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[2017] ZAGPPHC 878
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Mustek Limited v South African Revenue Services (67269/15) [2017] ZAGPPHC 878 (20 April 2017)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
CASE NO: 67269115
20/4/2017
In the matter between:
MUSTEK
LIMITED
APPLICANT
and
SOUTH
AFRICAN REVENUE
SERVICES
RESPONDENT
JUDGMENT
RANCHOD
J:
Introduction
[1]
This is an appeal in terms of the provisions of s49(9)(e) of the
Customs and Excise Act 91 of 1964 (the Act) against a tariff
determination by the respondent in respect of a certain product the
appellant intended
[1]
to import.
[2]
It is an appeal in the wide sense and was heard as an application
de
novo.
The parties are referred to as the
applicant and respondent respectively.
[3]
The applicant imports what is referred to as a 'bare bone base model'
manufacturing module (the H2159) for an all-in-one (AIO)
computer
[2]
It contends that the H2159 is for purposes of customs tariff
classification, a
part
of an
automatic data processing machine as contemplated in tariff
subheading of Schedule 1 of the Act. The respondent classified
the
H2159 in tariff subheading 8528.51.90 as being a
monitor
of a
kind solely or principally used in an automatic data processing
system of heading 84.71.
Background
[4]
Mr David Kan, the CEO of the applicant, sketched the background of
the concept of an AIO computer of which he says he was the
originator. He says the concept was born from the desire to have a
system that integrated all the main computing components into
the
display casing in order to make the PC (personal computer) compact,
thus eliminating most of the external cabling and allowing
a smaller
footprint. The idea was to provide for individual customer needs by
varying the specifications of the CPU, graphic cards
and hard drives.
This would be achieved by supplying a base product which could be
assembled into an AIO computer. The base product
is generally known
as a 'bare bone base'. The H2159, says Kan, was manufactured with the
sole intent that it would be a bare bone
base to be populated after
importation to become a tailor made AIO computer. He says the 'bare
bones product' has a generally accepted
meaning in the South African
and the international computer manufacturing industry and it is
considered to be either a partially
assembled computer or a part of a
computer.
[5]
The applicant consulted the South African Bureau of Standards (the
SASS) which agreed with the applicant's view, as did VIEWG,
the
manufacturer of the H2159, and the experts of the applicant.
The
Issue
[6]
The issue to be decided is whether the product was correctly
classified by the respondent as a monitor or whether it should
have
been classified as a part of a computer.
The
classification process
[7]
Section 47(1) of the Act provides that duty on imported goods shall
be paid at the time of the entry for home consumption on
such goods
in terms of the provisions of Schedule 1to the Act.
[8]
Section 47(8) (a) of the Act provides as follows:
'(a) The interpretation
of-
(i)
any tariff heading or tariff subheading in Part 1
of Schedule No. 1;
(ii)
...;
(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.'
[9]
Contained in the general notes to Schedule 1 are the General Rules of
Interpretation (the GRI) of Schedule 1 as they apply internationally
to all signatories to the Harmonised System.
[10]
It was explained in
Durban
North Turf (pty) Ltd v CSARS
[3]
that:
'15. The Harmonized
System means the nomenclature comprising the headings and subheadings
and their related numerical codes, section,
chapter and subheading
notes and the general rules for the interpretation of the Harmonized
System.
16. The Harmonized System
determines the classification of goods. However, it does not
determine what customs duty is payable on
the importation of such
goods into a contracting party. Such customs duty is fixed by the
individual contracting parties concerned.
The Harmonized System has
only been devised to bring about uniformity in the classification of
goods by contracting parties.'
[11]
The General Rules of Interpretation apply sequentially. Rule 1
provides that the wording and terms of the headings, and any
relevant
Section or Chapter Notes are paramount, i.e. the first consideration
in the classification process. The other Rules are
only applied if a
classification cannot be resolved by the application of Rule 1 and
the headings and Notes do not require otherwise
[4]
.
Rules 1, 2 and 3 provide as follows:
'(1) The titles of
Sections, Chapters and sub-Chapters are provided for ease of
reference only; for legal purposes, classification
shall be
determined according to the terms of the headings and any relative
Section or Chapter Notes and, provided such headings
or Notes do not
otherwise require, according to the following provisions.
EXPLANATORY NOTE
…
(2)(a) Any reference in a
heading to an article shall be taken to include a reference to that
article incomplete or unfinished,
provided that, as presented, the
incomplete or unfinished article has the essential character of the
complete or finished article.
