Vernon-Carus Australia Pty Ltd v Collector of Customs
[1995] FCA 397
•6 JUNE 1995
CATCHWORDS
CUSTOMS AND EXCISE - Classification of goods - methodology to be applied in classification of goods - construction of item 3005 in Schedule 3 of the Customs Tariff Act 1987 - correct construction and application of item 3005 to incontinence pads
Customs Tariff Act 1987 ss9, 10, 21, 22, Schedule 3
Rheem Australia Ltd v Collector of Customs (NSW) 1988 78 ALR 285
Johnson & Johnson Australia Pty Ltd v Collector of Customs (1989) 11 AAR 24
Liebert Corporation Australia Pty Ltd v Collector of Customs, Full Court, Federal Court of Australia, 1 November 1993, unreported
VERNON-CARUS AUSTRALIA PTY LTD AND THOMAS CREEVEY & ASSOCIATES V COLLECTOR OF CUSTOMS
No VG 248 of 1994
NORTHROP, JENKINSON & BRANSON JJ
MELBOURNE
6 JUNE 1995
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 248 of 1994
GENERAL DIVISION
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE
B E T W E E N :
VERNON-CARUS AUSTRALIA PTY LTD
AND THOMAS CREEVEY & ASSOCIATES
Appellants
A N D :
COLLECTOR OF CUSTOMS
Respondent
COURT: NORTHROP J
JENKINSON J
BRANSON J
PLACE: MELBOURNE
DATE: 6 JUNE 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal be allowed with costs.
The order appealed from be set aside and in lieu thereof the following orders be made.
The appeal from the Tribunal be allowed with costs.
The matter be remitted to the Tribunal for determination according to law after considering such further material as it considers appropriate.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 248 of 1994
GENERAL DIVISION
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE
B E T W E E N :
VERNON-CARUS AUSTRALIA PTY LTD
AND THOMAS CREEVEY & ASSOCIATES
Appellants
A N D :
COLLECTOR OF CUSTOMS
Respondent
COURT: NORTHROP J
JENKINSON J
BRANSON J
PLACE: MELBOURNE
DATE: 6 JUNE 1995
REASONS FOR JUDGMENT
NORTHROP J
The appellants imported into Australia goods, which, for the sake of easy reference, can be described as incontinence pads. The respondent ("the Collector"), by a decision, imposed duties of customs on those goods on the basis that they fell within the heading of item 4818 in Schedule 3 to the Customs Tariff Act 1987 ("the Tariff Act"). Pursuant to the provisions of the Administrative Appeals Tribunal Act 1975, the appellants sought a review of the decision of the Collector. The appellants claimed that the goods fell within the heading of item 3005 which imposed a much lower rate of duty. Alternatively, the appellants claimed that the goods fell within the heading of item 5601 which imposed a rate of duty greater than that imposed under item 3005 but less than that imposed under item 4818. On 23 April 1993 the Administrative Appeals Tribunal ("the Tribunal"), by a decision, affirmed the decision of the Collector. At the same time, the Tribunal published its reason for decision. The appellants, by application, appealed to this Court, on a question of law, from the decision of the Tribunal. By order made on 26 August 1994, the Court constituted by a single Judge, dismissed the appeal. The appellants have appealed against that order. The appeal is by way of a rehearing on the material before the trial Judge.
The Tariff Act imposes duties of customs on goods imported into Australia. Paragraph 21(1)(a) provides:
"21(1) Duties of Customs are imposed, in accordance with this Act, on:
(a)goods imported into Australia on or after the commencement day; and ... "
For present purposes, the rate of duty is prescribed by paragraph 22(a), namely:
"22 ... the duty in respect of goods shall be ascertained:
(a)... by reference to the general rate set out in the third volume of the tariff classification under which the goods are classified;
(b) ... "
Schedule 3 to the Tariff Act is very lengthy and contains very complex provisions. Its application causes much confusion and can lead to differences of opinion. It is not surprising that so many matters involving the construction and application of the provisions of Schedule 3 have come before the Administrative Appeals Tribunal and the Court. For the purposes of this appeal, it is not necessary to refer to many of the authorities referred to in the course of submissions nor to all of the provisions of the Tariff Act having a bearing on this appeal. On this latter point, the definitions of a number of words and phrases referred to in section 5 must be kept in mind as well as the provisions of section 6, but express reference should be made to section 9 and subsection 10(1) which provide as follows:
"9 A reference in this Act to the tariff classification under which goods are classified is a reference to the heading or subheading:
(a)in whose third column a rate of duty or the quota sign is set out; and
(b) under which the goods are classified.
10 (1)The Interpretation Rules shall be used for ascertaining the tariff classification under which goods are classified."
Schedule 3 is divided into a number of Sections, Chapters and sub-Chapters. Within each Chapter there are a number of headings and subheadings. Normally the heading comprises the generic classification of goods, the rate of duty being specified with respect to the particular type of goods appearing against subheadings. In many cases, notes appear under Sections and under Chapters. At this stage, it should be noted that item 3005 is a heading within Chapter 30 which is within Section VI, item 4818 is a heading within Chapter 48 which is within Section X and item 5601 is a heading within Chapter 56 which is within Section XI.
The Interpretation Rules referred to in subsection 10(1) of the Tariff Act are defined in section 5 to mean "the General Rules for the Interpretation of the Harmonised System provided for by the Convention (the International Convention on the Harmonised Commodity Description and Coding System done at Brussels on 14 June 1983), being the rules a copy of the English text of which is set out in Schedule 2;".
