AMI Toyota Ltd v Chief Executive Officer of Customs (includes corrigendum dated 24 February 2000) [2000] FCA 121 (21 February 2000)

Last Updated: 24 February 2000

FEDERAL COURT OF AUSTRALIA

AMI Toyota Ltd v Chief Executive Officer of Customs [2000] FCA 121

AMI TOYOTA LTD & ORS V CHIEF EXECUTIVE OFFICER OF CUSTOMS

NO. V 415 OF 1999

HEEREY J

21 FEBRUARY 2000

SYDNEY (HEARD IN MELBOURNE)

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V415 OF 1999

BETWEEN:	AMI TOYOTA LTD, TOYOTA MOTOR CORPORATION AUSTRALIA LTD, TOYOTA MOTOR SALES AUSTRALIA LTD Applicants
AND:	CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent

JUDGE:	HEEREY J
DATE:	21 FEBRUARY 2000
PLACE:	SYDNEY (HEARD IN MELBOURNE)

CORRIGENDUM

In the reasons for judgment handed down on 21 February 2000 replace "can' in paragraph 45 on page 17 with "cannot".

Serge Martinez

Associate to Justice Heerey

24 February 2000

FEDERAL COURT OF AUSTRALIA

AMI Toyota Ltd v Chief Executive Officer of Customs [2000] FCA 121

CUSTOMS - customs value - whether payments by motor vehicle importers to manufacturers for indemnity against warranty claims "payments ... made ... in relation to such goods" - appeal from Administrative Appeals Tribunal - whether question of law

WORDS AND PHRASES - "payments ... made ... in relation to such goods"

Administrative Appeals Tribunal Act 1975 (Cth) s 44(1)

Customs Act 1901 (Cth) ss 154(1) 159, 161(1), 161(2)

Customs Tariff Act 1987 (Cth) s 21

Customs Tariff Act 1995 (Cth) s 15

Toyota Motor Sales Australia Ltd v Collector of Customs (1991) 28 FCR 27 at 29 applied

LNC (Wholesale) Pty Ltd v Collector of Customs (1988) 17 FCR 154 applied

Commonwealth Quarries (Footscray) Pty Ltd v Federal Commissioner of Taxation (1938) 59 CLR 121 applied

Hope v City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 at 7 applied

Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 286-289 applied

Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 at 394-398 applied

Brutus v Cozens [1972] UKHL 6; [1973] AC 854 mentioned

Baxter Healthcare Pty Ltd v Comptroller-General of Customs (1997) 72 FCR 467 at 473 mentioned

Hayes v Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 CLR 47 at 51 applied

Buck v Bavone [1976] HCA 24; (1976) 135 CLR 110 at 119 applied

AMI TOYOTA LTD & ORS V CHIEF EXECUTIVE OFFICER OF CUSTOMS

NO. V 415 OF 1999

HEEREY J

21 FEBRUARY 2000

SYDNEY (HEARD IN MELBOURNE)

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V415 OF 1999

BETWEEN:	AMI TOYOTA LTD, TOYOTA MOTOR CORPORATION AUSTRALIA LTD, TOYOTA MOTOR SALES AUSTRALIA LTD Applicants
AND:	CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent
JUDGE:	HEEREY J
DATE OF ORDER:	21 FEBRUARY 2000
WHERE MADE:	SYDNEY (HEARD IN MELBOURNE)

THE COURT ORDERS THAT:

1. The appeal is allowed.

2. The decision under review is set aside.

3. The case be remitted to the Administrative Appeals Tribunal with directions that the decisions of the respondent under review be set aside and that the customs value of the vehicles in question be recalculated by the respondent on the basis that the average warranty cost in relation to each vehicle not be included.

4. The respondent pay the applicants' costs of this proceeding, including reserved costs.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V415 OF 1999

BETWEEN:	AMI TOYOTA LTD, TOYOTA MOTOR CORPORATION AUSTRALIA LTD, TOYOTA MOTOR SALES AUSTRALIA LTD Applicants
AND:	CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent

JUDGE:	HEEREY J
DATE:	21 FEBRUARY 2000
PLACE:	SYDNEY (HEARD IN MELBOURNE)

REASONS FOR JUDGMENT

1 The applicants are wholly owned subsidiaries of the Toyota Motor Company of Japan ("Toyota Japan") which manufactures Toyota motor vehicles. This appeal from the Administrative Appeals Tribunal ("AAT") under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) is concerned with the customs value of Toyota vehicles imported from Japan into Australia. Since details of the Toyota corporate structure in Australia and its variation from time to time are not relevant for present purposes it will be convenient to refer to the applicants collectively as "Toyota Australia".

2 Toyota Australia provides warranties to vehicle purchasers. Under contractual arrangements between Toyota Australia and Toyota Japan, Toyota Australia is reimbursed by Toyota Japan for the cost, or a substantial part of the cost, of work done pursuant to such warranties. A component of the price which Toyota Australia pays Toyota Japan for each vehicle is treated as payment to Toyota Japan for undertaking this liability to reimburse Toyota Australia. The AAT affirmed a decision of the respondent that this component was to be included as part of the customs value attributed to each imported vehicle.

