Mondami Pty Ltd and Chief Executive Officer of Customs

[2004] AATA 493

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 493

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2003/627

GENERAL ADMINISTRATIVE DIVISION		)
Re		MONDAMI PTY LTD

Applicant

And CHIEF EXECUTIVE OFFICER OF CUSTOMS

Respondent

DECISION

Tribunal Michael Sassella, Senior Member

Date18 May 2004

PlaceSydney

Decision The reviewable decision is affirmed.

[sgd] M J Sassella

Senior Member

CATCHWORDS

CUSTOMS TARIFFS – security access enclosure with narcotics and explosives detection system – tariff duty collected when goods classified as machines and mechanical appliances under heading 8479 of Schedule 3 of Customs Tariff Act 1995 – goods could not be classified as chemical apparatus for chemical analysis because purposes broader – no sole or principal purpose of machine – duty not refunded

Customs Act 1901 s 163(1)(b)

Customs Tariff Act 1995 ss 6, 7(1), Schedule2 and 3 (headings 8479, 8543, 9027)

Customs Regulations 1926 regulation 126(1)(e)

Re Tridon and Collector of Customs (1982) 4 ALD 615

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

Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287

Re Avion and Collector of Customs (AAT 4525, 29 July 1988)

REASONS FOR DECISION

18 May 2004 Michael Sassella, Senior Member           

RESULT

The classification of the goods adopted by Customs was correct and no duty previously paid in relation to import of the goods is to be refunded.

BACKGROUND

1.      On 7 June 2002 Mondami Pty Ltd (“Mondami”, “the applicant”) brought into Australia for use in Australia two units of a product known as a Cima Round 900 entrance complete with drug and explosives detection facilities.  Tariff duty of $2,048.08 was levied and paid with no protest.  The goods had been classified by a delegate of the Chief Executive Officer of Customs (“Customs”, “the respondent”) in accordance with the Customs Tariff Act 1995 (“the Act”)[1] under subheading 8479.89.90 of Schedule 3 of the Act. This attracted a tariff of 5%. Heading 8479 relates to “machines and mechanical appliances having individual functions, not specified or included elsewhere in” chapter 84 of Schedule 3. Chapter 84 relates to “nuclear reactors, boilers, machinery and mechanical appliances; parts thereof”.

[1] 9 January 2002 Mondami wrote to Customs seeking a review of the classification decision.  On 23 January 2003 Mondami applied for a refund of the duty paid because, Mondami said, the goods were wrongly classified.  Mondami considers that the correct classification is under subheading 8543.89.00.  Heading 8543 relates to “electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter”.  If this is the correct classification there is no tariff payable.  Chapter 85 relates to “electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”. 

3.      Customs reconsidered the classification in March 2002 and held to the decision it had earlier made.  The decision was reviewed again in July 2002 and the original decision was upheld.  In August 2002 Mondami’s agent requested a more detailed explanation.  This was provided on 26 September 2002 and the original decision was again affirmed as correct.  On 8 May 2003 Mondami sought a review of this decision at the Administrative Appeals Tribunal (“the tribunal”). 

4.      Mondami’s representative wrote to the tribunal on 9 April 2003 disputing Customs’ identification of the goods as “a security door/entrance portal” operating for the purpose of denying access beyond the doorway.  This, said Mondami, was secondary to the “principal function of detecting and identifying explosives and other illegal narcotic substances”.  Customs’ view on this is that the apparatus performs the function described by Mondami and, if that was all it did, would therefore be classified under heading 9027 attracting no duty, however it does more than this.  Heading 9027 applies to “instruments and apparatus for physical or chemical analysis (for example, polarimeters, refractometers, spectrometers, gas or smoke analysis apparatus); instruments and apparatus for measuring or checking viscosity, porosity, expansion, surface tension or the like; instruments and apparatus for measuring or checking quantities of heat, sound or light (including exposure meters); microtomes”. 

ISSUES

5. Section 6 of the Act provides that a reference in the Act to the tariff classification under which particular goods are classified is a reference to the heading or subheading in Schedule 3 of the Act in whose third column a rate of duty is set out and under which the goods are classified.

6.      In Re Tridon Pty and Collector of Customs (1982) 4 ALD 615 the tribunal held that it is necessary to have regard to the Rules of Interpretation in the First Schedule of the Act to help ascertain whether goods fall within an item, sub-item, paragraph or sub-paragraph. This is also what s 7(1) of the Act states. In Tridon the tribunal said (page 620) that the starting point is to identify the goods in their condition as imported. 

7.      In Tridon the tribunal then said that the next step is to classify the goods under Schedule 3 of the Act. This two-step approach has been endorsed by the full Federal Court of Australia in Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR, 591, 599.

8.      As regards Mondami’s prospects for receiving a refund of duty paid, the Customs Act 1901 (“the Customs Act”)[2] provides in s 163(1)(b) for a refund of duty in such circumstances, and subject to such conditions and restrictions (if any), as are prescribed.  Regulation 126(1)(e) of the Customs Regulations 1926 (“the Regulations”)[3] provides for refunds of duty where duty has been paid through manifest error of fact or patent misconception of the law.  This is the only basis open to Mondami for recovery of the duty paid.

