QUEENSLAND ALUMINA LIMITED And CHIEF EXECUTIVE OFFICER OF CUSTOMS
[2003] AATA 290
•28 March 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 290
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2001/221
GENERAL ADMINISTRATIVE DIVISION ) Re QUEENSLAND ALUMINA
LIMITEDApplicant
And
CHIEF EXECUTIVE OFFICER
OF CUSTOMS
Respondent
DECISION
Tribunal Dr E K Christie, Member Date28 March 2003
PlaceBrisbane
Decision The Tribunal sets aside the decision under review. The matter is remitted to the respondent with the direction that “mooring ropes” are to be classified as “parts” of a vessel. (Sgd) E K Christie
Member
CATCHWORDS
CUSTOMS AND EXCISE - tariff - identification of mooring ropes for vessel - tariff classification of mooring ropes of vessels - whether mooring ropes are parts of vessel and materials for vessels exceeding 150 gross construction tonnes – meaning of “parts of vessels”
Customs Tariff Act 1995, Schedule 4, Part III (Item 42)
Bounty (Ships) Act 1989 ss 4(3), 5
Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591
Re Gissing and Collector of Customs (1977)14 ALR 555Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 76 ALR 313
Re Aston and Secretary, Department of Primary Industry (1985) 8 ALD 366
Skoljarev v Australian Fisheries Management Authority (1995) 22 AAR 335Cody v JH Nelson Pty Ltd (1947) 74 CLR 629
Metropolitan Gas Company v Federated Gas Employees’ Industrial Union (1925) 35 CLR 449
Cooper Brookes (Wollongong) Pty Ltd v Federal Commission of Taxation (1981) 35 ALR 151
Australian Forge and Engineering Co Ltd v Wollaston (1900) 26 VLR 414
Waterscheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1972) 46 ALJR 32
Re National Panasonic (Australia) Pty Ltd and Collector of Customs (NSW) (1985) 3 AAR 156
Director-General of Social Services v Chaney (1980) 3 ALD 161
Morlines Maritime Agency Ltd v Proceeds of Sale of Ship “Skulptor Vuchetich” (1996) 62 FCR 602
Opal Maritime Agencies Pty Ltd v The Proceeds of Sale of the Vessel MV “Skulptor Konenkov” (2000) 98 FCR 519
Secony Bunker Oil Company Ltd v Owners of the Steamship D’Vora [1953] 1 WLR 34
REASONS FOR DECISION
28 March 2003 Dr E K Christie, Member 1. This is an application for review by Queensland Alumina Limited for the review of a decision made by the Director, Tariff Concessions, Australian Customs Service on 22 June 2000 that mooring ropes imported by Queensland Alumina Limited were not eligible for concessional entry under Item 42 of Part III to Schedule 4 of the Customs Tariff Act 1995 (“Item 42”). In addition, a Tariff Advice Decision made by Ms Victoria O’Meara on 12 September 2000, prior to the importation of the mooring ropes, that Item 42 did not apply to mooring ropes.
2. The following reasons for decision were given to the applicant, on 22 May 2001 (T2, folio 22,23), in relation to the internal review:
“24The matter in dispute is the interpretation of Item 42. The applicant contends that mooring ropes can be identified as ‘parts of vessels’ within the context of the item, whereas the ACS contends they cannot.
25.At the time the subject goods were entered for home consumption, subheading 5607.50.00, without the benefit of Item 42 treatment, attracted a duty rate of 11%. Under Item 42, the duty rate would be ‘Free’.
26.The purpose of Item 42 is to reduce input costs for Australian shipbuilders to make them internationally competitive. The only linkage between the bounty legislation and item 42 is that vessels of item 42 are defined in terms of the bounty legislation ie ‘vessels exceeding 150 gross construction tons as defined in the Bounty (Ships) Act 1989’.. The fact that certain goods may have been eligible for a bounty payment has no direct bearing on whether those same goods are eligible for concessional entry under item 42.
27.Guidelines set out in Australian Customs Notice (‘ACN’) 98/71 require ‘importers to demonstrate that the goods are:
i. Parts of vessels, or materials; and
ii. For use in the construction, modification or repair of vessels.’
28.For goods to meet the terms of Item 42, they must satisfy both elements, being goods identified as ‘parts of vessels, or ‘materials’, and being for use in processes of construction, modification or repair of vessels. As there is no definition of ‘parts’ in respect of Item 42, that word must be given its ordinary English meaning.
Parts of vessels
29.ACN 98/71 defined the expression ‘parts of vessels’ in Item 42 as meaning ‘something which is a constituent or component of the whole vessel, without which the vessel would not function as a vessel’.. In considering whether an article is part of a vessel, the ACN states that the main factor in such consideration is whether that article is ‘subsumed into the vessel and is permanently fixed or designed to be permanently fixed to the vessel’. Examples in the ACN, of articles used upon or in connection with vessels but not normally parts of vessels, include rope.
30.The applicant’s contention, that mooring ropes are parts of a vessel because they are installed into large winch systems on the vessel does not accord these goods concessional entry under Item 42. The fact that a winch system may be permanently fixed to a vessel does not mean that a rope used on that winch is so fixed and is therefore part of a vessel for the purposes of item 42.
