Re Versatile Carpets Pty Ltd v Collector of Customs Vg [1985] FCA 38 (21 February 1985)

FEDERAL COURT OF AUSTRALIA

Re: VERSATILE CARPETS PTY. LTD.
And: COLLECTOR OF CUSTOMS
VG No. 228 of 1984
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney J.
Woodward J.
Davies J.

CATCHWORDS

Administrative Law - appeal from Administrative Appeals Tribunal - classification of goods under customs tariff - fibrous material produced from extruded film of polypropylene by process of fibrillation - whether goods were 'yarn' - whether fibres in goods were 'continuous', 'discontinuous' or neither.

Customs Tariff Act 1966, s.14(1), First Schedule:

Rule for Interpretation 4, Items 39.02, 39.07, 51.01, 51.02, 56.05

Acts Interpretation Act 1901, s.15AA

Administrative Appeals Tribunal Act 1975, s.44(1)

HEARING

MELBOURNE
21:2:1985

ORDER

1. The appeal be allowed, the decision of the Tribunal set aside and the matter remitted to the Tribunal to be heard and determined in accordance with these reasons for judgment, after the hearing of such further evidence as it may decide to receive.

2. The respondent pay one half of the appellant's costs of this appeal.

DECISION

This is an appeal by Versatile Carpets Pty. Ltd. (the applicant) from a decision of the Administrative Appeals Tribunal (the Tribunal), made on 23 July 1984, that the demands of the Collector of Customs (the respondent) for duty of customs on the basis that the goods imported into Australia by the applicant fell within sub-item 51.02.1 of Part II of the First Schedule of the Customs Tariff Act 1966 (the Act) should be affirmed.

2. The goods the subject of the appeal were two shipments described as polypropylene carpet yarn imported by the applicant from the United States of America, for use by it in the manufacture of recreational carpet for indoor or outdoor use.

3. The Tribunal found that,

"The trade evidence establishes beyond doubt

that, within that branch of the textile industry
concerned with the making of indoor/outdoor
carpets, the imported goods are uniformly accepted
as a form of "yarn", although described,
interchangeably, as "yarn", "grass yarn" or "carpet
yarn". .....

"The evidence is that the yarn is carefully
wound on to the cone-shaped spool so as to enable
the spool to be fitted directly into a carpet
tufting machine for the purpose of manufacturing
tufted indoor/outdoor carpet. ..... The
characterisation of the goods within the trade as a
form of "yarn" is based to a substantial degree
upon the end purpose to which the goods are put
..... It is accepted as a form of "yarn" because
it is the base material for the manufacture of
textiles ..... (the trade witnesses) acknowledged,
however, that the imported "yarn" was made by a
novel process. Whereas yarn is normally made from
continuous or discontinuous (staple) fibres whether
natural or man-made, the imported "yarn" is made
from a continuous strip of extruded polypropylene
film that has been subjected to a process known as
fibrillation, so as to give it a fibrous texture,
and has then been twisted."

4. The Tribunal went on to describe the production process in more detail. It accepted evidence that

".... the most common way of manufacturing yarns
from man-made fibres was by twisting together
continuous filaments or staple produced by a
process of extrusion. ....

Continuous filaments are made by extruding
polypropylene pellets or resin through spinnerettes
which are a series of very fine holes. This
process produces very fine continuous fibres which
can be gathered together as required to make into
multi-filament yarn or can be converted to staple
(i.e. shorter lengths) for spinning into yarn of
discontinuous man-made fibres. ....
(The goods in question, however, were produced
by) a method of producing fibrous material from
extruded film. Instead of producing filaments by
the spinnerette method, the extruding machine
produces a continuous film approximately five or
six feet wide. The extruded film is slit into
strips approximately three quarters of an inch wide
and is then stretched so as to orient the molecular
structure of the stretched tape in a longitudinal
direction. The stretched tape is then subjected to
a process called fibrillation.

