LNC (Wholesale) Pty Ltd v The Collector of Customs

[1988] FCA 10

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I	CATCHWORDS
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APPEAL FROM THE ADNINISTRATIVE APPEALS TRIBUNAL - Customs - valuation of goods - monies deducted by exporter from price of cars to assist applicant with expendlture on advertislng, sales warranties and after sales service - Collector treated

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sums deducted as a part of the price - history of valuation of I

goods - transaction value of goods - deflnitlon of price in

Customs Act, s.154 ....

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Customs Act 1901 (Cth) ss.154, 159

j Customs A endment Ac 1976 (Cth)

Customs (Valuation) Amendment Act 1981 (Cth)

Internatlonal Trade Organlzation Act 1948 (Cth)

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LNC (WHOLESALE) PTY LIMITED V. THE COLLECTOR OF CUSTOMS

NSW G305 and G306 of 1987

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Sweeney, Davies and Einfeld JJ.

22 January 1988

Sydney.

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IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WALES DISTRICT REGISTRY	) No. G305 and G306 of 1987
1
GENERAL DIVISION	1

On appeal from the General Admlnistrative	..
Dlvlslon of the Admlnistrative Appeals Tribunal

BETWEEN:	LNC (WHOLESALE) PTY	;-:
LIMITED

Applicant

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- AND : THE COLLECTOR OF CUSTOMS

Respondent

CORAM :	Sweeney, Davies and Emfeld JJ.
DATE :	22 January 1988
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PLACE:  Sydney

MINUTES OF ORDER

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THE COURT ORDERS THAT:

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1.        The appeal in G305 of 1987 be dismissed.

2 .        The appeal in

G306 of 1987 be allowed. I. .

3. The decision of the Administratlve Appeals Tribunal

appealed against in G306 of 1987 be set aside and the
matter be remitted to the Administrative Appeals
Trlbunal for rehearing either with or wlthout the

hearing of further evidence.

4 .	Each party should bear its o r hls own costs of the appeals.
-	NOTE :	Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

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IN THE FEDERAL COURT OF AUSTRALIA

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NEW SOUTH WALES DISTRICT REGISTRY No. G305 and G306 of 1987

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DIVISION GENERAL 1

ON APPEAL FROM THE GENERAL ADMINISTRATIVE
DIVISION OF THE ADMINISTRATIVE APPEALS

TRIBUNAL

BETWEEN: LNC (WHOLESALE) PTY

LIMITED I '

Applicant	. .
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- AND : THE COLLECTOR OF CUSTOMS

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Respondent

CORAM: Sweeney,	Davles and Einfeld JJ.
DATE :	22 January 1988
PLACE :	Sydney

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REASONS FOR JUDGMENT

Sweeney J.:	These two appeals have been heard together. The
facts which gave	rise to them and the history of the

legislation under which they have arlsen have been fully set

out by Davies and Einfeld JJ., who have polnted out that the

primary basis of valuation of goods f o r the purposes of

customs duty is the "transactlonal value" of those goods. It

is common ground that that 1 s the basis proper to be adopted

in these cases.

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Sub-section 159(2) of the Customs Act 1901 (Cth)("the Act")

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provides:-

"The transaction value of goods is an amount

equal to the amount of the prlce, as

determined by the Collector, in accordance

with the relevant	transaction, being that
price as adlusted to	the extent requlred by
sub-section	( 3 ) " .

Sub-section 154(1) of the Act defines "price", unless the

contrary intention appears, thus:

"'price', in relation to goods the subject of a contract of sale, means the aggregate of all

payments made,	or to be made, directly or
indirectly, in connection with the goods	by

the purchaser to or for the benefit of the

vendor (including any payment by the purchaser to a person other than the vendor to satisfy an obligation to the vendor) in accordance with the contract, whether the payment is made

in money or	by letter of credit, negotiable
instrument or otherwise, and includes	the
value, as determined	by a Collector, of any

goods or services that are to be supplied by, or on behalf of, the purchaser as part of the

consideration, passing from the purchaser

under the contract of sale, but does not

include any duties of customs, or any other

taxes, payable under alaw in force in

Australia by reason of the importation or sale of the goods;"

Paragraph 154(2)(a) of the Act provides:-

"In ascertaining the price	of goods for	the
purposes of this Division -

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(a) a Collector shall not have regard to -

(i) any rebate of, or other decrease in,

that price the right to which	has
not accrued when	the ascertainment
is made; or

(ii) any costs, charges or expenses in

respect of activities undertaken by the purchaser on his own account in connection with the goods (including

any activities of the purchaser

relating to advertising or promoting
the sale of the goods or relating to
warranties or guarantees in respect

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of the goods);"

I Paragraph 154(2)(b) provides:-

"In ascertaining the prlce of goods	for the
purposes of this Division -
(b) a Collector shall deduct from	the amount
that, but for this paragraph, would	be the

amount of that price such amounts as the

Collector considers necessary, in accordance

with generally accepted accounting principles,

to take account	of the following matters:	, '
(i) any	payment of interest, or any	other

c-ost or charge, paid or payable under a

financing arrangment entered into by

the purchaser with respect to the

purchase of the goods;

(ii) any overseas freight orverseas,

insurance in respect of the goods;

(iii)   any of the following costs, charges or expenses in respect of the goods that are, in the opinion of the Collector,

capable of being quantified by

reference to the contract of sale of

the goods;

(A) any costs, charges or expenses

that Incurred are the for

construction, erection, assembly

maintenance or of, or any

technical assistance in respect i

of, the goods, being costs,

charges or expenses incurred after

the importation of the goods,

(B) any Australian freight or ! '

Australian insurance in respect of	I
the goods".	t
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G305 of 1987
For the year 1985 LNC had drawn up a budget in respect of its importation of Fiat Motor vehicles including	..

pro~ectlons of the i. .!

number of vehicles which it anticipated selling. The budget, . i
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which had been supplied to the exporter, Fiat, provided for the

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expenditure on advertising of a certain amount from the profit of	i	_:
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the sale of each vehicle and LNC entered into agreements with

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i	advertisers to expend a fixed amount, calculated by multlplylng
I	the portion of profit per vehicle by the projected number of
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vehicles. By the middle of the year, sales having been below budget, it found that it had expended $90,000 over and above the
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i	amount represented by the advertising proportion of profit upon
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each vehicle multiplied by the actual number of vehicles sold.

