Leonie Ferretter and Kristie Schubert, KPMG Australia and Jacqueline McGrath, KPMG Law
A recent case highlights the complexities involved in tariff classification and the disputes that can arise between importers and customs.
The Administrative Appeals Tribunal has ruled in favour of an importer Smoothflow Pty Ltd, following a dispute with Australian Customs about the correct classification of imported pipes from China.
Customs had assessed the importer for both customs and anti-dumping duties (the latter being a significant additional duty on imports that are claimed to have injured Australian industry).
The imported goods were steel pipes measuring 5.8 metres in length that were capable of being installed in fire protection systems (such as sprinkler systems and internal and external hydrants) in certain high-rise buildings.
The pipes bore the requisite international and Australian standard certification so as to comply with requirements for fire protection systems in buildings.
The dispute centred on which of the two possible headings of the Customs Tariff Act 1995 applied.
- Customs had assessed the importer on the basis that the pipes fit within heading 7306 of Schedule 3 to the Tariff Act. Heading 7306 reads: “…other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed, or iron or steel”.
- The importer said that the goods more appropriately fell within heading 7308 which instead reads: “…structures (excluding prefabricated buildings of 9406) and parts of structures (for example, bridges and bridge-sections, lock-gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns), of iron or steel; plates, rods, angles, shapes, sections, tubes and the like, prepared for use in structures, of iron or steel”.
The resolution of the above considered the particular guidance material applicable to the interpretation of tariff disputes.
In particular, the headings that are contained in Schedule 3 of the Tariff Act, are adopted from the International Convention on the Harmonized Commodity Description and Coding System (Harmonized Convention). The Harmonized Convention was translated in both French and English.
Similar to the High Court’s decision in Comptroller-General of Customs v Pharm-A-Care, the case turned on the differences in the French translated version of Chapter 73 (that contained the heading 7308). Importantly, the Tribunal received evidence from a certified translator in French to English that heading 7308 in the French text reads:
“Structures and parts of structures (bridges and bridge sections, lock gates, towers, pylons, pillars, columns, framework, roofing, doors and windows and their frames, window-sills and thresholds, shutters, balustrades, for example) in cast iron, iron or steel, except for prefabricated structures as per n° 94.06; sheet metal, bars, profiles, tubes and similar, in cast iron, iron or steel, prepared for use in the construction industry” (our emphasis).
As is apparent, the two versions (English and French) of heading 7308 differed slightly.
The Tribunal noted that submissions were put by both parties in regards to the application of the Harmonized System Explanatory Notes (‘HSEN’) for headings 7306 and 7308 respectively. The Tribunal referred to relevant case law and noted that the HSEN is useful as extrinsic material to assist in interpretation where there is ambiguity or lack of clarity within relevant tariff classifications. The Tribunal found, however, that there was no such ambiguity and therefore did not resort to the HSEN. The Tribunal found that the steel pipes imported were for use in sprinkler systems compliant with relevant industry standards for high-rise buildings and were thereby prepared ‘for use in the construction industry’.
That being the case, the Tribunal applied the General Interpretation Rules (GIRs) that provide a set of rules for interpretation where, as here, two headings are prima facie applicable. By reference to GIR 2(b) and 3(a), the Tribunal held that the more specific heading contended for by the importer (being heading 7308) should prevail over the more general description claimed for by Customs under 7306. The Tribunal explained that Heading 7306 is attracted because pipes are involved, but 7308 is attracted because of the purpose for which the pipes were designed, or as the heading says, ‘prepared’ and is therefore more specific.
This case is another example of the complexities involved in tariff classification and the disputes that can arise between importers and customs. With the risk of significant penalties to importers that self-assess, the case is also a reminder of the often difficult and comprehensive analysis required to determine the correct classification of imported goods.
Authors: Leonie Ferretter, Partner, Trade & Customs, KPMG Australia; Jacqueline McGrath, Senior Associate, KPMG Law; and Kristie Schubert, Senior Associate, Deals, Tax & Legal, KPMG Australia
This article was originally published on KPMG Tax Now, KPMG Australia’s subscription tax news service for clients.