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[2016] ZAGPPHC 854
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Daikin Air Conditioning SA (Pty) Ltd v Commissioner for the South African Revenue Service (50781/2015) [2016] ZAGPPHC 854 (14 September 2016)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
14/9/16
Case
No: 50781
I
2015
Reportable:
No
Of
interest to other judges: No
Revised:
No
In
the matter between:
DAIKIN
AIR CONDITIONING SA (PTY)
LTD
Applicant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
Respondent
JUDGMENT
MAKHUBELE
AJ
INTRODUCTION
[1]
This is an appeal in terms of section 47(9)(e) of the Customs and
Excise Act, 91 of 1964, as amended ("the Act") against
the
tariff determination of the respondent ("the Commissioner")
as contemplated in section 47(1) of the Act.
[2]
In addition to a cost order, the relief sought in the Notice of
Motion reads as follows:
"
1 . That the
Respondent's tariff determination (annexed to the Founding Affidavit
as annexure "NS8"), determining the
products under issue
under tariff heading 84 15.
90.05
and tariff heading 84 15.
90.
10, be set aside and replaced with a tariff determination
under tariff heading 84 15.
90.90.
2. Alternatively to
the above, that the tariff determination be set aside and replaced
with a determination that until 17 December
2012 the products are
classified under TH8415.90.90
and thereafter under
TH8415.90.05 as the case may be" .
[3]
It is common cause that the applicant has exhausted all internal
remedies in terms of the Act and that it was granted condonation
for
late filing of this appeal.
THE
FACTUAL MATRIX
[4]
The background facts are largely common cause and may be summarized
as follows:
[5]
The applicant is an importer and distributor of air conditioning
products and parts thereof that are sourced from countries
such as
Japan, China and Malaysia. The products were entered under tariff
heading 8415.83.00/5, 8415.90.90/0 and 8418.69.90/5.
[6]
On 11 February 2011, the Regional Manager, Customs Audit of the
Office of the Commissioner in Durban wrote a letter to the applicant
and advised it that after conducting an audit into its importation of
various air conditioning parts for the period April 2007
to May 2010,
it was discovered that the air conditioning parts had been
incorrectly cleared , thus resulting in an underpayment
of duty and
VAT. This letter is referred to as a letter of intent.
The
letter went on to advise the applicant that the air conditioning
parts should have been classified as parts in tariff heading
8415.90.10/2 and not as complete units.
The
applicant was advised that it had contravened the provisions of the
Act and was liable for payment of customs duty and value
added tax,
interest thereon as well as penalties. It was afforded an opportunity
to make representations and submit supporting
documents to rebut the
prima facie
findings of the Regional Manager.
[7]
The applicant appointed a Tariff Consultant, Mr Jean Pool of UTi to
assist with the representations. These were forwarded to
the
respondent' s Durban Regional office on 21 February 2011.
In
essence, the applicant 's contention was that its products which are
described as ; (a) floor standing indoor units, (b) ceiling
type
indoor unit and (c) outdoor units are not
"window
or
wall-type"
as contemplated in tariff heading 8415.10.
[8]
The applicant submitted an application for a tariff determination on
16 March 2011 but it did not receive immediate attention.
[9]
On 17 March 201 1, the Commissioner issued a letter of demand to the
applicant and advised that the products were classifiable
under
TH8415.90.10.
In
this letter, the Commissioner indicated, amongst other things that
the
"ceiling units
of
split systems excluding ducted
systems
under
8.BKW"
falls within the purview of
TH8415.90.10 because, in Its opinion,
"the
use of
the
term "types" (window
or
wall) makes this
a
non-exhaustive statement
of
the location in which the air
conditioning units can be fitted with
regard
to the premises
to be cooled. This office therefore takes the view that machines
of
this kind should be classified
as if
they
were
window
or
wall type."
A
demand for payment of an amount of R2 148 721-68 including duty, vat
penalties and interest was made. The applicant made two payments
on
31 March 201 1 and 05 May 201 1 as provisional payments to secure the
amount demanded.
[10]
The response to the application for a tariff determination only came
on 11 May 2011. The applicant was advised that a tariff
determination
could not be issued and its recourse in this regard was to launch an
internal administrative appeal.
[10.1] It appears from
the record filed though that the matter subsequently received
attention because on 31 July 2012 a letter
was directed to the
applicant. It reads in part as follows:
"From the Durban
branch office as well as the HSC opinion, SARS is of the view that
the determination is correct in terms of
the existing HS Nomenclature
and HSEN and this view was supported in the HSC by
a
vote of
44 to 5, which was also on the basis of the current HS Nomenclature
and HSEN.