The General Rules are set out in Schedule 2 to the Tariff Act. They provide that the "Classification of goods in Schedule 3 shall be governed by the following principles:" There are then set out six rules numbered 1 to 6 inclusive. Rule 1 is set out:
"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:"
Rules 2 to 6 inclusive are the "following provisions."
Although the titles of Sections and Chapters are provided for ease of reference only, it is interesting to set out the titles of the Sections and Chapters relevant for present purposes. The title to Section VI is "Products of the chemical or allied industries"; the title to Chapter 30 is "Pharmaceutical Products". The title to Section X is "Pulp of wood or of other fibrous cellulosic material; waste and scrap of paper or paperboard; paper and paperboard and articles thereof"; the title to Chapter 48 is "Paper and paperboard; articles of paper pulp, of paper or of paperboard". The title of Section XI is "Textiles and Textile Articles"; the title to Chapter 56 is "Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof."
Under Rule 1 of the General Rules, subject to any relative Section or Chapter Notes, the classification of goods, for the purpose of determining the rate of duty to be imposed; pursuant to sections 21 and 22 of the Tariff Act; are to be determined "according to the terms of the headings". The three headings relevant for present purposes are items 3005, 4818 and 5601. These three headings are set out:
WADDING, GAUZE, BANDAGES AND SIMILAR ARTICLES (FOR EXAMPLE, DRESSINGS, ADHESIVE PLASTERS, POULTICES), IMPREGNATED OR COATED WITH PHARMACEUTICAL SUBSTANCES OR PUT UP IN FORMS OR PACKINGS FOR RETAIL SALE FOR MEDICAL, SURGICAL, DENTAL OR VETERINARY PURPOSES:"
TOILET PAPER, HANDKERCHIEFS, CLEANSING TISSUES, TOWELS, TABLECLOTHS, SERVIETTES, NAPKINS FOR BABIES, TAMPONS, BED SHEETS AND SIMILAR HOUSEHOLD, SANITARY OR HOSPITAL ARTICLES, ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, OF PAPER PULP, PAPER, CELLULOSE WADDING OR WEBS OF CELLULOSE FIBRES:"
WADDING OF TEXTILE MATERIALS AND ARTICLES THEREOF; TEXTILE FIBRES, NOT EXCEEDING 5 mm IN LENGTH (FLOCK), TEXTILE DUST AND MILL NEPS:"
Under each of these headings are a number of subheadings and the rate of duty to be imposed is set out with respect of each of these subheadings.
Although a classification is to be determined according to the terms of the headings, that is subject to any relevant Section Note or Chapter Note. For the purposes of this case three such notes are relevant. Note 2 to Section VI provides that goods classifiable in, among other headings, 3005, by reason of being put up for retail sale are to be classified in that heading "and in no other heading of Schedule 3." Note 2 is set out in full:
"2 Subject to Note 1 above, goods classifiable in 3004, 3005, 3006, 3212, 3303.00.00, 3304, 3305, 3306, 3307, 3506, 3707 or 3808 by reason of being put up in measured doses or for retail sale are to be classified in those headings and in no other heading of this Schedule."
The effect of this Note is that if the incontinence pads fall to be classified in 3005, headings 4818 and 5601 can have no application, unless put up for wholesale as opposed to retail sale, even if the incontinence pads come under the terms of one or other or both of these headings. This conclusion is consistent with the views expressed in Liebert Corporation Australia Pty Ltd v Collector of Customs, Full Court, Federal Court of Australia, 1 November 1993, unreported.
Note 1(a) to Chapter 48 provides that Chapter 48 does not cover "Articles of Chapter 30". In Schedule 3 the word "articles" appears to be used as synonyms with the word "goods". The latter word is used in sections 21 and 22 of The Tariff Act. The effect of Note 1(a) to Chapter 48 is that if the incontinence pads are classified under the heading of 3005, they cannot be classified under 4818 even if the pads come within the terms of the heading 4818.
Notes 1(e) and (m) to Section XI provide that Section XI does not cover "(e) Articles of 3005 ... (for example wadding, gauze, bandages and similar articles for medical, surgical, dental or veterinary purposes ...)" and (m) "Products or articles of Chapter 48 (for example, cellulose, cellulose wadding)" respectively. The effect of Note 1(m) to Section XI is that if the incontinence pads are classified under the terms of 4818 they cannot be classified under 5601 even if the pads come within the terms of the heading 5601. In this context it is interesting to compare item 4818 with item 5601.10.00 "Sanitary towels and tampons, napkins and napkin liners for babies and similar sanitary articles, of wadding." The wording of (e) is of interest also as will be apparent later in these reasons.
In cases similar to this, when the importer claims that imported goods fall under heading item 3005, it is important that the Collector, the Tribunal and the Court apply the correct methodology in determining the claim. No question of any onus of proof is involved, see for example McDonald v Director-General of Social Security (1984) 1 FCR 354 per Woodward J at 356-358 and Northrop J at 365-366. See also Bushell v Repatriation Commission (1992) 175 CLR 408 per Brennan J at 424-425.