3 Before the AAT no oral evidence was called. The parties tendered a Statement of Agreed Facts with extensive documentation. The following summary of the relevant documentation and business arrangements is largely taken from the AAT's reasons which in this respect were accepted as accurate.

4 At the outset the AAT noted that the parties accepted that the importation and warranty arrangements in the present case were as described by the Full Court in Toyota Motor Sales Australia Ltd v Collector of Customs (1991) 28 FCR 27.

5 Toyota Japan has given to Toyota Australia the exclusive right to import into the Australian market Toyota commercial and passenger motor vehicles and parts. The supply arrangement is governed by a series of "importer agreements". There were two such agreements during the relevant period but their terms were relevantly the same. The importer agreements do not in themselves constitute contracts for the importation of Toyota motor vehicles into Australia; rather they provide the terms and conditions for the individual sales contracts under which importation occurs.

6 Orders for individual sales contracts are placed by Toyota Australia notifying Toyota Japan. The prices are as set by Toyota Japan. Prices stated in individual sales contracts are to be either FOB the Japanese port or C&F or CIF the Australian port of unloading. The individual sales contract becomes effective upon Toyota Japan notifying Toyota Australia of acceptance of the order.

7 Orders and acceptances take place under a sophisticated electronic processing system. When ordering product Toyota Australia does not specify any price, nor is the price confirmed in any order confirmation. The price included in the invoice for the product is in accordance with Toyota Japan's then current price notification. The purchase price is paid by electronic funds transferred from Toyota Australia to Toyota Japan on the fifteenth day of the month following the month of shipment, although prior to 1998 payment was made by the second day after the bill of lading date.

8 Ownership and possession of the vehicles the subject of the individual sales contract vest in Toyota Australia upon Toyota Japan delivering a bill of lading. Toyota Australia is thereafter to be responsible for any damage, loss or miscarriage to the vehicles after they have been placed on board the vessel for shipment to Australia. After importation Toyota Australia sells the vehicles through distributors or dealers to consumers.

9 Each consumer is given a warranty covering the cost of replacing parts and associated labour costs in respect of the vehicle purchased. The consumer can claim under the warranty against Toyota Australia for repairs, covering both parts and labour. In turn Toyota Australia claims reimbursement for such expenditure from Toyota Japan. Article 33 of the first importer agreement states:

"33 [Toyota Japan] shall warrant the Products in accordance with Toyota Warranty Policy as separately prescribed by [Toyota Japan] and only within the limitation set forth therein."

10 A later version of the first importer agreement deals with the matter in slightly more detail:

"33 (a) [Toyota Japan] shall warrant the Motor Vehicles in accordance with the Toyota Warranty Policy and Procedures Manual separately prescribed by Toyota Japan and only within the limitation set forth therein.

(b) [Toyota Japan] shall not reimburse or compensate [Toyota Australia] for any cost or expense for repairs carried out by [Toyota Australia] beyond the limitation prescribed in the Toyota Warranty Policy and Procedures Manual.

(c) If [Toyota Australia] plans to warrant, at its own expense, the motor vehicles beyond the limitation prescribed in the Toyota Warranty Policy and Procedures Manual, [Toyota Australia] shall furnish [Toyota Japan] with a detailed description of such warranty and obtain the prior written approval of [Toyota Japan]."

11 In the case of the second importer agreement warranty provisions are expressed in substantially the same terms as those quoted in par 10 above. All of the importer agreements incorporate the terms of the Toyota Warranty Policy and Procedures Manual ("the Warranty Policy") as part of the terms and conditions to be applicable in the individual sales contracts.

12 By cl 2-1(a) of the Warranty Policy "[Toyota Australia] can claim reimbursement from [Toyota Japan] for warranty repairs on a vehicle". These repairs exclude rectification of any fault due to local assembly, which is to be the responsibility of the local distributor. The warranty is to cover parts and labour costs. "Maintenance Service" is defined to exclude the following from warranty cover when no defective parts are involved:

"(i) Engine tune-up

(ii) Wheel alignment, wheel balance, tire [sic] rotation

(iii) Brake & clutch inspection and adjustment

(iv) Inspection and adjustment of linkage of various parts

(v) Drive belt inspection and adjustment

(vi) Fuel system cleaning

(vii) Cooling system cleaning

(viii) Carbon and sludge removal

(ix) Other similar maintenance service ordinarily needed with vehicle use"

13 Certain specified parts and materials are not included in the warranty. Claims for reimbursement are to be made by Toyota Australia filling out a warranty claim form and sending it to Toyota Japan.

14 The price paid by Toyota Australia to Toyota Japan for each vehicle includes an amount called "average warranty cost". This amount is payment for Toyota Japan's undertaking to reimburse Toyota Australia for the cost of work which the latter may be called on to carry out. In practice the average warranty cost for a particular vehicle is calculated by reference to the average actual cost to Toyota Japan of warranty cost reimbursement for vehicles of that type incurred in the preceding six month period.

