(1) REPORTABLE: NO
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, PRETORIA
(2) OF INTEREST TO OTHE
(3) REVISED: NO
.at.W~
D~ MOKOSE SNI
In the matter between:
DERMAL INSTITUTE OF SA {PTY) LIMITED
and
THE COMMISSIONER FOR THE SOUTH AFRICA
REVENUE SERVICES
MOKOSEJ
Introduction
JUDGMENT
Case Number : 2020 -52890
Applicant
Respondent
(1) This application is an appeal in terms of Section 65(6)(a) of the Customs and Excise Act 92 of
1964 ("the Customs Act") which is considered a re-hearing of a value determination made by the
respondent. The respondent determined that the applicant should include the trade discount it
receives as part of the customs value of its imported goods which view the applicant contends is
contrary to the provisions of the General Agreement on Tariffs and Trade ("GATT") which have been
incorporated into Sections 65, 66, 67 and 74A of the Customs Act. According to the applicant, this is
contrary to the provisions of GATT. The primary basis to determine customs value is the transactional
value, which is the price actua lly paid or payable for the goods when sold for export into the Republic
of South Africa.
Brief Facts
[2] The facts are undisputed by the parties. The applicant, a distributor for Dermalogica Inc, is an
American company owning trademarks in respect of a range of skincare products, concluded a
distributorship agreement with the supplier on 1 January 2013. This agreement was concluded for a
period of 5 years but was subsequently extended. The applicant is the exclusive distributor of the
licensed products not only in South Africa but other African countries. The applicant and the
distributor are not related as defined in Section 66(2)(a) of the Customs Act.
[3] Clause 50 of the agreement between the parties, states that the price for products payable by
the applicant is the price for the products only. The applicant would be responsible for all other
charges associated with the purchase known as a purchase free-on-board ("FOB"). This means that
the applicant would be responsible for the cost of transportation of the products, insurance, freight,
taxes duties and all costs associated with customs clearance. To ensure competitive pricing for each
territory, the supplier's price structure provides for discounts to affiliates. These are international
discounts which discounts are solely in the discretion of the supplier, and which prevail for a period of
1 year.
(4] For 2018 the applicant was entitled to a general discount of 8% subject to certain exceptions.
An exception to such discounts was for promotional item s, launch discounts and support and non
standard items, among others, carton boxes.
(SJ On 25 October 2017 the supplier issued the applicant with a customs invoice for the sum of
$712 123,47 being the gross price with a discount of the sum of $79 555,52. The nett amount payable
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was therefore the sum of $632 567,95 being the amount paid by the applicant to the supplier. The
goods were cleared through the applicant's clearing agent.
(6) The South African Revenue Services ("SARS") raised a query on the shipment requesting an
explanation pertain ing to the international discount. At the time that the valuation determination was
made, SARS reasoned that "the trade discount is preferential and is a matter of routine. It should be
included in the customs value ... '~
[7] As a result thereof and on 15 January 2018, SARS issued a value determinatio n regarding t he
discount. The determination was that "the trade discount is preferential and is a matter of routine. It
should be included in the customs value. Penalty will follow'~ It is however noted that in its answering
papers, SARS provided a reason different to that given at the time of the valuation determination. The
respondent contends that the applicant failed to provide a proper explanation for the discounts
including the discount structure, it failed to provide evidence of similar discounts to other buyer and
that it failed to demon strate that the percentage discounts granted were within the norm. In
particular, it alleged that the applicant's trade discount of 8% referred to as level 2 woul d not be
acceptable for customs valuation as determined by SARS. The aforesaid requirements are derived
from the SARS Customs Valuation Guide.
[8) To have the goods released the applicant passed a voucher of correction as contempla ted in
Section 40(3)(a) of the Customs Act.
Issue
(9] The issue for determination before this court is whether the respondent can disregard the
discount the applicant receives and tax the applicant on the amount higher than the transaction value.
Legal Framework and General Principles Governing Customs Valuation
[10) In terms Article 1 of the GATT, to which South Africa is a signatory, the primary basis for the
customs value determination is the transaction value. This is the actual price paid or payable. Articles
1 to 7 of the GATT define how the customs value of imported good is to be determine under the GATT.
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The primary method of customs valuation is defined in Article 1. Imported good are valued in
accordance with the provisions of this article whenever the conditions contained therein are met.
