Mermet Australia Pty Lid and Ors and Chief Executive Officer of Customs

CATCHWORDS – CUSTOMS – duty – paid under protest – classification of imported goods – sunscreen fabrics – comprised of PVC and fibre glass – whether classifiable as “other articles of plastics …” 3926, “woven fabrics of synthetic filament yarn …” 5407 or “glass fibres (including glass wool) and articles thereof (for example, yarn, woven fabrics)” 7019 – application of interpretative rules – essential character – decision set aside.

Customs Act 1901 ss. 167 and 273GA
Customs Tariff Act 1995 ss. 3, 6, 7, 15, 16, 17, 18, 20 and 22; Headings 3926, 5402, 5404, 5407 and 7019; Chapters 39, 54, 56 and 70

Re Gissing and Collector of Customs (1977) 1 ALD 144, 14 ALR 555
Times Consultants Pty Ltd v Collector of Customs (1987) 16 FCR 449
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615
Times Consultants Pty Ltd v Collector of Customs (1987) 76 ALR 313
Liebert Corporation Australia Pty Ltd v Collector of Customs (unreported, NG 459/91, 26 February, 1992)
Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287
Gardner Smith v Collector of Customs Victoria (1986) 66 ALR 377
Barry R Liggins Pty Ltd v Comptroller General of Customs (1991) 103 ALR 565
Toyota Tsusho Australia v Collector of Customs (VG113 of 1991, No. 282 , 14 May, 1992)
TVM Investments Limited (formerly Western Mail Limited) and Collector of Customs (W86/273, 25 November, 1987, CAI 258)
Walterschied Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555
Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450
Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85
Re Phillips and House Group and Collector of Customs (1979) 2 ALD 704
Blackwood Hodge (Australia) Pty Ltd v Collector of Customs, New South Wales (No. 2) (1980-81) 3 ALD 38
Re Nylex Corporation Ltd and Collector of Customs (No. V86/504, 9 April, 1987, CAI 232)
Siemens v Schenker [2001] NSWSC 658

DECISION AND REASONS FOR DECISION [2004] AATA 653

ADMINISTRATIVE APPEALS TRIBUNAL )

) V2002/1244, V2003/342,

GENERAL ADMINISTRATIVE DIVISION ) V2003/1253, V2004/196-220
and V2004/237-244

Re:MERMET AUSTRALIA PTY LTD
Applicant

And:CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
V2003/138

Re:SILENT GLISS PTY LTD
Applicant

And:CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
V2003/200 and V2004/179

Re:SHAW OF AUSTRALIA PTY LTD
Applicant

And:CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
V2003/602-608, V2004/112-159, V2004/221-236, V2004/246, V2004/248 and V2004/249-269

Re:HELIOSCREEN AUSTRALIA PTY LTD
Applicant

And:CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent

DECISION

Tribunal: Deputy President S A Forgie

Mr C Ermert (Member)
Mr W G McLean (Member)

Date: 25 June, 2004
Place: Melbourne

Decision:The Tribunal

1.decide that, unless payment under protest has been made within six months of the date of the demand for its payment, the Tribunal does not have jurisdiction to hear applications seeking review of the decision to make that demand under s. 167(1) of the Customs Act 1901;
2.set aside the decision of the respondent in each application in relation to which the Tribunal has jurisdiction;
3.substitute a decision that the subject goods are in each case classified under heading 3926 of Chapter 39 of Schedule 3 of the Tariff Act 1995;
4.remit the applications to the respondent to determine the appropriate sub-heading of heading 3926 to which the subject goods should be classified; and
5.give either party liberty to apply should they be unable to reach agreement as to those applications that are within the Tribunal’s jurisdiction.
S A FORGIE
Deputy President

Tribunal: Deputy President S A Forgie

Place: Melbourne

Date: 2 July, 2004

CORRIGENDUM TO DECISION [2004] AATA 653

The Tribunal amends its decision and reasons for decision published on 25 June, 2004 as follows:

Reasons for decision

paragraph 70, line 2
delete the words “fibre glass”; and
insert “PVC”.

S A FORGIE
Deputy President

Tribunal: Deputy President S A Forgie

Place: Melbourne

Date: 23 July, 2004

CORRIGENDUM TO DECISION [2004] AATA 653

The Tribunal amends its decision and reasons for decision published on 25 June, 2004 as follows:

Reasons for decision

paragraph 43, line 18
delete the words “Section XI”; and
insert “Chapter 39”.

S A FORGIE
Deputy President

REASONS FOR DECISION

There are four applicants whose applications were heard together. Pursuant to s. 167 of the Customs Act 1901 (“Customs Act”) each applicant has paid duty under protest in relation to sunscreen fabrics or shade cloth that it has imported (“the subject goods”). Although there are some variations in such matters as weight and colour, the subject goods each has imported has been made by the same manufacturing processes. For the purposes of classification under the Customs Tariff Act 1995 (“CT Act”), each has the same features. The respondent, the Chief Executive Officer of Customs (“CEO”) has decided that each should be classified under heading 5407 in Schedule 3 of the CT Act.

The applicants are Mermet Australia Pty Ltd (“Mermet”), Helioscreen Australia Pty Ltd (“Helioscreen”), Silent Gliss Pty Ltd (“Silent Gliss”) and Shaw of Australia Pty Ltd (“Shaw”). We will not set out the details of the application lodged on behalf of Silent Gliss, the two applications lodged on behalf of Shaw or of the numerous applications lodged on behalf of Mermet and Helioscreen. We note that one or more of the applicants may have paid duty under protest but not lodged an application to seek review of the demand made by the Collector within six months of the date of payment. Without further evidence, we have no way of knowing whether that is so but, if it is so, the Tribunal does not have jurisdiction to review any dispute arising under s. 167(1) of the Customs Act. That follows from a reading of ss. 273GA(2) and (5). With the consent of the parties at the hearing, we decided to make a general order that we did not have any jurisdiction to review any such applications. The identification of those applications will be a matter for the parties to resolve but we will reserve liberty to them to apply should they not be able to reach agreement.

Mermet, Silent Gliss and Shaw (together referred to as “Mermet”) were represented by their barrister and solicitor Mr Gross and Helioscreen by its customs consultant, Mr Law. The CEO was represented by his solicitor, Mr Northcote. Documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 in relation to each application were admitted in evidence. Admitted in evidence were 11 swatches of product samples, a statement by Mr Dananjay Ananthasaynam, the Technical Operations Manager of Mermet, an extract from the statement of facts and contentions filed on behalf of Mermet, a sample of unfinished woven fabric, Designation D3374‑94 by the American Society for Testing and Materials (“ASTM”), a ruling dated 24 August, 1989 by the Director of the Commercial Rulings Division of the United States Customs Service, a further ruling dated 13 June, 1997 by the Director of the Tariff Classification Appeals Division, an article entitled “What Every Member of the Trade Community Should Know About: Fibers & Yarns Construction and Classification under the Harmonized System” dated August, 1996 and described as “An Advanced Level Informed Compliance Publication of the U.S. Customs Service” and the Plaintiff’s Memoranda of Law filed in the United States Court of International Trade in proceedings between 3G Mermet Fabric Corporation v United States (Ct. No. 98-04-00669) (“3G Mermet case”). A bundle of fabric samples was tendered on behalf of Helioscreen.

