Philip Morris Limited and Comptroller-General of Customs

[2022] AATA 548

Philip Morris Limited and Comptroller-General of Customs [2022] AATA 548 (23 March 2022)

Division: TAXATION AND COMMERCIAL DIVISION      

File Number(s):      2020/6663          

Re:Philip Morris Limited  

APPLICANT

Comptroller-General of Customs And  

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:23 March 2022

Place:Melbourne

The decision under review is affirmed.

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CATCHWORDS

ELIGIBILITY FOR DRAWBACK OF IMPORT DUTY PAYABLE IN RESPECT OF GOODS DESPATCHED FROM AUSTRALIAN WAREHOUSES FOR EXPORT IN JULY AND AUGUST 2019 – whereas the applicant made an application for drawback of import duty payable – whether the applicant gave notice in writing as required under Regulation 37 – whether there is a discretion to pay the drawback notwithstanding non-compliance with Regulation 37 – applicant was ineligible for drawback payments because the applicant did not comply with the requirement to give notice – decision under review affirmed

LEGISLATION

Customs Act 1901 (Cth)

Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018
Customs (International Obligations) Regulation 2015

CASES

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenues (2009) 239 CLR 27

Comptroller General of Customs v Zappia [2018] HCA 54
DFS Australia Pty Ltd v Comptroller-General of Customs [2017] FCA 547
Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673
R v Lyon [1906] HCA 17; (1906) 3 CLR 770
Secretary, Department of Family and Community Services v Rogers (2000) 104 FCR 272; [2000] FCA 1447
Williams v Nicoski [2003] WASC 131

REASONS FOR DECISION

23 March 2022

1. The applicant is part of a multi-national group that manufactures and supplies tobacco products. The applicant imports product into this country which is manufactured elsewhere. That inevitably means the applicant must engage with the provisions of the Customs Act 1901 (Cth) and subordinate legislation that impose swingeing duties on tobacco products. These proceedings arise out of a misunderstanding about the administrative procedures required following an amendment to that regime. The misunderstanding about the required paperwork is potentially costly. In excess of $29 million in drawback claims are at stake.

2. Prior to 1 July 2019, the applicant landed all the tobacco products it imported into Australia (including the goods destined for re-export or for sale in duty-free outlets) and delivered them to secure warehouses for storage. The applicant would complete a warehouse declaration when the goods were landed so the Australian Border Force (the ABF) knew the disposition of the goods. The applicant would not be required to pay the import duties levied on tobacco products until it entered the goods for home consumption. That occurred when the applicant readied the goods for domestic distribution and completed the relevant customs declaration pursuant to s 68 of the Customs Act. But the stocks destined for re-export or for duty free outlets could be held back from the Australian market. Those goods (about 5% of the total that was landed in Australia) could be retained in a bonded warehouse without attracting duty. The goods reserved for export could be despatched in fulfilment of an overseas order without paying duty once the appropriate paperwork was completed.

3. The legislation has long provided for ‘drawbacks’, which are essentially a refund of import duty. A drawback was typically available where the goods were entered for home consumption – which meant duty was paid – if a decision was subsequently made to withdraw the goods from the domestic market and export them. That might occur where the goods became unsaleable in Australia for some reason. That was not a common occurrence, so the applicant’s claims for drawback prior to 1 July 2019 were infrequent.

4. Over time, the applicant’s managers appeared to develop a rapport with the relevant officers of the ABF in relation to the applicant’s imports. The applicant was included in the ABF’s ‘Trusted Trader’ program and ABF officers came to understand the applicant’s operation. But there was a change in the law which came into effect on 1 July 2019. The amendment was contained in the Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018 (the Amending Act). The new provisions require the applicant to pay duty on all tobacco goods imported into Australia at the time of importation. That necessarily brought an end to the existing arrangements under which the goods could be lodged in bonded warehouses for a time without immediately being entered for home consumption. It meant duty was payable in respect of products that were supplied to duty free stores and other outlets in Australia that enjoyed duty-free status. It also meant goods destined for re-export became dutiable when they arrived in Australia along with the rest of the products intended for the domestic market. Under the amended provisions, the applicant would be obliged to seek a drawback of duties paid on goods that were subsequently delivered to duty free suppliers or re-exported.

5. Section 168 of the Customs Act says the details of the process for paying drawbacks are dealt with in the regulations. The relevant provisions are found in Part 7 of the Customs (International Obligations) Regulation 2015 (the Regulations). Regulation 37 provides “Drawback of import duty is not payable on the exportation of goods unless the conditions… are met”. The enumerated conditions include, relevantly, item 7 which applies to tobacco products. The condition includes a requirement that the owner of the goods give notice in writing to a Collector of Customs (functionally, the relevant office within the ABF) of the intention to claim a drawback. The regulation says the notice must be given a reasonable time in advance of the exportation.

