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[1985] ZASCA 87
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International Business Machines South Africa (Pty) Ltd. v Commisioner for Customs and Excise (468/83) [1985] ZASCA 87; [1985] 2 All SA 596 (A) (19 September 1985)
101 / 85
468/83/AV
INTERNATIONAL BUSINESS MACHINES SOUTH AFRICA (PROPRIETARY) LIMITED
AND
THE COMMISSIONER FOR CUSTOMS AND EXCISE
468/83/AV
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the matter between:
INTERNATIONAL BUSINESS MACHINES SOUTH
AFRICA (PROPRIETARY)
LIMITED
Appellant
AND
THE COMMISSIONER FOR CUSTOMS
AND
EXCISE
Respondent
CORAM
: KOTZé, MILLER,
BOTHA, JJA, GALGUT et NICHOLAS, AJJA
HEARD
: 20 August 1985
DELIVERED
: 19 September 1985
JUDGMENT NICHOLAS, AJA
This appeal concerns the classification for customs duty purposes of a
machine named the IBM 3624
Consumer
2 Consumer Transaction Facility, an automated teller machine of
the kind which has become familiar in banks and building societies
in many parts
of South Africa.
Ss. (1) of s. 47 of the
Customs and Excise Act
, No 91
of 1964 ("the Act") provides
inter
alia that customs duty shall be paid
on all imported goods in ac- cordance with the provisions of Schedule No 1 ("the
Schedule").
Part 1 of the Schedule deals with ordinary customs duty. This
part is modelled on the "Nomenclature", which was an annexe to the Convention
on
Nomenclature for the Classification of Goods in Customs Tariffs. This is one of
three Conventions ("the Brussels Conventions")
which
3
which were signed on 15 December 1950, and to which
the
Republic of South Africa has acceded. The essential
aims of the
Convention on Nomenclature were:
"(a) to establish a common basis for the classification of goods in national
Customs tariffs;
(b)
to facilitate comparison of
the Customs duties applicable in the various countries to all goods entering
into international commerce;
(c)
to simplify
international Customs tariff negotiations;
(d)
to facilitate the comparison of international trade
statistics;
(e)
to provide governments and
traders alike with a firm guarantee of the maximum uniformity in the
classification of goods in national
Customs tariffs;
and
(f)
to facilitate international trade and
thus to contribute to its expansion."
(This is an
extract from the brochure hereinafter referred
to.)
Another
4 Another of the Brussels Conventions was the Convention
Establishing a Customs Co-operation Council (CCC). Under the authority of
the
CCC, the Nomenclature Committee supervises the operation of the Convention on
Nomenclature, and generally takes all appropriate
steps to ensure international
uniformity in the interpretation and application of the Nomenclature.
The
customs tariffs of 148 countries, territories or areas (including the Republic
of South Africa) are based on the Nomenclature.
The characteristic features
of the Nomenclature (referred to as the CCCN) are described in a
brochure
issued by the CCC ("In brief .... THE CUSTOMS
CO-OPERATION COUNCIL"):
"The
5
"The CCCN is
systematic
. It provides a framework for the
classification of goods in Customs tariffs but, since it includes Interpretative
Rules and legal
Notes, it also constitutes a comprehensive classification system
which has been designed to ensure:
(a)
maximum simplicity, so that
it can be readily understood by the public as well as by
experts;
(b)
precision, so that the most
appropriate heading for a given commodity can be readily identified;
and
(c)
exactness in application, so that the
same commodity will be classified in the same way in the tariffs of all the
countries using
the Nomenclature."
The Nomenclature
comprises:
"(a) the Rules for the Interpretation of the Nomenclature which prescribe the
general principles governing the classification system;
(b) Section and Chapter
Notes, which define
the scope and limits of Sections, Chapters
and ....
6
and of certain headings. These legal Notes permit the headings
to be drafted in concise form without any loss of precision or of exactitude
in
their interpretation; and (c) a list of headings, arranged in systematic order,
covering all the items in international commerce.
The 1,011 headings in the
Nomenclature ... are arranged in 99 Chapters which are themselves grouped in 21
Sections. In general, goods
are grouped according to the material of which they
are made; further most Chapters are developed 'progressively', - that is,
starting
from raw materials and progressing to finished articles."
The Nomenclature Committee prepares Explanatory Notes
(often referred to as "the Brussels Explanatory Notes"
or "the Brussels
Notes") which when issued constitute the
official interpretation of the
Nomenclature as approved
by the CCC.
The appellant, INTERNATIONAL BUSINESS
MACHINES
7 MACHINES SOUTH AFRICA (PROPRIETARY) LIMITED, (to which I
shall refer as "the company") has for several years imported into and marketed
in the Republic of South Africa a variety of business machines. These include
the IBM 3624 which it has entered for customs duty
purposes under tariff
sub-heading 84.53.10 of Part 1 of the Schedule. In May 1982 the Controller of
Customs and Excise at Johannesburg
advised the company that the machine should
have been classified under tariff subheading 84.54.90 and demanded payment of
R257 019,07,
being the amount of customs duty alleged to have been underpaid,
and of R2 5 702,00 as a provisional payment to cover any penalty
which the
Commissioner might decide
to
8 to impose. These sums were deposited by the company on 7 June 1982.
