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[2016] ZASCA 53
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Commissioner for the South African Revenue Service v Coltrade International CC (54/2015) [2016] ZASCA 53; 78 SATC 216 (1 April 2016)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 54/2015
In
the matter between:
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
APPELLANT
and
COLTRADE
INTERNATIONAL CC
RESPONDENT
Neutral
Citation:
CSARS v Coltrade
International
(54/2015)
[2016] ZASCA 53
(1 April 2016)
Coram:
Navsa ADP, Leach, Tshiqi and Zondi JJA
and Kathree-Setiloane AJA
Heard:
04 March 2016
Delivered:
01 April 2016
Summary:
Customs duty levied under Customs and
Excise Act 91 of 1964 – principles to be applied in
interpreting the Schedule to the
Act ─ correct tariff to be
applied in respect of coconut milk, coconut cream and coconut powder.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Prinsloo J sitting as court of first instance):
The
appeal is dismissed with costs.
JUDGMENT
Leach
JA (Navsa ADP, Tshiqi and Zondi JJA concurring)
[1]
Section 47(1) of the Customs and Excise Act 91 of 1964 provides for
duties, in accordance with the provisions of Schedule 1
to the Act
(the Schedule), to be paid for the benefit of the National Revenue
Fund on goods imported into this country. Goods generally
dealt with
in international trade are systematically grouped into sections,
chapters and headings in the Schedule. Different rates
of duty are
imposed in accordance with tariffs contained therein. The goods in
respect of which duties are levied are categorised
under different
tariff headings or sub-headings (for convenience, when referring to a
particular tariff heading or subheading I
intend to adopt the
abbreviation ‘TH’ as was used by the parties).
[2]
In the appeal the question is under which tariff subheading do the
coconut milk, coconut cream and coconut powder (the products)
imported by Coltrade International CC, the respondent, properly fall?
In an appeal to it under s 47(9)(e) of the Act against
a
determination made by the appellant, the Commissioner of the South
African Revenue Service (SARS), the Gauteng Division of the
High
Court, Pretoria upheld the respondent’s contention that
TH2008.19 was the applicable tariff heading. The appeal to this
court
against that decision is with the leave of the court a quo.
[3]
Historically, SARS has indeed treated the products imported by the
respondent as falling within TH2008.19. As far back as March
2005, it
issued the respondent with a so-called ‘half-slip
determination’ to the effect that TH2008.19 was applicable
to
canned coconut milk with a 10-11% fat content. On the strength of
this, for some seven years the respondent had its imports
of coconut
milk (of varying fat contents and not solely that of 10-11%), coconut
cream and coconut powder, duly cleared by SARS
officials under
TH2008.19. Then, in 2012, SARS officials in East London decided that
canned coconut milk (with a 10-11% fat content)
fell within tariff
item TH 2106.90.90 rather than TH2008.19.
[4]
Pursuant to this, the respondent made representations to SARS
contending that the appropriate subheading had been determined
as
TH2008.19 by the 2005 half-slip determination. Before us it accepted,
however, that a determination may be varied or amended
and that the
half-slip determination is not binding upon SARS. In any event, on 8
May 2012, the Commissioner accepted that the
East London officials
were correct and made a tariff determination that canned coconut milk
with a fat content of 10-11% fell within
TH 2106.90.90. This was
followed by a letter of demand from SARS dated 19 October 2012 in
which reference was also made to bills
of entry relating to canned
coconut milk (14-15% fat and 19-20% fat), canned coconut cream and
coconut powder. The parties accept
that this letter should be
construed as a further tariff determination in regard to those
products. As mentioned earlier,
the respondent proceeded to
appeal under s 47(9)(e) of the Act to the court a quo, which
held that TH2008.19 was in fact the
correct item of the Schedule to
apply. The correctness of this decision is the subject of this
appeal.
[5]
Two matters should immediately be recorded. First, the parties are
agreed that if this court finds that the products do not
fall within
TH 2008.19, the residual item is TH2106.90.90 and its provisions will
then apply. In that event, the appeal must succeed.
Second, in SARS’s
answering affidavit the Commissioner stated that due to the half-slip
determination of 2005 and the history
thereafter, it had been decided
to treat the products as if a determination in respect of all of them
under item TH2008.19 had
been issued in 2005 and that the tariff
determination would be considered to have been correct for the
interim period. Consequently,
even if this appeal succeeds, SARS will
regard the tariff determination that the products fall within
TH2106.90.90 as only being
effective from 9 February 2012 in respect
of canned coconut milk with 10-11% fat content, and from 19 October
2012 (the date of
the letter of demand) in respect of the remaining
items.
