Southern Forest Export Pty Ltd and Comptroller-General of Customs - [2020] AATA 1892

Southern Forest Export Pty Ltd and Comptroller-General of Customs [2020] AATA 1892 (22 June 2020)
Division:Taxation and Commercial Division
File Number(s): 2019/2045
Re:Southern Forest Export Pty Ltd
APPLICANT

AndComptroller-General of Customs
RESPONDENT

DECISION
Tribunal:Deputy President Boyle
Date:22 June 2020
Place:Perth

The Tribunal affirms the decision under review.
...................................[SGD]..................................
Deputy President Boyle
CATCHWORDS
CUSTOMS – Tariff Concession Order – equipment – TCO criteria – performance based criterion – statutory interpretation – hypothetical performance – “wharfside test” – implied term – gloss – decision affirmed
LEGISLATION
Acts Interpretation Act1901 (Cth) – s15AA
Customs Act 1901 (Cth) – ss 163, 269F(3)(a), Part XVA, VIII
Customs Tariff Act 1995 (Cth) – s18, Sch 4
CASES
Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525
Brand Developments Aust Pty Ltd and Chief Executive Officer of Customs [2015] AATA 215
Newbridge Civil Pty Ltd and Comptroller-General of Customs [2016] AATA 81
Times Consultants Pty Ltd v Collector of Customs(Qld) (1987) 16 FCR 449
SECONDARY MATERIALS
Customs Regulations 2015 Bill (Cth) – sub-reg 107(3)
REASONS FOR DECISION
Deputy President Boyle
22 June 2020
THE APPLICATION

The Applicant seeks the review of the Respondent’s decision not to apply a tariff concession under the Customs Tariff Act 1995 (CT Act) to a freeze dryer used in the preparation of pet food which was manufactured in and imported from Taiwan (the freeze dryer).
BACKGROUND
In or about late 2018 the Applicant imported the freeze dryer from Taiwan. In January 2019 the Applicant applied for an exemption to the import duties applying to the freeze dryer on the ground that no such machine is produced in Australia.
The Applicant’s application for exemption, and a refund of the import duty paid,[1]
was made pursuant to s 163 of the Customs Act 1901 (Cth) (the Customs Act) and
[1] T5.1.
[2] T5.2.
sub-reg 107(3) of the Customs Regulations 2015 (Cth), on the basis that the subject goods were eligible for a concessional rate of duty. The Applicant claims that it is entitled to an exemption under Tariff Concession Order (TCO) 9102659.[2]
An assessment was undertaken of the refund application by the Respondent. During that assessment process the Applicant provided further information about the freeze dryer.[3]
[3] T5, T5.1-5.4, T7, T 7.1-7.2, T9, T9.1.
On 18 March 2019 the Respondent rejected the refund application on the basis that TCO 9102659 did not apply to the freeze dryer.[4] It is of that decision that the Applicant seeks review.[5]
[4] T13, T14.
[5] T1
THE LEGISLATIVE FRAMEWORK
The import of goods into Australia is regulated by the Customs Act. Part VIII provides for the payment and computation of any duty payable on those goods. The rate of duty payable in respect of goods is dealt with in the CT Act.
The CT Act provides for duty to be paid on goods. In broad terms, s 18 of the CT Act provides for the duty on goods to which an item in Schedule 4 prima facie applies. A detailed analysis of the legislative scheme of the CT Act and the operation of TCOs is set out in Deputy President Forgie’s decision in Brand Developments Aust Pty Ltd and Chief Executive Officer of Customs[6] at [9]-[14].
[6] [2015] AATA 215.
The full text of TCO 9102659 is as follows:
8419.39 FREEZE DRYERS, industrial, having BOTH of the following:
(a) condenser ice capacity of 15 kg or greater with ice thickness of 20mm;
(b) condenser temperature of -60 degrees C or lower
Op. 11.3.91 – Dec. date 18.6.91 -TC 9102659
THE ISSUE
The issue for determination by the Tribunal is whether the freeze dryer comes within the description TCO 9102659. If it does, then the Applicant is entitled to the concessional rate of duty and therefore to the refund it claims.
THE HEARING
The application was heard on 17 April 2020. The Applicant was represented by a director, Mr D Gardiner, and the Respondent was represented by Mr J Millea.
The following documents were admitted into evidence at the hearing:
(a)
Emails, with attachments, from the Applicant dated 14 May 2019, 23 May 2019,

