Mercator Lighting Pty Ltd and Chief Executive Officer of Customs

[2014] AATA 694

[2014] AATA 694  

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2013/3027
Re	Mercator Lighting Pty Ltd
APPLICANT
And	Chief Executive Officer of Customs
RESPONDENT

DECISION

Tribunal	Deputy President F J Alpins
Date	23 September 2014
Place	Melbourne

The decision under review is affirmed.

.......[sgd].................................................................

Deputy President F J Alpins

CUSTOMS AND EXCISE – customs duty – classification of goods – composite goods made up of different components – determination of essential character – application of Interpretation Rules – Customs Tariff Act 1995 (Cth)

Legislation

Customs Act 1901 (Cth), ss 167, 273GA

Customs Tariff Act 1995 (Cth), ss 3, 7, Sch 2, Sch 3

Acts Interpretation Act 1901 (Cth) ss 13, 15AB

Cases

Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) (1980) 3 ALD 38

Chinese Foodand Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591

Collector of Customs v Savage River Mines (1988) 79 ALR 258

Collector of Customs (Qld) v Times Consultants Pty Ltd (1986) 11 ALD 277

Gardner Smith Pty Ltd v Collector of Customs Victoria (1986) 66 ALR 377

Nylex Corporation Ltd v Collector of Customs, unreported (9 April 1987)

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

Re Tridon Pty Limited v Collector of Customs (1982) 4 ALD 615

Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285

Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6

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

Secondary Materials

Explanatory Notes to General Rules for the Interpretation of the Harmonized System

Macquarie Dictionary (6^th ed, Macquarie Library, 2013)

REASONS FOR DECISION

Deputy President F J Alpins

23 September 2014

INTRODUCTION

1. This application concerns the proper classification under the Customs Tariff Act 1995 (Cth) (the “Tariff Act”) of certain goods imported by the applicant, being electric ceiling fans with integrated electric lights. The applicant has paid duty under protest in respect of the goods in dispute, pursuant to s 167(1) of the Customs Act 1901 (Cth) (the “Act”). This is an application made under s 273GA(2) of the Act for review of the respondent’s decision to make the demand for that duty.

2. The applicant contends that the goods are properly classified under heading 8414 in Sch 3 to the Tariff Act (which, for ease of reference, I shall refer to as the “fans heading”), under subheading 8414.51.00. Furthermore, the applicant contends that it is entitled to claim the benefit of Tariff Concession Order (“TCO”) 9306896, which is keyed to subheading 8414.51.00, with the consequence that the goods are not subject to duty.

3. The respondent contends that the goods are properly classified under heading 9405 in Sch 3 to the Tariff Act (which, for ease of reference, I shall refer to as the “lights heading”), under subheading 9405.10.00, and therefore subject to a rate of duty of 5%. The respondent contends further that the TCO, being keyed to an inapplicable subheading, therefore does not apply to the goods in question.

RELEVANT LEGISLATION

1. The Tariff Act imposes customs duty on goods imported into Australia. In order to ascertain the duty payable on particular goods, it is necessary to have regard to the Principal Tariff set out in Sch 3 to the Tariff Act. Schedule 2 to the Tariff Act set outs the general rules of interpretation for deciding the tariff classification within the Principal Tariff to which goods belong.

2. At the date of the entry for home consumption of the goods in dispute, the headings and subheadings of Sch 3 of possible application provided as follows:

“8414			AIR OR VACUUM PUMPS, AIR OR OTHER GAS COMPRESSORS AND FANS; VENTILATING OR RECYCLING HOODS INCORPORATING A FAN, WHETHER OR NOT FITTED WITH FILTERS:
8414.5 8414.51.00		- Fans: ‑‑Table, floor, wall, window, ceiling or roof fans, with a self‑contained electric motor of an output not exceeding 125 W			5%
9405		LAMPS AND LIGHTING FITTINGS INCLUDING SEARCHLIGHTS AND SPOTLIGHTS AND PARTS THEREOF, NOT ELSEWHERE SPECIFIED OR INCLUDED; ILLUMINATED SIGNS, ILLUMINATED NAME‑PLATES AND THE LIKE, HAVING A PERMANENTLY FIXED LIGHT SOURCE, AND PARTS THEREOF NOT ELSEWHERE SPECIFIED OR INCLUDED:
9405.10.00		‑Chandeliers and other electric ceiling or wall lighting fittings, excluding those of a kind used for lighting public open spaces or thoroughfares”			5% CA:Free

1. Relevant goods that a TCO made under Pt XVA of the Act declares are goods to which Item 50 of Sch 4 of the Tariff Act applies are free from duty.TCO 9306896 became operational in 1993 under subheading 8414.51.00 and applies to:

   “FANS, ceiling, with self-contained electric motors of an output NOT exceeding 125 W, but excluding exhaust fans of all kinds.”