31.In respect of the disputed decision, the ACS contends that mooring ropes do not conform to the definition of ‘parts of vessels’ within the context of Item 42. Mooring rope provided to a vessel is not considered to be used, or subsumed into the vessel, in the process of construction, modification or repair of the vessel.
32.ACN 98/71 further states:
‘In Item 42, the expression ‘parts of vessels’ means something which is a constituent or component of the whole vessel, without which the vessel would not function as a vessel. It does not extend to goods which may ‘facilitate the operation of docking and holding fast a large vessel for the purposes of loading or unloading’, they are not necessary for the vessel to function as a vessel per se.
Materials
33.ACN 98/71 defines materials as meaning ‘the raw materials of which a vessel is made or composed’. Mooring ropes are not raw materials of which a vessel is made and are therefore, not materials for the purposes of Item 42.
34.For the reasons given above, it is considered that marine mooring ropes do not meet the terms of Item 42 and are therefore not eligible for concessional treatment under that item.”
3. At the hearing the applicant was represented by Mr A Robertson, TPJ International Pty Ltd and the respondent by Mr L Kennedy, AGS, Canberra. Oral evidence was given by William Robson on behalf of the applicant and by Captain Richard White on behalf of the respondent.
4. Following the hearing, the Tribunal invited the parties to make supplementary submissions in response to new questions of law arising during the hearing. These submissions were received by the Tribunal, following exchange between the parties, on 21 May 2002 and 11 June 2002 from the applicant and respondent, respectively. Following advice from the applicant that new factual evidence relating to the application for review had been discovered, the Tribunal held a telephone directions hearing on 1 November 2002. Further submissions on the new factual evidence, following exchange, were received by the Tribunal on 13 December 2002 and 22 November 2002 from the applicant and respondent respectively.
5. At the hearing the Tribunal had in evidence before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and the various documents tendered by the parties.
Customs Notice Guidelines
6. Central to this application for review is Australian Customs Notice No 98/71: Schedule 4 – Item 42 – vessel construction, modification and repair (“AC Notice”). This notice provides guidance to importers who seek to use Item 42 of Schedule 4 to the Customs Tariff Act 1995 to obtain concessional entry of goods. Goods to which Item 42 apply are eligible for duty free entry.
7. The AC Notice contains the following guidelines (at para 3):
“3. Guidelines
In order to gain concessional entry under item 42, importers must demonstrate that the goods are:
(i) parts of vessels, or materials; and
(ii) for use in the construction, modification or repair of vessels.
In administering the entry of goods under item 42 Customs will construe the terms of that item according to the guidelines set out in the ACN
‘Vessels’
A vessel for the purposes of item 42 is a vessel which exceeds 150 gross construction tons. The number of tons in the gross construction tonnage is ascertained using the formula provided in the Bounty (Ships) Act 1989, set out on the first page of this ACN. Such a vessel would:
§ normally be classified in Chapter 89 of the Tariff, other than heading 8907 or 8908
§ operate in the marine environment; and
§ generally have the characteristic of being navigable, irrespective of how this is achieved.
‘Parts’
The word ‘part’ normally connotes something which is a constituent or component of the whole entity without which the entity would not function as such an article. In item 42, the expression ‘parts of vessels’ means something which is a constituent or component of the whole vessel, without which the vessel would not function as a vessel. It does not extend to goods which may become parts of vessels post importation.
The main factor indicating that an article is a part of a vessel is whether that article is subsumed into the vessel and is permanently fixed or designed to be permanently fixed to the vessel. Other factors includes;
§ whether the article is so committed by design or manufacture that it can only be used as a component of a vessel; or
§ whether the article is necessary for the completion of the vessel. Whilst this does not necessarily mean that the article is a part, it distinguishes ‘part’ of vessels from ‘accessories’ to vessels.
Articles that are not necessary to the functioning of the vessel may still be parts of vessels if they are built into the vessel in the course of manufacture.
Articles of portable nature, whether or not attached to the vessel for the sake of convenience, are unlikely to be parts of vessels. For example, furniture, crockery, linen, jet skis, bicycles, domestic appliances and hand tools are not parts of vessels. While these articles may form part of a vessel’s inventory, they are not parts of that vessel.
Similarly, articles used upon or in connection with vessels are not normally parts of vessels. For example rope, life jackets, buoys, runabouts, zodiacs, lifeboats, life-rafts, drill pipe, drill strings, marine risers, glow-out preventers and saturation diving systems are not parts of vessels.
‘Materials’
The word ‘materials’ normally means the substance or substances of which a thing is made or composed; anything serving as crude or raw matter for working upon or developing. In item 42, ‘materials’ means the raw materials to which a vessel is made or composed. Therefore consumable such as fuels, lubricants, gases, cleaning or degreasing agents, drill bits, grinding discs and refrigerants are not considered to be ‘materials’ because they are not the materials of which the vessel is made or composed.’
