Halifax Vogel Group Pty Ltd and Comptroller-General of Customs
[2017] AATA 405
•31 March 2017
Halifax Vogel Group Pty Ltd and Comptroller-General of Customs [2017] AATA 405 (31 March 2017)
Division:GENERAL DIVISION
File Number(s): 2015/4700
Re: Halifax Vogel Group Pty Ltd
APPLICANT
Comptroller-General of CustomsAnd
RESPONDENT
DECISION
Tribunal: The Hon. Dennis Cowdroy QAM QC, Deputy President
Date:31 March 2017
Place:Sydney
The decision under review is affirmed.
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The Hon. Dennis Cowdroy QAM QC, Deputy President
CATCHWORDS
TAXATION – customs and excise – Tariff Concession Order – revocation of Tariff Concession Order – whether the core criteria under s 269C of the Customs Act 1901 (Cth) has been satisfied – decision affirmed.
LEGISLATION
Customs Act 1901 (Cth) ss 269B(1); 269B(3); 269C; 269D(1); 269F(1); 269FA; 269P(1); 269SC
Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Act 1992
Administrative Appeals Tribunal Act 1975 (Cth) s 35
CASES
Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs [2015] AATA 215
Comptroller-General of Customs v Vestas – Australian Wind Technology Pty Ltd [2015] FCAFC 185
Dow Agroscience Australia Ltd v Chief Executive Officer of Customs,(Nufarm Australia Ltd joined) [2012] AATA 568Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs (1997) 77 FCR 493
SECONDARY MATERIALS
Commonwealth, Parliamentary Debates, House of Representatives, 7 May 1992, 2665 (Hon Mr Beddall).
REASONS FOR DECISION
The Hon. Dennis Cowdroy QAM QC, Deputy President
31 March 2017
The applicant challenges a decision of a delegate of the respondent which found that a Tariff Concession Order (“TCO”), issued under the provisions of the Customs Act 1901 (Cth) (“the Act”) and which had been held by the applicant since 2005, should be revoked. As will be discussed hereunder, a TCO can be issued if the respondent is satisfied that there are no goods produced in Australia which are defined as “substitutable goods”: s 269B(1) of the Act (see below). A TCO, accordingly, provides a tariff concession to an importer of manufactured goods provided no equivalent goods are manufactured in Australia. However, a TCO is liable to be the subject of a revocation application in the event that the respondent is satisfied that, in fact, there are “substitutable goods” manufactured in Australia. In this application, the applicant has had a TCO made in its favour, revoked.
STATUTORY PROVISIONS
Part XVA of the Act was introduced on 1 November 1992 following its insertion by the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Act 1992. Pursuant to this amendment to the Act, a party could make an application for a TCO, provided certain criteria was satisfied, as defined in section 269C of the Act, which states:
For the purposes of this Part, 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.
“Core criteria” is defined in section 269C as follows:
For the purposes of this Part, 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.
Subsection 269P(1) of the Act provides that if a TCO application in respect of goods has been accepted as a valid application under section 269H, the respondent must decide, not later than 150 days after the gazettal day, whether he or she is satisfied that, having regard to the application submissions and information and enquiries made by the respondent, the application meets the “core criteria”.
“Substitutable goods” is defined in subsection 269B(1) as:
“substitutable goods”, in respect of goods the subject of a TCO application or of a TCO, mean goods produced in Australia that a put, or are capable of being put, to use that corresponds with the use (including a design use) to which the goods the subject of the application or of the TCO can be put.
Subsection 269B(3) provides:
In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.
For the purposes of the present application, the definition of “goods produced in Australia” contained in subsection 269D(1) is significant. The subsection relevantly provides that:
For the purposes of this Part, goods,…are taken to be produced in Australia if:
(a)the goods are wholly or partly manufactured in Australia; and
(b)not less than 25% of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian material; and
(iii) the factory overhead expenses incurred in Australia in respect of the goods.
The criteria specified in subsection 269(D)(1)(b), relating to the 25% cost of Australian labour and materials, is hereafter referred to as “the 25% criteria".
OBJECT OF THE LEGISLATION
The object of Part XVA of the Act, as contained in the Second Reading Speech, is as follows:
The objective of the system is to ensure that industry is not taxed by the tariff where it is serving no protective function.[1]
For authorities confirming this proposition, see Brand Developers Aust Pty Ltd and Chief Executive Officer of Customs [2015] AATA 215 (“Brand Developers”) at [27].
[1] Commonwealth, Parliamentary Debates, House of Representatives, 7 May 1992, 2665 (Hon Mr Beddall).