LNC drew this shortfall to Fiat's attention, pointing out

that the advertising campaign benefited the exporter as well as the importer, and requested Fiat to make a contribution to LNC in respect of the over-run of expenditure. Fiat agreed to make a

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contribution of $US30,000 towards the cost of the campaign. The Fiat model being imported, to which the campaign related was

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called Regata. j _ >

The Administrative Appeals Tribunal had before it a statement

of agreed facts, as follows:

"1. Pursuant to an agreement made by an

exchange of a telex dated 9 September,

1985	and	a letter dated 19 September,
1985 it was agreed	that a total amount	of
US$30,000.00 would be deducted from the	.	.I
ex-factory invoice price of September and October sedan units (comprising 332 motor

vehicles) at a rate of Us$90.00 per

vehicle as an advertising contribution

from the vendor to the purchaser.

2 . A delegate of the Comptroller pursuant to s161D of the Customs Act has determined that the value of each of the 7 Regata Saloon Super vehicles be uplifted by

A$135.13 to take into account the

deduction of US$90.00".

In a telex of 9 September 1985 from Fiat to LNC the former

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said:

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"The 30.000 USDoll. advertising contribution
can be deducted from unlt prices at 90 Doll.
per unit for an effective ex factory of doll.

3560 for 100s and 85s AUTO and Doll. 3150 for

85s MAN".

In its letter of 19 September 1985 LNC replied:

"We thank you for your proposal that US$30,000
will be deducted from the FOB prices of

September and October sedan units.

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Effectively this will be US$90 per unit on the I .

332 vehicles involved. Would you please make

the necessary	ar angements	for	this
adjustment".

Fiat's representative, Mr E. Colli, gave the following

evidence :	,-
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" S o you offered the contribution by way of

discount? . . . We offered the - a token !

contribution whlch was about 10 per cent:	10
per cent on the expenditure".	: i
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The Tribunal held that Fiat's advertising contribution

"should not be regarded as a reduction in the price of the vehicle

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but should be added on for customs purposes". This finding

involved the conclusion that the result of the arrangement between

Fiat and LNC was that LNC became entitled to an advertising

contrlbution from Fiat, which it could use as a set-off against

the previously agreed prlces of the vehicles for delivery In

September and October. It is true that the Tribunal's choice of

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language was unfortunate when it referred to LNC as being under a	:. ,
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fiduciary obligation to apply the sum of $30,000 for the purpose of advertising. The point would have been more happily expressed by saying that LNC and Fiat had a common understanding that the

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contribution would enable LNC to continue to carry out its

advertlslng budget to the beneflt of both parties.

In my opinion, the Tribunal's finding was one which was open

to it upon the evidence and was arrived at without error of law.

I would dismlss	the appeal wlth costs.
G306 of 1987

This appeal relates to that part of the definltlon in

sub-s.154(1) of the Act whereby price "includes the value, as .

determined by a Collector, of any goods or services that are	to be
supplied by, or on behalf of, the purchaser as part	of the
consideration passing from	the purchaser under the contract of
sale".

The parties submitted an agreed statement of facts to the

Tribunal, as follows:

"AUDI 100 - AUDI COVER

1. The goods consisted of 3 Audi 100 Saloon

motor vehicles (being part of an order

for 218 vehicles) which were imported

(together with other vehicles of later

manufacture) in the vessel 'Nissan

Laurel' on 11 September, 1985 at the Port of Sydney (hereinafter called 'the

goods' ) .

2. The goods were manufactured in the

Federal Republic Germany of (West

Germany) by Volkswagenwerk AG, the vendor
of the goods.

3 .     The owner of the goods for the purposes of Australlan Customs was LNC Wholesale Pty. Limited.

4.    LNC Wholesale Pty. Limited is the holder of all motor vehicle import quotas on

behalf of the LNC group of companies.

Volkswagen Australia Pty. Limited is a

member of the LNC group and 1 s the sole

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Australian dlstrlbutor of Volkswagen and
Audi motor vehicles.

5.     On O K about 5 December, 1984 the vendor

agreed to share in the costs of a .-

programme entltled 'Audi Cover' on new

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Audi 100 motor vehicles to be offered by	i I .
Vokswagen Australia Pty. Limited for a period of two years or 50,000 kilometres. The vendor's contrlbution was to be by way, LNC contends, of an ex-works price reduction, and, Customs contends, by a

reduction in payment, of DK.350.00 in

respect of each of the goods, The

agreement applred to all Audi 100

vehlcles supplied by the vendor up to 31

J U ~ Y , 1985-*.

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The evidence before the Tribunal included a document which

set out the services embraced in Audi Cover,	as follows:	I.
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"The Audi Cover benefits referred to herein I

are in addition to those provided under the

standard Audi New Vehicle Warranty, and they

are intended to supplement your statutory

rights.

Subject to the special note below, Audi Cover entitles the vehicle owner to the following services (with free parts and labour) during the first 50,000 km. of operation of the vehicle or 2 years from the date of first registration, whlchever is the shorter period ('Audi Cover benefit period')"

1.    All repairs needed to Correct defects in original vehicle materials OK workmanship.

2. All prescribed maintenance services as

described in the published Service

Schedule, including oils and other

lubricants.

3 .    All parts (excluding tyres) replaced due to wear and tear arising out of normal vehicle operation".

The services were provided by LNC's subsldiary Volkswagen

Australia Pty. Limited. Article 22 of the distributorship

agreement required LNC to accept warranty responsibillty

for the imported products at least to the extent provlded In
Appendix 6 of Exhibit 9 and to give an equlvalent warranty to
customers on its own account. Artlcle 10 provided for
reimbursement of the distributor by Volkswagenwrk A.G. for
its expenses in complying with such warranties.

LNC submitted to the Tribunal, and to us, that Audi

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Cover was an activity undertaken by LNC or Its subsidiary on its own behalf, within the meaning of paragraph 154 2(a)(ii) of the Act. The Tribunal rejected this submission, holding that the paragraph was "dlrected to services supplied

exclusively on account of the purchaser and not under a
contract by virtue of which it secures the advantage of a

reduction in the price of the imported goods".

The Collector of Customs submitted and the Tribunal found that the services provided by LNC or its subsidlary I..

