Commissioner, South African Revenue Service v Trend Finance (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Howie P, Cloete JA, Heher JA, Van Heerden JA and Combrinck JA
• Judgment Date: 23 May 2007
• Citation: 2007 (6) SA 117 (SCA)
• Docket Number: 162/06
• Hearing Date: 07 May 2007
• Counsel: A Schippers SC (with E A de Villiers-Jansen) for the appellant O L Rogers SC for the respondents
• Court: Supreme Court of Appeal

Cloete JA:

[1] This appeal concerns three consignments of shoes imported into South Africa from China. The first was destined for sale in branches of Pep Stores and the other two in branches of Foschini, both well-known clothing retailers. The purchase, importation and subsequent E delivery of the shoes to Pep and Foschini were undertaken by Trend Finance (Pty) Ltd and Trend Gear Enterprises (Pty) Ltd, which are family enterprises run by Mr Ismail Essop with the assistance of his daughters. I shall refer to both companies simply as 'Trend'. The shoes were manufactured in mainland China. The shipper in terms of the bills of lading, under cover of which each consignment of the shoes was F brought from Hong Kong to South Africa, was a Hong Kong trading house, Kedah Co Ltd, controlled by a Mr Cheng.

[2] When the three consignments arrived in South Africa the Controller of Customs, Cape Town, acting on behalf of the Commissioner G for the South African Revenue Service, refused to release them. In each case the clearing agent retained by Trend made payments under cover of a completed DA70 form which is headed 'Application to make provisional payment'. The reason given for the payment of R100 000 on 12 March 1999 in the case of the first consignment was 'provisional payment lodged pending outcome of investigations' and in H the case of each of the second and third consignments, where amounts of R300 000 and R600 000 were paid on 20 August and 1 September 1999 respectively, the reason given was 'provisional payment lodged for possible underpayment in customs duty and VAT'. After the payments were made, the shoes were released - the first I consignment in March 1999 and the other two in August and September the same year.

[3] It would be convenient at this stage to summarise those provisions of the Customs and Excise Act 91 of 1964 that are relevant for present purposes. As appears from its long title, one of the purposes of the Act J

Cloete JA

is to 'provide for the levying of customs and excise duties . . . and for matters incidental thereto'. The Commissioner for the A SA Revenue Service is, in terms of s 2(1), charged with the administration of the Act subject to the control of the Minister of Finance. The Controller is an officer designated by the Commissioner and includes an officer acting under the control of the Controller. B

[4] Chapter II of the Act prescribes the powers of officers. An officer is authorised in terms of s 4(4)(a), without notice, to enter any premises and make such inquiry as he or she deems necessary and require any person then and there to produce any book, document or thing which such officer has reasonable cause to suspect relates to matters dealt with in the Act. [1] C

[5] Chapter V deals with clearance of goods and liability for payment of duties. Every importer of goods is obliged in terms of s 38(1) to make due entry of those goods in terms of s 39. That latter section requires the person entering any imported goods for any purpose to deliver a bill of entry to the controller in the prescribed D form; to declare that the particulars contained in the bill of entry are correct; and to pay all duties due on the goods. Section 40(1) provides that no entry shall be valid unless the true value of the goods on which duty is leviable or which is required to be declared under the provisions of the Act, has been declared; a correct invoice has been produced to the controller in the case of goods consigned to E any person in the Republic; and the correct duty has been paid. Section 44(6)(c) provides that in all cases except those specifically mentioned, the liability for duty on any imported goods is that of the importer or owner of such goods (or any person who assumes such liability for any purpose under the provisions of the Act). F Section 44(10) provides that any duty for which any person is liable in terms of s 44 shall be payable upon demand by the Commissioner. Section 47 provides that duty shall be paid on all imported goods in accordance with the provisions of Schedule 1.

[6] Chapter IX deals with value. Section 65(1) provides that the value for customs duty purposes of any imported goods shall, at the G time of entry, be the transaction value thereof within the meaning of s 66; and that section stipulates that the transaction value is the price actually paid or payable for the goods when sold for export to the Republic (adjusted in terms of s 67). Section 65(4)(a) provides that the Commissioner may in writing determine the H transaction value of any imported goods, which is required to be ascertained or may be determined as provided in s 66. [2] Section 65(6)(a) provides that an appeal against any such determination

Cloete JA

shall lie to the Division of the High Court of South Africa having jurisdiction to hear appeals in the area wherein the A determination was made, or the goods in question were entered for home consumption.

