S.Africa: Customs & Excise reclassification – importance of evidence

The Supreme Court of Appeal recently ruled on the correct customs duty classification for a vehicle known as a Kubota RTV Utility Vehicle.Facts

The competing tariff headings in this case were:

• TH 87.04 for motor vehicles for the transport of goods (Subheading 8704.21.80); and
• TH 87.09 for work trucks which are self-propelled, not fitted with lifting or handling equipment and of the type used in factories or warehouses (Subheading 8709.19).

The Commissioner for the South African Revenue Service (SARS) classified the vehicle under TH 8704.21.80. The taxpayer – Smith Mining Equipment (Pty) Ltd – appealed the determination to the North Gauteng High Court under Section 47(9)(e) of the Customs and Excise Act (91/1964), seeking a declaration stating that the vehicle fell under the TH 8709.19 classification. The North Gauteng High Court upheld the appeal and granted the order in favour of the taxpayer. SARS then appealed to the full court and orders were set aside by the full bench. Smith Mining then appealed to the Supreme Court of Appeal.

Decision

The Supreme Court held that its task in choosing between these headings was simplified by the fact that unless it could have been persuaded that TH 87.09 was the applicable heading, the SARS classification must stand.

It was argued that the central characteristic of vehicles under TH 87.09 is not merely that they are used for the short transport of goods, but that they are “of the type used in factories, warehouses, dock areas or airports” for that purpose.

The court opined that the starting point for the enquiry must be to establish with evidence which vehicles were of that type. It held that a range of vehicles are used for that purpose in those locations, but it is difficult to determine what makes such vehicles typical – in which case the explanatory notes might be helpful. However, the court could not commence an enquiry without evidence.

In this case there was no evidence of the type of vehicles used in those locations for the short transport of goods, and the only evidence advanced – which illustrated photographically vehicles used at airports – was struck out at the instance of Smith Mining.

The court held that all that was known from the factual description of the vehicle was that it was capable of operating as a four-wheel drive vehicle and was imported fitted with ‘knobby’ tyres suitable for hard-packed surfaces, wet turf and general usage, rather than heavy duty tyres suitable for asphalt, concrete and hard-packed surfaces. While these features would not preclude the use of such vehicles in factories, warehouses, dock areas and airports, they would be unlikely to serve any purpose there; the features further indicated that such vehicles were capable of being used in a wide range of other environments (eg, on farms, golf courses or landscaping). The court found that even if the tyres meant that the vehicle was not “of the type used in factories, warehouses, dock areas or airports”, it could not be resolved without evidence.

Accordingly, the court held that in the absence of such evidence, it was impossible to find that the vehicle at issue was typical of such vehicles and ruled in favour of SARS. The factual descriptions and explanatory notes were insufficient to convince the court. The court required evidence of the type of vehicles used in those locations for the short transport of goods to be persuaded that TH 87.09 was the applicable heading.