HOWARD and CHIEF EXECUTIVE OFFICER OF CUSTOMS

[2009] AATA 926

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 926

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/5784

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		HOWARD AUSTRALIA PTY LTD

Applicant

And CHIEF EXECUTIVE OFFICER OF CUSTOMS

Respondent

DECISION

Tribunal Mr Egon Fice, Member  

Date30 November 2009

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) Egon Fice

Member

CUSTOMS - tariff classification – front-end loader – incomplete machine – accessory to tractor – description of goods – classification in light of an exclusionary note

Customs Tariff Act 1995 s 7, Sch 2 and Sch 3

Customs Act 1901 s 167, s 273GA

Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (1980) 47 FLR 131

Chandler and Co v Collector of Customs (1907) 4 CLR 1719

Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287

Re Gissing and Collector of Customs (1977) 1 ALD 144

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

Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449

Whitton v Falkiner (1915) 20 CLR 118

REASONS FOR DECISION

30 November 2009 Mr Egon Fice, Member      

1.      On 15 August 2008, following an audit undertaken by a delegate of the Chief Executive Officer of Customs (Customs), Howard Australia Pty Ltd (Howard) lodged an application for a Tariff Advice regarding imported goods described as:

Loader arms, mounted on agricultural tractors for the lifting and lowering of interchangeable implements.

2. Howard claimed that the goods in question should be classified under Sub-heading 8708.99.20 of Schedule 3 to the Customs Tariff Act 1995 (the Tariff Act). In other words, Howard contended that the imported goods were properly described as parts and accessories of motor vehicles, namely, agricultural tractors. As such, they would attract no duty. However, Customs maintained that the goods were properly classified to Heading 8428.90.00, being other machinery which fell under the general heading: OTHER LIFTING, HANDLING, LOADING OR UNLOADING MACHINERY (FOR EXAMPLE, LIFTS, ESCALATORS, CONVEYORS, TELEFERICS).  Under that heading, the goods would attract a five per cent duty.

3. On 30 October 2008 Howard paid the five per cent duty under protest in accordance with s 167 of the Customs Act 1901 (the Customs Act). Where the owner of goods has paid under protest the duty demanded by Customs, the owner may apply to the Tribunal for a review of that decision pursuant to s 273GA of the Customs Act. Howard lodged an application on 5 December 2008, which is within six months after the date of payment of duty under protest.

4.      The only issue which I am required to decide is the correct classification of the loader arms imported by Howard.

THE GOODS IN QUESTION

5.      According to Mr Peter Milne, the Managing Director of Howard, the goods are known as tractor front-end loaders.  They comprise two parallel steel beams joined at the front end by a crossbeam.  The rear ends of the parallel beams are attached to a sub-frame mounted on either side of an agricultural tractor and act as arms.  Two hydraulic rams are attached to each arm of the loader.  The lower rams enable the arms to be raised and lowered while the upper rams enable the implement attached to the end of the parallel arms to be rotated.  A variety of implements may be attached to the parallel arms, including devices for lifting hay bales, a multi purpose bucket, multi purpose silage grab, stone or stick rake, bail spike, a grading bucket and a pallet fork.  The hydraulic rams are powered by the tractor’s hydraulic system. 

IDENTIFICATION

6.      The first task in tariff classification is to objectively identify the goods imported as they would appear to an informed observer.  As the Tribunal (Brennan J (President), V J Skermer and R L Stock (Members)) said in Re Gissing and Collector of Customs (1977) 1 ALD 144 at 146:

The identification of the relevant entity for classification is to be distinguished from the step which follows, namely, the inquiry whether one or more of the Tariff provisions applies to the entity which has been identified. … In attempting to identify the entity, the Tariff gives no assistance. Although it will frequently be possible to apply a descriptive word to the combination which is established as the entity, the naming of the entity is not an essential step in the process of identification. Identification is concerned with goods, not with the description of goods. …

In determining the relevant entity, regard is had to the imported goods themselves, in the condition in which they are imported (Chandler v Collector of Customs (1907) 4 CLR 1719 at 1730; Worthington v Robbins 139 US 337 at 341; United States v Schoverling 146 US 76 at 82). They are not identified by reference to the use to which the goods may be put in the future, though their present suitability for that use may be a relevant factor.

7.      In Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449 at 462, the majority of the Full Court of the Federal Court, relied on Chandler and Co v Collector of Customs (1907) 4 CLR 1719 at 1729, Whitton v Falkiner (1915) 20 CLR 118 at 131 and Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (1980) 47 FLR 131 at 155. The majority of the Full Court said that the authorities made it clear that when determining the essential character of goods, it is the condition of the goods at the time of importation that is the determining factor. It is wrong to classify goods or to determine their essential character by reference to the purpose of the importer or the purchaser. The majority also said that regard must be had to the characteristics of the goods as they would present themselves to an informed observer. The Court said, at 463:

It must always be remembered that the classification of goods for tariff purposes is a practical “wharf-side” task. Upon some occasions it willbe [sic] necessary for the classifier to obtain information to enable identification of the goods but it is entirely inappropriate that he or she should enter into inquiries upon matters such as cost, commercial advantage and purchaser preference which the tribunal undertook. It ought normally be possible to classify goods merely by looking at them and by considering their nature and the function which they were designed to serve.

