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[2010] ZASCA 98
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Commissioner for South African Revenue Services v Colgate-Palmolive (Pty) Ltd (528/09) [2010] ZASCA 98; 74 SATC 157 (3 September 2010)
Links to summary
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no
:
528/09
In the
matter between:
No precedential significance
COMMISSIONER
FOR SOUTH AFRICAN
REVENUE
SERVICES Appellant
and
COLGATE-PALMOLIVE (PROPRIETARY) LIMITED Respondent
Neutral citation:
CSARS v Colgate-Palmolive (Pty) Ltd
(528/09)
[2010] ZASCA 98
(3 September 2010)
Coram:
Harms
DP, Lewis, Cachalia and Shongwe JJA and K Pillay AJA
Heard: 26
August 2010
Delivered 3 September 2010
Summary:
Tariff determination under Customs and Excise Act
91 of 1964: tetranyl, an ingredient of a fabric softener and
conditioner, imported
from Spain, not dutiable under tariff heading
3402.12 of the Schedule to the Act: classifiable under heading
3809.91.
ORDER
On appeal from KwaZulu-Natal High Court (Pietermaritzburg) (Combrink
J sitting as the court of first instance).
The appeal is dismissed with costs including those of two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
LEWIS JA
(HARMS DP, CACHALIA AND SHONGWE JJA AND K PILLAY AJA concurring)
[1] The respondent, Colgate-Palmolive (Pty) Ltd (Colgate), imports a
product known as tetranyl L1-905 (tetranyl) from Spain. Tetranyl
is
used in making a fabric softener and conditioner, StaSoft. It is
imported in paste form mixed with isoproponal, the sole purpose
of
which is to facilitate handling and transport. The appellant, to whom
I shall refer as the Commissioner, contends that customs
duty is
payable on tetranyl in terms of the Customs and Excise Act 91 of
1964. He has claimed payment of arrear duties and penalties
in the
sum of R3 377 732. Colgate contends that no duty is payable.
[2] In an appeal to the KwaZulu-Natal High Court (Pietermaritzburg),
in terms of s 47(9)(e) of the Act against a tariff determination
made
by the Commissioner (that tetranyl is dutiable under tariff heading
3402.12 of the Schedule to the Act), Colgate contended
that tetranyl
falls under tariff heading 3809.91, and is not dutiable. The high
court found for Colgate and set aside the Commissioner’s
determination. It ordered that tetranyl be classified under tariff
heading 3809.91. Thus no arrear duties were payable. The
Commissioner’s
appeal to this court is with the leave of the
high court.
[3] The high court dealt comprehensively with the principles of
tariff determination and considered expert evidence on the properties
of tetranyl. The principles are trite and I shall not repeat them
here. In so far as the evidence before the court is concerned,
there
was a perceived conflict in the affidavits in Colgate’s appeal
against the determination as to whether tetranyl constitutes
a
preparation. For this – and other reasons – the judge who
first heard the appeal referred the matter to oral evidence
and
experts in chemistry for each party produced expert reports and
testified before Combrink J. It became common cause that tetranyl
is
regarded as a preparation. Much of the other evidence was also
undisputed. It is necessary, however, to set out the respective
headings for which the parties contend and to consider briefly the
nature and functions of tetranyl.
The Commissioner’s determination: 3402.12
[4] Chapter 34 of the Schedule deals inter alia with soap, ‘organic
surface-active agents’ and washing preparations.
Tariff heading
3402 reads:
‘Organic Surface-active Agents (Excluding Soap);
Surface-active
Preparations
, Washing Preparations (including Auxiliary Washing
Preparations) and Cleaning Preparations, whether or not Containing
Soap . .
. [my emphasis]
. . .
3402.12 = Cationic
. . .’.
The relevant explanatory note states that organic surface-active
agents are cationic in that they ‘ionise in aqueous solution
to
produce positively charged organic ions responsible for the surface
activity’.
Colgate’s contention: 3809.91
[5] Chapter 38 governs ‘miscellaneous chemical products’.
