Sharp Corporation of Australia Pty Ltd v Collector of Customs

(1995) 59 FCR 6

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(Judgment by: Davies J, Beazley J)

Sharp Corporation of Australia Pty Ltd
vCollector of Customs

Court:

Judges:
Davies JHill J

Beazley J

Legislative References:
Administrative Appeals Tribunal Act 1975 - s 44(1)
Customs Tariff Act 1987 - Schedule 3
Income Tax Assessment Act 1936 - The Act
Sales Tax (Exemptions and Classifications) Act 1935 - Schedule 1

Case References:
-

Hearing date: 13 February 1995
Judgment date: 4 September 1995

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Judgment by:
Davies J
Beazley J

This is an appeal from a judgment of a judge of the Court. Under s44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), the learned trial Judge set aside a decision of the Administrative Appeals Tribunal ("the Tribunal") and affirmed the primary decision of the Collector of Customs, which had been the subject of the application for review which was before the Tribunal.

The issue before the Tribunal was whether goods identified as "Sharp Brand" Toner Kit Model No JX957C for laser beam printers were to be classified under sub-heading 3707.90 of the Third Schedule to the Customs Tariff Act 1987 (Cth) or under sub-heading 8473.30 thereof.

The relevant headings and sub-headings read:-

3707 CHEMICAL PREPARATIONS FOR PHOTOGRAPHIC USES (OTHER THAN VARNISHES, GLUES, ADHESIVES AND SIMILAR PREPARATIONS); UNMIXED PRODUCTS FOR PHOTOGRAPHIC USES, PUT UP IN MEASURED PORTIONS OR PUT UP FOR RETAIL SALE IN A FORM READY FOR USE:

3707.10.00 - Sensitised emulsion 3707.90.00 - Other

8471 AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF; MAGNETIC OR OPTICAL READERS, MACHINES FOR TRANSCRIBING DATA ONTO DATA MEDIA IN CODED FORM AND MACHINES FOR PROCESSING SUCH DATA, NOT ELSEWHERE SPECIFIED OR INCLUDED:

8471.92 -- Input or output units, whether or not presented with the rest of a system and whether or not containing storage units in the same housing.

8473 PARTS AND ACCESSORIES (OTHER THAN COVERS, CARRYING CASES AND THE LIKE) SUITABLE FOR USE SOLELY OR PRINCIPALLY WITH MACHINES OF 8469 TO 8472:"

8473.30 - Parts and accessories of the machines of 8471

The Tribunal described the relevant facts as follows:-

"6. The goods in question consist of a polystyrene container in which are packed in designated spaces the following:

(i)

a toner cartridge being a moulded plastic receptacle containing 'toner',

(ii)

a toner collecting container which also has incorporated as part of the moulding of that vessel, a fuse, and (iii) a roller cleaner together with a set of instructions. The container is surrounded by a cardboard envelope bearing, amongst other words and symbols, the words 'Toner Kit'.

7. The toner is eventually transferred by the operation of the laser printer onto paper and is, to use a broad analogy, the 'ink' which is printed onto the paper. The Applicant's witness, Mr Nuij, was unable to state the chemical composition of the toner, except to say it contained part carbon, part resin and other chemicals.

...

9. The laser printer itself utilises electro static forces to deposit toner in the form of characters onto paper and the paper and toner are then fused together and the printed page is produced from the machine.

...

12. The toner cartridge which is made from moulded plastic fulfils two functions. One is as a container for the toner until it is emptied into the developer cartridge which is a reservoir for the toner. The other use is to act as a seal between the developer cartridge and the rest of the machine. If this seal were not in place, then some of the toner (which is flammable) would escape from the developer cartridge and enter the working parts of the machine with consequent disruption to the machine's functioning.

13. The toner collecting container is a moulded plastic bottle which incorporates a fuse. It collects excess toner removed by the roller cleaner from the OPC drum in the laser printer. The work of the machine and the quality of its printing would be affected were excess toner simply to be allowed to accumulate in the machine.

...

