JUDGMENT No, .'\C37 83 Ct meee enertratany CATCHWORDS APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL - Customs - valuation of cars - importer contributed to homologation costs ~ Collector included in calculation of value of goods sums relating to homologation — transaction value of goods - whether payments were part of ''price' as defined in Customs Act 1901, s.154(1) Customs Act 1901 (Cth) ss.154(1), 159 THE COLLECTOR OF CUSTOMS v. LNC (WHOLESALE) PTY LIMITED NSW G302, G358, G359 AND G360 of 1987 Davies, Sheppard and Einfeld JJ. 17 March 1988 Sydney tae oF adel oe oe ee ee ° caer) we ta apie ee ee pe ne rem eang ee 7 ; . ' oo IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY Nos. G302, G358, ) ) G359 & G360 of 1987 ) ) GENERAL DIVISION ON APPEAL FROM THE GENERAL ADMINISTRATIVE DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: THE COLLECTOR OF CUSTOMS Applicant AND: LNC (WHOLESALE) PTY LIMITED Respondent CORAM: Davies, Sheppard and Einfeld JJ. DATE: 17 March 1988 PLACE: Sydney MINUTES OF ORDER THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The decision of the Administrative Appeals Tribunal be set aside and the matter remitted to the Administrative Appeals Tribunal for hearing according to law. NOTE: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules. or ore sayner cee —_— ow IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY Nos. G302, G358, G359 & G360 of 1987 GENERAL DIVISION ON APPEAL FROM THE GENERAL ADMINISTRATIVE DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: THE COLLECTOR OF CUSTOMS Applicant AND: LNC (WHOLESALE) PTY LIMITED Respondent CORAM: Davies, Sheppard and Einfeld JJ. DATE: 17 March 1988 PLACE: Sydney REASONS FOR JUDGMENT The Court: These are appeals from a decision of the Administrative Appeals Tribunal ("the Tribunal") setting aside decisions of the Collector of Customs which had included in the calculation of the value of motor vehicles imported by the respondent, LNC (Wholesale) Pty Limited ("LNC") sums relating to the homologation of such vehicles. fhe nature of homologation was agreed by the parties to be as follows:~ att ere Y jose ne es ro pe en re Lp one sey aa ~ 2. "Homologation is the process of designing, testing and certification of motor vehicle and/or component prototypes to meet the specific design rules applicable in certain countries such as Australia. It may also include all steps necessary to obtain the requisite approval for a modification of a vehicle prototype to make it suitable for Australian conditions. The ultimate aim of the process is to obtain a certification that the vehicle and/or component prototypes in their imported form have been manufactured to a standard which complies with the Australian Design Rules which may be different from those in other countries. In so doing it is necessary physically to modify and then actually test a prototype vehicle and/or component prototype so as to prove compliance with local rules. The results of these tests are submitted in written form to the Australian Motor Vehicle Certification Board which will, 1f satisfied, issue the necessary certifications. Homologation provides the basis for any production run modification relating to motor vehicles entering Australia." LNC was the Australian distributor and the importer of Audi motor vehicles produced in Germany by Volkswagenwerk A.G., ("VWW") Renault motor vehicles produced in France by Regie Nationale des Usines Renault and Fiat motor vehicles produced in Italy by Fiat Auto SpA.("Fiat Auto"). In the case of certain models of Audi, Renault and Fiat vehicles, LNC made a contribution to the homologation costs incurred. It was not in dispute between the parties that the proper basis of valuation was the transaction value of the goods. Section 159(2) of the Customs Act 1901 (Cth)("the Act") provides:- "(2) The transaction value of goods is an amount equal to the amount of the price, as determined by the Collector, in accordance with the relevant transaction, being that price as adjusted to the TTF a ee + nae oe errr oe wwe, a mq eRe rs or 3. extent required by sub-section (3)." Section 154(1) of the Act defines "price" as follows:- "'price', in relation to goods the subject of a contract of sale, means the aggregate of all payments made, or to be made, directly or indirectly, in connection with the goods by the purchaser to or for the benefit of the vendor (including any payment by the purchaser to a person other than the vendor to satisfy an obligation of the vendor) in accordance with the contract, whether the payment is made in money or by letter of credit, negotiable instrument or otherwise, and includes the value, as determined by a Collector, of any goods or services that are to be supplied by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale, but does not include any duties of customs, or any other taxes, payable under a law in force in Australia by reason of the importation or sale of the goods;" Section 159(3) provides:- "(3) There shall be added to the price referred to in sub-section (2) such amounts as the Collector considers necessary, in accordance with generally accepted accounting principles, to take account of the following matters: (c) any of the following goods or services that have been supplied, directly or indirectly, by the purchaser free of charge or at a reduced cost in connection with the production of the goods to be valued: (i) materials, components or other goods that form part of the goods