Chief Executive of the New Zealand Customs Service v DB Breweries Limited [2016] NZHC 2181 (15 September 2016)

Last Updated: 3 October 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-1293 [2016] NZHC 2181

BETWEEN	CHIEF EXECUTIVE OF THE NEW ZEALAND CUSTOMS SERVICE Appellant
AND	DB BREWERIES LIMITED Respondent

Hearing:	1 September 2016
Counsel:	PH Courtney and LD Walker for appellant JPH Barker and HM Ford for respondent
Judgment:	15 September 2016

_{JUDGMENT OF FAIRE J}

This judgment was delivered by me on 15 September 2016 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors: Crown Law, Wellington

John Barker Law, Auckland

Chief Executive of the New Zealand Customs Service v DB Breweries Limited [2016] NZHC 2181 [15 September 2016]

Contents

Introduction ............................................................................................................[1] The appeal ..............................................................................................................[2] Preliminary issue ....................................................................................................[3] The facts .................................................................................................................[4] Customs Appeal Authority .....................................................................................[5] Appeal to the High Court .....................................................................................[18] Statutory framework.............................................................................................[24] Did the Authority err in its interpretation of the legislation? ...............................[28]

Did the Authority err in its finding that the goods did not leave the “control

of the Customs”? ..................................................................................................[46]

Did the Authority err in its findings as to what was required for the goods

to be moved to another CCA and “lawfully removed for home consumption”? [49]

Did the Authority err in law in its finding that the goods remained in the

control of Customs until destruction? ..................................................................[60] Result....................................................................................................................[61] Costs .....................................................................................................................[62]

Introduction

[1] This case involves an application for a refund of excise-equivalent duty paid on imported alcoholic beverages pursuant s 113 of the Customs and Excise Act 1996 (the Act).

The appeal

[2] The appellant appeals the decision of the Customs Appeal Authority, dated

_{11 May 2016, by way of a case stated pursuant to s 272 of the Act.}¹

¹ DB Breweries Ltd v Chief Executive of the New Zealand Customs Service [2016] NZCAA 02.

Preliminary issue

[3] Initially, counsel disagreed on the facts to be considered in respect of this case stated on appeal. Counsel conferred. Counsel advised me that they agreed that it was not necessary that I consider all the evidence heard by the Authority. The reason for that is that no ground of appeal, in terms of r 21.9(2) of the High Court Rules, disclosed that such evidence is required to be considered for a proper determination of the questions before the Court in the case stated. Accordingly, with counsel’s agreement, I shall simply have regard to the facts recorded in paragraphs

2 – 12 and 22 of the case stated by the Customs Appeal Authority, dated 15 August

2016.

The facts

[4] I adopt the facts which are summarised in the paragraphs earlier mentioned in the case stated by the Customs Appeal Authority as follows:

2. The Respondent, D B Breweries Ltd (DB) is the New Zealand importer and licensed distributor of Rekordelig cider (manufactured in Sweden) and Crabbies Alcoholic Ginger Beer (manufactured in the UK) (referred to below as the Goods).

3. Between April 2013 and September 2014, the Respondent imported several consignments of the Goods into New Zealand by sea.

4. Prior to the Goods landing in New Zealand, the Respondent’s agent entered the Goods by submitting the requisite electronic import entry clearances, and paid the excise-equivalent duty due.

5. Customs cleared all of the Goods before they landed in New Zealand at the Ports of Auckland Customs Controlled Ares (CCA).

6. Within a few days of importation the Respondent uplifted the consignments of Goods from the Ports of Auckland and transferred them initially to a contracted storage facility (the First Customs Controlled Area).

7. From the First Customs Controlled Area DB transported the consignments of the Goods to its own manufacturing facilities, one in the North Island and the other in the South Island (the North and South Island Customs Controlled Areas).

8. Customs had issued Licences and Procedure Statements for each of the Ports of Auckland CCA, First Customs Controlled Area, and North and South Island Customs Controlled areas.

