Ridley AgriProducts Pty Ltd and Chief Executive Officer of Customs
[2014] AATA 566
•15 August 2014
[2014] AATA 566
Division GENERAL ADMINISTRATIVE DIVISION File Number
2013/0241
Re
Ridley AgriProducts Pty Ltd
APPLICANT
And
Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Deputy President P E Hack SC
Date 15 August 2014 Place Brisbane The decision under review is affirmed.
.....................[Sgd]...................................................
Deputy President P E Hack SC
CATCHWORDS
CUSTOMS – duties – classification of feed milling plant with pelleting line
LEGISLATION
Customs Tariff Act 1995 (Cth) s 3, 7(2); Schedule 2; Schedule 3 Section XVI Note 4; Chapter 84 headings 8437-8438
CASES
Chief Executive Officer of Customs v Biocontrol Ltd [2006] FCA 107; (2006) 89 ALR 551
Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (1987) 72 ALR 591
Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615SECONDARY MATERIALS
Explanatory Notes to the Harmonised Commodity Description and Coding System Section XVI Chapter 84 Heading 84.37 Part III
REASONS FOR DECISION
Deputy President P E Hack SC
15 August 2014
Introduction
The applicant Ridley AgriProducts Pty Ltd (Ridley) is a large producer of stock feed. In 2012 (or perhaps earlier) it contracted with SKIOLD, a leading European manufacturer of feed milling equipment for the supply and installation of a SKIOLD feed milling plant with pelleting line.
Ridley and the respondent, the Chief Executive Officer of Customs, are at odds as to the proper classification of the plant for tariff purposes. Customs decided that it ought to be classified under heading 8438 of Schedule 3 to the Customs Tariff Act 1995 (Cth) (the Act) as a machine, not otherwise included in Chapter 84 of that Schedule, for the preparation or manufacture of food and thus liable for duty at a rate of 5%. Ridley says that it ought to be classified under heading 8437 as a machine used in the milling industry or for the working of cereals. If so, Ridley is not liable to pay duty.
Ridley seeks review of the decision of Customs of 11 July 2012 to classify the imported goods under heading 8438.80.00.
The plant
The nature and function of the plant is well described in the annexure to the contract[1] together with the mechanical flow diagram[2] and the general layout plan.[3] The major activities of the plant, in sequence, are these,
[1]Exhibit 5
[2]Exhibit 4
[3]Exhibit 6
(a)receipt and cleaning of bulk grains and legumes (and, separately, the receipt of other macro and micro additives);
(b)storage of bulk raw materials in an array of silos;
(c)grinding any raw materials not already in a form able to be incorporated into stock feed;
(d)mixing of bulk raw materials with macro minerals, for example limestone, and micro additives, vitamins and suchlike, according to programmed formulae, and with the addition of up to three liquids, ordinarily at least, molasses and water;
(e)either storing in silos, for bulk supply, the stock feed produced; or,
(f)heat treating (with steam) and pressing the stock feed into pellets and storage in silos, also for bulk supply.
I do not understand Ridley to take issue with this description taken from the written submissions of Customs.[4]
[4]Exhibit 14
20.Section 1 (intake and cleaning) has several cleaning/separation functions. A magnet removes metal. The cleaner removes larger impurities with a scalper screen, and impurities smaller than the grain with a sand screen. Dust and light particles are removed with an aspiration system.
21.Section 2 (Raw Material Silos/Dosing).The silos, silo supports and catwalks are locally sourced. The bucket elevator, the two-way valve, the 5 chain conveyors to the silos, the 18 dosing conveyors, the 2 weighing bins and the conveyor to take the weighed goods to the elevator are part of the goods imported. Grain is conveyed from storage to weighing machines where the grain (being various types of cereal grains, legumes, vegetable protein meal or other bulk or ‘macro’ components) are measured by weighing to a precise recipe.
22.Section 3 (Grinding-Disc Mill). The raw grains and other bulk raw materials are fed through a disc mill. The mill is fed and dosed by means of a bucket elevator, chain conveyor, buffer silo and feeding augurs. A pipe magnet removes impurities, and the ground meal is taken away with a discharge conveyor.
