Re Lnc (Wholesale) Pty Limited v the Collector of Customs [1988] FCA 6 (22 January 1988)

FEDERAL COURT OF AUSTRALIA

Re: LNC (WHOLESALE) PTY LIMITED
And: THE COLLECTOR OF CUSTOMS
Nos. NSW G305 and G306 of 1987
Appeal from the Administrative Appeals Tribunal

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sweeney(1), Davies(2) and Einfeld(2) JJ.

CATCHWORDS

Appeal from the Administrative Appeals Tribunal - Customs - valuation of goods - monies deducted by exporter from price of cars to assist applicant with expenditure on advertising, sales warranties and after sales service - Collector treated sums deducted as a part of the price - history of valuation of goods - transaction value of goods - definition of price in Customs Act, s.154

Customs Act 1901 (Cth) ss.154, 159

Customs Amendment Act 1976 (Cth)

Customs (Valuation) Amendment Act 1981 (Cth)

International Trade Organization Act 1948 (Cth)

HEARING

SYDNEY
22:1:1988

Counsel for the applicant: Mr M.H. Tobias Q.C. with Mr J.S. Hilton

Solicitors for the applicant: Dunhill Morgan

Counsel for the respondent: Mr C. Darvall Q.C. with Mr G. Dowling

Solicitors for the respondent: Australian Government Solicitor

ORDER

The appeal in G305 of 1987 be dismissed.

The appeal in G306 of 1987 be allowed.

The decision of the Administrative Appeals Tribunal appealed against in G306 of 1987 be set aside and the matter be remitted to the Administrative Appeals Tribunal for rehearing either with or without the hearing of further evidence.

Each party should bear its or his own costs of the appeals.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

These two appeals have been heard together. The facts which gave rise to them and the history of the legislation under which they have arisen have been fully set out by Davies and Einfeld JJ., who have pointed out that the primary basis of valuation of goods for the purposes of customs duty is the "transactional value" of those goods. It is common ground that that is the basis proper to be adopted in these cases.

2. Sub-section 159(2) of the Customs Act 1901 (Cth) ("the Act") provides:-

"The transaction value of goods is an amount
equal to the amount of the price, as
determined by the Collector, in accordance
with the relevant transaction, being that
price as adjusted to the extent required by
sub-section (3)".

3. Sub-section 154(1) of the Act defines "price", unless the contrary intention appears, thus:

"'price', in relation to goods the subject of
a contract of sale, means the aggregate of all
payments made, or to be made, directly or
indirectly, in connection with the goods by
the purchaser to or for the benefit of the
vendor (including any payment by the purchaser
to a person other than the vendor to satisfy
an obligation to the vendor) in accordance
with the contract, whether the payment is made
in money or by letter of credit, negotiable
instrument or otherwise, and includes the
value, as determined by a Collector, of any
goods or services that are to be supplied by,
or on behalf of, the purchaser as part of the
consideration, passing from the purchaser
under the contract of sale, but does not
include any duties of customs, or any other
taxes, payable under a law in force in
Australia by reason of the importation or sale
of the goods;"

4. Paragraph 154(2)(a) of the Act provides:-

"In ascertaining the price of goods for the
purposes of this Division -

(a) a Collector shall not have regard to -

(i) any rebate of, or other decrease in,
that price the right to which has
not accrued when the ascertainment
is made; or

(ii) any costs, charges or expenses in
respect of activities undertaken by
the purchaser on his own account in
connection with the goods (including
any activities of the purchaser
relating to advertising or promoting
the sale of the goods or relating to
warranties or guarantees in respect
of the goods);"

Paragraph 154(2)(b) provides:-

"In ascertaining the price of goods for the
purposes of this Division -

(b) a Collector shall deduct from the amount
that, but for this paragraph, would be the
amount of that price such amounts as the
Collector considers necessary, in accordance
with generally accepted accounting principles,
to take account of the following matters:

(i) any payment of interest, or any other
cost or charge, paid or payable under a
financing arrangment entered into by
the purchaser with respect to the
purchase of the goods;

(ii) any overseas freight or overseas,
insurance in respect of the goods;

(iii) any of the following costs, charges or
expenses in respect of the goods that
are, in the opinion of the Collector,
capable of being quantified by
reference to the contract of sale of
the goods;

(A) any costs, charges or expenses
that are incurred for the
construction, erection, assembly
or maintenance of, or any
technical assistance in respect
of, the goods, being costs,
charges or expenses incurred after
the importation of the goods,

(B) any Australian freight or
Australian insurance in respect of
the goods".

G305 of 1987

5. For the year 1985 LNC had drawn up a budget in respect of its importation of Fiat Motor vehicles including projections of the number of vehicles which it anticipated selling. The budget, which had been supplied to the exporter, Fiat, provided for the expenditure on advertising of a certain amount from the profit of the sale of each vehicle and LNC entered into agreements with advertisers to expend a fixed amount, calculated by multiplying the portion of profit per vehicle by the projected number of vehicles. By the middle of the year, sales having been below budget, it found that it had expended $90,000 over and above the amount represented by the advertising proportion of profit upon each vehicle multiplied by the actual number of vehicles sold.

6. LNC drew this shortfall to Fiat's attention, pointing out that the advertising campaign benefited the exporter as well as the importer, and requested Fiat to make a contribution to LNC in respect of the over-run of expenditure. Fiat agreed to make a contribution of $US30,000 towards the cost of the campaign. The Fiat model being imported, to which the campaign related was called Regata.

