Plexicor Australia Pty Ltd and CEO of Customs
[2001] AATA 621
•5 June 2001
CATCHWORDS – CUSTOMS – Tariff classification – whether subject goods are "carpets and other textile floor coverings" – identification of subject goods – commonly referred to as carpet – ordinary meaning of "floor covering" to apply – subject goods are a carpet or other textile floor covering – decision affirmed.
Customs Act 1901 – s 167
Customs Tariff Act 1995 – ss 3, 6, 7, 15, 16, 17, 18, 20, 22, Sc 2, Sch 3, Ch's 56 of 57, section X1, Headings 5603, 5704
HR Products Pty Ltd v Collector of Customs (1990) 20 ALD 340
Re Gissing and The Collector of Customs (1977) 14 ALR 555; (1977) 1 ALD 144
Re Seventy-Ninth Vibration Pty Ltd and Another and Chief Executive of Customs (1998) 54 ALD 139
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615
Times Consultants Pty Ltd v Collector of Customs (1978) 16 FCR 449; (1978) 76 ALR 313
Vernon-Carus Australia Pty Ltd and Thomas Creevey & Associates v Collector of Customs (1995) 21 AAR 450
DECISION AND REASONS FOR DECISION [2001] AATA 621
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2000/152, V2000/882
GENERAL ADMINISTRATIVE DIVISION ) V2000/1346 and V2001/117
Re PLEXICOR AUSTRALIA PTY LTD
Applicant
AndCHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
DECISION
Tribunal Miss S A Forgie (Deputy President)
Mr C Ermert, Member
Mr WG McLean, Member
Date 5 June, 2001
Place Melbourne
DecisionThe Tribunal decides that the respondent correctly classified the subject goods to sub-heading 5704.90.10 and affirm its decision dated 1 November, 1999.
S A FORGIE
Deputy President
REASONS FOR DECISION
On 10 February, 2000, 21 July, 2000, 9 November, 2000, and 2 February, 2001, the applicant, Plexicor Australia Pty Ltd ("Plexicor") applied for review of decisions of the respondent, the Chief Executive Officer of Customs ("the CEO"), all of which were dated 1 November, 1999. Each of the decisions classified certain goods imported by Plexicor ("the subject goods") under Schedule 3 of the Customs Tariff Act 1995 ("the Tariff Act"). Plexicor had paid customs duty under protest pursuant to s. 167 of the Customs Act 1901 ("Customs Act") in relation to several entries of the subject goods.
At the hearing, Plexicor was represented by its solicitor, Mr Gross, and the CEO by its solicitor, Mr Northcote. Regard was had to the documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents"). Admitted in evidence were a flat piece of material, a moulded piece of material and various documents to which we have had regard in preparing these reasons. Oral evidence was given on behalf of Plexicor by Mr Stuart Wilson and Mr Noel Emselle and, on behalf of the CEO, by Mr Dale Carroll. The parties and the Tribunal attended Plexicor's premises to view the manner in which the material is moulded.
THE ISSUE
The issue in this case concerns the appropriate tariff classification of the subject goods and, in particular, whether they should be classified under tariff sub-heading 5603.94.00 in Schedule 3 of the Tariff Act as claimed by Plexicor or sub-heading 5704.90.10 as claimed by the CEO. Resolution of that issue turns upon whether the subject goods are "carpets, and other textile floor covering" as defined in Note 1 to Chapter 57 of Schedule 3 of the Tariff Act.
BACKGROUND
There is no dispute between the parties regarding certain matters forming the background to the issue in dispute between them. In view of that and on the basis of the evidence we have made a number of findings of fact that we will set out in the following paragraphs.
We find that the subject goods are described as non-woven material. They were made in France and supplied to Plexicor by Sodimatex SA as the material most appropriate for the use to which Plexicor puts it. They are imported from that country in blank form cut to the correct size i.e. in flat sheets measuring approximately 1950mm x 2000mm. The non-woven material is laminated with a number of materials for fibre retention, noise, vibration and harshness purposes. The material comprises:
Polyester fibre 550g For surface finish
Latex 120g Support fibre retention
Polyethylene 200g Binder component between Latex and the mass backing
Mass 1500g Sound barrier
Scrim 50g For attachment of Polyurethane foam
The manufacturing process comprises three main steps: needling, velour needling and backcoating. Needling involves first the blending of polyester fibres, which are 6, 7 and 17 dtex, cut 90mm and spun died. The blend is carded in order to achieve a layer of fibres, which is called a web. The web is overlapped so that several layers are placed on top of each other. The layers are needled through a needleloom machine before the resulting material is rolled up to undergo velour needling. Velour needling creates the surface appearance of the material and is achieved with a needleloom machine fitted with needles and brushes. The material is then backcoated. It is first impregnated with SBR latex and dried in an oven to achieve mouldability and resistance to wear. Polyethylene powder is sprayed on the back of the material and then melted with infra red heaters. The melted polyethylene acts as a glue for an etheylene vinyl acetate ("EVA") heavy mass backing to be bonded onto the back of the material. The material is then cut into blanks ordered by Plexicor.