Thus, in the present case, as the first step, the Tribunal should have determined whether the incontinence pads were goods (or articles) in the terms of heading 3005. This should have been done without consideration of whether the pads were goods (or articles) in the terms of the heading to item 4818 or item 5601. The fact that the pads came within the terms of one or both of those headings is completely irrelevant if the pads fall under item 3005, or as it is often expressed, if the pads "fall" within item 3005. If the pads fall within item 3005, the duty to be paid is that imposed by the relevant subheading to item 3005. This is the end of the matter. Thus the first question to be decided is whether the incontinence pads fall within item 3005. The Tribunal did not adopt clearly this methodology and to that extent may have been led into error.
In determining the classification of particular goods, the Collector and the Tribunal on an application for an order of review where the Tribunal is exercising all the powers and discretions of the Collector, must adopt a two stage process. First the goods must be identified. Second, the relevant heading must be construed properly and applied to the goods as identified.
The principles of law to be applied by the Tribunal in identifying goods for classification are not disputed, but since they are relevant to questions that do arise, they are set out as expressed in the reasons for decision by the Tribunal:
"9.Cases establish that before goods can be classified, they must be identified. In Times Consultants Pty Ltd v Collector of Customs (Queensland) (1987) 16 FCR 449 Morling and Wilcox JJ said at pp462-463:
"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: see Chandler & Co v Collector of Customs (1907) 4 CLR 1719 at 1729; Whitton v Falkiner (1915) 20 CLR 118 at 131; Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (1980) 47 FLR 131 at 155.
...
It must always be remembered that the classification of goods for tariff purposes is a practical 'wharf-side' task. Upon some occasions it will be necessary for the classifier to obtain information to enable identification of the goods but it is entirely inappropriate that he or she should enter into inquiries upon matters such as cost, commercial advantage and purchaser preference which the Tribunal undertook. It ought normally be possible to classify goods merely by looking at them and by considering their nature and the function which they were designed to serve. ..."
10.The task of identifying goods was explained by the Tribunal in Re Sterns Playland Pty Ltd and Collector of Customs (No 2) (1982) 4 ALD 562 at 565-566 as follows:
"As always in tariff classification matters, the first step is to identify the imported goods [see Re Gissing and Collector of Customs (1977) 1 ALD 144; but of Re Renault Wholesale Pty Ltd and Collector of Customs (No 3) (1978) 2 ALD 111 at 115]. Although the question cf identification can often be resolved fairly readily by asking the question - what is it? - anyone with knowledge of the Tariff will be aware that in addition to the answer produced in response to that question, other matters may also need to be considered before one turns to the next task, namely classification in accordance with the Tariff. All the characteristics which goods present on informed inspection or even, in some cases, on scientific analysis, may have a relevance to this frequently complex task ...
As the Tariff recognizes, imported goods, because of their diverse characteristics or components and because of their capacity for being identified by informed minds in a variety of ways, may well 'fall' within two or more items in the Tariff. Indeed, most goods are capable of being identified specifically (as a particular article of commerce) or generically by reference to the materials or substances from which they are made. It is one of the important functions of the Rules for the Interpretation of Sch 1 (in Pt 1 of that Schedule to the Tariff) to provide mechanisms for resolving, in those circumstances, which of the various items etc into which the goods may 'fall' is the item etc that 'applies' to the imported goods."
11.The principles by reference to which goods may be identified for the purposes of the Act are set out in Re Tridon Pty Ltd and Collector of Customs (1982) 4 ALD 615 at 620 and were set out in a simpler form, omitting reference to authorities in P J Eastern Trading and Collector of Customs (Decision No 8532, delivered 18 February 1993), as follows:
"(i)Identification must be objective, having regard to the characteristics which the goods, on informed inspection, present.
(ii)The identification of goods cannot be controlled by the descriptions of goods adopted in the nomenclature of the Tariff.
(iii)Nevertheless in identifying goods it is necessary to be aware of the structure of the nomenclature, the basis on which goods are classified and the characteristics of goods which may be relevant to the frequently complex task of classification.
(iv)In the identification of goods, knowledge of how those who trade in the goods describe them will usually be relevant, but not necessarily conclusive.
(v)All the descriptive terms, both specific and generic, by which the goods may fairly be identified may be relevant to the classifications of the goods within the Tariff.
(vi)Descriptive terms may be of varying degrees of specificity (eg windscreen wiper blade refills, parts for a windscreen wiper or parts for a motor vehicle). Generic description may be by reference to the materials or substances from which the goods are manufactured.
(vii)Identification will frequently extend to characterisation of goods by reference to their design features ..., or by reference to their suitability for a particular use where those characteristics emerge from informed inspection of the goods as imported. The extent to which these characteristics may be relevant to the ultimate classification of the goods and whether evidence of the use to which goods are put after importation is relevant, will depend upon the language of the Tariff Nomenclature.
(viii)Composite goods, notwithstanding that they have components which are separately identifiable, may nevertheless be identifiable in combination as a new entity if the identity of the separate units is subordinated to the identity of the combination."
These principles may not be sufficient for the purposes of the present case. In performing the task of identifying goods for classification, it is essential to have regard to the relevant classification heading. Some heading classifications make specific reference to a form or to a purpose. Where this
is so, a "practical wharf-side" task, may not be appropriate. Evidence may need to be received relating to the form or purpose of the goods. In cases of this kind, the heading will need to be construed properly in order to determine what evidence is relevant to identify the goods. This is such a case where purpose forms an essential part of the classification.
