Saab Scania Imports Pty Ltd v Collector of Customs

Re: SAAB SCANIA IMPORTS PTY LTD and SAAB SCANIA AUSTRALIA PTY LTD
And: COLLECTOR OF CUSTOMS
Nos. N G113 and 188 of 1990
FED No. 421
Customs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Customs - import duty - deduction of interest component of credit terms for payment of purchase price - written contract agreement or arrangement - amount of interest to be distinguished by purchaser to satisfaction of Collector - identical or similar goods actually sold at basic price - rate at which interest component calculated not to exceed interest rate on similar goods in exporting country - insufficient identification of interest - question of fact - matter of discretion

Administrative Appeals Tribunal Act 1975 section 44(1)

Customs Act 1901 section 154(2)(b)(i)

LNC (Wholesale) Pty Ltd v Collector of Customs (1983) 83 ALR 559

HEARING

SYDNEY

#DATE 17:7:1991

Counsel and solicitors Mr G.K. Downes QC and Mr R H Macready
for the applicants< instructed by Messrs Werry Altobelli

Counsel and solicitor Mr G. Nettles instructed by the
for the respondent Australian Government Solicitor

ORDER

1. Application dismissed.

2. Applicants to pay respondent's costs.

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

JUDGE1

On 12 February 1990 the Administrative Appeals Tribunal (the Tribunal) affirmed a decision of the Collector of Customs to disallow claims by Saab-Scania Australia and Saab-Scania Imports Pty Ltd (jointly referred to hereafter as Saab Australia or the applicants) for the deduction from the price of imported Saab motor vehicles of amounts representing interest before assessing them for duty. Saab Australia appeals from this determination on a question of law under section 44(1) of the Administrative Appeals Tribunal Act 1975.

The Tribunal heard two separate applications together. This appeal relates to both those applications. Matter NG 188/90 in this Court concerns the importation by Saab Australia of a quantity of Saab vehicles on 17 May 1988 on entry number IS 81380684H (the first importation). Matter number NG 113/90 relates to two importations of Saab vehicles by Saab Australia, one numbered ZM90390247J on 9 February 1989 (the second importation), and the other numbered ZM90680861C on 10 March 1989 (the third importation). The latter was accompanied by two invoices rather than one as supplied to the other two importations and as was usual. All three sets of vehicles were purchased from Saab-Scania Ab (Saab Sweden). Both Saab Australia companies are wholly owned subsidiaries of Saab Sweden.
Saab Australia's claim was based on section 154(2)(b)(i) of the Customs Act 1901 (the Act). It reads:

(2) In ascertaining the price of goods for the purposes of this Division -

...

(b) a Collector shall deduct from the amount that, but for this paragraph, would be the amount of that price such amounts as the Collector considers necessary to take account of the following matters:

(i) any payment of interest paid or payable under a written contract, agreement or arrangement under which the purchaser is permitted to delay the payment of the price in return for the payment of that interest (whether or not also in return for an increase in the price or for the payment of an additional amount), being a contract, agreement or arrangement entered into between the purchaser and the vendor or another person in relation to the purchase of the goods, where:

(A) the interest is distinguished to the satisfaction of the Collector from the price actually paid or payable for the goods;

(B) if a Collector requires the purchaser to demonstrate to the satisfaction of a Collector that identical or similar goods are actually sold at the last-mentioned price - the purchaser so demonstrates; and

(C) if a Collector requires the purchaser to demonstrate to the satisfaction of a Collector that the rate of interest does not exceed the rate of interest in similar contracts, agreements or arrangements entered into in the country where, and at the time when, finance under the first- mentioned contract, agreement or arrangement was provided - the purchaser so demonstrates;

