CATCHWORDS CUSTOMS - tariff classification - meaning of "accessories" - blood glucose test strips designed for use in photometers Customs Tariff Act 1987, Sch 3, heading 9027 Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1971) 46 ALJR 32 Zendel Australia Pty Ltd v Commissioner of Taxation 92 ATC 4515 Zendel Australia Pty Ltd v Commissioner of Taxation (1993) 46 FCR 14 BOEHRINGER MANNHEIM AUSTRALIA PTY LIMITED v COLLECTOR OF CUSTOMS No. NG 697 of 1993 Coram:Whitlam J Place: Sydney Date: 31 August 1995 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 697 of 1993 ) GENERAL DIVISION ) On appeal from the General Administrative Division of the Administrative Appeals Tribunal BOEHRINGER MANNHEIM AUSTRALIA PTY LIMITED Applicant COLLECTOR OF CUSTOMS Respondent Coram:Whitlam J Place: Sydney Date: 31 August 1995 MINUTES OF ORDER THE COURT ORDERS THAT: 1. Appeal allowed. 2. Decision of the Administrative Appeals Tribunal set aside. 3. Matter remitted to be heard and decided again, either with or without the hearing of further evidence, by the Administrative Appeals Tribunal. 4. The respondent pay the applicant's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 697 of 1993 ) GENERAL DIVISION ) On appeal from the General Administrative Division of the Administrative Appeals Tribunal BOEHRINGER MANNHEIM AUSTRALIA PTY LIMITED Applicant COLLECTOR OF CUSTOMS Respondent Coram:Whitlam J Place: Sydney Date: 31 August 1995 REASONS FOR JUDGMENT This is an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") affirming a tariff classification by the respondent. The goods in question are blood glucose test strips, which are imported in packs containing 50 test strips and one bar-code strip. The test strips are used in meters described as reflectance photometers. There are two types of test strips imported by the applicant, one for use in the Reflolux S meter and the other for use in the Accutrend meter. The respondent classified the goods under heading 3822.00.00 in Schedule 3 to the Customs Tariff Act 1987 ("the Act"). The applicant contends that the goods should be classified under heading 9027.90.90 in Schedule 3. The initial question of law raised on the appeal concerns the correct interpretation of heading 9027 and Notes 2 and 3 of Chapter 90 of Schedule 3. The relevant terms are: "9027 INSTRUMENTS AND APPARATUS FOR PHYSICAL OR CHEMICAL ANALYSIS (FOR EXAMPLE, POLARIMETERS, REFRACTOMETERS, SPECTROMETERS, GAS OR SMOKE ANALYSIS APPARATUS); INSTRUMENTS AND APPARATUS FOR MEASURING OR CHECKING VISCOSITY, POROSITY, EXPANSION, SURFACE TENSION OR THE LIKE; INSTRUMENTS AND APPARATUS FOR MEASURING OR CHECKING QUANTITIES OF HEAT, SOUND OR LIGHT (INCLUDING EXPOSURE METERS); MICROTOMES: ... 9027.90 - ... parts and accessories: ... 9027.90.90 ---Other." "2.- ... parts and accessories for machines, apparatus, instruments or articles of this Chapter are to be classified according to the following rules: (a) Parts and accessories which are goods included in any of the headings of this Chapter ... are in all cases to be classified in their respective headings; (b) Other parts and accessories, if suitable for use solely or principally with a particular kind of machine, instrument or apparatus, or with a number of machines, instruments or apparatus of the same heading ... are to be classified with the machines, instruments or apparatus of that kind; ... 3.- The provisions of Note 4 to Section XVI apply also to this Chapter." It was common ground before the Tribunal that the meters were instruments included in heading 9027. Counsel for the applicant submitted to the Tribunal that the test strips were "parts" or "accessories" for the meters. The Tribunal began the reasons for its decision by describing the goods: "4. The test strips which are packaged in vials of 50 are used by sufferers of diabetes to monitor their blood glucose levels. Each vial of strips is accompanied by another strip which has an identifying bar code for that batch. This bar coded strip is used to calibrate the photometer for that batch of strips. This is necessary for each batch of strips manufactured as the raw materials used will vary and therefore to maintain accuracy, calibration or adjustment factors have to be included. The test is conducted by applying a drop of blood to the chemically coated plastic pads on the test area of the plastic test strip, waiting the requisite time then inserting the strip into a specific photometer to provide the reading within two minutes. An approximate visual check is also possible by comparing the colour of the test pad with the colours of the label on the vials. The blood glucose reacts with the chemicals on the strip and causes dyes on the test pad to change colour. The test principle is a