Pahad Shipping CC v Commissioner for the South African Revenue Services (529/08) [2009] ZASCA 172; [2010] 2 All SA 246 (SCA) (2 December 2009)

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[2009] ZASCA 172
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Pahad Shipping CC v Commissioner for the South African Revenue Services (529/08) [2009] ZASCA 172; [2010] 2 All SA 246 (SCA); 72 SATC 35 (2 December 2009)

THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case
No: 529/08
PAHAD
SHIPPING CC
Appellant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE Respondent
Neutral
citation:
Pahad
Shipping v SARS
(529/08)
[2009] ZASCA 172
(2 December 2009)
Coram:
STREICHER,
BRAND, SNYDERS, MALAN and BOSIELO JJA
Heard:
16
NOVEMBER 2009
Delivered:
2
DECEMBER 2009
Summary:
Customs
duty – determination of transaction value – appeal in terms of
Act 91 of 1964 a wide appeal - serious reservations about
credibility
of applicant’s factual averments – reference to evidence.
ORDER
On appeal from:
High Court Johannesburg (Tsoka J sitting as court of first instance)
1 The appeal is
upheld with costs including the costs of two counsel.
2 The following
order is substituted for the order by the court below:
‘
(1) The
application is adjourned to a date to be arranged with the Registrar
for the cross-examination of Mr Nassim Pahad in respect
of the
evidence deposed to by him in the applicant’s founding and replying
affidavits.
(2) The
provisions of rule 35 will apply in regard to the adjourned hearing.
(3) The costs of
the hearing are to stand over for determination at the adjourned
hearing.’
JUDGMENT
STREICHER JA
(
BRAND,
SNYDERS, MALAN and BOSIELO JJA
concurring):
[1] The issue to
be decided in this matter is whether amounts labelled ‘finance
charges’ paid by the appellant as an importer
of goods to an import
export agent in Dubai, Al Ajwad International LLC, forms part of the
transaction value of the goods imported
by the appellant. The
respondent determined that they do, that the appellant underpaid the
customs duty payable in respect of such
goods and that, as a result,
customs duty in an amount of R247 440,20, VAT in an amount of
R130 104,24 and penalties
in an amount of R94 386,04 were
payable by the appellant. An appeal by the appellant against the
determination was dismissed
by the Witwatersrand Local Division (per
Tsoka J) which thereafter granted leave to the appellant to appeal to
this court.
[2] Customs duty
is payable on imported goods at the time of entry for home
consumption of the goods.
1
In terms of s 65(1) of the Customs and Excise Act 91 of 1964 the
value for customs duty purposes of any imported goods shall,
at the
time of entry for home consumption, be the transaction value thereof,
within the meaning of s 66. Section 66 provides
that the
transaction value of any imported goods shall be the price actually
paid or payable for the goods when sold for export
to the Republic,
adjusted in terms of s 67. The ‘price actually paid or
payable’ means ‘the total payment made or to
be made, either
directly or indirectly, by the buyer to or for the benefit of the
seller of the goods, but does not include dividends
or other payments
passing from the buyer to the seller which do not directly relate to
the goods’.
2
Section 67 provides that in ascertaining the transaction value of any
imported goods certain amounts, inter alia ‘any commission
other
than a buying commission’, shall be added to the price actually
paid or payable for the goods.
3
In terms of s 65(4)(a)(i) the respondent may in writing
determine the transaction value of imported goods and an appeal
against
such determination lies to the High Court.
4
[3] The
appellant paid to Al Ajwad what purports to be the purchase price in
respect of the imported goods plus amounts described
as ‘bank
charges’ consisting of ‘payment commission and cable charges’,
‘postage and petties’, ‘finance charges’
being 5% of the
aggregate of these amounts and ‘finance costs’ being 6,5% pa of
the aggregate of these amounts. The dispute
between the parties is
whether the 5% ‘finance charges’ formed part of the transaction
value of the goods.
[4] When queried
about its relationship with Al Ajwad, the appellant provided the
respondent with a copy of a document which purports
to be a written
agreement between them. The agreement provides as follows:
‘
We,
Al Ajwad International (L.L.C.), (“Al Ajwad”) agree to make
available to you Pahad Shipping C.C. (“the Buyer”), a confirming