2. Section 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 (see also the prefatory words in Sch 2). The Interpretation Rules are defined in s 3 as the General Rules for the Interpretation of the Harmonized System provided for by the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983.

3. The Interpretation Rules are set out in Sch 2 to the Tariff Act. Schedule 2 relevantly provides:

   “Classification 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 relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:

   2.(a)       Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.

   (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.”

4. The dispute between the parties concerns the applicable heading under Sch 3 to the Tariff Act. The applicable subheadings under each of those headings are not in dispute. Put in terms of the Interpretation Rules, the applicant contended that the goods are properly classified under the fans heading on the following basis. The applicant contended first that the goods are properly classifiable only under the fans heading, in accordance with Rule 1, and that Rule 3 has no application. Alternatively, the applicant contends that if Rule 3(b) applies and the goods are properly characterised as “composite goods ... made up of different components”, the fan component “gives them their essential character” for the purposes of that rule and that they are therefore to be classified under the fans heading by operation of Rule 3(b).

5. The respondent contended that the goods are properly classified under the lights heading, on the following basis.  The respondent contended that, for the purposes of Rule 3(a) of the Interpretation Rules, the goods are “prima facie, classifiable under two ... headings”, being the fans heading and the lights heading and that classification is therefore to be effected according to Rule 3.  The respondent contended that the goods in dispute constitute “composite goods ... made up of different components” for the purposes of Rule 3(b) which cannot be classified by reference to rule 3(a) nor rule 3(b), in the latter regard because neither of those components, being in each case the fan and the light, can be said to give the goods their “essential character”.  The respondent contended that, accordingly, they goods are to be classified under the lights heading, being the latter heading in numerical order, by operation of Rule 3(c).

WITNESSES GIVING EVIDENCE BEFORE THE TRIBUNAL

1. The applicant relied upon the evidence of two witnesses, being Mr Russell Levy, the applicant’s managing director and Mr John Rimmer, the managing director of a different company operating retail stores that sell domestic lighting and ceiling fans.

2. The respondent relied upon the evidence of three witnesses, being Mr Kenneth Campbell, the managing director of a rival company with lengthy experience in the domestic and commercial lighting industry.  The respondent also relied upon the evidence of Mr Simon Xiberras, a qualified architectural draftsperson involved in interior design and that of Mr Jade Williams, an electrician with experience in installing fans with integrated lights such as those in dispute.  Each of the witnesses was cross-examined. 

3. Three representative samples of the goods in dispute, two in and one with their packaging boxes, were tendered in evidence.  Two were “Grange” models and one was a “Kimberley” model.  So too were various copies of various documents, including the applicant’s illustrative descriptive material about the goods in dispute.

CONSIDERATION

Identification of goods

1. The goods must first be identified so the relevant headings in Sch 3 to the Tariff Act can then be construed and applied to the goods as identified (Re Gissing and Collector of Customs (1977) 1 ALD 144 at 146; Vernon-Carus Australia Pty Ltd & Anor v Collector of Customs (1995) 21 AAR 450 at [18]).

2. The goods in issue were, at the relevant time, sold under the trade names of “Grange” (models FC 032134, FC033128 and FC036134), “Kimberley” (models FC132128 and FC132128R) and “Longreach” (model FC073133).  I note that it was common ground between the parties that there were no differences between the each of the goods in issue which might affect their proper classification. 

3. The illustrative descriptive material concerning the goods establishes that each of the goods comprise a ceiling fan with an integrated light, and a three-speed wall controller (“off” switch with three settings) with a separate light switch together in a single panel.  The Kimberley and Grange models have fans with four blades while the Longreach model has a fan with three blades.  The Kimberley models are 1200 mm in size, the Longreach model is 1300 mm in size, while the Grange models are either 1200 mm or 1300 mm in size.  In each case, the fans are made of plywood, with a 12 degree pitch.

4. The light fittings have glass “oyster” light covers.  The light fittings are centred underneath and in the middle of the fan blades.

5. The illustrative descriptive material indicates that the Kimberley models are available in two colours (Brushed Chrome” and white),  the Grange models are available in two colours (black and white) and in the case of model FC032134 are also available in “Brushed Steel” and the Longreach model is available solely in the colour “Brushed Chrome” 

6. I note in passing that the illustrative descriptive material establishes that the Grange and Kimberley ranges also have models which consist of ceiling fans without integrated lights.  Such goods are not in issue – the respondent has previously decided that such goods are properly classified under the fans heading, under subheading 8414.51.00 and that they are free from duty under TCO 9306896.