7. The Administrative Appeals Tribunal had before it a statement of agreed facts, as follows:

"1. Pursuant to an agreement made by an
exchange of a telex dated 9 September,
1985 and a letter dated 19 September,
1985 it was agreed that a total amount of
US$30,000.00 would be deducted from the
ex-factory invoice price of September and
October sedan units (comprising 332 motor
vehicles) at a rate of US$90.00 per
vehicle as an advertising contribution
from the vendor to the purchaser.

2. A delegate of the Comptroller pursuant to
s161D of the Customs Act has determined
that the value of each of the 7 Regata
Saloon Super vehicles be uplifted by
A$135.13 to take into account the
deduction of US$90.00".

8. In a telex of 9 September 1985 from Fiat to LNC the former said:

"The 30.000 USDoll. advertising contribution
can be deducted from unit prices at 90 Doll.
per unit for an effective ex factory of doll.
3560 for 100S and 85S AUTO and Doll. 3150 for
85S MAN".

9. In its letter of 19 September 1985 LNC replied:

"We thank you for your proposal that US$30,000
will be deducted from the FOB prices of
September and October sedan units.
Effectively this will be US$90 per unit on the
332 vehicles involved. Would you please make
the necessary arrangements for this
adjustment".

10. Fiat's representative, Mr E. Colli, gave the following evidence:

"So you offered the contribution by way of
discount? ... We offered the - a token
contribution which was about 10 per cent: 10
per cent on the expenditure".

11. The Tribunal held that Fiat's advertising contribution "should not be regarded as a reduction in the price of the vehicle but should be added on for customs purposes". This finding involved the conclusion that the result of the arrangement between Fiat and LNC was that LNC became entitled to an advertising contribution from Fiat, which it could use as a set-off against the previously agreed prices of the vehicles for delivery in September and October. It is true that the Tribunal's choice of language was unfortunate when it referred to LNC as being under a fiduciary obligation to apply the sum of $30,000 for the purpose of advertising. The point would have been more happily expressed by saying that LNC and Fiat had a common understanding that the contribution would enable LNC to continue to carry out its advertising budget to the benefit of both parties.

12. In my opinion, the Tribunal's finding was one which was open to it upon the evidence and was arrived at without error of law. I would dismiss the appeal with costs.

G306 of 1987

13. This appeal relates to that part of the definition in sub-s.154(1) of the Act whereby price "includes the value, as determined by a Collector, of any goods or services that are to be supplied by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale".

14. The parties submitted an agreed statement of facts to the Tribunal, as follows:

"AUDI 100 - AUDI COVER
1. The goods consisted of 3 Audi 100 Saloon
motor vehicles (being part of an order
for 218 vehicles) which were imported
(together with other vehicles of later
manufacture) in the vessel 'Nissan
Laurel' on 11 September, 1985 at the Port
of Sydney (hereinafter called 'the
goods').

2. The goods were manufactured in the
Federal Republic of Germany (West
Germany) by Volkswagenwerk AG, the vendor
of the goods.

3. The owner of the goods for the purposes
of Australian Customs was LNC Wholesale
Pty. Limited.

4. LNC Wholesale Pty. Limited is the holder
of all motor vehicle import quotas on
behalf of the LNC group of companies.
Volkswagen Australia Pty. Limited is a
member of the LNC group and is the sole
Australian distributor of Volkswagen and
Audi motor vehicles.

5. On or about 5 December, 1984 the vendor
agreed to share in the costs of a
programme entitled 'Audi Cover' on new
Audi 100 motor vehicles to be offered by
Vokswagen Australia Pty. Limited for a
period of two years or 50,000 kilometres.
The vendor's contribution was to be by
way, LNC contends, of an ex-works price
reduction, and, Customs contends, by a
reduction in payment, of DM.350.00 in
respect of each of the goods. The
agreement applied to all Audi 100
vehicles supplied by the vendor up to 31
July, 1985".

15. The evidence before the Tribunal included a document which set out the services embraced in Audi Cover, as follows:

"The Audi Cover benefits referred to herein
are in addition to those provided under the
standard Audi New Vehicle Warranty, and they
are intended to supplement your statutory
rights.

Subject to the special note below, Audi Cover
entitles the vehicle owner to the following
services (with free parts and labour) during
the first 50,000 km. of operation of the
vehicle or 2 years from the date of first
registration, whichever is the shorter period
('Audi Cover benefit period')"

1. All repairs needed to correct defects in
original vehicle materials or
workmanship.

2. All prescribed maintenance services as
described in the published Service
Schedule, including oils and other
lubricants.

3. All parts (excluding tyres) replaced due
to wear and tear arising out of normal
vehicle operation".

16. The services were provided by LNC's subsidiary Volkswagen Australia Pty. Limited. Article 22 of the distributorship agreement required LNC to accept warranty responsibility for the imported products at least to the extent provided in Appendix 6 of Exhibit 9 and to give an equivalent warranty to customers on its own account. Article 10 provided for reimbursement of the distributor by Volkswagenwerk A.G. for its expenses in complying with such warranties.

17. LNC submitted to the Tribunal, and to us, that Audi Cover was an activity undertaken by LNC or its subsidiary on its own behalf, within the meaning of paragraph 154 2(a)(ii) of the Act. The Tribunal rejected this submission, holding that the paragraph was "directed to services supplied exclusively on account of the purchaser and not under a contract by virtue of which it secures the advantage of a reduction in the price of the imported goods".

18. The Collector of Customs submitted and the Tribunal found that the services provided by LNC or its subsidiary pursuant to Audi Cover fell within the phrase "any goods or services that are to be supplied by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale".

