Chief Executive Officer of Customs v ICB Medical Distributors Pty Ltd [2008] FCAFC 127 (17 July 2008)

Chief Executive Officer of Customs v ICB Medical Distributors Pty Ltd [2008] FCAFC 127

CUSTOMS AND EXCISE – tariff classification – orthotic inserts – whether "special insoles designed to correct orthopaedic conditions" – good excluded by notes to relevant Chapter – whether subject goods within exclusion – whether meaning of a term in a Schedule to Customs Tariff Act a question of law – effect of ascending rates of duty in construing exception to a classification of goods – whether determination of appropriate classification should be remitted to Administrative Appeals Tribunal.

Customs Tariff Act 1995 (Cth) Ch 64 and Ch 90

Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449

CHIEF EXECUTIVE OFFICER OF CUSTOMS v ICB MEDICAL DISTRIBUTORS PTY LTD ABN 68 093 126 133 and ADMINISTRATIVE APPEALS TRIBUNAL

NSD 2125 OF 2007

RYAN, MANSFIELD AND DOWSETT JJ
17 JULY 2008
ADELAIDE (VIA VIDEO LINK WITH CANBERRA AND SYDNEY)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2125 OF 2007

AND:

ICB MEDICAL DISTRIBUTORS PTY LTD ABN 68 093 126 133
First Respondent

ADMINISTRATIVE APPEALS TRIBUNAL
Second Respondent

JUDGES:	RYAN, MANSFIELD AND DOWSETT JJ
DATE OF ORDER:	17 JULY 2008
WHERE MADE:	ADELAIDE (VIA VIDEO LINK WITH CANBERRA AND SYDNEY)

2. The orders of 5 October 2007 be set aside and in lieu thereof it be ordered that:

3. The first respondent pay the appellant’s costs of the appeal and of the proceedings at first instance in this Court, such costs to be taxed in default of agreement.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2125 OF 2007

AND:

ICB MEDICAL DISTRIBUTORS PTY LTD ABN 68 093 126 133
First Respondent

ADMINISTRATIVE APPEALS TRIBUNAL
Second Respondent

JUDGES:	RYAN, MANSFIELD AND DOWSETT JJ
DATE:	17 JULY 2008
PLACE:	ADELAIDE (VIA VIDEO LINK WITH CANBERRA AND SYDNEY)

1 On 27 June 2005, a delegate of the appellant made a decision classifying patented orthotic inserts imported by the first respondent (‘ICB’) as "footwear" or "insoles" within subheading 6406.99.20 of the Customs Tariff Act 1995 (Cth) ("Tariff Act"), to which a duty applied.

2 On 12 September 2005, ICB instituted proceedings in the Administrative Appeals Tribunal ("the Tribunal") for review of the appellant’s decision, contending that the goods should have been classified as "orthopaedic appliances" under subheading 9021.10.10 or 9021.10.90, which were free from duty.

3 On 9 March 2007, the Tribunal set aside the appellant’s decision and remitted the matter to the appellant with a direction that the goods be assessed at nil duty.

5 On 5 October 2007, Rares J upheld the Tribunal’s decision. The appellant now appeals from his Honour’s judgment.

7 The Goods are subject to a patent as "orthotic inserts" and have been included in the Australian Register of Therapeutic Goods.

8 The Tariff Act contains rules for determining the classification of goods and the corresponding duty to be imposed on such goods.

9 The headings under which goods must be classified are set out in Schedule 3 to the Tariff Act. In the present case, there were two possible headings that could apply to the Goods. They read;

10 Schedule 2 to the Tariff Act contains Interpretation Rules for the purpose of identifying the headings under which goods are to be classified. Rule 1 provides that "classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes".

11 There are two Chapter Notes, relevant to the present case, which the Tribunal was obliged to take into consideration.

The effect of Chapter 64, Note 1(e) is that the Tribunal first had to consider whether heading 9021 applied before proceeding to consider Chapter 64.

Therefore, Note 6 of Chapter 90 can be regarded, on one view, as leaving to be classified under Chapter 64 "footwear and special insoles designed to correct orthopaedic conditions" which do not meet the description in one or other of the provisos.

14 If the Goods are excluded by Note 6 of Chapter 90 and fall under heading 6406, then the subheadings under 6406 must be examined. Relevantly, item 6406.99.20 prescribed varying rates of duty for "Removable in-soles, heel cushions and similar articles". From 1 January 2005, these attracted a rate of duty of 7.5%.

