Jalco Powders Pty Ltd and Comptroller-General of Customs
[2017] AATA 2910
•20 November 2017
Jalco Powders Pty Ltd and Comptroller-General of Customs [2017] AATA 2910 (20 November 2017)
Division:GENERAL DIVISION
File Number(s): 2016/4582
Re:Jalco Powders Pty Ltd
APPLICANT
AndComptroller-General of Customs
RESPONDENT
DECISION
Tribunal:Dr Teresa Nicoletti, Senior Member
Date:20 November 2017
Place:Sydney
The decision under review, that the tariff classification of the subject goods under the Tariff Act is 3824.90.90, is affirmed.
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Dr Teresa Nicoletti, Senior Member
CATCHWORDS
CUSTOMS – tariff classification – whether goods should be classified under heading 2836 or 3824 – goods to be classified under heading 3824 – decision under review affirmed
LEGISLATION
Customs Tariff Act 1995 (Cth) s 7(1), Sch 2, Sch 3
Customs Act 1901 (Cth) ss 167, 273GA(2)
CASES
CEO of Customs v Biocontrol Ltd (2006) 150 FCR 64
Re Bayer Australia Limited and Collector of Customs, New South Wales [1985] AATA 21
REASONS FOR DECISION
Dr Teresa Nicoletti, Senior Member
20 November 2017
FACTS
Background
The Applicant imports a product from China which is described as coated sodium percarbonate (SPC).
The Applicant claims that that the correct tariff classification for the importation of the subject goods under the Customs Tariff Act 1995 (Tariff Act) is 2836.99.00.
In May 2016, the Respondent determined that the Applicant had incorrectly classified the subject goods and that the correct tariff classification in respect of the subject goods is 3824.90.90.
The Applicant has paid duty pursuant to s.167 of the Customs Act 1901 (Customs Act) but has applied to the Tribunal for review of the decision, pursuant to s.273GA(2) of the Customs Act.
The Subject Goods – Sodium Percarbonate (Coated)
The subject goods are manufactured by Zhejiang Jinke Peroxides Co., Ltd in Zhejiang, China.
A copy of two statements which the Applicant provided from the manufacturer indicate that:
(a)the composition of SPC Coated is pure SPC (85%), sodium carbonate (4%), sodium chloride (3-4%), sodium sulfate (0.5-4.5%), sodium silicate (0.5-1.5%) and sodium dodecylbenzenesulphonate (0.1-0.5%); and
(b)the coating materials for SPC are sodium chloride, sodium carbonate, sodium silicate and sodium sulfate. The manufacturer says in its statement that the coating layer “is used solely as an added stabilizer (including an anti-caking agent) necessary for their preservation or transport. It isolates SPC from contacting other solid substances and can buffer water erosion.”
SPC decomposes in water into water, free oxygen and sodium carbonate, which is highly alkaline. The predominant use of coated SPC is as an oxidising and bleaching ingredient in laundry detergents (such as laundry washing powders and other cleaning products.
The coating of SPC prevents it from reacting with other chemicals in the cleaning product mixture prior to it being used for cleaning purposes; i.e. the coating prevents SPC from reacting with other ingredients in a particular product before that product is used.
For completeness, it is noted that uncoated SPC is predominantly used in other bleaching and oxidising applications, where the SPC is used alone or in products where the other chemicals do not react with SPC.
ISSUES
The issue that the Tribunal must determine is the correct classification of the subject goods under the Tariff Act.
LEGISLATION
Interpretation Rules, Hearings and Notes
The tariff classifications are set out in Schedule 3 of the Tariff Act.
Subsection 7(1) of the Tariff Act provides that:
The Interpretation Rules must be used for working out the tariff classification under which goods are classified.
The Interpretation Rules are set out in Schedule 2 to the Tariff Act. The following rules are particularly relevant:
(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 and 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.
…
(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.
Having regard to the Interpretation Rules, the applicable heading must be determined first, followed by the relevant subheading, such that an eight figure classification is determined.