to be valued; (ii) tools, dies, moulds or other goods used in the production of the goods to be valued; (iii) any materials consumed in the production of the goods to be valued; (iv) engineering work, development work, art work or design work that was, or plans or sketches that were, required for the production of the goods to be valued, to the extent that the work was, or the plans or one more gone: aoe reer . pA. . oa 4. sketches were, undertaken outside Australia; (d) any goods or services that have been supplied, directly or indirectly, by the purchaser in connection with the production of goods or services specified ina sub-paragraph of paragraph (c) that have been supplied, directly or indirectly, by the purchaser (whether or not free of charge or at a reduced cost) in connection with the production of the goods to be valued; With respect to the operation of the provisions of s.159(3), the Tribunal said:- "In my opinion section 159(3)(c)(av) and (d) bring into account the value of services supplied directly or indirectly by the purchaser to any person in connection with the production of the goods to be valued. There is no requirement that the services be supplied to the vendor of the goods. In these proceedings the evidence does not establish that the homologation services of Fiat Auto SpA, Volkswagenwerk A.G. or Regie Nationale des Usines Renault were provided by them as agents of the applicant or its subsidiaries. While the applicant paid a contribution towards those services, the services were performed by the foreign manufacturers as principals, and not as agents of the Australian importer, no doubt to the mutual advantage of themselves and the applicant in the attempt to penetrate the Australian market. The applicant did not supply the services in the sense of assuming responsibility for them. (See Green v Hoyle [1976] 1 W.L.R. 575, 584 per Goff J., as he then was). Whether or not the words 'directly or indirectly' should be given a narrow legalistic interpretation was considered in another context in Presho v Department of Health and Social Security [1984] 1 A.C. ' per Lord Brandon. However I consider it proper for me to follow Franki J.'s view in Trade Practices Commission v Legion Cabs (Trading) Co-operative Society Lt 7 35 F.G.R. 372 and to deine that the appticant did not supply homologation services directly or indirectly, but simply made a monetary contribution to the supplier of those services." wee eee ee ergs ot toe poem ee eee Fe ee ees ee "a, 5. In its conclusion that the provisions of s.159(3) did not apply, the Tribunal was correct. LNC did not supply goods or services but simply made a contribution to the costs of homologation incurred by the overseas manufacturers. However, Mr C. Darvall Q.C., senior counsel for the Collector, submitted that the Tribunal failed to consider the principal contention of the Collector, namely, that the contributions that LNC made to the costs of homologation were within the definition of price in s.154(1), being payments made directly or indirectly in connection with the goods by the purchaser to the vendor in accordance with the contract of sale. The Collector had taken the view that homologation payments, being directly related to the design. of the imported vehicles, were within the definition of price and thus dutiable. In order to understand this submission with respect to price, it is useful to turn to some aspects of the case that were considered during the hearing of the appeals. First, the material which was before the Tribunal showed that the Collector, having ascertained the quantum of the homologation contributions, simply assessed the amounts of © those contributions as 1£ the contributions were dutiable. Plainly, they were not. If such payments are to be brought to account for duty purposes, they can only be brought to account in the calculation of the value of imported goods. ee Re eee Seen Se cree 6. Secondly, there is no principle of law that payments made by an importer with respect to homologation either do or do not form part of the price as defined in s.154(1). In each case it is necessary to turn to the facts of the matter and to relate those facts to the definition. In each case it is necessary to consider, inter alia, whether the payment made with respect to homologation was a payment made "in relation to goods, the subject of a contract of sale" and "in accordance with the contract". Therefore, a necessary step, after having ascertained what happened in fact, is to determine what was the contract of sale for the goods imported. That contract will normally include the documentation passing with respect to the specific goods and, in cases such as the present, it may also include some terms of a general distributorship agreement that ought to be implied into the specific transaction. In the present case, we believe that the contract may also include terms of an agreement between the exporter and the importer for the development of a new model of vehicle and for a contribution by the importer towards the development of that model including the costs of homologation. But it will not necessarily do so. In each case, the terms of the contract for the sale of the goods to be valued must be ascertained. Thirdly, there will, in our view, be occasions when payments made by an importer ought to be apportioned with respect to a number of vehicles imported or to be imported. If there is some payment of pre-production costs or some