TARIFF CLASSIFICATION OF STEEL PIPES USED IN STRUCTURES - A WIN FOR IMPORTERS
The Federal Court on 22 February made orders dismissing Customs’ appeal of a key decision regarding tariff classification and the use of the French language version of the harmonised code for tariff classification. The case concerned the tariff classification of fire and sprinkler system pipes and creates refund opportunities for importers of these products.
Original decision
The decision being appealed was made by the Administrative Appeals Tribunal in the Smoothflow Australia Pty Ltd and Comptroller-General of Customs. Customs argued for a generic classification as steel pipes (heading 7306) which would attract dumping duty. Smoothflow argued that the goods should be classified to heading 7308 which applies to building parts, which did not attract dumping duty.
The Tribunal noted that the goods were built to standards that specifically applied to fire sprinkler systems and even had these standards printed on the pipes.
The most important aspect of the case was the approach taken by the Tribunal in classifying the goods. In interpreting heading 7308 it referred to both the English and French version of the heading. The English version used the wording “prepared for use in structures” and the French version translated to “prepared for use in the construction industry”.
The Tribunal reconciled the different wording by interpreting heading 7308 as applying to goods “prepared for use in connection with the building of structures”.
The imported pipes were built to a standard that applied to fire systems used in buildings. For this reason, the Tribunal classified the goods to 7308 as goods prepared for use in connection with the building of a structure.
The Federal Court appeal
Customs made an application for review of the decision by the Federal Court. It involved consideration of the following issues.
Was there a need to reconcile differences is the HS Codes?
An initial issue was how to resolve the differences between the French and English versions of the HS Code. Interestingly, the Federal Court reviewed the original and translated text and was not convinced that there was in fact a difference between the French and English versions. The Federal Court did not accept that the French version referred to the "construction industry" as opposed to use in a structure.
In a somewhat circular approach, the Federal Court referred to the English version of the HS Code in attempting to determine the meaning of the French version. If the English version only referred to "structures" this supported an narrower interpretation of the French version.
How to reconcile the differences
Equally importantly, the Federal Court went onto to say that if there was a difference in the wording of the HS Codes, the original AAT interpretation did not reconcile the two interpretations. Rather, it gave a meaning that was inconsistent with both versions. The Federal Court did not say however, what a consistent interpretation would be. This was not necessary as it did not consider that there was a difference between the versions.
What does "use in a structure" mean
The Federal Court determined the appeal based on the English version of the HS Code. Customs argued that the English version only covered parts put to a structural use. This should be contrasted to parts simply used "in a structure". The Federal Court dismissed this argument and found that heading 7308 covered parts used in a structure even if they did not have a structural use. For instance, the heading clearly covers window frames and these are parts that do not have a structural use. Windows are not a load bearing part of a structure.
"Prepared for" use in a structure
The Federal Court considered whether the goods were "prepared for" use in a structure and found that they were. Although the pipes were not cut to size or shaped for any specific building, they were built to a standard that applied to fire pipes used inside structures.
Interestingly, the Federal Court equated the word "prepared" to "manufactured". It suggests that any time a product is manufactured for a specific use, this will be sufficient. There will not need to be some post production preparation.
Of course, it will be hard to argue that a product that following manufacture has multiple uses, has been prepared for one particular use.
Legislative change
Some of the above issues will only apply to past imports as the classification of future imports has been changed by newly passed legislation. On 18 February legislation was passed that introduced the following new notes:
Heading 7308 does not include tubes, pipes and the like prepared for the conveyance of fluids; and
Heading 7308 does not include plates, rods, angles, shapes, sections, tubes, pipes and the like requiring further modification before use in structures, including but not limited to, cutting, drilling and bending.
The new legislation will only apply to future imports and does not overturn the Smoothflow decision regarding past imports.
The legislation does resolve the issue for fire pipes. However, there are a range of metal products that could, following the Smoothflow decision, be classified as a part prepared for use in connection with a structure.
It will also be interesting to see how the “requiring modification before use” wording is applied. It may be likely that a product will be modified before use. However, this is not the same as the modification being “required”.
Refund opportunities
It is not unusual for the ABF to take an industry wide approach in its compliance operations. Many importers of fire hydrant and sprinkler pipe may have been subject to demands for dumping duty. If dumping duty and/or infringement notices were paid in response to those demands, refund opportunities should be investigated.
Additionally, if demands for underpaid duty have been made, but not enforced, there is a good case for having those demands formally withdrawn.
Future imports
The introduction of new legislation, together with the Smoothflow decision, creates doubts regarding tariff classification. Given that the impacted products are potentially subject to high dumping duties, importers and customs brokers should seek guidance where there is any doubt. This guidance could be in the form of legal advice and/or seeking a tariff advice ruling from Customs.
CGT Law specialises and tariff classification and can assist with providing internal advice, seeking a tariff advice or contesting the outcome of an ABF audit.