Vestas Australian Wind Technology Pty Limited v Chief Executive Officer of Customs
[2015] AATA 348
•21 May 2015
[2015] AATA 348
DivisionGENERAL ADMINISTRATIVE DIVISION
File Number 2014/3872
ReVestas - Australian Wind Technology Pty Limited
APPLICANT
And Chief Executive Officer of Customs
RESPONDENT
DECISION
Tribunal Deputy President S A Forgie
Mr C Ermert, Member
Date21 May 2015
PlaceMelbourne
The Tribunal decides to set aside the decision under review dated 26 June 2014 which affirmed a decision of 12 March 2014 in which a delegate of the respondent refused to make a tariff concession order (TCO) as he was not satisfied that the core criteria in s 269C of the Customs Act 1901 had been met; and
1.substitutes for that reviewable decision a decision that:
(a)the TCO application made on behalf of the applicant satisfies the core criteria set out in s 269C of the Customs Act 1901; and
2.remits the matter to the respondent:
(b)to make a decision under s 269P of the Customs Act 1901 to make a written order declaring that the goods that are the subject of the TCO application are
goods to which a prescribed item specified in the TCO applies.
…[sgd] S A Forgie..
Deputy President
CATCHWORDS
CUSTOMS – tariff concession order – gear boxes for wind turbines - whether substitutable goods – respondent concedes no substitutable goods – whether substitutable goods can be deemed when conceded there are none – statutory interpretation – core criteria met – decision set aside
LEGISLATION
Acts Interpretation Act 1901; section 13
Administrative Appeals Tribunal Act 1975; section 37
Customs Act 1901; sections 269B, 269C, 269D, 269E, 269M, 269P, 269Q, 269S, 269SA
Customs Administration (Transitional Provisions and Consequential Amendments) Act 1985; section 2 and Schedule
Customs Amendment Act 1983; sections 2, 5
Customs, Excise and Bounty Legislation Amendment Act 1995
Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Act 1992; sections 2, 10
Customs Tariff Act 1995; Schedule 4; Item 50
Customs Tariff Amendment Act (No.1) 1996
Legislative Instruments Act 2003; section 13Explanatory Memorandum to the Customs Amendment Bill 1996; Item 5
CASES
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 83 ALJR 1152; 73 ATR 256; [2009] ATC 20-134
Amcor Limited v Comptroller-General of Customs [1991] FCA 622; 33 FCR 200; 105 ALR 216
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; 72 ALJR 841; 153 ALR 490
Re Frito-Lay Australia Pty Ltd and Chief Executive Officer of Customs [1996] AATA 199
Re Gang-Nail Australia and Chief Executive Officer of Customs and Another [1999] AATA 30; (1999) 53 ALD 618
Re Kraft Foods Ltd and Chief Executive Officer of Customs [1997] AATA 109
Re Polychrome (Australia) Pty Ltd and Chief Executive Officer of Customs and Aldus Engineering [1996] AATA 141
Re Tony Wain Agencies and Anor and Comptroller of Customs (1994) 35 ALD 649
Re Vestas – Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721; (2013) 61 AAR 240; 137 ALD 586
Seguin Moreau, Australia v Chief Executive Officer of Customs [1997] FCA 776; (1997) 77 FCR 410
Taylor v The Owners – Strata Plan No 11564 [2014] HCA 9; (2014) 306 ALR 547; 88 ALJR 473
OTHER MATERIAL
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
REASONS FOR DECISION
On 14 August 2012 and through its representative, Price Waterhouse Cooper, Vestas - Australian Wind Technology Pty Limited (Vestas) applied for a Tariff Concession Order (TCO) in relation to what might be described generally as gear boxes for wind turbines. Those goods are described more precisely at [5] below and are goods classified to subheading 8483.40.90 to Schedule 3 to the Customs Tariff Act 1995 (CT Act). Its application was accepted as a valid application[1] and then allocated the number TC 1229970 and published in the Commonwealth of Australia Gazette (Gazette) No. TC 13/46 dated 20 November 2013. On 12 December 2013, Hofmann Engineering Pty Ltd (Hofmann Engineering) lodged with the Chief Executive Officer of Customs (CEO) a submission objecting to the making of TCO 1229970.
[1] This followed the Tribunal’s earlier decision in Re Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721; (2013) 61 AAR 240, 137 ALD 586; Deputy President Forgie
A delegate of the CEO decided that the TCO application made by Vestas did not satisfy the core criteria set out in s 269C of the Customs Act 1901 (Customs Act) i.e. that on the day the TCO application was lodged, no substitutable goods were produced in Australia in the ordinary course of business. After reconsideration by a different delegate, the decision was affirmed on 26 June 2014 on the same bases. The first of those bases was that, on the day on which the TCO application was made, there were wind turbine gear boxes produced in Australia that had a use corresponding with a use to which the goods that are the subject of the TCO application can be put.[2] Therefore, substitutable goods were produced in Australia in the ordinary course of business. The second and alternative basis was that, consistently with s 269E(2), Hofmann Engineering had, within the two years before the TCO application was lodged, produced made to order capital equipment with the same labour skills, technology and design expertise in Australia as the goods the subject of the TCO application.[3]
[2] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents); T19 at 271
[3] T documents; T19 at 261-272 and T24 at 289-305
Before the hearing of Vestas’ application for review of the reconsidered decision, the CEO conceded that Hofmann Engineering has not produced substitutable goods but maintained that alternative basis for his decision founded on s 269E(2). We have decided that the deeming provisions s 269E(2) relate only to the question whether goods that are substitutable goods in relation to the goods that are the subject of a TCO application (TCO goods) have been produced in Australia in the ordinary course of business. They do not deem substitutable goods to have been produced in Australia in the ordinary course of business when there have been none. Therefore, the CEO’s concession that no substitutable goods have been produced in Australia means that the condition specified in s 269E(2)(a) cannot be met and no substitutable goods are deemed to have been produced in Australia in the ordinary course of business. It also means that the core criteria specified in s 269C have been met and the CEO is required by s 269P(3) to make a written TCO.
In view of our conclusion regarding the effect of the CEO’s concession, we have not gone on to consider whether Hofmann Engineering has, within the two years before the TCO application was lodged, produced made-to-order capital equipment with the same labour skills, technology and design expertise in Australia as the TCO goods. It is not a relevant enquiry once it was conceded that there are no substitutable goods produced in Australia.
BACKGROUND
We will begin with the description of the goods put forward by Vestas as the wording that should appear in the TCO if it were granted. That description is:
“GEARBOXES, CAST STEEL, WIND TURBINE NACELLE, where the wind turbines have a capacity NOT less than 3MW, having ALL of the following:
a) helical gears
b) integrated planet bearing races
c) case carbonised external gears
d) nitride, or case carbonised ring gears
e) conforming to ALL of the following requirements/standards:
(i) ANSI/AGMA/AWEA 6006-A03
(ii) ISO-6336-1
(iii) ISO/IEC 81400-4
(iv) GL 2010: Guidelines for the Certification of Wind Turbines
f) integrated main bearing”[4]
The stated use of the goods was described in the Gazette TC 13/46 as being “To convert the high torque power of a large scale wind turbine rotor to low torque power for use by generators”.[5]
[4] T documents; T4 at 136
[5] T documents; T4 at 136
There was no dispute that, at the date of the TCO application, no gearbox for a wind turbine having a capacity of not less than 3MW and no other goods capable of operating as a gearbox for a wind turbine having a capacity of not less than 3MW had been produced in Australia. Therefore, it was agreed, that no substitutable goods had been produced in Australia.[6]
[6] Respondent’s Reply to Applicant’s Statement of Facts and Contentions at [2]
LEGISLATIVE BACKGROUND
Section 18 of the Customs Tariff Act 1995 provides for the calculation of concessional duty if an item in Schedule 4 appears at first sight to apply to the goods and if the duty payable in respect of those goods under that item would be less than would otherwise be payable under the applicable item in one or other of Schedules 3, 5, 6, 7, 8, 9, 10 or 11. Among the goods for which provision is made in Schedule 4 are goods subject to a TCO.[7] Part XVA of the Customs Act regulates TCOs.
[7] Item 50 of Schedule 4 to the CT Act provides for “Goods that a tariff concession order, under Part XVA of the Customs Act 1901, declares are goods to which this item applies …”. Item 50 then goes on to prescribe the rate of duty as “Free” except in respect of goods classified under certain headings in Schedule 3 to the CT Act.
Determining whether a TCO will be made
A person may apply to the CEO for a TCO in respect of goods. An earlier proceeding in this matter led to the Tribunal’s decision that Vestas had made a valid application for a TCO in accordance with Division 2 of Part XVA of the Customs Act.[8] The way in which a standard TCO may be made is dealt with in Division 3 of that Part. In summary, the CEO must be satisfied that the application meets the core criteria. The CEO may have regard to the application, the submissions lodged within the time specified in accordance with s 269M(1), all information supplied and documents and material produced in accordance with s 269M(4) and any enquiries the CEO has made.[9]
[8] Re Vestas - Australian Wind Technology Pty Ltd and Chief Executive Officer and Customs [2013] AATA 721; (2013) 61 AAR 240; 137 ALD 586
[9] Customs Act; s 269P(1) Section 269Q provides for the making of a TCO for goods requiring repair.
Making a TCO
If the CEO is satisfied that the application meets the core criteria, he or she must make a written order declaring that the goods the subject of the TCO application are goods to which a prescribed item specified in the order applies.[10] Every TCO must include a description of the goods that are the subject of the order including a reference to the Customs tariff classification that, in the CEO’s opinion, applies to the goods. It must also include a statement of the day it is taken to have come into force.[11] Generally, that day is determined by reference to s 269S although s 269SA may also be relevant where goods that are substitutable goods in relation to the goods that are the subject of the TCO application begin to be produced after the TCO application has been lodged.
[10] Customs Act; s 269P(3)
[11] Customs Act; s 269P(4)(a) and (b)
Core criteria
The core criteria are the subject of Division 1 of Part XVA of the Customs Act. Section 269C provides:
“For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.”
