Re Walterscheid Australia Pty Ltd v Collector of Customs

[1988] FCA 11

Re: WALTERSCHEID AUSTRALIA PTY LIMITED
And: COLLECTOR OF CUSTOMS
No. NSW G351 of 1987
Appeal from the Administrative Appeals Tribunal

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Appeal from the Administrative Appeals Tribunal - Customs Tariff - classification of goods - power take-off shafts - whether goods are accessories for tractors - whether Tribunal adopted wrong test - whether Tribunal took account of an immaterial consideration - whether error of law material.

Administrative Appeals Tribunal Act 1975 (Cth) s.44

Customs Tariff Act 1982 (Cth), Schedule 3.

HEARING

SYDNEY

#DATE 5:2:1988

Counsel for the applicant: Mr A. Robertson

Solicitors for the applicant: Humphreys & Corish

Counsel for the respondent: Mr C.J. Stevens

Solicitors for the respondent: Australian Government Solicitor

ORDER

The appeal be allowed.

The decision under appeal be set aside and the matter remitted to the Administrative Appeals Tribunal to be heard and decided again either with or without the hearing of further evidence.

The respondent pay the costs of the appeal.

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

JUDGE1

This is an appeal from a decision of the Administrative Appeals Tribunal which affirmed a decision of the Collector of Customs with respect to the classification of goods imported by the applicant. Under s.44 of the Administrative Appeals Tribunal Act 1975 (Cth), the appeal raises points of law only.

1. The Tribunal identified the issues that arise under Schedule 3 to the Customs Tariff Act 1982 (Cth) as follows:-
   
   

"2. The applicant contended that the PTO shafts should fall to item 87.06 of the tariff which is in the following terms:

'87.06 * PARTS AND ACCESSORIES FOR MOTOR VEHICLES OF A KIND FALLING WITHIN 87.01, 87.02 or 87.03: ...'

3. The 'motor vehicles of a kind' relied upon by the applicant are agricultural wheeled tractors. The appropriate sub-item and paragraphs relating to these are as follows:

`87.01 * TRACTORS (OTHER THAN THOSE FALLING WITHIN 87.07), WHETHER OR NOT FITTED WITH POWER TAKE-OFFS, WINCHES OR PULLEYS:

87.01.1 - Tractors of the track-laying type

87.01.2 - Agricultural wheeled tractors and other wheeled tractors that are derivatives of agricultural tractors:

87.01.21- Having a power of less than 15kW at the power take-off'

4. There are two important chapter notes which govern the meaning of the words in Item 87.01. Notes 2 and 5 of Chapter 87 are in the following terms:

'2. In this Chapter, "tractor" means a vehicle constructed essentially for hauling or pushing another vehicle, appliance or load, whether or not the first-mentioned vehicle contains subsidiary provision for the transport, in connection with the main use of the tractor, of tools, seeds, fertilizers or other goods.

...

5. In this Schedule, "agricultural tractor" means-

(a) a two-wheel drive tractor of a kind used solely or principally in agriculture, horticulture or viticulture; or

(b) any other tractor that is designed for use, and will be used, solely or principally, in agriculture, horticulture or viticulture.'

5. The applicant contended, therefore, that the PTO shafts were either parts for agricultural tractors or accessories for them. In either event the terms of Note 3 to Division 17 determine the standard of use which it must establish. This Note is in the following terms:

'3. In Chapters 86, 87 and 88 a reference to parts or accessories for goods shall be read as a reference to parts or accessories that are used solely or principally as parts or accessories for those goods.'

6. It was agreed between the parties that if the subject goods did not fall to Item 87.06, then they certainly fell to Item 84.63 which is in the following terms:

'84.63 * TRANSMISSION SHAFTS, CRANKS, BEARING HOUSINGS, PLAIN SHAFT BEARINGS, GEARS AND GEARING (INCLUDING FRICTION GEARS AND GEAR-BOXES AND OTHER VARIABLE SPEED GEARS), FLYWHEELS, PULLEYS AND PULLEY BLOCKS, CLUTCHES AND SHAFT COUPLINGS;'

It was the respondent's contention that Item 84.63 was the appropriate item and that Item 87.06 had no application.

7. The fact that the goods could possibly fall to both items is not relevant because of Note 1(m) of Division

16. That provides:

'The following goods do not fall within this Division;

...

(m) goods falling within Division 17.'