For this, one needs to
be mindful of the fact that the HSEN 's are drafted with the
intention of being in conformity with the HS
Nomenclature, not or the
legal Notes thereto, meaning
,
obviously, that as far as the
WCO is concerned (and as far as SARS is
concerned) the extant
Nomenclature provides for classification in subheading 84 15. 10 of
the genus of split-system air conditioner
here in dispute, and all
that the possible amendment to the HSEN will serve, is to allay
misunderstandings or eliminate possible
ambiguity. In this instance,
the product at issue, been an indoor ceiling
mounted imported
separately is considered classifiable within sub heading 84
15.90.05
as
the indoor part of a split system."
[11]
The internal appeal was submitted on 17 June 201 1. It was referred
to the Tariff Policy Section which in turn and by agreement
with the
applicant referred it to the World Customs Organization ("WCO")
for a formal opinion. The WCO's decision was
made during March 2012
and was duly published in its website on 17 December 2012 in the form
of a generic classification opinion
and an amendment to the
Explanatory Notes.
[11.1] The internal
appeal was decided on 31 July 2012 against the applicant .The
applicant was however only notified on 21 February
2014.
The
goods were determined to be classifiable under tariff heading
8415.90.05.
[12]
The applicant duly filed a notice to litigate on 14 October 2014.
As
indicated above, the appeal decision was only transmitted to the
applicant some 19 months after it was made. Section 47(9(f}
of the
Act provides that "
Such appeal shall, subject to section
96
(1), be prosecuted within a period of one year from the date of
the determination."
In
this regard, an application tor extension of the one-year period as
contemplated in section 96(1)(c)(i) of the Act was made and
duly
granted on 04 June 2015.
[13]
In a letter dated 17 April 2015, the Commissioner reiterated, amongst
other things that the decision to classify the ceiling
type air
conditioning units under tariff subheading 8415.90 and particularly
8415.90.05 as part of a window or wall type of a split
system was
"based
on the WCO Secretariat opinion which stated that the
ceiling type is also considered to be window/wall type. The
Secretariat also
stated that the issue of ' type 'is not exhaustive
and therefore ceiling type should be considered as similar to
window/wall type
air conditioning system."
[14]
It is common cause that an earlier informal one on the same issue
during 2002 preceded the WCO opinion of 12 December 2012.
The
circumstances were as follows:
[14.1] On 06 June 2001,
the Commissioner forwarded a request to the WCO for an opinion on
whether subheading 8415.10 covers only
air conditioning machines
designed to be fitted to the wall or to the window, whether
self-contained or consisting of separate
elements, or whether the
text of this subheading also encompasses machines of the same type,
designed to be fitted to other locations
in the premises to be
cooled, such as the ceiling, for example.
[14.2] On 6 July 2002,
the WCO advised that "
Bearing in mind the wording of
subheading 84 15. 10, the Secretariat considers that the inclusion of
the word "types"
(window or wall types) makes this
a
non-exhaustive statement of the location in which the air
conditioning machines at issue can be fitted in the premises to be
cooled.
Consequently, the Secretariat takes the view that the
machines of this kind should be classified here even if they
are
not intended to be fitted to the wall or to the window, provided
that they satisfy the conditions laid down in Subheading Explanatory
Note 84 15. 10 on
page
1426 ..."
The WCO qualified its
view by stating that if the Commissioner was not satisfied, it was
"willing to examine the question with reference
to the
characteristics
of
any specific machine for which you are able
to provide technical literature
..."
[14.3] The South African
authorities were not satisfied with this response and on 16 August
2002 a letter was directed to the WCO
in terms of which the latter
was advised, amongst other things that the advise given in the letter
02 August 2002 that I quoted
above has generated some concerns and
they were wondering whether it is not a contradiction in terms and
furthermore, the interpretation
was not in line with the wording of
the item.
The WCO was urged to
reconsider the matter after perusing the additional comments provided
by the respondent. There is no indication
in the record whether there
was any reconsideration of this informal opinion or not after the WCO
was provided with additional
comments.
THE
LEGISLATIVE FRAMEWORK
[15]
Section 47(1) of the Act provides, amongst other things that customs
duty shall be payable on imported goods in accordance
with Schedule
No.1 to the Act.
[16]
Section 47(8) reads as follows
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 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.
(b) The Commissioner
shall obtain and keep in his office two copies of such Explanatory
Notes and shall effect thereto any amendment
of which he is notified
by the said Council from time to time and
shall record the
date of effecting each such amendment and any such amendment shall,
for the purposes of this Act, be effective
from the date so recorded.
(c) Whenever in any
legal proceedings any question arises as to the contents of such
Explanatory Notes or as to the date upon which
any amendment thereto
was effected, a copy of such Explanatory Notes as amended in terms of
this subsection shall be accepted as
sufficient evidence of the
contents thereof and of the effective date of any amendment thereto."