The heading in item 3005 has been set out earlier in these reasons. Putting to one side at present the extension provided by the words "and similar articles" it is noted that not all wadding, gauze or bandages come within item 3005. The wadding, gauze or bandages may be impregnated or coated with pharmaceutical substances. In that event, the wadding, gauze or bandages need not be put up in forms or packings for retail sale to fall within item 3005. Thus, a bandage used to bind a sprain normally would not be impregnated or coated with a pharmaceutical substance but, nevertheless, it remains a bandage but so far not falling under item 3005. If bandages of this type were put up in forms or packings for retail sale, they would fall within item 3005 if they were for medical, surgical, dental or veterinary purposes.
On this analysis, the present case involves the construction of item 3005. For this purpose, the relevant parts of item 3005 can be expressed as follows:
Wadding, gauze, bandages and similar articles ... put up in forms or packings for retail sale for medical ... purposes."
Thus, not all wadding etc falls under item 3005. The two expressed limitations restrict the type of goods falling under item 3005, the goods being in a form or packing for retail sale for medical purposes. In its reasons for judgment, the Court which heard the appeal from the Tribunal said:
"It is common cause that the subject goods are "put up in forms or packings for retail sale for medical purposes"."
At the hearing of the appeal, counsel for both parties agreed that there was no common cause on this matter and so the Full Court must proceed on the basis of there being no common cause on these two issues and in particular on whether the pads are for medical purposes. The latter, apparently, is an issue between the parties.
Samples of the incontinence pads were in evidence before the Tribunal. The Tribunal concluded that, on inspection, they were revealed as "disposable napkins" intended for use by adults rather than by babies or toddlers. This latter conclusion does not appear to be relevant since the heading to item 4818 should not be considered at this stage. Further no purpose limitations appear to be attached to the goods specified in item 4818. The Tribunal concluded that the goods must be identified as adult incontinence pads. The Tribunal said "The evidence as to incontinence being a medical problem is not relevant to identification". This statement may not be correct since what has to be decided is whether the goods are "wadding etc put up in forms or packages for retail sale for medical purposes". The Tribunal concluded further that the subject goods, being the incontinence pads "are adult disposal napkins, their characteristics on inspection appear to be the ability to absorb urine and faeces, and to protect clothing, bedding and furniture from becoming wet or stained". This conclusion imports a purpose but not a purpose specified in the limitations contained in item heading 3005. The Tribunal then compared the characteristics of the incontinence pads and babies nappies and concluded "The evidence establishes, and the Tribunal would in any event be aware, that adult incontinence is an embarrassing medical problem and quite different from the condition of a baby or toddler who has not yet been toilet trained. Nevertheless it is our view that babies' napkins and adult incontinence pads are similar articles." Again, this seems an inappropriate comparison at this stage of the methodology when no consideration had been given to the content of the pads or whether they were similar articles or whether they were for medical purposes. The crucial findings made by the Tribunal appear from the following paragraph of its reasons:
"19.Mr Creevey gave evidence that the goods are predominantly made of wadding and that they are put up in forms or packings for retail sale. Mrs King is the family continence adviser at the Silver Chain Continence Service in Perth, Western Australia. Mrs Winneke is a continence adviser with the Blue Nursing Service in Brisbane, Queensland. Both of those services are domiciliary services similar to the Royal District Nursing Society. Mrs King and Ms (sic) Winneke gave evidence that incontinence is a medical problem. The respondent's witnesses readily agreed that incontinence is a medical condition and we so find. The medical witnesses also agreed and we find that incontinence pads are used to help people with incontinence manage their medical condition and preserve their dignity. The evidence establishes that in some cases the temporary and occasional use of incontinence pads while undergoing a course of bladder retraining will assist in the cure of the medical problem. In other cases incontinence pads will need to be used permanently but are a means of allowing the person to cope with his or her disability."
The Tribunal then posed the correct question namely whether the incontinence pads came within the relevant parts of item 3005 namely "wadding, gauze, bandages and similar articles ... put up in forms or packings for retail sale for medical ... purposes." But in considering that question, which involves the construction of a composite phrase, the Tribunal said "If the goods are not "wadding, gauze, bandages or similar articles" within the meaning of that term in heading 3005, the fact that they are put up in forms or packings for retail sale for medical purposes cannot bring them within item 3005. The Tribunal found that the incontinence pads were not wadding within the meaning of that word used in item 3005. This was despite the fact that the Tribunal appears to have accepted the evidence of Mr Creevey that the pads were "predominantly made up of wadding." The pads comprised a filling of wadding enclosed in another material to hold the wadding in place and to enable the pads to be fitted to the body of the user and to be held firmly in place. After making that finding, the Tribunal said that the pads were not "similar articles" and that the examples given namely "dressings, adhesive plasters, poultices" supported that conclusion. The Tribunal did not attempt to apply the ejusdem generis rule in that it made no attempt to find or define the class common to the specific words "wadding, gauze, bandages" and other articles to be limited by the words "similar".
It may well be that the common class in the three words comprise goods used for or in relation to the treatment of a morbid or injured condition of a human being or an animal. To a great extent, the Tribunal may have been led into error by concentrating on the word "wadding" without considering the composite phrase "wadding, gauze, bandages and similar articles put up in forms or packings for retail sale for medical purposes."
