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[2011] ZAGPPHC 83
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Distell Limited v Commisioner for the South African Revenue Service (16910/2009) [2011] ZAGPPHC 83; 73 SATC 265 (2 June 2011)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT)
Case
number: 16910/2009
Date:
2 June 2011
In
the matter between:
DISTELL
LIMITED
........................................................................................................
Applicant
and
THE
COMMISIONER FOR THE SOUTH
AFRICAN
................................................
Respondent
REVENUE
SERVICE
JUDGMENT
PRETORIUS
J.
This
application is an appeal in terms of section 47(9)(c) of the Customs
and Excise Act, 91 of 1964 (the Act). There is also an
application by
the respondents to apply for leave to file further affidavits, which
application is opposed by the applicant. The
applicant launched an
application for certain evidence to be struck out from the
respondent's papers on the grounds that it is
hearsay, irrelevant and
not evidence by experts. The respondent opposed this application.
The
respondent submitted in its' heads of argument that the applicant
came to court with "unclean hands". Mr Puckrin,
for the
respondent, indicated at the start of the proceedings that the
respondent abandons the argument and will not deal with
it at all
during argument before court and it should be ignored.
Mr
Puckrin, for the Commisioner, argued that the court cannot entertain
the appeal. The products in issue are produced in South
Africa. The
production of these products is covered by the
Liquor Products Act,
60 of 1989
and the Customs Act.
Section
5(3) of the Liquor Products Act provides:
"(3)
No person shall, either before, during or after completion or
termination of the alcoholic fermentation referred to in
subsection
(1) (b) -
(a)
add to or remove from the juice of fresh grapes or the wine produced
therefrom, any substance other than a substance prescribed
for this
purpose; and
(b)
so add or remove a substance so prescribed, otherwise than in
accordance with the prescribed manner or conditions."
The
result is that such a product, from which more than undesirable
flavours have been removed, can not be termed "wine".
Should a party proceed to call such a product "wine" it
will be committing a crime. Therefore the court should not assist
the
applicant to contravene
section 5(3)
of the
Liquor Products Act.
The
respondent submits that in order to qualify under Tariff Headings
22.04; 22.05 or 22.06, more flavour than is allowed by the
Liquor
Products Act is
removed from the wine and the product is still
classified as wine results in a criminal offence will be committed by
the applicant.
This
court has not been tasked to decide whether the "stripped wine"
has resulted in the applicant using the term "wine"
illegally. I make no finding on this issue as another court may or
may not deal with it at a later stage.
Mr
Joubert, on behalf of the applicant, requested the court to firstly
deal with the application to file further evidence and the
application for striking out. This was opposed by the respondent. The
court decided that, as these matters are so intertwined that
the
court cannot deal with these two further applications separately,
that it should be argued at the same time as the main application
and
will be dealt with in the judgment.
The
further affidavits:
The
court deals with the application to have further affidavits submitted
as this will have an impact on the rest of the case. The
respondent
applied to have further affidavits admitted. The applicant had served
and filed the founding papers during March 2009.
On 2 November 2009
amended founding papers were served and filed during July 2010 and
the replying affidavits were served and filed
during August 2010.
The
respondent served further affidavits on the applicant during February
2011 and these are the affidavits that the respondent
requests the
court to accept as evidence. The respondent requires the leave of the
court to file further affidavits as three sets
of affidavits have
already been filed. The applicant is opposing this application. The
court has to consider and decide the matter
as it is in the
discretion of the court to allow the further affidavits. In Africa
Oil (Pty) Ltd v Ramadan Investments
2004 (1) SA 35
NPD Moleko J held
at 38 I - J:
"Normally
in motion proceedings three sets of affidavits are allowed and no
further affidavits may be filed without leave of
Court. Such leave is
in the discretion of the Court and such discretion is to be exercised
judicially upon consideration of the
facts in each case. In Herbstein
and Van Winsen Civil Practice of the Supreme Court of South Africa at
359 it is stated that leave
of Court will only be granted in special
circumstances or if the Court considers such a course advisable.
Special circumstances
exist where something unexpected or something
new emerges from applicant's replying affidavit. There must be a
satisfactory explanation
which negatives mala fide as to the reason
why the information was not placed before the court at an earlier
stage." (Courts
emphasis)
The
court will not grant leave to file further affidavits if there was
mala fides for not placing the information before Court in
the first
instance. Should new issues arise from the affidavits filed which do
not constitute a reply, the court will not grant
leave to file
further affidavits. The court must also be satisfied that the filing
of further affidavits will not prejudice the
applicant.
