Re Collector of Customs v Visyboard Pty Ltd [1991] FCA 79; 77 Customs 13 Aar 246 29 FCR 5 (15 March 1991)

FEDERAL COURT OF AUSTRALIA

Re: COLLECTOR OF CUSTOMS
And: VISYBOARD PTY LTD
No. V G301 of 1990
FED No. 77
Customs
13 AAR 246
29 FCR 5

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Olney J.(1)

CATCHWORDS

Customs - false or misleading statement in entry document - imposition of penalty in respect of shortfall of duty -application for remission of penalty - criteria to be taken into consideration - capacity of importer to avoid making false or misleading statement.

Customs Act 1901 ss. 243T, 243U, 243V.

HEARING

MELBOURNE
15:3:1991

Counsel for the appellant: Mr R. Kendall

Solicitor for the appellant: Australian Government Solicitor

Counsel for the respondent: Mr L. Gross, Solicitor

Solicitor for the respondent: Louis Gross and Associates

DECISION

The Collector of Customs has appealed to the Federal Court from a decision of the Administrative Appeals Tribunal in a proceeding to which the Collector was a party. Such an appeal may be made only on a question of law (Administrative Appeals Tribunal Act 1975, section 44(1)).

2. The question of law, or perhaps more precisely the questions of law, raised by the appeal have to do with the proper construction of section 243U of the Customs Act 1901. But to understand the questions raised it is necessary to consider them in the context of the facts of the particular case.

3. The following brief statement of facts is for the most part extracted from the reasons for decision given by the Tribunal in support of its review of the decision under consideration. In September 1989 Visyboard Pty Ltd (the respondent) imported certain goods into Australia for home consumption. Its customs agent lodged what is known as "an eight-line entry", that is an entry document specifying eight items of goods. Customs duty was paid in accordance with the classification of the goods as shown in the entry but following an audit carried out by the Australia Customs Service (ACS) it was decided that 4 of the 8 items shown on the entry were incorrectly classified and that there had been an underpayment of duty. The short payment of duty amounted to $30,067.96. In October 1989 a delegate of the Comptroller of Customs required the respondent to pay a penalty of $60,135.92, being twice the amount of the short payment. This action was taken pursuant to section 243T of the Customs Act. The respondent thereupon made application pursuant to section 243U for remission of the whole or part of the penalty. A delegate of the Comptroller subsequently advised the respondent of the remission of part of the penalty, namely the sum of $33,529.42. The respondent then applied to the Tribunal pursuant to section 273GA (1)(ka) of the Customs Act for review of the decision to remit part only of the penalty. The Tribunal decided that 95% of the whole penalty should be remitted.

4. It does not appear from the Tribunal's reasons for decision, but it does appear from the statement of reasons submitted by the Comptroller's delegate pursuant to section 37 of the Administrative Appeals Tribunal Act (which is part of the record in the Tribunal proceedings) that the remission of $33,529.42 represented the whole of the penalty payable in respect of the short payment of duty on one particular item contained in the entry, namely goods identified as programmable control panels. The reason given was that the ACS was at the time of importation reviewing the classification of that category of goods. No remission was allowed in respect of the penalty attaching to the short payment of duty on the other items.

5. The provisions of the Customs Act relevant to the issues which arise in this appeal are as follows:
243T. (1) Subject to section 243V, where:

