About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2016
>>
[2016] ZAWCHC 1
|
|
Van Driel Boerdery Vennootskap 2004 t/a Die Groene Oase v Commissioner South African Revenue Service (1901/2015) [2016] ZAWCHC 1 (5 January 2016)
Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
number: 1901/2015
In
the matter between:
VAN
DRIEL BOERDERY VENNOOTSKAP 2004 t/a
DIE
GROENE
OASE
Applicant
And
THE
COMMISSIONER, SOUTH AFRICAN
REVENUE
SERVICE
Respondent
Before:
The Hon. Mr Justice Binns-Ward
Hearing:
4 December 2015
Judgment
delivered: 5 January 2016
JUDGMENT
BINNS-WARD
J:
[1]
This
case arises from a dispute between the applicant and the Commissioner
of the South African Revenue Service about the classification
for
customs duty purposes of certain goods imported into South Africa by
the applicant. As in all such matters, at the bottom
of it is a
question of money.
[1]
If
the classification contended for by the applicant is correct no duty
is payable. But if the Commissioner’s
determination were
to be upheld, the applicant will have to pay an amount of at least
R547 214,34 by way of duty, additional VAT,
interest and penalties.
[2]
Section
47(1) of the Customs and Excise Act 91 of 1964 (‘the Act’)
provides that duty shall be paid for the benefit
of the National
Revenue Fund on all imported goods in accordance with the provisions
of Schedule I to the Act. Part I of
the Schedule consists of a
comprehensive list of commodity groups. The list is compiled
and maintained in accordance with
the World Customs Organisation’s
Harmonized Commodity Description and Coding System, which is a
nomenclatural system commonly
referred to as the ‘Harmonized
System’ (‘HS’). It comprises 22 sections made
up of 99 chapters, some
of which have sub-chapters. As Trollip
JA described in
Secretary
for Customs & Excise v Thomas Barlow and Sons Ltd
1970 (2) SA 660
(A) at 675D-E, ‘
Within
each chapter and sub-chapter the specific type of goods within the
particular class is itemised by a description of the goods
printed in
bold type. That description is defined in the Schedule as a
“heading”. Under the heading appear sub-headings
of the
species of the goods in respect of which the duty payable is
expressed. The Schedule itself and each section and chapter
are
headed by “notes”, that is, rules for interpreting their
provisions
’.
Part I of the Schedule is preceded by an introductory section
entitled ‘General Notes’, which include
(as Item A) the
‘General Rules for the Interpretation of this Schedule’.
They are the part of the ‘notes’
mentioned by Trollip JA
as heading the Schedule itself. I shall use the acronym ‘GRI’
when referring to the General
Rules.
[3]
Section
47(8)(a)(i) of the Act provides, insofar as relevant, that the
interpretation of any tariff heading or tariff subheading
in Part 1
of Schedule 1 ‘shall be subject to the International Convention
on the Harmonized Commodity Description and Coding
System done in
Brussels on 14 June 1983 and to the Explanatory Notes to the
Harmonised System issued by the Customs Co-operation
Council,
Brussels (now known as the World Customs Organisation) from time to
time’. The section and chapter notes are, as
mentioned, part of
the Schedule; the explanatory notes are not. GRI 1
[2]
provides
that ‘the titles of Section, Chapters and sub-Chapters are
provided for ease of reference only; for legal purposes,
classification shall be determined according to the terms of the
headings and any relative Section or Chapter Notes and, provided
such
headings or Notes do not otherwise require, according to the …
provisions’ of GRI 2-6.
[4]
The
character and role of the explanatory notes in the interpretation of
Part I of the Schedule were described in
Thomas
Barlow and Sons Ltd
supra,
at 675F – 676D, as follows:
It
is clear that the … grouping and even the wording of the notes
and the headings in Schedule I are very largely taken
from the
Nomenclature compiled and issued by the Customs Co-operation Council
of Brussels. That is why the Legislature in sec.
47(8)
(a)
has
given statutory recognition to the Council's Explanatory Notes to
that Nomenclature. These Notes are issued from time to time
by the
Council obviously, as their name indicates, to explain the meaning
and effect of the wording of the Nomenclature. By virtue
of sec.
47(8)
(a)
they can be used for the same purpose in respect of
the wording in Schedule I. It is of importance, however, to
determine
at the outset the correct approach to adopt in interpreting
the provisions of the Schedule and in applying the explanations in
the Brussels Notes.
Note
VIII to Schedule I sets out the ‘Rules for the Interpretation
of this Schedule’. Para. 1 says:
‘
The
titles of sections, chapters and sub-chapters are provided for ease
of reference only; for legal purposes, classification (as
between
headings) shall be determined according to the terms of the headings
and any relative section or chapter notes and, provided
such headings
or notes do not otherwise indicate, according to paras. (2) to (5)
below.’ [
[3]
]
That,
I think, renders the relevant headings and section and chapter notes
not only the first but the paramount consideration in
determining
which classification, as between headings, should apply in any
particular case. Indeed, right at the beginning of the
Brussels
Notes, with reference to a similarly worded paragraph in the
Nomenclature, that is made abundantly clear. It is there
said:
‘
In
the second provision, the expression 'provided such headings or Notes
do not otherwise require' (that is the corresponding wording
of the
Nomenclature) is necessary to make it quite clear that the terms of
the headings and any relative section or chapter notes
are paramount,
i.e., they are the first consideration in determining
classification.’
