International Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise

• Jurisdiction: South Africa
• Judge: Kotzé JA, Miller JA, Botha JA, Galgut AJA and Nicholas AJA
• Judgment Date: 19 September 1985
• Citation: 1985 (4) SA 852 (A)
• Hearing Date: 20 August 1985
• Court: Appellate Division

Nicholas AJA:

This appeal concerns the classification for I customs duty purposes of a machine named the IBM 3624 Consumer Transaction Facility, an automated teller machine of the kind which has become familiar in banks and building societies in many parts of South Africa.

Subsection (1) of s 47 of the Customs and Excise Act 91 of 1964 ("the Act") provides inter alia that customs duty shall be paid on all imported goods in accordance with the provisions of J Schedule 1 ("the Schedule").

Nicholas AJA

A Part 1 of the Schedule deals with ordinary customs duty. This part is modelled on the "Nomenclature", which was an annexe to the Convention on Nomenclature for the Classification of Goods in Customs Tariffs. This is one of three Conventions ("the Brussels Conventions") which were signed on 15 December 1950, B and to which the Republic of South Africa has acceded. The essential aims of the Convention on Nomenclature were:

"(a)

to establish a common basis for the classification of goods in national customs tariffs;

(b)

to facilitate comparison of the customs duties applicable in the various countries to all goods entering into international commerce;

(c)

C to simplify international customs tariff negotiations;

(d)

to facilitate the comparison of international trade statistics;

(e)

to provide governments and traders alike with a firm guarantee of the maximum uniformity in the classification of goods in national customs tariffs; and

(f)

to facilitate international trade and thus to contribute to its expansion."

D (This is an extract from the brochure hereinafter referred to.)

Another of the Brussels Conventions was the Convention Establishing a Customs Co-operation Council ("CCC"). Under the authority of the CCC, the Nomenclature Committee supervises the operation of the Convention on Nomenclature, and generally E takes all appropriate steps to ensure international uniformity in the interpretation and application of the Nomenclature.

The customs tariffs of 148 countries, territories or areas (including the Republic of South Africa) are based on the Nomenclature.

The characteristic features of the Nomenclature (referred to as F the "CCCN") are described in a brochure issued by the CCC ("In brief... the Customs Co-operation Council"):

"The CCCN is systematic. It provides a framework for the classification of goods in customs tariffs but, since it includes Interpretative Rules and Legal Notes, it also constitutes a comprehensive classification system which has been designed to ensure:

(a)

G maximum simplicity, so that it can be readily understood by the public as well as by experts;

(b)

precision, so that the most appropriate heading for a given commodity can be readily identified; and

(c)

exactness in application, so that the same commodity will be classified in the same way in the tariffs of all the countries using the Nomenclature."

H The Nomenclature comprises:

"(a)

the rules for the interpretation of the Nomenclature which prescribe the general principles governing the classification system;

(b)

section and chapter notes, which define the scope and limits of sections, chapters and of certain headings. These legal notes permit the headings to be drafted in concise I form without any loss of precision or of exactitude in their interpretation; and

(c)

a list of headings, arranged in systematic order, covering all the items in international commerce.

The 1 011 headings in the Nomenclature... are arranged in 99 chapters which are themselves grouped in 21 sections. In general, goods are grouped according to the material of which they are made; further most chapters are developed 'progressively' - that is, starting from raw materials and J progressing to finished articles."

Nicholas AJA

The Nomenclature Committee prepares Explanatory Notes (often A referred to as "the Brussels Explanatory Notes" or "the Brussels Notes") which when issued constitute the official interpretation of the Nomenclature as approved by the CCC.