9. The Goods had a shelf life of between 1.5 and 2 years (depending on the product); and were accordingly labelled by the manufacturer with a best-before date for the expiry of that time period.

10. The Respondent found that it could not sell any of the Goods before their best-before dates expired.

11. While being stored in the facilities to which the Goods had been transported the best-before date on all of the Goods expired.

12. On 28 April 2015 the Respondent made an application to the New Zealand Customs Service (Customs), in accordance with s 113 of the Customs and Excise Act (the Act) seeking a refund of the excise- equivalent duty it had paid on the goods, on the basis that the Goods had:

12.1 Deteriorated prior to release from the control of Customs, and/or

12.2 Diminished in value prior to their release from the control of

Customs; and/or

12.3 Been abandoned to the Crown for destruction or other form of disposal prior to their release from the control of Customs.

...

22. DB had requested the inclusion of the Case Stated of the following.

At the hearing, the following undisputed facts were established:

22.1 The Goods were legally entered and duty paid by the

Respondent.

22.2 After being passed for entry, the Goods remained within or in transit between the First Customs Controlled Area, the North Island or the South Island Customs Controlled Areas at all times.

22.3 The Goods deteriorated or diminished in value while within or in transit between the First Customs Controlled Area, the North Island or the South Island Customs Controlled Areas.

22.4 Storage of the Goods after payment of duty in the Customs Controlled Areas was not in breach of any terms, conditions or restrictions imposed in relation to those Customs Controlled Areas under section 12(2) of the Act.

22.5 The deterioration of the Goods was not due to any wilful act or negligence on the part of the Respondent.

22.6 The Goods were abandoned to the Crown by the Respondent while within the First Customs Controlled Area, the North Island or the South Island Customs Controlled Areas.

Customs Appeal Authority

[5] DB appealed the Chief Executive’s decision of 26 June 2015 to the Customs Appeal Authority (the Authority). The central issue before the Authority was whether “... the product deteriorated in condition, diminished in value, or the appellant abandoned it to the Crown; and if so, whether the event occurred prior to ‘release from the control of the Customs’.”²

[6] Before the Authority, DB argued that the port, the contracted storage facility and the manufacturing facilities were all Customs controlled areas (“CCAs”) and the product remained in them, or in transit between them, at all times.

[7] Customs put forward four arguments. First, it argued that prior to 1998, the Act did not contain an equivalent of s 20(2) and that it was unlikely that Parliament had intended to effect a substantive change in the law by inserting that subsection. Second, Customs submitted that 20(1) should take effect using the definition of “removed for home consumption” found in s 72 of the Act. Third, Customs submitted that s 113 can be applied without reference to s 20, using the ordinary meaning of the word ‘control’. Fourth, Customs submitted that the process of moving goods from one CCA to another was unlawful as DB did not have permits under s 47.

[8] The Authority held that Customs’ first two contentions were ‘untenable’. It stated:³

The contention that Parliament did not intend the very clear and specific terms of section 20(2) to have any effect requires a bald refusal to apply the provision. There is no foundation for the contention. Section 72 cannot override the specific terms of section 20(1) and (2); it expressly says it applies to a different part of the Act, and section 20(2) is specifically directed to section 20(1).

[9] In relation to the third submission, the Authority held that ‘control’ in s 113

should not be given its ordinary meaning as “... under the legislative scheme it is not

_{intended to be limited to circumstances where Customs can exercise de facto control}

² At [10].

over goods.”⁴ For example, the status of ‘subject to control of Customs’ may apply to goods on board aircraft in flight or ships at sea. In those circumstances, the goods are not physically controlled by Customs but they still have the status of ‘subject to the control of Customs’.

[10] The Authority identified two issues arising from Customs’ fourth point: (a) did the movements comply with s 47; and if not

_{(b) whether that negates the effect of section 20(1)(a) and (2).}⁵

[11] Customs did not dispute that DB was free to take the goods from the port to an unlicensed facility. However, Customs submitted that permission was required to remove the product from one CCA to another CCA.