Plexicor moulds the subject goods so that they fit the interior floors of motor vehicles manufactured by the Ford Motor Company ("Ford") and meet the specifications set by Ford. It does so in a factory separate from its other manufacturing processes that is largely dedicated to that process. It has invested over $5 million in plant and equipment to enable it to mould the subject goods.
Each blank form is heated through the EVA heavy layer backing to 180ºC with an infra red heater. It is then lifted from the heating unit to a mould press where the subject goods are stretched and then released during the moulding to ensure that they retain their shape after they are unmoulded. A vinyl heel pad is attached to the moulded form in an area of high wear. That is done by use of a dialectic machine.
The subject goods in their moulded form are then given a partial backing of foam. This is achieved by use of a polyurethane foaming machine, which uses an "open pour" system to add polyurethane foam which, after the application of pressure, chemically reacts and expands to fill the mould. The foam attaches to the underside of the subject goods.
10. In order to enable items such as the seats, gearstick and the handbrake to be fitted into Ford's motor vehicles, the subject goods in their moulded form are then cut to shape around their edges and pieces cut from within them. They are cut with a water jet operated by a robot. Once cut, other pieces are added manually in an assembly area. These other pieces are:
Tails:Tails are small moulded pieces that are stapled on to the moulded form to fit into the area between the seat and the door to cover the sheet of metal.
Seat spacers: Seat spacers are round tubes fitted to the moulded form to act as seat supports and locaters for the seats.
Side clips:Side clips allow for location of the moulded form in the motor vehicle and ensure that the moulded form retains its correct position during the life time of the motor vehicle.
Cowl side supports: Cowl side supports provide the necessary rigidity for the moulded form to support the material covering the sheet metal on the walls of the motor vehicle.
The subject goods are then stacked one on another ready for shipment to Ford.
11. In order to achieve efficiency in their processing of the subject goods and to ensure that they meet Ford's specifications, Plexicor has prepared a potential failure mode and effects analysis ("FMEA"). It did so in conjunction with Ford in order to identify possible problems and their solutions before Plexicor purchased any material. The FMEA also enabled Plexicor to develop the appropriate tools. The final product has to comply with specifications set by Ford. The relevant specifications are those set out in WSS-M8P16-A in relation to "… automotive quality carpet assemblies, for floor, door trim, seat backs (front and any rear seat backs in exposed load compartment applications) and exposed load floors whether molded (sic) or otherwise fabricated" (Exhibit G, page 1).
LEGISLATIVE FRAMEWORK
12. In general terms, customs duties are imposed on goods imported into Australia. The rates of those duties are determined by reference to several criteria including the tariff classification under which the goods are classified.
13. Part II of the Tariff Act provides for imposition of duties of customs. Section 15 of that legislation 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;"
14. 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 Tariff Act (s. 3(1)). Schedule 3 is divided into sections, chapters and sub-chapters. Of relevance in this case is Section XI into which both chapters 56 and 57 fall.
15. Chapter 56 in Schedule 3 is titled "Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof". Note 2 to the chapter provides that:
"'Felt' includes needleloom felt and fabrics consisting of a web of textile fibres the cohesion of which has been enhanced by a stitch-bonding process using fibres from the web itself."
16. Heading 5603, which Plexicor contends is the appropriate heading, reads "NONWOVENS, WHETHER OR NOT IMPREGNATED, COATED, COVERED OR LAMINATED". Sub-heading 5603.94.00 specifies a rate of duty of 5% on those "—Weighing more than 150g/m2".
17. Chapter 57 in Schedule 3 is titled "Carpets and other textile floor coverings". The notes read:
"1.- For the purposes of this Chapter, 'carpets and other textile floor coverings' means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes articles having the characteristics of textile floor coverings but intended for use for other purposes.
2.-This Chapter does not cover floor covering underlays."
18. The CEO contends that either heading 5703 or 5704 is the appropriate heading for the rate of duty applying to each is identical. The only difference between the headings is whether the subject goods are "of felt" or "tufted". In either case, the subject goods must be "carpets and other textile floor coverings …". As there is no substantive difference for the purposes of this case, we will refer only to heading 5704, which reads "CARPETS AND OTHER TEXTILE FLOOR COVERINGS, OF FELT, NOT TUFTED OR FLOCKED, WHETHER OR NOT MADE UP". Sub-heading 5704.90.10 specifies a rate of duty of 23% on those "—Produced by the needleloom process". The expression "whether or not made up" is defined in note 7 of the notes appearing at the beginning of Section XI in Schedule 3 to mean:
"(a) Cut otherwise than into squares or rectangles;
(b)Produced in the finished state, ready for use (or merely needing separation by cutting dividing threads) without sewing or other working (for example, certain dusters, towels, table cloths, scarf squares, blankets);
(c)Hemmed or with rolled edges, or with a knotted fringe at any of the edges, but excluding fabrics the cut edges of which have been prevented from unravelling by whipping or by other simple means;
(d)Cut to size and having undergone a process of drawn thread work;
(e)Assembled by sewing, gumming or otherwise (other than piece goods consisting of two or more lengths of identical material joined end to end and piece goods composed of two or more textiles assembled in layers, whether or not padded);
(f)Knitted or crocheted to shape, whether presented as separate items or in the form of a number of items in length."