Fibrillation involves passing the tape through
two helical rollers - described as male and female
rollers fitted with blades - which, in a delicate
cutting process, convert the tape into a precisely
controlled network of filaments, running diagonally
across the tape. These are held together by fine
cross-linking fibrils. It is this precisely
controlled network of lateral filaments and
connecting fibrils that creates the highly uniform
fibrous web ...."

5. The appeal concerns the appropriate classification of the goods under Part II of the First Schedule (the Schedule) of the Act. The appellant contends that either item 51.01 or item 56.05 would be more appropriate to cover the goods concerned than sub-item 51.02.1.

6. Item 51.01 of the Schedule provides for "yarn of continuous man-made fibres, not put up for retail sale." Sub-item 51.02.1 of the Schedule provides for "... strip (artificial straw and the like) .... of man-made fibre materials: of ... polypropylene ...". Item 56.05 provides for "yarn of man-made fibres (whether discontinuous or waste) not put up for retail sale".

7. The Tribunal found that the goods did not fall exactly within either item 51.01 or 51.02. (The possibility of their falling within 56.05 was not raised until this appeal.)

8. The Tribunal said:

"In a sense they (i.e. the imported goods) seem to
fall between those two items. They have progressed
beyond being a 'strip' to which item 51.02 applies.
On the other hand, whilst, they have been accepted
by the trade as a form of yarn, the yarn is not
made of continuous man-made fibres so as to be
classifiable within item 51.01. What we have
before us is a new article of commerce identifiable
as yarn but made of materials falling outside
the, classifications for yarn provided by the
Tariff."

9. We note in passing that items 39.02 and 39.07 at the relevant time provided:

"39.02 - Polymerisation and copolymerisation
products (including polyethylene,
polytetrahhalo-ethylenes,

polyishobutylene,

polystyrene, polyvinyl
chloride, polyvinyl acetate, polyvinyl
chloroacetate and other polyvinyl
derivatives, polyacrylic and
polymetacrylic derivatives,
coumaroneidene resins)

39.07 - Goods made of materials of a kind
described in an item or items in items
39.01 to 39.06 (inclusive)"

10. It was common ground that the goods were made of polypropylene and that polypropylene was a material of a kind described in item 39.02.

11. The Tribunal acknowledged that item 39.07 "is literally capable of embracing any product made from the basic materials described in the preceding items". However it preferred an interpretation of Chapter 39 of the Schedule that would promote the purpose or object underlying the Act, in accordance with s.15AA of the Acts Interpretation Act 1901, and concluded that the goods did not fall within item 39.07.

12. We agree with this conclusion. Division VII deals with artificial resins and plastic materials and related products. It specifically excludes "textiles and textile articles falling within an item in Division XI". It would be an anomalous result if a textile article which was arguably within three different items in Division XI was found, on a strict interpretation, not to comply with any of them and so had to revert to a completely different category, based simply on the material comprising the article and having no regard to its purpose. The anomaly involved is further emphasised by the fact that the strip of polypropylene immediately before fibrillation would clearly fall within Division XI because of the combined operation of note 3(e) to Chapter 39 and note 4 to Chapter 51. It would be ridiculous if a process designed to enhance its quality as a textile article caused it to revert to the Division dealing with plastic materials generally. In the view of the Tribunal, with which we concur, this anomaly need not arise.

13. Section 14(1) of the Act provides:

"The Rules for the Interpretation of the First
Schedule set out in Part 1 of the First Schedule
have effect for the purpose of ascertaining -

(a) within which item or items any goods fall and,
if the goods fall within two or more items,
which one of those items applies to the goods;
....."

14. Rule 4 of the Rules for the Interpretation of the First Schedule provides:

"Where goods do not fall within any item, the item
that applies to the goods is the item that applies
to goods that are most akin to those goods."

