FEDERAL COURT OF AUSTRALIA Primaplas Pty Ltd v Chief Executive Officer of Customs [2014] FCA 1358 Citation: Primaplas Pty Ltd v Chief Executive Officer of Customs [2014] FCA 1358 Parties: PRIMAPLAS PTY LTD ACN 003 720 474 v CHIEF EXECUTIVE OFFICER OF CUSTOMS File number(s): NSD 638 of 2014 Judge(s): BUCHANAN J Date of judgment: 12 December 2014 Catchwords: TAXATION – decision of a delegate of the Chief Executive Officer of Customs to assess customs duty and GST – importation of polyethylene products – where assessment of the gravity of imported polyethylene products required for customs classification – whether assessment of gravity of polyethylene products includes additives Legislation: Customs Tariff Act 1995 (Cth), ss 3, 7(1), Sch 2, Sch 3 s VII Ch 39 Sub-Ch I Customs Tariff (Anti-Dumping) Act 1975 (Cth) Evidence Act 1995 (Cth), s 191(2)(b) International Convention on the Harmonized Commodity Description and Coding System, signed 14 June 1983, [1988] ATS 30 (entered into force 1 January 1988) Date of hearing: 19 November 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 41 Counsel for the Applicant: Mr T Lynch SC Solicitor for the Applicant: Down Under Legal Counsel for the Respondent: Mr J Smith SC Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 638 of 2014 BETWEEN: PRIMAPLAS PTY LTD ACN 003 720 474 Applicant AND: CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent JUDGE: BUCHANAN J DATE OF ORDER: 12 December 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 638 of 2014 BETWEEN: PRIMAPLAS PTY LTD ACN 003 720 474 Applicant AND: CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent JUDGE: BUCHANAN J DATE: 12 December 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Between 30 December 2009 and 10 November 2013, the applicant imported from Thailand a number of shipments of products. The predominant component of all the products was linear low density polyethylene. The specific gravity of the linear low density polyethylene in all the products was less than 0.94 g/cm3. 2 All of the products also contained non-polymer additives, including colorants. The overall specific gravity of each of the products (with the additives taken into account) was 0.94 g/cm3 or more. 3 The imported products are not broken down after importation, but are used as imported in the manufacture of various polyethylene products. 4 On 8 April 2014 the respondent assigned classifications to the imported products which had the result that custom duty was payable. A total of $447,139.80 was assessed, together with GST totalling $44,713.98. 5 The applicant commenced proceedings under s 39B of the Judiciary Act 1903 (Cth) to restrain recovery of the duty imposed. 6 The applicant contends that the products were incorrectly classified, that they should all have been classified under a different classification under which no duty was payable, and that it should have the relief which it claims: namely, an injunction to restrain the respondent from seeking to recover the customs duty and GST, a writ of prohibition in respect of the classification decisions, a declaration about the correct classification and consequential relief. 7 Apart from facts agreed by the parties (from which the basic summary of the facts earlier set out was extracted) the applicant sought to rely at the hearing on two affidavits. 8 One affidavit sought to establish that the imported products are not able to be disintegrated into their various ingredients (it was agreed that they were not in fact) and that the products: 5. … may only be used in a process known as rotomoulding by which large and hollow objects … are manufactured: … 9 That affidavit also said that medium density polyethylene resin was the principal ingredient in a sample of similar product identified by the deponent. That assertion was either intended to qualify the agreed facts (that the predominant component of all the imported products in issue in the present case was linear low density polyethylene) in which case the evidence is not admissible without leave (Evidence Act 1995 (Cth), s 191(2)(b)) or the assertion is not relevant. I declined to allow the applicant, directly or indirectly, to contradict or qualify the agreed facts, and refused leave to rely on some parts of the affidavit as a result. 10 The other matters in the affidavit appear designed to establish pleaded matters which were not admitted and are not agreed. Those parts of the affidavit were allowed. 11 The other affidavit relied upon by the applicant attached a report of testing of one sample of medium density polyethylene compound supplied to a testing laboratory by the applicant. The sample was not taken from the imported products in the present case. The test result showed that the sample was 98% medium density polyethylene with an overall mean density of 0.945 g/cm3. Apart from the fact that the sample did not represent any of the product in issue, the test result did not materially add to the agreed facts and did not appear to me to be otherwise relevant. I refused leave to the applicant to rely on this affidavit or its attached report. 12 The respondent sought, without objection, to rely upon a report by the decision-maker in the present case explaining the reasons for the classifications assigned. I did not grant leave to contradict or qualify any agreed fact but, otherwise, the report was accepted in evidence. 