It shall also be taken to include a
reference to that article complete or finished (or failing to be
classified as complete or
finished by virtue of this Rule), presented
unassembled or disassembled.
(b) Any reference in a
heading to a material or substance shall be taken to include a
reference to mixtures or combinations of that
material or substance
with other materials or substances. Any reference to goods of a given
material or substance shall be taken
to include a reference to goods
consisting wholly or partly of such material or substance. The
classification of goods consisting
of more than one material or
substance shall be according to the principles of Rule 3.
EXPLANATORY NOTE
…
(3) When by application
of Rule 2 (b) or for any other reason, goods are, prima facie,
classifiable under two or more headings,
classification shall be
effected as follows:
(a) The heading which
provides the most specific description shall be preferred to headings
providing a more general description.
However, when two or more
headings each refer to part only of the materials or substances
contained in mixed or composite goods
or to part only of the items in
a set put up for retail sale, those headings are to be regarded as
equally specific in relation
to those goods, even if one of them
gives a more complete or precise description of the goods.
(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.
(c) When goods cannot be
classified by reference to 3(a) or 3(b), they shall be classified
under the heading which occurs last in
numerical order among those
which equally merit consideration.
EXPLANATORY NOTE
…
[12]
Part 1 of Schedule 1, including the notes thereto and the tariff
headings and sub-headings should be interpreted according
to the
natural and ordinary sense of the language used therein, unless the
context or the subject clearly shows that they were
used in a
different sense
[5]
and effect
must be given to every word
[6]
Words which are not technical or specialised bear their ordinary
meaning
[7]
.
[13]
The classification process was described as follows in
International
Business Machines SA (Ply) Ltd v Commissioner for
Customs
&
Excise
[8]
where
Nicolas AJA (as he then was) said that:
"Classification as
between headings is a three stage process: first, interpretation -
the ascertainment of the meaning of the
words used in the headings,
and relevant 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 the most
appropriate to such goods.'
[14]
In determining the nature, characteristics and properties of the
goods, the goods are classified with reference to the nature
and
characteristics of the goods as a whole
[9]
.
[15]
The general rule is that goods are designated by their objective
characteristics, and not by the intention with which they
were made,
nor the use to which they may be put
[10]
.
There is, however, an exception to this general rule namely where the
wording of the relevant tariff heading or notes makes the
purpose and
intent relevant
[11]
.
[16]
Section 47(8)(a) of the Act makes the interpretation process also
subject to the Explanatory Notes. These notes are not peremptory
injunctions. All that s47(8)(a) requires is that the interpretation
of the relative headings and section and chapter notes shall
be in
conformity with, and not contrary to, the Brussels notes
[12]
.
Nature
and Characteristics of the H2159
[17]
It appears that the nature and characteristics of the H2159 as
presented at importation are largely common cause. The respondent
seems to rely primarily on the opinion of a Mr Jacques Van Wyk (Van
Wyk) who says in his supporting affidavit to the answering
affidavit
that he is a qualified electronic engineer employed as a senior
lecturer at the University of Pretoria in the Department
of
Electrical, Electronic and Computer Engineering and he is also
registered with the Engineering Council of South Africa. Van
Wyk's
brief was to give his opinion on the nature and characteristics of
the H2159.
[18]
The parties agree or it is not disputed that:
18.1.
it was manufactured with the sole intent to
import a bare bone base to be assembled locally to create an AIO
computer;
18.2.
it has all the slots, wiring and peripherals to
become an AIO computer but is not a computer;
18.3.
the slots to accommodate the central processing
unit ("CPU"), motherboard and memory are already prepared
in the bare
bone base but these components are not present at the
time of importation;
18.4.
inserting the CPU, motherboard and memory to
transform the base into an AIO computer is relatively simple;
18.5.
the names of the components to be inserted are
etched into the bare bones base to indicate the installation position
of the different
components;
18.6.
the end-user will determine the capacity, speed
and other specifications that are required and select the CPU,
motherboard and other
components accordingly to complete the AIO
specification the user personally requires;
18.7.
it is manufactured by ViewG, a company based in
China;
18.8.
it is a sophisticated housing to build a "made
to order AIO" and is an assembly module specifically designed to
accommodate
an ATX motherboard;
18.9.
the entire bare bones base is designed to connect
to an ATX motherboard which in turns contains a CPU and memory to
make the product
a computer and is a precisely designed base which is
to be assembled in accordance with ATX motherboard specifications;
18.10.
at least 130 components are used to manufacture
the bare bones base;
18.11.
it is a computer housing structure;
18.12.