[2] issues that arise, therefore, are:

(a)What is the identification of the goods in this matter?

(b)What is the correct classification of the goods in accordance with Schedule 3 of the Act?

(c)Has duty been paid through manifest error of fact or patent misconception of the law?

FINDINGS ON MATERIAL QUESTIONS OF FACT WITH REFERENCE TO THE EVIDENCE AND OTHER MATERIAL IN SUPPORT OF THOSE FINDINGS

(a)      What is the identification of the goods in this matter?

10.     In Tridon [6] the principles to be used in the identification process were summarised as:

(a)Identification must be objective, having regard to the characteristics which the goods, on informed inspection, present.

(b)Identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the tariff.

(c)At the same time it is necessary to be aware of the structure of the nomenclature, the basis on which goods are classified and the characteristics of goods which may be relevant to the task of classification.

(d)Knowledge of how those who trade in the goods describe the goods will usually be relevant but not necessarily conclusive.

(e)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.

(f)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 refer to the materials or substances from which the goods are manufactured.

(g)Identification will frequently extend to characterisation of goods by reference to their design features or by reference to their suitability for a particular use emerging from inspection of the goods as imported.  The relevance of these characteristics and evidence regarding the use of the goods after importation will depend on the language of the tariff nomenclature.

(h)Composite goods, notwithstanding that they have components which are separately identifiable, may be identifiable in combination as a new entity if the identity of the separate units is subordinated to the identity of the combination. 

11. Customs in the statement provided under s 37(1)(a) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”)[4] proposed the following as the identification of the goods:

[4] goods are identified as ‘Round 900’ N/E Security Access Enclosure with Narcotics-Explosives Detection system.  It is a security door being an electro-mechanical device to control access.  It is a walk through entrance portal that includes the following features:

-a personnel detection radar sensor that opens the entry door when a person stands one metre in front of the door;

-a pneumatic door opening/closing system to allow or prohibit access to a secure area;

-a weighing system that includes a pre-set upper weight limit to provide an indication as to the number of persons present within the portal;

-a biometric unit for finger print registration and recognition;

-a synthesised voice instruction system;

-an intercom for communication with the security staff/guards;

-a drug and explosives detection system.”

The appearance is of a cylindrical booth about the height of a telephone box.  The entrant goes in through automatic doors.  Before the set of doors opposite the entry doors opens the apparatus does the weighing, finger printing, narcotic and explosive detection.  The second set of doors opens to allow entry to the secure area only if the analysis machinery clears the entrant.

12. The shorthand identification suggested by Mr Northcote was “security access entrances, having the features mentioned at [11] above”. The fuller identification in [11] reflected closely the description in a promotion brochure regarding the “Round 900” with the identification making particular reference to the menu of features in the units actually imported. As noted earlier ([4] above), Mondami disagreed with this identification on the basis that the “Round 900” should be identified as an apparatus for detecting and identifying explosives and other illegal narcotic substances. At the hearing Mr A J Clarke, for Mondami, added to this “metal detector”. The two items imported were intended for use in a prison in Queensland.

13.     Mr Northcote, appearing for Customs, argued that the “Round 900” is much more than a chemical analysis apparatus.  That was why it was classified under 8479, the residual classification for machinery.  He stressed the solidity of the construction – the publicity brochure describes it as having an “armoured structure”.  He explained that it replaces a door at the entrance to a secure area.  He noted how, if a person entering the booth is not cleared to enter the secure area he or she can be detained temporarily in the booth.  He said also that if the entrant were carrying explosives and an explosion occurred it would be contained within the booth.  The publicity brochure pointed out also that the machine can operate unattended, although Mr Clarke, said that was incorrect.  There is always a person in the control room.  Where contraband is detected an audible and visible alarm sounds in the control room.  The entrant is detained and the controller decides next steps.

14.     I am convinced by Mr Northcote’s submissions on identification.  I see the Tridon [6] principles [10] as promoting a description of an identification that is expansive in its scope rather than restrictive or selective.  I refer in particular to the following:

·     Principle (a) emphasises an informed inspection of the goods and the characteristics thereby presented.  Thus the physical appearance is a major aspect.

·     Principle (e) refers to the potential relevance of “all the descriptive terms, both specific and generic, by which the goods may fairly be identified” (my emphasis). 

·     Principle (g) permits inclusion of reference to design features and their suitability for a particular use.  Thus, the identification can extend to matters of use and utility.

15.     I find that the identification cited in [11] is appropriate.

(b) What is the correct classification of the goods in accordance with Schedule 3 of the Act?

16. Customs argued for its preferred classification in the following way. The general rules for the interpretation of Schedule 3 appear in Schedule 2 of the Act. As mentioned above, s 7(1) of the Act compels a decision-maker to use these in working out the tariff classification. Rule 1, relevantly, states that “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 …”.

