A variety of decisions ranging from the Full Federal Court to the Administrative Appeals Tribunal have been handed down over the past month, which demonstrates the complicated environment in which customs brokers and forwarders operate. Being aware of the issues raised in these cases is the first step in managing the legal risks facing you and your clients.
LIABILITY FOR FALSE STATEMENTS TO CUSTOMS – FINES PLUS FORFEITURE OF THE GOODS
Three individuals who made deliberately false statements in an attempt to evade duty each received fines equal to double the amount of the underpaid duty, plus the Commonwealth was entitled to keep the goods. Effectively this meant that the penalty for deliberately avoiding duty was equal to 26 times the underpaid duty!
In April 2015 three individuals arrived at Brisbane airport and deliberately concealed jewellery with a value of $135K and watches with a total value of $60K. The jewellery was intended for sale, while the watches were for display purposes.
The Queensland Magistrates' Court order each of the men pay a fine of $13K in respect of evading duty (double the underpaid duty) and $2,500 in respect of two counts of making a false statement. The Court also allowed the Commonwealth to retain the jewellery and the watches.
On appeal to the Queensland District Court the issue was whether forfeiture of the goods should have been ordered in addition to the fines. Ultimately the Court held that forfeiture could be ordered in addition to a fine. However, whether fines had been imposed was a relevant factor in the Court deciding whether forfeiture could be ordered.
The Court upheld the fines and forfeiture of the jewellery. However forfeiture was not ordered in respect of the watches as no duty was payable in respect of the watches and the watches were not imported for resale.
While most people don't expect to find themselves in the position of deliberately evading duty, the general comments of the Court regarding customs penalties should be noted: "Penalties for customs offences are to be of a very high order. A punishment for deliberate offences against the Customs Act should be severe."
In this case the importers suffered collective penalties of approximately $175K in respect of avoidance of $7K of duty. This demonstrates the value of a high level of customs compliance.
TCOs AND MADE TO ORDER CAPITAL GOODS
Vesta-Australian Wind Technology has continued its long battle with Customs regarding its application for a TCO covering certain gearboxes for wind turbines. As you may be aware, the test with making a TCO is whether substitutable goods are produced in Australia in the ordinary course of business.
The issue in dispute has been what is the test of "produced in Australia in the ordinary course of business" for made to order capital equipment? Specifically, must the alleged local manufacturer have actually made the substitutable goods at any time previously, or merely have the ability to produce the alleged substitutable goods on request?
In the AAT, the Tribunal held that capacity alone to produce the goods is not sufficient, there must have been actual past production. This was contrary to the previous approach by Customs and unsurprisingly it appealed the decision to the Full Federal Court.
After examining the purpose and history of the legislation, the Full Court held that for production line goods there must be a history of actual production, but for made to order capital equipment, a capacity to produce is sufficient. This decision returns the law to the position previous understood and applied by Customs.
However, Vestas has applied to the High Court for special leave to appeal the decision. To be successful, Vestas will need to demonstrate to a judge of the High Court that the case is appropriate to be heard by the Court and then, if leave to appeal is granted, convince the Court that the decision of the Full Court was incorrect. For now, the decision of the Full Court (only capacity to produce must be shown) represents the law.
CLASSIFICATION OF ALUMINIUM EXTRUSIONS
We regularly receive inquiries regarding dumping duties on aluminium extrusions. While there are ways to seek to have the dumping duty reassessed, the starting point for contesting the imposition of dumping duty is whether the goods are actually covered by the dumping duty notice. This involves two questions, what is the tariff classification of the goods? and Are the goods the type of goods described in the dumping notice?
In Solu Pty Ltd and CEO of Customs the Tribunal was asked to consider the tariff classification of certain aluminium products for use in kitchen and other types of cabinetry. Examples of the goods were handle profiles and aluminium rails. Importantly, the imported goods would be cut to size before being used in the manufacture of kitchen cabinetry.
For the bulk of the goods the potential tariff classifications were 8302.42.00 being base mental mountings fittings suitable for furniture, 9403.90.00 being furniture parts and 7604.21.00 being aluminium profiles – hollow profiles.
The goods were identified as items of aluminium that did not bear any direct resemblance to or correlation with furniture or furniture parts or have any particular suitability for furniture.
The Tribunal held that while the goods could be manufactured into handles or parts of cabinetry, as imported, the goods were not furniture parts or fittings suitable for furniture. The goods could not at importation be considered "parts" as they needed to be further worked, either by manufacturing or preparation, before being used in the construction of any piece of furniture. It was also noted that there was not a fixed numerical relationship between the imported good and the finished furniture. One imported good may be used for multiple, or a single piece, of furniture, depending on the size of the furniture.
In holding that the goods were properly classified as aluminium profiles the key factor for the Tribunal was that the extrusions were not identifiable as parts of another good but were rather materials used in the construction of an unidentified number of items to be incorporated into not only furniture but an indeterminate number and type of other goods.
Brokers under pressure
Dumping duty often comes as a surprise to importers and when imposed can make a transaction uncommercial. Brokers are then put under pressure to find a solution. An alternative classification can seem the simplest solution. However, due to the level of duty involved and that such goods are the focus of Australian Border Force compliance activities, it is crucial that brokers take the steps of informing clients of the risks, obtaining a tariff advice and openly challenging decisions with which they disagree.
BROKER LIABLE FOR DUTY
In a recent NSW Court of Appeal decision a freight forwarder/customs broker who had paid $234K in customs duty, GST and other charges was held to have no right to recover the amount from the importer. The decision highlights the importance of ensuring you have unqualified written acceptance from your client of your terms and conditions.
The case is a little unusual in that the customs broker was appointed by a finance company to take possession and clear goods consigned to a third party. The finance company had financed the purchase of the goods by the third party.
The broker arranged for the finance company to sign an authorisation letter and acceptance of the broker's terms and conditions. Under those terms and conditions the broker would have had a clear right of indemnity against the finance company for its expenses, such as duty and GST.
The finance company authorised the broker to act as its agent but expressly stated that it accepted "no liability for any freight costs, logistics costs, other costs, duties or taxes payable relating to the delivery or acceptance of any freight". All these costs were to be recovered by the broker from the third party consignee.
The problem was that the third party consignee went into liquidation and had no money with which to pay the broker.
The Court found that the finance company was an owner of the good for the purposes of the Customs Act and had entered the goods for home consumption for GST purposes. The Court also found that the broker and third party consignee were also "owners" for the purpose of the Customs Act. As such, there were multiple parties that could be liable for the customs duty liability.
Normally, an agent would have a right to indemnity from its principal for costs such as duty and GST. However, the Court found that the parties had agreed that the broker had no right of indemnity against the finance company. This was the impact of the letter sent from the finance company to the broker in respect of their terms and conditions.
It is not enough to have a good set of terms and conditions. The terms and conditions must also be unequivocally accepted. Where a customer only partially accepts your conditions, does not sign them or responds with their own set of terms and conditions, you may have difficulties in fully enforcing your terms.
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.