In what might seems a case of stating the obvious, the Full Federal Court has overturned a decision by Customs that a driverless train can be put to the same use as a driver operated train. In making its ruling, the Full Federal Court has made it easier for importers to obtain tariff concessions which reduce customs duty to zero.
Alstom Transport Australia Pty Ltd v Comptroller-General of Customs [2020] FCAFC 43
Australia adopts a system of allowing importers to apply for tariff concession orders (TCOs) over specified goods which have the effect of reducing customs duty from 5% to 0%. The eligibility test is that the TCO application meet the following core criteria: no substitutable goods are produced in Australia in the ordinary course of business.
A local good and a good described in a TCO are substitutable if they can be put to the same use, including a design use. Past cases demonstrate that issues of price, quality and how a good performs a use are not relevant to the issue of goods are substitutable. Further, it is not necessary that all of the possible uses of the two goods overlap.
The TCO sought by Alstom covered driverless trains with 7 further specifications. The local manufacturers produces manned passenger trains. Alstom argued that the use of the substitutable goods was "to transport passengers on a high capacity, high frequency, driverless metropolitan train line system".
Customs and the Administrative Appeals Tribunal (AAT) held that this stated use was too specific. The AAT found that the relevant use was transportation of passengers by train. The AAT held that driver operated versus driverless trains was an issue of how the use was performed, not the relevant use.
The Full Federal Court considered that both interpretations were reasonable. It really comes down to how specific you set the relevant use. The legislation does not provide any real guidance on this issue. However, the Full Federal Court did come up with the sensible approach that the description of the goods in the TCO application must be given primacy. How the particular goods in the TCO were described should dictate the relevant uses. In this case, it was not just any train over which a TCO was sought. It was a driverless train with 7 further specifications.
The Full Federal Court said that the AAT merely identified the use of a "passenger train". However, Alstom sought a TCO over a particular type of passenger train. The goal of the test is not to identify abroad category of goods, but rather the actual goods described in the TCO.
As the AAT took too wide an approach, the matter has been sent back to the AAT to be reheard.
Implications for future TCOs
The message from the case is clear – use of the TCO goods, and what local goods are substitutable, needs to be determined by reference to the specific good described in the TCO application. The more specific the description, the more narrow the use of theTCO goods will be. However, applicants must remember that TCO description must be generic and cannot describe the goods by their end use.
Further, the TCO, if made, will only apply to goods that meet all of its requirements. Draft too narrow a TCO and it may not cover all of the goods that you wish to import.
In the Alstom case the Court made note of the fact that Customs had screened the TCO application and did not reject the wording as being too specific. No doubt from this point onwards Customs will be much stricter on the requirement that TCO wording be generic.
We recommend that importers review which imported goods are subject to customs duty and consider whether there are locally made goods that are genuinely substitutable. With the narrowing of the substitutability test, it is very possible that TCOs that were previously rejected by Customs, should now be made. The key will be carefully drafting the terms of the TCO and the stated use on the TCO application.
Please contact Russell Wiese at rwiese@huntvic.com.au or on 03 8602 9231 if you have any questions.