This form of the legislation came into effect on and from 1 July 1987. Previously the Act did not require that an agreement or arrangement providing for credit terms and the payment of interest be in writing. The section imposes an obligation on the Collector of Customs to deduct the interest before levying the duty but there is a discretion to decide whether the interest component is satisfactorily identified.
In order to make this decision the Collector of Customs may request the claimant to provide information. For this case the permitted information included that some Saab vehicles were actually sold at the basic or list price without interest and that the rate at which the interest component was calculated did not exceed the rate payable on similar terms agreements entered into in Sweden. The rationale of this provision, as explained at the hearing, is that importers should not be required to pay customs duty on that part of the purchase price which represents a true and not simulated or invented interest component.
For many years the practice of these companies was that invoices were sent by Saab Sweden to Saab Australia once vehicles being purchased were loaded for shipment to Australia. Payment was formally due from the date of commencement of production which, in turn, was 60 days prior to invoicing, but was in fact not required until 120 days from invoice date. Thus if all the available time to pay was used, interest was said to be calculated on a credit period of 180 days.
During 1986 Saab Australia and Customs officials had discussions regarding this matter, as a result of which Saab Australia requested information from Saab's regional centre in Tokyo. In response the Tokyo office sent to Saab Australia a telex dated 20 May 1986 in which it advised that:

The Australian pricing calculation includes an interest factor of 1.5% per calendar month - ie 9% based on $AU terms of payment of 180 days.

On 6 August 1986 Tokyo sent another telex which read in part:

... due to continued devaluation of the Australian dollar the interest element of the pricing structure has been increased to 1.83% with effect from the price list dated June 30 1986.

This refers to the monthly interest.

By letter on 22 March 1988 Tokyo told Saab Australia, in relation to interest, that:

The calculation is based on 180 days interest which includes a 60 day period prior to invoicing. The rate of interest included is variable but is in line with normal commercial rates applicable at the time of each review. The current rate being 1.83% per calendar month, this rate being set at the last review in June 1986.

The documentary evidence further established that as from 1 April 1988 vehicle prices were increased by an average of 4%, and that from 1 January 1988 (later changed to 1 June 1988) all invoices were made due for payment in 60 days from invoice date. The price increase was announced in a letter of 19 January 1988 which said nothing about whether the 4% included any interest. The terms of the letter say that the price increase was due to an increase in the costs of production and appear to indicate that it was of general application around the world - i.e. it was not limited to Australia. The reduction of the time for payment from 180 to 120 days had the effect that when both changes were in full operation, the amount actually payable by Saab Australia to Saab Sweden for the vehicles did not change if the full time to pay was availed of.
There is much dispute in the evidence about the mathematical calculations brought into play in this regard. The argument centred on the question whether the 1 April 1988 price increase of 4% was in some way linked to the 1 January 1988 alteration in the time for payment. There was no explanation as to why if they were linked, they were fixed to commence on separate days.
A financing agreement between Saab Australia and Saab Sweden was signed on 10 June 1988 (the agreement). This document was produced to satisfy the requirements of the Act and was said to have simply recorded what had been the commercial practice for years. The agreement claims to operate retrospectively from 1 July 1987 when the Act first required written evidence of the credit arrangements. It reads in part:

THIS AGREEMENT IS MADE BETWEEN:

SAAB-SCANIA AB, a corporation duly organized and existing under the laws of Sweden and having its principal place of business in Nykoping, Sweden (hereinafter called "Saab- Scania") and SAAB-SCANIA Imports Pty Ltd, a corporation duly organized and existing under the laws of the State of Victoria, Australia, and having its registered office in that State at 2084 Hume Highway Campbellfield (hereinafter called "SSI") and SAAB-SCANIA Australia Pty Ltd, a corporation duly organized and existing under the laws of the State of Victoria, Australia, and having its registered office in that State at 2084 Hume Highway Campbellfield (hereinafter called "SSA").

IT IS AGREED with effect from 1 July 1987 that - 1 SSI shall pay interest to SAAB-SCANIA on all monies owing by SSI to SAAB-SCANIA for SAAB cars purchased by SSI from SAAB-SCANIA.