It is clear from s 269C that it is imperative to keep firmly in mind the day on which the TCO application was lodged. Other provisions of the Customs Act go on to expand upon each of the criteria that must be met on that day if a TCO application is to meet the core criteria. The criteria are that, on that day, there were (1) no substitutable goods; (2) produced in Australia; (3) in the ordinary course of business.
A. Substitutable goods
The expression “substitutable goods” is defined in s 269B(1):
“.. in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.”
This definition has to be read with s 269C(3) which provides:
“In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.”
B. Goods produced in Australia
Section 269D sets out the meaning of the expression “goods produced in Australia”.[12] The general principles are set out in s 269D(1):
[12] Customs Act; s 269B(1)
“For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
(a) the goods are wholly or partly manufactured in Australia; and
(b)not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian materials; and
(iii) the factory overhead expenses incurred in Australia in respect of the goods.”
B.1 Goods partly manufactured in Australia
For the purposes of Part XVA of the Customs Act:
“… goods are taken to have been partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.”[13]
[13] Customs Act; s 269D(2)
The expression “substantial process in the manufacture of the goods” is not defined but s 269D(3) makes it clear that certain operations do not constitute a substantial process in the manufacture of the goods. It provides:
“Without limiting the meaning of the expression substantial process in the manufacture of the goods, any of the following operations or combination of those operations does not constitute such a process:
(a) operations to preserve goods during transportation or storage;
(b)operations to improve the packing or labelling or marketable quality of goods;
(c) operations to prepare goods for shipment;
(d) simple assembly operations;
(e)operations to mix goods where the resulting product does not have different properties from those of the goods that have been mixed.”
B.2Factory or works costs of the goods
The CEO may publish directions in the Gazette that the way the factory or works cost of goods, value of Australian labour, Australian material or factory overhead expenses incurred in Australia in respect of goods are to be determined in a specified manner.[14]
[14] Customs Act; s 269D(4) and see also s 269D(5) providing, in effect, that they are to be interpreted by reference to those rules applicable to regulations. Since the repeal of s 48 of the Acts Interpretation Act 1901 (AI Act), the interpretation of regulations has been determined according to the Legislative Instruments Act 2003. Section 13(1)(a) of that legislation provides that the AI Act applies to their interpretation as if they were an Act.
C. The ordinary course of business
For the purposes of Part XVA other than those of s 269Q, which deals with goods sent out of Australia for repair, s 269E sets out the circumstances in which goods that are substitutable goods are taken to be produced in Australia. Goods other than made-to-order capital equipment are the subject of s 269E(1). It provides:
“For the purposes of this Part, other than section 269Q, goods (other than made-to-order capital equipment) that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:
(a)they have been produced in Australia in the 2 years before the application was lodged; or
(b)they have been produced, and held in stock, in Australia; or
(c)they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;
and a producer in Australia is prepared to accept an order to supply them.”
Section 269E(2) is concerned with made-to-order capital equipment. The expression “capital equipment” means goods, which if imported into Australia, would be goods to which Chapters 84, 85, 86, 87, 89 or 90 of Schedule 3 to the CT Act would apply[15]and provides:
[15] Customs Act; s 269B(1)
“For the purposes of this Part, goods that:
(a)are substitutable goods in relation to goods the subject of a TCO application; and
(b)are made-to-order capital equipment;
are taken to be produced in Australia in the ordinary course of business if:
(c) a producer in Australia:
(i)has made goods requiring the same labour skills, technology and design expertise as the substitutable goods in the 2 years before the application was lodged; and
(ii)could produce substitutable goods with existing facilities; and
(d)the producer is prepared to accept an order to supply the substitutable goods.”
The expression “made-to-order capital equipment” is defined in s 269E(3) to mean:
“… a particular item of capital equipment:
(a)that is made in Australia on a one-off basis to meet a specific order rather than being the subject of regular or intermittent production; and
(b)that is not produced in quantities indicative of a production run.”
OUTLINE OF SUBMISSIONS
The submissions made by Mr Northcote on behalf of the CEO are summarised at the conclusion of his Statement of Facts and Contentions:
“87.1 The goods produced by Hofmann Engineering and the TCO goods are ‘made-to-order capital equipment’ within the meaning of Section 269E(3);
87.2The goods produced by Hofmann Engineering in the 2 years before the TCO application was lodged were all ‘produced in Australia’ as they had at least 25% Australian content, and at least one substantial process of manufacture was undertaken in Australia, as required by Section 269D;
87.3The goods produced by Hofmann Engineering were all produced in Australia in ‘the ordinary course of business’, as the requirements in Section 269E(2) were met;
87.4That Hofmann Engineering was at 14 August 2012 prepared to accept an order for a good substitutable for the TCO goods and continues to be prepared to accept an order for the TCO goods;
87.5In these circumstances, the criteria for granting a TCO under s. 269P … [have] not been met;
87.6 …”
In support of those submissions, the CEO initially relied on gear boxes produced by Hofmann Engineering. He gave four examples of gear boxes it had produced and, on the evidence, having a local content exceeding 25% of the factory or works costs of the goods represented by the sum of the value of Australian labour, Australian materials and the factory overhead expenses incurred in Australia in respect of the goods. The gear boxes the CEO chose as examples were:
(1)548kw wind turbine gear box (Windflow);
(2)7.4MW gear box;
(3)2.5MW gear box; and
(4)1MW underwater tidal turbine.
Later, the CEO conceded that gear boxes such as these and any others manufactured by Hofmann Engineering either currently or in the past are not substitutable goods in the context of the TCO application. His argument is that this is of no consequence for s 269E(2) is a deeming provision and does not require there to be, or to have been, actual production of substitutable goods in Australia. It deems that, if certain circumstances prevail, substitutable goods that are made-to-order capital equipment are produced in Australia in the ordinary course of business. The requirements set out in ss 269E(2)(a) and (b) are not express requirements that have to be met by some actual production in Australia at the time of the TCO application. Rather, the submission continues:
“… the goods described in paras s. 269E(2)(a) and (b) (ie substitutable goods to the TCO goods that are made-to-order capital equipment) ‘are taken to be produced in Australia in the ordinary course of business’ if the hypothetical requirements in s. 269E(2)(c) and (d) are complied with.”[16]
[16] Respondent’s Reply to Applicant’s Statement of Facts and Contentions at [4]
The CEO submitted that s 269E(2) is to be contrasted with s 269E(1), which does not apply to made-to-order capital equipment. That latter provision does require actual production of substitutable goods in establishing whether goods are produced in Australia in the ordinary course of business. Section 269E(2) does not require actual production of substitutable goods. It is directed instead to capability to produce substitutable goods. The CEO referred to the Explanatory Memorandum to the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Act 1992[17] (1992 Amendment Act), which repealed Part XVA of the Customs Act and replaced it in the form it now stands, and to the predecessor of s 269E(2) and various authorities in support of his submission. I will return to them.
[17] Act No. 89 of 1992
On behalf of Vestas, Mr Davies QC with Mr Slonim of counsel submitted that the CEO has misconstrued s 269E. In essence, they submit that s 269E(2) is only relevant in determining whether substitutable goods that have been produced in Australia have been so produced in the ordinary course of business. It is clear from the opening words of s 269E(2) that it applies to goods that are both substitutable goods and goods that are made-to-order capital equipment. If, as in this case, there are no substitutable goods produced in Australia at the time of the TCO application, there are no goods to which s 269E(2) may apply. It has no application.
If we decide that the CEO’s interpretation of s 269E(2) is correct, Mr Davies submitted that the criteria in s 269E(2)(c) are not satisfied on the evidence. Mr Northcote submitted to the contrary. In view of our decision regarding the interpretation of s 269E(2), we will not refer to their submissions further for the substantive issues do not arise given the CEO’s concession that no substitutable goods have been produced in Australia.
CONSIDERATION
The CEO’s submission is based on the premiss that s 269E(2) presumes, but does not require, that there be goods that are made-to-order capital equipment and that meet the description of “… substitutable goods in relation to goods the subject of a TCO application”. This is to be contrasted, he says, with s 269E(1) which requires that, in relation to goods other than those requiring repair or made-to-order capital equipment, there be substitutable goods. There are several reasons why we do not accept this submission and have concluded that there must be goods that are substitutable goods in relation to the TCO goods before s 269E(2) comes into operation to deem them to have been produced in Australia in the ordinary course of business. We will now set out our reasons.
Operative conditions of ss 269E(1) and (2) structurally different but same in substance
Allowing for the exclusion of made-to-order capital equipment and goods for repair from one and not the other, the substance of ss 269E(1) and (2) is precisely the same even though the structure is slightly different. This can be seen when both are set out in the “run-in style” of s 269E(1) and omitting the paragraphs of s 269E(2) and the references to made-to-order capital equipment from both. I have interspersed one with the other with s 269E(1) in italicised font and s 269E(2) in plain font:
Section 269E(1): “For the purposes of this Part … goods … that are substitutable goods in relation to
Section 269E(2): “For the purposes of this Part, goods that … are substitutable goods in relation to
goods the subject of a TCO application are taken to be produced in Australia in the ordinary course
goods the subject of a TCO application … are taken to be produced in Australia in the ordinary course
of business if …”
of business if …”
Each subsection then goes on to set out the factors that will determine whether the goods are taken to be produced in Australia in the ordinary course of business. Those factors are different but there is no difference in substance between the introductory words of one and those of the other. Having regard to the substance of the words, there is no apparent basis why s 269E(1) would be regarded as requiring a finding that there are substitutable goods in relation to the TCO goods and yet s 269E(2) requires only notional goods. The differences in structure between the two does not lead to that conclusion.
Operative condition: “goods that are substitutable goods in relation to …” TCO goods
One of the operative conditions in each of ss 269E(1) and (2) is that there are “goods that are substitutable goods in relation to goods the subject of a TCO application …” (emphasis added). We have emphasised the word “are” because it suggests that there is a finding that there are in fact substitutable goods in relation to the TCO goods and not merely goods that “may” be such goods or that Parliament presumes that there are such goods. That suggestion is strengthened when the grammatical structure of the provisions is considered. The word “are” is a form of the present tense of the verb “be”. Relevant meanings of the word “be” include those of “exist” and “to occur or take place”. In its various forms, it may be used as a copula to link the subject and what is said about it e.g. “She is a doctor. He is ill.”[18] This is the way in which it is used in s 269E(2) where the word “are” is the form of the word “be” that is used. It is used as a copula between “goods” and what is said about them in ss 269E(2)(a) and (b) i.e. “goods that are substitutable goods in relation to goods the subject of a TCO application; and … are made-to-order-capital equipment …” (emphasis added). Only goods that are both those things “are taken to be produced in Australia in the ordinary course of business …” (emphasis added) if the conditions are met.
