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[2014] ZASCA 69
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Commissioner For The South African Revenue Service v Terreplas South Africa (Pty) Ltd (375/2013) [2014] ZASCA 69; [2014] 3 All SA 11 (SCA); 76 SATC 377 (23 May 2014)
IN
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE
NO:375/2013
Reportable
In
the matter between:
COMMISSIONER
FOR THE SOUTH AFRICAN REVENUE SERVICE
.....................
Appellant
and
TERRAPLAS
SOUTH AFRICA (PTY) LTD
…...............................................................
Respondent
Neutral
Citation:
SARS v Terraplas South
Africa (Pty) Ltd
(375/2013)
[2014]
ZASCA 69
(23 May 2014).
Coram:
NAVSA, MHLANTLA & LEACH JJA, VAN
ZYL & MOCUMIE AJJA
Heard:
12 May 2014
Delivered:
23 May 2014
Summary: Customs
and excise – import duty – approach to tariff
classification – prior decisions revisited and
applied –
plastic interlocking tiles for protection of turf surfaces in stadia
not a floor covering contemplated in specific
tariff heading –
novelty of article not a consideration in interpretation exercise.
ORDER
On
appeal from
: The North Gauteng High
Court, Pretoria (Makgoka J sitting as court of first instance).
The
following order is made:
1.
The appeal is upheld with costs including
the costs of two counsel.
2.
The order of the court a quo is set aside
and substituted with the following:
‘
The
appeal in terms of s 47(9)(
e
)
of the Customs and Excise Act 91 of 1964 is dismissed with costs,
such to include the costs consequent upon the employment of
two
counsel.’
JUDGMENT
Navsa
JA (Mhlantla & Leach JJA and Van Zyl & Mocumie AJJA
concurring):
[1]
This is an appeal directed at a decision of the North Gauteng High
Court (Makgoka J), which upheld an appeal by Terraplas (Pty)
Ltd
(Terraplas) against a tariff determination made by the appellant, the
Commissioner for the South African Revenue Service (the
Commissioner), in terms of the provisions of s 47(9)
(a)
(i)(
aa
)
[1]
of the Customs and Excise Act 91 of 1964 (the Act). The tariff
determination in question was that certain plastic tiles imported
by
Terraplas were classifiable under tariff heading 3926.90.90. The high
court upheld the contention by Terraplas that the tiles
were
inappropriately classified by the Commissioner and concluded that
they ought rightly to have been classified under tariff
heading
3918.90.40. I shall, in due course, deal with the tariff
classifications and their implications. The question we have to
answer is whether the high court was correct in the aforesaid
conclusion. In what follows hereafter, the abbreviation ‘TH’
is sometimes used in substitution for ‘tariff heading’.
[2]
The present litigation is best understood in the light of the fact
that the classification by the Commissioner would attract
import duty
at the rate of 10 per cent whilst the tariff heading contended for
Terraplas and upheld by Makgoka J, would see an
import duty of only
1,3 per cent being imposed. As Schutz JA, dealing with import duty on
mutton, said in
Commissioner
for Customs and Excise v Capital Meats CC(in liquidation)
[1998] ZASCA 80
;
1999
(1) SA 570
(SCA), ‘this is a case about money.’
[2]
[3]
Terraplas conducts business as an importer and distributor of
products described as ‘terratile (terraflor) pitch protection
tiles’ and ‘terratrak plus temporary driveable roadway
tiles’. The tiles are imported from Terraplas PLC, Derby,
United Kingdom. I shall for the sake of convenience and for present
purposes refer to all of these products as ‘the tiles’.
[4]
The background leading up to the present appeal is set out in this
paragraph and the paragraphs that follow. During November
2010,
Terraplas instructed its clearing agent to enter two consignments of
tiles for home consumption
[3]
in
terms of the provisions of the Act. In terms of the bill of entry,
the tiles were entered under TH3918.90.20. The Controller
of Customs,
Cape Town, instructed the clearing agent to pass vouchers of
correction to ‘read 3918.90.40’. Terraplas
lodged an
internal administrative appeal against the tariff determination.
[4]
In March 2011 the Controller of Customs in Cape Town informed
Terraplas that the Commissioner determined the tiles to be
classifiable
under TH3926.90.90. In response Terraplas made use of
the alternative dispute resolution procedure provided for in section
77I
of the Act.
