Iljin Australia Pty Ltd and Chief Executive Officer of Customs
[2014] AATA 960
•23 December 2014
[2014] AATA 960
Division GENERAL ADMINISTRATIVE DIVISION File Number
2013/5533
Re
Iljin Australia Pty Ltd
APPLICANT
And
Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Senior Member Egon Fice
Date 23 December 2014 Place Melbourne The Tribunal affirms the decision made on 17 October 2013 by the Supervisor National Refunds Centre on behalf of the Chief Executive Officer of Customs to reject Iljin’s application for a refund of duty paid on its imported wheel hub units.
[sgd].......................................................................
Senior Member Egon Fice
CUSTOMS - identification of goods – use of Interpretive Rules – classification – composite goods – essential character – tariff concession order – use of Explanatory Notes
Legislation
Acts Interpretation Act 1901, s. 15AB
Customs Act 1901, s163, s 273GA (1) (haaa)
Customs Regulations 1926, Reg 126(1)(r)
Customs Tariff Act 1995, s7
Cases
Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149
Anite Networks Pty Ltd v Collector of Customs [1999] FCA 26
Barry R Liggins Pty Ltd v Comptroller General of Customs (1991) 103 ALR 565
Blackwood Hodge (Australia) Pty Ltd v Collector of Customs, New South Wales (No 2) (1980) 3 ALD 38
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Re Phillips and House Group and Collector of Customs (1979) 2 ALD 704
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615
Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 76 ALR 313
Toyota Tsusho Australia Pty Ltd and Nippondenso Australia Pty Ltd v Collector of Customs (Unreported, 14 May 1992)
Vernon-Carus Australia Pty Ltd and Another v Collector of Customs (1995) 21 AAR 450
Voxon Sales Pty Ltd v Collector of Customs (1993) 19 AAR 129
Secondary Materials
Explanatory Note to the General Rules for the Interpretation of the Harmonized 2012, Rule 3(b)
Macquarie Dictionary
The Concise Oxford Dictionary
REASONS FOR DECISIONSenior Member Egon Fice
Between 19 September 2009 and 13 October 2010 Iljin Australia Pty Ltd (Iljin) imported automotive components described as FRT (front) 16 inch WHEEL BRG (bearing) RWD (rear wheel drive). These goods, as described, are wheel bearings for 16 inch front wheels fitted to a rear wheel drive vehicle. In other words, they are not for the driven wheels.
Between 25 September 2013 and 4 October 2013 Iljin made a total of 28 refund applications pursuant to s. 163 of the Customs Act 1901 (Customs Act) and
Reg 126 (1)(r) of the Customs Regulations 1926 (the Customs Regulations). In so far as it is relevant to this matter, s. 163 provides:
(1) Refunds, rebates and remissions of duty may be made:
(a)in respect of goods generally or in respect of the goods included in a class of goods; and
(b)in such circumstances, and subject to such conditions and restrictions (if any), as are prescribed, being circumstances, and conditions and restrictions, that relate to the goods generally or to the goods included in the class of goods.
(1A) The regulations may prescribe the amount, or the means of determining the amount, of any refund, rebate or remission of duty that may be made for the purposes of subsection (1).
(1AA) Subject to subsection (1AD), the regulations may prescribe:
(a) the manner of making application, either by document or by computer, for such refunds, rebates or remission; and
(b)the procedure to be followed by Customs in dealing with such applications, including procedures for requesting further information in relation to issues raised in such applications.
Regulation 126 of the Customs Regulations relevantly provides:
(1) Each of the following circumstances is prescribed for the purposes of section 163 of the Act, namely where:…
(r)Duty has been paid on goods that the first entered for home consumption at a time when a TCO, made in respect of those goods under Part XVA of the Act, was in force and was taken to have come into force;…
Iljin claimed that the subject goods should be considered as ball bearings classified to tariff subheading 8482.10. Furthermore, Iljin contended that tariff concession
order (TCO) 9705319 applied to the goods. In its amended statement of facts and contentions lodged with the Administrative Appeals Tribunal (the Tribunal) on
12 September 2014, Iljin contended that, in the alternative, TCO 1028497 also applied to the goods.
The Chief Executive Officer of Customs (the CEO) contended that the goods were correctly classified to tariff heading 8708 as motor vehicle parts. Furthermore, the CEO contended that Customs Precedent 20100900 applied to the goods.
On 11 October 2013 Ms Gagliardi, a Senior Customs Officer, rejected Iljin’s refund applications.
Ms Gagliardi then submitted her decision for approval by another officer of ACBPS (Australian Customs and Border Protection Service) National Refunds Centre. The refund application was processed and rejected on 14 October 2013.
After further correspondence with Iljin’s representative, on 6 November 2013 Ms Gagliardi finally recommended that the refund claims be rejected. The refunds were formally rejected by another officer on 8 November 2013.