glucose-oxidase/peroxidase reaction. The resulting depth and shade reveals the level of blood glucose. The photometer or "colorimeter" is designed to provide a more precise reading than the naked eye. 5. The goods in both matters are similar and perform identical purposes, the only real difference being that the strips for one brand of kit will not work with the other. For example, if a Reflolux S test strip [were used] in an Accutrend machine the machine would show an error. Similarly, the strips cannot be used with a competitor's machine. The Tribunal then identified the goods and said: "11. The Tribunal rejects the submission that the strips were part of the photometer. Rather the analogy is more akin to the film considered in Deputy Commission of Taxation v Polaroid Australia Pty Limited 46 ALJR 32, or the video cassette tapes the subject in re National Panasonic (Australia) Pty Ltd and Collector of Customs (NSW) 7 ALD 647. 12. In the Polaroid case supra Gibbs J (as he then was) said p 34-5: "One thing does not become part of another simply because the latter thing cannot be put to proper use without the aid of the former, even if, if in use, the two things are fixed together. In my opinion a film is not part of a camera, nor a bullet of a gun, nor petrol of a motor vehicle. A Polaroid camera is a different thing from a film pack or picture roll, and is complete even though it has no pack or roll in it. ... The fact that the film pack and the picture roll are each designed to fit only one type of camera, which cannot be worked with any other type of photographic material, merely re-enforces the view that the pack and the roll are essential aids to use of the cameras, but does not show that the pack or the roll is part of the camera itself." 13. It is correct to say, as did [the respondent's representative], that without the strips the photometer is no more than an electronic paperweight but as Davies J pointed out in Waterscheid (sic) Australia Pty Ltd v Collector of Customs 7 AAR 555, it is an error to place too much stress on essentiality in considering whether goods are parts or accessories. In that case His Honour did, however, approve the Tribunal's statement that the term "accessory" was definitively stated in Polaroid supra at p35. 14. At 46 ALJR at p35 Gibbs J said, regarding the term "accessories": "The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it. It was because the Deputy Commissioner regarded the goods as essential to the use of a Polaroid camera that he preferred to submit that they are parts rather than accessories. In my opinion, however, the goods in question cannot be regarded as accessories for a Polaroid camera. An accessory for a camera is an extra and additional part of the equipment of a camera itself, such as a light meter, a filter or a wide angle lens, and in the ordinary course of language a film would not be referred to as an accessory for a conventional camera, nor a film pack or a picture roll as an accessory for a Polaroid camera." Hill J in Zendel Australia Limited and Anor v Federal Commissioner of Taxation and Anor 92 ATC 4,515 distinguished the broad meaning which had been given to the term "accessory" by the New South Wales Court of Appeal in Federal Commissioner of Taxation v Kentucky Fried Chicken Pty Ltd and Anor 12 NSWLR 643. It seems to this Tribunal, therefore, that the formulation advanced by Gibbs J should be followed and, applying His Honour's formulation, we cannot find that the strips are accessories to the photometers. Again, the analogy which we find apposite is with the film in the Polaroid case supra or the video cassette in National Panasonic supra. Counsel for the applicant submits that the Tribunal has ignored the statutory context, namely, whether the test strips are parts or accessories for instruments "for measuring or checking quantities of ... light". However, once it is accepted (as it was before the Tribunal) that the meters are goods included in heading 9027, it is only necessary, in my view, to consider whether the test strips are parts or accessories for the meters. In particular, counsel for the applicant criticizes the Tribunal's reasoning by analogy to the cases cited. It is true that the conclusions of the Tribunal are baldly stated. The relevant part of the judgment of Gibbs J in Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1971) 46 ALJR 32 at 34-35 is very short. Contrary to the submission of counsel for the applicant, the Tribunal does not appear to treat his Honour as having said, in effect, that one thing may not become part of another in circumstances where "the latter thing cannot be put to proper use without the aid of the former". Nor do I accept that the Tribunal misunderstood what Davies J