Thursday 13th Dec, 2018

INDUSTRY OPINION: Tribunal decision on Customs tariff classification

Photo: Shutterstock
Photo: Shutterstock

By Russell Wiese, Partner Hunt & Hunt Lawyers

Hunt & Hunt Lawyers provide the following commentary whereby the Administrative Appeals Tribunal (AAT) adopted a narrow approach on what is an accessory for the purpose of tariff classification.

Often the tariff classification of an item can depend on whether that item is identified as an item in its own right, or as a part or accessory of the principal item. This area of tariff classification is often uncertain and it is not uncommon to see disagreement between Customs authorities.

In Laerdal Medical Pty Ltd and Comptroller-General of Customs [2017] the AAT had to consider whether a defibrillator wall box with alarm should be classified in its own right (as furniture) or as a part or accessory to a defibrillator. In a narrowing of the term accessory, the AAT found that the wall box was not an accessory to the defibrillator.

Key Facts

The defibrillator and the wall box were imported separately and invoiced separately. The defibrillator was classified to chapter 90. Note 2(b) to chapter 90 provides that accessories, if suitable for use solely or principally with a particular kind of machine, instrument or apparatus are to be classified with that machine, instrument or apparatus.

The wall box is designed to be hung on walls in public places and be easily identifiable in the event of an emergency. When opened, an alarm sounds, both discouraging misuse of the item, and, increasing awareness of the emergency situation when being genuinely used.

It was accepted that the wall box is only used to house a defibrillator.

Legal Arguments

Customs argued that the wall box was not an accessory to the defibrillator. The AAT agreed, finding that the wall box had no role to play in the operation of the defibrillator. While the AAT held that the wall box has features that increase the availability of the defibrillator, this does not affect the performance, convenience or effectiveness of the defibrillator.

We disagree with this finding. A key factor related to the effectiveness of a defibrillator is the speed with which it is used. The wall box is designed in a manner to make the defibrillator more prominent. It has clear glass, displaying the device, it is designed to be hung at eye height and uses colouring and lettering to make it stand out.

Further, having an alarm that deters misuse means that the device can be stored unlocked in prominent areas. This greatly increases its likelihood of use in public places.

In our view, all of these factors mean that the specifically designed wall box increases the convenience of the defibrillator and will increase its effectiveness.

The wall box is not designed to simply contain the defibrillator. This purpose is not required as the defibrillator is contained within a bag in the wall box. The purpose of the wall box is to increase the likelihood that the defibrillator will be used and the effectiveness of that use.

General comments on classification of accessories

The decision is not completely unreasonable and was open to the AAT (as was a contrary finding we suggest). The fact that Customs argued for, and the AAT found, that the wall box was not an accessory, supports a narrow approach to what will be an accessory.

General comments made by the AAT on this issue are set out below:

  1. The question whether one thing is an accessory of another is decided not by analogy but by principle.
  2. That one thing may be designed and made specifically for use with another does not of itself lead to the conclusion that the former is an accessory of the latter.
  3. That one thing may be used for purposes, other than in association with the thing of which it is said to be an accessory, does not of itself lead to the conclusion that it is not such an accessory in the particular circumstances.
  4. An accessory may be an extra and additional part of the equipment itself.
  5. It need not, however, be joined in some way to another item in order to be an accessory but it must be a subordinate part or object added or attached for convenience or effectiveness of that other item.
  6. The functions and characteristics of the item to which another is said to be an accessory must be kept in mind when determining whether that other is an accessory.

There can be a lot riding on this issue

Classification of parts and accessories is extremely difficult. We recommend exercising caution and seeking either further advice or a tariff advice if you are unsure.

Sometimes the classification will not impact the general duty rate, but may impact whether a tariff concession order applies. A TCO may exist that precisely covers the item. However, whether that TCO can be used will depend on whether the classification is correct. It is not unlikely that when making a TCO an item will be classified as an accessory and then at the time of an audit, a different Customs officer will argue for a different classification.

It can also be important in the context of certificates of origin. The COO needs to specify the tariff classification of the goods. For a plastic good, classification as an accessory could be the difference between chapter 40 and chapter 85. Given classifications could be in different chapters, this may not be seen as a minor error or discrepancy. Additionally, a different product specific rule of origin may apply.

We appreciate that these issues are difficult, but they are also worth disputing. Often the outcome turns on fine subjective points and an AAT member may take a different view to that held by Customs. This was seen in 2016 when we successfully argued in the AAT that a mastectomy bra was an accessory to an artificial breast form.

Please contact Russell Wiese (03 8602 9231, or Lynne Grant (03 8602 9246, if you would like to discuss reviewing a Customs decision on the classification of goods.

This article was originally published by the Freight and Trade Alliance (FTA).

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