other lump sum payment for an item such as homologation which ought to be a aeeuaar tenant 7. apportioned because it forms part of the contract of sale of the umported goods, then because of s.159(3) that apportionment must be made in accordance with proper accounting principles and practice. We believe that many of the items brought to account pursuant to s.159(3) are required to be so apportioned, provided that the sum under consideration forms part of the price payable under the contract of sale for the imported goods to be valued. We emphasise that each case must depend upon its own facts and circumstances. Thus, for example, there may be an agreement for the payment by the importer of pre-production costs with respect to the development of a certain number of goods which the importer has agreed to purchase and to import when produced. Such a sum may well form part of the price of goods imported. Contrast therewith an agreement that the importer contribute to the pre-production costs of a new model of goods in respect of which there is at that time no agreement as to sale and importation. Such a payment would, in our view, not form part of the price of specific goods. These are but examples of circumstances which may be encountered in commercial dealing. Fourthly, the statements of agreed fact and the written and oral evidence which were presented to the Administrative Appeals Tribunal with respect to each of the matters under consideration were inadequate to enable the Tribunal to form a concluded view on the issues. For example, in the case of the Audi vehicles there was a telex dated 10 July 1981, confirming an agreement on the part of the 1mporter to pay homologation costs. The telex read, inter alia:- ee ow Ne wpe eo a he 8. "As discussed during my visit VWW is prepared to no longer add homologation costs to the individual unit price of each model but to debit your account with the total amounts in question against your written consent to pay one year after the first production month of the particular model." After it had come to LNC's notice that the Collector considered that homologation payments should be included in value and at a time when a number of Audi 80 vehicles were on ship to Australia, LNC telexed VWW as follows:-~ "Will you please advise us homologation charges on Audi 80. Australian Customs will require this information before any vehicles can be cleared from the wharf. In view of the urgency, we would appreciate a reply within seven days." That was responded to by a letter of 12 May 1986 which read:- "Charges for the homologation of Audi 80 amounting to DM 20 000.--." The vehicles that were in the course of shipment were twelve Audi 80 vehicles which arrived at Sydney on 14 July 1986. Eighty such vehicles had previously been imported and thirty-one were imported later in 1986. Such information seems to us to have been insufficient to enable the Tribunal to form a concluded view as to what was the contract of sale for the twelve vehicles imported on 14 July 1986. We have found difficulty in identifying the information enabling the Tribunal to determine whether or not the homologation charges of DM 20,000 were, or were not, paid in accordance with the contract of sale of those twelve vehicles. It seems to us that both before the Tribunal and in the hearing a es mor 9. of these appeals, neither party clearly faced the issues for a determination as to price to be made. Mr M.H. Tobias, Q.C., senior counsel for LNC, submitted that LNC "had entered into a separate and independent agreement with each of the manufacturers of the subject vehicles for the payment of homologation charges and that each such agreement was real, i.e. genuine, and not a sham ...". This submission laid emphasis upon the form of the transaction which occurred in each case. But form is not determinative. A contract of sale may be constituted in many ways. It is its substance, not its form, which is important. As was said in LNC (Wholesale) Pty Limited v. Collector of Customs (Nos. G305 and G306 of 1987, delivered 22 January 1988): "... the legislation provides a basis of valuation that is less theoretical and more practical than the Brussels Definition of Value. Primacy is given to the price actually paid or payable adjusted in accordance with a number of simply stated rules. It is appropriate in the application of these rules to eschew technicality and subtlety and to take a practical commercial view of transactions. In Commissioner of Inland Revenue v. Littlewood Mail Order Stores Ltd [1962] 2 AII ER 279 at 284, Viscount Simonds, with whom Lord Devlin concurred, referred to the familiar proposition 'that the substance alone of the transaction is to be looked at.' Thus, when the definition of price refers to 'the aggregate of all payments made, or to be made, directly or indirectly, in connection with the goods by the purchaser to or for the benefit of the vendor ... in accordance with the contract', the legislation is looking to what has occurred as a matter of fact, having regard to the substance rather than the form of the transaction, though that is not to deny that the substance of a transaction 'is that which results from the legal rights and obligations of the parties ascertained upon ordinary legal principles', per Lord Tomlin in Commissioners of Inland Revenue v. Duke of Westminster [1936] Ac I at 20-21." wee geo mos Oy ee pes ce er oe on ee supe a ae 10. Thus, in relation to the Fiat vehicles, the