15 If the Goods are not excluded by Note 6 of Chapter 90 and fall under heading 9021, then the subheadings under 9021 must be examined. They are;

16 Items 9021.10.10 and 9021.10.90 were free from duty. From 1 January 2005, item 9020.10.20 attracted 10% duty and item 9020.10.30 attracted 7.5% duty.

17 There was no dispute before the Tribunal as to whether the Goods were "orthotics". However, since the Tariff Act contained no heading for "orthotics", the Goods remained to be classified.

18 The Tribunal cited, at [24] of its reasons, the Oxford English Dictionary (1970 Reprint) definition of "insole" as "(a) The inner sole of a shoe or boot. (b) A flat piece of warm or waterproof material laid inside the shoe". It noted at [25] that an annexure to the affidavit of Rodney Kielt, the managing director of ICB, drew a distinction between "orthotics" and "shoe insoles". The Tribunal also referred at [26] to a description of "in-sole" in an academic work on shoemaking. It then, at [27], set out a passage from Mr Kielt’s affidavit with a comment to the effect that it was not challenged by contradictory evidence:

19 The Tribunal found that the Goods were "more properly defined as orthotics" and "more than ‘insoles’, as that term is commonly understood". It concluded, at [28], that they were best described as "orthotic inserts" and, as such, were "orthopaedic appliances for correcting bodily deformities".

20 The Tribunal then set out the subheadings under heading 9021 and concluded at [30] that:

21 Rares J summarised the essential feature of the Tribunal’s reasoning in the following passage:

22 On appeal, the appellant contended below that the Tribunal had made two reviewable errors.

23 The appellant contended, first, that the Tribunal had erred by failing to have regard to a critical aspect of the appellant’s submissions and the evidence upon which it was based. In particular, the appellant argued, the Tribunal had failed to refer to or to deal at all with the appellant’s argument that the subject goods could be both "orthotics" and "special insoles". The Tribunal referred to one annexure to Mr Kielt’s affidavit that drew a distinction between "orthotics" and "insoles" but failed to mention a number of other annexures that referred to "orthotics" as being "insoles". Moreover, the Tribunal referred to aspects of Mr Kielt’s evidence as not being the subject of rebutting evidence, notwithstanding that the appellant had expressly relied upon contradictory evidence (contained within the annexure to Mr Kielt’s own affidavit) and the Tribunal had sought to limit the cross-examination of Mr Kielt on this very matter.

24 Secondly, the appellant argued that the Tribunal had erred by adopting a meaning of "insole" premised upon its application to goods that do not correct a pathological condition. The appellant said that the statutory expression that had to be construed (i.e. "special insoles designed to correct orthopaedic conditions") precluded such a narrow and limited meaning of "insole". Alternatively, the appellant submitted that the Tribunal had erred in failing to appreciate that such a special insole might, as a matter of construction, contain features and abilities different from an insole as commonly understood (hence, making it "special"), as, for example, an insole that corrects a pathological condition. In other words, the appellant contended that the Tribunal had erred in considering that "special insoles" had to be a subset of things that were "insoles" as commonly understood and consequently misconstrued the meaning of "insole" in Note 6 of Chapter 90 and in subheading 9021.10.30.

25 In relation to the first issue on appeal, Rares J held that the Tribunal’s reasons indicated that it had proceeded in a conventional manner, making a finding as to how the goods would be viewed by an informed observer when they arrived at the wharf in Australia: see Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 16 FCR 449 at 463. The Tribunal had identified the condition the goods were in when they were imported into Australia. It had explained that an insole, in its ordinary and natural meaning, did not have the same essential character or perform a function as extensive as that of an orthotic insert of the character of the Goods: see [41]-[43].

26 His Honour said that, although the Tribunal had an obligation to give reasons for its decision under s 43(2B) of the AAT Act, it was not obliged to give reasons why it accepted or rejected individual pieces of evidence. It was sufficient for the Tribunal to set out its findings on the questions of fact which it considered to be material to the Tribunal’s decision and reasons for the decision: at [44].

28 His Honour went on to conclude that the Tribunal had "addressed the correct question, understood the arguments and had regard to all relevant considerations and ignored irrelevant ones" and "was not obliged to give any more detailed explanation than it did as its reasoning process": at [47]-[48].