[18] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
The suggestion that substitutable goods must exist gains support from the link that is made between the substitutable goods and the goods that are the subject of the TCO application. The link requires initial identification of the goods that “are produced in Australia” (emphasis added) and the use or uses to which they are put, or capable of being put. The use or uses to which the TCO goods can be put are then identified. The two sets are then compared. To the extent that a use of one corresponds with a use of the other, the goods produced in Australia are substitutable goods for the TCO goods. Given that the wording of ss 269E(1) and (2) are substantively the same, there is no reason to read the former as requiring the link to be established and s 269E(2) as requiring the link to be assumed.
The deeming provisions of ss 269E(1) and (2) relate to production in Australia “in the ordinary course of business” and not to when substitutable goods are taken to be “produced in Australia in the ordinary course of business”
If the CEO’s submission were to succeed, the deeming provisions of s 269E(2) have to be read as relating to when substitutable goods that are made-to-order capital equipment are deemed to be “produced in Australia in the ordinary course of business”. Provided the factors in ss 269E(2)(c) and (d) are fulfilled, it will be deemed that there are substitutable goods in relation to the TCO goods and that they are made-to-order capital equipment. It will also be deemed that those substitutable goods have been “produced in Australia” and that they have been so produced “in the ordinary course of business”.
Putting aside the problems that we have already referred to in giving different interpretations to ss 269E(1) and (2), we are of the view that the CEO’s interpretation of s 269E(2) requires us to reorder the words Parliament has used. His reading requires us to read it as providing that, if the conditions in ss 269E(2)(c) and (d) are met, goods will be taken to be substitutable goods that are made-to-order capital equipment that have been produced in Australia in the ordinary course of business. We cannot, however, reorder words at our whim. To reorder them to meet the CEO’s interpretation would mean that the words “taken to be” would precede the identification of the goods as substitutable goods and made-to-order capital equipment when, in fact, they preceded the words “produced in Australia in the ordinary course of business …”. The provision would then read:
“For the purposes of this Part, goods … [are taken to be]:
(a)… substitutable goods in relation to goods the subject of a TCO application; and
(b)… made-to-order capital equipment;
… produced in Australia in the ordinary course of business if:
(c)a producer in Australia:
(i)has made goods requiring the same labour skills, technology and design expertise as the substitutable goods in the 2 years before the application was lodged; and
(ii)could produce substitutable goods with existing facilities; and
(d)the producer is prepared to accept an order to supply the substitutable goods.”
This interpretation requires the omission of the word “are” on three occasions and the omission of the word “that” preceding paragraph (a). It also requires the words “are taken to be” to be moved from their position following paragraph (b) to a position to the opening words. We have been unable to find any authorities dealing with what amounts to rearranging the words enacted by Parliament as well as the omission of others. The High Court has, however, considered the addition and omission of words in Taylor v The Owners – Strata Plan No 11564.[19] The majority said:
“ Consistently with this court’s rejection of the adoption of rigid rules in statutory construction, … it should not be accepted that purposive construction may never allow of reading a provision as if it contained additional words (or omitted words) with the effect of expanding its field of operation. As the review of the authorities in Leys [Director of Public Prosecutions v Leys [2012] VSCA 304; (2012) 296 ALR 96] demonstrates, it is possible to point to decisions in which courts have adopted a purposive construction to that effect. And as their Honours observed in Carr v Western Australia, [[2007] HCA 47; (2007) 232 CLR 138] the question of whether a construction ‘reads up’ a provision, giving it an extended operation, or ‘reads down’ a provision, confining its operation, may be moot. [Leys at [105]-[107]]
The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision. … It is answered against a construction that fills ‘gaps disclosed in legislation’ … or makes an insertion which is ‘too big, or too much at variance with the language in fact used by the legislation’….
Lord Diplock’s three conditions (as reformulated in Inco Europe) … accord with the statements of principle in Cooper Brookes… [I]t is unnecessary to decide whether Lord Diplock’s three conditions are always, or even usually, necessary and sufficient. This is because the task remains the construction of the words the legislature has enacted. In this respect it may not be sufficient that ‘the modified construction is reasonably open having regard to the statutory scheme’ … [Leys at [96]] because any modified meaning must be consistent with the language in fact used by the legislature. Lord Diplock never suggested otherwise. Sometimes, as McHugh J observed in Newcastle City Council v GIO General Ltd, the language of a provision will not admit of a remedial construction. Relevant for present purposes was his Honour’s further observation, ‘[i]f the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances’… [[1997] HCA 53; (1997) 191 CLR 85 at 113].”[20]
[19] [2014] HCA 9; (2014) 306 ALR 547; 88 ALJR 473; French CJ, Crennan and Bell JJ; Gageler and Keane JJ dissenting
[20] [2014] HCA 9; (2014) 306 ALR 547 at [37]-[38]; 557; 482-483 (some citations omitted)
Examining the words of s 269E(2) in light of these principles, we have concluded that the omission and addition of words as we understood would be required to meet the CEO’s submission would be to construe the provision in a way that covers a set of circumstances different from the set of circumstances that are covered when the words are read as written. It would be to deem goods to be substitutable goods produced in the ordinary course of business if a producer in Australia had made goods requiring the same labour skills, technology and design expertise as goods which are substitutable goods in relation to goods the subject of the TCO application and if that producer were prepared to accept an order to supply the substitutable goods with existing facilities. We will come to the policy in the next section of our reasons but merely to state the effect of the reordering of some of the words in the provision and the omission of others is to show that the meaning of s 269E(2) is quite changed. In its form as drafted, “goods that … are substitutable goods … and are made-to-order capital equipment … are taken to be produced in Australia in the ordinary course of business …” if certain conditions prevail (emphasis added). As we said earlier, the use of the word “are” suggests that there are goods that are in fact, and not merely notionally, substitutable goods.
The policy consistent with interpretation that there are actual, and not notional, “goods that are substitutable goods in relation to …” TCO goods
Part XVA has been amended since its replacement in 1992 but only the amendments made by the Customs Tariff Amendment Act (No. 1) 1996[21] (1996 Amendment Act) have some significance and we will come to them. They do not, though, alter the general policy underpinning Part XVA and reflected in its provisions as they were enacted in 1992. The principles we have adopted in interpreting the current provisions of Part XVA are those set out in cases such as Project Blue Sky Inc v Australian Broadcasting Authority[22] (Project Blue Sky) in which McHugh, Gummow, Kirby and Hayne JJ said in their joint judgment:
“ The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute ... The meaning of the provision must be determined ‘by reference to the language of the instrument viewed as a whole’ ... In Commissioner for Railways (NSW) v Agalianos ..., Dixon CJ pointed out that ‘the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed’. Thus, the process of construction must always begin by examining the context of the provision that is being construed ...
A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals ...”[23]
[21] Act No. 30 of 1996
[22] [1998] HCA 28; (1998) 194 CLR 355; 72 ALJR 841; 153 ALR 490; McHugh, Gummow, Kirby and Hayne JJ; Brennan CJ dissenting
[23] [1998] HCA 28; (1998) 194 CLR 355; 72 ALJR 841; 153 ALR 490 at [69]- [70]; 381-382; 855; 509
Ten years later, the High Court restated the principles to the same effect in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue[24] (Alcan). The following passage is found in the majority judgment:
“ This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself …. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text …. The language which has actually been employed in the text of the legislation is the surest guide to legislative intention …. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision …, in particular the mischief … it is seeking to remedy.”[25]
[24] [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 83 ALJR 1152; 73 ATR 256; [2009] ATC 20-134; French CJ, Hayne, Heydon, Crennan and Kiefel JJ
[25] [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 83 ALJR 1152; 73 ATR 256; [2009] ATC 20-134 at [47]; 46-47; 16-17; 1165; 10165 per Hayne, Heydon, Crennan and Kiefel JJ (citations omitted)
When we go back to the scheme of Part XVA, we find that each of the provisions in Division 1 of that Part is an interpretative provision. Each of ss 269B, 269C, 269D and 269E is headed either with the word “Interpretation” alone, as in the case of s 269B, or with that word followed by either “core criteria”, as in the case of s 269C, “goods produced in Australia”, as in the case of s 269D, or the words “the ordinary course of business”, as in the case of s 269E. Headings to the sections are part of the Act.[26] The words used in each section also indicate that they are interpretative provisions.
[26] AI Act; s 13 The position is not clear with regard to the heading to the first section but the headings to the remaining sections clearly come within the description of “material from and including the first section of an Act to the end of …” either the last section or the last Schedule to the Act, as the case may be.
What are they interpretative of? When regard is had to the provisions of Division 2 and 3, it is seen that central to the TCO scheme is the question whether a TCO application satisfies the “core criteria”. That is clear from s 269P. Section 269C interprets what is meant by “core criteria”. That then becomes a central provision and it is clear from the structure of Division 1 of Part XVA that ss 269B and 269E interpret the terms used in s 269C and s 269B interprets the term “produced in Australia” used in the definition of “substitutable goods”.[27] The three terms are: “substitutable goods”, “goods produced in Australia” and “the ordinary course of business”.
[27] Their status as interpretative provisions is underlined by s 269B which provides that the expression “goods produced in Australia” is defined in s 269D and the expression “ordinary course of business” in s 269E.
The structure of Part XVA leads to the conclusion that an assessment of whether the core criteria are met is a stepped process. The steps have to be taken bearing in mind the facts on the day that the TCO application was lodged. In this case, that date is 14 August 2012. The steps are:
(1)Identify the goods that are the subject of the TCO application.
(a)This is part of the process of making and processing a TCO application under Division 2 of Part XVA that leads, in the case of a TCO application for a standard TCO, to the CEO’s consideration under s 269P of whether the application meets the core criteria.