Admitted on behalf of the CEO were a bobbin of coated fibre glass yarn, a report of Mr Dale Carroll of Textile and Fibre Technology with the CSIRO dated 25 June, 2003 and a report dated 26 June, 2003 by Dr Michael Pailthorpe of LincLab Australia (“LincLab”). Dictionary definitions were also admitted.

Oral evidence was given on behalf of Mermet, Silent Gliss and Shaw by Mr Dananjay Ananthasaynam, who is the Technical Operations Manager of Mermet’s weaving facilities in the USA. On behalf of the CEO oral evidence was given by Mr Dale Carroll, the Laboratory Manager of the CSIRO Textile and Fibre Technology and Dr Michael Pailthorpe, who is the Senior Consultant with LincLab.

THE ISSUE

The issue in this case is whether the subject goods are properly classified as woven fabrics under heading 5407 of Schedule 3 of the CT Act as contended on behalf of the CEO or whether they are properly classified under heading 3926, as contended in the first instance on behalf of all the applicants or, if that heading is inapplicable, under heading 7019 as contended on behalf of Helioscreen.

MANUFACTURE OF THE SUBJECT GOODS

We have identified the goods below but in this section note the manufacture of the subject goods in so far as they are manufactured by Mermet and the origin of part of one of their constituents. It is agreed that there is no relevant or significant point of difference between the subject goods imported by Mermet and those imported by Helioscreen. All of the subject goods are manufactured outside Australia and imported into it. In so far as Mermet is concerned, they are made in the United States of America (“USA”) by 3G Mermet Fabric Corp. (“3G”) which is a related company based in South Carolina. 3G imports yarn made from fibre glass fibres from France. It coats the fibre glass fibres with two coats of polyvinyl chloride (“PVC”) before weaving the resulting yarn.

THE REVIEW PROCESS

In considering the proper classification of the subject goods, the first step is to identify those goods. Only when that has been done is it appropriate to construe the tariff classifications to determine to which tariff classification the goods should be classified. This follows from the Tribunal’s decision in Re Gissing and Collector of Customs (1977) 1 ALD 144, 14 ALR 555 (Brennan J, President, Mr Skermer and Mr Stock, Members) and also from the later decision of Times Consultants Pty Ltd v Collector of Customs (1987) 16 FCR 449 (Fox, Morling and Wilcox JJ).

The manner in which the first step of identification is undertaken was considered by the Tribunal in Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 at 620 (Mr Hall, then Senior Member and Mr Wickens and Mr Prowse, Members). Referring to the authorities, the Tribunal in Re Tridon identified eight principles as relevant in identifying the goods:
“(i)    Identification must be objective, having regard to the characteristics which the goods, on informed inspection, present ...;
(ii)     The identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff ...;
(iii)    Nevertheless in identifying goods it is necessary to be aware of the structure of the nomenclature, the basis on which goods are classified and the characteristics of goods which may be relevant to the frequently complex task of classification ...;
(iv)    In the identification of goods, knowledge of how those who trade in the goods describe them will usually be relevant, but not necessarily conclusive ...;
(v)     All the descriptive terms, both specific and generic, by which the goods may fairly be identified may be relevant to the classification of the goods within the Tariff ...;
(vi)    Descriptive terms may be of varying degrees of specificity (eg windscreen wiper blade refills, parts for a windscreen wiper or parts for a motor vehicle). Generic descriptions may be by reference to the materials or substances from which the goods are manufactured ...;
(vii)   Identification will frequently extend to characterisation of goods by reference to their design features cf Re Virgo Manufacturing Co Pty Ltd and Collector of Customs (Vic) (1981) 3 ALN No 15, or by reference to their suitability for a particular use where those characteristics emerge from informed inspection of the goods as imported ... . The extent to which these characteristics may be relevant to the ultimate classification of the goods and whether evidence of the use to which goods are put after importation is relevant, will depend upon the language of the Tariff Nomenclature ...;
(viii) Composite goods, notwithstanding that they have components which are separately identifiable, may nevertheless be identifiable in combination as a new entity if the identity of the separate units is subordinated to the identity of the combination ...” (pages 620-621)

The task of identifying goods was further considered by the Full Court of the Federal Court in Times Consultants Pty Ltd v Collector of Customs (1987) 76 ALR 313 (Morling and Wilcox JJ, Fox J dissenting). The majority noted that:
“ It must always be remembered that the classification of goods for tariff purposes is a practical ‘wharf-side’ task. Upon some occasions it will be necessary for the classifier to obtain information to enable identification of the goods but it is entirely inappropriate that he or she should enter into inquiries upon matters such as cost, commercial advantage or purchaser preference … It ought normally be possible to classify goods merely by looking at them and by considering their nature and function which they were designed to serve. In the case of goods made up in sets, it may be that there is no single essential character; in which case r 3(1)(b) will be inapplicable and reference will need to be made to the arbitrary rule contained in r 3(1)(c).” (page 328)

Earlier in their judgement, they had addressed another aspect of the wharf-side task:

“ The authorities make it clear that in determining what is the essential character of goods it is the state or condition of the goods at the time of importation that is the determining factor and that it is wrong to classify goods or to determine their essential character by reference to the purpose of the importer or of the purchaser. Regard must be had to the characteristics of the goods themselves, as they would present themselves to an informed observer: see Chandler & Co v Collector of Customs (1907) 4 CLR 1719 at 1729; Whitton v Falkiner (1915) 20 CLR 118 at 131; Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (1980) 47 FLR 131 at 155.” (page 327)

THE LEGISLATIVE FRAMEWORK

Part II of the CT Act provides for imposition of duties of customs. Section 15 provides that duties of customs are imposed on goods imported into Australia on or after 1 July, 1996 and on goods which are imported into Australia before 1 July, 1996 and entered, or again entered, for home consumption on or after that day. The duty payable upon such goods is worked out in the manner provided for in ss. 16, 17, 18, 20 and 22. Section 16(a) provides that:
“if the goods are not the produce or manufacture of a Preference Country – [the duty is worked out] by reference to the general rate set out in the third column of the tariff classification under which the goods are classified;”

A reference to the tariff classification under which the goods are classified is a reference to the heading or subheading in whose third column a rate of duty is set out and under which the goods are classified (s. 6). The reference to a heading and a subheading is a reference to those appearing in Schedule 3 to the CT Act (s. 3(1)).