‘Use in the construction, modification and repair’
To be eligible for concessional entry, the parts of vessels, or materials, must be for use in the construction, modification and repair of vessels. These terms will be construed according to their ordinary meanings in the context of item 42 as follows:
§ ‘construction….of vessels’ means the building of vessels by assembling and combining parts.
§ ‘modification….of vessels’ means the alteration of the form or qualities of vessels. The alteration will normally be of a long term nature, and require the vessel to be re-surveyed.
§ ‘repair….of vessels’ includes the renewing, replacement of parts, restoring to sound condition, mending and strengthening of vessels.”
Issues to be Decided
8. The central issue for the Tribunal to decide was whether concessional Item 42 in Schedule 4 of the Customs Tariff Act 1955 (“concessional Item 42”) applied to certain mooring ropes imported by the applicant, Queensland Alumina Limited (“QAL”). This, in turn was dependent on:
(a)whether mooring ropes were “parts of vessels” or “materials” for the purposes of concessional Item 42;
(b)if mooring ropes were parts or materials, whether they were used in the “construction, modification and repair of vessels”; and
(c)if mooring ropes were parts or materials used in the construction, modification and repair of vessels, whether the subject goods were imported for use in the construction, modification and repair of a vessel or vessels exceeding 150 gross construction tons (tonnage being defined in subsection 4(3) of the Bounty (Ships) Act 1989).
9. During the hearing, it was acknowledged that there was no dispute that mooring ropes were essential on ships and that the actual tariff classification of mooring ropes was found in Schedule 3 of the Customs Tariff Act 1995.
Examination of Evidence
Evidence of William Robson, Commercial Superintendent Shipping and Technology, QAL, Gladstone
10. Mr Robson gave evidence on behalf of the applicant. Mr Robson was responsible for operations and maintenance costs for all QAL ships. He said that the mooring ropes used were “Atlas” synthetic ropes and that they were used exclusively for mooring. He stated that mooring ropes were the only system that could be used to moor large vessels. He said that mooring ropes were a fundamental part of a ship since loading/unloading could not take place without the ship being stationary against the wharf.
11. Mr Robson said that mooring ropes were a finished article, that is, they required no further manufacture, and were used immediately following installation on the ship. Mr Robson stated that the shipowner supplied mooring ropes during fitout.
12. Mr Robson said that mooring ropes were part of the ship’s “mooring system”, which was composed of some combination of electric motors / hydraulic system / winches / pumps / mooring ropes. All mooring ropes were operated independently – but only through the use of a winch, and were an integral part of mooring of vessels of this size.
13. Mr Robson said that self tensioning winches were used by QAL to ensure correct and constant tension was applied at all times in order to keep the vessel as near as stationary as possible.
14. Mr Robson said that the mooring ropes used by QAL on their vessels were 250m long and weighed 2068kg. A crane was required to remove mooring ropes from a vessel. He said that mooring ropes lasted six to nine years. Eight mooring ropes were required to moor a ship.
Evidence of Captain Richard White, Director of Plumley, Pearson and White, Brisbane (a Marine Surveying Consultancy Firm) and holder of a Foreign Going Master’s Certificate since 1975
15. Captain White gave evidence on behalf of the respondent. Captain White said that for a vessel to come within the prescribed formula defined in the Country (Ships) Act 1989 as having 150 “Gross Construction Tons”, suggested a cargo vessel of about 20 metres in length. All vessels in excess of this size would be covered by the definition referred to in Item 42, Part III, Schedule 4 of the Customs Tariff Act 1995.
16. Captain White described four types of conventional mooring systems presently in use on vessels:
(a)Winch drum ends with non specific mooring ropes;
(b)Capstans with non-specific mooring ropes;
(c)Horizontal clutched drums with mooring ropes attached; and
(d)Self tension winches with mooring ropes attached.
17. Captain White said that mooring ropes, apart from the drum end and capstan applications, were attached to the drums of winches by many methods, varying from a light rope lashing to various patent type securing devices – depending on the type and size of the fibre used. He said that once the mooring rope was on, no weight in normal use would ever come on to the securing device. A mooring rope could be removed from a drum or winch easily and quickly.
18. Captain White stated that spare mooring ropes were generally carried on a vessel to replace those discarded due to general attrition. He said that it was standard practice for shipping companies to have a uniform order of standard mooring ropes which would suit all vessels in the fleet.
Contentions and Submissions of the Parties
19. Mr Robertson submitted that the first step was to identify whether the QAL mooring ropes were imported. As this was the case, the next step was to determine the particular rope of duty that applied to these goods, by reference to the Customs Tariffs Act (“the CT Act”). This step required the rules for interpretation set out in Schedule 2 of the CT Act; ie, in order to derive a tariff classification for the mooring ropes in their condition as imported and in accordance with Schedule 3 of the CT Act. The tariff classification was a question of law.
20. Mr Robertson submitted that the identification of goods was a question of fact and was a wharf side task. He contended that based on expert evidence before the Tribunal, that it was not in dispute that mooring ropes had no other use except for mooring or tying up a vessel.
