Commissioner for Inland Revenue v Dunlop South Africa Ltd

• Jurisdiction: South Africa
• Citation: 1987 (2) SA 878 (A)

Commissioner for Inland Revenue v Dunlop South Africa Ltd
1987 (2) SA 878 (A)

1987 (2) SA p878

Citation	1987 (2) SA 878 (A)
Court	Appellate Division
Judge	Corbett JA, Hoexter JA, Botha JA, Grosskopf JA and Nicholas AJA
Heard	March 20, 1987
Judgment	March 26, 1987

Flynote : Sleutelwoorde

Revenue — Sales tax — Tyre manufacturer using 'bladders' in process of manufacture — Bladders used in machines and had relatively short life and could be replaced by semi — skilled operator — Cost of bladder in relation to machine low — Bladders constituting 'parts purchased for J incorporation in or attachment to' machinery as intended by para 3 (b) of Division 1 of Schedule 2 of Sales Tax Act

1987 (2) SA p879

A 103 of 1978 as amended by Act 111 of 1979 and accordingly exempt from sales tax — Bladders not constituting 'detachable machine tools' or any other kind of tool as envisaged by list of 'non-qualifying goods' in Division 1.

Headnote : Kopnota

The respondent was a manufacturer and wholesale seller of pneumatic tyres and since 11 July 1978 had been registered as a B vendor in terms of s 12 of the Sales Tax Act 103 of 1978. The appellant had assessed the respondent to sales tax in regard to the importation of 'bladders' used in the process of manufacture of the pneumatic tyres. The respondent's objection to the assessment was disallowed and an appeal to a Special Court against the appellant's decision was successful. It appeared that the bladders were used during the manufacture of the tyres and during the curing process underwent considerable C stress, being subjected to stretching, contortion, contraction and high and low temperatures. After a time the stress would cause the bladder to crack and split. When this happened, the bladder had to be replaced. The life of the bladders varied according to the size of tyres being made, ie for a small tyre the life would be 135 to 140 hours and for the larger tyres about 84 hours. The cost of the bladder in relation to the machines in which they were installed was 1,3% for the large machine and 0,4% for the small machine. The dispute between the parties centred around subpara 3(b) of D Division 1 of Schedule 2 of the Act which excluded from sales tax 'parts purchased for incorporation in or attachment to such machinery or plant for the purpose of the repair or maintenance thereof by the vendor carrying on the enterprise concerned'. It was common cause that the items attracted sales tax after 16 June 1982, from which date the list of non-qualifying goods was amended by the addition of item (19) - 'Curing bags, bladders and airbags'. In addition, as from 18 July 1979 (in terms of s 20(1) of Act 111 of 1979) the list of non-qualifying E goods was amended to include 'detachable machine tools, cutting, forming, honing and moulding tools'. In an appeal against the decision of the Special Court,

Held, that it was clear from the evidence that the bladders constituted parts purchased for 'attachment to' and possibly also 'incorporation in 'the curing machines: the bladder played an essential role in the functioning of the machine and it was unquestionably a part of the machine.

Held, further, that the purpose of such attachment was the F 'repair' of the machine: 'repair' and 'maintenance' did not bear precise meanings and much depended on the context in which they were used; in the present case the act of replacing a worn or damaged bladder in one of the machines amounted to the repair or maintenance of the machine and probably amount to both repair and maintenance.

Held, further, that, although the bladder was purchased separately from the machine, it was nevertheless from the G functional point of view an integral part of the machine and the fact that it could be attached or removed by a semi-skilled operator did not detract from this.

Held, further, that, although the bladders wore out relatively quickly, this did not take them out of the category of parts which were incorporated in or attached to the machine for the purpose of repair or maintenance.

Held, further, that it was not necessary or advisable to attempt to define the term 'detachable machine tools' with any H precision - the dictionary definitions gave a broad indication of the general characteristics thereof: the bladder by its very nature could not be regarded as an implement or instrument in the nature of a tool nor would one regard the curing process as a machine providing mechanical power and, accordingly, the bladders did not fall under the category of non-qualifying goods defined as 'detachable machine tools 'or' cutting, forming, honing or moulding tools'. Appeal dismissed. I

Case Information

Appeal from a decision in the Natal Income Tax Special Court (Friedman J). The facts appear from the judgment of Corbett JA.