On 17 October 2013 Ms Wishart, a Supervisor at the National Refunds Centre, informed Iljin that all of its claims for refunds had been rejected. Her reasons were:
Hub units appear to be placed against the incorrect classification and therefore the TCO does not apply. Hub units are classified into 8708 as per precedent 20100900 – refers that hub units are classified against 8708. Hub unit is comprised of bearing unit, flange housing and bolts for rotor and wheel attachment. Recommend refund reject.
Iljin lodged an application with the Tribunal on 4 November 2013 seeking review of the CEO’s decision to refuse its refund claims. Applications may be made to the Tribunal for review of a decision of a Collector under s. 163 of the Customs Act in relation to an application for a refund, rebate or remission of duty (s 273GA (1) (haaa)).
The matters which I must determine in this case are:
(a)the correct identification of the goods as imported;
(b)the classification of the goods under the Customs Tariff Act 1995 (the Tariff Act); and
(c)if the goods are properly classified under subheading 8482.10.10, whether or not they are the subject goods described by TCO 9705319 or TCO 1028497.
IDENTIFICATION OF THE GOODS
Authoritative statements regarding the process of identification of goods are
set out in the Tribunal decision Re Tridon Pty Ltd and Collector of Customs (1982)
4 ALD 615 at 620 – 622. That decision was cited with approval by the
Full Court of the Federal Court of Australia in Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 at 599. The principles of identification of goods for Customs purposes may conveniently be summarised as follows (Tridon page 620 – 621):
(s)... the starting point… is to identify the goods in their condition as imported ...;
(t)Identification must be objective having regard to the characteristics which the goods, on informed inspection, present:...;
(u)The identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff: ...;
(v)Nevertheless, ... 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 task of classification…;
(w)... knowledge of how those who trade in the goods described them will usually be relevant, but not necessarily conclusive:...;
(x)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:...;
(y)Descriptive terms may be of varying degrees of specificity .... Generic descriptions may be by reference to the materials or substances from which the goods are manufactured: ...;
(z)... characterisation of the goods by reference to their design features…, or by reference to their suitability for a particular use where those characteristics emerge from an informed inspection of the goods as imported: ... and
(aa)Composite goods, ... which may 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:….
In the unreported decision of the Full Court of the Federal Court of Australia (Einfeld, Carr and Lehane JJ) in Anite Networks Pty Ltd v Collector of Customs [1999] FCA 26, the Court said, at [26]:
We accept the general proposition put by counsel for the appellant that the first step for the Tribunal was to identify the goods, as a matter of fact, only as a “wharfside” process. Classification (including any necessary application of the Interpretation Rules) was a later step, to be undertaken only once the Tribunal had decided what the Goods were.
The Full Court of the Federal Court of Australia (Northrop, Jenkinson and Branson JJ) in Vernon-Carus Australia Pty Ltd and Another v Collector of Customs (1995) 21 AAR 450 at 454, explained that in determining the classification of particular goods, a two-stage process is involved. First, the goods must be identified. Secondly, the relevant heading must be construed properly and applied to the goods as identified.
Northrop J referred to what was said by Morling and Wilcox JJ in
Times Consultants Pty Ltd v Collector of Customs (Qld)(1987) 76 ALR 313 at 328:
It must always be remembered that the classification of goods for tariff purposes is a practical ‘wharf-side’ task. Upon some occasions it will be 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...
After referring to the principles set out in the Tridon case, Northrop J said, at 455 – 456:
In performing the task of identifying goods for classification, it is essential to have regard to the relevant classification heading. Some heading classifications make specific reference to a form or to a purpose. Where this is so, a “practical wharf-side” task, may not be appropriate. Evidence may need to be received relating to the form or purpose of the goods. In cases of this kind, the heading will need to be construed properly in order to determine what evidence is relevant to identify the goods. This is such a case where purpose forms an essential part of the classification.
A visual inspection of the goods in question reveals what appears as a mechanical device. It is essentially manufactured from what appears to be precision machined stainless steel. One side of the device incorporates a circular steel disc of very solid construction through which are pressed five threaded studs. The steel disc rotates freely as it is connected to a triangular flange by a sealed bearing. In fact the steel disc appears to form part of the outer bearing race as does the triangular flange. My understanding of the description bearing race is that it is a steel structure on the inside and outside of a set of bearings, either ball or roller, which confines those bearings and allows them to operate within the circular cage in which the bearings rotate. Effectively, it creates a channel or groove in the inner and outer casing within which the cage and ball or bearings rotate. Attached to the triangular flange is what appears to be a device which permits digital input or output to be measured depending on the rotation of the circular steel disc.
Having had some experience with motor vehicle components, I am able to identify the goods as motor vehicle wheel hub units. The wheel hub is a mechanical device to which the brake disc and wheel rim are affixed, enabling those components to rotate freely. These particular wheel hub units do not have an axle or driveshaft of any kind through the centre of them indicating that they are for use on non-driven wheels. They are simply a mechanical device which is attached to either side of the suspension (front if the vehicle is rear wheel driven). The wheel hub unit is bolted to the motor vehicle suspension via a solid steel flange which attaches to the shock absorber and the crossbeam or, possibly, a wishbone arrangement. In the case of the front wheels, the steering arm usually attaches to the flange to enable the front wheels to be turned.