7. The Kimberley models are available with or without a remote control, while the Grange and Longreach models are “[r]emote control adaptable”.  The remote controls referred to in the illustrative descriptive material (models FRM87, FRM89R, FRM90R and FRM92R) each provide the functions of “Light ON – Light OFF”, “Fan OFF – Fan ON” and “LOW/MED/HIGH” for the fan function.  The FRM92R model also provides a 3 minute light delay and temperature control function.

8. Each of the goods has a 60W motor.  Furthermore, each of the goods has a reversing switch and what is referred to in the illustrative descriptive material as a “[s]ummer/winter energy saving setting”.  The packaging box for the Kimberley range representative sample indicates that the fan can therefore be set for downward air flow (for hot weather) and also for upward air flow (for cold weather).  Each of the goods are “[t]ropically rated”. 

9. The illustrative descriptive material states that the Grange models FC032128 and FC032134 both take 2 “B22” 15W globes (which the sample Grange box indicates are “Energy Saver Lamps”, specified to be maximum wattage) while Grange model FC036134 takes a “T5” 22W globe.  The illustrative descriptive material and the sample Kimberley model box indicate that the Kimberley models both take, as a maximum, either 1 20W CFL (compact fluorescent) globe or 1 “E27” 60W incandescent globe.  The illustrative descriptive material indicates that the Longreach model (FC073133) takes, as a maximum, 2 “E27” 15W CFL globes.  Globes are not supplied with the goods.

10. The degree of illumination achieved by CFL globes of a certain wattage differs from that achieved by incandescent, LED and “energy saver” globes.  To illustrate that it is necessary to convert CFL globe wattage in order to compare it with the wattage of such globes, Mr Williams gave oral evidence that the illumination achieved by 2 15W CFL globes (as used in the Longreach model) equates to the illumination achieved by LED or energy saver globes totalling about 160-190W in and that the illumination achieved by a single 20 W CFL globe (as can be used in the Kimberley models) equates to over 100W, perhaps 120W, in such globes.  

11. Mr Williams also gave evidence that he has installed fans with integrated lights in most rooms in houses and Mr Levy accepted under cross-examination that such goods are used in most rooms in houses.  Based upon the evidence concerning the wattage of the globes which may be used in the goods in dispute and also that of Messrs Williams and Campbell, I find that the degree of illumination provided by the goods in dispute is sufficient to provide the sole or main source of artificial light for general purposes in most rooms in which the goods might typically be installed.  To the extent that Mr Rimmer’s evidence might suggest otherwise, I prefer that of the other witnesses and the evidence as to wattage.  I accept Mr Rimmer’s evidence that whether the goods are used as the sole source of light will depend upon the size of the room and the purposes for which the room is used and, in the latter regard, that additional light will be required for activities such as reading and writing.  Mr Campbell also gave evidence to that effect and furthermore pointed out that the degree of illumination achieved in a room might be affected by the colour of the walls and ceiling. 

12. The goods therefore have two different and separate functions, as Mr Levy stated in his witness statement and confirmed under cross-examination.  The fan function achieves variable air circulation and room temperature control while the light function achieves artificial room illumination.  The fan and lighting functions of the goods can be used either together or separately, that is to say that the ceiling fan may be used with or without the light on and the light may be used with or without the fan on.  Mr Campbell gave evidence providing an example of how the two different functions of the goods might typically be used together or separately, which might depend upon the time of day, the ambient room temperature and the need for air circulation. In his witness statement, he said:

    “For example, a family may use a ceiling fan with or without the light turned on (such as during the day or at night when sleeping but movement of the air is desired) and the light with or without the fan (as when the room needs to be light but there is no need to use the ceiling fan).” 

13. Mr Levy gave oral evidence that the goods in dispute are imported in a coloured packaging box.  The packaging boxes for the sample Grange models and the sample Kimberley model display a picture of the goods.  The Grange and Longreach models are contained in their boxes in their assembled state; the sample Grange model box indicates that it is “Pre-Assembled for Easy Installation”.  The fan blades are packed together down the side of the box.  The Kimberley models are contained in the box with the light separated from the fan, to be assembled during installation.  The packaging boxes refer to both the fan and light functions of those goods, although as the applicant pointed out, they refer to more aspects of the former than the latter.  I note that the packaging boxes for those samples state “3 Speed Wall Controller with Light Switch Included”.