2 SSA shall pay interest to SAAB-SCANIA on all monies owing by SSA to SAAB-SCANIA for SAAB cars purchased by SSA from SAAB-SCANIA.

3 The rate of interest shall be as agreed between SAAB-SCANIA and SSI or SSA, as the case may be, from time to time, and shall not exceed the rate of interest then charged by major financial institutions in Australia on commercial borrowings.

Without retrospective operation this agreement would not be relevant to the first importation but it would apply to the later two importations. Its terms are of course of a very general nature.
In addition to the telexes/letters and the written agreement were the invoices accompanying the respective importations. Nothing in regard to interest payments appeared on the invoices for the first two importations. The two invoices accompanying the third importation were endorsed with the words:

The total invoice price includes interest calculated at the rate of 4.98% in accordance with earlier agreement.

The respondent requested that Saab Australia provide information in accordance with section 154(2)(b)(i)(B) and (C) in relation to all three importations. Some material was supplied but what was significantly absent were basic price lists for the vehicles showing "price minus interest charges" and any internal minutes discussing interest. Saab Australia suggested that this information was not available because it was in the exclusive possession of Saab Sweden. Having in mind the commercial interests of Saab Sweden in a resolution of this matter to its own and its Australian subsidiaries' benefit, this is a mysteriously unsatisfactory answer.
What was produced, purpose-designed to try to satisfy the Collector of what was required, was a set of documentation for the simulated purchase of a single car from Saab Sweden with payment upon invoice - i.e. without the post-invoice time for payment. Interestingly enough, this invoice also did not contain any reference to interest for the post-order, pre-invoice period of 60 days. Evidence from two Swedish banks was also provided of Interbank and Euromarket rates for the Australian dollar over the relevant period. This is not what is required by section 154(2)(b)(i)(C) when the Collector seeks information on the matters to which that clause applies.
The Tribunal found, as had the Collector of Customs, that there was an interest component in the various purchase prices for the relevant imports in return for time to pay, pursuant to longstanding arrangements between Saab Australia and Saab Sweden. It accepted that these arrangements were only incorporated in a written agreement to meet the new statutory requirements, although having regard to its importance to the Saab entities, it seems somewhat remarkable that the agreement was not entered into until almost 12 months after the statutory change.
As to the first importation, the Tribunal appears not to have been persuaded of the effectiveness of the purported retrospectivity of the agreement, but as it held that as at May 1988 the telexes constituted an arrangement or agreement in writing, this deficiency was not of special moment. However, the Tribunal found that the interest component of this transaction could not be sufficiently identified. In other words, the Tribunal concluded that while there was written evidence of an interest component in the price paid by Saab Australia for the first importation, there was not sufficient evidence to allow it to specify the amount of that interest.
As to the two 1989 importations, the Tribunal decided that there was a written arrangement comprised in the telexes, the invoices (probably only for the third importation) and the agreement, but that they also suffered from a lack of specificity and identification of the interest component. The Tribunal was also not satisfied that the 4.98% in truth reflected the interest on the prices charged on the vehicles in the third importation.
The applicants' claims for deductions therefore failed, and the question before this Court is whether the Tribunal was entitled on the evidence to make all these findings. That is to say, did the Tribunal err in law in finding on the evidence that the applicants failed to specify the sums constituting interest which they had in mind? The Tribunal's interpretation of the Act as requiring satisfaction that the interest component has been or can be distinguished on the civil standard of proof was not disputed before this Court.