[7] The penal provisions of the Act are contained in Ch XI. Section 78(1) is in extremely wide terms. It provides that any person who contravenes or fails to comply with any provision of the Act shall be guilty of an offence. In addition s 83(a) provides that B any person who deals with any goods contrary to the provisions of the Act shall be guilty of an offence. Apart from those (and other) criminal provisions, s 87(1) provides that goods imported contrary to the provisions of the Act are liable to forfeiture. Section 88(1)(a) provides that any officer may detain any goods at C any place for the purpose of establishing whether the goods are liable to forfeiture. Section 88(2)(a) provides that if any goods liable to forfeiture cannot readily be found, the Commissioner may demand from any person who imported such goods contrary to the provi- sions of the Act, payment of an amount equal to the value for duty purposes of the goods plus any unpaid duty thereon. Section 93(1)(c) provides that the Commissioner may, on good cause D shown by the owner thereof, direct that any goods detained or seized under the Act be delivered to such owner, subject to such conditions as the Commissioner may determine, including conditions providing for the payment of an amount not exceeding the value for duty purposes of the goods plus any unpaid duty thereon. E

[8] On 29 March 2001 the Controller wrote a letter to Trend in regard to the first consignment. The essential part of the letter read:

'Arising from an inspection of books and documents, underpayments in customs duty and VAT amounting to R363 371,09 were F found as reflected on the attached schedule. The schedule refers to various imports, which were incorrectly invoiced and incorrectly entered for customs duty purposes.

In view of the circumstances here prevailing, the goods were irregularly dealt with contrary to the provisions inter alia of s 38(1), read with ss 39(1), 40(1), 47(1), 47A(1), 65, 66 and 67 of the Customs and Excise Act 91 of 1964 (the Act) which constitute offences in terms of ss 83 and 84 of the Act. G

As the importer/owner of the goods reflected on the attached schedule you are liable for the duty and VAT due thereon in terms of s 44(6)(c) and the duty due is hereby demanded in terms of s 44(10) of the Act.

In view of the circumstances here prevailing the goods were irregularly dealt with contrary to the provisions of the Act. The goods are therefore liable to forfeiture and seizure in terms of ss 87(1) and 88 of the Act. If goods liable to forfeiture cannot readily be H found the Commissioner of the South African Revenue Service may demand from the importer payment of an amount equal to the value for duty purposes of such goods plus any unpaid duty thereon. In the circumstances an amount of R732 903 is demanded in lieu of forfeiture.

I The total sum to be remitted to this office is as follows:

. . .
Underpayment of customs duty	R219 780,90

Cloete JA

Underpayment of VAT	R143 590,19 A
Total underpayment of duty	R363 371,09
Forfeiture in terms of s 88(2)(a)	R732 903,00.'

The total sum claimed amounted to R1 096 274,09. No similar letter was sent in respect of the second and third consignments and the amounts of R300 000 and R600 000 provisionally paid in respect of B those consignments have not been repaid by the Commissioner.

[9] In terms of a notice of motion dated 9 October 2001 the Trend companies, as applicants, commenced motion proceedings in the Cape Town High Court against the Commissioner for the South African Revenue Service as the first respondent and the Controller of Customs, Cape Town, as the second respondent. The main relief C sought by Trend was the following:

1.

In terms of s 65(6) of the Act, an order setting aside the determination contained in the Controller's letter dated 29 March 2001.

2.

An order reviewing and setting aside the penalty of R732 903 (which the Commissioner later reduced to R695 508) imposed in terms of D s 88(2)(a) in lieu of forfeiture.

3.

An order directing the Commissioner to repay to Trend:

3.1

R100 000 (ie the provisional payment made in respect of the first consignment) together with interest thereon at the prescribed rate from 12 March 1999 to date of payment; E

3.2

R300 000 (ie the provisional payment made in respect of the second consignment) together with interest thereon at the prescribed rate from 20 August 1999 to date of payment; and

3.3

R600 000 (ie the provisional payment made in respect of the third consignment) together with interest thereon at the prescribed rate from 1 September 1999 to date of payment. F

[10] In respect of the first consignment, therefore, Trend sought to have the penalty of R695 508 set aside. It also appealed in terms of s 65(4)(a) read with s 65(6) of the Act against the...