without
having at least the motherboard and the CPU installed the base does
not switch on, even if it is connected to a power source
[13]
;
18.13.
it is not a
standalone monitor and has not been designed as such
[14]
;
18.14.
it is built to strict guidelines dictated by
standards of the computer industry;
18.15.
all the cabling and connectors (visible on
removing the back plate) are specifically measured and incorporated
to connect directly
to the motherboard;
18.16.
the product
is an assembly module for an AIO computer and as such the objective
of the product is to facilitate the assembly of
an AIO computer and
has very little to do with monitors except for the fact that in this
case the monitor is just another component
of a computer
sub-assembly, similar to components (units) such as the camera,
microphones or the speakers in that assembly
[15]
;
18.17.
the
connecting cable, connectors and slots for the motherboard, hard
drive and other components would be redundant and serve no
purpose
and would not be necessary if the product was a monitor
[16]
;
18.18.
the power
supply unit ("PSU") is one used in computers and not in
monitors and there is place for a heat sink fan, which
would not be
needed in monitor
[17]
;
18.19.
the PSU
only becomes functional once connected to the motherboard and in tum
the CPU has the "toggle' switch which sends the
on/off signal to
the PSU, which is located on the CPU. This is a distinctive feature
of a computer product and not associated with
a monitor
[18]
;
18.20.
the heat
sink fan would not be needed in a monitor of this size but due to the
future operation as a computer substantially more
heat would be
generated resulting in the need for such a fan. A monitor would
require far less power
[19]
;
18.21.
the
principal connectors and media reader are present and integrated in
the H2159 at the time of importation and are designed to
connect to
the motherboard confirming the base was designed to interconnect all
the components to function as a AIO computer after
final
assembly
[20]
;
18.22.
the red
cables, called serial ATA, are present in the H2159 on importation
and these connect the hard drive to the motherboard.
The space for
the hard drive is specifically designed on the chassis as imported to
the extent that the exact point where the hard
drive must be screwed
in is indicated and catered for. These specifications are in
accordance with computer industry standards
[21]
;
18.23.
the ports
are internal and not external as they would be for a monitor due to
the fact that the screen is designed specifically
to work with a
computer
[22]
;
18.24.
the screen
is totally dependant on the computer to power on and off and is a
standard feature in AIO computers and an echo cancelling
microphone
is incorporated in the base, which is also a feature of an AIO
computer
[23]
;
18.25.
as imported
the bare bones base is not functional or adjudged as a single
sub-component
[24]
;
18.26.
the base is
by design a part of computer sub-assembly which is built to specific
standards laid down by the computer industry
[25]
;
18.27.
to import
the base in order to build a monitor would be economically unviable
as the additional features are superfluous and are
not features to be
found on a monitor base but features to be found on a base to build
and AIO computer
[26]
;
18.28.
the use of
the H2159 is to allow the building of an AIO computer to suit the end
user
[27]
;
18.29.
when the
back plate is removed, it is clear that the H2159 is a computer case
as it is designed to enclose a motherboard
[28]
;
18.30.
proof that
the base is a sub-assembly, designed specifically as a platform, is
found in the design of the product and the technical
aspects of the
components that would not be present if this was merely a base to
build a monitor
[29]
;
18.31.
the H2159
is specifically designed to accommodate a motherboard. Without the
motherboard the device is unusable
[30]
;
18.32.
the H2159
contains a display driver circuit which is not capable of functioning
without the power supply being on and requires a
visual data signal
to be delivered to the circuit board
[31]
;
18.33.
the H2159
has a support stand which is also made to support much more weight
than a computer monitor, suggesting that the casing
is a bare bone
computer casing
[32]
;
18.34.
using the
device as presented on importation as a monitor is "impossible
for the average Joe"
[33]
as demonstrated by the fact that Van Wyk needed to use his
specialised knowledge to manipulate the device with a paper clip.
Discussion
[19]
As I said, the respondent contends that the H2159 is a complete
functional monitor (and not a part of a still to be assembled
computer).
[20]
Mr Van Wyk firstly confirmed that the essential components of a
computer are a Power Supply Unit (PSU), motherboard, a Central
Processing Unit (CPU), main memory (RAM), secondary storage (i.e. a
hard drive and DVD drive) and input and output ports/devices
(such as
a monitor/screen/display, keyboard and mouse).
[21]
In relation to a stand-alone monitor Van Wyk says it generally
comprises of a display panel; a display panel interface board
(the
AID
board, inverter
board; and/or control board as used by the manufacturer); interface
buttons; interface connectors; a PSU and a power
on/off switch.