(11) Section 40(1) of the Customs Act provides that no entry shall be valid unless the true value of
the goods on which duties leviable or which is required to be declared under the provisions of this Act
and the true territory of origin, territory of export and means of carriage have been declared.
(12) The Customs Valuation Guide stipulates that discounts given for the following reasons are
dutiable:
(i) the buyer undertakes certain activities for or on behalf of the seller as part of the payment
under the contract of sale;
(ii) the buyer provides other foods or service to third parties for or on behalf of the seller as a
condition of sale of the imported goods;
(iii) the party's relationship affects the price;
(iv) the price of the imported goods has received credits made in respect of earlier transactions;
and
(v) the Guide also provides that before a discount price can be considered as customs value, the
discount percentage and reason for the discount must be declared on the invoice as provided
for in Section 41(4)(a).
(13] Section 65 of the Act provides that the value for duty purposes on any goods imported into
the Republic is, subject to the provisions of this Act, at the time of entry for home consumption, the
transaction value thereof, within the meaning of Section 66.
(14] Section 66 of the Customs Act provides that the transaction value of any imported goods shall
be the price actually paid or payable for the goods when sold for export to the Republic, adjusted in
terms of Section 67.
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(15] Section 67(1) provides that, in ascertaining the transaction value of any imported goods in
terms of Section 66(1), there shall be added to the price actually paid or payable for the goods, to the
extent that they are incurred by the buyer but are not included in the price actually paid or payable,
any commission other than a buying commission, brokerage, the cost of packing including that of the
labour and materials concerned and the cost of containers which are dealt with as being for customs
purposes one with the goods.
(16] In terms of Section 74A{l), the interpretation of Sections 65, 66 and 67 shall be subject to the
agreement concluded at Geneva on 12 April 1979 and known as the Agreement on Implementation of
Article VII of the General Agreement on Tariffs and Trade, the interpretive Notes thereto, the Advisory
Opinions, Commentaries and Explanatory Notes, Case Studies and Studies issued under the said
Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade ("GATT").
Arguments
(17] The applicant appeals a determination by the respondent In terms of the abovementioned
provisions of the Act. An appeal against a determ ination may entail a re-hearing of the matter. A fresh
determination may made of the merits with additional evidence if available.1 This appeal turns on the
interpretation of Section 65(6)(e) of the Act. It is a wide appeal and is considered a re-hearing of the
value determination by the respondent. It is fundamentally different from an appeal in the strict sense
or a review as it is heard de novo. Accordingly, the court is not confined to the record and is in the
same position as the first-instance decision-maker.2
[18] SARS opposes this application on the basis that the applicant failed to comply with the
requirements of the Customs Act and the GATT. It is of the view that it correctly refused the discount
because the applicant did not provide all particulars necessary to make a valid entry and all particu lars
in respect of the transaction value in terms of the discount on the invoice as required by Section 41(4)
of the Customs Act. Furthermore, SARS contends that the applicant failed to provide particulars
necessary on the invoice for it to determine the value, which is the amount actually paid and not as
stated in the invoice in accordance with Section 66 of the Customs Act.
11
Commissioner of SARS v Levi Strauss SA (Pty) Ltd 2021 (4) SA 76 (SCA) at para 25
2 Cell C (Pty) Ltd v Commissioner, South African Revenue Service 2022 (4) SA 183 (GP) at para 10
5
(19) The respondent admits that it did not rely on the Valuation Guideline but merely consulted it
in addition to t he sections of the Customs Act as stated above as well as the GATT. The respondent
further contends that it has not accepted the applicant's version that it receives the discount based on
an agreement concluded with the supplier as it is contradictory. It accepts that four documents were
furnished to it to explain the discount. Those documents are the handwritten note provided to SARS,
the follow up letter, the distribution agreement and the affidavit of the supplier. All these documents
were attached to the affidavits filed and attached to the court documents.
(20] The applicant contends that the additional evidence furnished to this court is uncontested. It
contends that insofar as the respondent seeks to rely on its Valuation Guidelines, they have no force
of law. The applicant referred the court to the matter of Marshall and Others v Commissioner for the
South African Revenue Service3 in which the Constitutional Court held that the use of these guidelines
should be avoided when interpreting relevant statutes.
(21] The respondent contends that it consulted the Valuation Guideline in its determination . As
stated in the Marshall matter (supra) this Guideline does not have the force of law. Such a
determination based on the respondent's own interpretation of the legislation does not result in a
statutory requirement which the applicant is under a legal obligation to comply with.
