 9508454?
THE GOODS IN QUESTION
CLAF (which stands for Cross Laminated Airy Fabric) is manufactured in Japan by JX Nippon ANCI Corporation. It presents as a thin material in sheet form, on a roll. Its composition is at least 98 per cent polyethylene, and no more than 2 per cent additives.
Its production commences with the combination of high density polyethylene (HDPE) and low density polyethylene (LDPE) resins into an extruder. The tubular output of the extruder is cut to form a sheet of material comprising a thin layer of LDPE on each side of a thicker layer of HDPE. That sheet is perforated, by slitting, and stretched. The sheet is then separated into two rolls, one of which (the lateral roll) is fed perpendicularly to the other (the longitudinal roll) and then the two are heat bonded together, one on top of the other. It is the bonding of the two perpendicular rolls that results in the description “cross-laminated”. The bonding process leaves thin, but visible, seams across the longitudinal roll where the separate portions of the lateral roll slightly overlap.
From diagrams provided by the applicant, the perforated and stretched single-layer sheet has the appearance of a mesh, but that is not necessarily an accurate description of it. It is simply one integral piece of material, perforated and stretched both longitudinally and laterally. After the cross-laminating, the final product is a bonded article made up of two integral pieces of material, with the bonded layers arranged at right angles to each other.
TARIFF CLASSIFICATION
Goods are classified under a particular tariff classification in Schedule 3 to the Tariff Act. Section 7(1) provides that the Interpretation Rules (set out in Schedule 2) must be used for working out the tariff classification. Those Rules, to the extent they may be relevant, are as follows:
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) ...
(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.…
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.
I will deal with relevant Section, Chapter and Subheading Notes later in these reasons.
TARIFF CONCESSION ORDER 9508454
TCO 9508454 reads as follows:
POLYETHYLENE FILM, high density oriented and cross laminated, having two or more layers of film in which the molecular orientation runs at 90 degrees to one another, whether or not clay coated or corona discharge treated.
GENERAL CLASSIFICATION PRINCIPLES
The starting point in resolving questions of tariff classification is to identify the goods in their condition as imported: Re Gissing and Collector of Customs (1977) 1 ALD 144. The principles with respect to identification of goods were summarised in Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 at 620-621 (citations omitted):
(i) Identification must be objective, having regard to the characteristics which the goods, on informed inspection, present;
(ii) The identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff;
(iii) Nevertheless in identifying goods it is necessary to be aware of the structure of the nomenclature, the basis on which goods are classified and the characteristics of goods which may be relevant to the frequently complex task of classification;
(iv) In the identification of goods, knowledge of how those who trade in the goods describe them will usually be relevant, but not necessarily conclusive;
(v) All the descriptive terms, both specific and generic, by which the goods may fairly be identified may be relevant to the classification of the goods within the Tariff;
(vi) Descriptive terms may be of varying degrees of specificity (e.g. windscreen wiper blade refills, parts for a windscreen wiper or parts for a motor vehicle). Generic descriptions may be by reference to the materials or substances from which the goods are manufactured;
(vii) Identification will frequently extend to characterisation of goods by reference to their design feature, or by reference to their suitability for a particular use where those characteristics emerge from informed inspection of the goods as imported. 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;
(viii) Composite goods, notwithstanding that they have components which are separately identifiable, may nevertheless be identifiable in combination as a new entity if the identity of the separate units is subordinated to the identity of the combination.
The respondent, in its Statement of Facts and Contentions under the heading Identification of the Subject Goods, suggests the following, at paragraph 19:
The goods presented as an open style fabric with the appearance of being woven. It is apparent from a physical examination that the fabric is made of flat filaments. A closer examination reveals that the filaments are not woven but bonded. The subject goods should be identified as a fabric, and more specifically as a non-woven fabric, as that is the objective identification. Such an identification of the subject goods would be consistent with the apparently usual commercial description of the subject goods as a fabric, including:
each time their trading name is used;
in documents of the manufacturer;
in the commercial documents for the subject entry; and
in the patent for the subject goods.