[22]
Mr van Wyk says the display panel, control board, inverter board and
PSU are connected and configured to constitute a complete
monitor,
and therefore it is a 'unit' as provided for in Legal Note 5(C) to
Chapter 84. Further, that the monitor component of
the product gives
it its essential character and the fact that they will be eventually
connected to each other is irrelevant as
they remain two distinct
components or units of a data processing system.
[23]
The relevant portions of Note 5 to Chapter 84 read:
'(A)
(B) Automatic data
processing machines may be in the form of systems consisting of a
variable number of separate units.
(C) Subject to paragraphs
(D) and (E) below, a unit is to be regarded as being part of an
automatic data processing system if it
meets all of the following
conditions:
(i) It is of a kind
solely or principally used in an automatic data processing system;
(ii) It is connectable to
the central processing unit either directly or through one or more
other units; and
(iii) It is able to
accept or deliver data in a form (codes or signals) which can be used
by the system.
Separately presented
units of an automatic data processing machine are to be classified in
heading 84.71.
However, keyboards, X-Y
co-ordinate input devices and disk storage units which satisfy the
conditions of paragraphs (C) (ii) and
(C) (iii) above, are in all
cases to be classified as units of heading 84.71.
(D) Heading 84.71 does
not cover the following when presented separately, even if they meet
all of the conditions set forth in Note
5 (C) above:
(i) …
(ii) …
(iii) …
(iv) …
(v) Monitors and
projectors, not incorporating television reception apparatus.
(E) Machines
incorporating or working in conjunction with an automatic data
processing machine and performing a specific function
other than data
processing are to be classified in the headings appropriate to their
respective functions or, failing that, in
residual headings.'
[24]
The Explanatory Note to TH84.71 provides:
'21.1 ports and
accessories of the machines listed in TH84.71 are classified in
TH84.73;
21.2 that a complete data
processing system must at least comprise of a CPU, an input unit and
an output unit;
21.3 that an apparatus
can only be classified as a unit of an automatic data processing
system if it:
21.3.1. performs a data
processing function and meets the following criteria set out in Note
5(C) of the Chapter, namely:
21.3.1.1. It is of a kind
solely or principally used in an automatic data processing system;
21.3.1.2. It is
connectable to the central processing unit either directly or through
one or more other units; and
21.3.1.3. It is able to
accept or deliver data in a form (codes or signals) which can be used
by the system;
21.4. It is not excluded
by the provisions of Notes 5 (D) and (E) to Chapter 84.'
[25]
The applicant says – and it has not been disputed by the
respondent – that the Subheading Notes and Additional
Notes to
Chapter 84 do not find application.
[26]
Explanatory Note to TH84.73 cover parts and accessories suitable for
use
solely or principally
with
the machines of headings 84.69 to 84.72.
[27]
The applicant relies on the views of Mr Kan, the deponent to the
founding affidavit; Mr Stephen Cox (computer and electronic
engineer
employed at the University of Pretoria); Mr Dimitri Tserpes (the
CTQ
[34]
of the applicant), a
report compiled by the South African Bureau of Standards (the SASS)
and VIEWG, the manufacturer of the H2159.
[28]
Mr Kan holds a BSc in Mechanical Engineering and is the founder of
the applicant company. He says he has been in the information
technology (IT) and computer manufacturing business since 1987. He
considers himself an expert in the field of computer manufacture
and
assembly. However, to avoid allegations of bias he obtained the views
of an independent expert although he does express his
own opinion
regarding the nature of the product, i.e. the H2159.
[29]
The SABS report (made after a complete disassembling of the product)
includes the following statement:
'..., according to the
original documentation and physical hardware supplied to the SABS,
the H2159 BASE is in fact just a bare
platform for the H2159 computer
stated above, and is not capable of functioning as a stand-alone
monitor'.
The
SABS had demonstrated both the product as imported and the final AIO
computer after assembly to representatives of the respondent
[35]
.
[30]
It is further stated in the SABS report that:
'51.3 Power was supplied
to the PSU with no effect, which,
inter alia,
confirms that
product is not and cannot be used as a stand alone monitor;
51.4 Even when power was
supplied to the PSU the unit did not power up, thereby confirming
that the PSU that is installed is a switching
power supply typically
used for computer power applications;
51.5 This PSU will not
switch on if the computer motherboard is not present to provide the
relevant POWER ON signal;
51.6 The LCD [liquid
crystal display] driver board cannot be switched on separately as it
is electrically wired to work from the
PSU in the base;
51.7 A CPU motherboard
and memory are needed to complete the minimum hardware requirements
for the product to function on a computer.'