I	pursuant to Audi Cover fell within the phrase "any goods or services that are to be supplied by, or on behalf of, the
purchaser under the contract of sale".
purchaser as part of the conslderation passing from the
I have had the advantage of reading the reasons for judgment of Davies and Einfeld JJ. in relation to this appeal.
I agree with their conclusions that the Tribunal was entitled
to find on the facts, as ~t did, that the prlce payable for
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the Audi vehicles was reduced by DM350 as part of the !
agreement by Volkswagenwerk A.G. t o share in the c o s t s of the
provlsion of the Audi Cover, and that thls finding involved no
error of law. I also agree with their Honours' opinlon as to
the errors made by the Trlbunal in its consideratlon of the question whether there should be added to the price payable
the value of goods and servlces to be supplied by LNC under
the Audi Cover, and wlth their oplnion that the appeal should be allowed, the declsion set aslde, and that the matter should be remitted to the Tribunal for rehearing according to law. I agree with their Honours' reasons for those oplnlons, and with the orders they propose.
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I certify that this and the eight
preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Sweeney.
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Associate: 3 $h

Date : 22 January 1988

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IN THE FEDERAL COURT OF AUSTRALIA	1
1 ,-
NEW SOUTH WALES DISTRICT REGISTRY	) No. G305 and G306 of 1987 '
)

DIVISION GENERAL 1

ON APPEAL FROM THE GENERAL ADl*IINISTRATIVE

1.

DIVISION OF THE ADMINISTRATIVE APPEALS	.I
TRIBUNAL
BETWEEN:	LNC (WHOLESALE) PTY LIMITED

Applicant

1 :

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AND

-:  THE COLLECTOR OF CUSTOMS

Respondent I '

CORAM :	Sweeney, Davles and Einfeld JJ.	:
DATE :	22 January 1988	!
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PLACE :	Sydney
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REASONS FOR JUDGI4ENT	l ,
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Davies and Einfeld JJ.:	These two appeals are brought from a
decision of the Administratlve Appeals Tribunal with respect	I.

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to the valuation of goods for the purposes of customs duty.

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Though the subject matter of the appeals are slmilar, the

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points of law raised in each are not the same and the facts of	, .
the two cases are different. In each case, monies had been	. .
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deducted by the exporter from the price of motor vehlcles
imported into Australia, the deduction being made to assist	?--
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the applicant, LNC (Wholesale) Pty Ltd ("LNC") with respect to

expenditure incurred by LNC in Australla. In Appeal No. G305

of 1987, LNC's expenditure was Incurred with respect to

advertising and In Appeal No. G306 of 1987 It was incurred

with respect to sales warrantles and after-sales service. In	I '
each case the Collector of Customs treated the sums deducted	,-
as a part of the price and therefore of the value of the	::
imported vehlcles.	I ,.
Before turning to the facts, it is convenient to deal wrth the recent history of the valuation of goods for customs purposes. On 30 October 1947 there was executed the General
Agreement on Tariffs and Trade. Acceptance of the treaty by Australla was authorised by the International Trade Organisatron Act 1948 (Cth). Article VI1 of the agreement dealt with the valuation of goods for customs purposes. Paragraph 2 provided:-

"2.(a) The value for customs purposes of imported
merchandise should be based bn the actual balue of
the imported merchandise on which duty IS assessed,
or of like merchandise, and should not be based on

the value of merchandise of natlonal origin or on

arbitrary or fictitlous values.

(b) 'Actual value' should be the prlce at whlch, at a
time and place determlned by the leglslatlon of the
country of Importation, such or like merchandise is
sold or offered for sale In the ordlnary course of
trade under fully competltlve condltlons. To the
extent to which the price of such o r llke merchandise
is governed by the quantity in a particular
transaction, the price to be considered shou'ld
uniformly be related to either (i) comparable
quantities, or (ii) quantitles not less favourable to
importers than those in which the greater volume of

the merchandise is sold in the trade between the

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countries of exportation and importation.

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(c) When the actual value is not ascertainable in	! 1
accordance with sub-paragraph (b) of this paragraph, the value for customs purposes should be based on the nearest ascertainable equivalent of such value."
(The underlining 1 s ours).

In Implementation of this Article, a Convention on the Valuation of Goods for Customs Purposes was signed in

Brussels on 15 December 1950.	The text set out in Annex 1
became known as "the Brussels Deflnltion of Value."	Paragraph
(1) of Article I thereof provided:-

"(l) For the purposes of levying ad valorem duties of

customs, the value of any goods imported for

home use shall be taken to be the normal prlce,

that 1 s to say, the price which they would fetch
at the time when the duty becomes payable on a
sale in the open market between a buyer and a

seller independent of each other."	. .
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The Brussels Definition of Value was adopted In Australia by the Customs Amendment Act 1976 (Cth) whlch came into force on

1 July 1976. The basis of the Brussels Deflnltion of Value

was the price at which the goods would have been sold in the ordinary course of trade under fully competitive conditions.

The price at which the goods were in fact sold was to be

evidence, but not conclusive evidence, of thls value.

Needless to say, the search for an arms-length price under fully competltlve condltlons gave rise to many esoteric

and subtle arguments. For example, in the Unlted Klngdom, in

Rolex Watch Co. Limited v. Commissioner of Customs and Exclse	i
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[l9561 2 All E.R. 589, Dennlng L.J. uplifted the invoice price of Rolex watches imported Into England by reference to the .
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cost of English advertising.	At p. 591, Denning L.J. said:-	._
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"It is only as a result of the English advertising,

coupled wlth the international advertising, that the

Rolex watches have the value which they have.
Therefore (as the referee held), the value of the
goods should include the approprlate sum to repay the

cost of the advertising spent in making and

maintaining the market."	. _	.
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In a like case in Australia, Re Renault (Australia) Pty

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Limited and Bureau of Customs (1977) 1 A.L.D. 19, the	.	.	,
Administrative Appeals Tribunal uplifted the lnvoice price by virtue of advertlslng undertaken in Australia. At p.24. the Tribunal said:

"The tradlng situatlon which is postulated by the

i	Brussels Convention may be conceded to be artiflcial, but the postulates are sufficiently clear to enable the statutory valuation to be undertaken. If the notional buyer were in competition with other importers of Renault vehicles, he would not undertake the same responsibility for, and incur the same costs of, advertising as Renault Australia now does. Advertlsing of the same kind would no doubt continue, or substantially continue, but its costs would
necessarily be borne by the company which would
benefit by the expendlture, viz, Renault France. Renault France, without an Australian subsidiary
importer, would undertake the defence and development i
of the Australian market for Renault vehicles, derlving such asslstance as it could from the unrelated importers and from the various dealers. Renault France would seek to recover the cost of its advertising in the price of the vehicles sold to the notional buyer. The Brussels Deflnltion would therefore Include In the 'normal prlce' of each vehicle a proportion of that cost of advertising whlch, in the hypothetical trading situatlon, Renault
France would bear. "