21. Mr Robertson submitted that the approach to adopt in addressing the issue of whether the mooring ropes were parts or materials of the vessel was to consider, in turn, (a) whether they were parts, then (b) whether they were materials and finally (c) whether they were fitting out costs. Fitting out costs, he contended, were a sub-category of materials.
22. Mr Robertson referred to Schedule 4 of the CT Act which allowed for “Commercial Rates of Duty” and contended that the QAL mooring ropes came within the prescribed meaning of Item 42 of Schedule 4 of the CT Act (“Item 42”). Accordingly, the mooring ropes were entitled to duty free status as they were parts of vessels and materials for vessels exceeding 150 gross construction tonnes.
23. It was Mr Robertson’s further contention that the Bounty (Ships) Act 1989 (“the BS Act”) applied to the interpretation of Item 42 of the CT Act. Specifically, where goods could not be sourced or manufactured in Australia and had to be imported, such goods were given a duty free status.
24. Mr Robertson contended that the document titled “Building a Competitive Australia” was a sectoral industrial assistance policy directed to the ship building industry and that this policy could be applied to the interpretation of Item 42 of the CT Act. Mr Robertson referred to the following statements in this policy document (at page 5.50):
“the current Shipbuilding Bounty assistance will phase out by 1 July 1995. To enhance the competitiveness of the shipbuilding industry as the bounty phases out, it has been decided to reduce input costs for shipbuilders.
The Government has decided to extend the range of components which may enter Australia duty free for use in the construction, modification and repair of vessels above 150 gross construction tons.”
25. Mr Robertson submitted that this policy could be used as an aid to statutory interpretation because the purpose of the policy was that imported goods used in construction, modification and repair of vessels above 150 gross construction tonnes received a duty free concession. Moreover, it was significant that the statement in the second paragraph of this policy document was almost equivalent to Item 42 of the CT Act.
26. It was Mr Robertson’s contention that the BS Act and the CT Act were “inextricably linked” and that reference could be made to the BS Act to come to “an understanding of what parts and materials of a vessel are”. He further contended that the only statute that described “parts and materials of vessels in excess of 150 gross construction tonnes” was the BS Act. The CT Act provided no interpretation for “parts and materials” and the only document containing such description was the Australian Custom Services Manual (Volume II) (“ACS Manual”).
27. Whilst acknowledging that mooring ropes were eventually replaced Mr Robertson submitted that it would not be reasonable to consider mooring ropes as necessarily a consumable item, because:
(a)the sole function of mooring ropes was to moor large vessels for loading/unloading and they were absolutely essential for the operation of a vessel;
(b)mooring ropes were also part of the original design specifications of a vessel;
(c)mooring ropes remained attached to self tensioning winch drums and remained there for their working life, unless turned end to end and re-installed to maximise their useful life. Mooring ropes were ultimately discarded and replaced at the end of their operational life through deterioration; and
(d)a contract was necessary to purchase mooring ropes at the time of first sailing, otherwise the vessel would not sail as it would not satisfy the requirements imposed by regulatory authorities.
28. Mr Robertson contended that mooring ropes were subsumed into the mooring system of a vessel because of their interdependence with the particular mooring system used on the vessel; for example, winch drum ends, capstans, horizontal clutched drums, self tension winches. The mooring system represented the totality of all parts that constituted the mooring system of the vessel. As the mooring ropes were one part of the mooring system, Mr Robertson submitted that mooring ropes were accordingly part of the vessel.
29. Furthermore, Mr Robertson contended that if mooring ropes were considered not to be part of a vessel, they could be considered to be “materials” of a vessel as they represented fitting out costs. The BS Act had application in this regard.
30. Mr Robertson contended that “direct fitting out costs” of a bountiable vessel included mooring ropes, as they were an essential item, as a vessel could not sail without mooring ropes.
31. Mr Robertson submitted that it was important to recognise the distinction between “mooring ropes” and “rope” generally. Whereas “rope” was excluded as part of a vessel under the ACS Manual, QAL “mooring ropes” were of such a specialised nature, used only for a specific purpose, and so would not come within the plain or simple meaning of “rope”.
32. Mr Kennedy referred to the phrase “for use in the construction, modification and repair of vessels” set out in Item 42 of the CT Act and submitted that the use of the word “and” was disjunctive, not conjunctive, because those adjectives were mutually inconsistent and could not form a single class. Accordingly, an interpretation of the phrase “that part or material of a vessel used in the construction, modification or repair of a vessel” would satisfy Item 42.
33. Mr Kennedy contended that in order for parts or materials to be used in the “construction modification and repair of a vessel” the parts or materials must be either consumed in the process of construction, modification and repair of the vessel – or, at the end of that process, be subsumed into the structure of the vessel.
34. Mr Kennedy referred to the mooring systems found on QAL vessels (for example: capstans, winch drum ends etc). By considering the two following scenarios, he submitted that mooring ropes were not subsumed into the structure of the vessel and so were not part of the vessel:
(a)where mooring ropes were taken off a capstan or winch when the vessel left the dock. That is, mooring ropes were only attached to the mooring system when the vessel was moored. In these circumstances, mooring ropes could never be considered to be part of a vessel; and
(b)where mooring ropes were mounted for their working life to a winch, or reinstalled on a winch during their operational life – but where the mooring rope was not removed. In this situation, the mooring ropes would not be subsumed into the structure of the vessel because of “the lightness of lashings and their ease of removal”.. Furthermore, the structure of the vessel finished at the winch. What lay beyond the winch was not part of a vessel.
