A brief background of the case is as follows: a party (AA) imported certain goods into a bonded warehouse and as such deferred payment of duty and value-added tax (VAT) until clearance for home consumption. Subsequently, AA was to be wound up, and the liquidators demanded that the goods in the bonded warehouse be delivered to them without payment of duty and VAT in order for the liquidation process to continue (ie sale of the goods, share of the proceeds between the creditors, and so on). The South African Revenue Service (SARS) was of the view that the duty and VAT first had to be paid before delivery of the goods to the liquidators.
The SCA found that s20(4), s38, s39 and s114 of the Customs and Excise Act, No 91 of 1964 do not create an embargo in favour of SARS, preventing the liquidator from taking possession of property in terms of the Insolvency Act, No 24 of 1936 until duty and VAT is paid.
Interestingly, the SCA concluded as follows:
One final reason for rejecting the Commissioner’s claims is that the Insolvency Act makes specific provision for the preference that the claims in issue in this case are to enjoy in the event of insolvency. The relevant sections are ss99(1)(cA) and (cD) of the Insolvency Act. The effect of the argument on behalf of the Commissioner would be to nullify these provisions in relation to these claims by giving the Commissioner a right to payment in preference to all other creditors. The statutory priority given to funeral and death bed expenses; the costs of sequestration and administration of the estate; the costs of execution; salaries and wages; payments of amounts due for workmen’s compensation; income tax and payments under the Pneumoconiosis Compensation Act, No 64 of 1962; would all have to give way to claims under the Customs Act and the VAT Act. That would be so even though the Insolvency Act specifically confers on such claims a priority over the claims here in issue. That is not a sensible or realistic interpretation of the relevant statutory provisions.