[17]
In terms of Section 47(9)(a) of the Act the Commissioner may in
writing determine the tariff headings, tariff subheadings or
tariff
items or other items of any Schedule under which any imported goods,
goods manufactured in the Republic or goods exported
shall be
classified.
[18]
South Africa is a party to the Harmonized System Convention and a
member of the WCO, as such Part 1 of Schedule 1 of the Act
comprises
of Section and Chapter Notes as well as the General Rules of
Interpretation (the GRI") of the harmonized system
and the
tariff headings.
The
following GRI are relevant and I deem it fit to quote them here
[18.1]
RULE 1:
the titles of sections, chapters and subchapters 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.
[18.2] RULE 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 headings 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.
(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.
[18.3] RULE 6: For
legal purposes, the classification of
goods
in the subheadings
of
a
heading shall be determined according to the terms of
those subheadings and any related Subheading Notes and, mutatis
mutandis,
to the
above
Rules, on the understanding that only
subheadings at the same level are comparable. For the purpose of this
Rule the relative Section
and Chapter Notes also apply, unless the
context otherwise requires.
The
relevant tariff heading
[19]
In terms of Schedule I ("the tariff book"), the goods in
question fall under Chapter 84 of Part 1
I
Section XVI Chapter
84.
[19.1] Before the
amendment it read as follows;
84.15
Air conditioning machines,
comprising a motor - driven fan and elements for changing the
temperature and humidity, including
those machines in which the
humidity cannot be separately regulated:
8415.10
Window or wall types,
self-contained or 'split-
system'
8415.l 0.40
Compressor operated,
having a rated cooling capacity not exceeding 8.8 kW
8415. l 0.90
Other
8415.8
Other
…………
.
8415.83
Not incorporating a
refrigerating unit
8415.90
Parts:
8415.90.10
Other parts identifiable for use
solely or principally with the machines of subheading 8415.l 0.40
8415.90.90
Other
[19.2]
The tariff heading currently reads as follows:
84.15
Air conditioning machines,
comprising a motor -driven fan and elements for changing the
temperature and humidity, including
those machines In which the
humidity cannot be separately regulated:
8415.10
Window or wall types,
self-contained or 'split-system'
8415.8
Other:
8415.10.10
Of a kind used for buildings,
compressor operated, having a rated cooling capacity not exceeding
8.8 kW
8415.10.20
Of a kind used for buildings,
NOT compressor operated, having a rated cooling capacity not
exceeding 8.8 kW
------
8415.83
Not incorporating a
refrigerating unit:
8415.83.10
Of a kind used for buildings,
having a rated cooling capacity not exceeding 8.8 kW
------
8415.90
Parts
8415.90.05
Indoor units and outdoor units
for machines of subheadings 8415.10.10 and 8415.10.20
8415.90.20
Other parts identifiable for use
solely or principally with compressor operated machines of
subheading 8415. l0 having a rated
cooling capacity not exceeding
8.8 kW
8415.90.90
Other
Subheading
explanatory Notes of heading 8415.10
[20]
Before the amendment by the WCO on 17 December 2012, they read as
follows:
"This subheading
covers
air conditioning machines of window or wall types,
self-contained or 'split system' .
The self-contained
type air conditioners are in the form of single units encompassing
all the required elements and being self-
contained.
The 'split system'
type air conditioners are ductless and utilize
a
separate
evaporator for each area to be conditioned (e.g., each room)".
[20.1]
After the amendment, the following new sentence was inserted as a
second sentence in paragraph 3;
"
The indoor heat
exchanger unit may be mounted in various locations, for example, in
a
wall or window, or ceiling."
THE DISPUTE AND ISSUES
FOR DECISION
[21]
The dispute between the parties turns into two issues; (a) the nature
and characteristics of the goods, and (b) the correct
interpretation
of the relevant tariff heading subheading 8415.10.
[22]
The applicant contends that there is no scope for inclusion of
ceiling type air conditioners and that the use of the word "type"
cannot lead to an extended meaning to include ceiling type split air
conditioners under this subheading.
[23]
There is consensus with regard to the nature and characteristics of
the goods and as such I am not required to make a decision
in that
regard. Therefore the only issue for decision is the second part of
the dispute, namely, the correct interpretation of
tariff subheading
8415.10.
It
is common cause that the applicant imports two types of air
conditioning units, namely, indoor units that are of the type to
be
installed in or under ceilings and outdoor units that are not wall or
window types but placed or mounted outside the building
on the floor,
ground or roof. The outdoor units cannot be fitted against the wall
because there must be space between it and the
wall for it to
function properly.
The
applicant explained further that the outdoor units do not contain
bars and that the products are classified as presented upon
importation. The respondent's response in the answering affidavit in
this regard was a bare denial.