35. It was Mr Kennedy’s contention that after being fitted to a vessel, mooring ropes were not a fixture on a vessel. Moreover, nor were mooring ropes subsumed into the structure of the vessel. Mooring ropes were attached to a winch in such a way, by design, to enable the rope to be easily removable. Accordingly, Mr Kennedy contended that mooring ropes did not become part of the whole vessel - nor were they subsumed into the structure of the vessel. Consequently, mooring ropes were not used in the “construction, modification and repair of a vessel”.
36. Mr Kennedy submitted that the words “for use” in the phrase “the construction, modification or repair of vessels” implied some form of purposive element for the test in Item 42: the purposive element was that mooring ropes, being imported, had to be used for the “construction, modification and repair of a vessel”. The test was an objective one and could not be changed by the importer’s intention.
37. Mr Kennedy acknowledged that analysis of case law established a meaning that “a part” is something which, with others, makes up a whole. He then submitted that for mooring ropes to be “part of a whole” they would have to be subsumed into the structure of the whole. However, mooring ropes were not subsumed into the structure of the vessel. Moreover, he submitted that in order to determine whether mooring ropes were “part of a whole”, consideration had to be given to how mooring ropes were used on a vessel – rather than to rely on how the importer intended to install the mooring ropes.
38. Mr Kennedy contended that mooring ropes were consumable items and as such were not considered to be part of the thing to which they were attached. Furthermore, whilst acknowledging that mooring ropes were essential for the operation of a vessel of greater than 150 gross construction tonnes, he submitted that the essentiality of mooring ropes to the function of a vessel was not determinative of the issue of whether mooring ropes are part of the vessel.
39. Mr Kennedy submitted that the terms “parts” and “materials” were distinct terms having no overlap in their subject matter. He further submitted that the meaning of the term “parts” referred to finished products that could be incorporated into the structure of a vessel, without any modification. In contrast, the term “materials” referred to things that must be modified before they could be incorporated into the structure of a vessel – or things consumed in the course of constructing a vessel.
40. Applying the above reasoning, Mr Kennedy contended that because mooring ropes were of a fixed length with an eye in one or both ends, they were a finished product and so did not fall within the meaning of materials “used in the construction, modification and repair of vessels”.
41. Mr Kennedy submitted that recourse to extrinsic materials as an aid to statutory interpretation for the terms “parts” and “materials” as specified in Item 42 was not justified as the ordinary meanings of these terms were not “ambiguous” or “obscure”. Moreover, the results of use of the ordinary meaning did not produce a result that was “manifestly absurd” or “unreasonable”.
42. Mr Kennedy contended that the Bounty (Ships) Act 1989 and Item 42 of the CT Act were separate and distinct, independent statutory measures for assisting the Australian shipping industry. The distinction arose between a domestic bounty system to help one aspect of the shipbuilding industry and a duty relaxation scheme related to input costs for the shipbuilding industry.
43. Mr Kennedy further submitted that reliance on the Bounty (Ships) Act, in order to understand the Customs Tariff Act, would be inconsistent with section 55 of the Constitution.
Supplementary Submissions
Status of Australian Customs Notice for Administrative Decision-making
44. The applicant submitted that the AC Notice and any other internal administrative document dealing with policy objectives had little weight for legal decision-making. The definition given for “parts” and “materials” was neither consistent with legal procedures nor consistent with the treatment of these terms in the Bounty (Ships) Act. Furthermore, the ACS Manual should have precedence over the AC Notice with respect to the application of the meaning of “parts” and “materials” to mooring ropes.
45. The respondent submitted that the AC Notice was an administrative document prepared by Customs after the enactment of Item 42 of the Customs Tariff Act.. The AC Notice contained a policy statement to the effect that Item 42 was intended to provide assistance to the Australian shipbuilding industry by reducing input costs.
46. The respondent further submitted that the AC Notice was not extrinsic material for purposes of section 15AB of the Acts Interpretation Act 1901 – nor was it an authoritative statement of the law. However, it was consistent with legal authority in this subject area, to the qualification that statements describing parts should not be read as meaning something that is essential to the operation of a vessel therefore becomes part of that vessel.
Evidentiary Weight of a Letter from Australian Customs Service to Union Bulkships (dated 9 October 1991)
47. This letter stated that Item 42A in Schedule 4 of the Customs Tariff Act 1987 (later replaced by Item 42 of the Customs Tariff Act 1995) permitted duty free entry of all components used in the construction, modification and repair of ships. It gave mooring ropes as an example of use of the goods covered by the concession. No authority or reason for this example was given.
48. The applicant submitted that this letter was clear evidence of the position of Australian Customs Service in this regard, in relation to mooring ropes. Furthermore, as the letter had received “Central Office endorsement”, it so removed any subjectivity that might be attributed to the author of the letter.