23. Section 4 & 5 (Small component dosing and micro dosing). To the ground material vitamins, minerals and/or premix preparations added depending on the type of animal feed being produced. Micro dosing is primarily used for medication.
24. Section 6 (Mixing).Grains and other products are mixed together. Liquid fats, water and molasses may be added into the mix in controlled proportions.
25.At the conclusion of the mixing stage there is a moist and palatable mix (for the intended consumers) of coarse meal, other foodstuffs, supplements (e.g. minerals & vitamins) medicines and pre-mixes to the specified recipe for species/age/condition.
26.This is the final processing stage for meal feeds.
27.After the mixing there is a by-pass to the truck ready feed silos so that the goods produced can be either feed meal or pellets.
28.Section 7 (Pelleting).The pelletising section comprises a row of single machines that transform meal into pellets. Meal feed is dosed by an augur into a mixer where it is steamed and heated before being pressed into pellets. The heated pellets are cooled and cleaned. The finished pellets are then conveyed to the truck ready feed silos.
That appears to me to set the process out accurately.
The legislation
The scheme of the Act needs to be briefly noted. The Act imposes Customs duty on goods imported into Australia. The amount of duty is determined by a Principal Tariff set out in Schedule 3 to the Act. Goods are classified in accordance with Australia’s obligations as a party to the World Trade Organisation Agreement. The rate of duty is determined by the classification to which the goods belong and, generally, by reference to Schedule 3 of the Act.[5]
[5]Particular countries and particular circumstances are dealt with in other Schedules to the Act. No reference to them is required in the circumstances of this case.
Schedule 2 of the Act sets out "General rules for the interpretation of Schedule 3" known as the Interpretation Rules.[6] Those Rules "must" be used for working out the tariff classification under which goods are classified.[7] The Rules, so far as they are presently relevant, provide:
[6]See s 3 of the Customs Tariff Act 1995 (Cth).
[7]See s 7(2) of the Customs Tariff Act 1995 (Cth).
Classification of goods in Schedule 3 shall be governed by the following principles:
1. The titles of Sections, Chapters and sub‑Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.
(b) …
…
6.For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.
Schedule 3 is broken down into Sections, dealing with particular classes of goods. Within each Section are various Chapters dealing with particular categories within the overall class. The present contest centres on Section XVI headed:
Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.
Section XVI is introduced with a series of "Notes" and "Additional Notes" which, by operation of rule 1 of the Interpretation Rules, are to be used to determine the classification of the goods. Note 4 is relevant. It reads:
Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
Chapter 84, within Section XVI is headed:
Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.
The argument in the present case comes down to a choice between two headings - 8437 (for which Ridley contends) and 8438 (for which Customs contends). It is as well to set out the entirety of those items.
8437
MACHINES FOR CLEANING, SORTING OR GRADING SEED, GRAIN OR DRIED LEGUMINOUS VEGETABLES; MACHINERY USED IN THE MILLING INDUSTRY OR FOR THE WORKING OF CEREALS OR DRIED LEGUMINOUS VEGETABLES, OTHER THAN FARM‑TYPE MACHINERY:
8437.10.00
‑Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables
5%
DCS:4%
DCT:5%8437.80.00
‑Other machinery
Free
8437.90.00
‑Parts
Free
8438
MACHINERY, NOT SPECIFIED OR INCLUDED ELSEWHERE IN THIS CHAPTER, FOR THE INDUSTRIAL PREPARATION OR MANUFACTURE OF FOOD OR DRINK, OTHER THAN MACHINERY FOR THE EXTRACTION OR PREPARATION OF ANIMAL OR FIXED VEGETABLE FATS OR OILS:
8438.10
‑Bakery machinery and machinery for the manufacture of macaroni, spaghetti or similar products:
8438.10.10
‑‑‑For the manufacture of macaroni, spaghetti or similar products
Free
8438.10.90
‑‑‑Other
5%
DCS:4%
DCT:5%8438.20.00
‑Machinery for the manufacture of confectionery, cocoa or chocolate
5%
DCS:4%
DCT:5%8438.30.00
‑Machinery for sugar manufacture
5%
DCS:4%
DCT:5%8438.40.00
‑Brewery machinery
5%
DCS:4%
DCT:5%8438.50.00
‑Machinery for the preparation of meat or poultry
5%
8438.60.00
‑Machinery for the preparation of fruits, nuts or vegetables
5%
8438.80.00
‑Other machinery
5%
8438.90
‑Parts:
8438.90.10
‑‑‑Of machinery of 8438.10, 8438.20.00, 8438.30.00 or 8438.40.00
5%
DCS:4%
DCT:5%8438.90.90
‑‑‑Other
5%
There is a further extrinsic aid to be mentioned, the Harmonised System Explanatory Notes[8] (HSEN), maintained by the World Customs Organisation as guidance material for member states. HSEN may be used as an appropriate extrinsic aid to interpretation when the language of a heading is ambiguous or susceptible to different interpretations.[9] I will refer to the terms of the applicable HSEN, where necessary, when dealing with the arguments of the parties.