(a) a person, whether knowingly, recklessly or otherwise:
(i) makes a statement to an officer that is false or
misleading in a material particular; or
(ii) omits from a statement made to an officer any matter
or thing without which the statement is misleading in
a material particular; and
(b) the amount of duty properly payable on particular goods
exceeds the amount of duty that would have been payable on
those goods if the amount were determined on the basis that
the statement was not false or misleading;
the Comptroller may within 12 months after the statement was made,
by notice in writing, require the owner of the goods (not being a
person who is to be treated as the owner of the goods by reason of
being an agent of the owner) to pay, within a period of 90 days
after service of the notice, a penalty equal to twice the amount
of the excess, or a penalty of $20, whichever is the greater.
(2) Within 30 days after receiving an application for
remission of penalty the Comptroller shall inform the applicant of
the Comptroller's decision in relation to the application.
(3) ..........
(4) ..........
(5) ..........
243U. (1) Where a penalty is payable under section 243T as a
result of a statement, or an omission from a statement, the
Comptroller may, on the basis of a written application made to the
Comptroller within 30 days after the Comptroller served the notice
under subsection 243T(2) in relation to the statement or the
omission from the statement, by the person liable to pay the
penalty, remit the whole or any part of that penalty.
(2) ..........
(3) ..........
(4) In considering an application under subsection (1) to
remit the whole or a part of a penalty payable in respect of a
statement or an omission from a statement, being a statement or
omission made by the applicant or by an agent of the applicant,
the Comptroller shall have regard only to the following matters:
(a) whether the applicant or the applicant's agent, as the case
requires, had voluntarily admitted that the statement was,
or was as a result of the omission, false or misleading;
(b) the risk to the revenue occasioned by such a statement or omission;
(c) the capacity of the applicant or of the applicant's agent,
as the case requires, to avoid making such a statement or
omission and the extent to which that capacity was exercised;
(d) the history of the applicant or of the applicant's agent, as
the case requires, in relation to the making of statements
or omissions giving rise to convictions under paragraph
234(1)(d) or to liability for penalty under section 243T.
(5) ..........
243V. (1) Where the owner of goods or the agent of the owner is
uncertain whether particular information included in a statement
made in respect of those goods might be regarded as false or
misleading in a material particular, that owner or agent may, by
writing included in the statement, nominate that information as
information of which the owner or agent is uncertain and set out
the reasons for that uncertainty, and, where the owner or agent
does so, no penalty shall be imposed under section 243T in
relation to that information.
(2) ..........

6. Several observations can usefully be made concerning these provisions. First, section 243T applies equally in the case of an honest mistake as well as cases involving fraud or recklessness. Second, there is no discretion under that section once the decision to impose a penalty has been made, for the imposition of any penalty other than that prescribed. Third, the only relevant considerations upon an application for remission are those specified in section 243U(4). Fourth, the benefit of section 243V is available only where the importer (or his agent) is uncertain as to the accuracy of any statement made in respect of the goods and is able to, and does, give reasons for his uncertainty. Furthermore, it should be observed that the decision to impose a penalty pursuant to s.243T(1) is not open to review by the Tribunal or otherwise.

7. The several sections of the Customs Act quoted above represent the legislative manifestation of what is known as the greenline system of processing import entries. Under this system 90% of all goods are assessed for duty entirely on the basis of the documentation submitted by the importer or his agent. These goods are said to go "down the green line". Those in respect of which the importer has invoked the provisions of section 243V are said to be "on the amber line", whilst others, which are subjected to audit by the ACS (and to some extent - this is a random audit) are said to be "on the red line". The object of the system is to clear the vast bulk of goods imported into Australia within 4 hours of landing. The system obviously relies to a very considerable extent on the honesty of importers and their agents and upon their professional competence in accurately classifying goods imported.

8. In addition to the legislative provision for the amber line entry of goods the ACS operates an administrative procedure known as TCA (tariff classification advice) whereby an importer can obtain a written statement of advice of the ACS's view as to the correct classification of goods. There is no statutory basis for this procedure and the advice given is not binding on the ACS but if the advice is later found to be incorrect, and as a result additional duty is levied, as a matter of administrative policy, no penalty will be imposed by reason of any false or misleading statement made in reliance on the TCA.

9. It is necessary now to look in more detail at some of the particular facts of the case as revealed in the findings made by the Tribunal. In September 1988 the respondent (or its parent company) requested advice from a firm of customs agents (of which Mr R.N. Slaughter was an employee) concerning the tariff classification of certain goods it was considering purchasing and importing. In correspondence sent to Slaughter the goods were described as "direct drive retrofit conversion of S and S 97 inch model JST triple cut-off knife, SER.83577". However, it was apparent that the cut-off knife comprised a number of components, which were itemised. After some correspondence between Slaughter and the respondent in September and October 1988, nothing more was heard from the respondent until on 23 August 1989 when Slaughter received from the respondent a bill of lading and other documents in respect of goods of the type previously discussed. The respondent's instructions to Slaughter were to attend to the entry of the goods which were due to arrive by sea within about 2 weeks. In the bill of lading the goods were described as "cardboard box making machinery" and it is not in dispute that the cut-off knife is part of machinery designed for making cardboard boxes. Slaughter gave considerable thought to whether the various components which were being imported together constituted a single machine in a disassembled state or whether they had to be classified individually.