14. Apart from showing pictures of the goods, the boxes refer to them as “Grange” or “Kimberley” and include model numbers.  I note that the boxes bear the applicant’s name, stating “Mercator The Quality Brand in Fans”.  Furthermore, underneath each box it states “WARNING! FAN MUST BE INSTALLED BY A LICENSED ELECTRICIAN”. 

15. Before turning to the issue of the classification of the goods, it is necessary to address a submission made by the applicant in the context of their identification.  The applicant submitted that Mr Levy’s evidence that the applicant advertises and markets the goods in issue as part of its range of fans, and that the consumer magazine “Choice” conducted a review of ceiling fans with lights as part of what was described merely as a review of ceiling fans, was relevant to the identification of the goods in issue, relying upon the decision of this Tribunal in Re Tridon Pty Limited v Collector of Customs (1982) 4 ALD 615 at 620, where the Tribunal stated that “[i]n the identification of goods, knowledge of how those who trade in the goods describe them will usually be relevant, but not necessarily conclusive” and cited as authority for that proposition Markell v Wollaston (1906) 4 CLR 141 at 150 and Whitton v Falkiner (1915) 20 CLR 118 at 127.

16. With respect, in my view in that decision the Tribunal erroneously conflated identification with classification of goods and that aspect of its decision should not be followed.  The two cited cases do not support the stated proposition, as they were in fact concerned with the construction of the tariff and whether relevant terms employed therein bore a trade meaning. 

1. As the Tribunal (the presiding member being Brennan J) held in Re Gissing at 146, the naming of the goods “is not an essential step in the process of identification”, as identification “is concerned with goods, not with the description of goods”.  Furthermore, it is apparent that in that case the Tribunal was not concerned with description of the goods in the context of a retailer’s advertising and marketing materials and consumer reviews, which could only be of even lesser relevance in their identification.  I have therefore addressed that evidence in the context of classification of the goods.  However, I note that, even if I had instead addressed that evidence in the context of identification of the goods, it would not have affected any of the conclusions I have reached.

Classification of goods – general principles

1. Before turning to address the proper tariff classification of the goods in issue, it is convenient to set out some general principles governing such classification. The provisions of Sch 3 form part of the Tariff Act (s 13(1)(b) of the Acts Interpretation Act 1901 (Cth)) and are to be construed and applied to the facts of a particular case according to general principles of statutory interpretation (Collector of Customs v Savage River Mines (1988) 79 ALR 258 at 264-5; Grundfos Pumps Pty Ltd v Collector of Customs (1997) 25 AAR 75).

2. The “classification of goods for tariff purposes is a practical ‘wharfside’ task” (Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 15 FCR 449 at 463). 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” (ibid).Regard “must be had to the characteristics of the goods themselves, as they would present themselves to an informed observer” at the time of importation (ibid at 462; Chinese Foodand Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 at 599). The “get-up, colour, decoration, labelling and packaging” of the goods (Chinese Food and Wine at 599, including the manner in which the goods are described in that context (Re Gissing at 146), are also relevant considerations. 

3. Classification is therefore determined by an objective test, not by the intentions of the manufacturer, exporter, importer or particular users of the goods (Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) (1980) 3 ALD 38 at 56-57; Times Consultants at 462; Chinese Food and Wine at 599; Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6 at 14). Mr Levy’s evidence concerning a survey he had conducted of customers making warranty claims with respect to ceiling fans with lights, concerning which rooms of their house they had installed the goods in and whether the goods were the only source of artificial lighting in that room, is irrelevant. What is relevant is the use or uses to which the goods might ordinarily be put (Blackwood Hodge at 57; Re Gissing at 146).   

Interpretation Rules – Rule 3 applies to goods

1. The provisions of Sch 2 to the Tariff Act also form part of that Act. I note that, as s 17 and the prefatory words of Sch 2 indicate, the Interpretation Rules “are not rules of construction, but are rules ... governing the application of the tariff provisions in particular situations” (see Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285 at 300 per Burchett J).

2. With respect to operation of the Interpretation Rules in the present case, as I have indicated the applicant contended first that the goods in dispute are, upon classification “determined according to the terms of the headings” as required by Rule 1, properly classified under the fans heading and that rule 3 does not arise for consideration.  The applicant in its written submissions asserted that that is so because rule 3 only applies if one is “clearly ... able to identify two potentially applicable classifications by reason of identifying two distinct goods” and “[t]hus if you cannot identify the goods as having two separate identities, then interpretation Rule 3(b) cannot apply”.  In oral submissions, the applicant said that “if you just simply look at these goods and say ... I think they are clearly identified as a ceiling fan” then no question of competing classifications arises so as to bring Rule 3 into consideration.  I reject that submission, which disregards the clear terms of rules 1 and 3.  It also betrays a misconception concerning the proper classification of the goods, being overly focussed on the question of their visually dominant component.  I address that issue later in these reasons.