15 Toyota Japan provides documentation for imported vehicles including invoices attached to the bill of lading applicable to individual sales contracts. Prior to 9 December 1997 the invoices did not show average warranty costs of vehicles as separate items. Such invoices have been collectively referred to as "unitemised entries". From 9 December 1997 invoices specifically identified the average warranty cost ("the itemised entries"). For example, an invoice dated 12 February 1998 lists batches of particular models, the number in each batch and the price. The first batch is of a model identified as Toyota Starlet 3-Door Hatchback XL. The quantity is shown as nine, the terms of shipment C & F, and the unit price $9,079.39. Underneath the description of the model there appears "Warranty" and opposite that word, and under the $9,079.39, appears the sum of $104. The $104 is part of, not additional to, the $9,079.39.

16 For present purposes, the parties accepted that the liability for customs duty was the same whether or not the average warranty cost was an itemised or unitemised entry. The expression "average warranty cost" was used by the parties and the AAT and therefore will be used in these reasons. However it must be remembered that this expression does not refer to the cost incurred by Toyota Australia in performing warranty work. Rather it is the sum paid by Toyota Australia to Toyota Japan in consideration of the latter's promise to reimburse Toyota Australia for the cost of warranty work (if any) done on the vehicle in question. Also the word "average" refers to the historical calculation of the amount of the charge. The relevant cost - $104 in the example quoted - was the actual cost to Toyota Australia of payment for the indemnity in respect of a specific vehicle.

The legislation

17 Duties of customs are imposed on goods imported into Australia: Customs Tariff Act 1987 (Cth) s 21, Customs Tariff Act 1995 (Cth) s 15. A customs regime necessarily requires rules for fixing the value of goods subject to duty. Such rules are contained in Division 2 of Part VIII of the Customs Act 1901 ("the Act"), which is headed "Valuation of Imported Goods". The provisions relevant to the present case are as follows (emphasis added).

18 Section 159 of the Act provides:

"(1) Unless the contrary intention appears in this Act or in another Act, the value of imported goods for the purposes of an Act imposing duty is their customs value and the Collector shall determine that customs value in accordance with this section.

(2) Where a Collector can determine the transaction value of imported goods, their customs value is their transaction value."

It is common ground that this is a case in which the "transaction value" of the goods could be determined.

19 Section 161(1) of the Act provides:

"161(1) The transaction value of imported goods is an amount equal to the sum of their adjusted price in their import sales transaction and of heir price related costs to the extent that those costs have not been taken into account in determining the price of the goods."

20 The expression "adjusted price" is defined in s. 161(2) as follows:

"(2) In this section:

adjusted price, in relation to imported goods, means the price of the goods determined by a Collector who deducts from the amount that, but for this subsection, would be the amount of that price, such amounts as the Collector considers necessary to take account of the following matters:

(a) deductible financing costs in relation to the goods;

(b) any costs that the Collector is satisfied:

(i) are payable for the assembly, erection, construction or maintenance of, or any technical assistance in respect of, the goods;

(ii) are incurred after importation of the goods into Australia; and

(ii) are capable of being accurately quantified by reference to the import sales transaction relating to the goods;

(c) Australian inland freight and Australian inland insurance in relation to the goods;

(d) deductible administrative costs in relation to the goods;

(e) overseas freight and overseas insurance in relation to the goods."

21 "Import sales transaction" is defined in s. 154(1) as follows:

"import sales transactions, in relation to imported goods, means:

(a) where there was one, and only one, contract of sale for the importation of the goods into Australia entered into before they became subject to Customs control and it was also a contract for their exportation from a foreign country - that contract;

(b) ...

(c) ...

and includes:

(d) ... and

(e) any other contract, agreement or arrangement relating to the contract of sale referred to in paragraph (a), (b) or (c) that a Collector determines is so closely connected with that contract and to the goods the subject of that contract that together they form a single transaction."

22 Section 154(1) defines `price', unless the contrary appears, as follows:

"price, in relation to goods the subject of a contract of sale, means an amount determined by a Collector, after disregarding value unrelated matters in relation to those goods, to be the sum of:

(a) all payments that have been made, or are to be made, directly or indirectly, in relation to such goods, by or on behalf of the purchaser:

(i) to the vendor;

(ii) ...

(iii) ...

in accordance with the contract of sale; and

(b) all payments that have been made, or are to be made, directly or indirectly, in relation to such goods, by or on behalf of the purchaser;

(i) to the vendor;

(ii) ...

(iii) ...

under any other contract, agreement or arrangement, whether formal or informal, being a contract, agreement or arrangement for the doing of anything to increase the value of the goods or that a Collector is satisfied is so closely connected with the contract of sale referred to in paragraph (a) and to the goods the subject of that contract that together they form a single transaction;

whether the payment is made in money or by letter of credit, negotiable instrument or otherwise, and includes:

(c) the value, as determined by a Collector, of any goods or services supplied, or to be supplied, by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale referred to in paragraph (a); and

(d) the value, as determined by a Collector, of any goods or services supplied, or to be supplied, directly or indirectly, by, or on behalf of, the purchaser:

(i) to the vendor;

(ii) ...

(iii) ...

under a contract, agreement or arrangement of the kind referred to in paragraph (b);

but does not include the amount of any duty of Customs ..., any sales tax, or any other duty or tax, that is payable by law because of the importation into, or subsequent use, sale or disposition in, Australia of the goods ...".