/ trade finance facility subject to the terms and conditions set out
herein. Under the terms of this facility, Al Ajwad will act
as
principal for the Buyer in the puchase of goods on the Buyer’s
behalf and will provide its confirmation, by way of Letters
of Credit
to the seller, for payment of the purchase price of the goods.
The
Facility
The
facility is a revolving facility and the amount of the facility
available at any time, subject to the terms and conditions hereof,

shall be up to a maximum amount of USD 75,000.00 . . .. Such amount
shall be calculated by reference to amounts paid out or agreed
to be
paid out by Al Ajwad to suppliers of goods.
Payment,
Interest, Commission and Other Charges
2.1 The
Buyer undertakes:
to
reimburse Al Ajwad all sums expended by it under the terms hereof,
together with all fees, commission and other sums payable
to it in
accordance with the terms thereof; and
.
. .
The
maximum repayment term from the date of Al Ajwad’s payment to any
supplier shall be 180 days. Payment will be secured
by bills drawn
by Al Ajwad in US Dollars or other currencies as agreed between the
Buyer and Al Ajwad through the Buyer’s
bankers.
Interest
on all amounts outstanding hereunder will be payable by the Buyer
to Al Ajwad at a rate of 2% over the US prime rate.
Any
amounts remaining unpaid after the due date for payment will be
subject to default interest payable by the Buyer to Al Ajwad
at the
rate referred to in 2.3.
The
Buyer will pay to Al Ajwad a confirming commission calculated at a
rate of 5% of the total disbursements made on behalf
of the Buyer.
All
the following charges will be made for the Buyer’s account and
will be included in the bills of exchange drawn by Al Ajwad:
bank
charges;
letter
of credit fees;
postage
and all other petty disbursements.’
[5] Relying,
inter alia, on clause 2.5 in terms of which it was agreed that the
appellant would pay a confirming commission of 5%
to Al Ajwad, the
respondent determined that the ‘finance charges’ of 5% paid by
the appellant to Al Ajwad represented a confirming
commission and
that it formed part of the transaction value of the goods purchased.
On the basis of this determination the respondent
contended that the
appellant had contravened s 84(1) of the Act and demanded
payment of the customs duty underpaid together
with a penalty for the
contravention of the Act.
[6] The
appellant thereupon, in terms of s 65(6)(a), applied to the
court below for the setting aside of the respondent’s

determination. Mr Nassim Pahad (‘Pahad’) the sole member of the
appellant, who deposed to the appellant’s founding affidavit,

denied that Al Ajwad was a confirming agent. He alleged that the
written agreement does not accord with the intention of the parties