[5]
On 19 August 2011 Terraplas was informed that the National Appeal
Committee of the South African Revenue Services had, on 18
August
2011, confirmed the tariff classification of the tiles under
TH3926.90.90. Before resorting to the litigation in the court
below,
Terraplas gave notice as required in terms of s 96(1)
(a)
of
the Act of the intended litigation.
[5]
[6]
Terraplas, as it was entitled to in terms of s 47(9)(
e
)
of the Act, appealed the decision referred to in paragraph 5 to the
high court.
[6]
The high court
first considered the nature of the tiles. In this regard it is
instructive to take into account the description
provided by
Terraplas itself. The tiles are described as follows:
‘
The
tiles imported by the applicant are manufactured by way of injection
moulding from 100% virgin high-density polyethylene (HDPE).
Each tile
has dimensions of 1m x 1m x 30mm, and the tiles are pinned together
in blocks of four, being 2m x 2m, and shipped on
pallets. The tiles
are especially designed to cover and protect the turf floor in
stadiums, when they are being used, either wholly
or partially, for
non-sporting events. They allow for the passage of air and light, and
create a moist atmosphere under the tile,
without any noticeable
build-up of heat, which are essential elements of keeping natural
grass healthy and green.
The tiles are
clipped together to form a solid, hard-wearing floor for events
ranging from full-stadium concerts to small on-field
gatherings,
marquee flooring or dance floors. The tiles are suitable for use on
both natural and synthetic turf foundations. The
tile floors enable
the installation of chairs, staging and other equipment, and can
support forklifts and other heavy moving equipment.’
The
photographs that appear hereafter are the best depiction of the
product in question. The descriptions by the manufacturers that
appear alongside the photographs are also helpful.
[SEE
PDF FOR PHOTOGRAPHS]
[7]
In a further document apparently distributed by Terraplas, and on
which it relied when making its case in the court below, the
following description of the tiles appears:
‘
[T]erratile
is the latest system manufactured in the UK by Terraplas plc –
the
World’s No. 1 Turf Protection
company
. It is designed to protect the
turf playing area at Stadiums when they are being used for
non-sporting events.
It allows the
passage of air and light and creates a moist atmosphere under the
tile, without any noticeable build-up of heat –
essential
elements for keeping natural grass healthy and green.
It is also designed
to prevent rubbish & non-desirable liquids from passing through
to the turf – whether natural or artificial.’
The
attributes and physical characteristics of the tiles, as described in
this and preceding paragraphs, are common cause.
[8]
Having considered the nature of the tiles, Makgoka J went on to have
regard to the tariff classification relied upon by the
contesting
parties. First, he had regard to the tariff classification upon which
the Commissioner made his determination, namely,
TH3926.90.90. In
doing so he took into account at the outset tariff heading 39.26
which reads as follows:
‘
OTHER
ARTICLES OF PLASTICS AND ARTICLES OF OTHER MATERIALS OF HEADINGS
39.01 TO 39.14’
The subheadings then
refer to various articles, inter alia, as follows:
‘
3926.10
- Office or school supplies
3926.20
- Articles of apparel and clothing accessories (including gloves,
mittens and
mitts)
.20- Protective
jackets and one-piece protective suits, incorporating fittings for
connection
to breathing apparatus
.90 - Other
3926.30 - Fittings
for furniture, coachwork or the like
3926.40 - Statuettes
and other ornamental articles
3926.90 - Other
. . .
.90 - Other.’
[9]
The high court then went on to note the tariff classification
contended for by Terraplas, namely, TH3918.90.40. That included
considering it within tariff heading 39.18:
‘
39.18
FLOOR COVERINGS OF PLASTICS, WHETHER OR NOT SELF-ADHESIVE, IN ROLLS
OR IN THE FORM OF TILES; WALL OR CEILING COVERINGS OF
PLASTICS, AS
DEFINED IN NOTE 9 TO THIS CHAPTER:
3918.10 - Of
polymers of vinyl chloride
3918.90 - Of other
plastics
.20 - Of
polyethylene terephthalates, not self-adhesive
.30 - Of silicones
.40 - Of other
condensation, polycondensation or polyaddition products
.90 - Other.’
[10]
The high court was of the view that the issue for determination was
whether the tiles were ‘floor coverings’ as
contemplated
by tariff heading 39.18, and went on to say:
‘
On
the one hand, the commissioner contends that the turf surface of a
stadium is not a floor, and on the other, that the same surface,
when
covered by the tiles, is a floor. This is clearly untenable.’
