Replacement Explanatory Memorandum(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Christopher Martin Ellison)
Schedule 2 - The valuation of imported goods
This item replaces the words value unrelated matters in the definition of price in subsection 154(1) of the Customs Act with the word rebates, consequent upon the repeal of the value unrelated matter definition (see item 3 below).
This item inserts a new definition of rebate in subsection 154(1) of the Customs Act which has similar wording to paragraph (a) of the current definition of value unrelated matter .
This item repeals the definition of value unrelated matter in subsection 154(1) of the Customs Act.
The purpose of this amendment is to ensure that, under the valuation provisions of the Customs Act, components of the price of imported goods cannot be deducted from the customs value for duty purposes contrary to the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the Valuation Agreement). Australia, as a member of the World Trade Organization, is obliged to ensure that its customs valuation legislation is consistent with the Valuation Agreement.
The Full Federal Court in
CEO of Customs v AMI Toyota Ltd
102 FCR 578 found that the warranty component of the price paid for imported vehicles fell within paragraph (b) of the current definition of value unrelated matter in the Customs Act, and therefore should be deducted from the price paid and the customs value for duty purposes. While the warranty component was the average warranty cost incurred by the seller, the Court found that the warranty component was also a cost related to the importer's warranty activities.
The High Court refused an application for special leave to appeal the Full Federal Court's decision.
Paragraph (b) of value unrelated matter was intended to reflect a Note in the Valuation Agreement that the costs of activities undertaken by the buyer on the buyer's own account are not considered an indirect payment to the seller, and therefore should not be added to the price paid in determining customs value. The paragraph was not intended to allow the deduction of the seller's warranty costs from a price which is inclusive of warranty, as the Full Federal Court found in the Toyota decision. The Valuation Agreement requires the customs value of imported goods to be the total of payments made for the goods, with certain allowed adjustments. It does not allow the deduction of warranty costs from the customs value.
The reasoning of the Full Federal Court is potentially applicable to the valuation of a wide variety of goods which are imported subject to a warranty from the seller. Moreover, importers may seek to deduct other components of the price of imported goods, besides warranty costs, from the customs value.
In light of the Full Federal Court's decision, it is considered that paragraph (b) is unnecessary, and ambiguous. Therefore the Bill proposes to delete paragraph (b) by deleting the whole definition of value unrelated matter , to end the uncertainty as to the valuation of goods imported with a price inclusive of warranty. This amendment would bring Australia's valuation legislation into accordance with the Valuation Agreement, and would end the uncertainty as to the valuation of goods that are imported subject to a warranty from the seller.
Paragraph (a) of this definition will be retained in the new definition of rebate (item 2 above).
This transitional provision provides that the amendments of the Act made by this Bill do not apply in respect of the valuation of goods that are entered for home consumption before the date of commencement.