For reasons that will become apparent, “fabric” is a loaded word which at this initial stage is best avoided. A better description, in my view, keeping the language and labels as neutral as possible, is that the product is a thin two-layer sheet of plastic formed by the heat bonding of two layers placed one on top of the other, and at right angles to each other, each layer being the product of processes of extrusion, perforation and stretching.
THE COMPETING SUBHEADINGS
The applicant
The applicant favours classification to subheading 3920.10.00, which appears in Chapter 39 of Section VII. To place that suggested classification into context (“for ease of reference”, as Interpretation Rule 1 states), the title of Section VII is Plastics and articles thereof; rubber and articles thereof. There are two “Notes” and one “Additional Note” to Section VII but none of them are relevant to this product.
The title of Chapter 39 is Plastics and articles thereof. The relevant part of Chapter 39 relied on by the applicant is expressed in the following way:
3920OTHER PLATES, SHEETS, FILM, FOIL AND STRIP, OF PLASTICS, NON-CELLULAR AND NOT REINFORCED, LAMINATED, SUPPORTED OR SIMILARLY COMBINED WITH OTHER MATERIALS:
3920.10.00-Of polymers of ethylene
The respondent
The respondent favours either Chapter 54 or Chapter 56, both of which appear in Section XI, the title of which is Textiles and textile articles.
The title of Chapter 54 is Man-made filaments; strip and the like of man-made textile materials. The title of Chapter 56 is Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof.
The respondent submits that the correct classification is either subheading 5407.30.00 or subheading 5603.92.00:
5407WOVEN FABRICS OF SYNTHETIC FILAMENT YARN, INCLUDING WOVEN FABRICS OBTAINED FROM MATERIALS OF 5404:
5407.10.00-Woven fabrics obtained from high tenacity yarn of nylon or other polyamides or of polyesters
5407.20.00-Woven fabrics obtained from strip or the like
5407.30.00-Fabrics specified in Note 9 to Section XI
5603NONWOVENS, WHETHER OR NOT IMPREGNATED, COATED, COVERED OR LAMINATED:
5603.1-Of man-made filaments:
5603.9-Other:
5603.91.00--Weighing not more than 25 g/m2
5603.92.00--Weighing more than 25 g/m2 but not more than 70 g/m2
SECTION AND CHAPTER NOTES
Section VII and Chapter 39
As already mentioned, there are no relevant Section Notes in Section VII (which includes Chapter 39). However, Chapter 39 contains the following Chapter Notes:
1. Throughout this Schedule “plastics” means those materials of 3901 to 3914.00.00 which are or have been capable, either at the moment of polymerisation or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plasticiser) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external influence.
Throughout this Schedule any reference to “plastics” also includes vulcanised fibre. “Plastics”, however, does not apply to materials regarded as textile materials of Section XI.
2.This Chapter does not cover:
…
(p)Goods of Section XI (textiles and textile articles);
…
…
10. In 3920 and 3921, “plates, sheets, film, foil and strip” applies only to plates, sheets, film, foil and strip (other than those of Chapter 54) and to blocks of regular geometric shape, whether or not printed or otherwise surface worked, uncut or cut into rectangles (including squares) but not further worked (even if when so cut they become articles ready for use).
…
Section XI and Chapters 54 and 56
Section XI (which includes Chapters 54 and 56) contains the following Section Notes:
…
3.This Section does not cover:
…
(g)Monofilament of which any cross sectional dimension exceeds 1 mm or strip or the like (for example, artificial straw) of an apparent width exceeding 5 mm, of plastics (Chapter 39), or plaits or fabrics or other basketware or wickerwork of such monofilament or strip (Chapter 46);
(h)Woven, knitted or crocheted fabrics, felt or nonwovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39;
…
…
8. For the purposes of Chapters 50 to 60:
…
(b)Chapters 50 to 55 and 60 do not apply to goods of Chapters 56 to 59.