[12] The Authority held that:⁶

As it happened, the appellant took the product to another Customs controlled area. Section 47 does not prohibit this, if the appellant was free to remove the product from the first area. The consequence for the status of being in the control of the Customs is what the Act says the consequence will be. Section

20(1)(a) provides goods are subject to the control of the Customs until

“lawfully removed for home consumption”. Section 20(2) says “goods that

are removed from a Customs controlled area to another Customs controlled area are not removed for home consumption”. The wording is plain and unambiguous, and applies in this case.

[13] The Authority considered the licensing documentation for the CCAs and noted that storing the goods in the CCAs was not a breach of the Chief Executive’s terms, conditions or restrictions imposed under s 12(2).⁷

[14] The Authority noted that both parties had made submissions addressing the underlying policy concerning refunds of duty stating:⁸

The relevant duty is essentially a tax on consumption, so the refund provisions should reflect that. However, I do not consider that those

⁴ _{At [40].}

⁵ _{At [43].}

⁶ _{At [52].}

⁷ At [55]–[56].

considerations assist in this case. There is no doubt the Act has elected to use the point where product leaves the “control of the Customs” as the defining marker, beyond which there will be no refund of duty regardless of the fate of the goods. As observed, the same concept is also a marker for other purposes, including enforcement powers. This case turns on the straightforward application of clear statutory provisions. A purposive interpretation will not take the matter beyond delivering the certainty of applying the boundary the Act has set with some clarity.

[15] Before the Authority, Customs also argued that the goods had not been destroyed in accordance with the Customs and Excise Regulations 1996 which required goods to have been “...destroyed under the supervision of the Customs in accordance with any directions issued by the Chief Executive...”. The Authority held that the provision left it to the Chief Executive as to how she chose to exercise her supervision, “... it was her decision, through her delegate, to authorise the

appellant to destroy the product without ‘physical supervision’.”⁹ Accordingly, the

Authority was satisfied that DB destroyed the goods under the supervision of Customs. The Authority also held that nothing that DB did was inconsistent with it having abandoned the goods to the Crown for destruction or other form of disposal.

[16] Overall, the Authority found that the decision to refund duty under s 113 is discretionary and that the reasons the Chief Executive relied on not to refund the duty were incorrect.

[17] The Chief Executive of Customs now appeals that decision.

Appeal to the High Court

[18] Customs appeals the decision of the Authority pursuant to s 272(1) of the Act. Customs submitted that the power to refund duty under s 113 is a discretionary power and accordingly, the test on appeal is that established in May v May.¹⁰ That

is:¹¹

... in considering an appeal of this kind an appellant must show that the Judge acted on a wrong principle; or that he failed to take into account some relevant matter or that he took account of some irrelevant matter or that he was plainly wrong.

⁹ _{At [70].}

¹⁰ May v May (1982) 1 NZFLR 165 (CA).

[19] Mr Barker, for DB, also adopted the position that Customs must show that the decision of the Authority was ‘plainly wrong’. I consider that both parties were mistaken in this regard. In my view, the appeal is a general appeal. While the decision to refund the duty is discretionary, it is not the exercise of the discretion that Customs now appeals. Rather, Customs appeals the Authority’s determination that DB was eligible for a refund. Only once it had been determined that DB was eligible for a refund did the discretion to refund the duty arise.

[20] The questions of law arising from the Authority’s decision as set out in the

case stated are whether:

(a) The Authority erred in law in its findings (at [39]) as to how s 20(1)(a), (aa), and (2) of the Act should be interpreted and failed to have regard to:

(i) the purpose and practical operation of the Customs legislation including the Act, the Customs and Excise Regulations 1996 and the Customs (Import Entry) Rules 1997; and

(ii) the legislative history behind s 20 (compared to s 72) of the

Act.

(b) The Authority erred in law in its findings (at [40]–[42]) that the goods did not leave the “control of the Customs” for the purposes of the Customs legislation, including s 20 of the Act, when the goods were entered and cleared for home consumption and Customs duty was paid; and they were removed from the Ports of Auckland’s CCA.