In
Standard Bank of South Africa v Sewpersadh
2005 (4) SA 148
C at 154
the court set out the legal principles governing the acceptance of
further affidavits:
"The
Court will exercise its discretion to admit further affidavits only
if there are special circumstances which warrant it
or if the Court
considers such a course advisable. (See Rieseberg v Rieseberg
1926
WLD 59
; Joseph & Jeans v Spitz and Others
1931 WLD 48.)
In
Bangtoo Bros and Others v National Transport Commission and Others
Error! Hyperlink reference not valid it was held among other
things
that a litigant who seeks to serve an additional affidavit is under a
duty to provide an explanation that negatives mala
fides or culpable
remissness as the cause of the facts and/or information not being put
before the Court at an earlier stage. There
must furthermore be a
proper and satisfactory explanation as to why the information
contained in the affidavit was not put up earlier,
and what is more
important, the Court must be satisfied that no prejudice is caused to
the opposite party that cannot be remedied
by an appropriate order as
to costs." (Court's emphasis)
In
Stein Brothers Ltd v Dawood and Another
1980 (3) SA 275
W le Roux J
held at 282 C:
"I
am of the view that litigation of this nature is not a game; that the
object of all litigation is to arrive at the truth
and at a fair,
just and expeditious solution and that, when a fourth and fifth set
of affidavits have been placed before a Court,
it is clearly entitled
to look at them and should not shut its eyes to facts which may lead
to a just decision of the matter by
reason of the existence of a mere
technicality."(Courts emphasis)
In
Simmons NO v Gillbert Hamer and Co Ltd 1963 (1) SA (NPD) 897 at 906
Caney J found:
"I
believe that it is desirable not to be bound inflexibly to rules of
procedure unless compelled to this by the clear language
of the law,
and that the present day tendency is away from formalism in procedure
and in the direction of assuring that justice
is done by allowing,
whenever necessary, amendments to pleadings and the admission of
further evidence, whether oral or on affidavit,
subject to the
absence of prejudice to the other party not remediable by an
appropriate order as to costs."(Court's emphasis)
Mr
Puckrin, for the respondent, argued that almost all the evidence had
been introduced in the answering affidavits to which the
applicant
had responded. The remainder of the evidence was necessitated by the
new evidence in the replying papers of the applicant
according to the
respondent.
Although
the respondent was satisfied that the Messrs Fridjhon and Taylor were
suitably qualified to give their expert evidence,
the respondent
sought to strengthen their evidence by introducing the affidavit of
Dr Croser in which he responded to Mr Fridjhon's
findings relating to
the nature and characteristics of wine and fortified wine. The
respondent's counsel argued that this was necessary
as the applicant
had attacked the expertise of Mr Fridjhon. The respondent argued
that, in any event, if the evidence cured defects
in the respondent's
case, it must be material and should be allowed so that the court can
consider all the facts in deciding the
case as set out in the Simmons
case (supra).
The
respondent submitted that Mr de Wet's evidence was totally misleading
and therefore it was necessary to deal with the Siebrand
case which
was decided by the European Court of Justice. The court will take
note of the Siebrand decision, but will be aware that
the European
Court of Justice's ruling cannot bind this court. The same will be
considered in relation to the World Customs Organisation
(WCO) latest
voting.
I
must agree with Mr Puckrin that the "new" evidence is
limited and cannot be regarded as having been shaped to "relieve
the pinch of the shoe."
Both
parties are ad idem that the matter should be finalised rather sooner
than later. I have taken all the above aspects into consideration
and
listened carefully to both counsel's arguments. I find that there are
special circumstances warranting the admission of the
further
affidavits by the respondent and that this will enable the court to
decide the application and so to ensure that justice
is done. I
cannot find that there will be any prejudice to the applicant by
allowing these affidavits as the applicant has already
replied to
them and dealt extensively with them in the heads of argument and
during argument on the merits.
The
applicant has already replied to the further affidavits. All the
relevant facts are thus before the court. It is my opinion
that all
the relevant papers were filed and served prior to the hearing of the
application and in the interest of justice it should
be allowed.
The
striking out application:
Rule
6(15)
provides:
"The
court may on application order to be struck out from any affidavit
any matter which is scandalous, vexatious or irrelevant,
with an
appropriate order as to costs, including costs as between attorney
and own client. The court shall not grant the application
unless it
is satisfied that the applicant will be prejudiced in his case if it
be granted."
It
is clear from the wording of the rule that the court has a discretion
in an application to strike out matter from an affidavit.
Two
requirements must be satisfied before the court will strike out the
matter as requested. The first is that the matter sought
to be struck
out must be vexatious, scandalous or irrelevant. The second is that
the court must be satisfied that if such matter
is not struck out the
applicant will be prejudiced.
In
Beinash v Wixley
[1997] ZASCA 32
;
1997 (3) SA 721
at 734 A-B Mahomed CJ held:
"I
am not persuaded that Beinash suffered any prejudice if this
allegation, or any other allegation contained in the impugned
paragraphs of the founding affidavit, was not struck out. No such
prejudice was relied upon in argument. The application was heard
by a
Judge and not by any layperson. He was able to disabuse his mind of
any vexatious, scandalous or irrelevant matter contained
in the
affidavit." (Court's emphasis)
In
S v Bertrand
1975 (4) SA 142
(CPD) Broeksman AJ held at 149 B -D:
"I
think it appears from the cases cited above that where lay or expert
opinion as to the nature of a substance or liquid is
tendered and not
left unchallenged there must at least be sufficient evidence as to
the extent of the witness' experience in or
knowledge of the
substance in question, the process of reasoning adopted by the
witness in arriving at his conclusion and, where
appropriate, the
methods adopted in order to ascertain the identity of the substance
or liquid in question in order to enable the
court to determine
whether it can safely act on the witness' evidence. The sufficiency
of the evidence in any particular case will
naturally be dependent
upon the circumstances peculiar to such case." (Court's
emphasis)
And
in S v Adams
1983 (2) SA 577
at 586 Hoexter JA found:
"By
toelating en evaluering van opiniegetuienis is daar sekere vereistes
waaraan voldoen moet word. Die basiese vereistes is
die getuie se
bevoegdheid om hoegenaamd n opinie oor die betrokke onderwerp te
waag."
