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Tariff Classification Recent Developments
September 2016
Topics
1. Why correct classification is crucial
2. Parts and accessories
3. Recent cases
Importance of correct classification
Incorrect tariff classification is the number one error
detected by the ABF when reviewing import
declarations
Incorrect tariff classification accounts of 15% of
detected errors on import declarations in 9 months to
1 April 2016
The ABF will be looking for classification errors
The classification impact
VALUE x RATE = DUTY
additions /
deductions
which
sale
Valuation
method
related
parties
Tradex
duty drawback
Refund
TCO’s
FTAs Dumping
Other
concessions
Other reasons it is important
• Incorrect classification more likely to be due to
broker error – potential exposure
• Controlled goods
• Illegal logging controls
• Quotas
• Biosecurity controls
• Risk profile
• Penalties
Parts and accessories
1
Sulo MGB Pty Ltd v CEO of Customs
Facts
• Sulo imported wheelie bins and wheels for those bins
• Customs agreed that the wheels were used as parts of the bins
• Sulo argued for 8716.90.00 (part of a vehicle)
• Customs argued for 3926.90.90 (other plastic articles) or
4012.90.00 (other rubber tyres)
Identification
• Customs argued for identification simply as a plastic wheel with
solid rubber tyre
• The Tribunal noted the specific design features of the wheel, in
particular, the nature of the axle housing
• The Tribunal considered it clear that the wheel was made for the
purpose of being fitted to a garbage bin
Classification
• The Tribunal noted that it was a composite good made up of
plastic, rubber and steel and IR 3 applied
• Felt that the essential character was as a functioning wheel
• If chapter 87, rules provided that chapter 39 did not apply
• Is a garbage bin a vehicle?
• Dictionary definitions
• AAT – need to consider the context in which the term is used –
viewed other headings
• Customs – not a vehicle – similar to a filing cabinet, or luggage with
wheels
• AAT found it was a vehicle
HS notes
• Customs argued that they should not be used – all that was
needed was common sense
• Sulo – Expression “other vehicles” is very wide, the notes will
assist in the interpretation
• AAT – ambiguity is a constant problem in the process of
classification – everyday language would produce an incorrect
outcome (trailers, caravans, carts)
• HS notes included food carts, buffet trolleys, wheelbarrows
• AAT noted that the notes include many items that would not be
considered vehicles
• HS notes were all load bearing devices with wheels attached to
chassis
Part of a garbage bin
• Notes to part XVII – Parts or accessories do not apply to parts or
accessories which are not suitable for use solely or principally
with the articles of those chapter
• Customs argued that the wheels were a standard fitting size –
could be used for any small good with wheels
• No evidence to support this
• It did not matter that the wheels were manufactured
independently of the bin
• There was no evidence that the wheel could have any other use
• Noted the fixed size of the stub axle housing and its locating steel
spring loaded pin – a fluke if any other item could use the wheel
What about heading 4012 – rubber tyre
• Ch 40 was not precluded by the notes
• As such, should have been a contest based on IR3
• Consider whether part of vehicle fully describes the goods
• AAT said tyre and not wheel gave the item its essential character
• Considered that solid tyre is not a specific description
Take away
• Is being appealed by Customs – watch this space
• Tribunal will adopt a narrow approach to what is a part:
• looked at the specific makeup of the good, not a generic description
• will any bespoke good be a part
• Inconsistency on use of the HS notes – they didn’t help Customs
so they argued against them – even when they were clearly
applicable
Amoena and CEO of Customs
Facts
• Amoena import mastectomy bras specially designed to be used
with an artificial breast form
• The bra had many features that were specifically designed for
use with breast forms (pockets, straps, cut, support band)
• Customs argued that the bras should be classified as clothing
• Amoena argued the products were an orthopaedic appliance
Issues
• No dispute that clothing was a potential classification
• Note 2 to chapter 62 provided:
“This chapter does not cover … Orthopaedic appliances, surgical belts,
trusses or the like (9021)”
• Amoena argued that the goods were classified under 90 as either an
orthopaedic appliance, an artificial body part or an accessory to an
artificial body part
• Note 2(b) to chapter 90 provided that:
“…Other parts and accessories, if suitable for use solely or principally
with a particular kind of machine, instrument or apparatus … are to be
classified with the machines, instruments or apparatus of that kind”
• Note 6 to chapter 90 defined orthopaedic appliance as an appliance for
preventing or correcting a bodily deformity, supporting or holding parts
of the body following an illness, operation or injury.