49. The applicant further submitted that this letter endorsed the industry policy in relation to mooring ropes. Moreover, the applicant asserted that mooring ropes would have been imported duty free in the past using the Item 42 concession. However, somewhere between the mid-1990s and today, this situation had either been forgotten, or lost, and not applied.
50. The respondent submitted that the Customs officer’s view expressed in this letter had no relevance when making a determination of fact in accordance with the law. In order to determine whether mooring ropes were or were not covered by Item 42, findings of fact had to be made as to whether mooring ropes were part of a vessel or materials used in the construction, modification or repair of vessels. Such findings of fact had to then be considered in relation to relevant legal principles.
Consideration of the Issues
51. It is well-established in common law that classifying goods involves a two stage process. The first task is to identify the goods for what they are, as an objective wharfside task. The second task, once the goods have been objectively identified, is to then classify the said goods by deciding which tariff headings describe the goods and applying the relevant interpretative rules and notes – see Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591; Re Gissing and Collector of Customs (1977) 14 ALR 555. In addition, the authorities make it clear that, in determining what is the essential character of goods, it is the state or condition of the goods at the time of importation that is the determining factor and that it is wrong to classify goods - or to determine their essential character, by reference to the purpose of the importer or of the purchaser. Regard must be had to the characteristics of the goods themselves, as they would present themselves to an informed observer: see Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 76 ALR 313 at 327.
52. It was not in dispute between the parties that the goods that were the subject of this application for review were mooring ropes, imported by the applicant, and used for mooring the applicant’s [QAL’s] vessels. In addition, there was no dispute that mooring ropes were essential for QAL vessels and that the actual tariff classification of mooring ropes was found in Schedule 3 of the Customs Tariff Act 1995.
53. The first issue for the Tribunal to decide was whether mooring ropes were “part” of a vessel used in the construction modification and repair of vessels.
54. The CT Act does not define the terms “part [of vessels]” or “materials”.. However, the Australian Customs Notice No 98/71 [see paragraph 7], a policy document prepared by the Australian Customs Service, contains guidelines for considering the meaning of these terms.
55. The Tribunal has considered the following authorities in order to determine the status or weight that may attach to these Departmental policy guidelines:
(a)“Policy is not law. A statement of policy is not a prescription of binding criteria”: Re Aston and Secretary, Department of Primary Industry (1985) 8 ALD 366 at 376; and
(b)“Policy does not constitute a binding rule, unless a statute so provides… Absent a statutory provision requiring compliance with policy, a decision-maker may depart from policy and, in an appropriate case should do so”: per Davies J in Skoljarev v Australian Fisheries Management Authority (1995) 22 AAR 335 at 337.
56. The Tribunal has adopted the approach in the above legal authorities as to the weight that may attach to the Departmental policy guidelines in interpreting the term “part” [of a vessel]. In the absence of any statutory provision in the CT Act as to these guidelines being binding, the Tribunal has considered common law authorities.
57. It is trite law that the primary rule of statutory interpretation is that words must, prima facie, be given their ordinary meaning and the court should see what is the intention expressed by the words used. Moreover, if when the section in question is read as part of the whole instrument, its meaning is clear and unambiguous, generally speaking “nothing remains but to give effect to the unqualified words”: see Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 648; Metropolitan Gas Company v Federated Gas Employees’ Industrial Union (1925) 35 CLR 449 at 455.
58. Revenue legislation is not immune from the general principles of interpretation: Cooper Brookes (Wollongong) Pty Ltd v Federal Commission of Taxation (1981) 35 ALR 151. Revenue legislation is classically read strictly and narrowly in favour of the taxpayer if there is any doubt in the matter. In Australian Forge and Engineering Co Ltd v Wollaston (1900) 26 VLR 414, a case dealing with a contract for the building of a ship for the use of sea pilots of Victoria, the Full Court stated (at 416):
“The term ‘ship’s fittings’ in the schedule to Act No 1401 [Customs and Excise Duties Act 1895] is used in a general sense, and whatever may be the articles comprised under that term, it is contended by the collector that these general words ought to be cut down in meaning so as to mean ships’ fittings which have been already fitted to a ship. There is nothing whatever in the Act or schedule to suggest this interpretation, and we think every rule of construction is against the propriety of that cutting down in meaning. The usual presumption is in favour of the taxpayer if there is any doubt upon the matter; but it appears to us that the term or provision is a general one, and means that those things which are generally called ‘ships’ fittings’ are exempt from duty. The same rule in favour of the taxpayer applies where the question of exemption from duty is being considered. Whether it is a question of exempting from a tax or of applying a tax the same principle is involved.”