The cardboard box in which the goods are shipped bears the description WHEEL BEARINGS and ILJIN BEARINGS.
I had two persons with engineering expertise give evidence in this matter. Mr John Wilson, a Mechanical Engineer and a member of Engineers Australia and the Society of Automotive Engineers Australasia, lodged with the Tribunal an affidavit affirmed on
12 June 2014 which was admitted into evidence. Given his stated experience and history of work in the automotive industry, I have no doubt that Mr Wilson is qualified to provide an expert opinion.
Mr Wilson said he inspected a wheel hub assembly which was identified by the CEO as one of the goods the subject of this proceeding. In identifying the goods, Mr Wilson was of the opinion that in the motor vehicle industry, those goods are commonly referred to as wheel hub assemblies. He said it was called a hub because it was the central unit to which the wheel was attached to the axle. He also said that he had never heard of wheel hub assemblies being described as bearings or wheel bearings. Mr Wilson explained that wheel hub assemblies have been developed over the years to provide a more compact and lightweight automotive component made up of different parts. He said that this automotive component had evolved from a traditional metal housing containing wheel bearings mounted on a hub spindle or, as it is sometimes referred to, a stub axle. In fact, I had in evidence what was described by Iljin as a Generation I wheel bearing which comprised essentially the wheel bearing inserted in a casing (the bearing race) which also has a flange on one side allowing the component to be bolted onto the motor vehicle.
Mr Wilson was of the opinion that the principal function of the wheel hub assembly was to keep the wheel in place and to allow it to rotate. He said the ball bearings were not absolutely necessary for the function of keeping the wheel in place and allowing it to rotate. The bearings provided a subsidiary function which was to allow the wheel to rotate without wearing out the axle, especially where metal surfaces were rubbing against each other. Mr Wilson said the ball bearings and the ABS sensor plug were important but neither provided the principal function of the wheel hub unit.
I admitted into evidence a written statement made by Mr John Bell, also a mechanical engineer. Mr Bell has tertiary engineering qualifications and had been employed in the motor vehicle manufacturing industry for his entire working life. He was, at one stage, the chief engineer for Toyota. Again, I have no doubt that Mr Bell is properly qualified to provide expert opinion regarding the goods in question.
After explaining in some detail the role which ball and roller bearings play in mechanical devices, Mr Bell said that while initial approaches to wheel bearings were to place an inner and outer bearing assembly into a vehicle hub, more recent approaches have improved on this concept. After describing the construction differences between Generation I, II and III hub units, Mr Bell said that the fundamental role of the units was that of a wheel bearing. Its role was to reduce rolling friction.
As far as identification of the goods in question is concerned, Mr Bell was of the opinion that the hub bearing units he inspected and identified were essentially and primarily bearing units that perform friction reducing, load-bearing roles in motor vehicles rotating wheel supporting assemblies. Like Mr Wilson, Mr Bell referred to other aspects of the hub bearings which were incorporated to mount them to the vehicle and which also included sensor pickups mounted on them. He agreed that none of those aspects altered or affected the essential characteristic of the hub bearing. Ultimately, Mr Bell’s description of the goods in question was that they were Generation III hub bearing units.
The main difference between the opinions offered by Mr Wilson and Mr Bell is the emphasis given to the function of the wheel hub unit. With respect to both experts, it is difficult not to conclude that the differing emphases are simply the result of the party for whom they gave evidence. A physical examination of the three generations of hub units which were in evidence discloses how a simple bearing unit evolved into a more complex multifunctional unit. At the beginning of this evolution, there was a double race ball bearing housed in a steel container which could be bolted onto a motor vehicle suspension. To be able to be used as a motor vehicle component, the bearings had to be housed using an inner and outer race (the steel container) with a means of attachment to the vehicle suspension. This component, at its early stage of evolution, had a single function which was to support a hub to which the wheel was attached. This would then allow it to rotate with minimum resistance where two metal surfaces came into contact.
The second stage of evolution saw the outer bearing race expanded so as to form a disk through which were pressed five threaded studs enabling a brake disc and wheel to be attached. Like the Generation I unit, it continued to rely on a stub axle which passed through the centre of the unit.
Finally, the Generation III unit has done away with the need for a stub axle. Instead, the disk to which a brake disc and wheel are attached, which continues to form part of the outer bearing race, is also supported by the inner bearing race allowing that part of the component to rotate as if there was an axle inserted through the inner race. It also incorporates an electronic sensor pickup for the purposes of operating an ABS (anti-lock braking system).