19. I have had the advantage of reading the reasons for judgment of Davies and Einfeld JJ. in relation to this appeal. I agree with their conclusions that the Tribunal was entitled to find on the facts, as it did, that the price payable for the Audi vehicles was reduced by DM350 as part of the agreement by Volkswagenwerk A.G. to share in the costs of the provision of the Audi Cover, and that this finding involved no error of law. I also agree with their Honours' opinion as to the errors made by the Tribunal in its consideration of the question whether there should be added to the price payable the value of goods and services to be supplied by LNC under the Audi Cover, and with their opinion that the appeal should be allowed, the decision set aside, and that the matter should be remitted to the Tribunal for rehearing according to law. I agree with their Honours' reasons for those opinions, and with the orders they propose.

These two appeals are brought from a decision of the Administrative Appeals Tribunal with respect to the valuation of goods for the purposes of customs duty. Though the subject matter of the appeals are similar, the points of law raised in each are not the same and the facts of the two cases are different. In each case, monies had been deducted by the exporter from the price of motor vehicles imported into Australia, the deduction being made to assist the applicant, LNC (Wholesale) Pty Ltd ("LNC") with respect to expenditure incurred by LNC in Australia. In Appeal No. G305 of 1987, LNC's expenditure was incurred with respect to advertising and in Appeal No. G306 of 1987 it was incurred with respect to sales warranties and after-sales service. In each case the Collector of Customs treated the sums deducted as a part of the price and therefore of the value of the imported vehicles.

2. Before turning to the facts, it is convenient to deal with the recent history of the valuation of goods for customs purposes. On 30 October 1947 there was executed the General Agreement on Tariffs and Trade. Acceptance of the treaty by Australia was authorised by the International Trade Organisation Act 1948 (Cth). Article VII of the agreement dealt with the valuation of goods for customs purposes. Paragraph 2 provided:-

"2.(a) The value for customs purposes of imported
merchandise should be based on the actual value of
the imported merchandise on which duty is assessed,
or of like merchandise, and should not be based on
the value of merchandise of national origin or on
arbitrary or fictitious values.

(b) 'Actual value' should be the price at which, at a
time and place determined by the legislation of the
country of importation, such or like merchandise is
sold or offered for sale in the ordinary course of
trade under fully competitive conditions. To the
extent to which the price of such or like merchandise
is governed by the quantity in a particular
transaction, the price to be considered should
uniformly be related to either (i) comparable
quantities, or (ii) quantities not less favourable to
importers than those in which the greater volume of
the merchandise is sold in the trade between the
countries of exportation and importation.

(c) When the actual value is not ascertainable in
accordance with sub-paragraph (b) of this paragraph,
the value for customs purposes should be based on the
nearest ascertainable equivalent of such value."

(The underlining is ours).

3. In implementation of this Article, a Convention on the Valuation of Goods for Customs Purposes was signed in Brussels on 15 December 1950. The text set out in Annex 1 became known as "the Brussels Definition of Value." Paragraph (1) of Article I thereof provided:-

"(1) For the purposes of levying ad valorem duties of
customs, the value of any goods imported for
home use shall be taken to be the normal price,
that is to say, the price which they would fetch
at the time when the duty becomes payable on a
sale in the open market between a buyer and a
seller independent of each other."

The Brussels Definition of Value was adopted in Australia by the Customs Amendment Act 1976 (Cth) which came into force on 1 July 1976. The basis of the Brussels Definition of Value was the price at which the goods would have been sold in the ordinary course of trade under fully competitive conditions. The price at which the goods were in fact sold was to be evidence, but not conclusive evidence, of this value.

4. Needless to say, the search for an arms-length price under fully competitive conditions gave rise to many esoteric and subtle arguments. For example, in the United Kingdom, in Rolex Watch Co. Limited v. Commissioner of Customs and Excise (1956) 2 All ER 589, Denning L.J. uplifted the invoice price of Rolex watches imported into England by reference to the cost of English advertising. At p. 591, Denning L.J. said:-

"It is only as a result of the English advertising,
coupled with the international advertising, that the
Rolex watches have the value which they have.
Therefore (as the referee held), the value of the
goods should include the appropriate sum to repay the
cost of the advertising spent in making and
maintaining the market."

In a like case in Australia, Re Renault (Australia) Pty Limited and Bureau of Customs (1977) 1 ALD 19, the Administrative Appeals Tribunal uplifted the invoice price by virtue of advertising undertaken in Australia. At p.24. the Tribunal said:

"The trading situation which is postulated by the
Brussels Convention may be conceded to be artificial,
but the postulates are sufficiently clear to enable
the statutory valuation to be undertaken. If the
notional buyer were in competition with other
importers of Renault vehicles, he would not undertake
the same responsibility for, and incur the same costs
of, advertising as Renault Australia now does.
Advertising of the same kind would no doubt continue,
or substantially continue, but its costs would
necessarily be borne by the company which would
benefit by the expenditure, viz, Renault France.
Renault France, without an Australian subsidiary
importer, would undertake the defence and development
of the Australian market for Renault vehicles,
deriving such assistance as it could from the
unrelated importers and from the various dealers.
Renault France would seek to recover the cost of its
advertising in the price of the vehicles sold to the
notional buyer. The Brussels Definition would
therefore include in the 'normal price' of each
vehicle a proportion of that cost of advertising
which, in the hypothetical trading situation, Renault
France would bear."

