While most attention is given to the imports that
attract duty, a recent Australian Tribunal decision demonstrates
the need to review imports even where it seems obvious that a duty
free concession applies.
DUTY FREE GOODS – WHAT'S THE RISK?
It is common and understandable that if a good seems to clearly
fit within the terms of a concession that it gets little attention
during any internal customs review. In a cost saving environment,
attention naturally turns to the imports resulting in duty payments
with hopes of reducing that duty.
However, in the context of an audit by Australian Customs, the
focus will be those imports that are only duty free by reason of
the use of a concession, such as goods entered as duty free under
the terms of a Tariff Concession Order (TCO).
Where TCOs apply, they reduce the duty payable on goods to zero.
TCOs attach to a specific tariff classification. For a TCO to apply
to goods they must firstly be classified to the same tariff
classification as the TCO and secondly, the goods must fall within
the terms of the TCO.
The consequences of incorrectly applying a TCO can include:
The obligation to repay the underpaid duty
Breach of the Customs Act which may result in fines (regardless
of intent) or prosecution
Damage to the importer's status as a compliant
The Australian re-sale price of the goods being based on an
incorrectly calculated landed cost of the goods
CLASSIFICATION AND THE CONCESSION
In the recent Administrative Appeals Tribunal case of Becker
Vale Pty Ltd and CEO of Customs, the Tribunal had to consider
whether a TCO covering certain electrical systems applied to the
importation of a particular good. The importer argued that the TCO
so closely described the relevant goods, that the goods must be
classified under the same tariff classification to which the TCO
Customs argued, and the Tribunal accepted, that this was the
reverse way of approaching the issue. Fitting within the TCO cannot
determine the classification of a good. Rather, the description of
the good must be determined and the good classified according to
that description. If there is a TCO within that classification, a
decision can be made as to whether the good fits within the terms
of the TCO.
The approach adopted by the above applicant is common. This is
especially so where the importer originally applied for the
relevant TCO. Importers could be forgiven for assuming that if
Customs attached a TCO to a particular classification, then the
goods Customs knew were intended to be imported pursuant to that
TCO would fall under the same classification.
In making this assumption importers should remember:
The keying of a TCO to a particular classification is not a
binding tariff advice covering goods intended to be imported under
The level of attention given by Customs to the correct tariff
heading for a particular TCO may be different to the level of
attention given by a Customs auditor reviewing the duty free entry
Multiple TCOs with the same wording could be made and attached
to different classifications, but the one good, even if it has
multiple potential tariff classifications, can only have one
It is common for goods to change over time and a subtle change
may result in a change in classification and its eligibility for
duty free entry.
WHAT TO DO
Find out which TCOs are used to save a material amount of duty
and review whether:
The goods are correctly classified to the same tariff heading
as the TCO; and
The TCO wording covers the goods.
If there is any doubt, Customs can provide a binding ruling as
to both the classification of goods and the application of
If the goods and the TCO are not within the same classification,
consider whether a new TCO could be obtained under the correct
In any event, it is important that the use of all concessions is
periodically reviewed and where the potential duty exposure is
material, no assumptions should be made as to the application of a
concession. Simply because a company does not pay significant duty
does not mean that it is a low risk importer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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