Identification
• Simple wharf-side review not sufficient in this case
• Need to consider the form or purpose of the good
• Without reference to purpose, the bras would simply be identified as
clothing
• Tribunal found that the bras had a dual function or purpose:
– enabling a breast form to be worn securely and comfortably
– as an undergarment
• Identified as bras suitable for wearing by women who have had breast
surgery and those who have not
Findings – Orthopaedic appliance
• The bra was not an orthopaedic appliance:
• It did not correct a bodily deformity – the breast form did this
• It did not support or hold parts of the body after surgery – this test
must only apply to natural body parts, not artificial body parts
• Therefore, the only way that the bra could be classified to chapter
90 was a part of accessory to the breast form
Part or accessory to the breast form
• No dispute that the breast form was classified to 9021
• Issue – was the bra suitable for use solely or principally with the breast
form?
• Not a part:
– the bra and breast form did not together make up a whole
– each of the breast form and the bra is a complete article in its own
right
• Accessory:
– the Amoena bra is designed and manufactured for the purpose of
use with a breast form
– the fact that it has some features of a normal bra does not detract
from the primary function (support a breast form)
– it contributes to the working of the breast form and is suitable for use
principally with that device
General comments on accessories
• Dictionary meaning:
• an additional or extra thing
• a small attachment or fitting
• additional; contributing or aiding in a minor way, dispensable
• An article will be an accessory if it is a subordinate part or object,
added or attached for convenience or effectiveness
• The item must contribute to the working of some principal item or
its general effect
• An article designed exclusively for use in conjunction with a
principal item
• You must focus on substance and reality of the matter
Take away
• The Tribunal does not the High Court Polaroid decisions where
film was held not to be a part or accessory to a Polaroid camera
• It will adopt an approach that looks at the substance of the matter
• Cases suggest there is a distinction between items consumed by
the principal item (fuel, bullets, film) and something designed to
work with the principal item
Solu Pty Ltd v CEO of Customs
Facts
• Solu imported a variety of aluminium products for use in kitchen
and other types of cabinetry
• Examples were lengths of product that could be cut into multiple
handles and rails
• If classified as an aluminium extrusion it appeared that dumping
duties would apply
• Solu argued for a variety of alternative classifications which
focused on the end use of the product
21
Potential classifications
• 8302.42.00 – being base metal mountings/fittings suitable for
furniture
• 8302.50.00 – being hat racks, hat-pegs, brackets or similar
fixtures
• 9403.90.00 – being furniture parts
• 7604 – aluminium profiles
Secondary issue – if 8302.42.00 there was a TCO potentially
applicable
22
Identification
• The goods were aluminium products made by way of an
extrusion process
• In almost all cases, after importation the goods will be cut to
smaller sizes (length on import 2 – 3.6 metres)
• No goods bare any direct resemblance to furniture or furniture
parts
• As imported, the goods have no suitability for furniture
• Intended use of the goods does not make the goods furniture
parts
General comments on parts
• A part is normally something which is a constituent or component
of a whole entity
• When a complete good is disassembled into its components,
those components are its parts
• If the original good has to be substantially transformed before
used in another good, it is unlikely to be a part
• If incorporated in its entirety – more likely to be a part
• If used to make multiple goods – less likely to be a part
Classification
• In their state as imported it was not possible to classify the goods
to 8302 or as furniture parts
• The imported goods may be manufactured into furniture parts,
but they are not, as imported, such items
• If after import goods need to be further worked before being used
in the construction of furniture, as imported they are not parts
• The profiles had no numerical relationship to a finished good
Classification - conclusion
• Ultimately – the imported goods are materials used in the
construction of an unidentified number of items to be incorporated
into other goods
• The goods were classified as aluminium profiles
