Neil Pearson & Co Ltd v Collector of Customs

[1990] FCA 307

Re: NEIL PEARSON and CO PTY LIMITED
And: COLLECTOR OF CUSTOMS
No. G717 of 1989
FED No. 307
Customs Tarriff
12 AAR 172
21 ALD 62

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Customs Tariff - Washing machines - Classification for tariff purposes - Sub-item classification referring to "machines of a kind used for domestic purposes" - Correctness of decision of Administrative Appeals Tribunal that this question was to be determined by inquiring whether the machines were commonly and customarily used for that purpose, even though predominant use was for non-domestic purposes Classification to be determined by references to primary or predominant use - Application of tariff concession order Method of determining "volumetric cylinder capacity" of machines.

Customs Tariff Act 1982, Sch.3, Chap 84.

Customs Tariff Act 1987, s.28.

Customs Act 1901, s.269C.

HEARING

SYDNEY

#DATE 27:6:1990

Counsel for the applicant: Mr D F Jackson, QC and Mr D Ronzani

Solicitors for the applicant: Landerer and Co.

Counsel for the respondent: Mr C J Stevens

Solicitors for the respondent: Australian Government Solicitor

ORDER

1. The appeal be allowed.

2. The decision of the Administrative Appeals Tribunal be set aside and, in lieu thereof, it be ordered that the application for review be granted, that the decision of the Collector of Customs be set aside and that it be determined that:

(a) the subject goods were properly classified by reference to sub-item 84.40.2 of Schedule 3 of the Customs Tariff Act 1982; and

(b) Tariff Concession Order 8530085 is inapplicable to the said goods.

3. The respondent pay to the applicant its costs of the proceeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This case concerns the application to Maytag washing machines of the provisions of the Customs Tariff Act 1982 and a tariff concession order made under the Customs Act 1901. The Customs Tariff Act 1982 was repealed, as from 1 January 1988, by the Customs Tariff Act 1987: see s.28(1) of that Act. However, subject to some presently irrelevant exceptions contained in ss.28 and 29 of the 1987 Act, the repeal did not affect rights accrued in respect of importations into Australia before the repeal.

The facts

1. Schedule 3 to the 1982 Act set out the general and special rates of duty applicable to various items. Chapter 84 dealt with "boilers, machinery and mechanical appliances; parts therefor". The notes which opened the chapter included the following:
   

"5(1) For the purposes of this Chapter, a machine that has one principal purpose and other subsidiary purposes shall be treated as if its principal purpose were its sole purpose".

84.40 dealt with various types of machines. It

included:

"84.40.1 - Laundry machines, including tumble dryers, manually operated pressing machines, washing and cleaning machines and garment formers (finishers), being machines of a kind used for domestic purposes".

1. At relevant times the general rate of duty for machines falling within this item was 30 percent.

2. Sub-item 84.40.2 covered machines not specified above as follows:
   

"(a) carpet cleaning or shampooing machines;

(b) dyeing machines;

(c) laundry and dry cleaning machinery and appliances, as follows:

(i) drying tumblers;

(ii) flatwork folding machines;

(iii) garment formers (finishers) of the cabinet type;

(iv) ironing machines;

(v) mechanically operated pressing machines;

(vi) spotting and steaming tables;

(vii) squeeze type extractors;

(viii) washing or cleaning machines;

(d) Ovens and dryers, whether or not incorporating stenters".

1. At relevant times the rate of duty in respect of machines falling within 84.40.2 was 15 percent. However, this rate was subject to the operation of Tariff Concession Order 8530085 reading as follows:
   

"84.40 Laundry equipment, being goods to which sub-item 84.40.2 applies, being any of the following:

(a) washing machines;

(b) washer extractors;

(c) tumble dryers; having a dry linen capacity NOT less than 10kg/batch.

NOTE:

For the purposes of this Order, "dry linen capacity" shall be determined:

(a) in respect of washing machines and washer extractors, by the application of a divisor of 10 to volumetric cylinder capacity expressed in L; and

(b) in respect of tumble dryers, by the application of a divisor of 25 to volumetric cylinder capacity expressed in L".

1. In situations where the Tariff Concession Order applied the rate of duty was taken from Item 50, namely two percent.

2. During the period of operation of the 1982 Act, the applicant, Neil Pearson and Co Pty Limited, imported into Australia Maytag washing machines manufactured in the United States of America. It contended that the washing machines fell within sub-item 84.40.2 and within Tariff Concession Order 8530085. Consequently, it said, the relevant rate of duty was two percent. The Collector of Customs, the respondent, argued that the goods fell within sub-item 84.40.1, so that the relevant rate was 30 percent. It was common ground that, if the goods were within 84.40.1, there could be no question of the application of Tariff Concession Order 8530085.