And
further:
"...is
n verdere belangrike vereiste dat die getuie die gronde vir sy opinie
moet aanstip. In R v Jacobs
1940 TPD 142
verklaar Regter RAMSBOTTOM
op 146 - 7:
"In
cases of this sort it is of great importance that the value of the
opinion should be capable of being tested; and unless
the expert
witness states the grounds upon which he bases his opinion it is not
possible to test its correctness, so as to form
a proper judgment
upon it.""
Mr
Puckrin, for the respondent, argued that no submission was ever made
that the applicant will be prejudiced should the court not
strike out
the requested paragraphs from the various affidavits by Mr Fridjhon,
Dr Taylor, Mr Millar, Mrs Jonker and Mr Croser.
I have read all the
papers carefully and could not find any submissions to the effect
that the applicant would be prejudiced should
the court not strike
out the evidence as requested. There is no averment in Mr Joubert's
heads of argument as to the prejudice
the applicant would suffer if
the said paragraphs are not struck out.
The
applicant has not persuaded the court on a balance of probabilities
that it will suffer prejudice if the relevant evidence is
allowed, as
the applicant did not address the issue of prejudice. There is
further no reason to strike out the paragraphs relating
to the
opinions of Mr Fridjhon, Mr Taylor and Dr Croser. The Court finds
that all three these witnesses are competent expert witnesses
which
set out their experience in the liquor business adequately. The court
accepts that they have sufficient experience and evidence
regarding
the products in issue. The court accepts their evidence as that of
experts. The court also finds that they have laid
a proper basis for
their opinions. The applicant applied for certain paragraphs of Mr
Taylor's evidence to be struck out as it
is, according to Mr Joubert,
for the applicant, hearsay evidence. I cannot agree as Mr Taylor is
commenting on Mr Fridjhon's evidence
which is before court in any
event. The application to strike out this evidence is dismissed.
The
only evidence to be struck out is Ms Jonker's affidavit as conceded
by the respondent.
The
issue:
In
the main application the applicant seeks an order:
"1.
That the Respondent's tariff determinations in terms of which the
products referred to hereunder were determined to fall
under tariff
heading 2208.90.20 in
Part 1
of Schedule 1 to the Custom and Excise
Act 91 of 1964 and to fall under tariff item 104.20.40 in Part 2A of
Schedule 1 to the said
Act be set aside:
1.1
A ngels' Share Cream;
1.2
Delgado Supremo;
1.3
GoldCup Creamy Vanilla;
1.4
Barbosa;
1.5
GoldCup Banana Toffee;
1.6
Zorba;
1.7
Nachtmusik;
1.8
Mokador;
1.9
Alaska Peppermint;
1.10
Copperband;
1.11
VinCoco;
1.12
Clubman Mint Punch;
1.13
Viking;
1.14
Castle Brand;
1.15
Brandyale.
2.
That the Respondent's tariff determinations be replaced with tariff
determinations in terms of which the said products are determined
to
fall under tariff heading 2204.21.40, alternatively 2204.21.50,
alternatively 2205.10, further alternatively 2206.00.90 in Part
1 of
Schedule 1 to the said Act and in tariff item 104.15.04,
alternatively 104.15.06, further alternatively 104.17.22 in Part
2A
of Schedule 1 to the said Act."
This
application deals with the determination of the correct tariff
headings for the following products produced by the applicant
in
South Africa: "(I) Angels' Share Cream
(ii)
Delgado Supremo
(iii)
GoldCup Creamy Vanilla
(iv)
Barbosa
(v)
GoldCup Banana Toffee
(vi)
Zorba
(vii)
Nachtmusik
(viii)
Mokador
(ix)
Alaska Peppermint
(x)
Copperband
(xi)
VinCoco
(xii)
Clubman Mint Punch
(xiii)
Viking
(xiv)
Castle Brand
(xv)
Brandyale"
The
purpose of the correct tariff headings is to determine the excise
duty payable in terms of the Customs and Excise Act. The applicant
contends that these products have always been regarded as wine based
aperitifs and were historically classified by the Commissioner
under
Tariff Heading 22.04 which determines:
"22.04
- Wine of fresh grapes, including forftified wines; grape must other
than that of heading 20.09." and:
"(I)
Wine of fresh grapes
The
wine classified in this heading is the final product of the alcoholic
fermentation of the must of fresh grapes.
The
heading includes:
(1)
Ordinary wines (red, white or rose).
(2)
Wines fortified with alcohol.
(3)
Sparkling wines. These wines are charged with carbon dioxide, either
by conducting the final fermentation in a closed vessel
(sparkling
wines proper), or by adding gas artificially after bottling (aerated
wines).
(4)
Dessert wines (sometimes called liqueur wines). These are rich in
alcohol and are generally obtained from must with a high sugar
content, only part of which is converted to alcohol by fermentation.