In my opinion, the function of the wheel hub unit is to allow a wheel to rotate freely with a minimum amount of resistance. It incorporates a steel disc to enable a brake disc and wheel to be mounted on the unit without the need of a stub axle or a separate hub. It also incorporates an electronic sensing device to facilitate the operation of an ABS. As was stated in the Tridon case, the separate units which make up the wheel hub unit are subordinated to the identity of the combination. It is properly identified, in its imported state, as a wheel hub unit for a motor vehicle.
CLASSIFICATION
Classification of goods under the Tariff Act must be done under the Interpretation Rules which are the General Rules for the Interpretation of the Harmonized System provided for by the Convention, as set out in Schedule 2. The Convention is a reference to the Convention on the Harmonized Commodity Description and Coding System done in Brussels on 14 June 1983 (s. 3 and 6). Relevantly, s. 7 of the Tariff Act provides:
(1)The Interpretation Rules must be used for working out the tariff classification under which goods are classified.
(2)If the letters “NSA” are specified in relation to a description of goods in the second column of the subheading of a heading, the goods described do not include any goods prima facie classified under a preceding subheading of that heading whose second column begins with the same number of dashes as the first-mentioned subheading.
(3)A reference in the Interpretation Rules to Notes includes a reference to Additional Notes.
The relevant General Rules of interpretation set out in Schedule 2 are as follows:
2Classification of goods in Schedule 3 shall be governed by the following principles:
1.The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relevant Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
2.(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.
(b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.
3.When by application of Rule 2(b) or for any other reason, the goods are, prima facie, classifiable under two or more headings, the 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.
There are a number of headings which have been suggested as being relevant in this case. They are:
(a)8482 BALL OR ROLLER BEARINGS:
(b)8483 TRANSMISSION SHAFTS (INCLUDING CAM SHAFTS AND CRANK SHAFTS) AND CRANKS; BEARING HOUSINGS AND PLAIN SHAFT BEARINGS; GEARS AND GEARING; BALL OR ROLLER SCREWS; GEAR BOXES AND OTHER SPEED CHANGERS, INCLUDING TORQUE CONVERTERS; FLYWHEELS AND PULLEYS, INCLUDING PULLEY BLOCKS; CLUTCHES AND SHAFT COUPLINGS (INCLUDING UNIVERSAL JOINTS):
(c)8708 PARTS AND ACCESSORIES OF THE MOTOR VEHICLES OF 8701 TO 8705:
(d)9032 AUTOMATIC REGULATING OR CONTROLLING INSTRUMENTS AND APPARATUS:
In accordance with Rule 1, I must take into account any relative Section and Chapter Notes, mindful of the provisos set out in Rule 2.
Chapter 84, where headings 8482 and 8483 appear, is found under Section XVI. The relevant Section Notes provide:
Notes.
1.-This Section does not cover:
…
(l) Articles of Section XVII;
(m) Articles of Section 90;…
3.-Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
4.-Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
5.-For the purposes of these Notes, “machine” means any machine, machinery, plant, equipment, apparatus or appliance as cited in the headings of Chapter 84 or 85.
Chapter 87, which deals with vehicles (other than railway or tramway rolling-stock, and parts and accessories thereof), is where Heading 8708 appears. It is located under Section XVII. It has the following relevant Section Notes:
2.-“Parts” and “parts and accessories” do not apply to the following articles, whether or not they are identifiable as goods of this Section:
…
(b)Machines or apparatus of 8401 to 8479, or parts thereof; articles of 8481 or 8482 or, provided they constitute integral parts of engines and motors, articles of 8483;…
(g)Articles of Chapter 90;…
3.-References in Chapters 86 to 88 to “parts” or “accessories” do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory.
As Mr L Gross of counsel, who appeared on behalf of Iljin submitted, to avoid the notes becoming circulatory, they must be read in the correct sequence. Because
Section Note 1 (l) of Section XVI provides that the Section does not cover those articles to which Section XVII applies, if the goods are classified to heading 8482, they cannot be parts or parts and accessories of articles falling into Heading 8708 even if they are goods identifiable as goods of Heading 8708. Furthermore, as Mr J Millea, Senior Lawyer with the Legal Services Branch of Australian Customs and Border Protection Service submitted, if the goods fall to Heading 8482 and may also fall to Heading 8708, the goods must be classified to Heading 8482. There are no Notes which exclude the goods from Heading 8708.
Because Heading 9032 falls under Chapter 90, it will only become relevant if the goods cannot be classified under Chapter 84 or 87.
Given the above notes, it seems appropriate to first examine whether the goods are classifiable to Heading 8482.
Heading 8482 refers only to the bearings themselves, being either Ball or Roller bearings. The subheading 8482.10.10 refers to Ball or Roller bearings of a kind used as components in passenger motor vehicles. That does not seem to take the matter any further than what is set out in the Heading other than to establish their intended use. It appears, on its face, to be limited to those items identified.