[31]
Mr Tserpes has been employed by the applicant since February 1995.
His responsibilities include,
inter
alia,
all
IT services to the applicant, product testing, research and
development. He says
[36]
:
'6. In the computer world
a speaker; camera or a monitor, once combined with a computer system,
becomes simply a component of that
computer assembly and is described
in the industry as an input or output unit. A monitor incorporated in
a computer system would
be described as a display or output unit.
7. The H2159 bare bone is
a far more sophisticated assembly than a monitor and it is purposely
designed to build an AIO computer.
The whole design of the product
has only one use and that is to assemble, on the imported base an AIO
computer and therefore could
not be considered in any way as being a
monitor. In the final analysis the display is merely one component in
an intricate assembly
of 130 odd parts designed to act as a base to
construct an AIO computer to clients specifications.
…
10. However, even
visually the H2159 provides to the informed or even slightly informed
clues regarding its purpose and design.
The first clue in relation to
its design is the thickness of the product. The thickness is
necessary to create the necessary depth
to accommodate a computer, a
fan and to contain a PSU. No flat screen LCD manufacturer would use
such thickness on the chassis
of a monitor.
…
18. It must always be
borne in mind that the objective of the product is to facilitate the
assembly of an AIO computer and has very
little to do with monitors
except for the fact that in this case the monitor is just another
component of a computer sub assembly
similar to components
(units) such as the camera, microphones or the speakers in that
assembly.'
[32]
Mr Cox says
[37]
:
'8. ... The display
screen is certainly not the defining characteristic of the product,
but rather the ability to have an ATX motherboard
inserted into a
space where all the cabling and connectors are in place to connect
the motherboard with all the other components
of a computer.
9. The absence of [a]
motherboard, which is necessary to bring the components already
included and other components that are later
added, to "live"
in my view makes the product an assembly of computer components but
lacking the essential of a computer
and therefor a part of the
computer or at best a unit/component of a computer to be used solely
as a base to assemble an all in
one computer.'
[33]
In the technical report on the H2159 attached to his affidavit
[38]
Mr Cox says:
'The H2159 is
specifically designed to accommodate a motherboard. Without the
motherboard the device is unusable. With the motherboard
everything
is interconnected and communication between the different functions
is activated.'
[34]
The applicant also attached a letter
[39]
from Guangzhon ViewG Sci-Tech Co Ltd where the following is stated:
'This AIO (All-In-One)
model no. H2159 is manufactured and designed by us. H2159 is a bare
bone for an AIO (All-in-One) Computer.
The Power Supply of the bare
bone cannot supply electricity to the screen (display unit) unless
the bare bone is complete All-in-One
Computer. Therefore, H2159 alone
cannot function as a Monitor. It is in fact a sub assembly of a
computer base which can only derive
functionality once a computer is
added and has no other purpose.'
Classification
of the product
[35]
The tariff headings and the section, chapter and explanatory notes
are voluminous. I will only refer to those that are relevant
for the
purposes of this judgment.
[36]
Tariff heading 8473 reads as follows:
'Parts and accessories
(excluding covers, carrying cases and the like) suitable for use
solely or principally with machines of headings
84.69 to 84.72.'
TH84.73.30
in turn reads:
'Parts and accessories of
machines of heading 84.71'.
TH
84.71 in turn reads:
'Automatic data
processing machines and units thereof, magnetic or optical readers,
machines for transcribing data onto data media
in coded form and
machines for processing such data, not elsewhere specified or
included.'
TH85.28
reads:
'Monitors and projectors,
not incorporating television reception apparatus for television,
whether or not incorporating radio
broadcasting receivers or
sound or video recording or reproducing apparatus.'
TH8528.51
reads:
'Of a kind solely or
principally used in an automatic data processing system of heading
84.71.'
[37]
To substantiate its view as to why the H2159 is a fully functional
monitor and not just a part of a computer the respondent's
expert, Mr
Van Wyk applied the so-called 'paper-clip' method. Van Wyk says when
he used a paper clip to connect the 'power on or
ps-on' pin of the
ATX connector of the PSU to OV ground the monitor was 'fully
functional'. In my view, Van Wyk misses the point
- and that is that
the 'monitor' together with the camera, speakers and other components
in the H2159 have been designed to function
only with the
installation of,
inter alia,
a
motherboard inside the H2159.