19. Schedule 2 of the Tariff Act sets out the General Rules for the Interpretation of Schedule 3 ("Interpretation Rules"). They must be used in working out the tariff classification under which goods are classified (s. 7(1)). Rule 2(a) provides that:
"Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled."
20. Rule 3(a) provides that where:
"… 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. …"
21. Rule 6 is concerned with subheadings and applies the rules in relation to headings mutatis mutandis to subheadings.
THE EVIDENCE
Mr Stuart Wilson
22. Mr Wilson is the Advanced Purchasing Manager and Productivity Manager of Plexicor. In his statement, he said that, to his knowledge, the subject goods have no commercial usage anywhere in the world without substantial processes being undertaken. They are not to be confused, he continued, with other products produced by Sodimatex which, in some cases, require little more than trimming to make them useable as parts for motor vehicles. In cross-examination, Mr Wilson thought that the only product needing little more than trimming would be throw-in mats specifically designed for a motor vehicle. In terms of the finished product, however, most articles on the floor of a motor vehicle are made from material like the subject goods purchased from Sodimatex. Indeed, most are produced by Sodimatex. All are designed to be moulded.
23. A Sodimatex brochure contains the following passage:
"SODIMATEX:
Textiles for the Automotive Industry
The basic Sodimatex products are Needlefelt and tufted textile carpeting.The various styles such as looped, velvet, smooth, printed, enable Sodimatex textiles to be used for a maximum of vehicle applications:
·Floor covering
·Rear parcel shelf
·Head liner, printed or otherwise
·Trunk lining, etc…
The various possibilities of finish for our tufted and needlefelt carpeting give our products particular advantages for thermoforming, sound insulation, fire resistance, etc...
Many European automotive convertors (sic) already work with us.
Join them!" (T documents, page 41)
24. Mr Wilson emphasised that this passage refers to "basic" Sodimatex products. In so far as that description applied to the photographs appearing on the same page as the passage, that might be a correct description of the products. The subject goods, however, are not basic Sodimatex products but specialist raw materials. In cross-examination, Mr Wilson was asked how the material as imported by Plexicor could not be regarded as a basic Sodimatex product. He replied that the subject goods had been developed with Plexicor's needs in mind. It was not an "off the shelf" product. Plexicor uses heat and pressure to mould its products rather than a chemical process.
25. Mr Wilson did not consider that the term "automotive converter" is necessarily a true reflection of Plexicor's business. It adds a lot of value to convert a product. He had heard the term used but it tended to be used by people who made dash liners by pressing fabric into shape.
26. Invoice Nos 99002733 and 99002736 supporting entry number 49.0639K and issued by Sodimatex to Plexicor on 13 January, 2000 refer to "Tapis Falcon". The Through Bill of Lading describes the goods referred to in each of the invoices as "… pcs of pvc floor covering". Each of the shipping documents relating to entry number 68.0915E and each of the invoices numbered 99003167 and 99003152 dated 14 February, 2000 and 99003201 dated 15 February, 2000 refers to "Tapis Falcon". The Through Bill of Lading describes the goods referred to in each of the invoices as "… pcs of pvc floor covering". (Exhibit 3)
27. Mr Wilson said that he did not know why the invoices showed the subject goods as "tapis". The people with whom he deals do not refer to them as carpet. He did not know why the bill of lading would refer to them as floor covering. When asked why it was a mistake to describe the subject goods as carpet, Mr Wilson said that he thinks of carpet as something to walk on. This material is not designed to be walked on. It is not for a flat floor. It must match the shape of the floor and must have aesthetic qualities while having the other qualities required by Ford.
28. Mr Wilson said that the intent and purpose of the final product is to provide noise and harshness suppression in a medium that has a decorative function. The addition of the foam, he described as:
"… a fundamental process in the conversion of the material into a car floor covering as it provides the noise and harshness suppression as required by the Applicant's customer. The PU [polyurethane] foam acts to absorb and dissipate the sound and vibration as it enters the car. If the material was simply laid on the car floor without the PU layer, the sound entering the car would simply pass through the material because of its direct contact with the sheet metal.
The PU foam also provides the required 'fitment', i.e. it enables the proper location of the item in the car by filling in the gaps between the sheet metal and the face fabric." (Exhibit C, paragraph 6(d))
29. In his oral evidence, Mr Wilson said that the foam disperses approximately 90% of the noise that would otherwise enter the motor vehicle. The EVA heavy mass backing provided by Sodimatex still enables noise to penetrate. The foam is placed in what are the foot wells of the motor vehicle. Most sound comes from the engine, through the tunnel to the foot wells. There is no foam on the tunnel.
30. Mr Wilson said that it was not accurate to describe the finished product as a carpet assembly as Ford does in its specifications (Exhibit G). Plexicor is bound to meet the specifications set out in that document. His attention was drawn to its requirement that "… the individual carpet assembly components shall meet all the requirements of the applicable material specifications for the carpet, padding, adhesive, barrier, or trim application. …" (Exhibit G, paragraph 3). When asked which of the components provided a sound barrier, Mr Wilson said that he did not know.