[24]
The classification process was described in the well-known case of
International Business Machines SA (Pty) Ltd v CSARS 1985(40)
SA 852 (A)
at paragraph 836g as follows:
"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"
[25]
The correct approach in interpretation of the Harmonized System
contained in Schedule l and in particular the value of the
Explanatory Notes was described in the matter of
Secretary for
Customs and Excise v Thomas Barlow & Sons
1970 (2) SA 660
(A).
("the Barlow matter ")
[25.1] Trollip JA had
this to say about the Schedule (highlighted for emphasis) , its
purpose, the correct approach to interpretation
of the Schedule and
how to resolve a conflict between the Explanatory Notes and the
tariff headings and chapter notes.
“
The Schedule
itself and each section and chapter are headed by 'notes', that is,
rules for interpreting their provisions. It is
clear that the
above
grouping and even the wording of the notes and the headings in
Schedule 1 are very largely taken from the Nomenclature compiled and
issued by the Customs Co-operation Council of Brussels. That is why
the Legislature in
sec.
47 (8) (a) has
given statutory recognition to the Council's Explanatory Notes
to that Nomenclature.
These Notes are issued
from time to time by the Council obviously, as their name indicates,
to explain the meaning and effect
of
the wording of the Nomenclature. By virtue of
sec.
47
(8) (a) they
can
be used for the
same
purpose in respect of the
wording in Schedule
1. 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.'
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. They are
manifestly not
designed for the latter purpose, for they are
not
worded with the linguistic precision usually characteristic
of statutory precepts;
on
the contrary they
consist mainly of discursive comment and illustrations. And, in any
event, it is hardly likely that the Brussels
Council intended that
its Explanatory Notes should override or contradict its own
Nomenclature. Consequently, I think that in using
the Brussels Notes
one must construe them so as to conform with and
not
to
override or contradict the plain meaning of the headings and notes.
If
an
irreconcilable conflict between the two
should arise, which in my view is
not
the case
here, then possibly the meaning of the headings and notes should
prevail, because, although
sec.
47 (8) (a) of
the Act says that the interpretation of the Schedule 'shall be
subject
to'
the Brussels Notes, the latter
themselves say in effect that the headings and notes are paramount,
that is, they must prevail. But
it is
not
necessary
to express
a
firm or final view
on
that aspect"
[26]
Counsel for the both parties relied on this dicta and one of Miller
AJA in the same judgment to advance their respective arguments
with
regard to the value of the Explanatory Notes ("EN's") and
in particular how to resolve a conflict between them and
the
headings, chapter and section notes..
The
bottom line though is that these dicta were followed in subsequent
decisions of the SCA and applied in various high courts decisions
to
support the principle that the Explanatory Notes serve only as a
guide.
[26.1] In the matter of
CSARS v The Baking Tin [20071 SCA 100 CRSA)
, Lewis
JA
reaffirmed the principle that EN's are ot peremptory but
guidelines in interpretation of tariff headings.:
"[6] The
explanatory notes are not, however, peremptory injunctions. In
Secretary for Customs
and
Excise v
Thomas Barlow
&
Sons
Ltd2 Trollip JA said that ' they are not worded with the linguistic
precision usually characteristic of statutory precepts:
on
the
contrary they consist mainly of discursive comment
and
illustrations'
. See also Lewis Stores (Pty) Ltd v Minister of Finance.3"
[1]
APPLICANT'S SUBMISSIONS
[27]
The case for the applicant is premised on two main arguments, namely,
(a) that the wording of
subheading 8415.10 leaves no scope for inclusion of ceiling air
conditioners and;
(b) The amendment that
seeks to include ceiling air conditioners in this subheading has
created a conflict or contradiction between
the terms of the headings
and the relevant Explanatory Notes. In this regard, the applicant's
argument is that the emphasis on
EN's is misplaced. The terms of the
headings, so the argument goes, should take precedence over the EN's.
Interpretation
of subheading 8415.10
[28]
Mr Vorster SC argued that the words to be interpreted are "window
or wall types, self- contained or 'split system'.
The
meaning is accordingly self-evident and cannot include ceiling type
air conditioners or outdoor air conditioning units.
Furthermore,
the use of the word "or" between "self-contained"
and "split system" indicates that for
the machine to fall
under tariff heading 8415.10 the machine can either be a window or
wall type which is self contained or
a window or wall type which
is a split system.
[29]
He relied on the dictionary meaning of the words window, wall and
ceiling to advance the argument that ceiling air conditioners
are not
included in subheading 8415. 10.
The
Collins Concise English Dictionary, HarperCollins, Eighth Edition,
20212 describe these three words as follows:
"Window:
A
light framework,
made
of timber, metal or plastic, that
contains glass or glazed opening frames and is placed in
a
wall
or roof to let in light or air or to see through
.."