10. The documents received on 23 August 1989 included an invoice, in which the goods were itemised in two lines, and a packing list which gave details of the main components of the first of those items. Slaughter, having previously given some consideration to the question of the classification of such goods a year earlier, decided that he needed more information. The respondent's staff explained to him that the machinery was to be incorporated into an existing machine. They considered the goods to be a complete machine in an unassembled state; in that event its classification would have resulted in importation free of any duty. Slaughter, however, took the view that, although the matter was one of some doubt, the goods did not constitute a complete unit in an unassembled state and that the components had to be entered individually. He then considered how each of them should be classified. In coming to his conclusions he studied the technical literature which had been supplied to him a year earlier and had further discussions with the respondent's staff. The classification which he decided upon meant that some duty would be payable.

11. The Tribunal found that at all relevant times Slaughter had considerable expertise as a customs agent including a knowledge of the customs tariff legislation. He did not seek a TCA because it was unlikely that the ACS would be able to provide it before the goods arrived and the customs entry had to be lodged. Further, he did not enter the goods "on the amber line" because he had formed the view that his classification of the goods was correct. The element of uncertainty which is a requirement before section 243V can be availed of was therefore not present.

12. It is common cause that the only statement to an officer made by Slaughter that was false or misleading in a material particular was the statement contained in the entry document identifying by code number the classification of some of the goods imported. It is not in issue that neither the respondent nor the agent voluntarily admitted that the statement was false or misleading. It was also conceded that in money terms the risk to the revenue occasioned by the statement was substantial. The Tribunal found that the respondent had no history of convictions or of having incurred a penalty. The agent (the company) had incurred a penalty on one previous occasion, in another State, and that not as a result of an entry lodged by Slaughter.

The final two paragraphs of the Tribunal's reasons are as follows:
The matter required to be taken into account which is of most
relevance in the present proceedings is that set out in paragraph
(c), that is to say the capacity of the applicant or the
applicant's agent to avoid making a statement that was false or
misleading. Mr Minogue placed considerable emphasis on the
capacity which the applicant's customs agent had had in the
present case to avoid the false or misleading statement by
entering the goods on the amber line or by requesting a TCA. We
have already found that it would have been inappropriate in the
circumstances for the goods to have been entered "on the amber
line". We have also found that the customs agent ought not to be
criticised in this case for not requesting a TCA. (We would add
that considerable care needs to be taken by the respondent, when
considering the matter referred to in paragraph (c), to avoid
creating a situation where customs agents feel obliged to resort
to making requests for TCAs whenever they are in any doubt,
instead of exercising their own expert judgment, and so
overburdening the administrative resources of the Australian
Customs Service. That might imperil the operation of the present
system for dealing with the entry of goods for home consumption.)
However, we have found that the applicant's delay in informing Mr
Slaughter of the importation of the goods obliged him to exercise
his judgment under time constraints that involved a risk that he
would exercise it wrongly.
We have come to the conclusion, therefore, that the penalty in
this case should not be wholly remitted. On the other hand, we
are satisfied that the remission should be such as to reflect the
fact that the applicant and its customs agent acted honestly and
to a considerable extent conscientiously and competently. It
should also be such that the amount of the penalty which remains
unremitted is not so great as to create the situation to which we
have referred above where importers and their agents overload the
TCA system. We have decided, therefore, that 95% of the penalty
should be remitted, leaving the applicant to pay 5% of the
penalty, which is equal to 10% of the amount of the difference
between the duty which was correctly payable and that which would
have been payable under the entry as lodged.