23 Finally, s 154(1) defines "value unrelated matter", unless the contrary intention appears, in the following way:

"value unrelated matter, in relation to goods the subject of a contract for sale, means:

(a) any rebate of, or other decrease in, the price other than such a rebate or decrease the benefit of which has been received when the price is being determined; or

(b) any costs, charges or expenses in relation to activities undertaken by the purchaser on the purchaser's own account in relation to the goods (including any activities of the purchaser relating to advertising or promoting the sale of, or to warranties or guarantees in relation to the goods)."

Issues before AAT

24 In broad terms the issues before the AAT were:

(i) Whether the average warranty cost formed part of the "price" of each vehicle within the meaning of s 154(1);

(ii) Alternatively, whether the average warranty cost was cost "in relation to activities undertaken by (Toyota Australia) on (its) own account" in relation to the goods within the meaning of par (b) of the definition of "value unrelated matter" in s 154(1) and thus to be disregarded in the determination of "price". (As will be seen, Toyota Australia submitted that the AAT misunderstood or overlooked this issue);

(iii) Alternatively, whether the average of amounts actually spent by Toyota Australia in Australia in meeting its warranty obligations to consumers was "value unrelated matter"; and

(iv) Alternatively, whether the average warranty cost was a cost payable for the "maintenance" of the goods within the meaning of the definition of "adjusted price" in s 161(2)(b).

The AAT's reasons

25 The AAT found that the "import sales transaction" included the individual sales contracts, the importer agreements and the Warranty Policy provisions.

26 It said that the identification in the invoice of an amount attributable to warranty costs was "simply the identification of one of the elements constituted in the price arrived at between Toyota Australia and Toyota Japan". It then continued:

"17. Finally, the words `in relation to' as used in the definition of `price' in s. 154(1) are words of broad ambit which take their meaning from the surrounding context in which they appear (Workers' Compensation Board of Queensland v Technical Products Pty Ltd [1988] HCA 49; (1988) 165 CLR 642 at 653 per Deane, Dawson and Toohey JJ, Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 at 547 per Lehane J with whom Lockhart and Foster JJ agreed). The context of the opening words of the definition of `price' connects the goods to the subject of the individual sales contract. The individual sales contract which, through the terms incorporated by the importer agreements, addresses the issue of warranty cover, but does so as part of the overall contractual arrangements. Where the phrase `in relation to' is used in paragraph (a) of the definition, it is to `all payments ... made directly or indirectly' (emphasis added), further indicating the breadth of what is to be comprehended when considering price. Accordingly, an allocation made for warranty costs, whether in an unitemised or an itemised invoice, cannot be characterised as being a separate allocation of cost, and must be regarded as being part of the direct payment made `in relation to' the goods.

18. The applicants sought to rely on the following passage from the Toyota Motor Sales' case to justify its [sic] submission that warranty payments should not be regarded as part of the price. In that case the Full Court of the Federal Court said:

`... we do not think that in the ordinary parlance of commercial life the reimbursements can fairly be said to be rebates of, or decreases in, the prices of the relevant vehicles accruing to Toyota Australia by reason of faults or defects in those vehicles. They were payments made to Toyota Australia under arrangements essentially collateral to the purchase of the motor vehicles pursuant to which Toyota Australia was entitled to claim reimbursement in respect of at least some of the expense incurred in meeting its warranty obligations to owners of Toyota vehicles. The contractual arrangements made between the two companies pursuant to which reimbursements were made were plainly independent of the contractual arrangements pursuant to which the motor vehicles were imported.' (pp.29-30)

The Court in its reasons for decision referred to an importer agreement between Toyota Japan and Toyota Australia, but did not refer to the concept of individual sales contracts which has arisen in the instant case. Also it is apparent that the Article 22 referred to by the Court dealing with price, while its equivalent is to be found in Article 18 of B1 (and Article 16 of B2), is differently numbered, and, consequently, it is not apparent that the same importer agreements as were being considered in the Toyota Sales' case are relevant in the instant case. Those differences leave the Tribunal unable to apply the conclusions reached in the Toyota Sales' case to the facts as found in this case, i.e. the Tribunal is unable on the facts of this case to say that arrangements with respect to warranty payments are `essentially collateral' to the purchase of the motor vehicles and therefore should not be included in their price."

27 This appears to have concluded the AAT's consideration of issue (i) as identified in par 24 above. It then turned to consider the applicability of "value unrelated matter". After quoting part (b) of the definition of that term in s 154(1) the AAT continued:

"19. ...

In Re Sprague Footwear and Collector of Customs (1990) 24 ALD 300 the Tribunal found that a discount allowed by the supplier for expenses to be incurred by a purchaser (importer) in promoting the sale of the supplier's shoes in Australia did not constitute a value unrelated matter. The Tribunal found that the discount was a cost incurred by the supplier, not the purchaser. However, in as far as the purchaser did incur promotional costs associated with, for instance, advertising, those costs constituted a value unrelated matter `...notwithstanding that they were incurred also on the vendor's behalf and notwithstanding also they were undertaken pursuant to the contract of sale [entered into between the supplier and the Australian importer]' (p.305). The Tribunal agrees with the approach outlined in Re Sprague.