15. In our opinion, if the goods in question do not fall precisely within any of the three possible Division XI items, they will be covered by that item which applies to goods to which they are most akin. The Schedule, read as a whole, makes it sufficiently clear that its purpose precludes item 39.07 from applying to the yarn the subject of this application.

16. Having come to the same conclusion, the Tribunal applied the 'most akin' rule in the present case on the basis that the goods did not fall within any item. It considered whether the goods which were more akin to the goods in question fell within item 51.01 or 51.02, and concluded:

"Thus, despite the extent to which the goods are
able to simulate some of the characteristics of
"yarn", they remain, in our view, more akin to
"strip" to which item 51.02 applies than they do to
"yarn" of continuous man made fibres" of a kind to
which item 51.01 applies. In terms of "kinship",
they are closer to the "strip" from which they have
come than to traditional "yarn" which they aspire
to be."

17. Appeals to this Court from decisions of the Tribunal are limited to questions of law (Administrative Appeals Tribunal Act 1975 s.44(1)).

18. Where all the material facts in a case such as this have been established, the question as to whether those facts bring the goods concerned within one particular item or another of the Schedule, is a question of law (see Peacock v Zyfert 1983 48 ALR 549 at 556, 560-1 and 564-5.

19. The Tribunal carefully analysed the various items which it thought could be relevant, but these did not include item 56.05 (see above). The most important question it had to decide was whether the produce in question was "yarn" within the meaning of the Schedule.

20. When it gave 'Interim Reasons for Decision' on 23 December 1983, the Tribunal said,

"In our view, there is no doubt, having regard
to the trade evidence, that the goods are most
appropriately identified as "yarn". There may be a
question whether the ordinary understanding of the
word "yarn" is as extensive as the trade meaning,
but in our view, it is unnecessary to resolve that
question finally in the present case. For the
purposes of the Tariff, it is only if the imported
goods are "yarn of continuous man-made fibres" that
they fall to item 51.01."

Later it said,

"What we have before us is a new article of
commerce identifiable as yarn but made of materials
falling outside the classifications for yarn
provided by the Tariff."

21. The Tribunal then went on to invite further submission on the classification to which the goods were "most akin".

22. In its final decision on 23 July 1984, the Tribunal resiled to some extent from its previous position. It said,

"The characteristic which the imported grass
yarn shares with "yarn" in its ordinary sense is in
its capacity to be used in a textile manufacturing
process, due to the qualities given to the strip by
the process of fibrillation. However, despite the
name "yarn" which the trade has applied to the
goods and despite their use in the manufacture of
textiles, the imported goods do not, in our view,
conform to the normal understanding of the word
"yarn".

With respect to the goods to which item 51.02
applies, namely "strip (artificial straw and the
like) of man made fibre materials", the essential
characteristic of "strip" in contrast to yarn is
that it is a continuous product entire within
itself. It is not made by twisting separate fibres
or filaments together to form a continuous strand.
Whilst a twisted fibrillated strip of polypropylene
may have enough of the characteristics of "yarn" to
enable it to be used as a form of yarn for certain
textile manufacturing purposes, the fibrillation
process does not alter the fact that it is a
fibrillated strip of polypropylene and not "yarn"
within the ordinary meaning of that word. Thus,
despite the extent to which the goods are able to
simulate some of the characteristics of "yarn",
they remain, in our view, more akin to "strip" to
which item 51.02 applies than they do to "yarn of
continuous man made fibres" of a kind to which item
51.01 applies. In terms of "kinship", they are
closer to the "strip" from which they have come
than to traditional "yarn" which they aspire to
be."

23. With great respect for the care with which the Tribunal approached this matter, we are unable to agree with the final result. In our view the first finding of the Tribunal was correct. The product looks like a yarn, it is invariably described in the trade as a yarn, and it serves the purpose of a yarn. The Tribunal said that before it could be classed as a yarn for purposes of the schedule, the product had to fall within the ordinary meaning of that word. It was not sufficient for it to fall within "a trade extension of that meaning". It is not necessary for us to consider whether that was a correct approach, because we believe this product was a "yarn" within the ordinary meaning.