(c) The Authority erred in law in its findings (at [52]) as to what is required for goods to be moved to another CCA and “lawfully removed for home consumption”.

(d) The Authority erred in law in its finding at [57] that the goods remained in the control of Customs until destruction.

[21] Customs seeks an order quashing the Authority’s decision and costs on this appeal.

[22] There is no dispute on appeal that the goods had deteriorated or had diminished in value, nor is there any dispute as to the physical location of the goods at any time.

[23] This appeal comes to the Court by way of a case stated. The Court’s consideration of the appeal has been somewhat hampered by the structure that was used to argue the appeal. Customs made submissions on six ‘issues’ which did not entirely line up with the questions on appeal. However, I have nonetheless been able to consider all matters raised by Customs under the questions in the case stated.

Statutory framework

[24] DB sought a refund of excise duty pursuant to s 113. That section provides:

113 Other refunds and remissions of duty

(1) Subject to any prescribed exceptions, restrictions, or conditions, the Chief Executive may refund or remit any duty where the Chief Executive is satisfied that imported goods, or goods manufactured in New Zealand, as the case may be,—

(a) Have been damaged, destroyed, pillaged, or lost, or have diminished in value or deteriorated in condition, prior to their release from the control of the Customs; or

(b) Are of faulty manufacture; or

(c) Have been abandoned to the Crown for destruction or other form of disposal prior to their release from the control of the Customs.

...

(4) A person who is dissatisfied with a decision of the Chief Executive under this section may, within 20 working days after the date on which notice of the decision is given, appeal to a Customs Appeal Authority against that decision.

...

[25] Section 20 of the Act provides:

20 Goods subject to control of Customs

(1) Goods are subject to the control of the Customs,—

(a) Where the goods have been imported, from the time of importation until the time the goods are lawfully removed for home consumption or exportation from a Customs controlled area; or]

...

(e) Where the goods are manufactured in a Customs controlled area, from the time of manufacture until the goods are lawfully removed for home consumption from a Customs controlled area, or the goods are exported to a point outside New Zealand, whichever happens first; or

(2) For the purposes of subsection (1), goods that are removed from a Customs controlled area to another Customs controlled area are not removed for home consumption.

[26] Section 47 of the Act provides:

47 Removal of goods from Customs controlled area

(1) Goods that are subject to the control of the Customs must not be delivered or removed from a Customs controlled area except—

(a) As provided by this Act; or

(b) Subject to subsection (3) of this section, with the permission of a Customs officer after entry has been made and passed in the prescribed form and manner; or

(c) Pursuant to a permit or other authorisation granted by the Chief Executive in respect of those goods, subject to such conditions as the Chief Executive may determine; or

(d) By a Customs officer in the performance of his or her duties under this Act.

(2) The Chief Executive may, by notice in writing, vary or revoke any conditions to which a permit granted by the Chief Executive under subsection (1)(c) of this section is subject, or may revoke those conditions and impose new conditions or may revoke the permit completely.

(3) Notwithstanding subsection (1)(b) of this section, while goods remain subject to the control of the Customs, the Chief Executive may revoke any notice of delivery given in respect of those goods.

(4) A person who is dissatisfied with a decision of the Chief Executive under subsection (1)(c) or subsection (2) of this section may, within

20 working days after the date on which notice of the decision is given, appeal to a Customs Appeal Authority against that decision.

[27] Section 72 of the Act provides:

72 Removal for home consumption

For the purposes of this Part of this Act, goods are deemed to be removed for home consumption when the goods are physically removed from a Customs controlled area otherwise than when they are—

(a) Moved to another Customs controlled area pursuant to an approval given by the Chief Executive and for such purposes as may be approved by the Chief Executive; or

(b) Temporarily removed pursuant to an approval given by the Chief Executive and for such purposes as may be approved by the Chief Executive; or

(c) Removed for export or to an export warehouse.

Did the Authority err in its interpretation of the legislation?