Thereafter the company requested the Commissioner to make a
determination, in
terms of s.47 (9) of the Act, that the IBM 3624 be classified under tariff
sub-heading 84.53.10. In November 1982,
the company was advised that the machine
had been classified under tariff sub-heading 84.54.90 "in terms of a Brussels
decision on
a similar machine viz. IBM 3614".
In terms of para (b) read with
paras (e) and (f) of ss. (9) of s. 47,the company appealed to the Transvaal
Provincial Division of
the Supreme Court. The appeal was dismissed with costs
including those consequent upon the employment of two counsel.
With
9 With the leave of the Court a
quo
, the company now appeals to this
Court.
The importance of the dispute which has arisen lies in the fact that
goods falling under heading 84.53.10 are imported free of duty,
while goods
falling under 84.54.90 are subject to a duty of 5% plus a surcharge.
THE
PROCESS OF CLASSIFICATION
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
10 the nature and characteristics of those goods; and third, the selection of
the heading which is most appropriate to such goods.
The materials for
interpretation are prescribed in NOTE IX (formerly NOTE VIII) of the GENERAL
NOTES to the Schedule. NOTE IX is entitled
"RULES FOR THE INTERPRETATION OF THE
SCHEDULE". It provides that "Interpretation of the Schedule shall be governed by
the following
principles." There are then set out five rules of which the first
reads:
"(1) 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
11
terms of the headings and any relative section or chapter
notes, and, provided such headings or notes do not otherwise indicate, according
to paragraphs (2) to (5) below."
The "RULES FOR THE INTERPRETATION OF THE NOMENCLATURE", comprised in the
Nomenclature, are substantially identical with NOTE IX. They
include a
commentary to each rule. It is not necessary for present purposes to refer to
the commentaries.
Further material for interpretation is contained in the
relative Brussels Notes. S. 47(8)(a) of the Act provides that
"(a) The interpretation of Part 1 of
Schedule No. 1 shall be
subject
to the Explanatory Notes to the
Nomenclature issued by the
Cus
toms
12
toms Co-operation Council, Brus
sels, from time to
time "
This provision does not mean that the
Notes are to be
regarded as peremptory injunctions. For, as was
pointed
out by TROLLIP JA in
Secretary, Customs and
Excise
v
.
Thomas Barlow and Sons
1970(2) SA 660(A) at 676 C - D,
"... they are not worded with the linguistic precision usually characteristic
of statutory precepts; on the contrary they consist
mainly of discursive comment
and illustrations."
All that s. 47(8)(a) requires is that the interpretation of the relative
headings and Section and Chapter Notes shall be in conformity
with, and not
contrary to, the Brussels Notes.
INTERPRETATION
13
INTERPRETATION OF TARIFF HEADINGS 84.53 AND 84.54
These tariff
headings fall under SECTION XVI of Part 1 of the Schedule ("Machinery and
Mechanical Appliances; Electrical Equipment,
Parts thereof") and specifically
under Chapter 84 ("Boilers, Machinery and Mechanical Appliances; Parts
thereof").
Heading 84.53
An understanding of this heading and its
related material requires some background information on the nature of data
processing and
automatic data processing machines. The following is taken from
the affidavit, filed on behalf of the company, of Prof. T.D. Crossman,
who is an
associate professor in the Department
of
14
of Accounting and the head of the Division of
Business
Information Systems at the University of the Witwaters-
rand:
"5. I should commence by saying that data
processing is undertaken by a data processing system, the elements of which
are commonly and collectively referred to as '
a computer
'.
6. The electronic digital computer first appeared in the middle 1940's. Then,
it was a specialised calculating tool of mathematicians
and scientists. Today,
it is helping to solve information problems in almost every area of human
activity.
7.1 In order to appreciate fully the operation of the computer we consider it
necessary first to outline the procedures undertaken
in a simple commercial
task. When a stock control clerk receives a requisition he will
perform
15 perform the following tasks:
7.1.1
Read the information
appearing on the requisition. In computer terms he accepts information for
processing - this is the INPUT of
the procedure.
7.1.2
Refer to a price list to obtain the unit price. In so doing he
refers to stored or filed information -the computer term is
STORAGE.
7.1.3
Multiply the unit price by the
quantity. This is the ARITHMETIC of the procedure.
7.1.4
Enter the answer in the appropriate column - this is the
OUTPUT.
In the course of his task the stock control
clerk may concern himself with the following activities - addition, subtraction,
multiplication
and division. These are some of the functions which
can
16
can be performed by a computer.
7.2 The operation of the computer involves the same four distinct tasks as
the operation done by the stock control clerk - input,
storage, arithmetic and
output - but in order to perform correctly the operation must be executed in a
pre-determined sequence. The
correct operation of the procedure depends on the
observation of this pre-determined sequence of instructions. It is therefore
necessary
to add a fifth element to the four listed above - PROGRAM. The program
is not part of the information to be processed, but the list
of instructions
that have to be followed in order to provide a problem solution. Information
given for the purpose of processing
is described as DATA. The program is applied
to the data in order to give the required results. The program must reside in
the computer
before it can be executed.
7.3
17
7.3
In the same way as the
tasks performed by an office clerk, their sequence and so on, are under the
direction and control of a manager,
so too a computer needs certain hardware and
software components to perform a control function. We can call these the CONTROL
elements.