13. The grounds of appeal as finally formulated by the applicant are:

That the Tribunal was wrong in law in that:
(a) it did not correctly ascertain and apply the relevant
principles of law in determining that the decision of the
(applicant) be set aside.
(b) it did not correctly interpret section 243V(1) of the Customs
Act 1901, in that it found that the section has no application
to cases where the owner of goods or the agent of the owner is
uncertain only as to the correct classification of the goods
for the purposes of the Act.
(c) it failed to take into account a relevant matter, namely, that
the respondent had a capacity to avoid making a statement that
was false or misleading.
(d) it failed to give sufficient weight to the following matters
required by section 243U(4) of the Act:
(i) that the respondent failed to voluntarily admit the
statement made to the applicant was false;
(ii) the risk to the revenue occasioned by the statement;
(iii) the capacity of the respondent to avoid making the statement.
(e) it took into account matters not specified in section 243U(4)
of the Act, namely:
(i) that the respondent acted honestly and without intention
to deceive or defraud;
(ii) the effect on the administrative resources of the
Australian Customs Service by the level of penalty imposed.

14. The questions of law which are said to arise on the appeal are:

(a) whether the Tribunal had correctly ascertained and applied the
relevant principles of law in determining that the decision of
the applicant be set aside.
(b) whether the Tribunal took into account an irrelevant matter, in
that it took into account a matter not otherwise specified in
section 243U(4) of the Customs Act 1901.
(c) whether the Tribunal failed to give any or any sufficient
weight to the matters specified in section 243U(4) of the
Customs Act 1901.

15. The 4 criteria appearing in section 243U(4) of the Customs Act have to be viewed in their context, namely, in a regime of legislation which facilitates the imposition of substantial financial penalties for the making of false statements but which neither as to liability nor quantum, differentiates between fraudulent and reckless statements on the one hand and innocent errors on the other. Clearly, the 4 criteria will have varying relevance in individual cases depending upon their particular circumstances. In this case the error in classification resulted from an honestly, and firmly, held view conscientiously arrived at by a competent customs agent. No adverse inference should be drawn from the failure to voluntarily admit to the error.

16. I have some difficulty with paragraph (b) of section 243U(4). If the risk to the revenue is to be evaluated in terms of the amount of duty put at risk then clearly in a case where the error involves a large shortfall the risk will be greater than a case where only a small amount is involved. But by the same token, a large shortfall will automatically involve a correspondingly large penalty. I can therefore find no logic in the following statements contained in guidelines issued by the ACS (which were in evidence before the Tribunal):

... the higher the level of revenue foregone, the less the level
of remission.
Under this criterion, a small shortfall in revenue could lead to
remission of almost the full amount of penalty; conversely, a high
level of shortfall would lead to a small, if any, remission.
(Tribunal exhibit 7, p 9)

17. If those were the principles applied by the Comptroller's delegate in considering the respondent's application for remission, then I think he would have been in error. Clearly the Tribunal did not adopt the approach advocated by the ACS and rightly so. It seems to me that the relevance of financial risk to the revenue in any consideration of an application for remission is that if there is a potential for a substantial amount of revenue to be evaded by the making of a false or misleading statement (albeit, innocently) then the burden on the importer or agent to get it right is correspondingly heavy. In this case, the risk of shortfall in monetary terms was large, but the favourable findings made as to the manner in which the agent applied himself to the task of classification do not suggest that any adverse inference should attach to the fact that a large sum of money was at stake.

18. It is not suggested that anything adverse to the application for remission arises under section 243U(4)(d).

19. So far as appeal ground (d) is concerned it cannot be said that the Tribunal failed to give sufficient weight to the matters referred to in paragraphs (i) and (ii) of the ground. The weight given to those matters is properly reflected in the decision to remit a substantial amount of the penalty.

In the penultimate paragraph of its reasons the Tribunal stated:
We have already found that it would have been inappropriate in the
circumstances for the goods to have been entered "on the amber line".

20. The earlier finding (appearing in paragraph 16 of the reasons at p 10) is expressed in these terms:

We are satisfied that the entry was made by the customs agent in
accordance with the views which Mr Slaughter had honestly formed
as to the correct classification of the goods. Furthermore, we
are satisfied that the customs agent acted in a generally
conscientious and competent manner in forming those views and in
making the entry in the form in which it was made. It would not
have been appropriate for the goods to be entered "on the amber line".