31. Paragraph 3.4 of Ford's specifications requires that test specimens be taken from carpet assemblies representative of production and that they be taken from moulded or stressed areas of the assembly (e.g. foot wells) (Exhibit G). Mr Wilson said that Plexicor sent such specimens to the Australian Wool Testing Authority ("AWTA") for testing. Paragraph 3.7 of Ford's specifications relate to composition and construction. Mr Wilson understood those specifications to relate to the material as imported.
32. Ford has issued an engineering material specification (number WSD-M8P16.A) (Exhibit H). The materials covered by the specification are said to be "… automotive quality carpet assemblies, whether molded (sic) or otherwise fabricated" (Exhibit H, paragraph 1). Each carpet assembly must meet the requirements for each item of the applicable material specification for, among other items, the "carpet" (Exhibit H, paragraph 3). Specification number ESB-M8P10-B deals with "Carpet Assembly – Floor Covering" and specification number ESB-M8P2-A deals with "Carpet" (Exhibit H).
33. A PPM Report/Change Request, which had been issued by Ford, required a change to the goods produced by Plexicor. The part name was given as "carpet" and the reason for the change given as:
"Carpet sitting up in region of handbrake area which can get caught between the seat track and side trim panel which can then fall off." (Exhibit 2)
In cross-examination, Mr Wilson agreed with Mr Northcote that there is no padding between the material and the handbrake. The only material in that region is that supplied by Sodimatex. He also agreed that, in the past eight years, he has had a lot of dealings with Ford. In those years, a lot of people have referred to the material imported from Sodimatex as carpet. He agreed that it had been referred to in the PPM Report/Change Request as carpet but said that it was an inaccurate description of the material as imported. The material was also used for the parcel tray and the trim of motor vehicles. It was developed by Sodimatex for interior trim.
34. Mr Wilson said that the subject goods are capable of being transformed into floor covering but are not floor covering until they have been so transformed.
35. As to the costs of the floor covering sold by Plexicor to Ford, the subject goods comprise only 25% of the total costs, Mr Wilson said.
Mr Noel Emselle
36. Mr Noel Leonard Emselle spent some 19 years with the AWTA before becoming a consultant. To a small extent, he was involved in the testing of automotive floor coverings. Those coverings were known as carpet because they were mainly made of tufted material. When asked if they were still known as carpet, Mr Emselle replied "by Ford specifications". Whether the term "carpet" is the appropriate term depends as there are difficulties now that there are needle tufted materials. He believed that carpet comprised tufted or woven material.
37. Mr Emselle prepared a report regarding the properties of the material comprising the subject goods (Exhibit I). He said that he was not a French speaker but understood that the term "tapis" refers to heavy fabrics and not necessarily to carpets.
38. With regard to the cost of cutting and laying a carpet (including underlay) for a domestic or commercial room, Mr Emselle said that the cost would represent approximately 15 to 20% of the total cost of the laid carpet. The wholesale cost of the carpet to the retailer would represent about 60 to 70% of the total cost and the mark up would be in the order of 10 to 20%. Carpet is an expensive product and there does not need to be a large mark up in order for the retailer to make a profit.
39. Mr Emselle said that he had sent samples of the material comprising the subject goods (which he referred to as "Eurotuft") to the AWTA for testing. In his report, he examined in detail the pile fibre type, dimensions, abrasion resistance, fuzzing and pilling, pile mass per unit area, pile density and the European classification. His overall opinion was expressed in the following paragraphs:
"Eurotuft™ is a composite textile material unlike anything we have seen used as a domestic or commercial floor covering. Whilst it has a surface appearance similar to some needled floor coverings, in its imported state it includes elements of construction that are undesirable or unnecessary in a domestic or commercial textile floor covering. It is imported in a size and shape that is not conducive to installation as a wall-to-wall floor covering, or as rugs or tiles.
The material is quite impractical as a loose rug due to the slippery nature of the back surface, which would make it unstable on a smooth floor and a slip hazard. The stiffness, along with the sharp edges and corners are another undesirable feature of a rug, which would tend to lift away from the floor and cause a trip hazard.
The fibre used in the pile of Eurotuft™ is much finer than those traditionally used in textile floor coverings leading to relatively poor resistance to abrasion in comparison with needle-punched floor coverings of similar appearance. Even if it could be successfully installed, the material would have a tendency to show scuff marks and to fuzz and pill excessively when subject to consistent shuffling of feet, e.g. under desks or in front of lounge chairs." (Exhibit T, page 1)
Mr Dale Robin Carroll
40. Mr Carroll has been employed in the textile industry since 1969 when he worked with the CSIRO Textile Division. This was followed by a period in private industry with various responsibilities for product development, process control and quality assurance. Since July, 1989, he has been employed by the AWTA and is now its Technical Services Manager. In that role, he supervises the testing procedures used by the AWTA including those used to test materials used to cover the floors of motor vehicles. After being given a copy of the T documents, Mr Wilson's witness statement and Mr Emselle's technical opinion, Mr Carroll was asked for his opinion on several matters regarding the subject goods. He set that opinion out in his statement.