(2) Identify goods that:
(a) are produced in Australia;
(i)the goods must meet the criteria set out in s 269D in order to be “goods produced in Australia”; and
(b)are put, or capable of being put, to a use that corresponds with a use (including a design use) to which the goods that are the subject of the TCO application can be put.
(3)If there are substitutable goods in relation to the goods that are the subject of the TCO application, determine whether they have been produced in Australia in the “ordinary course of business”.
(a)For goods, other than those requiring repair and the subject of s 269Q and goods that are made-to-order capital equipment, that determination is made in accordance with s 269E(1); and
(b)For goods that are made-to-order capital equipment, that determination is made in accordance with s 269E(2).
Step (2) does not require a finding that substitutable goods are being produced at the time of lodgement of the TCO application. The definition of “substitutable goods” does not require that they are being produced in Australia. What it provides is that “substitutable goods” in respect of the TCO goods are “goods produced in Australia” that meet what might generally be described as the “use test” embedded in the definition. “Goods produced” currently or in the past both meet the description of “goods produced” and so may be described as “substitutable goods”.
If no goods meeting the “use test” have ever been produced in Australia, the core criteria set out in s 269C have been met. Section 269P will require the CEO to make a TCO in relation to the goods that there are no substitutable goods. Only if there is a conclusion that goods have been produced in Australia and that those goods meet the “use test” is it relevant to consider whether they were produced in Australia “in the ordinary course of business”. It is no longer relevant to consider whether they were “produced in Australia in the ordinary course of business”. The finding that there are substitutable goods has determined that they were produced in Australia but the focus of the question is whether that production was “in the ordinary course of business”.
In order to understand the distinction between the tests in ss 269E(1) and (2), it is necessary to understand what is meant by “made-to-order capital equipment”. As the definition of the term in s 269E(3) provides, it must first meet the description of being an “item of capital equipment”. If it meets that description, it must also be made on a one-off basis and not produced in quantities indicative of a production line. The difference between equipment that meets that description and that which does not might be illustrated by reference to the Explanatory Memorandum accompanying the Bill leading to the enactment of the 1996 Amendment Act. It reads:
“This item repeals the existing definition of ‘made-to-order’ capital equipment’ and substitutes a new definition which makes clear that the term only applies to ‘one-off’ items that are not produced in quantities indicative of production runs. The amendments is [sic] intended to limit the application of the special definition in subsection 269E(2) of produced in Australia in the ‘ordinary course of business’ to large special-order items such as generators for power stations, railway equipment and ships. It is not intended to cover such things as washing machines and televisions which also fall within the Tariff chapters for ‘capital equipment’ by virtue of the definition of that term for the purposes of the TCS in Section 269B of the Customs Act.”[28]
[28] Explanatory Memorandum to the Customs Amendment Bill 1996; Item 5
It is easy enough to make a finding that goods made on a production line day in and day out are made in the ordinary course of business. In reality, that is not necessarily the case and s 269E(1) deals with the realities of the manufacturing world when it sets three different circumstances in which it may be said that a producer of substitutable goods other than made-to-order capital equipment may be said to have produced those substitutable goods in the ordinary course of business.
The realities facing the production of made-to-order capital equipment are different for it may be difficult to demonstrate that a one-off item has been made in the ordinary course of business. Those difficulties are addressed in s 269E(2). It sets out the circumstances in which it may be said that goods that are substitutable goods and that are made-to-order capital equipment have been produced in Australia in the ordinary course of business. Those circumstances do not require consideration of the capabilities of the producer of the goods found to have produced the goods found to be substitutable goods.[29] The capabilities of any producer are relevant provided that producer is prepared to accept an order to supply the substitutable goods. The producer’s capabilities are assessed by reference to its having “made goods” and the making of those goods has required the same labour skills, technology and design expertise as the substitutable goods. An assessment of the producer’s facilities for production of the substitutable goods is also relevant for s 269E(2)(c)(ii) requires that the producer be able to produce the substitutable goods using existing facilities. The substitutable goods may have been made at any time in the past but the producer whose capabilities are under consideration must have produced those other goods described in s 269E(2)(c)(i) in the two years before the TCO application was lodged.
[29] In that regard, s 269E(2) differs from s 269E(1)
In our view, these provisions reveal a policy underpinning Part XVA that is directed to the protection of Australian industry only when it has already produced substitutable goods in relation to goods the subject of a TCO application and has done so in a certain time-frame. When the substitutable goods are not made-to-order capital equipment, protection is given only when substitutable goods have been made in the past and there is a capability and willingness to do so in the future using existing facilities and that capability and willingness has been demonstrated in the context of the production of goods requiring the same labour skills, technology and design expertise. The policy is not intended to protect capability and willingness when substitutable goods have never been produced.
Our conclusions regarding the policy underlying Part XVA are consistent with that summarised in the Second Reading Speech given by the Minister for Small Business, Construction and Customs relating to the 1992 Amendment Act. He said:
“ The present commercial tariff concession system allows duty-free entry of imports where there are no goods serving similar functions made by Australian industry in the normal course of business. The objective of the system is to ensure that industry is not taxed by the tariff where it is serving no protective function. By lowering input costs, the concession system is an important element in the Government’s program to improve the international competitiveness of Australian industry. Once a commercial tariff concession order is in place, any importer can use it to import goods described in that order duty-free.”[30]
[30] Hansard, House of Representatives, 7 May 1992 at 2665
When giving the Second Reading Speech relating to the 1996 Amendment Act in the Senate, the Parliamentary Secretary to the Minister for Social Security referred to the reason for introducing the amendments. He said:
“ The purpose of these changes is to more closely align the operation of the System with its aim to make concessional entry readily available without adversely affecting the tariff assistance given to Australian manufacturers.”[31]
[31] Hansard, Senate, 19 June 1996 at 1835
The main way in which the 1996 Amendment Act achieved this outcome was by removing the significant adverse effect clause. When introduced by the 1992 Amendment Act as Part of a newly replaced Part XVA, s 269C had provided:
“For the purposes of this Part, a TCO application is to be taken to meet the core criteria if, on the day occurring 28 days before the day on which the application was lodged:
(a)no substitutable goods were produced in Australia in the ordinary course of business; or
(b)substitutable goods were produced in Australia in the ordinary course of business but the granting of the TCO was not likely to have a significant adverse effect on the market for the substitutable goods.”
The Parliamentary Secretary described the difficulties caused by s 269C(b):
“… In practice, the existence of the market test has meant that Tariff Concession Orders have been granted to the detriment of Australian manufacturers, contrary to the stated intention of the System. It is, in any case, very difficult for an Australian manufacturer to prove prospectively that the market for its good will be adversely affected by the duty free importation of a substitutable good.”[32]
[32] Hansard, Senate, 19 June 1996 at 1835
The removal of s 269C(b) would be to remove the market test. With its removal:
“… the remaining core criterion will be the substitutability test. The Australian Customs Service will not grant a Tariff Concession Order where it is satisfied that substitutable goods are produced in Australia. A concession will therefore only be made where there is no Australian manufacture of goods substitutable for those which are the subject of the tariff concession application.”[33]
[33] Hansard, Senate, 19 June 1996 at 1835
The definition of “substitutable goods” was not amended by the 1996 Amendment Act but s 269C(3) was added. It is set out at [11] above. Its purpose was:
“… to ensure that a de facto market test cannot be implied into this remaining provision. Without this change, the benefits of removing the market test are unlikely to be achieved.”[34]
[34] Hansard, Senate, 19 June 1996 at 1835
On our reading of the Second Reading Speeches, we do not accept that the statement of policy by the Full Court of the Federal Court in Amcor Limited v Comptroller-General of Customs[35] (Amcor), to which Mr Northcote referred, is in keeping with Part XVA as it is currently drafted. Mr Northcote referred to the opening sentence but we will set out the paragraph in full for it reveals the context, which is that of Part XVA before its replacement in 1992. The Full Court said:
“ The purpose of the Customs Act is to raise revenue and to protect Australian industry against competition from imports. When there is no comparable Australian product being manufactured, or capable of being manufactured, importers and consumers should not be burdened with the payment of duty at the full rate or in appropriate circumstances at all. Hence the mechanism of the TCO is provided by Pt XVA.”[36]
[35] [1991] FCA 622; (1991) 33 FCR 200; 105 ALR 216; Northrop, Gray and Heerey JJ
[36] [1991] FCA 622; (1991) 33 FCR 200; 105 ALR 216 at [35]; 209; 226
It is immediately apparent that the scheme of the previous Part XVA was different from that of the present Part. We have outlined that earlier scheme at [71] below but, for the moment, we refer only to the fact that s 269C could be satisfied by either there being no goods serving similar functions produced in Australia or there being no capacity to produce such goods in the normal course of business. That was a scheme that could be said to “…protect Australian industry against competition from imports. …”. It protected Australian industry whether it was actually producing goods having similar functions to those of the TCO goods or whether it merely had the capacity to produce them.
Notions of capacity, or lack of capacity, to produce goods were removed from s 269C in 1992. The core criteria in that provision are now focused solely on there being no substitutable goods being produced in Australia in the ordinary course of business on the day the TCO application was lodged. It is now more accurate to say, as the Minister said in relation to the new Part XVA introduced in 1992, the object of the systems is to ensure that industry is not taxed by a tariff where it is serving no protective function. It is clear from s 269C and its place in the scheme of Part XVA, that Parliament has decided that a tariff serves no protective function where there are no goods serving similar functions, and so no substitutable goods, made by Australian industry in the normal course of business.
The policy in our view, supports our understanding of s 269E(2). It does not support an interpretation that assumes or deems the existence of substitutable goods that are made-to-order capital equipment if the conditions in ss 269E(2)(c) and (d) are met. Part XVA is intended to protect Australian industry but that protection has two sides to it. One is the protection of that part of the Australian manufacturing industry that makes substitutable goods. The other is the protection of that part of the Australian manufacturing industry that cannot purchase substitutable goods from Australian manufacturing industries but must look to imported goods of that nature. Parliament intended that the Australian manufacturing industry would not be taxed by being required to pay a tariff on imported goods when it could not obtain the goods locally.