It
can be gathered from all the aforegoing that the primary task in
classifying particular goods is to ascertain the meaning of
the
relevant headings and section and chapter notes, but, in performing
that task, one should also use the Brussels Notes for guidance
especially in difficult and doubtful cases. But in using them one
must bear in mind that they are merely intended to explain or
perhaps
supplement those headings and notes and not to override or contradict
them. They are manifestly not designed for the latter
purpose, for
they are not worded with the linguistic precision usually
characteristic of statutory precepts; on the contrary they
consist
mainly of discursive comment and illustrations. And, in any event, it
is hardly likely that the Brussels Council intended
that its
Explanatory Notes should override or contradict its own Nomenclature.
Consequently, I think that in using the Brussels
Notes one must
construe them so as to conform with and not to override or contradict
the plain meaning of the headings and notes.
[5]
In
International
Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise
1985 (4) SA 852
(A), at 863G, the proper process of classification of
goods in terms of Part I of Schedule I was expounded by Nicholas AJA,
in
a passage that has been applied consistently in the subsequent
jurisprudence, as follows:
Classification
as between headings is a three-stage process: first, interpretation -
the ascertainment of the meaning of the words
used in the headings
(and relative section and chapter notes) which may be relevant to the
classification of the goods concerned;
second, consideration of the
nature and characteristics of those goods; and third, the selection
of the heading which is most appropriate
to such goods
.
In
the current proceedings the applicant bears the onus of showing that
the classification for which it contends – ‘
Prefabricated
buildings
’
in terms of TH 94.06
[4]
- is the
correct one, failing which the Commissioner’s determination
stands; cf.
Smith
Mining Equipment (Pty) Ltd v The Commissioner South African Revenue
Service
[2013] ZASCA 145
(1 October 2013), at para 2. To an extent that
makes the court’s task easier than that of the customs officer
or clearing
agent who is required to make a quayside decision when
the goods are presented.
[6]
The
applicant carries on business in the field of the propagation and
sale of fresh produce, primarily peppers and cucumbers.
It
cultivates the plants in a controlled environment. During 2009,
when it became apparent that extensive additional production
space
was required, the co-proprietor of the business, Mr Mark van Driel,
made investigations and eventually determined on ordering
what he
describes as ‘two greenhouses’ from Alweco
Scherminstallaties Int B.V. (‘Alweco’) in the
Netherlands.
The intended structures were to measure
approximately 14400 and 6480 square metres respectively. Alweco
manufactured the
required components according to the applicant’s
specifications. They were shipped to Cape Town in seven
containers
aboard the ‘
SAFMarine
Nokwanda
’
under a single bill of lading. Alweco’s invoice, in a
total amount of nearly €340 000, including transport
costs,
stated ‘
We
hereby charge you for: The delivery of NEW materials for
construction of 2 complete greenhouses as per order confirmation…
’.
The bill of lading described the contents of the containers as
‘
Greenhouse
Const. Parts
’.
[7]
The
consignment was cleared through customs by the applicant’s
clearing agent under TH 94.06, which pertains to ‘prefabricated
buildings’. Value added tax in the amount of R471 891,70
was incurred, but in accordance with the provisions of Part
I to the
Schedule, which reflect that the import of prefabricated buildings is
duty-free, no duty was paid.
[8]
The
structures were thereafter erected on the applicant’s property
under the supervision of Mr van Driel and his father.
The
method of erection entailed assembling the components in accordance
with detailed assembly drawings supplied by Alweco.
A standard
manual was provided in respect of the installation of the internal
screening system that plays a role in the climate
control operation.
The erection process took just under a year to complete.
[9]
Mr
van Driel described the essential elements of the assembly process as
comprising:
1.
The
joining together and securing of the disassembled pieces of
prefabricated steel infrastructure removed from the containers.
2.
The
assembly of the electro-mechanical mechanisms required to operate the
climate control functions of the structures.
3.
The
installation and fixing of pre-cut cloth coverings over frames which
act as a kind of internal ceiling within the structures
to reflect
heat and reduce temperature in the structures [i.e. the
internal screening system].
4.
The
installation and fixing of pre-cut lengths of plastic sheeting to
cover the steel roof sections of the structures to protect
against
rain and wind and to assist with temperature control.
(I
have used the word ‘structures’ instead of the
description ‘greenhouses’ employed by Mr van Driel and
the supplier - and adopted, without demur, by the Commissioner in
correspondence. A ‘greenhouse’ is defined in
the
dictionaries as ‘
a
glass building in which plants that need protection from cold weather
are grown
’.
[5]
The structures in issue are not in any way constructed of glass.
