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[2009] ZAGPPHC 23
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Distell Limited and Another v Commissioner for the South African Revenue Services and Another (A1274/06) [2009] ZAGPPHC 23 (3 April 2009)
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG NORTH DIVISION)
REPORTABLE
Case
number A.1274/06
TPD Case number 11883/04
In the matter between: DATE: 3/4/2009
DISTELL LIMITED First Appellant
STELLENBOSCH FARMERS’ WINERY LTD
Second Appellant
and
THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICES First Respondent
THE MINISTER OF FINANCE Second Respondent
CORAM: WEBSTER et MOLOPA JJ et EBERSOHN AJ.
DATE HEARD: 13TH AUGUST 2008
DATE JUDGMENT HANDED DOWN: 3 APRIL
2009
____________________________________________________________________
JUDGMENT.
____________________________________________________________________
EBERSOHN AJ.
[1] In this matter the appellants appeal with
leave of the court
a quo
against the whole of the judgment in terms whereof the appellants'
application in the court
a quo
was dismissed with costs. In this judgment the first appellant will
be referred to as "Distell", the second appellant
as "SFW"
and the first respondent as the "Commissioner".
[2] The court
a quo
made the following order:
"1. The application is
dismissed.
2. Applicants are ordered to pay jointly
and severally the costs of both first and second respondents on a
party and party scale
which costs are to include costs occasioned by
the employment of two counsel."
[3] The appellants rely on various grounds in
their notice of appeal and these grounds, summarised, read as
follows:
a) The court
a quo
erred in finding that the first appellant does not have
locus
standi
in respect of Crown Premium
("Crown").
b) The court
a quo
erred in finding that there was no justification for the joinder of
the second applicant in order to obtain relief in the alternative
in
respect of Crown, because any such relief has become time barred.
c) The court
a quo
erred in finding that the relief claimed in respect of Bernini
Sparkling Grape, relating to a determination which was made in 1996,
was time barred.
d) The court
a quo
erred in finding that the 1996 determination relating to Bernini
Sparkling Grape was not made in respect of the first applicant.
e) The court
a quo
erred in holding that the wine coolers were classifiable under tariff
item 104.15.50 prior to 18 February 2004.
f) The court
a quo
erred in finding the applicable tariff heading to be TH22.06 "
other
fermented beverages
" for the
product could not fall under "
other
";
the reason being that the "
fermented
beverage
" of the product is "
wine
of fresh grapes
", which is covered
by TH22.04.
g) The court
a quo
erred in holding, on the authority of
AM
Moosa Group Ltd. v Commissioner SA Revenue Service
2003 (6) SA 244
(SCA), that the estoppel raised by Distell could not
succeed.
h) The court
a quo
erred in holding that the constitutional issue raised was premature,
because, as the claim of Distell and SFW for refunds will
only arise
on the setting aside of the determinations of 13 October 2004, the
unconstitutional deprivation by section 76B of the
Act of such
refunds could only arise in such event.
i) Due to the findings of the court
a
quo
the court
a
quo
did not consider certain aspects
which should have been considered and decided in the favour of
Distell and SFW.
[4] The court
a quo
dealt with the facts in its judgment obviating the necessity of
repeating everything again in this judgment and only the facts
relating to the appeal will be dealt with.
[5] The only issue which falls to be decided in
this appeal is the merits of the classification issue and if the
appellants succeed
on the merits, the orders which should be made to
amend the Commissioner's (allegedly) incorrect determination. The
following
issues will therefore have to be considered by this Court:
a) Distell's
locus
standi
to challenge the 1995
determination given to SFW in respect of Crown.
b) Whether, having regard to:
i) Section 47(9) of the
Act, as it read during 1995/1996,
alternatively
as it reads presently;
ii) the common law,
alternatively
section 7(1) read with section 9 of the
Promotion
of Administrative Justice Act
, 3 of
2000 (“PAJA”);
the tariff
determinations made by the Commissioner in 1995 and 1996 in respect
of Crown and Bernini may now be impugned.
c) Whether the wine coolers, prior to the
amendment of Schedule 1 Part 2A on 18 February 2004, attracted
payment of specific excise
duty in terms of Tariff Item 104.17.15.
[6] In order to determine the aforesaid, a finding
on the true nature and characteristics of the wine coolers and, in
particular,
a finding on whether water is, for classification
purposes, to be regarded as a "
non-alcoholic
beverage
", is to be made. With
regard to the belated attack on the constitutionality of section 76B
of the Act, resulting in the second
respondent being joined, the
appellants conceded that the constitutionality questions should not
be adjudicated in this application
and if the appellants succeed on
the classification issue, they will raise these matters (to the
extent necessary) in any subsequent
proceedings that may be
instituted. (Appellants' heads of argument paras. 94-99).
[7] Based on averments
made by the deponent (Vermaak AA (Vol. 2, para. 7.1, record p. 149)
it appears that Distell and SFW launched
the application in an
attempt to reclaim at least R150 million from the fiscus.
[8] During 1995 SFW
manufactured, among others, a drink known as a "
wine
cooler
" under the mark "
Crown
Premium
" ("Crown").