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See also Re Sussan (Wholesalers) Pty Llmited and Collector of

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Customs (1978) 1 A.L.D. 603 and Re Effem Foods Pty Ltd and

Collector of Customs ( 1 9 7 9 1 2 A.L.D. 597. Nevertheless, the I .

i	price actually paid was not irrelevant. As the Trlbunal sald
:	in Re  Sussan at p.608:-

"The Deflnltion pre-supposes a number of assumptions
which are consistent with ordinary commercial
transactions readily understood by people in
commerce. Further, to assist the ready calculation
of duty, Interpretatlve Note 5 speciflcally provides
that, 'In practice, when imported goods are the
subject of a bona fide sale, the price paid or
payable on that sale can generally be considered as a
valid indication of the normal price mentioned in the

Definition' ."

Necessarily, the application of the Brussels

I	Definition of Value gave rise to disputatlons between	L .
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I	importers and customs authorities. As a result, a new	!
valuation code, entitled "Agreement on Implementation of Article VI1 of the General Agreement on Tarlffs and Trade" was adopted. This was negotiated in 1979 and was given effect in

Australia by the Customs (Valuation) Amendment Act 1981	(cth),
which came into force on 30 November 1981.	The new

legislative scheme is that with which we are now concerned.

The legislative scheme provldes that the primary	c
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basis of valuation is the "transactlon value" of goods. It is . .

not in dispute in these two appeals that that is the basis of -

valuation to be adopted and we therefore need not dlscuss the
other bases of valuation provided. Section 159(2) of the

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Customs Act 1901 (Cth) ("the Act") provides:-

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" ( 2 ) The transaction value of goods is an amount

equal to the amount of the price, as determined by
the Collector, In accordance wlth the relevant
transaction, belng that price as adjusted to the

extent requlred by sub-sectlon ( 3 1 . "

section 159(3) provides, inter alia:-

"(3) There shall be added to the price referred to in

sub-section (2) such amounts as the Collector

I	considers necessary, in accordance with generally
acceuted accountinq principles, to take account of -

?allowing matters:

commission or brokerage (not being a fee paid or
payable by the purchaser to his agent for the
servlce of representing the purchaser In the
purchase of the goods to be valued) paid, or
payable, by the purchaser In respect of the

goods to be valued;

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packing costs or charges, whether f o r materials	i
or labour or for materials and labour,	!
(Including costs of packages and coverings that fall within Item 12 in Part I of Schedule 4 to the Customs Tarlff Act 1982) incurred by the purchaser in respect of the goods to be valued;
any of the following goods or services that have been supplied, directly or indlrectly, by the
DUrchaSer free of charae or at a reduced cost in	L
connection	with the production of the goods to
be valued:

(i)    materials, components or other goods

that form part of the goods to be

valued;

(ii)    tools, dies, moulds or other goods used in the production of the goods

to be valued;

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(lil)   any materials consumed in the production of the goods to be valued;

engineerlng work, development work,	I.
art work or design work that was, or	l.

! plans or sketches that were,

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required for t'he production of the
goods to be valued, to the extent
that the work was, or the plans or
sketches were, undertaken outslde

Australia;

any goods or services that have been supplied,	1-
directly or indirectly, by the purchaser in connection with the production of goods or services specified in a sub-paragraph of paragraph (c) that have been supplled, directly or indlrectly, by the purchaser (whether or not free of charge or at a reduced cost) in connection wlth the production of the goods to be valued;
royalties or licence fees (Including any payments for patents, trade marks or copyrights, whether granted under a law in force in Australia or in a country other than Australia, but not including any payments for the right to reproduce the goods to be valued) paid, or payable, directly or indirectly, in accordance

I	with the terms of the relevant transactlon or with any arrangement entered into in connection with the relevant transaction, by the purchaser in respect of the goods to be valued;
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the accrual, directly or Indirectly, to the vendor of the whole, or any part, of the proceeds of any resale, disposal or use of the goods to be valued by the purchaser; or
any inland, freight or Inland insurance in
i	respect of the goods to be valued paid, or
payable, directly or indlrectly, In accordance . t
with the terms of the relevant transaction or with any arrangement entered into in connectlon with the relevant transaction, by the purchaser to or for the benefit of the vendor."

None of those items applies In the present cases.

The reference to "prlce" In s.159(2) leads to

s.154(1) of the Act which defines "price", unless the contrary

intention appears, in this manner -

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"'price', in relation to goods the subject of a

contract of sale, means the aggregate of all payments
made, or to be made, dlrectly or Indirectly, in
connectlon with the goods by the purchaser to r for
the benefit of the vendor (including any payment by
the purchaser to a person other than the v ndor to
satisfy an obllgation to the vendor) in accordance
with the contract, whether the payment is made in
money or by letter of credit, negotiable lnstrurnent

or otherwise, and includes the value, as determined

by a Collector, of any goods or services that are to

be supplied by, or on behalf of, the purchaser as

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part of the consideration passlng from the purchaser	, .
under the contract of sale, but does not include any duties of customs, o r any other taxes, payable under a law in force in Australia by reason of the
importatlon or sale of the goods;"

I It will be noted that there are two parts to the definition.

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The first deals with payments made and the other wlth goods or

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services supplied.