6. The explanatory statement that accompanied the introduction of this provision says the rule is intended to provide the respondent with an opportunity to inspect the goods. As it happens, the ABF did not regularly inspect the applicant’s exported goods, perhaps because the applicant was a ‘Trusted Trader’.

7. The dispute in this case arises out of the process for claiming drawbacks in respect of goods despatched from Australian warehouses for export in July and August 2019 – that is, in the period immediately after the new arrangements came into effect. The ABF says it did not receive the notice in writing as required in respect of a series of shipments that occurred during this period. In those circumstances, the respondent says it is unable to pay the drawbacks.

8. I will begin by discussing the recent history of the applicant’s processes for importing and occasionally re-exporting tobacco products. In doing so, I will discuss the course of its dealings with the ABF. I will then explore what steps the applicant took when it despatched several shipments in fulfilment of overseas orders in July and August 2019. I then turn to the central issues in the case, which I take to be:

   (a)Did the applicant give the ABF notice in writing a reasonable time before the export of the applicant’s intention to claim drawback on that exportation in accordance with the ‘pre-export notice’ requirement in item 7 of s 37 of the Regulations?

   (b)If the answer to question (a) is ‘No’, does the respondent have the discretion to pay the drawback notwithstanding the non-compliance – and should that discretion be exercised in this case?

   THE APPLICANT’S HISTORY OF CLAIMING DRAWBACKS PRIOR TO 1 JULY 2019

9. The applicant relied on the evidence of Mr John Ritter-Leva. Mr Ritter-Leva is described as the applicant’s ‘taxation manager’. He has held that position since 2009. He provided a comprehensive statement (exhibit one) and gave oral evidence at the hearing.

10. Mr Ritter-Leva explained the applicant now imports all the tobacco product it sells after local production ceased in 2014. Around 94% of that imported product is destined for home consumption. Those products are packaged to comply with Australian regulations. Just over 5% of the imported product is destined for the applicant’s affiliates in New Zealand and other Pacific island nations. That product is packaged to comply with the regulations of the destination country: exhibit one at [12]-[13].

11. Prior to July 2019, the applicant made what was known as a ‘Nature 20’ warehouse declaration when goods were landed. That declaration enabled the applicant to hold the goods in a bonded warehouse without entering them for home consumption. (Goods that were entered for home consumption directly after landing would be the subject of a ‘Nature 10’ declaration. Mr Ritter-Leva said that only occurred when the applicant imported small quantities of product to be used as samples: at [39].) The bonded warehouses were operated by a contractor so the goods remained under the applicant’s control. Each week, the applicant would determine how much product was required to fill domestic orders. Quantities of tobacco products would be drawn from the customs-controlled stock and moved across the floor of the warehouse and readied for transport to customers. The applicant would at that point complete a ‘Nature 30’ declaration in respect of those goods. That declaration had the effect of formally entering the goods for home consumption: [15]-[19]. Duty was immediately payable on those goods. The applicant had an arrangement with the ABF under which the applicant paid the duty owing every Tuesday: at [20].

12. When the applicant had an order from an overseas affiliate, it would select appropriately packaged stock from the bonded warehouse and prepare an export declaration using the respondent’s Integrated Cargo System. (The affiliates tended to order on a ‘just in time’ basis, so the applicant always had appropriate stock on hand: at [23]-[24].) The ABF would then provide an export declaration number through the system and an authority to deal with the goods. After that occurred, the goods would be shipped to the port and despatched to the overseas customer without ever paying duty: at [22]. Annexure MRL26 to exhibit one includes details of these shipments: Mr Ritter-Leva said (at [97]) there were 15-20 shipments per month in the year preceding 1 July 2019.

13. On occasion, the applicant might have product that had been entered for home consumption that became unsaleable in Australia for some reason. Mr Ritter-Leva said the unsaleable product would be stockpiled until the applicant identified an export opportunity. If that occurred, a drawback would be claimed in respect of the import duty that had already been paid on the goods.