[9] On 17 July 1995 a written tariff determination
was given
to SFW
by the Commissioner in terms whereof Crown was determined to be:
a) classifiable under
Tariff Heading 2206.00.90 of Part 1 of Schedule 1 of the
Customs
and Excise Act
, 91 of 1964 ("the
Act"); and hence
b) liable to excise
duty in terms of Tariff Item 104.15.80 of Part 2A of Schedule 1 of
the Act. (All references hereafter to Tariff
Headings and Tariff
Items will be references to the relevant headings and items in Part 1
and Part 2A of Schedule 1 to the Act).
Part 1 deals with what might
be termed “
ordinary
”
customs duty on imported goods, whilst Part 2A deals with excise duty
payable (for present purposes) on goods manufactured
in South Africa.
The items mentioned in Part 2A invariably mirror Tariff Headings in
Part 1 with or without minor amendments.
[10] On 1 December 1995 the Part 2A determination given to SFW was
amended by the Commissioner from Tariff Item 104.15.80 to Tariff
Item
104.15.50.
[11]During 1996 a
company known as Distillers Corporation Limited ("Distillers")
manufactured, among
others, a wine cooler known as Bernini Sparkling Grape Beverage
("Bernini").
[12] On 21 June 1996 a
written tariff determination was given to Distillers in terms whereof
Bernini was determined to be:
a) classifiable under Tariff Heading 2206.00.90;
and hence
b) liable to excise
duty in terms of Tariff Item 104.15.80;
[13] On 10 September
1996 the Part 2A determination given to Distillers was amended by the
Commissioner from Tariff Item 104.15.80
to Tariff Item 104.15.50.
[14] Neither SFW nor
Distillers NO appealed against the Commissioner's determinations.
[15] During January
2001 Distillers bought
the business of
SFW and eventually became Distell.
[16] In early 2002 the
Commissioner apparently realized that there could be a problem with
the classification of the wine coolers,
in particular the excise
duties paid thereon, as and as a result thereof an in-depth
investigation was undertaken.
[17] In terms of a
(new) written tariff determination made by the Commissioner on 14
August 2002, eight other wine coolers ("the
eight wine coolers")
manufactured by the newly formed Distell were determined to be:
a) classifiable under
Tariff Heading 2206.00.90; and
b) liable to the levy
of excise duty in terms of Tariff Item 104.15.50.
[18] A firm known as
KPMG (acting on behalf of Distell) made certain submissions to the
Commissioner, and the Commissioner in reaction
thereto, in terms of a
written
determination dated 12
March 2003:
a) withdrew the
determinations of 14 August 2002 (in respect of the eight wine
coolers) insofar as they pertained to the Part 2A
classification; and
b) determined the eight
wine coolers to be classifiable under Tariff Item 104.15.10, with
effect from 14 August 2002.
[19] As regards Crown
and Bernini the Commissioner, in a further evenly dated letter,
advised Distell that,
as the classifications in respect thereof had been made as long ago
as 1995 and 1996 respectively, the right
to appeal the same had
lapsed by virtue of the provisions of section 47(9) read with section
96 of the Act.
[20] In terms of a
letter dated 15 December 2003 Distell gave notice in terms of Section
96 of the Act of its intention to institute
legal proceedings against
the Commissioner.
[21] On 18 February
2004 (as part of the budget speech of the Minister of Finance), and
with effect from that date, Part 2A of Schedule
1 was amended. The
effect of the
amendment was to make
it clear that from that date all the beverages classifiable under
Tariff Heading 22.06 would be liable to
the same excise duty.
[22] The proceedings
before the court
a quo
were instituted on 6 May 2004.
[23] In terms of a
written determination dated 13 October 2004 the Commissioner issued
the following
new
determinations
to Distell
in respect of Crown:
It was determined to be classifiable under Tariff Heading 2206.00.80
with effect from the date of the determination, i.e. 13
October
2004;
b) it was determined to
be subject to specific excise duty in terms of Tariff Item
104.17.15.
[24] In terms of a written determination dated 13
October 2004 the Commissioner issued the following determinations in
respect of
Crown:
a) The Part 1
classification was amended from Tariff Heading 2206.00.90 to
Tariff Heading 2206.00.80 with effect from 13
October 2004; and
b) the Part 2A
classification, as it was prior to the amendment of the Act on 18
February 2004, was confirmed.
[25] In terms of a written determination dated
13 October 2004 the Commissioner
issued the following
new
determinations to Distell in respect of Bernini:
a) it was determined to
be classifiable under Tariff Heading 2206.00.80; and
b) it was determined to
be subject to specific excise duty in terms of Tariff Item
104.17.15.
[26] In
terms of a written determination dated
13 October 2004 the Commissioner
issued the following determination to
Distell
in respect of the eight wine coolers:
a) the determination of
12 March 2003 (
annexure "JWW7"
)
was withdrawn; and
b) the coolers were
determined to be classifiable under Tariff Heading 2206.00.80 and
thus liable to specific excise duty under
Tariff Item 104.15.50,
before, and under Tariff Item 104.17.15, after the amendment of
Schedule 1 Part 2A on 18 February 2004.
[27] On or about 12
October 2005 Distell, belatedly, filed an application for the joinder
of SFW as a second applicant.