59. The question of what may be regarded as a “part” was addressed by Davies J in Waterscheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555 at 564. His Honour adopted what had been stated by Gibbs J (as he then was) in Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1972) 46 ALJR 32 at 34. The judgment of Gibbs J at page 34 makes the following observation:
“…Obviously a part is something which with others makes up a whole. …One thing does not become part of another simply because the latter thing cannot be put to proper use without the aid of the former, even if, in use, the two things are fixed together. …In Deputy Commission of Taxation v Fowler Rex (N.S.W.) Pty Ltd (1967), 118 CLR 160 at 163, Owen J held that the word ‘parts’ appearing in the definition of ‘aids to manufacture’ in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935-1962 (Cth) did no more than describe those things which in ordinary parlance would be described as spare parts for the various classes of goods mentioned. I take the same view of the word ‘parts’ in item 38.” (Emphasis added)
60. In referring to the judgement in Polaroid, Davies J in Waterscheid concluded (at 564):
“In one sense, therefore, a part is something which is essential to complete the whole.”
and his Honour emphasised, however that the “part” need not be essential to the functioning of the whole for (at 563-565):
“Ashtrays and armrests incorporated into motor vehicles during manufacture are examples. …
If a cigarette lighter is built into a tractor in the course of manufacture, that lighter will be part of the tractor and a replacement lighter will be a part for the tractor. It will be of no significance that the lighter is simply incorporated into the tractor for the convenience of the driver and in no way assists the hauling or pushing function of the tractor…”
61. Davies J in Waterscheid’s case also referred, with approval, to the Tribunal decision of Re National Panasonic (Australia) Pty Ltd and Collector of Customs (NSW) (1985) 3 AAR 156. In that matter the Tribunal had determined that, although a video cassette was essential for the operation of a video cassette recorder, it was not a part thereof. At page 165, the Tribunal said, after referring to the definition of “part” in the Macquarie, Shorter Oxford English and Random House Dictionaries:
“These meanings fit well within the notion expressed in United States v Willoughby Camera Stores Inc [1933] 21 CCPA 322 TD 46851…that a part is something necessary to the completion of an article, a ‘constituent or component part’. The addition of the words, in the passage cited, …might seem to lead to a contrary view, but they do not in our view detract from the notion that a part is something forming part of a whole, rather than something being constantly withdrawn or replaced.” [Tribunal emphasis]
62. As the question of interpreting the meaning of mooring ropes as “part” of a ship represents a novel fact situation in relation to the Customs Tariff Act, the Tribunal has considered the ordinary meaning of “part” of a ship in cases decided under admiralty legislation and jurisdiction. The Tribunal has adopted the approach in Director-General of Social Services v Chaney (1980) 3 ALD 161, where, because of a similarity between definitions, rulings on the meaning of a word for the purposes of another Act may be relevant to the interpretation of a definition in the current Act, ie, the Customs Tariff Act.
63. In Morlines Maritime Agency Ltd v Proceeds of Sale of Ship “Skulptor Vuchetich”(1996) 62 FCR 602, Sheppard J said (at 604-606):
“The question whether or not equipment on board a ship is part of the ship for the purpose of admiralty legislation and jurisdiction has been considered from time to time by courts, particularly in England. Essentially the authority that needs to be looked at is The Silia [1981] 2 Lloyd’s Rep 534, a decision of Sheen J sitting as the Admiralty Court.
…But the importance of The Silia is in the dictum to be found in his Lordship’s judgment in which he said (at 537) that he had no doubt that in the context of an action in rem the word ‘ship’ included all property aboard the ship other than that which was owned by someone other than its owner…
In all the circumstances I think that Sheen J’s statements should be adopted and applied. The equipment in question was equipment which was used by the vessel in the course of its operations. It may be, as Mr Wood said, that it was not essential for the ship to have the equipment on board although I would have thought that a vessel such as this might well have benefited from the presence of such equipment from the point of view of its safety because of the need perhaps to move cargo in an emergency in order to retrim the vessel or to carry out some other operation when it would have been possible to engage stevedores.
Accordingly, I am satisfied that the equipment in question is part of the ship for the purposes of the arrest and the sale…”
64. In Opal Maritime Agencies Pty Ltd v The Proceeds of Sale of the Vessel MV “Skulptor Konenkov” (2000) 98 FCR 519, the Full Federal Court (Black CJ, Cooper and Finkelstein JJ) concluded (at 556):
“The decisions relied upon by Opal go no further than holding that property on board a vessel, other than that which is owned by someone other than the shipowner and which is used by the vessel in the course of its operations, is part of the ship for the purpose of arrest and sale under the [Admiralty Act 1988]. The decisions do not support a construction which defines ‘ship’ for the purposes of the Act as including any property of the shipowner on board a ship on some indefinite occasion, irrespective of whether the property was used by the ship in the course of its operations. There must be some sufficient connection between the property and the ship to justify the former being treated as an integral part of the latter.” (Emphasis added)
65. The Full Federal Court (at 561) then referred to the conclusions of LJ Willmer in Secony Bunker Oil Company Ltd v Owners of the Steamship D’Vora [1953] 1 WLR 34 (at 35-36) with respect to the relationship between ship’s “equipment” and “consumables”:
“To my mind, there is, prima facie at least, a wealth of difference between the meaning of the word ‘equipping’ and the meaning of the word ‘supplying’. A perusal of the Oxford Dictionary has not thrown any great light on the problem which I have to determine. It is to be observed, however, that among the synonyms given for ‘supply’ in the Oxford Dictionary, one does not find the word ‘equip’. In my judgment, there is an important difference between ‘equip’ and ‘supply’, ‘supply’ being a word which is appropriate for use in connection with consumable stores, such as fuel oil, whereas ‘equip’ to my mind, connotes something of a more permanent nature than consumable stores. I can well understand that anchors, cables, hawsers, sails, ropes, and such things, may be said to be part of a ‘ship’s equipment’ and that, nonetheless, though they may have to be renewed from time to time; but such things as fuel oil, coal, boiler water and food – consumable stores – seem to me to be in quite a different category.” (Emphasis added)
66. Furthermore, the Full Federal Court in Opal Maritime Agencies, in considering the issue whether containers were part of a ship when placed on board a ship, concluded that, central to determining this issue, was the question whether containers “ever had any character as equipment acquired for a particular ship” (at 558).
