Gardner Smith Pty Ltd v Collector of Customs
(1986) 66 ALR 377(Judgment by: Keely J, Neaves J, Wilcox J)
Between: Gardner Smith Pty Ltd
And: Collector of Customs
Judges:
Keely J
Neaves J
Wilcox J
Subject References:
Customs and Excise
Judgment date: 3 April 1986
Melbourne
Judgment by:
Keely J
Neaves J
Wilcox J
1. Gardner Smith Pty. Limited ("the applicant") has made application to the Court by way of appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") given on 16 August 1985 in a proceeding between the applicant and the Collector of Customs, Victoria ("the respondent"). The application is made pursuant to s. 44 of the Administrative Appeals Tribunal Act 1975 (Cth) which provides that a party to a proceeding before the Tribunal may appeal to the Court from a decision of the Tribunal in that proceeding but only on a question of law. As one of the members of the Tribunal was a presidential member, the Court has been constituted as a Full Court to hear the application.
2. The issue between the parties is whether certain goods, described in the relevant commercial documents as "Brazilian crude degummed soyabean oil in bulk", imported into Australia by the applicant and entered for home consumption under the Customs Act 1901 (Cth) on 21 September 1983 were properly classified within sub-item 15.08.19 in Division 3 of Schedule 3 to the Customs Tariff Act 1982 ("the Tarriff Act") and were, in consequence, entitled to entry duty free, as the applicant contends, or whether the goods were properly classified within sub-item 15.07.9 attracting Customs duty at the general rate of 10 per cent, as the respondent contends.
3. The matter came before the Tribunal in the following circumstances. The goods were entered for home consumption, duty free, under sub-item 15.08.19. Subsequently, a post-note was issued in an amount of $58,244.93 on the basis that the goods were properly classified within sub-item 15.07.9. The duty demanded was paid under protest in accordance with s. 167 of the Customs Act 1901 and the applicant sought a review, pursuant to sub-s. 273GA(2) of that Act, of the decision to demand payment of the duty. The Tribunal in due course affirmed the decision under review and it is from that decision that the applicant has appealed.
4. We are satisfied that the application to this Court is on a question or questions of law as it involves the proper construction of the sub-items in the Tariff Act to which reference has been made. It also involves the question, added to the notice of appeal by leave of the Court at the commencement of the hearing, that there was no evidence to support one of the Tribunal's findings.
5. The Tariff Act, as in force at the time the goods were entered for home consumption, imposed duties of Customs in accordance with Part II of the Act on goods imported into Australia (s.18). Chapter 15 in Division 3 of Schedule 3 to the Tariff Act, at the relevant time, bore the heading:
"ANIMAL AND VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL AND VEGETABLE WAXES."
Item 15.07 was in the following terms:
"FIXED VEGETABLE OILS, FLUID OR SOLID, CRUDE, REFINED OR PURIFIED:"
There were three sub-items within that item but, as soyabean oil did not fall within either of the first two sub-items, the third sub-item, "15.07.9 - Other", is the only relevant sub-item.
6. Item 15.08 comprised:
"ANIMAL AND VEGETABLE OILS, BOILED, OXIDISED, DEHYDRATED, SULPHURISED, BLOWN OR POLYMERISED BY HEAT IN VACUUM OR IN INERT GAS, OR OTHERWISE MODIFIED."
There were, again, three sub-items within that item. Sub-item 15.08.1 specified, as the goods to which the item applied, coconut oil, peanut oil and soyabean oil. Such goods fell within sub-item 15.08.11 if they were epoxidised. Otherwise they fell within sub-item "15.08.19 -- Other".
7. Neither party suggested that any other item in the Tariff Act provided a classification within which the goods might properly fall.
8. Soyabean oil is a fixed (non-volatile) vegetable oil derived from the seed of the soyabean plant. The crude oil is extracted from the seed either by pressing or by the use of solvents. It is a mixture of materials, the bulk of which are triglycerides. Also present are free fatty acids and phosphatides. The level of phosphatides in crude soyabean oil is relatively high (up to 3 per cent of the total mass) compared with the level in other vegetable oils. The crude oil is subjected to various processes to produce edible oils and oils suitable for various industrial purposes.
9. A process known as degumming has as its object the removal of phosphatides from the crude soyabean oil. In this process the phosphatides are hydrated by adding a small quantity of water and allowed to precipitate either by the force of gravity or by centrifugal separation. The removal of the phosphatides is necessary to enhance the efficiency of the subsequent processing of the oil by preventing, or at least minimising, the possibility of emulsification and to improve product quality. In recent years the process of degumming has been invariably carried out at the extraction plant in order to reduce the risk of the phosphatides hydrating and precipitating during storage or transit, thus producing in the bottom of the container in which the oil is stored or transported a gummy sludge which is difficult and expensive to remove.