[28] Distell's
locus
standi
to assail the determinations
given to SFW relating to Crown, must now be considered:
a) It was submitted by
Mr. Puckrin, who appeared with Mr. Meyer, for the Commissioner and
the Minister that the Commissioner’s
arguments on the
classification issue were trenchant and, if upheld, would be
determinative of the entire appeal, as a matter
of logic issues of
locus standi
and time-barring must perforce be dealt with first. He emphasized
that these arguments were not mere technical makeweights, but
were
substantial and indeed unanswerable, hence the appellants’
attempts to involve the
Promotion of
Administrative Justice Act
, No. 3 of
2000, ("PAJA") to extricate themselves from the clear
provisions of the Act in relation to appeals and their
abortive
attack on the constitutionality of section 76B of the Act.
b) Section
47(9)(a)(iii)(aa) of the Act provides that any tariff determination
made by the Commissioner shall operate "
only
in respect of the goods mentioned therein and the person in whose
name it is issued
" as was
correctly held, with respect , by the court
a quo
.
c) Mr. Puckrin
submitted that the legal and practical effect of the aforesaid must
be that:
i) the rights derived by the person or entity to
whom a determination was given attach to such person or entity and
are not capable
of being transferred, either by way of cession or
otherwise; and hence
ii) as
the determination was given to SFW, only SFW has the necessary
locus
standi
to impugn the determination.
[29] Distell's
locus
standi
is founded solely on the rights
derived from the agreement
entered into with SFW on 1 January 2001. The
evidence in the aforesaid regard is the
following:
a) In its replying
affidavit (record par. 30.1 on p.21) Distell explained that on or
about 1 January 2001 it had entered into a
written agreement with SFW
in terms of which Distell obtained cession of all SFW's rights
pertaining to Crown;
b) as the agreement was
not annexed to the affidavit of De Wet, the Commissioner called for a
copy thereof and it was furnished;
c) a perusal of the
agreement, however, made it clear that Distell's explanation that
SFW's rights had been ceded to it, was not
true.
[30] The reality is
thus that even if it were possible to cede the right to appeal a
tariff
determination (which
Mr. Puckrin did not concede), SFW's right to do so was never ceded to
Distillers and, consequently, to Distell.
I find that Distell did
not, and could not, have
locus standi
to impugn the determination given to SFW in 1995 in respect of Crown.
[31] At the time when
the original determinations in respect of Crown and Bernini were made
(i.e. in 1995 and 1996) sections 47(9)(b)
and (f) of the Act read as
follows:
“47(9)
(b)
Any determination so made shall
,
subject to appeal to the court,
be deemed to be correct for the purposes of this Act, and any amount
due in terms of any such determination shall remain payable
as long
as such determination remains in force.
...
(f)
Such
appeal shall be prosecuted within a period of 90 days from the date
of the determination.
”
(My emphasis)
[32] It seems that as the erstwhile section 47(f)
was peremptory, in that an appeal had to be prosecuted within 90 days
from the
date of the determination, the determination by the
Commissioner is to be regarded as correct. The section did not allow
for the
granting by the Court of condonation for the failure by an
importer to timeously note and prosecute an appeal. The appellants’
failure timeously to prosecute their appeals is irremediable and has
time-barred their right to assail the determinations.
[33] In terms of
section 47(9)(f) of the Act, as it presently reads, any proceedings
against the Commissioner are to be instituted
within one year from
the date on which an aggrieved party's cause of action first arose,
although in terms of section 96(1)(c)(ii)
of the Act the Court may
"upon application
"
extend the one year period "
where
the interest of justice so requires
".
[34] Even if this issue
were to be adjudged by this Court, in terms of section 47(9)(f) of
the Act as it presently reads, the appellants
have failed to make out
a case for condonation, regard being had to the following:
a) the relevant
determinations were made in 1995 and 1996 i.e. more than 10 years
ago;
b) but for the
statement that "
(F)urther and in
any event, the interests of justice require, for all the reasons set
out in these papers, that the period within
which the Applicant
should, in law, be entitled to seek the relief contemplated herein be
extended to 12 May 2004
" no
evidence is given in Distell's papers as to why the limitation period
provided for in section 47(9)(f) of the Act should
be extended by (at
the time) to 10 years. The Commissioner on the other hand has
introduced evidence, by way of the affidavits
of De Wet, FA (Vol 1,
p10 to p.25 and par 30, p.21) in particular and of Walters, RA, (Vol
4, para 2, p.360) as to the prejudice
which the Commissioner will
suffer because of the belated proceedings;
c) SFW also did not make any allegations relating
to either the delay of more than 10 years or why the interests of
justice call
for the adjudication of the appeal after the lapse of a
decade.
[35] With regard to the
applicability, or not, of PAJA:
a) The wording of the
Act is trenchant and that the prescribed remedy of an aggrieved party
against a tariff determination, irrespective
of whether it is founded
on the Commissioner’s alleged wrong interpretation of the
relevant statutory provisions (i.e. the
first step in the
classification process), or his incorrect application of the said
provisions to the facts (i.e. the second and
third steps of the
classification process)), is an appeal in terms of section 47(9)(e)
of the Act.
b) Because the
Act governs both the procedural and substantive prescripts and
requirements of an aggrieved party’s rights
and remedies and
because an appeal in terms of section 47(9)(e) is an appeal “
in
the wide sense”
i.e. a complete
rehearing of the whole issue, there is simply no need to resort to
the corresponding provisions of PAJA.