K R McCall SC for the appellant: The first question is whether during the period 11 July 1978 to 15 June 1982 the bladders used by the respondent in the manufacture of tyres fell within J the exemption in para

1987 (2) SA p880

A 3(b) of Division 1 of Schedule 2 of the Sales Tax Act 103 of 1978 ('the Act'). Whilst it is conceded that the bladders are 'parts' in the sense that they are an essential part of the machinery or plant used for the manufacture of tyres, they are separate and replaceable parts analogous to the replaceable bit B of a drill. They are attached to the Bag-o-matic machine rather than incorporated in it. However, the purpose of the attachment (or incorporation) is not the repair or maintenance of the machinery or plant comprising the Bag-o-matic machine. The bladder is an item which is expendable or consumable and interchangeable in the process of manufacturing a tyre. It is attached to the Bag-o-matic machine for the purpose of assisting in the manufacturing process - not for the purpose C of repairing or maintaining the Bag-o-matic machine. It is inevitable, when it is attached, that it will have to be replaced after a certain number of curing cycles. A bladder could be attached for the purpose of making a single tyre or a certain number of tyres and detached before it is worn-out, although that would be exceptional. However, when a bladder is D removed and replaced one would not regard this operation as being the repair or maintenance of the Bag-o-matic machine. The operation would fall into the same category as the replacement, from time to time, of different moulds, which would not be regarded as the repair or maintenance of the machine. In the same way one would not regard the replacement of a worn-out bit or a larger bit for drilling a larger hole as being the repair E or maintenance of the drill. The words 'repair' and 'maintenance' must be considered in the context in which they are used. Cf Clanwilliam Municipality v Braude 1954 (3) SA 657 (C) at 666E - F; Hereford and Worcester County Council v Newman [1975] 2 All ER 673 at 681b - d. They are used in para F 3(b) in the context of putting right a fault in, or keeping right, plant or machinery - not in the context of replacing consumable and interchangeable parts used in the course of the manufacturing process. The Court a quo ought accordingly to have held that the bladders did not fall within the exemption in para 3(b). If, however, it is held that the bladders did fall within para 3(b), the remaining question is whether (for the period 18 July 1979 to 15 June 1982) they fell within the G items 'Detachable machine tools' or 'Cutting, forming, honing or moulding tools' under the heading 'Non-qualifying goods' in Division 1 Schedule 2 of the Act. The bladders fall within the following meanings of the word 'tool': 'a mechanical implement for working upon something', 'a means of effecting something' H (The Shorter Oxford English Dictionary); 'a thing with which some operation is performed' (The Oxford English Dictionary vol XI); 'any similar instrument (to a hand tool) that is the working part of a power-driven machine' (Webster's New 20th Century Dictionary 2nd ed). What is contemplated under the first-mentioned item is something which can be described as a I 'tool' and which is attached to, and detachable from, a machine. The 'bladder' is an instrument which is attached to, and is detachable from, a machine. It is used, in conjunction with the Bag-o-matic machine and the moulds for 'moulding' or 'forming' the inside of a tyre. A mould may be regarded as a tool or a die (Encyclopedia Britannica 15th ed vol 18 at 488). The bladders, accordingly, do fall within the items 'Detachable J machine tools' and 'Cutting, forming, honing or moulding tools'. Counsel in the Court a quo was incorrect in conceding that they do

1987 (2) SA p881

not fall within the latter item. The Court and the appellant A are not bound by that concession. Cf Van Rensburg v Van Rensburg en Andere 1963 (1) SA 505 (A) at 510A - B; Joubert en 'n Ander v Stemmet en Andere 1965 (3) SA 215 (O) at 217C - E; Argus Printing and Publishing Co Ltd v Die Perskorporaste van Suid-Afrika Bpk 1975 (4) SA 814 (A) at 822C - E. The appeal should accordingly be upheld in respect of the whole of the B relevant period.

A J Swersky SC (with him M Tselentis) for the respondent: As is apparent from the appellant's heads of argument, the dispute between the parties on the first issue turns on whether the replacement of the bladders is effected 'for the purpose of the repair or maintenance' of the tyre manufacturing machine. C Central to the appellant's contention that the replacement is not effected for such purpose are the submissions that the bladders, whilst essential parts of the machine, are: 'separate and replacement parts analogous to the replaceable bit of a drill. They are attached to the Bag-o-matic machine rather than incorporated in it... (they are) attached to the Bag-o-matic D machine for the purpose of assisting in the...