Section 154(2)(a) provides:-

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"In ascertaining the price of goods f o r the purposes

of this Division -

(a)

a Collector shall not have regard to -

(i)	any rebate of, o r other decrease In, that price the right to which has not accrued when the ascertainment is made; or
(ii)	any costs, charges or expenses in respect

of activities undertaken by the purchaser	. t
on his own account In connection wlth the
goods (including any activities of the purchaser relatlng to advertising o r
promoting the sale of the goods or relatlng
to warranties or guarantees in respect of
the goods) ; "

Section 154(2)(b) provides:-

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"In ascertaining the price of goods for the purposes :. '

of this Dlvlslon -

(b) a Collector shall deduct from the amount that,

but for this paragraph, would be the amount of that .

i price such amounts as the Collector considers
necessary, in accordance wlth generally accepted
accountlng principles, to take.account of the
following matters:

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( 1 )	any payment of interest, or any other cost or charge, paid or payable under a flnancing arrangement entered into by the purchaser with respect to the purchase of the goods;
(ii)	any overseas freight or overseas insurance in respect of the goods;
(iii)	any of the following costs, charges or expenses In respect of the goods that are, in the opinion of the
Collector, capable of being quantified by reference to the contract of sale of the goods:

( A ) any costs, charges or expenses
that are incurred for the
construction, erection, assembly
or malntenance of, or any
technlcal asslstance in respect
of, the goods, being costs,
charges or expenses incurred
after the importation of the
goods;

( B ) any Australian freight or

Australlan insurance in respect	.-.
of the goods.”
It is convenient to make some general comments

respecting these provisions. In the flrst place, it is to be

noted that there is overlapping. Section 159(3) expressly

includes in the prlce some	Items which ordinarily would form part
of the price as defined by s.154(1).	Llkewise, some items are
expressly excluded by s.154(2) that	would not ordlnarlly fall

within the concept of price as defined.	It follows, therefore,	I
I.

I

!

i	I
1 ;

10.

that the words used in s.154(1) should not be read	down or
delineated by the terms of ss.154(2) and 159(3).
Secondly, it 1s clear that anpendlture-such as the advertising expenditure consldered in the Rolex Watch case and-in	!
, ,
Re Renault, is not	to be taken into account under the new basis
of valuation.	Advertislng of that nature, even if it were

I

undertaken pursuant to a condition of the contract of sale, would

ordinarily be undertaken by the importer on his own account	and
thus expressly excluded by s.l54(2)(a).	Advertising which an

!
. .

importer undertakes on his own behalf,even if done wlth the
accord of the exporter, is advertising undertaken on his own

account.

Thirdly, the legislation provides a basis of valuation

that is less theoretical and more practical than the Brussels

Definition of Value. Primacy is given to the price actually paid

or payable adjusted in accordance with a number of simply stated

!

rules. It is appropriate in the application of these rules to eschew technicallty and subtlety and to take a practical

commercial view of transactions. In Commissioner of Inland

Revenue v. Littlewood Mail Order Stores Ltd [l9621 2 All ER 279

at 284, Viscount Simonds,	with whom Lord Devlin concurred,
referred to the familiar propositlon "that the substance alone of	:.
the transactlon is to be looked at."	Thus, when the deflnition

of price refers to "the aggregate of all payments made, or to be made, directly or Indirectly, In connectlon with the goods by the

i
I

purchaser to or for the benefit of the vendor ... ln accordance

with the contract", the legislation is looklng to what has
occurred as a matter of fact, having regard to the substance

rather than the form of the transaction, though that is not to

deny that the substance of a transactlon "is that which results

from the legal rights and obligatlons of the parties ascertained
upon ordinary legal principles", per Lord Tomlin in Commlssloners

of Inland Revenue v. Duke of Westmlnster [l9361 AC 1 at 20-1.

Thus, in Mutual Finance Llmited v. Davidson and Another

[l9631 1 W.L.R. 134, the Court of Appeal considered an issue

I '

arising under the Hire Purchase Acts 1938 to 1954 of the United	I ,
t

Kingdom. The issue was whether the hire purchase prlce exceeded i

300 Pounds. The slngle price paid by the	finance company to the
motor dealer, and which the purchaser had to pay	off by

instalments to the flnance company, contained as an element the

cost of lnsurance which the motor dealer had agreed to arrange on

the purchaser's behalf. At p.139, Ormerod L.J. said:-

"The real position is that the hirer purchased a car, which he could take out on the road, and, therefore, In respect of which an insurance pollcy had been

taken out.

If that be the right view to take, then it was proper to include this sum in the

hire-purchase prlce, and the Hire-purchase Acts, 1938

to 1954, would not apply."	i- ,
, .

Donovan and Pearson L.JJ. expressed like views save that their	'
Lordshlps excluded from their conslderation what the position
would have been if the cost of the insurance had	been

separately provided for. Wlth that quallfication, Pearson L.J.

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12

said, at p.144, that the Insurance element was not to be excluded from the price for It was not a forelgn or extraneous element but a genuine part of the prlce.

In the United States, it has been held that payments necessarily made to obtaln possession of, or the right to use goods, are part of the purchase price of the goods whereas

payments made for an exclusive rlght to deal in the goods or for the right to use a patented process are not. In Brauner & Co. v. United States 44 Cust. Ct. 661 at 665 Judge Lawrence said:-

"Plaintiff, in its brief, sets forth what it deems to
be settled law that payments necessary to obtain
possession of or the rlght to use merchandlse are
considered part of the purchase price or cost of
production of said merchandise (international
Forwarding Co. v. United States, 17 C.C.P.A.

(Customs) 86, T.D. 43377; United States v. Vande rift

& CO., 26 C.C.P.A. (Customs) 360, 364, C.A.D ---m?-

butthat it is equally well established that license

I	fees or royalty payments for the exclusive right to purchase machines for export to the United States (United States v. Hensel, Bruckmann & Lorbacher,
Inc., 39 C.C.P.A. (customs) 8 6 , f i c
Customs Brokerage Co. v. Unlted States, 30 C . -
547, Reap. Dec. 8218; Uni- Alfred Dunhill
Of London, Inc., 32 C.C.P.A. (Customs) 187, C.A.D.
3051, or for the right to use a patented process
(United States v. The Tide Water Oil Co., 19 C.C.P.A. (Customs) 392, 399, 400, T.D. 455541, or for services
of an engineer to improve the efficiency of a machine
Ct. 864, Reap. Dec. 4923; United States v. Rohner
(United States v. Rohner Gehrig & Co., Inc., 4 Cust.
Gehrig & Co., Inc., 9 Cust. Ct. 591, Reap. Dec.724)
are not aart of the value or cost of Droductlon of ~~ ~ ~~~ -.
the merciiandlse there under consideraiion. That argument applies here with apt relevance."

Similarly, it has been held that If a fee 1 s pald for

the right to use goods, that fee is part of the purchase prlce

since the right to use is one of the elements of ownership.