See also Re Sussan (Wholesalers) Pty Limited and Collector of Customs (1978) 1 ALD 603 and Re Effem Foods Pty Ltd and Collector of Customs (1979) 2 ALD 597. Nevertheless, the price actually paid was not irrelevant. As the Tribunal said in Re Sussan at p 608:-

"The Definition pre-supposes a number of assumptions
which are consistent with ordinary commercial
transactions readily understood by people in
commerce. Further, to assist the ready calculation
of duty, Interpretative Note 5 specifically provides
that, 'In practice, when imported goods are the
subject of a bona fide sale, the price paid or
payable on that sale can generally be considered as a
valid indication of the normal price mentioned in the
Definition'."

5. Necessarily, the application of the Brussels Definition of Value gave rise to disputations between importers and customs authorities. As a result, a new valuation code, entitled "Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade" was adopted. This was negotiated in 1979 and was given effect in Australia by the Customs (Valuation) Amendment Act 1981 (Cth), which came into force on 30 November 1981. The new legislative scheme is that with which we are now concerned.

6. The legislative scheme provides that the primary basis of valuation is the "transaction value" of goods. It is not in dispute in these two appeals that that is the basis of valuation to be adopted and we therefore need not discuss the other bases of valuation provided. Section 159(2) of the Customs Act 1901 (Cth) ("the Act") provides:-

"(2) The transaction value of goods is an amount
equal to the amount of the price, as determined by
the Collector, in accordance with the relevant
transaction, being that price as adjusted to the
extent required by sub-section (3)."

Section 159(3) provides, inter alia:-

"(3) There shall be added to the price referred to in
sub-section (2) such amounts as the Collector
considers necessary, in accordance with generally
accepted accounting principles, to take account of
the following matters:

(a) commission or brokerage (not being a fee paid or
payable by the purchaser to his agent for the
service of representing the purchaser in the
purchase of the goods to be valued) paid, or
payable, by the purchaser in respect of the
goods to be valued;

(b) packing costs or charges, whether for materials
or labour or for materials and labour,
(including costs of packages and coverings that
fall within item 12 in Part I of Schedule 4 to
the Customs Tariff Act 1982) incurred by the
purchaser in respect of the goods to be valued;

(c) any of the following goods or services that have
been supplied, directly or indirectly, by the
purchaser free of charge or at a reduced cost in
connection with the production of the goods to
be valued:

(i) materials, components or other goods
that form part of the goods to be
valued;

(ii) tools, dies, moulds or other goods
used in the production of the goods
to be valued;

(iii) any materials consumed in the
production of the goods to be
valued;

(iv) engineering work, development work,
art work or design work that was, or
plans or sketches that were,
required for the production of the
goods to be valued, to the extent
that the work was, or the plans or
sketches were, undertaken outside
Australia;

(d) any goods or services that have been supplied,
directly or indirectly, by the purchaser in
connection with the production of goods or
services specified in a sub-paragraph of
paragraph (c) that have been supplied, directly
or indirectly, by the purchaser (whether or not
free of charge or at a reduced cost) in
connection with the production of the goods to
be valued;

(e) royalties or licence fees (including any
payments for patents, trade marks or copyrights,
whether granted under a law in force in
Australia or in a country other than Australia,
but not including any payments for the right to
reproduce the goods to be valued) paid, or
payable, directly or indirectly, in accordance
with the terms of the relevant transaction or
with any arrangement entered into in connection
with the relevant transaction, by the purchaser
in respect of the goods to be valued;

(f) the accrual, directly or indirectly, to the
vendor of the whole, or any part, of the
proceeds of any resale, disposal or use of the
goods to be valued by the purchaser; or

(g) any inland, freight or inland insurance in
respect of the goods to be valued paid, or
payable, directly or indirectly, in accordance
with the terms of the relevant transaction or
with any arrangement entered into in connection
with the relevant transaction, by the purchaser
to or for the benefit of the vendor."

None of those items applies in the present cases.

7. The reference to "price" in s.159(2) leads to s.154(1) of the Act which defines "price", unless the contrary intention appears, in this manner -

"'price', in relation to goods the subject of a
contract of sale, means the aggregate of all payments
made, or to be made, directly or indirectly, in
connection with the goods by the purchaser to or for
the benefit of the vendor (including any payment by
the purchaser to a person other than the vendor to
satisfy an obligation to the vendor) in accordance
with the contract, whether the payment is made in
money or by letter of credit, negotiable instrument
or otherwise, and includes the value, as determined
by a Collector, of any goods or services that are to
be supplied by, or on behalf of, the purchaser as
part of the consideration passing from the purchaser
under the contract of sale, but does not include any
duties of customs, or any other taxes, payable under
a law in force in Australia by reason of the
importation or sale of the goods;"

It will be noted that there are two parts to the definition. The first deals with payments made and the other with goods or services supplied.
Section 154(2)(a) provides:-

"In ascertaining the price of goods for the purposes
of this Division -

(a) a Collector shall not have regard to -

(i) any rebate of, or other decrease in, that
price the right to which has not accrued
when the ascertainment is made; or

(ii) any costs, charges or expenses in respect
of activities undertaken by the purchaser
on his own account in connection with the
goods (including any activities of the
purchaser relating to advertising or
promoting the sale of the goods or relating
to warranties or guarantees in respect of
the goods);"

Section 154(2)(b) provides:-

"In ascertaining the price of goods for the purposes
of this Division -

(b) a Collector shall deduct from the amount that,
but for this paragraph, would be the amount of that
price such amounts as the Collector considers
necessary, in accordance with generally accepted
accounting principles, to take account of the
following matters:

(i) any payment of interest, or any
other cost or charge, paid or
payable under a financing
arrangement entered into by the
purchaser with respect to the
purchase of the goods;

(ii) any overseas freight or overseas
insurance in respect of the goods;

(iii) any of the following costs, charges
or expenses in respect of the goods
that are, in the opinion of the
Collector, capable of being
quantified by reference to the
contract of sale of the goods:

(A) any costs, charges or expenses
that are incurred for the
construction, erection, assembly
or maintenance of, or any
technical assistance in respect
of, the goods, being costs,
charges or expenses incurred
after the importation of the
goods;

(B) any Australian freight or
Australian insurance in respect
of the goods."