Previous authorities do not support contrary interpretation
Mr Northcote submitted that to interpret s 269E(2) as we have done is contrary to previous authorities. The first is a case decided by the Federal Court and the remaining four are cases decided by differently constituted Tribunals. Mr Northcote relies on each to support the contention that s 269E(2) does not require there to have been actual production of substitutable goods in Australia. On our reading of the cases, we have come to a different conclusion and will explain our reasons for doing that.
Beginning with the Federal Court authority, it was decided under Part XVA as it was enacted before its replacement in 1992. There is no parity between the provision which it considered and the current provisions of Part XVA. Therefore, its reasoning is not relevant.
The Tribunal cases have considered Part XVA since its replacement in 1992 although there have been subsequent amendments. Although there is reference to evidence in each of the cases, the facts that each Tribunal found as relevant to the issues before them are not always easy to identify. In our discussion of each below, we have set out our understanding of the facts they found and their basis for finding them. Although we might respectfully have reservations about the reasoning which led each of the Tribunals to find that there were substitutable goods, on our understanding of their reasons, they did make those findings. In none of the cases did the Tribunal proceed on the basis of an assumption that there were notional goods meeting the description of substitutable goods.
A. Amcor Limited v Comptroller-General of Customs
In support of the CEO’s interpretation of s 269E(2), Mr Northcote referred to a case decided by the Full Court of the Federal Court relating to the interpretation of s 269B(7). That is the provision that was, as Part XVA was previously drafted, the equivalent of s 269E(2). It read:
“For the purposes of this Part, a person shall be taken to be capable of producing goods in the normal course of business if, in the normal course of business, he is prepared to accept orders for the supply of such goods that have been, are being, or are to be, produced by him.”
The case is that of Amcor Limited v Comptroller-General of Customs[37] (Amcor) in which there had been earlier proceedings in which a direction had been made that the matter be decided in accordance with the law in force as at 13 November 1985.[38] The Court began its judgment by describing a paper-making machine that Amcor Limited wanted to acquire and for which it had placed an order with a Brazilian company. As duty was payable on the importation of the machine, it applied for a TCO. The Full Court began its judgment with the statement:
“This litigation is concerned not with that machine but rather with a notional machine which might have been made in Australia.”[39]
That statement must be understood in the context of Part XVA as it was then enacted and we will begin by looking at that.
[37] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216; Northrop, Gray and Heerey JJ
[38] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216 at [5]; 202; 218
[39] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216 at [2]; 201; 217
A.1 The statutory scheme of Part XVA at the relevant date
In its original form, Part XVA was inserted in the Customs Act with effect from 1 July 1983.[40] It was then amended but, at the time Amcor was decided, it had been amended only once. The amendments, which were made to accommodate changes in responsibilities from the Minister to the then Comptroller and to provide for certain other administrative matters, came into operation on 10 June 1985.[41] In that form, Part XVA permitted a person to make an application to the Comptroller for a Commercial Tariff Concession Order (CTCO) in respect of particular goods specified in that application.[42]
[40] 1983 Amendment Act; ss 2(4) and 5
[41] Customs Administration (Transitional Provisions and Consequential Amendments) Act 1985; Act No. 39 of 1985; ss 2 and 3 and Schedule
[42] Customs Act; s 269G
Section 269C required the Comptroller to consider that application. Section 269C(1) was relevant to goods of the sort considered in Amcor. It provided that:
“Subject to this Part, where the Comptroller, after considering an application under section 269G for the making of an order under this section in respect of particular goods, is satisfied that:
(a) goods serving similar functions to the particular goods are not produced in Australia; and
(b) goods serving similar functions to the particular goods are not capable of being produced in Australia in the normal course of business,
the Comptroller shall make a written order, declaring that the particular goods are goods to which a prescribed item in the order applies.”
Various terms used in s 269C were defined in s 269B(1). A “concession order” was a reference to a CTCO and the expression “particular goods” included goods included in a particular class or kind of goods. A “prescribed item” was an item in Schedule 4 to the CT Act that is expressed to apply to goods that a CTCO declared are goods to which the item applied.
Section 269B(5) provided:
“For the purposes of this Part, goods, other than unmanufactured raw products, shall not be taken to have been produced in Australia unless:
(a)the goods were wholly or partly manufactured in Australia unless:
(b)not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i)the value of labour of Australia;
(ii)the value of materials of Australia; and
(iii)the factory overhead expenses incurred in Australia in respect of the goods.”
Section 269B(7) provided:
“For the purposes of this Part, a person shall be taken to be capable of producing goods in the normal course of business if, in the normal course of business, he is prepared to accept orders for the supply of such goods that have been, are being, or are to be, produced by him.”
A.2 The evidentiary basis
The Comptroller had claimed that Johns Perry Industries Ltd (Johns Perry), an Australian manufacturer based in Adelaide, was capable of producing a machine of the kind in question. It could do so by making use of technology licensing agreements and, at the time, 60% of its business consisted of manufacturing goods as a result of one-off contracts. The machine that it could manufacture, the Comptroller argued, would be identical with that imported by Amcor.
A.3 The Full Court’s reasoning
The Full Court considered this evidence in the context of whether Johns Perry was, within the meaning of s 269B(7), “… in the normal course of business, … prepared to accept orders for the supply of such goods that have been, are being, or are to be, produced by him.” It said:
“ We do not see why, as a matter of law, the manufacture of goods on a one-off basis cannot be something done in the normal course of business. A person may have a business, a substantial part of which involves production of one-off goods, in the sense that he regularly manufactures goods which he has never manufactured before to the specifications of a particular customer. If that is the way he does business, then the meeting of such orders would be something done in the normal course of his business. We do not think one can read into s 269B(7) some limitation that the goods must have been previously manufactured. The very fact that s 269C(1)(b), in contradistinction to par (a), is dealing with goods which are not in fact produced in Australia suggests strongly that goods identical to imported goods have not previously been manufactured in Australia will not of itself enable an applicant to make out a case for a TCO. If the goods in question are totally different from the range and character of goods previously manufactured by the person referred to in par (b), that may be a relevant consideration. But some manufacturers may produce to order, on a one-off basis, goods of widely differing kinds. It is impossible to lay down as a matter of law a test as to what will constitute the appropriate genus. It is a question of fact turning on an examination of the nature of the business of the person in question.”[43]
[43] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216 at [30]; 208-209; 225
The Full Court considered whether comparisons of price or quality were relevant but rejected any suggestion that they were. That was not to say that considerations of practical reality were not relevant for those considerations are necessarily inherent in any deciding of whether s 269B(7) is met. The Full Court said that:
“… It could not be met by a person saying that he could accept an order for delivery in 10 years’ time. Indeed the concept of accepting orders seems to be introduced by s 269B(7) to provide some practical yardstick against which the alleged capability of production can be tested. However, we do not think that comparisons of price or quality are relevant.”[44]
[44] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216 at [34]; 209; 226
The Full Court went on to explain its conclusion in terms of the policy underpinning Part XVA and the TCO scheme:
“ The purpose of the Customs Act is to raise revenue and to protect Australian industry against competition from imports. When there is no comparable Australian product being manufactured, or capable of being manufactured, importers and consumers should not be burdened with the payment of duty at the full rate, or in appropriate circumstances, at all. Hence the mechanism of the TCO is provided by Pt XVA.
In the ordinary course where imports compete with Australian products, price and quality will vary. The imported product, even with a substantially greater price because of duty and other factors, may nevertheless be preferred by the purchaser over the local product because of other considerations, such as perceived superior quality. This is a matter for the market place.”[45]
[45] [1991] FCA 622; 33 FCR 200; (1991) 105 ALR 216 at [35]-[36]; 209-210; 226
A.4 Commentary
The statutory scheme considered by the Full Court of the Federal Court is the scheme set out in Part XVA before that Part was replaced by the 1992 Amendment Act. It was a different scheme and, once that is understood, its statement that it was “… concerned not with that machine but rather with a notional machine which might have been made in Australia” is readily understandable. At the time, s 269C could be satisfied either by there being no goods serving similar functions to the TCO goods being produced in Australia or there being no capacity to produce such goods in the normal course of business. Questions of capacity necessarily meant that regard had to be had to notional goods which might have been made in Australia. Those questions are not relevant under s 269C as it is presently drafted. They only become relevant in s 269E(2) in the context of determining whether goods that are substitutable goods and are made-to-order capital equipment are taken to have been made in the ordinary course of business.
B.Re Polychrome (Australia) Pty Ltd and Chief Executive Officer of Customs and Aldus Engineering
In Re Polychrome (Australia) Pty Ltd and Chief Executive Officer of Customs and Aldus Engineering[46] (Polychrome), the CEO had refused to make a TCO in relation to goods that were described, in part, as a photographic sensitive film/plate converting/making line, designed for use in a darkroom environment (Line). The Line consisted of all of the following: twin rewind slitting machine, roll rewind machine, film sheeter, cnc controlled sheeting process and anti-static properties in all components in contact with or adjacent to the web. The issues that the Tribunal was required to consider were whether Aldus Engineering (Aldus) produced substitutable goods in Australia in the ordinary course of business and, if so, whether the granting of the TCO would have a significant adverse effect for those substitutable goods.
[46] [1996] AATA 141; Deputy President McDonald and Mr Ermert and Mr Woodard, Members
B.1 The statutory scheme at the relevant date
By the time that Polychrome (Australia) Pty Ltd applied for a TCO on 24 May 1994 and the case of Polychrome was decided, Part XVA that had been inserted in the Customs Act in 1983 had been repealed and replaced with effect from 1 November 1992 by the 1992 Amendment Act.[47] The replacement Part XVA had yet to be amended.
[47] 1992 Amendment Act; ss 2(2) and 10
In many respects, the scheme set out in Part XVA was no different in 1994 when the CEO made the decision under review in Polychrome from the scheme that prevails today. There were, however, differences in the expression of the core criteria in s 269C and the definitions of “made-to-order capital equipment” appearing in s 269E(2) and that of “substitutable goods” appearing in s 269C(1). I will set the relevant provisions out side by side so that the differences can be seen:
PROVISIONS AS APPLYING IN 1992
PROVISIONS AS APPLYING IN 2014[48]
Section 269C: core criteria
“For the purposes of this Part, a TCO application is to be taken to meet the core criteria if, on the day occurring 28 days before the day on which the application was lodged:
(c) no substitutable goods were produced in Australia in the ordinary course of business; or
(d) substitutable goods were produced in Australia in the ordinary course of business but the granting of the TCO was not likely to have a significant adverse effect on the market for the substitutable goods.”