8. Thus the two items, falling as they do within Divisions 16 and 17, are mutually exclusive. There is no scope for the application of the Rules for the Interpretation of Schedule 3 which would normally apply in other instances of possible dual classification. The purpose of this review, therefore, is not so much to decide the appropriate classification as to consider whether or not Item 87.06 is appropriate. To succeed, the applicant must therefore demonstrate that PTO shafts are used solely or principally as parts or accessories for agricultural wheeled tractors as defined."

1. The subject goods were power take-off ("PTO") shafts and their various parts. The PTO shaft, when attached at one end to the PTO stub of a tractor and at the other end to a moveable implement such as a mower or slasher or to a stationary implement such as a feed grinder or mixer or tree chipper, allows the tractor to serve as a power source for the implement. The Tribunal stated the following facts, inter alia:-
   
   

"9. The evidence was that the vast majority of tractors with a horse power rating of less than 350 would have a PTO stub. This is a boss protruding from the rear of the tractor and connected with its engine. Power is transmitted from the engine to the revolving boss. In order to harness that power and transmit it to other implements, a PTO shaft is used. This consists of a telescopic sliding shaft with universal joints at both ends to facilitate connection to a tractor PTO stub and to the implement.

10. There is a large range of agricultural implements that have no power source of their own and cannot operate unless power is introduced into their mechanisms. The evidence of the applicant was that the most common implement connected would be mowers and slashers. Other implements such as rotary hoes, hay bailers, cultivators, sprayers, pumps, ploughs, generators and the like, are also commonly connected to the tractor's power via a PTO shaft.

11. The working part of the shaft consists of a solid bar which takes on telescopic properties by fitting inside a tube. It needs this type of flexibility when implements are being towed over uneven ground, or when for any reason the distance between the power source and the implement varies from time to time. Both bars are encased in a heavy duty plastic guard. At one end, the tractor end, the shaft is locked on to the stub in order to tap the source of power. The evidence was that by and large, tractor stubs vary within a very small range. Consequently, there would be only approximately three types of fittings for the commonly found tractors. With the introduction of other tractors from such places as China and Russia, a further five types of couplings have appeared on the market. On the other hand the evidence was that the number of couplings to implements was very much larger. The Managing Director of the applicant company estimated that there would be approximately 350 varieties of couplings for the implement end.

...

13. The PTO shaft is always fitted with a quick release at the tractor end. The position is different at the implement end. This is partly because of the large variation of couplings required throughout the range of implements and the difficulty, therefore, in supplying any universally applicable quick release mechanism. It is also partly due to the custom in agriculture of storing the PTO shaft while attached to the implement. Mr Crust, a lecturer at Hawkesbury Agricultural College, gave evidence that it would be bad farming practice to leave the shaft attached to the tractor. From his observation of farming practice and certainly within the College itself, shafts were commonly left attached to the implement. They were not normally removed and stored separately after use. Quite often, he added, shafts are physically bolted on to an adaptation plate on an implement.

14. PTO shafts are marketed largely to Australian manufacturers and importers of farm implements. The applicant's Managing Director, Mr McFadzean, gave evidence that when supplying shafts, his company was concerned principally to know the power requirements of the implement for which the shafts were intended. Direct sales were also made to some farmers. The same marketing considerations were also taken into account in those sales. In other words, most sales involved a coupling at the implement end specifically designed for, or dedicated to, that implement. This was confirmed by Mr Lamacraft, the Manager of the Compact Tractors Division of Massey-Ferguson in Australia, who was called to give evidence on behalf of the applicant. In his view, the implement determined the nature and capacity of the shaft. Whilst he agreed that varied tractor powers must, to some extent, affect the design of the shaft, he considered that for manufacturing purposes a majority application had been adopted. In effect a common horse power standard of tractors was assumed."

1. Mr J.P. Crust gave evidence to the Tribunal that, "The general practice, I would venture to say, would be to leave the PTO shaft connected to the implement". Mr M.J. Newman, marketing manager of Repco Universal Drivelines, a manufacturer of PTO drive shafts, gave evidence that:-
   
   

"Usually the shaft is designed to couple to the implement. Well, in 95 percent of the cases, that is the way it is. We actually design it for the implement. ... I think they (manufacturers of PTO-driven implements) regard our product as an integral part of their product (the implement). ... the shaft is dedicated to the implement rather than the tractor, ..."