[28] At the crux of this case is a dispute on statutory interpretation. The Authority held that:¹²

The contention that Parliament did not intend the very clear and specific terms of section 20(2) to have any effect requires a bald refusal to apply the provision. There is no foundation for the contention. Section 72 cannot override the specific terms of section 20(1) and (2); it expressly says it applies to a different part of the Act, and section 20(2) is directed specifically to section 20(1).

[29] Customs submitted that interpretation was plainly wrong as the Authority did not have regard to the purpose and the practical operation of the legislation which, it says, supports its interpretation that the goods were no longer subject to the control of Customs. Customs submitted:

Once the Goods had been cleared for entry (including the issue of Import Delivery Orders) and duty paid, nothing prevented them being “lawfully removed for home consumption” by DB (without further authorisation by Customs) and, as noted above, DB has admitted that some of the Goods were sold.

Even though on the facts, DB as their owner stored them within areas licensed as Customs controlled areas, Customs no longer had any legal authority, or interest in, the Goods to enable it to exercise “control”.

¹² At [39].

[30] I begin by noting that the submission that the Authority failed to have regard to the purpose and context, including the practical operation, of the Customs legislation is fundamentally flawed. The Authority noted that both parties had made submissions on the underlying policy concerning refunds of duty. The Authority held that the duty is essentially a tax on consumption and so the provisions should reflect that. Overall, the Authority considered that “[a] purposive interpretation will not take the matter beyond delivering the certainty of applying the boundary the Act has set

with some clarity.”¹³ Additionally, for the reasons I will now set out, I consider that

the Authority was correct in its conclusion.

[31] The starting point for statutory interpretation is s 5 of the Interpretation Act

1999 which provides:

5 Ascertaining meaning of legislation

(1) The meaning of an enactment must be ascertained from its text and in the light of its purpose.

(2) The matters that may be considered in ascertaining the meaning of an enactment include the indications provided in the enactment.

(3) Examples of those indications are preambles, the analysis, a table of contents, headings to Parts and sections, marginal notes, diagrams, graphics, examples and explanatory material, and the organisation and format of the enactment.

[32] The Supreme Court considered s 5 of the Interpretation Act in Commerce

Commission v Fonterra Co-operative Group Ltd, Tipping J stated:¹⁴

[22] It is necessary to bear in mind that s 5 of the Interpretation Act 1999 makes text and purpose the key drivers of statutory interpretation. The meaning of an enactment must be ascertained from its text and in the light of its purpose. Even if the meaning of the text may appear plain in isolation of purpose, that meaning should always be cross checked against purpose in order to observe the dual requirements of s 5. In determining purpose the court must obviously have regard to both the immediate and the general legislative context. Of relevance too may be the social, commercial or other objective of the enactment.

_...

¹³ _{At [58].}

¹⁴ Commerce Commission v Fonterra Co-Operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR

767.

[24] Where, as here, the meaning is not clear on the face of the legislation, the court will regard context and purpose as essential guides to meaning.

[33] While the Customs and Excise Act does not contain an ‘objects’ or ‘purpose’ section, Customs submitted that “[t]he purpose of the Customs legislation is to protect New Zealand’s border including providing for the administration and enforcement of Customs control at the border, to promote and facilitate secure and efficient trade and to collect Crown revenue.” DB submitted that to read Custom’s purported purpose as being accurate without the benefit of any supporting authority would be to ascribe or assume a Parliamentary intention that has not been explicitly stated.

[34] DB contended that the best approach was to consider the purpose of the Act as it related to excise and excise-equivalent duty as set out in other judicial decisions. In particular, DB referred to the Supreme Court judgment in Terminals (NZ) Ltd v Comptroller of Customs.¹⁵ In that case, Glazebrook J stated:¹⁶

Excise duty is an indirect tax on consumption. While it is imposed on the importer or the manufacturer, the consumer ultimately bears the economic burden of the duty as it will be passed onto the consumer in the form of a higher price...

Excise duty is imposed on three categories of goods: tobacco, fuel and alcohol, including food items containing alcohol. Excise duty on manufactured goods is imposed by s 73, while excise-equivalent duty on imported goods is imposed under s 75 of the Customs and Excise Act.