In summary therefore, the legislation was designed to protect local industry, provided certain requirements were satisfied as specified in section 269B(3). The criteria required that “at least 25% of the factory or works costs be represented by Australian integers”: see Comptroller General of Customs v Vestas – Australian Wind Technology Pty Ltd [2015] FCAFC 185 at [60].
Where no goods produced in Australia existed, a party could apply for a TCO as provided by subsection 269F(1) of the Act. The onus lies upon the applicant for a TCO to establish that there are reasonable grounds for asserting that its application meets the core criteria: see s 269FA of the Act.
REVOCATION OF A TCO
The Act makes provision for revocation of a TCO. Section 269 relevantly provides:
(1) Not later than 60 days after lodgement of a request for revocation of a TCO, and after having regard to the request and to any other information,…the Comptroller- General of Customs must decide whether or not he or she is satisfied:
(a)that, on the day of lodgement of the request, the person requesting the revocation of the TCO is a producer in Australia of goods that are substitutable goods in relation to the goods the subject of the order; and
(b)that, if the TCO were not in force on that day but that day were the day on which the application for that TCO was large, the Comptroller-General of Customs would not have made the TCO.
(1A)as soon as practicable after receiving a request for revocation of a TCO, the Comptroller- General of Customs must publish a gazette notice stating:
(a)that the request has been lodged; and
(b)the date that the request was lodged; and
(c)the full particulars of the TCO to which the request relates.
If the Comptroller-General is satisfied of the matters referred to in subsection (1) in relation to a request for revocation of a TCO, the Comptroller-General of Customs must make an order revoking the TCO.
FACTS
The applicant applied for a TCO on 5 August 2005 in respect of the following product:
Sheet, Aluminium Composite, having both of the following:
(a)core of either aluminium try- hydroxide or low-density polyethylene;
(b)inner and outer skin of aluminium sheet
The tariff classification for the goods is 7606.12.00 as contained in Schedule 3 of the Act. TCO 0510332 was granted to the applicant and was published in the Gazette on 26 October 2005.
In January 2015, Alucoil Composites Pty Ltd (“Alucoil”) established its manufacturing business in Australia at Campbellfield, Victoria. The manufacturing consists of design and manufacture of aluminium composite panels, formed by two sheets of aluminium alloy bonded with a mineral fire resistant core. The manufacturing process of the completed panels involved a process of extrusion, lamination and bonding of the various layers in what is described as a “50m long state of the art fabricating machine”.
It is not disputed by the applicant that Alucoil manufactures a product which is of the same type that is covered by the TCO held by the applicant. In Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs (1997) 77 FCR 493 Goldberg J said at 497:
“Substitutable goods” are goods produced that are put to a use that corresponds with a use to which the relevant imported goods can be put.
Such observation mirrors the requirements of subsection 269B(1) of the Act. By virtue of the material placed before this Tribunal, there is no contest on this issue.
The application for revocation of the TCO was made by Alucoil when it lodged a “Request for Revocation of a Tariff Concession Order (TCO) or Commercial Tariff Concession Order (CTCO)” with the respondent on 8 May 2015. Alucoil provided material, which satisfied the criteria set out in subsection 269D(1), to establish that its manufactured goods satisfied the definition of “goods produced in Australia”.
On 12 June 2015, a delegate of the Chief Executive Officer of the respondent upheld the revocation request. The making of such request, and the procedure, is conveniently referred to in Brand Developers at [76] to [80]. The decision to revoke the TCO was Gazetted on 17 June 2015. It is from this decision that the application for review is made.
APPLICANT SUBMISSIONS
The applicant originally made submissions to the respondent, concerning the uses to which the products produced by it and Alucoil could be utilised, asserting that the materials were used for different purposes. The applicant also challenged the assertions that the applicant’s goods and those of Alucoil were used for different applications. Also, the applicant claimed that Alucoil failed to satisfy the 25% criteria. However, at the Tribunal hearing, the applicant limited its application to one issue, namely whether the 25% criteria had been satisfied. Accordingly, the scope of the matter for determination is substantially confined.
OBSERVATIONS
The applicant is at a distinct disadvantage, because it does not know of the precise material placed before the respondent which led to the decision to revoke the TCO. Such material was treated as commercial in confidence, in view of the fact that the applicant was a competitor in the same type of manufacture of goods. The legislation requires that if such material satisfied the respondent, then under section 269SC of the Act, the respondent must make the decision to revoke, that is, such action is mandatory: see s 269SC (3) of the Act.