Mr W.T. Brown, Principal Agricultural Engineering Officer, Agricultural Engineering Centre, Department of Agricultural and Rural Affairs, gave evidence that:-

" ... in our experience most implements would be sold with the shaft as part of the package deal."

1. As was accepted by the Tribunal, the evidence showed that the PTO shafts and their couplings were normally designed for and dedicated to a particular type of implement and were marketed with the implements to which they were to be attached. Once assembled, the PTO shafts were ordinarily left permanently attached to the implement and were attached to a tractor only when power from the tractor was required. The coupling used in attaching the PTO shaft to a tractor was usually of a standard quick release type, three types being commonly found, and enabled the PTO shaft to be quickly attached to or detached from a tractor. 95% of the PTO shafts were used in relation to agricultural tractors as defined in paragraph 87.01.21.

2. The Tribunal held that the PTO shafts were not parts for tractors falling within item 87.01. That aspect of the Tribunal's findings is not challenged in this appeal. The Tribunal also held that the PTO shafts were not accessories for such tractors. The appeal is brought from this aspect of the Tribunal's finding.

3. The Tribunal's formal statement of the legal test to be applied cannot be faulted. The Tribunal said:-
   
   

"36. The applicant finally submitted that if the PTO shafts were not to be viewed as parts for tractors, then at the very least they would fall within the description of accessories. Once again I consider that the meaning of this term is definitively stated in Deputy Commissioner of Taxation v. Polaroid Australia Pty Ltd 46 ALJR 32. At page 35 Gibbs J. said:

'The final question is whether the goods can be described as accessories for a camera. The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it. It was because the Deputy Commissioner regarded the goods as essential to the use of a Polaroid camera that he preferred to submit that they are parts rather than accessories. In my opinion, however, the goods in question cannot be regarded as accessories for a Polaroid camera. An accessory for a camera is an extra and additional part of the equipment of the camera itself, such as a light meter, a filter or a wide angle lens, and in the ordinary course of language a film would not be referred to as an accessory for a conventional camera, nor a film pack or a picture roll as an accessory for a Polaroid camera.'"

1. Nor in my view can part of the Tribunal's ultimate findings of fact be faulted. The Tribunal said:
   
   

"39. If the PTO shaft can be described as an accessory at all, it would be as an accessory to the various implements to which it is fitted. The coupling is specifically designed to fit the particular implement (as one witness said - it is dedicated to the implement). The implement is useless ("a piece of sculpture") without power. Although it is possible to power it in unusual ways, by far the commonest way is via a PTO shaft. In the sense that an implement cannot work without the introduction of power, it might almost be said that the PTO shaft is a part for the implement ..."

If a PTO shaft were to be regarded as a part or as an accessory why should it not be regarded as a part or accessory for an implement, namely, the implement for which it was designed, to which it would be attached and which would be inoperative without it? Such a finding would seem to justify the tariff classification 84.63 which the Tribunal considered to be the correct classification.

1. However, Mr A. Robertson, of counsel, who appeared for the applicant, directed the Court's attention to aspects of the Tribunal's reasons which he submitted disclosed that the Tribunal adopted the wrong test or took into account an immaterial consideration. Mr Robertson submitted that, because of error, the Tribunal's decision should be set aside and the matter remitted to the Administrative Appeals Tribunal for rehearing with or without further evidence. Presumably Mr Robertson had in mind that, on a rehearing, fresh evidence would be called and the facts ultimately to be considered would be different from those on which the present decision was based.

2. In order to understand the matters complained of, it is useful to turn to some of the Tribunal's reasoning, firstly, with respect to the issue as to whether the PTO shafts were parts for tractors as defined. The Tribunal said, inter alia:-
   
   

"22. From this, the applicant developed an argument that in fact the shafts were parts for tractors. Two tests have been enunciated by this Tribunal in order to characterise an object as a part for another object. The first is the commitment test and the second is the essentiality test.

23. The first test was set out in Re Transaction Australia Pty Ltd 4 ALN N89. At paragraphs 27 and 28 the Tribunal said:

'27 The meaning of the word "part" was considered in Re Tubemakers of Australia Pty Ltd and Collector of Customs (1980) 3 ALD 199 at 206, where the Tribunal as then constituted (Mr A N Hall, Senior Member, Mr V J Skermer and Mr L G Oxby, Members) said:

"The word 'part' normally connotes something which is a constituent or component of a whole entity; and in the context of the expression 'parts for cycles', the word 'for' suggests a purposive or differentiating function."

