VERSATILE CARPETS PTY. LTD. v COLLECTOR OF CUSTOMS

Federal Court of Australia|1985-02-21|Before: Davies JJ

This is an appeal by Versatile Carpets Pty. Ltd. (the applicant) from a decision of the Administrative Appeals Tribunal (the Tribunal), made on 23 July 1984, that the demands of the Collector of Customs (the respondent) for duty of customs on the basis that the goods imported into Australia by the applicant fell

within sub-item 51.02.1 of Part II of the First Schedule of the

The goods the subject of the appeal were two shipments described as polypropylene carpet yarn imported by the applicant from the United States of America, for use by it in the

manufacture of recreational carpet for indoor or outdoor use.

"The trade evidence establishes beyond doubt that, within that branch of the textile industry concerned with the making of indoor/outdoor carpets, the imported goods are uniformly accepted

as a form of "yarn", although described, interchangeably, as "yarn", "grass yarn" or "carpet yarn". ..6..s

"The evidence is that the yarn is carefully wound on to the cone-shaped spool so as to enable the spool to be fitted directly into a carpet tufting machine for the purpose of manufacturing tufted indoor/outdoor carpet. wae The characterisation of the goods within the trade as a form of "yarn" is based to a substantial degree upon the end purpose to which the goods are put

oy.ee. It is accepted as a form of "yarn" because it is the base material for the manufacture of textiles ..... Cthe trade witnessesjJ acknowledged, however, that the imported "yarn" was made by a novel process. Whereas yarn is normally made from continuous or discontinuous (staple) fibres whether natural or man-made, the imported "yarn" is made

from a continuous strip of extruded polypropylene film that has been subjected to a process known as fibrillation, so as to give it a fibrous texture,

The Tribunal went on to describe the production process

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

polypropylene pellets or resin through spinnerettes which are a series of very fine holes. This

process produces very fine continuous fibres which can be gathered together as required to make into multi-filament -yarn or can be converted to staple (i.e. shorter lengths) for spinning into yarn of discontinuous man-made fibres. ....

CThe goods in question, however, were produced byl a method of producing fibrous material from extruded film. Instead of producing filaments by

"the spinnerette method, the extruding machine produces a continuous film approximately five or six feet wide. The extruded film is slit into strips approximately three quarters of an inch wide and is then stretched so as to orient the molecular structure of the stretched tape in a longitudinal direction. The stretched tape is then subjected to a process called fibrillation.

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

connecting fibrils that creates the highly uniform fibrous web ...."

The appeal concerns the appropriate classification of

the goods under Part II of the First Schedule (the Schedule) of

the Act. The appellant contends that either item 51.01 or item 56.05 would be more appropriate to cover the goods concerned than

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

polypropylene ...". Item 56.05 provides for "yarn of man-made fibres (whether discontinuous or waste) not put up for retail

The Tribunal found that the goods did not fall exactly

falling within 56.05 was not raised until this appeal.)

beyond being a 'strip' to which item 51.02 applies. On the other hand, whilst, they have been accepted by the trade as a form of yarn, the yarn is not made of continuous man-made fibres so as to be classifiable within item 51.01. What we have before us is a new article of commerce identifiable as yarn but made of materials falling outside theclassifications for yarn provided by the Tariff."

We note in passing that items 39.02 and 39.07 at' the "39.02 - Polymerisation and copolymerisation products (including polyethylene, polytetrahhalo-ethylenes, polyisho- butylene, polystyrene, polyvinyl . chloride, polyvinyl acetate, polyvinyl chloroacetate and other polyvinyl derivatives, polyacrylic and polymetacrylic derivatives, coumarone- idene resins) 39.07 - Goods made of materials of a kind described in an item or items in items 39.01 to 39.06 (inclusive)" It was common ground that the goods were made of polypropylene and that polypropylene was a material of a kind

The Tribunal acknowledged that item 39.07 "is literally capable of embracing any product made from the basic materials described in the preceding items". However it preferred an interpretation of Chapter 39 of the Schedule that would promote the purpose or object underlying the Act, in accordance with

s.15AA of the Acts Interpretation Act 1901, and concluded that the

We agree with this conclusion. Division VII deals with artificial resins and plastic materials and related products. It specifically excludes "textiles and textile articles falling

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

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

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

Rule 4 of the Rules for the Interpretation of the First

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

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

applying to the yarn the subject of this application.

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

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

Appeals to this Court from decisions of the Tribunal are

limited to questions of law (Administrative Appeals Tribunal Act

Where ali the material facts in a case such as this have been established, the question as to whether those facts bring the goods concerned within one particular item or another of the

Schedule, is a question of law (see Peacock v Zyfert 1983 48 AER

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

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

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

i The Tribunal then went onto invite further submission on the

classification to which the goods were "most akin".

In its final decision on 23 July 1984, the Tribunal

{ resiled to some extent from its previous position. It said,

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

With respect to the goods to which item 51.02 applies, namely "strip (artificial straw and the like) of man made fibre materials", the essential characteristic of "strip" in contrast to yarn is that it is a continuous product entire within itself. It is not made by twisting separate fibres or filaments together to form a continuous' strand. Whilst a twisted fibrillated strip of polypropylene may have enough of the characteristics of "yarn" to enable it to be used as a form of yarn for certain textile manufacturing purposes, the fibrillation process does not alter the fact that it is a

' fibrillated strip of polypropylene and not "yarn" within the ordinary meaning of that word. Thus, despite the extent to which the goods are able to simulate some of the characteristics of "yarn", they remain, in our view, more akin to "strip" to which item 51.02 applies than they do to "yarn of continuous man made fibres" of a kind to which item

51.01 applies. In terms of "kinship", they are closer to the "strip" from which they have come than to traditional "yarn" which they aspire to be."

With great respect for the care with which the Tribunal approached this matter, we are unable to agree with the final result. In our view the first finding of the Tribunal was

correct. The product looks like a yarn, it is invariably

described in the trade as a yarn, and it serves the purpose of a yarn. The Tribunal said that before it could be classed as a yarn for purposes of the schedule, the product had to fall within the ordinary meaning of that word. It was not sufficient for it to fall within "a trade extension of that meaning". It is not necessary for us to consider whether that was a correct approach, because we believe this product was a "yarn" within the ordinary

The Tribunal found the ordinary meaning of the word in

the Modern Textile and Apparel Dictionary (4th Ed) by G E Linton.

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

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

Whatever the explanation, we have come to the opposite view.

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

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

fibres or filaments in the tape-like strip of polypropylene. The

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

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

of "yarn of man-made fibres (whether discontinuous or waste)"

This argument not having been put to the Tribunal, the Court allowed it to be raised only on the understanding that, if it were upheld, the matter would be sent back to the Tribunal to

enable further evidence to be taken. It was submitted for the

respondent that the fibres in question might he neither "continuous" nor "discontinuous" because of their web-like construction. Without the benefit of evidence we express no view on this submission beyond saying that, in our view, it is quite

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

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

question most resemble in their composition, manufacture,

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

to pay one half of the appellant's costs of this appeal.

I certify that this and the eleven (11) preceding pages are a true and accurate : copy of the Reasons for

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