[36] Furthermore, in this regard, Mr. Puckrin also
submitted that even if the administrative justice principles relating
to the
(timeous) institution of the relevant legal proceedings were
to find application, the appellants have failed to make out a case
for condonation. In this regard he pointed out:
a) in terms of section
7(1) of PAJA judicial review proceedings are to be instituted not
later than 180 days after the date on which
the entity concerned was
informed of the administrative action;
b) in terms of section
9 of PAJA the 180 days may be extended by the Court "
on
application by the person
concerned
" under circumstances
"
where the interests of justice so
require
";
c) before the advent of PAJA review proceedings
had to be instituted within a reasonable time after the challenged
decision or action
became known;
d) it is trite law that
it is incumbent on a party seeking an indulgence to advise the Court
of all the relevant facts,
firstly
,
to explain the delay and the reason for the non-compliance with the
prescribed time periods and,
secondly
,
substantiating and justifying a legal conclusion that the interests
of justice call for an extension of the relevant period (
Associated
Institutions Pension Fund and Others v Van Zyl and Others
2005(2) SA 302 (SCA) at 322 C - J ;
Wolgroeiers
Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad
1978(1) SA 13(A) at 39 C - D;
Minister
of Safety and Security v Standard Bank of SA Limited
1999(3) SA 471 WLD at 476 I/S - 479 A-B;
Setsokosane
Busdiens (Edms) Bpk v Voorsitter, Nasionale Vervoerkommissie en 'n
ander
1986(2) SA 57(A) at 86 G - 87
H/I;
Lion Match Co Ltd v Paper Printing
Wood and Allied Workers Union & Others
2001(4) SA 149 SCA at 156 G - 157 J;
Sasol
Oil (Pty) Ltd & Another v Metcalf N.O
2004(5) SA 161(W) at 164 I - 166 G);
e) on behalf of Distell
it was stated in its papers: "
(F)urther
and in any event, the interests of justice require, for all the
reasons set out in these papers, that the period within
which the
Applicant should, in law, be entitled to seek the relief contemplated
herein be extended to 12 May 2004"
.
Not a single fact was stated, or submission made, in its founding
affidavit as to why the “
reasonable
time
” and/or the limitation
period provided for by section 7 of PAJA should be extended by an
order of Court beyond 180 days after
the lapse thereof, for about a
decade;
f) SFW made not a
single allegation relating to either the delay or why the interests
of justice call for the adjudication of the
appeal after 10 years.
[37] The appellants' reliance on PAJA must
therefor fail for both reasons namely, firstly, because it could not
be invoked and secondly,
because of the time bar.
[38] This Court now has to deal with the principles relating to
tariff classifications.
a) The Commissioner is charged, in terms of the
provisions of section 2(1) of the Act, with the administration of the
Act, including
the interpretation of the Schedules thereto;
b) In terms of section 47(9)(a)(i) of the Act the
Commissioner may, in writing, determine the Tariff Heading, Tariff
Sub-headings
or items of any Schedule under which any imported goods
or goods manufactured in the Republic are to be classified. The
Commissioner's
determination is, however, subject to an appeal to the
High Court in terms of sections 47(9)(b), (e) and (f) of the Act.
c) Such an appeal is
brought as an application before a single judge and all the evidence
is considered afresh in a hearing
de
novo
(
Metmak
(Pty) Ltd v Commissioner of Customs and Excise
1984(3) SA 892 (T);
Autoware (Pty) Ltd v
Secretary for Customs and Excise
1975(4) SA 318 (W) at 320 D - 321 C).
d) The original legal
sources applicable to Tariff classification are,
firstly
,
Part 1 of Schedule No 1 to the Act and,
secondly
,
the Explanatory Notes to the Harmonized System issued by the Customs
Co-operation Council, Brussels.
e) Part 1 of Schedule
No 1 to the Act comprises:
i) The General Rules for the
Interpretation of the Harmonized System;
ii) Section Notes;
iii) Chapter Notes;
iv) Tariff Headings and Subheadings;
v) The rate of duty payable in terms of
the various tariff headings and subheadings.
[39] Section 47(18)(a)
of the Act provides that the:
"..interpretation
of Part 1 of Schedule No 1 shall be subject to the Explanatory Notes
to the Harmonized System and the Customs
Cooperation Council
Nomenclature issued by the Customs Co-operation Council, Brussels,
from time to time
"
[40] Often cited legal authorities on the status
of the Explanatory Notes and their relationship to Tariff Headings,
Sections Notes
and Chapter Notes in matters of Tariff classification,
as well as the process of classification are the cases of
Secretary
for Customs and Excise v Thomas Barlow & Sons Ltd
.
1970(2) SA 660 (A) at 675 D - 676 F and 679 C - 680 C and
International Business Machines SA (Pty)
Ltd v Commissioner for Customs and Excise
1985(4) SA 852 (A). In the latter case, at 863 G - H, the
classification process is summarized 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 the goods.".
[41]The rule of interpretation pertaining to fiscal statutes, i.e.
that such legislation
should be strictly interpreted, finds no
application in classification matters since
–
"
the
case concerns the classification of goods under the correct tariff
head and there is no basis for regarding one interpretation
as
stricter than another.