15. The roller cleaner when installed scrapes excess toner from the upper heat roller contained in the printer and thus ensures that there is no dirt or smudge marks on the printed copy made by the machine. The life of the roller cleaner is not related to the other goods in the toner kit but it is included in order that it might be replaced at the same time as the other items. The machine will operate without the roller cleaner but, over time, the effectiveness of the machine to perform its primary task will be impaired."

As the Tribunal pointed out, the toner cartridge served two functions. In the first place, it contained the toner, and, when it was inserted into a printer and a seal was withdrawn, the toner left the cartridge and was emptied into a developer cartridge in the machine, which was the reservoir for the toner. The other function of the toner cartridge was that, when inserted in place in the printer but emptied of the toner, it served to act as a seal between the developer cartridge then containing the toner and the rest of the machine.

As we read the reasons for decision given by the Tribunal, the Tribunal considered that there were four elements of the Toner Kit. The Tribunal regarded the toner as being independent of the toner cartridge and as being a consumable. The Tribunal said:-

"10. It is clear, on the authority of Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd 46 ALJR 32, that the toner itself is a consumable. Once the amount of toner in the machine has been used up, then the machine will not perform its function of printing in the same way as once the ink in a pen has been used, the pen will not write.

11. Having regard to its composition and its status as a consumable, the toner is prima facie classifiable under Tariff Item 3707.90."

The Tribunal held that the remaining items of the Toner Kit were parts of the printers.

The findings of the Tribunal that there were four components to the Toner Kit, that the toner collecting container, the roller cleaner and the cartridge were parts of the laser printer and that the toner was a consumable were findings of fact which were open to the Tribunal.

The finding that three of the items were "parts" of the laser printer accorded with the exposition of the term "parts" in Deputy Commissioner of Taxation v Polaroid Australia Pty Ltd (1971) 46 ALJR 32 and in Watersheid Australia Pty Ltd v Collector of Customs (1988) 7 AAR 555.

The view of the Tribunal that the toner was to be regarded as a separate element, a consumable, rather than as a component of a "part", the cartridge, was a finding of fact to which a decision-maker could reasonably come. Although the consumable was contained in a "part" when sold, nevertheless on installation it was to be removed therefrom. In this circumstance, it was open to the Tribunal to regard the toner as a separate component, a consumable. Mr S. Gageler, counsel for the Collector of Customs, submitted that, "What it (the Tribunal) did was to take one of the items and break it down and make it two which is not a matter of fact." However, as the toner was to be removed from the cartridge on installation, and was to be used as a consumable, the finding of fact of the Tribunal that the toner was a separate component was one which was reasonably open.

On these findings of fact, the Tribunal necessarily found that, if the components were classified separately, the toner would be classified under sub-heading 3707.90 and the parts would be classified under sub-heading 8473.30.

The Tribunal then turned its attention to R3 of the General Rules for the Interpretation of the Tariff. That rule provides:-

"3. When by application of R2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a)

The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sail, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b)

Mixtures, composite goods consisting of different materials or made up of different components, and goods put in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c)

When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."

As the goods in the Toner Kit were composite goods in a set put up for retail sale, and as each of the headings referred to part only of the items in the set, R3(a) required both the sub-headings to be regarded as equally specific in relation to the goods.

The Tribunal then turned to R3(b) and to the question whether the goods should be classified as if they consisted of a material or component which gave them their essential character. As the words "insofar as this criterion is applicable" show, the mere fact that goods are put up in a set for retail sale does not mean that they have an essential character given to them by one material or component. The essential character, if there be one, may be given to the goods by reason of the diversity or mixture of the materials or components. In Collector of Customs (Qld) v Times Consultants Pty Ltd (1986) 13 FCR 190, it was said at 195:-

"But where two goods have a different composition and nature and are put together in a set because they complement each other and because each adds a significant quality that the other does not have, one cannot ordinarily say that one article only gives to the set its essential character."

The Tribunal explained that the purpose served by putting the components of the Kit together in a set was to ensure that the toner collecting container and the roller cleaner were regularly replaced, so that there would be no buildup of waste or used toner in the printer. The Tribunal said:-

"8. It was explained by Mr Nuij, who is an engineer employed by the Applicant, that the primary reason for including the toner collecting container and roller cleaner in the kit, together with the toner cartridge, was to ensure that the former items were regularly replaced. The toner itself has a finite life being good, according to Mr Nuij, for some 3,000 copies at 4% black image (ie at 1,600 characters per page)."