Nevertheless, Mr Gross submitted that the goods in question should be regarded as composite goods. As such, according to Mr Gross, Interpretive Rule 3(b) should be applied to the goods. Mr Gross explained that the dictionary definition of the word composite is: made up of various parts or elements, a compound (Macquarie Dictionary). Therefore, he submitted, it followed that the expression: composite goods consisting of different materials or made up of different components, which appears in Rule 3(b) of the Interpretive Rules, should be applied to the goods in question.
Mr Gross also referred to the Explanatory Note to the General Rules for the Interpretation of the Harmonized System 2012 where, in respect of Rule 3(b) is stated:
(IX) For the purposes of this Rule, composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts.
While I am mindful of the cautions which have been expressed regarding the use of extrinsic materials to aid in the construction of a statutory provision, it is undoubtedly permissible to do so when a statutory provision is ambiguous or obscure
(Acts Interpretation Act 1901 s. 15AB).
As far as reliance upon the Explanatory Notes to the Harmonized Commodity Description and Coding System (HSEN) is concerned, the Full Court of the Federal Court of Australia in Barry R Liggins Pty Ltd v Comptroller General of Customs (1991) 103 ALR 565 at 573, quoted with approval this passage from EJ Cooper, Customs and Excise Law:
[the Brussels Notes]
The Full Court in Toyota Tsusho Australia Pty Ltd and Nippondenso Australia Pty Ltd v Collector of Customs (Unreported, 14 May 1992) confirmed that limitations regarding the use of extrinsic materials must be kept in mind; but it nevertheless found that the Explanatory Notes were of assistance in confirming the meaning of the Heading in issue in that matter.
Mr Gross conceded that there was no single heading under which the combination of all components making up the subject goods, that is, a wheel bearing with wheel studs and an ABS sensor could fall. However, Mr Gross relied on Rule 3(b) which provides that composite goods are to be classified as if they consisted of the material or component which gives them their essential character.
Mr Millea contended that the subject goods were not simply bearings. He described the goods as being composed of an inner race, a modified outer race/housing with flanges for attachment to the chassis, a cage and ball bearings. He said they also contained a hub, wheel studs and an ABS sensor. Accordingly, they could not be classified to Heading 8482. Mr Millea referred to the HSEN for the purpose of providing assistance in interpreting the meaning of the expression ball or roller bearings. The HSEN states:
This heading covers all ball, roller or needle roller type bearings. They are used in place of smooth metal bearings and unable friction to be considerably reduced. They are generally fitted between the bearing housing and the shaft or axle, and may be designed to give radial support (radial bearings) or to resist thrust (thrust bearings). Certain bearings may be designed for both radial and thrust support.
Normally, bearings consist of two concentric rings (races) enclosing the balls or rollers, and a cage which keeps them in place and ensures the spacing remains constant.
…
The heading does not cover machinery parts incorporating ball, roller or needle roller bearings; these are classified in their own appropriate headings, e.g.:
a.Bearing housings and bearing brackets (heading 84.83).
I agree with Mr Millea’s submissions regarding the nature of goods which fall within Heading 8482. The heading itself makes that sufficiently clear. Chapter 84 is concerned with, amongst other things, machinery, mechanical appliances and parts thereof. The heading describes parts of a machine as that term is defined in
Section Note 5 to Section XVI. They are parts of an apparatus which is ordinarily defined as: the equipment needed for a particular purpose or function, esp. scientific or technical (The Concise Oxford Dictionary). In fact, if one takes that down to the appropriate subheading level which is 8482.10.10, they are parts of an apparatus which are suitable for use as components in passenger motor vehicles.
Mr Millea did not make any submissions regarding Mr Gross’ contention that Interpretive Rule 3(b) should be applied other than to say that such an analysis was unnecessary. That was because simply looking at the goods in question in the state in which they were imported makes it clear they do not fall to Heading 8482. Nevertheless, I propose to examine Mr Gross’ contention a little more closely.
Mr Gross referred to the Full Court of the Federal Court of Australia (Fox, Morling and Wilcox JJ) decision in Times Consultants Pty Ltd v Collector of Customs (QLD) (1987) 76 ALR 313. The goods in question in that case were magazines to which were attached a cassette in a cardboard sleeve stapled to the magazine. In dealing with the expression essential character Fox J said, at 321:
In the present case, the words “essential” and “character” are par excellence words which have an ordinary meaning, and the combined phrase “essential character” cannot be regarded otherwise. It is not term of art.…
A number of factors are naturally involved in its application to particular goods. Those factors may well vary from one type of goods to another. They may be quite numerous, or few. They do not necessarily, or, perhaps, generally, involve a choice between the descriptions which would naturally be accorded to any of the parts of the goods.…
The phrase in question is set out in a statute which is very much one of practical application, and is itself required to be used in their daily duties by many Customs offices. It would be very detrimental to the operation of the Customs service if the words were to become the subject of legal refinements of meaning. A Customs officer is expected to examine the entry, and time permitting to examine the goods. He then has to apply what is his understanding of the English language to the appropriate item.