9. The woven fabrics of Chapters 50 to 55 include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding.
…
Chapter 54 contains the following Chapter Notes:
1. Throughout this Schedule, “man-made fibres” means staple fibres and filaments of organic polymers produced by manufacturing processes, either:
(a)By polymerisation of organic monomers to produce polymers such as polyamides, polyesters, polyolefins or polyurethanes, or by chemical modification of polymers produced by this process (for example, poly(vinyl alcohol) prepared by the hydrolysis of poly(vinyl acetate)); or
(b)By dissolution or chemical treatment of natural organic polymers (for example, cellulose) to produce polymers such as cuprammonium rayon (cupro) or viscose rayon, or by chemical modification of natural organic polymers (for example, cellulose, casein and other proteins, or alginic acid), to produce polymers such as cellulose acetate or alginates.
“Synthetic” and “artificial”, used in relation to fibres, mean: synthetic: fibres as defined at (a); artificial: fibres as defined at (b). Strip and the like of 5404 or 5405.00.00 are not considered to be man-made fibres.
“Man-made”, “synthetic” and “artificial” shall have the same meanings when used in relation to “textile materials”.
…
Chapter 56 contains the following Chapter Notes:
…
3. 5602 and 5603 cover respectively felt and nonwovens, impregnated, coated, covered or laminated with plastics or rubber whatever the nature of these materials (compact or cellular).
5603 also includes nonwovens in which plastics or rubber forms the bonding substance.
5602 and 5603 do not, however, cover:
(a)Felt impregnated, coated, covered or laminated with plastics or rubber, containing 50% or less by weight of textile material or felt completely embedded in plastics or rubber (Chapter 39 or 40);
(b)Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour (Chapter 39 or 40); or
(c)Plates, sheets or strip of cellular plastics or cellular rubber combined with felt or nonwovens, where the textile material is present merely for reinforcing purposes (Chapter 39 or 40).
…
CONSIDERATION OF THE TARIFF CLASSIFICATION
Section XI, which contains both Chapters 54 and 56, is the convenient starting point. This is because, if CLAF is either:
(a)“of … materials regarded as textile materials of Section XI” (Note 1 of Chapter 39); or
(b)“[g]oods of Section XI” (Note 2(p) of Chapter 39),
then it cannot be classified to 3920.10.00.
Heading 5407
To be covered by 5407, the goods in question would have to be “woven fabrics”, either within the ordinary meaning of that expression or within its expanded meaning derived from Note 9 of Section XI.
The word “woven” is the past participle of the verb “to weave”. Weaving, according to the Macquarie Dictionary, is a process of interlacing threads, yarns, strips, fibrous material and the like.
There is no weaving involved in the production of CLAF (see [6]-[7] above), and so CLAF cannot be regarded as a “woven fabric” within the ordinary meaning of that expression. However, Note 9 of Section XI expands the normal reach of the expression, by providing that the woven fabrics of Chapters 50 to 55:
include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding.
In other words, “woven fabrics” can be fabrics that are not woven at all, if the layer of “parallel textile yarns” running in one direction is bonded “by an adhesive or by thermal bonding” with the layer of “parallel textile yarns” running in the cross-direction. That expanded reach of the expression “woven fabrics” has no relevance here, since in the case of CLAF, there are no “parallel textile yarns” to begin with. I draw that conclusion by reference, again, to the Macquarie Dictionary, which reveals that “yarn” is “thread made by twisting fibres, as nylon, cotton or wool, and used for knitting and weaving”. That definition bears no resemblance to the process by which the layers of material in CLAF come into existence.