7.4
The computer operation procedure
is therefore as follows:
7.4.1 the original
information is read
into the machine. INPUT
7.4.2
the completed answer is
read out of the machine OUTPUT
7.4.3
in
between is the "work area", called the CENTRAL
PROCESSOR
7.4.4
in which reference is made to
the stored data and the stored
program STORAGE
18
7.4.5 and also in which the cal
culations are
carried out
ARITHMETIC
7.4.6 and the whole proceedings
supervised by CONTROL
7.5
The computer installation
will therefore consist of the central processor and its appurtenances
(peripherals), commonly known as HARDWARE.
7.6
The program to instruct the computer and the data on which it will
work are collectively known as SOFTWARE.
7.7
The central processor can store and manipulate data, store and
execute program instructions on such data and monitor these procedures
through
the medium of software known as an operating system. It will also have the
capacity to communicate the results of its processing
(the
output).
7.8
The manipulation of data may
involve
many
19
many processes, but will include the central
processor's capacity to process arithmetic functions, to compare data items, to
assemble
data into predetermined output formats and to arrive at conclusions
based on criteria supplied to it. These functions will only be
executed on
instructions, the vehicle of instruction being the computer programm. Finally,
the output device will present the result
in a readable and usable form - the
computer print-out.
7.9 The term 'data processing' embraces all the above operations.
8.1 By way of illustration, let us take a look at the pocket calculator:
8.1.1 The first hand-held calculators
were simple devices limited
to
adding, substracting, multiplying,
dividing and displaying a
result.
The result was displayed only tem
porarily
20
porarily and was soon replaced with another
entry.
8.1.2 This type of calculator is similar
to the CPU (Central Processing Unit). The CPU accepts data and performs
operations on it. As the computer continues processing, the
result of each
operation are quickly replaced with another piece of data or instruction.
8.1.3
As pocket calculators
became more advanced, memory became a standard feature. Constants or results
were stored and used over again
in later calculations. Eventually, however,
these too could be erased when the 'clear memory' key was pushed (or, in some
calculators,
the calculator was turned off).
8.1.4
Of course, main storage in the computer is much larger and more
complex than the memory of a pocket calculator; however, their functions
21
tions are the same. The computer's memory stores data and instructions until the
CPU is ready to use them. Like some calculators'
memory, main storage is
temporary. Once a program is processed, its data and instructions are replaced
with information required
by another program. Therefore, to permanently keep
data we need some kind of auxiliary storage device and a means of transferring
data between these devices and main storage."
Prof.
Grossman then described, with reference to a diagram,
the general
organisation of a computer or data processing
system, so-called because a
computer can consist of more
than one unit forming the system, namely, an
input unit, a Central Processing Unit (CPU) and an output unit.
The input unit converts data and instructions
from
22
from man-readable language to machine-readable code, and
transmits the coded information or data to the Central
Processing Unit (CPU).
The CPU usually consists of three inter-related
elements: a control unit, an arithmetic/logic unit and
a memory unit.
"The control unit, as its name implies, maintains order and controls what is
happening in the CPU. It does not process or store data.
Rather it directs the
sequence of operations. The control unit interprets the instructions of a
program in storage and initiates
commands to circuits to execute the
instructions by producing the proper signals. Other functions of the control
unit are to communicate
with the input device in order to begin the transfer of
instructions and data into storage and similarly to initiate the transfer
of
results from storage to the output device.
The
23
The Arithmetic/Logic Unit (ALU) handles the
execution of all arithmetic computations and logical operations. Since the bulk
of internal
processing involves calculations or comparisons, the capabilities of
a computer often depend upon the design and capabilities of
the ALU. The
Arithmetic/Logic Unit does not store data; it merely performs the necessary
manipulations.
The primary storage unit (internal memory) holds all instructions and data
necessary for processing. It also holds intermediate and
final results during
manipulation. Data is transferred from the input device to the primary storage
unit where it is held until it
is needed for processing. Data that has been
processed and immediate results from ALU calculations are also held in primary
storage.
After all computations and manipulations are completed, the final
results remain in memory. The control unit directs them to be transferred
to an
output device.
The programs required to operate the computer
(control
24
(control programs) and the programs required to perform
various tasks (application programs) are stored in the memory unit of the
CPU or
on other storage devices such as magnetic disk or tape units connected to the
CPU. The control unit uses the control program
to co-ordinate the functionning
of the machines which cumulatively are the data processing system."
I turn now to heading 84.53 and sub-heading 84.53.10.
They read:
"84.5 3 AUTOMATIC DATA PROCESSING MACHINES
AND UNITS THEREOF; MAGNETIC OR OPTI= CAL READERS, MACHINES FOR TRANSCRI= BING
DATA ON TO DATA MEDIA IN CODED FORM AND MACHINES FOR
PROCESSING SUCH DATA, NOT
ELSEWHERE SPECI= FIED OR INCLUDED:
84.53.10 Automatic digital data processing machines and units thereof
(con-nectable)"
Included in the Notes to Chapter 84
is the following
paragraph
25
paragraph:
"3. - (A) For the purposes of heading No. 84.53, the expression 'automatic
data processing machines' means: (a) Digital machines having
storages capable of
storing not only the processing program or programs and the data to be processed
but also a program for translating
the formal programming language in which the
programs are written into machine language. These machines must have a main
storage
which is directly accessible for the execution of a program and which
has a capacity at least sufficient to store those parts of
the processing and
translating programs and the data immediately necessary for the current
processing run. They must also be able
themselves, on the basis of the
instructions contained in the initial program, to modify,
by ....