21. Given that there was no uncertainty in Slaughter's mind it would have been inappropriate for him to enter the goods "on the amber line". This is not to say that in every case when an agent says he had no doubt as to the classification of goods the same conclusion will follow. But in this case nothing was put to suggest that Slaughter's opinion although mistaken, was unreasonable. In the circumstances of this case, the Tribunal's conclusion that entry on the amber line was inappropriate was in accordance with its findings of fact. The assertion contained in appeal ground (b) is factually inaccurate. Whilst it is true that earlier in the reasons the Tribunal referred to evidence which it said was along the lines mentioned in paragraph (b), the actual finding in relation to the non-entry on the amber line was as quoted above.

22. Another statement in the penultimate paragraph of the reasons which is central to the appeal is:

We have also found that the customs agent should not be criticised
in this case for not requesting a TCA.

23. The specific findings to which this statement adverts are found in paragraphs 16, 17 and 18 of the reasons (at pp 10 and 11) and are in these terms:
(Paragraph 16)

... It was a question of judgment which Mr Slaughter was required
to exercise on the basis of his experience as a customs agent
whether a TCA should be sought; we are satisfied that he exercised
that judgment in good faith.

(Paragraphs 17 and 18)

We accept that, as Mr Slaughter asserted, the administrative
system for the issuing of TCAs could not operate effectively if it
were seriously overloaded; customs agents must exercise reasonably
their expert judgment whether or not to seek TCAs in the various
situations which they face. With the benefit of hindsight it
appears that it might have been better if Mr Slaughter had sought
a TCA even though he would probably not have received it before
the entry had to be lodged; but we think that it would be unfair
to criticise him on the basis of hindsight.
We do not consider, however, that the applicant itself was
somewhat remiss in not informing Mr Slaughter earlier that it was
in fact going to import the goods which it had discussed with him
a year earlier; if it had done so, he could have turned his mind
to their proper classification and to the possibility of
requesting a TCA without the time constraint which was placed on
him by the notification being given to him only two weeks before
the importation.

24. The Tribunal's criticism of the respondent in failing to inform its customs agent until very shortly before the arrival of the goods is reflected in its decision that the whole of the penalty should not be remitted.

25. It follows from all that has been said above that the Tribunal considered all of the matters which could conceivably have had any bearing upon the capacity of the respondent and its agent to avoid making a false or misleading statement in the entry. Apart from the TCA procedure which was found not reasonably available in the circumstances of the case, and entry on the amber line, which was found to be inappropriate, the only other way to avoid the occasion for error was the diligent exercise in good faith by the agent of his undoubted expertise in the field of tariff classification, and this he did. The only conclusion open is that the Tribunal fully considered paragraph (c) of section 243U(4) and found nothing adverse to the respondent arising from that consideration.

26. The appellant has not made out any of the assertions contained in paragraphs (a) to (d) inclusive of the grounds of appeal.

27. Ground (e) asserts that the Tribunal took into account 2 irrelevant matters, and if this is so, then in view of the exclusive nature of the criteria referred to in section 243U(4), that would amount to an error of law.

28. It is a fine line between deciding on the one hand whether a penalty should be remitted, and on the other, having decided that a remission is justified, the extent of the remission to be applied. The statute is completely silent in this respect. In the instant case the Tribunal gave appropriate consideration to all of the statutory criteria in reaching the conclusion implicit in the first sentence in the final paragraph of its reasons that there should be a substantial, but not complete remission of the penalty. The honesty, conscientiousness and competence of the respondent and its agent are all matters which arose in its consideration of the criteria set out in the Act. It was in my view perfectly appropriate to refer again to those factors in expressing its conclusion as to the extent of the remission. Likewise the Tribunal's view as to the practical effect of its decision in the overall operation of the system does not indicate that it took that matter into account in arriving at its decision. It would make nonsense of the whole scheme of the Act if decision-makers were prohibited from commenting upon what they considered to be the effect of their decisions.

29. In my view, the appellant has failed to establish that the Tribunal misconstrued or misapplied any provision of the Act. Accordingly no error or law has been established and the appeal will be dismissed.