In my view, although it has to be acknowledged that
the words are
sometimes treated as synonyms, the more appropriate term for the
structures is ‘hothouse’ - the dictionary
definition of
which includes ‘
an
environment that encourages rapid growth or development, especially
in a stifling or intense way
’.
[6]
The structures in issue are intended to provide such an environment.
For convenience, however, because everyone involved
in the matter has
used the term, I shall hereinafter nevertheless refer to the
structures as ‘greenhouses’ without
wishing thereby to be
understood to have recognised the correctness of the appellation.)
[10]
The
Commissioner did not dispute the assembly process described by Mr van
Driel, save to point out that the external structure of
the roofs
apparent in the photographs did not consist of ‘a continuous
covering but rather a number of dome shaped segments’.
It
was contended that this was ‘irreconcilable with the
[applicant’s] submissions that no further workings took place’;
in other words, the Commissioner implied that a further process of
fabrication had been entailed. The applicant explained
in its
replying affidavit that the supplied roof structure comprises a
series of long dome-shaped segments running parallel to
one another.
The long dome-shaped segments of the roofs are covered in pre-cut
plastic supplied to fit by Alweco. The
fitting or stretching of
the supplied plastic is demonstrated in some of the photographs
attached to the applicant’s founding
affidavit. It is
apparent that the dome-shape is given by the configuration of the
steel framework of the structure, over
which the plastic sheeting
roof material is stretched. The plastic roof covering supplied
by Alweco was (subject to the exceptions
described below) pre-cut to
slightly exceed the dimensions of the areas to be covered.
After installation, the excess material
could be, and was, trimmed to
give an improved aesthetic effect.
[11]
Alweco
had also supplied pre-cut plastic to cover the short ends of the
segments, but the applicant had decided rather to use more
durable
corrugated fibreglass sheeting for that purpose instead. The
plastic material that was supplied had a predicted durability
of
three to four years.
[7]
The applicant also decided to use the fibreglass as walling on two
sides of the greenhouse structures and a flexible PVC-type
material
that could be rolled up to improve ventilation on the other sides.
The substitution of materials did not detract
from the fact that the
imported goods presented for clearance had included pre-cut plastic
ready for use in the areas in which
the applicant later decided to
use something else. Indeed, all the roofing and walling
components of the structures were
provided in pre-cut form with two
exceptions.
[8]
One short
roof section of 13,5 metres had to be covered using a 37-metre roll.
An excess of approximately 22 metres
had to be cut away after the
roll was fitted. And for two other short roof sections of 18
metres each, a 37-metre sheet was
used, which was cut in half for the
purpose.
[12]
The
internal cloth hangings were assembled from 48 rolls of cloth cut in
seven varying lengths. Their function is evident
from the
description by Mr van Driel quoted in paragraph [9].3, above.
Although the standard installation manual refers to
the possibility
of the supplied cloth rolls having to be cut into two lengths, the
Commissioner was not in a position to controvert
the applicant’s
evidence that that had not been required in the assembly of the two
greenhouses currently in issue.
The assembly process required
the lengths of cloth first to be fixed to the screens supplied for
that purpose. It was explained
that the cloth tends to be
stretched in that process and that it subsequently shrinks back to
size. Only when the material
has stabilised is it fixed to the
long sides of the roof frames. A flap (known as a ‘cloth
drop’) is left hanging
over the ends of the short sides of the
frame. The flap is necessary to allow a measure of give as the
material expands and
contracts with changes in temperature.
A drop of at least 50cm must be provided. Any excess is
sealed or cut off.
Weights are attached to the cloth drops to
ensure that the fixed cloth is kept taut.
[13]
In
2012 the Commissioner conducted an audit of the bill of entry in
terms of which the components for the greenhouse structures
were
imported. The Commissioner informed the applicant by letter,
dated 3 May 2012, that he considered that that the imported
goods had
been incorrectly classified for import duty purposes. On
3 June 2013 a letter of demand was issued for
payment of
duties, additional VAT, penalties and interest as foreshadowed in the
Commissioner’s earlier letter. The
letter of demand
amounted to a tariff determination by the Commissioner in terms of
s 47(9)(a) of the Act.
[14]
The
Commissioner determined that the goods fell to be classified under
various headings in accordance with the character of the
constituent
parts; viz TH 7308.90.90(9) for ‘the steel structures’,
TH 3920.10.00(1) for ‘the plastic covers’
and TH
5407.20.00(3) for ‘the cloth’ used in the interior
hangings. As already noted, the applicant contends
that they
fall to be classified under heading 94.06: ‘Prefabricated
buildings’.
[15]
The
Commissioner’s reasons for contending that the goods should
have been entered under the aforementioned tariff headings
were set
out in a letter to the applicant’s attorneys, dated 14 August
2014, as follows:
1.
That
the goods imported does (sic) not constitute complete (sic) two
greenhouses as declared under [the bill of entry] but steel
structures of a greenhouse/s and rolls of plastic and rolls of cloth…
2.