26
by logical decision, its execution during the processing run;
(b) Analogue machines capable of
simulating mathematical models
and
comprising at least: analogue
elements, control elements and
programming
elements;
(c) Hybrid machines consisting of
either a digital machine with
analogue elements or an analogue machine with digital elements.
(B) Automatic data processing machines may be in the form of systems
consisting of a variable number of separately-housed units. A
unit is to be
regarded as being a part of the complete system if it meets all the following
conditions:
(a) it is connectable to the central
processing unit either directly
or through one or more other units;
(b) it is specifically designed as
part of such a system (it must,
in
particular, unless it is a
power
27
power supply unit), be able to accept or deliver data in a
form (code or signals) which can be used by the system). Such units imported
separately are also to be classified in heading No. 84.53.
4.
5. "
The following is the Brussels Note relating to
heading 84.53.
"84.53 - AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF; MAGNETIC OR
0P= TICAL READERS, MACHINES FOR TRANS= CRIBING DATA ONTO
DATA MEDIA IN CODED
FORM AND MACHINES FOR PROCES= SING SUCH DATA, NOT ELSEWHERE SPE= CIFIED OR
INCLUDED.
(1) AUTOMATIC DATA PROCESSING MACHINES
AND UNITS THEREOF
Data
processing consists in handling information
of all kinds, in pre-established
logical sequen
ces
28
ces and for a specific purpose or purposes.
Automatic data processing machines are machines which, by logically
interrelated operations performed in accordance with pre-established
instructions (program), furnish data which can be used as such or, in some
cases, serve in turn as data for other data processing
operations.
The present heading covers data processing machines in which the logical
sequence of the operations can be changed from one job to
another, and in which
the operation can be automatic, that is to say with no manual intervention for
the duration of the task. These
machines mostly use electronic signals but may
also use other technologies (e.g., pneumatic, fluid or optical); some may use
combinations
of two or more of these technologies.
They may be self-contained, all the elements required for data processing
being combined in the same housing, or they may be in the
form of systems
consisting of a variable
number
29
number of separately-housed units.
Such machines are described as digital, analogue or hybrid
(analogue/digital), according to the method of processing the data.
The present heading also covers separately imported constituent units of the
automatic data processing systems described above.
The heading does not cover machines, instruments or apparatus
incorporating or working in conjunction with an automatic data processing
machine and performing a specific function. Such machines, instruments or
apparatus are classified in the headings appropriate to
their respective
functions or
,
failing that, in residual headings
.
(A) DIGITAL MACHINES
These digital data processing machines have storages, and also stored
programs which can be changed from job to job.
Digital
30
Digital machines process data in coded form. A
code consists of a finite set of characters (binary code, standard six bit ISO
code,
etc.).
The data input is usually automatic, by the use of data media such as punched
cards or tapes, or magnetic tapes, or by direct reading
of original documents,
etc. There may also be arrangements for manual input by means of keyboards or
the input may be furnished directly
by certain instruments (e.g., measuring
instruments).
The input data are converted by the input units into signals and stored in
the storage units.
The digital data processing machines of the present heading must have a
sufficient overall storage capacity to enable them to store
not only the
processing program or programs and the data to be processed, but also a
translating program which serves to translate
the formal programming language in
which the programs are written (Algol, Assembler, Cobol, Fortran, PL/1, RPG,
etc.) into machine
language.
Part
31
Part of the data and program or programs may be
temporarily stored in auxiliary storage units such as those using magnetic discs
or
drums, magnetic tapes, etc. But these machines must have a main storage which
is directly accessible for the execution of a particular
program and which has a
capacity at least sufficient to store those parts of the processing and
translating programs and the data
immediately necessary for the current
processing run.
The data are processed according to one of the stored programs. Apart from
the characteristics described above, the machines of the
present heading must
also be able themselves, on the basis of the instructions contained in the
initial program, to modify, by logical
decision, the execution of that program
during the processing run.
Digital data processing machines usually consist of a number of
separately-housed inter-connected units. They form a 'system'.
A complete digital data processing system must
comprise
32
comprise, at least:
(1) A central processing unit which generally incorporates the main storage, the
arithmetical and logical elements and the control
elements; in some cases,
however, these elements may be in the form of separate units.
(2) An input unit which receives input data and converts them into signals which
can be processed by the machine*.
(3) An output unit which converts the signals provided by the machine into an
intelligible form (printed text, graphs, displays,
etc.) or into coded data for
further use (processing, control, etc.).
Two of these units
(input and output units,
for example) may be combined in one single unit.
These systems may include remote input and output units in the form of data
terminals.
Such systems may also include peripheral units,
apart
33
apart from the input and output units, designed
to. increase the capacity of the system, for instance, by expanding one or more
of
the functions of the central unit
Such units are inserted between the input and the output units (start and end
of the system), although adapting and converting units
(channel adaptors and
signal converters) may occasionally be connected before the input unit or after
the output unit.
A unit is to be regarded as being a part of the complete digital data
processing system, if it satisfies the following conditions:
(a) It is connectable to the central processing unit, either directly or through
one or more other units; and
(b) It is specifically designed as part of such a system. It cannot be
considered as such unless, in particular, it is capable of
accepting or
delivering data in a form (code or signals) which can
be
34
be used by the system. (This last condition does not apply to power supply
units which, although specifically designed as parts of
data processing systems,
do not use the coded form).