10. The oil which was entered for home consumption by the applicant on 21 September 1985 had been degummed before shipment but it had been subjected to no other process. The principal constituents of the oil as imported were triglycerides and free fatty acids. Some phosphatides also probably remained. It is common ground that the oil when imported had not undergone any process which altered the chemical structure of the triglycerides which, as has been said, formed the bulk of the mass and which gave the oil its essential characteristics or properties.
11. In the production of edible oils from the degummed crude soyabean oil it is necessary to remove the free fatty acids and this may be carried out by alkali or physical refining of the oil. Physical refining is, however, applied only to oils with a low phosphatide content. The phosphatides could be removed during the alkali refining process but, if this method were adopted, they would be mixed with the free fatty acids from which it would be difficult to separate them. When degumming is carried out as a separate preliminary process, the phosphatides are precipitated in such a way as to be readily recovered and lecithin, an emulsifier having a commercial value, can be extracted from them.
12. The Tribunal, drawing upon the evidence of Dr K. McDonnell, a consultant food technologist called by the applicant, and Mr S.B. Lambert, a senior chemist with an international oil processing company, Cargill Oilseeds Pty. Limited, called by the respondent, referred in its reasons for decision to the subsequent processing of soyabean oil to produce end products with properties suitable for a variety of uses. The Tribunal said:
"11. Dr McDonnell and Mr Lambert both gave evidence of the manner in which vegetable oil generally, and soyabean oil in particular, is processed. In its crude form soyabean oil is a mixture of a number of constituent parts. The principal parts are triglycerides, usually about 95 per cent, phosphatides and free fatty acids. The triglycerides are not all uniform.
Oil is processed in two different ways. The first way is removal of some of its constituent parts; the second is alteration of the chemical structure of the triglycerides. Invariably in the case of soyabean oil the phosphatides are removed. The free fatty acids are also usually removed. If the oil is required for food purposes, the pigments may be removed by a bleaching process using Fuller's Earth, and its taste and smell may be removed by a heat process. Where the oil is likely to be stored at a low temperature by the consumer and the manufacturer desires that it should remain clear, a process called winterization is carried out to remove those triglycerides which have a higher melting point.
Fractional crystallization is a somewhat similar process removing some of the triglycerides.
12. All the processes mentioned above are processes of the first type, that is to say removal of some of the oil's constituent parts. The second method of processing, that is to say alteration of the chemical structure of the triglycerides, may be done in a number of different ways. Six of those ways are referred to expressly in item 15.08; that is to say the oils may be boiled, oxidised, dehydrated, sulphurised, blown or polymerised by heat in vacuum or in inert gas. Mr Lambert gave details of another process by which the chemical structure of the triglycerides may be changed; that is by maleinisation. Maleic anhydride is used in that process. Other processes sometimes used are bromination and epoxidisation.
It is common ground that the purpose of altering the chemical structure of the triglycerides is to produce an oil which has specific qualities making it suitable for particular uses. However, that is also the purpose of a number of the processes of the first type; it is not unique to processes of the second type. Some of the processes of the first type have as their purpose the production of oil which is of general use for the production, by further processing, of oils with specific qualities for particular uses but which is not of use for any purpose without further processing. Degumming is such a process; so usually is alkali or physical refining."
13. The Tribunal found that degummed crude soyabean oil did not fall within sub-item 15.08.19 because, in its view, the oil did not answer any of the specific adjectival words or phrases qualifying the words "vegetable oils" in item 15.08 and was not properly described as "otherwise modified" within the meaning of those words in the item. It construed the words "otherwise modified" as referring to processes which resulted in a change to the chemical structure of the triglycerides and as not encompassing processes which did no more than remove part of the constituent components of the substance being processed. In reaching its conclusion, the Tribunal relied upon a number of considerations including the evidence given by Mr Lambert and the Explanatory Notes prepared by the Nomenclature Committee established by the Convention on Nomenclature for the Classification of Goods in Customs Tariffs. That international convention was signed at Brussels on 15 December 1950 and was ratified by Australia on 18 April 1973. Its terms largely influenced the drafting of the Tariff Act and its predecessors, the Customs Tariff 1965 and the Customs Tariff 1966.
14. In its reasons for decision the Tribunal, referring to Mr Lambert, evidence, said:
"He gave evidence that at one time, approximately 20 years ago, modification was the term used by the oil trade for processes which change oils by altering the chemical structure of their triglycerides by chemical addition to and/or reaction of the unsaturated linkages. However, he said, that term was now 'somewhat archaic' and not in general use to describe those processes."
