Cray Communications Ltd v Collector of Customs [1998] FCA 122

FEDERAL COURT OF AUSTRALIA

CUSTOMS - appeal from Administrative Appeals Tribunal - whether Tribunal erred in relying upon classification concepts to identify the goods subject to customs tariff - whether Tribunal failed to address the pre-requisites of Note 4, s XVI Schedule 3 of the Customs Tariff Act 1987 (Cth) - whether Tribunal erred by failing to apply Interpretation Rule 6

Customs Tariff Act 1987 (Cth), s 6, Schedule 2, Schedule 3

Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 15 FCR 449, applied Re Gissing v Collector of Customs (1977) 14 ALR 555, applied Collector of Customs v Savage River Mines (1988) 79 ALR 258, applied Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85, applied Liebert Corporation Australia Pty Ltd v Collector of Customs (1993) 23 AAR 287, applied Rheem Australia Limited v Collector of Customs (NSW) (1988) 78 ALR 285, distinguished

CRAY COMMUNICATIONS LIMITED v COLLECTOR OF CUSTOMS

NG776 of 1995

MADGWICK J

SYDNEY

27 FEBRUARY 1998

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 776 of 1995

BETWEEN: CRAY COMMUNICATIONS LIMITED

Applicant

AND: COLLECTOR OF CUSTOMS

RESPONDENT

JUDGE(S): MADGWICK J

DATE OF ORDER: 27 FEBRUARY 1998

WHERE MADE: SYDNEY

MINUTES OF ORDER

THE COURT ORDERS THAT: 1. The appeal will be dismissed. 2. The applicant is to pay the respondent's costs.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 776 of 1995

BETWEEN: CRAY COMMUNICATIONS LIMITED

Applicant

AND: COLLECTOR OF CUSTOMS

RESPONDENT

JUDGE(S): MADGWICK J

DATE: 27 FEBRUARY 1998

PLACE: SYDNEY

REASONS FOR JUDGMENT HIS HONOUR: This is an appeal from the decision of the General Administrative Division of the Administrative Appeals Tribunal constituted by Senior Member Allen, Mr Coffey, and Mr Way, given on 27 September 1995. The Tribunal affirmed the decision under review of the respondent's delegate to classify certain goods to item 8517.30.00 "- Telephonic or telegraphic switching apparatus" in Schedule 3 of the (then) Customs Tariff Act 1987 (Cth) ("the Act"). The goods in question are known as "Multi-function Access and Backbone Switches series 8425 and 8525". It was the contention of the applicant before the Tribunal that the primary decision-maker should have classified the goods pursuant to item 8517.40.10 as - "- Other apparatus, for carrier-current line systems: ---Goods, as follows: (a) . . . (b) multiplexors, of the time division or statistical type, being goods of a kind having operational transmission speeds of not more than 2.5 megabits/second" Statutory framework The Act provides for the imposition of duties of Customs on imported goods (s 21). Pursuant to s 22 the duty in respect of such goods is to be ascertained, so far as presently relevant, "by reference to the general rate set out in the third column of the tariff classification under which the goods are classified". Section 9 of the Act provides: "A reference in this Act to the tariff classification under which goods are classified is a reference to the heading or subheading; (a) in whose third column a rate of duty or the quota sign is set out; and (b) under which the goods are classified." Pursuant to s 5, "heading" means a heading in Schedule 3 of the Act and "subheading" means a subheading of a heading. The "Harmonised System" between nations provided for by the relevant international convention made at Brussels in 1983 ("the Brussels Convention") provided for "General Rules for the Interpretation" of the System and those rules are set out in Schedule 2 of the Act. They are called the Interpretation Rules. Section 10 provides that they shall be used for ascertaining the tariff classification under which goods are classified. So far as relevant, the Interpretation Rules provide as follows: "1. The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions: . . . 3. When by application of Rule 2(b) or for any other reason, 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 materials 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. (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. . . . 6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires." One of the purposes of the Brussels Convention was to standardise the classification of goods the subject of international trade for the application of customs duties in various countries. Before one understands that (and perhaps afterwards as well), s 6 of the Act appears to be cast in somewhat Gilbertian terms, which would do Monty Python proud. In order to make sense of s 6 of the Act, it is convenient to set out the relevant extracts from Schedule 3: "Section XVI Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles Notes 1.- . . . 3.- Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function. 4.- Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, 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 84 or 85. . . . Chapter 85 Electrical machinery and equipment and parts thereof; ... . . . 8517 ELECTRICAL APPARATUS FOR LINE TELEPHONY OR LINE TELEGRAPHY, INCLUDING SUCH APPARATUS FOR CARRIER-CURRENT LINE SYSTEMS: 8517.10.00 - Telephone sets 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.20.00 - Teleprinters 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.30.00 - Telephonic or telegraphic switching apparatus 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.40 - Other apparatus, for carrier-current line systems: 8517.40.10 - - - Goods, as follows: 2% (a) modems, of a type using digital to analogue modulation and analogue to digital demodulation, being goods of a kind having operational transmission speeds of 300 bits/second or greater; (b) multiplexors, of the time division or statistical type, being goods of a kind having operational transmission speeds of not more than 2.5 megabits/second 8517.40.90 - - - Other 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.8 - Other apparatus: 8517.81.00 - - Telephonic 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.82.00 - Telegraphic 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15% 8517.90 - Parts: 8517.90.10 - - - For modems and multiplexors of 8517.40.10 2% 8517.90.90 - - - Other 26% DC:21% From 11 October 1988 23% DC:18% From 11 October 1989 20% DC:15%" Section 6 provides: "6. (1) In Schedule 3: (a) either: (i) 4 digits in the first column; or (ii) 8 digits in the first column not opposite to a dash or dashed in the second column; indicate the beginning of a heading; and (b) 5, 6, 7 or 8 digits in the first column opposite to a dash or dashes in the second column indicate the beginning of a subheading of the heading in which the digits appear. (2) Where a subheading appears immediately before a subheading beginning with the same sequence of digits as the first-mentioned subheading followed by a digit or digits, the first-mentioned subheading shall be taken to be subdivided into the second-mentioned subheading and the other subheading, or subheadings: (a) beginning with that sequence followed by a digit or digits; and (b) whose second column begins with the same number of dashes as the second-mentioned subheading." The presently relevant interpretative canons are: (a) Classification is to be determined according to the terms of headings and the relevant Section notes. (b) Those notes are given primacy over Rule 3 of the Interpretation Rules. (c) Otherwise the Interpretation Rules apply. (d) Only subheadings at the same level are comparable. Thus, among other things, if Note 4 applies (neither party suggested that Note 3 did) then Rule 3 of the Interpretation Rules would not apply. Technical terms - a dictionary On the material before the Tribunal, the following meanings of relevant technical terms may be deduced: Telegraphy essentially means, as the Tribunal found, a message transmitted by electricity. More formally, according to the evidence, it is a field of technology that transmits codes which may represent character-based, graphic or image-based information across a communications medium. (The machines in question can transmit codes across the communications medium constituting a telephonic network). A carrier-current system is one in which information is transferred by varying the characteristics of a waveform from a known reference waveform. Multiplexing is the combination of two or more signals into a single wave from which the original signals can be later extracted, and a multiplexor is a device that does this. A multiplexor must be given "address information" from some external source. This information, among other things, tells the multiplexor where in the "single wave" each original input signal is to be placed. It is not part of the multiplexing function to determine what these addresses are, only to act in accordance with the information given to it.