29 In relation to the second issue on appeal, Rares J held that Note 6 of Chapter 90 was not deprived of meaning by the Tribunal’s decision, explaining at [53] that;

31 The appellant had also sought a declaration that the last paragraph to Note 6 of Chapter 90 should be construed to mean that "footwear and special insoles designed to correct orthopaedic conditions" are "orthopaedic appliances" only if such footwear and special insoles are "either (1) made to measure or (2) mass-produced, presented singly and not in pairs and designed to fit either foot equally".

32 Rares J said that it would be "inappropriate" to grant such a declaration because Note 6 of Chapter 90 could apply to a range of goods and he was not in a position "to review all of them or to assess the impact which any particular form of declaratory relief might have" on them. His Honour indicated that what constitutes a "special insole" in any particular case was a question of fact.

33 Before this Court, the appellant first argued that the Tribunal had erred in failing to consider its case.

34 The appellant submitted that Rares J had, at [36] of his reasons, made "an appellable error in the starting point of his Honour’s analysis" of the issue to be decided by the Tribunal, by making a distinction between "special insoles" and "orthopaedic appliances". Rather, the appellant contended, the Tariff Act is premised upon some special insoles being orthopaedic appliances and pointed to Note 6 of Chapter 90 and subheadings 9021.10.10 and 9021.10.30 in support of this proposition.

35 The appellant next argued that his Honour had been wrong to conclude that the Tribunal had made a finding of fact that the function of the Goods was not that of an insole. According to the appellant, the Tribunal found that the Goods were "more than ‘insoles’ as that word is commonly understood" (namely, flat pieces of material), which was consistent with the appellant’s submissions to the Tribunal that the Goods were special insoles that corrected pathological conditions (of the kind expressly mentioned in headings 9021.10.10 and 9021.10.30).

36 The appellant further claimed that the Tribunal had not mentioned any of the references to orthotics being "insoles" which were relied upon by the appellant, or any of the appellant’s submissions regarding "insoles". Instead, the Tribunal had made a statement at [27] of its decision suggesting that there was no evidence contrary to Mr Kielt’s opinion that there was a distinction between "orthotics" and "insoles". The appellant submitted that "[t]hat was where this error of the Tribunal lay. His Honour’s observations at [38] that the Tribunal did not need to address each of the references to orthotics in the evidence do not answer the appellant’s complaint."

37 The appellant went on to argue that Rares J had erred at [40] of his judgment in defining the Tribunal’s task as the identification of the meaning of "insole" as "an ordinary English word". The appellant submitted that "[w]hile the ordinary English meaning of the word "insole" may assist the Tribunal in its task, it was required to construe the phrase "special insole designed to correct orthopaedic conditions"." The appellant also submitted that his Honour had mistakenly concluded that the Goods were considered to be orthotic inserts under the classification process. The appellant pointed out that since the Tariff Act contained no classification for "orthotic inserts", a finding the Goods were orthotic inserts was no more than the starting point of the classification process.

38 The appellant did not dispute the Tribunal’s finding that the insoles did not perform the same extensive function as orthotic inserts. Rather, it was contended that;

39 Rares J considered at [43]-[44] of his judgment that the Tribunal had sufficiently explained its reasons. The appellant did not dispute this. The appellant argued that the Court could comfortably infer, from the absence of any discussion by the Tribunal about the appellant’s submissions on the meaning of "insole" and the evidence that "orthotics" could be "insoles", that the Tribunal had not considered those matters. The appellant’s argument relied upon the sufficiency of the Tribunal’s reasons as a full statement of its analysis and not, contrary to Rares J’s analysis, on any inadequacy of those reasons.

40 Finally, the appellant submitted that the Tribunal’s comment at [27] that Mr Kielt’s evidence was not rebutted was "materially inaccurate". The appellant claimed that it did in fact rely upon material contained in several annexures to his affidavit which, it said, contradicted Mr Kielt’s opinion. That was said to furnish grounds for doubting that the Tribunal had given "genuine and real consideration" to its case, and for concluding that Rares J had erred in considering that there was no reason to support the inference for which the appellant had contended.