28 In that case the Tribunal differentiated between, on the one hand, pieces of metal tubing which, whilst suitable for use in the manufacture of bicycle frames, might also have a wide variety of uses beyond that specific use, and, on the other, pieces of tubing the features of which demonstrate that they are committed by their manufacture to use as parts for cycle frames. Having regard to the requirements of note 3 to Div XVII that @a reference to parts ... for goods' is to be read as a reference to @parts ... that are used solely or principally as parts ... for those goods', the same principle of commitment to use as a part for the particular class of machine is, in our view, involved in this case. On that approach, the question is whether the @forklift truck cylinder' is so committed by its manufacture to use as a part for a @works truck' as to be identifiable as such a part within the meaning of Division note 3.'

The commitment test has been adopted elsewhere, for example in Re JS Levy Corporation Pty Ltd at N439.

24. The second test was also enunciated in Transaction. At paragraphs 29 and 30 the Tribunal said:

'29 The meaning of the word "part" has also been extensively considered in American customs cases. Typical of the approach in these cases is the following extract from the decision of the Court of Customs and Patent Appeals in United States v Willoughby Camera Stores Inc (1933) 21 CCPA 322 TD 46851 at 324, where it was stated that:

"It is a well-established rule that a @part' of an article is something necessary to the completion of that article. It is an integral, constituent, or component part, without which the article to which it is to be joined, could not function as such article ..."

(See also Gallagher and Ascher Company v United States 54 Cust Ct 141 CD 2522 and 63 Cust Ct 223 CD 3899; Ted L Rausch Rocky Cycle Co v United States 63 Cust Ct 367 CD 3920; The Westfield Manufacturing Company v United States 46 Cust Ct 52 CD 2232; Rocky Cycle Co Inc Joseph A Paredes v United States 62 Cust Ct 550 CD 3825; cf Herbert G Schwarz, DBA Ski Imports v United States 60 Cust Ct 522 CD 3447.

30 Whilst the American decisions are no more than persuasive and whilst they indicate a fairly broad view of what constitutes a "part" for an article, to which we should not be taken as giving unqualified acceptance, the concept of a component "without which the article to which it is to be joined could not function as such article" is one which appears to be well founded in common sense and is therefore a useful guide.'

25. Clearly the second test is more restrictive than the first. It was submitted that I should not follow it for four reasons.

26. Firstly it was argued that although the test was stated in terms of the decision in Willoughby Camera Stores Inc, that decision was not accepted without reservation in Transaction. It is true that the Tribunal refused to give 'unqualified acceptance' to the decision. I do not, however, read this as a mere equivocal acknowledgement of an authority in another jurisidiction having some relevance. I read the decision as an adoption of the reasoning which 'appears to be well founded in common sense'.

27. The applicant then went on to submit as the second reason for not following the essentiality test the fact that Willoughby no longer represented the law in the United States. I was referred to a decision of Beacon Cycle and Supply Co Inc v United States 81 Customs Court

46. At pages 50 and 51 the court in that case said as follows:

'Originally, an article could not be a "part" for customs duty purposes unless it was "an integral, constituent, or component part, without which the article to which it is to be joined, could not function as such article." United States v. Willoughby Camera Stores, Inc., 21 CCPA 322, 324, TD 46851 (1933) (emphasis in original), cert denied, 292 US 640 (1934). Cf Mead Cycle Co. v. United States, 28 Treas Dec 389, TD 35223

(1915). That view referred to as the "rule of essentiality," no longer prevails. It is now clear that an article can be a "part" for customs duty purposes even though it is merely an "accessory" or "optional equipment." Victoria Distributors, Inc. v. United States, 57 CCPA 76, 425 F 2d 759 (1970); Gallagher & Ascher Co. v. United States, 52 CCPA 11, CAD 849 (1964); and cases cited in Vilem B. Haan v. United States, 67 Cust Ct 104, 332 F Supp. 182 (1971). See also Mattel, Inc. v. United States, 61 Cust Ct. 75, 287 F Supp 999 (1968) in which Judge Maletz, writing for the court, found that wigs for dolls were "parts" even though they were referred to as "accessories." In the Mattel case, although the wigs were parts of dolls, by virtue of Rule 10(ij) they were nevertheless held to be classifiable under the provision which specifically covered "wigs."