"(
Commissioner
for Customs and Excise v C I Caravans (Pty) Ltd
.
1993(1) SA 138 (N) at 153 I - J).
[42] What are relevant
in the classification process are the nature, form, characteristics
and functions of the imported or manufactured
goods, objectively
determined. (
Autoware (Pty) Ltd v
Secretary for Customs and Excise
supra
at 321 G - 322 A), Expert evidence is not admissible to prove the
meaning of words save where the words are technical or specialized
words in a technical or specialized setting. Questions of
interpretation are matters of law which exclusively fall within the
domain of the court. (
Crown Chickens
(Pty) Ltd. v Minister of Finance and Others
1996(4) SA 389 (E) at 394 I - 395 H;
National
Screen Print (Pty) Ltd v Minister of Finance
1978(3) SA 501 (C) at 506 A - 507 B;
International
Business Machines case
supra
at 874 A;
Kommissaris van Doeane en
Aksyns v Mincer Motors Beperk
1959(1)
SA 114 (A) at 121 C – D).
[43] The parties were
ad
idem
that all the wine coolers are to
be classified under
Tariff Heading 2206.90 and the disagreement
turns on the reason for their classification under that heading.
[44] The reason why the
rationale underpinning the classification under Tariff Heading
2206.90 is of pivotal importance, is the
following:
a) Goods can be
classified under the Tariff Heading on the basis that they are one of
the following products:
i) "
Other
fermented beverages (for example cider, perry and mead)
";
ii) "
mixtures
of fermented beverages
";
iii) "
mixtures
of fermented beverages and non-alcoholic beverages
".
b) In terms of Tariff
Item 104.15 (before its amendment in 2004), only "
Other
fermented beverages
"
(falling within Tariff Heading 2206.90) were liable to specific
excise duty in terms of Part 2A of Schedule 1.
c) Item 104.15.80 as it
read prior to amendment is cited in full:
Tariff
Item
Tariff
Heading
Description
104.15
.05
.10
.40
.50
.60
.70
.80
WINE OF FRESH GRAPES,
INCLUDING FORTIFIED WINES,
GRAPE MUST, OTHER THAN THAT
OF HEADING 20.09
VERMOUTHS AND OTHER WINE OF
FRESH GRAPES FLAVOURED WITH
PLANTS OR AROMATIC
SUBSTANCES
OTHER FERMENTED BEVERAGES
(FOR EXAMPLE CIDER, PERRY AND
MEAD):
Sorghum beer (excluding beer made from
preparations based on sorghum flour)
Unfortified still wine
Fortified still wine
Other still fermented beverages, unfortified
Other still fermented beverages, fortified
Sparking wine
Other fermented beverages (excluding
sorghum beer)
Distell contends that the products are
classifiable on the basis that they are "
mixtures
of fermented beverages and non-alcoholic beverages
"
(water, allegedly being a “
non-alcoholic
beverage
”).
e) The Commissioner, on
the other hand, contends that the products are "
(O)ther
fermented beverages (for example, cider,
perry, mead)
".
f) Other relevant
Tariff Headings must now also be considered.
G )Tariff Headings
22.01, 22.02 and 22.06 are concerned with the following goods:
Heading
Sub-Heading
Article
Description
______________________________________
______________________________
22.01
Waters,
Including Natural or Artificial Waters and Aerated Waters, Not
Containing Added Sugar or Other Sweetening Matter Nor Flavoured;
Ice
and Snow.
2201.10 -Mineral
Water and earated
waters
2201.90 -Other
22.02
Waters,
Including Mineral Waters and Aerated Waters, Containing Added Sugar
or Other Sweetening Matter or Flavoured, and Other
Non-alcoholic
Beverages (Excluding Fruit or Vegetable Juices of Heading No.
20.09):
2202.10 Waters,
including mineral waters and aerated waters, containing added sugar
or other sweetening matter or flavoured:
.10... in sealed containers holding
2.5l or less(excluding those in collapsible plastic tubes)
.90 ... Other
2202.90 - Other
.20 ...in sealed containers holding
2.5l or less (excluding those in collapsible plastic tubes and those
with basis of
milk)
.90 ...Other
22.06
Other
Fermented Beverages (for example, Cider, Perry, Mead), Mixtures of
Fermented Beverages and Non-alcoholic Beverages not elsewhere
Specified or included:
.05 ...Sparkling Beverages
.15 ...Sorghum Beer
.80 ...Other unfortified
beverages
.90 ...Other
h)
Tariff
Heading 21.06 is concerned with the following goods:
Heading
Sub-Heading Article
Description
21.06 Food Preparations Not Elsewhere
Specified or Included:
2106.90 -Other
.17 -Disaccharide
free infant's food, in powder form...
.25 - Syrups
(including syrups with a basis of fruit juice)
.35 - Sweetene
substances (excluding sweetening substances with a basis of
accharine......
.50 - Mixtures
of chemicals and foodstuffs of a kind used in the preparation of
human foodstuffs
.67 - Compound
alcoholic preparations of a kind used for the manufacture of
beverages (excluding those based on odoriferous substances
.90 - Other
[45] The
classification of the products in issue, is done in three stages.