“For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.”
Section 269B(1): “substitutable goods”
“ ‘substitutable goods’, in respect of goods that are the subject of a TCO application or of a TCO, means goods produced in Australia that are put to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.”
“substitutable goods in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.”
Section 269E(3): made-to-order capital equipment
“ ‘made-to-order capital equipment’ means capital equipment that is made in Australia to meet a specific order rather than being the subject of regular or intermittent production.”
“In this section:
made-to-order capital equipment means a particular item of capital equipment:
(a) that is made in Australia on a one-off basis to meet a specific order rather than being the subject of a regular intermittent production; and
( (b) that is not produced in quantities indicative of a production run.”
[48] As Vestas applied for a TCO on 14 August 2014, we have applied the law as at that date but note that, in any event, Part XVA has not been amended since that date.
B.2 The evidentiary basis
The Tribunal found that it was:
“undisputed … that Aldus manufactured two of the components of the line item, namely the rewind slitting machine and the roll rewind machine. The third item contained in the line, the film sheeter, is not manufactured by Aldus, although Mr Guanaria [General Manager of Aldus] claimed Aldus had in the past manufactured such equipment and was currently able to do so. Ordinarily, however, he would expect to import a ready made film sheeter rather than manufacture one.”[49]
Later in its reasons for decision, the Tribunal found that Aldus had made 13 pieces of such equipment between 1982 and 1991.[50]
[49] [1996] AATA 141 at [12]
[50] [1996] AATA 141 at [15]
The Tribunal also found that the goods had been partially manufactured in Australia within the meaning of s 269D(1)(a) of the Customs Act. [51] While the sheeter represented 55% of the total factory or works costs of the goods within the meaning of s 269D(1)(b), the Tribunal found that the factory or works costs of the components of the Line item manufactured by Aldus would be not less than a quarter of the factory or works costs as required by s 269D(1)(b). As the Tribunal found that the goods were substitutable goods, it is inherent in that finding that the goods produced by Aldus are put, or capable of being put, to a use that corresponds with a use (including a design use) to which the Line unit can be put.
[51] No mention is made in the reasons for decision of ss 269D(2) and (3) but it is inherent that those parts of the line item to be manufactured by Aldus would not be operations of the sort set out in s 269D(3) and would be a substantial process of manufacture in Australia.
B.3 The Tribunal’s reasoning
The Tribunal then turned to whether the goods had been produced in the “ordinary course of business” as required by s 269C and, as they were made-to-order capital equipment defined in s 269E(2). The last occasion on which Aldus had produced substitutable goods had been 1991when Hanimex (Aust) had ordered three slitter rewinders required to operate in darkroom conditions. The CEO conceded that:
“… it is not necessary that in made-to-order capital equipment a producer has actually made the same goods but rather, has made goods requiring the same ‘… labour skills, technology and design expertise as the substitutable goods in the two years before the application was lodged;’ pursuant to s. 269E(2)(c) of the Act. …”[52]
[52] [1996] AATA 141 at [15]
The Tribunal then said:
“… The Tribunal accepts that an unduly restrictive interpretation of clause (c) of the latter provision would defeat the purpose of the Act. Given the fact that the party joined has made 13 such pieces of equipment between 1982 and 1991 and having regard to the general nature of the party joined’s manufacturing business, the Tribunal is satisfied that the requirements of s 269E(2)(c)(i) and (ii) of the Act are able to be satisfied. Further, it was the evidence of Mr Guanaria that Aldus was prepared to accept an order to supply the substitutable goods, thus ensuring compliance with s 269E(2)(d) of the Act. …”[53]
[53] [1996] AATA 141 at [15]
Despite finding that substitutable goods were produced in the ordinary course of business, the Tribunal ultimately found that the core criteria in s 269C had been met. It did so because, at the time, the core criteria that had to be satisfied either by finding that no substitutable goods were produced in Australia in the ordinary course of business or by finding that substitutable goods were so produced but the granting of a TCO was not likely to have a significant adverse effect on the market for the substitutable goods. The Tribunal was not satisfied that any adverse effect would be significant. Therefore, it set aside the CEO’s decision to refuse Polychrome’s TCO application and remitted the matter to the CEO with a direction that a TCO be issued.[54]
[54] [1996] AATA 141 at [19]
B.4 Commentary
Polychrome was decided in the context of Part XVA as it was inserted by the 1992 Amendment Act but before its amendment in 1995 and, more relevantly, by its amendment by the 1996 Amendment Act. The core criteria set out in s 269C at that time could be met either by there being no substitutable goods or there being substitutable goods but the granting of a TCO was not likely to have a significant adverse effect on the market for those substitutable goods. The second limb no longer appears in s 269C.
Section 269E differed from its current wording in so far as the definition of “made-to-order capital equipment” is concerned but there were no other relevant differences. On our reading of the reasons for decision, the Tribunal did not apply s 269E(2) on the basis of there being notional goods that were taken to be substitutable goods. On the contrary, it made findings that Aldus had manufactured two components of the Line and went on to find that Aldus had manufactured goods that were substitutable goods. Whether we would agree with the line of reasoning that led the Tribunal to this finding is not to the point. What is to the point is that the Tribunal considered s 269E(2) in light of its finding that there were substitutable goods and not on the basis of notional or presumed substitutable goods.
C. Re Frito-Lay Australia Pty Ltd and Chief Executive Officer of Customs
In Re Frito-Lay Australia Pty Ltd and Chief Executive Officer of Customs[55] (Frito-Lay), the Tribunal reviewed a decision made by a delegate of the CEO to refuse to make a TCO for goods that, in summary, may be described as a:
[55] [1996] AATA 199; Senior Member Ettinger and Mr Coffey and Mr Way, Members
“PRODUCTION LINE, mechanical, fully integrated, single point control, designed for the production of corn chips by cooking, soaking, milling, sheeting, toasting, frying and seasoning, consisting of ALL of the following:
(a)corn cooking module, having 2 x 3 750L (+ or – 10%) capacity steam jacketed kettles and counter rotating agitators and scrapers;
(b)cooked corn soak module, total capacity of 75 000 L (+ or – 10%);
(c)corn washing machine;
(d)corn milling machine;
(e)corn sheeting, cutting and toasting machines;
(f)residence conveyor;
(g)straight through frying machine;
(h)gas fired oil heat exchanger;
(i)fan assisted cooling conveyor;
(j)corn chip seasoning machines, incorporating dry powder seasoning applicator and oil spray system;
(k)vibratory distribution conveyors;
(l)transfer conveyors
but NOT including replacement machines when imported separately …”[56]
[56] [1996] AATA 199 at [8]
C.1 The statutory scheme at the relevant date
The date on which the TCO application was lodged is not expressly stated in the Tribunal’s reasons but it did state at [54] of its reasons that it had to be satisfied whether the TCO application met the core criteria at 23 May 1994. At that time, Part XVA had not been amended since its replacement in 1992.
C.2 The evidentiary basis
Evidence was given to the Tribunal by Mr Hillery from Heat and Control Pty Ltd (Heat and Control) that the company manufactured complete snack food including corn chip equipment. A lot of the equipment was manufactured in Australia but proprietary components were imported. With some imported components, Heat and Control could produce in Australia a whole corn chip production line, Mr Hillery said. The Australian content of a turn key line from raw corn receipt to finished packaging would probably be in the order of 70 to 75%. Heat and Control had tendered to supply a corn chip production line to Smiths.
Mr Formby was Frito-Lay Australia Pty Ltd’s (Frito-Lay’s) Engineering Project Manager in Australia. He agreed that Frito-Lay had purchased items from Heat and Control including a straight through frying machine, a gas fired oil heat exchanger and a fan assisted cooler conveyor. Those three items would bring the local Australian content to a figure well above the 25% prescribed in the Customs Act, Mr Formby said. Frito-Lay’s Purchasing Officer, Mr Bond, said that the three items would represent a figure in excess of 10% of the total production line. Mr Formby also agreed with the proposition that Heat and Control had produced corn cooking modules and cooked corn soaking modules as well as a line, which Frito-Lay had shipped to Asia, for use in the fertiliser industry.
A company called ASEECO had previously made a production line for Frito-Lay. ASEECO’s parent company was FMC Corporation Inc (USA), which was represented in Australia by Transfield Technologies Pty Ltd (Transfield). Transfield Process Equipment, a Division of Transfield, was a manufacturing Division. Evidence was given to the Tribunal by Mr Gower, the Product Manager of Transfield that it had manufactured equipment to their client’s specialised requirements for approximately 40 years. It had never been the manufacturer of a total corn chip production line. Transfield had, with the exception of a flow ring system from Heat and Control, an elevating system for flavouring from New Pack and weigh feeders from New Zealand, manufactured a full storage and distribution system for snack foods at the Smiths plant in Adelaide.[57]
[57] [1996] AATA 199 at [25]-[29]
Mr Gower estimated that if it were to manufacture a corn chip production line, the local content would be 40% of the whole.[58] The Tribunal also noted evidence to the effect that the processing components of a corn chip line represented approximately 50% of its costs and the conveying, storage and distribution components of that line represented the other 50% or so.