In the bicycle trade, an "accessory" is "optional equipment not absolutely essential to the operation of the bicycle as a locomotion device." Victoria Distributors, Inc. v. United States, 57 CCPA at 79. The radio-headlight combination is an accessory because a bicycle may be used without it in the performance of its primary function, that is, the transportation of passengers.

Whether a given article is a part of another article depends on the nature of the so-called "part", and its function and purpose in relation to the article which it is designed to serve. Gallagher & Ascher Co. v. United States, 52 CCPA 11, C.AD. 849 (1964); Vilem B. Haan v. United States, 67 Cust. Ct. 104. 332 F Supp 182 (1971). A significant factor in determining whether merchandise is a "part" is whether it is dedicated for use on the article. Victoria Distibutors, Inc. v. United States, 57 CCPA at 80; Oxford International Corp. v. United States, 70 Cust. Ct. 217, 223 n.2, C.D. 4433 (1973)."

28. I am not sufficiently familiar with decisions of the US Customs Court to be able to say that this decision represents the present state of the art. It is clear, however, from the terms of the decision quoted that the principles espoused in the earlier Willoughby case now seem to have been discarded. In discarding them the Customs Court seems to have elided the terms 'parts' and 'accessories' which, however, are still described and treated differently under our Tariff. But I cannot see, in any event, why this should influence me to be reluctant to follow Transaction which I would otherwise feel obliged to do, if for no other reason than to preserve consistency in Tribunal decisions. The terms of the decision in Willoughby were not adopted because they represented the current development of American law, either at the time the decision was first given in 1933 or at the time of the Transaction decision in 1981. The principles in Willoughby were adopted because they appeared to the Tribunal to be a useful guide founded in common sense. In no way could it be said that the Tribunal thereby locked itself into the development of American law on the same subject. That would be an unsupportable proposition. American authorities sometimes offer useful guides, particularly in the customs field which (at any rate prior to 1981) had not had extensive external review. To adopt a formula of words or even a juridical concept is not to commit oneself to a line of development which that formula or concept may take in future years.

29. That the US Customs Court used the phrase 'part thereof' in Willoughby does not, in my view, alter the principles to which I have referred. That use of the word @thereof' was the third argument of the applicant advanced in support of its proposition that I should not follow the essentiality test.

30. The fourth argument was on stronger ground when it was submitted that this Tribunal itself has, on occasion, departed from the essentiality test. Reliance for this proposition was placed only on one short passage in Re National Panasonic (Australia) Pty Ltd 7 ALD 647. At paragraph 19 the Tribunal said:

'19 Even if it be assumed that a cassette is indispensable to use of a VCR (which is effectively the position), closer consideration of the problem begins to give rise to doubt. "Accessory" seems almost by definition to connote something that is additional or even perhaps optional. And there are many parts of or for articles or entities of various kinds that are clearly not indispensable to their use. A car from which a headlight dipswitch is missing has a disability, and should not pass a roadworthiness test. But the car is not thereby unusable. The component in question is not indispensable, whereas the petrol tank is.'

31. I do not read this passage, however, to indicate a refusal on the part of the Tribunal as there constituted to follow the earlier principles of essentiality referred to in Transaction. I take it to indicate only that it was not necessary to resort to that test in that particular case in order for the Tribunal to arrive at the result that it did."

1. The above was a very lengthy examination of what the Tribunal described as "the essentiality test" laid down in United States v. Willoughby Camera Stores, Inc., 21 CCPA 322, namely "that a 'part' of an article is something ... without which the article to which it is to be joined could not function as such article. This examination weakens the Tribunal's later statement that "the meaning of 'part' has been definitively laid down in Polaroid".

2. In Deputy Commissioner of Taxation v. Polaroid Australia Pty Ltd , 46 ALJR 32, Gibbs J. gave to the words "part" and "accessory" appearing in the second schedule to the Sales Tax (Exemptions and Classifications) Act 1935 - 1967 (Cth) their meaning in ordinary parlance, that is to say, their dictionary meaning. That is also the test to be applied to the provisions with which we are concerned, save to the extent that the meaning is modified by Note 3 to Division 17. It is the meaning which has been generally applied in decisions of the Administrative Appeals Tribunal. It was first enunciated by the Tribunal in Re Tubemakers of Australia Pty Limited and Collector of Customs (1980) 3 ALD 199 at p 206. I hardly need state that in ordinary parlance something may be a part of a composite article yet not be essential to the functioning of that article. Ashtrays and armrests incorporated into motor vehicles during manufacture are examples. This was made clear in Re National Panasonic (Australia) Pty Limited and Collector of Customs (NSW) (1985) 7 ALD 647 where the Tribunal said at pp 656-7:-
   
   

"'Accessory' seems almost by definition to connote something that is additional, or even perhaps optional. And there are many parts of or for articles or entities of various kinds that are clearly not indispensable to their use. A car from which a headlight dipswitch is missing has a disability, and should not pass a roadworthiness test. But the car is not thereby unusable."