That
the rolls of plastic and rolls of cloth imported with the steel
structures for the greenhouses does (sic) not meet the requirement
of
General Rule 2(a) of the General Rules for the Interpretation of the
Harmonised System as they require further working operations
for
completion into a finished state.
3.
We
have been advised that since the rolls of plastic and rolls of cloth
cannot be said to constitute the unassembled walls and roof
respectively of a greenhouse, the goods were correctly classified by
SARS in the letter of 03 June 2013.
[16]
The
applicant claimed the following substantive relief in its notice of
motion:
i.
A
declaration that the goods imported by it under the relevant bill of
entry dated 19 July 2010 fall to be classified as ‘prefabricated
buildings’ under tariff heading 9406.00;
ii.
A
declaration that the said goods did not attract ordinary customs duty
on importation;
iii.
An
order setting aside, to the extent necessary, the Commissioner’s
letter of findings, dated 3 May 2012, and the letter of
demand issued
pursuant thereto, dated 3 July 2013, including the customs duty,
penalties on customs duty, and value added tax on
both customs duty
and penalties, as imposed under the said communications.
The
application is thus in essence an appeal against the Commissioner’s
determination. Provision for such an appeal
to the High Court
is made in terms of s 47(9)(e) of the Act. The
Commissioner agreed
[9]
to an
extension of the period within which the Act requires an appeal to be
prosecuted.
[17]
It
is not necessary to consider the classifications contended for by the
Commissioner if the imported goods fall to be classified
as
‘prefabricated buildings’. If they do not, it must
follow, on the basis of the principle mentioned earlier
[10]
and in the absence of any contention to the contrary, that the goods
should be classified according to the imported constituent
parts of
the greenhouse structures.
[11]
[18]
The
applicant has categorised the structures as ‘buildings’
by virtue of their character as structures with roofs and
walls. The
Oxford Dictionary of English defines ‘building’ as ‘
a
structure with a roof and walls, such as a house or factory
’.
In the Commissioner’s answering affidavit something is made in
passing of the fact that Chapter Note 4 to Chapter
94 gives the
following examples of prefabricated buildings: ‘
housing
or work site accommodation, offices, schools, shops, sheds, garages
or similar buildings
’,
which all usually have hard or solid walls, to suggest that a
structure with soft plastic walls does not qualify.
However,
any such contention seems to be negated by the explanatory notes to
TH 94.06, which state ‘
This
heading covers prefabricated buildings also known as “industrialised
buildings”,
of
all materials
’
(underlining supplied for emphasis).
[12]
In any event, I do not read the Commissioner’s answering
affidavit to have pertinently raised the contention that the
structures do not qualify as buildings. As noted, the reference
to prefabricated buildings ordinarily having solid walls
was in the
nature of a comment
en
passant
.
It was not taken to any conclusion.
[19]
The
verb ‘prefabricate’, from which the adjective
‘prefabricated’ derives, is defined in the Oxford
Dictionary
of English as ‘manufacture sections of (a building
or piece of furniture) to enable quick assembly on site:
prefabricated
homes
’.
[13]
In
the current matter it can hardly be said that the imported components
of the greenhouse structures were such as to enable ‘quick
assembly on site’. In my view, however, that difficulty
is addressed in terms of the applicable general rules of
interpretation
and the explanatory notes thereto. The
definition in chapter note 4 to chapter 94, which, by virtue of GRI
1, trumps any
dictionary definition, appears to address the
qualification. It provides: ‘
For
the purposes of heading 94.06, the expression “prefabricated
buildings” means buildings which are finished in the
factory or
put up as elements, presented together, to be assembled on site, such
as housing or worksite accommodation, offices,
schools, shops, sheds,
garages or similar buildings
’.
[14]
‘
Quick
assembly’ does not form part of the chapter note definition.
Were it to be accepted that the imported goods made
up the
constituent parts of the structures that merely required assembly,
the unassembled article would fall to be characterised
for the
purposes of classification in accordance with the second part of GRI
2(a). GRI 2(a) provides:
Any
reference in a heading to an article shall be taken to include a
reference to that article incomplete or unfinished, provided,
as
presented, the incomplete or unfinished article has the essential
character of the complete or finished article. It shall also
be taken
to include a reference to that article complete or finished (or
falling to be classified as complete or finished by virtue
of this
Rule), unassembled or disassembled.
Explanatory
Note (VII) to GRI 2(a) provides:
For
the purposes of this Rule, “articles presented unassembled or
disassembled” means articles the components of which
are to be
assembled either by means of fixing devices (screws, nuts, bolts
etc.) or by riveting or welding, for example,
provided
only
assembly operations are involved.
No
account is to be taken in that regard of the complexity of the
assembly method. However the components shall not be subjected
to any further working operation for completion into the finished
state.
The
indication that no account is to be taken of the complexity of the
assembly method also detracts from the notion that rapidity
or ease
of assembly should play a determinative role in the characterisation
of prefabricated buildings. Ease and rapidity
of assembly in
any event do not strike me as necessarily inherent aspects of the
meaning of the term. Its essence is that
the structural
components of the building are made off-site and the building is
erected by merely assembling those components on-site.