The respondent submits in [85] of its Statement of Facts and Contentions:
Section XI Note 9 provides that goods that are non-woven within the ordinary meaning of that term are treated as woven for the purposes of heading 5407, if they are manufactured by the methods described in the Note. The subject goods are manufactured by such a method. The yarns are bonded at the intersections of the yarns by thermal bonding. Therefore, the Tribunal should classify the goods in heading 5407.
I do not agree with that submission. While there is undoubtedly thermal bonding of the two layers of HDPE material, those layers are not, and do not consist of, yarn or yarns.
The respondent notes that in Re JM Gillies and Chief Executive Officer of Customs [2014] AATA 868, the Tribunal, after considering the meaning of the word “yarn” by reference to standard dictionaries and also to The Modern Textile & Apparel Dictionary, said at [81]:
Despite minor differences in the various definitions disclosed, the majority not only describe the word yarn by its composition, but also refer to the fact that it is material used in weaving, knitting, braiding, plaiting, or otherwise made into a textile material. In fact, while its composition or substance from which it is composed may vary widely, including natural or man-made fibres or filaments, the common understanding is that it is any of the substances referred to in the ordinary meaning made into a strand which is suitable for the uses to which I have referred above. In other words, it is defined, predominantly, by its suitability for a particular use.
The goods under consideration in JM Gillies were found by the Tribunal to be “simply synthetic monofilament fishing line”. In considering whether the goods answered the description “YARNS, NYLON” in a Tariff Concession Order, the Tribunal concluded at [84] that the particular TCO:
… is plainly concerned with synthetic filament which is capable of being used as yarn and is primarily manufactured for that purpose. That is, it is suitable for weaving, braiding, plaiting, knitting or otherwise made into textile material. The goods in question do not satisfy that description even though I accept that there will be synthetic monofilament which is suitable for use as yarn. The goods in question are composed of synthetic filaments suitable for and manufactured primarily for use as fishing line.
It is difficult to see how the Tribunal’s reasoning in JM Gillies supports the respondent’s submission that heading 5407 applies to CLAF. CLAF is not a filament, and it is not made from filaments. The other expressions used by the Tribunal in JM Gillies – fibres and strands – are also entirely inapt, in my view, to describe, at any stage in the manufacturing process, either of the layers of material that go into the production of CLAF.
In the context in which this analysis is taking place, the very notion of “filaments”, “fibres”, “strands” and “yarns” is that they initially exist as separate items, but by weaving, bonding or adhesion, are brought together to form something different – a “fabric”, for example. That is not the case with CLAF. The very first steps in the manufacturing process of CLAF produce a sheet of plastic, which is then subjected to slitting and stretching processes. In no way are filaments or strands created. The manufactured product commences as, and remains throughout, an integral piece of plastic material.
CLAF fails to answer the description “woven fabrics”, whether in its ordinary meaning or its expanded form in Note 9 of Section XI.
CLAF is not covered by heading 5407.
Heading 5603
The next question is whether CLAF is a “nonwoven”. It cannot be classified to heading 5603 unless it answers that description.
“Nonwoven” is an expression not commonly used in everyday conversation, but it is well known to the textile industry.
The respondent provided to the Tribunal, as attachments to its Statement of Facts and Contentions, a number of excerpts from the Wellington Sears Handbook of Industrial Textiles, including the following:
(a)In Attachment E:
CLASSIFICATION OF FABRICS
A fabric may be defined as a planar assembly of fibers, yarns or combinations of these. … The most commonly used fabric forming methods are interlacing, interlooping, bonding and tufting.