1. In Re Transaction Australia Pty Limited and Collector of Customs (Vic) (1981) 4 ALN N89, to which in the present case the Tribunal referred and from which it drew guidance, I think the Administrative Appeals Tribunal was not questioning that. In that case, the Tribunal was considering whether certain gas cylinders especially designed for use on forklift trucks were parts for those trucks. The Tribunal concluded that the cylinders were parts for the trucks and in doing so took into account the fact that the gas cylinders were essential to the operation of the forklift equipment. In looking at the matter in this way, the Tribunal was not saying that, for a piece of equipment to be a part of a composite entity, it had to be essential to the operation of that entity, the Tribunal was saying that the function which the item played was a matter which could be relevant in a determination as to whether it was or was not a part of an entity. With that proposition there can be no quarrel, as long as it is understood that an item separate from another may not be a part of the other even though it is essential to its functioning. As Gibbs J. said in Deputy Commissioner of Taxation v. Polaroid Australia Pty Ltd at p 34:-
   
   

"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."

See also the remarks of the Tribunal in Re National Panasonic (Australia) Pty Limited and Collector of Customs (NSW) at p 657 which are to the same effect.

1. The proper test in relation to the word "part" was stated by Gibbs J. in Polaroid Australia at p.34:-
   
   

"Obviously a part is something which with others makes up a whole ..."

In one sense, therefore, a part is something which is essential to complete the whole. But that was not the test applied by the Tribunal.

1. Thus, although the Tribunal's finding that the PTO shafts were not parts for tractors was correct and has not been challenged, much of the reasoning which led to that conclusion proceeded upon a wrong basis, for it assumed that a PTO shaft would not be a part for a tractor unless it was essential to the functioning of the tractor.

2. When it turned its attention to the term "accessory", the Tribunal again adopted a test of functional essentiality, though in a different guise. The Tribunal said:-
   
   

"37. It seems to me that the principal difficulty the applicant must overcome in this argument is the definition of tractor in Note 22 (sic) in Chapter 87. The fact that most tractors, having a rating of less than 350 horse power, have PTO stubs and incorporate as a feature in their design the facility to transmit power to implements, must be taken to be of little relevance in considering the application of the terms of Chapter

87. The only sort of tractor contemplated by that chapter is one which is constructed 'essentially for hauling or pushing another vehicle, appliance or load'. Possibly a PTO capability falls within the meaning of the words 'subsidiary provision for the transport ... of seeds ... or other goods', although such an interpretation would put considerable strain upon the ordinary meaning of the language. But even if that be so it is further indication that for the purposes of the Tariff, the PTO capability is minor in considering the functions to be performed by a vehicle which is to bear the name of tractor - what one may refer to as a 'statutory tractor'.

38. There is nothing in the nature of a PTO shaft which serves in any way to assist the hauling or pushing operation of a tractor. The definition of agricultural tractor in Note 5 does not expand the meaning of tractor. That is governed by the earlier note. Note 5 simply specifies types of hauling or pushing vehicles which are used in the manner therein set out.

...

40. In my view, the applicant has done no more than demonstrate that the shafts are individual articles of commerce used in conjunction with both tractors and implements to produce a particular result (c.f. National Panasonic at paragraph 21). This is a long way short of showing that they can properly be regarded as parts or accessories for tractors. In Polaroid it was possible to regard the hypothetical light meter, filter or wide angle lense as an accessory for or of a camera as these implements assisted the camera to carry out its principal function, namely the recording of images on sensitive film. It is not possible to regard PTO shafts in the same light. Shafts play no part in relation to the principal function of a statutory tractor. In view of the reasoning in Polaroid, they cannot therefore be described as accessories within the meaning of the appropriate item." (the underlining is mine).