Wall:
A
vertical construction
made
of stone
,
brick,
wood,
etc, with
a
length and height much greater than its
thickness, used to enclose, divide or support.."; and
Ceiling:
The
inner upper surface of
a room..."
[30]
It was further contended on behalf of the applicant that taking into
account the undisputed characteristics of the goods and
the wording
of TH84 l5, the correct subheading is 8415.90.90.
The
insertion of the amendment
[31]
With regard to respondent's reliance on the amendment of 17 December
2012, Mr Vorster SC argued that the insertion was not
done by the
South African Legislature but by the WCO and affect the Explanatory
Notes. If the Chapter Notes had been amended, it
would be a different
situation.
[32]
Reliance on this insertion is wrong for the following reasons;
(a) Even if the
Commissioner is correct in the submission that ceiling air
conditioners are included in subheading 8415.10, there
is no defence
with regard to the inclusion of outdoor units.
(b) Prior to December
2012, there is no way that subheading 8415.10 could have referred to
ceiling air conditioners. No retrospective
effect was intended by the
WCO amendment.
I was referred to the
matter of
CSARS
v Coltrade International CC
[2]
(c) The approach of the
Commissioner is consistent with the obiter of Miller AJA in the
Barlow judgment when he referred to the
effect of specific inclusions
and exclusions in the Explanatory Notes and stated the following
"in
such
a
case, despite the paramouncy of the headings and the
section and chapter notes, it might be that an express inclusion or
exclusion
in the Explanatory Notes would prevail, on the ground that
failure to obey it would be to disregard
the statutory
injunction to interpret the headings 'subject to' the Explanatory
Notes.
(d) The current situation
though is as stated in the judgment of Lewis JA in the Baking Tin
matter.
RESPONDENT'S
(COMMISSION ER) SUBMISSIONS
[33]
On behalf of the Commissioner. Mr Meyer SC and Mr. Mothibe submitted
(as I have already stated above) that the dispute turns
on the
interpretation of subheading 8415. l0. The Commissioner is in
agreement with the applicant with regard to the value and
importance
of Explanatory Notes but denied that the Commissioner is placing too
much emphasis on them.
[34]
The Commissioner agrees with the principles in the Barlow matter that
interpretation starts with considering the nature of
the Notes. Some
are general and some are more specific. The process starts with
considering the specific type of goods. In this
case it is air
conditioners. In the subheadings it become more specific. In this
case one only need to concern oneself with the
subheading, 8415. l0.
[35]
It is correct that the 2012 amendment was an amendment to the EN's.
The purpose of the EN's is to explain and if they are not
clear,
amendments are done. What was to be interpreted before and after the
amendment is the same.
[36]
Section 47(8) (a) of the Act says that interpretation "must"
and not "may" be done subject to the Hamonized
System .
He
referred to paragraph [15] of the Coltrade matter where Leach JA
expressed the importance of the explanatory note under consideration
in that matter. The EN was not ignored. It was considered and only at
the end it was held not to support the commissioner's contention.
[37]
On the correct classification on the goods, Mr. Meyer SC referred to
the affidavit of the expert consultant of the applicant,
Mr. Theys
dated 23 September 2014 where he stated the following
"'Firstly,
the term , ' through-the-wall-unit '
,
i.e "window type",
is restricted to self-contained air conditioners in which the
evaporator unit and the condensing unit
are integrated in
a
single housing; the self-contained unit is mounted in a
specially
made
hole in the wall or window frame with the
evaporator
facing the inside of the
room,
and the
condenser facing the outside of the building. The machines at issue
are of
a
split type, and are clearly distinguishable from the
afore-mentioned "window types"
Mr
Meyer SC's understands this part of Theys's affidavit to mean that
the applicant's contention is that it is not possible to have
a
window type as a split system. Theys is alleged to support the
respondent's contentions.
The
reference to Theys's affidavit quoted above was intended to show what
Mr Meyer referred to as " the absurdity" of
the applicant's
argument that the use of the word "or" between
"self-contained " and "split-system"
indicates
that in order to fall within tariff subheading 8415.10, the machine
can be either a window or a wall type machine which
is self-contained
or a window or wall type which is a split system .
I
was referred to two cases
[3]
to
support the contention that one must guard against a literal
interpretation of words where it is clear that it will lead to
absurd
results.
Mr.
Vorster SC dealt with this issue in reply by referring to paragraph
[18] of the judgment of Wallis JA in the matter of
Natal
Joint Municipal Pension
Fund v Endumeni Municipality
[4]
I will
deal with this issue in more detail later in this judgment.
[38]
Mr. Meyer SC submitted further that subheading 8415.10 provides for
"windows or wall types, self-contained or split system.