24. The Tribunal found the ordinary meaning of the word in the Modern Textile and Apparel Dictionary (4th Ed) by G E Linton.

"Yarn" is there defined as "a generic term for an
assemblage of fibres or filaments, either natural
or man made, twisted together to form a continuous
strand which can be used in weaving, knitting,
braiding or plaiting or otherwise made into a
textile material."

''''''''''''''''

25. It is not entirely clear why the Tribunal decided that the product did not conform to the dictionary definition quoted. It might be thought from the final passage of its decision quoted above that it notionally introduced into the definition an additional requirement that the fibres or filaments be 'separate'. Whatever the explanation, we have come to the opposite view.

26. In our opinion, to adopt the definition quoted, the product is an assemblage of man-made filaments, twisted together to form a continuous strand which can be used in weaving (carpets) .... or .... made into a textile (carpet) material.

27. The next question to be considered is whether the fibres or filaments of the yarn are continuous, within the meaning of item 51.01 of the Schedule. The evidence, which is not in dispute, speaks of the fibrillation process producing a 'web' or, in the words of the Tribunal, an "interconnected network" of fibres or filaments in the tape-like strip of polypropylene. The Tribunal found that

".... it is impossible to identify from within the
fibrous web created by fibrillation any fibre or
filament that can be said to be "continuous".
Only the fibrous web itself is continuous and that
it because it has been created out of a continuous
polypropylene strip. The strip has been converted
by fibrillation into "fibrous material" not
"continuous fibres".

28. The Tribunal's conclusion that it is impossible to identify any fibre that can be said to be continuous, is a finding of fact based on expert evidence. Counsel for the appellant was not able to point to any error of law affecting this conclusion and, in the course of his address, tended to rely more heavily on his alternative argument that, if the goods were not composed of "yarn of continuous man-made fibres" then they were certainly made of "yarn of man-made fibres (whether discontinuous or waste)" within item 56.05.

29. This argument not having been put to the Tribunal, the Court allowed it to be raised only on the understanding that, if it were upheld, the matter would be sent back to the Tribunal to enable further evidence to be taken. It was submitted for the respondent that the fibres in question might be neither "continuous" nor "discontinuous" because of their web-like construction. Without the benefit of evidence we express no view on this submission beyond saying that, in our view, it is quite possible that the goods fall within item 56.05.

30. If, after considering relevant evidence, the Tribunal should find that the goods do not fall within item 56.05, it will have to reconsider the application of the 'most akin' rule; but this time it will have three possibilities to consider. We agree with the Tribunal that the goods have lost their identification as 'strip' because of the process of fibrillation, though the Explanatory Notes to the Customs Nomenclature, tendered to the Court by consent of both parties, make it clear that twisting alone would not deprive 'strip' of its identity.

31. We have ruled, as a matter of law, that the goods in question are a yarn, and this may also affect the Tribunal's decision under the 'more akin' rule, if it becomes necessary to apply that rule. It will be necessary to relate the goods in question to other yarns made from man-made fibres, both continuous and discontinuous, and to 'strip' (whether twisted or untwisted) in order to determine which of those products the goods in question most resemble in their composition, manufacture, appearance and use.

32. The order of the Court is that the appeal be allowed, the decision of the Tribunal set aside and the matter remitted to the Tribunal to be heard and determined in accordance with these reasons for judgment after the hearing of such further evidence as it may decide to receive. Having regard to the history of this case and to the extent of the evidence already heard by the Tribunal, we consider that, subject to questions of availability of members, it would be helpful if the matter were further heard by the Tribunal as it has so far been constituted. Since the appellant has succeeded in part on a ground not raised before the Tribunal we think it would be appropriate to order the respondent to pay one half of the appellant's costs of this appeal.