[35] DB also referred to XXX v Chief Executive of the New Zealand Customs Service.¹⁷ That case involved cigarettes manufactured in New Zealand which were exported to Australia and re-imported into New Zealand after deteriorating in condition while in Australia. One issue in that case was whether the goods had deteriorated prior to release from the control of Customs. Judge Barber, sitting as the Customs Appeal Authority, stated:¹⁸

...it is emphasised for the appellant that excise duty or excise-equivalent duties are duties on consumption so that where there is no consumption there

¹⁵ _{Terminals (NZ) Ltd v Comptroller of Customs [2013] NZSC 139, [2014] 1 NZLR 121.}

¹⁶ _{At [7].}

¹⁷ _{XXX v Chief Executive of the New Zealand Customs Service [2013] NZCAA 05.}

¹⁸ At [99].

is no basis for the duty. Accordingly, the appellant seeks a remission of duty on cigarettes which are not fit to be smoked or sold, and which it asks to be destroyed “under Customs supervision”. That would mean that no consumption has taken place and, it is put for the appellant, means there is no basis under the purpose of the duty for duty not being refunded on such destruction. That reasoning seems sound to me.

[36] Following on from this purpose, DB submitted that it would be inconsistent with the purpose of the Act to impose duty on goods that are not consumed and never enter into circulation for consumption in New Zealand. That is, goods which were never “removed for home consumption”. Also consistent with this policy, DB submitted, is the refund provisions of the Act, such as s 113.

[37] Customs submitted that the refund of duty and the term “removed for home consumption” should be considered in light of the statutory scheme and, in particular, the import regime. When goods are imported into New Zealand, they must be ‘entered’ by the importer.¹⁹ Goods imported into New Zealand must be entered either for home consumption, for export, or for removal to a CCA.²⁰ Entry, in the case of goods imported by sea or air, is to occur before the date on which the goods are to be imported, or within 20 working days after the date of importation.²¹ Entry is deemed to have been passed when the Joint Border Management System debits the importer’s deferred payment account.²²

[38] Duty on imported goods is a debt due to the Crown immediately on importation.²³ Excise-equivalent duty on imported goods becomes payable at the time that entry for home consumption is passed or, if prior to entry for home consumption, the goods are dealt with in breach of the Act.²⁴

[39] Customs’ proposed interpretation is essentially that the words of s 20(1)(a) should be taken as meaning that goods are subject to the control of Customs while Customs has legal authority over those goods and that is until the time the goods are

_{able to be lawfully removed for home consumption or exportation from a Customs}

¹⁹ _{Customs and Excise Act 1996, s 39(1).}

²⁰ _{Customs (Import Entry) Rules 1997, r 3.}

²¹ _{Customs and Excise Regulations 1996, reg 21.}

²² _{Customs and Excise Regulations 1996, reg 24.}

²³ _{Customs and Excise Act 1996, s 86.}

²⁴ Customs and Excise Act 1996, ss 75(3), 86(3).

controlled area. That time passed, in Customs’ submission, once the goods had been cleared for entry (including the issue of Import Delivery Orders) and duty had been paid. Customs submitted that from that point, although DB chose to store the goods within CCAs, Customs no longer had any legal authority or control over the goods.

[40] Customs also outlined New Zealand’s international obligations in relation to setting tariffs and stated that the s 3(1) of the Tariff Act 1988 required that “Duties must be levied, collected, and paid in accordance with the Tariff,” DB agreed with Customs that the Act must be interpreted consistently with New Zealand’s international obligations. However, DB submitted that the interpretation proposed by Customs was contrary to New Zealand’s obligations under the General Agreement on Trade and Tariffs. Article III of the GATT provides:

National Treatment on Internal Taxation and Regulation

1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.*

2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph

1.*

...

4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation.

* Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point

of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in paragraph 1, and is accordingly subject to the provisions of Article III.