The interconnections may be made by material means (e.g., cables) or by
non-material means (e.g., radio or optical links).
Appliances such as measuring or checking instruments adapted by the addition
of devices (signal converters, for example), which enable
them to be connected
directly to a data processing machine, are, in particular, not to be regarded as
specifically designed as parts
of automatic data processing systems. Such
appliances fall to be classified in their own appropriate heading.
Digital data processing machines are put to many uses, for example, in
industry, in trade, in scientific research and in public and
private
administrations."
(The paragraph which I have underlined was
introduced
35
introduced by amendment in June 1979. It will be referred to
as "the 1979 amendment").
Counsel for the Commissioner said that a
distinction was to be drawn between "a general all-purpose programmable
computer" and "a
specialised machine or system" specially designed for a
specific purpose. He submitted that heading 84.53 "clearly refers to general
or
all-purpose computers and not to specialised machines or systems".
This
distinction is not drawn either in the heading, or in the Chapter Note, or in
the Brussels Note. The only passage to which counsel
could refer in support of
his submission was the statement in the relative Brussels Note that
"The
36 .
"The present heading covers data
processing machines in
which the
logical sequence of the operations
can be changed from one job
to
another "
That characteristic does not distinguish all-purpose
computers from
special purpose computers: it distinguishes
computers whose program} can. be
changed, and those
whose operation is limited to a single program, e.g.
a
pocket calculator.
Nor does the 1979 amendment provide any
support for the submission. In
terms of that
amendment
"The heading (sc. 84.53) does not cover machines, instruments or apparatus
incorporating or working in conjunction with an automatic
data
processing
37
processing machine and performing
a specific function
"
That has nothing to do with a distinction between all-purpose and special
purpose computers and systems.
Pointing away from counsel's submission that
the heading covers only general all-purpose computers and not specialised
machines, are
two statements in the Brussels Note: one is that "Data processing
consists in handling information of all kinds .... for a
specific purpose
or purposes"; and the other is the last paragraph
which reads:
"Digital data processing machines are put to
many uses
, for example,
in industry, in trade, in scientific research and in public and private
administrations."
(My emphasis.)
Prof
38 Prof. Bornman, a professor and head of the Department of Computer
Science and Information Systems at the University of South Africa,
who furnished
an affidavit on behalf of the Commissioner, put the distinction drawn by counsel
in a somewhat different way. He said
that, in the light of what he had said
earlier in regard to automatic data processing machines,
" it is clear that,
on the whole, I find myself in respectful disagreement with the deponents to
the Applicant's affidavits, mainly on question of 'nomenclature'.
They use terms
such as 'automatic data processing' in relation to a machine, device, unit or
system whether or not such machine,
device, unit or system performs a specific
function or not.
They
39
They also employ the term to denote both automatic data processing machines
proper and machines which employ the techniques of automatic
data processing in
performing their functions and either operate in conjunction with an automatic
data processing machine or have
an automatic data processing device incorporated
in them. That would merely be a matter
of
40
of choice of words,unless one wishes to be specific about the
nature and function of the device, machine or system in question, in
which case
the terminology employed by the said deponents is unhelpful."
If I understand Prof. Bornman correctly, he distinguishes between an
automatic data processing machine which performs data processing
generally, and
one which uses the data processing "technique" to perform a specific function.
The difference is thus a semantic one
- as Prof. Bornman put it, "a matter of
choice of words", or "terminology" or a "question of nomenclature".
However
clear this distinction may be to professors of Computer Science, I do not think
that it is drawn in the language of the heading
and the relative
Notes
41 Notes, nor is there anything in the language to suggest that it is only
machines of the former kind which are covered by the heading.
Finally on the
aspect of the interpretation of heading 84.53, there is the question of the
meaning of the 1979 amendment.
In terms, the amendment deals with machines
incorporating or working
in conjunction with
an automatic data processing
machine; it does not deal with machines which are units
forming part of
a
complete automatic data processing system , which are dealt with in paragraph
3(B) of the Chapter Note. If possible the 1979 amendment
should be construed so
as to be in harmony and not in conflict
with
42
with para 3. As TROLLIP JA said in the
Thomas
Barlow
case (
supra
) at 676 D
"... 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."
Where, therefore, a machine is a unit forming part of a
complete system
within the meaning of paragraph 3, it is
not to be regarded as a machine
working
in conjunction
with
an automatic data processing
machine under the
1979 amendment.
To sum up on this aspect of the matter.
Heading
43
Heading 84.53 covers all data processing machines and all data
processing systems, having the features and characteristics set out
in para 3 of
the Chapter Note. Neither the heading, nor the Chapter Note, nor the Brussels
Note distinguishes between all-purpose
machines and systems and special purpose
machines and systems; or between automatic data processing machines "proper" and
automatic
data processing machines which "employ the technique of automatic data
processing in performing their specific functions". The sole
test is whether the
machine in question falls within the language of para 3 read with the Brussels
Note. In regard to the 1979 amendment,
this does not apply to a unit which
forms
part
44
part of a complete system as defined in para 3(B).