14. Mr Ritter-Leva described the established process for claiming drawbacks in his statement at [31]-[34]. He said one of the applicant’s employees would prepare an export declaration in respect of the goods which was provided to the ABF. The ABF would process the declaration and issue an export declaration number. The applicant would then send a pre-export declaration (PEN) which formally notified the ABF of the claim for drawback. Mr Ritter-Leva said there was no standard form for the PEN: the applicant developed a template of its own which seemed to satisfy the ABF officers with whom it was dealing on the nine occasions the applicant claimed drawbacks using this method between 2014 and 1 July 2019. Mr Ritter-Leva added he was not aware that an exporter was required to wait for a response from the ABF once the exporter had provided the PEN. As far as he knew, the exporter was free to despatch the goods for export once the PEN was provided.

    THE CHANGES MADE BY THE AMENDING ACT

15. The Amending Act was passed in October 2018. The changes it made to the Customs Act took effect on 1 July 2019. Those changes meant the applicant could no longer defer payment of duty on imported goods that were warehoused by completing a ‘Nature 20’ declaration until the goods were formally entered for home consumption using a ‘Nature 30’ declaration (or exported, in which case no duty was payable). After the amendments commenced, the applicant was required to complete a ‘Nature 10’ declaration in respect of all the goods when the goods were landed. It follows all the goods were entered for home consumption at point of importation, and duty was payable regardless of their final destination. The applicant was required to seek drawbacks in relation to goods that were subsequently exported or allocated to duty free outlets.

16. Mr Ritter-Leva recalled engaging in discussions with ABF officials in February 2019 about how the refund mechanism would work for goods being sold through duty free stores. His statement annexed copies of email correspondence with the ABF officers to this end. My own reading of the correspondence suggests the ABF officials were not especially forthcoming: they said all would be revealed when the relevant arrangements were finalised. Mr Ritter-Leva says he understood from those interactions that the new refund mechanism would be available for goods sold direct to duty-free operators (but not in respect of goods supplied to a warehouse which dealt with the duty-free operator). He said he understood the applicant would simply amend the ‘Nature 10’ declaration that related to those goods. Once the amended declaration was processed by the ABF, a refund would be forthcoming: at [39], [44]. Mr Ritter-Leva noted the ABF also required that the applicant provide documentary proof that the duty-free operator had received the tobacco products before a refund could be claimed. The ABF refused to accept the applicant’s usual delivery documentation and demanded a particular template be used – but the ABF did not provide a copy of the template until August 2019.

17. The arrangements for claiming drawbacks on goods to be re-exported after 1 July 2019 are different to the arrangements applying to goods supplied to duty-free operators. The applicant was required to make a separate claim for drawback rather than simply amending a ‘Nature 10’ declaration. But Mr Ritter-Leva also said that, despite repeated attempts to engage, the applicant’s contacts in the ABF were elusive when it came to explaining the detail of the new arrangements. To illustrate the point, Mr Ritter-Leva annexed a series of emails to the ABF dating as far back as May 2018.  In the emails, Mr Ritter-Leva had asked for information about practical issues arising out of the new provisions. In his statement, Mr Ritter-Leva said (at [55]):

    In all of my correspondence with officers of ABF between May 2018 and August 2019, I never received advice that under the new regime from 1 July 2019, ABF required [the applicant] to give a formal PEN every time it routinely exported goods. Further, to the best of my recollection, I never received advice to such effect in my telephone conversations with officers of ABF between May 2018 and August 2019.

18. In his statement, Mr Ritter-Leva said he understood the processes in respect of goods being allocated to duty free operators and those relating to goods being re-exported would be aligned after 1 July 2019 so that a separate pre-export notification (PEN) was not required. Mr Ritter-Leva conceded in cross-examination that nobody from the ABF actually said that to him, either orally or in writing: transcript at p 15.

19. I note Mr Ritter-Leva’s emails annexed to his statement lamented what he described as a lack of engagement and industry consultation: see, for example, email to ABF dated 23 October 2018 referred to at [51]. He was plainly frustrated at the ABF’s (lack of) response, particularly in circumstances where the applicant company had been admitted to the ABF’s ‘Trusted T rader’ program given its good record of compliance. The email correspondence dated 21 June 2019 annexed to his statement illustrated the applicant’s frustration. The email sought clarification around proposals to tranship goods through customs depots where they might be unpacked and repacked for export within a limited time frame without incurring duty. The response from the ABF dated 24 June 2019 was unhelpful.

20. The Amending Act included transitional provisions that dealt with goods that were held in bonded warehouses on the date the amendments commenced. The applicant was required to enter those products for home consumption on 1 July 2019. Some of those goods had been imported and held in anticipation of re-export under the old arrangements. The applicant was required to enter into an arrangement with the ABF to pay the duty owing on those goods as at 1 July 2019 by way of 12 equal monthly instalments commencing on 31 July 2019. The applicant provided security for that arrangement: statement at [70].