I

In Kuttroff, Pickhardt & Co. (Inc	-	) v. Unlted States 59 Treas.
Dec. 676 at 678, Judge Brown sald	._

"Under any agreement between the purchaser and the

seller the purchaser is bound to pay the price whlch
Includes the 10 per centum royalty, and the sale of

the commodity could not have been accomplished	I.
without payment of the said royalty, any more than	, '
without the payment of the pound rate of $5.16.	One
is just as essentially a part of the purchase prlce	. .
as the other, and it makes no difference what the method of collection is or that separate bills are furnlshed [to] the purchaser, nor does it materially affect the transactlon that a part of the actual price pald for the goods is remitted to one other than the seller.
The controlling consideratlon is whether or not the element of royalty actually became a part of the purchase price which the prospective purchaser was compelled to pay, in the ordinary course of trade, in order to secure the goods. There seems to be no escape from the conclusion that the royalty was part of the market value of the merchandise."
i
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The decision In that case may be contrasted with that in

I .

United States v. Imperial Products Inc. 570 F. 2d 337 (1978) in which, at p.340, Judge Rlch, expressing the opinlon of the majority, said:-

"Another way to show the royalty is not part of the
selling or offering price is the way that was

followed here - to show by evidence what the royalty

- is for, namely, a m nufacturing license under a

patent to make the complete brush In the Unlted

States. Because the royalty was charged for the

right to make and sell under the patent rather than	..
for merchandise, it was not	part of the selling price."

We need not give other illustrations from the United

States for the provlsions of the Customs Act 1901 must be interpreted according to their own words and not in accordance

I

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- . 14

with principles developed under other laws in other countries.

The point to note IS that the definition brings to account the

totality of all payments made which fall within the concept. of	r .
price, whether they be termed price or glven another name.	It
is sufflcient that the payments be made in	connectlon wlth the

I

goods but those words do not, in the context, bring to account

payments made with respect to a matter having no more than an

association with the goods. The words "in connection with the
goods" are looking to payments made with respect to the
acquisition of the goods, including the right to use the

goods.

The relevant sums must be payable under "the contract

of sale". As we have said, the form of the contract will not

be determinative. Matters which are foreign and extraneous to	" .
the question of price will not be taken into account though provided for in a document entitled "Agreement for Sale". Likewise, a sum whlch is truly part of the prlce paid to acquire the subject goods will be included in the price notwithstanding that It may be provided for, not in a document
entitled Agreement for Sale, but in some collateral agreement

otherwise entitled.

In the light of these comments, we turn to conslder separately the two appeals. Appeal G305 of 1987 concerns the	I
:
'I>
first part of the definitlon of "price" in s.154(1), that is to
say, ' l . . . the aggregate of all payments made ... directly or for the benefit of the vendor ... in accordance with the contract

I ' . :

1. J.

I _. . 15.

indire ctly, in connec ti on wlth the goods by the purchaser to or

. . . ' I . LNC, vrhlch was an importer of Fiat Notor Vehlcles, carrled

out an advertising campaign throughout 1985 with a vlew to promoting the sale of these vehicles. It had drawn up its advertising budget on the footing of allocating certain of the

profit from each sale to advertising. By the middle of the year,
it found that, as sales were below projections, ~t had failed to
recoup $90,000 that it had expected to recoup from the number of
sales on which it had budgeted. As the advertlsing campalgn

benefitted the exporter as well as LNC, LNC requested a

i	contribution. The exporter, Fiat, agreed to contribute
$US 30,000 towards the costs of the advertising campaign. The
crucial telex settlng out the arrangements between the two
I	parties read:-

"Regata Prices

The rate of exchange LIT/US Doll. Belng 1.871,467 for August has activated the trigger mechanism with an increase of prices of abt. 9% effective price movements for September and October productlon are therefore:

Regata 100.5 from 3350 to 3650

Regata	85SMAN/ from	2970 to 3240
Regata	85S/AUTo/from	3350 to 3650

I

The outstanding production at factory level is:

1	Sept	oc t
loos	-	a
85s MAN.	45	55

ass AUTO 73 151

--- __-

Total 118 214

Grand Total 332 Unlts

i

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.

I 1%

0

i .̂	-
!	16.

The 30.000 USDoll. advertising contributlon can be deducted from unit prices at 90 Doll. per unit for an effective ex factory of doll. 3560 for 100s and 85s

AUTO and Doll. 3150 f o r 855 MAN."

This was responded to by letter o f 19 September 1985 which	!
read:-

"Referring to your telex 9th September (reference
13225).

We thank you for your proposal that USS30,OOO will be deducted from the FOB prices of September and October sedan units. Effectively this will be US$90 per unit

on the 332 vehicles Involved. Would you please make the necessary arrangements for this adjustment."

Flat's representative, Mr E. Colli, gave this '_ .

evidence as to the contribution:

" S o you offered the contribution by way o f discount? --- We offered the - a token contribution which was

about 10 per cent: 10 per cent on the expenditure."

That evidence and the correspondence we have set out above show that Fiat agreed to make a contributlon of $US 30,000 towards LNC's advertising costs, the contribution to be made

by deduction of equal amounts, approximately $US 90, from the

price of 332 vehicles. Each such vehicle was invoiced at a

price $US 90.36 less than the price otherwise fixed.	The
actual contribution therefore totalled $US 29,999.52.

The Administrative Appeals Tribunal made these

findings:-

"Fiat Auto SpA agreed to make a contribution of

US$30,000 towards advertising costs, to be deducted

I

: i

17

at the rate of uSS90 per unlt from che factory prlce	!
of each vehicle purchased.	. ,
...

!	In my opinion, the involce prlces should be uplifted at the appropriate date by the market exchange
equivalent of USS90 per unlt. It appears to me that
the Fiat Auto SPA advertlsing contribution was stamped with a fiduciary obligation requlrlng the applicant to apply the money for the purpose of advertising the Fiat cars. The reduction in invoice prlce was obtalned upon a representatlon that it
would be so applied. (See 9v Sydney Stocj:
Exchange Ltd. (1986) 65 ALR 93 at 198 per G1 bs
C.J.) So regarded, the advertlsing contributlon
I	l

should not be regarded as a reduction in the price of
the vehicle but should be added on for customs

purposes. The declsion of the respondent on~~this	!L.
issue is affirmed."
Plainly, the expendlture incurred by LNC on

advertising in Australia was not to be brought lnto account

for the purposes of valuation. We have already explained that

.-
I .

one of the major changes in the basls of valuation was that calculations of the type undertaken In the Rolex Watch case and in Re Renault are no longer applicable. The advertising

. 1

in Australia was undertaken by LNC on its own account, though

with the accord of Fiat's representatives in Australla. I- _.