After referring to the circumstance, which it regarded as significant, that the Customs Tariff 1965 and the Customs Tariff 1966 used precisely the same language in relation to vegetable oils as was used in items 15.07 and 15.08 in the Tariff Act, the Tribunal continued:
"We accept the evidence of Mr. Lambert, who has been directly involved in the processing of oil in Australia for 33 years, that about 20 years ago persons in the oil trade recognized 'modificatio. as a term referring to processes which resulted in changes to the chemical structure of the triglycerides of oil but not to processes which merely removed part of the constituent elements of the oil."
There are other passages in the Tribunal's reasons for decision which reflect the Tribunal's view of Mr Lambert's evidence as set out above.
15. Counsel for the applicant contended that the Tribunal had misconceived Mr Lambert's evidence. He said that Mr Lambert did not give any evidence that the term "modified" in relation to vegetable oils embraced only processes which resulted in a change in the chemical structure of the triglycerides. It was submitted that his evidence was to the contrary. Particular reliance was placed on Mr Lambert's answer to a question asking him to explain the essential difference between a modified oil and a refined oil. That answer was:
"Well, a modified oil I would regard as an oil where there has been a chemical change in the general structure of an oil. The examples that I have been quoting are to do with the unsaturation of a vegetable oil. The refining of an oil is to do with the removal of impurities, all those things which hinder the ultimate use of that oil, whether it be for an industrial purpose or whether it be for an edible purpose."
The examples to which Mr Lambert had referred were oils which answered the specific descriptions referred to in item 15.08, namely boiled, oxidised, dehydrated, sulphurised, blown or polymerised, and oils described as maleinised or hydrogenised.
16. For the applicant it was submitted that the evidence did not support the conclusion that, to constitute a "modified" oil, the chemical change must take place in the structure of the triglycerides. Counsel contended that Mr Lambert's reference in the answer set out above to "a chemical change in the general structure of an oil" was not to be understood as requiring that the chemical change be to the structure of the triglycerides but required only that the process to which the oil was subjected resulted in a change in the chemical composition of the mixture either by the removal of one or more of the constituent elements thereof or otherwise. It was further submitted that the degumming process undoubtedly involved a change in the chemical composition of the crude oil to which the process was applied with the consequence that Mr Lambert's evidence, when properly understood, was consistent only with the view that degummed oil is properly described as a "modified" oil.
17. We are unable to accept the applicant's contention. While it can be demonstrated that in no single answer given by Mr Lambert, either in examination in chief or in cross-examination, did he express himself precisely in the terms attributed to him by the Tribunal, we are left in no doubt that the passage quoted above from the Tribunal's reasons for decision accurately captures the essence of his evidence.
18. Reference should be made, in this connection, to other parts of Mr Lambert's evidence. Asked what he understood by the expression "modified oil", Mr Lambert said:
"As I understand the term it applies to the process of changing the entire chemical structure of an oil to a particular end use. In other words there is not simply a physical change, there is a chemical change, a measurable chemical change. It can be measured under a number of methods of analysis."
He added that he was referring to "a detectable chemical change in the structure of the oil" and he then proceeded to explain the chemical changes involved in each of the processes to which vegetable oils are subjected to produce oils answering the specific descriptions in item 15.08 of the Tariff Act. It is clear from Mr Lambert's evidence, and it may be added from the evidence of Dr McDonnell also, that oils which answer the specific descriptions in item 15.08 are distinguishable by a common characteristic, namely that their triglyceride structure has been chemically changed or "modified" so as to produce oils - in almost all cases industrial oils - with specific properties suitable for a particular end use.
19. In cross-examination Mr Lambert agreed that the degumming process changed not only the physical appearance and properties of the crude oil but altered its chemical composition by removing the phosphatides. He did not, however, agree that the degumming process modified the structure of the oil - all it did was to separate out one of the constituent elements of the mixture. He was thus drawing a clear distinction between a change in the chemical composition of the crude oil and a change in its chemical structure.
20. If further demonstration of the distinction which Mr Lambert was making is required it is to be found in a document prepared by him for the purposes of the proceedings before the Tribunal and adduced in evidence before it. The document contrasted the processes of refining and modifying an oil. The former, according to the document, is a process concerned with the removal of impurities and one aimed at maintaining the chemical structure of an oil. The point is made that, apart from colour and clarity, a refined oil is chemically and physically similar to the parent crude oil, refining not altering its properties to any significant extent. On the other hand, a process which modifies an oil is one aimed at changing the chemical structure of the oil to alter its properties, the basis of the modification being a chemical addition to, or reaction of, the unsaturated linkages in the oil itself. Modified oils are, according to the document, very different from the parent material in both chemical and physical properties. Palatability, edibility, aroma, appearance, clarity and keeping qualities are, according to Mr Lambert, the primary concern for refining an oil. By contrast, strict chemical performance is the chief concern of a modifying process. There is a nett reduction in mass and weight during refining but usually a nett gain in mass and weight during modification.