8. It is convenient to make some general comments respecting these provisions. In the first place, it is to be noted that there is overlapping. Section 159(3) expressly includes in the price some items which ordinarily would form part of the price as defined by s.154(1). Likewise, some items are expressly excluded by s.154(2) that would not ordinarily fall within the concept of price as defined. It follows, therefore, that the words used in s.154(1) should not be read down or delineated by the terms of ss.154(2) and 159(3).

9. Secondly, it is clear that expenditure such as the advertising expenditure considered in the Rolex Watch case and in Re Renault, is not to be taken into account under the new basis of valuation. Advertising of that nature, even if it were undertaken pursuant to a condition of the contract of sale, would ordinarily be undertaken by the importer on his own account and thus expressly excluded by s.154(2)(a). Advertising which an importer undertakes on his own behalf,even if done with the accord of the exporter, is advertising undertaken on his own account.

10. Thirdly, the legislation provides a basis of valuation that is less theoretical and more practical than the Brussels Definition of Value. Primacy is given to the price actually paid or payable adjusted in accordance with a number of simply stated rules. It is appropriate in the application of these rules to eschew technicality and subtlety and to take a practical commercial view of transactions. In Commissioner of Inland Revenue v. Littlewood Mail Order Stores Ltd (1962) 2 All ER 279 at 284, Viscount Simonds, with whom Lord Devlin concurred, referred to the familiar proposition "that the substance alone of the transaction is to be looked at." Thus, when the definition of price refers to "the aggregate of all payments made, or to be made, directly or indirectly, in connection with the goods by the purchaser to or for the benefit of the vendor ... in accordance with the contract", the legislation is looking to what has occurred as a matter of fact, having regard to the substance rather than the form of the transaction, though that is not to deny that the substance of a transaction "is that which results from the legal rights and obligations of the parties ascertained upon ordinary legal principles", per Lord Tomlin in Commissioners of Inland Revenue v. Duke of Westminster (1936) AC 1 at 20-1.

11. Thus, in Mutual Finance Limited v. Davidson and Another (1963) 1 WLR 134, the Court of Appeal considered an issue arising under the Hire Purchase Acts 1938 to 1954 of the United Kingdom. The issue was whether the hire purchase price exceeded 300 Pounds. The single price paid by the finance company to the motor dealer, and which the purchaser had to pay off by instalments to the finance company, contained as an element the cost of insurance which the motor dealer had agreed to arrange on the purchaser's behalf. At p.139, Ormerod L.J. said:-

"The real position is that the hirer purchased a car,
which he could take out on the road, and, therefore,
in respect of which an insurance policy had been
taken out. If that be the right view to take, then
it was proper to include this sum in the
hire-purchase price, and the Hire-Purchase Acts, 1938
to 1954, would not apply."

Donovan and Pearson L.JJ. expressed like views save that their Lordships excluded from their consideration what the position would have been if the cost of the insurance had been separately provided for. With that qualification, Pearson L.J. said, at p.144, that the insurance element was not to be excluded from the price for it was not a foreign or extraneous element but a genuine part of the price.

12. In the United States, it has been held that payments necessarily made to obtain possession of, or the right to use goods, are part of the purchase price of the goods whereas payments made for an exclusive right to deal in the goods or for the right to use a patented process are not. In Brauner & Co. v. United States 44 Cust. Ct. 661 at 665 Judge Lawrence said:-

"Plaintiff, in its brief, sets forth what it deems to
be settled law that payments necessary to obtain
possession of or the right to use merchandise are
considered part of the purchase price or cost of
production of said merchandise (International
Forwarding Co. v. United States, 17 CCPA
(Customs) 86, TD 43377; United States v. Vandegrift
& Co., 26 CCPA (Customs) 360, 364, CAD 42);
but that it is equally well established that license
fees or royalty payments for the exclusive right to
purchase machines for export to the United States
(United States v. Hensel, Bruckmann & Lorbacher,
Inc., 39 CCPA (Customs) 86, CAD 468; Pacific
Customs Brokerage Co. v. United States, 30 Cust Ct
547, Reap Dec 8218; United States v. Alfred Dunhill
of London, Inc., 32 CCPA (Customs) 187, CAD
305), or for the right to use a patented process
(United States v. The Tide Water Oil Co., 19 CCPA
(Customs) 392, 399, 400, TD 45554), or for services
of an engineer to improve the efficiency of a machine
(United States v. Rohner Gehrig & Co., Inc., 4 Cust
Ct 864, Reap Dec 4923; United States v. Rohner
Gehrig & Co., Inc., 9 Cust Ct 591, Reap Dec 5724)
are not part of the value or cost of production of
the merchandise there under consideration. That
argument applies here with apt relevance."