[15]
[20]
Indeed,
the deponent to the answering affidavit acknowledges that the nub of
the Commissioner’s rejection of the classification
of the goods
in terms of TH 94.06 lies in the contention that the components were
subject to further working operations to bring
the greenhouses into
their finished state.
[16]
The contention is founded on the exclusionary effect of an
explanatory note to GRI 2(a). Its consideration necessitates
a
close examination of the evidence. As the applicant seeks final
relief on motion, the evidence must be assessed applying
the approach
set out in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634E-635C.
[17]
[21]
The
Commissioner, having not taken issue, after his consideration of the
detailed design drawings, with the applicant’s averments
that
the plastic rolls and cloth supplied were, with two exceptions,
pre-cut to fit, in the places indicated, over or onto the
steel
frameworks of the greenhouses, contends that classification of the
goods supplied under TH 94.06 is precluded because the
plastic and
cloth components required further working to bring the greenhouses
into their finished state. The difference
between the parties
thus turns not on any dispute of fact, but on the contesting
conclusions they have made based on facts that
are common ground.
[22]
It
is not in dispute that the pre-cut plastic was uniformly cut in
larger pieces than actually required, which resulted in a slight
excess of material being apparent after assembly of the components
had been effected. The excess material did not compromise
the
character or effectiveness of the greenhouses, but a better aesthetic
effect was achieved by trimming it away, which the applicant
did.
In addition, as already mentioned, there was the matter of the roof
section of 13,5 metres which had to be covered using
a 37-metre roll
and two other 18-metre roof sections for which a 37-metre sheet had
to cut in half. The Commissioner contends
that the working of
the plastic sheeting supplied in these respects constituted ‘further
working operation[s] for completion
into the finished state’
within the meaning of the exclusion provided in Explanatory Note
(VII) to GRI 2(a).
[18]
[23]
It
is evident from the provisions of GRI 2(a) that it is not the article
(in this case the greenhouse) that must be complete or
in a finished
state. So, if the imported article had the essential character
of a completed example of the type in issue,
the fact that it
required completion would not operate to exclude it from
classification as if it were the complete or finished
article
referred to in the tariff heading. Explanatory Note (VII)
to GRI 2(a), quoted above, goes to the character of
the
components
of an unassembled or disassembled article; not the article itself.
The effect of the explanatory note is to disqualify an
article from
being treated as an unassembled or disassembled exemplar of that
referred to in the tariff heading under consideration
– in this
case ‘
prefabricated
buildings
’
– if the presented components require further working in order
to be made amenable to assembly into something that
has the essential
character of the article referred to in the tariff heading.
[24]
On
the facts in the current case it is apparent that the components –
namely the sheets of plastic and cuts of cloth –
did not
require further working for the purposes of assembling the
greenhouses. The trimming that took place
after
the assembly of the components was, moreover, not directed at making
the buildings what they are, but solely at improving their
aesthetic
effect. Thus, save as concerns the three aforementioned areas
of roofing, in respect of which ready-for-use pre-cut
sheets of
plastic were not supplied, I am satisfied that the imported goods
comprised the components of two prefabricated buildings
in a
disassembled state.
[25]
Assuming
that the structures in issue qualify for classification in terms of
TH 94.06, it seems to me that the cloth ceilings
would fall to
be regarded either as integral components of the prefabricated
buildings or as built-in equipment of the sort contemplated
in terms
of the explanatory note to TH 94.06.
[19]
Mr Deon van Rooyen, an agricultural engineer with wide experience in
the marketing, sale and construction of greenhouses,
testified in a
supporting affidavit that the cloth hangings are not an essential
part of a greenhouse structure. They are,
he said, supplied to
‘enhance the climate control functions and performance of the
greenhouse’. In any event,
if the pieces of cloth are to
be treated as elements of the buildings, the trimming of the cloth
drops described earlier appears
to be covered by the following part
of the explanatory note to TH 94.06:
In
the case of buildings presented unassembled, the necessary elements
may be presented partially assembled (for example, walls,
trusses) or
cut to size (beams, joists, in particular) or, in some cases, in
indeterminate or random lengths for cutting on site
(sills,
insulation, etc.).
[26]
What
then is to be made of the fact that two of the sheets of plastic
supplied required further working to create three roofing
components
for the purpose of completing the greenhouses? Two questions
suggest themselves. Does it for classification
purposes negate
the character of the goods as unassembled prefabricated buildings?
If it does, the case must be decided adversely
to the applicant.
If not, do the plastic sheets that were not finished prefabricated
components fall to be classified separately?
[27]
I
think that GRI 2(a) provides the answer to the first question.
If upon presentation the incomplete article has the essential
character of the complete article, it falls to be classified as if it
were the complete article. That much seems to follow
when GRI
2(a) is read with Explanatory Notes (I)
[20]
and (VI).