[6]
The crisp issue for decision is thus whether all the products fall
within item TH2008.19 of the Schedule. In considering this
issue it
must be remembered, as was set out by Nicholas AJA in
International
Business Machines
[1]
(a passage since
regularly applied by this court in cases such as
The
Heritage Collection
[2]
and
The
Baking Tin
[3]
),
that:
‘
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.’
Also
to be taken into account are the
‘
general
rules’ for the Schedule’s interpretation set out in Part
A thereof, the first of which provides:
‘
C
lassification
of goods in this Schedule shall be governed by the following
principles:
1.
The titles of Sections, 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 . . . .’
[7]
Furthermore, s 47(8)(a) of the Act prescribes that the interpretation
of any tariff heading or tariff sub-heading in Part 1
of Schedule
1,
[4]
the general rules
for the interpretation of Schedule 1,
[5]
and every section
note and chapter note in Part 1 of Schedule 1,
[6]
‘
shall be
subject to the International Convention on the Harmonised 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 . . . .’. These
explanatory notes do not, however, constitute
‘peremptory
injunctions’
[7]
as they ‘are
not worded with the linguistic precision usually characteristic of
statutory precepts; on the contrary they consist
mainly of discursive
comment and illustrations’.
[8]
Accordingly, they
are designed for guidance to explain or supplement headings ‘and
not to override or contradict them’.
[9]
[8]
Finally, it must also be regarded as well-established that the
decisive criterion regarding the classification of goods for
customs
purposes is the objective characteristics and properties of the goods
concerned. Bearing that in mind, I turn to consider
the
characteristics and properties of the products at the centre of the
debate and their method of production.
[9]
The evidence establishes that coconut milk is produced in the
following manner. The matured coconut is de-husked, and the coconut
juice drained off, leaving the white meat of the coconut. Known
as ‘endosperm,’ this is then comminuted, a process
in
which the endosperm is shredded into minute particles. A machinated
crushing of the comminuted endosperm, with the inedible
fibres being
separated and strained out, leaves the endosperm in liquid form but
retaining all the nutritive and organoleptic characteristics
of the
original coconut meat. In other words, it retains the essential
characteristics of coconut meat; it has the same aroma,
flavour and
taste.
[10]
From that stage a number of different products may be produced by the
application of different procedures. First, the water
naturally
present in the liquid endosperm may be driven off to obtain an edible
endosperm solid, known in the trade as ‘coconut
cream
concentrate’, which has approximately the same amount of fat,
protein, carbohydrates and minerals present in the original
endosperm. A second possibility is to add water and minute amounts of
emulsifiers and stabilisers, so as to obtain a stable liquid
endosperm emulsion known as ‘coconut cream’ which must
contain a minimum of 20% soluble fat solids and at least 4,5%
of
insoluble non-fat solids. A third possible procedure is to add more
than 10% water, and less than 0,5% of emulsifiers and stabilisers,
to
obtain a somewhat diluted stable liquid endosperm emulsion known as
‘coconut milk’. Both the milk and cream are
homogenised
and canned.
[11]
It is clear from this that the nature of the product obtained either
by driving off or adding water to the liquid emulsion
obtained after
the crushing stage, does not materially affect the nature and
characteristics of the original endosperm. As was
stated by the
quality manager of the Thai Coconut Company Limited, which
manufactures the imported products, Ms Lawan Poomphruk,
the addition
of the stabilisers, emulsifiers and preservatives to the liquid
endosperm ‘does not serve to alter the character
of a product,
but rather to enhance it’. This was not disputed.
[12]
In the light of this, I turn to the tariff classification of the
products. The competing tariff headings that are at the core
of the
present dispute are both to be found in Part 1, Section IV, of the
Schedule. Section IV is headed ‘Prepared Foodstuffs;
Beverages,
Spirits and Vinegar; Tobacco and Manufactured Tobacco Substitutes’,
a heading so wide ranging as to be of little
help in resolving the
present dispute.
[13]
Chapter 20 of Section IV, which is headed ‘Preparations of
Vegetables, Fruit, Nuts or Other Parts of Plants’, is
more
useful. Having regard thereto, it should be recorded that the
Harmonized System regards a coconut as being a nut although,
botanically, it is a fruit. But be that as it may, the method by
which coconut cream and coconut milk are produced, as already
described, is clearly a ‘preparation’ of nuts which would
fall within the ordinary meaning of the words used in the
chapter
heading.
[14]
Importantly, TH20.08, which falls within Chapter 20, reads as
follows:
‘
Fruit,
nuts and other edible parts of plants, otherwise prepared or
preserved, whether or not containing added sugar or other sweetening
matter or spirit, not elsewhere specified or included:
A
variety of fruits and nuts are then specified in various subheadings
under TH20.08. These include ‘Nuts, groundnuts and
other seeds,
whether or not mixed together’ (TH 2008.1), ‘Ground nuts’
(TH2008.11) in which there are three further
subheadings relating to
‘peanut butter’, ‘ground-nuts roasted’
and ‘other’. The following
item is TH2008.19 (which the
respondent alleges applies to its products). It refers to ‘Other
including mixtures’,
while pineapples, citrus fruit, pears,
apricots, cherries, peaches (including nectarines) and strawberries
are thereafter categorised
under various other subheadings of
TH20.08.