[46] The first stage
is the ascertainment of the meaning of the words. There is a dispute
between the parties as to the interpretation
of the word “
beverage
”
used in the relevant Tariff Headings and Tariff Items.
[47] The second stage
is the consideration of the nature and characteristics of the goods:
a) The Commissioner
has decided for purposes of the proceedings before the Court, to
accept the evidence introduced by Distell
relating to the nature and
characteristics of
the wine coolers and there is, consequently, no
dispute between the parties in this regard.
b) The manufacturing
process is set out in the affidavit of Duncan Alan Green
("Green") read with
annexure
"JMV6"
to the answering
affidavit of Ms
Vermaak (
Green,
Vol 1, p65 to p85, annexure "JMV6", Vol 3, p189).
c) The manufacturing
process of Crown, Bernini and the Tiffany's products ("the
Crown process") entails the following:
A concentrate, made up of grape wine,
sweetening-, flavouring- and colouring agents is prepared. It is
made as a concentrate
for ease of transport.
ii) The
concentrate is then diluted with water in order to attain the
required
alcohol level, after having been transported
to the bottling facility. Other
operations are also conducted (
Green,
Record Vol 1, p65 et seq read with "DAG2" p70; "DAG3",
p73; "DAG4", p75 and "DAG8, p83).
d) The manufacturing
process of Ginger Fizz and the various River Dew products ("
the
Ginger Fizz process
") entails
the following:
All the ingredients i.e. the water, grape wine,
sweetening-, flavouring-, and colouring agents are added
simultaneously.
ii) In order to
attain the correct alcohol level, two blends with different alcohol
levels are then interblended .(
Annexures
"DAG5", p77; "DAG6", p79, "DAG7", p81
and "DAG9", Vol2, p85)
[48] The third stage
is the selection of the heading which is most appropriate:
a)
Tariff
Headings 21.01 and 22.02
Tariff Heading 22.01 covers "
ordinary
natural water of all kinds
.
Whether or not clarified or purified
";
(
Annexure "JWW19":
Explanatory Note (A) to Tariff Heading 22.01, Vol 2, p136
).
It follows from the aforesaid that technically
speaking dam water, river water, sewage water, drain water etc.
would all be
classifiable under Tariff Heading 22.01 and not as
"
beverages
".
iii) Nowhere in Tariff Heading 22.01, or
the Explanatory Notes thereto, is the word "
beverage
"
used.
iv) Tariff
Heading 22.02, on the other hand:
a) expressly states
that it covers (non-alcoholic) “
beverages
";
b) clearly
contemplates only water that is suitable for human consumption and
that has been further enhanced to that end;
c) clearly provides
for at least two main types of beverages namely:
"
waters
containing added sugar or other sweetening matter or flavoured
";
ii) "
and
other non alcoholic beverages
".
v) Based on the
aforesaid:
a) Water is only to
be regarded as a beverage if it is suitable for human consumption
and only once it has been sweetened and
flavoured (and provided,
of course, that it is not
(still) a preparation in terms of Tariff
Heading 21.06);
b) The reference to
"
and other
"
in Tariff Heading 22.02 is clearly a reference to the first part of
the said tariff heading only and not also to the provisions
of
Tariff Heading 22.01.
If the waters contemplated in Tariff Heading 22.01 were intended
also to be
beverages then their being grouped under a
different tariff heading would be totally senseless and have no
practical meaning.
(
Annexure "JWW19",
Explanatory Notes to Tariff Heading 22.02, Vol 2, p137)
and
t
he aforesaid is borne out by the
assigning of names to the various products as is set out further in
this paragraph:
Hunters Gold:
i) Distell also
manufactures a product known as Hunters Gold ("Hunters").
The composition of the said product and the
manufacturing process
thereof are fully set out in a document obtained from Green and
annexed to the answering affidavit of Vermaak
as
annexure
"JMV9"
and which has apple
cider, as opposed to grape wine, as its core ingredient and specific
excise duty in terms of Tariff Item
104.15.50, before 18 February
2004, and in terms of Tariff Item 104.17.15 thereafter, has been
paid by Distell on Hunters on
the basis that it is classifiable
under Tariff Heading 22.06 as "
(O)ther
fermented beverages
".
ii) The aforesaid classification by
Distell is clearly correct as it is expressly mentioned in the
examples enumerated in Tariff
Heading 22.06 and the mere fact that
cider (as well as mead and perry) were grouped separately,
notwithstanding the fact that
it also comprises a “mixture”
of wine (although not grape wine) and water, is indicative of the
fact that, for classification
purposes, the legislator did not
intend the waters of Tariff Heading 22.01 to be a “
non-alcoholic
beverage
” as contemplated in
Tariff Heading 22.06; and it would be totally wrong to classify the
wine coolers differently merely
because wine, instead of cider, is
used as the alcohol component of the product.
iii) The consequence, Mr. Puckrin referred
during argument to it as "absurd", of regarding and
classifying the wine
coolers as “
mixtures
of fermented beverages and non-alcoholic beverages
”
will be that all products containing water would no longer be
classifiable as that product, but would be that particular
product
mixed with a “
non- alcoholic
beverage
”.
