Re Kenso Marketing Sdn Bhd and CEO Customs and Nufarm Australia Ltd
[2010] AATA 445
•16 June 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 445
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q 200600851
GENERAL ADMINISTRATIVE DIVISION ) Re KENSO MARKETING (M) SDN BHD Applicant
And
CHIEF EXECUTIVE OFFICER OF CUSTOMS
Respondent
And
NUFARM AUSTRALIA LTD
Joined Party
DECISION
Tribunal Honourable Dr B H McPherson CBE, Deputy President and
F D O’Loughlin, Senior MemberDate16 June 2010
PlaceBrisbane
Decision
The decision of the respondent to deny a Tariff Concession Order is affirmed.
..............................................
Deputy President
CATCHWORDS
CUSTOMS – Tariff Concession Order – Refusal of application – What constitutes Australian content – All costs contended by Joined Party ought be included in calculating factory or works costs – Decision affirmed.
Administrative Appeals Tribunal Act 1975 (Cth) Pt IV, s 35
Customs Act 1901 (Cth) Pt XVA Div 1, ss 269C, 269D, 269E
Kenso Marketing (M) SDN BHD and Chief Executive Officer of Customs and Nufarm Australia Limited (Party Joined) [2008] AATA 42
Marine Power Australia Pty Ltd and Another v Comptroller-General of Customs and Others (1989) 18 ALD 572
Re Scholle Industries Pty Ltd v Comptroller-General of Customs (1994) 37 ALD 303
REASONS FOR DECISION
16 June 2010 Honourable Dr B H McPherson CBE, Deputy President and F D O’Loughlin, Senior Member INTRODUCTION
1. On 11 January 2006, Kenso Marketing (M) SDN BHD (Kenso) applied for a Tariff Concession Order (TCO) in respect of goods described as:
HERBICIDES, having a basis of glyphosate as the active ingredient with a strength of 360 g/l (grams per litre) or greater OR 360 g/kg (grams per kilo) or greater
2. These are proceedings by the applicant Kenso under Part IV of the AdministrativeAppeals Tribunal Act 1975 to review the decision refusing the application on 24 October 2006. The original application for a TCO was opposed by two objectors: (A) Autopak Formulas Pty Ltd (Autopak); and (B) Nufarm Australia Limited (Nufarm). Both of them produce and market glyphosate herbicides and have done so for some years past. Nufarm, but not Autopak, has been joined as a party to this application for review, and was represented separately from the respondent Chief Executive Officer in the proceedings now before the Tribunal.
3. Details of the relevant goods, their production, the aspects of their production in Australia, the TCO application and its treatment on behalf of the respondent and the steps that led to the review of the respondent’s decision by the Tribunal sought by the applicant are set out in the decision of the Tribunal made on 15 January 2008 reported as [2008] AATA 42 (the Preliminary Decision).
4. Briefly stated, the respondent was not satisfied that, on the day of lodgement of the application, no substitutable goods were produced in Australia in the ordinary course of business.
5. There are two questions to be answered; whether there has been manufacture wholly or partly in Australia of the resultant goods and if there has been such manufacture, whether not less than 25% of the factory or works costs of the goods is represented by the aggregate of the value of Australian labour, Australian materials and factory overhead expenses incurred in Australia in respect of the goods.
6. The first of these questions was answered affirmatively in the Preliminary Decision.
7. The issue here, however, concerns what we designate the Australian content aspect of s 269D of the Customs Act 1901 (Cth) (the Act). So far as material it is as follows:
269D Interpretation – goods produced in Australia
(1)For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
...
(b)not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian materials; and
(iii)the factory overhead expenses incurred in Australia in respect of the goods.
8. Nufarm has advanced particulars of one of its glyphosate herbicide products of 360 g/l (grams per litre) or greater or 360 g/kg (grams per kilo) or greater, namely Roundup 360, and contends that it satisfies the Australian content requirement of s 269D.
9. Nufarm’s evidence focused on the production costs of Roundup 360 in 5 litre containers that were sold in cartons of 4 containers and were transported on pallets with pallet pads to assist in the transportation process.