Tariff heading 3809 covers ‘Finishing agents, Dye Carriers
to
Accelerate the Dyeing or Fixing of Dyestuffs and Other Products and
Preparations . . . of a Kind Used in the Textile, Paper,
Leather or
Like Industries,
Not Elsewhere Specified or Included
: [my
emphasis].
. . .
3809.91 1= Of a kind used in the textile or like industries . . .’
.
The explanatory notes to the heading state that the items include
‘preparations to modify the feel of products’ and
refer
to ‘softening agents’.
Approach to classification
[6] As stated by the high court (relying on
Secretary for Customs
and Excise v Thomas Barlow and Sons Ltd
1970 (2) SA 660
(A) and
IBM SA (Pty) Ltd v Commissioner for Customs and Excise
1985
(4) SA 852
(A)) classification entails a three-stage process:
ascertaining the meaning of the words in the headings and section
notes; considering
the nature and characteristics of the goods; and
determining which heading is most appropriate. I shall start with the
nature and
characteristics of tetranyl which are not self-evident.
The nature and characteristics of tetranyl
[7] Both parties are agreed on the following: tetranyl is a finishing
agent used in the textile industry, but is confined to domestic
use;
it is not a separate chemical compound but combines triethanolime
(which is a separate chemically defined compound) with ‘partially
hydrogenated tallow acid’ obtained from animal fat. Tetranyl is
a ‘quaternary ammonium compound’ mixed with isopropanalol
to form a paste. Its main function is to improve the softness of
fabrics and to this end it is added to the rinse when fabrics
have
been washed.
[8] The use of tetranyl conditions fabrics and softens them; it
reduces the build-up of static electricity in fabric and also reduces
wrinkling. Tetranyl also has water repellent properties which make
drying times faster. There was an apparent dispute between the
experts as to whether it has surface-active properties: one
maintained that it accumulated next to the fabric and the other that
it adsorbs to it – it attaches to the fabric. They were agreed,
however, that tetranyl is cationic in that it has a positive
molecular charge. The high court concluded that surfactancy (having a
surface-active function), while it may occur together with
adsorption, was not a prerequisite to adsorption. The court in any
event preferred the views of the expert for Colgate that surfactancy
is not the main function of tetranyl. The Commissioner was not able
to show, in this court, that this finding was wrong.
The correct classification
[9] Colgate argued – and the court below found – that
tetranyl is covered by tariff heading 3809: it is a finishing
agent.
The Commissioner contended, however, that it falls also under 3402 as
an organic surface-active agent. It will be recalled
that 3809 has an
exclusionary proviso: even if the product fits the description it
cannot be classified under the heading if it
is ‘elsewhere
specified’. The Commissioner argued, thus, that tetranyl,
because it is an organic surface-active agent,
must be classified
under 3402 and is therefore excluded by 3809.
[10] But this argument fails to take into account the explanatory
note to 3402, which itself excludes certain products. The note
states
that the heading does not cover ‘Preparations, containing
surface-active agents where the surface-active function
is either not
required or
is only subsidiary to the main function of the
preparation. . .
’ (my emphasis).
This raises the
question whether tetranyl’s surface-active function is
subsidiary to its main functions, which have been
described above –
the softening and conditioning of fabric after washing.
[11] There is no contention by the Commissioner that the main
function of tetranyl is its surfactancy – the reduction of
surface tension, foaming, emulsifying, or wetting (see the
explanatory note to 3402). That being so, tetranyl must be excluded
from tariff heading 3402, surfactancy being only a subsidiary
function. This conclusion is borne out by the explanatory notes to
3809 which state that the heading covers preparations of the kind
used during finishing of fabrics, which include softening agents.
In
my view, therefore, the order of the high court was correct.
[12] The appeal is dismissed with costs including those of two
counsel.
_______________
C H Lewis
Judge of Appeal
APPEARANCES
APPELLANTS: C J Pammenter SC
Instructed by the State Attorney,
Durban
The State Attorney , Bloemfontein.
RESPONDENTS: A Joubert SC (with him C McAslin)
Instructed by Bowman Gilfillan Attorneys,
Johannesburg Honey Attorneys Inc, Bloemfontein.