Aquazania (Pty) Limited v CSARS (29658/09)  ZAGPPHC 67 (4 May 2011)
23 July 2014
Posted by: Author: Lesedi Seforo
Author: Lesedi Seforo (SAIT Technical)
This case concerns the appropriate
tariff classification in respect of imported hot and cold water dispensers for
the purpose of determining the rate of customs duty payable in terms of The
Customs and Excise Act 91 of 1964 ("the Act”).
The Commissioner for the South
African Revenue Services (SARS) argued that the dispensers were "electric…. storage water heaters” and
thus subject to customs duty. The taxpayer, on the other hand, reasoned that
the dispensers ought to be classified as either "refrigerating equipment” or "machines and mechanical
appliances having individual functions not specified or included elsewhere in
Chapter 84”, both of which are not subject to customs duty.
Aquazania (Pty) Ltd ("the
taxpayer”) is an importer of water dispensers which dispense both hot and cold
water. On 10 April 2008, the
Commissioner determined the water dispensers to be "electric…. storage water heaters” classifiable under tariff heading
8516.10.90 of Part 1 of Schedule 1 to the Act. As a result, customs duty of
R1.17 million was levied on the taxpayer. Payment by Aquazania was then demanded
by the Commissioner on 29 October 2008.
In its application to the North
Gauteng High Court for an order setting aside the Commissioner’s tariff
determination, the taxpayer contended that the water dispensers are
classifiable instead under tariff heading 8418.69.90 of Part 1 of Schedule 1 as
In the alternative, and by the invocation of Note 7 to
Chapter 84, Aquazania contended for a classification under tariff heading
8479.89.90 of Part 1 of Schedule No.1 to the Act, as "machines and mechanical appliances having individual functions not
specified or included elsewhere in Chapter 84”. Both these classifications
would render the water dispensers free from customs duty.
Both parties agreed that
the court need not concern itself with any other possible tariff classification
headings, to which the court obliged.
The court held at para 55(d) that there is no basis for a classification
under tariff heading 8418.69.90 because:
order to be classifiable under this heading…the water dispensers would, "by reference
to (their) nature and characteristics ….as a whole”,…have to have the
characteristic of "refrigerating equipment”;
- As the
water dispensers cool water and dispense it on demand, and heat water and
dispense it on demand, there is simply no factual basis on which it can be contended
that, adjudged as a whole, the water dispensers they are "refrigerating
Regarding the taxpayer’s alternative contention that the
dispensers be classified under tariff heading 8479.89.90, which required the application
of the proviso to Note 7, the court began by pointing out that both parties had
agreed that the water dispensers performed two distinct functions: dispensing
hot and cold water.
Since the water dispensers performed two distinct functions,
the court found them to be "multi-function machines” as contemplated by Section
Note 3 to Section XVI read with the Explanatory Notes thereto.
The court concluded on this point at para 56(b) that even if
one were to assume that Note 7, (which provides for a machine used for more
than one purpose) could find application, "the
proviso to Note 7 expressly makes a classification based on purpose subject to the provisions of Note 3 to
Section XVI”. Therefore, "as Section
Note 3 only deals with multi-function machines,it must axiomatically follow that if a multi-purpose product is also
multi-functional, Note 7 is trumped by Note 3 consequently, the latter is to be
applied in determining classification.”
As a result, tariff heading 8479.89.90 was inapplicable.
The taxpayer’s application was thus dismissed with costs.
Please click here to access the judgement.