or with the true nature of the transactions concluded between them.
In regard to the ‘agreement’ that Al Ajwad would ‘act
as
principal for the buyer in the purchase of goods on the buyer’s
behalf and will provide its confirmation, by letters of credit
to the
Seller for payment of the purchase price of the goods’ he alleged
that Al Ajwad never provided this form of service to
the respondent
and that it was not the intention of the parties that such a service
would be provided. It was sometimes the appellant
but primarily
appellant’s client who negotiated the price of goods from an
overseas supplier. Appellant purchased the goods and
the supplier
invoiced the appellant. No prepayment of goods took place and the
appellant did not secure payment by means of letters
of credit.
Payment was only made to the supplier after clearance of goods in
South Africa. In the normal course appellant’s instruction
to make
payment occurred approximately 45 days after the clearance of the
goods. Al Ajwad then paid the invoice value to the supplier
and
levied finance charges at the rate of 5% of the disbursed amount and
interest at the US prime rate over a period of six months.
The system
afforded the appellant approximately 225 days to make payment of the
purchase price. Al Ajwad would not have known,
until instructions for
payment had been received from the appellant, who the seller or
supplier was. The provision that appellant
would pay to Al Ajwad ‘a
confirming commission calculated at the rate of 5% of the total
disbursements made on behalf of the
buyer’ was inaccurate and did
not reflect the true intention of the parties or the factual
relationship between them. These payments
comprised finance charges
and interest. Al Ajwad at no stage confirmed a purchase between the
appellant and its supplier or guaranteed
payment of the purchase
price to the supplier. The supplier had no recourse against Al Ajwad.
This relationship, Pahad submitted,
was the very antithesis of a
confirming agent relationship.
[7] In support
of these allegations and by way of example Pahad annexed documents
relating to a particular transaction comprising
an instruction by the
appellant to Al Ajwad to pay an invoice from Kingsburg Exports Ltd
for goods purchased to which instruction
was attached: a copy of the
invoice by Kingsburg; a customs release notification; an arrival
notification by a shipping agent;
and an invoice by Al Aljwad. Pahad
stated that all invoices generated by Al Ajwad for payment by the
appellant followed the same
format. According to the documents the
goods were shipped on 8 April 2005, the expected time of arrival was
2 May 2005, the goods
were released on 13 May 2005 and Al Ajwad was
instructed to pay the invoice on 1 August 2005. Al Ajwad’s invoice
is dated 7 August
2005. Interest was claimed for a period of 120 days
and the amount of the invoice was stated to be due on 11 September
2005. Pahad’s
version as to the true nature of the transactions
between the appellant and Al Ajwad would seem not to be borne out by
these documents.
First, according to the documents the invoice is
addressed to the appellant as well as Al Ajwad contrary to Pahad’s
averment
that Al Ajwad would not have known until instructed to pay
who the seller or supplier was. Second, the payment instruction is
dated
68 days after the goods had been released contrary to Pahad’s
averment that it was given approximately 45 days after the goods
had
been cleared. Third, interest for a period of 120 days was claimed by
Al Ajwad contrary to Pahad’s averment that Al Ajwad
levied interest
over a period of 180 days. Fourth, if Al Ajwad only became involved
in the transaction upon the instruction to
pay, ie on 1 August 2005,
Al Ajwad could only have been entitled to interest for the period 1
August 2005 to 11 September 2005
(the due date), ie for a period of
42 days. Al Ajwad would therefore appear to have been involved in the
transaction in some way
or other before the instruction to pay was
given so as to entitle it to charge interest for a period of 120
days. Apart from the
inconsistencies between the documents and
Pahad’s evidence, Al Ajwad is not a trade finance bank as was
alleged by Pahad.
[8] Another set
of documents referred to in the respondent’s answering affidavit
consists of an instruction by Geochris Investments
(Pty) Ltd dated 18
January 2005 to Al Ajwad to pay an amount of US$19 772,60 to
Kingsburg relating to invoice number KE5950; an
invoice by Al Ajwad
to Geochris dated 1 February 2005 in respect of the execution of the
instruction; and a bill of entry dated
31 December 2004 indicating
that the expected time of arrival in South Africa was 3 January 2005.
The bill of entry bears a stamp:
‘
Habib
Overseas Bank
$21
595-16
07
Mar 2005
Exchange
Provided’
In the
respondent’s answering affidavit it is alleged that the stamps on
the bill of entry indicate that the amount of US$21 595,16
was paid
and remitted from South Africa to Al Ajwad. In reply Pahad did not
deal with the allegation. He said that he was unsure
as to what
stamps were being referred to. The reply is, on the face of it,
blatantly dishonest. There are two stamps on the document,
the one
quoted above and another one which is clearly not relevant. There
could have been no doubt in Pahad’s mind as to the
stamp being
referred to. In these circumstances the allegation that according to
the stamps on the document the amount of US$21 595,16
was paid