And further, at 322:
For my part I find it hard to understand how the concept of “essential character” could be applied at all in relation to the goods in question, but the tribunal was set on its course by the parties. The goods were just too diverse in “character” for any “essential character” to be apparent, except possibly for wide generic term which finds no place in the Schedule.
While the explanation given by Fox J regarding the meaning of the expression essential character may be useful, the case itself dealt with goods which are unlike the goods before me. In that case, the cassette and the magazine were not complementary in the sense that there was no link between the two other than the fact that it was decided to import those goods as a set. In this case, while each individual component of the wheel hub unit has a discrete function, all of those functions combined are directed to the same purpose. That is, to enable the non-driven wheels of a motor vehicle to be attached in such a manner as to facilitate their efficient rotation, support of the vehicle, directional control and braking.
Mr Gross also referred to the decision of the Full Court of the
Federal Court of Australia (Smithers, Fisher and Sheppard JJ) in
Blackwood Hodge (Australia) Pty Ltd v Collector of Customs, New South Wales(No 2) (1980) 3 ALD 38. That case involved the importation of goods described as being machinery for the purposes of lifting, handling, loading or unloading but which were in an incomplete state. Despite that, it was contended that they had the essential character of goods of that kind. It was in that context that Smithers J said, at 41:
It appears to me that in the context of the scheduled the expression “essential character” is used with respect to the physical character or make-up of the article in question.… When the terms of the schedule proceed to limit the circumstances in which lifting machinery physically incomplete will qualify as lifting machinery, by stipulating that the machine must have the essential character of lifting machinery, it is to my mind, still referring to the physical condition of the article in question. In the absence of the essential feature of a lifting machine, namely basic gear by which things may be lifted it is difficult to think that the unit has the essential character of lifting machinery.
Again, with respect to Mr Gross, that is not the character of the goods which are the subject of this proceeding. In this case, the bearings which Mr Gross contends are essential to the operation of the wheel hub unit are not absent. Rather, the question is whether the bearings are such that they create the essential character of the wheel hub unit.
A case referred to by Mr Gross which is nearer to the point was a decision of the Tribunal in Re Phillips and House Group and Collector of Customs (1979) 2 ALD 704. That case involved the importation of umbrella handles. The handles in question were in fact manufactured from plastic with a very thin metal coating and they also incorporated a metal telescopic extension and rib mechanism to hold the umbrella open. The then By-law (the equivalent of a TCO) prescribed a rate of duty which was free provided the essential character of the handles was given by materials other than artificial plastic material; or by components consisting of materials other than artificial plastic material. That case turned on the fact that the proviso in the By-law was exclusionary in nature. While the tribunal referred to the Oxford Dictionary definition of the word essential, it found that definition somewhat limiting and preferred the broader meaning which it located in the Random House Dictionary of the English Language. The Tribunal said, at 708:
… one meaning assigned to the word “essential” is “pertaining to constituting the essence of a thing”, and where the word “essential” and its synonyms “inherent” and “intrinsic” are said to refer to “that which is the natural composition of a thing”, and where “essential” is said to suggest “that which is the very essence or constitution of a thing”. It follows that we consider that the adoption of the phrase “essential character” indicates clearly that the mere visual apparent character of an article was not the concept to which the attention of the By-law was being directed. Rather a concept of essentiality was involved, in which it is necessary to establish what the article really is.
In the Full Court of the Federal Court of Australia decision in
Air International Pty Ltd v Chief Executive Officer of Customs(2002) 121 FCR 149,
this would have Hill J, although dissenting, said the following about the meaning of the expression essential character, at 154:
The expression “essential character” emphasises the point that particular goods may have more than one character so that, at least in such a case, it will be necessary, when embarking on the task of characterisation to look at that character which is “essential” and disregard any other inessential character.
The significance of what Hill J said is that the expression will only apply where goods can be described as having more than one character. Otherwise, one would not be concerned to attempt to make that characterisation. Of course that simply follows what is said in the Interpretive Rules. Rule 3 only applies where the goods are, prima facie, classifiable under two or more headings.
It follows that the first question which must be answered is whether the wheel hub unit is classifiable to two or more headings. If it is not, then one has to simply apply Rule 1 or 2. In fact that is what I understood Mr Millea to be saying. He submitted that only Heading 8708 described the entire subject goods as imported.
Mr Gross’ submissions, as I understand them, were that the Generation III unit has, at its core, the wheel bearings. It is simply a development of the Generation I wheel bearing. With respect to Mr Gross, I cannot accept that submission.
