Distell Ltd v Commissioner, South African Revenue Service

• Jurisdiction: South Africa
• Judge: Navsa JA, Heher JA and Van Heerden JA
• Judgment Date: 31 May 2012
• Citation: 2012 (5) SA 450 (SCA)
• Docket Number: 526/2011 [2012] ZASCA 88
• Hearing Date: 22 May 2012
• Counsel: AP Joubert SC (with C Louw) for the appellant. CE Puckrin SC (with JA Meyer SC and IA Enslin) for the respondent.
• Court: Supreme Court of Appeal

Navsa JA and Van Heerden JA (Heher JA concurring): A

[1] This appeal involves a dispute about a tariff classification in relation to excisable goods under the Customs and Excise Act 91 of 1964 (the Act). [1] The appeal turns on whether the products in question are B fermented or distilled (spirituous) beverages. The appellants contended that they are fermented, and accordingly classifiable under a specific tariff heading, namely 22.05, alternatively 22.06, of part 1 of sch 1 to the Act. The respondent contended that they are spirituous, and therefore classifiable under tariff heading 22.08. Once that issue is determined the proper tariff item in part 2A of sch 1 under which the products should be C classified will follow as a matter of course. Each tariff heading has a corresponding tariff item number. For ease of reference we shall refer only to the relevant tariff heading.

[2] The appellant company is Distell Ltd (Distell), which owns and D operates a number of wineries and conducts business as a manufacturer and distributor of liquor products. It markets and sells a number of well-known alcoholic beverages to commercial outlets. The respondent is the commissioner for the South African Revenue Service (the commissioner).

E [3] The facts giving rise to the appeal are set out hereafter. During 2007 and 2008 the commissioner determined all of the products forming the subject-matter of this appeal as falling within tariff heading 22.08 in part 1 of sch 1 to the Act. [2] The tariff headings themselves and an explanation of how they operate and are applied will be dealt with in due course. The products in question are the following:

(i)

F Angels' Share Cream;

(ii)

Delgado Supremo;

(iii)

GoldCup Creamy Vanilla;

(iv)

Barbosa;

(v)

GoldCup Banana Toffee;

(vi)

Zorba;

(vii)

G Nachtmusik;

(viii)

Mokador;

(ix)

Alaska Peppermint;

(x)

Copperband;

(xi)

VinCoco;

(xii)

H Clubman Mint Punch;

(xiii)

Viking;

Navsa JA and Van Heerden JA (Heher JA concurring)

(xiv)

Castle Brand; and A

(xv)

Brandy Ale.

[4] As stated above, the tariff determinations were arrived at on the basis that the products in question are spirituous beverages. The commissioner's perspective, put simply, is that the base wines used in the beverages B in question are subjected to processes in terms of which they are stripped of flavour and colour and have cane spirits added to them in order to bolster the alcohol content significantly, as well as sweeteners, flavourants and colourants, and that they no longer qualify as a wine of any kind, but are ultimately spirituous and therefore liable to a tariff classification attracting higher duties. C

[5] At the time of the determination, Distell assumed the position that the products in issue have a 'basis of wine of fresh grapes', are fermented, not distilled, and should resort under one or more of the following tariff headings, namely 22.04, 22.05 or 22.06, all of which pertain to D fermented beverages and consequently attract lower excise duties. Distell's primary contention was that the products in question fell to be classified under tariff heading 22.04 in that they were 'wine of fresh grapes, including fortified wines'. Alternatively, it contended that the products in issue are wine of fresh grapes (fortified wine), flavoured with E plant and aromatic substances and, accordingly, fell under tariff heading 22.05. It contended, in the further alternative, that the products are mixtures of fermented beverages and non-alcoholic beverages, as contemplated in tariff heading 22.06, which covers all fermented beverages other than those in tariff headings 22.03 to 22.05. Distell challenged the commissioner's determination that tariff heading 22.08 applies, as this heading does not, so it was contended, include aperitives 'with a basis of F wine of fresh grapes'.

[6] Subsequent to the commissioner's determination, set out in para [3] above, Distell lodged an appeal in terms of s 47(9)(e) of the Act to the North Gauteng High Court [3] on the basis set out in the preceding G paragraph. That court (Pretorius J) found the products to be spirituous beverages and held that they thus fell under tariff heading 22.08. The present appeal is before us with the leave of the court below. We shall hereafter use 'TH' as an abbreviation for tariff heading.