20. In the facts of this case, the parties agree:

... the Warranty Policy ensures that [Toyota Japan] ultimately bears the cost or the substantial part of the cost of providing warranty repairs by a series of reimbursements. Owners of Toyota vehicles bring their vehicles in for repair under warranty to Toyota dealers. The dealers repair the vehicles and seek reimbursement or substantial reimbursement of their costs in performing the repairs from Toyota Australia. Toyota Australia then seeks reimbursement or substantial reimbursement from [Toyota Japan]. (Statement of Agreed Facts, para 28)

An example of a new vehicle warranty issued is set out in annexure E2. While the warranty is expressed to be given jointly by Toyota Australia and Toyota Japan (annexure 2, p.331), it is clear from annexure B1 Article 34(b) (annexure B1, p 26) that Toyota Australia is to assume the initial warranty obligation. While that issue is not dealt with as clearly in any of the other importer agreements before the Tribunal, those agreements state that Toyota Australia cannot be reimbursed by Toyota Japan for costs for work carried out beyond the limitations prescribed in the Warranty Policy (annexure B2 Article 33(b), s 9(b) of Schedule C of B3, B4 and B5). The Tribunal is satisfied that the latter provisions, at least by implication, pre-suppose expenditure by Toyota Australia for which a claim for reimbursement will be made against Toyota Japan. The Tribunal is, accordingly, satisfied that the above quoted provision from clause 28 of the Statement of Agreed Facts constitutes the method by which warranty payments are made viz, initially, by the dealer claiming against Toyota Australia and, ultimately, by Toyota Australia claiming against Toyota Japan.

21. From the above, the Tribunal is satisfied that Toyota Australia incurs costs as the result of its obligation arising through the individual sales contracts via the terms incorporated from the importer agreements to pay for warranty costs. However, in turn, Toyota Australia claims reimbursement from Toyota Japan to the extent provided for in the warranty agreement with Toyota Japan. Because those costs are reimbursed by Toyota Japan, they cannot be categorised as warranty costs met by Toyota Australia. Accordingly, the costs do not fall within the description of `value unrelated matter'."

28 The AAT then turned to deal with s 161(2)(b) (issue iv). It said:

"22. ...

The three requisites set out in sub-clause (b) [of s 161(2)] are compendious. The parties agree, and the Tribunal is satisfied, that any warranty work is carried out after importation of the goods into Australia and, accordingly, the requirements [sic] set out in (b)(ii) is satisfied. For the reasons set out in paragraph 28 herein, the Tribunal is also satisfied that the calculation as to the amount of warranty payable is an accurate quantification of the cost to be incurred. That cost is quantifiable by reference to the import sales transaction, i.e. there is a contract for the importation of goods into Australia, including agreement with respect to the meeting of costs associated with the giving of a warranty undertaking. The only real question then is whether the costs `... are payable for the ... maintenance of or any technical assistance in respect of the goods' (s.161(2)(b)(i)).

23. In the LNC Wholesale's case the Full Court of the Federal Court was considering an appeal from a decision of the Tribunal which had determined deductions claimed for advertising costs associated with the import of Fiat motor vehicles and after sales service costs in relation to the import of Audi vehicles should be considered as part of the price and hence be dutiable. The then s.154(2)(b)(iii)(A) is now reflected in the definition of `adjusted price' contained in s.161(2) of the Act. While there is some minor difference in wording between the two provisions, that difference is not relevant for present purposes. In the LNC Wholesale's case Davies and Einfeld JJ (with whom Sheppard J agreed) [sic - in fact Sweeney J] accepted that in as far as the Audi claim was concerned, the obligation to meet warranty payments appeared to fall within the definition of `adjusted price' as being part of `maintenance'. Since, however, the Tribunal at first instance did not consider this aspect, the matter was remitted for rehearing. The Court did not attempt to examine the scope of the meaning to be attributed to `maintenance' in the context in which it is used in the definition.

24. In Re Saab-Scania the Tribunal had the opportunity of examining the scope in the context of warranty provisions relating to Saab motor vehicles. There the Tribunal found that the discharge of warranty obligations did amount to maintenance. After referring to the comments of Davies and Einfeld JJ in the LNC Wholesale's case, the Tribunal stated:

It is our understanding ... that their Honours intended, when referring to the maintenance of the goods, to relate what they wrote to all the costs, charges and expenses incurred in discharge of the obligations undertaken by LNC under its Audi Cover scheme. Although the removal of a defective part from a motor car and its replacement with a sound part does not constitute maintenance of the defective part, in our view maintenance of the motor car does comprise the replacement of defective parts by sound parts in order to maintain its integrity as an operable motor car.

25. Davies and Einfeld JJ outlined the background of Australia's adoption of the GATT Protocol (being the Protocol to the Agreement on Implementation of Article VII of the GATT of 12 April 1979) in the LNC Wholesale's case at pages 564 to 566. The GATT Protocol in Article 18 established a Technical Committee on Customs Valuation. That committee was to provide technical advice as requested, particularly with respect to uniformity in interpretation and application of the Protocol (see annexure II to the Protocol). While, as of 1 January 1995, GATT has been replaced by the World Customs Organisation, the function of that committee has continued. It has issued an Explanatory Note specifically relating to Article 1 of the Protocol in which it draws the following distinction between the terms `maintenance' and `warranty'.