41. Mr Carroll described the surface texture of the subject goods as non-woven resulting from needlepunching a web of fibres. It is not tufted, woven or knitted. As to whether the subject goods are "carpet" or a "textile floor-covering", or would be regularly described as either of those terms, Mr Carroll wrote:
"8. In my opinion 'carpet' and 'textile floor covering' are equivalent terms. I was chairman of the Committee that drafted the Australian Standard®: AS 2454-1993-Textile Floor Covering-Terminology. The preface to AS 2454-1993 states:
While textile floor covering is an approved term, by definition all textile floor coverings are carpets, and the common usage term is 'carpet'.
As that preface indicates, 'textile floor covering' is a more technical term for material more commonly referred to as 'carpet'.
9.ASTM 2454-1993 also defines textile floor covering as:
A soft floor covering, usually having a pile surface or with some other form of textile layer as the use-surface. (See also carpet.)
Similarly the 'Textile Terms and Definitions' defines textile floor coverings as:
A product having a use-surface composed of textile material and generally used for covering floors.
10.I am quite familiar with this material and with other similar textile materials used in the automotive industry. Such materials have been regularly tested at AWTA Textile Testing for many years to meet the requirements of Ford and other vehicle manufacturers. From the construction of the sample material, in my opinion it is a textile floor covering and is also a carpet, which is designed for use, and which usually will be used, on the floor of vehicles. In certain applications the material may also be used as a compartment or wall lining in an automobile. It is my opinion that the sample goods comply with the definition of a textile floor covering in ASTM 2454-1993, and in 'Textile Terms and Definitions'. In my experience such material is commonly referred to both as carpet and as textile floor covering, including in specifications and test standards.
11.For example, AWTA regularly tests such materials using the methods prescribed by SAEJ 1530-1994-Test Method for Determining Resistance to Abrasion, Bearding, and Fibre Loss of Automotive Carpet Materials. The required limits of the properties tested by those methods will be set out in specifications of the vehicle manufacturer. I am familiar with the various Ford specifications such as WSD-M8P16-A 'Performance, Carpet, Floor and Trim', ESB-M8P2-A 'Carpet', ESB-M8P10-B 'Carpet Assembly – Floorcoverings' for such materials. These Ford specifications refer to materials such as the sample goods as 'carpet, automotive quality carpet or floorcoverings'.
12.I have read the technical opinion of Mr Noelle Emselle. I agree the sample goods are unlikely to have much, if any, use other than in vehicles. They do not have the inherent aesthetic qualities, abrasion resistance or appearance retention properties that would make them suitable for use in a floor covering in a home or commercial building.
13.There are a wide range of textile floor coverings with different properties and therefore different uses. A textile floor covering suitable for use in a domestic application will often not meet the requirements for a commercial application, and vice versa. There are also more specialised textile floor coverings with special properties. For example a range of water resistant textile floor coverings are made for use around indoor pools, gyms and the indoor-outdoor market. Such materials are unlikely to be used in an office or a lounge room, but they do have appropriate properties for their designed floor covering use.
14.Automotive carpets are another specialised textile floor covering. Vehicle manufacturers such as Ford develop material specifications that set out their required performance criteria, and testing of those properties. The tested properties typically include: abrasion resistance, snagging, tuft pull strength, resistance to fade, bleeding, rubbing, soiling and cleanability and dimensional stability. The specified limits for some or all these properties will usually be different than would be required for use in a home or office, but they are typical tested properties for textile floor coverings.
15.I have been asked whether the sample material should not be regarded as a carpet or textile floor covering due to the additional processing of the material undertaken by Plexicor prior to delivery to Ford. A tufted textile floorcovering after manufacture is typically supplied as 3.66m wide and has uncut selvedges of woven polpropylene and secondary backing. It requires cutting to size to fit the room, laying over an underlay and fixing to the floor to fully meet its intended use. The sample material needs further processing as performed by Plexicor before fitting into a vehicle. It is my opinion that both materials are textile floor coverings and carpets as manufactured, and are regularly described as such, prior to fitting into the environment they were designed for." (Exhibit 5)
42. In his oral evidence, Mr Carroll reiterated his position that the subject goods may be described as carpet even if they are not the best carpet available. As they are used on a floor to cover it, they may certainly be described as floor covering. All carpet may be described as floor covering but not all floor covering may be described as carpet.
43. Carpets are tested for such qualities as weight, colour fastness, bond strength, soilability and cleanability. In the case of the subject goods, the specifications set out in Exhibit G are fairly similar to other specifications for this type of product. When given a sample to test, AWTA is normally given a sample in the flat form and not in its moulded form. Only if abrasion is tested does it need a sample in its moulded form. Apart from the area in which the vinyl heel pad is added, the surface of the subject goods is not altered by the processes undertaken by Plexicor. Potentially, there could be some alteration in the areas of stretching and moulding. The resilience of the subject goods could be increased by the addition of the foam backing. The characteristics of the subject goods as carpet are not changed.