The thrust of the applicants' submissions was that there was no evidence upon which the Tribunal could have based its conclusions. The reduction of the time to pay did not apply to the first importation as it was ultimately fixed to commence on 1 June 1988. It seems that possibly even the price increase also did not apply to this transaction, perhaps because although the new price was fixed to commence in April 1988 before the actual importation in May, it did not apply to goods already ordered as these may have been. The applicants therefore rely in this matter on the telexes which raise the interest rate to 1.83% per month. It was suggested that to arrive at the sum for interest, it is merely necessary to multiply this rate by 6 to arrive at the interest charged for the 6 monthly payment period applicable.
This is not correct. If the 4% price increase was already factored into the invoice price, a major problem arises with this submission because of the way the 4% was explained in evidence. I shall identify this difficulty shortly, but proceeding for the present on this assumption, it is, for reasons which will appear, impossible or very difficult to calculate the component of the amount to be actually paid which is represented by interest. On the other hand, if the 4% did not apply to the invoice price for the first importation, and there was no clear and persuasive evidence either way, it was left to the Collector and the Tribunal to work out what was the basic or cash price of each vehicle, not by deducting 1.83% per month from the invoice price, but by finding the amount which when increased by 1.83% per month to the date of payment produces the invoice price. This is a task of specification given by the Act to the importer, not the Collector and the Tribunal. It was not performed by Saab Australia for the Tribunal here.
As to the reduction in the time period to 120 days applicable to the second and third importations, the applicants submitted that the 4% price increase and the reduction in the time for payment was a 'package deal'. (If so, it should surely have applied to the first importation as well if the 4% applied.) It was submitted that with the time period being reduced by 1/3 and no alteration in the rate of interest, the 4% increase in the price of the vehicles actually meant that the total amount paid for each vehicle remained the same. This means that, despite what the applicants described as a "small" increase in the price of the goods and despite the steady rate of interest, the amount of interest actually fell because interest accumulated for a lesser period. Standing alone, this analysis of the economics is feasible, although the Collector and the Tribunal were entitled to be sceptical about such a proposition, especially as the transactions were occurring at a time of rising interest costs everywhere. However, this method of argumentation supplies no answer to the legal issues involved here.
I doubt that a 4% increase on the prices involved here is so insignificant as to be properly classified as a "small" increase. However, no matter how described, it is mathematically impermissible to suggest that when the price component of a fixed sum increases but the rate of interest payable stays the same, the interest component does not alter because the time for payment is reduced. This confusion was caused by the applicants' intermittent references in this respect to "interest rate" rather than interest paid. These are not the same things and the Act is referring to the monetary component for interest.
The Tribunal was not satisfied that there was a link between the price increase and the reduced time to pay, except by retrospective rationalisation at best. In my opinion, this conclusion was perfectly justified by the evidence. If these two alterations had been interlinked or a connected package, the telexes/letters announcing the changes (and the negotiations for and written confirmation of the delayed commencement of the reduced time to pay to 1 June 1988) might be expected to have made that clear, especially as the originators of the correspondence, Saab Sweden, were the source of the finance facilities on offer. There was nothing of this nature in the documentation.
The applicants further submitted that since it was not suggested that the invoice for the third importation providing for interest of 4.98% on price was fraudulent or dishonest, there was in fact certainty of interest and the Tribunal erred in not so finding. They relied on LNC (Wholesale) pty Ltd v Collector of Customs (1988) 83 ALR 559 for the submission that the Act must be read in a commercial way.
The respondent submitted that the only relevant point of the appeal was whether there was no evidence to support the findings of fact made by the Tribunal that there was uncertainty as to the relevant amounts of interest. The respondent argued that an abundance of evidence existed to support the Tribunal's decision.
In my opinion, the Tribunal correctly found that the agreement lacked specificity. As the Tribunal said:

While the maximum rate of interest may be ascertained, it does not for example specify from when the interest is calculated, or how the rate is calculated if the rate is not 'as agreed' (par 3).