17 October 2019 and 5 November 2019 (Exhibit A1); and
(b)Respondent’s statement of facts, issues and contentions (Respondent’s SFIC) (Exhibit R1).
The Applicant did not file a statement of facts issues and contentions as such, however, the series of emails and spreadsheets comprising A1 set out the Applicant’s argument and the material on which it relies.
THE PARTIES’ CONTENTIONS
The Respondent, in accordance with the Tribunal’s directions, on 20 December 2019 filed and served the Respondent’s SFIC (R1). At the hearing it became clear that the issue for determination was, in effect, the proper construction of TCOs and, more particularly, the proper construction of TCO 9102659. Other than some general observations on statutory interpretation by the Respondent, that issue had not been addressed in any detail by either party in their respective written submissions. Accordingly, at the conclusion of the hearing on 17 April 2020 the Tribunal directed that:
1. On or before 1 May 2020 the Respondent to file with the Tribunal and serve on the Applicant any further submissions and any authorities relating to how TCOs are to be interpreted; and
2. On or before 15 May 2020 the Applicant to file with the Tribunal and serve on the Respondent any submissions in reply.
The Respondent filed its further submissions in accordance with the above directions on

23 April 2020. The Applicant did not file any further submissions and by email dated

29 May 2020 the Tribunal advised the Applicant that, as it had not made any further submissions under the directions made on 17 April 2020, the Tribunal assumed that it did not wish to make any further submissions. There was no response from the Applicant.
The Applicant’s case was summarised by Mr Gardiner at the hearing as follows:
I believe that my machine precisely satisfies the requirements of the TCO.

Whereas I don’t have exact number to prove that, I have a history of the data that says in the right conditions, and in the conditions in which the machine will be working this winter, my machine will hit - it will operate at minus 60 degrees and even lower. That to me - that’s using extrapolated data and the dataset that I put into the graph. It’s not a random dataset. It’s a set that uses both high extremes of temperature in my environment and low extremes of temperature in my environment and in between, and it’s a selection of data that I believe proves that the machine will go to minus 60 at a room temperature of 4 degrees Celsius.
The spreadsheets included in A1, according to the Applicant, support the Applicant’s claim that with an ambient or room temperature of 4 degrees Celcius, the freeze dryer’s condenser would run at minus 60 degrees Celcius and therefore meet the criteria in the TCO.
The refund claimed by the Applicant was refused because the freeze dryer did not satisfy paragraph (b) of TCO 9102659.[7] The Tribunal does not understand the Respondent to dispute that the criterion in paragraph (a) of TCO 9102659 is satisfied. The Tribunal also understands that the Respondent does not dispute the Applicant’s extrapolation of a theoretical condenser operating temperature of minus 60 degrees Celcius at a room temperature of 4 degrees Celcius. In any event, the Respondent did not put on any evidence to counter the extrapolation or raise any argument that it was not correct. The Tribunal makes no finding as to the correctness of the data provided or the extrapolation made by the Applicant.
[7] Respondent’s SFIC para. 14.
The Respondent argues (Respondent’s SFIC) that:
20. Further, the ordinary meaning of the words of the TCO should be utilised, and in this instance the ordinary meaning of the words require the freeze dyer [sic] to “have” a condenser temperature of -60 degrees C or lower. It is not sufficient for the freeze drier to “theoretically have” a condenser temperature of -60 degrees C or lower. The specifications for the freeze dryer are that the temperature of the condenser is -50C. That is the temperature the condenser is designed to reach and ordinarily would reach.
21. TCO 9102659 does not apply because:
21.1. The manufacture of the freeze dryer has stated that the specifications of the subject goods include that it has a condenser temperature of -50 degrees C, which is not -60 degrees C or lower;
21.2. The manufacturer has not confirmed that the condenser temperature will, in practice, achieve a temperature of - 60 degrees C or lower; and
21.3. The applicant has not provided evidence that the condenser temperature has, in practice, achieved a temperature of - 60 degrees C or lower whilst in operation.
The manufacturer’s “Specification Confirmation Letter”[8] to which the Respondent is referring, included the following:
·Temperature of Condenser: -50C*(* read details in additional info. in below)
·Work environment: 5-25C
·Additional info
-50C*: For this Temperature of Condenser, we, Tai-Yieh Enterprise, confirm that this TYFD-50030 condenser theoretically can be reached -60C when operation room temperature is below 5C.
[8] T5.3.
The difference between the parties, as it crystalized at the hearing, can be reduced to the following:
(a)
The Respondent says that the freeze dryer manufacturer’s specification[9] identifies an operating condenser temperature of -50°C in a work environment of