8.        In Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 at 620 – 621, the Tribunal identified eight principles relevant to the process of identifying the goods. Those principles are:

(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 the 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 (eg. 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 features cf Re Vergo Manufacturing Co Pty Ltd and Collector of Customs (Vic) (1981) 3 ALN No 15 or by reference to their suitability for a particular use where those characteristics emerge from informed inspection of the goods imported ... .  The extent to which those characteristics may be relevant to the ultimate classification of the goods and whether evidence of the use to which the goods are put to after importation is relevant, will depend upon the language of the Tariff Nomenclature...; and

(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 entity of the combination ... .

9.      According to Customs, the goods in this case should be appropriately identified as tractor front-end loaders, or simply as loaders.  They could also be identified as loader lifting arms. 

10.     Mr L Gross, who appeared on behalf of Howard, submitted that as imported, the goods were simply a manufactured object, which has to be attached to a tractor and to have an implement fitted to it to be capable of any use.  Without being attached to a tractor and having an implement fitted, the object is not capable of lifting anything.  Mr Gross submitted that Customs had ignored a basic tenant of identification principles, that is, that identification is concerned with goods and not a description of the goods.  He said that Customs had failed to actually identify the goods based on their condition as imported.

11.     In my opinion, on informed inspection, the goods would be identified as a machine.  In other words, it would be identified as an apparatus for applying mechanical power, consisting of a number of parts, each having a definite function (the Shorter Oxford English Dictionary).  The heavy steel arms are clearly designed to be attached to another machine which would provide the arms with stability and most likely, transportability.  The parallel metal beams have two pivot points and large hydraulic rams attached, clearly indicating that this is a machine designed for lifting and lowering substantial loads. 

12.     Quite plainly, the parallel arms are not capable of operating as a machine unless they are attached to a stable platform, a source of hydraulic power is provided to exert force on the hydraulic rams and a device is fitted on the unattached end of the parallel arms to hold the object or objects being lifted or lowered.  A reasonable description of this machine based on its clearly apparent characteristics and the description provided by the manufacturer is that it is a loader or, given that it is likely that the machine will be attached to the front of a stable platform so that the operator can observe its operation, a front loader.

13.     Although Mr Gross submitted that an informed observer would say these goods are an accessory to a tractor, I cannot agree.  While a tractor obviously may form a stable and mobile platform for the machine to operate, a simple wharf side inspection of the machine in question would not necessarily lead to the conclusion that the required platform would be a tractor.  It is only by reading the manufacturer’s brochure that it becomes apparent that this loader has been designed specifically to be attached to the front of most commonly manufactured agricultural tractors, by first attaching a sub-frame to the tractor to which the machine is to be attached.

CLASSIFICATION

14. Section 7(1) of the Tariff Act provides that the Interpretation Rules must be used when working out the tariff classification under which goods are to be classified. The various classifications of goods are set out in Schedule 3 of the Tariff Act along with the general and special rates of duty applicable to each classification.

15. The general rules for interpreting Schedule 3 are set out in Schedule 2 of the Tariff Act. They provide that the classification of goods in Schedule 3 shall be governed by the following relevant 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.

16.     Interpretive rule 3 sets out the way in which goods that can be classified under two or more headings should be classified.  However, as Mr R Northcote, who appeared on behalf of Customs, submitted, that rule is unlikely to have application in this case because the relevant headings under which the loader may be classified are mutually exclusive. 

17.     Howard contended that the loader should be classified under Heading 8708: PARTS AND ACCESSORIES OF THE MOTOR VEHICLES OF 8701 TO 8705.  Customs contended that the loader should be classified under Heading 8428: OTHER LIFTING, HANDLING, LOADING OR UNLOADING MACHINERY (FOR EXAMPLE, LIFTS, ESCALATORS, CONVEYORS, TELEFERICS).

18.     Note 2(e) to Section XVII, which deals with vehicles, aircraft, vessels and associated transport equipment, applies to goods under Chapter 87, and it provides:

2.-“Parts” and “parts and accessories” do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:

…

(e)Machines or apparatus of 8401 to 8479, or parts thereof; …

Therefore, if the loader is properly identified as a machine which can be classified under Headings 8401 to 8479; it cannot also be classified under Headings 8701 to 8705.  In other words, Note 2(e) applies to exclude from classification under Chapter 87 goods which could be classified under that chapter, if they can also be classified under Chapter 84.  Such goods must be classified under Chapter 84.

19.     The Full Court of the Federal Court (Wilcox, O’Connor and Drummond JJ) in Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287 dealt with the appropriate procedure for determining the proper classification of goods where they might seem to fall under a number of sub-headings, but where an exclusory note applied.  In that case, the notes to Section XVI provided that the section did not cover articles of Chapter 90.  The Court said, at 289-290:

It follows that the appropriate procedure for determining the proper classification of goods that might seem to fall within any of the sub-headings in Section XVI and Ch 90 is first, to determine whether the goods can appropriately be classified under any of the headings in Ch 90. If they can be, they are to be so classified and it is irrelevant that the goods might also fall within the terms of any of the headings in any of the Chapters of Section XVI or that they might be more appropriately classified under Section XVI than Ch 90. The goods may be classified under Section XVI only if none of the headings in Ch 90 is applicable.