[58] [1996] AATA 199 at [30]
C.3 The Tribunal’s reasoning
In considering the submissions, the Tribunal accepted the evidence before it of the substantial role that Transfield had played in the installation of a corn chip production line for Smiths in Adelaide in 1987. As we understand the Tribunal’s reasons for decision, it accepted that conveying, packaging and weighing follow the manufacture of a corn chip. They are part of a corn chip production line.[59] It also appears to have accepted evidence that Transfield had manufactured conveying, packaging and weighing components of a corn chip production line when it accepted the evidence before it that Transfield had played a substantial role in the installation of a corn chip production line for Smiths in Adelaide.[60]
[59] [1996] AATA 199 at [39]
[60] [1996] AATA 199 at [38] and see also [29]
There was discussion regarding s 269D and whether goods were taken to be produced in Australia. The focus of the Tribunal was clearly upon the goods that were produced in Australia by Transfield and not upon a corn chip line as described in the TCO application. Regard was had to the tariff heading to which a corn chip production line was classified and that to which conveyors were classified. On behalf of Frito-Lay, it was argued that a corn chip production line was classified to Heading 84.38 and conveyors to Heading 84.22. On behalf of the CEO, Mr Hegarty submitted that the “overall concession was keyed to 84.38.80”, which dealt with machinery for the industrial preparation and manufacture of food and drink. Weighing machinery fell to 84.23 and conveying and handling machinery to 84.20. Those classifications identified the goods, Mr Hegarty submitted, in the same way as an applicant for a TCO is required by s 269F(3)(b) to identify the tariff classification that it considers applies to the goods. He continued:
“… The relevance of a tariff classification was that to benefit from a TCO, ‘you have got to fall to that particular classification and you have also got to meet with the terms of the actual concession – the actual tariff concession’ he said. As to section 269D(1) of the Customs Act, under which partly manufactured goods fell, he submitted that there was nothing which specified that those goods had to fall to the same classification as the overall goods. …”[61]
The Tribunal concluded the paragraph by stating that it “… accepted Mr Hegarty’s submission on that point.”[62]
[61] [1996] AATA 199 at [42]
[62] [1996] AATA 199 at [42]
The Tribunal then turned to whether substitutable goods were produced in Australia. That drew into consideration s 269B. Mr Hegarty submitted that, in the application before the Tribunal, “… the use was specific to the extent the goods were used to manufacture corn chips.”[63] The Tribunal then seemed to accept that the conveying, packaging and weighing components of a corn chip production line can be said to be put to a use that corresponded with a use to which the TCO goods could be put for it said:
“In connection with ‘use’ of the goods; the Tribunal is mindful of the discussion in Zetco Pty Ltd v Collector of Customs and Caroma Industries Ltd … [[1995] AATA 72] where it was held the concept of use as regards substitutable goods should be interpreted as having regard to commercial realities. The words ‘… put to a use that corresponds with a use …’ implying a definable connection between the goods the subject of the TCO and the goods produced in Australia. The Tribunal is mindful of the evidence given that the Transfield conveying equipment could be used for items other than corn chip lines, and accepts the evidence of Mr Gower that this was a matter of adjustment, speed of conveying and certain screens used in the process.”[64]
[63] [1996] AATA 199 at [43]
[64] [1996] AATA 199 at [44]
It is clearly speaking of the particular equipment made by Transfield for the Tribunal had earlier recorded Mr Gower’s evidence at [27] that the settings and speeds of a total absorption distribution system could be changed to accommodate various products without modifying machinery.[65] In the next paragraph of its reasons, it referred to evidence given by Mr Gower that it had introduced improvements to the Smiths plant in Adelaide with the latest approach being an electromagnetic conveyor on which the feed rates could be varied.[66] The Tribunal went on to record the evidence given by Mr Gower that “… Transfield had never been the manufacturer of a total corn chip production line. … [H]is company had not supplied a total corn chip system, but that it would be prepared to.”[67]
[65] [1996] AATA 199 at [27]
[66] [1996] AATA 199 at [28]
[67] [1996] AATA 199 at [29]
Following its discussion of “use”, the Tribunal then referred to the submissions made on behalf of Frito-Lay to the effect that Transfield had never been a producer in Australia of the TCO goods as contemplated by s 269E and could not be prepared to accept that it could accept an order for those goods. Transfield, it was submitted, produced conveyors and not corn chip production lines. Furthermore, the TCO goods were classified to a specific tariff heading and that the three items produced by Transfield were classified to other tariff headings. We have set those out at [86] above.
The Tribunal then set out the submissions made on behalf of the CEO. They were to the effect that Transfield had met each of the conditions specified in s 269E(2) and the Tribunal accepted that it had done so. There is no discussion of the goods that the Tribunal has in mind when it is considering those conditions but it would appear from the reasons that the goods it had in mind were those specified in (f), (i) and (k) of the items making up a corn chip production line. That follows from the fact that it then returned to s 269D to make a finding regarding the costs of production of the conveying and distribution systems saying:
“Looking then to section 269D of the Customs Act, the Tribunal noted the evidence of the witnesses with regard to the percentage in terms of costs of production of the conveying and distribution systems which Transfield manufactures, noting that of the total items (f), (I), (k) and other relevantly manufactured items made up well over 25% threshold required to satisfy section 269D of the Customs Act …”[68]
The Tribunal referred to the evidence of Messrs Formby, Bond and Gower to support its costings. We have referred to evidence given by Mr Gower to that effect at [84] above.
[68] [1996] AATA 199 at [47]
The Tribunal followed this passage with its conclusion:
“The Tribunal finds from the documentary evidence and that of the witnesses before it, and considering requirements of the legislation, that substitutable goods, that is made to order capital equipment was produced. Transfield fulfilled the requirements of the legislation and was willing to accept an order for the substitutable goods. The Tribunal concluded that substitutable goods were produced at the relevant time in terms of section 269C of the Customs Act.”[69]
[69] [1996] AATA 199 at [48]
This paragraph suggests that the Tribunal was regarding the conveying and distribution lines as part of the substitutable goods i.e. as part of a corn chip production line. The assessment of the percentage that the factory and works costs of the conveying and distribution lines represented of the whole of a corn chip production line was assessed by the Tribunal. When it considered production in the ordinary course of business under s 269E(2), however, it considered only whether the conveying and distribution lines had been made in the ordinary course of business. It did not consider whether it had produced a corn chip production line in the ordinary course of business as set out in s 269E(2). That this is so is supported when the Tribunal summarises its position on these matters later in its reasons:
“From the evidence before it, the Tribunal has found that Transfield has demonstrated that it is capable and has indeed supplied corn chip lines within the terms of the TCO. It has been found to have manufactured and installed conveying and distribution lines within the relevant time, the content of which has been up to half of the value of a total line. Transfield has expressed a willingness to produce a turn key operation incorporating corn chip manufacturing machinery sourced from elsewhere if requested. It has been shown to have satisfied section 269D(1) of the Customs Act in that the value of the substitutable goods has been demonstrated to be at least 25% Australian by value of labour and materials.”
Having decided that substitutable goods were produced in Australia, the Tribunal then considered whether granting the TCO application was, or was not, likely to have a significant adverse effect on the market for the substitutable goods.[70] It concluded that there would be such an effect and affirmed the CEO’s decision to refuse the TCO application.
[70] [1996] AATA 199 at [52]
C.4 Commentary
The comments we made in relation to Polychrome apply equally to the Tribunal’s reasoning in this case.
D. Re Kraft Foods Ltd and Chief Executive Officer of Customs
In Re Kraft Foods Ltd and Chief Executive Officer of Customs[71] (Kraft Foods), the Tribunal considered a TCO application made on 10 May 1995. The TCO application had been made in respect of:
“CAPPING MACHINES, rotary, including a cap sorter and supplier, having 8 heads, capable of an output of 180 applications/min involving screw caps of 72 diameter and handling plastic container sizes 125g and 250g Op. 12 April 1995”.[72]
The CEO refused to make the TCO on the basis that Kraft Foods did not meet the core criteria. In issue was whether substitutable goods were produced in Australia in the ordinary course of business and, if so, whether the granting of a TCO was likely to have a significant adverse effect on the market for substitutable goods.
[71] [1997] AATA 109; Senior Member Ettinger and Mr Way, Member
[72] [1997] AATA 109 at [12]
D.1 The statutory scheme at the relevant date
By the time that the TCO application was to be considered, Part XVA had been amended by the Customs, Excise and Bounty Legislation Amendment Act 1995[73] (1995 Amendment Act). In so far as they related to ss 269B and 269D of the Customs Act, they came into effect on 1 July 1995 and changed the references to “Comptroller” to “CEO”.[74] The relevant provisions were those that applied a month before the TCO application was lodged i.e. 10 April 1995. We have set them out at [71] above.
[73] No. 85 of 1995
[74] Customs, Excise and Bounty Legislation Amendment Act 1995; s 6 and Schedule 9, Items 51
D.2 The evidentiary basis
The Tribunal found that capping machines are not sold ready-made and that they are not manufactured continuously. Rather, they are manufactured to a client’s specifications. They are made-to-order capital equipment.
The Tribunal found that Weir and Harrod manufactured made-to-order capping machines and had done for the previous 40 years. It accepted that Weir and Harrod could modify existing machinery to handle different cap sizes and containers. Its capping machines could not deal with pressure or aerated liquids but could be used for food, pharmaceutical and oil. Weir and Harrod had not built a capping machine to the exact specifications set out in the TCO application but was capable of rebuilding the number of heads. It was also accepted that Weir and Harrod had produced capping machines capping up to 200 applications per minute.
D.3 The Tribunal’s reasoning
The Tribunal said that it was:
“… mindful that substitutable goods pursuant to the definition in section 269B(1) of the Customs Act in this case, means capping machines for bottles and other containers, produced in Australia that are put to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put. …
The Tribunal accepted from the evidence … that the Objector [Weir and Harrod] was able to produce a made-to-order capping machine to the TCO specifications at the requisite time. The Tribunal was mindful of … evidence that each customer had specific requirements for its particular products, and that these were negotiated individually.
From the evidence before the Tribunal it determines that the Objector could produce substitutable goods at the relevant time. …”[75]
[75] [1997] AATA 109 at [55]-[57]
To this point, the Tribunal had not expressly considered whether the goods produced by Weir and Harrod were put to a use corresponding to a use to which the TCO goods could be put. That was touched on at [60] of the reasons for decision when it quoted a passage from the decision of the Tribunal in Re Tony Wain Agencies and Anor and Comptroller of Customs[76] Its consideration is implicit in its description of the locally manufactured capping machines and the description of the TCO goods.