In some cases they are fortified by the addition of alcohol,
or of
concentrated must with added alcohol. Dessert (or liqueur) wines
include, inter alia, Canary, Cyprus, Lacryma Christi, Madeira,
Malaga, Malmsey, Marsala, Port, Samos and Sherry. "
The
heading includes fortified wines which had been fortified with
alcohol and are thus regarded as fermented beverages.
The
Commissioner for the South African Revenue Services determined that
the above products are all classified under Tariff Heading
2208.90.28
in Part 1 of Schedule 1 to the Act and under Tariff item 104.20.40 in
Part 2A of Schedule No 1 to the Act. Tariff heading
22.08 determines:
"Undenatured
ethyl alcohol of an alcoholic strength by volume of less than 80 per
cent vol; spirits, liquers and other spirituous
beverages:
8.20.
Spirit obtained by distilling grape wine or grape marc
8.30.
Whiskies
22.08.40
Rum and other spirits obtained by distilling fermented
sugar
cane products 22.08.50 Gin and Geneva
22.08.60
Vodka
22.08.70
Liqueurs and cordials 22.08.90 Other."
These
determinations as being classified under Tariff heading 22.08 were
made by the respondent respectively on: 22 May 2007 - Angels'
Share
Cream; Delgado Supremo and GoldCup Creamy Vanilla; on 15 February
2008 - GoldCup Banana Toffee and Barbosa; on 15 September
2008 -
Zorba, Nachtmusik, Mokador, Alaska Peppermint, Copperband, VinCoco,
Clubman Mint Punch, Viking, Castle Brand and Brandyale.
The
Commissioner thus classified these beverages as spirituous in nature
in contrast to the applicant's contention that these beverages
are
fermented beverages and do not belong under Tariff Heading 22.08, but
under Tariff Heading 22.04.
The
applicant contends that the correct tariff heading for these
beverages due to their fermented nature is 22.04, alternatively
22.05
which determines;
"22.05
- Vermouth and other wine of fresh grapes flavoured with plants
or
aromatic substances."
And:
"This
heading includes a variety of beverages (generally used as a
aperitives or tonics) made with wine of fresh grapes of
heading
22.04, and flavoured with infusions of plant substances (leaves,
roots, fruits, etc.) or aromatic substances."
The
applicant contends that it may even, in the alternative, be
classified under
heading
22.06 which deals with:
"22.06
- Other fermented beverages (for example, cider, perry, mead);
mixtures of fermented beverages and mixtures of fermented
beverages
and non-alcoholic beverages, not elsewhere specified or included.
This
heading covers all fermented beverages other than those in headings
22.03 to 22.05."
The
Legal Framework:
The
court has to determine the correct heading for these products to be
classified in terms of section 47 (9) (e) of the Act. Section
47 (9)
(e) of the Act provides:
"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."
This
appeal is heard as a de novo application. The court has to decide
what the meaning of the words in the heading is; determine
the nature
and characteristics of the goods and select the most appropriate
tariff heading.
In
Int Business Machines SA (Pty) Ltd v Commissioner for Customs and
Excise
1985 (4) SA 852
(A) Nicholas AJA held at p 863 G - H regarding
the process of classification:
"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."
Section
37(1) of the Act provides:
"37
Duties applicable to goods manufactured in a customs and excise
warehouse. - (1) In respect of any goods manufactured in
a customs
and excise warehouse there shall be paid, subject to the provisions
of section seventy-five , on entry for home consumption
thereof, duty
at the undermentioned rates, namely-
(a)
if such manufactured goods are not liable to excise duty, the customs
rate of duty applicable in terms of Schedules 1 and 2
on any imported
goods used in the manufacture of such manufactured goods and the
excise rate of duty applicable in terms of Schedule
1 on any
excisable goods used in the manufacture of such manufactured goods;
and
(b)
if such manufactured goods are liable to excise duty, the excise rate
of duty applicable in terms of Schedule 1 on such manufactured
goods."
No
customs duty is payable on the applicant's products as the products
are not imported, but manufactured locally in customs and
excise
warehouses. The classification of goods in Part 1 of Schedule 1 to
the Act must be taken into consideration as the tariff
items in Part
2A of schedule No 1 to the Act refer back to the tariff headings in
Part 1 of Schedule 1 to the Act. The tariff item
on Part 2A of
Schedule No 1 to the Act determines the relevant rate of duty which
must be read with Part 1 of Schedule No 1.
In
terms of section 47 (8) (a) of the Act provision is made that the
interpretation of any Tariff Heading or Sub Heading in Part
1 of
Schedule No
1,
any Tariff Item in Part 2 of Schedule No 1, the General Rules for the
Interpretation of Schedule No 1 and every section note
and chapter
note in Part 1 of Schedule No 1 are all subject to the explanatory
notes and includes the Harmonized System's explanatory
notes as
issued from time to time by the World Customs Organisation in
Brussels.
The
question as to how the Harmonized System should be applied was
determined and dealt with in Secretary for Customs and Excise
v
Thomas and Sons Limited
1970 (2) SA 660
AD per Trollip JA at 675H -
676 B :
"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 1 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.' 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.'" (Court's emphasis)
Trollip
J A found in to relation to the Brussels Notes at 676 B -F:
"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."