That this document was custom-made to comply with the statute makes even stranger the applicants' failure to deal with those matters. Any doubts about the effectiveness of the agreement or its ostensible retrospectivity, and the fact that the agreement was not in existence at the time of the first importation in May 1988, do not seem to me to matter for present purposes. This is because the Tribunal generously accepted Saab Australia's argument that there was in existence at the time a written arrangement, as required by the Act, in the form of the telexes/letters (and perhaps the invoices) to which the agreement later gave more formal written expression.
The Act calls for a written contract, agreement or arrangement providing for time payment and interest which the Collector is satisfied is distinguished from the cash price. Because the telexes/letters leave open so many matters in this connection, I am doubtful about this part of the decision. However, as the matter was not contested in this appeal, I shall proceed on the assumption that it is correct. As the Tribunal pointed out in relation to these documents:

All they do is state what the interest rate is from time to time.

What the Collector is required by the Act to look for is evidence of credible substance to establish that there exists a true terms agreement in writing, achieved or secured by the payment of genuine market-related interest. Yet apart from the evidence revealing that the rates from time to time were fixed by Saab Sweden, neither the telexes/letters nor the agreement provided any of the assurances which the Act intends the Collector to have before making any deduction for interest. Nothing produced by Saab Australia shows how the interest factor was set, what amount was actually payable or how it was to be calculated, whether retail purchasers obtained any discount for cash or payment in advance because they may thereby have averted the need for Saab Australia to use any or all of the offered time to pay, what relationship the interest rate bore to the state of the economy and general interest rates at the time, or even which country's economy contributed to the setting of the rate. In this regard, the attribution to Saab Sweden of responsibility for setting the rate of interest, and the apparently contradictory laying of blame, in the telex of 6 August 1986, for the interest rate increase to 1.83% on the "continued devaluation of the Australian dollar", are most confusing.
The fact that the 4% price increase was announced without reference to interest and was attributed to production cost increases leaves completely open what effect it had on the interest component. However, the evidence before the Tribunal included a statement by Saab Australia's chief executive that "the costs of borrowing and financing and running an organisation are part of the costs of production". He said that as Saab Sweden treats "some of their production costs as interest", this should entitle Saab Australia "to have that amount deducted from the price ... as being (an interest) charge referable to deferral of payment" of the purchase price.
This evidence, which was oral and was not comprised in or implied by any written document as I think, but do not decide, is probably required, means at its highest that the 4% increase partly consisted of interest. If so, there is simply no evidence of how much of it was so comprised or how the portion of it which was interest was or is now calculated. The effect on the prevailing interest rate of 1.83% of an unknown part of a 4% increase in overall price is impossible to calculate; the resulting concealment of the actual interest component wrought by the failure to conduct this exercise is patent.
In my opinion, general "costs of production" would not normally embrace interest charged to a particular purchaser in a terms contract as required by the Act if a deduction is to be allowed. If it is to be so construed, a precise explanation of how and why was therefore required. Such evidence was conspicuously absent here. That the explanation given by the chief executive in a case brought by his own companies to deal with this very question was at best vague establishes at least a possibility that the 4% increase in truth related or was intended to relate to the basic cash price only.
As to the second importation, neither the invoice nor the agreement provides any evidence of either an interest rate or an interest component. The telexes fix the rate at 1.83% but because of the problem of the 4% and the absence of a price list, they do not reveal any means of calculating the interest component. A monthly interest rate in any event does not fix what the Act calls the "payment of interest paid or payable" under these written arrangements or the agreement because no one can know from the written arrangements or the agreement, and there was no evidence in the written arrangements or the agreement of, when the amount charged was actually paid. In a clear case, which this is not, of a monthly interest rate on an identified base price, it would be simple to calculate the interest component of the amount actually paid. All that would need to be known then was how much of the time allowed for payment was used. I see no problem in the Collector being satisfied in such a case as long as this time period can be identified whenever it is sought, but without clear evidence of any of these elements, the telexes/letters do not specify the amount of interest either payable or paid in this case. Some oral evidence of Saab Australia's "understanding" of the position does not comply with the statutory criteria. The Tribunal was fully entitled to find that it had not been supplied with the information required.