[38]
The product as imported, does not have any external ports, which are
a distinctive feature of monitors says applicant. Although
circuiting
to enable display is present in the devise at the time of importation
it is intended to be part of the future display
device of the AIO
computer to be built and its functionality is dependent on the
installation of the motherboard which would send
data to it to get a
visual signal in order to display or function as a monitor.
[39]
The respondent concedes that the H2159 is not a standalone monitor
and that it was not designed to be used as such. Respondent
also
concedes that the H2159 is not just a monitor – that it is a
base for much more. These concessions in effect mean that
it cannot
be a monitor as contemplated in TH85.28. Yet on the other hand its
reasoning is that the H2159 is a 'composite' product
made up of,
among others, a monitor, loudspeakers and a camera - ergo, it
therefore falls to be classified by applying GRI 3(b)
or
alternatively, 3(c) . The component which gives the product its
essential character is the monitor, alternatively, the monitor
is the
component which occurs last in numerical order. The product is thus
classifiable under TH8528.51.90. The respondent cannot
both approbate
and reprobate. Respondent simply classified the H2159 under TH85.28
without explaining its reasoning for the classification.
It has
failed to properly explain why it relies on GRI 3(b) and not on GRI
Rule 1. After all, one starts with Rule 1 and if it
is found to be
not applicable then one moves on to the next Rule.
[40]
As I see it, the whole system, including the camera and speakers, is
designed in such a way that everything connects only through
the
motherboard and the CPU. The New Shorter Oxford English Dictionary
(1993) defines 'composite', inter alia, as: 'Made up of
various parts
or elements, compound, made of constituents that remain
recognizable'. The various components in the bare bone base
comprise,
in my view, a single product or platform to build an AIO computer.
Van Wyk admits as much when he agrees that:
'The bare bone base is a
platform onto or into which a so-called "All-in-One computer"
will be built'.
Hence,
the respondent's submission that the product is classifiable under
TH8528.51.10 does not pass muster.
[41]
In my view, when one considers the wording of the headings, Section
and Chapter Notes it is evident that the H2159 is to be
used with an
automatic data processing machine referred to in TH84.71. The Oxford
Dictionary defines a monitor in relation to a
computer as a 'screen
which displays an image generated by a computer'.
[42]
There is no evidence that the H2159 falls within the examples and
characteristics mentioned in the Explanatory Notes to TH8528.51.
Although the H2159 is clearly intended to ultimately display images
generated by a computer, the undisputed evidence of Mr Cox
is that,
in the device as presented at the time of importation, there is no
means to deliver a visual data signal to the circuit
board. This it
can only do when the other components comprising the AIO computer are
connected into the H2159 bare bone base unit.
It must be remembered
that the parties agree that the base is for use solely or principally
with a machine of TH84.71. Mr Van Wyk
concedes that the H2159 is
'...not just a monitor, it is the base for much more'
[40]
.
This concession, in my view, confirms that the base is a part to be
used solely with a machine under TH84.71 which includes 'Automatic
data processing machines and units thereof ... suitable for use
solely or principally with machines of headings 84.69 to 84.72.
Tariff sub-heading 8473.30 refers to 'Parts and accessories of the
machines of heading 84.71'.
[43]
'Part' is defined in the Oxford Dictionary as 'An amount or section
which, when combined with others, makes up the whole of
something'.
When the motherboard, hard disk drive, etc. are connected to the
slots indicated in the H2159 they, together with the
base, become the
whole of AIO computer. The applicant says this would fit under
TH8473.30 which provides for:
'84.73 Parts and
accessories ... suitable for use solely or principally with machines
of headings 84.69 to 84.72:
…
8473.30 ... Parts and
accessories of the machines of heading 84.71.'
[44]
TH84.71 includes 'Automatic data processing machines and units
thereof; ...'. The applicant says it has no objection to a ruling
that the product is classifiable in TH84.71 but it believes that
classification in TH84.73 to be more technically correct. Tariff
subheading 8471.80 provides for 'Automatic data processing machines
and units thereof; Other units of automatic data processing
machines'. Tariff subheading 8473.30 read with TH84.73 provides for
'Parts and accessories...suitable for use solely or principally
with
machines of headings 84.69 to 84.72; Parts and accessories of the
machines of heading 84.71.'
[45]
The respondent contends that the H2159 falls under tariff subheading
8528.51.90
which provides:
'Tariff subheading
8528.51.90 'Monitors...not incorporating television reception
apparatus'; 'Of a kind solely or principally used
in an automatic
data processing system of heading 84.71'; 'Other'.