said in Walterscheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555 so that no consideration was given to whether the test strips were essential to the functioning of the meters. Indeed, the reference to this case rather suggests that the Tribunal correctly focussed on the anterior question whether the test strips were parts for the meters. Ultimately, of course, no analogy will be logically compelling to a necessary conclusion, but such reasoning is a common and useful way of arriving at a decision. However, the Tribunal appears to have misunderstood what Hill J said in Zendel Australia Pty Ltd v Federal Commissioner of Taxation 92 ATC 4515 about the meaning of the word "accessory" depending upon the context in which it is used. It is necessary to set out the whole of the relevant passage in his Honour's judgment at 4,520-4,521: " The broad meaning which the Kentucky Fried Chicken case advanced depended, as the judgment in that case acknowledged, upon the context in which the word appeared. No such expansion of meaning can be inferred from the context of Item 2 of the Third Schedule and, as in Polaroid, the word must be taken to have its ordinary meaning. It is unnecessary for present purposes to determine whether that ordinary meaning requires that for an item to be an "accessory" to some other item, the first-mentioned item must be an adjunct to the second. It is sufficient to say that it would be a misuse of language to call aluminium foil an accessory to an oven, or plastic freezer bags an accessory to a refrigerator. Not every item which is for use in a refrigerator or oven (even if designed for the purpose of that use) will be an accessory to the refrigerator or oven. As the dictionary definitions demonstrate, for an item to be an "accessory" in the relevant sense that item must contribute to the working of some principal item or its general effect. Thus both a camera lens and a light meter are, as Gibbs J observed, accessories to a camera; mag wheels may be an accessory to a car, a crisper may be an accessory to a refrigerator, or perhaps even a baking dish might be an accessory to a stove, at least if custom-made for it. In each of these examples the accessory actually contributes to the functioning of the principal item. However, to take the example of aluminium foil, that does not in any way contribute to the stove, or its functioning. The stove functions and performs in the same way irrespective of the use of aluminium foil. It is true that the foil may improve the effect of cooking on the food, or the freezer bags may modify the effect of freezing on food, but this is but to say that the product in question assists in the process of cooking or freezing. They are, as counsel for the Commissioner submitted, an adjunct to the process rather than an adjunct to the appliance. Further, to say that the items in question are designed for use in an appliance, (which while not a necessary precondition to an item being an accessory, certainly assists in concluding that it is) disguises the fact that the items are designed for use in stoves or refrigerators generally, not in particular stoves, or particular refrigerators." On appeal the Full Court took a similar view: Zendel Australia Pty Ltd v Commissioner of Taxation (1993) 46 FCR 14 per Lockhart J at 18: " Plainly, the meaning of the word "accessory" will depend upon the context in which it is used. It was the context which distinguished the different meanings given to the word in two cases to which we were referred: Deputy Commissioner of Taxation (Cth) v Polaroid Australia Pty Ltd ... and Commissioner of Taxation (Cth) v Kentucky Fried Chicken Pty Ltd ... Ultimately, the meaning of the word "accessory" must acquire its meaning from the particular context in which it is used. In my opinion, for an item to be an accessory within the meaning of the Act, it must contribute to the working of some principal item or its general effect or appearance. The aluminium foil, for example, with which this case is concerned, does not, in my view, contribute to the stove or its function, or its effect or appearance. A stove functions and performs in the same way irrespective of the use of aluminium foil. Foil certainly may improve the effect of cooking on the food, just as freezer bags may modify the effect of freezing on food; but that simply says that the product in question assists in the process of cooking or freezing. They are an adjunct to the process, rather than an adjunct to the appliance itself, and unless they are an adjunct to the appliance - which in my view they are not -they cannot fall within the relevant provision." And Beaumont J said (at 19): "As to the second issue, I also agree with Lockhart J. It should be noted that