In Mercator Lighting Pty Ltd v Chief Executive Officer of Customs, the Administrative Appeals Tribunal considered the proper customs classification of particular electric ceiling fans with integrated lights.
The decision highlights how disputes can arise applying the interpretation rules for the customs tariff.
Mercator Lighting paid duty (under protest) after importing several electric ceiling fan models with integrated electric lights.
Mercator Lighting argued that the goods should be classified under the customs tariff heading for fans, with the consequence that the goods would qualify for a tariff concession. On that basis, the goods would not be subject to customs duty.
Customs, on the other hand, argued the goods were properly categorised under the lights heading. This was a result of Customs’ view that, applying the cascading tie-breaker rules, the essential character of the goods could not be determined, in which case the later heading (lights) applied. The goods, if classified under the lights heading, were subject to a rate of duty of 5%.
Some additional context
Customs had previously accepted that similar imported goods had been properly classified under the fans heading. The exporters from China had classified the goods under the fans heading for Chinese export purposes. Customs rulings made in the United States and New Zealand had also classified similar goods under the fans heading, although rulings in the European Union classified similar goods under the lights heading.
Identifying the goods
To classify the goods, the Tribunal had to first identify the goods. This is a ‘practical “wharfside” task’.
Identifying the goods can be done ‘merely by looking at them and by considering their nature and the function which they were designed to serve’. The ‘characteristics of the goods themselves, as they would present themselves to an informed observer’ are relevant.
The Tribunal declined to follow the comments in Tridon Pty Ltd v Collector of Customs, where ‘how those who trade in the goods describe them’ was considered relevant to identifying the goods.
The Tribunal identified the goods as a ceiling fan with an integrated light, with a three-speed wall controller for the fan and separate light switch on a single panel.
Applying the tie-breaker rules
The Tribunal initially found that, based on the relevant headings in the customs tariff, the goods could be classified under either the fans heading or the lights heading.
Rule 3 of the Interpretation Rules sets out three tie-breaker tests, which must be applied in the order they appear.
- The first tie-breaker test is to classify the goods to the heading that provides the most specific description. However, where goods are composite goods (such as an integrated light and fan), the first tie-breaker deems each component to be regarded as equally specific.
- The second tie-breaker test is to classify the goods to the heading that gives them their ‘essential character’.
- The third tie-breaker test is to classify the goods to the heading that comes last in the customs tariff.
Mercator Lighting argued that the fan function gave the goods their essential character. This was rejected by the Tribunal, who drew support from the decision in Times Consultants concluding that ‘it may be that there is no single essential character’. In those circumstances, the third tie-breaker would apply.
This was the Tribunal’s decision. It resulted in the goods being classified under the lights heading, which came after the fans heading in the customs tariff. The goods therefore attracted duty.
The Tribunal commented that it was bound to review Customs’ decision on the goods that were imported and subject to the dispute. It was not able to consider Customs’ previous position or the treatment of the goods in foreign jurisdictions. We also assume the Tribunal did not draw a negative inference from the fact the importer was named Mercator Lighting rather than Mercator Fans.
Lessons from the decision
Composite goods are more vulnerable to customs duty disputes. Importers should be careful when adopting tariff classifications of foreign jurisdictions and seek advice where the application of the interpretation rules is not clear.
Please contact Fletch Heinemann if you would like to discuss.