The appellant, International Business Machines South Africa (Pty) Ltd, (to which I shall refer as "the company"), has for several years imported into and marketed in the Republic of B South Africa a variety of business machines. These include the IBM 3624 which it has entered for customs duty purposes under tariff subheading 84.53.10 of Part 1 of the Schedule. In May 1982 the Controller of Customs and Excise at Johannesburg advised the company that the machine should have been classified under tariff subheading 84.54.90 and demanded C payment of R257 019,07, being the amount of customs duty alleged to have been underpaid, and of R25 702 as a provisional payment to cover any penalty which the Commissioner might decide to impose. These sums were deposited by the company on 7 June 1982. Thereafter the company requested the Commissioner to D make a determination, in terms of s 47 (9) of the Act, that the IBM 3624 be classified under tariff subheading 84.53.10. In November 1982, the company was advised that the machine had been classified under tariff subheading 84.54.90 "in terms of a Brussels decision on a similar machine, viz IBM 3614".

In terms of para (b) read with paras (e) and (f) of ss (9) of s 47, the company appealed to the Transvaal Provincial Division E of the Supreme Court. The appeal was dismissed with costs, including those consequent upon the employment of two counsel.

With the leave of the Court a quo, the company now appeals to this Court.

The importance of the dispute which has arisen lies in the fact F that goods falling under heading 84.53.10 are imported free of duty, while goods falling under 84.54.90 are subject to a duty of 5% plus a surcharge.

The process of classification

Classification as between headings is a three-stage process: first, interpretation - the ascertainment of the meaning of G 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 such goods.

The materials for interpretation are prescribed in note IX (formerly note VIII) of the general notes to the Schedule. Note H IX is entitled "Rules for the Interpretation of the Schedule". It provides that "Interpretation of the Schedule shall be governed by the following principles". There are then set out five rules of which the first reads:

"(1)

The titles of sections, chapters and subchapters are provided for ease of reference only; for legal I purposes, classification (as between headings) shall be determined according to the terms of the headings and any relative section or chapter notes, and, provided such headings or notes do not otherwise indicate, according to paras (2) to (5) below."

The "Rules for the Interpretation of the Nomenclature", comprised in the Nomenclature, are substantially identical with note IX. They include a commentary to each rule. It is not J necessary for present purposes to refer to the commentaries.

Nicholas AJA

A Further material for interpretation is contained in the relative Brussels Notes. Section 47 (8) (a) of the Act provides that:

"(a)

The interpretation of Part 1 of Schedule 1 shall be subject to the Explanatory Notes to the Nomenclature issued by the Customs Co-operation Council, Brussels, from time to time..."

This provision does not mean that the notes are to be regarded B as peremptory injunctions. For, as was pointed out by TROLLIP JA in Secretary for Customs and Excise v Thomas Barlow & Sons Ltd 1970 (2) SA 660 (A) at 676C - D,

"... they are not worded with the linguistic precision usually characteristic of statutory precepts; on the contrary they consist mainly of discursive comment and illustrations."

C All that s 47 (8) (a) requires is that the interpretation of the relative headings and section and chapter notes shall be in conformity with, and not contrary to, the Brussels notes.

Interpretation of tarief headings 84.53 and 84.54.

These tariff headings fall under s XVI of Part 1 of the D Schedule ("Machinery and mechanical appliances; electrical equipment, parts thereof") and specifically under chap 84 ("Boilers, machinery and mechanical appliances; parts thereof").

Heading 84.53

An understanding of this heading and its related material E requires some background information on the nature of data processing and automatic data processing machines. The following is taken from the affidavit, filed on behalf of the company, of Prof T D Crossman, who is an associate professor in the Department of Accounting and the head of the Division of Business Information Systems at the University of the Witwatersrand:

"5.

F I should commence by saying that data processing is undertaken by a data processing system, the elements of which are commonly and collectively referred to as 'a computer'.

6.

The electronic digital computer first appeared in the middle 1940's. Then, it was a specialised calculating tool of mathematicians and scientists. Today, it is helping to G solve information problems in almost every area of human activity.

7.1

In order to appreciate fully the operation of the computer we consider it necessary first to outline the procedures undertaken in a simple commercial task. When a stock control clerk receives a requisition he will perform the following tasks:

7.1.1

Read the information appearing on the requisition. In computer terms he accepts information for processing - this is the H input of the procedure.

7.1.2

Refer to a price list to obtain the unit price. In so doing he refers to stored or filed information - the computer term is storage.

7.1.3

Multiply the unit price by the quantity. This is...