The only headings that are applicable in respect of the subject goods are headings 2836 and 3824, which relevantly provide:
2836
CARBONATES; PEROXOCARBONATES (PERCARBONATES); COMMERCIAL AMMONIUM CARBONATE CONTAINING AMMONIUM CARBAMATE:
3824
... ; CHEMICAL PRODUCTS AND PREPARATIONS OF THE CHEMICAL OR ALLIED INDUSTRIES (INCLUDING THOSE CONSISTING OF MIXTURES OF NATURAL PRODUCTS) NOT ELSEWHERE SPECIFIED OR INCLUDED
Note 1 to Chapter 28 provides:
Except where the context otherwise requires, the headings of this Chapter apply only to:
(a)Separate chemical elements and separate chemically defined compounds, whether or not containing impurities;
(b)The products mentioned in (a) above dissolved in water;
(c)The products mentioned in (a) above dissolved in other solvents provided that the solution constitutes a normal and necessary method of putting up these products adopted solely for reasons of safety or for transport and that the solvent does not render the product particularly suitable for specific use rather than for general use;
(d)The products mentioned in (a), (b) or (c) above with an added stabiliser (including an anti-caking agent) necessary for their preservation or transport;
(e)The products mentioned in (a), (b), (c) or (d) above with an added anti-dusting agent or a colouring substance added to facilitate their identification or for safety reasons, provided that the additions do not render the product particularly suitable for specific use rather than for general use
CONSIDERATION
By application of Interpretation Rule 1, classification is to be determined according to the terms of the headings and any relative Section and Chapter Notes. Since the terms of heading 3824 make it clear that heading 3824 applies to chemical products and preparations of the chemical or allied industries “not elsewhere specified or included”, the application of heading 2836 must be considered first and heading 3824 will only apply if heading 2836 does not apply.
Heading 2836
Having regard to Interpretation Rule 1 and Note 1 to Chapter 28, the terms of heading 2836 apply only to goods which satisfy one of the criteria set out in Note 1 (i.e. the criteria set out in paragraphs (a) to (e)). Notably, the application of Interpretation Rule 1 and Note 1 excludes the operation of Interpretation Rule 2(b) which otherwise might have broadened the scope of heading 2836 (see Re Bayer Australia Limited and Collector of Customs, New South Wales [1985] AATA 21 at [10] and CEO of Customs v Biocontrol Ltd (2006) 150 FCR 64 at [50] to [58], which have held that the terms of Note 1 are mandatory and restrictive).
The Applicant’s Statement of Facts and Contentions claimed that the subject goods fall within paragraph (d) of Note 1, on the basis that the coating is an “added stabiliser….necessary for their preservation or transport.”
That claim appears to arise from a statement made by the manufacturer that the coating layer in the subject goods:
is used solely as an added stabilizer (including an anti-caking agent) necessary for their preservation or transport. It isolates SPC from contacting other solid substances and can buffer water erosion.
The Respondent was critical of the manufacturer’s statement, noting that the statement appeared to have been prepared at the request of the Applicant’s customs broker ([T14] of the T documents) and conspicuously paraphrased the terms of paragraph (d) of Note 1.
The Applicant subsequently supplemented the manufacturer’s statement with expert evidence from Emeritus Professor David Hibbert, an expert analytical chemist from the Faculty of Science, University of New South Wales. Professor Hibbert provided three expert reports in the context of this proceeding: one dated 18 November 2016 (First Report), one dated 28 November 2016 (Second Report) and one dated 19 January 2017 (Third Report).
In the First Report, Professor Hibbert was asked to provide an opinion as to whether the presence of the coating material deprived the subject goods of the essential character of percarbonates. This request seems to be predicated on the Applicant’s view that the subject goods should fall with the term “PEROXOCARBONATES (PERCARBONATES)” in heading 2836”.
Professor Hibbert’s opinion was that the coating material (which he defined to comprise sodium carbonate[1] and sodium silicate) creates a physical barrier between its surroundings (atmosphere, other particles and the reactive hydrogen peroxide within the sodium percarbonate). He stated that the coating is made up of unreactive chemicals that have no direct effect on sodium percarbonate and, when dissolved in water, it yields exactly the same amount of hydrogen peroxide as expected from the weight of the sodium percarbonate. On that basis, Professor Hibbert’s opinion was that the coating does not deprive the subject goods of the essential character of percarbonates.
[1] The report incorrectly stated that this ingredient as sodium sulfate, but the Third Report indicates that the correct ingredient is sodium carbonate).
The above opinion did not resolve the question of whether or not it could be said that the subject goods fall within paragraph (d) of Note 1, on the basis that the coating was “an added stabiliser (including an anti-caking agent) necessary for their preservation or transport”.
This unresolved question appears to be the basis upon which Professor Hibbert issued the Second Report. It was noted in the Second Report that the Australian Border Force had rejected the Applicant’s submission that the purpose of the coating was to provide stability of the SPC during transportation, and concluded that “sodium percarbonate requires the stabilisation of a coating only when it is to be mixed with other substances”.
Professor Hibbert was asked whether this conclusion was correct or whether, in his opinion, the coating was added to the subject goods “for reasons such as safety, preservation or transport”.
In response to this question, Professor Hibbert stated, at paragraphs 8 and 9 of the Second Report:
I disagree with the statement “sodium percarbonate requires the stabilisation of a coating only when it is to be mixed with other substances”, insofar as the word ‘only’ precludes the important effect of water (including in humid air), which has a deleterious effect even in the absence of any other substances. Although water is a ‘substance’ I do not consider that adventitious water not explicitly added or mixed with the subject goods to be captured by the intent of the statement.
