Customs & Excise Highlights

This week’s selected highlights in the Customs & Excise environment since our last instalment.

New case law / authority – Levi Strauss SA (Pty) Ltd vs The Commissioner for the South African Revenue Authority, Case number 20923 / 2015 in the High Court of South Africa, Gauteng Division, Pretoria (as yet unreported) (certain sections quoted from the judgment):

Levi Strauss instituted an appeal against the following determinations made by SARS:

• That certain commissions are not buying agent commissions and are therefore dutiable;
  
  
• That royalties paid by Levi Strauss based on sales in South Africa are dutiable; and
  
  
• That goods imported by Levi Strauss do not qualify for preferential duty rates in terms of the SADC Trade Protocol as (although the products are manufactured and consigned from an SADC country) the trade relationship (ie. the flow of funds) are with non-SADC member states.

The High Court found against SARS as follows:

• Buying commission:

“While the 33 services for which the provision is made … to the [Buying Agent Agreement] entered into by Levi SA are more detailed and explicit as to each and every stage of the buying process, the above Explanatory Note both indicates that section 65 is not to be so narrowly construed as argued for by SARS counsel and that those 33 services could indeed fall within the services contemplated by this note”.

• Royalties:

“Third, while there is merit in having regard to international authorities …, I must first seek guidance from the South African court and especially our higher courts. In Delta supra the court held that the EST charges/royalties were not payable ‘as a condition of sale’ because there was nothing in the agreement of sale for export which made such EST charges/royalties payable as a condition of sale.

…

Fifth, … the royalties become due and payable upon sale and this bears no relation to the issue of importation … In either event, it has been made clear … that the royalty by Levi SA is paid as a result of a sale and not as a result of export to the Republic. This subsection does not therefore pertain to the facts in this case”.

• Origin:

“Clearly, the Protocol sought to focus on movement of goods from one entity to another. The emphasis is not on trade and transfer of funds and the financial benefits resulting therefrom.…

Insofar as the SARS argument is to the effect that the economic benefits accrued to Levi APD in Singapore and Levi GTC in Hong Kong and not to the contract-manufacturers in the SADC region, there is nothing to support this contention”.

It is currently uncertain whether the matter will proceed to the Supreme Court of Appeal, but it appears to be likely.

Amendments to Rules to the Customs and Excise Act, No 91 of 1964 (Act) (certain sections quoted from the SARS website):

New Rules are proposed under s110 of the Act, which oblige the licensee of a customs and excise manufacturing warehouse for the manufacture of tobacco products to determine the quantities of all tobacco products manufactured in the warehouse by means of a functional product counter on each tobacco manufacturing machine. The draft Rules explain the physical requirements of the product counter system of which further details will be communicated by SARS to the licensee in writing at least 20 days before the installation date. The licensee would need to further adhere to strict reporting requirements, but may request approval from SARS for an alternative methodology if the prescribed product counter system cannot be used.

Due date for comments: 8 March 2019 to C&E_legislativecomments@sars.gov.za.

Amendments to Schedules to the Act (certain sections quoted from the SARS website):

• Schedule 1 Part 1:

The substitution of tariff subheadings 1701.12, 1701.13, 1701.14, 1701.91, and 1701.99 to increase the rate of customs duty on sugar from 369.57c/kg to 401.79c/kg in terms of the existing variable tariff formula;

• Schedule 2:

The insertion of safeguard item 260.03/7318.15.39/01.08 to implement safeguard duty of 48.01% on other screws fully threaded with hexagon heads (with effect from 3 August 2019 up to and including 2 August 2020); and

The insertion of safeguard item 260.03/7318.15.39/01.08 to implement safeguard duty of 45.61% on other screws fully threaded with hexagon heads (with effect from 3 August 2020 up to and including 2 August 2021).

SARS issued the following circular wherein external stakeholders were advised as follows (certain sections quoted from the circular):

On 1 February 2019, a reminder to all Customs Clients who are deferment account holders to kindly adhere to the 13th deferment payment requirements, which become due by each financial year end. The statement period for the thirteenth payment of this financial year (2018/2019) will close on 28 March 2019 at midnight (00:00) and payment must be made by 15h00 on 29 March 2019.

The rewrite of the Act (certain sections taken from the SARS website):

As a consequence of the rewrite of the Act, which will be replaced with the new Customs Duty Act, 2014 (CDA), and the Customs Control Act, 2014 (CCA), SARS has published the below documents for consideration and comments relating to customs:

• Correlation table

This document is comprehensive and contains a bird’s eye view of the tariff structure as contained in the changes to the wording and structure and wherein the new Customs Tariff can be found. The correlation is from the Act to the new Customs Tariff and the other way round.

• The General Notes to the Customs Tariff

The General Notes are circulated without the rest of Schedule 1 as it will make the documents bulky and difficult to email. Schedule 1 contains a few changes that are elaborated on in the correlation table but in essence it contains the current tariff code structure of the existing Schedule 1 Part 1 of the Act.

• Schedule 2 to the Customs Tariff

Schedule 2 remained unchanged with the exception of the Notes which were previously repeated in each Part of Schedule 2. The changes are contained in the correlation table.

• Schedule 3 to the Customs Tariff

Schedule 3 significantly changed and contains both the provisions of Schedule 3 and 4. The Schedule is also aligned with the procedures as contained in the CDA and CCA. All the changes are elaborated upon in the correlation table.

• Schedule 4 to the Customs Tariff

Schedule 4 contains the refund and drawback provisions previously contained in Schedule 5 to the Act. The Schedule now also makes provision for some refunds contained in Chapters 25 and 26 of the CCA that did not form part of the 1964 version of Schedule 5. All the changes and movement of items are elaborated upon in the correlation table.