41 The second issue on appeal is whether the Tribunal’s decision denied any application of Note 6 of Chapter 90.

42 According to the appellant, the Tribunal erred in law in failing to give effect to the expression "special insoles designed to correct orthopaedic conditions", which appears in both Note 6 of Chapter 90 and in the subheadings to heading 9021 in the Tariff Act. Contrary to Rares J’s comment at [53], the appellant claimed that this argument had never been directed to the need to give Note 6 some meaning. Rather, it had been directed to the identification of the correct meaning of the composite expression "special insoles designed to correct orthopaedic conditions" so that this aspect of his Honour’s reasoning was erroneous.

43 The appellant also contended that his Honour had repeated the Tribunal’s error in failing to acknowledge that the statutory expression "special insoles designed to correct orthopaedic conditions" in Note 6 of Chapter 90 and subheading 9021.10.30 necessarily requires that "special insoles" have such a medical function. That was an error, according to the appellant, in failing to construe the Tariff Act in accordance with Interpretation Rule 6, which requires that effect be given to the Chapter Notes as well as the terms of headings.

44 At [52] of his reasons, Rares J noted that the Tribunal had paid regard to the essential character of the goods and had concluded that they did not fall within heading 6406. The appellant, however, submitted that;

The appellant claimed that the language of Note 6 of Chapter 90 discloses an intention that only certain kinds of special insoles designed to correct orthopaedic conditions will fall within that definition, and that all other kinds of special insoles will not, even if they also correct orthopaedic conditions.

45 Finally, the appellant argued that its construction would not "deprive Note 1(e) of Chapter 64 of any real content" as held by Rares J at [54]. All goods which satisfy the requirements of Note 6 to Chapter 90 would be classified under 9021, and would be excluded from Chapter 64 by Note 1(e). On the appellant’s contention, there is clearly a range of such goods, including made to measure orthotics. By contrast, the appellant submits, the Tribunal’s construction would "drain the statutory expression ‘special insoles’ as it appears in Note 6 and in classifications 9021.10.10 and 9021.10.30 of any application, as in the Tribunal’s view "insoles" are not "orthopaedic appliances".

46 ICB submitted that the Tribunal had correctly understood its initial task as being the objective identification of the Goods in their condition as imported.

47 ICB then claimed that it had been common ground before the Tribunal and before Rares J that the Goods were both "orthotics" and "inserts" or "shoe inserts". As the Goods were also described as "orthotic inserts" in the provisional patent and on the Australian Register of Therapeutic Goods, ICB argued that the Tribunal was correct in its finding that the Goods were "orthotic inserts".

48 ICB contended that in Note 1(e) of Chapter 64 and heading 9021, "orthopaedic appliances" bears its ordinary English meaning of "a device or apparatus used in the practice of orthopaedics as a means to an end in the treatment of persons suffering from bodily deformities". The Tribunal found that the Goods fell within this definition and within the definition of "orthopaedic appliances" in Note 6 of Chapter 90, which is phrased in similar terms.

49 According to ICB, the Tribunal did not misconstrue the meaning of "insole" or "special insole" in Note 6 of Chapter 90, subheading 9021.10.30 or heading 6406. It was argued that the appellant had not proffered any meaning or evidence of usage in relation to the words "insole" or "special insole", and was content to rely on their ordinary meaning. In contrast, ICB had put before the Tribunal evidence of the ordinary English meaning and a more technical usage of the word "insole", supported by evidence from Mr Kielt. It was said to follow from the meanings of "insole" which were before it and the absence of any evidence of usage from the appellant, that the Tribunal was entitled to hold that the Goods were more than insoles and were not special insoles, but rather were orthotic inserts, being orthopaedic appliances for correcting bodily deformities, within the meaning of Note 6 of Chapter 90.

50 ICB also claimed that the appellant had overlooked the reference in Note 6 of Chapter 90 to "footwear and special insoles designed to correct orthopaedic conditions" rather than merely to "special insoles designed to correct orthopaedic conditions". On ICB’s argument, the Chapter Note encompasses insoles which, together with the footwear they fit into, are designed to correct orthopaedic conditions, thereby making them "special". However, the goods must be "insoles" according to the ordinary English meaning of that word before Note 6 of Chapter 90 applies. ICB submitted that the Tribunal had been entitled to find that the Goods were "more than insoles" and were not "insoles, special or otherwise", and that Rares J had correctly concluded at [42] that it was for the Tribunal to find that an insole, in its ordinary meaning, did not have the same essential character or perform the same function as an orthortic insert of the character of the Goods.