Later,
the court below agreed with the submission on behalf of Terraplas
that the interpretation contended for by the Commissioner
was too
restrictive. It went on to conclude that the appropriate tariff
heading was that proposed by Terraplas, namely 3918.90.40.
Makgoka J
upheld the appellants appeal with costs, ‘concomitantly setting
aside of the commissioner’s tariff determination’.
[11]
Section 47 of the Act provides for duty to be paid in terms of
Schedule 1 of the Act. The Republic of South Africa is a party
to the
General Agreement on Tariffs and Trade and is a member of the World
Customs Organisation, which employs the International
Harmonized
System referred to in the Act. Part 1 of Schedule 1 to the Act,
comprising the section and chapter notes, the General
Rules for the
Interpretation of the Harmonized System and the tariff headings, is a
direct transposition of the nomenclature of
the Harmonized System. In
Secretary for Customs and Excise v
Thomas Barlow & Sons
Ltd
1970 (2) SA 660
(A) at 675D, this court
described the Schedule as being ‘a massive part of the statute
in which all goods generally handled
in international trade are
systematically grouped in sections, chapters, and sub-chapters, which
are given titles indicating as
concisely as possible the broad class
of goods each covers’.
[12]
In
International Business Machines SA (Pty) Ltd v Commissioner for
Customs
and Excise
1985 (4) SA 852
(A), this court had
regard to the major conventions dealing with customs tariffs to which
South Africa was a signatory. In relation
to the convention on
Nomenclature the aims were recorded:
‘
(
a
)
to establish a common basis for the classification of goods in
national customs tariffs;
(
b
) to
facilitate comparison of the customs duties applicable in the various
countries to all
goods entering into
international commerce;
(
c
) to
simplify international customs tariff negotiations;
(
d
) to
facilitate the comparison of international trade statistics;
(
e
) to
provide governments and traders alike with a firm guarantee of the
maximum
uniformity in the
classification of goods in national customs tariffs; and
(
f
)
to facilitate international trade and thus to contribute to its
expansion.’
[7]
[13]
Mechanisms exist for appropriate steps to be taken to ensure
international uniformity in the interpretation and application
of the
Nomenclature.
[8]
Section
47(8)(
a
)
of the Act states the following:
‘
The
interpretation of –
(i)
any tariff heading or tariff subheading in
Part 1 of Schedule No. 1;
(ii)
(
aa
)
any tariff item or fuel levy item or item specified in Part 2, 5 or 6
of the said Schedule, and
(
bb
)
any item specified in Schedule No. 2, 3, 4, 5 or 6;
(iii)
the general rules for the interpretation of
Schedule No. 1; and
(iv)
every section note and chapter note in Part
1 of Schedule No. 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: Provided that where the
application of any part of such Notes or any addendum
thereto or any
explanation thereof is optional the application of such part,
addendum or explanation shall be in the discretion
of the
Commissioner.’
[14]
So too, s 47(8)(
b
) provides:
‘
The
Commissioner shall obtain and keep in his office two copies of such
Explanatory Notes and shall effect thereto any amendment
of which he
is notified by the said Council from time to time and shall record
the date of effecting each such amendment and any
such amendment
shall, for the purposes of this Act, be effective from the date so
recorded.’
The ‘Council’
referred to in the subsection is, of course, the Council mentioned in
the preceding subsection, namely
the Customs Co-operation Council,
Brussels, now known as the World Customs Organisation.
[15]
In
Thomas
Barlow
this
court stated that the relevant headings and section and chapter notes
are not only the first, ‘but the paramount consideration
in
determining which classification, as between headings, should apply
in any particular case’.
[9]
Rule 1 of the General Rules for the Interpretation of the Harmonised
System states:
‘
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 . . . .’
It
is necessary to record that this court has consistently taken the
view that the explanatory notes in the Schedule may be used
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.
[16]
An interpretation of Schedule 1, for the purposes of classification,
is therefore effected first, with reference to the headings
and their
subheadings falling under the chapters and sub-chapters. The headings
give brief descriptions of the goods. A second
source of
interpretation are the notes to each section or chapter which operate
as a guide. The Schedule also includes general
rules and notes for
the purposes of classification. Once a meaning has been given to the
potentially relevant words, the nature
and characteristics of the
goods must be considered and the heading most appropriate to such
goods be selected.