[41] DB submitted that the Customs’ proposed interpretation could lead to a breach of the GATT as domestic products would be treated more favourably than imported products. The hypothetical example put forward by DB was:

...an importer and manufacturer has stocks of excise unpaid domestically manufactured goods and duty paid imported goods in its CCAs being held prior to their being ordered by a customer. A forklift driver breaks two pallets – one of domestically manufactured goods and one of imported goods. Under the Appellant’s interpretation, remissions can be sought for the domestically manufactured goods, but no refund is due in respect of duty paid on the imported goods.

[42] Ms Courtney, for Customs, disagreed that Customs’ interpretation would be contrary to GATT and the principle of national treatment, stating that the duties are largely equal and that where the duties are not equal, that is a matter of New Zealand trade policy. I do not consider that this particular difference of position is one that I am required to resolve. However, I recognise that the possible discrepancy DB pointed to is not a discrepancy in the rate of taxation but rather a discrepancy in the system through which the taxation is charged.

[43] After reviewing the statutory scheme and the authorities referred to by the parties I am unable to agree with Customs’ assertion that the interpretation adopted by the Authority is contrary to the purpose of the legislation or is incorrect when viewed in context.

[44] Section 20(1) provides explicitly that goods are subject to the control of customs until “the time the goods are lawfully removed for home consumption or exportation from a Customs controlled area” and subs (2) provides that “goods that are removed from a Customs controlled area to another Customs controlled area are not removed for home consumption.” I consider that Customs’ proposed interpretation is contrary to the plain meaning of the text to such an extent that the text is unable to support the interpretation.

[45] Further, I do not believe that the purpose of the legislation supports Customs’ proposed interpretation. Section 113 provides a mechanism to refund excise- equivalent duty in certain situations. In my view, the context and purpose of the section must be to allow a refund of duty where, although it has been paid or has been due to be paid, one of the listed circumstances applies.

Did the Authority err in its finding that the goods did not leave the “control of the Customs”?

[46] Before the Authority, Customs contended that s 113(1)(a) and (c) can be applied without reference to s 20 using the ordinary meaning of the defined words. In the ordinary meaning of ‘control’, Customs submitted goods could only be said to be in ‘control’ of Customs, if Customs has the ability to exercise control over them. The Authority found that this submission was untenable. It stated that the effect of the phrase was prescribed by legislation and, further, the legislative scheme was not intended to be limited only to situations in which Customs can exercise de facto control over the goods.

[47] Customs submitted that the Authority should have found that the goods were not subject to the control of Customs when they deteriorated as they ceased to be subject to the control of Customs once they had been cleared for entry and the duty had been paid. Once entry had been made, it submitted, Customs had no control over the goods regardless of whether the provisions of s 20 applied. Further, it submitted that prior to 1998 there was no equivalent to s 20(2).

[48] Customs, on this matter, essentially urges the Court to disregard the text of s 20 and replace the test for “subject to the control of Customs” with Customs’ institutional view of when it considers it ‘has control’ of goods. In support of this, Customs cited dictionary definitions of “subject to” and “control”. However, the fact remains that Parliament chose to define when goods are subject to the control of Customs. There is no wording in the section, nor is there any contextual reason, to support Customs’ view. The addition of subs (2) to s 20 of the Act cannot be disregarded. The submissions on this point merge with the submissions on subsequent points and are considered further below. However, in essence, I consider that the Authority was correct to find that there is no basis, either in the wording of

the legislation itself, the broader statutory scheme, or the practical operation of Customs to disregard the explicit wording of the statute and instead consider the meaning of “in the control of the Customs” by reference to ordinary dictionary definitions.

Did the Authority err in its findings as to what was required for the goods to be

moved to another CCA and “lawfully removed for home consumption”?

[49] The Authority held as the goods had been moved from one CCA to another

CCA, pursuant to s 20(2) they had not been removed for home consumption.²⁵

[50] On this point, Customs submitted that as DB entered the goods for home consumption, duty had been paid, and entry had been passed, the goods must have been “lawfully removed for home consumption”. DB submitted that Customs’ point is essentially that “lawfully removed for home consumption” means “entered for home consumption”. DB submitted that the concept of “removed for home consumption” and “entered for home consumption” are two entirely different concepts within the Act and that if the concepts were intended to have the same effect, then the same wording would have been used.