10. The respondent supports Nufarm’s objection.
11. The applicant contends that the 25% Australian content requirement has not been satisfied. In amplification of that contention, the applicant contends that:
(a)the relevant goods are the herbicide contents of the goods and that the only relevant costs are those of its formulation and pumping to bulk storage containers or, alternatively, the cost of formulation and the cost of the retail container and labeling;
(b)given that Nufarm produces the herbicide in a variety of concentrations and sizes of retail containers, the weighted average cost of:
(i)production of all herbicides of concentrations of 360g/l (or 360 g/kg) or greater; and
(ii)all container sizes used by Nufarm to package its herbicide for distribution.
should be used rather than the cost of the herbicide of one concentration in one retail container size;
(c)the relevant costs to be included in the calculation should be the “average cost, during the two-year period preceding the lodgement of the application for the TCO” which we understand to mean that the weighted average cost of the relevant production over or in respect of the whole two year period rather than the weighted average cost at any point during that two year period; and
(d)the accounting information of the cost of producing Roundup 360 in 5 litre containers relied on by Nufarm in its evidence was not necessarily the cost of all materials and other steps involved in the process of production of that product.
12. The second and third of these contentions can be dealt with shortly. We do not agree with either of them.
13. The regime in which the Australian content requirement sits is one where a TCO is to be given if there are no substitute goods. Section 269C of the Act provides:
Interpretation--core criteria
For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.
14. It is readily apparent that a provision expressed in these terms, exhaustive as they are, will not be satisfied if one substitute good was produced in Australia in the ordinary course of business on the day on which the application for the TCO was lodged. If there were more than one then a TCO would not be allowed on the same footing, that there was a substitute. It is only necessary to address the relevant costs of one substitute. And if an objector to a TCO application in fact produces multiple substitute goods and chooses to provide details of one only in support of its objection, then the objector assumes the risk of failing to demonstrate that that substitute satisfies the requirements without the opportunity of relying on others. If the objector succeeds on the basis of information provided in respect of a single substitute good then the TCO should properly be denied.
15. One requirement to be satisfied for goods to be substitute goods is that they be produced in the ordinary course of business in Australia meeting the terms of s 269C reproduced above. Such goods will be produced in the ordinary course of business in Australia if (as is relevant to the present application) they meet the terms of s 269E(1) which provides as follows:
Interpretation--the ordinary course of business
(1)For the purposes of this Part, other than section 269Q, goods (other than made to order capital equipment) that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:
(a)they have been produced in Australia in the 2 years before the application was lodged; or
(b) they have been produced, and are held in stock, in Australia; or
(c)they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;
and a producer in Australia is prepared to accept an order to supply them.
16. The relevant test for Australian content is in s 269D(1) which provides as follows:
Interpretation--goods produced in Australia
(1)For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
(a)the goods are wholly or partly manufactured in Australia; and
(b) not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian materials; and
(iii) the factory overhead expenses incurred in Australia in respect of the goods.
17. Reading ss 269C, 269D and 269E together, it is apparent that any two year test period relates to production of goods for the purposes of determining whether that production was in the ordinary course of business. That is the only purpose of any two year period test. There is no requirement to determine the manufacturing cost of substitute goods over a two year period.
18. The first and last of the applicant’s contentions remain to be considered.
19. Nufarm identified 12 categories of materials and associated inputs that are used in producing Roundup 360 and readying the product for sale and delivery. Nufarm contends that the cost of these inputs together with the appropriate labour and factory overhead costs constitute the alleged factory or works costs for Roundup 360. The proportionate costs of the finished product of Roundup 360 in cartons of four five litre containers with labels and safety information contended for by Nufarm as set out below.
[Table deleted by order of 16 June 2010 pursuant to s 35 of Administrative Appeals Tribunal Act 1975].
20. The applicant does not dispute that category 1, 2 and 3 costs are properly included in the factory or works costs of Roundup 360 and accepts that category 9, 10 and 12 costs are, at least to some extent, likely to be included in such costs. The applicant disputes that category 4, 5, 6, 7, 8 and 11 costs are properly included in the factory or works costs of Nufarm's Roundup 360.