[46]
Section Notes 2(b), 3 and 4 to Section XVI provide:
'2(b) Other parts, if
suitable for use solely or principally with a particular kind of
machine...are to be classified with the machines
of that kind or in
heading 84.09, 84.31, 84.48, 84.66, 84.73, 85.03, 85.22, 85.29 or
85.38 as appropriate... . (My underlining).
3. Unless the context
otherwise requires, composite machines consisting of two or more
machines fitted together to form a whole
and other machines designed
for the purpose of performing two or more complementary or
alternative functions are to be classified
as if consisting only of
that component or as being that machine which performs the principal
function.
4. Where a machine
(including a combination of machines) consists of individual
components (whether separate or inter connected
by piping, by
transmission devices, by electric cables or by other devices)
intended to contribute together to a clearly defined
function covered
by one of the headings in Chapter 84 or Chapter 85, then the whole
falls to be classified in the heading appropriate
to that function.·
[47]
The respondent also contends that the H2159 is a composite machine as
referred to in Note 3 to Section XVI. I do not agree.
In my view, it
does not consist of two or more machines fitted together to form a
whole or a machine designed for purpose of two
or more complementary
or alternative functions as contemplated in that Note. Even if the
H2159 can be considered as a composite
machine it seems clear that it
was designed and manufactured to perform a single function, namely,
as a base to assemble the AIO
computer. In this regard GRI Rule 1 is
relevant but, as I said earlier, the respondent does not deal with
Rule 1 at all and, without
explaining why it does not consider Rule
1applicable, relies on Rule 3(b).
[48]
The respondent claims the H2159 is a composite machine and yet also
says it is a monitor. It does not explain why it regards
the monitor
as giving the machine its essential characteristics. The product is,
in my view, much more than a monitor. In
CSARS
v LG Electronics
[41]
Heher
JA held:
'15. While it is clear
that each determination must be made according to the salient facts
attaching to the goods in question (and,
in particular, its objective
characteristics), and while in one case an engine may properly be
regarded as the essence of the goods,
in another a frame or chassis
may be sufficient to satisfy that test. In Autoware (Ply) Ltd v
Secretary for Customs and Excise,
Colman J was required to consider
whether a vehicle was a panel van or an incomplete station wagon on
importation. The learned
judge found that the relative simplicity and
low cost of modification was not a decisive criterion, because the
enquiry does not
turn on what the product was going to be or what it
will be adapted to be. Rather, the court must consider what the
product was
at the time of importation. Colman J held that that issue
'must be decided on the basis of the presence or absence, in the
unmodified
vehicles, of the essential features or components of a
station wagon . . . What I mean by an essential feature of a station
wagon
is not a feature which is important, for one reason or another,
or even one which is essential for the proper functioning of a
station wagon. I mean a feature which is essential in that it
embodies the essence of a station wagon, and differentiates such a
vehicle from others which are not station wagons.
I respectfully endorse
that approach.
16.
At the time of entry the screens were. as the appellant concedes,
functional video monitors. They possessed an existence and
utility of
their own which did not include or require the incorporation of a
device capable of receiving high frequency radio waves
and converting
the signal into optical images. But without such a device the use of
the screens as 'reception apparatus for television'
was totally
excluded. That the screen was designed to accept such a device or
could be easily modified to accept it, is, as, Colman
J pointed out,
of no consequence if the essential nature does not exist at the time
of importation. Nor does the 'unnecessary'
addition of the
'sophisticated' features which are embodied in the respondent's
screens, make up for the absence of the means of
receiving and
converting signals albeit that it strongly indicates an intention on
the part of the importer that the product is
to offer an alternative
use to the ultimate purchaser. It is the primary design and use which
carries most persuasion.'
[49]
In all the circumstances I conclude that the H2159 falls to be
classified under TH8473.30 and the determination by the respondent
that it resides under TH8528.51.90 should be set aside.
[50]
I make the following order:
1.
The tariff determination 102/2013 dated 20 March
2014 classifying the H2159 bare base model in tariff heading
8528.51.90 of Part
1 of Schedule No 1 to the Customs and Excise Act,
91 of 1964 is set aside.
2.
The H2159 bare base model imported on 18 December
2013 is classified in tariff heading 8473.30. of Part 1 of Schedule 1
to the Customs
and Excise Act, 91 of 1964.
3.
The respondent is ordered to pay the costs of the
appeal including the qualifying costs of the expert Stephen Cox.
_______________________
RANCHOD
J
JUDGE
THE HIGH COURT
Appearances:
Counsel
on behalf of Applicant: Adv. J.M Barnard
Instructed
by: Jonathan Sweiden Att.