3. The dispute between the parties was brought before the Administrative Appeals Tribunal. It was heard, along with a similar dispute between the parties relating to the position under the 1987 Act, by Mr C J Bannon QC, Deputy President. Mr Bannon held that the machines fell within sub-item 84.40.1. Accordingly, it was unnecessary for him to deal with the application of the Tariff Concession Order. But he did discuss that question and he expressed the view that the machines could not properly be described as having a dry linen capacity not less than 10 kilograms per batch as required by that order.

4. The applicant challenges Mr Bannon's interpretation of both Schedule 3 to the Act and the Tariff Concession Order. It brings an appeal to this Court contending that Mr Bannon erred in law: see s.44 of the Administrative Appeals Tribunal Act 1975.
   The sub-item classification

5. Sub-item 84.40.2 does not apply to machines specified, in sub-item 84.40.1. Consequently, it is convenient to consider first whether the subject machines fell within that sub-item. It is common ground that the machines answer the description "laundry machines". The issue is whether they are "machines of a kind used for domestic purposes". Mr Bannon made some findings of fact relating to that issue. Firstly, he found that there were two different types of Maytag machines imported at relevant times. One machine was the Maytag A24 of which Mr Bannon said "It is fitted with a coin slot mechanism and is obviously designed for commercial use". Mr Bannon found the other machine, the Maytag A512, to be "substantially the same machine in design and construction, but with a deeper basket and no slot mechanism as in the A24". Mr Bannon noted evidence given by Mr Neil Pearson, the managing director of the applicant company, that the A512 was sold through retail outlets such as David Jones Limited for domestic use but he also noted that Mr Pearson had maintained that its principal use was in hospitals, public institutions and the Army. At a later stage in his reasons, while dealing with the situation under the 1987 Act, Mr Bannon considered the design and structure of the machines. He said:
   

"I prefer the evidence of Mr Pearson and Mr J M Muller (an employee of the applicant), which indicates to me that both the Maytag A512 and the A24 are designed and structured for commercial activity, and are of the commercial type, although they may be used by households".

1. Notwithstanding these findings, Mr Bannon held that neither of the machines were "of the kind used for domestic purposes". In reaching that conclusion he had regard to certain earlier decisions of the Tribunal and he expressed the opinion "that the words 'of a kind used' denote commonly or customarily". Mr Bannon said:
   

"Even if the majority of Maytag A512 washer extractors are used by the Army and public institutions, I find as a fact that they are also commonly and customarily used for domestic purposes".

1. The applicant argues that this approach is erroneous in point of law. Counsel refers to Chandler and Co v Collector of Customs (1907) 4 CLR 1719 wherein the High Court of Australia, by majority, held that, in a case where a Customs duty classification refers to a purpose of use, the principal or predominant use of the goods determines their classification: see per O'Connor J at p 1732, per Isaacs J at p 1740 and per Higgins J at p 1742. Counsel argue that this authority should have been applied to the present case, the relevant question being the principal or predominant use of the washing machines. Upon Mr Bannon's findings of fact, it is contended, that question should have been answered by saying that the principal or predominant use was for commercial and institutional use, so that the washing machines would not fall within sub-item 84.40.1.

2. Counsel say that it is necessary to determine the essential character of the goods. That is a matter to be determined objectively, by looking at the nature of the goods, including their get-up and general presentation. They refer to Chinese Food and Wine Supplies Pty Limited v Collector of Custom (1987) 72 ALR 591. In that case, Lockhart J, with whom Woodward and Ryan JJ agreed, said at p 599:
   

"Whether the goods in suit properly fall within Item 30.03 of the Customs Tariff is determined by an objective test not by the intentions of the manufacturer in China or of the exporter or the importer. The test is applied at the port of entry of the goods and at the time of entry. The characteristics of the goods, their get-up, colour, decoration, labelling and packaging are all relevant considerations. In some cases, a visual inspection of the goods and their packaging will disclose characteristics of the goods and enable a judgment to be made as to whether they are for therapeutic or prophylactic use. But visual inspection will not necessarily provide the answer in each case. Tests may have to be carried out and enquiries made to ascertain the relevant characteristics of the goods".