[51] Customs at the hearing sought to clarify that it was not conflating the terms “entry for home consumption” and “removed for home consumption”, rather it contended that all that is required is for the importer to have entered the goods, duty to have been paid, and entry to have been passed so that the importer was free to move the goods without further authorisation.

[52] While I accept that Customs is not strictly conflating the terms “entry” and “removal”, the point remains that Customs has, in essence, provided a checklist of criteria which it submitted, once satisfied, would constitute goods being removed for home consumption.

[53] Customs relied on a number of Australian cases which it says show that the point of entry is the correct marker for determining whether Customs had control of

_{the goods. DB contended that these cases were irrelevant as the Australian regime is}

²⁵ At [52].

different to the New Zealand regime in several fundamental respects. In particular, the Customs Act 1901 permits goods to be warehoused without paying duty while the New Zealand legislation does not. If goods are warehoused, under the Australian legislation, they remain in the control of customs until they are either entered for home consumption or exported. In that regime, ‘entry for home consumption’ takes on a different significance.

[54] Customs also submitted that the Authority was wrong to find that s 72 did not apply. Section 72 is contained in Part 7 of the Act. It provides:

72 Removal for home consumption

For the purposes of this Part of this Act, goods are deemed to be removed for home consumption when the goods are physically removed from a Customs controlled area otherwise than when they are—

(a) Moved to another Customs controlled area pursuant to an approval given by the Chief Executive and for such purposes as may be approved by the Chief Executive; or

(b) Temporarily removed pursuant to an approval given by the Chief Executive and for such purposes as may be approved by the Chief Executive; or

(c) Removed for export or to an export warehouse.

[55] Customs submitted that while s 72 begins with the words ‘for the purposes of this part’, it should apply to this case and to s 113 and the goods should be deemed to have been removed for home consumption when they were removed from the port CCA.

[56] DB however, noted that the term “removal for home consumption” is used only once in Part 7 (apart from s 72), and that is in s 76. Section 76 related to when excise duty becomes due to the Crown on manufactured goods. That section references back to s 72.

[57] The placement of s 72, the reference in s 76 to s 72, and the wording in s 72 that it applies for “the purposes of this Part” suggests that the definition of “removal for home consumption” in that section is to be applied solely to that Part and differs from the usage of the term in the remainder of the Act. I consider that to apply that

definition more widely would be contrary to the plain meaning of the wording. There is no reason, in the wider context and purpose, to depart from that plain meaning.

[58] Customs also raised on appeal that the Authority “... did not directly engage with what was required for the goods to have been released from the control of Customs”. It submitted that as no further authorisation was required from Customs before DB could move the goods, Customs had ‘released’ the goods. Customs provided dictionary definitions of ‘released’ showing that it meant to set something free or give permission for something to go free.

[59] There was no requirement for the Authority to consider whether the goods had been ‘released’ by Customs. That is not the test or requirement under the Act. The test is whether the goods had been lawfully removed for home consumption.

Did the Authority err in law in its finding that the goods remained in the control of Customs until destruction?

[60] This final question of the case stated refers to the ultimate conclusion of the Authority on the issue of whether the goods deteriorated while in the control of Customs. The Authority stated “... I am satisfied the product remained in the control of Customs until its destruction. If the product deteriorated, diminished in value, or the appellant abandoned it to the Crown, that occurred while it was subject to the control of Customs.”²⁶ For the reasons set out above, I agree with the Authority, that the goods remained in the control of Customs until destruction. Accordingly, DB was eligible for a refund of the excise-equivalent duty pursuant to s 113.

Result

[61] I dismiss the appeal.

Costs

[62] The respondent is entitled to costs. Counsel were agreed that the appeal should have a Category 2 classification and that Band B should apply for each step.

²⁶ At [57].

Accordingly, I order that the appellant pay costs based on Category 2 Band B plus

_{disbursements as fixed by the Registrar.}

JA Faire J