The Interpretation of TCOs

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

Interpretation of Tariff Concession Orders

1.  Changing goalposts and the decision in Toro

The Customs Act s.269 (3) (a) requires that a TCO application must contain “a full description of the goods to which the application relates”.

In Toro Australia Group Sales Pty Ltd v Chief Executive Officer of Customs [2014] AATA 187, the Tribunal reasoned (at [31]) that “a full description” in this context necessarily means a precise description, the goods in question satisfying every element of the description without any additional features.

TCOs must strictly describe the goods as imported but what is a “full” description has become fogged since the decision in Toro. 

2.  The decisions in Brand Developers and Becker Vale

The AAT decision in Brand Developers Aust Pty Ltd and Chief Executive Officer of Customs (2015) AATA 215 conceded that while strict compliance is required as to components, some additional items such as packaging or instruction manuals, could be included and the TCO would apply, but inclusions such as recipe books would make the good ineligible as they are “more than” the TCO wording.

Many instruction books for kitchen appliances are principally recipes. Strictly following the AAT decision it would then appear that kitchen appliances such as microwaves, mixers, toasters etc to which a TCO may apply would not fall under that TCO because the accompanying literature includes recipes?

In Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525, Yates J cited Toro and proposed that this reasoning supported a construction of “comprising” that exhaustively states the “essential components”.  What then are the “essential components”?

Although a full description of the goods is a requirement of the TCO application, the interpretation of what is a “full description” has changed. Until this time TCOs that properly described goods that were “more than” the TCO wording were accepted as being covered provided that the essential nature of the subject goods was as described.  This is no longer the case and it exposes many companies, including the original applicants for concessions, to penalty and post action.

DIBP’s website now contains guidelines in relation to TCO eligibility and the no more and no less criteria, but they do not address examples such as whether an electric motor, complete with a gearbox mounted on the motor, would be eligible for a particular TCO based on the specifications. The legal notes prescribe that the motor and gearbox are to be classified as a motor. DIBP advice is that as the electric motor has a gearbox attached it is more than the full description of the goods in the TCO and the TCO would not apply.

A further example is brake motors. These are motors with brakes. They are still a motor, but current TCOs do not in general also specify the “brake”.

It is our understanding too that significant posts have been issued for “TORCHES, hand held, battery operated, but NOT including underwater OR scuba divers torches”, which include their power supply, the batteries, without which the torch will not work.

DIBP advises that remote controls for goods such as televisions would not impact TCO eligibility. What then if those remote controls contained batteries? How is that distinguishable from the above torches?

Would brackets for wall mounting imported and packed with a clothes dryer make that clothes dryer ineligible for a TCO, which reads “”CLOTHES DRYERS, domestic” ?

Would a hand held cordless electric drill that has a separate power supply be deemed ineligible for a TCO, which reads “DRILLS”?

DIBP interpretation of TCOs and the wording or expressions used changes and changes too frequently for industry to be certain of coverage or clarity. DIBP staff changes and rotation mean that the history of the matter is lost within the Department. An example is that for some time the words “machines” and “plant” were not accepted as suitable descriptors. They are now accepted again. For a long time the words “capable of” were accepted as describing a good but are now regarded as end use.

4.  Change of Practice (COP)

The changed definition of “comprising” is also of concern to industry, given the many TCOs written that include this term together with a non-exhaustive list of components. When made these TCOs were phrased this way at the direction of an officer of Customs and/or the then TCO guidelines.

The decision in Becker Vale reversed long held practice and policy and held that “comprising” means “comprising ONLY”. (DIBP apparently chose to not provide guidance to the Court on past use of this term.) In light of the decision in Toro this further decision has had significant impact.

Clarification from DIBP is urgently required as to whether using such TCOs will be subject to post or penalty action, particularly when this Change of Practice appears to have been ignored and the change is claimed by the regulator not to be a change but a continuation of policy – despite past Customs Manuals showing otherwise.

If guidelines on interpretation change, as they have many times in the past, industry will adapt to those changes, however, it should not be acceptable that:

  1. guidelines can be changed with no prior notification to industry; and

  2. as a consequence retrospective penalty and post action can be taken against importers and brokers

5.          The Role of the AAT

The AAT exists to provide a merits review of an administrative decision, however, only Federal Court decisions are precedent. One queries therefore why DIBP chooses to follow only select cases when the majority of decisions in these matters support the “more than” principle. Examples include:

Klockner Moeller Pty Ltd and Collector of Customs [1989] AATA 283 (18 January 1989)

25. … We would adopt the words of the Tribunal… in ReRobert Bosch AustraliaPty LtdandCollectorofCustoms(1986) 10 ALN N181 (unreported on this point). There the Tribunal, also concerned with the interpretation of a TCO, said "We can see nothing in the wording of the Order to indicate that it was intended that an article which does precisely what the Order says should be excluded because it does more".

Or In Chandler & Co v The Collector of Customs (1907) HCA 81:

"Tariff schedules are often very awkward in their phraseology, but we are none the less obliged to construe them by the rules which govern the legal interpretation of Statutes. Their clumsiness does not justify us in abandoning any of those rules, the wisdom of which has been tested under every kind of difficulty. The chief of them is that we are to treat Parliament in good faith, as saying what it means and as meaning what it says. If in so treating it I find that it has said something which does not commend itself to me as quite reasonable, I, as a judicial interpreter, am to remember that the legislature is the real judge of what is reasonable. My duty of interpretation does not extend to correction, and I am not to mould the words or to torture their meaning so that they may consort with my notions of right and reason. On the other hand, if the words are ambiguous there are at least two constructions to choose from, and I may accept that one which appears the most reasonable."

6.  “Interpretation of wording in TCOs” - the guidelines on the DIBP website

The above notice is now on DIBP website. I urge you to review the regulator’s suggested methodologies to provide “certainty” to importers:

  1. DIBP suggests lodging a Tariff Advice:

    COMMENT: Guidelines for TA decisions are 30 days, but in practice they average 50-70 days. How can this provide a solution given that by the time a decision is made the consignment has landed or is on the water? It should be noted that concurrent TA and TCO applications are note accepted by DIBP.

    Where doubt exists as to the application of a TCO, it is not always feasible to await the outcome of a TA and a new concession application may therefore be required. Most importers are not proactive and consider applying for TCO only in the time leading up to goods arrival. Given the speed of airfreight and the 10 days transit time from Asia by seafreight not much more time is available in many cases.

  2. DIBP suggests that goods could be “placed in bond” until such time as the TA decision is received.

    COMMENT: Unless you have a s.79 warehouse who will pay the storage costs? And what of the costs to the importer in delayed receipt of the goods?

  3. DIBP suggests using the amber line.

    COMMENT: DIBP have said amber line may not protect from penalty action (ACN 2003/40) and their response to an amber line lodgement is frequently to request a TA. See point (a) above.  

The Department may claim it is “committed to working with industry to increase industry understanding and awareness on the correct use of TCOs” but changing goalposts still make it difficult to identify what is required.