…
Bonding (Nonwovens)
Nonwovens – using either textile, paper, extrusion or some combination of these technologies to form and bond polymers, fibers, filaments, yarns or combination sheet into a flexible, porous structure …
(b)In Attachment H:
NONWOVEN FABRICS
Introduction
A fabric is a unit of solid matter, generally composed of fibers, and is essentially two-dimensional in shape (i.e., large area but small thickness). Because of its small thickness and fibrous nature, a fabric is usually flexible. The word nonwoven is not very descriptive in that, at best, it describes what fabric is not. Nonwoven usually implies that the fabric has been formed by a procedure other than weaving, knitting, braiding or tufting. Weaving, knitting, braiding and tufting are considered conventional methods for the production of fabrics, so the term non-conventional fabric is sometimes used for those formed by other methods. A reasonable definition of a nonwoven fabric is a fabric made directly from a web of fiber or film, without the intermediate step of yarn manufacture (necessary for weaving, braiding, knitting or tufting). Although paper also fits this definition, it is not traditionally considered to be a nonwoven fabric. Frequently, woolen felts are also excluded from the nonwoven definition.
Often, the word fabric is omitted in the description of nonwoven materials, and they are simply referred to as nonwovens. …
For its part, the applicant provided excerpts from the book Textile Terms and Definitions – Eleventh Edition, published by The Textile Institute of the United Kingdom. That book includes the following entry:
nonwoven; nonwoven fabric
Fabrics normally made from continuous filaments or from staple fibre webs or batts strengthened by bonding using various techniques: these include adhesive bonding, mechanical interlocking by needling or fluid jet entanglement, thermal bonding and stitch bonding.
I do not accept that CLAF is composed of fibres or filaments, but that does not mean that it is not properly described as a “nonwoven”. The Wellington Sears Handbook says that a “reasonable definition” of a nonwoven fabric is a fabric “made directly from a web of fiber or film, without the intermediate step of yarn manufacture …”. That seems to me to be an entirely apt way to describe CLAF, which is – also consistently with the language of the handbook – a flexible, porous structure. The Handbook’s reference to manufacture from a “web” reflects similar wording in the Textile Institute book.
I conclude that CLAF is a “nonwoven”, and in doing so, I do not overlook the requirement that to be a nonwoven it must be, objectively, a “fabric”. I accept, as highlighted by the respondent (see [12] of these reasons), that CLAF is referred to in much of the descriptive material as a fabric, and indeed the word “fabric” is included in the full name of the product – cross laminated airy fabric. But that, in itself, is not determinative. The question is not what it is called, but what it is. On visual inspection, it certainly looks like a fabric, and my initial hesitation in accepting that it is one derived from its composition, which is entirely of plastic. But there is nothing in any of the texts provided to the Tribunal to suggest that a product made entirely of plastic is, for that reason alone, not a fabric.
The applicant submits that CLAF cannot be classified to Section XI:
·first, because it is not a textile; and
·second, given Note 3(h) to Section XI (which excludes nonwovens impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39), it would not make sense that nonwovens that are totally plastic would still fall to Section XI.
Whether CLAF is a “textile” is irrelevant to the question of classification to 5407 or 5603. The word “textile” does not appear anywhere in the headings or subheadings on which the respondent relies, and so it does not matter whether CLAF is, or is not, a “textile”. That the word appears in the heading to Section XI does not affect that outcome: see Interpretation Rule 1.
And as far as Note 3(h) to Section XI is concerned, it seems to me that its purpose and effect is to exclude from Section XI, relevantly, those nonwovens (whether of plastic or not) that have been impregnated, coated, covered or laminated with plastics to such an extent that it is no longer appropriate to regard them, simply, as “nonwovens”. That is not the case with CLAF.
It follows, in my view, that CLAF is not excluded from Section XI, but is covered by subheading 5603.92.00.
Heading 3920
Given that conclusion, CLAF cannot be covered by 3920 because of Note 2(p) of Chapter 39.
It also follows that TCO 9508454, which is keyed to 3920.10.00, cannot apply.
CONCLUSION
The decision under review is affirmed.
I certify that the preceding 48 (forty -eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost ..............................[sgd]..........................................
Associate
Dated 25 September 2015
Dates of hearing 23 and 24 April 2015 Solicitors for the Applicant Gross & Becroft Lawyers Solicitors for the Respondent Legal Services Branch, Australian Customs and Border Protection Service
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