Counsel
on behalf of Respondent: Adv A. Meyer (SC)
:
Adv W. Mothibe
Instructed
by: The State Attorney
Date
heard: 10 November 2016
Date
delivered: 20 April 2017
[1]
The respondent referred to the product as being 'intended' for
importation in the tariff determination but the parties argued
the
matter as if the product had already been imported. I will deal with
the matter on the latter basis.
[2]
The computer is referred to as an 'automatic data processing
machine' in the parlance of the relevant legislation.
[3]
2011(2) SA 347 KZP 350 paras 15 and 16.
[4]
GRII, Explanatory Note (V)(a).
[5]
'See Steyn Die Uitleg van Welte 5 ed at 2 para 2: National
Screenprint (Ply) Ltd v Minister of Finance 1978(3) SA 501 (CPD) at
506H.
[6]
See Durban North Turf Club supra at para 19.
[7]
See SA Historical Mint (Pty) Ltd v Minister of Finance and Another
1997(2) SA 862 CPD.
[8]
1985(4) SA 852 (A) at 863F-H.
[9]
See The Heritage Collection (Pty) Ltd v Commissioner, South African
Revenue Service
2002 (6) SA 15
SCA at 21C-D.
[10]
See Commissioner, South African Revenue Service v the Baking Tin
(Ply) Ltd 2007(6) SA 545 SCA at 5480-H; Durban North Turf Club
supra
at para 36.
[11]
See Secretary for Customs and Excise v Thomas Barlow and Sons Ltd
1970(2) SA 660 A al 677D-H per Trollip JA (as he then was)
and at
683A-684B per Miller AJA; Commissioner, South African Revenue
Service v Komatsu SA (Ply) Ltd 2007(2) SA 157 SCA at 160F-161A.
[12]
International Business Machines SA (Pty) Ltd v Commissioner for
Custom and Excise 1985(4) SA 852 A al 8648-D.
[13]
See page 119 annexure DK 15 to the FA - letter from ViewG last and
penultimate paragraphs on that page and page 282 paragraphs
6.4 and
6.5 affidavit of Van Wyk.
[14]
See page 284 par 7.1 and page 286 par 8.1 affidavit of Van Wyk.
[15]
See page 151 par 18 of Tserpes and page 289 par 17 where Van Wyk
agrees with it.
[16]
See page 152 par 20 of Tserpes and page 289 par 17 of Van Wyk where
he agrees with it.
[17]
See page 153 par 22 of Tserpes and page 290 par 18 of Van Wyk.
[18]
See page 153 par 23 of Tserpes admitted by Van Wyk, page 290 par 19.
[19]
See page 154 par 24 of Tserpes admitted by Van Wyk page 290 par 19.
[20]
See page 155 paragraphs 26 and 27 of Tserpes admitted by Van Wyk
page 290 par 19.
[21]
See page 155 paragraphs 28 and 29 of Tserpes admitted by Van Wyk
page 290 par 19.
[22]
See page 156 par 3I Tserpes not denied by Van Wyk page 290 par 20.
[23]
See fn 23 above.
[24]
See page 157 par 34 of Tserpes and page 291 par 22.2 of Van Wyk.
[25]
See page 158 par 35.1 of Tserpes admitted by Van Wyk page 291 par
23.
[26]
See page 158 par 35.2 of Tserpes admitted by Van Wyk page 291 par
23.
[27]
See page 158 par 35.3 of Tserpes admitted by Van Wyk page 291 par 23
[28]
See page 172 par 3 of Cox Report uncontested by SARS.
[29]
See page 173 par 4 of Cox Report uncontested by SARS.
[30]
See fn 30 above.
[31]
See page 175 par 6.5 of Cox Report uncontested by SARS.
[32]
See page 177 par 7 of Cox Report uncontested by SARS.
[33]
See page 178 par 9 of Cox Report uncontested by SARS.
[34]
I am informed that 'CTO' stands for 'Chief Technical Officer'.
[35]
As confirmed in an affidavit by Mr. Johan Bussutil being annexure
'DK20' to the founding affidavit.
[36]
Annexure 'DK 18' at p144 of the papers.
[37]
Annexure 'DK 19' at p 160 of the papers.
[38]
Annexure 'SC2' at p169 of the papers.
[39]
Annexure 'DK IS' at p119 of the papers.
[40]
Van Wyk's affidavit at para 24.
[41]
2012 (5) SA 439
SCA at 446-447 paras 15-16.