Moreover, the contributron of $US 30,000 made by Fiat

to the cost of the advertising was not a matter to be brought to account for the purposes of valuation. If Flat had sent a cheque for $US 30,000 to LNC as its contrlbutlon to LNC's

advertising costs, that contrlbution would not have been

i

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brought to account as part of the transactlon price.	i
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I.
The sole issue in thls appeal, therefore, 1 s what was the price paid or payable by	LNC for the imported vehicles.

Was the agreement between Fiat and LNC one whereby Fiat agreed to pay $US 30,000 to LNC by settlng off $US 90.36 against the price of each of the 3 3 2 vehlcles whlch had been ordered and were to be delivered In the months of September and October?

i

In that event the true prlce remained unchanged. Or was the agreement one whereby, in order to asslst LNC, Flat agreed to

i

reduce the price of the 3 3 2 vehicles that would be delivered	i
in September and October?

The terms and content of the agreement between Fiat

and LNC was	a question of fact of which the Tribunal was the
judge and it was an	issue determined by the Tribunal after

considering the oral and documentary evidence adduced before

it. In this appeal, the Court is bound by the Tribunal's

finding on thls matter unless there was an error of law in its

approach.	I .
The Tribunal found against the applicant on the point and concluded that the arrangement between LNC and Fiat was

that Fiat would make a contribution of $US 30,000 and that

that contribution was to be applied by LNC towards the cost of

its advertising campaign. The Trlbunal concluded that It was agreed that the $US 30,000 would be s e t off against the price payable for the vehicles to be delivered durlng September and October and that there was in truth no reduction in the prlce of those vehicles.

It does not appear to us that there was any error of

law In the Tribunal's finding on this matter. The quantum of

the advertising contribution was clearly identifzed, $us 30,000, and it was to be made by way of deductlon of the

proportionate sum, $US 9 0 . 3 6 , from each of the 3 3 2 vehlcles to

be delivered in September and October. The deductlon of

$US 9 0 . 3 6 from the price otherwise charged for each vehlcle

effectively constituted a payment by way of allowance, I .

totalling in all $US 2 9 , 9 9 9 . 5 2 . !

It was put by Mr M.H. Tobias, Q.C., senior counsel

, -.

for the applicant, that the Tribunal was incorrect in stating

! .

that LNC was under a fiduciary obligation which required LNC

to apply the $US 30,000 for the purpose of advertising.	It
can qulckly be agreed that the	words used by the Tribunal were

stronger than the facts justified for LNC was not required to place $US 30,000 into a special fund and It did not increase	.	I
its advertising obligations. Nevertheless, the $US 30,000 was	r
! I
understood by both Fiat and LNC to be a contribution to the	i :

cost of LNC's advertising campaign and It was pald as an encouragement or inducement to LNC to maintain the level of	!
advertlslng which both LNC and Fiat considered desirable. The words "flduciary obligation" are not appropriate but It was understood between LNC and Flat that, on the making of the contribution by Flat to LNC of $US 30,000, LNC would continue

l

I

with the programme of advertising whlch had already been

outlined to Fiat's representative in Australia. We think this
was the substance of the point whlch the Tribunal was making.
It would be wrong to look too crltlcally at the preclse words
which a busy tribunal uses to express its flndings.

In the circumstances, It does not appear to us that

there was any error of law in the flndings made by the
Tribunal with respect to thls matter. We would dismiss the
appeal in G305 of 1987.

We turn now to Appeal No.G306 of 1987, which concerns the second part of the definition of price, namely ' I . . . the

i

value ... of any goods or servlces that are to be supplled by,	, .
or on behalf of, the purchaser as part of the conslderation	i

passing from the purchaser under the contract of sale . . . ' I .

In this matter, LNC wasthe Australlan distributor for Audi

i

motor vehicles. It developed a proposal to provide a warranty

called "Audi cover" for each new Audi 100 Saloon sold by

retail in Australia, entitling the purchaser to have all the

costs of service, both parts and labour but excluding tyres
and fuel, supplied free of charge for	a period of two years
after sale or during the period of the frrst	50,000 km of the
vehicle's llfe, whichever time be the shorter.	LNC requested

Volkswagenwerk A.G., the manufacturer in Germany, to make a

contribution to the costs of the	additional costs of thls
after sale service. Volkswagenwerk A.G. agreed In principle	, .

i I

to contrlbute 5 0 % of the antlclpated costs and agreed to do so

by reduclng the prlce of each Audl 100 by DM 350.

It is a matter of interest, but of Interest only,

I that Volkswagenwerk A.G. calculated that 50% of the additlonal

costs would be DM 550 per vehicle but It reallsed that if it reduced the price of each vehicle by D14 350 the customs duty

!

payable In Australia would fall by D14 200 per vehicle.

I

i

Volkswagenwerk A.G. therefore took the view that a reduction	I .
in the price of each vehicle of D14 350 was sufficient to make	I :
L
a 50% contributlon to the additlonal costs of the service.	i
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8 -

On 5 December 1984, Volkswagenwerk A.G. sent the

following telex to LNC:- ..

"Re: Audl 100 Pricing

I .

Ne are glad to inform you that all departments	r ..
I
involved agreed to our proposal of sharing maintenance service costs.

!

Your new Audi 100 prices reduced by DM 350,-- on ex works, price will be with effect 1/12/84 as follows:

1.   Model 444 873 ex works D14 25 960,--

2.    Model 444 874 ex works DM 24 940,--

These prices will apply for all Audi 100 vehlcles

supplied up to 31st July 1985, i.e. there will be no

vehicle price lncrease on 1st January 1985. The next

price increase for Audi 100 is fixed at 4 percent

effective 1st August 1985 (plus model-improvement).

M-equipment prices, however, will increase In general

by 4 percent as from 1st January 1985 (wlth the	I ,
exception of those M-Nos. mentioned in our circular letter of 29th November 1984).
We hope that thls measure partially enable you to
achieve the common volume target of 600 Audi 100 ..."	_ I
It will be noted that Volkswagenwerk	A.G.'s

contrlbutlon to the additional costs of Audi cover were not

quantlfied by any lump sum but only by reference to the

reduction in the prlce of each Audi 100 vehicle supplred after

1 December 1984. Furthermore, there was no agreement as to

the number of Audi 100 Saloons to be supplled, though there

was an agreed target. Information before the Trlbunal

suggests that the price reduction was accorded to 218 Audi 100

vehicles imported during January to September 1985. Other	l
L
information before the Trlbunal suggests that the new warranty cover did not commence until 1 March 1985 and that the programme was to be applied to "field stock as at this date" and thereafter.