Therefore the coating can be applied to sodium percarbonate (giving the subject goods) “for reasons such as safety, preservation or transportation” (emphasis added).
In the Third Report, Professor Hibbert was asked to clarify the purpose of the three compounds excluded from the coating materials identified in the First Report (being sodium chloride, sodium sulfate and sodium dodecylbenzenesulfonate).
Professor Hibbert stated, at paragraph 21 of the Third Report, that the “sodium chloride, sodium sulfate and sodium dodecylbenzenesulfonate ingredients are added with the coating chemicals in order to facilitate the process of coating” the SPC.
Professor Hibbert gave evidence during the hearing regarding the issue in the proceeding and his three expert reports. During questioning by the Respondent’s representative and by the Tribunal, it became apparent that Professor Hibbert was directing all of his answers towards the same conclusion that the primary purpose of the coating material in the subject goods was as an added stabiliser necessary for preservation and transport, rather than that purpose being ancillary to another primary purpose. Whilst alternative views were put to Professor Hibbert, his tendency was to return to the same conclusion, and he presented answers to questions that were more indicative of an advocacy position on behalf of the Applicant, rather than of a role to assist the Tribunal to make the correct or preferable decision. This was so even when the Tribunal pointed out that the paramount duty of an expert witness was to assist the Tribunal impartially and not to act as an advocate for the party that engaged them. On balance, I did not regard Professor Hibbert’s oral evidence during the hearing as impartial and, for that reason, have not attached significant weight to it.
Returning to the manufacturer’s statement, I note that the second sentence of that statement states that “[t]he coating layer performs the function of isolating the sodium percarbonate from contact with other solid substances and to buffer water erosion” (emphasis added). If this is so, it quite clearly contradicts the purpose of the coating being an “added stabiliser…necessary for [the] preservation and transport” of the SPC, because if the coating material was applied solely for the purpose of “preservation and transport”, then it would not be for the purpose of isolating it “from contact with other solid substances and to buffer water erosion”.
I note in this regard, that the manufacturer’s website published technical information about the subject goods on its website (at accessed 23 January 2017), which states, relevantly:
Coated sodium percarbonate is prepared by coating the uncoated product with special materials that provide a protective layer to the finished product enhancing the wet stability of the product during its use. Coated sodium percarbonate is broadly used in the formulation of oxygenated powder laundry products (emphasis added).
It appears from the above technical information that the coating of SPC is for the purpose of making it suitable for its intended purpose as an ingredient in detergent preparations and household cleaners. This has nothing to do with stabilising the SPC for preservation and transport, but everything to do with the commercial application of the coated SPC; i.e. the coating renders the subject goods suitable for their intended manufactured purpose.
This is not to say that the coating material per se may not also enhance the stability of the subject goods during transport, given that it provides a physical barrier between the surroundings and the hydrogen peroxide within SPC. However, it seems clear that the intended purpose of the coating material relates to its commercial utility when formulated in that way, and any stability that may be conferred during transport is ancillary to that purpose. There is no evidence which supports the notion that the purpose of the coating material is as “an added stabiliser (including an anti-caking agent) necessary for [the] preservation or transport” of SPC.
The availability of uncoated SPC as an alternative commercial product provides compelling support for the proposition that the coating material is a function of the commercial purposes that SPC is put to, rather than for the purpose of “preservation and transport”. In this regard, it is irreconcilable to argue that the coating on SPC is applied as an added stabiliser necessary for preservation and transport when uncoated SPC is commonly stored, transported and commercially supplied (the uncoated form being predominantly used in other bleaching and oxidising applications, where the SPC is used alone or in products where the other chemicals do not react with SPC).
On the evidence before me, I conclude that the purpose of the coating is to render the subject goods suitable for particular commercial purpose and not as “added stabiliser….necessary for preservation or for transport”.
Based on the correct description of the subject goods, none of paragraphs (a) to (e) of Note 1 apply to the subject goods and therefore heading 2836 does not apply to the subject goods.
Heading 3824
Since heading 2836 does not apply to the subject goods and no other heading seems to apply, the residual terms of heading 3824 applies. Relevantly, the subject goods are both "chemical products" and "preparations of the chemical and allied industries" within the meaning of heading 3824.
On that basis, the correct classification under heading 3824 is "3824.90.90 - Other".
DECISION
The decision under review, that the tariff classification of the subject goods under the Tariff Act is 3824.90.90, is affirmed.
I certify that the preceding 41 (forty-one) paragraphs are a true copy of the reasons for the decision herein of Dr Teresa Nicoletti, Senior Member
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Associate
Dated: 20 November 2017
Date(s) of hearing: 31 March 2017 Counsel for the Applicant: Mr R Northcote Counsel for the Respondent: Mr I Rodda
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