    THE APPLICANT’S CLAIMS FOR DRAWBACK POST 1 JULY 2019

21. During July and August 2019, the applicant received fresh orders from overseas customers. The applicant decided to fill those orders out of existing stock in its warehouses that had been imported prior to 1 July 2019 for the purposes of re-export: statement at [98]-[99]. The warehouses storing those supplies destined for re-export were topped up during this period with fresh deliveries of product destined for re-export: statement at [100]. All these products were entered for home consumption as required under the new laws, and duty was paid (or was being paid pursuant to the arrangement with the ABF).

22. Mr Ritter-Leva explained in his statement (at [102]) that the orders from overseas clients during this period were prepared for export in the same way that pre-July 2019 orders were processed. Specifically, after an order was received:

    ·the applicant would book a vessel to carry the goods and establish a schedule for export;

    ·the applicant would then prepare and lodge an export declaration ’ electronically through the respondent’s Integrated Cargo System a few days before the intended date of export;

    ·Upon receipt of the export declaration, the ABF would process the request and issue an export declaration number for the particular consignment;

    ·The contractor would pack the goods and the transport company would then collect the consignment and take it to the vessel for export.

23. I should pause to focus on the information contained in the export declarations. The declarations were made using an electronic form on the ABF’s Integrated Cargo System. The forms were typically completed by the applicant’s customs broker. As I understand the process, the broker would include details of the goods to be shipped and their destination on the declaration. The broker also had access to supporting documentation which included customer orders, tax invoices from the applicant, and shipping details for each consignment. Copies of the completed forms along with the supporting documentation are reproduced in annexure MRL32 to exhibit one. During cross-examination, Mr Ritter-Leva confirmed the supporting documents were not supplied to the ABF unless requested: transcript at p 12. Mr Northcote, who appeared for the respondent, pointed out the forms did not include any express advice to the respondent that the applicant intended to claim drawback in respect of any of the shipments.

24. The first exports that occurred in July 2019 were dogged by confusion. The contractor was asked to provide warehouse release notices (WRNs) in respect of the first consignments even though Mr Ritter-Leva said he understood these were no longer required. The WRNs that were issued by the contractor referred to the export declarations of the goods that were being exported in those consignments. I was told the first shipments under the new regime were delayed because the contractor’s warehouse licence had lapsed, but nothing seems to turn on that issue. There was also a temporary hold-up as the goods were still technically under bond because the payment arrangement in respect of the duty had not commenced. Mr Ritter-Leva said these problems were discussed with ABF officers who were aware of the applicant’s activities.

1. The applicant took a slightly different approach in relation to a shipment of unsaleable products (ie, products imported into Australia that were originally intended for local consumption, but which had not been sold). The shipment had been assembled for re-export during this period. On 17 July 2019, before those goods were despatched, one of the applicant’s employees emailed the ABF about that shipment to advise of the applicant’s intention to claim drawback in respect of the products. That email (exhibit MRL34 to the statement of Mr Ritter-Leva) was addressed to a dedicated email address for drawbacks. Mr Edwards, the officer who responded later the same day, worked within the office that processed drawback claims. Interestingly, Mr Edwards thanked the applicant for the “pre-export notification of the upcoming shipment” and confirmed: “No customs inspection will be required for this shipment so you may proceed.”

2. Mr Ritter-Leva’s statement recalls Mr Ritter-Leva and a subordinate telephoning Mr Edwards, from the ABF, to discuss the drawback process more generally on 2 September 2019. Mr Ritter-Leva’s oral evidence provides useful context for the call. He said (transcript at p 10) that, in his experience, the attitude and preferences of individual ABF officers was an important consideration in the applicant’s processes. He explained: “…in my experience, this scheme was – does rely more on the individual requirements of the officer performing the duties.” The answers he gave when asked about the call are consistent with that observation. He spoke of an evolving process for claiming drawbacks (transcript at p 16) and referred to the importance of ascertaining the individual officer’s “personal requirements for how we were going to build up the support for the drawbacks for the new commercial shipments of tobacco product”: transcript at p 15.

3. I have no reason to doubt Mr Ritter-Leva’s honesty. I accept him as a witness of truth who did his best to assist the Tribunal. He has a responsible job for which he is apparently well-credentialed. It is worrying that he should have formed the impression that dealings with the ABF should depend to such an extent on the idiosyncrasies of individual ABF officers. Any statutory decision-making process that operated in such an arbitrary way would be inconsistent with the principles of sound public administration.