13. Similarly, it has been held that if a fee is paid for the right to use goods, that fee is part of the purchase price since the right to use is one of the elements of ownership. In Kuttroff, Pickhardt & Co. (Inc) v. United States 59 Treas Dec 676 at 678, Judge Brown said:-

"Under any agreement between the purchaser and the
seller the purchaser is bound to pay the price which
includes the 10 per centum royalty, and the sale of
the commodity could not have been accomplished
without payment of the said royalty, any more than
without the payment of the pound rate of $5.16. One
is just as essentially a part of the purchase price
as the other, and it makes no difference what the
method of collection is or that separate bills are
furnished (to) the purchaser, nor does it materially
affect the transaction that a part of the actual
price paid for the goods is remitted to one other
than the seller.

The controlling consideration is whether or not the
element of royalty actually became a part of the
purchase price which the prospective purchaser was
compelled to pay, in the ordinary course of trade, in
order to secure the goods. There seems to be no
escape from the conclusion that the royalty was part
of the market value of the merchandise."

The decision in that case may be contrasted with that in United States v. Imperial Products Inc. 570 F 2d 337 (1978) in which, at p 340, Judge Rich, expressing the opinion of the majority, said:-

"Another way to show the royalty is not part of the
selling or offering price is the way that was
followed here - to show by evidence what the royalty
is for, namely, a manufacturing license under a
patent to make the complete brush in the United
States. Because the royalty was charged for the
right to make and sell under the patent rather than
for merchandise, it was not part of the selling price."

14. We need not give other illustrations from the United States for the provisions of the Customs Act 1901 must be interpreted according to their own words and not in accordance with principles developed under other laws in other countries. The point to note is that the definition brings to account the totality of all payments made which fall within the concept of price, whether they be termed price or given another name. It is sufficient that the payments be made in connection with the goods but those words do not, in the context, bring to account payments made with respect to a matter having no more than an association with the goods. The words "in connection with the goods" are looking to payments made with respect to the acquisition of the goods, including the right to use the goods.

15. The relevant sums must be payable under "the contract of sale". As we have said, the form of the contract will not be determinative. Matters which are foreign and extraneous to the question of price will not be taken into account though provided for in a document entitled "Agreement for Sale". Likewise, a sum which is truly part of the price paid to acquire the subject goods will be included in the price notwithstanding that it may be provided for, not in a document entitled Agreement for Sale, but in some collateral agreement otherwise entitled.

16. In the light of these comments, we turn to consider separately the two appeals. Appeal G305 of 1987 concerns the first part of the definition of "price" in s.154(1), that is to say, "... the aggregate of all payments made ... directly or indirectly, in connection with the goods by the purchaser to or for the benefit of the vendor ... in accordance with the contract ...". LNC, which was an importer of Fiat Motor Vehicles, carried out an advertising campaign throughout 1985 with a view to promoting the sale of these vehicles. It had drawn up its advertising budget on the footing of allocating certain of the profit from each sale to advertising. By the middle of the year, it found that, as sales were below projections, it had failed to recoup $90,000 that it had expected to recoup from the number of sales on which it had budgeted. As the advertising campaign benefitted the exporter as well as LNC, LNC requested a contribution. The exporter, Fiat, agreed to contribute $US 30,000 towards the costs of the advertising campaign. The crucial telex setting out the arrangements between the two parties read:-

"Regata Prices

The rate of exchange LIT/US Doll. Being 1.871,467
for August has activated the trigger mechanism with
an increase of prices of abt. 9% effective price
movements for September and October production are
therefore:

Regata 100S from 3350 to 3650
Regata 85SMAN/ from 2970 to 3240
Regata 85S/AUTO/from 3350 to 3650

17. The outstanding production at factory level is:

1 Sept Oct
100S - 8
85S MAN. 45 55
85S AUTO 73 151
--- ---
Total 118 214

Grand Total 332 Units

The 30.000 USDoll. advertising contribution can be
deducted from unit prices at 90 Doll. per unit for an
effective ex factory of doll. 3560 for 100S and 85S
AUTO and Doll. 3150 for 85S MAN."

This was responded to by letter of 19 September 1985 which read:-

"Referring to your telex 9th September (reference
13225).

We thank you for your proposal that US$30,000 will be
deducted from the FOB prices of September and October
sedan units. Effectively this will be US$90 per unit
on the 332 vehicles involved. Would you please make
the necessary arrangements for this adjustment."

18. Fiat's representative, Mr E. Colli, gave this evidence as to the contribution:

"So you offered the contribution by way of discount?
--- We offered the - a token contribution which was
about 10 per cent: 10 per cent on the expenditure."

That evidence and the correspondence we have set out above show that Fiat agreed to make a contribution of $US 30,000 towards LNC's advertising costs, the contribution to be made by deduction of equal amounts, approximately $US 90, from the price of 332 vehicles. Each such vehicle was invoiced at a price $US 90.36 less than the price otherwise fixed. The actual contribution therefore totalled $US 29,999.52.

19. The Administrative Appeals Tribunal made these findings:-

"Fiat Auto SpA agreed to make a contribution of
US$30,000 towards advertising costs, to be deducted
at the rate of US$90 per unit from the factory price
of each vehicle purchased.

...

In my opinion, the invoice prices should be uplifted
at the appropriate date by the market exchange
equivalent of US$90 per unit. It appears to me that
the Fiat Auto SpA advertising contribution was
stamped with a fiduciary obligation requiring the
applicant to apply the money for the purpose of
advertising the Fiat cars. The reduction in invoice
price was obtained upon a representation that it
would be so applied. (See Daly v Sydney Stock
Exchange Ltd. [1986] HCA 25; (1986) 65 ALR 193 at 198 per Gibbs
C.J.) So regarded, the advertising contribution
should not be regarded as a reduction in the price of
the vehicle but should be added on for customs
purposes. The decision of the respondent on this
issue is affirmed."