The
court has to take cognisance of the Section Notes and Chapter Notes
as well as the General Rules for the Interpretation of the
Harmonized
System together with the relevant Tariffs Items. The Explanatory
Notes to the Harmonized System which are issued by
the World Customs
Organisation must also be taken into account to determine which
Tariff headings are applicable in this instance.
Section
47 (8) (a) of the Act provides: "(8) (a) The interpretation of-
(I)
any tariff heading or tariff subheading in Part 1 of
Schedule 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 2, 3, 4, 5 or 6;
(iii)
the general rules for the interpretation of Schedule 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."
It
has been determined in Rule 1 of the General Rule of Interpretation
that
"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 relative
Section of Chapter notes."
In
the Thomas Barlow case (supra) it was decided that it is necessary to
distinguish between Explanatory Notes which are broadly
indicative of
the desired classification and those which are set out as a
peremptory injection which include or exclude "clearly
identifiable objects, whether they are identified by name or
description."
The
court has to decide the meaning of the words used in the headings
which may be relevant to classify the products of Distell.
The
section and chapter notes must be taken into consideration when
considering the meaning of the words and whether it is applicable
on
the products in issue.
The
Explanatory Notes to the Chapter Notes of Chapter 22 divides the
products of Chapter 22 into 4 main groups. Distell contends
that the
relevant products in this application fall into
"(B)
Fermented alcoholic beverages (beer, wine, cider etc.).
(TH22.03
-22.06)"
Distell
further contends that the products in issue should be classified
under tariff heading 22.04, which refers to wine of fresh
grapes,
including fortified wines. Fortified wines are included in this
Tariff Heading.
Additional
note 2 to Chapter 22 provides, inter alia,
"The
expressions[s] 'unfortified wine'... shall be taken to mean wine ...
with an alcoholic strength not exceeding 16 per cent
of alcohol by
volume ... and the expression[s] 'fortified wine'... shall be taken
to mean wine ... with an alcoholic strength exceeding
16 per cent of
alcohol by volume."
The
Explanatory Note to tariff heading 22.04 (1) provides: "(I) Wine
of fresh grapes
The
wine classified in this heading is the final product of the alcoholic
fermentation of the must of fresh grapes The heading includes:
(1)
Ordinary wines (red, white or rose)
(2)
Wine fortified with alcohol"
Explanatory
Note (1)(4) to tariff heading 22.04 deals with dessert wines. It set
out:
"Dessert
wines (something called liquer wines) These are rich in alcohol and
are generally obtained from must with a high sugar
content, only part
of which is converted to alcohol by fermentation. In some cases they
are fortified by the addition of alcohol,
or of concentrated must
with added alcohol. Dessert (or liqueur) wines include, inter alia,
Canary, Cyprus, Lacryma Christi, Madeira,
Malaga, Malmsey, Marsala,
Port, Samos and Sherry."
In
the example that Dr Loubser deals with he finds that Madeira is
fermented to an alcoholic percentage from zero to 15 percent
and
then brandy is added to increase the percentage of alcohol to 19
percent or 20 percent. Madeira is still classified under
tariff
heading 22.04 notwithstanding the brandy being added. It must be
emphasized that dessert wines are fermented and only alcohol
or
concentrated must with added alcohol are added to increase the
percentage of alcohol. According to this evidence no colourants,
flavourants or sweeteners are added to create Madeira.
The
respondent argues that the product can no longer be classified as
wine or fortified wine due to the fact that the wine has been
stripped of the taste and flavour of wine and fortified by the
addition of cane spirits to increase the alcohol percentage. The
colourants, flavourants and sweeteners are then added and therefore
it can be distinguished from dessert wines where no colourants,
flavourants and sweeteners are added.
The
New Shorter Oxford English Dictionary describes "wine" as:
"Alcoholic liquor product from fermented grape juice"
and
"vinous" as
"Of
the nature of or resembling wine; made of or prepared with wine."
The
respondent, inter alia, relied on the findings in the matter of
Siebrand BU v Staatssecretaris van Financien where the European
Court
of Justice considered the proper tariff classification of products
made of a fermented beverage, namely cider, to which spirits,
flavourant, colourants, sugar and cream had been added. In the IBM
case Nicholas AJA held at 873H - 874A:
"Whatever
may be the status of such a decision so far as customs
administrations and international organisations are concerned,
it is
not, until it is reflected in an Explanatory Note, authoritative in a
South African Court. Before that, it is no more than
an expression of
opinion which involves the interpretation of the relative tariff
headings and the Notes relating thereto.
Under
our system, questions of interpretation of the documents are matters
of law, and belong exclusively to the Court. On such
questions the
opinions of witnesses, however eminent or highly qualified, are
(except in regard to words which have a special or
technical meaning)
inadmissible." (Court's emphasis)
The
Siebrand decision is not binding on South Africa in contrast to the
Harmonised System which had been incorporated in the South
African
Customs and Excise Act, 1964 as schedules to the Act. Explanatory
Notes derive their power by virtue of the provision of
section
47(8)(a) of the Act.
The
tariff headings to TH22.07 do not apply, but the Explanatory Notes to
TH22.07 are important, according to the applicant, as
they provide
guidance with regard to the meaning of the concepts used in TH22.08.