The Tribunal concluded that no particular material or component gave to the whole Kit an essential character for the reason that the uses of the components were disparate. The toner was a consumable whilst the other components were parts of the printer, each serving a function different from the other. The Tribunal in effect held that the toner was a consumable whilst the toner collecting container and the roller cleaner were parts which, for the efficient functioning of the printer, should be replaced whenever the toner was renewed. The Tribunal said:-

"26. The term 'essential character' has been discussed in a number of matters before this Tribunal and the Federal Court - see for example re Toyworld and Collector of Customs (Vic) 7 ALD 67, Times Consultants Pty Ltd v Collector of Customs (Qld) 76 ALR 313, Peacock v Zyfert 48 ALR 549, and re Bicycle Corporation Pty Ltd and Collector of Customs 20 ALD 655. A consideration of those cases persuades the Tribunal that to ascertain the 'essential character' of any good or goods is a practical test to be applied objectively to the particular goods in question.

27. Applying that test to the goods contained in the toner kit, it cannot be said that any particular component gives to the whole any essential character. The uses of the components are quite disparate. The toner is akin to ink and is consumed by the machine, the other items are parts of the machine. The fact that they are replacement parts ought not to prevent them from being identified as parts if that is their role. Cf meaning 10. of the Macquarie Dictionary meaning of the word 'part' referred to above."

The Tribunal therefore applied R3(c), and classified the goods in the set under sub-heading 8473.30, which was the last in numerical order among the relevant classifications.

The jurisdiction conferred by s44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) upon the Federal Court is to determine a question of law. The decision of the Tribunal on issues of fact are not reviewable on their merits by this Court.

The principles to be applied were recently stated by Neaves, French and Cooper JJ in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280. At 287, their Honours set out five general propositions, of which it is sufficient to set out propositions 2 and 5:-

"2. The ordinary meaning of a word or its non-legal technical meaning is a question of fact: Jedko Game Co Pty Ltd v Collector of Customs (NSW) (supra); New South Wales Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (1956) 94 CLR 509 at 512; Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78; Neal v Department of Transport (1980) 3 ALD 97 at 107-108.

... 5. The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law: Hope v Bathurst City Council (1980) 144 CLR 1 at 7 per Mason J with whom Gibbs, Stephen, Murphy and Aickin JJ agreed; Australian National Railways Commission v Collector of Customs (SA) at 379 (Sheppard and Burchett JJ).

Their Honours went on to say at 287-8:-

"The fifth proposition as stated by the High Court in Hope v Bathurst City Council (supra) was elaborated by reference to the remarks of Fullagar J in Hayes v Commissioner of Taxation (Cth) (1956) 96 CLR at 51:

'Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally - so far as I can see, always - be a question of law.'

This principle is qualified when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words. Where it is reasonably open to hold that they do, then the question whether they do or not is one of fact: Hope v Bathurst City Council at 8. Mason J there cited the observation of Kitto J in New South Wales Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (supra) at 512:

'The next question must be whether the material before the Court reasonably admits of different conclusions as to whether the ... operations fall within the ordinary meaning of the words as so determined; and that is a question of law ... If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact ...'

See also Australian Gas Light Co v Valuer-General (supra) at 137 (Jordan CJ); Lombardo v Commissioner of Taxation (Cth) (supra) at 210 (Bowen CJ), 215 (Franki J); TNT Skypak International (Aust) Pty Ltd v Commissioner of Taxation (Cth) (1988) 82 ALR 175 at 182 (Gummow J); Commissioner of Taxation v Bivona Pty Ltd (1990) 21 FCR 562 at 564; Commissioner of Taxation v Cooper (1991) 29 FCR 177 at 194- 195 (Hill J)."

Thus, it is primarily a question of fact, not of law, as to what is the meaning of an ordinary English word or phrase as used in a statute in its ordinary sense and so also is the question whether, there being a different conclusions reasonably open, a particular set of facts comes within the description of such a word or phrase. This principle was enunciated in detail and explained by Jordan CJ in Australian Gaslight Co v The Valuer General (1940) 40 SR (NSW) 127 at 137-8 and by Mason J in Hope v Bathurst City Council (1980) 144 CLR 1 at 7-8. The principle was followed by Beaumont and Burchett JJ in Jedko Game Co Pty Ltd v Collector of Customs (NSW) (Federal Court of Australia, 10 March 1987, unreported but noted (1987) 12 ALD 491).