21. Reading Mr Lambert's evidence as a whole, we are satisfied that there was material before the Tribunal on which it could properly reach the conclusion which it did. It is clear to us that, in referring, in the answer relied upon by counsel for the applicant, to the general structure of the oil, Mr Lambert was referring to the oil's essential triglyceride structure.
22. The applicant also submitted that it was not permissible for the Tribunal, as an aid to the construction of the Tariff Act, to have regard to the Explanatory Notes prepared under the auspices of the Convention on Nomenclature to which reference has already been made. Relying upon section 15AB of the Acts Interpretation Act 1901 (Cth), the Tribunal said:
"As the meaning of 'modified' is obscure, we have given consideration to the Explanatory Notes to the Brussels Nomenclature in respect of item 15.08. There it is stated that:
'(t)his heading covers animal and vegetable oils which have been subjected to processes which modify their chemical structure thereby improving their viscosity, drying power (i.e., the property of absorbing oxygen when exposed to the air and forming elastic films) or modifying their other properties, provided that they have the fundamental triglyceride structure and are not more specifically covered elsewhere. . ..
After reference to the types of modified oil specified in item 15.08, it is stated that 'the other modified oils in this heading include' maleic oils, drying oils, epoxidised oils and brominated oils. It is pointed out that hydrogenated and sulphonated oils are not included and that they fall to other items. The Explanatory Notes, therefore, support the interpretation contended for by the respondent."
23. Section 15AB of the Acts Interpretation Act 1901 (Cth) provides in sub-s.(1):
- "15AB.(1)
- Subject to sub-section (3), in the
interpretation of a provision of an Act, if any
material not forming part of the Act is capable of
assisting in the ascertainment of the meaning of the
provision, consideration may be given to that
material:
- (a)
- to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
- (b)
- to determine the meaning of the
provision when:
- (i)
- the provision is ambiguous or obscure; or
- (ii)
- the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable."
It is unnecessary for present purposes to refer to sub-s.(3).
24. The argument that the Tribunal was in error in giving consideration to the Explanatory Notes was based on the applicant's contention that the words "or otherwise modified" in item 15.08 were not ambiguous or obscure nor, if given their ordinary meaning, would it lead to a result that was manifestly absurd or unreasonable. But it is plain that, to limit the use of extrinsic material to such circumstances - circumstances obviously referable to par.1(b) of s.15AB of the Acts Interpretation Act 1901 - is to deprive par.1(a) of that section of any operation. Even if it could properly be said that the Tribunal was in error in regarding the meaning of "modified" in item 15.08 as obscure - a proposition which it is difficult to accept having regard to the arguments presented - it would not follow that the Court should intervene. It would, as we think, have been open to the Tribunal to consider the Explanatory Notes in order to confirm the meaning which, on the other material available to it, it considered the expression bore having regard to its context in the Tariff Act.
25. We should, perhaps, add that, having considered for ourselves the proper construction of item 15.08, we agree that the construction adopted by the Tribunal is the correct one.
26. The applicant has, therefore, failed to demonstrate that the Tribunal committed an error of law in reaching the conclusion that the degummed oil imported by the applicant was not properly classified under sub-item 15.08.19 in Division 3 of Schedule 3 to the Tariff Act.
27. The Tribunal also concluded that the degummed oil did not fall within item 15.07 for the reason that it was not properly described as falling within any of the expressions "crude, refined or purified" in that item. It was said to be no longer crude oil because a large proportion of the phosphatides had been removed from the oil as initially extracted from the seeds of the soyabean plant. Nor was it refined oil, that expression being construed to refer only to oil from which the free fatty acids had been removed, that being, as the Tribunal thought, not only the natural meaning of the word but also the meaning accorded to it by traders in soyabean oil. Nor was it to be regarded as purified oil, an expression which the Tribunal equated to "fully refined oil", a state which was not achieved until at least the refining process to remove the free fatty acids had been completed. The Tribunal, however, went on to determine, applying the provisions of rule 4 in Schedule 2 to the Tariff Act, that the item that applied to goods that were most akin to degummed crude soyabean oil was item 15.07.
28. We think there is much to be said for the view that the degummed oil fell directly within the language of item 15.07. However, as neither party contended for that view, we prefer to express no concluded view upon it. We are also relieved from doing so because we are satisfied that, if the Tribunal was correct in holding that item 15.07 was not directly applicable, rule 4 of Schedule 2 to the Tariff Act operated to apply that item to the goods.
29. In the result, the application should be dismissed with costs.