3. As the terms of rule 1 confirm, the rules are to be read as a whole. Rule 1 provides not only that classification is to be determined according to the terms of the headings but also (there being no headings or Notes requiring otherwise in this case), that classification be determined according to the provisions of Sch 2 that follow. Rule 3 specifically envisages that particular goods may, for whatever reason (expressly extending beyond circumstances attracting rule 2(b), which does not arise for consideration in this case), be classifiable under more than one heading and provides for such circumstances. “The whole purpose of r 3 is to deal with cases where, for whatever reason, particular goods fall into more than one category” (Rheem Australia at 294 per Wilcox J).

4. It would clearly be erroneous to select the first applicable heading which arises for consideration and to disregard the question of whether the goods are also classifiable under any other headings. While the arrangement of Sch 3 “discloses a hierarchy of classifications”, that “does not imply that classifications of equal standing are mutually exclusive” as “Rule 3 ... plainly contemplates the possibility that goods may fall within two or more classifications of equal standing” (Savage River Mines at 265).

5. Furthermore, Rule 3 specifically encompasses “composite goods” and expressly provides for circumstances where such goods are prima facie classifiable under more than one heading.  The applicant’s submission therefore lacks any foundation.  One cannot properly disregard the question of whether the goods are also, “prima facie, classifiable” under the lights heading for the purposes of Rule 3.  

6. In my view, the goods in dispute are prima facie classifiable under both the fans heading and the lights heading. The goods satisfy the terms of both headings. I note that there is no heading in Sch 3 to the Tariff Act specifically pertaining to combined fans with “lamps or lighting fittings” (see the lights heading). Accordingly, classification of the goods is to be effected in accordance with the provisions of Rule 3. Undertaking a “practical ‘wharfside’ task” of classifying the goods and applying the principles to which I have referred in that context, I find that these goods can be classified upon an informed visual inspection in their state at the time of importation, without the need for further investigation in order to disclose their characteristics (see Times Consultants at 463; cf Chinese Food and Wine at 599).  Accordingly, to the extent that the applicant sought to rely upon evidence concerning the goods when disassembled, as if examining entrails, so as to establish that the goods are prima facie solely classifiable under the fans heading, that evidence is irrelevant.  They are also prima facie classifiable under the lights heading.  I address that evidence again in the context of considering the operation of Rule 3.

Does Rule 3(b) or 3(c) apply to the goods?

1. As I have said, the respondent contended that the goods were to be classified under the lights heading by reference to Rule 3(c) of the Interpretation Rules.  The respondent submitted that that was so because the goods constitute “composite goods .... made up of different components”, being the “fan” component and the “light” component, which could not be classified by reference to Rule 3(a) (that much being common ground), but that neither component could properly be said to give the goods their “essential character” for the purposes of Rule 3(b).  Accordingly, the respondent contended that they were to be classified under the lights heading, being the “last in numerical order among those which equally merit consideration” (being the fans heading and the lights heading) for the purposes of Rule 3(c), being the residual provision.

2. As I have also said, the applicant contended that if classification of the goods was to be determined according to the provisions of Rule 3 of the Interpretation Rules, they were to be classified by reference to Rule 3(b) under the fans heading, as it was the fan component of the goods which “gives them their essential character” for the purposes of that provision.  Accordingly, the essential issue is whether the goods were properly to be classified by reference to Rule 3(b) or instead by reference to Rule 3(c) of the Interpretation Rules.

3. Just as the classification of goods is to be undertaken as a “practical ‘wharfside’ task” and in accordance with the other related principles to which I have referred, so too is the “essential character” of goods to be determined for the purposes of Rule 3(b) of the Interpretation Rules (Times Consultants at 462). 

4. The term “essential character” bears its ordinary meaning (Sharp Corporation at 13-15). It is a question of fact whether composite goods have an essential character and what that essential character is (Times Consultants at 462; see also Sharp Corporation at 13).

5. As Davies J observed at first instance in Collector of Customs (Qld) v Times Consultants Pty Ltd (1986) 11 ALD 277 at 280 “one ought not, in classifying goods for the purposes of the tariff, to look for subtleties”. That is because of the international source, context and use of the nomenclature employed in the Principal Tariff set out in Sch 2 to the Tariff Act and that of the Interpretation Rules in Sch 3.

