Cray Communications Ltd and Collector of Customs

(1995) 40 ALD 286

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(Decision by: Senior Member M.D. Allen, Mr D.D. Coffey, Member, Mr I.R. Way, Member)

Cray Communications Ltd and Collector of Customs, Re
Cray Communications Ltd and Comptroller-General of Customs, Re

Tribunal:

Senior Member M.D. Allen
Mr D.D. Coffey, Member
Mr I.R. Way, Member

Decision date: 27 September 1995

Sydney

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Decision by:
Senior Member M.D. Allen
Mr D.D. Coffey, Member
Mr I.R. Way, Member

1. Matter N94/865 is an application to review a decision of the Collector of Customs to classify certain goods, namely, Multifunction Access and Backbone Switches Series 8425 and 8525 using CCITT X.25 standards to Tariff Subheading 8517.30.00 Telephonic or Telegraphic Switching Apparatus.

2. It was the contention of the Applicant that the correct Tariff item was Subheading 8517.40.10:

"- - - Goods, as follows:

(a)

...

(b)

multiplexers, of the time division or statistical type, being goods of a kind having operational transmission speeds of not more than 2.5 megabits/second"

3. The subheadings are part of Chapter 84 to the Third Schedule of the Customs Tariff Act 1987 (as amended) and as at the date of entry the relevant headings and subheadings were:

"8517 ELECTRICAL APPARATUS FOR LINE TELEPHONY OR LINE TELEGRAPHY, INCLUDING SUCH APPARATUS FOR CARRIER-CURRENT LINE SYSTEMS:

...

8517.30.00 - Telegraphonic or telegraphic switching apparatus ...

8517.40 - Other apparatus, for carrier- current line systems:

8517.40.10 - - - Goods, as follows:

(a)

modems, of a type using digital to analogue modulation and analogue to digital demodulation, being goods of a kind having operational transmission speeds of 300 bits/second or greater;

(b)

multiplexors, of the time division or statistical type, being goods of a kind having operational transmission speeds of not more than 2.5 megabits/second

8517.40.90 - - - Other ..."

4. Matter N94/866 is an application to review a decision of the Comptroller-General of Customs refusing to make a Tariff Concession Order for goods classified to Tariff item 8517.30.00 in the following terms, namely:

"Multiplexers, being packet switching systems, having an interface for data terminal equipment operating in the packet mode on public or private data networks, with a throughput of greater than 50 data packets per second."

5. At the commencement of the hearing in respect of both these matters it was accepted by the parties that if the Applicant was successful in matter No N94/865 then there was no necessity for the Tribunal to consider the matters raised in matter No N94/866, the application regarding refusal to make a Tariff Concession Order.

6. Evidence of a technical nature was called which was common to both applications. Emphasis was, however, upon the matter of Tariff classification and other items specific to the making of a Tariff Concession Order were not addressed.

7. Schedule 2 of the Customs Tariff Act 1987 contains the General Rules for the Interpretation of the Harmonised System of Tariff Classification. Rule 1 reads:

"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: ..."

8. Section XVI of the Third Schedule to the Customs Tariff Act has a series of notes, Nos 3 and 4 of which read:

"3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function."

9. In our opinion these notes are notes which "otherwise require", as to which see Liebert Corporation Australia v Collector of Customs (unreported judgment of the Full Federal Court No 77/93).

10. Although only canvassed briefly in addresses, the applicability of Rules 2 and 3(a) of the General Rules for Interpretation of the Harmonised System must be doubted in this case. Those rules refer to a mixture or combination of a material or substance. In this matter the difference is with respect to the level of functioning of the particular goods.

11. As has been pointed out in numerous cases, for example, Chinese Food and Wine Supplies Pty Ltd v Collector of Customs (Vic) 72 ALR 591 ; Collector of Customs v Chemark Services Pty Ltd 114 ALR 531 , the task of the classifier is to objectively identify goods then to match this identification with a heading or sub-heading in Schedule 3 to the Customs Tariff Act. As was pointed out by the majority in Times Consultants Pty Ltd v Collector of Customs (Qld) 16 FCR 449 at 463 the classification of goods for tariff purposes is a practical "wharfside" task.

12. The best identification of the subject goods must be by the importer. At document T4 page 75 of the documents prepared pursuant to Section 37 of the Administrative Appeals Tribunal Act 1975 the subject goods are described in promotional material as "Multi-Function Access + Backbone Switches" and are also described as "Packet Switching Exchanges".

13. Packet Switching is defined in Exhibit B, an extract from the standard work "Open Systems Interconnection" by Dickson & Lloyd in the following terms:

"The basic concept of packet switching is the breaking of data into `packets' of 100-200 octets before sending them through a network. The data packets from many sources and to many destinations share the network's resources, i.e. the communications lines and the switching processors. This is a form of statistical multiplexing. For brevity in this discussion, the switching processors are called nodes (see Figure 4.1). The nodes are OSI intermediate systems - they are commonly called Packet Switching Exchanges (PSEs) in an X.25 network ..."

14. The concept of packet switching can perhaps be better understood by the layman in the analogy by Professor Brookes, formerly Professor of Information Systems at the University of New South Wales, of taking a letter and putting it into several envelopes and sending the envelopes separately.

15. It is clear from the evidence of Professor Brookes and Messrs Egan and Stanbury that multiplexing was integral to the functioning of the subject goods.