and remitted from South Africa to Al Ajwad stands undisputed. The
stamp is dated 7 March 2005 and therefore indicates
that payment was
effected on or before that date.
[9] The Al Ajwad
invoice dated 1 February 2005 included 5% ‘finance charges’ as
well as interest for 120 days. According to
the invoice the total
amount of the invoice was due on 26 April 2005. Again Pahad’s
averments as to the true nature of the transactions
between the
appellant and Al Ajwad would seem not to be borne out by these
documents. First, the amount of US$21 595,16 which
was claimed
to be due to Al Ajwad on 26 April 2005 included interest for a period
of 120 days ie, so it would seem, from 27 December
2004 a date prior
to the date of the bill of entry and prior to the estimated time of
arrival of the goods in South Africa. Again,
Al Ajwad must in some
way or other have been involved before the instruction to pay was
given. Second, the payment instruction
was given on 18 January 2005
and payment was effected on 7 March 2005 contrary to Pahad’s
averment that the payment instructions
were given approximately 45
days after the goods had been cleared in South Africa and the
averment that the system allowed the
appellant 225 days for payment.
Third, the payment instruction was given by Geochris Investments
(Pty) Ltd and not by the appellant.
The appellant gave no explanation
of what its relationship with Geochris was or what the nature of the
involvement of Geochris
was. Fourth, credit was ostensibly extended
by Al Ajwad for a period of 120 and not 180 days as averred by Pahad.
Fifth, payment
of the Al Ajwad invoice was effected some 50 days
before the due date in terms of the invoice. If that payment included
the interest
for a period of 120 days claimed in the Al Ajwad invoice
it would mean that Al Ajwad became involved in the transaction in
some
way or other on 23 November 2004, ie long before the goods
arrived in South Africa, the date of Al Ajwad’s invoice and the
date
of the instruction to pay.
[10] Referring
to the written agreement between the appellant and Al Ajwad and to
the other documents referred to above, the respondent
in its
answering affidavit submitted that the documents demonstrate that Al
Ajwad purchased goods from the supplier and resold
them to the
appellant or Geochris. In the alternative the respondent submitted
that, in the event that it cannot be considered
that Al Ajwad
purchased and resold the goods, ‘it is clear that the 5% levied by
Al Ajwad under the description “finance charges”,
was a
commission for its services as a payment intermediary.’ In a
further alternative the respondent indicated that in the
event of the
court not being inclined to uphold the appellant’s appeal he would
seek the opportunity of cross-examining the deponent
to the founding
affidavit.
[11] The court
below rejected the appellant’s denial of what it called
‘unambiguous terms’ of the agreement and held that
the 5%
‘finance charges’ was a commission in the ordinary sense and
within the meaning of ‘any commission’ in s 67.
It was of
the view that the section is clear and that it was not a requirement
that commission that has to be added in terms of
s 67 had to be
for the benefit of the seller. Only buying commission was excluded.
In this regard the court below referred
to the evidence that Al Ajwad
was not involved at all during the procurement of goods, stated that
it was clear that Al Ajwad was
not the appellant’s agent and held
that the 5% ‘finance charges’ was not a buying commission. It is
against this judgement
that the appellant now appeals.
[12] The
appellant’s application to the court below for the setting aside of
the respondent’s written determination that the
‘finance charges’
formed part of the transaction value of the imported goods was
brought in terms of s 65(6)(a) which
provides 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.’
In terms of
s 65(4)(c)(ii)(bb) the respondent’s written determination
shall cease to be in force from the date of a final
judgment by the
High Court or a judgment by the Supreme Court of Appeal.
[13] In
Tikly
and others v Johannes NO and others
1963 (2) SA 588
(T) at 590G-591A Trollip J held that the word
‘appeal’, used in a similar context could have one of three
meanings:
‘
(i) an
appeal in the wide sense, that is, a complete re-hearing of, and
fresh determination on the merits of the matter with or
without
additional evidence or information . . .;
(ii) an
appeal in the ordinary strict sense, that is, a re-hearing on the
merits but limited to the evidence or information on which
the
decision under appeal was given, and in which the only determination
is whether that decision was right or wrong . . .;
(iii) a
review, that is, a limited re-hearing with or without additional
evidence or information to determine, not whether the decision
under
appeal was correct or not, but whether the arbiters had exercised
their powers and discretion honestly and properly . . ..’
[14] The parties
dealt with the case as if it was an appeal in the wide sense, ie as
if it was a complete re-hearing of the case
and a fresh determination
of the merits of the case. Correctly so, in my view, for the
following reasons: (a) The Act does not
require of the respondent to
hear evidence, to give any reasons for his determination or to keep
any record of proceedings. As
was held in
Tikly
at 592B-C these considerations militate completely against the
‘appeal’ being an appeal in the strict sense. (b) It is implicit