20.     Therefore, as I understand Note 2(e) to Section XVII, irrespective of the fact that the goods in question may properly be classified under Heading 8708 because they are parts and accessories of a motor vehicle described in Heading 8701, they must not be classified under that heading if they can be classified under Heading 8428.

CAN THE GOODS BE CLASSIFIED UNDER HEADING 8428?

21.     Mr Gross submitted that the loader cannot be properly described as lifting equipment.  As I understood Mr Gross’ argument, this is because an informed observer would say that the goods are an accessory to a tractor.  It is only if the loader is fitted to a tractor that it can perform the tasks of lifting and carrying various objects.  It would also depend on the nature of the implement fitted to the front end of the loader arms.  On the other hand, Mr Northcote submitted that the goods, as imported, are loader arms, made of metal with linkages and hydraulic rams.  He submitted that the subject goods are certainly machinery and are designed to lift.  They are properly described as lifting machinery.

22.     In my opinion, Mr Northcote’s submissions are correct.  The goods described as loaders are in fact machines capable of performing a lifting function if a suitable holding device is fitted to the front end and the parallel arms are attached to a stable platform from which it is able to obtain hydraulic power.  I accept that the goods as imported are incomplete, but only to the extent that they are imported without the holding device attached to the front of the loader.

23.     Although the loader has been purpose-built to be attached to a sub-frame which can be fitted to most conventional agricultural tractors, that does not alter the essential character of the machine.  The loader is itself a machine, discrete from the tractor or any other device to which it might be attached.  It is plainly an apparatus for applying mechanical power in its own right.  It is, as Mr Northcote suggested, no different to many other forms of agricultural machinery which can be attached to and driven by power derived from a tractor.  In fact, Heading 8432 applies to agricultural, horticultural or forestry machinery such as ploughs, harrows, scarifiers, cultivators, weeders, hoes, seeders, planters, manure spreaders and the like.  Each of those devices is a machine in its own right and many of those pieces of machinery have optional pieces of equipment which can be attached to them to suit a particular purpose.

24.     As imported, those machines are not capable of performing any function at all unless they are connected to a power source being either a mechanical drive or, and frequently together with, hydraulic power provided by a tractor.  It is not until they are connected to the tractor and mobilised by the tractor’s engine that they become functional.  Even without any form of power attached to those machines, they remain machines; that is, an apparatus for the application of mechanical power.  Accordingly, I find that objectively, the characteristics of the loader as imported satisfy the description under the Heading 8428; that is, lifting, handling, loading or unloading machinery.  That is the case whether an end piece needs to be fitted to the loader arms in order to grasp or impale the object which is being lifted.  Interpretive Rule 2(a) may be relied upon if that is the case. 

25.     Mr Northcote submitted, in the alternative, that if the loader equipment did not fall within Heading 8428, it could be classified under 8431 as PARTS SUITABLE FOR USE SOLELY OR PRINCIPALLY WITH THE MACHINERY OF HEADINGS 8425 TO 8430.  Although that may be the case as far as the end piece is concerned, I am not of the view that the loader is properly described as a part suitable for use solely or principally with machinery for lifting, handling or loading. 

26.     Having found that the loader is correctly classified under Heading 8428.90.00, because of the effect of exclusory note 2(e) to s XVII, it cannot be classified under Heading 8708.

CONCLUSION

27.     Its manufacturer describes the goods that are the subject of this dispute, as front loaders.  The equipment is, plainly, machinery designed to apply mechanical power for the purpose of lifting and carrying a variety of objects associated with the operation of a farm.  Although it must be attached to a stable platform and to a source of hydraulic power, it is a machine in its own right.  Its primary purpose is to act as a lifting machine.  That is the loader’s principal function.  It may be used with a bucket attached to the front end which is suitable for excavation, but that would appear to be a secondary function.  Customs therefore correctly classified the loader under Heading 8428, and in particular, Sub‑heading 8428.90.00.  Because it could be properly classified under Chapter 84, Note 2(e) to Section XVII precludes classifying the machine under Chapter 87 (as was urged upon me by Howard).  Therefore, even if the goods could also properly be classified under Chapter 87, it would serve no purpose to do so.

28.     The decision made by a delegate of Customs on 5 January 2009, classifying the goods under Heading 8428.90.00 was correct and I affirm that decision. 

I certify that the twenty-eight [28] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr Egon Fice, Member

(sgd):  Leah Berardi

Clerk

Date of Hearing  14 September 2009 
Date of Decision  30 November 2009
Solicitor for the Applicant             Mr L Gross, Gross & Becroft Lawyers

Solicitor for the Respondent        Mr R Northcote, Australian Government Solicitor