13 Schedule 3 of the Customs Tariff Act 1995 (Cth) ("the Tariff Act") contains the classifications which it is relevant to consider in the present case. The classifications in issue are each contained in Sub-Chapter I of Chapter 39 of Section VII of Schedule 3, as follows: Sub Chapter I—Primary forms 3901 POLYMERS OF ETHYLENE, IN PRIMARY FORMS: 3901.10.00 -Polyethylene having a specific gravity of less than 0.94 3901.20.00 -Polyethylene having a specific gravity of 0.94 or more … … 3901.90.00 -Other 14 The only other classification in this section of Sub-Ch I is: 3901.30.00 -Ethylene-vinyl acetate copolymers 15 The applicant's principal argument commenced with s 7(1) of the Tariff Act which directs: 7 Rules for classifying goods in Schedule 3 (1) The Interpretation Rules must be used for working out the tariff classification under which goods are classified. 16 Note 1 to s 7 reads: 7 Rules for classifying goods in Schedule 3 … Note 1: The text in Schedule 3 is based on the wording in the Harmonized Commodity Description and Coding System that is referred to in the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983. 17 The fact that the text in Sch 3 is based on the wording in the Harmonized Commodity Description and Coding System ("the Harmonized System") is a relevant matter to which I will return. 18 The "Interpretation Rules" are defined by s 3 as follows: Interpretation Rules means the General Rules for the Interpretation of the Harmonized System provided for by the Convention, as set out in Schedule 2. 19 The "Convention" is defined by s 3 as follows: Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983. 20 The principal focus of the applicant's argument was on the fact that s 7 contemplates and requires classification of "goods". On the applicant's argument that means, in the present case, the goods as landed in Australia in their aggregated form and not as notionally disaggregated into component or constituent parts. In particular, on the applicant's argument, it is the overall specific gravity of the goods which is relevant to their classification to a particular subheading in Sub-Ch I of Ch 39, and not the specific gravity of the polyethylene component of the goods. 21 The applicant placed particular weight upon the contention that the imported compound in each shipment was incapable of being broken down again. That proposition was relied upon to suggest, as I understood the submissions, that the predominant and most important feature on which classification of each shipment must turn was the specific gravity of the whole compound in each shipment, being 0.94 g/cm3 or more. 22 The argument was developed by reference to the Interpretation Rules in Sch 2, which set out principles for the classification of goods identified in Sch 3. I shall set out Sch 2 before identifying the parts relied upon: Schedule 2—General rules for the interpretation of Schedule 3 Section 7 Classification of goods in Schedule 3 shall be governed by the following principles: 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: 2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. 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. 4. Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin. 5. In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein: (a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character; (b) Subject to the provisions of Rule 5(a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use. 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. 23 There is no issue in the present case about the appropriate heading, to which Rule 1 requires primary attention. In obedience to the instruction in Rule 1, the relevant heading in the present case is "Polymers of Ethylene, in Primary Forms". Although there was debate about the operation of Rules 2, 3 and 4, those rules relate to the identification of appropriate headings (where that is in doubt) and are not immediately relevant. I shall refer to the possibility of their incorporation by reference shortly. Rule 5 is not relevant. 24 Rule 6 is directly relevant. It directs primary attention to "the terms of" subheadings. Then, if a choice between or amongst apparently available subheadings is required, the earlier rules apply mutatis mutandis. 25 For reasons yet to be explained, there is no real possibility of confusion between either of the first two subheadings (corresponding to 3901.10.00 and 3901.20.00) and the subheading "Other" (corresponding to 3901.90.00). There are specific later instructions in Sch 3, to which I will refer, which govern assignment to the subheading "Other". 26 As to the distinction between the two subheadings which identify "Polyethylene", the applicant relied particularly on Rule 2(b) (as incorporated by Rule 6) to emphasise that it was "goods" which were to be classified, and that a reference to a "material or substance" in that connection included a reference to "other materials or substances" with which the first was mixed. Accordingly, the applicant contended, the "polyethylene" referred to under the heading for 3901 was to be measured for specific gravity upon the footing that the term "polyethylene" extended to include any additive. When that was done, so it was argued, the item 3901.10.00 would be found inapplicable. 