The Interpretation Rules

Schedule 2 of the CT Act sets out the General Rules for the Interpretation of the Harmonized System provided for by the Convention ("Interpretation Rules"). Those Interpretation Rules must be used in working out tariff classification under which goods are classified (s. 7(1)). In so far as they are relevant, they are:
“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 …”

that are then set out. In so far as they are relevant in this case, those provisions are found in the following Rules:

“2. (a) …
(b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be determined 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 … those headings are to be regarded as equally specific in relation to those goods, even if one them gives a more complete or precise description of the goods.
(b)Mixtures, composite goods consisting of different materials or made of differing components … which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c)When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4.Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

…
6… the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only the subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

The CT Act sets out a considerable number of tariff classifications under which goods are classified. The tariff classifications under consideration in this case come within Chapters 39, 54 and 70 of Schedule 3. Chapter 39 comes within Section VII, which is headed “Plastics and other articles thereof; rubber and articles thereof”. The notes to Chapter 39 provide, in part:
“1. Throughout this Schedule ‘plastics’ means those materials of 3901 to 3914.00.00 which are or have been capable, either at the moment of polymerisation or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plasticiser) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external influence.
Throughout this Schedule any reference to ‘plastics’ also includes vulcanised fibre. ‘Plastics’, however, does not apply to materials regarded as textile materials of Section XI.
2.This Chapter does not cover:
…
(m)Goods of Section XI (textiles and textile articles);
…”

The relevant heading in Chapter 39 is:
“3926      OTHER ARTICLES OF PLASTICS AND ARTICLES OF OTHER MATERIALS OF 3901 TO 3914.00.00:
…
3926.90- Other
3926.90.10--- Of a kind used as replacement components in passenger motor vehicles  15%
…
3926.90.90--- Other  5%
…”
Chapter 54 comes within Section XI whose subheading is “Textiles and textile articles”. That section does not cover, among others:
“(h) woven, knitted or crocheted fabrics, felt or non-wovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39”
“(r) Glass fibres or articles of glass fibres, other than embroidery with glass thread on a visible background of fabric (Chapter 70)” (Note 1).

In so far as they are relevant, the notes to Chapter 54 provide that:
“1. Throughout this Schedule, ‘man-made fibres’ means staple fibres and filaments of organic polymers produced by manufacturing processes, either:
(a)By polymerisation of organic monomers, such as polyamides, polyesters, polyurethanes or polyvinyl derivatives; or
(b)By chemical transformation of natural organic polymers (for example, cellulose, casein, proteins or algae), such as viscose rayon, cellulose acetate, cupro or alginates.
‘Synthetic’ and ‘artificial’, used in relation to fibres, mean: synthetic: fibres as defined at (a); artificial: fibres as defined at (b).
“Man-made’, ‘synthetic’ and ‘artificial’ shall have the same meanings when used in relation to ‘textile materials’.”

Relevant headings in Chapter 54 read, in so far as they are relevant:
“5402      SYNTHETIC FILAMENT YARN (OTHER THAN SEWING THREAD) … INCLUDING SYNTHETIC MONOFILAMENT OF LESS THAN 67 DECITEX:
…”
“5404      SYNTHETIC MONOFILAMENT OF 67 DECITEX OR MORE AND OF WHICH NO CROSS-SECTIONAL DIMENSION EXCEEDS 1mm; STRIP AND THE LIKE (FOR EXAMPLE, ARTIFICIAL STRAW) OF SYNTHETIC TEXTILE MATERIALS OF AN APPARENT WIDTH NOT EXCEEDING 5mm:
5404.10.00- Monofilament
…”
“5407      WOVEN FABRICS OF SYNTHETIC FILAMENT YARN, INCLUDING WOVEN FABRICS OBTAINED FROM MATERIALS OF 5404:
5407.10.00- Woven fabrics obtained from high tenacity yarn of nylon or other polyamides or of polyesters
…
5407.20- Woven fabrics obtained from strip or the like:
5407.20.10--- Fabrics in which more than 50% by weight of the man-made fibre content is polyethylene or polyproplylene or polyethylene and polypropylene
…
5407.7- Other woven fabrics, containing 85% or more by weight of synthetic filaments:
5407.71-- Unbleached or bleached:
…”

Chapter 56 also comes within Section XI and it is headed “Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof”. Note 4 to Chapter 56 provides that:
“5604 does not cover textile yarn, or strip or the like of 5404 or 5405.00.00, in which the impregnation, coating or covering cannot be seen with the naked eye (usually Chapters 50 to 55); for the purpose of this provision, no account should be taken of any resulting change of colour.”

Relevant chapter headings read, in part:

“5604 RUBBER THREAD AND CORD, TEXTILE COVERED; TEXTILE YARN, AND STRIP AND THE LIKE OF 5404 OR 5405.00.00, IMPREGNATED, COATED, COVERED OR SHEATHED WITH RUBBER OR PLASTICS:

…
5604.90.0- Other

…”

Chapter 70 is headed “Glass and glasswire”. It includes:
“7019 GLASS FIBRES (INCLUDING GLASS WOOL) AND ARTICLES THEREOF (FOR EXAMPLE, YARN, WOVEN FABRICS):
…
7019.90- Other:
7019.90.10 --- Glass wool and articles thereof
7019.90.90--- Other”

THE EVIDENCE

There was very little dispute between the parties as to factual matters but in this section we will set out the evidence relating to two matters.

The properties of the glass multi filaments and the PVC

The manner in which the subject goods are used to control solar UVR was the subject of evidence, both oral and written. In his oral evidence, Mr Ananthasaynam agreed with the proposition that radiance, transmittance and reflectance are each a function of the material, colour and weave of window shade fabric. With the exception of fabric in which the yarn has a clear PVC coating, Mr Ananthasaynam agreed that the solar optical properties of the subject goods is not a function of the glass multi filaments. Only fabric with coloured PVC coating is imported into Australia. It is the colour of the PVC coating that controls reflectance and the glass multi filaments have very little effect on the solar optical properties of the fabric.

There was further evidence regarding the role of the glass multi filaments and of the PVC. As they have no elasticity, Mr Ananthasaynam said, the role of the glass multi filaments is to assist in giving the fabric dimensional stability and so holding its shape over the window. In addition, it contributes to the fabric’s fire retardant properties. The PVC does not contribute to the uniformity of the weave. The machinery that is used to produce the fabric maintains uniformity regardless of whether PVC is used or not.

Mr Carroll said that he had not tested the fabrics for their ability to control solar ultraviolet radiation (“solar UVR”) but he had arranged for others to do so. A number of factors affect solar UVR, he said. They include the openness of the weave and the type of yarn used. The greater the number of picks per centimetre of fabric, the greater the number of warp and or weft threads per centimetre and so the less the light passing through the fabric. A PVC coating has been used because it has certain absorption and reflective qualities in relation to solar UVR and so gives shading. PVC has greater absorption and reflective qualities than does fibre glass. If glass multi filaments were used alone, the fabric would not have the same absorption and reflective qualities as it would allow more of the light to pass through it. The colour of the PVC is relevant in that different colours absorb and reflect light to different degrees. Therefore, Mr Carroll said, it is the PVC that has the most significant effect in providing protection from solar UVR. The glass multi filaments have little or no effect in providing protection from solar UVR.

Dr Pailthorpe agreed in substance with the evidence given by Mr Ananthasaynam and Mr Carroll. He said that the openness of the fabric is determined by the open spaces between the warp and weft threads. If fabric is described as a 95% weave, then 5% of the fabric comprises open spaces between the warp and the weft threads. The PVC is opaque to sunlight and so sunlight does not penetrate the PVC or reach the glass multi filaments. If the glass multi filaments were exposed to sunlight, they would become brittle. The PVC both absorbs and reflects sunlight.