Recent cases
3
Pacific Worldwide and CEO of Customs
• Imported goods – wontons
• Customs classified as stuffed pasta (1902)
• Importer argued for crustaceans (1605)
• Evidence given by Customs that the pasta and noodles (used for
wontons etc) were the same – difference was in the origin of the
goods
• The importer argued that the description as pasta was alien to the
goods and contrary to the dictionary and normal understanding of
the term stuff pasta
• While the composition of the skin is the same there are
differences in method of cooking, assembly, shape, size and
manner of serving
Identification
• The AAT considered it relevant how those in trade would
describe the goods
• Consistent with this, the goods were identified as
wontons/dumplings
Classification
• Words of common use, such as pasta, should be given their
ordinary meaning
• The word pasta does not require any special or legal meaning
• Pasta means the food commonly thought of as pasta – being
food of that type of Italian origin
• The similarities between wontons and pasta end with their skins
being made of similar ingredients
• Goods classified as crustaceans (wontons)
Primaplas v CEO of Customs
Issue
Whether polyethylene goods that include additives, such as
colourants, are to be classified on the basis of the specific gravity of
the polyethylene component of the goods alone, or on the basis of
the specific gravity of the goods in their entirety, including additives
Answer
Additives are to disregarded and density based on the polyethylene
content alone
Relevant comments
• While the elements of composite goods must be considered for
applying IR 3, once a heading is selected, the elements of the
goods not covered by that heading are disregarded for
classification purposes
• In this case, the additives were disregarded for classification
purposes once it was determined that polyethylene gave the
goods their essential character
• It is doubtful that the explanatory notes should be given weight as
an indicator of parliamentary intention
• The explanatory notes did not purport to be an explanation as to
how polymers are to be classified
• However, reference to the explanatory notes was appropriate –
the language of the tariff was ambiguous and susceptible to
difference interpretations
Fletcher Insulation and CEO of Customs
Facts
• Thin material in sheet form made of 98% polyethylene
• The final product consists of two products bonded together on top
of each other
• The product has the appearance of mesh – but is one integral
piece of material
• The importer always referred to the goods as a fabric in
commercial documents
Potential classifications
• 3920 – other plastic sheets
• 5407 – woven fabrics of synthetic filament yarn
• 5603 – nonwovens, whether or not impregnated, coated, covered
or laminated
Yarn – Customs reverses its position
• To be covered by 5407 the product had to be woven fabric
• The notes said woven fabric included layers of parallel textile
yarns
• Customs argued that the product consisted of yarns bonded at
the intersections of the yarns by thermal bonding (remember it is
two sheets, bonded on top of each other
• JM Gillies – Customs argued a fishing line was not yarn – yet
here, two sheets were argued to be yarn
• Rejected by the AAT
Nonwoven
• AAT found that nonwoven is a fabric made directly from a web of
fibre or film, without the intermediate step of yarn manufacture
• Held it is a fabric:
• it is referred to by the importer as a fabric
• it looks like a fabric
• nothing in the texts provided to the AAT which suggests products that
entirely plastics cannot be fabrics
• Even though the section is headed “textiles” this is irrelevant as
the word heading is not in the heading or subheadings
• Classified to 5603.92.00
Interesting points
• No reference to explanatory notes
• Customs prepared to argued a sheet is a yarn even when it goes
completely against its arguments in other cases
• Customs emphasised trade description in this case – ignored it in
wonton/stuffed pasta case
• The fact the section was headed “textiles” was considered
irrelevant
Key message
• Classification is the hardest part of your job
• What internal QA do you do
• Explain the risks to your clients
• If in any doubt, obtain a tariff advice
• When viewed in hindsight, if the volumes are large, not obtaining
a tariff advice will always seem negligent
• Be careful relying on overseas precedent or even past AAT
decisions
• Can you rely on your terms and conditions to protect you?
Questions
39
CONTACT Russell Wiese
T: 03 8602 9231
Lynne Grant
T: 03 8602 9246