27 If this argument is accepted, then further enquiries will be required because a choice will still be required for particular shipments about whether the classification 3901.90.00 (Other) is appropriate, rather than 3901.20.00. 28 Before dealing further with the applicant's main argument the reasons for that complexity should be exposed. 29 Rule 6 of the Interpretation Rules requires attention to "any related Subheading Notes". Schedule 3, Ch 39 contains the following subheading note: Subheading Notes. 1.- Within any one heading of this Chapter, polymers (including copolymers) and chemically modified polymers are to be classified according to the following provisions: (a) Where there is a subheading named "Other" in the same series: (1) The designation in a subheading of a polymer by the prefix "poly" (for example, polyethylene and polyamide-6,6) means that the constituent monomer unit or monomer units of the named polymer taken together must contribute 95% or more by weight of the total polymer content. (Other specific alternatives are not relevant. If no specific instruction applies, the default position is "Other" – see below). 30 Whether, therefore, "Polyethylene" has (when properly analysed) a specific gravity of less than 0.94 g/cm3, or 0.94 g/cm3 or more, it will only be classified in 3901.10.00 or 3901.20.00 where the polymer content by weight consists of 95% or more of polymers of ethylene. 31 An analysis of that kind has not, to this point, been necessary because classifications 3901.10.00 and 3901.90.00 bear the same rate of customs duty, whereas classification 3901.20.00 bears no duty. 32 Upon the approach taken by the respondent, it therefore makes no difference to the assessment of customs duty whether polymer content by weight consists of 95%, or less than 95%, of polymers of ethylene. It would become important for that to be established if the applicant's principal argument succeeds. 33 I may now return to examine that argument more closely. 34 In essence, the applicant's argument about whether 3901.10.00 is an appropriate classification depends on whether the term "Polyethylene" used in connection with that classification includes additives or whether, as the respondent contends, the term "Polyethylene" does not include additives. 35 The circumstances of the present case illustrate that if the applicant's arguments are accepted it would be possible (by adding colorants, for example, in Thailand) to alter the classification of polyethylene goods so that duty was not payable. That circumstance does not determine the question of construction but it reinforces a perception which is conveyed by the terms of Sch 3 itself that it is concerned with identification of essential or predominant components or characteristics, rather than less essential matters. In part, that perception stems from Rule 6 of the Interpretation Rules in Sch 2, which requires attention to the terms of subheadings. In the present case, the term is "Polyethylene", a specific term for a compound having particular characteristics. 36 The two subheadings associated with classifications 3901.10.00 and 3901.20.00 are also distinguished from each other by a means and method which appears in the Harmonized System to which the Interpretation Rules by definition relate and on which the text of Sch 3 is based. 37 Explanatory Notes to the Harmonized System (prepared in accordance with Article 7 of the Convention, Third Edition (2002), Volume 2) were referred to by the respondent (without resistance from the applicant) as an aid to interpretation. Those Notes include the following explanation of the operation of Subheading Note 1: Polymers which cannot be classified according to the provisions of paragraphs (a) (1), (a) (2) or (a) (3) are classified in the subheading named " Other ", unless there is a more specific subheading in the series under consideration , … 38 The Notes also include the following: Polyethylene is a translucent material having a very wide range of applications. Low-density polyethylene (LDPE), i.e., polyethylene having a specific gravity at 20 °C of less than 0.94 (calculated on an additive–free polymer basis), … The heading also includes linear low-density polyethylene (LLDPE). High-density polyethylene (HDPE) is polyethylene having a specific gravity at 20 °C of 0.94 or more (calculated on an additive-free polymer basis). … 39 Subject to the possible operation, therefore, of Subheading Note 1, and the classification of any particular goods as 3901.90.00 – Other, it is clear that the two classifications 3901.10.00 and 3901.20.00, as adopted from the Harmonized System, refer to polyethylene whose specific gravity is calculated on an additive free basis. If that is accepted, as I think it must be, the applicant's arguments must be rejected. The applicant's arguments which suggests primary attention to the notion of "goods" (i.e. in a compound state) depend on an approach to the text of the Act which would, if accepted, produce an interpretation contrary to the interpretation intended to be given to the provisions in question. 40 I am satisfied that the legislative intention is that the specific gravity of polyethylene products in Sub-Ch 39 should be measured free of additives. 41 The challenges to the classification decision therefore fail. The application will be dismissed with costs. I certify that the preceding forty one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate: Dated: 12 December 2014