Heading 84.54
Tariff heading 84.54 reads:
"84.54 OTHER OFFICE
MACHINES (FOR
EXAMPLE, HECTOGRAPH OR STENCIL DUPLICATING MACHINES, ADDRESSING MACHINES,
COIN-SORTING MACHINES, COIN-COUNTING AND WRAPPING MACHINES,
PENCIL-SHARPENING
MACHINES, PERFORATING AND STAPLING MACHINES):
84.54.10 Duplicating machines
84.54.20 Addressing machines
84.54.90 Other"
The Brussels Note relating to this heading reads
as follows (I have
lettered three paragraphs for purposes
of ..
45
of reference):
"84.54 - OTHER OFFICE MACHINES (FOR EXAMPLE, HECTOGRAPH OR STENCIL
DUPLICATING MACHINES, ADDRESSING MACHINES, COIN-SORTING MACHINES,
COIN-COUNTING
AND WRAPPING MACHINES, PENCIL-SHARPENING MACHINES, PERFORATING AND STAPLING
MACHINES).
(a) This heading covers all office machines
not covered
by the
preceding three headings
or more specifically by any other heading
of the
Nomenclature.
(b) The term 'office machines' is to be taken
in a wide general sense to
include all
machines used in offices, shops, fac-
tories, workshops, schools, railway
stations, hotels, etc., for doing 'office work' (i,e, work concerning the
writing, recording, sorting, filing, etc., of correspondence,
documents, forms
records, accounts, etc.).
(c) Office machines are classified here
only
if
46
if they have a base for fixing or for placing on a table,
desk, etc. The heading
does not cover
the hand tools, not having such a
base, of Chapter 82.
The machines of the present heading may be hand-operated, mechanically
operated or electrically operated (including electromagnetic
relay and
electronic operated machines)."
(The emphasis is in the original).
The Note then states that the heading
includes
inter alia
18 named machines, including certain duplicating
machines, addressing machines, ticket issuing machines and coin-sorting or
coin-counting
machines. Among the eighteen are
"5. Automatic banknote dispensers operating in conjunction with
an
47
an automatic data processing machine, whether on-line or
off-line."
In terms of para (a), if a machine is covered by one of the three preceding
headings it is not covered by heading 84.54. If, therefore,
a machine falls
under heading 84.53, it is not classified under heading 84.54.
In terms of
para (b) the expression "office machines" is used "in a wide general sense". It
includes all machines used in the locations
referred to (the list is not
comprehensive: it would no doubt include banks and building societies), for
doing "office work". That
connotes machines used by workers in an office etc. It
would not, I conceive, include a machine
designed
48
designed to be used, not by an office worker, but by a
customer or client.
Para (c) excludes every office machine which does not
have a base for fixing or placing "on a table, desk, etc."
THE IBM 3624
CONSUMER TRANSACTION FACILITY
.
The second stage in the process of
classification is to consider, as a preliminary to a decision whether it should
appropriately be
assigned to heading 84.53 or to heading 84.54, the nature and
characteristics of the IBM 3624.
In the affidavit of Mr. P.P. FULTON, filed
on behalf of the company, it is said that the IBM 3624
is'
49
is designed and used as a unit forming part of the IBM
3600 Finance Communication System.
The IBM 3600 is a data processing system with
three parts, namely
"12.1 a controller and terminals (referred to as the 3600 sub-system);
12.2
a communication link;
and
12.3
a central computing
system.
13. The controller and terminals which comprise the system, are the
following:
13.1 the IBM 3601 or 3602 Finance Com
munication
Controller;
13.2 " the IBM 3604 keyboard display, the
IBM 3606 and 3608 Financial Service terminals;
13.3 the IBM 3610 document printer;
13.4
50
13.4
the IBM 3618
Administrative Line Printer; and
13.5
the IBM
3624 Consumer Transaction Facility.
14
15
The 3624 is a unit of the IBM 3600 Finance Communication System, which system
is capable of being used by a variety of commercial
enterprises and in
particular by financial institutions such as banks and Building Societies.
16.1 The 3624, and similar machines, are used by financial institutions to
facilitate and expedite banking transactions by their respective
customers. A
particularly convenient aspect of the 3624 is that it can be used by customers
to perform many of an institution's wide
variety of functions outside normal
business ....
51
business hours, or within business hours, without
having to deal with officials of the institution, such as tellers. In addition
it
can be used by customers at unmanned locations.
16.2 Using the 3624 and similar machines,
financial institutions are
now
able to provide a service to their customers which they were unable to
provide without the use of computers. We call this an on-line
banking service.
It allows customers to carry out banking transactions at any location at which a
3624 is installed across the country.
16.3 The on-line banking service allows
customers to carry out
banking
operations at any 3624. For this
reason, the customers' records
must
be stored on a single central com
puter, rather than retained at
a
single 3624 terminal. Hence the
3624
52
3624 cannot service customer requests except in communication and
consultation with the central computer.
17.1 The operation of the
3624 requires that a customer be given an identification card bearing a
magnetic strip that contains identification data. When the
customer inserts a
card into the card reader slot in the 3624, a series of instructions on the
display screen guides him step by
step through the transactions. When the
identification card is inserted the unit requests that the customer's secret
personal identification
number be entered on the keyboard so that his identity
can be established. The customer then selects the transaction which he wishes
to
perform and completes the necessary keyboard entries for that purpose. The 3624
perfoms a multiplicity of transactions. On the
basis
53
basis of what is said above it
will already have been seen that it -
17.1.1
Reads the information
encoded magnetically on the Identification Cards and stores this information in
the 3624 Storage.