5-25°C. Criterion (b) of TCO 9102659 is therefore not met;
(b)The Applicant says that the criterion (b) of TCO 9102659 is met because the extrapolation, supported by the manufacturer’s additional information in the Specification Confirmation Letter (see [19] above), shows that in an operating environment of 4°C or lower the condenser temperature would reach -60°C.
[9] T5.3.
The Applicant concedes that the freeze dryer, delivered in January 2019, has never operated with a condenser temperature of -60°C. Mr Gardiner’s evidence was that the lowest temperature that the condenser had operated at was -57.6°C which was with a room temperature of 8.3C. His evidence was also that:[10]
The machine has never run at 4 degrees Celsius, but the machine was operating in Mandurah at the time. This winter the machine will be operating in Pemberton, which will - and it’s normal - often there will be temperatures of 4 degrees where it’s going to be running. So many times this winter coming, it will operate at minus 60 and below.
[10] Transcript at 7.
As noted above, the Respondent had made submissions in its SFIC about TCOs being interpreted applying principles of statutory interpretation, in particular that words should be given their “ordinary meaning”[11] and that the goods in question must “‘precisely’ meet the description of a TCO in their condition as imported”.[12] The Respondent cited Becker Vale Pty Ltd v Chief Executive Officer of Customs[13] at [57], referring to Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs[14] at [29]-[44] and cases cited at [31].
[11] SFIC para. 20.
[12] SFIC para. 20.
[13] [2015] FCA 525.
[14] [2015] AATA 215.
CONSIDERATION
The issue in the present case goes more to what TCO 9102695 requires and in what circumstances, rather than whether the freeze dryer “precisely meets the description”. Obviously, in one sense, it does not meet the relevant criterion because the machine in the vast majority of operating conditions, including those identified in the manufacturer’s standard specifications, does not operate with a condenser temperature of -60°C or lower and since it has been operating it has not met the criterion. In another sense, however, the freeze dryer does meet the criterion because it is capable, if one accepts the Applicant’s extrapolation and the manufacturer’s additional information, of operating with a condenser temperature of -60°C.
The difficulty arises because of the somewhat incomplete or cryptic drafting of TCO 9102659. As the Tribunal noted at the hearing, it is usual for specifications of a piece of machinery to specify operating assumptions, conditions and parameters if any sort of performance warranty is included. In that sense the manufacturer’s “Specification Confirmation Letter”[15] did that in specifying a work environment temperature range (see [19] above). Unfortunately, TCO 9102659 does not do that.
[15] T5.3.
The Respondent’s submissions provided after the hearing referred to various cases that applied the “wharfside test”:
14. In Woolworths Limited and the CEO of Customs [2013] AATA 730, the Tribunal applied the same “wharfside test” to whether goods come within the word description a TCO as is applied in the classification of goods, stating at [23]-[25]
23. To determine whether goods come within the terms of a TCO a decision-maker must first ascertain the identity of the goods as at the time and port of entry: “The characteristics of the goods, their get-up, colour, decoration, labelling and packaging are all relevant considerations” (per Lockhart J, with whom Woodward and Ryan JJ agreed, in Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic)(1987) 72 ALR 591, at 599). The determination must be made objectively without reference to the intentions of the manufacturer, the exporter or the importer. In Times Consultants Pty Ltd v Collector of Customs(Qld) (1987) 16 FCR 449, at 462, the majority of the Federal Court, Morling and Wilcox JJ said:
The authorities make it clear that in determining what is the essential character of goods it is the state or condition of the goods at the time of importation that is the determining factor and that it is wrong to classify goods or to determine their essential character by reference to the purpose of the importer or of the purchaser. Regard must be had to the characteristics of the goods themselves, as they would present themselves to an informed observer (emphasis added).
The Respondent also referred[16] to Deputy President Forgie’s decision in in Newbridge Civil Pty Ltd and Comptroller-General of Customs[17] wherein the same principle was applied.
[16] Submissions para. 15.
[17] [2016] AATA 81.
In relation to TCO 9102659, the Respondent highlights the word “having” (see [8] above) and submits that “the ordinary and natural meaning of the word ‘having’ in the TCO means that the condenser is capable of reaching -60°C in usual conditions, and without the need for unusual external conditions to attain that temperature”.[18] The Respondent does not, however, explain why the ordinary meaning of the current tense of the verb “have” gives rise to the gloss of usual external conditions that he contends.
[18] Submission para. 21.
The Respondent’s further submissions also identify two Australian manufacturers of freeze dryers. This was in response to the Tribunal’s question to the Respondent’s counsel at the hearing whether there were any Australian manufacturers of freeze dryer of the type the subject of this matter. In the further submissions the Respondent submits that the purpose of the Act and TCOs is to “protect Australian made goods” citing the Second Reading Speech to the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Bill 1992, Senate Hansard 28 May 1992 at pages 2858 and 2859) as follows:
“the object of Part XVA of the Act continues to be to protect all Australian-made goods from competition of any significance from imported goods”
While the Respondent identifies two Australian manufacturers of freeze dryers,