17.     There are three possible headings for classification: 8479, 8543, 9027.  The full descriptions of these headings were given above at [1], [2] and [4], respectively. 

18. Note 1(m) to Section XVI of Schedule 3 provides that Section XVI does not cover “Articles of Chapter 90”. Chapters 84 and 85 (containing headings 8479 and 8543, respectively) are located in Section XVI. Heading 9027 is in Chapter 90.

19.     The effect of Note 1 is to identify items that might be expected to fall within a Chapter in Section XVI (which covers machinery and mechanical appliances, etc) but which do not fall under Section XVI.  These items, including the Chapter 90 articles, are to be classified under headings outside Section XVI.  As Mr Northcote put it in his submissions, the effect of Note 1(m) is that, if the subject goods are classifiable under any heading in Chapter 90, including 9027, then the subject goods must be classified under that heading even if they might also be described by a heading within Section XVI.  The full Federal Court of Australia upheld this approach in Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287 at pages 289-290.

20.     Mr Northcote submitted that the “Round 900” is not classifiable under 9027 because the terms of 9027 do not describe the goods.  He said, “The drug and explosives detection system incorporated into the subject goods operates by means of Ion Trap Mobility Spectrometry, which is a method of chemical analysis.  Such a system, if imported as a separate, stand-alone apparatus, would be classifiable under heading 9027, being ‘apparatus for … chemical analysis’” within the terms of 9027.  For the reasons above in [13] the “Round 900” is much more than a mere chemical analysis apparatus.  Mr Northcote referred to the tribunal’s decision in Re Avion and Collector of Customs (AAT 4525, 29 July 1988) as support.  I therefore agree with Mr Northcote that 9027 does not adequately describe the subject goods.  They are therefore able to be classified under Section XVI.

21.     Within Section XVI the Notes to Chapter 84 become important.  Note 7 in Chapter 84 states that “A machine which is used for more than one purpose is, for the purposes of classification, to be treated as if its principal purpose were its sole purpose”.  As was seen in [13] above, this machine has a variety of purposes, no one being paramount.  At the very least I would see its purposes as entrance, chemical analyser, identity checker and restraint apparatus.  I would probably see the first three purposes in that list as of equal importance.  There is no principal or sole purpose. 

22.     Note 7 in Chapter 84 states that a machine for which there is no one purpose which is the principal purpose is to be classified in 8479, unless the context otherwise requires.  The context here poses no problem.  This rules out the alternative of classification under 8543 because Note 7 in Chapter 84 is dogmatic.

23. Mr Northcote said also that this result follows because the subject goods are more than merely electrical. They are also mechanical. However, Mr Clarke called my attention to “Brussels Explanatory Notes” which relate to Schedule 3. These suggest that Chapter 85 can apply to electrical goods incorporating mechanical features provided the mechanical features are subsidiary to the electrical function of the machine or appliance. This led Mr Northcote to argue in response that the mechanical glass doors are not subsidiary or ancillary in this product. He described them as a very significant part of the goods which perform a necessary part of the overall function of the goods. They control whether a person gains access to a secure area. He also noted that the Brussels Explanatory Notes do not address Note 7 in Chapter 84.

24.     There was also material before me to show that in the United States of America security door systems had been classified as 8531.80.8050 – other electrical sound or visual signalling apparatus, or in Australian terms, under Chapter 85.  Mr Northcote suggested that this was of limited precedent value because different nations apply their own principles and interpretations to the Interpretation Rules which 186 nations have adopted under the International Convention on the Harmonized Commodity Description and Coding System (Brussels, 14 June 1983)[5].  He also mentioned that the American determination made no reference to any equivalent to Note 7 of Chapter 84.

[5] am satisfied that the analysis suggested by Mr Northcote in [16] to [24] is the preferable analysis.  Mr Clarke’s rebuttals, favouring classification in Chapter 90, depended largely on the proposition that the subject goods have the limited purpose of detecting explosives, drugs and weapons.  I have found that the “Round 900” has other equally important purposes. 

26.     I find that the correct classification of the goods is under subheading 8479.89.90.

(c)      Has duty been paid through manifest error of fact or patent misconception of the law?

27.     I find that the duty paid by Mondami was not paid through manifest error of fact or patent misconception of law.  This is because of my answer in [26] in relation to issue (b).  The duty was properly collected and paid.  This means that no duty is to be refunded.

CONCLUSION

28.     The above findings mean that the classification of the goods adopted by Customs was correct and that no duty previously paid in relation to import of the goods is to be refunded.

DECISION

29.     The reviewable decision is affirmed.

I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Michael Sassella, Senior Member

Signed:         .....................................................................................
  Associate

Date of hearing  22 March 2004
Date of decision  18 May 2004
Advocate for the applicant        Mr A J Clarke
Agent for the applicant              A Hardrodt Australia Pty Ltd
Counsel for the respondent      Mr R Northcote

Solicitor for the respondent      Australian Government Solicitor

Customs Legal Unit