17.1.2
Checks the PIN (i.e.
the personal identification number) number by comparing data entered on the
keyboard with the information from
the card (previously stored) using a
predetermined encryption Algorithm, which is a coded
formula.
17.1.3
Guides the customer through
transactions by displaying the guidance messages on the display panel. These
messages originate from either
the internal 3624 program or from the program in
the CPU.
17.1.4
Like all computer terminals
the 3624 translates customer requests entered by key depressions on
the
keyboard
54
keyboard into machine-readable electronic impulses which are read and
understood by the CPU.
17.2 The customers' orders may result in the completion of any one or more of
the following transactions:
17.2.1
the issue of
cash;
17.2.2
the issue of vouchers such as
travellers' cheques, bonus bonds and travel insurance
certificates;
17.2.3
the transfer of funds to
other accounts;
17.2.4
the answering of
enquiries, for example as to interest earned, exchange rates, the gold
price
or any other information contained in the data
base of the system;
17.2.5 the furnishing of account infor
mation;
17.2.6
55
17.2.6
the giving of marketing messages;
17.2.7
the printing of transaction
statements;
17/2.8 the acceptance of deposits;
17.2.9
the printing of
receipts;
17.2.10
the ordering of cheque
books.
17.3 The 3624 is designed to be capable of
initiating multiple program determined functions. .......
18 The customer's use of the 3624 is achieved by way of a special key which,
when depressed, enables the customer to 'talk' to any
department of the bank.
For example if the customer wishes to order a new chequebook he would merely
enter the appropriate code number
and the message would be relayed to the
computer. The following morning the department responsible would obtain a
printout containing
.
all
56
all new chequebook orders.
19.1 The 3624 can only operate when
connected to a central
processing
unit and/or a controller. The
3624 cannot be used except as
a
component of an on-line banking
system, that is it cannot
operate
off-line. Typically it will
operate through an IBM 3601 or
3602
line controller connected
to an IBM 370 CPU. The 3624 and
the said controllers and the IBM
370
Central Processing Unit are
all units of the IBM 3600
Finance
Communication System
19.2 However, the 3624 contains program
mable storage. It is
programmable
to the extent that it can and does
independently perform a
number of
tasks (as opposed to transactions)
before sending a message to
the CPU,
for example, validating the cus
tomer's personal identity
number
against
57
against his account number as read from his identification card. The
programmable storage can also be used, inter alia, to make the
3624 bilingual.
The choice of language will be made according to the information contained on
the identification card referred to
above. The customer, using the
identification card, would then get the operating instructions and computer
response in the language
of his choice. The 3624 can accommodate up to 8
different languages.
20. The 3624 is available in four models.
Two were designed for installation with-in the institution's banking hall, and
two are designed to be built into the wall of a building
so that the customer
can operate them from outside both during hours when the institution itself is
open to business and during hours
when
it is closed The 'through the
wall models' can also be for 'drive in'
use
58
use in that they can be so located that a customer can drive
up in his motor car and, without getting out of the car, transact the
various
transactions he wishes to perform using the 3624."
None of all this is disputed in the answering affidavits
filed on behalf of the Commissioner.
SELECTION OF APPROPRIATE HEADING
The decision of the
Nomenclature Committee
Counsel for the Commissioner urged that the
Court should uphold the
determination on the basis of a
decision by the Nomenclature Committee at its
40 th
Session held in June 1978. This decision was recorded
as
follows:
"
DECISIONS OF THE NOMENCLATURE COMMITTEE
1. The Committee re-examined
the classification of the above machines
(sc
59
(sc. 'IBM banknote dispensers') on the basis of details
supplied by the manufacturer and information collected by the Secretariat
concerning IBM 3614 banknote dispensers.
2. The Committee decided by 20 votes to 2 that, by analogy with its previous
decisions concerning Bankomat and NCR banknote dispensers,
the IBM banknote
dispenser should be classified in heading 84.54, as an office machine."
The IBM 3624 is, it is common cause, in all material respects the same as the
IBM 3614 which was the subject of the decision.
It was submitted that the
decision was a cogent authority: it was directly in point, and was the
considered opinion of an international
committee, one
of
60 of whose main tasks, according to the brochure above
referred to, include the giving of
"... decisions on the more delicate
classification questions raised
by
administrations or by international
organisations "
Whatever may be the status of such a decision so far as customs
administrations and international organisations are concerned, it
is not, until
it is reflected in an Explanatory Note, authoritative in a South African Court.
Before that, it is no more than an
expression of opinion which involves the
interpretation of the relative tariff headings and the Notes relating
thereto.
Under our system, questions of interpretation
of
61 of documents are matters of law, and belong exclusively to the
Court. On such questions the opinions of witnesses, however eminent
or highly
qualified, are (except in regard to words which have a special or technical
meaning) inadmissible. (See
Phipson on Evidence
, 13th ed., sec 27-46).
So, subject to the exception mentioned, the Courts do not receive opinion
evidence, either as to the meaning
of a statutory provision (See
Camden
(Marquis) v. Inland Revenue Commissioners
(1914) 1 KB 641
(CA at 649-50), or
a patent specification (See
Gentiruco v. Firestone SA (Pty) Ltd
1972(1)
SA 589(A) at 617-18), or any other document.