5. ...

- Maintenance is a form of preventative care on goods such as industrial facilities and equipment to ensure the upkeep of those facilities and equipment to a standard which enables them to perform the function for which they were acquired;

- Warranty is a form of guarantee on goods, such as motor vehicles and electrical appliances, which covers costs of correcting defects (parts and labour) or replacement subject to certain conditions being met by the warranty holder. If those conditions are not met, warranty can be voided. Warranty covers hidden defects in the goods, i.e. defects which should not exist and which prevent the use of the goods or reduce their usefulness;

- Maintenance must always be performed, whereas warranty is only a contingency measure which might be invoked in the case of failure or under-performance of goods.

6. There is, therefore, a fundamental difference between the two concepts, and the term `maintenance' ... cannot be applied to warranties.

The words used in the statute where they have their genesis in an international agreement `... should be construed consistently with the terms of the international instruments': ICI Australia Operations Pty Ltd v Fraser (1992) 34 FCR 564 at 569, 570; 106 ALR 257; Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority and Fraser (1995) 56 FCR 406 at 417; 129 ALR 401' (Lehane J in Norland Papier AG v Anti-Dumping Authority [1999] FCA 10; (1999) 161 ALR 120 at 127).

26. The Tribunal further notes that in the definition of `value unrelated matter', contained in s.154(1) of the Act, references are made in sub-clause (b) to `warranties ... in relation to, the goods', whereas s. 161(2)(b)(i) contains no reference to `warranty' but does contain the reference to `maintenance'. This suggests that the two terms have been used to fulfil different legislative purposes and that their use ought be distinguished.

27. Finally, the Tribunal is of the view that the matters referred to in s.161(2)(b)(i) should be read ejusdem generis. In the context in which it is used the word `maintenance' relates to `assembly, erection, construction ... [the provision of] technical assistance in respect of, the goods' and carries with it a connotation of the installation of an item of plant or equipment. The giving of a warranty associated with the importation of an individual motor vehicle does not provide, in the opinion of the Tribunal, a contextually apposite description for `maintenance'. An application of the above leaves the Tribunal satisfied that the warranty should not be regarded as part of the `adjusted price'."

Issue (i): "Price" - "Payment ... made ... in relation to such goods"

29 The average warranty cost is a form of insurance premium. Under an insurance contract, the insured pays a fixed sum in return for a promise by the insurer to provide indemnity against loss caused by a future event which may or may not happen. Payment of the average warranty cost gives Toyota Australia essentially the same right against Toyota Japan.

30 In the example given, Toyota Australia pays Toyota Japan $104 for indemnity against the former's liability to the consumer to carry out warranty work on a particular vehicle. In fact there might be no warranty work at all required on the vehicle. Or there might be warranty work which costs Toyota Australia much more than $104. If there were work done costing $104, no more and no less, it would be sheer coincidence.

31 So what Toyota Australia gets (and expected to get) for its $104 is neither a vehicle, nor an undivided share in a vehicle (e.g. a one per cent share), nor a physical part of a vehicle (e.g. steering wheel or tyres). Rather it gets an intangible thing, a right to be indemnified against a potential liability of a particular kind.

32 Senior Counsel for the respondent conceded, in my view correctly, that Toyota Australia's right of indemnity could be assigned: British Union and National Insurance Company v Rawson [1916] 2 Ch 476, Chitty on Contracts (28th Ed) par 20-053, MacGillivray and Parkington on Insurance Law (8th Ed) pa 1615. This could occur long after the vehicle had been sold by Toyota Australia.

33 A third party could set up business as a provider of warranty indemnity cover, in which event it might suit Toyota Australia to obtain cover from that third party rather than Toyota Japan. Or Toyota Australia might decide to carry the risk itself.

34 Customs duty is a tax on goods, not services: see the provisions of the Customs Tariff Acts cited in par 17 above. In my view, the foregoing analysis leads to the conclusion that what Toyota Australia obtained for the average warranty cost was a service, namely a promise to indemnify it against a certain kind of liability which might or might not happen.

35 In terms of the Act, the critical question is whether the $104 was paid "... in relation to (the) goods". The AAT never really addressed this question. It was not enough for the AAT to say, as it did in par 16 of its reasons, that the identification in the invoice of the amount attributable to average warranty cost was "simply the identification of one of the elements constituted in the price arrived at". The question remained, was this "element" a payment made "in relation to (the) goods"?

36 As to par 17, I am not sure what is meant by "connect(ing) the goods to the subject of the individual sales contract". Moreover, to say that the issue of warranty cover was addressed "as part of the overall contractual arrangements" begs the question. No doubt the payment for warranty cover was contractual, and part of the overall contractual arrangements between Toyota Australia and Toyota Japan, but was it in relation to the goods, or in relation to something else?

37 Further, the AAT misapprehended the import of the phrase "directly or indirectly" in par (a) of the definition of "price". That phrase is intended to modify the verb "made", so that payments made directly or indirectly to the vendor are caught. The same phrase does the same work in pars (b) and (d) of the definition. But it does not modify the expression "in relation to such goods" in par (a) of the definition, as the Tribunal thought it did (see its reasons par 17, second last sentence).