in the provisions of s 65(4)(c)(ii)(bb) to the effect that the
determination by the respondent cease to be in force from the
date of
a final judgment by the high court or this court that the court must
itself make a determination upon appeal to it. That
eliminates the
appeal being a review in the sense set out in (iii) above (see
Tikly
591H-592A). (c) As there is no provision for a hearing before the
determination of the transaction value by the respondent the

legislature must in my view have intended ‘appeal’ to be an
appeal in the wide sense.
[15] It is on
this basis that the appellant applied to the court below for an order
setting aside the respondent’s determination
and directing that all
amounts paid by the appellant to Al Ajwad forming the subject matter
of the determination appealed against
are not to be included in the
transaction value of goods imported by the appellant.
[16] I now turn
to the question whether the court below correctly rejected the
appellant’s evidence as to the nature of its relationship
with Al
Ajwad.
[17] Counsel for
the appellant was asked to explain the apparent inconsistencies
between the appellant’s evidence and the documentation
but was
unable to do so. He was again invited to do so after the lunch
adjournment but was still unable to do so. In the light
of these
inconsistencies and also the fact that the appellant provided the
written agreement to the respondent when queried about
its
relationship with Al Ajwad only to later deny that the agreement
governed their relationship I have serious reservations about
the
credibility of the appellant’s factual averments.
[18] Unfortunately
the inconsistencies were not properly explored in the affidavits. For
this reason I do not think that the court
below should, on the
papers, have rejected Pahad’s version which is confirmed by Anwar
Paruk the manager of Al Ajwad International
LLC. As a result of the
court below’s view on the reliability of the appellant’s
averments the respondent never asked for an
opportunity to
cross-examine the deponent to the founding affidavit. But before us
counsel for the respondent in accordance with
what was said in the
respondent’s answering affidavit did indicate that the respondent
still wanted to have such an opportunity
should we be of the view
that the appeal should succeed.
[19] Had the
respondent at the outset of the hearing in the court below applied
for an opportunity to cross-examine the deponent
to the founding
affidavit such a request should have been granted. In terms of rule
6(5)(g) a court has a wide discretion in regard
to the hearing of
oral evidence where an application cannot properly be decided on
affidavit. In
Moosa
Bros & Sons (Pty) Ltd v Rajah
1975 (4) SA 87
(D) at 93H Kumleben J said:
‘
(c)
Without attempting to lay down any precise rule, which may have the
effect of limiting the wide discretion implicit in this
Rule, in my
view oral evidence in one or other form envisaged by the Rule should
be allowed if there are reasonable grounds for
doubting the
correctness of the allegations concerned.
(d) In
reaching a decision in this regard, facts peculiarly within the
knowledge of an applicant, which for that reason cannot be
directly
contradicted or refuted by the opposite party , are to be carefully
scrutinised.’
The passage was
referred to with approval in
Khumalo
v Director-General of Co-operation and Development and others
[1990] ZASCA 118
;
1991 (1) SA 158
(A) at 167I-J.
[20]
However, it
has been held in a number of cases that an application to refer a
matter to evidence should be made at the outset and
not after
argument on the merits (see
Kalil
v Decotex (Pty) Ltd and another
1988 (1) SA 943
(A) at 981D-F). As was stated by Corbett JA in
Kalil
at 981E-F the rule is a salutary general rule. Unnecessary costs and
delay can be avoided by following the general rule. But Corbett
JA
also stated that the rule is not inflexible. In
Du
Plessis and another NNO v Rolfes Ltd
[1996] ZASCA 45
;
1997 (2) SA 354
(A) at 366G-367A this court dealt with an application
which was made for the first time during argument in this court. The
application
was dismissed but it is implicit in the judgment that, in
appropriate circumstances, this court may decide that a matter should

be referred to evidence even where no application for such referral
had been made in the court below. It would naturally be in

exceptional cases only that a court will depart from the general rule
(
Bocimar
NV v Kotor Overseas Shipping Ltd
[1994] ZASCA 5
;
1994 (2) SA 563
(A) at 587 C-D). In my view this is such a case. The
respondent probably misjudged the strength of his case. Having regard
to the
reservations expressed about the credibility of Pahad’s
averments it was not unreasonable of the respondent to have thought
that
Pahad’s version would be rejected on the papers as was done by
the court below. Moreover, there is, as is apparent from the above,

good reason to believe that an injustice may be done should the
respondent not be given an opportunity to cross-examine Pahad.
Pahad
may of course be able to explain the inconsistencies and what I have
described as, on the face of the documents, blatant
dishonesty on his
part. Referring the matter to evidence would give him an opportunity
to do so.
[21] For these
reasons the following order is made:
1 The appeal is
upheld with costs including the costs of two counsel.
2 The following
order is substituted for the order by the court below:
‘
(1) The
application is adjourned to a date to be arranged with the Registrar
for the cross-examination of Mr Nassim Pahad in respect
of the
evidence deposed to by him in the applicant’s founding and replying
affidavits.
(2) The
provisions of rule 35 will apply in regard to the adjourned hearing.
(3) The costs of
the hearing are to stand over for determination at the adjourned
hearing.’
________________
P E STREICHER
JUDGE OF APPEAL
APPEARANCES
:
For appellant: A
P Joubert SC
F P Strydom
Instructed by:
Dockrat
Incorporated, Johannesburg
Mpobole &
Ismail, Bloemfontein
For
respondent: J Peter
Instructed by:
The State
Attorney, Johannesburg
The State
Attorney, Bloemfontein
1
Section 47(1) of the Customs and Excise Act 91 of 1964.
2
Section 65(9).
3
Section 67(1)(a)(i).
4
Section 65(6)(a).