Dr Wang said in his report that the PVC on the surface of the yarn imparts the yarn’s essential characteristics and functionalities. They include:
“(1) Improved processing performance for the yarn during fabric manufacturing. Without the PVC coating, the glass fibre filament will not weave properly due to its brittleness. Weaving or knitting of glass fibre yarns may also create a health hazard. The PVC coating also allows heat bonding or thermofixation of the resultant fabric produced from the coated yarn.
(2)Different colours may be used by colouring the PVC coating on the yarn surface.
(3)PVC materials are well known for their moisture and rot-resistance, good resistance to light and non-flam properties.
(4)The glass fibre core in the yarn acts as a good reinforcement for the composite yarn structure so that the yarn is also very strong.” (Exhibit 3, page 132)

Mr Chaubal, Manager of RMIT Textile Testing Services, referred to an extract from the Encyclopaedia of Textiles, Fibers and Nonwoven Fabrics by John Wiley, New York, USA, 1984:
“ ‘By far the most important polymer used in coated fabrics is poly (vinyl chloride). This relatively inexpensive polymer resists aging processes readily, resists burning, and is very durable. It can be compounded readily to improve processing, aging, burning properties, softness etc. In addition, it can be decorated to fit the required use. PVC-coated fabrics are used for window shades, book covers, furniture upholstery and trim, wall covering, apparel, conveyor belts, shoe liners, and shoe uppers.’ (pp. 94). The Encyclopaedia gives many examples of coated fabrics in Table 7, pp. 97.
The Encyclopaedia states (pp. 90) that a coated fabric is a construction that combines the beneficial properties of a textile and a polymer. The textile provides tensile strength, tear strength, and elongation control while the coating is chosen to provide protection against the environment in the intended use.” (T documents, page 115)

Mr Chaubal said of both the yarn and any goods into which it is woven that they cannot be classified as plastic. Plastic goods are defined by Fairchild’s Dictionary of Textiles, 1996, Fairchild Publications, New York, USA, as “materials in sheet form, not woven. If a plastic film is supported by cloth it is classified as a textile” (Exhibit 3, page 115). The glass component is very strong and extensible and provides the yarn’s reinforcement. PVC, which is the dominant presence by mass, imparts its essential other characteristics.

Describing the yarn

When asked what is described as “filament yarn” in the textile trade, Mr Carroll said:
“‘Filament yarns’ or ‘Continuous Filament yarns composed of one or more filaments (fibre or fibres) of indefinite length running the whole length of the yarn. Filament yarns may comprise of one single filament or fibre (monofilament) or multiple number of filaments or fibres (multi-filament).” (Exhibit 4, paragraph (f))

The term “monofilament” is used in the textile trade to describe “… any yarn that is constructed from one continuous single filament that runs the entire length of the yarn …” (Exhibit 4, paragraph (i)). They may comprise one single filament or fibre and so be referred to as monofilament or a multiple number of filaments or fibres and so be referred to as a multi filament. In his opinion, the yarn used in the subject goods was “…best described as a ‘bi-component multi-filament yarn’” (Exhibit 4, paragraph (k)) although, if a less descriptive description were adopted, it could be described as a filament yarn. In both his report and his oral evidence, Mr Carroll said that it could be referred to in the trade as a PVC/fibre glass monofilament or a monofilament. It is a thin flexible threadlike object. If it were not dissected, the yarn could be described as a single strand of untwisted fibre but, if it were dissected and if a more complete description were given, it would be described as a bi-component multi filament yarn.

Dr Pailthorpe essentially agreed with Mr Carroll’s description. Relying on a definition in Textile Terms and Definitions, 10^th edition, The Textile Institute, 1995 (“TTD”) and on his own experience in textile technology, he said that a “filament” is “a fibre of indefinite length” (Exhibit 5, page 3). In his report, he said that “… the PVC/fibre glass bobbin materials are in fact a filament yarn, with the full description being a PVC coated/fibre glass (multi filament) yarn.” (Exhibit 5, page 4) As the glass multi filament core is itself a yarn, it becomes a bicomponent yarn when it is coated with PVC. He went on to describe it in his report as a “synthetic polymer textile yarn” or a “… synthetic textile yarn made up of a glass multifilament core and PVC polymer outer sheath” (Exhibit 3, page 83)

The PVC is not a staple fibre, Mr Carroll said. Dr Pailthorpe described staple fibres as fibres that have “discrete or limited lengths” (Exhibit 5, page 3). If it were possible to extract the glass multi filaments from the yarn, a continuous floppy tube of PVC would remain. Its stability would be poor as it would not have the strength and elasticity required of yarn to be woven into a sunscreen fabric, he said. It would be a product different from the yarn under consideration in this case. The glass multi filaments add the mechanical features; it provides the strength.

The fabric into which the yarn is woven, Mr Carroll concluded in his first report, is a woven textile fabric. He reached that conclusion on the basis that the yarn is a synthetic yarn and the yarn is then woven into a base cloth. Unlike a film or plastic sheet, which normally has a continuous surface, the cloth that results has air gaps between the intersecting warp and weft yarns.

Dr Wang described two samples of yarn that he had been given as a “… single yarn of the core-sheath structure consisting of glass multi-filaments core and a PVC coating as the sheath.” (Exhibit 3, page 128) They belong to a family of yarns which have been defined by the ASTM and the Textile Institute as:
“ ‘A generic term for a continuous strand of textile fibres, filaments, or material in a form suitable for knitting, weaving, or otherwise intertwining to form a textile fabric’
- Standard Terminology Relating to Textiles (ASTM-D123)
“ ‘ A product of substantial length and relatively small cross-section consisting of fibres and/or filament(s) with or without twist.’
- Textile Terms and Definitions (10^th Ed., p.393), The Textile Institute, Manchester, 1995”

More specifically, Dr Wang said, the samples could be:

“… more specifically defined as a vinyl-coated glass yarn, as defined by the American Society for Testing and Materials –
Vinyl-coated glass yarn is a ‘glass continuous filament yarn, coated with a pigment and plasticized vinyl chloride resin.’
- Standard Terminology Relating to Textiles (ASTM-D123)”

In his summary, Dr Wang referred to the yarn as “synthetic PVC coated glass fibre yarn” (Exhibit 3, page 132).

In Dr Wang’s view, the yarn could not be described as plastic because of the presence of the glass multi filaments. At the same time, it could not be described as just glass fibre because of the presence of the PVC and it is the PVC that imparts essential characteristics to the yarn.

Dr Wang considered that the yarn could be used for non-apparel applications or for use as technical textiles. He referred to two definitions of “textile”:
“ ‘Originally a woven fabric, now generally applied to: (1) staple fibers and filaments suitable for conversion to or use as yarns, or for the preparation of nonwoven fabrics, (2) yarns made from natural or man-made fibers, (3) fabrics and other manufactured products made from fibers as defined above, and from yarns, and (4) garments and other articles fabricated wholly from one or more of the above elements, and articles made principally from the above when the products retain the characteristic flexibility and drape of the original fabrics.’
- Standard Terminology Relating to Textiles (ASTM-D123)
Similarly, the Textile Terms and Definition published by the Textile Institute has the following definition –
‘A textile was originally a woven fabric, but the terms textile and the plural textiles are now also applied to fibres, filaments and yarns, natural and manufactured, and most products for which these are a principal raw material.
Note: This definition embraces, for example fibre-based products in the following categories: threads, cords, ropes and braids; woven, knitted and nonwoven fabrics, lace, nets, and embroidery; hosiery, knitwear and made-up apparel; household textiles, soft furnishings and upholstery; carpets and other floor coverings; technical, industrial and engineering textiles, including geotextiles and medical textiles.’
- Textile Terms and Definitions (10^th Ed., p.343), The Textile Institute, Manchester, 1995” (Exhibit 3, page 132)

Mr Chaubal analysed and examined samples of the yarn. He concluded that they are synthetic coated yarn containing a multi filament glass core. It is described as a continuous filament yarn as it has one or more (in this case many) filaments running the whole length of the yarn. Each of the yarns he examined could be described as a textile product, Mr Chaubal wrote in his report (Exhibit 3, page 114) and he referred to the definition referred to in the previous paragraph. Each of the yarns examined by Mr Chaubal was, in his opinion, a textile product in the sense that “textile” is defined in the Textile Terms and Definitions, the Textile Institute, Manchester, UK, 1995 at page 343 (see paragraph 34 above).