I
t follows that, both
as a matter of logic and principle, the wine
coolers should be classified in the same
category as ciders.
c)
Tariff
Heading 21.06
:
Tariff Heading 21.06 deals with "
Food
Preparations
" and according to
Explanatory Note (7) to Tariff Heading 2106.90 the heading includes,
among others:
"
(7)
Non-alcoholic
or alcoholic preparations
(not
based on odoriferous substances)
of the kind used in the manufacture of various non-alcoholic or
alcoholic beverages
. These
preparations can be obtained by compounding vegetable extracts of
heading 13.02 with lactic acid, tartaric acid, citric
acid,
phosphoric acid, preserving agents, foaming agents, fruit juices,
etc.. The preparations contain (in whole or in part)
the flavouring
ingredients which characterize a particular beverage.
As
a result, the beverage in question can usually be obtained simply by
diluting the preparation with water, wine or alcohol,
with or
without the addition, for example, of sugar or carbon dioxide gas
.
Some of these products are specially prepared for domestic use:
they are also widely used in industry in order to avoid the
unnecessary transport of large quantities of water, alcohol, etc.
As presented, these preparations
are not intended for consumption as beverages and thus can be
distinguished from the beverages
of Chapter 22
.".
(My emphasis)
ii) The first part of
the Crown process (dealt with in paragraph [47] c)
supra
)
i.e. before the addition of water, undoubtedly results in an
"
alcoholic preparation
"
as contemplated by Tariff Heading 2106.90.
d) Explanatory Note
(7) to Tariff Heading 2106.09, which explains the purpose of the
alcoholic preparation and the process by
which it is “
converted
”
into a beverage, clearly explains that the conversion process is
brought about "
by diluting
"
- as opposed to mixing - the preparation with water or wine.
e) According to
Distell's expert, Mr. Green, the Crown, Bernini and Tiffany's
products "
are blended
as
concentrates
that are further
diluted
with water
"
(my emphasis) - exactly the process contemplated by Tariff Heading
21.06.09 as explained by Explanatory Note (7) thereto.
f
) The practical and
legal effect of the evidence of Mr. Green is that the second phase
of the Crown process (i.e. the addition
of water) constitutes:
the process contemplated by Tariff Heading 21.06 (i.e. the
conversion of a concentrate into a beverage by the addition of
water);
ii) “
diluting
”
and not "
mixing
".
g)
The two blending
processes (described in paragraphs [47] c) and [47] d) are
essentially the same:
i) The practical and
legal effect of the two processes not being treated as the same
(i.e. if the Ginger Fizz process is regarded
as constituting the
mixing (as opposed to the blending) of the two concentrates) would
be that the Ginger Fizz and River Dew
products would be classifiable
as "
mixtures of fermented
beverages
" whilst the Crown,
Bernini and Tiffany’s would be classifiable as “
mixtures
of fermented beverages and non-alcoholic beverages
”
– a patently absurd result as Mr. Puckrin put it.
ii) As with any other legislation, the Tariff
Headings and the Explanatory Notes thereto are to be interpreted in
accordance
with a presumption against an absurd result. (Section
47(8) of the Act; E A Kellaway,
Principles
of Legal Interpretation: Statutes, Contracts and Wills
,
Butterworths at 356).
[49] In paragraph
32.5 of the heads of argument filed on behalf of the appellants the
argument is advanced that if water is a
"
non-alcoholic
beverage
" for purpose of TH22.06
it is this part of the tariff heading which would provide the most
specific description of the
wine coolers and that it would be so
whether the wine component were regarded as falling under TH22.04 or
TH22.05. This is, however,
not correct. The coolers in issue are
much more than just a mixture of wine and water and they are totally
new products that
have wine and water as their main constituents by
volume.
[50] In paragraph 34
of the appellants' heads of argument an argument is advanced to the
effect that the tariff headings in TH22.01
to TH22.06 were plainly
concerned with liquids for consumption by humans, the very first
item in it being unsweetened water,
including natural water (but
excluding water which would not be potable, such as seawater) and
that this strongly indicates that
the word "
beverage
"
should be understood to be any liquid for consumption by humans,
including natural water. Mr. Puckrin in response to this
argued that
the submissions were wrong for two reasons:
a) the only Tariff
Headings in the Nomenclature that provide for, and deal with water
are Tariff Headings 22.01 and 22.02. That
means that water not fit
for human consumption is to be classified under Tariff Heading
22.01; and
b) Explanatory Note
(A) to Tariff Heading 22.01 expressly states that it includes
clarified and purified water, an explanation
that clearly presupposes that unclarified and unpurified water are
to be classified
thereunder.
I am of the opinion
that Mr. Puckrin is correct.
[51] In paragraph 35
of the appellants' heads it is contended that water is to be
regarded as a "
beverage
"
which contention is solely founded on General Explanatory
Note (A) to Chapter 22 which provides that one
of the product groups covered by
this chapter is "
(W)ater
and other
non-alcoholic beverages and ice
".
(My
emphasis.) Mr. Puckrin argued that the argument
was misconceived and that the
“
other
”
used there does not render water a species of the genus “
other
non-alcoholic
beverages
”
and he submitted that, if regard is had to the provisions of the
relevant
tariff
headings, the appellants’ argument will have the effect of the
Explanatory Notes
overriding the tariff headings – a result
that will be in flagrant breach of the principles
enunciated in the Thomas Barlow case at 675G/H –
676F):
“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
is not necessary to express a firm or final view on that aspect.”
