Distell Limited (Distell) represented by Cliffe Dekker Hofmeyr recently won a hard fought appeal against the Commissioner for the South African Revenue Service (the Commissioner) in the Supreme Court of Appeal. The case centred around the correct tariff classification of ten wine coolers manufactured by Distell for purposes of the payment of excise duty in terms of the Customs and Excise Act 91 of 1964 (the Act). The tariff classification is of importance as such classification determined the extent of the excise duty payable by Distell, and whether or not Distell is entitled to enter wine for use in the manufacture of other alcoholic beverages under rebate of duty.
The wine coolers produced by Distell (and Stellenbosch Farmers' Winery Limited (SFW), which Distell acquired in January of 2001) are first made by preparing a concentrate consisting of wine, flavouring and sweetening agents, following which it is mixed with water to produce the final cooler.
Wine coolers fall to be classified under Tariff Heading (TH) 22.06. TH22.06 can be separated into two parts, namely: "Other Fermented Beverages (for example, Cider, Perry, Mead); and "Mixtures of Fermented Beverages and Non-Alcoholic Beverages, Not Elsewhere Specified or Included." The Commissioner classified the coolers as "Other Fermented Beverages" (TH22.06/104.15), whilst Distell argued that the coolers are "Mixtures", being a mixture of a fermented beverage (wine) and a non-alcoholic beverage (water) (TH22.06/104.17.22).
The Commissioner's classification resulted in Distell having to pay what basically amounted to double excise duty as it paid excise duty on the final wine coolers. Distell argued that such a determination by the Commissioner gave rise to an "oppressive and unjust result." JA Heher held that in the particular context of TH22.06, the second part of the heading is aimed at combinations of fermented and non-alcoholic beverages "which together result in a product that possesses a commercial or trade potential."
JA Heher went further by stating that the water component is not simply incidental, but that it plays an important role in adding to the character of the final product and he accepted Distell's contention that "water is to be understood as a non-alcoholic beverage within the framework of TH22.06...".
Accordingly, with water being a non-alcoholic beverage the judgment that the wine coolers are classified as mixtures allows Distell to enter the wine used under rebate of duty as the wine coolers were determined to be "mixtures of fermented beverages and non-alcoholic beverages."
Freek van Rooyen, Director and Cara Gilmour, Candidate Attorney