20. Plainly, the expenditure incurred by LNC on advertising in Australia was not to be brought into account for the purposes of valuation. We have already explained that one of the major changes in the basis of valuation was that calculations of the type undertaken in the Rolex Watch case and in Re Renault are no longer applicable. The advertising in Australia was undertaken by LNC on its own account, though with the accord of Fiat's representatives in Australia.

21. Moreover, the contribution of $US 30,000 made by Fiat to the cost of the advertising was not a matter to be brought to account for the purposes of valuation. If Fiat had sent a cheque for $US 30,000 to LNC as its contribution to LNC's advertising costs, that contribution would not have been brought to account as part of the transaction price.

22. The sole issue in this appeal, therefore, is what was the price paid or payable by LNC for the imported vehicles. Was the agreement between Fiat and LNC one whereby Fiat agreed to pay $US 30,000 to LNC by setting off $US 90.36 against the price of each of the 332 vehicles which had been ordered and were to be delivered in the months of September and October? In that event the true price remained unchanged. Or was the agreement one whereby, in order to assist LNC, Fiat agreed to reduce the price of the 332 vehicles that would be delivered in September and October?

The terms and content of the agreement between Fiat

and LNC was a question of fact of which the Tribunal was the judge and it was an issue determined by the Tribunal after considering the oral and documentary evidence adduced before it. In this appeal, the Court is bound by the Tribunal's finding on this matter unless there was an error of law in its approach.

23. The Tribunal found against the applicant on the point and concluded that the arrangement between LNC and Fiat was that Fiat would make a contribution of $US 30,000 and that that contribution was to be applied by LNC towards the cost of its advertising campaign. The Tribunal concluded that it was agreed that the $US 30,000 would be set off against the price payable for the vehicles to be delivered during September and October and that there was in truth no reduction in the price of those vehicles.

24. It does not appear to us that there was any error of law in the Tribunal's finding on this matter. The quantum of the advertising contribution was clearly identified, $US 30,000, and it was to be made by way of deduction of the proportionate sum, $US 90.36, from each of the 332 vehicles to be delivered in September and October. The deduction of $US 90.36 from the price otherwise charged for each vehicle effectively constituted a payment by way of allowance, totalling in all $US 29,999.52.

25. It was put by Mr M.H. Tobias, Q.C., senior counsel for the applicant, that the Tribunal was incorrect in stating that LNC was under a fiduciary obligation which required LNC to apply the $US 30,000 for the purpose of advertising. It can quickly be agreed that the words used by the Tribunal were stronger than the facts justified for LNC was not required to place $US 30,000 into a special fund and it did not increase its advertising obligations. Nevertheless, the $US 30,000 was understood by both Fiat and LNC to be a contribution to the cost of LNC's advertising campaign and it was paid as an encouragement or inducement to LNC to maintain the level of advertising which both LNC and Fiat considered desirable. The words "fiduciary obligation" are not appropriate but it was understood between LNC and Fiat that, on the making of the contribution by Fiat to LNC of $US 30,000, LNC would continue with the programme of advertising which had already been outlined to Fiat's representative in Australia. We think this was the substance of the point which the Tribunal was making. It would be wrong to look too critically at the precise words which a busy tribunal uses to express its findings.

26. In the circumstances, it does not appear to us that there was any error of law in the findings made by the Tribunal with respect to this matter. We would dismiss the appeal in G305 of 1987.

27. We turn now to Appeal No.G306 of 1987, which concerns the second part of the definition of price, namely "... the value ... of any goods or services that are to be supplied by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale ...". In this matter, LNC was the Australian distributor for Audi motor vehicles. It developed a proposal to provide a warranty called "Audi cover" for each new Audi 100 Saloon sold by retail in Australia, entitling the purchaser to have all the costs of service, both parts and labour but excluding tyres and fuel, supplied free of charge for a period of two years after sale or during the period of the first 50,000 km of the vehicle's life, whichever time be the shorter. LNC requested Volkswagenwerk A.G., the manufacturer in Germany, to make a contribution to the costs of the additional costs of this after sale service. Volkswagenwerk A.G. agreed in principle to contribute 50% of the anticipated costs and agreed to do so by reducing the price of each Audi 100 by DM 350.

28. It is a matter of interest, but of interest only, that Volkswagenwerk A.G. calculated that 50% of the additional costs would be DM 550 per vehicle but it realised that if it reduced the price of each vehicle by DM 350 the customs duty payable in Australia would fall by DM 200 per vehicle. Volkswagenwerk A.G. therefore took the view that a reduction in the price of each vehicle of DM 350 was sufficient to make a 50% contribution to the additional costs of the service.

29. On 5 December 1984, Volkswagenwerk A.G. sent the following telex to LNC:-

"Re: Audi 100 Pricing

We are glad to inform you that all departments
involved agreed to our proposal of sharing
maintenance service costs.

Your new Audi 100 prices reduced by DM 350,-- on ex
works, price will be with effect 1/12/84 as follows:

1. Model 444 873 ex works DM 25 960,--
2. Model 444 874 ex works DM 24 940,--

These prices will apply for all Audi 100 vehicles
supplied up to 31st July 1985, i.e. there will be no
vehicle price increase on 1st January 1985. The next
price increase for Audi 100 is fixed at 4 percent
effective 1st August 1985 (plus model-improvement).