6. Accordingly, His Honour described the question of what the “essential character” of goods is for the purposes of Rule 3(b) as being one of “basic fact”.  His Honour therefore held that the Tribunal had erred in instead addressing the question of what the “dominant component” of the goods was, and had thus “failed to turn its attention adequately to the goods themselves, to their nature, composition and their function” (at 284).  His Honour held that “[d]ominance may be relevant to, but is not determinative of, the issue” of the essential character of the goods (at 283).  On appeal, the majority of the Full Court in Times Consultants approved Davies J’s reasoning, concluding “[i]it was not the dominance of one component of the goods which was the critical issue, but their essential character”, making reference in that regard to the “practical ‘wharfside’ task” involved in the classification of goods for tariff purposes.

7. At first instance, Davies J made an observation (at 282) which is particularly germane to the facts of this case:

   “But where two goods have a different composition and nature and are put together in a set because they complement each other, and because each adds significant quality that the other does not have, one cannot ordinarily say that one article only gives to the set its essential character.”

8. In my view, His Honour’s comments are also applicable to “composite goods” within the terms of Rule 3(b) made up of different complementary components which each add a different significant quality to those goods.  As the majority of the Full Court observed in Times Consultants at 463, “it may be that there is no single essential character; in which case [Rule 3(b)] will be inapplicable and reference will need to be made to the arbitrary rule contained in” Rule 3(c). 

9. As Davies and Beazley JJ pointed out in Sharp Corporation at 15, although Rule 3(c) has been referred to as a “precept of despair” (in Cody v Datacraft (Australia) Pty Ltd (1989) 10 AAR 346 at 348), the terms of Rule 3 and the respective scope of each of its provisions are clear. I note that in Sharp Corporation the Full Court found that it was open to the Tribunal to have found on the facts of that case that no one material or component gave to the goods their essential character and that the residual rule accordingly applied. The majority stated that the “expression ‘essential character’ directs the attention of the decision-maker to the essence of the goods, to what they really are” (at 14).

10. I turn now to consider whether the goods in issue are properly classified by reference to Rule 3(b) of the Interpretation Rules or instead fall to be classified in accordance with Rule 3(c).  I accept the respondent’s submission that the goods in issue constitute “composite goods .... made up of different components” for the purposes of Rule 3(b).  In my view those words bear their ordinary meaning, read in the context of the balance of the provisions of Rule 3.  Furthermore, they are to be read confluently, that is to say as whole (see Sea Shepherd Australia Limited v Commissioner of Taxation (2013) 212 FCR 252 at [34] and the cases referred to therein). I note that in the Macquarie Dictionary (6^th edition) the word “composite” is relevantly defined to mean “made up of various parts or elements” while the word “component” is relevantly defined to mean “a constituent part”.  In my view the goods are made up of different parts or elements, being a fan and a light.  As I have indicated, the goods are prima facie classifiable under both the fans heading and the lights heading because of those different components.

11. Although I do not consider that it is necessary to have regard to extrinsic material in this regard, in my view the explanatory notes which relate to the Interpretation Rules serve to confirm that “composite goods ... made up of different components” includes goods in which the components are attached to each other to form a practically inseparable whole (see s 15AB(1)(a); Gardner Smith Pty Ltd v Collector of Customs Victoria (1986) 66 ALR 377 at 383-4).

12. In this proceeding, it was common ground that the real question was whether the component of the goods consisting of the fan could properly be said to give the goods their essential character, as the applicant contended.

13. As I have indicated, much of the applicant’s evidence and submissions was focussed on the goods as dismantled from their state at the time of importation, so as to demonstrate that that it is the fan component of the goods which gives them their essential character.  I accept the respondent’s submission that that focus was misconceived.  Simply put, it is not necessary to dissect these goods in order to classify them.  The applicant sought, erroneously in my view, to turn attention away from the nature, composition and functions of the goods and instead to focus attention upon various matters, including what was said to be the structural dominance of the fan component.  

14. However, I note in passing with respect to the internal workings of the goods that, in any event, Mr Levy said in oral evidence that the motor for the fan is separate and independent from the light globes and accepted under cross-examination that the fan and the light are separately wired.  Furthermore, he accepted that, if the fan were to cease working because the motor malfunctioned, the light would continue to work, because the fan and the light are separately wired.

15. I shall deal first with the applicant’s evidence and submissions about the structural dominance of the fan component.  Despite the clear principles set out in Times Consultants, the applicant’s evidence, particularly that of Mr Levy, focussed on matters such as the difficulty of dismantling the goods, the fact that if they are dismantled, the fan component will operate without the light component attached, while if dismantled the light component will not operate without considerable adjustment to attach it to the ceiling and that it would look unsightly.  The wiring and other parts of the goods were cut or pulled to pieces in order to demonstrate various points.  The applicant also focussed, in the case of the Longreach model, on the components before they were assembled as goods. 