38 As has been seen, the AAT referred to the Full Court's decision in LNC (Wholesale) Pty Ltd v Collector of Customs (1988) 17 FCR 154 (Sweeney, Davies and Einfeld JJ).

39 LNC was an importer of two makes of European motor vehicle. For present purposes the case is relevant insofar as it dealt with Audi vehicles. The German manufacturer agreed with LNC to share in the cost of "Audi Cover", a warranty and after-sales service program which was in addition to that provided under the standard new vehicle warranty. The manufacturer's contribution was by way of an ex works price reduction of DM 350 per vehicle. The Collector treated the sum deducted as part of the price and therefore of the value of the vehicle. The definition of "price" in the Act at the time was relevantly similar to the present definition. If anything, it was broader in scope insofar as it used the expression "in connection with" instead of "in relation to" where the latter appears in each of par (a) and (b) of the present definition.

40 The Full Court held (at 170) that the cost of providing the warranty services by LNC (and not merely the manufacturer's contribution) should have been deducted from the price for the purposes of the Act as then applicable because it was in respect of "activities undertaken by the purchaser on his own account" (s 154(2)(a)(ii)) and "costs ... incurred for the ... maintenance of ... the goods, being costs ... incurred after the importation of the goods" (s 154(2)(b)(iii)(A).

41 Davies and Einfeld JJ noted (at 164) that it was necessary to "eschew technicality and subtlety and to take a practical commercial view of transactions" and that

"...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 Inland Revenue Commissioners v Duke of Westminster (Duke) [1936] AC 1 at 20-21."

42 Their Honours referred (at 164-165) to United States customs law authorities to the effect that payments to obtain possession of goods are part of value or cost of the goods, but royalty payments for the exclusive right to purchase, or for a licence to manufacture under patent, are not. Their Honours continued (at 165):

"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.

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."

43 Whilst the AAT made a passing reference to LNC (Wholesale) in par 16 of its reasons for decision, it did not refer to the passage set out above nor to the principles contained in it.

44 In my opinion, the passage just cited is highly relevant to the present case. The average warranty costs were not payments made with respect to the acquisition of the goods. As explained above, they were payments to obtain indemnity against future liabilities which might or might not accrue.

45 The fact that the payment for this indemnity formed part of a contractual sum called "price" does not deny its essential nature. In Commonwealth Quarries (Footscray) Pty Ltd v Federal Commissioner of Taxation (1938) 59 CLR 121, a sales tax case, Dixon and McTiernan JJ said (at 121):

"In a contract under which for a single lump sum of money a party undertakes to do various things, including the transfer of property in goods, it is quite true that the entire money consideration or contract price cannot be regarded as the amount for which goods are sold. In such a case the amount for which the goods are sold could not be ascertained from the transaction except by allocating part of the consideration to the other acts or things to be done by the seller."

46 In Toyota Motor Sales Australia Ltd v Collector of Customs (1991) 28 FCR 27, referred to by the AAT in par 18 of its reasons, the Full Court was concerned with reimbursements by Toyota Japan of Toyota Australia of the cost of warranty work carried out by the latter. This was claimed to be a "rebate of, or other decrease in (the) price" which accrued to the importer by reason of "a fault or defect in the goods" within the meaning of reg 126 of the Customs Regulation 1926 (Cth) pursuant to s 163(1) of the Act. Thus the case, although turning on what were accepted to be contractual arrangements relevantly identical to those in the present case, concerned payments by Toyota Japan to Toyota Australia - unlike the present case where the payments went in the opposite direction. The payments under consideration in Toyota Motor Sales were the proceeds of the insurance rather than, as in the present case, the premium.

47 Nevertheless the statement of the Full Court at 29-30, quoted by the AAT in par 18 of its reasons, is in my opinion strongly supportive of Toyota Australia's argument. In the present case the warranty insurance arrangements were "essentially collateral" to the purpose and "plainly independent of the contractual arrangements pursuant to which motor vehicles were imported". The AAT's attempt to distinguish this statement of principle is unconvincing.

48 Accordingly, I uphold Toyota Australia's primary argument.

A question of law?

49 The respondent argued that no question of law was disclosed on the appeal, as is required by s 44(1) of the Administrative Appeals Tribunal Act.

50 The leading authorities on the issue are well known: Hope v City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 at 7, Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 286-289 and Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 at 394-398. In the last mentioned case the High Court observed (at 394):

"The distinction between questions of fact and questions of law is a vital distinction in many fields of law. Notwithstanding attempts by many distinguished judges and jurists to formulate tests for finding the line between the two questions, no satisfactory test of universal application has yet been formulated."

51 In Pozzolanic the Full Court (at 287) propounded some propositions including:

"5. The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law."

52 The Full Court qualified that proposition by saying (at 288) that when a statute uses words according to their ordinary meaning, and it is reasonably open to hold that the facts of the case fall within these words, the question as to whether they do or do not is one of fact. In Agfa-Gevaert the High Court (at 395-396) left proposition 5 and its qualification untouched; their Honours were concerned on the facts of that case with Pozzolanic propositions 2 and 4.

