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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)

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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:

1. 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)

4. 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.