With respect to this matter the Tribunal found:-

"It appears to me that the services supplied by the
applicant or its subsidiary, do fall wlthin the

phrase 'goods or services that are to be supplied by,

or on behalf of, the purchaser as part of	the
consideration passing from the purchaser	under the

contract of sale' used In the definition of price in

section 154(1) of the Act. A contract for the

benefit of a third party is enforceable	between the
principals provided there is consideration.	!
Consideration flowing to Volkswagenwerk A.G. lay in
the enhancement of its reputatlon and goodwill in
Australia, the purpose of Volkswagenwerk A.G.	being
to increase the sales of Its products in this	, .,

! country. (See Chappell & Co. Ltd. v. Nestle Co. Ltd.

[l9601 A.C. 87 per Lord Reld at p.109). I do not

regard the services supplied by the appllcant as
falling within the exceptlon in section 154(2)(a)(ii)
of the Act. To my mlnd the exceptlon is dlrected to

servlces supplied exclusively on account of the

purchaser and not under a contract by virtue	of which
it secures the advantage of a reduction	In the price

of the imported goods. Accordingly I affirm the
decision of the respondent In thls respect."
It can be seen that the Trlbunal accepted that the

price payable for the goods was the reduced price as stated in

the telex I have set out above. This flndlng was challenged

. .I

by Mr C. DaKV.311 Q.C., senlor counsel for the Collector. , .

HOWeVeK, it was a factual Issue rn respect of which the

l	Tribunal was the judge.	We see no error of law in its
findlng.
I

i ,

Under the second part of the definition of price, the Trlbunal concluded that there should be added : .

to the price	!
I .

payable the value of goods and services to be supplied by LNC

under its Audi cover.

In our opinion, there were a number of errors in this

conclusion. The first is that the sum in question was not the

value of those goods and services, whlch had been calculated
to cost DM 1100 per vehlcle, but only the contribution thereto

made by Volkswagenwerk A.G., namely D14 350 per vehicle.

Insofar as there was an agreement between LNC and

Volkswagenwerk A.G. that LNC would provide goods and services,

it was that LNC would provlde all the goods and services
necessary for the Audl cover and not merely the part thereof	..’
that represented the contrlbution by Volkswagenwerk A.G..
Secondly, the Tribunal did not relate the agreement between LNC and Flat to contracts of sale for speclfic
vehicles.	Thus, the price reduction commenced on 1 December

l

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I I 24

1984 whereas Audi cover was planned to commence on 1 March

1985. The Tribunal did not make a fxnding as to the number of vehicles to whlch the prlce reduction applied or as to the

vehicles to which Audi cover applied. Yet Audl cover was not

I

a relevant matter in the calculatlon of the price of any

imported vehlcles unless Audl cover was part of the
consideration passlng from LNC under the contract for the sale

and importation of those vehicles.

Thlrdly, even though there may have been an agreement between LNC and Volkswagenwerk A.G. that LNC would provide

Audi cover, it	would seem that that cover	was provided by LNC
on its own account.	It did not provide the cover for	or as

agent of Volkswagenwerk A.G..	It seems that the cover was
provided by LNC In its own name	and that it was solely

responslble for complying wlth the warranties given. The fact

that Volkswagenwerk A.G. was prepared to reduce the prlce of	! .j
its vehicles to assist LNC to provide the cover	does not

provide a basis for a finding that Audi cover was provided by

l

LNC otherwlse than on its own account. Accordingly,

s.l54(2)(a)(ii) precluded the Collector from having regard to

the cost or expense and therefore the value thereof.

In this respect, we relect the view of the Tribunal that "the exception [s.l54(2)(a)(ii)] is directed to services

supplied exclusively on account of the purchaser and not under l

a contract by vlrtue of whlch it secured the advantage of a

I	.
: *

I

reduction In prlce". Section 154(2)(a)(11) operates to

exclude matters that have been brought to account as part of

the price being payments made in accordance wlth the contract	L	. a
I . I

of sale or being the value of goods and services supplied as

part of the consideration passing under the contract of sale.
Therefore, the fact that an agreement with the exporter
provides for payments, goods or services which may benefit the

exporter does not preclude their being undertaken by the

importer on his own account.

And, lastly, the Tribunal did not turn its attention

to s.l54(2)(b)(iii)(A)	which provides that costs, charges and
expenses incurred for the maintenance of the	goods after the

!

importation of the goods shall be deducted from the price.	L
L
The costs of the goods and services, that i s Audi cover, that the Tribunal took into account, appeared to come withln that
provision.	The obligations under the warranties would have
been incurred after importation.	The Act expressly requrred

such costs to be deducted from the price if they or their

value were otherwise taken into account.

The Tribunal's finding on this matter accorded with

that of the respondent whose reason for decision was that
there should be included in the prlce "the value of warranty

services provided by the purchaser for the benefit

of the

vendor." It is unnecessary to repeat our reasons for thinking that this approach was Incorrect.

I

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As the Tribunal proceeded upon a wrong basls in law,

the appeal in G306 of 1987 should be allowed and its decision

in this matter should be set aside. The matter wlll be

remitted to the Trlbunal to be heard and declded agaln elther

with or wlthout the hearing of further evldence. As the

parties have each succeeded in part and falled In part, we

think that each should bear its or hls own costs of these	L .
appeals.	. .
I
..
I certify that thzs and the	2 5

preceding pages are a true copy of

the Reasons for Judgment herein of	.
the Honourable Mr Justice Davies and	..
the Honourable Mr Justice Einfeld.	I
Associate: 3- $A
Date:	2 2 January 1988
Counsel for the applicant:	Mr M.H. Tobias Q.C. with #r J . S . Hllton
Solicitors for the applicant:	Dunhill Morgan
Counsel for the respondent:	M r C. Darvall Q.C.
with Nr G. Dowling

Solicitors for the respondent:	Australian Government
Solicitor

Dates of hearing:  21-22 October 1987

I