[8]Formally titled Explanatory Notes to the Harmonised Commodity Description and Coding System.
[9]Chief Executive Officer of Customs v Biocontrol Ltd [2006] FCA 107; (2006) 89 ALR 551 at [39].
The principles that apply in tariff classification are well settled and there is no dispute between the parties about those principles. The starting point is to identify the goods in their condition as imported; the second task is the classification of the goods once identified.[10]
[10]See e.g. Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615, 620-622; Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (1987) 72 ALR 591, 599.
What are the goods?
Mr Northcote, the solicitor for Customs, submitted that the goods imported were to be identified as "an almost complete plant for the production of animal feed". The qualification "almost" is applicable because some components, notably silos and weighbridges, were locally supplied and thus not imported. That did not mean, he submitted, that the plant was not able to be considered in its completed form; Interpretation Rule 2(a) requires the "essential character" of the completed article to be considered. And, so Mr Northcote submitted, the plant was not a feed mill plant even though one stage in the process involved milling. The function of the plant was to produce animal feed in one of two forms.
Mr Robertson, the advocate for Ridley, submitted that the plant was to be identified as a feed mill plant. That was so because the plant produced bulk feed or pellets with products of the milling industry used in that industry.
In my view the plant is to be regarded as Customs contend. Milling is one of several processes involved in the complete operations not the operation itself. The plant produces animal feed by a series of processes, one of which is milling, but that does not make the plant a feed mill plant. Mr Malcolm Gresswell, a man with vast experience in the milling industry, emphasised the difference between flour milling and feed milling. He described the term "feed mill" as a process which is “basically a material handling exercise both in the raw materials and finished product”.[11] That seems to me to emphasise the point that milling is but one part of a much larger handling process which he described as involving: intake and storage of raw materials; preparation of grain (by grinding); storage, batching and mixing; and, if desired, pelleting.
[11] Exhibit 3.
The evidence of Mr Gresswell therefore demonstrated to me that the term "feed milling" is something of a misnomer given that milling is one component of an overall process to produce stockfeed. Thus I prefer the description "almost complete plant for the production of animal feed". It is linguistically more accurate than "feed mill".
What is the proper classification?
If, as I conclude, the plant is to be regarded as a plant for the production of animal feed the question that next arises is of proper classification. The contest is between heading 8437 and heading 8438. Given the residual nature of heading 8438, "machinery, not specified or included elsewhere in this chapter…", heading 8437 needs to be considered first. I should note that at one stage during the hearing Customs appeared to embrace an argument that the plant was one where Note 4 to Section XVI did not apply, that is that the plant could not be regarded as a single functional unit. In closing submissions Mr Northcote accepted that the preferable decision was that Note 4 did apply. Ridley did not suggest to the contrary. I accept the concession which I regard as appropriate.
Heading 8437
Mr Robertson submitted that the plant satisfied the second part of the description – it was "machinery used in the milling industry or for the working of cereals". I accept that it was machinery but I am not otherwise able to accept either argument.