[21]
. Indeed,
consistently with that conclusion, the deponent to the Commissioner’s
answering affidavit averred ‘…if
components that
constitute the essence of a prefabricated building are imported, and
those components only require assembly and
therefore warrant
classification under TH 94.06, then it does not matter what other
components / elements are also imported
in the consignment,
and whether or not such other components / elements require further
working’.
[22]
In
the current matter the imported components that did not require
further working and thus qualified for classification
purposes as
components of the prefabricated greenhouses would, upon assembly,
manifest largely completed articles. Assembling
those goods
would result in two completely walled and substantially roofed
greenhouses. The absence of three relatively small
sections of
roofing would not detract from the essential character of the
assembled components as being that of the completed articles
–
that is two prefabricated buildings.
[28]
As
to the second question, it seems to me that the two 37- metre rolls
of plastic that were not pre-cut components and required
further
working for the purpose of being used in the assembly of the building
fall to be classified separately. There has
been no challenge
to the Commissioner’s classification of the plastic rolls as
separate items under TH 39.20. The weight
and value for duty
purposes of the two rolls of plastic are not apparent on the evidence
and the matter will therefore have to
be referred back to the
Commissioner to make an appropriate assessment in that regard.
[29]
It
follows that the applicant’s appeal has been substantially
successful. The measure of its success makes it appropriate
that it should be granted its costs of suit. Both sides
employed two counsel. In the context of the relative complexity
of the issues involved that seems to me to have been reasonable.
The costs awarded shall therefore include the costs of two
counsel.
[30]
The
Commissioner applied for the striking out of the parts of the
applicant’s founding papers identified below on the grounds
that they were irrelevant and/or constituted inadmissible hearsay
evidence. Irrelevant evidence will be struck out only if the
party
seeking its striking would be prejudiced if it were not stuck out.
[31]
The
content of paragraphs 12 and 13 of the founding affidavit is not
irrelevant. It describes the background to the importation
of
the goods in general and, in particular, how they came to be
manufactured in accordance with the specifications provided by
the
applicant. The Commissioner’s case would in any event not
be prejudiced were the paragraphs not struck out.
[32]
Paragraphs
36-38 of the founding affidavit treat of the depiction in various
photographs annexed to the affidavit of aspects of
the assembly of
the greenhouses and their appearance upon completion. They also
referred to a screenshot from the well-known
Google Earth program
depicting an aerial view of the structures in issue and a number of
adjoining structures on the applicant’s
property. For the
reasons given below, I do not consider that the photographs
constitute hearsay evidence. In any event
the allegedly hearsay
nature of the photographic evidence has been addressed by the
introduction, without objection, of an affidavit
by the
photographer. The photographs can hardly be said to be
irrelevant. That much is confirmed by the Commissioner’s
use of them for the purposes of his answering affidavit.
[33]
The
Google Earth screenshot is a satellite image of the applicant’s
property; it is in essence nothing other than an aerial
photograph.
Its character as such speaks for itself when it is viewed. A
photograph is admissible as real evidence.
If the photographer
does not testify as to its accuracy, there must, in general, be
evidence that the photograph is a true depiction
of the items shown
in it.
[23]
In the
current case, Mr van Driel, who is obviously very familiar with the
applicant’s farm, identified the photograph
as depicting the
greenhouses in their finished state. I do not consider the
aerial depiction of the structures to be irrelevant.
It assists
in the second stage of the classification exercise defined in
International
Business Machines
supra.
But even if it were irrelevant, the Commissioner has not been
prejudiced by its production. The objection, on
hearsay and
irrelevance grounds,
[24]
to
the admissibility of the Google Earth photograph is thus without
merit.
[25]
[34]
The
Commissioner also sought to have the aforementioned supporting
affidavit of Deon Van Rooyen struck out on the grounds that its
content is irrelevant and contains inadmissible evidence. The
essential import of Mr Van Rooyen’s evidence is
to confirm
the context in which the post-installation trimming of sections of
fitted plastic and cloth occurs. The evidence
is plainly
relevant to address the point taken by the Commissioner that the
trimming constituted further working to the component
parts.
There is no substance in the Commissioner’s criticism of the
witness’s qualifications to give the evidence.
[35]
In
the result the application to strike out will be dismissed.
[36]
The
following orders are made:
1.
The
respondent’s application to strike out parts of the applicant’s
founding papers is refused.
2.
Save
as provided in paragraph 4, below, the tariff determination by the
respondent in terms of s 47(9)(a) of the Customs and
Excise Act
91 of 1964 (‘the Act’) in the letter of demand addressed
to the applicant, dated 3 June 2013 (annexure ‘AA1’
to
the answering affidavit), is set aside, including the customs duty,
penalties on customs duty, and value added tax on both customs
duty
and penalties imposed in terms of the said letter.
3.
It
is declared that, save as provided in paragraph 4, below, the goods
imported by the applicant under Bill of Entry number 9098,
dated 19
July 2010, fell to be classified as ‘prefabricated buildings’
under tariff heading 9406.00 (in Chapter 94)
in Part I of Schedule I
to the Act, and accordingly, in terms of s 47(1) of the Act read
with the applicable provisions of
the said Part of the said Schedule,
did not attract ordinary customs duty on importation.