Therefore,
what needs to be interpreted is the common denominator or
characteristic of window or wall. The fact that the word "or"
was used means that what is referred to is a "type" of
group of things.
The
Commissioner's argument here is that a ceiling air conditioner is one
of the types of air conditioners such as a wall or window
type.
DISCUSSION AND POSSIBLE
ORDERS
[39]
At the conclusion of the hearing, the parties agreed to submit
possible draft orders based on the evidence presented and findings
that I would make with regard to their respective arguments. Three
possible orders were identified.
[39.1] The first one is
premised on the applicant 's argument that on a proper interpretation
of tariff sub-heading 8415.l0 it covers
window or wall types which
are self-contained or split system (i.e. that split-systems
which are not window or wall types
are not covered by the tariff
subheading).
If this interpretation is
upheld then the appropriate order would be;
"That the
Respondent's tariff determination (annexed to the founding affidavit
as Annexure "NS8"), determining the
products under issue
under tariff heading 84 15.90.05 and tariff heading 84 15. 10 be set
aside and replaced with a tariff determination
under tariff heading
84 15.
90.90.
[39.2] The Commissioner's
argument is that on a proper interpretation of tariff heading 8415.
1O it covers all types of split
system air conditioners. If that
interpretation is upheld then the appropriate order would be ; "
The application is dismissed with costs, such costs to include the
costs of two counsel.
[39.3] The Commissioner
contends , which contention is disputed by the applicant, that if the
applicant's argument above is accepted,
it would only be entitled to
an order in terms of prayer 2 ( ·the alternative to the main
relief) of its notice of motion,
and in this regard the order would
be ;
"That the Respondent' s tariff determination be set
aside and replaced with
a
determination that until 17 December
20 12 the products are classified under tariff heading 84 15.90.90
and thereafter under tariff
heading 84 15.90.05
or 8415.90. 10
as
the
case
may
be.
[40]
The applicant does not agree with the third proposed draft in
paragraph [39.3] above. The reason being that it has always
maintained that the explanatory note which was inserted on 17
December 2012, and which refers to a ceiling, is in conflict with
the
wording of the tariff subheading.
It
is applicant's view that if such an order is granted, it is entitled
to costs as it would have been substantially successful.
LEGAL PRINCIPLES,
ANALYSIS OF EVIDENCE AND FINDINGS ON THE MOST APPROPRIATE SUBHEADING
[41]
The question is whether the words "split system " is
restricted to air conditioners that are capable of being mounted
in
the window or wall as the first part says or they include split
system air conditioners that can also be mounted in the ceiling.
As
I understand the Commissioner's version, the operative term here is
"type" and as such, all types of air conditioners
are
included in this subheading, irrespective of where they are mounted.
The reference to "window or wall" is just but
an example of
areas where air conditioners are mounted.
On
the other hand, the applicant contends that "split system"
as it appears in this subheading refers to air conditioners
that are
mounted on the window or wall.
[42]
We already know that the Commissioner was of the view that the
subheading is restrictive, hence an informal opinion was sought
in
2002 with regard to whether ceiling mounted air conditioners can be
included in this subheading.
The
rationale for inclusion of the ceiling air conditioners is that the
"wall and window " are just examples of places
where the
air conditioner may be mounted..
[43]
In the matter of
Fundtrust
(Pty) Ltd (in liquidation) v Van Deventers
[5]
it was
said that
"Recourse
to authoritative dictionaries is
a
permissible
and often helpful method available to the courts to ascertain the
ordinary meaning of words in
a
statute.
But judicial interpretation cannot be undertaken by "excessive
peering at the language to be interpreted without sufficient
attention to the contextual scene". The task of the interpreter
is, after all, to ascertain the meaning of
a
word or
expression in the particular context of the statute in which it
appears.
As a
rule
every word or expression must be given its ordinary meaning and in
this regard lexical research is useful and at times indispensable.
Occasionally, however it is not" ( at
726H-727B)
"A
departure from the plain words of
a
statute on account of
anomalous results is only justified when the court is satisfied that
such results were not
intended. Similarly, where
a
statute
is capable of more than one interpretation the fact that
a
particular construction would lead to an anomaly is not
necessarily
a
conclusive indication that that construction was
not intended.
A
construction leading to an anomalous result
should accordingly only be rejected if the conclusion is justified
that the result could
not have been intended. Of course, if anomalies
arise in more or less equal degree on either construction, they may
be discarded
as factors in the interpretation"
at 733G-734B)
[44]
In the matter of
Rashavha
V Van Rensburg
[6]
the
Appeal Court said that there is no need to resort to an
interpretation of a section, generous, purposive or otherwise, where
there is no uncertainty as to its meaning.