Mr Ananthasaynam said that the ultimate use to which the yarn is to be put determines the number of coatings of PVC that it is given. While Mermet only uses two coats of PVC when it weaves the yarn into shade cloth or sunscreen, other uses may require a different number of coats. Those other uses include insect screens, patio furniture, tarpaulins for motor utilities and reinforcement for concrete walls as well as outdoor awnings and indoor blinds used on windows and shade cloths and sunscreens generally. He also observed that, when used for concrete reinforcement, the yarn is made into a mesh and not a woven fabric.

CONSIDERATION

Identification of the subject goods

As we have said, our first task is to identify the subject goods before seeking to classify them. In order to do that, we have had regard to the oral and written evidence of Mr Ananthasaynam, Mr Carroll (Exhibit 3, pages 74-78 and Exhibit 4) and Dr Pailthorpe (Exhibit 3, pages 79-130 and Exhibit 5) and the reports of Mr Pinakin Chaubal, (Exhibit 3, pages 114-126) and of Dr Xungai Wang, Associate Professor of Textile Technology at Deakin University (Exhibit 3, pages 127-133). Having regard to their evidence, we find that there is very little difference in their views as to the nature of the subject goods.

On the basis of their evidence and from our observation of the samples we have been given, we find that the subject goods are sunscreen or shade cloths of various colours, openness (as a result of the closeness or otherwise of the weave) and weights. They are not, for example, insect screens, reinforcement for concrete or suitable for use as tarpaulins. It is agreed between the parties that they are sunscreen fabric or shade cloths. We find that each of the shade cloths has been woven by using a set of yarn to produce a warp and then inserting similar yarn as the weft. Weft yarns are passed over and under warp yarns in varying sequences so that fabrics with different weave patterns and openness are produced. Some are produced using two or more strands of yarn for either or both of the weft and warp threads and others using single yarns so producing fabrics of different weights. Others use the same colour for weft and warp threads and others use different colours for each or a mixture of colours.

The yarn from which the fabrics have been woven comprises glass fibres and PVC. At the core of the yarn are a hundred or more fine glass filaments (“glass multi filaments”). In the case of the subject goods imported by Mermet, there are 206 glass filaments at the core of the yarn with each filament being nine microns. The filaments are each formed by drawing molten glass. The multi filaments drawn together in the yarn weigh approximately 33 grams per 1,000 linear metres of yarn. Those glass multi filaments are encased in a PVC sheath. That sheath is formed by coating them in liquid PVC. The liquid PVC is of various colours and determines the ultimate colour of the yarn. The glass multi filaments coated in the PVC are then passed through a die to calibrate the resulting yarn so that it has a constant and precise diameter of something significantly less than one millimetre. It is then cured in an oven and wound onto bobbins. The resulting yarn has approximately 62 grams of PVC coating per 1,000 linear metres of glass multi filaments. It weighs 95tex/95 grams of weight per 1,000 linear metres. When viewed along its length, it appears as a single filament. At its cut end, it is possible to see the glass multi filaments encased in a PVC sheath. Over 50% and up to 72% by weight of the yarn comprises PVC and the remainder is fibre glass.

Once woven, the materials pass through a stenter where they undergo a tentering process to stabilise the overall material. That means that they are treated with heated air so that the PVC melts. Once melted, the PVC sheaths of the warp and weft threads weld together at every point at which they touch in the material. The material is then cooled. The warp and weft yarns remain welded at those points and the weave does not unravel as would be the case if the materials were not tentered. As a result of the interlocking of the warp and weft yarns at their crossover points, the fabrics are given a dimensional stability. As a consequence, the openness of the weave is maintained and the fabric is given a high tensile strength it would not otherwise have.

The resulting fabrics are flexible. They have excellent fire resistance and are very durable. They do not absorb moisture and so resist degradation by water. They resist chemical agents and so resist degradation by them. In addition, they are highly resistant to degradation by light.

Classification of the subject goods – the exclusory notes

The next issue to consider is the classification of the subject goods. The headings for which the parties contend have been set out above and are 3926, 5407 and 7019. Also set out are the relevant exclusory notes to Chapter 39, including heading 3926, and to Section XI, which comprises heading 5407. We will begin with those two headings.

On its face, exclusory note 2(m) to Chapter 39 provides that the chapter does not apply to goods of Section XI i.e. textiles and textile materials. At the same time, exclusory note 1(h) to Section XI provides that it does not cover “woven … goods impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39”. How are these exclusory notes to be reconciled? It is clear that they must both be given proper weight for Rule 1 of the Interpretation Rules provides that classification is determined according to the terms of the headings and section and chapter notes. It is only if those “… headings or Notes do not otherwise require …” that regard may be had to the remaining Interpretation Rules. Adapting the words used by Foster J in Liebert Corporation Australia Pty Ltd v Collector of Customs (unreported, NG 459/91, 26 February, 1992) and referred to in Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287 at 290 (Wilcox, O’Connor and Drummond JJ), it is necessary for us to first consider whether the subject goods fall within the description prescribed by heading 5407, or any of its subheadings, before giving consideration to the applicability of any of the headings in Chapter 39. As the Full Court added in the later case, “… if the goods are so classifiable, that is an end of the matter even if they could also be classified to a heading in …” Section XI.

Classification of the subject goods – Chapter 54

So what of heading 5407? Mr Gross, supported by Mr Law, submitted that the subject goods do not come within Section XI as they are not synthetic yarn as it is used in that Section. If they are to come within that heading and regard is had only to the notes to Chapter 54 (and we will return to this), the subject goods must be woven fabrics, as they are, of “synthetic filament yarn” or obtained from materials of heading 5404. In the case of either the synthetic filament yarn or the materials under heading 5404, they must be “synthetic” as that word is defined in Note 1 to Chapter 54 (see paragraph 16 above).

If the yarn is to be regarded as synthetic for the purposes of Schedule 3 to the Tariff Act, it must first be regarded as “fibres” for the definition of “synthetic” only applies to when used in relation to fibres. The ordinary meanings of “fibre” include “… 5 A thread or filament forming part of a textile. Also, a thread formed from glass, metal, etc. …” (Shorter Oxford English Dictionary, 5^th edition, 2002) (“SOED”). There is general agreement in this case, and we find, that the yarn may be described as a filament, or even a monofilament, although, if it is to be described more precisely, we find that it is a bi-component multi filament yarn comprising glass multi filaments and PVC. The yarn has also been described by Mr Carroll as being a threadlike object. We are satisfied that it may be described as a fibre for the purposes of applying the definition.