Even so, in any particular decision, although the decision may be a factual one, all the usual grounds of review will apply for they are regarded as being illustrative of questions of law. Thus a decision-maker may have failed to provide procedural fairness or may have failed to take into account a relevant fact, or may have had regard to an irrelevant matter or the decision may have been so unreasonable that no reasonable decision-maker could have come to it. Examples where Courts have enquired under these principles into the facts found by administrative decision-makers are Federal Commission of Taxation v McCabe (1990) 26 FCR 431; Bushell v Repatriation Commission (1992) 175 CLR 408.

If the decision-maker adopts a wrong approach to the task, the decision may be set aside and the matter remitted for reconsideration. See Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449 and Waterscheid Australia Pty Ltd v Collector of Customs. This may occur if the decision maker has not applied the well understood ordinary meaning of a term but has given to it a meaning or qualification of his or her own or if, in the application of terms such as "income", "capital" and "incurred" which appear in the Income Tax Assessment Act 1936 (Cth) and the term with which we are now concerned, "essential character", all of which have been the subject of exposition in reasons of courts, the decision maker adopts a meaning contrary to that which has been established by legal decisions.

In Commissioner of Taxation v Roberts (1992) 37 FCR 246, the issue fell within the fifth proposition enunciated in Pozzolanic. In Peacock v Zyfert (1983) 48 ALR 549, the words of the Tariff which were in question took on a meaning from the context in which they appeared and therefore the construction of the Tariff was in issue. In cases of the latter type, which may involve mixed questions of fact and law, it is necessary to identify whether the administrative decision-maker is alleged to have made an error of law or an error of fact.

In Pozzolanic, Neaves, French and Cooper JJ pointed out the consequences of the application of these principles. Their Honours said at 286-7:-

"The appealable error of law must arise on the facts found by the Tribunal or must vitiate the findings made or must have led the Tribunal to omit to make a finding it was legally required to make. A wrong finding of fact is not sufficient to demonstrate error of law: Waterford v Commonwealth (1987) 163 CLR 54 at 77-78. Where the decision of the Tribunal involves matters of fact and degree, then provided it applies correct principles of law, no appeal will lie: Commissioner of Taxation v Brixius (1987) 16 FCR 359 at 365.

The limits within which the jurisdiction is conferred require that it be exercised with restraint. Only in exceptional circumstances should the decision of the Tribunal not be the final decision: Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (NSW) (1980) 47 FLR 131 at 145 (Fisher J); Commissioner of Taxation (Cth) v Cainero (1988) 88 ATC 4,427 (Foster J). As the Full Court said in Repatriation Commission v Thompson (1988) 9 AAR 199 at 204:

'... the nature of the task of this Court is clear. It is to leave to the tribunal of fact decisions as to the facts and to interfere only when the identified error is one of law.'

This translates to a practical as well as principled restraint. The Court will not be concerned with looseness in the language of the Tribunal nor with unhappy phrasing of the Tribunal's thoughts: Lennell v Repatriation Commission (1982) 4 ALN N 54 (Northrop and Sheppard JJ); Freeman v Defence Force Retirement and Death Benefits Authority (1985) 5 AAR 156 at 164 (Sheppard J); Repatriation Commission v Bushell (1991) 13 AAR 176 at 183 (Morling and Neaves JJ). The reasons for the decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error: Politis v Commissioner of Taxation (Cth) (1988) 16 ALD 707 at 708 (Lockhart J)."

Their Honours' reference to Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (NSW) 1980 47 FLR 131 is of particular significance, for that decision (Fisher and Sheppard JJ, Smithers J dissenting) established that, in the context of the Tariff, when words of the English language are used in their meaning in ordinary parlance, the meaning of those words and the question whether the facts fall within them are ordinarily questions of fact for the administrative decision-maker.