the term "accessories" in the item in question appears in the context of an item which is stated to be "parts, fittings and accessories". If the subject goods had been designed exclusively for use in conjunction with a refrigerator or an oven or even if, perhaps, the goods in question had actually been used exclusively in conjunction with an oven or a refrigerator, it could be that the conclusion contended for by the appellants may have been open. But, in the present case, there is no evidence and, indeed, no suggestion, that these goods were either designed exclusively for that purpose or, in practice, used exclusively for that purpose." Whatever the conclusion reached by Gibbs J as to whether the film packs or picture rolls were accessories for a Polaroid camera, Hill J had plainly enough indicated that an item which is designed for use in a particular principal item and which actually contributes to its functioning may be an "accessory" in the relevant sense. Beaumont J subsequently said that such a conclusion could be open. (The Tribunal was not referred to the Full Court decision in Zendel.) Counsel for the respondent presses the submission that the ordinary meaning of a word, such as "accessory", is a question of fact. As far as it goes, I accept that submission: Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287-289. I also accept that the expression of the Tribunal's reasons for its findings of fact is not to be scrutinized too closely for the purpose of detecting error. There are, of course, different ways of expressing conclusions. Longwindedness has no attraction over terseness. However, when the Tribunal said in paragraph 14 of its reasons that it "cannot find that the strips are accessories to the photometers" (emphasis supplied), it appears to have taken the view that the decision of Gibbs J in the Polaroid case precluded such a finding. Such an approach involved, in my opinion, an error of law. I do not say that the Tribunal was bound to conclude that the test strips were "accessories". Indeed, I can readily conceive why a view might be taken that such consumables are not accessories, but the judgments in Zendel show that the contrary conclusion must be regarded as open where the statutory context indicates that strips designed exclusively for use in a particular type of instrument may be "accessories" for that instrument. The applicant also relies on Note 3 of Chapter 90. This requires consideration of Notes 4 and 5 to Section XVI of Schedule 3. Mutatis mutandis, the terms of these Notes are: "4.- Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electrical cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter [90], then the whole falls to be classified in the heading appropriate to that function. 5.- For the purposes of these Notes, "machine" means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter [90]." The Tribunal said of these provisions: "The word "component" is defined in the Shorter Oxford English Dictionary as: "composing, making up, constituent - a constituent part of or element" and it seems to us that what are "components" must be ascertained on similar principles to "parts". It follows, therefore, from what has been said above regarding parts that the goods in question cannot be regarded as components of photometers." Counsel for the applicant submits that "the clearly defined function" referred to in Note 4 is the "measuring or checking quantities of light" referred to in heading 9027. That may be so, but the first question that needs to be answered is whether the test strip is an individual component of the meter. I can perceive no error in the Tribunal's interpretation of Note 4. The Tribunal then went on to consider the classification of the goods under heading 3822.00.00. Counsel for the applicant submits, however, that, if the goods fall to be classified under subheading 9027.90.90, heading 3822.00.00 can have no application. In Liebert Corporation Australia Pty Ltd v Collector of Customs (1 November 1993, unreported), a Full Court of this Court explained (at 4) the role of the Interpretation Rules under the Act: "The appropriate tariff classification is to be determined according to the terms of the headings (which includes sub-headings) and of any relevant Section or Chapter notes and, "provided such headings or notes do not otherwise require", by the principles contained in Rules 2 to 6 in Schedule 2: see s. 10(1) of the Act and Schedule 2, Rule 1." Counsel for the applicant submits that the provisions of Note 2 to Chapter 90 "otherwise require" within the meaning of Rule 1. I do not agree. In Liebert the note to the Section concerning the alternative suggested classification expressly provided that that Section was not to cover