Of recent time one of the major points of contention circulating in industry has been the correct tariff classification of ceiling fans which happen to have more than one function (for example, fans with lights or fans with heaters).
The issue has also encompassed the issue of classification of "composite goods" and whether goods were entitled to duty – free entry under a TCO where the goods came within the description of goods under the TCO but also had further functions.
Background to the issue before the AAT
The short history of the issue has been as follows:
- Importers had classified ceiling fans to tariff item 8414 and then claimed the benefit of one or more TCOs linked to that classification and secured duty – free entry for the goods.
- An issue had arisen whether ceiling fans which also included additional functions such as lights and heaters could were entitled to the same treatment.
- Customs adopted the position that such "composite goods" were not necessarily entitled to such treatment and the correct classification depended on the "essential character" of the goods taking into account the various functions (fan/light/heater). As a result, if there was no one essential character then the latter of the classifications which could apply to the goods depending on their functions would apply adopting the Interpretation Rules. For example where a ceiling fan also had a light the 2 possible classifications were as a fan or a light. If neither gave it its essential character the latter of the classifications (as a light) would apply.
- Customs also claimed that the TCOs may not apply. If the classification did not match that referred to in the TCO it could not be claimed. Further even if the tariff classification required by the TCO was applicable, if the goods did more than that referred to in the TCO (such as the fan having a light when the TCO only referred to a fan) then the TCO could not be claimed. In doing so, Customs referred to a recent AAT decision.
- Customs then went on a compliance pathway to importers of the goods, undertaking audits and issuing demands for back duty and GST where it believed the goods had been misclassified and/or the TCO incorrectly claimed.
- A number of importers objected and one took the matter to the AAT for review.
- Customs issued a draft Tariff Precedent on the issue identifying its approach and seeking comments in response. Comments are due by 7 October 2014.
The AAT decision
The AAT decision in one of the matters sent for review, relating to ceiling fans with lights was handed down late in September 2014 and was published on 3 October 2014.
In summary the AAT largely upheld the arguments of Customs as to how these specific composite goods would be classified. They could have been classified as fans or lights but as there was no one essential character to the goods, according to the Interpretation Rules, they should be classified to the last classification (as lights). On that basis alone, the goods would not attract the TCO which relied on the goods being classified as fans. Accordingly the AAT made no finding on whether the goods would have come within the words of the TCO.
Consequence of the decision and Customs draft Tariff Precedent – action required
The AAT decision, taken together with other decisions and the terms of the draft Tariff Precedent would appear to have the following immediate effects
- While it could be appealed, it seems to have resolved, for now, the issue of classification of the affected goods in a manner consistent to the draft Tariff Precedent.
- The decision relates to the goods the subject of the case only. As far as other goods of this composite type are concerned, they would need to be separately assessed to see which of the "composite goods" rules for interpretation would apply.
- Conceivably. there could be composite goods where the "fan" element is, in fact, the essential character to allow classification as a "fan". However that leaves open the question whether the "fan" TCO would then be available. Given the findings in the Toro decision, the fact that the goods do more than that provided for in the TCO would suggest that Customs would not allow the application of that TCO (or the TCOs for similar composite goods which are referred to in the draft Tariff Precedent).
- Importers of such composite goods as ceiling fans should carefully review the draft Tariff Precedent and the decision as well as past imports and check if past Import Declarations need to be amended and/or whether past claims of TCOs need to be amended, together with payment of duties for past imports (to avoid penalties).
- Others will need to consider whether the decision in the context of interpretation of composite goods has a wider impact on other imports of composite goods.