16. However, these goods are composite goods and are to be classified accordingly. The question of whether either component gives them their essential character is to be determined by having regard to their characteristics (including their functions) as they are, not as they would be if one tried to make them into separate goods, nor before they were made into goods.  In that regard, structural dominance of either component could only be of any relevance to the determination of the essential character of the goods to the extent that it would be manifest upon informed inspection of the goods in their state as imported.  As I have said, these goods can be classified “merely be looking at them and by considering their nature and the function which they were designed to serve” (Times Consultants 462-3).  The independent operation of the components of the goods is relevant; whether those component would each operate independently if they did not form part of the composite goods is not to the point. 

17. In seeking to establish the essential character of the goods by reference to the structural dominance of the fan component, the applicant submitted orally that the fan component “provides ... the backbone or the spine, the structure, the skeleton ... which is the essence of what the product is”.  In that context, the applicant relied upon the following passage from this Tribunal’s decision in Nylex Corporation Ltd v Collector of Customs, unreported, 9 April 1987 concerning the determination of the essential character of goods:

    “Nor is the question to be decided on the basis that either material is functionally indispensable to the product.  For a material to give to a product its essential character it must have a dominating influence upon the essence of that product.”

    The applicant submitted that the fan component had such a “dominating influence” given the structure of the goods.

18. To the extent that the applicant sought to suggest that a component of composite goods must be structurally dominant in order to give them their essential character, that submission is rejected, given the principles in Times Consultants.  If the applicant instead sought to suggest that structural dominance is determinative of the essential character of composite goods, that submission is also rejected.

19. In any event, the passage upon which the applicant relied does not support its submissions.  In that case the Tribunal was, nevertheless, focussed on the functions of the goods.  In that case, the Tribunal found that the essential character of the goods was, on the facts, to be determined by how they were to be used.  The goods had three functions, but two of them were ancillary to the other, in the sense that they would serve little if any useful purpose without that critical function.  Accordingly, the Tribunal found that the essential character of the goods lay in the material supporting that function.  I note by way of contradistinction that the functions of the goods in dispute are discrete and independent in nature and operation.  

20. With a degree of acknowledgment of the “practical ‘wharfside’ task to be undertaken in ascertaining whether either component gives to the goods their essential character, the applicant asserted in oral submissions that looking at the goods would cause someone to conclude that they are “a ceiling fan and, incidentally, it has a light attached to it – it has a light feature”. Furthermore, the applicant submitted in that context that “[i]t’s not a situation of taking two disparate working components and joining them together”.  

21. Just as the goods are not to be classified merely according to their structurally dominant component, but rather according to their essential character, it would be similarly erroneous to classify the goods merely according to their visually dominant component. It is not sufficient merely to look at the goods – it is also necessary to consider their nature and function (Times Consultants at 463).  Furthermore, as I have said, they are to be classified as composite goods.  In any event, as I shall explain, to the extent that it is relevant, as a matter of fact I do not consider that the fan component is visually dominant in any proper sense in terms of how the goods would present themselves at the time of importation to an informed observer.

1. I turn now to the question of whether the fan component gives the goods in issue their essential character.  I find that neither that component, nor the light component, gives the goods their “essential character” for the purposes of Rule 3(b) of the Interpretation Rules.  Each component has a nature and purpose that differs from the other.  Each serves a different function.  Each function operates independently.  As I have said, the fan component provides air circulation and temperature control while the light component provides artificial illumination.  Together, those functions are complementary, because they each add a quality or qualities improving the utility and comfort of a room, but each does so in a different way and it cannot properly be said that one is ancillary to the other (see Sharp Corporation, espec. at 10, 15, 16; Times Consultants at first instance at 282 per Davies J).  Although neither party suggested so, I note that if the goods are instead properly to be characterised as “composite goods consisting of different materials” for the purposes of Rule 3(b), consonantly, I find that there is no material which gives them their essential character.

2. Furthermore, the discrete nature of the functions of the goods can be seen upon practical ‘wharfside’ inspection by an informed observer, particularly by inspection of the wall panel with the separate fan controller and light switch, which reveals the independent operation of the goods’ functions.  I have taken into account the fact that references are made to  the “fan” and “fans” on the sample packaging box (see Savage Mines at 146), but that does not alter my conclusion.  Nor does the fact that more references are made on the box to aspects of the fan function than to aspects of the light function; that is perhaps merely a function of their being relatively more aspects of that function available for mention, but in any event it is not determinative, given that the proper focus is on the goods themselves.