51 ICB next disputed the appellant’s claim that the Tribunal had sought inappropriately to limit the cross-examination of Mr Kielt. It noted that the Tribunal had restricted cross-examination of Mr Kielt only in relation to whether orthopaedic surgeons would refer to an orthotic as an insole on the basis that Mr Kielt was not qualified to give evidence of the usage of orthopaedic surgeons, and in relation to Mr Kielt’s attempts to express an opinion that orthotics were insoles because that was an issue which was for the Tribunal to decide on the evidence.

52 Although Mr Kielt had been cross-examined upon certain annexures to his affidavit which referred to certain orthotic devices as insoles, ICB adopted Rares J’s statements that other annexures to Mr Kielt’s affidavit differentiated between orthotic devices and insoles.

53 In relation to the first ground of appeal, ICB contended that there was no substance in the appellant’s complaint that "the Tribunal failed to give proper, genuine and realistic consideration to the appellant’s arguments and evidence." ICB noted that s 43(2B) of the AAT Act did not require the Tribunal to address expressly the appellant’s submissions regarding insoles in circumstances where;

According to ICB, Rares J had been correct to conclude that it was sufficient for the Tribunal to explain its reasons for its characterisation of the Goods. ICB further submitted that the Tribunal had referred expressly to the appellant’s submissions and statement of facts and contentions, and noted that portions of its own evidence had not been referred to in the Tribunal’s reasons. Therefore, ICB contended, Rares J had been entitled to infer that the Tribunal had paid regard to all of the evidence of both the appellant and ICB.

54 In relation to the appellant’s second ground of appeal, ICB submitted that the Tribunal’s finding that the Goods are "more than "insoles" as that term is commonly understood" and that the Goods are best described as "orthotic inserts" was "a finding of fact reasonably available to the Tribunal on all the evidence before it, including the absence of any evidence called by [the appellant] to rebut the evidence of Mr Kielt ... and the absence of any expert evidence called by [the appellant] to dispute [ICB’s] evidence as to what is an "insole"." Therefore, ICB maintained that Rares J had correctly held that this finding of fact did not disclose an appellable error.

55 In our view, the Tribunal erred in law in its construction of the meaning of the word "insoles" in both Chapter 64 and Chapter 90. It drew a distinction between "insoles" in its common meaning and things which were "something more than insoles" by reference to their therapeutic purpose whereas Schedule 3 to the Tariff Act does not admit of such a distinction.

56 The Tribunal referred to the original definition of "insole" in the Oxford English Dictionary (1970 Reprint) as including the "inner sole of a shoe or boot, or a flat piece of warm or waterproof material laid inside the shoe". It is plain from the material before the Tribunal that the normal meaning of insole includes a removable inner sole of a shoe or boot. The evidence showed that the purpose of an insole may be to provide warmth, waterproofing, odour control, cushioning, better fit and relief, or partial relief, of pain whether from natural deformities or from the shoe or boot itself. The spectrum of perceived benefits from using an insole does not readily support the proposition that, at a particular point of benefit, a removable inner sole of a shoe or boot ceases to be an insole.

57 Whether a particular object is an insole as referred to in Chapter 64, and in particular heading 6406 and item 6406.99.20, is, of course, a question of fact. But that question of fact must be determined having regard to the meaning of the term "insole" as used in the relevant clauses of Schedule 3. The meaning of the term "insole" as used in Schedule 3 is, in our view, a question of law.

58 Heading 6406 deals generally with parts of footwear, removable insoles, heel cushions and similar articles and other things. The structure of its subheading then divides those subjects into parts of footwear including uppers; removable insoles, heel cushions and similar articles; and other articles being garters, leggings and similar articles and parts thereof.

59 It was erroneous to classify a product which was to be used as the removable inner sole of a shoe or boot as "more than" an insole because it had an intended therapeutic function. The line which the Tribunal apparently drew, having regard to the evidence it quoted, was between an insole which may have the effect of relieving the severity of symptoms by absorbing shock, or, perhaps, in some other way in relation to a pathological condition, and those which are intended to correct a pathological condition.

60 An insole (or, to use a neutral description, an insert intended to be placed on top of the sole of a shoe or boot and under the foot of the wearer) which is intended to correct a pathological condition is no less an insole than one which is intended to absorb moisture, absorb unwanted odour, or otherwise provide comfort, or to relieve the symptoms caused by a pathological condition. The nature of an object put inside a shoe or boot is still that of an insole as that term is used in Schedule 3 to the Tariff Act. That construction (one which we would draw as a matter of common usage from the evidentiary material before the Tribunal) is apparent from the relevant provisions of Schedule 3.