[15]
The explanatory note to TH20.08 is of considerable importance. First,
it provides:
‘
This
heading covers fruit, nuts and other edible parts of plants, whether
whole, in pieces or crushed, including mixtures thereof,
prepared or
preserved otherwise and by any of the processes specified in other
Chapters or in the preceding headings of this Chapter.’
Second,
it goes on to state that other substances ‘may be added to the
products of this heading
provided that
they do not alter the essential character of fruit, nuts or other
edible parts of plants
’
.
(My emphasis.)
[16]
The contention of SARS is that, in order for the products to fall
within TH20.08 the fruit or nuts used have, first to be ‘whole,
in pieces or crushed’ (as set out in both the general
explanatory note to Chapter 20 and the explanatory note to item
20.08)
and, second, to have the organoleptic characteristics of the
base product ie in this case, coconut. In its answering affidavit,
SARS stated that the ‘Commissioner is satisfied that the
products in issue comply with the second requirement’ but
that
the coconuts used had been ‘processed to the extent that they
are (stabilised and preserved) emulsions’ and could
no longer
be regarded as being coconuts ‘whole, in pieces or crushed’
as specified in the explanatory notes.
[17]
Of course, by reason of the processes that I have described, by the
time coconuts are reduced to coconut milk or coconut cream
they
cannot be regarded as still being whole. The issue then becomes
whether it can be said that they are ‘in pieces’
or
‘crushed’. As Lord Wright pointed out in
Forster
v Llanelly Steel,
[10]
there is a
distinction to be drawn between ‘breaking’ (into pieces)
and ‘crushing’ and that:
‘
Both
words describe the disintegration of the particular object. The
difference is in the degree to which the disintegration is
carried.
Wherever there are differences of degree, there must be cases where
the one word becomes more applicable than the other,
just as in the
old problem of how many things constitute a heap.
’
[18]
I am prepared to accept for purposes of this judgment that, after
being processed into liquid endosperm, it can no longer be
said that
the coconuts are still ‘in pieces.’ The issue then
becomes whether it can be said that they have been processed
beyond
having been ‘crushed’. In considering this question, it
must be remembered that the Act is of general application,
and it and
the explanatory rules are accordingly to be interpreted by applying
the grammatical and ordinary sense of the words
used unless the
context or the subject clearly shows otherwise. In applying
itself to this task, a court is entitled to have
recourse to
dictionaries in order to take judicial notice of the meaning of a
word.
[11]
[19]
As set out above, the liquid endosperm is prepared largely by
crushing the coconut meat or endosperm. Counsel for the appellant,
however, fell back on arguing that as it was obtained not only by
crushing the coconut endosperm but by then straining out the
non-edible the fibres, the liquid endosperm could not be regarded as
being a ‘crushed’ form of coconut as it was in
the form
of an emulsion.
[20]
I disagree.
The Shorter Oxford English
Dictionary
(6 ed) (2007) gives various
meanings of the verb ‘crush’ including: to ‘break
down into small pieces; reduce to
powder, pulp, etc, by pressure’
and to ‘press or squeeze forcibly (
against,
into, out of, through,
etc); force out
or by pressing or squeezing’. As a graphic illustration it
gives the following quotation from R Bradbury:
‘Wine was being
crushed from under the grape-blooded feet of dancing vintners’
daughters.’
[21]
Furthermore, the
Collins
Dictionary of the English Language
(2010)
gives one of the meanings of the verb ‘crush’ to be ‘to
extract (liquid) by pressing’ and the meaning
of the noun to be
‘a drink made by crushed fruit.’
[12]
Just as wine is
crushed out of grapes, it seems to me that to press liquid out of the
meat of a coconut is consistent with the commonly
understood concept
of crushing.
[22]
Consequently, the process by which the liquid endosperm is produced
clearly falls within the generally accepted meaning of
the white
coconut meat being crushed. This is so even if the inedible fibres
are removed in the process ─ just as grape skins
are removed
after grapes are crushed in the process of the manufacture of wine.
However, as already pointed out, their removal
does not alter the
essential character ‘of fruit, nuts or other edible plants’
as specified in the explanatory note
to TH20.08. Nor does the
addition of water and minute amounts of emulsifiers and stabiliser to
the liquid endosperm so as to obtain
either coconut cream or coconut
milk, depending upon how much water is added (which is also
permissible under the explanatory note
to TH20.08
[13]
),
alter the essential characteristics of the coconut.