The expression "machinery used in the milling industry" cannot be read in isolation from its context and, in particular, Note 4 of Section XVI. Given that it is common ground that Note 4 applies it is common ground that this plant does consist of individual interconnected devices intended to contribute to a clearly defined function. The "milling industry" is not itself a function. Understood in its statutory context, this part of heading 8437 requires one to look to the function of the milling industry. If a "function" is to be drawn from the expression "used in the milling industry" the function is one of milling. So much is evident on a comparison of the output of the mill and of this plant. That function is to convert raw grain into its several parts. Mr Gresswell described the processes involved in flour milling (which I take to be representative of the milling industry generally) and those involved in feed milling as "entirely different".[12] The flour milling industry, he said,
…[t]akes a single type of grain, wheat, barley, oats etc and by the use of specialised equipment gradually separates the outer layers of the grain from the inner starch granules and the reproductive cell of the grain namely germ.
Ridley is not in my view, in the milling industry even though it does mill grain. It is in the business of producing stockfeed by a series of processes one of which involves milling. But the work of mixing undertaken after the milling stage is what takes Ridley’s process beyond one of milling. That, as it seems to me, is the critical distinction. Mr Gresswell highlighted that difference in this passage of his report:
The expertise in Feed Milling is the formulation preparation by Animal Nutritionists to enable rations to be mixed and/or pelleted to provide high performance nutrition by the type of animal being fed.
[12]Exhibit 3.
It follows that I am not satisfied that the plant imported was capable of being classified as a machine used in the milling industry.
Next, Ridley submitted that the plant was machinery used for the working of cereals (and not farm-type machinery). The latter may be accepted. The expression "working" used in this context is not a term of art and is well understood, although not commonly used. It means, I would have thought, to bring about a change to a product as a result of the application of an external force or influence. That conclusion as to the meaning to be ascribed to the term is reinforced by reference to the applicable part of the HSEN. It reads:
(III) MACHINERY USED FOR THE WORKING OF CEREALS OR
DRIED LEGUMINOUS VEGETABLES
The working referred to is generally preceded by a preliminary cleaning, sorting or grading (see Part (I) above).
This group includes:
(1) Machines for husking cereals or dried leguminous vegetables.
(2) Rice hulling or polishing machines.
(3) Machines for splitting dried peas, lentils or beans.
(4) Machines for preparing rolled or flaked oats, etc., whether or not incorporating auxiliary heating devices.
(5) Special milling and grinding machines for milling cereals (other than bread grains, see Part (I) (B) above) or dried leguminous vegetables in the flour.
(6) "Bearding" machines and "clipping" machines designed to remove the "beards" or "points" from barley or oat grains.
[Thereafter are listed irrelevant exceptions].
Again, part of Ridley’s operation may properly be said to involve working of cereals but that is not enough. That is not the function of the plant; its function is to produce animal feed. The working of cereals is an incident of the overall purpose of the plant to produce stock feed.
In the result I do not accept Ridley’s argument that the plant falls to be classified under Heading 8437.
Heading 8438
Customs submits that the plant answers the description of "machinery, not specified or included elsewhere in this chapter, for the industrial preparation or manufacture of food…". I agree. The clearly defined function of the plant is to produce stock feed. Whilst the particular examples under heading 8438 might be thought to suggest it to be limited to human food, reference to the applicable HSEN demonstrate that the application is not so limited. Those notes include the following:
This heading covers machinery, not specified or included elsewhere in this Chapter, for the industrial preparation or manufacture of food or drink (whether for immediate consumption or preserving, and whether for human or animal consumption),…[emphasis added]
Ridley does not suggest any heading in the chapter other than 8437 covers the plant. I have rejected the argument that heading 8437 has application. Thus the plant is not specified or included elsewhere in the Chapter. I have concluded that the purpose of the plant is the industrial preparation or manufacture of stockfeed for immediate consumption by the intended consumers.
It follows that I am satisfied that the classification applied by Customs was correct. The decision will be affirmed.
I certify that the preceding 24 (twenty -four) paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC .....................[Sgd]...................................................
Associate
Dated 15 August 2014
Dates of hearing 4 & 5 August 2014 Advocate for the Applicant Mr A Robertson, Capital Projects Import Advisory Services Solicitors for the Respondent Legal Services Branch, Australian Customs Service
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