4. As it happens, Mr Ritter-Leva acknowledged he had read the Regulations and the formal guidance provided by the ABF about the drawback scheme (contained in Australian Customs and Border Protection Notice 2012/61, amongst other documents). He also agreed he had access to advice from customs brokers and internal and external legal advisers about drawbacks: transcript at pp 10-11, 16. As the following exchange with Mr Northcote in cross-examination (transcript at p 16) demonstrated, Mr Ritter-Leva knew pre-export notifications were required if drawbacks were to be claimed:

   Mr Northcote: So you already knew that you had to lodge a pre-export notification prior to the export of the goods?---I was very comfortable, we were doing that for a number of years with regard to commercial shipments, I was personally of the opinion - I did - I still believed that as this was - what the new regime that was introduced for duty free, that this specifically - this process would evolve and be a new process for the - again, for a much more routine and a much more voluminous amount of commercial shipments that were going to leave from 1 July.

   Mr Northcote: But you also agreed with me that you had no basis for that understanding?---Other than practical realities, no.

   Mr Northcote: As a chartered accountant, would it normally be acceptable to act on the basis of such an understanding?---Yes, you're asking me for opinion again and I am not (indistinct) to answer that question.

   Mr Northcote: You don't want to answer it?---Again, please complete the question for me.

   Mr Northcote: You knew prior to 1 - - -?---As a chartered accountant, my job does involve a certain degree of judgement.

   Mr Northcote: Yes. You knew, because you had read the regulations, and you had read published material by the ABF, including the 2012 Australian Custom's notice, that pre-export notifications were required prior to export on an intention to claim drawback on the export.  You knew that as of 1 July, you have agreed to this.  Then your team, I mean, you knew during July and August that exports were being made, that's correct?---Correct, yes.

   Mr Northcote: And you knew those exports were of goods which now had duty paid?---I agree.

   Mr Northcote: And you knew that you would have to see drawback for them?---I agree.

   Mr Northcote: And therefore, you knew you had to lodge pre-export notifications prior to the export?---I agree.

5. That brings me back to the conversation with Mr Edwards on 2 September 2019. Mr Ritter-Leva recalled in his statement (at [113]) that he told Mr Edwards: “I assume you’re going to tweak the drawback process now. What do you want to do going forward?”. In what must have been an uncomfortable moment, Mr Ritter-Leva recalled Mr Edwards advising that the applicant should have filed PENs in relation to the exports that had already occurred in July and August 2019. Mr Ritter-Leva recalled telling Mr Edwards that the applicant had never sent emails expressly informing the ABF of the intention to claim the drawbacks – although in his statement Mr Ritter-Leva clarified that the applicant had not sent emails to the dedicated ‘tobacco drawbacks’ email address that was accessed by the staff in Mr Edward’s office within the ABF who dealt with drawbacks. As I understand the applicant’s argument, it insists the ABF was at least generally aware of the intention to claim drawbacks.

6. The applicant followed up that conversation on 2 September with email advice to Mr Edwards informing him of the intention to claim drawbacks on several shipments that were already in progress. Mr Edwards responded the next day with advice that those shipments could proceed and there would be no need for an inspection. A copy of that email exchange is reproduced in annexure MRL35 to exhibit one. The email from the applicant foreshadowed its intention to “seek clarification from the ABF regarding pre-notification of export shipments undertaken in July and August…”. Subsequent email exchanges to similar effect in relation to exports occurring in September and October 2019 are reproduced in annexure MRL36 to exhibit one.

7. Mr Ritter-Leva’s question about “tweaking” the process for claiming drawbacks was premised on his experience of the practical problems that beset the first exports in early July 2019. In the course of answering questions that I asked from the bench, he explained the process had not been settled and there was a good deal of confusion within the industry - and within the ABF, it seems - about how things were supposed to work: transcript at pp 17-18. During re-examination by the applicant’s counsel, Mr Horan QC, Mr Ritter-Leva went on to explain (transcript at pp 20-21):

   Mr Horan: And following that revelation that the - it had become clear that the pre-export notification continued to be required. You then state, you were under the impression that a revitalised process in line with the [duty-free] arrangements would emerge for exports.  What was that impression and how did you gain that impression?---And it's similar to when I answered Mr Northcote's question again, the lay of the land around 1 July, again, we followed the same procedure with the EDNs, et cetera, for product that was leaving the country 1 July.  Because the system - the [ABF] system was not - the [ABF] technical system for these exports seemingly had not yet been addressed whatsoever with regard to the new normal of there being duty paid exports of tobacco products, that to me, added to my thoughts that there is something more to come in relation to the administration of the export of duty paid products because the system was literally not allowing us to execute the documents to export products that were duty paid.  It was expecting us, and allowing us, and instructing us, to export them as if they were - they are under bond, which they clearly were not, from 1 July.

