By: Tinotenda Chizanga
Silverback Technologies CC & Others v Commissioner, South African Revenue Services [2023] ZASCA 128
“The SCA held that reliance on headings and explanatory notes when classifying goods must be understood as intended to provide explanations and guidance since these were not intended to override or contradict legislation. The Customs and Excise Act holds that any interpretation shall be subject to the International Convention on the Harmonized Commodity Description and Coding Systems adopted in Brussels on the 14th of June 1983. The Court highlighted that the Harmonized System was the product of international agreements between states and should be interpreted uniformly by our courts.”
The Supreme Court of Appeal (SCA) recently heard an appeal from the Gauteng Division of the High Court, Pretoria regarding the classification of imported bicycle parts destined for assembly and the related customs duty payable on such imports.
The key issue for consideration was on the liability for customs duty on imported components if they bore the essential characteristics of a bicycle, which was SARS’ contention and finding of the High Court, i,e SARS was correct in determining that the goods were liable for import duty and this SCA was tasked with determining whether the high court was correct in confirming SARS’ determination
On the 9th of October 2023, the Supreme Court of Appeal dismissed an appeal from the Pretoria High Court in the matter of Silverback Technologies CC & Others v Commissioner, South African Revenue Services [2023]. The appeal was brought by three appellants namely: Silverback Technologies CC, Omnico (Pty) Ltd, and Cytek Cycle Distributors. The appeal was about import duty particularly concerning the question whether bicycle parts imported into the country by the appellants rightly attracted import duties.
The Respondent – South African Revenue Services, SARS, contended that customs duty is payable on imported components if they have the essential characteristics of the thing they make, in this instance – bicycles. The Pretoria High Court agreed with SARS that the goods imported by the Appellants were liable for import duty and the Supreme Court of Appeal had to determine whether the High Court was correct in its judgment.
In its determination of the matter, the Supreme Court of Appeal determined which one between the two tariff headings, tariff heading 8712.00 and tariff heading 8714.9 was applicable. If the relevant goods fell under 8714.9 the goods would be free on duty importation.
Additionally, the Court referred to the matter of Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise to show a three-stage process done in classification of goods for purposes of import duties between different tariff headings. The first stage is interpretation, that is, 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. Secondly, one must consider the nature and characteristics of those goods, and finally the selection of the heading which is most appropriate to such goods.
In so far as the first stage of classification of goods for purposes of import duties, that is, interpretation is concerned, the Court upheld what was held in the matter of Natal Joint Municipal Pension Fund v Endumeni Municipality that interpretation was a unitary and objective exercise.
With the second stage in the classification process, namely the nature and characteristics of the goods imported by appellants the Court considered that the consignment of bicycle parts of the appellants comprised almost all bicycle parts except bicycle wheels. However, GIR 2(a) states that an incomplete or unfinished article including an article that is unassembled, shall, for purposes of determining whether import duty is payable in respect of such article, be classified as a complete article if in its incomplete state as presented on importation “…bears the essential character” of a complete or finished article, [such as a bicycle in this instance].
In the final stage of classification process, the tariff heading 8712.00.10 provides that bicycles and other cycles including delivery tricycles that are not motorized are subject to customs duty of 15%, whilst tariff heading 8714.9 provides that parts and accessories of vehicles under headings 87.11 to 87.13 are not subject to payment of customs duty.
Whilst the Appellants held that a proper interpretation of the tariff heading 8712.00 wheels were the indispensable components that give a bicycle its essential character, the Court upheld the Commissioner’s contention that in the context of facts of the case the essential character of a bicycle ought to be determined with reference to all the components making up the consignments, and emphasized that the collection of parts imported by the appellants were indisputably an embodiment of the essential character of a bicycle.
The SCA held that reliance on headings and explanatory notes when classifying goods must be understood as intended to provide explanations and guidance since these were not intended to override or contradict legislation. The Customs and Excise Act holds that any interpretation shall be subject to the International Convention on the Harmonized Commodity Description and Coding Systems adopted in Brussels on the 14th of June 1983. The Court highlighted that the Harmonized System was the product of international agreements between states and should be interpreted uniformly by our courts.
The SCA held that the phrase “essential character of a bicycle” must be interpretated purposively and with context and that the wording of tariff heading 8712.00 as well as the interpretive notes are clear and unambiguous with regard to an incomplete or unfinished vehicle, namely bicycle. Additionally, the SCA held that the tariff heading and the explanatory notes did not refer to a collection of parts constituting a bicycle but to parts that have the “essential character” of a bicycle. The SCA dismissed the appeal.
At Mketsu & Associates Inc. we understand and offer services in the tariff classification of goods for purposes of import duty. You are welcome to reach out to our Customs and International Trade experts for guidance.
Yamani Heads the Tax and Commercial division at Mketsu
An Admitted Attorney Practicing the Legal Practice
Council and a Tax Practitioner affiliated with the South African Institute of
Tax Professionals.
060 944 3149 / 012 321 0149
[i] Written by Miss Tinotenda Chizanga – [BA in Legal Theory and Politics – (2016), Bachelor of Laws – (2018), Master of Commerce (Taxation) – (2020) – Rhodes University]