4.
The
provisions of paragraphs 2 and 3 of this order shall not apply in
respect of two of the 106 37-metre rolls of plastic sheeting
imported
under the aforementioned Bill of Entry, in respect of which the
respondent’s tariff determination under tariff heading
3920.10.00(1) (in Chapter 39) in Part I of Schedule I to the Act is
upheld.
5.
The
matter is remitted to the respondent for reassessment in accordance
with the provisions of paragraph 4, above.
6.
The
respondent shall be liable for the applicant’s costs of suit,
including the costs of two counsel and the costs of the
respondent’s
application to strike out.
A.G.
BINNS-WARD
Judge
of the High Court
Before:
Binns-Ward J
Applicant’s
counsel: M.W. Janisch SC
D.
West
Applicant’s
attorneys: Werksmans
Cape
Town
Respondent’s
counsel: C.E. Puckrin SC
L.G.
Kilmartin
Respondent’s
attorneys: State Attorney
Cape
Town
[1]
As
noted with characteristic perspicacity by Schutz JA in the opening
sentence of the judgment in
Commissioner
for Customs and Excise v Capital Meats CC (In Liquidation) and
Another
1999 (1) SA 570 (SCA).
[2]
See
Item A of the ‘General Notes’ to Schedule I. It
essentially replicates the General Rules for the Interpretation
of
the Harmonised System.
[3]
Now
Item A of the ‘General Notes’ to Schedule I (see note 2,
above). GRI 1 now reads in relevant part as set
out in
para [3], above.
[4]
‘
TH’
denotes ‘tariff heading’.
[5]
Oxford
Dictionary of English
(3
ed). The definitions in the
Oxford
Shorter English Dictionary
(3 ed), the
Concise
Oxford Dictionary
(5 ed) and
Merriam-Webster
Dictionary
are essentially to the same effect.
[6]
Oxford
Dictionary of English (3 ed).
[7]
I
agree with the submission by the applicant’s counsel that the
comparatively limited durability of the plastic material
is not a
determinant criterion in the characterisation of the greenhouse
structures as ‘buildings’. If, upon
assembly, the
structures would have the essential character of a building, they
fall to be characterised as such. Thus,
structures such as
igloos or ice hotels, which are built from ice and thus have limited
durability because they melt when the
weather warms up, are
nonetheless, for so long as they exist, unmistakably buildings.
[8]
The
Commissioner requested a copy of the detailed design of the
structures in his answering affidavit and indicated that he might
on
consideration thereof wish to deliver additional affidavits.
The applicant duly provided the Commissioner with an electronic
copy
of the design documents. The Commissioner did not seek to
raise anything arising out of his consideration of the drawings
in a
further set of affidavits.
[9]
In
terms of s 96(1)(c)(i) of the Act.
[10]
In
para [5], with reference to
Smith
Mining Equipment
at para 2.
[11]
TH
73.08, which is one of the tariff headings applied by the
Commissioner, expressly excludes structures that are ‘prefabricated
buildings of heading 94.06’.
In
Costco
Wholesale Canada Ltd v President of the Canada Border Services
Agency
,
2013 CanLII 77317
(CA
CITT),
the Canadian International Trade Tribunal held, correctly in my
view, that ‘when there is a single relevant exclusion
that
precludes the
prima
facie
classification of goods in both headings at issue in an appeal, the
analysis should begin with the heading to which the exclusionary
note does not apply’.
[12]
Interestingly,
in ruling HQ 958001, dated 6 February 1996, by the Tariff
Classification Appeals Division of the then US Customs
Service, it
was determined that a so-called ‘
Aluminum
Hall
’
described as follows:
‘…
pre-engineered,
freespan, modular fabric tension structures that are designed to
withstand high winds, shed snow, and provide
durable, safe, and
economical temporary shelter where speed of installation or
relocation is essential. The structural
frame (which accounts
for approximately 80 percent of the total cost) is composed of
extruded aluminum box beams with an integrated
channel system.
The roofing membrane is composed of a polyester fabric that is
visibly coated on both sides with polyvinyl
chloride (PVC).
The roofing membrane is inserted in the integrated channel system
and tensioned between each frame.
The sidewalls of the
structures are typically manufactured of rigid panels (said to be
composed of fiberglass) that measure approximately
3 feet in width
by 9 feet in height
’
was a ‘prefabricated
building’ for the purpose of TH94:06 notwithstanding its soft
roofing material. The ruling
contained the following
observation in that regard:
The
fact that the roof of the subject merchandise is not made of a hard
substance is not relevant for classification purposes
so long as it
is capable of providing cover from the elements of the weather
.
(The
ruling was accessed on 27 December 2015 at -
https://www.google.co.za/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwi2-pH63_vJAhVJbxQKHcqKCBgQFggaMAA&url=http%3A%2F%2Frulings.cbp.gov%2Fhq%2F1996%2F958001.doc&usg=AFQjCNEM9Oen9FlHIrs0uOk91EK9z1eCnw&bvm=bv.110151844,d.ZWU
.)