8. Mr Ritter-Leva’s evidence on this point raises questions about the way in which the ABF handled the transition to the new arrangements. Having said that, it is important to recall the Tribunal’s review focuses on the decision, not the decision-maker. The Tribunal’s review in a case like this involves a full merits’ review, which occurs de novo. Shortcomings in the primary decision-maker’s behaviour are usually irrelevant because the Tribunal aims to model good decision-making behaviour that is untainted by procedural or substantive errors that may have occurred below. The decision-maker’s behaviour will only be relevant to the extent it cannot be isolated from the substance of the de novo review. I will have more to say about this below.

   THE LEGISLATIVE FRAMEWORK

9. I have already explained s 168 of the Customs Act authorises the making of regulations that deal with the drawback of duties. The relevant provisions are found in Part 7 of the Regulations. The starting point is Reg 34(1) which says:

   …drawback of import duty may be paid, in accordance with this Part, on the exportation of imported goods for which import duty has been paid. [Emphasis added]

10. Regulation 37 says:

    Conditions relating to drawback of import duty

    Drawback of import duty is not payable on the exportation of goods unless the conditions set out in the following table are met.

    …Item 7

    For goods that are tobacco or tobacco products:

    (a) the owner of the goods gives a Collector notice in writing, a reasonable time before the exportation, of the owner's intention to claim drawback on the exportation; and

    (b) the claim for drawback mentions that, to the best of the knowledge, information and belief of the person making the claim, the goods have not been, and are not intended to be, re-landed in Australia.

11. The respondent pointed out Reg 38 authorises the Collector to impose additional requirements in relation to tobacco products where a drawback is claimed. The Collector may issue a notice under Reg 38(2) requiring the owner to produce the goods for inspection or take other steps to verify the goods being exported. Regulation 38(4) says “drawback of import duty is not payable on the exportation of the goods unless the owner complies with the notice [issued under Reg 38(2)]”. Importantly, the issue of the notice under Reg 38(2) is premised on the owner giving a notice to the Collector of an intention to claim drawback under Reg 37.

    THE FIRST ISSUE: DID THE APPLICANT GIVE NOTICE IN WRITING AS REQUIRED UNDER REGULATION 37?

12. In oral submissions, Mr Horan urged me to keep in mind the evident purpose of the drawback scheme. To this end, he cited a passage from the judgment of Burley J in DFS Australia Pty Ltd v Comptroller-General of Customs [2017] FCA 547 at [30]. The passage in question reads:

    30. It may be accepted that the broad purpose underlying a drawback scheme is, by definition, that import duty may be recovered when goods are exported without being used…

13. That is fair enough, but I note his Honour went on in that paragraph to point out:

    …but that does not mean that the legislative purpose of the regime set out in the Customs Act and Regulations reflects a purpose that any claim for drawback in those circumstances should succeed. Indeed under the regime, drawback entitlements manifestly do not apply in relation to all imported goods that have not been used.

    31. The terms of s 168 of the Customs Act necessarily contemplate that drawbacks may only be available in prescribed circumstances of the Executive’s choosing.

14. The decision in DFS Australia underlines the importance of focusing on the text of the legislative provisions: see also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenues (2009) 239 CLR 27 at [47] per Hayne, Heydon, Crennan and Kiefel JJ. The language in the statute is clear. Regulation 34 says the respondent may pay drawbacks in the circumstances identified in the provisions of Part 7. Regulation 37 says “[d]rawback of import duty is not payable…” unless certain conditions are met. The conditions in Reg 37 item 7 includes a requirement that the owner of the goods:

    (i)give notice in writing of…

    (ii)the intention to claim the drawback…

    (iii)a reasonable time before the exportation.