44. Properties tested in material used on the floors of domestic or commercial premises include the effect of traffic on the material and its resistance to abrasion. It is more usual to lay carpet in those premises with underlay than without. Mr Carroll agreed with Mr Emselle that the subject goods would not be seen on the floors of a house or commercial building. The reason they would not be seen is that they would not meet the inherent characteristics required of a covering for the floor of a house or commercial building. They meet all of the specifications stipulated by Ford for use in its motor vehicles.
45. All felt is non-woven material but not all non-woven material is felt, Mr Carroll said. He rejected the suggestion that the subject goods could be described as the raw material for the finished product. The raw materials are the polyurethane fibre and the UV latex. He had never heard goods similar to the subject goods described in such a way.
46. Mr Carroll said that the processes undertaken by Plexicor do not amount to manufacturing. Plexicor processes the subject goods. The laying of a carpet is a process and the process value adds to the carpet. When Mr Gross suggested to him that cutting and laying a carpet in a room does not involve heating, Mr Carroll replied that heating is involved in joining two pieces of carpet together. Certainly, that process is undertaken with a hand held tool and not in a specialist factory. He further agreed that cutting and laying are not the same as moulding.
47. Mr Carroll said in cross-examination that the cost of laying would represent approximately 30 to 40% of the total cost. He agreed that the cost of cutting and laying a carpet in a room represents only a small part of the total cost of a laid carpet. Mr Carroll accepted that Mr Wilson had said that Plexicor's processes increases the value of the finished items by four times over the imported subject goods. He also accepted that Ford would have no use for the subject goods as imported. Although he had heard people say that sound deadening is an important characteristic of the material used on the floor of motor vehicles, he had no expertise in that area. He had no expertise to comment upon whether sound would travel if the subject goods were laid on the floor of a motor vehicle in their imported state.
48. In cross-examination, Mr Carroll said that he looked at the characteristics of floor coverings and of the subject goods to determine if the subject goods are floor coverings. The characteristics and properties of material will determine if it is floor covering but those characteristics and properties will also determine how good the floor covering will be. The subject goods are very poor floor covering. At the same time, Mr Carroll rejected a suggestion that this approach could lead to a piece of suiting being regarded as a floor covering. He continued to stand by what he had stated in his report given in the earlier case of Re Seventy-Ninth Vibration Pty Ltd and Another and Chief Executive of Customs (1998) 54 ALD 139 (Deputy President Forgie) when he had considered synthetic needled mats with either a resin or latex backing. Mr Carroll had said at that time:
"14.It is important to note that the performance characteristics of textile floor coverings do not determine whether or not the product is a textile floor covering in the first place. These characteristics merely affect the suitability of a particular textile floor covering for a particular application." (page 149, paragraph 58)
CONSIDERATION
49. The classification of goods under the Tariff Act requires two steps to be taken. The first is to identify the goods and the second is to construe the tariff to determine which provision applies to the goods which have been identified. This is apparent from the reasons of the tribunal in Re Gissing and The Collector of Customs (1977) 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 (1978) 16 FCR 449 (Fox, Morling and Wilcox JJ).
50. 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 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)
51. Applying the principles in these cases, our first step is to identify the goods. This we have already done earlier in these reasons (see paragraph 5 above). In summary, they are flat rectangular sheets (measuring 1950mm x 2000mm) of non- woven material having a textile surface comprising needle punched polyester fibres backed with latex, a polyethylene binder compound, EVA and scrim. On the basis of the evidence of Mr Emselle and Mr Carroll, we are also satisfied that the surface texture of the subject goods may be described as needleloom felt. Having examined the subject goods and considered the evidence, we are also satisfied that they exhibit certain characteristics. They are that they are stiff and do not "hug the floor" as Mr Emselle said in his report (Exhibit I, page 3). While not slippery, their backings are smooth and would not hold their position if laid upon a floor and walked upon. While the depth of the textile surface is quite shallow, that surface is quite soft to the touch.
52. We find that the invoices prepared by Sodimatex refer to the subject goods as "tapis". Both Mr Gross and Mr Northcote referred to French-English dictionaries as to the meaning of that word (Harrap's Shorter French and English Dictionary and The Collins Paperback French Dictionary). In both, the word is given two meanings. One is that of a cloth or cover as in a table cloth and the other is of a carpet. This duality of meanings is reflected in the definition of the word "carpet" in the New Shorter Oxford English Dictionary (see paragraph 56 below). We also find that Sodimatex's brochure refers to its basic products as "Needlefelt and tufted textile carpeting" (emphasis added). Ford's specifications for automotive carpet assemblies supplied for its motor vehicles sets out separate specifications for each component of the carpet assemblies.
53. On the basis of the evidence of Mr Wilson, we find that the "carpet" to which the Ford specifications refers is that imported as the subject goods. We note that he does not regard the subject goods as one of Sodimatex's "basic products" referred to in its brochure. While we accept that the subject goods may have been manufactured specifically for Plexicor's requirements so that they will meet Ford's specifications, we do not accept that this takes them outside the goods generally described in Sodimatex's brochure.