[7] The Republic of South Africa is a party to the General Agreement on H Tariffs and Trade and is a member of the World Customs Organisation, which employs the International Harmonized System referred to in the Act. Part 1 of sch 1 to the Act, comprising the section and chapter notes, the General Rules for the Interpretation of the Harmonized System and the tariff headings, is a direct transposition of the nomenclature of the Harmonized System. I

Navsa JA and Van Heerden JA (Heher JA concurring)

A [8] Section 47(8)(a) provides that:

'(a)

The interpretation of —

(i)

any tariff heading or tariff subheading in Part 1 of Schedule 1;

(ii) (aa)

any tariff item or fuel levy item or item specified in Part 2, 5 or 6 of the said Schedule, and

(bb)

B any item specified in Schedule 2, 3, 4, 5 or 6;

(iii)

the general rules for the interpretation of Schedule 1; and

(iv)

every section note and chapter note in Part 1 of Schedule 1,

shall be subject to the International Convention on the Harmonized Commodity Description and Coding System done in Brussels on 14 June 1983 and to the explanatory notes [4] to the Harmonized System C issued by the Customs Co-operation Council, Brussels (now known as the World Customs Organisation) from time to time: Provided that where the application of any part of such Notes or any addendum thereto or any explanation thereof is optional the application of such part, addendum or explanation shall be in the discretion of the commissioner.'

D [9] In the court below Pretorius J started her reasoning leading to the conclusion referred to above by referring to the purpose of the correct tariff headings, namely to determine the excise duty payable in terms of the Act. She considered TH 22.04, the relevant parts of which, together with their explanatory notes, read as follows:

E 'Wine of fresh grapes, including fortified wines; grape must other than that of heading 20.09.

. . .

(1)

Wine of fresh grapes

The wine classified in this heading is the final product of the alcoholic F fermentation of the must of fresh grapes.

The heading includes:

(1)

Ordinary wines (red, white or rosé).

(2)

Wines fortified with alcohol.

(3)

Sparkling wines. These wines are charged with carbon dioxide, G either by conducting the final fermentation in a closed vessel (sparkling wines proper), or by adding the gas artificially after bottling (aerated wines).

(4)

Dessert wines (sometimes called liqueur wines). These are rich in alcohol and are generally obtained from must with a high sugar content, only part of which is converted to alcohol by H fermentation. In some cases they are fortified by the addition of alcohol, or of concentrated must with added alcohol. Dessert (or liqueur) wines include, inter alia, Canary, Cyprus, Lacryma Christi, Madeira, Malaga, Malmsey, Marsala, Port, Samos and Sherry.'

I [10] In regard to this TH, Distell contended that, since it included wines fortified with alcohol, the beverages in question should continue to be regarded as fermented beverages, rightly resorting under this classification.

Navsa JA and Van Heerden JA (Heher JA concurring)

[11] As indicated, Distell relied in the alternative on TH 22.05, the A relevant part of which, accompanied by the explanatory notes, reads as follows:

'Vermouth and other wine of fresh grapes flavoured with plants or aromatic substances . . . This heading includes a variety of B beverages (generally used as aperitives or tonics) made with wine of fresh grapes of heading 22.04, and flavoured with infusions of plant substances (leaves, roots, fruits, etc.) or aromatic substances.'

[12] The third alternative TH relied on by Distell was TH 22.06, the salient provisions and explanatory notes of which are:

'Other fermented beverages (for example, cider, perry, mead); C mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or excluded.

This heading covers all fermented beverages other than those in headings 22.03 to 22.05.'

[13] In contradistinction the court below referred to the TH regarded by D the commissioner to be the appropriate one, namely 22.08, the applicable parts and explanatory notes of which provide:

'22.08 — Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous beverages. E

2208.20 — Spirits obtained by distilling grape wine or grape marc

2208.30 — Whiskies

2208.40 — Rum and other spirits obtained by distilling fermented sugar-cane products F

2208.50 — Gin and Geneva

2208.60 — Vodka

2208.70 — Liqueurs and cordials

2208.90 — Other

The heading covers, whatever their alcoholic strength: G

(A)

Spirits produced by distilling wine, cider or other fermented beverages or fermented grain or other vegetable products, without adding flavouring; they retain, wholly or partly, the secondary constituents (esters, aldehydes, acids, higher alcohols, etc.) which give the spirits their peculiar individual flavours and aromas.

(B)

Liqueurs and cordials, being spirituous beverages to which sugar, honey or other natural sweeteners and extracts or essences H have been added (e.g. spirituous beverages produced by distilling, or by mixing, ethyl alcohol or distilled spirits, with one or more of the following: fruits, flowers or other parts of plants, extracts, essences, essential oils or juices, whether or not...