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01 April 2020

What’s in a name? How to import goods customs duty free with a tariff concession order

The description of imported goods in a tariff concession order (TCO) application is more important than ever following the recent Full Federal Court decision in Alstom Transport Australia Pty Ltd v Comptroller-General of Customs.

The description of imported goods in a tariff concession order (TCO) application is more important than ever following the recent Full Federal Court decision in Alstom Transport Australia Pty Ltd v Comptroller-General of Customs.

The description of the imported goods dictates whether ‘substitutable goods’ are produced in Australia and, therefore, whether a TCO will be granted.

What happened in Alstom?

Alstom wished to import driverless passenger trains for use in the Sydney Metro Train Network. It applied for a TCO to allow it to import the trains duty-free.

A TCO will be granted if no ‘substitutable goods’ are produced in Australia in the ordinary course of business. Locally produced goods and the goods described in a TCO are substitutable if they can be put to the same use.

Alstom’s TCO application described:

  • the goods as driverless trains with seven further specifications (relating to their passenger capacity, maximum speed, electronically interfaced cars, train control and management systems etc.)
  • the use to which the goods can be put as ‘to transport passengers on a high capacity, high frequency, driverless metropolitan train line system’.

No driverless trains were then manufactured in Australia. However, a local manufacturer, Downer EDI, objected to the granting of the TCO on the basis that its driver-operated electric passenger trains were ‘substitutable goods’.

At first instance, the AAT held that Downer’s trains were ‘substitutable goods’ because both trains could be put to the same ultimate use of ‘transportation of passengers by rail’. The AAT rejected Alstom’s description of the use of its trains as too specific. It found that the different ways in which a train might transport passengers was a matter of how the use was achieved and not the relevant use.

On appeal to the Full Federal Court, Alstom argued that the AAT had identified an impermissibly broad class of use. Alstom’s trains were tailored for the Sydney Metro Train Network and could only be used on that network, whereas

Downer’s trains could not be used on that network.

The Full Federal Court overturned the AAT’s decision. It considered that the competing descriptions of the relevant use were both reasonable. However, the task was not to identify a broad class of use that is reasonable but, rather, to identify the uses to which:

  • the particular goods, as described in Alstom’s TCO application, can be put
  • Downer’s trains are put or capable of being put.

The AAT failed to undertake that task. Expressing the use of Alstom’s trains as the ‘transportation of passengers by rail’ did not address the uses of the actual trains described in Alstom’s TCO application – which were a particular type of passenger train, not any passenger train.

The matter was remitted to the AAT to determine whether there were any corresponding uses of Alstom’s and Downer’s trains, as properly identified.

What does this mean for importers?

This decision has given importers more control over whether they will be granted a TCO. When applying the ‘substitutable goods’ test, the uses to which the imported goods can be put are no longer any potential uses that are reasonable.

The range of potential uses is dictated by how broadly the goods are described in the TCO application.

This means that carefully describing the imported goods is critical to a successful TCO application.

  • A description that is too broad increases the risk that substitutable goods are produced in Australia.
  • A description that is too narrow increases the risk that the TCO may not cover all the importer’s goods.

Importers should also remember that the goods’ description must be in generic terms and not in terms of the goods’ intended end use – otherwise the application may be rejected by Customs.

This limitation on the scope of the ‘substitutable goods’ test presents an opportunity for importers to reduce the duty they pay on imported goods where there are no locally produced goods that are genuinely substitutable.

Please contact a team member if you would like to discuss.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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