• Schedule 5 to the Customs Tariff

Schedule 5 contains the provisions for the ordinary levy that were previously contained in Part 8 of Schedule 1 of the Act.

Comments may be submitted to Lenez Keyser at lkeyser@sars.gov.za. Enquiries may be submitted to Laetitia Culbert at lculbert@sars.gov.za. Due date for comments is 9 March 2019.

As a consequence of the rewrite of the Act, which will be replaced with the new Excise Duty Act, 1964, and the Customs Control Act, 2014, SARS has published the below documents for consideration and comments relating to excise:

• Correlation Table

This document is comprehensive and contains corresponding references and provisions for inclusions from the Schedule to the Act and the new draft Customs Tariff.

• The General Notes to the Excise Tariff
  
  
• Schedule 1 – Excise and Ad Valorem Duty
  
  
• Schedule 2 – Environmental Levy
  
  
• Schedule 3 – Fuel and Road Accident Levy
  
  
• Schedule 4 – Health Promotion Levy
  
  
• Schedule 5 – Ordinary Levy
  
  
• Schedule 6 – Rebates and Refunds of Excise Duties, Fuel Levy, Road Accident Fund Levy, Environmental Levy and Health Promotion Levy
  
  
• Schedule 7 – Rebate on Import Duties
  
  
• Schedule 8 – Drawback and Refunds of Excise Duties on Imported Goods

Comments may be submitted to Lenez Keyser at lkeyser@sars.gov.za. Enquiries may be submitted to Laetitia Culbert at lculbert@sars.gov.za. Due date for comments is 29 March 2019.

The International Trade Administration Commission has (certain sections quoted from the notices):

On 1 February 2019 published guidelines pertaining to a temporary rebate provision which provides for rebate of the full anti-dumping duty on bone-in cuts of the species gallus domesticus, frozen, classifiable in tariff subheading 0207.14.9 and imported from or originating in the United States of America in terms of the Act.

Interested parties are notified that all applications submitted for permits in terms of this rebate provision will be dealt with according to the guidelines as described in the notice and must be submitted in the format as set out in the application forms in the notice, where applicable.

On 22 February 2019 published a notice confirming its receipt of the following applications concerning the creation of rebate provisions on:

• Optical fibres, not individually sheathed, classifiable in tariff subheading 9001.10, for use inthe manufacture of optical fibre cables classifiable in tariff subheading 8544.70, in such quantities, at such times and subject to such conditions as the International Trade Administration Commission may allow by specific permit, provided the products are not available in the SACU market;
  
  
• Petroleum jelly, in immediate packings of a content exceeding 5kg, classifiable in tariff subheading 2712.10.20, for the manufacture of optical fibre cables, classifiable in tariff subheading 8544.70, in such quantities, at such times and subject to such conditions as the International Trade Administration Commission may allow by specific permit, provided the products are not available in the SACU market;
  
  
• Other, monofilament of which any cross-sectional dimension exceeds 1 mm, rods, sticks and profile shapes, whether or not surface-worked but not otherwise worked, of other plastics, classifiable in tariff subheading 3916.90.90, for the manufacture of optical fibre cables, classifiable in tariff subheading 8544.70, in such quantities, at such times and subject to such conditions as the International Trade Administration Commission may allow by specific permit, provided the products are not available in the SACU market;
  
  
• Wire of non-alloy steel, clad with aluminium, classifiable in tariff heading 72.17, for use in the further processing of optical fibre cable classifiable in tariff subheading 8544.70, by reinforcing the optical fibre cable with one or more layer of stranded wire, in such quantities, at such times and subject to such conditions as the International Trade Administration Commission may allow by specific permit, provided the products are not available in the SACU market; and
  
  
• Optical fibre cable, classifiable in tariff subheading 8544.70, for further processing by reinforcing the fibre optical cable with one or more layer of wire, in such quantities, at such times and subject to such conditions as the International Trade Administration Commission may allow by specific permit, provided the products are not available in the SACU market.

Enquiries: ITAC Ref: 12/2018. Ms A. Varachia and Ms K. Mzinjana Tel: (012) 394-3732/3664 or Email: avarachia@itac.org.za or kmzinjana@itac.org.za Representations should be submitted to ITAC within four weeks of the date of the notice.

On 1 March 2019 issued a notice of an initiation of the investigation for remedial action in the form of a safeguard against the increased imports of threaded fasteners of iron or steel: bolt ends & screw studs, screw studding and other hexagon nuts (excluding those of stainless steel and those identifiable for aircraft) imported under tariff subheadings 7318.15.41, 7318.15.42, and 7318.16.30.

Interested parties are invited to submit comments on the initiation of the investigation or any information regarding this matter. Queries may be directed to the investigating officers, Ms Thuli Nkomo at (012) 394-1190, e-mail tnkomo@itac.org.za and Ms Mercy Mutheiwana at (012) 394-3907, email mmukwevho@itac.org.za or at fax number (012) 394-0518.

The Department of Agriculture, Forestry and Fisheries published the following notices (certain sections quoted from the notices):

• On 1 March 2019 an invitation to submit applications for a DAFF quota import permit in terms of rebate item 460.03/0207.14.9/01.07 for rebate of full anti-dumping duty on bone-in cuts of the species gallus deomesticus, frozen, classifiable in tariff heading 0217.14.9 imported from or originating in the United States of America.

The quota will be issued on a quarterly basis in equal amounts per quarter.

A fee of R1094 will be payable for permits and replacement permits issued from 1 April 2019.

• On 1 March 2019, an amendment regarding the standards and requirements regarding control of the export of the following products (which shall come into operation seven days after publication of the notice):
  • Peaches and nectarines;
  • Plums and prunes;
  • Pears;
  • Apples; and
  • Apricots.