It is a well known rule of construction that in construing and applying a phrase it is inadmissible to look at each word separately and put the meanings of each word together to reach the meaning of the composite phrase. It is necessary to consider the phrase as a whole. In this context the purpose for which the goods are to be used is as important as the substance of the goods. One cannot be considered to the exclusion of the other. This can be illustrated by a reference to cotton wool made up into balls for retail sale. There is no doubt that cotton wool is wadding. Assume the balls are imported into Australia in plastic bags for retail sale. Some are coloured for the purpose of cosmetic use. Others are white for use for medical purposes. The former would not come within item 3005, the latter would because of the purpose specified in item 3005. On a proper consideration of relevant material, excluding the purpose of the pads, they may well be "similar articles" within the meaning of the composite phrase.
By way of comment, it is noted that prior to the 1987 Customs Tariff Act coming into operation, the relevant provision referred to " ... similar goods, including dressings, adhesive plasters, poultices and the like, being goods ... ". Applying the normal rule of construction, these inclusive goods, probably, would have come within item 3005 even if they did not come within the class common to the preceding words, but the matter is not completely clear, see YZ Finance Co Pty Ltd v Cummings (1964) 109 CLR 395. The use of the words "for example" give rise to different problems. Section 15AD of the Acts Interpretation Act 1901 was introduced into that Act in 1987, see Act No 141 of 1987. It provides as follows:
"15AD Where an Act includes an example of the operation of a provision:
(a) the example shall not be taken to be exhaustive; and
(b)if the example is inconsistent with the provision, the provision prevails."
The Court need not express any final view on the matter in this case except to say that the examples indicate that the Parliament intended to give a wide meaning to the words "similar articles" in item 3005, but at the same time some limitation must be placed on those words, possibly by the application of the ejusdem generis rule and if an example could not be so included, goods of that kind would not fall under item 3005.
In the present case, the Tribunal did not apply the ejusdem generis rule in considering whether the incontinence pads were similar articles under item 3005. It appears the Tribunal found that the pads were put up in forms or packings for retail sale. It did not make a specific finding that the pads were for medical purposes although it found that incontinence was a medical condition and the use of the pads could assist in the cure of that medical problem.
One of the major submissions put on behalf of the Collector was to the effect of, for example, a heading relating to the importation of metal could not apply to the importation of cars made of metal. This submission ignores the real issue, namely the limitations imposed in the application of item 3005. For a true comparison, the illustration used on behalf of the Collector would have to be in the form "metal and plastic and similar articles put up in forms for retail sale for vehicular purposes". In those cases, it would be a nice question whether a car would come within the classification.
In all the circumstances, the Tribunal was in error in making the decision it did. It did not construe the heading to item 3005 correctly and as a result did not make the appropriate findings on which to apply item 3005 as properly construed. This has to be done before consideration can be given to items 4818 or 5601. These further steps are to be taken only if the incontinence pads do not fall within 3005. The Tribunal should consider the matter further.
In dismissing the appeal from the Tribunal, the Court, in substance, applied the same reasoning as the Tribunal. Accordingly the appeal to this Court should be allowed with costs. The order appealed from should be set aside and in lieu thereof it should be ordered that the appeal from the Tribunal should be allowed with costs and the matter remitted to the Tribunal for determination according to law after considering such further material as it considers appropriate.
I certify that this and the preceding eighteen (18) pages are a true copy of the Reasons for Judgment of The Honourable Justice R.M. Northrop.
Associate:
Date:
ATTACHMENT
Counsel for the Appellants: Mr A.L. Cavanagh
Solicitor for the Appellants: Slonims
Counsel for the Respondent: Mr J. Lenczner
Solicitor for the Respondent: Australian Government Solicitor
Date of Hearing: 7 March 1995
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG248 of 1994
GENERAL DIVISION )
On Appeal from a Single Judge of the Federal Court of Australia
BETWEEN: VERNON-CARUS AUSTRALIA PTY. LTD. AND THOMAS CREEVEY & ASSOCIATES
Appellants
AND: COLLECTOR OF CUSTOMS
Respondent
CORAM: Northrop, Jenkinson and Branson JJ.
PLACE: Melbourne
DATE: 6 June, 1995
REASONS FOR JUDGMENT
JENKINSON J.
The questions which this appeal raises and the materials relevant to the determination of those questions are disclosed in the reasons for judgment of Northrop J. and of Branson J., which I have had the advantage of reading.
The first step is to determine whether the incontinence pads are classifiable in heading 3005. As Northrop J. has explained, Note 2 to Section VI of Schedule 3, by requiring that "goods classifiable in .... 3005 by reason of being put up .... for retail sale are to be classified in [that heading] and in no other heading of this Schedule", precludes consideration of the goods' classifiability in any other heading until that first step has been completed : see Liebert Corporation Australia Pty. Ltd. v. Collector of Customs (Full Court of this court; unreported; judgment 1 November 1993). And Note 2 to Section VI precludes recourse to Rule 3 of the General Rules in Schedule 2 while the determination of the question is in train : it is a Note which "otherwise require[s]", in the sense of those words in Rule 1 of those General Rules.