fact that minutes of meetings between Fiat Auto and LNC held in Turin on 11 and 12 October 1984 did not include any reference to the homologation costs was, in our opinion, not conclusive. Other evidence showed that on 11 October 1984, in Turin, LNC agreed to pay to Fiat Auto $US100,000, being 50% of the cost of homologating the Fiat Regata to Australian specifications. We believe that it would be open to a tribunal of fact to conclude that this term, as well as the many other terms as to price, orders, delivery and so on which appear in the formal minutes, formed part of a contract for the sale of vehicles. Likewise, the Collector approached this matter ona rather simplistic basis. Mr Darvall submitted that the payments made by LNC for homologation "were payments made directly or indirectly in connection with the goods and together with the payments made for specified units constitute the price of the goods as defined in s.154(1) of the Customs Act." This submission failed to identify what precisely were the contracts of sale for the imported vehicles and whether or not the payments of the homologation contributions formed part of those contracts. In the light of those competing approaches, it is hardly surprising to us that the Tribunal's reasons were somewhat equivocal. The Tribunal said, for example:- "... I have little doubt that separation of homologation payments from the prices of the vehicles was seen by those in the industry as a method of reducing the customs duty leviable on imported vehicles. Nevertheless, I do not consider the ry snes en ee oT ¢ wots te ee er se ae pre " .- ory oto er naaaneded — te "qo fn pe eee na 11. homologation agreements to be a sham. I accept that there were commercial reasons for separating homologation payments from payments for vehicles. ... While I consider the separate homologation agreements were real, it is obvious that the foreign manufacturers would not spend their money and time meeting all or half of the costs of homologation, unless the Australian importers gave firm indications of the number of vehicles of a certain model likely to be purchased. It appears to me that this was certainly the case with Fiat Auto SpA (see for example Exhibit N, documents 1 and 3 of 1ith and 12th October 1984 and documents 6 and 7 of 11th October 1985) and probably with the Audi and Renault manufacturers. one In the case of all imports under consideration, the applicant was the importer into Australia of the goods in question. In each case homologation was an essential part of the process of sale and importation." This reasoning, which concentrated on the issue of sham, did not include findings as to what were the contracts for the sale of the imported vehicles or as to whether the homologation contributions were payable under those contracts. It is, indeed, not clear that in the above passages the Tribunal was directing its attention to the matters set out in s.154(1) as distinct from the issues raised in s.159(3). However that may be, the Tribunal failed, in our opinion, to make findings with respect to matters which were crucial to the operation of the definition in s.154(1), particularly as to what were the relevant contracts of sale and whether the homologation contributions were made in accordance with those contracts. In these respects, we are of the opinion that the Tribunal fell into error. oor pee on ere Ye ep rere cr tet co re a3 ny oe oe ar are ° p memonee ge ye ores worry Smee 12. As a result, the decision of the Tribunal must be set aside and the matter remitted for reconsideration according to law. The issues raised in these appeals are issues of law only and it would be improper for this Court itself to make findings of fact on the material before the Tribunal. It is not for us to usurp the function conferred upon the Collector in the first instance and, on review, upon the Tribunal. They both have the function of arriving at the correct or preferable decision, having regard to the evidence before them. See Drake v. Minister for Immigration and Ethnic Affairs (1979) 24 A.L.R. 577 at 589, The function of this Court is to determine whether or not there has been demonstrated an error of law in the decision under appeal or the decision-making process leading thereto. Once this Court has determined such an error, in the present case that the Tribunal failed to determine the substantive factual issues calling for determination, the duty of the Court unless in exceptional circumstances, is to refer the case back to the Tribunal, with the function of considering both facts and law, for reconsideration according to law. See eg., Minister for Immigration and Ethnic Affairs v. Conyngham & Ors. (1986) 68 A.L.R. 441. In our opinion, therefore, the appeal should be allowed, the decision of the Tribunal should be set aside and the matter should be remitted to the Tribunal for rehearing according to law. As both parties contributed to the error in the proceedings under appeal, the Court will make no order as to costs. Se ee ora eo ee ree peer ee | ee ir 13. I certify that this and the 12 preceding pages are a true copy the Reasons for Judgment herein the Court Associate: awit . Date: 17 Mardh 1988 Counsel for the applicant: Solicitor for the applicant: Counsel for the respondent: Solicitors for the respondent: Date of hearing: of of Mr C. Darvall Qc with Mr D. Ronzoni Australian Government Solicitors Mr M.H. Tobias Qc with Mr J.S. Hilton Dunhill Morgan 28 October 1987 ---——