(21] From the documents before this court, it is evident that the applicant furnished the
respondent with the four documents enunciated above in an attempt to explain the discount on the
invoice. Whilst the respondent has accepted the applicant's version that it receives the discount based
on an agreement concluded with the supplier, it contends that it has not accepted the evidence
provided because it contends that it is contradictory. The respondent further contends that the
agreement was not forthcoming although it had been informed by the clearing agent that they have
requested the agreement from the importer explaining the trade discount. This was not available until
July 2018, when it was attached to a notice to litigate in terms of Section 96 of the Act.
[22] The respondent contends further that Clause 51 of the agreement furnished read that all
prices of products will be at Dermalogica's bona fide wholesale price effective at the time Dermalogica
3 2019 (6) SA 246 (CC)
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accepts the distributor's order for products. It further read that Dermalogica retains the absolute
discretion to establish and adjust the prices of products, establish policies and discount s for volume
purchases, establish and impose handling, packing and shipping and delivery charges. The terms and
conditio ns of the agreement did not give descriptions or specific details on discounts. The agreement
was also not signed but had an electronic date of 11 March 2009. Two further agreements were
furnished during October 2020 having been attached to the founding affidavit. The date of the
agreement was not visible on the contract nor were the signatures of the parties legible. Furthermore,
the affidavit signed by the supplier's Vice President did not attach the contract nor did it refer to the
specific consignment or invoice in question, nor does it refer to the commodity that the 8% discount
was applicable to.
[23] Whilst it may be so that the description of the goods and the details of the discounts were not
included on the terms and conditions of the agreement, this does not diminish the fact that the
information was granted by the applicant to enable the respondent to ascertain whether the customs
payable was in fact on the transaction value.
[24] If regard is had to the GATT and the Customs Act, the primary basis to determine customs
value is the transaction value which is "the price actually paid or payable for the goods when sold for
export to the Republic". Accordingly, the respondent cannot disregard the discount received by the
applicant and tax it on a higher amount than the transaction value. The respondent fails to advance
reasons for its position that the applicant's trade discount of 8% would not be acceptable for customs
valuation determined by it in circumstances where it has accepted the existence and structure of the
trade discount and that the supplier also determines discounts to be provided to suppliers in other
countries. It has also accepted that the applicant and supplier are not related parties as contemplated
in Section 66{2)(a) of the Act.
[25] There is no reason before the court why the costs should not follow the cause.
[25] Accordingly, the following order is granted:
1. The "transaction value" of the goods for purposes of Section 65 of the Customs and Excise Act
of 1964 is the price nett of the discount granted by the exporter, Dermalogica Inc {located in
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California, United States of America) to the applicant in terms of the agreement between
them, in circumstances where Dermalogica Inc is paid the amount nett of the discount, being
the price paid or payable for the goods as contemplated in Section 66 of the Customs and
Excise Act, 1964.
2. The value determination by the respondent dated 15 January 2018 is set aside and the
following is stated:
"The trade discount is preferentially and is a matter of routine . It should be included in the
customs value. VOC required to include discounts in customs value. Penalty will follow."
3. The applicant may within 90 days of this order, submit vouchers of correction to the
respondent as contemplated in Section 40(3) of the Customs and Excise Act 1964, rectifying
the correct customs value of the goods declared on the bills of entry submitted by the
applicant to the respondent since the value determination (3 January 2018), together with
supporting documentation.
4. The applicant may claim a refund of duties for the bills of entry in respect of which vouchers
of correction were passed (per prayer 3 above), claiming excess duties paid, subject to the
provisions of Section 768 of the Customs and Excise Act 1991 .
5. The applicant may apply for a refund of the provisional payments paid to the respondent
subsequent to the value determination in terms of Section 91 of the Customs and Excise Act
1964, namely an amount of R73 860,31 for alleged under-declaration of customs duties and a
provisional penalty payment of R21 490,56 for alleged under-payment of value-added tax,
6. Costs, including the costs of counsel on Scale 8.
For the Applicant: Adv N Komar
On instructions of: Shepstone & Wylie Attorneys
SNI MOKOSEJ
Judge of the High Court of
South Africa Gauteng
Division, PRETORIA
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For the Respondent:
On instructio ns of:
Date of judg ment:
Adv E Mkhawane
VDT Attorneys
31 August 2026
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