[13]
Counsel
for the Commissioner also cited the Collins and MacMillans
Dictionaries, which similarly include mention of rapidity or
ease of
assembly of the completed article as an inherent object of
prefabrication.
[14]
Counsel
for the Commissioner argued that it had been incumbent on the
applicant to adduce evidence to establish what a prefabricated
building is. They relied in this regard on what was said in
Smith
Mining Equipment
supra, concerning the application of TH 87.09 – ‘
Works
Trucks, Self-Propelled, not fitted with lifting or handling
equipment, of the type used in Factories, Warehouses, Dock Areas
or
Airports for short distance transport of Goods
’.
The court in that matter held (at para 10) that factual
evidence was required to establish that the imported
vehicle in
issue there was of the type used in factories, warehouses, dock area
or airports for the short distance of transport
of goods.
Absent such evidence, it simply was ‘not possible to find that
the vehicle in issue [was] typical of such
vehicles’.
However, I agree with the submission by the applicant’s
counsel that the current matter is quite
distinguishable. In
the current matter a court is able to determine what a
‘prefabricated building’ is by reference
to chapter note
4 and the relevant dictionary definitions read with the applicable
explanatory notes. That was not the
position in
Smith
Mining Equipment
.
[15]
Section
XX, in which chapter 94 resorts, does not contain any section notes.
[16]
Answering
affidavit at para 6.3.
[17]
Cf.
L
G Electronics SA (Pty Ltd v Commissioner for the South African
Revenue Service
[2009] ZAGPHC 12
(30 January 2009), at para 6, for an illustration
of the application of the
Plascon-Evans
rule
in the context of appeals in terms of s 47(9)(e) of the Act.
[18]
Quoted
in para [19], above.
[19]
The
relevant part of the explanatory note to TH 94.06 provides:
The buildings of this
heading may or may not be equipped. However, only built-in
equipment normally supplied is to be classified
with the buildings.
This includes electrical fittings (wiring, sockets, switches,
circuit-breakers, bells etc.), heating
and air conditioning
equipment (boilers, radiators air conditioners etc.), sanitary
equipment (baths, showers, water heaters
etc.), kitchen equipment
(sinks, hoods, cookers etc.) and items of furniture which are built
in or designed to be built in (cupboards,
etc.).
[20]
Explanatory
Note (I) to GRI 2(a) provides:
The first part of
Rule 2(a) extends the scope of any heading which refers to a
particular article to cover not only the complete
article but also
that article incomplete or unfinished,
provided
that, as
presented, it has the essential character of the complete or
finished article.
[21]
Explanatory
Note (VI) to GRI 2(a) provides (s.v. ‘
Articles
presented unassembled or disassembled
’):
This Rule also
applies to incomplete or unfinished articles presented unassembled
or disassembled provided that they are to be
treated as complete or
finished articles by virtue of the first part of this Rule.
[22]
Para
6.10 of the answering affidavit.
[23]
PJ
Schwikkard et al,
Principles
of Evidence
(revised 3
rd
ed)
§19.5
at
p.400. See also
S
v W
1975 (3) SA 841
(T) at 843A and
S
v Fuhri
1994 (2) SACR 829
(A) at 832-834E.
[24]
There
was no challenge to the authenticity of the screenshot.
[25]
Google
Earth imagery is used so frequently in evidence these days that it
might be thought surprising that its admissibility has
not yet been
discussed in any of the reported cases as far as I could determine.
This might be because it is such a commonly
used reference tool, and
of such readily demonstrable and generally accepted reliability (cf.
S
v Mthimkulu
1975 (4) SA 759
(A) at 764E-G,
S
v Fuhri
supra, at 835B-G, and
Trustees
for the time being of the Delsheray Trust and Others v ABSA Bank
Limited
[2014]
4 All SA 748
(WCC)
at
para 37-43) that its imagery is routinely introduced without
objection.
In
U.S.
v. Lizarraga-Tirado
_
F.3d
_
(9th Cir. 2015), 2015 WL 3772772 (9th Cir. June 18, 2015), the Ninth
Circuit of the US Court of Appeals rejected an objection
on hearsay
grounds to the admissibility of a Google Earth image in a matter in
which there was no testimony about the generation
of the image.
The image had been used by an agent of the US Border Patrol who had
arrested the appellant to show where,
in relation to the border, she
had effected the arrest. The court held ‘…
a
photograph merely depicts a scene as it existed at a particular
time. The same is true of a Google Earth satellite image. Such
images are produced by high-resolution imaging satellites, and
though the cameras are more powerful, the result is the same:
a
snapshot of the world as it existed when the satellite passed
overhead. Because a satellite image, like a photograph, makes
no
assertion, it isn’t hearsay
’.
That analysis, although it was predicated on the Federal Rules of
Evidence, appears to me consistent with the admissibility
of
photographs as real evidence in our law.