Mustek Limited v South African Revenue Services

JurisdictionSouth Africa
JudgeRanchod J
Judgment Date20 April 2017
Docket Number67269/15
CourtGauteng Division, Pretoria
Hearing Date10 November 2016
Citation2017 JDR 0729 (GP)

Ranchod J:

Introduction

[1]

This is an appeal in terms of the provisions of s49(9)(e) of the Customs and Excise Act 91 of 1964 (the Act) against a tariff determination by the respondent in respect of a certain product the appellant intended [1] to import.

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Ranchod J

[2]

It is an appeal in the wide sense and was heard as an application de novo. The parties are referred to as the applicant and respondent respectively.

[3]

The applicant imports what is referred to as a 'bare bone base model' manufacturing module (the H2159) for an all-in-one (AIO) computer [2] . It contends that the H2159 is for purposes of customs tariff classification, a part of an automatic data processing machine as contemplated in tariff subheading 8473.30 of Schedule 1 of the Act. The respondent classified the H2159 in tariff subheading 8528.51.90 as being a monitor of a kind solely or principally used in an automatic data processing system of heading 84.71.

Background

[4]

Mr David Kan, the CEO of the applicant, sketched the background of the concept of an AIO computer of which he says he was the originator. He says the concept was born from the desire to have a system that integrated all the main computing components into the display casing in order to make the PC (personal computer) compact, thus eliminating most of the external cabling and allowing a smaller footprint. The idea was to provide for individual customer needs by varying the specifications of the CPU, graphic cards and hard drives. This would be achieved by supplying a base product which could be assembled into an AIO computer. The base product is generally known as a 'bare bone base'. The H2159, says Kan, was manufactured with the sole intent that it would be a bare bone base to be populated after importation to become a tailor made AIO computer. He says the 'bare bones product' has a generally accepted meaning in the South African and the international computer manufacturing industry and it is considered to be either a partially assembled computer or a part of a computer.

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[5]

The applicant consulted the South African Bureau of Standards (the SABS) which agreed with the applicant's view, as did VIEWG, the manufacturer of the H2159, and the experts of the applicant.

The Issue

[6]

The issue to be decided is whether the product was correctly classified by the respondent as a monitor or whether it should have been classified as a part of a computer.

The classification process

[7]

Section 47(1) of the Act provides that duty on imported goods shall be paid at the time of the entry for home consumption on such goods in terms of the provisions of Schedule 1 to the Act.

[8]

Section 47(8) (a) of the Act provides as follows:

'(a)

The interpretation of-

(i)

any tariff heading or tariff subheading in Part 1 of Schedule No.1;

(ii)

...;

(iii)

the general rules for the interpretation of Schedule No. 1; and

(iv)

every section note and chapter note in Part 1 of Schedule No.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 to the Harmonised System 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.'

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Ranchod J

[9]

Contained in the general notes to Schedule 1 are the General Rules of Interpretation (the GRI) of Schedule 1 as they apply internationally to all signatories to the Harmonised System.

[10]

It was explained in Durban North Turf (Pty) Ltd v CSARS [3] that:

'15. The Harmonized System means the nomenclature comprising the headings and subheadings and their related numerical codes, section, chapter and subheading notes and the general rules for the interpretation of the Harmonized System.

16. The Harmonized System determines the classification of goods. However, it does not determine what customs duty is payable on the importation of such goods into a contracting party. Such customs duty is fixed by the individual contracting parties concerned. The Harmonized System has only been devised to bring about uniformity in the classification of goods by contracting parties.'

[11]

The General Rules of Interpretation apply sequentially. Rule 1 provides that the wording and terms of the headings, and any relevant Section or Chapter Notes are paramount, i.e. the first consideration in the classification process. The other Rules are only applied if a classification cannot be resolved by the application of Rule 1 and the headings and Notes do not require otherwise [4] . Rules 1, 2 and 3 provide as follows:

'(1)

The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification 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 require, according to the following provisions.

EXPLANATORY NOTE

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(2) (a)

Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.

(b)

Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

EXPLANATORY NOTE

(3)

When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a)

The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

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Ranchod J

(b)

Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c)

When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

EXPLANATORY NOTE

[12]

Part 1 of Schedule 1, including the notes thereto and the tariff headings and sub-headings should be interpreted according to the natural and ordinary sense of the language used therein, unless the context or the subject clearly shows that they were used in a different sense [5] and effect must be given to every word [6] . Words which are not technical or specialised bear their ordinary meaning [7] .

[13]

The classification process was described as follows in International Business Machines SA (Pty) Ltd v Commissioner for Customs & Excise [8] where Nicolas AJA (as he then was) said that:

"Classification as between headings is a three stage process: first, interpretation - the ascertainment of the meaning of the words used in the headings, and relevant section and chapter notes) which may be relevant to the classification of the goods concerned; second, consideration of the nature

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and characteristics of those goods; and third, the selection of the heading which is the most appropriate to such goods.'

[14]

In determining the nature, characteristics and properties of the goods, the goods are classified with reference to the nature and characteristics of the goods as a whole [9] .

[15]

The general rule is that goods are designated by their objective characteristics, and not by the intention with which they were made, nor the use to which they may be put [10] . There is, however, an exception to this general rule namely where the wording of the relevant tariff heading or notes makes the purpose and intent relevant [11] .

[16]

Section 47(8)(a) of the Act makes the interpretation process also subject to the Explanatory Notes. These notes are not peremptory injunctions. All that s47(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 [12] .

Nature and Characteristics of the H2159

[17]

It appears that the nature and characteristics of the H2159 as presented at importation are largely common cause. The respondent seems to rely primarily on the opinion of a Mr Jacques Van Wyk (Van Wyk) who says in his supporting affidavit to the answering affidavit that he is a qualified electronic engineer employed as a senior lecturer at the University of Pretoria

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