Because of the confidential nature of the material filed, the Tribunal made an order pursuant to section 35 of the Administrative Appeals Tribunal Act 1975 (Cth) that both the statements filed by Alucoil, and the evidence provided by its witnesses remain confidential. During the hearing of such evidence, Counsel for the applicant was present subject to an undertaking he had given to maintain confidentiality.
The evidence adduced at the hearing comprised the statements and evidence in chief and answers in cross-examination provided by the manager of the Australian operations of Alucoil, Mr Roberto Fernandez, and the evidence of the company’s auditor provided by Mr Pasquale Rocca.
It is not possible to provide the detail of the evidence provided by each witness, as to do so would breach the confidentiality orders. However, the evidence related to the establishment of the business of Alucoil in Australia, of the product it manufactured and of the expenses incurred in producing the product. Mr Fernandez, in addressing the 25% criteria, provided material which demonstrated that the cost incurred in the production of the goods confined to the Australian labour and materials well exceeded the one quarter of the total production costs.
Mr Rocca testified that he had been an accountant since 1973. Since January 2015 his practice, namely Clarke Rocca, had been the auditors and external accountants for Alucoil since it commenced manufacturing in January 2015. Mr Rocca also provided calculations which demonstrated that the one quarter of the total production costs comprising Australian labour and materials to satisfy the 25% criteria, was readily exceeded.
In its submissions, the applicant submitted that the information before the respondent and before the Tribunal was too vague, and that some of the data produced by Alucoil was unreliable, incomplete and inconsistent.
The final estimates provided by Mr Rocca and by Mr Fernandez of the percentage of the Australian labour and materials incurred in production were different. However, Mr Rocca explained that the variation was due to the different methodology used to make the assessment. Whereas Mr Fernandez took a sample order for the purposes of making his calculation of the percentage required, Mr Rocca took a sample of expenses over a period of almost 5 months. Mr Rocca testified that there was no difference in substance, but only a difference in the approach taken to the calculations of the requisite percentage.
The financial records produced by Alucoil demonstrated that they had been maintained in a professional manner. From those records it was possible to extract the cost of labour only relating to the manufacture of the goods, and to exclude those cost which related to office expenses and sales expenses. For example the office overheads of maintenance, advertising, Internet and staff wages and of sales were not taken into consideration in the assessment of the actual manufacturing costs incurred in the production of the goods.
Whilst the factory employed only a small number of persons in the manufacturing operations, Mr Fernandez explained that this was the consequence of the latest technology and equipment in the factory. As has been determined, in establishing the factory or work costs, it is not necessary to require the application of accounting standards: see Dow Agroscience Australia Ltd and Chief Executive Officer of Customs,(Nufarm Australia Ltd joined) [2012] AATA 568 (“Dow Agroscience”) at [57] .
The facts in Dow Agroscience contrast sharply to the present: in Dow Agroscience, the Tribunal was not satisfied that the 25% criteria relating to the production of the goods was satisfied. Such lack of satisfaction arose from the absence of records relating to the critical matter concerning the costs of labour in the production of the goods. In view of the evidence provided by Alucoil, no such issue arises in the present application.
Whilst the Tribunal understands the predicament of the applicant in not knowing the evidence relied upon by the decision maker because of the commercial in confidence nature of the material, the facts placed before the Tribunal satisfies it that the particular issue raised on this application for review, namely whether the 25% costs of Australian labour and materials has been satisfied, has readily been satisfied. As the Tribunal occupies the position of the decision maker under section 269SC in determining this issue, the legislation provides that if it is so satisfied, it must make an order revoking the TCO. There is no discretion once the requirements of subsection 269SC(1) are satisfied.
The applicant submitted that there was an onus upon Alucoil to provide the necessary satisfaction to the delegate, and the Tribunal. The Tribunal is satisfied that the onus has been discharged. The only question to be determined is whether the Tribunal is satisfied that the Australian content is not less than 25%: see Dow Agroscience at [56].
ORDERS
It follows that:
(a)the decision of the delegate is upheld as the correct and preferable decision; and
(b)the decision under review be affirmed.
I certify that the preceding 31 (thirty-one) paragraphs are a true copy of the reasons for the decision herein of the Hon. Dennis Cowdroy QAM QC, Deputy President
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Associate
Dated: 31 March 2017
Date(s) of hearing: 16 February 2017 Solicitors for the Applicant: Gross & Becroft Lawyers Solicitors for the Respondent: Mr J Millea
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