[45]
Wallis
JA
in
the Natal Joint Municipal Pension Fund
[7]
matter on the approach to interpretation
[18] Over the last
century there have been significant developments in the law relating
to the interpretation of documents, both
in this country and in
others that follow similar rules to our own.13 It is unnecessary to
add
unduly to the burden of annotations by trawling through
the
case
law on the construction of
documents in order
to trace those developments. The relevant
authorities are
collected and summarised in Bastian Financial Services (Pty) Ltd
v
General Hendrik Schoeman Primary School.''
The present
state of the law
can
be expressed as follows.
Interpretation is the process of attributing meaning to the words
used in
a
document, be it legislation,
some
other statutory instrument, or contract, having regard to
the
context
provided by reading the particular
provision or provisions in the light of the document as
a
whole and the circumstances attendant
upon
its
coming into existence. Whatever the nature of the document,
consideration must be given to the language used in the light of
the
ordinary rules of grammar and syntax; the context in which the
provision appears; the apparent purpose to which it is directed
and
the material known to those responsible for its production. Where
more than
one
meaning is possible each
possibility
must
be weighed in the light of all
these factors is The process is objective not subjective. A sensible
meaning is to be preferred to
one
that leads to
insensible or unbusinesslike results or undermines the apparent
purpose of the document. Judges must be alert to,
and guard against,
the temptation to substitute what they regard
as
reasonable, sensible or businesslike for the words actually
used. To do so in regard to
a
statute or
statutory instrument is to cross the divide between interpretation
and legislation.
In
a
contractual
context it
is to make
a
contract for the parties other than the one they
in fact
made.
The 'inevitable point of departure is the
language of the provision itself ', 16 read in context and having
regard to the purpose
of the provision and the background to the
preparation and production of the document. (highlighted for
emphasis)
[19]
All this is consistent with the 'emerging trend in statutory
construction '. It clearly adopts as the proper approach to
the
interpretation of documents the second of the two possible approaches
mentioned by Schreiner
JA
in Jago
v Donges NO and
another, 1s namely
that from the outset
one
considers the
context
and the language
together, with neither predominating over the other. This is the
approach that courts in South Africa should now
follow, without the
need to cite authorities from
an
earlier
era
that are not necessarily consistent and frequently reflect
an
approach to interpretation that is
no
longer appropriate.
The path that Schreiner
JA
pointed to is now received wisdom elsewhere. Thus Sir Anthony
Mason
CJ
said:
'Problems of legal
interpretation are not solved satisfactory by ritual incantations
which emphasise the clarity of meaning which
words have when viewed
in isolation, divorced from
their context.
The
modern approach to interpretation insists that context be considered
in the first instance, especially in the case of general
words, and
not merely at
some
later stage when ambiguity
might be thought to arise.’
19
[46]
There relevant EN's read as follows; (own numbering)
[46.1] The first
paragraph :
"This subheading
covers air conditioning machines of window or wall types,
self-contained or 'split system '.
[46.2] The second
paragraph :
The self-contained
type air conditioners are in the form of single units encompassing
all the required elements
and
being self-contained.
[46.3] The third
paragraph :
"The 'split
system' type air conditioners are ductless
and
utilize
a
separate evaporator for each area to be conditioned (e.g., each
room)" .
[46.3.1] A second
sentence was inserted in this paragraph by the amendment of 2012 and
reads as follows:
"
The indoor
heat exchanger unit may be mounted in various locations, for example,
in
a
wall or window
,
or
ceiling."
[47]
In my view, paragraphs 2 and 3 gave context to the first one. They
explain what 'self-contained' and 'split system' means with
reference
to the identified type of air conditioners.
[48]
If the meaning that the Commissioner seeks to ascribe to the first
paragraph is correct, then there would have been no need
to further
breakdown and make provision for the type of air conditioners
(8415.8) identified as "Other" in the subheadings.
This
is a clear indication that the words "types" were not
intended to give examples of air conditioners but to restrict
the
meaning to the two mentioned by name.
[49]
What I am illustrating here is consistent with the common cause
schematic arrangement of the subheadings. They starts by being
general and as they go down, become more specific.
[50]
As indicated above, the amendment to the EN's was published on 17
December 2012 and reads as follows "
The indoor heat
exchanger unit may be mounted in various locations, for example, in
a
wall or window
,
or on a
ceiling" .
Whilst
the first paragraph deals with the type of air conditioners, this
amendment deals with the locations where "indoor heat
exchangers" may be mounted.
This
does not detract from the fact that the subheading covers the type of
air conditioners identified in the first paragraph. In
my view it is
not a clarification of the first paragraph as contended by the
Commissioner.
[51]
I do not agree with the Commissioner's contentions that any other
type of air conditioner but the ones identified by name fall
in this
subheading.