I was fortunate to have an example of the Generation I bearing as well as the Generation III bearing in evidence. Looking at those two items from a practical perspective, they are significantly different units. The Generation I unit could properly be described as a wheel bearing or possibly a bearing housing (Heading 8483). In fact, history lends some support to that statement. When TCO 1028497 was first gazetted in the Commonwealth of Australia Gazette dated 21 July 2010, it was keyed to subheading 8483.20.00. The stated use was said to be: Free movement of passenger motor vehicle wheels. However, in the Commonwealth of Australia Gazette dated 11 August 2010, under the notices dealing with proposed amended description of goods following in an objection submission, the goods were keyed to subheading 8482.10.10. The Generation I unit is comprised of a dual row of caged ball bearings constrained by an inner and outer bearing race. The outer bearing race incorporates a flange through which are drilled four holes. That enables the bearing to be bolted into position with the axle passing through the inner race. Its sole purpose is to facilitate the rotation of a motor vehicle wheel attached to a hub with minimum resistance.
However, the basic bearing unit has subsequently been developed into something which is much more than a device to facilitate the rotation of a motor vehicle wheel with minimum resistance. The Generation III unit outer bearing race now incorporates a large circular disc which substitutes for the hub. To achieve that, the disk is also supported by the internal bearing race by means which are not obvious without disassembling the unit. Although Mr Gross submitted that the wheel studs pressed into the disk have no relevance in the function of the wheel turning, respectfully, I disagree. The disk and its impressed studs are essential to permit the vehicle’s wheel to be attached to the unit and to rotate freely in a balanced way. Without them, given that the disk is substituted for what was previously a hub, the unit could not function. In addition, the studs and the disk permit a brake disk to be attached which is, again, essential for the safe operation of the unit.
Mr Gross was also critical of Mr Wilson’s evidence and, in particular, his statement that ball bearings are not essential to allow the wheel to rotate. He stated, rhetorically, then why do all cars have them? One might properly query, given the state of technological advancement regarding the reduction of friction where metal surfaces pass over each other, why one would use anything other than ball or roller bearings to reduce friction in that situation. However, what Mr Wilson said is, at least technically, correct. It is still not uncommon to use bushes in such circumstances. As I understand it, bushes are made of softer metal than the metal of the two surfaces which would otherwise be in contact and, provided they are lubricated, are satisfactory devices for reducing friction. An example might be where the conrod of a piston at the big end joins the crankshaft. Bushes are inserted between the crankshaft and the big end. I accept of course that such an arrangement would be unusual for the wheel of a modern motor car.
Nevertheless, it does demonstrate that the ball bearings in the Generation III wheel hub unit are only one of a number of significant components. That does not necessarily give that unit its essential character. If it were necessary, as Mr Gross submitted, to identify the essential character of the goods in question, I would describe that character as an integrated wheel hub unit. That is what a wharfside inspection discloses.
I agree with Mr Wilson and Mr Bell that the ABS sensor/plug is not essential to the functioning of the wheel hub unit. It is a subsidiary safety device to assist in maintaining control of the vehicle under heavy braking.
Subheading 8482.10.10 is concerned with parts of an apparatus of a kind used as components in passenger motor vehicles. The wheel hub unit, the subject of this proceeding, cannot be properly described as ball bearings because that component forms an integral part of the goods as imported. Heading 8482 deals only with the bearings themselves as is clearly described in the HSEN. In fact, as is explained in the HSEN dealing with Heading 8483, which is about bearing housings and plain shaft bearings:
Bearing housings incorporating the ball, roller or needle roller bearings remain classified in this heading; but ball, roller or needle roller bearings presented separately fall in heading 84.82.
If that were needed in support of the conclusion I have reached, it is clear that it is intended that the goods referred to in Heading 8482 are the bearings presented separately and not where they form a composite part of another apparatus. As I have already indicated when identifying the goods, this is a case where the separate units are subordinated to the identity of the combination of those units.
Having referred to the HSEN dealing with Heading 8483, it should be obvious but I am not of the view that the goods in question can be classified to that Heading.
Given my findings regarding Headings 8482 and 8483, while it may be strictly unnecessary for me to determine whether the goods in question fall under another Heading because TCO 9705319 and TCO 1028497 are keyed to subheading 8482.1 0.10, for the sake of completeness, I will examine the applicability of Heading 8708. The requirement that goods, the subject of a TCO, must be keyed to a particular classification is evident from the Customs Regulations. As Spender J said in
Voxon Sales Pty Ltd v Collector of Customs(1993) 19 AAR 129 at 135:
The fundamental requirement is that, before goods can fit within a particular TCO they must be within the tariff classification to which that TCO is keyed. This is plain from the terms of the TCO earlier set out and from Customs Regulation 181 (1) (d) which is in the following terms:
“For the purposes of paragraph 269G (2)(a) of the Act, the following particulars are prescribed in respect of an application for a concession order in respect of particular goods:
…
(d) a description that adequately identifies the goods including the tariff classification that applies to those goods; “
Heading 8708 is concerned with parts and accessories of motor vehicles which fall under Headings 8701 to 8705. More specifically, subheading 8708.99.91 is concerned with those parts and accessories which are of a kind used as components in passenger motor vehicles. Motor cars, which are described as passenger motor vehicles but which are not motor vehicles for the transport of ten or more persons, are classified under
subheading 8703.2 1.1. The additional Note 5 to the Chapter Notes under Chapter 87 defines the expression passenger motor vehicles as motor cars and other motor vehicles designed to carry two or more persons. There are a number of exclusions but they are not relevant in this case. Therefore, if the goods in question are parts used as components in passenger motor vehicles, they may properly be classified to subheading 8708.99.91.