3. Furthermore, I find that visual inspection of the goods in their state as imported does not reveal the fan component as the visually dominant feature in any event.  When one opens the box, one sees not merely a fan with a light “feature”, as the applicant put it.  What one sees is a fan with a light fitting.  In that respect, the size of the oyster light fitting appears a relatively large when compared with the fan motor section and the fan blades.  When one regards the goods and the wall switches panel, one sees goods which are to serve two different but complementary purposes, as required.  The fact that the light fitting is or is to be attached to the fan does not diminish its significance – that follows from the nature and composition of the respective components, how they are best integrated as practical and aesthetic matters and how their functions are fulfilled, respectively by blade movement and enclosed globes.

4. As I have said, the applicant relied upon various other evidence in support of its contention that the fan component gives the goods their essential character.  The applicant’s evidence to the effect that the fan component’s cost is relatively higher than the light component’s cost is irrelevant (Times Consultants at 462).  As I have indicated, so too is its evidence as to use of the goods by particular purchasers (ibid, at 462-3; Sharp Corporation at 14). So too is evidence concerning why customers might buy such goods rather than separate lights and fans (Times Consultants; see also at first instance at 281). 

5. The applicant sought to have the Tribunal to fall into the same error as this Tribunal did in the decision considered by the Full Court in Times Consultants, by seeking to rely on evidence that it advertises and markets the goods as fans (see Times Consultants, espec. at 461).  The evidence concerning how the goods are referred to in consumer reviews is similarly irrelevant, for the reasons expressed by the Full Court and at first instance by Davies J. 

6. As I have found that neither component of the goods in dispute gives them their essential character, it follows that the goods cannot be classified by reference to Rule 3(b) of the Interpretation Rules.  Consequently, they are to be classified by reference to Rule 3(c), being the residual provision. As the goods are prima facie classifiable under the lights heading, that heading is “among those which equally merit consideration” for the purposes of Rule 3(c) (see Sharp Corporation at 15). By operation of that rule, the goods are therefore to be classified under the lights heading, particularly under subheading 9405.10.00.

7. It is therefore unnecessary to consider whether the TCO applies to the goods.

Other comments

1. I note that the applicant relied upon various other matters in support of its application for review, particularly how the goods or goods like those in dispute have previously been characterised by various parties.  The applicant pointed to the respondent’s change of position with respect to the goods in dispute and its position with respect to goods not in dispute.  Particularly, the applicant emphasised the fact, that prior to the events leading to the application being brought, the respondent had not sought the payment of duty with respect to the goods in issue.  It is self-evident that this proceeding would not have been brought but for the respondent haven relatively recently taken a position contrary to that of the applicant – however, it has not bearing upon the proper classification of the goods.  The respondent’s treatment of fans without lights, not being the subject of this proceeding, is similarly irrelevant.  The Tribunal is reviewing the respondent’s decision, not the manner in which it was made.

2. The applicant also sought to rely upon the fact that export invoices indicated that the exporters in China had classified the goods under the fans heading.  Similarly, that can play no part in deciding their proper classification. 

3. The applicant also sought to rely upon certain international customs rulings it had obtained in foreign jurisdictions (particularly New Zealand and the United States) with respect to goods such as those in dispute, on the basis of the common genesis of relevant tariff classifications. However, the Tribunal must make findings of fact and construe and apply the provisions of the Tariff Act according to its own terms. It cannot be influenced in undertaking that task by adopting a classification simply on the basis of such rulings. Indeed, I note that the danger of such an approach is manifested by an apparent error in the factual assumptions underlying the New Zealand ruling, concerning the degree of illumination achieved by the globes. As the respondent pointed out, there are contrary European Union rulings, classifying such goods by reference to Rule 3(c), but they cannot be of assistance to the Tribunal either. Previous Tariff Advices provided by the respondent also do not bear upon the issues before the Tribunal.

CONCLUSION

1. As the goods are properly classified under the lights heading, particularly under subheading 9405.10.00, the decision under review will be affirmed.

I certify that the preceding 71 (seventy-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President F J Alpins.

......................[sgd]..................................................

Associate

Dated 23 September 2014

Date of hearing	18 and 19 March 2014
Advocate for the Applicant	Mr L Gross
Solicitors for the Applicant	Gross & Becroft
Advocate for the Respondent	Mr J Millea
Solicitors for the Respondent	Legal Services Branch, Australian Customs and Border Protection Services