Commissioner for Inland Revenue v Dunlop South Africa Ltd

• Jurisdiction: South Africa
• Judge: Corbett JA, Hoexter JA, Botha JA, Grosskopf JA and Nicholas AJA
• Judgment Date: 26 March 1987
• Hearing Date: 20 March 1987
• Court: Appellate Division

Corbett JA:

The respondent in this matter, Dunlop South Africa Ltd, which has its registered office in Durban, carries on business within the Republic of South Africa as a manufacturer C and wholesale seller of pneumatic tyres, inner tubes and other rubber products. Since 11 July 1978 respondent has been registered as a vendor, in terms of s 12 of the Sales Tax Act 103 of 1978 ('the Act'), in respect of the enterprises of manufacturing and wholesale trading. In terms of the Act, which was promulgated on 28 June 1978, liability for sales tax D commenced on 3 July 1978 (see definition of 'commencement date' in s 1).

On 18 February 1983 appellant, the Commissioner for Inland Revenue, issued respondent with an additional assessment to sales tax in regard to the importation by respondent of what are termed 'bladders' during the period 3 July 1978 to 4 May E 1982. The taxable amount of these bladders was assessed in the sum of R1 898 622 and the amount of sales tax payable in the sum of R107 469,16. Originally penalties were also claimed, but these were later waived by the appellant. Respondent objected to this assessment, generally on the ground that the bladders in question were not subject to sales tax. Its objection having been disallowed by appellant, respondent, in terms of s 22 of F the Act, appealed to the Special Court constituted for the hearing of income tax appeals. The appeal came before the Natal Income Tax Special Court, which allowed the appeal and set aside the assessment. Appellant now appeals to this Court against the whole of the judgment and order of the Special Court, the President of the Special Court having granted the G necessary leave in terms of s 86A(5) of the Income Tax Act 58 of 1962, as amended.

Before dealing with the merits of the appeal, I must make brief mention of two matters. The first, an application by appellant for the amendment of the grounds of appeal, was not opposed by respondent and was granted at the beginning of the hearing before us. The second was an application for condonation of the H fact that, for reasons which I need not detail, the notice of appeal was lodged with respondent's attorney one day late. This application was also not opposed by respondent and in my view condonation should be granted. I turn now to the merits.

The essential facts of the matter are not in dispute. The bladders in question were imported by the respondent and used I by it in the course of manufacturing tyres during the period for which the tax was levied; and indeed at the time of the trial the same type of bladder was currently in use. In the process of manufacture respondent uses fairly complex machines, which take in what is termed the 'raw tyre', shape and cure (or vulcanize) it and produce the finished product. There are two types of such a curing (or vulcanizing) machine, the J Bag-o-matic Press, which is only semi-automatic and requires several manual operations in its normal

Corbett JA

functioning, and the Autoform Press, which is completely A automatic. Basically, however, these machines employ the same process. There are different machines for the manufacture of different sizes of tyre. They vary in cost from R733 000 for the machine used to make tyres for very large earth-moving machines to R41 500 for the machine used to make tyres for B ordinary motor cars.

It is not necessary to describe the curing process in more than broad outline. The essential parts of the machine consist of a press and a mould. The mould is circular in form, is made of metal and comes in two halves. It is so shaped as to give the tyre its outward form, with its patterned tread, etc. At the commencement of the process the two halves of the mould are separated from one another, the lower section lying horizontal. C In the centre of the lower section of the mould is placed the bladder. The bladder consists of a rubber cylinder which in its uninflated state appears to have a diameter approximately the same as the circular opening in the finished tyre into which the wheel will fit. The bladder is open at both ends. When the D cylindrical bladder is placed upright in the mould a steel plate is affixed to the opening at each end. The lower plate is screwed into the base of the machine and lies at the same level as the bottom of the lower section of the mould. The raw tyre, which consists of a cylinder about the same height as the bladder, but of wider diameter, is then fitted over the bladder. Thereafter the upper plate affixed to the bladder is clamped to a central ram which can move vertically. By means of E the ram the raw tyre is compressed from above until eventually the two halves of the metal mould are brought together. During the process of compression first steam and later hot water are introduced under pressure into the bladder, and also externally. The heat of the steam initially causes the rubber F of the raw tyre to become sufficiently molten to flow and be moulded. And the hot water supplies the pressure and temperature required to cause the tyre, through the medium of the bladder, to assume the shape dictated by the mould. In this process the bladder inflates and expands and is contorted in such a way as to form a shape which applies the requisite pressure on the inside of the tyre. In that way it forces the tyre into and against the mould. Later, when the curing process G is complete, cold water is introduced to cool everything down and the finished tyre is removed.

The curing time varies with different tyres, depending upon size. Thus, for example, with a very large tyre it could take 10 hours, compared with about 27 to 30 minutes for a small H tyre. The bladder undergoes considerable stress during the curing process. It is subjected to stretching, contortion and contraction, and to high and low temperatures. After a time this stress tends to cause the bladder to crack round the periphery and to split longitudinally. Once this happens the bladder has to be replaced by a new one. The usable life of a I bladder again depends upon size. In the case of the bladder used for making the small type of tyre, its life is normally about 300 to 310 curing cycles (ie, on the basis of 27 minutes per curing cycle, about 135 to 140 hours). On the other hand, the bladder used for making the very large type of tyre usually lasts for about eight cures (ie, a total of about 84 hours). Some bladders might last for a longer time; others for a J shorter time. The span of time over which a

Corbett JA

A bladder would remain in a...