[52]
I agree with the applicant's contention that the Commissioner was
wrong to determine its products as falling
under tariff heading 84
15.90.05.
The correct tariff heading heading is 8415.90.90.
[53]
The next issue that I need to consider is whether, as contended by
the Commissioner, the applicant should only get relief in
terms of
prayer 2 of its notice of motion.
Prayer
2 reads as follows
"Alternatively to
the
above,
that the tariff determination be set aside
and
replaced with
a
determination that until 17 December 2012
the products are classified under TH84 15.
90.90
and thereafter
under TH84 15.90.05 as the
case
maybe".
[54]
I have set out the circumstances that preceded the WCO opinion of 12
December 2012 in the introductory parts of this judgment.
What is
important to note is the fact that the reason for the informal
referral for an opinion to the WCO in 2002 was because of
the concern
that subheading 8415.10 was restrictive in that it excludes ceiling
air conditioners. The reaction (underlined for
identification) of the
Commissioner to the informal opinion (which is basically the same as
the formal one of 2012) was amongst
others as follows;
"In addition,
there are two statement in the Secretariat' s reply that
have generated some
concern
.
Firstly, " ...the
Secretariat considers that the inclusion of the word "types"
(window or wall types") makes
this
a
non-exhaustive
statement of the locations where the air conditioners at issue can be
fitted ..."
South Africa therefore wonders whether
this is
a
contradiction in terms?
Secondly, and very
much in the same vein
"Consequently the Secretariat
takes the view that machines of this kind should be classified here
even if they are not intended
to be fitted to
a
wall or to
a
window
..." South Africa is of the opinion that
this is not in line with the wording of the item.
[55]
Although these proceedings are not an appeal against the WCO opinion,
it is common cause now as I have stated above that the
dicta in the
Barlow matter about the status of the Harmonized System has now been
confirmed and the law as it is now is that they
are merely
guidelines.
[56]
The opposition of this appeal was built on the WCO opinion. Without
deciding on its validity, I do not think that the applicant
should
only be entitled to relief up to the publication of that opinion.
[57]
It may be best to reproduce what I have stated in an earlier
paragraph in this judgment to illustrate the unfairness against
the
applicant if it were to obtain the relief in terms of Prayer 2.
"
[11] The
internal appeal
was
submitted on 17 June 20 1 1. It
was
referred to the Tariff Policy Section which in turn
and
by
agreement with the applicant referred it to the World Customs
Organization
("WCO") for
a
formal opinion. The
WCO 's
decision was
made
during M arch 2012 and was duly published in its website on 17
December 2012 in the form of
a
generic classification opinion
and an amendment to the Explanatory Notes.
[11.1]
The internal appeal was decided
on
31 July 2012 against the
applicant.
The applicant was however only notified
on
2
1 February 20 14.
The
goods
were determined to be classifiable under tariff heading
84 15.90.05."
[58]
Therefore, I am not inclined to grant an order in terms of Prayer 2
as the Commissioner has contended. Firstly, as stated above,
the WCO
opinion is not law. If it was so, there would be no need to interpret
the subheading. Secondly, as stated above, the WCO
opinion and a
decision on the internal appeal were issued in March and
July
2012,
but the applicant was only notified in February 2014.
ORDER
[59]
The appeal succeeds, and I make the following order:
[59.1] the
Respondent's tariff determination (annexed to the founding affidavit
as Annexure "NS8"), determining the products
under issue
under tariff heading 84 15.90.05 and tariff heading 84 15. 10 be set
aside and replaced with a tariff determination
under tariff heading
84 15.90.90.
[59.2] The respondent
is ordered to pay costs of this application.
TAN
MAKHUBELE
ACTING
JUDGE OF THE HIGH COURT
APPEARANCES:
Applicant:
J P VORSTER SC
Instructed
by
Shepstone & wylie
c/o:
Clarinda Kugel Attorneys Pretoria
Respondent:
J A MEYER SC (with W N MOTHIBE)
Instructed
by:
The State Attorney, Pretoria
Date
heard:
19 May 2016
(Draft
orders and submissions in this regard submitted on 30 May & 01
June 2016)
[1]
Footnotes omitted from the quotation
[2]
(54/2015)
[2016] ZASCA 53
(1 April 2016]
[3]
Hanekom v Builders Market Klerksdorp {Pty) Ltd and Others
2007 (3)
SA 95
, Poswa v MEC for Economic Affairs, , ETC, Eastern Cape 2001
(3) SA 582
[4]
(920/2010) (2012] ZASCA 13; (2012]
2 All SA 262
(SCA);
2012 (4) SA
593
(SCA) (16 March 2012
[5]
1997( 1) SA 710 (A).
[6]
(2004) 1 ALLSA 168 (SCA)
[7]
supra. Footnotes not reproduced.