articles in a designated chapter. So too in Vernon-Carus Australia Pty Ltd v Collector of Customs (Full Court, Federal Court of Australia, 6 June 1995, unreported) the note to the Section expressly provided that goods classifiable in specified headings were "to be classified in those headings and in no other heading of this Schedule". Heading 3822.00.00 is in the following terms: "3822.00.00 COMPOSITE DIAGNOSTIC OR LABORATORY REAGENTS, ..." The Tribunal said of the goods: "17. The testing strips are of a different nature to the calibration strips and have different functions to perform. The specific nature of the test strips was adverted to in the evidence of Mr Rowe who gave evidence for the Applicant. He stated that on each test strip there is a test patch with a film matrix covering each of two test zones. Each zone has a different sensitivity to glucose. Reagents are contained in the film matrix covering each of the test zones. The volume of fluid penetrating the zones is predetermined by the thickness of each of these matrixes so that the amount of glucose absorbed depends exclusively on its concentration in the blood drop and not the size of the droplet. High molecular and cellular constituents are retained by the matrix and are wiped clean off the test zones when the reaction time has elapsed. The intensity of the colours formed in the reaction's mixture are proportional to the glucose concentration in the blood specimen. Complex chemical reactions take place on the reagents in the test zones and the reactions initiated by the plasma on the reagent pads and the change in the colour of the pads generated thereby are for the purpose of the measurement to be carried out by the photometer. 18. On the other hand the calibration strip is a bar code consisting of black stripes on a cellulose film and its sole use is to calibrate the photometer and is batch specific to the test strips which it accompanies. As stated above, this recalibration is necessary as the specific properties of the chemical used in manufacturing the test strips may vary with each production run by the factory." After consulting dictionary definitions of "diagnostic", the Tribunal found that heading 3822.00.00 was the appropriate heading for the test strips. Counsel for the applicant quibbles with this finding on the basis that the test strips cannot be used for diagnosis without the meters, but the finding was one for the Tribunal and was, in my opinion, well open to it. Finally, the applicant submits that the Tribunal erred in its application of Rule 3 of the Interpretation Rules, which relevantly provides: "3. When ... goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the material or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. ..." The Tribunal did not find the heading under which the bar-code strip (or "calibration strip" as it sometimes refers to it) was classifiable. The Tribunal simply assumed the existence of a heading referring to such an article. Accordingly, since the goods were "put up in sets for retail sale", the Tribunal classified them as if they consisted of the component which gave them their "essential character" under Rule 3(b). The Tribunal found that this was the 50 test strips in each set and classified the goods under heading 3822.00.00. It was a question of fact for the Tribunal whether the test strips gave to the goods their essential character: Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449 at 462-464. The Tribunal did not err in its approach to classifying the set. As the Tribunal erred in its interpretation of the word "accessories" in the Notes to Chapter 90 and hence in subheading 9027.90, the appeal must be allowed. The applicant sought an order of the type made in Johnson & Johnson Australia Pty Ltd v Collector of Customs (1989) 11 AAR 24. However, as I hope I have made clear, it is a matter for the Tribunal whether the test strips are "accessories" for the meters. The Tribunal's findings of fact on this question will not be dictated by the result in Polaroid. Even if the Tribunal finds that the test strips are accessories, it will still have to effect classification of the goods in accordance with the Interpretation Rules. The matter will be remitted to the Tribunal to be heard and decided again, either with or without the hearing of further evidence. The respondent must pay the applicant's costs. I certify that this and the preceding twelve pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 31 August 1995 Counsel for the applicant: Alan Robertson Solicitors for the applicant: Holman Webb Counsel for the respondent: S.J. Gageler Solicitor for the respondent: Australian Government Solicitor Date of hearing: 8 April 1994 Date of judgment: 31 August 1995