A very recent decision of the AAT has continued the very strict approach to use of Tariff Concession Orders (TCOs) and underlines the need for caution to how they are drafted and used. The judgment again throws up questions as to the way in which the Australian Customs and Border Protection Service ("Customs") makes decisions in this area and the way in which disputes are conducted before the AAT.
The decision (J M Gillies Agencies Pty Ltd v CEO of Customs) included a review of decisions by Customs to classify goods to a particular tariff classification which denied the importer the use of a TCO.
The relevant facts can be summarised as follows:
- Customs had undertaken a review of imports by the applicant in the case.
- The goods at issue were "synthetic monofilament" imported as fishing line in various lengths on reels of different types.
- Customs formed the view that the importer had erred in the tariff classification of certain goods and had also improperly used a TCO leading to underpayments of customs duty and GST.
- Customs sought payment of customs duty and GST it believed to be underpaid.
- The importer sought review of the decision which affirmed Customs decision.
- The importer paid the duty claimed under protest and proceeded to the AAT.
Issues before the AAT
There were 2 main issues before the AAT.
- Whether the goods were properly classified to Heading 5404 (monofilament) as contended by the applicant or to Heading 9507 (fishing rods and tackle) as contended by Customs.
- If the goods were properly classified to Heading 5404, whether the goods were entitled to be entered duty – free pursuant to TCO 0713590 (for Yarns, Nylon, keyed to Heading 5404.19.100)
Another AAT issue - Customs change of position during the Hearing
Many of you would have been in attendance at recent sessions I have conducted for the CBFCA on the subject of a number of AAT cases. The sessions addressed not only the decisions themselves but also how the nature of the AAT jurisdiction has led to some unusual procedures being adopted before and during the Hearing. This had included situations where Customs had produced "relevant" documents after the date for delivery of the T – documents and changed its position on vital issues including whether certain issues were, in fact, in question. This has also included attempts by Customs to resile on previous concessions on legal issues, which action was permitted by the fact that it had the obligation to "inform" the AAT of all matters needed to allow the AAT to make a proper decision.
In this case, it appears that in its Statement of Facts and Contentions, Customs had stated that if the AAT found that goods were properly classified to heading 5404 then the goods were entitled to the benefit of the TCO. However on the first day of the Hearing, Customs made written submission which changed that position and would now argue that even if the goods were classified to Heading 5404 that the goods would not come within the TCO.
This must have come as something of a shock to the applicant which was allowed to make written submissions that Customs should not be allowed to change its position. In doing so, the applicant argued that Customs' obligation as a Model Litigant precluded the change of position and that it was estopped from doing so. In the decision, the AAT found that neither argument precluded the change in position by Customs and that the duty of the parties to inform the AAT to make the correct decision was paramount and allowed the change of position by Customs, where the applicant was given time to respond to the change in position.
Findings on the issues before the AAT
The AAT then made decisions on the substantive issues associated with the case:
- The AAT found that the fishing line was properly classified to Chapter 54 and to Heading 5404. In doing so, the AAT considered the terms of Chapter 95 and Heading 9507 and the phrase "fish hooks and other line fishing tackle" which Customs argued was the correct classification. The AAT reflected that the term in Heading 9507 started with a specific item (fish hooks) and then a more general item (other line fishing tackle) and held that consideration needed to be given to adopting the ejusdem generis rule of construction which provides that the interpretation of the general term is constrained by the prior specific term. The AAT also found that Note 1 ( c) of Chapter 95 (made up into fishing lines) did not assist Customs and that Heading 9507 really refers to what is fishing tackle. Having made that finding the AAT moved to the Explanatory Notes to Heading 9507 which did not include fishing line as fishing tackle, and that fishing tackle required items to be attached to the line. Accordingly, Heading 9507 did not apply and Heading 5404 was preferred.
- However, a mere finding that Heading 5404 applied did not guarantee the benefit of the TCO. The AAT then applied the arguments of the Voxson case as to interpretation of TCOs. In doing so, while the Act did not allow TCOs to use words referring to intended end use, the application did require provision of a Stated Use which could be used for interpretation. In the case of the TCO, the Stated Use referred to the item being "used for the manufacture of conveyor fabrics and industrial filter cloth" and although that did not preclude other uses it did assist in understanding the word "yarn" in the context of Heading 5404 and in the TCO. The AAT also found it could not disregard the characterisation or identification of the goods as imported being nylon fishing line and that while that did go to intended use, it also was an appropriate approach for this TCO. The AAT then looked at the term "yarn" in the context of the TCO. The AAT found that while the fishing line did fit in Heading 5404, there was no reference to "yarn" there which required other contexts to be considered in terms of the TCO which was concerned with synthetic filament capable of being used as yarn for weaving, braiding, plaiting, knitting or otherwise used in textile material. The AAT found that fishing line did not meet those characteristics and found that the TCO did not apply to the goods.
Consequences of the decision
- The decision is another in a line of cases where Customs has been successful in limiting the use of TCOs.
- The decision on the classification of the goods is consistent with previous practices
- The decision on the TCO is largely consistent with the approach in other cases and continues the limited application of TCOs.
- The decision does question the use of the AAT jurisdiction. The change in position of Customs does call into question its original decision. It also raises the uncertainty for an applicant who prepares for a case on what is apparently a certain basis but which then needs to proceed on a substantially different basis, due to a changed position by Customs. This creates uncertainty and extra expense for an applicant. It also means that in advising clients, advisers should now indicate to clients that while a decision exists, the client should be prepared for the case to be argued on an entirely different and contrary basis which can lead to additional costs and a variety of potential outcomes. This is not an ideal outcome in an environment where Government is urging its agencies to adopt transparent practices which lead to certainty for those affected!
As always I would be delighted to assist with the implications for this decision