Upon a reading of the whole heading 3005 it is in my opinion plain that the description of each of the goods to be included in that heading includes one of the adjectival phrases "impregnated .. with pharmaceutical substances", "coated with pharmaceutical substances", "put up in forms .... for retail sale for medical, surgical, dental or veterinary purposes" and "put up .... in packings for retail sale for medical, surgical, dental or veterinary purposes". Neither in the Oxford English Dictionary (2nd ed.) nor in the Macquarie Dictionary (2nd ed.) is the word "wadding" or the word "gauze" given any meaning suggestive of medical, surgical, dental or veterinary associations. (That may be thought strange, since gauze bandages have been available for retail sale in this country under that name for at least the last sixty years.) And the word "bandages" has meanings quite inapplicable in the context of medicine, surgery, dentistry or veterinarianism. In those circumstances it is in my opinion an error of law to conceive of an article the subject of heading 3005 as that which first answers the description "wadding" or "gauze" or "bandages" and then, only if it does, is also of a description contained in one of the adjectival phrases. The Tribunal clearly did so conceive.
Palliation of discomforting consequences of physiological malfunction is, as the uncontradicted evidence before the Tribunal showed, a medical purpose. The findings of the Tribunal which its descriptions of the incontinence pads express seem to me to compel the conclusions that the pads have been identified as the material wadding put up both in forms and in packings for retail sale. And if it were of legal consequence, the conclusion seems inescapable that the genus which heading 3005 adumbrates includes articles apt to stanch human and animal exudations which it is to the benefit of the person or animal, to the body of whom or of which the article is applied, to stanch. But I accept the conclusion Northrop J. has expressed that the matter should be remitted to the Tribunal for determination according to law. I concur in the orders his Honour proposes.
I certify that this and the 2 proceeding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Dated: 6 June, 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 248 of 1994
)
GENERAL DIVISION )
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE
BETWEEN:
VERNON-CARUS AUSTRALIA PTY LIMITED and THOMAS CREEVEY & ASSOCIATES
Appellants
- and -
COLLECTOR OF CUSTOMS
Respondent
CORAM: Northrop J.
Jenkinson J.
Branson J.
PLACE: Melbourne
DATE: 6 June 1995
REASONS FOR JUDGMENT
BRANSON J.
This is an appeal from orders made by a judge of the Court, Justice Olney, whereby his Honour dismissed an appeal from a decision of the Administrative Appeals Tribunal. The decision of the Tribunal affirmed the decision of the respondent that goods described as incontinence pads imported into Australia from the United Kingdom were correctly classified for customs purposes to heading 4818.90 of Schedule 3 of the Customs Tariff Act 1987 ("the Act").
The Legislative Regime
No issue was taken on the appeal with the learned trial judge's description of the legislative regime. I set his description out in full:-
"Duties of Customs are imposed, in accordance with the Customs Tariff Act 1987 (the Act), on goods imported into Australia on or after the commencement of the Act (CTA s 21(1)(a)). The duty in respect of goods is to be ascertained (where the goods are not the produce or manufacture of a preference country) by reference to the general rate set out in the third column to the tariff classification under which the goods are classified (CTA s 22(a)). A reference in the Act to the tariff classification under which goods are classified is a reference to the heading or subheadings in whose third column a rate of duty or quota sign is set out and under which the goods are classified (CTA s 9). The General Rules for the Interpretation of the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1993 (the Interpretation Rules), a copy of the English text of which is set out in Schedule 2 to the Act, are to be used for ascertaining the tariff classification under which goods are classified (CTA s 10(1), s 5)
The Interpretation Rules as in force at the relevant time provide in part as follows:
GENERAL RULES FOR THE INTERPRETATION OF THE HARMONIZED SYSTEM
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) . . .
(b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of
goods consisting of more than one material or substance shall be according to the principles of Rule 3.
3.When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b)Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c)When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
4. . . .
5.. . .
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.
The sections, chapters and heading in Schedule 3 which are relevant to this application are Section VI (in particular Section Note 2 and heading 3005), Chapter 48 (in particular Chapter Note 1(a) and heading 4818) and Section XI (in particular Section Note 1(m) and heading 5601). The relevant portions of the Schedule are set out below:
Section VI:
Section VI
Products of the chemical or allied industries
Notes.
1. ...
2.Subject to Note 1 above, goods classifiable in ... 3005, ... by reason of being put up in measured doses or for retail sale are to be classified in those headings and in no other heading of this Schedule.
...
Chapter 30
Pharmaceutical Products
...
3005WADDING, GAUZE, BANDAGES AND SIMILAR ARTICLES (FOR EXAMPLE, DRESSINGS, ADHESIVE PLASTERS, POULTICES), IMPREGNATED OR COATED WITH PHARMACEUTICAL SUBSTANCES OR PUT UP IN FORMS OR PACKINGS FOR RETAIL SALE FOR MEDICAL, SURGICAL, DENTAL OR VETERINARY PURPOSES:
3005.10.00- Adhesive dressings and other articles having an adhesive layer
3005.90- Other
3005.90.10--- Wadding, including cotton wool and absorbent cotton
3005.90.90--- Other
Chapter 48:
Chapter 48
Paper and paperboard; articles of paper pulp,
of paper or of paperboard
Notes.
1. This Chapter does not cover:
(a)Articles of Chapter 30;
...
4818TOILET PAPER, HANDKERCHIEFS, CLEANSING TISSUES, TOWELS, TABLECLOTHS, SERVIETTES, NAPKINS FOR BABIES, TAMPONS, BED SHEETS AND SIMILAR HOUSEHOLD, SANITARY OR HOSPITAL ARTICLES, ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, OF PAPER PULP, PAPER, CELLULOSE WADDING OR WEBS OF CELLULOSE FIBRES:
4818.10.00- Toilet paper
4818.20.00- Handkerchiefs, cleansing or facial tissues and towels
4818.30.00- Tablecloths and serviettes
4818.40- Sanitary towels and tampons, napkins and napkin liners for babies and similar sanitary articles:
4818.40.10--- Babies napkins
4818.40.90--- Other
Section XI:
Section XI
Textiles and Textile Articles
Notes.