1. Much of this reasoning was incorrect for neither the tariff nor the test enunciated by Gibbs J. in the Polaroid case, required that a part or an accessory for a tractor, as defined, must assist the hauling or pushing operation of the tractor. It was simply necessary that the article should be a part for or an accessory for a tractor as defined and, moreover, that the article should be used solely or principally as such a part or accessory. 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. Likewise, an accessory for a tractor is an extra or additional part of the tractor. The accessory does not have to relate to the essential function of the tractor. In Re Gefo Australia Pty Limited and Collector of Customs (No. V86/448, delivered 27 March 1987) the Administrative Appeals Tribunal correctly held that car mats specifically designed to fit Mercedes Benz vehicles were "accessories for motor vehicles" in sub-item 87.06.9.

2. In the present case, in paragraph 40 of its reasons set out above, the Tribunal said that in the Polaroid case Gibbs J. had regarded a light meter filter or wide angle lens as an accessory for a camera "as these implements assisted the camera to carry out its principal function". But Gibbs J. did not say that. His Honour said that an accessory was "something joined to another, but subordinate, as auxiliary or dependent upon it." His Honour said, "An accessory for a camera is an extra and additional part of the equipment of the camera itself".

3. The Tribunal referred to Note 3 of Division 17. But that note does not require or import that parts or accessories must relate to the principal function of the tractors as defined, namely to their hauling and pushing function. Note 3 simply requires that parts or accessories for goods be "used solely or principally as parts or accessories for those goods". In the present case, the test of "solely or principally" was satisfied for 95% of the PTO shafts were used in relation to tractors as defined. The issue in the case did not turn upon the words "solely or principally" but upon the question whether the PTO shafts were parts or accessories for tractors.

4. There were, therefore, aspects of the Tribunal's reasoning that were wrong in law.

5. The Court will not necessarily set aside a decision simply because an error of law in the reasoning process has been identified. It will not set aside the decision if it is satisfied that the error was immaterial and did not affect the ultimate decision. However, if the error did affect the decision in a material way, then the decision ought to be set aside.

6. In the present case, notwithstanding those passages of the Tribunal's reasons in paragraphs 36 and 39 set out above, which as I have said appear to me to be correct both as to fact and as to law, it cannot be said that the errors in the Tribunal's reasoning were immaterial and did not affect its conclusion. Too much time was spent by the Tribunal upon concepts of essentiality in relation to function for it to be held that the errors in the reasoning process were of no consequence. The Tribunal did not in fact apply the correct legal test enunciated by Gibbs J. in the Polaroid case.

7. An appeal to this Court under s.44 of the Administrative Appeals Tribunal Act 1975 is not an appeal by way of rehearing on the papers. It is an appeal by way of judicial review, that is to say with respect to points of law, notwithstanding that under s.44(4) of the Administrative Appeals Tribunal Act 1975, the Court "may make such order as it thinks appropriate by reason of its decision."

8. It follows that it is not for this Court to uphold the Tribunal's decision upon grounds that were not taken by the Tribunal. In Australian Broadcasting Tribunal & Anor v. Saatchi & Saatchi Compton (Vic) Pty Ltd (1985) 10 FCR 1 at p 9, Bowen C.J. cited the following principle stated in American Jurisprudence (2nd Ed) at para 756:-
   
   

"It is a fundamental rule of administrative law that a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency as disclosed by the record. The orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be adequately sustained or the action cannot be upheld, even though there are other grounds upon which the agency could have, but did not, base its action. If the grounds invoked by an administrative agency for its determination are inadequate or improper, a reviewing court is powerless to affirm the administrative action by substituting what it considers to be a more adequate or proper basis."

At p.10 his Honour concluded:-

"In my opinion, where an administrative body which states it is exercising a particular power in laying down a general rule lacks power on the stated ground, but could have laid down the rule validly under another head of power, it would generally be wrong for a court to uphold the rule as if it had been made under the unstated head of power ... ."

See also the remarks of Sheppard J. with whom Beaumont and Burchett JJ. agreed in Minister for Immigration and Ethnic Affairs v. Conyngham & Ors (1986) 68 ALR 441 at p 453.

1. I shall therefore order that the appeal be allowed, that the decision under appeal be set aside and that the matter be remitted to the Administrative Appeals Tribunal to be heard and decided again either with or without the hearing of further evidence. The respondent should pay the costs of the appeal.