67. The “essential characteristic” of mooring ropes is determined in relation to the state or condition of these goods at the time of importation (Times Consultants). The “essential characteristic” of mooring ropes is that their sole function is to moor large vessels.
68. Based on the evidence and information before the Tribunal, the following conclusions can be made:
(a)without mooring ropes to ensure the vessel remained stationary against the wharf, loading and unloading could not proceed;
(b)mooring ropes are also part of the original design specifications of a vessel supplied by the shipowner at fitout; and
(c)regulatory controls require mooring ropes to be supplied at the time of first sailing.
69. On consideration of the common law authorities, and all of the factual evidence, the Tribunal concludes that mooring ropes are “part” of a vessel because of the following reasons:
(a)They are not a “consumable” item in the strict sense. Mooring ropes “were not something being constantly withdrawn or replaced” (Panasonic) – but rather had the character of something of a “permanent nature” (Secony Bunker) as they were replaced from time to time (6-9 years);
(b)Nor was there any basis to conclude that mooring ropes could be considered to be “spare parts” of a vessel (see Waterscheid);
(c)Mooring ropes could be distinguished from ropes used in general use, on vessels, because of their weight (in excess of 2000kg) and because of the need for the use of a crane to remove mooring ropes from a vessel, as well as because of their “essential characteristic”;
(d)Mooring ropes are considered to be “part” of the vessel’s “equipment” as the evidence before the Tribunal (viz, commitment to design specifications of the vessels, supplied at fitout before, and necessary for, first sailing because of regulatory controls). That is, mooring ropes have the “character of equipment acquired for a particular [QAL] ship” (Opal Maritime Agencies);
(e)It was not in dispute that mooring ropes were essential on vessels - or that mooring ropes were part of the vessel’s mooring system. However, whilst Waterscheid concluded that “a ‘part’ need not be essential to the functioning of the whole”, the test in Polaroidis whether “a ‘part’ is something which with others makes up a whole”;
(f)Mooring ropes as “equipment” used by the vessel in its operations benefits the vessel from the presence of such equipment - from the point of safety and for loading and unloading of cargo (Morlines Maritime Agency); and
(g)However, the Tribunal considers that there is a relevant distinction between “proper use” (Waterscheid) and “integral part” (Opal Maritime Agencies) in relation to mooring ropes as “part” of a vessel. Based on all of the evidence and material before the Tribunal, as well as the above conclusions, there is a sufficient connection between mooring ropes and a QAL vessel to justify mooring ropes being treated as an “integral part” of the vessel (Opal Maritime Agencies). Mooring ropes were part of the totality of all parts that constituted the mooring system of the vessel.
70. In making this finding, the Tribunal has relied on common law authorities for the meaning of “part [of a vessel]” rather than the Departmental policy guidelines. The common law authorities provide a clear and unambiguous meaning for the term “part”.. The Departmental policy guidelines do not represent binding criteria.
71. The Tribunal further finds that the subject goods, mooring ropes, are “parts of vessels” used in the construction of vessels. The building of the QAL vessel involves assembling and combining “parts”. Mooring ropes have been found by the Tribunal to be part of the QAL vessel. The “essential character” of mooring ropes as determined in relation to the state or condition of these goods at the time of importation indicates that their purpose is to moor large vessels, that they were part of the original design specification and supplied by the applicant at the time of fitout and prior to the first sailing. The Tribunal has made a finding that mooring ropes have the “character of equipment required for a particular [QAL] ship”.. Moreover, the Tribunal further finds that the applicant has intended to use the mooring ropes, for the purposes of importation of the item, to be covered by Item 42.
72. There is no evidence before the Tribunal to rebut the presumption that the respondent has not intended to use the goods imported (mooring ropes) other than on a vessel greater than 150 gross construction tonnes.
73. For all of the above reasons, the decisions under review are set aside. The matter is remitted to the respondent with the direction that mooring ropes are to be classified as “parts” of a vessel. The subject goods were classified under sub-heading 5607.50:00 of Schedule 3.
I certify that the 73 preceding paragraphs are a true copy of the reasons for the decision herein of Mr E K Christie, Member
Signed: Sarah Oliver
AssociateDate of Hearing 22 April 2002
Date of Decision 28 March 2003For the Applicant Mr A Robertson, TPJ International Pty Ltd
For the Respondent Mr L Kennedy, Australian Government Solicitor
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