[23]
To summarise then: a coconut is regarded as a nut under the
Harmonised System; coconut milk and coconut cream are preparations
of
a nut consistent with the heading of Chapter 20; equally they have a
meaning consistent with ‘nuts . . . prepared or preserved’
as required by TH20.08 itself and by what is envisaged in the
explanatory note to that tariff item; they have also not lost their
essential character of coconut as further specified in that
explanatory note; coconuts – or more correctly coconut
preparations
of coconut milk and coconut cream – do not fall
within any of the specific products particularised under the various
sub-headings
of TH20.08 and, therefore, conveniently fall under
TH2008.19 ie ‘Other, including mixtures’.
[24]
Faced with this, it was suggested on behalf of SARS in argument,
albeit somewhat tentatively, that TH20.08 does not cover liquid
preparations or emulsions ─ and as coconut milk and cream are
correctly described as being emulsions, they are excluded from
its
ambit. Such reticence is understandable. The original meaning of the
word ‘emulsion’ was ‘a milky liquid
obtained by
crushing almonds in water’, albeit that definition has now been
widened.
[14]
A milky liquid
obtained by crushing another type of nut is therefore consistent with
the ordinary grammatical meaning of a product
envisaged by TH20.08.
Furthermore
,
not
only are emulsions not specifically excluded but the explanatory
notes to TH20.08 contain examples of what may be typified as
liquid
preparations: they include fruits which have been crushed containing
added water, fruit, including fruit-peel and seeds,
preserved in
water, syrup or alcohol; and fruit peel put up in syrup. As emulsions
are not specifically excluded, and are indeed
consistent with
TH20.08, SARS’s argument in this regard has no merit.
[25]
In my view, then, the respondent’s products fall squarely
within the compass of TH20.08 and the court a quo was correct
in
concluding that to be the case. Counsel for the appellant, however,
argued that even if coconut milk and coconut cream are items
envisaged by TH20.08, the same could not be said for coconut powder,
the third of the products which form part of the dispute.
[26]
Coconut powder consists of the solids which remain after water is
removed from liquid coconut endosperm. It, too, retains the
essential
character of the coconut and there is no reason to distinguish
between it, on one hand, and coconut milk and coconut
cream, on the
other. But of equal importance is the fact that SARS, in its
answering affidavit, placed on record that the Commissioner
‘accepts
that for classification purposes the milk, cream and powder are
essentially the same and can therefore be treated
the same’.
That being so, the issue was common cause and it does not redound to
SARS’s credit to now attempt to allege
that coconut powder
should not be treated the same as coconut milk and coconut cream for
purposes of these proceedings.
[27]
For these reasons there is no merit in the appeal, which must be
dismissed. There is no reason for costs not to follow the
event.
[28]
The appeal is dismissed, with costs.
____________________
L
E Leach
Judge
of Appeal
Appearances:
For
the Appellant
J A Meyer SC (with him MPD Chabedi)
Instructed by:
The State Attorney,
Pretoria
The State Attorney,
Bloemfontein
For
the Respondent:
J P Vorster
SC
Instructed by:
Shepstone &
Wylie
c/o Clarinda Kügel
Attorneys, Pretoria
Webbers Attorneys,
Bloemfontein
[1]
International
Business Machines SA (Pty) Ltd v Commissioner for Customs &
Excise
[1985]
ZASCA 87
;
1985 (4) SA 852
(A) at 863G-H.
[2]
The
Heritage Collection (Pty) Ltd v Commissioner, South African Revenue
Service
2002
(6) SA 15
(SCA) para 13.
[3]
Commissioner,
South African Revenue Service v The Baking Tin (Pty) Ltd
[2007] ZASCA 100
;
2007 (6) SA 545
(SCA) para 5.
[4]
Section
47(8)(a)(i).
[5]
Section
47(8)(a)(iii).
[6]
Section
47(8)(a)(iv).
[7]
Per Lewis JA in
The
Baking Tin
para
6.
[8]
Per Trollip JA in
Secretary
for Customs and Excise v Thomas Barlow & Sons Ltd
1970
(2) SA 660
(A) at 676B-D; a passage since regularly adopted by this
court.
[9]
Cf Ibid.
[10]
Forster v
Llanelly Steel Co (1907) Ltd
[1941]
1 All ER 1
(HL) at 6-7.
[11]
National
Screenprint (Pty) Ltd v Minister of Finance
1978
(3) SA 501
(C) at 507A-H and the cases there cited.
[12]
Essentially
the same definition is to be found in the
Shorter
Oxford English Dictionary
.
[13]
As already
mentioned in para 15.
[14]
Shorter Oxford
English Dictionary
.