1.This Section does not cover:
...
(m)Products or articles of Chapter 48 (for example, cellulose wadding);
...
Chapter 56
Wadding, felt and nonwovens; special yarns; twine,
cordage, ropes and cables and articles thereof
...
5601WADDING OF TEXTILE MATERIALS AND ARTICLES THEREOF; TEXTILE FIBRES, NOT EXCEEDING 5 mm in length (FLOCK), TEXTILE DUST AND MILL NEPS:
5601.10.00- Sanitary towels and tampons, napkins and napkin liners for babies and similar sanitary articles, of wadding
5601.2- Wadding; other articles of wadding:
5601.21.00 --- Of cotton
5601.22.00--- Of man-made fibres
5601.29.00 --- Other
5601.30.00- Textile flock and dust and mill neps."
Findings of Fact
The Tribunal after a careful consideration of the goods in question identified them as "adult incontinence pads". It further described them as "adult disposable napkins, their characteristics on inspection appear to be the ability to absorb urine and faeces, and to protect clothing, bedding and furniture from becoming wet or stained". The appellants do not quarrel with this identification or description.
The Tribunal records in its reasons for decision that:-
"Mr Creevey gave evidence that the goods are predominantly made of wadding and that they are put up in forms or packings for retail sale".
The Tribunal did not make an explicit finding with respect to this evidence. However it appears to have accepted its accuracy. The appeal before this Court was conducted on the basis that the evidence was accepted. It is appropriate to regard the Tribunal as having made findings in accordance with the above evidence.
The Tribunal further found that incontinence is a medical condition and that the incontinence pads are "sanitary articles similar to babies' napkins".
Contentions
It was accepted by both parties that the effect of note 2 to Section VI, which is set out above, is that if the incontinence pads are properly to be classified to heading 3005 as "[w]adding, gauze, bandages and similar articles .... put up in forms or packings for retail sale", headings 4818 and 5601 have no relevant application in this case.
The appellants contend that heading 3005 extends to articles of wadding, including goods which are principally or essentially composed of wadding put up in forms or packings for retail sale for medical purposes. On this basis it is argued that the incontinence pads in question ("the pads") are wadding within the meaning of the heading. Alternatively it is argued that pads are "similar articles" within the meaning of the heading.
In the further alternative the appellants argue that if the pads are not properly classified to heading 3005 they are to be classified to heading 5601 as "wadding or textile materials and articles thereof; ..... sanitary towels ..... and similar sanitary articles, of wadding".
It is the case for the respondent that the pads are not properly classified to heading 3005 or to heading 5601, but have been properly classified to heading 4818 as "similar household, sanitary or hospital articles ..... of paper pulp, paper, cellulose wadding or webs of cellulose fibres".
I am unable to accept the submission that even without reference to Rule 2(b) of the General Rules for the Harmonized System the pads are appropriately described as wadding. Wadding is not defined in the Act. No suggestion has been made that it has a relevant technical meaning. In the Macquarie Concise Dictionary (Second Edition) wadding is defined as:-
"1.Any fibrous or soft material for stuffing, padding, packing, etc., esp. carded cotton in specially prepared sheets.
Material for wads for guns, etc.
A wad or lump".
The definition in the New Shorter Oxford English Dictionary is as follows:-
"1.Any material from which wads for guns are made, a wad.
Any soft, loose, or pliable material used as a padding, lining, stuffing etc. Now esp., cotton wool formed into a fleecy layer.
The action of WAD".
In ordinary usage, as is confirmed by the above definitions, wadding is a material or substance with particular characteristics and many potential uses. The pads in contrast are a product, albeit constituted in large part by wadding, intended for specific use in the management of incontinence. They have essential features independent of the wadding which they contain. These features include an external covering which is not composed of wadding and a plastic "shield" to control moisture flow. Some varieties of the pads have adhesive fasteners and some have elastic around leg openings.
A manufactured product designed for a particular use, and which has significant components which are not themselves wadding, is not, in my view, described in ordinary usage as wadding notwithstanding that one of its major component parts is wadding. Put another way, the fact, as I assume it to be, that one could by destroying one of the pads obtain an appreciable amount of wadding does not lead to the conclusion that the pad is the generic substance wadding or an article of wadding.
Do the General Rules for the Interpretation of the Harmonized System ("the General Rules") require that the tariff provisions must be applied in a way which gives the term "wadding" as it is used in heading 3005 a meaning different from that which it has in ordinary usage? As mentioned above the reference in heading 3005 to "wadding" is, in my view, a reference to a material or substance. Rule 2(b) of the General Rules has the effect that it is therefore to be taken to include a reference to "mixtures or combinations of that material or substance with other materials or substances".