61 The Tribunal found that ICB products fell within category 9021.10.90, namely "orthopaedic appliances ... / orthopaedic or fracture appliances / other". It is apparent that there is a need to reconcile the respective scope of the provisions of item 6406.99.20 and those of item 9021.10.30.

62 The exclusion from Chapter 64 covering "Footwear, gaiters and the like; parts of such articles" is of "Orthopaedic footwear or other orthopaedic appliances or parts thereof (9021)" and contemplates a class of orthopaedic appliances which, even if classifiable as a matter of ordinary usage as "footwear, gaiters and the like", is taken out of the ambit of operation of Chapter 64. The heading to Chapter 90 in which sub-heading 9021 is to be found is a broad heterogeneous collection of instruments or objects, namely;

63 Items 9021.10.10 and 9021.10.30 respectively provide for orthopaedic or fracture appliances being "footwear and special insoles made to measure for a special orthopaedic disorder" and for "special insoles NSA [not specified above], excluding parts designed to correct orthopaedic conditions". Note 6 to Chapter 90 purports to define the words "orthopaedic appliances" as they apply to items 9021.10.10 and 9021.10.30. The drafter of Note 6 intended, in our view, that "footwear and special insoles designed to correct orthopaedic conditions" should constitute a sub-species of "orthopaedic appliances" as defined in the first paragraph of Note 6. It seems further to have been intended that "footwear and special insoles designed to correct orthopaedic conditions" should only qualify as orthopaedic appliances if they were "either (1) made to measure or (2) mass-produced, presented singly and not in pairs and designed to fit either foot equally." That limitation seems to be reflected in the ascending rates of duty prescribed by items 9021.10.10 to 9021.10.90 which range from nil for "footwear and special insoles made to measure for a specific orthopaedic disorder" to 15% for "Footwear, NSA, excluding parts designed to correct orthopaedic conditions."

64 We consider that the reference in Note 6 to "special insoles" was inserted out of an abundance of caution in case "insoles" were not comprehended within the expression "footwear". Some support for regarding at least "removable insoles" as not inseparable from "footwear" is to be found by contrasting sub-heading 6406 of the tariff;

with the various categories of "footwear" described by reference to specific uses such as "ski boots" or compositions such as leather or wood and enumerated in subheadings 6401 to 6405.

65 When the Tariff Act first came into force, Note 6 to Chapter 90 of Schedule 3 was not in the terms in which it now appears and which are reproduced at [13] above. In its original form, Note 6 dealt with heading 9032 applying to instruments and apparatus quite unrelated to orthopaedic appliances or footwear of any kind. Specific reference to "orthopaedic appliances" in the notes to Chapter 90 of Schedule 3 to the Tariff Act as originally enacted was made by Additional Note 1, which stipulated;

66 That Additional Note was repealed by Item 312 of Schedule 1 to the Customs Tariff Amendment Act (No 5) of 2001; Act No 1230 of 2001 and the new Note 6 in its present form was substituted by Item 311 of the same Schedule. Those amendments came into effect on 1 January 2002. We have not discovered anything by way of explanatory memoranda or other extrinsic material which specifically illuminates the intention with which the new Note 6 to Chapter 90 was inserted. The Explanatory Memorandum which accompanied the Customs Tariff Amendment Bill (No 5) of 2001 contained, relevantly, only the following self-obvious observations;

67 We infer that the legislature intended, by the substitution of the new Note 6, to expand the range of footwear classifiable as "orthopaedic appliances" from "made to measure" items to include, as well, mass-produced items designed to correct orthopaedic conditions provided that they were presented singly and not in pairs and not designed to fit either foot equally. As already suggested at [64] of these reasons there was also an intention to make Note 6 applicable to "insoles" in case they were not comprehended by the genus "footwear". However, that application was limited, as with "footwear" generally, to insoles designed to correct orthopaedic conditions provided that they were presented singly and not in pairs and designed to fit either foot equally. We agree with the submission of Counsel for the appellant that satisfaction of each of those affirmative and exclusionary criteria was what made the epithet "special" appropriate to insoles to which Note 6 was directed.