As a fibre, the yarn will only be synthetic for the purposes of Schedule 3 if it can be described as “… staple fibres and filaments of organic polymers produced by manufacturing processes … By polymerisation of organic monomers, such as polyamides, polyesters, polyurethanes or polyvinyl derivatives” (Note 1(a) to Chapter 54). The evidence consistently supports our finding that the yarn does not comprise staple fibres in the sense described by Dr Pailthorpe as being of “discrete or limited lengths”.

For the reasons that we have given above, the yarn may broadly be described as a filament but we note that Note 1(a) of Chapter 54 may be read as referring either to fibres and filaments that may each be described as staple or to staple fibres and to filaments whether staple or not. While the SOED does not contemplate a filament as a fibre of discrete or limited length and nor does the Oxford English Dictionary online except in the figurative sense of a scrap or shred, we note that the SOED does contemplate “1 A fine flexible length of some material, esp. in a plant or animal, or produced artificially from glass, metal, etc …”. We also note that Mr Carroll and Dr Pailthorpe said that a “filament” was understood in the textile trade or textile technology to be a fibre of indefinite length. In view of the conclusion that we have reached, we do not consider that we need to resolve whether the word “filament” is intended to be read as qualified by the word “staple” or not. Instead, we have assumed that the yarn may be described as a filament for the purpose of the opening words of Note 1(a).

For the sake of completeness, we have also considered whether the yarn may be described as an “organic polymer”. The word “organic” is defined, in part as “… 4 …b. Chemistry. Of, pertaining to, or designating carbon compounds, … containing carbon in combination. Also, (of an element) contained in an organic compound.” (SOED). A “polymer”, in modern usage usually means “… any substance which has a molecular structure built up largely or completely from a number (freq. very large) of similar poly-atomic units bonded together; spec. any of the (mainly synthetic) organic compounds of this kind which form plastics, resins, rubbers, etc.” (SOED).

Although no evidence was given of its nature, we are of the view that it is common knowledge that a primary material used to manufacture glass is silica in the form of sand and that it is fused with soda in the presence of various modifying agents (see also the General Note to Chapter 70). In view of its composition, glass cannot be said to have a “… molecular structure built up largely or completely from a number (freq. very large) of similar poly-atomic units bonded together…” as required of a polymer. It cannot be regarded as an organic polymer. Consequently, nor can the glass multi filaments in the yarn be regarded as an organic polymer. On the basis of the evidence, we find that the PVC coating on the yarn is an organic polymer as that term must be understood from its ordinary meanings.

The yarn, therefore, comprises material that is an organic polymer and material that is not. From our examination of the yarn both in the form of the bobbin of coated fibre glass yarn and at the cut edges of some of the samples of subject goods admitted in evidence, we find that the PVC coating may be separated from all or the vast majority of glass multi filaments at its core. Except perhaps for a few filaments at the outer extremities of its core, the two are not bonded together. The yarn must, in our view, be regarded as comprising two distinct components only one of which is an organic polymer. In view of that, we are not satisfied that it can be described as an organic polymer within the meaning of Note 1(a) to Chapter 54.

Assuming, as we said we would, that the yarn is a filament or filaments within the opening words of Note 1(a), it remains to consider whether the filaments have been formed by the polymerisation of organic monomers and is a polyvinyl derivative of the sort referred to in Note 1(a) of Chapter 54. We have defined “organic” and “polymer” already. A “monomer” is “A compound from which a dimer, trimer, polymer, etc., is or might be formed by the linking together of its molecules (with or without those of a another compound).” SOED. “Polymerisation” is a variation of “polymerization” which is defined as “… the action or process of polymerizing; the formation of polymers; the state of being polymeric …” (SOED). To “polymerize” means to “Make polymeric; convert into a polymer; cause molecules of (one or more compounds) to combine to form a polymer …”.

Reasons similar to those for finding that the yarn cannot be described as an organic polymer lead us to conclude that it cannot be regarded as having been produced by the polymerisation of organic monomers. The yarn comprises two distinct components only one of which is an organic polymer. Even those few filaments at the outer extremities that are integrated with the PVC cannot be described as having been bonded in the sense of their molecules combining with the molecules of the PVC to form a polymer or any other compound. They are, to use a non-scientific term, merely stuck to the PVC. This view is supported by the evidence of Mr Carroll who said that, if it were possible to extract the glass multi filaments from the yarn, a continuous floppy tube of PVC would remain.

It would follow from our conclusion that, if regard is had only to the notes to Chapter 54 and assuming that the word “filament” is used in Note 1(a) in the sense of continuous and not of staple, the yarn is not synthetic. Therefore, although the yarn may loosely be described as a filament yarn, it is not a synthetic filament yarn within the meaning of Chapter 54 and more particularly of heading 5407.

Although a filament yarn, we have not considered whether it is a “monofilament” within the meaning of heading 5402 and 5404. Mr Northcote referred us to the Harmonized System Explanatory Notes (“HSEN”) and to those authorities supporting our reference to them (Gardner Smith v Collector of Customs Victoria (1986) 66 ALR 377 at 383-4, Barry R Liggins Pty Ltd v Comptroller General of Customs (1991) 103 ALR 565 at 571-573 and Toyota Tsusho Australia v Collector of Customs (VG113 of 1991, No. 282 , 14 May, 1992 at paragraphs 22-30). The HSEN for heading 5404 states that:
“… Monofilaments of this heading may be of any cross-sectional configuration and may be obtained not only by extrusion but by lamination or fusion.”

Whether it is a monofilament or not, it is not a synthetic monofilament within the meaning of heading 5402 or of heading 5404. Although we are satisfied on the basis of the evidence of Mr Chaubal and Dr Wang that the yarn, or at least the fabric woven from it, may be regarded as textiles, the subject goods woven from the yarn are not synthetic textile materials within the meaning of heading 5404.

Is our conclusion altered by the application of the Interpretation Rules? Mr Northcote submitted that the reference in the definition of “synthetic” in Chapter 54 is a reference in a heading to a substance as contemplated by the terms of Rule 2(b) of the Interpretation Rules. Therefore, he submitted, the word “synthetic” must be taken to include a combination of “synthetic” materials, such as PVC, with other materials such as glass. Subject to any exclusory rules, a similar approach must be adopted in interpreting headings 3926 and 5407.