54. In view of the evidence in the invoices, the brochure and the specifications, we find that the subject goods are commonly referred to as carpet by those who trade in and by those who deal with the subject goods. Despite that description, we find on the basis of the evidence of Mr Emselle and Mr Carroll, that the subject goods would not be used as a carpet on the floors of a domestic or commercial building. We accept that they do not possess the necessary aesthetic qualities or abrasion resistance and would not maintain their appearance with use in a domestic or commercial building. On the basis of their evidence and that of Mr Wilson, we accept that the subject goods are used only as a component in the manufacture of carpet assemblies to be fitted in motor vehicles and, specifically in this case, motor vehicles manufactured by Ford.
55. The next issue to consider is the classification of the subject goods. We have set out the relevant passages from Chapters 56 and 57 and, as we have said, there is only one issue to consider. That is whether the subject goods may be considered to be "carpets and other textile floor coverings". We note that, as was said by Northrop J in Vernon-Carus Australia Pty Ltd and Thomas Creevey & Associates v Collector of Customs (1995) 21 AAR 450 (Northrop and Jenkinson JJ, Branson J dissenting):
"It is a well-known rule of construction that in construing and applying a phrase it is inadmissable to look at each word separately and put the meanings of each word together to reach the meaning of the composite phrase. It is necessary to consider the phrase as a whole. …" (page 458, per Northrop J)
56. At the risk of being in breach of that rule, we have found it helpful to first consider the meaning of each of the words used in the expression "carpets and other textile floor coverings" before we look at the phrase as a whole. Taking first the word "carpet", it is defined in The New Shorter Oxford English Dictionary (1993) to mean, in part:
"…1 A thick usu. woollen fabric used as a cover for beds, tables, etc.; a piece of this; a tablecloth. obs. exc. in on the carpet … 2 A piece of thick fabric, made in one piece or of lengths joined together, often woven in a pattern of colours, used for covering a floor, stairway, etc.; material for this, carpeting. Also, w. specifying wd, a rug, esp. a large oriental rug …"
The Macquarie Dictionary defines the term to mean, in part:
"… 1. a heavy fabric, for covering floors. 2. a covering of such a fabric. …"
57. As the expression "floor covering" is not defined in either dictionary, we have divided it into its two components of "floor" and "covering". The word "floor" is defined, in so far as it is relevant to mean:
"…I A level structure in a house or other building. 1 The layer of boards, bricks, tiles, stones, etc., covering the base of a room or other compartment; the lower surface of a room. Also in extended usage, the base of a cavity, etc …" (The New Shorter Oxford English Dictionary)
"... 1. that part of a room or the like which forms its lower enclosing surface, and upon which one walks. … 3. a level supporting surface in any structure: the floor of a bridge. 4. a platform or prepared level area for a particular use: a threshing floor. 5. the flat bottom of any more or less hollow place: the floor of a cave. 6. any more or less flat extent or surface. …" (Macquarie Dictionary)
58. A "covering" is defined, in so far as it is relevant, as:
"... Something which covers or is adapted to cover; a cover. ..." (New Shorter Oxford English Dictionary)
"1. something laid over or wrapped about a thing, esp. for concealment, protection or warmth. ..." (Macquarie Dictionary)
59. The word "cover" should also be considered. In so far as it is relevant, it is defined to mean:
"Put or lay something over or in front of (an object) so as to conceal, protect, or enclose it; put a covering or cover on (spec. a book). ... Clothe (a body); wrap or enclose (a limb etc.); enclose (a chair etc.) in fabric. ... Occur here and there over the whole surface of; cause the surface of (something) to be overlain or marked ... " (New Shorter Oxford English Dictionary)
"1. to put something over or upon as for protection or concealment. 2. to be or serve as a covering for; extend over; occupy the surface of. 3. to put a cover or covering on; clothe ..." (Macquarie Dictionary)
60. In Re Seventy-Ninth Vibration Pty Ltd and Another and Chief Executive of Customs, it was considered that, in light of the definitions of the individual words, the composite expression "floor covering" meant:
"(80) Taking these ordinary meanings of the words, it would follow that the ordinary meaning of the composite expression 'floor covering' would mean something placed over or upon a floor to protect or conceal it or simply to overlay it. It is clear that a covering may not enclose the whole of an item and yet be regarded as covering it. A chair, for example, may be said to have been covered with fabric and yet certain parts of the framework, such as the legs and arms, may not have been wrapped or enclosed in fabric. Whether or not the chair can be said to have been covered will depend upon the amount of wood or other material that is not covered with fabric. It is a matter of degree.
(81) The same can be said of a floor covering. It is a matter of degree. A rug may be said to be a floor covering for it may protect, conceal or overlay a significant portion of the floor in a certain area. Carpet tiles and carpets may also be said to cover the floor and so be a floor covering even though they may not cover the entire area of, for example, a foyer to a commercial building. Wall to wall carpet is clearly a floor covering within the every day use of language.