The opinion of a person not called as a
witness
62
witness, or of a committee, is similarly inadmissible.
The
Nomenclature Committee's decision is, therefore, legally irrelevant, and cannot
be taken into account in deciding this appeal.
Applicability of heading
84.53
The evidence of the company's deponents (which is not disputed by
the Commissioner's deponents save in regard to the semantic niceties
referred to
above) is that the IBM 3624 is a machine which falls squarely within item
84.53.10 read with para 3 of the relative Chapter
Note, and the Brussels
Note.
The IBM 3600 system is an automatic data processing machine such as is
described in para 3(A)(a)
of
63 of the Chapter Note, and it is "a complete digital data processing
system" as set out in the Explanatory Note. The IBM 3624 is
a unit forming part
of that system, and it meets all the conditions set out in para 3(B) and in the
Explanatory Note. It is one of
a number of separately housed units of an
automatic data processing machine system. It is connectable to the central
processing unit.
And it is specially designed as part of the system: in
particular, it is able to accept and deliver data in a form (codes or signals)
which can be used by the system.
Although the IBM 3624 performs the function
of an automated teller, it does not fall within
the
64 the 1979 amendment, because it is a unit forming part of a
complete automatic data processing machine and hence is not a machine
working
in conjunction with
an automatic data machine.
The conclusion is therefore that tariff heading
84.53 applies to the IBM 3624.
Applicability of tariff heading
84.54
Paragraph (a) of the Brussels Note to heading
84.54 makes it clear that
where a machine is covered
by one of the preceding three headings, it is not
covered by heading 84.54. In view of the conclusion just mentioned, therefore,
the
IBM 3624 is not covered by heading 84.54.
There are other reasons why it
is. not classifiable under heading 84.54,
It
65
It is not an "office machine" even in the "wide general sense"
referred to in para (b) of the Note: it is used, not for doing "office
work",
but, as its full name indicates, by the customers of banks and building
societies themselves.
Nor does it appear (See Fulton's description quoted
above),that the IBM 3624 has "a base for fixing or for placing on a table, desk,
etc." as required in para (c).
Although one of the main uses of the IBM 3624
in South Africa at present is to issue banknotes, it cannot properly be called
an "automatic
banknote dispenser". As appears from Fulton's affidavit, the IBM
3624 is far more than an automatic banknote dispenser
and
66
and cannot be classified as such:
"24.1.1 The term 'automatic banknote dispenser' implies that such a machine
has the sole and specific function of dispensing bank
notes only. The IBM 3624
is designed to and can dispense a variety of documents besides bank notes, and
even when it is performing
that dispensing function it is operating as a unit of
an automatic data processing machine. In addition it has all the other functions
enumerated above. The dispensing of bank notes is certainly not its principal,
sole or specific function.
24.1.2 The 3624 is sometimes referred to as an Automated Teller Machine and
is virtually the counterpart of the human teller. It performs
many of the
functions of the human teller. However it performs further functions of clerks
assigned to answer
enquiries
67
enquiries regarding account balances and of the ledger clerks
who enter the customer's transactions into the bank's books. The function
of the
3624 is contained in its descriptive name, namely to perform as a consumer
transaction facility and thus enable customers
to perform their banking
operations without the intervention of a human teller or any other member of the
bank's staff.
24.1.3 The 3624 is so designed that it
can continue performing its other functions even if the document dispenser is
not operating, as will happen if the supply of bank
notes or vouchers contained
in the cartridge runs out."
The conclusion is that heading 84.54 is not
applicable to the IBM 3624.
CONCLUSION
68
CONCLUSION
In the result the appeal against the Commissioner's determination will be
upheld.
The company requested that in the event of the Court upholding the
appeal, an order should also be made in terms of prayer (c) of
the Notice of
Motion (for the refund to the company of the sum deposited with the Controller
of Customs and Excise, Johannesburg)
and in terms of prayer (d) (for the payment
of interest on that sum from 7 June 1982, being the date of the deposit).
I
do not think that an order should be made in terms of prayer (c). The effect of
the order to be made will be that the Commissioner's
determination will no
longer remain in force, so that any amount due
in
69
in terms thereof will no longer be payable. (See s. 47(9)(b)
of the Act.) There is no reason to believe that the Commissioner will
not take
the appropriate action in this regard.
Nor do I think that an order should
now be made in terms of prayer (d): it is not clear from the brief argument put
forward on behalf
of the company that interest will be payable, at any rate from
the date mentioned in prayer (d).
At the beginning of the hearing the company
made an application to this Court for an order condoning and allowing the late
service
and filing of Volume 6 of the record. This application was supported by
the Commissioner. It was granted and the parties agreed
that
70 that the costs relating thereto should be costs in the appeal.
It will be ordered accordingly.
The appeal is upheld with costs, including
the costs consequent on the employment of two counsel. The costs relating to the
application
for condonation are costs in the appeal. The order of the Court a
quo
is set aside, and there is substituted therefor the following:
"(a) The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel. (b) An order is granted that
there be substituted for
the determination of the Commissioner of Customs and Excise a determination that
tariff heading 84.53.10
be the heading under which the
IBM
71
IBM 3624 Consumer Transaction Facility shall be classified."
H C Nicolas, AJA )
KOTZé, JA ) GALGUT, AJA )