68 In our view, Note 1(3) to Chapter 64 and Note 6 to Chapter 90 demonstrate an intention to encompass the spectrum of products which fall within the relevant common meaning of insoles, that is, simply, removable inner soles of a shoe or boot. They also illustrate, contrary to the Tribunal’s decision, that an "insole", as the evidence shows that term is commonly used, and as that term is used in Schedule 3, may be designed to correct orthopaedic conditions. That is what item 9021.10.30 says. The description used by the Tribunal in [28] of its reasons indicates, to the contrary, that a proposed insert to the sole of a shoe or boot which has an orthopaedic purpose of correcting pathologically caused symptoms should not be treated as an insole at all but as something else. The notes to which we have referred, together with the relevant provisions of Chapters 64 and 90, in our view, exclude such an interpretation. We observe that the Tribunal does not appear to have had specific regard to Note 1(3) to Chapter 64 in delineating the spectrum of removable inner soles of a shoe or boot which are not covered by its operations.

69 The other reason why we hold that view flows from the rate of duty which the Tribunal found to apply by adopting item 9021.10.90 as the relevant category. That resulted in the imported products in issue being imported free of duty. Similarly, special insoles made to measure for a specific orthopaedic disorder, covered by item 9021.10.10, are also free of duty. However, special insoles not otherwise specified but designed to correct orthopaedic conditions (covered by item 9021.10.30) attracted duty at the relevant time at 7.5%. A special insole, to qualify for that rate of duty, had to have either the characteristic of being made to measure or, if mass produced, had to be presented singly rather than in pairs and be designed to fit in either foot equally. The imported products in issue were not made to measure, and they were mass produced and presented in pairs and were not designed to fit either foot equally. They do not, therefore, fall within the description of special insoles as used in item 9021.10.30. It does not appear consistent with the rating scheme for imports that a special insole designed to correct an orthopaedic condition and which met one of these criteria should attract duty at 7.5% (at the relevant time), but an orthopaedic appliance such as the imported goods in question, mass produced in pairs but designed to correct orthopaedic conditions, should somehow be rated free of duty.

70 Counsel for the first respondent submitted that Note 6 to Chapter 90 contained two paragraphs which should be read disjunctively. We do not agree with that submission. The first part of Note 6 defines an orthopaedic appliance. It is a general description. The second part then is specific to footwear and special insoles to indicate when those particular products will meet the definition of an orthopaedic appliance. It therefore both clarifies the definition and its application, and limits its application to certain types of removable inner soles of a shoe or boot.

72 There is a question as to whether the matter should now be remitted to the Tribunal for further consideration in accordance with the above reasons or whether the Court should simply determine that the Goods should be classified as property assessed for duty by the original decision-maker under item 6406.10.20 (also at 7.5% at the relevant time). We do not think there is any point to remitting the matter to the Tribunal. The only reason for doing that would be the possibility that if the imported products, or some of them, might somehow fall into a different category of goods for duty assessment purposes. The relevant expression in heading 6406 is "removable insoles, heel cushions and similar articles". It is not confined to insoles which would lie under or support the whole of the foot. ICB did not at any point, either in its original lodged documents (in which it sought entry for the goods as being within item 9021.10.10), or before the Tribunal or before the original decision-maker, contend that certain of the products in issue might alternatively fall within the description of "insole" and some might not. The evidence shows that its products include both full foot insoles and items which apparently are intended to operate as heel cushions or to cushion other parts of a foot or feet. In those circumstances, in our view, the Court should determine pursuant to s 44(7) of the AAT Act that the products in issue were correctly assessed for duty by the original decision-maker in accordance with item 6406.99.20.

73 We would allow the appeal and set aside the orders of the Tribunal and of the learned judge at first instance. We would direct that the assessment of duty made by the appellant should stand. The first respondent should pay the costs of this appeal and of the hearing at first instance.

I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Mansfield and Dowsett.

Counsel for the Appellant:	Mr A Robertson with Mr S Lloyd

Solicitor for the Appellant:	Australian Government Solicitor

Counsel for the First Respondent:	Mr J Svehla

Solicitor for the First Respondent:	Bennelong Legal

Counsel for the Second Respondent:	The second respondent did not appear

Date of Hearing:	4 May 2008

Date of Judgment:	17 July 2008

Federal Court of Australia - Full Court

Chief Executive Officer of Customs v ICB Medical Distributors Pty Ltd [2008] FCAFC 127 (17 July 2008)