[10]
[17]
I turn to consider the submissions made in relation to the tariff
heading relied upon by Terraplas, first set out in para 9
above and
which I repeat here for convenience:
‘
39.18
FLOOR COVERINGS OF PLASTICS, WHETHER OR NOT SELF-ADHESIVE, IN ROLLS
OR IN THE FORM OF TILES; WALL OR CEILING COVERINGS OF
PLASTICS, AS
DEFINED IN NOTE 9 TO THIS CHAPTER.’
It
was submitted that one should first have regard to the dictionary
definition of the word ‘floor’. In the
Shorter Oxford
English Dictionary
‘floor’ is said to mean the
following:
‘
I
a level structure in a house or other
building.
1
The layer of boards, bricks, tiles, stones, etc., covering the base
of a room or other compartment; the lower surface of a room
. . .
II
A level space.
6
An artificial platform or levelled space designed for a particular
activity . . .
III
A surface as a foundation.
9
A surface on which something rests, a foundation.’
[18]
In the founding affidavit by Terraplas in the court below it was
contended that the tiles are primarily used to create a hardwearing
floor area upon a level area which would otherwise be damaged by the
activity which can safely take place on the tiled floor. The
tiles
are placed on the floor of a stadium or similar area. The stadium
floor falls naturally within the various definitions of
‘floor’
which have been referred to above. Furthermore, so it was contended,
the tiles, when laid in a stadium, constitute
a protective covering
and that it was a ‘floor covering’ in the natural sense
of a covering which forms or acts as
a floor.
[19]
Any one of a number of dictionary meanings of a word is not
necessarily conclusive in the interpretation of words and phrases
in
statutes and documents. Meanings have to be determined
contextually.
[11]
Returning to
tariff heading 39.18, it appears to me that it encompasses plastic
articles which are in some way enhancements of
existing floor
surfaces. The floor coverings envisaged in tariff heading 39.18 would
conceal an existing floor. The envisaged floor
coverings are not in
themselves regarded as a ‘floor’, hence the description
in the tariff heading as floor coverings.
[20]
It was contended on behalf of Terraplas that there is no
justification in the tariff heading for the grouping together by the
Commissioner of ‘floor’, ‘wall’ and
‘ceiling’, compelling the conclusion that ‘floor’
must be restricted to a ‘floor’ within a building. So, it
was submitted, a self-standing single wall could be covered
with a
plastic covering catered for by the tariff heading relied upon by the
Commissioner. An assumption in this regard in favour
of Terraplas
does not overcome what appears to be evident from the tariff heading
itself, namely that in relation to walls and
ceilings, as with
floors, what appears to be in contemplation are enhancements to each
of those surfaces, the use of which appears
to extend beyond an
immediate purpose, such as protective turf cover in a stadium for a
singular event. Put more starkly, there
is no basis upon which to
conclude that the floor coverings referred to were intended to
encompass the protection of turf in sports
stadia. Put even more
emphatically and decisively, a soccer, rugby or other pitch is not a
floor. The ground at a stadium has cover
– grass cover. The
tiles are intended to preserve that grass cover and to enable it to
continue to prosper. That the interlocking
tiles constitute a floor
of a very temporary nature does not qualify them as a floor covering.
[21]
On behalf of the Commissioner, it was submitted that the words
‘whether or not self-adhesive’ within tariff heading
39.18 can only be read to mean that the tiles classifiable under this
tariff heading have to, in some way, adhere to the floor.
It was
contended on behalf of Terraplas that the words ‘whether or
not’ only meant that the plastic articles could
be
self-adhesive or not. It was submitted that the tariff heading did
not exclude floor coverings that did not adhere to the floor
but
could merely be placed on it. In my view, as stated above, the
articles in question were contemplated as articles that would,
in
some way, cover or conceal an existing floor. Whilst I prefer the
view propounded by the Commissioner, the reasons why the
Commissioner’s tariff determination is to be preferred are
those stated in the preceding two paragraphs.
[22]
Counsel on behalf of Terraplas urged us to consider that the Schedule
in question contained a ‘more or less static list’
and to
be careful not to force into a specific category an article that
might not have been in the contemplation of its compilers.