1. By way of alternative submission, counsel rely upon the "more than" test. They refer to Johnson and Johnson (Australia) Pty Limited v Collector of Customs (Davies J, 10 November 1989, not reported) at p 4; and Harper-Wyman Co v United States (1981) 1 CIT 108 at p 11.

2. Counsel for the respondent disputes the appropriateness of an objective test. He refers to s.269C of the Customs Act 1901 which relates to the making of commercial tariff concession orders. Before making such an order, the Comptroller-General must be satisfied that "goods serving similar functions to the particular goods are not produced in Australia" and that "goods serving similar functions to the particular goods are not capable of being produced in Australia by any person in the normal course of business". These references demonstrate, say counsel, that the actual use of the machines in Australia is a relevant consideration. Counsel also refer to various aspects of the evidence suggesting the suitability of the Maytag machines for domestic use. In particular, counsel points out that the dimensions of the machines are comparable to those of ordinary domestic washing machines. He submits that their size makes it appropriate to describe them as "a kind used for domestic purposes".

3. The general principle concerning the classification of goods for the purposes of fixing the appropriate customs tariff was stated by Lockhart J in Chinese Food and Wine in the passage already quoted. In Times Consultants Pty Limited v Collector of Customs (1987) 76 ALR 313 at p 327, Morling J and I put the matter in similar terms:
   

"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".

1. We referred to Chandler and Co, Whitton v Faulkner (1915) 20 CLR 118 at p 131 and Blackwood Hodge (Australia) Pty Limited v Collector of Customs (1980) 47 FLR 131. In the last case, at p 155, Sheppard J said:
   

"... I have borne in mind that it is the state or condition of the goods at the time of importation that is the determining factor. The test is an objective one. The purpose of the manufacturer or exporter on the one hand or the importer or user on the other can have no relevance. Otherwise rates of duty for identical articles would vary depending upon what their proposed use was to be. It is the intrinsic nature of the article itself which has to be considered. That is not to say, however, that it will not be relevant to take into account in determining the nature of an article and the question of whether it is in an unfinished or incomplete state the ordinary use to which such an article might reasonably be expected to be put. What ought to be left out of account is the particular purpose which an exporter or importer may have had in mind for the article in question".

1. The principle referred to in these authorities applies to the present case. In determining whether the Maytag washing machines fell within sub-item 84.40.1, the Tribunal was not concerned with the subjective intentions of either the exporter or the importer. Section 269C of the Customs Act is not relevant. That section is concerned with the making of tariff concession orders to mitigate the effects of the application of the schedules to the Customs Tariff Act where there is no relevant Australian industry to be protected. It is understandable that, when considering whether a tariff concession order should be made, the Comptroller-General should be required to consider the actual use within Australia of particular goods. That is a matter quite different to the proper classification of the goods. The task of the Tribunal was to look at the machines and determine their nature and the purpose for which they were designed and constructed. If the machines could properly be described as being "of a kind used" for domestic purposes, they fell within the sub-item; otherwise, they did not. The matter was complicated by the fact that the machines were suitable for use for both domestic and non-domestic purposes; but they had to be put into one category or another. As I have already mentioned, Mr Bannon took the view that it was enough that the machines were commonly or customarily used for domestic purposes, even though this might have been the use of only a minor proportion of all of the machines.

2. With respect, it seems to me that Mr Bannon's approach is at odds with the majority view in Chandler and Co. Although the relevant item in that case was more cryptically expressed than is sub-item 84.40.1, the essential question was the same. The Collector had to determine the purpose of use of the relevant goods. As in the present case, the evidence indicated that a proportion of the goods would be used for a purpose which fell into an item in the schedule, another proportion would be for a use which fell outside that item. The High Court resolved the dilemma of classification by saying that the relevant use was the principal or predominant use. That approach is inconsistent with Mr Bannon's view that a common or customary use is sufficient.

3. Although Mr Bannon did not make a specific finding that the principal or predominant use of the Maytag washing machines was for non-domestic purposes, the extracts from his reasons for decision which I have set out above sufficiently indicate that this was his view. Accordingly, as it seems to me, he should have concluded that sub-item 84.40.1 was inapplicable to the relevant machines.
   The tariff concession order

4. It is common ground that, if the machines did not fall within sub-item 84.40.1, sub-item 84.40.2 applied. But there remains the question of the application of Tariff Concession Order 8530085. It is agreed that the washing machines are "laundry equipment", being "washing machines". The issue is whether they have a dry linen capacity of not less than 10 kilograms per batch. It is clear, and not disputed by either of the parties, that in determining the dry linen capacity, the Collector was required to have regard only to para (a) of the note in the Tariff Concession Order against Item 84.40. This is, in effect, a deeming provision. If the volumetric cylinder capacity of a particular machine, expressed in litres and then divided by 10, is not less than 10, the item applies.