21. The applicant disputed the quantum of all items of costs disclosed by Nufarm’s evidence. It did so not by leading any evidence of its own, which we observe it may have done after it had been allowed access to and examination of Nufarm’s accounting records, but by collateral challenge to the approach adopted by Nufarm in establishing the Australian content of its product.
22. The process by which Nufarm determined its asserted proportionate costs of production of Roundup 360 in cartons containing four five litre containers relied heavily on management accounts detailing production costs and supporting invoices. There was no challenge to the integrity of the evidence provided by Nufarm and we accept that the evidence provided to the Tribunal accurately records the performance of the relevant aspects of Nufarm’s business. The applicant contests the appropriateness of the approach adopted by Nufarm asserting that supporting invoices for purchase of input materials may not have been used for the production of Roundup 360 in cartons containing four five litre containers. It is correct to say that the purchase prices asserted and the supporting invoices were for input materials used in the production of glyphosate herbicides and the particular purchase may not have been used to produce Roundup 360 marketed in cartons containing four five litre containers. Nevertheless, we accept that the evidence relied on either is the actual cost of the input materials or accurately represents that cost and is sufficient to show what the actual cost was. The approach adopted by Nufarm is more than an estimate of the costs of its production. That approach accurately demonstrates what its costs of materials were.
23. Nufarm adopted an approach of calculating its total labour and allowable overhead costs for one of its factories (which produces glyphosate herbicides at the lowest unit cost of its production facilities in Australia) and determined a per litre cost of production of glyphosate herbicides generally and applied that cost to the production cost of Roundup 360. Nufarm’s evidence, which we accept, is that this is an accurate method of calculating the production cost of Roundup 360.
24. Accordingly, we do not agree with the applicant’s fourth objection.
25. That leaves the remaining question of whether all of the itemised categories of cost referred to in the table above are properly included in the concept of ‘the factory or works costs of the goods’ contemplated by s 269D.
26. The concept of ‘factory or works costs of the goods’ is not defined in the Act. Authorities suggest that these words bear their ordinary and commonsense meaning. They are not words which have an acquired legal or technical meaning,[1] and that ‘factory or works costs of the goods’ means all actual costs incurred in the transformation of material into finished goods, including packaging and labeling costs.[2]
[1] Marine Power Australia Pty Ltd and Another v Comptroller-General of Customs (1989) 18 ALD 572 at 576
[2] Re Scholle Industries Pty Ltd v Comptroller-General of Customs (1994) 37 ALD 303 at 306
27. We take the view that the concept focuses on finished goods and looks to the cost of getting the inputs to those goods to the point where they are ready for the usual kind of sale by the manufacturer or producer of those goods. Selling, marketing and associated overhead and administration costs are not to be included.
28. Such conclusions are supported by the scheme of Division 1 of Part XVA of the Act as a whole, we observe that in addressing whether there has been a ‘substantial process in the manufacture of the goods’ packaging and labeling and the like are not to be taken into account – see s 269D(3). The legislature has clearly turned its mind to these aspects of the production of finished goods and has excluded them from the question of whether there has been a ‘substantial process in the manufacture of the goods’. The legislature has not done so in relation to the question of the factory or works costs of the finished goods.
29. The finished goods in question here need to be contained in an appropriate container, and need labels and other information given their inherent toxic nature. We see no reason for excluding the costs contended for by Nufarm.
30. We are of the view that, with the possible exception of the pallet pads, which in any event would not alter the conclusion to be reached, all of the costs contended for by Nufarm ought be included in the calculation of the ‘factory or works costs of the goods’.
I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Honourable Dr B H McPherson CBE Deputy President and F D O’Loughlin, Senior Member
Signed: .....................................................................................
Kate Slack, Research AssociateDate/s of Hearing 12 & 13 April 2010
Date of Decision 16 June 2010
Counsel for the Applicant J. Slonim
Solicitor for the Applicant D. BoyallSolicitor for the Respondent R. Northcote, Australian Government Solicitor
Counsel for the Joined Party R. M. Niall
Solicitor for the Joined Party Sylvia Miller & Associates
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