The predecessor of rule 2(b) of the General Rules was considered by the Full Court of this Court in Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285. In that case the Court was required to determine the heading to which certain goods marketed commercially as "Instapak B" should be classified. "Instapak B" was a mixture of seven chemical compounds of which three could properly be described as polyols and four could not be so described. It was agreed that each of the polyols was of a type described in a particular paragraph of a subheading of the Tariff Schedule. At issue was whether the mixture of chemical compounds marketed as "Instapak B" was properly classified to that paragraph. Wilcox J, with whom Neaves J agreed on this point, said of the predecessor of rule 2(b) of the General Rules:-
"The sub-rule applies to goods constituting a mixture or combination, one of the ingredients of which complies with a description of a particular item, or sub-item or paragraph. The sub-rule then extends the reference in the Schedule so as to include the mixture or combination. It is not necessary to the application of r 2(2) that the mixture or combination itself fall within the description or any description in Sch 3." (at p.294)
In Johnson & Johnson Australia Pty Ltd v Collector of Customs (1989) 11 AAR 24 Davies J was required to consider the
appropriate classification of goods consisting of dental floss located on a spool within a plastic container incorporating a hinged lid and a cutting edge. It was agreed before Davies J that dental floss was "yarn of continuous man-made fibres". At issue was whether the goods which consisted in part of dental floss could be classified to an item which applied to "yarn of continuous man-made fibres ..." It was apparently not argued that the goods were simply dental floss in a packaging (see Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 per Lockhart J speaking for the Full Court at p.599). Davies J held that:-
"rule 2(2) was applicable to the subject goods for what was imported was a material or substance, the yarn, combined with other materials or substances, the spool, the plastic container, the metal hook and the blister packaging".
On that basis His Honour found that the goods fell within the item under consideration. It may be noted that Davies J gave no explicit consideration to the proper construction of the expression "mixture or combination".
There is no evidence in this case that the expression "mixture or substance", or either of its principal parts, has any relevant technical meaning.
The Macquarie Concise Dictionary (Second Edition) defines "mixture" as follows:-
"1.any combination of differing elements, kinds, qualities etc.: a curious mixture of eagerness and terror;
2.Chem., Physics. an aggregate of two or more substances which are not chemically united, and which exist in no fixed proportion to each other.
3.a fabric woven of yarns combining various colours.
4.the act of mixing.
5.the state of being mixed.
6.an added element or ingredient; an admixture."
The non-technical definitions offered by the New Shorter Oxford English Dictionary include:-
"1.A product of mixing; something mixed; a combination.
2.A medicinal or other preparation consisting of two or more ingredients mixed together ..."
Turning to the expression "combination", the Macquarie Concise Dictionary (Second Edition) gives the following relevant definitions:-
"1.the act of combining.
2.the state of being combined.
3.a number of things combined.
4.something formed by combining."
The same dictionary relevantly defines "combine" as follows:-
"1.to bring or join into a close union or whole; unite; associate; coalesce.
2.to enter into a chemical union.
3.a combination."
The New Shorter Oxford English Dictionary definition of "combine" is not materially different from that in the Macquarie dictionary.
In my view the above definitions suggest that the expression "mixture or combination" is not apt to denote the end result of a manufacturing process whereby an article is brought into being consisting of various materials or substances which are in no way admixed. It seems to me to be contrary to ordinary usage to describe (to take an example offered during argument by counsel for the respondent) a suit as a mixture or combination of fabric, thread and buttons.
I note that no issue as to the meaning of "mixture or combination" arose in the Rheem Case: the goods in question in that case were a material or substance which was plainly a mixture of chemical compounds.
In my view the first sentence of rule 2(b) of the General Rules is limited in its operation to materials or substances which are a mixture or combination of materials or substances. I do not read it as having any operation with respect to goods the component parts of which are different materials or substances. Composite goods are dealt with by the second sentence of rule 2(b) of the General Rules.
I conclude that the first sentence of Rule 2(b) has no application in the present case. The second sentence has no application in the present case as heading 3005 and its subheadings do not include any reference to "goods of a given material or substance". The third sentence of Rule 2(b) may well have an application in this case but it does not lead to the pads being classified to heading 3005.
It was not suggested that any rule other than Rule 2(b) of the General Rules had an application in this case. I therefore conclude that the General Rules do not require that the term "wadding" as it is used in heading 3005 should be interpreted other than in accordance with ordinary usage.
As was pointed out by the learned judge at first instance, the conclusion that the term "wadding" as used in heading 3005 does not extend to manufactured goods which include a component of wadding leads necessarily to the result that such goods could not sensibly be said to be articles similar to wadding. It is therefore unnecessary to consider whether the words "and similar articles" which appear in heading 3005 apply in respect of bandages only or relate also to wadding and gauze.
The conclusion of the learned judge at first instance that the Tribunal has not been shown to have erred in law in concluding that the subject goods do not fall to heading 3005 is, I consider, correct.
It was argued before us, perhaps with limited enthusiasm, that even accepting the correctness of the Tribunal's conclusion with respect to heading 3005, the Tribunal erred as a matter of law in holding that the pads were appropriately classified to heading 4818. In my view, having regard to the findings of fact made by the Tribunal, the conclusion that the pads fell to the heading 4818 as household, sanitary or hospital articles of cellulose wadding similar to napkins for babies (i.e. napkins incorporating cellulose wadding) is correct (see the second sentence of Rule 2(b) of the General Rules). I assume that I am permitted to note that exhibits illustrating the form of the pads show them to be almost indistinguishable (presumably apart from size) from babies disposable napkins.
Once it is established that the pads were properly classified to heading 4818 there is no occasion to consider heading 5601 (see Note 1 (m) of the notes to Section XI of Schedule 3 of the Act).
The appeal should be dismissed.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice Branson.
Associate:
Dated:
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