(82.). What is clear from the ordinary meaning of 'covering' is that it does not mean something that simply stands alone and protects, conceals or overlays a very small section of an item. In the same way in which a covered seat cushion cannot turn a chair which is otherwise wooden into a 'covered chair', a mat of the size of the goods in question in this case cannot turn a floor into a covered floor. Nor can the fact that the mat covers a small and isolated section of a floor turn it into something which extends over a floor and so becomes a floor covering in the sense in which that term is ordinarily understood in everyday language. In view of that, I have concluded that the mats in issue in this case are not floor coverings." (pages 152-153)
61. The Textile Terms and Definitions compiled by The Textile Institute (9th edition, 1991) defines the word "carpet" to mean:
"A floorcovering having a textile use-surface formed from yarns or fibres projecting from a substrate."
The word "floorcovering" is defined by reference to the expression "textile floorcovering" which, in turn, is defined to mean:
"A product having a use-surface composed of textile material and generally used for covering floors."
62. That brings us back to the composite expression "carpets and other textile floor coverings". Considered as a whole, it seems to us that it is referring to those coverings, that may be described as having a textile use surface, that are used to protect, conceal or overlay a floor. There is nothing in the expression, however, that requires us to give a restrictive interpretation of what is meant by a floor in the expression. A floor is that which is commonly understood to be a floor. It may be, and often is, the lower or bottom surface of a room or space in a building, be it a domestic or commercial building. It may, however, also be the lower or bottom surface of a space other than that found in a building. For example, it may be the bottom surface of a cave, as suggested in the Macquarie Dictionary, or the lower or bottom surface of a vehicle such as an aircraft or a motor vehicle.
63. Has the ordinary meaning of the term "floor covering" been displaced by a trade usage of the term? In HR Products Pty Ltd v Collector of Customs (1990) 20 ALD 340, Lee J said that the Tribunal was obliged to consider whether Parliament has used the words in the headings and sub-headings according to their ordinary meaning or had applied a more restrictive meaning arising out of a specialised interpretation commonly applied in the relevant trade or industry. Lee J observed that:
"… in statutory construction the ordinary meaning of words is not easily displaced and that if a limited meaning arising from trade usage was contended for, the Tribunal had to be careful to see that such a narrower meaning was clearly established by the evidence." (page 353)
In our view, the evidence in this case does not displace the ordinary meaning of "floor covering".
64. Returning to the subject goods and whether they are "carpets and other textile floor coverings", Mr Gross submitted that they may have some of the characteristics of carpets and other textile floor coverings but that they do not become such items until after they have undergone the processes carried out by Plexicor. As imported, they are basic raw material. We accept that the subject goods cannot be laid upon the floor of a motor vehicle without first at least being moulded to the shape of the interior floor of the motor vehicle and cut to its size and to accommodate its fittings. Foam is added to the underside of the moulded subject goods for the purpose of inhibiting sound transference from the engine and from sources outside the motor vehicle.
65. To our minds, however, the fact that the subject goods must undergo these processes to enable them to be fitted does not make them any less a carpet or other textile floor covering. A continuous roll of broadloom carpet intended to be laid on the floor of a domestic or commercial building is no less a carpet or floor covering for the fact that it must be laid on an underlay (whether or not it is glued to it), cut to the shape of the room and glued or stitched as required. That broadloom cannot be described as a "raw material" for the carpet or floor covering as laid. It is a carpet or floor covering as much as the broadloom as laid is a carpet or floor covering. In view of the approach we have taken, it seems to us that it is not relevant to consider Mr Gross's further submissions focusing upon whether the goods are, or are not, "made up" in the sense in which that expression is defined in note 7 of Section XI of Schedule 3.
66. It follows that we have concluded that the subject goods are "carpet, and other textile floor covering" as defined in note 1 to Chapter 57 of Schedule 3 of the Act. As we are satisfied that they are needleloom felt, we find that the subject goods meet the descriptions given in headings 5603 and 5704. In view of Rule 3(a) of Schedule 2, though, we must classify them according to the heading which provides the more specific description rather than to that providing a more general description. In this case, heading 5704 is that heading for "CARPETS AND OTHER TEXTILE FLOOR COVERINGS, OF FELT, NOT TUFTED OR FLOCKED, WHETHER OR NOT MADE UP" provides a more specific description of goods than "NONWOVENS, WHETHER OR NOT IMPREGNATED, COATED, COVERED OR LAMINATED" as provided by heading 5603. By including the reference to "carpets and other textile floor coverings", heading 5704 is going beyond a mere description of the composition of the goods to a description of their end use. By way of contrast, heading 5603 makes no reference to the end use and contents itself with the more general description by reference to the composition of the goods.
67. For these reasons, we consider that the respondent correctly classified the subject goods to sub-heading 5704.90.10 and affirm its decision dated 1 November, 1999.
I certify that the sixty seven preceding paragraphs are a true copy of the reasons for the decision herein of
Miss S A Forgie (Deputy President),
Mr C. Ermert, Member, Mr W.G. McLean, MemberSigned: ..............................................
A Horne AssociateDates of Hearing 8 and 9 February 2001
Date of Decision 5 June, 2001
Solicitor for the Applicant Mr L Gross, Louis Gross & Associates
Advocate for the Respondent Mr R NorthcoteSolicitor for the Respondent Australian Government Solicitor
12
0
0