The
Explanatory Notes to TH22.07 provide:
"Ethyl
alcohol is the alcohol which occurs in beer, wine, cider and other
alcoholic beverages. It is obtained either by fermentation
of certain
kinds of sugar by means of yeast or other ferments and subsequent
distillation, or synthetically."
TH22.08
deals with spirits produced by distilling, according to the
Explanatory
Notes
which provide:
"(A)
Spirits produced by distilling wine, cider or other fermented grain
or other vegetable products, without adding flavouring;
they retain,
wholly or partly, the secondary constituents (esters, aldehydes,
acids, higher alcohols, etc.) which give the spirits
their peculiar
individual flavours and aromas (B) Liqueurs and cordials, being
spirituous beverages to which sugar, honey or other
natural
sweeteners and extracts or essence have been added (e.g. spirituous
beverages produced by distilling, or by mixing, ethyl
alcohol or
distilled spirits, with one or more of the following: fruits, flowers
or other parts of plants, extracts, essences,
essential oils or
juices, whether or not concentrated)."
The
New Shorter Oxford English Dictionary defines "spirituous"
as:
"Of
or pertaining to spirit or alcohol; containing (much) spirit or
alcohol;"
Ethyl
alcohol can be obtained either by fermentation and subsequent
distillation or synthetically according to TH22.07. The applicant
submits that TH22.08 only has application on spirits produced by
distilling and not by fermentation. The applicant submitted that
the
products in issue are not liqueurs or cordials as set out in
Explanatory Note B of TH22.08, as they are not spirituous beverages.
In the Explanatory Note it is further set out that TH22.08 does not
include:
"(a)
Vermouths, and other aperitives with a basis of wine of fresh
grapes
(heading 22.05)"
It
is clear that TH22.08 only applies to spirituous beverages and should
the court find the products in issue to be fermented beverages
TH22.08 will not be applicable.
Dr
Loubser, on behalf of the applicant, who has a PhD in chemistry,
explained that fermentation and distillation are two distinct
processes. Dr Loubser has been employed as the Director: Quality
Management and Research of the applicant for the past 14 years.
He
stated that distillation can lead to an alcohol content of 96% per
volume, while fermentation cannot be utilized to obtain an
alcohol
content of more than 16%. In both instances the alcohol contained in
the beverages is ethyl alcohol.
According
to Dr Loubser the cane spirit is only added to increase the alcohol
content and the addition thereof does not deprive
the wine of its
character and even when wine is fortified with spirits the essential
character of the base character is not changed
and is still wine.
He
furthermore stated that by volume all the products in issue contain
more wine than spirits and the wine component exceeds the
spirit
component. It is, however, admitted that the wine is stripped of
taste and flavour. He contends that the addition of cane
spirits
during the production process only increases the alcohol content of
the products in issue (except Zorba). Nowhere does
the applicant
explain why it is necessary to extract the flavour from the wine.
The
court first has to determine the nature and characteristics of the
products in issue to enable the court to understand the importance
of
the words used in the headings.
Dr
Loubser described the manufacturing process of the products. He
submitted that the fortification of the wine by means of the
neutral
cane spirits does not cause the wine to lose the essential character
of wine and that the gross content of the product
is more wine than
cane spirits. His contention is that the cane spirits is only used to
increase the alcohol content of the products.
He stated that the
products in issue involves the mixing of fortified wine with a
non-alcoholic beverage. He admitted that the
absolute alcohol content
of spirits in the product, with the exception of Brandy Ale, is
higher than that of wine.
Mr
Fridjhon's evidence regarding the organoleptic characteristics of the
stripped wine, fortified wine and undiluted base mixture
is based on
a taste test. His conclusion is
"19.8
Based on the aforesaid my conclusion and opinion are the following:
Organoleptically:
19.8.1the
residual aromas and tastes left in the wine after subjecting it to
the stripping process are insignificant and would definitely
not be
discernible in the final product;
19.8.2the
perceptible difference between the stripped fortified wine and cane
spirit diluted with water to approximately the same
alcoholic
strength is minimal;
19.8.3the
residual vinosity left in the stripped wine is so insignificant that
the product can no longer properly be termed "wine""
The
applicant applied for the latter part of Mr Fridjhon's conclusion to
be struck out. In Crown Chickens (Pty) Ltd v Minister of
Finance and
Others
1996 (4) SA 389
at 394 and 395 the court held that:
"'The
words "motor cars" in item 22 of the First Schedule to the
Excise Act 62 of 1956 bear their ordinary meaning.
Accordingly, in
order to determine the B meaning of "motor car" in the
item, evidence is irrelevant and inadmissible."
I
must agree with the applicant that it is for the court to decide and
that words which have no technical meaning or application
should be
given the ordinary meaning. Therefore paragraph 18.3 of Mr Fridjhon's
affidavit is struck out.
Although
the respondent did not counter Dr Loubser's findings by placing any
evidence before court regarding the science involved,
the respondent
contends that from Dr Loubser's explanation the court can draw a
conclusion of how each product in issue is produced.