(My
emphasis.)
[52] Mr. Puckrin also
argued that as formulated, the conclusion drawn by the appellants in
paragraph 35 of their heads to the
effect that ice is not an
alcoholic beverage. This led, according to him, to the further
absurd result that if water is frozen
it would cease to be a
beverage, but would regain its character as a beverage the moment it
starts to melt.
[53] The argument was
advanced in paragraph 37 of the appellants' heads that in tariff
classification words
must be given the meaning that the Harmonized Systems ascribe to
them and that the word "
beverage
",
as understood in TH22.06, and elsewhere in Chapter 22, includes
natural water and that this being so, it is the end of
the enquiry.
Mr. Puckrin responded to this argument by stating that the
conclusion drawn in this paragraph by the appellants
was totally
without substance and that the beverage referred to in Tariff
Heading 22.06 was by necessary implication limited
to natural water
suitable for human consumption. He also submitted that the
appellants were, however, correct when they say that
words must be
given the meaning that the Harmonized System ascribe to them. He
further submitted that, in practice, that meant
that the concept
“
beverage
”
referred to in Tariff Heading 22.06 was to be interpreted by having
regard, and with reference, to all the other relevant
provisions in
the Harmonized System and the provisions of Tariff Headings 22.01
and 22.02 in particular. I am of the opinion
that Mr.Puckrin is
correct.
[54] In paragraphs 39
and 40 of the appellants' heads of argument reference was made to
the Canadian case of
Perrier Group of
Canada Inc v Canada
[1996] 1 FC 586
where that court had to consider whether Perrier was a “
carbonated
beverage
” within the meaning of
Part V of Schedule III. It was held to be so as a specifically
carbonated beverage for excise purposes.
The Canadian appeal court
upheld the trial court's decision that it was. The court, however,
recognised that in certain contexts
the word "
beverage
"
might have a narrower meaning, but held that it was certainly
capable of a wider meaning which included natural water and
that
this was the meaning intended in the enactment. In that case the
legislation was quite different to ours. The appellants
also
referred to an Australian case namely
Re
Bristol-Meyers Company (Pty) Ltd. v Commissioner of Taxation
[1990] FCA 200
where it was held that a "
beverage
"
was any liquid which is swallowed to quench thirst or for
nourishment and that natural water falls squarely within this
definition. In the latter case, for instance, the issue there was
whether a particular product was a "
beverage
"
rather than a medicine and that the product involved in that case
was a "
prepared
"
beverage and concerned wholly different legislation to ours. It is
trite law that the interpretation of words or phrases
in other cases
(here also, in any case, in other jurisdictions) must be approached
with extreme caution.
[55] In paragraph 43
of the appellants' heads of argument it was argued that wine coolers
were mixtures falling under the second
part of TH22.06 and
accordingly the coolers could not (as the Commissioner would have
it) be classified under the first part
of TH22.06. This argument
pre-supposed that water is a "
non-alcoholic
beverage
". Mr. Puckrin argued,
however, that the appellants' argument was trumped by Explanatory
Note (3) to the Tariff Heading 22.06,
which provides “
the
(first part of) heading includes hydromel vineux – mead
containing added white wine, aromatics and other substances
.”
[56] Paragraph 50.3 of
the appellants' heads of argument reads as follows:
"
Admittedly,
the appellants' argument in respect of the wine coolers would imply
that Hunters - which is a mixture of fermented
apple juice and water
- should like the wine coolers fall under the second part of
TH22.06 rather than under the first part.
However, in view of the
applebased nature of Hunters, the error on Distell's part in failing
to realise that the arguments in
respect of the wine coolers applied
with equal force to Hunters, is easy to understand."
[57] Mr. Puckrin’s
response was that the appellants totally misconceived the argument:
a) because the first
part of the Tariff Heading expressly includes cider as one of the
“
other fermented beverages
”,
it simply does not qualify for classification in the second part;
and
b) the argument was,
accordingly, not that cider is being incorrectly classified, but
that, by expressly providing for cider in
the first part of the
heading, the lawmaker clearly indicated that water is not to be
regarded as a beverage and that the addition
of water in order to
dilute a product is not to be regarded as mixing.
I am
in this regard
also of the opinion that Mr. Puckrin is correct.
[58] I am, therefore,
of the considered view that with regard to the aspects set out in
paragraph [5]
supra
,
the ruling of the court
a quo
,
was, with respect, correct and that the appellants fail with regard
to the classification issue and that the appeal should be
dismissed
with costs.
[58] I accordinghly
make the following order:
"The appeal is
dismissed with costs, which costs shall include the costs of two
counsel."
_______________________
P.Z.
EBERSOHN
ACTING JUDGE
OF THE HIGH COURT
I AGREE:
_______________________
G.
WEBSTER J
JUDGE OF THE
HIGH COURT
_______________________
L.M.
MOLOPA
J
JUDGE OF THE
HIGH COURT
Appellants' counsel A.P. JOUBERT SC
O.L. ROGERS SC
Appellants' attorneys Hofmeyr Herbstein & Gihwala
Ref. GM3000920\LVW\SVD
Respondent's counsel C.E. PUCKRIN SC
J.A. MEYER
Respondent's attorney State Attorney