The Impact of TCO revocation & Reissue

Following is an article I had published in Lloyds List in May 2016.

The objective of the Tariff Concession System was most recently stated in Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs[2015] AATA 348 (21 May 2015) as “.. the object of the systems is to ensure that industry is not taxed by a tariff where it is serving no protective function. …. a tariff serves no protective function where there are no goods serving similar functions, and so no substitutable goods, made by Australian industry in the normal course of business.”

If a TCO exists then substitutable goods are not manufactured in Australia and there is then no industry to protect. Why then has the revoking and reissuing of TCOs under s.269SD changed over recent years to deny refunds and/or ongoing duty savings to legitimate importers of goods in conflict with the stated intent of the TCO scheme?  This result is occurring because the TCO is either not reissued when revoked with a narrower wording or is not revoked on and from the original operative date, with a new TCO made from that date. This has not always been DIBP practice. In the past the TCO in the second case was revoked on and from the original operative date, with the replacement TCO then operative from that date.

DIBP current view is that if a TCO is revoked under s.269SD (1AA), no replacement narrower TCO need be made. Given that applicants have been required under past guidelines and policy to write TCOs with a broad coverage this penalises applicants whose applications were accepted by DIBP as valid when lodged.

The impact for revocations under s.269SD (2) is as severe. Customs Act s.269SD (2) requires that

“(2) If the CEO is satisfied that:

(c) having regard to written advice on the matter given by an officer of Customs;

the tariff classification that is stated in a TCO to apply to the goods the subject of the TCO has not, with effect from a particular day, applied to those goods, the CEO must:

(d) make an order revoking the TCO with effect from that day; and

(e) make a new TCO in respect of the goods with effect from the revocation.

If a TCO when made was keyed when made to an incorrect tariff classification, then the legislation seems clear that the revocation should apply back to the operative date given that the tariff classification will always have been wrong, which under s.269SD(2) means that the new TCO should then be made with effect from that original operative date.

The rationale advised to me by DIBP has been that importers will then claim refunds – as they are legally entitled to do had the TCO been keyed correctly – but companies that have used the TCO incorrectly in the past will not then be covered. I query how it is acceptable to support incorrect classification and TCO usage in any circumstance.

I give you the following example, which is for sucker rods for pumps from the Gazette:

“PARTS, OIL AND GAS WELL PUMP, being sucker rods”

The application for this TCO classified the subject goods to 8413.91.10, being parts for pumps for mining equipment.  Application was lodged 9 Jan 2009.

By the time the TCO application was gazetted the tariff classification had been changed by Customs and regazetted on 25 Feb 2009 to 8413.91.90, being parts for pumps, other, i.e. not specially designed for mining equipment. This is not incorrect in a generic sense as this type of horsehead pump, while generally seen in the oil and gas industries, is also used in agriculture for dewatering, but in different configurations. Remember that “as imported” is the key consideration for eligibility.

When made on 17 April 2009 the TCO was keyed to 8413.91.90.  As such, various O&G companies did not claim it for the sucker rods they imported for their mining operations.

After correspondence with Customs the TCO was revoked on 15 April 2014 and reissued the same day back to 8413.91.10. This then denied refunds to those companies correctly classifying the goods as imported and ignored the original classification error was made by the regulator when the TCO was gazetted.

The Act at s.269SD (4) does provide: “(4) The particular day referred to in subsection (2) may be the day on which the TCO that is revoked came into force or a later day.”, but as a matter of equity how is this fair? Acknowledging of course that the law has little to do with fairness or justice.

This practice effectively supports classification and TCO use by word search. It penalises companies whose brokers have correctly classified the goods to support companies that haven’t. It doesn’t mean that the TCO will not apply to the goods already claiming it as it’s possible that the tariff classification is incorrect. Companies claiming the TCO would appear to have often found it through word search rather than correct classification techniques, but should this be supported at the expense of companies that have undertaken proper diligence in the preparation of their FIDs?