5. The Maytag machines have an external metallic casing, which is water-tight, within which there is a fixed, permeable basket. The machine is designed with the intention that the clothes be placed in this basket. In the centre of the basket is an agitator designed to provide water turbulence. If the basket were removed, clothes placed in the external casing could be washed; but not spin-dried, because the clothes would be in contact with water contained in the casing. The evidence discloses that, filled to the brim but without actually overflowing, the casing would hold slightly more than 100 litres of water. Accordingly, if it is appropriate to treat the external casing as the relevant "cylinder" and to calculate its volumetric capacity by measuring the amount of water which it can theoretically hold, the formula in item 84.40 of the Tariff Concession Order yields a dry linen capacity exceeding 10 kilograms per batch. On the other hand, the quantity of water capable of being enclosed by the basket is well under 100 litres. Consequently, if the basket is the relevant "cylinder", the dry linen capacity is less than 10 kilograms per batch. Similarly, if the appropriate course is to take the external casing but to calculate the volume of water which it would hold in the normal course of operation, as distinct from a situation where it was filled to the brim, the result would be less than 100 litres, and, consequently, a dry linen capacity of less than 10 kilograms.

6. I do not think that this last alternative is the appropriate way of measuring the dry linen capacity. The note requires the application of a divisor of 10 to "volumetric cylinder capacity". That must refer to the volumetric capacity of the relevant cylinder. If the relevant cylinder is the external casing then the exercise is to determine what is its volumetric capacity; that is, its theoretical capacity, leaving aside the question whether in practice it would ever be filled to that capacity. To my mind, the real question is whether the word "cylinder" is the basket or the external casing.

1. Mr Bannon decided that the relevant cylinder was the basket. He referred to the need to take a "purposive approach". He said that, although the Tariff Concession Order called "for a fictional method of dividing volume by a divisor of 10 in order to arrive at a weight expressed in kilograms, it is speaking in terms of capacity to handle linen". Mr Bannon thought:
   

"...that the correct meaning of the phrase 'volumetric cylinder capacity' where occurring in the TCO is the volumetric capacity of the cylinder in which the linen is placed. In the case of a straight-out washer, it is the one and only cylinder. In the case of a washer extractor, it is the volumetric capacity of the inner cylinder or basket in which the clothes are placed".

1. I think that this is the correct approach. It is true that the external casing of the Maytag machine may appropriately be described as a "cylinder", although it is not precisely of cylindrical shape. But the same comment may be made about the basket. Given a choice between two objects, each of which may loosely be described as a cylinder, it makes more sense to select the one whose volume actually determines the washing capacity of the machines.

2. In saying that I acknowledge that the note to Item 84.40 of the Tariff Concession Order created a definition of "dry linen capacity" which depended upon a theoretical exercise. But, as Mr Bannon pointed out, the exercise related to the determination of the amount of dry linen capable of being washed in a particular cycle of the machine. That capability was directly related to the volume of the basket, not the volume of the external casing. Presumably, item 84.40 was inserted in the Tariff Concession Order because large washing machines were not being produced, or capable of being produced, in Australia. However, the drafter of the order had to determine the minimum size of the washing machines which were to be given the benefit of the order. He or she chose a dry linen capacity of 10 kilograms per batch. Judging by the evidence given in this case and noting that this machine had dimensions similar to those of the locally produced domestic machines, it seems likely that it was thought that such a capacity would exclude from the operation of the order machines having dimensions similar to those locally produced. It would defeat such an approach to interpret the item as including machines which had an external casing capable of holding more than 100 litres of water, notwithstanding that there was an internal feature of the machine which could properly be described as a "cylinder" and which was the real control upon its washing capacity.

3. It follows from the above, that I am of the opinion that the subject machines fell within sub-item 84.40.2 of the Schedule, Tariff Concession Order 8530085 being inapplicable. The appeal should be allowed and the decision of the Tribunal varied so as to substitute a finding that the machines are covered by sub-item 84.40.2 of the Schedule. Although the applicant has not succeeded in its argument that the Tariff Concession Order applied, it has been successful in contending that the machines fell within sub-item 84.40.2, rather than sub-item 84.40.1 as the Tribunal determined. Accordingly, the respondent should be ordered to pay the applicant's costs of the proceeding.