no information is provided as to whether those manufacturers manufacture freeze dryers which would satisfy the criteria in TCO 9102695, although the promotional brochure of one of those manufacturers does claim that it “can design and custom-build Production Scale Freeze Drying systems to satisfy all customer requirements”.
In the end, however, there is no evidence before the Tribunal that any local manufacturer currently produces a freeze dryer which comes within the criteria in TCO 9102695.
The Respondent refers to s 269F(3)(a) which provides that:
(3) Without limiting the generality of paragraph (2)(c), a TCO application must contain:
(a) a full description of the goods to which the application relates
and submits that:
…the terms of section 269F of the Customs Act support the respondent’s submission that it is not open to the applicant to effectively “insert” words into the TCO to the effect that the TCO includes “theoretical” possibilities as a description of the goods, in contrast to what the goods actually do.
The difficulty with that argument for the Respondent is that, in effect, what the Respondent is asking the Tribunal to do is to insert the words “in normal operating conditions” (or words to that effect) after the word “having”. The problem is that TCO 9102695 is silent as to when, or in what conditions, the freeze dryer is to “have” the identified performance. Unlike the authorities referred to by the Respondent which dealt with products of a static nature

(stuffed toys, hoses and fittings, wine, etc) and TCOs based on a description of the physical characteristics of the item in question, in the present case the TCO is caste in terms of operating performance. In the language of the construction and engineering professions, TCO 9102695 is a performance specification rather than a physical specification. The so-called “wharfside test” which looks at “the state or condition of the goods at the time of importation”, to use the language of Morling and Wilcox JJ in Times Consultants Pty Ltd v Collector of Customs(Qld)[19] at 462 (see [25] above), is of little use. The “state or condition” of the freeze dryer at the time of importation would have been non-operative making a criterion which is only relevant to an operating machine difficult to apply.
[19] (1987) 16 FCR 449.
It is, obviously, necessary to give TCO 9102695 a meaning and operation that achieves the express or implied objects of the legislation, in this case, Part XVA of the Customs Act being to protect Australian industry. As the Respondent notes, this is made clear by s15AA of the Acts Interpretation Act1901 (Cth) which provides:
Interpretation best achieving Act's purpose or object
In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.
In the present case a TCO, the purpose of which is to protect Australian manufacturing, which is expressed in terms of a performance characteristic cannot, in the Tribunal’s view, be interpreted to mean a possible or theoretical performance, one not even anticipated by the manufacturer as being within the normal range of operating conditions. Because TCO 9102695 is deficient, or perhaps more kindly, incomplete, in that it does not identify the operating conditions in which the performance criterion is to be measured or met, a gloss or condition must be implied. The Applicant, in effect, proposes that the performance criteria in TCO 9102695 are to be read as theoretical or possible performance and the Respondent, in effect, proposes that the criteria are to be read to mean a level of performance in normal operational conditions. Given that the manufacturer itself stipulates a condenser temperature based on a specified operating temperature range, which is a range that reflects the conditions that the freeze dryer has operated in since its importation and is likely to continue to operate in, the obviously more sensible interpretation of TCO 9102695 is that it is to be read as to apply to a freeze dryer operating in normal or reasonably foreseeable operating conditions. To apply the Applicant’s interpretation of theoretical or possible satisfaction of a performance criterion in conditions unlikely to be encountered, and outside the manufacturers assumed range of operation, would largely render any unqualified performance criteria meaningless and significantly undermine, if not defeat, the purpose of the TCO. TCOs, to be effective, have to be given a realistic application.
DECISION

The Tribunal finds that the freeze dryer does not come within the description TCO 9102659. Accordingly, the Tribunal affirms the decision under review.

I certify that the preceding 35 (thirty-five) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle

....................................[SGD].................................
Associate
Dated: 22 June 2020

Date(s) of hearing: 17 April 2020

Counsel for the Applicant: Mr D Gardiner

Counsel for the Respondent: Mr J Millea

Date(s) of hearing:	17 April 2020
Counsel for the Applicant:	Mr D Gardiner
Counsel for the Respondent:	Mr J Millea