53 For present purposes the critical words in the statute are "payments ... made ... in relation to such goods" in the definition of "price" in s 154(1). I did not understand it to be contended by either side that those words, considered individually, are used in anything other than their ordinary meaning. But there is a question of construction as to the meaning of the compound expression in the context of the Act. This case did not turn on a single ordinary English word susceptible of a range of meanings and its application or otherwise to proved facts, such as the word "insulting" considered in Brutus v Cozens [1972] UKHL 6; [1973] AC 854; see Baxter Healthcare Pty Ltd v Comptroller-General of Customs (1997) 72 FCR 467 at 473. By contrast, the present case involved the analysis of the true nature of commercial transactions, as proved by entirely uncontested primary evidence, and consideration as to whether a statute (and a revenue statute at that), as construed, did or did not apply. In my opinion, this was a question of law.

54 A statement of Fullagar J in Hayes v Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 CLR 47 at 51 has been applied in many cases and was cited with approval by the High Court in Agfa-Gevaert at 394. Fullagar J said:

"Where the factum probandum [the ultimate fact in issue] involves a term used in a statute, the question whether the accepted facta probantia [the facts adduced to prove or disprove that ultimate fact] establish that factum probandum will generally - so far as I can see, always - be a question of law."

55 That statement is applicable in the present case. I should add that the requirement that the "price" be "an amount determined by the Collector" does not lead to a different result: Buck v Bavone [1976] HCA 24; (1976) 135 CLR 110 at 119.

56 I am fortified in this conclusion by the fact that in neither Toyota Motor Sales nor LNC (Wholesale) does it appear to have been argued that no appeal lay from the AAT.

The alternative cases

57 The foregoing conclusion is sufficient to resolve the appeal in favour of Toyota Australia. I shall however go on to consider its alternative arguments.

Issue (ii): "Value Unrelated matter" - activities undertaken on own account

58 I agree with Toyota Australia's submissions that the AAT did not consider this argument but instead confused "costs" with the actual expenditure incurred by Toyota Australia on warranty repairs. In par 21 of its reasons, quoted above, the AAT refers to "costs reimbursed by Toyota Japan", that is to say the costs incurred by Toyota Australia in carrying out warranty work. But Toyota Australia's argument on issue (ii) related to the average warranty cost it paid to Toyota Japan, that is to say, in the example given, the $104.

59 In my opinion, the average warranty costs fall within par (b) of the definition of "value unrelated matter". They were costs in relation to activities undertaken by Toyota Australia on its own account - the giving of warranties to consumers - in relation to the vehicles. If Toyota Japan failed, Toyota Australia would still be liable to consumers on warranties because it contracted with them as principal. The express inclusion of "warranties" further confirms this.

60 It is to be noted that the sums in question, being payments for the indemnity rights, are themselves never reimbursed or repaid. The monies which may, in the case of some vehicles, flow back to Toyota Australia are fruits of the thing purchased by it.

Issue (iii): "Value unrelated mater" - amounts actually expended

61 Alternatively, amounts actually expended on warranty work should be disregarded. There also were the costs of activities undertaken by Toyota Australia on its own account. Toyota Australia in this regard was not acting as agent for Toyota Japan: cf LNC (Wholesale) at 170.

Issue (iv): "Adjusted price" - "maintenance"

62 As stated in par 22 of its reasons, the AAT accepted that the average warranty costs fell within pars (ii) and (iii) of s 16(2)(b) but not par (i). It held that the average warranty costs were not "payable for the ... maintenance of ... the goods".

63 I think the conclusion the AAT reached on this issue was well open to it. There was much debate as to the applicability of the Technical Committee's advice referred to in par 25 of the AAT's reasons. However suffice it to say that the Committee's exposition is in accordance with the use of the terms "maintenance" and "warranty" in everyday speech in Australia today. I also agree with the AAT's view in par 27 that "maintenance" takes colour from the collocation of words in which it is found. I note that the "Audi Cover" dealt with in LNC (Wholesale) extended to "service" as usually understood, and even items such as oils and lubricants: see 17 FCR at 158.

Orders

64 The appeal will be allowed and the decision under review set aside. Senior Counsel for the respondent accepted that in the event of the appeal succeeding on Toyota Australia's primary ground there would be no further fact finding task for the AAT to undertake. Accordingly I shall make an order in the form primarily requested by Toyota Australia, save only for the fact that, for the sake of consistency I shall use the term "average warranty cost" instead of "warranty component" even though, for the reasons stated above, it is perhaps not the most accurate description. In any event, I mean the $104 in the example stated. There will therefore be an order that the case be remitted to the AAT with directions that the decisions of the respondent under review be set aside and that the customs value of the vehicles in question be recalculated by the respondent on the basis that the average warranty cost in relation to each vehicle be not included. There will be an order that the respondent pay the costs of Toyota Australia.

I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated: 21 February 2000

Counsel for the Applicants:	A L Cavanough QC and H Carmichael
Solicitor for the Applicants:	Abbott Stillman and Wilson, Melbourne agents for Bartier Perry, Sydney
Counsel for the Respondent:	G T Pagone QC and M M Gordon
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	7 and 8 February 2000
Date of Judgment:	21 February 2000