M-equipment prices, however, will increase in general
by 4 percent as from 1st January 1985 (with the
exception of those M-Nos. mentioned in our circular
letter of 29th November 1984).

We hope that this measure partially enable you to
achieve the common volume target of 600 Audi 100 ..."

30. It will be noted that Volkswagenwerk A.G.'s contribution to the additional costs of Audi cover were not quantified by any lump sum but only by reference to the reduction in the price of each Audi 100 vehicle supplied after 1 December 1984. Furthermore, there was no agreement as to the number of Audi 100 Saloons to be supplied, though there was an agreed target. Information before the Tribunal suggests that the price reduction was accorded to 218 Audi 100 vehicles imported during January to September 1985. Other information before the Tribunal suggests that the new warranty cover did not commence until 1 March 1985 and that the programme was to be applied to "field stock as at this date" and thereafter.

31. With respect to this matter the Tribunal found:-

"It appears to me that the services supplied by the
applicant or its subsidiary, do fall within the
phrase 'goods or services that are to be supplied by,
or on behalf of, the purchaser as part of the
consideration passing from the purchaser under the
contract of sale' used in the definition of price in
section 154(1) of the Act. A contract for the
benefit of a third party is enforceable between the
principals provided there is consideration.
Consideration flowing to Volkswagenwerk A.G. lay in
the enhancement of its reputation and goodwill in
Australia, the purpose of Volkswagenwerk A.G. being
to increase the sales of its products in this
country. (See Chappell & Co. Ltd. v. Nestle Co. Ltd.
[1959] UKHL 1; (1960) AC 87 per Lord Reid at p 109). I do not
regard the services supplied by the applicant as
falling within the exception in section 154(2)(a)(ii)
of the Act. To my mind the exception is directed to
services supplied exclusively on account of the
purchaser and not under a contract by virtue of which
it secures the advantage of a reduction in the price
of the imported goods. Accordingly I affirm the
decision of the respondent in this respect."

32. It can be seen that the Tribunal accepted that the price payable for the goods was the reduced price as stated in the telex I have set out above. This finding was challenged by Mr C. Darvall Q.C., senior counsel for the Collector. However, it was a factual issue in respect of which the Tribunal was the judge. We see no error of law in its finding.

33. Under the second part of the definition of price, the Tribunal concluded that there should be added to the price payable the value of goods and services to be supplied by LNC under its Audi cover.

34. In our opinion, there were a number of errors in this conclusion. The first is that the sum in question was not the value of those goods and services, which had been calculated to cost DM 1100 per vehicle, but only the contribution thereto made by Volkswagenwerk A.G., namely DM 350 per vehicle. Insofar as there was an agreement between LNC and Volkswagenwerk A.G. that LNC would provide goods and services, it was that LNC would provide all the goods and services necessary for the Audi cover and not merely the part thereof that represented the contribution by Volkswagenwerk A.G..

35. Secondly, the Tribunal did not relate the agreement between LNC and Fiat to contracts of sale for specific vehicles. Thus, the price reduction commenced on 1 December 1984 whereas Audi cover was planned to commence on 1 March 1985. The Tribunal did not make a finding as to the number of vehicles to which the price reduction applied or as to the vehicles to which Audi cover applied. Yet Audi cover was not a relevant matter in the calculation of the price of any imported vehicles unless Audi cover was part of the consideration passing from LNC under the contract for the sale and importation of those vehicles.

36. Thirdly, even though there may have been an agreement between LNC and Volkswagenwerk A.G. that LNC would provide Audi cover, it would seem that that cover was provided by LNC on its own account. It did not provide the cover for or as agent of Volkswagenwerk A.G.. It seems that the cover was provided by LNC in its own name and that it was solely responsible for complying with the warranties given. The fact that Volkswagenwerk A.G. was prepared to reduce the price of its vehicles to assist LNC to provide the cover does not provide a basis for a finding that Audi cover was provided by LNC otherwise than on its own account. Accordingly, s.154(2)(a)(ii) precluded the Collector from having regard to the cost or expense and therefore the value thereof.

37. In this respect, we reject the view of the Tribunal that "the exception (s.154(2)(a)(ii)) is directed to services supplied exclusively on account of the purchaser and not under a contract by virtue of which it secured the advantage of a reduction in price". Section 154(2)(a)(ii) operates to exclude matters that have been brought to account as part of the price being payments made in accordance with the contract of sale or being the value of goods and services supplied as part of the consideration passing under the contract of sale. Therefore, the fact that an agreement with the exporter provides for payments, goods or services which may benefit the exporter does not preclude their being undertaken by the importer on his own account.

38. And, lastly, the Tribunal did not turn its attention to s.154(2)(b)(iii)(A) which provides that costs, charges and expenses incurred for the maintenance of the goods after the importation of the goods shall be deducted from the price. The costs of the goods and services, that is Audi cover, that the Tribunal took into account, appeared to come within that provision. The obligations under the warranties would have been incurred after importation. The Act expressly required such costs to be deducted from the price if they or their value were otherwise taken into account.

39. The Tribunal's finding on this matter accorded with that of the respondent whose reason for decision was that there should be included in the price "the value of warranty services provided by the purchaser for the benefit of the vendor." It is unnecessary to repeat our reasons for thinking that this approach was incorrect.

40. As the Tribunal proceeded upon a wrong basis in law, the appeal in G306 of 1987 should be allowed and its decision in this matter should be set aside. The matter will be remitted to the Tribunal to be heard and decided again either with or without the hearing of further evidence. As the parties have each succeeded in part and failed in part, we think that each should bear its or his own costs of these appeals.