The respondent
argued that the court must consider the evidence of Mr Fridjhon
although he is not a chemist, and his evidence is
not based on
academic qualifications, but the court must bear in mind that his
evidence is based on 35 years experience in the
wholesale and retail
wine business. He also observed the production of these beverages at
the invitation of the applicant and based
his evidence on what he
personally observed. Mr Taylor's affidavit is an answer, according to
him, to Dr Loubser's findings and
not based on Mr Fridjhon's
evidence. He is a biochemist from the United Kingdom. He is the
managing director of a consultancy and
analytical chemistry
laboratory specialising in advising and rendering laboratory services
to the liquor industry on a global basis.
According
to Dr Loubser the fermentation process is the process by which yeasts
convert sugar in grape juice to alcohol, which results
in wine. A
distilled product is obtained by the process of distillation of a
fermented beverage. The fermented product is heated
to evaporate the
alcohol and to ensure the condensation of the alcohol fraction. This
high strength alcohol fraction is used to
produce spirituous
beverages. According to Dr Loubser's evidence the character of a
fermented product is determined by the sum
total of its composition
and not only by its flavour, whilst a distilled spirit is obtained by
a process of distillation of a fermented
beverage.
Mr
van Niekerk, who is the general manager of Distell, explained that
the wine selected to be used in the production of these products
are
quite distinct from top quality table wine. It is selected as it is
low in flavour intensity, low in colour intensity, and
low in acid,
low in phenolics, high in alcohol and low in sulphur dioxide.
According to Mr van Niekerk wine which has these characteristics
is
generally referred to in the industry as a neutral or base wine. He
concedes that the base product for the products in issue
still tastes
and smells like wine, but that it is less prominent than that of
table wine.
According
to Mr de Wet these products had always been classified under Tariff
Heading 22.04.
Mr
Millar's evidence, on behalf of the respondent, submitted in answer
to Mr De Wet's evidence that: "I have verified our system
which
captures all tariff determinations and can state that no
determinations for any of the products in question were made by
the
Commissioner under tariff heading 22.04, 22.05 or 22.06."
The
respondent argued that the distinction between "spirits",
"liqueurs" and "cordials" and all other
"spirituous beverages" deals with the spirituous beverages
that wholly or partly retain the secondary constituence which
gives
them their flavours and aromas without adding any additional flavour.
Notes (B) and (C) under TH 22.08 refer to spirituous
beverages which
are not contemplated in TH2208.20 to 2208.60. Explanatory Note (B)
defines liqueurs as products sweetened and flavoured
with natural
ingredients. All other spirituous drink will be classified as "other"
under TH2208.90. The respondent argued
that the products in issue
should be classified as "other" under
TH2208.90.
Mr
Fridjhon visited the applicant's plant where the production process
was shown and explained to him. The process entails that
the wine is
"stripped" from its flavour and taste; the "stripped"
wine is fortified by the addition of cane
spirits to increase the
alcohol percentage; then colourants, flavourants and sweeteners are
added. This concentrate is later on
diluted by additional spirits and
water and in some cases with cream.
According
to Mr Fridjhon the "stripped wine" was "very flat and
there was a whiff of stale beery smell which I associate
with
oxidising, deteriorating, quite low alcohol solutions. There was a
slight sense of heat on the palate, probably because of
alcohol
(always more evident when there is little dry extract or body) and a
slight, elusive varnish whiff - though these were
all features which
needed to be sought out. Had I not been trying to distinguish between
the different samples, it would have been
fairly simply to say that
this was a very bland solution with low but evident alcohol."
After
this stripped wine had been fortified with cane spirit he reported:
"It
was perceptibly more spirituous and the slightly varnish and beery
notes evident after the completions of filtration (T45)
were now not
in evidence at all."
He
tasted the stripped fortified wine with peppermint colourants and
flavourants added and came to the conclusion:
"Here
the mint flavour was overwhelming, so much so that it was simply
impossible to identify the nature of the alcohol (viz
stripped wine
and/or water and cane spirit) in the product. I did not taste a
mixture of flavourants, colourants and sweetener.
However, based on
the pungency of the product tasted I can with confidence state that
the flavourants / colourants / sweetener'
mixture did not resemble a
cold drink e.g. a lemonade but was rather more medicinal in
character."
In
other words this was not a mixture of a fermented beverage and a
non-alcoholic beverage, but a new product. Mr Taylor's evidence
as to
the nature and characteristics of the same products are that the
presence of spirits is essential to attain the required
alcohol level
and to preserve it, as well as to aid the stability of the added
flavourant. He submitted that it was not necessary
to use the
stripped wine, as the same products could be produced by using
neutral spirits as the alcohol base. Stripped wine, however,
could
not be used without adding neutral spirit as the required alcohol
strength would not be attained. The unique characteristics
of wine
are not required in the end product.
The
court now has to determine the appropriate basis for classifying the
products in issue.
The
General Rule of Interpretation must be applied in this instance:
"1.
The titles of Sections, Chapters and sub-Chapters are provided for
ease of reference only; for legal purposes, classification
shall be
determines according to the terms of the heading and any relative
Section or Chapter Notes and, provided such headings
or Notes do not
otherwise require,
The
court must first decide whether the products are mixtures. It is
clear from the process used by the applicant and demonstrated
and
explained to Mr Fridjhon that these beverages are not only a
fermented beverage and cane spirit mixed together. They are
individually
designed products each with a unique taste and
characteristics. The court finds, that these beverages consist of
several components
but in each instance it is the spirits that give
these products their essential character and these mixtures of
fermented stripped
wine, cane spirit, flavourants, colourants and
sweeteners are new products.