It is fundamentally a question of fact whether goods in a set have an essential character and what that essential character is. In Times Consultants Pty Limited v Collector of Customs (Qld) at 462, Morling and Wilcox JJ said: "In our opinion, it was a question of fact whether one material component gave to the goods their essential character." Fox J, in his dissenting judgment, similarly said at 456:-

"In the present case, the words "essential" and "character" are par excellence words which have an ordinary meaning, and the combined phrase "essential character" cannot be regarded otherwise. It is not a term of art. The concept of "essential character", as his Honour's reasons disclose, is not precise, or clean cut. Although perhaps not always easy to apply to goods, the words have an ordinary meaning, which is not limited by the Act or the Schedule."

Indeed, the O.E.D. gives these meanings:

"Character ... 9. The aggregate of the distinctive features of any thing; essential peculiarity; nature, style; sort, kind, description ....' 'Essential ... 2. of or pertaining to essence, specific being, or intrinsic nature ... ' 'Essential character: in scientific classification, the marks which distinguish a species, genus, etc. from the others included with it in the next superior division.'"

The trial Judge considered that the words "essential character" in R3(b) were to be given a meaning from the context in which they appeared. His Honour said:-

"The whole work of differentiation is to be borne by the criterion of 'their essential character', the only alternative being the arbitrary classification provided by para(c). It is not to be imagined that the intention was to make the lottery of para(c) the test for other than extreme cases, where the chosen criterion could not yield an answer. A principled application of differential tariffs, in this context, requires that the test of 'essential character' be understood in a sense in which it will generally provide an effective means of discriminating between possible classifications. Too frequent resort to para(c) would turn the operation of what is meant to be a practical test into a haphazard matter of chance. To this broad consideration, if the context is examined more minutely, may be added an implication which arises from the terms of para(c). That paragraph treats a case where para(b) is not applicable as a case where more than one possible classification of the goods in a set can be described as 'equally merit[ing] consideration'. This implies a contemplation that anything other than equality between components, in the impact they make upon the mind of the classifier, will allow para(b) to provide the criterion. If two different components may be described as 'disparate', but do not have completely equal weight as determinants of the essential character of the set, para(b) can and should be utilized."

With respect, we cannot accept this approach. The words "essential character" are a well known expression which has long been used when the task is to classify or characterise goods. In Thomson Australian Holdings Pty Ltd v Federal Commissioner of Taxation (1988) 20 FCR 85 (affirmed on appeal (1989) 25 FCR 481), where the issue was whether certain publications were "catalogues or price-lists", terms used in item 51(1)(c) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth), the Court said, at 86:-

"I agree with [Counsel's] view that the task of the Court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part."

See also the observations of Burchett J. on appeal at (1989) 25 FCR 481 at 486.

The expression "essential character" directs the attention of the decision-maker to the essence of the goods, to what they really are, and away from issues such as subjective purpose or how a particular person intends to use the goods in certain circumstances. In the context of R3(b), the term "essential character" carries its ordinary meaning and, in our opinion, ought not to be given any other meaning with a view to avoiding the application of R3(c). The words "which equally merit consideration" do not suggest that some different interpretation should be given. R3(a) provides that, if two or more headings each apply to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to the goods. In this event, each such heading would equally merit consideration.

In Cody (Collector of Customs) v Datacraft (Australia) Pty Ltd (1989) 19 ALD 145 at 147, Northrop and Keely JJ referred to R3(c) as a "precept of despair". However, the rules mean what they say. R3(a) requires that, if two or more headings each apply to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to the goods. R3(b) deals with the circumstance where one material or component gives to the goods as a whole their essential character. If this rule does not apply, rule 3(c) applies. There is no ambiguity in those rules. They should be given the effect which Parliament intends. We do not read the remarks of Northrop and Keely JJ as suggesting the contrary.

Reference was made by Mr Gageler to the Brussels' Notes to the Harmonised System, but we have not found those notes to be of assistance with the present issue.

In our opinion, there was no error in the Tribunal's approach to the issues before it. Its decision was one which was open to a reasonable decision-maker.

We would allow the appeal. We would set aside the orders below and would substitute therefor an order that the application to the Court be dismissed with costs. We would order that the respondent, the Collector of Customs, pay the costs of the appeal.