Mr Gross submitted that Rule 2(b) could not be used in this way. He referred to passages in two text books: Australian Customs Law and Practice in 1 volume, CCH Australia Limited at 10-135 (originally written by L. Gross and G. Hegarty) and Customs Tariff Classification, RJ Benson, Import Publishing Co Pty Ltd, 1992. An extract from the latter in relation to Rule 2(b) states:
“In Rheem Australia Ltd v Collector of Customs (N.S.W.) (1988) 78 ALR 285 Wilcox J. observed (at p 294) in relation to a similar Rule in the 1982 Customs Tariff that:
‘the clear intention of r2(2) is to extend the categories of goods included within particular items, sub-items and paragraphs in Schedule 3’.
This was noted with approval by the Administrative Appeals Tribunal in Re General Printing Ink (Aust) Pty Ltd and Collector of Customs (1988) CAI 293 in paragraph 11 of its reasons for decision. However, it would seem that contrary Section and Chapter Notes would, by force of Rule 1, exclude the operation of Rule 2(b).” (paragraph [609])

Mr Gross referred also to TVM Investments Limited (formerly Western Mail Limited) and Collector of Customs (W86/273, 25 November, 1987, CAI 258, Deputy President Nicholson and Dr Billings and Major-General Taylor, Members). The Tribunal was there concerned with Rule 1(2) as previously drafted:
“1(2) For the purpose of ascertaining whether goods fall within an item, sub-item, paragraph or sub-paragraph or whether an item, sub-item, paragraph or sub-paragraph applies to goods, regard shall, subject to sub-rules (3), (4) and (5), be had to the terms of items (including sub-items, paragraphs and sub-paragraphs) and of notes to Divisions and Chapters and, except where those terms otherwise require, to rules 2, 3 and 4.” (page 258.4)

The Tribunal considered whether it should have regard to the notes to the Divisions and Chapters before it had regard to the Interpretation Rules. The CEO had argued that it should and the applicant that it should not. The Tribunal said:
“… Having examined the decisions of the Tribunal in Re Queensland Glass Manufacturers Company and Collector of Customs (Decision No. 2542, 7 February 1986 reported in part 9 ALN N103) and Re Masport Whirlwind Pty Ltd and Collector of Customs (1978) 1 ALD 437, the Tribunal accepts the argument of the …[CEO] that it must look to the divisional and chapter notes prior to having regard to rules of interpretation (2), (3) and (4); that is that the Divisional and Chapter Notes determine the content and application of the items, sub-items and paragraphs to which those rules then apply.” (page 258.5)

Having regard to this passage but, more importantly, having regard to the words of Rule 1, we have concluded that we must first have regard to the terms of the headings and any relevant Section and Chapter Notes. It is only if those headings and notes “do not otherwise require” that regard is to be had to the Rules following Rule 1 of the Interpretation Rules.

In our view, Note 1 to Chapter 54 and heading 5407 do otherwise require. They require us to look to whether the fabrics comprising the subject goods are “woven fabrics of synthetic filament yarn”. As there is no question that they are woven fabrics, we must then look to whether they are woven of “synthetic filament yarn” as we have done above. That definition does not contemplate that a synthetic fibre (of which synthetic filament yarn is but one example) may comprise partly a synthetic fibre and partly a non-synthetic fibre. It is quite clear that, in order to be synthetic, a fibre must be “… staple fibres and filaments or organic polymers produced by manufacturing processes … By polymerisation of organic monomers, such as polyamides, polyesters, polyurethanes or polyvinyl derivatives” (Chapter 54, Note 1(a)). There is no room for the yarn to comprise partly synthetic and partly non-synthetic fibres if it is to be classed as synthetic. In view of that, there is no room for the operation of Rule 2(b).

If we are incorrect in our view and we must have regard to Rule 2(b), we do not consider that it leads to the conclusion that the word “synthetic” as used in heading 5407 must be taken to include a combination of “synthetic” materials, such as PVC, with other materials such as glass. Rule 2(b) requires that “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.” The reference is to a material or substance. It is not a reference to part of a material or substance. Once that material has been identified, the effect of Rule 2(b) is that a reference to that material includes a reference to it in combination with other materials. Therefore, the first task is to identify the material or substance to which reference is made in the heading. In heading 5407, reference is made to “synthetic filament yarn”. Although the word “synthetic” may be used as a noun, it may also be used as an adjective (SOED) and it is in its adjectival sense that it is used in the expression “synthetic filament yarn”. The filament yarn must be synthetic if is to be regarded as synthetic filament yarn. That is the material to which reference is made in heading 5407. Is that material mixed or combined with any other material in the subject goods? The answer is that it is not. Therefore Rule 2(b) has no application. If that material being synthetic filament yarn were mixed with, for example, linen yarn, Rule 2(b) of the Interpretation Rules would come into play. Its effect would be that the reference to synthetic filament yarn would include a reference to the mixture or combination of synthetic filament yarn and linen yarn. That, however, is not the case with which we are concerned and in our case Rule 2(b) is not applicable.

For the reasons that we have given, we have concluded that the yarn from which the subject goods have been woven cannot be regarded as synthetic filament yarn and consequently the subject goods cannot be classified to heading 5407. As they cannot be regarded as synthetic, they cannot be classified to headings 5402 or 5404 either.

Classification of the subject goods – Chapter 39

As the subject goods may not be classified under Chapter 54, we have turned to heading 3926 that would otherwise be excluded by exclusory Note 1(a). That heading applies to articles of two types. The first is plastics. However, as Note 1 to Chapter 39 provides that “plastics” means those “…materials of 3901 to 3914.00.00 …” which have certain qualities that are then specified, it incorporates the second type of article i.e. “… articles of other materials of 3901 to 3914.00.00”. The materials referred to in those headings include, in summary, polymers of various compositions, acrylic polymers, polyacetals, polyethers, polycarbonates, polyamides, amino-resins, phenolic resins and polyurethanes, silicones, petroleum resins, cellulose, natural polymers and ion-exchangers based on polymers of the preceding polymers. Comprising, as they do, both fibre glass and PVC, which is encompassed within “plastics”, the subject goods do not comprise articles wholly of plastic within the meaning of heading 3926. There remains, of course, the question whether they may be classified to that heading by use of Interpretation Rules 2(b) and 3 but we will return to that.

Classification of the subject goods – Chapter 70

For similar reasons, the subject goods do not fit neatly within heading 7019. With their PVC sheath, they cannot accurately be described as glass fibres and they are not articles of glass fibres although one of their components is clearly glass fibre in the form of multi filaments. Again, the use of Interpretation Rules 2(b) and 3 remains and we will now turn to that.

Classification of the subject goods – the essential character test

Contrary to the approach we have adopted in the previous two paragraphs, Interpretation Rule 2(b) provides that a reference in a heading to goods of a given material must be taken to include goods consisting wholly or partly of that material. In view of our findings that they comprise both glass fibres and PVC, the subject goods are to be regarded as “consisting of more than one material or substance” within the meaning of Rule 2(b). The effect of that rule is that the subject goods are prima facie classifiable under both headings 3926 and 7019. A further effect is that their classification is to be determined according to Interpretation Rule 3. As a result of Rule 3(a), both headings are regarded as equally specific. Consequently, the subject goods cannot be classified by reference to Rule 3(a). That means that Rule 3(b) comes into play. It requires that, in so far as it is applicable, the subject goods be classified as if they consisted of the material or component giving them their essential character. The qualification is not relevant in this case but how is the “essential character” of the subject goods determined?

Mr Gross, supported by Mr Law, referred to a number of cases in answering this question. As is clear from Rule 3(b) itself, the notion of the “essential character” itself and from the authorities such as Walterschied Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555 at 565-566 (Davies J), it has nothing to do with completeness or functionality of the whole that is made up of the parts. It has to do with an “essential character” and that is an issue regarding a quality rather than a function. As French J said in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 (French, Hill and Whitlam JJ) after referring to the judgement of Davies J in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85:
“… As explained by his Honour at 86, the essential character of goods is ‘what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part’.” (page 462)

It is not a test of merely judging the character of the goods on a visual inspection of them (Re Phillips and House Group and Collector of Customs (1979) 2 ALD 704 at 708, Senior Member Todd and Mr Skermer and Mr Stock, Members).