[76] (1994) 35 ALD 649; Deputy President McDonald, Mr Gillham and Mr McLean, Members
Having found that there were substitutable goods as that term is defined in s 269B(1), the Tribunal then set up the basis for considering whether granting a TCO was likely to have a significant adverse effect on the market for substitutable goods. Only if the granting of a TCO were not likely to have that effect would the core criteria in s 269C(b) be satisfied:
“… Before coming to this conclusion, the Tribunal considered the discussion of sub-markets in Re Vulcan Pty Ltd and Comptroller-General of Customs and Dimplex Australia Pty Ltd, Party Joined …, which it adopts. The Tribunal received submissions about the breadth of the market, and came to the conclusion that the only relevant market in this matter is solely in Australia. The Tribunal further accepted the analysis of ‘market’ in paragraph 58 of Re Vulcan …”[77]
[77] [1997] AATA 109 at [57]
The Tribunal then stated:
“The Tribunal determined that substitutable goods, being capital equipment, were produced in Australia in the ordinary course of business (see section 269D and 269E of the Customs Act).”[78]
[78] [1997] AATA 109 at [58]
As would be expected, the Tribunal referred to s 269E(2):
“ The Tribunal is mindful that to satisfy the test, pursuant to section 269E(2) of the Customs Act, the Objector is not required to have actually built a capping machine to the TCO specifications, but must at the relevant date have been able and prepared to do so. In this regard Mr Rich submitted, referring to Polychrome (Australia) Pty Ltd v Chief Executive Officer of Customs and Aldus Engineering (AAT 10879, 22 April 1996) where it was held that: ‘… where the market is limited and where it is unlikely that there would be any demand in Australia for similar equipment in the foreseeable future … [and] while there may be an adverse effect arising to [the local manufacturer of ‘substitutable goods’] as the result of not being given the opportunity to tender, there is no certainty that any tender made would have been accepted so as to translate what would be an adverse effect on the local market for the substitutable goods into what the Tribunal would accept as a “significant” adverse effect.’
…
The Tribunal was however satisfied from the evidence of Mr Lynch that his company had the requisite labour, skills, technology and design expertise to produce the substitutable goods in the two years prior to the TCO application. The Tribunal noted Exhibit R4 dated 12 November 1996 was a quotation for an eight head rotary capper, but that as it was outside the relevant timeframe, this could not be taken into account in connection with this application.”[79]
[79] [1997] AATA 109 at [61]-[63]
The Tribunal then went on to consider whether the granting of a TCO would have a significant adverse effect on the market for substitutable goods. It did so in order to determine whether s 269C(b) of the core criteria test was satisfied.
D.4 Commentary
The comments we made in relation to Polychrome apply equally to the Tribunal’s reasoning in this case.
E. Re Gang-Nail Australia and Chief Executive Officer of Customs and Another
In Re Gang-Nail Australia and Chief Executive Officer of Customs and Another[80] (Gang-Nail), the Tribunal considered a TCO application lodged with the CEO on 24 October 1994 for:
“SAWS, TIMBER, computer controlled operation of set-up, manufacture and record keeping, designed for the manufacture of roof truss components, having ALL of the following:
(a)minimum of four computer controlled saw arms and heads;
(b)computer controlled adjustment motors independent of the saw motors;
(c)self-feeding material conveyer with integral computer controlled material clamping mechanism which enables single conveyer processing of material;
(d)designed for working in conjunction with a computer-aided design and manufacturing (CADAM) system by receiving job specification data files by direct download.”[81]
[80] [1999] AATA 30; (1999) 53 ALD 618; Senior Member Allen and Rear Admiral Horton, Member
[81] [1999] AATA 30; (1999) 53 ALD 618 at [1]; 618-619
E.1 The statutory scheme at the relevant date
As the TCO application had been made on 24 October 1994, the relevant provisions of Part XVA are those in force at 26 September 1994. They are set out at [71] above.
E.2 The evidentiary basis
The Tribunal described the saws that were the subject of the TCO application and those manufactured by Multinail Australia:
“The goods in dispute are saws used by the manufacturers of roof trusses. The applicant imports saws whereas the party joined manufactures saws at its factory at Wauchope in New South Wales. The TCO refers to a saw whereby the instructions, such as the angle of cut and length, are directly downloaded from a computer program. The party joined, in its Multinail Master Saw range being a Mark I, Mark II and Mark III, manufactures saws whereby the instructions as to their operation is entered by means of a keyboard, of a programmable controller. As pointed out in evidence, this can result in operator error, whereas when the instructions are directly downloaded from a computer program, this potential for error is deleted. Evidence was also given as to a Multinail Mark IV (or Command) Saw which is directly computer controlled but was manufactured for the first time in 1998.”[82]
[82] [1999] AATA 30; (1999) 53 ALD 618 at [8]; 620
The Tribunal found that Multinail Australia had technology to manufacture a saw which could be claimed to be a substitutable good in all respects but had received no orders for that item and none had been manufactured until 1998.[83] It also found that, in 1995, there had been discussions between Multinail Australia and South Coast Timber Supplies regarding the manufacture of such a saw and Multinail Australia had indicated that it would be very interested in developing a fully-computerised saw if someone were to invest in the project. No demonstration model was ever constructed.
[83] [1999] AATA 30; (1999) 53 ALD 618 at [9]-[11]; 620-621
E.3 The Tribunal’s reasoning
The Tribunal set out the relevant provisions beginning with s 269C as it was then drafted. Section 269C(b) was acknowledged as the relevant provision rather than s 269C for, as appears later in the Tribunal’s reasons, Gang-Nail Australia Ltd (Gang-Nail) conceded that Multinail manufactured substitutable goods in Australia. Those substitutable goods were the Master Saws Mark I, Mark II and Mark III.[84] Focusing on s 269C(b), therefore, the Tribunal quoted from the judgment of Drummond J in Seguin Moreau, Australia v Chief Executive Officer of Customs[85] when he said:
“… the expression ‘substitutable goods’ in s 269C(b) is given a precise meaning by its definition in s 269B(1): goods produced in Australia will be ‘substitutable goods’ in respect of the goods the subject of a TCO application only if the goods produced in Australia are, at the relevant date, put to a particular use and that use corresponds with a use to which the goods the subject of the application for the TCO ‘can be put’, that is, in fact are put or are capable of being put. … ”[86]
[84] [1999] AATA 30; (1999) 53 ALD 618 at [14]; 621
[85] [1997] FCA 776; (1997) 77 FCR 410
[86] [1997] FCA 776; (1997) 77 FCR 410 at 416
The Tribunal moved on to s 269E(2) and observed:
“ The applicant submitted that s 269E(2), by using the words ‘has made goods,’ requires that actual production must have taken place. In our opinion, however, the goods produced need not be the actual substitutable goods but simply goods requiring ‘the same labour skills, technology and design’ as the substitutable goods. In this matter we are satisfied that the party joined’s Mark III Master Saw required the same labour skills, technology and design as its Mark IV (or Command) Saw and the party joined was holding itself out as being prepared to accept an order to supply a fully computerised saw.”[87]
[87] [1999] AATA 30; (1999) 53 ALD 618 at [13]; 621
We have already referred to Gang-Nail’s concession regarding Multinail’s having manufactured substitutable goods being the Saws Mark I, Mark II and Mark III. Despite that, we will set out the paragraph in which that is recorded for the Tribunal went on to make a finding that the Mark IV Saw was a substitutable good even though the first of its type was not manufactured until 1998. The Tribunal said:
“ The applicant’s written submissions concede, at para 35, that the Master Saws Mark I, Mark II and Mark III produced by the party joined are substitutable goods. For the reasons outlined above we are satisfied that, although the party joined had never in fact attempted production of a Mark IV Saw until 1998, as at 26 September 1994 that model saw did constitute a substitutable good.”[88]
[88] [1999] AATA 30; (1999) 53 ALD 618 at [14]; 621
The Tribunal then went on to consider the second limb of s 269C(b) relating to whether the granting of a TCO was not likely to have a significant adverse effect on the market for substitutable goods. That no longer appears in s 269C but the Tribunal’s consideration remains relevant in so far as it referred to the various saws. The Tribunal acknowledged that the task set by that market test was a speculative exercise undertaken in a highly competitive market place comprising three main players. A difficulty that Multinail would have had with its prototype Mark IV Saw, the Tribunal said, would have been:
“… that no items of that equipment were in existence. As the witness Mr Donohue, the managing director of Australian Timber and Trusses, pointed out, he had never purchased an item of production machinery that had not been tested in production conditions. …”[89]
[89] [1999] AATA 30; (1999) 53 ALD 618 at [18]; 622
The Tribunal concluded:
“ Given all of the material placed before us, we are satisfied that any prospective purchaser of a fully computerised saw, as at 26 September 1994, would not have purchased such equipment from the party joined as it was then unable to demonstrate its technology in a working example. Had a prospective purchaser had a specification which was matched by any of the party joined’s Mark I, Mark II or Mark III range then their product may have been considered but other elements would have come into play, including product loyalty, output, depth of cut, as well as price.
The market for saws is diverse and it is only the larger manufacturers that would be looking for the top of the range, fully computerised saws such as the TCO goods. We are satisfied on the material before us that, as at 26 September 1994, the granting of the TCO would not have been likely to have had a significant effect upon the market for the substitutable goods.”[90]
[90] [1999] AATA 30; (1999) 53 ALD 618 at [23]-[24]; 623
C.4 Commentary
The comments we made in relation to Polychrome apply equally to the Tribunal’s reasoning in this case.
DECISION
For the reasons we have given, we set aside the decision of the CEO and substitute a decision that the TCO application made on behalf of Vestas satisfies the core criteria set out in s 269C. We remit the matter to the CEO to make a decision under s 269P to make a written order declaring that the goods that are the subject of the TCO application are goods to which a prescribed item specified in the TCO applies.
I certify that the one hundred and sixteen preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie, and Mr C Ermert, Member
Signed: …[sgd].............................................
Associate
Dates of Hearing 24, 25 and 26 March 2015
Date of Decision 21 May 2015
Counsel for the Applicant Mr G Davies QC and Mr J Slonim
Solicitor for the Applicant Ms W Wong
PricewaterhouseCoopers
Solicitor for the Respondent Mr R Northcote and Mr J Millea
Legal Services Branch, Customs
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