15. The applicant is unable to satisfy that condition. While the legislation does not prescribe a particular form for the notice (other than requiring that it be in writing, which surely includes data entered on a smart form or communicated in an email), the legislation is prescriptive as to the content of the notice. The export declarations were in writing and they included most of the information required, but the export declarations did not expressly say the applicant was seeking drawback in relation to the exports under consideration. I accept the respondent was familiar with the applicant’s business and processes as a ‘Trusted Trader’, but that is not enough to satisfy the explicit requirement in Reg 37. The evident purpose of the requirement in Reg 37 item 7 (which becomes obvious when read alongside Reg 38) is to alert the respondent so it can at least consider whether an inspection or other verification measures might be required before the goods are despatched. It is not enough that the respondent is generally aware of exports occurring that might prompt requests for drawback, and it is irrelevant that the respondent did not ordinarily exercise its powers to inspect shipments coming from warehouses under the applicant’s control. At least some of the respondent’s powers are premised on the notice triggering a decision-making process in relation to inspection powers. The absence of a timely notice that expressly refers to the intention to claim drawbacks is therefore a flaw because it potentially frustrates the ABF in performing its role on behalf of the respondent.

16. There is an interesting question as to whether it is necessary to include all the information that is required under Reg 37 item 7 in the one document, or whether the information might be communicated in several separate notices – for example, in an export declaration which contains the information about the goods that is delivered with an accompanying email referring to the intention to claim drawbacks. On its face, the text of the legislation appears to contemplate a single document, but one arguably satisfies the requirement if the effect of the (several) written notices is to clearly bring the required matters to the attention of the relevant person: see, generally, Secretary, Department of Family and Community Services v Rogers (2000) 104 FCR 272; [2000] FCA 1447 at [32] per Cooper J. In this case, the relevant person is the Collector. While the various functions of the Collector are carried out by officers of the ABF, the particular office within the ABF which deals with drawbacks has dedicated staff and a dedicated email address. The applicant knew that. Even if I accepted (a) the applicant’s modus operandi with respect to exports was common knowledge amongst the ABF officers with whom it dealt, and (b) those officers might have surmised that, under the new rules, the applicant would make a claim for drawbacks in respect of exports, the applicant is not entitled to assume the ABF (much less the particular officers executing the functions of the Collector) had the information brought squarely to their attention in a timely way in advance of the shipment as intended by the legislation. A notice is unlikely to be effective if it requires the recipient to connect dots from disparate source of information. The required information must be clearly signalled so that it triggers the decision-making process.

17. The applicant referred to the decision in Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 as authority for a more liberal approach. That case dealt with what was required to satisfy an obligation to give notice of an intention to exercise an option under a contract. Kirby P opined (at p 677) that the sufficiency of the notice ought to be “judged against the background of the dealings between the parties.” That makes sense in the context of a notice given between parties engaged in a commercial relationship, but we are concerned with a requirement in legislation that triggers a decision-making process (ie, whether to pay the drawback, which necessarily includes the subsidiary question about whether to inspect the shipment before it is despatched). In any event, I am not sure the course of the relationship between the applicant and the ABF officers with whom it regularly dealt necessarily assists the applicant. On Mr Ritter-Leva’s evidence, the applicant only made a relatively small number of claims for drawback each year under the old legislative arrangements – and it routinely emailed a pre-export notification to the ABF in those cases when it sought drawback. The applicant did not hitherto make regular claims for drawback on all its exports because it only needed to do so in exceptional cases under the law as it stood prior to 1 July 2019. The applicant was not entitled to ‘take it as read’ that ABF officers would automatically make the connection between its exports and the need for drawbacks under the new law – particularly in circumstances where Mr Ritter-Leva, on his own account, was aware of evidence of uncertainty within the ABF as to how the new process would work.

18. Mr Horan also referred me to the decision of the Supreme Court of Western Australia in Williams v Nicoski [2003] WASC 131. That case dealt with (amongst other things) the adequacy of a notice to dissolve a partnership. Barker J doubted whether an express statement (in the sense of a particular form of words) was required provided “the document…by its terms provides the notice in clear and unambiguous terms…”. I do not think the various communications between the applicant and the ABF could be said to have the effect of signalling the applicant’s intention to claim drawbacks (as opposed to the intention to export, which I accept is communicated clearly enough in the export declaration), especially when one appreciates the role the notice is intended to play in alerting the ABF officers responsible for drawbacks to the need to consider taking steps under Reg 38. Mr Horan raised an intriguing question over the sufficiency of a bare export declaration that was addressed to the dedicated email address for drawbacks without a covering note expressly seeking drawback. But that is not the situation here. The export declarations were generated through the Integrated cargo system. I do not need consider that possibility any further.

    THE SECOND ISSUE: IF NOTICE WAS NOT GIVEN AS REQUIRED, IS THERE A DISCRETION TO PAY THE DRAWBACK NOTWITHSTANDING THE NON-COMPLIANCE?

19. Having concluded the applicant did not comply with the requirement in Reg 37 item 7, it becomes necessary for me to decide whether the respondent retains the discretion to pay the drawback notwithstanding the non-compliance.