The purpose for which the subject goods have been imported or for which they may be purchased does not play a role in determining essential character for:
“ The authorities make it clear that in determining what is the essential character of goods it is the state or condition of the goods at the time of importation that is the determining factor and that it is wrong to classify goods or to determine their essential character by reference to the purpose of the importer or the purchaser. Regard must be had to the characteristics of the goods themselves, as they would present themselves to the informed observer …” (Times Consultants Pty Ltd v Collector of Customs at 462, per Morling and Wilcox JJ)

In Blackwood Hodge (Australia) Pty Ltd v Collector of Customs, New South Wales (No. 2) (1980-81) 3 ALD 38 (Smithers, Fisher and Sheppard JJ), the Full Court considered whether certain vehicles had the essential character of lifting, loading or unloading machinery. Smithers J said:
“ It appears to me that in the context of the schedule the expression ‘essential character’ is used with respect to the physical character or make-up of the article in question. When it is contemplated by the terms of the schedule that an article may be treated as lifting machinery even if it be an incomplete item of such machinery, clearly the reference is to its physical condition. When the terms of the schedule proceed to limit the circumstances in which lifting machinery physically incomplete will qualify as lifting machinery, by stipulating that the machine must have the essential character of lifting machinery, it is to my mind, still referring to the physical condition of the article in question. In the absence of the essential feature of a lifting machine, namely basic gear by which things may be lifted it is difficult to think that the unit has the essential character of lifting machinery.
‘A thing may be said to be essential to an entity, if that entity would not be what it is to be, or is, or was, if the part in question were wanting.’ (Fowler’s English Usage 1961 p 150). It is only when it is considered as an entity which includes the mast that this machine qualifies as lifting machinery at all. Without the mast, as it appears to me, it does not have the character of a site fork lift truck. Without the mast that which is left does not have the essential character of machinery equipped for lifting, handling, loading or unloading materials. It is not a case, for instance, in which the unit was imported with the mast attached but inoperative because of the absence of some part, the absence of which did not, from a physical point of view, deprive the machine of the basic elemenets of a materials lifting machine.” (page 41)

This theme was also at the heart of the later decision in the Tribunal in Re Nylex Corporation Ltd and Collector of Customs (No. V86/504, 9 April, 1987, CAI 232, Deputy President Thompson and Mr Cohn and Mr Wilson, Members). Under consideration was the classification of Parafil Rope and its essential character. The Tribunal said:
“10. Arguments were addressed to us in which it was postulated that the sheath of the subject goods might exist without the core or the core without the sheath. The arguments then related to the respective properties of the sheath without the core and of the core without the shaath [sic]. In our view, that is not the correct manner in which to decide which of the materials of which the subject goods are comprised gives to them their essential character. We are not concerned with goods comprising only a sheath or goods comprising only a core; we are concerned with the subject goods, which comprise both the sheath and the core. 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 Re UEB Industries (Australia) Pty Limited and Collector of Customs (Qld) (Decision No. 3105: 18 December 1986). The evidence before us, and in particular the technical notes provided the manufacturer, establishes that Parafil Ropes have a high tensile strength, which results from the core, and properties of resistance to abrasion and environmental attack, which result from the sheath. The essential character of the subject goods, we are satisfied, is the present case to be discovered by reference to their use. They are used to secure two objects to one another, where tensile strength is required and also resistance to abrasion and environmental attack. If they failed to secure the objects to one another, the properties of resistance to abrasion and environmental attack would serve little, if any, useful purpose. Although undoubtedly all the properties of the subject goods are important in relation to their use, we have no doubt that their essential character is given to them by the material of their core.” (paragraph 10,232.5)

With regard to the subject goods in this case, Mr Northcote submitted that it was the fibre glass component that gives them their essential character. It is the fibre glass that gives them their tensile strength and it is the PVC that gives it its character of sun resistance. Mr Gross submitted that regard must be had to the essential character of the subject goods and not that of the yarn of which they are made. He and Mr Law submitted that it is the PVC that gives them their essential character.

The subject goods present themselves to the informed observer as sunscreen fabric or as shade cloth. They are fabrics woven from a yarn that comprises both PVC in the form of a sheath and fibre glass in the form of the glass multi filaments, to which we have referred. Both the yarn from which the subject goods are woven and the tentering process that the resulting woven fabric undergoes contribute to its essential character. We find on the evidence that the tentering process contributes to its dimensional stability. The yarn also contributes to that dimensional stability but it does so only because it comprises glass multi filaments. Its tensile strength is given by those glass multi filaments. On the basis of the evidence, which was consistent, we find that it is the openness of the weave and the PVC, rather than the fibre glass, that gives the subject goods their ability to provide protection from solar UVR. That arises from PVC’s ability to absorb and reflect solar UVR. In the absence of the PVC, the subject goods would not be what they are: shade cloth and sunscreen fabrics. In the absence of the glass multi filaments, the subject goods would still be shade cloth and sunscreen material. It would not, of course, have the same tensile strength and dimensional stability as the subject goods. Presumably it would not be suitable for use in blinds and awnings but it would still be shade cloth and sunscreen fabric even though it might have to be supported by something like a frame if it were to be used. It is the PVC that gives them their essential character. We have concluded, therefore, that the subject goods should be classified to heading 3926 rather than to heading 7019. If the subject goods were not what they are but were, for example, reinforcement for concrete, which is another product for which PVC coated fibre glass yarn may be used, we may well have found that it is the fibre glass that give it its essential character. That is not a matter that we must decide in this case.

In reaching this conclusion, we have come to our conclusion without regard to the judgement of the United States Court of International Trade in the 3G Mermet case (Exhibit 3, pages 37-56). Therefore, we have not expressed any view as to whether we would have been entitled to have regard to it according to the principles expressed in Siemens v Schenker [2001] NSWSC 658 to which the law referred us and the cases cited in that judgment. We note, however, that we have come to the same conclusion as did that court.

For the reasons we have given, we:

1.decide that, unless payment under protest has been made within six months of the date of the demand for its payment, the Tribunal does not have jurisdiction to hear applications seeking review of the decision to make that demand under s. 167(1) of the Customs Act 1901;
2.set aside the decision of the respondent in each application in relation to which the Tribunal has jurisdiction;
3.substitute a decision that the subject goods are in each case classified under heading 3926 of Chapter 39 of Schedule 3 of the Tariff Act 1995;
4.remit the applications to the respondent to determine the appropriate sub-heading of heading 3926 to which the subject goods should be classified; and
5.give either party liberty to apply should they be unable to reach agreement as to those applications that are within the Tribunal’s jurisdiction.

I certify that the seventy-three preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Mr C Ermert (Member) and

Mr W G McLean (Member)

Signed: ...............................................................

R. Crook Associate

Date of Hearing 26 and 27 February, 2004

Date of Decision 25 June, 2004

Counsel for Mermet Australia Pty Ltd,
Silent Gliss Pty Ltd and
Shaw of Australia Pty Ltd Mr L. Gross,

Louis Gross & Associates

For Helioscreen Australia Pty Ltd Mr J. Law,

John V. Law & Co

Solicitor for the Respondent Mr R. Northcote,

Australian Government Solicitor, Customs Legal Unit

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established