The third importation is complicated by the fact that although the 4.98% rate was stated on the invoice, the evidence was that this was not an interest rate but a percentage of the total price attributable to interest. Saab Australia tried to have this matter both ways. On the one hand, it was said that this and the reduction in the time for payment had the effect of reducing the interest rate from 1.83% to 1.26% per month, although it was not explained why Saab Sweden would be so generous when the evidence reveals that relevant market interest rates were showing little change if not increasing somewhat. On the other hand, although evidence was given and submissions made that the rate of interest (despite the Act's emphasis on the amount of interest) actually payable by Saab Australia to Saab Sweden had otherwise been the same a month earlier as it had been the previous year for the first importation despite a price increase due to Saab Sweden's added costs of production including its costs of money, the portion of the 4.98% referable to the so-called interest rate reduction could not be distinguished.
There is another way of enunciating the criticism of the applicants' claim in this regard. The evidence relating to the last two importations was that the actual sum paid by Saab Australia to Saab Sweden including interest did not alter. As earlier noted, the applicants suggested that this claimed stability was due to the fact that although the interest rate remained steady, there was a reduction in the time for payment to counter balance the price increase. There was, however, no evidence of this causal nexus. There was not even evidence, which must have been easily available if it was true, that the retail price available to Australian cash purchasers did not change. The respondent thus called it speculation.
It seems to me unlikely that what really amounts to a "credit squeeze" on the importer could be described in the beneficial or benevolent way for which Saab Australia contended. In any event, the inability of the applicants to supply a wholesale price list for Saab imports excluding the interest component, and what must have been their own retail price list for cash purchases by the public in this country gives rise to the inference that the applicants' contention is at least unprovable. In a matter where the responsibility of establishing the relevant facts to the Collector's - and the Tribunal's - satisfaction falls onto the importer, the failure to supply this information and only to detail one single hypothetical non-interest purchase provides an ample discretionary basis for disallowing the applicants' claims.
The simulated single car invoice was quite rightly of no assistance to the Tribunal; it is of no assistance to Saab Australia's case. The price shown on the invoice had no express interest component and the usual pre-invoice interest for 60 days was not charged. The Tribunal found that on its face, the interest rate claimed to be included would have represented just under 30% per annum or well above the then prevailing market rate. Even the rate of just under 22% which Saab Australia suggested to the Tribunal represented the interest component on the importations involved in this case was found by the Tribunal to be significantly above the then prevailing rates being charged in Australia and, according to the evidence, almost double the rates requested in Sweden.
Because this was not a genuine transaction and for other obvious reasons, these discrepancies are not necessarily important by themselves, although section 154(2)(b)(i)(C) permits the Collector to require the importer to satisfy Customs that the interest rate does not exceed the rate charged in similar agreements in the financing country. What they do demonstrate is the starkness of Saab Australia's failure to comply with the statutory requirement to provide satisfactory explanations of such matters so as to establish that the deductions claimed were for genuine interest. The use of such an abstract method of particularisation was to my mind a most peculiar way of explaining what ought to have been, and what the Act requires to be, a comprehensible, if not simple, calculation. The simulated example itself needed explanation. This was wholly absent.
In the result, I am quite unpersuaded that there has been any demonstrable error of law in the Tribunal's determination of this matter. Although the Collector is bound to deduct amounts properly incurred by way of interest on time payment transactions pursuant to written agreements, this particular case actually required an exercise of discretion in determining whether the statutory prerequisites had been satisfied. It is always a difficult task to establish that a discretion miscarried in law because it must be shown that there was no evidentiary basis for the discretion to be exercised in the way it was. In this case this undertaking has completely failed.
I am satisfied that there was sufficient evidence and properly available inferences from the evidence and lack of evidence for the required conclusions to be drawn. Thus the decision of the Tribunal was entirely factual. The way the discretion was exercised was well supported by that evidence and those inferences. For what it is worth, and it is in fact a matter for the Tribunal alone, I think that the decision was manifestly correct. The appeal is dismissed with costs.

[1991] FCA 421

17 JULY 1991