The
contention was further that a novel article would not have been
catered for and that we should bear this in mind in considering
the
appropriate classification. In dealing with this proposition it is
necessary to point out at the outset that there was no evidence
of
any kind indicating when products of the kind in question were first
introduced into international trade. The tiles are constructed
of
high-density polyethylene which is a plastic. Plastics and articles
thereof are catered for as extensively as one would have
thought
possible under s VII of the Schedule and Chapter 39 where under the
tariff headings in question reside. Simply put, there
is no question
of novelty. Questions of novelty of design are more appropriately
addressed in patent infringement cases. The short
answer to the
proposition on behalf of Terraplas is that there are mechanisms to
update lists and that catch-all categories such
as the one proposed
by the Commissioner, provided they are applicable, were resorted to
to deal with articles not specifically
catered for. There is no
authority, nor would one expect there to be, indicating directly or
even tangentially, that the novelty
of an article renders a different
interpretive process.
[23]
In the light of those conclusions, and in the absence of any other
specific tariff heading, the Commissioner’s determination
of
‘other’ under tariff heading 3926.90.90 is to be
preferred.
[24]
The following order is made:
The
following order is made:
1.
The appeal is upheld with costs including
the costs of two counsel.
2.
The order of the court a quo is set aside
and substituted with the following:
‘
The
appeal in terms of s 47(9)(
e
)
of the Customs and Excise Act 91 of 1964 is dismissed with costs,
such to include the costs consequent upon the employment of
two
counsel.’
________________________
MS
NAVSA
JUDGE
OF APPEAL
APPEARANCES:
FOR
APPELLANT: Adv J A Meyer S.C. (with him L M Maite)
Instructed
by:
The
State Attorney, Pretoria
The
State Attorney, Bloemfontein
FOR
RESPONDENT: Adv. J P V McNally S.C.
Instructed
by
Shepstone
& Wylie, Sandton
Webbers,
Bloemfontein
[1]
Section
47(9)
(a)
(i)(
aa
)
reads as follows:
‘
The
Commissioner may in writing determine –
(aa)
the tariff headings, tariff sub-headings or
tariff items or other items of any Schedule under which any imported
goods, goods
manufactured in the Republic or goods exported shall be
classified; . . . .’
[2]
Commissioner
for Customs and Excise v Capital Meats CC(in liquidation)
[1998] ZASCA 80
;
1999
(1) SA 570
(SCA) at 572J.
[3]
Section
47 of the Act provides for import duties to be paid on all imported
goods ‘at the time of entry for home consumption
of such
goods’.
[4]
Section
77B of the Act provides for an appeal to the Commissioner or an
appeal committee against a decision of his officials.
[5]
Section
96(1)(
a
)
reads as follows:
‘
(i)
No process by which any legal proceedings are instituted against the
State, the Minister, the Commissioner or
an officer for anything
done in pursuance of this Act may be served before the expiry of a
period of one month after delivery
of a notice in writing setting
forth clearly and explicitly the cause of action, the name and place
of abode of the person who
is to institute such proceedings
(in this section referred to as the “litigant”) and the
name and address of
his or her attorney or agent, if any.
(ii)
Such notice shall be in such form and shall be delivered in such
manner and at such places as may
be
prescribed by rule.
(iii)
No such notice shall be valid unless it complies with the
requirements prescribed in this section and
such
rules.’
[6]
Section
47(9)(
e
)
of the Act reads as follows: ‘An appeal against any such
determination shall lie to the division of the High Court of
South
Africa having jurisdiction to hear appeals in the area wherein the
determination was made or the goods in question were
entered for
home consumption’
[7]
International
Business Machines SA (Pty) Ltd v Commissioner for Customs
and
Excise
1985 (4) SA 852
(A) At 862B-C.
[8]
Ibid
at 862D-E. See also
Thomas
Barlow
at 675D-H, and more recently
Distell
Ltd v CSARS
2012 (5) SA 450
(SCA) paras 7 and 8.
[9]
Thomas
Barlow
at 675H-676A. See also
Distell
para 15.
[10]
See
Thomas
Barlow
at 675H-676A;
International
Business Machines
at
863F-G;
Capital
Meats CC
at
573A-D; and
Distell
at
455J-457E.
[11]
See
Seven
Eleven Corporation of SA (Pty) Ltd v Cancun Trading No 150 CC
2005
(5) SA 186
(SCA) and the authorities there cited.