16. Multiplexing is defined in Australian Standard 2777 "Information Processing Systems - Open Systems Interconnection - Basic Reference Model" at paragraph 5.7.1.4 as:

"A function within the (N)-layer by which one (N)- connection is used to support more than one (N)-connection.

Note - The term multiplexing is also used in a more restricted sense to refer to the function performed by the sending (N)-entity while the term demultiplexing is used to refer to the function performed by the receiving (N)-entity."

The (N)-layer is defined at paragraph 3 as:

"Layers are introduced in Clause 5. An (N)-, (N+1)- and (N-1)- notation is used to identify and relate adjacent layers;"

17. In his report (Exhibit 4) Mr Stanbury, who appeared for the Respondent, described packet switching in the following terms:

"Packet switching (of which X.25 is an example) is a protocol which can combine several streams of data onto a single telecommunications link. The separate data streams can originate or terminate on:

- a single device (normally a computer), or

- two or more devices (where each device may be a terminal or a computer). In this case the data streams (tributaries) from different devices must first be combined into a single stream by an X.25 multiplexer."

18. In cross-examination Mr Stanbury agreed that the phrase:

"Packet Switching (of which X.25 is an example) is a protocol which can combine several streams of data onto a single telecommunications link."

describes multiplexing.

19. In Exhibit 4 Mr Stanbury sets out the relationship between switching and multiplexing and the characteristics of each. By applying those criteria to the subject goods he formed the opinion that they performed a switching function.

20. The other witness called for the Respondent was Mr Radcliffe, a Senior Lecturer in the Department of Computer Systems Engineering at the Royal Melbourne Institute of Technology. By reference to the seven layer model of the International Standard, which is reproduced as Australian Standard 2777, he opined that as the subject goods reached the third or Network Layer of the Layer Model, they were in fact more than multiplexors and were telegraphic switching systems.

21. Professor Brookes in his report (Document T9) considered that the subject goods were multiplexors whose speed did not exceed 2.5 megabits/second. Although they did have a switching function as X.25 equipment, their most important function is multiplexing. In cross examination he did agree that in a Packet Switch network a switch is the device used to direct packets and is usually located at one of the nodes in the network's backbone. He also conceded that the subject goods were fairly described as Packet Switches.

22. In re-examination Mr Radcliffe agreed that if the switching component was taken away from the X.25 system the multiplexing function would remain, however, if the multiplexer was subtracted the network would cease to work altogether. This evidence can be compared to the evidence of the Applicant's witness Mr Egan who regarded multiplexing as the essential function of the subject goods.

23. During the course of evidence considerable debate occurred as to within which level of the seven layer reference model and peer protocols in "Australian Standard 2777" the subject goods fell. What is clear is that multiplexing is specifically mentioned as a function of levels 3 and 4 of the reference model (see paragraph 7.5.4 and 7.6.4) but is not referred to as a function of levels 1 and 2. To the Tribunal this specific mention in regard to layers 4 and 3 indicates that the function is not present even by implication in layers 2 and 1.

24. This reference to the layer reference model in the "Australian Standard" cannot, however, be taken too far. The emphasis in identifying the goods must be upon the function they in fact perform.

25. From the evidence quoted above what is clear is that the subject goods have a function over and above mere multiplexing. The view that this is so is strengthened by the reference to the third layer of functioning in the "Australian Standard".

26. Note 4 to Section XVI refers to a "clearly defined function covered by one of the headings in Chapter 48".

27. The term "telegraphic" as it appears in Subheading 8517.30.00 to the Third Schedule of the Customs Tariff Act does not, in our opinion, have any particular technical or trade meaning and thus must be interpreted in accordance with its ordinary meaning - see Markell v Wollaston 4 CLR 141 at 147 and Herbert Adams Proprietary Limited v The Federal Commissioner of Taxation 47 CLR 222 at 228.

28. The Shorter Oxford English Dictionary defines telegraphic as:

"1. Of, pertaining to, of the nature of, or connected with a telegraph; made, sent, or transmitted by telegraph.

2.

a.

...

b.

Resembling an (electric) telegraph; conveying impulses or intelligence as by electricity.

c.

..."

See also telegraph meaning 2., namely:

"In full, electric or magnetic. An apparatus consisting of a transmitter, a receiver, and a line or wire of any length connecting these, along which an electric current from a battery or other source passes, the circuit being made and broken by working the transmitter, so as to produce movements, as of a needle or pointer, in the receiver, which indicate letters, etc., either according to a code of signs, or by pointing to characters upon a dial; in some forms the receiver works so as to print or trace the message upon a prepared strip of paper. Also, an apparatus for wireless telegraphy. ..."

The above meaning of telegraph is somewhat archaic but the essential meaning of a message transmitted by electricity remains and essentially describes the system in which the subject goods will function. As was pointed out in Lake Macquarie Shire Council v Aberdare County Council 123 CLR 327 at 331:

"A denotation of a word may well change with a changing technology."

29. As stated above the goods are more than multiplexers and they are described by the importer and witnesses as Packet Switching Exchanges. Although to carry out their functioning as Packet Switches they must multiplex, they also direct packets and thus operate as switches. It seems to us that what gives to the subject goods their essential character and purpose is the switching function and thus the subheading appropriate to their function is that of 8517.30.00 - Telephonic or telegraphic switching apparatus.

30. In matter No N94/865 the decision under review is affirmed. Matter No N94/866 is adjourned to a date to be fixed for further argument regarding the making of the Tariff Concession Order.