As I have already found, the relevant goods as imported are properly described as wheel hub units. They are for use as a component in passenger motor vehicles. That much is clear from Annexure B to Mr Wilson’s affidavit, which shows the wheel hub unit and the method of attachment to the suspension of a Holden Commodore/Caprice.
Furthermore, the integrated wheel hub unit is not a part or accessory to which
Note 2 to Section XVII applies. It does not fall under Heading 8482 nor does it constitute an integral part of an engine or motor which could be classified to
Heading 8483.
Although the CEO initially contended that the correct subheading was 8708.50.62, at the time of hearing, he submitted that 8708.99.91 was the correct subheading. I agree with Mr Millea that subheading 8708.50.62 is not the correct classification.
Subheading 8708.50 deals with drive axles and non-driving axles including parts thereof. The wheel hub unit does not have an axle of any kind even though it might be said that the part of the bearing race which forms the circular disc to which the wheel is attached, and which is supported by some means within the internal bearing race, acts like an axle, it is not an axle as that term is commonly understood. However, no such problem arises with the alternative contention that it falls to subheading 8708.99.91.
Accordingly, I find that the CEO’s contention that the goods in question in this case should be classified to subheading 8708.99.91 is correct. That being the case, they cannot be classified to Heading 9032.
Given the findings I have made above regarding the classification of the goods in question, I will refrain from making comments about Customs Precedent 20100900. It suffices to say that Precedents only serve as a guide to importers and their agents with the classification of the goods. They are not binding on the Tribunal.
CONCLUSION
Although Iljin contended that the goods in issue, as imported, should be identified as ball bearings, respectfully, I am unable to agree. That is because an examination by an informed person would reveal that they are far more than simply ball bearings. I have found that they are properly identified as wheel hub units for a motor vehicle.
Four headings under the Tariff Act were suggested as being relevant for the purpose of classification of the goods. Iljin contended that they should be classified to Heading 8482, while the CEO was of the opinion they should be classified to Heading 8708. For the purposes of classification, Iljin submitted that the goods should be regarded as composite goods. It also contended that because they were composite goods,
Rule 3(b) of the Interpretive Rules must be applied and that the essential character of the composite goods should inform the classification. According to Iljin, the essential character of the goods was ball bearings. It submitted that the goods should be classified to Heading 8482 and, more specifically, to subheading 8482.10.10.Respectfully, I am not able to agree with the classification contended by Iljin. While the Generation III wheel hub unit is the result of development of the Generation I unit, that development has significantly altered the character of the wheel hub unit. The Generation I unit was essentially a double race ball bearing unit with a flange for attachment to the vehicle. The Generation III unit, while maintaining a sealed double race ball bearing, also incorporates as part of the outer bearing race what is effectively a hub. That permits the unit to operate without a stub axle or additional hub. It is a very neat solution to the previously somewhat cumbersome arrangement. It also now incorporates an ABS plug/pickup which allows such a unit to operate, thereby enhancing the safety of the vehicle. However, from a classification perspective, its essential character has altered significantly. It can no longer be described as having the essential character of ball bearings. In fact, I have formed the view that its essential character is that of an integrated wheel unit. Accordingly, I have found that it cannot be classified to subheading 8482.10.10 of the Tariff Act. Because TCO 9705319 and TCO 1028497 are keyed to subheading 8482.10.10, Iljin cannot obtain the benefit of those TCOs.
For the sake of completeness, I have also examined whether the goods in question could be classified to Heading 8708 and found that to be the appropriate classification. I have also found that the remaining two possible headings, 8483 and 9032, are not appropriate to classify these goods.
Accordingly, I find that the decision made on 17 October 2013 by the Supervisor National Refunds Centre on behalf of the CEO to reject Iljin’s application for a refund of duty paid on the wheel hub units was correct. I affirm that decision.
I certify that the preceding 76 (seventy six) paragraphs are a true copy of the reasons for the decision herein of Senior Member Egon Fice [sgd]........................................................................
Associate
Dated 23 December 2014
Dates of hearing 14-15 October 2014 Counsel for the Applicant Mr L. Gross Advocate for the Respondent Mr J. Millea Solicitors for the Respondent Chief Executive Officer of Customs (Legal Branch)
Key Legal Topics
Areas of Law
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Customs Law
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International Trade Law
Legal Concepts
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Customs Classification
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Tariff Act
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Composite Goods
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Interpretive Rules
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