The
court then has to apply GRI 3(b) and Explanatory Note (viii) which
provide:
"3.(b)
Mixtures, composite goods consisting of different materials or made
up of different components, and goods put up in
sets for retail sale,
which cannot be classified by reference to 3(a), shall be classified
as if they consisted of the material
or component which gives them
their essential character, insofar as this criterion is applicable."
The
respondent's argument is that the alcohol component that gives the
products their essential character is the spirits and not
the wine.
It is clear that all the products in issue are fermented alcoholic
based beverages, but can by no stretch of the imagination
be wine.
The addition of cane spirit, water, sweeteners, flavourants,
colourants and cream in some instances, have caused new products
to
be created, which have lost all the aroma and taste of wine. Tariff
Heading 22.04 can thus not be applicable.
The
applicant requested the court to consider a determination under
Tariff Heading 22.05. I cannot agree that this is an appropriate
Tariff Heading for the products in issue as it is common cause that
these products are not "Vermouth and other wine and fresh
grapes
flavoured with plants or aromatic substances." The Explanatory
Note under this heading makes it quite clear that this
heading deals
with "a variety of beverages (generally used as aperitifs or
tonics) made with wine of fresh grapes of heading
22.04 and flavoured
with infusions of plant substances (leaves, roots, fruits, etc.) or
aromatic substances."
The
addition of spirits, colourants, flavourants, sweetener and cream is
not mentioned and therefore this heading could never be
the
appropriate heading as it only deals with beverages "flavoured
with infusions of plant substances (leaves) roots, fruit,
etc"
or aromatic substances.
The
applicant has requested the court to find that these products should
be classified under Tariff Heading 22.06 should the court
not find
that TH 22.04 is appropriate. Here the products are "mixtures of
fermented beverages (wine or fortified wine) and
non-alcoholic
beverages (being mixtures comprising of water, sweetener, agents,
flavourings, colourants, etc.) as intended in TH
22.06"
and "essential character of the products is provided by its wine
base and therefore they are fermented beverages."
In
Distell Ltd v The Commissioner for South African Revenue Service
(416/09)
[2010] ZASCA 103
(13 September 2010) at paragraphs 46 and 47
Heher JA held:
"When
the court put to counsel that, properly interpreted, a 'fermented
beverage' was one where the beverage was the end product
of a
fermentation process, he maintained his initial stance but conceded
that if such should be the correct interpretation, 'the
Commissioner
has no argument'.
[46]
A moment's reflection will demonstrate that the proposition put to
counsel must be correct. The wine component is, of course,
separately
manufactured, anterior to use for any other purpose such as its
adoption as a base for a wine cooler. The wine is, of
itself,
classifiable under TH22.04. By reason of a note to TH22.06 it is
excluded from the scope of TH22.06 and is, therefore,
not a
'fermented beverage' for the purpose of the heading. The recipe for
each cooler shows that fermentation does not occur in
the process and
plays no role in bringing about the product. Thus, production of the
coolers is devoid of any fermentation process
and they are not
'fermented beverages' in the normal sense of the term. That this is
so is borne out by reference to the extensive
examples in the notes
to TH22.06 of the fermented beverages which are among those included.
In every case the beverage named is
one which is the final product of
a fermentation process, albeit enhanced by additives, as in the case
of hydromel vineux. As appellants'
counsel submitted (see para 38(j)
above) the absence of wine used in making 'other fermented beverages'
from rebate item 620.05
is consistent with its exclusion from
TH22.06."(Court's emphasis)
I
must agree with the respondent's argument that the beverages are
produced in a multiple stage process - two beverages are not
mixed to
get the relevant product. The colourant, flavourant and sweetener
mixture cannot be described as "lemonade like"
and does not
constitute a non-alcoholic beverage.
I
have dealt with the meaning of the words used in the headings having
regard to the section and chapter notes and applying it to
the
products in issue. I have dealt with the evidence comprehensively and
had found due to the nature and characteristics of the
products that
the products are mixtures and cannot be regarded as a final product
of the alcoholic fermentation of the must of
fresh grapes. Tariff
Headings 22.05 and 22.06 cannot be the correct headings for the
reasons set out above.
I
come to the conclusion that the wine in the products in issue does
not contribute to the organoleptic characteristics of the final
products as it is neutral and therefore cannot give it its essential
character.
The
court finds all the products in issue as spirituous and as a result
these products must resort under Tariff Heading 2208.90.20.
The
order is:
1.
The appeal is dismissed with costs, such costs to include the costs
consenqent upon the employment of two counsel;
2.
The application for filing further affidavits is granted, no order
as to costs;
3.
The striking out application is refused, except for Mrs Jonker's
affidavit, no order as to costs.
Judge
Pretorius
Case
number: 16910/2009
Heard
on : 19 April 2011
For
the Applicant : Adv AP Joubert SC
:
Adv C Louw
Instructed
by: Cliffe Dekker Hofmyer
For
the Respondent : Adv CE Puckrin SC
:
Adv JA Meyer SC
:
Adv I Enslin
Instructed
by: The State Attorney
Date
of Judgment : 2 June 2011