20. The respondent says the decision in DFS Australia is against the applicant on this point. I have already quoted from the reasons of Burley J who accepted the general purpose of the power was to permit refunds of duties paid on goods that were exported without being used: at [30]. But his Honour’s analysis of the text of the provisions before him suggested the power to pay drawbacks was only meant to be available in the specific circumstances identified in the regulations: at [30]-[31]. His Honour did not accept the legislation was interpreted in a way that assumed individuals who exported unused goods should be entitled to drawbacks, even where denying them access would lead to a windfall gain for the respondent. His Honour noted (at [52]):

    … it is for the Executive to determine when a drawback may be paid and it is not incongruous that in some circumstances it has decided that it should not be.

1. The reasoning in DFS Australia focused on an earlier version of the regulations but the respondent in this case points out the regulation under consideration in DFS Australia used the same form of words as those now appearing in Reg 37. In those circumstances, Mr Northcote argued, the Tribunal was bound to acknowledge the same limitations on the power to pay drawback in this case. The requirements – including the giving of timely notice of the intention to claim a drawback – were mandatory, he argued.

2. Mr Horan pointed to other authorities which discussed the correct approach to process requirements like those in the regulations. He argued that, as a general rule, courts tend to favour a more flexible approach to directory requirements. He suggested a process requirement would only be treated as essential – in the sense that strict compliance with the requirement must be demonstrated before the power can be exercised – if the terms of the statute clearly provide for that outcome.

3. The text of the legislation should disclose whether parliament intended the condition in question to be mandatory, in which event non-compliance becomes an insuperable obstacle to the exercise of the power. Mr Horan said the structure of the legislation was a relevant consideration. He argued the requirement of pre-export notification would have been included in Division 3 of Part 7 if it was intended to be mandatory since Division 3 deals with circumstances when drawback is not available. The provisions in Division 4, on the other hand, set out processes applicable to drawback – which appear to contemplate the payment being made, albeit subject to those processes. The expectation of payment leaves open the possibility that non-compliance with the processes was not fatal. Mr Horan said that approach to the legislation avoided outcomes that were harsh, unjust or unconscionable.

4. It is a subtle argument, but I do not think the structure of the legislative provisions qualifies the clear words that were actually used in Reg 37. The provision says drawback of import duty is not payable unless the conditions mentioned in the table are meet. That seems definitive; if there was any doubt, the word condition carries with it an element of essentiality. The language makes clear the requirement is intended to be mandatory. That makes sense when one appreciates that the notice required under Reg 37 triggered a process in which the ABF would consider whether to inspect or verify the goods under Reg 38. Seen in this context, the requirement under Reg 37 is part of an important integrity measure, albeit the ABF did not routinely insist on inspecting the applicant’s exports.

5. The applicant argues this interpretation generates a windfall for the respondent. That is true, but the interpretation is consistent with the policy evident in the entire scheme of the Customs Act which demands scrupulously careful handling of dutiable goods to protect the revenue: see R v Lyon [1906] HCA 17; (1906) 3 CLR 770 at 784 per O’Connor J; see also Comptroller General of Customs v Zappia [2018] HCA 54 at [5]-[7] per Kiefel CJ, Bell, Gageler and Gordon JJ. There is nothing in the text or the legislative scheme which suggests I should take a flexible or liberal approach to the notice requirement in these regulations: cf Prudential Assurance.

6. The applicant had to comply strictly with the requirement to give notice. The plain language of the text of the regulation means that drawback of duty is not payable in the event of non-compliance. There is no discretion to pay drawback in the circumstances. That is a hard result for the applicant in circumstances where the ABF showed little interest in inspecting goods that the applicant was exporting, and where at least some within the ABF were confused about the forms that were required following the amendments. To the extent there is a suggestion of maladministration within the ABF contributing to the error, there might be an argument for compensation under the Scheme for Compensation for Detriment caused by Defective Administration. That is a separate process to the Tribunal’s review. The Tribunal’s review confirms the applicant was required to strictly comply with a requirement that was explicit in the regulations before it could receive a drawback payment.

   CONCLUSION

7. The reviewable decision is affirmed.

I certify that the preceding 51 (fifty -one) paragraphs are a true copy of the reasons for the decision herein of

...........................SGD..........................

Associate

Dated: 23 March 2022

Date(s) of hearing:	23 July 2021
Counsel for the Applicant:	Chris Horan QC; Ben Jellis
Solicitors for the Applicant:	Cooper Grace Ward Lawyers
Solicitors for the Respondent:	Self-Represented