Distell v The Commissioner for the South African Revenue Service (56295/11) [2015] ZAGPPHC 687 (7 October 2015)

IN THE HIGH COURT OF

SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

Case Number: 56295/11

DATE: 7/10/2015

(1) REPORTABLE: YES / NO.

(2) OF INTEREST TO OTHER JUDGES: YES / NO.

(3) REVISED.√

SIGNATURE

In the matter between:

DISTELL

LIMITED

Applicant

and

THE COMMISSIONER FOR

THE SOUTH AFRICAN

REVENUE

SERVICE

Respondent

JUDGMENT

POTTERILL J

[1] The applicant is appealing the tariff determination [TH22.08] of the Commissioner for the South African Revenue Service in respect of a product named Amarula Cream [“Amarula”]. The appeal is out of time and the applicant seeks condonation in terms of section 47(9) (f) of the Customs and Excise Act, 91of 1964 [“the Act”]

for bringing the appeal after the prescribed one year period from the date of determination.

[2] The respondent besides opposing the appeal also opposed the application for condonation and raised 2 points in limine. The first was that the applicant did not comply with section 96(1)(a) of the Act; the applicant’s notice of the action did not comply with s96(1)(a)(i) because the new cause of action was not set out clearly and explicitly. Res Iudicata was raised as the second point in limine; the correct tariff classification of Amarula was already decided by the Supreme Court of Appeal in Distell Ltd v Commissioner, SARS 2012 (5) SA 450 (SCA) [“Distell2”].

[3] For ease of reference I refer to the applicant as “Distell” and the respondent as “SARS”.

THE CHRONOLOGY AS

BACKGROUND TO THE MATTER

[4.1] On 12 December 2006 SARS informed Distell that Amarula and 3 other products are from 1 February 2007 to fall under the Tariff subheading 22008.90.20 and is therefore liable for excise under tariff item 104.20.40. Practically this meant that Amarula would be taxed at more than R6.00 a litre on the final product.

[4.2] Distell developed a new formula for Amarula and on 20 March 2007 requested SARS to reclassify Amarula to Tariff subheading 2204.21.50.

[4.3] On 22 May 2007 this request is rejected by SARS and persisted that Amarula be classified under TH22.08.

[4.4] On 20 July 2007 Distell urged SARS to reconsider the May 2007 Tariff determination, if the determination is to stay the same to provide Distell with full reasons for the determination. Distell also requested that all statutory time periods for appeal or review be suspended.

[4.5] On 6 August 2007 SARS reiterated its position with the classification of the four products as under Tariff Heading 22.08.90.

[4.6] On 14 December 2007 Distell requested SARS to grant an extension of time in which to deliver its section 96 notice pertaining to the four products.

[4.7] On 6 March 2008 SARS is again respectfully requested to reconsider the tariff determination pertaining to Amarula. One of the submissions being reliant on the submissions SARS made to the World Customs Organisation (“the WCO”) pertaining to products of the type of Amarula.

[4.8] The WCO did not discuss it at the March meeting and on 26 May 2008 SARS informs Distell that for all 4 products they must deliver their section 96 notice not later than 15 June 2008. SARS granted an extension for an appeal until 31 December 2008.

[4.9] On 13 June 2008 the section 96 notice is delivered for the four products.

[4.10] On 30 June 2008 Distell requested that this Tariff dispute be referred to arbitration. SARS then suggested alternative dispute resolution.

[4.11] On 15 September 2008 a further 9 Distell products are classified under TH22.08; now 15 products.

[4.12] On 7 October 2008 The Tax Appeal Committee of SARS ruled that the dispute is not fit for alternative dispute resolution and Distell is so informed.

[4.13] On 16 October 2008 SARS informed Distell that the WCO would not take a decision before the end of 2008.

[4.14] On 22 October 2008 Distell lodged an appeal but excluded Amarula.

[4.15] On 28 October 2008 Distell’s attorney informed SARS that they now want to include Amarula in the appeal but on the basis that there is no reference to Amarula in the appeal, but that the outcome of the appeal also applies to Amarula.

[4.16] On 13 November 2008 Distell again requests that the appeal proceed on the basis that the outcome of Angels’ Share [one of the 15 products] be applied to Amarula.

[4.17] On 20 November 2008 Distell makes further proposals on how to exclude Amarula but render the appeal applicable to Amarula.

[4.18] On 26 February 2009 Distell informs SARS that in March 2009 they will lodge the appeal, but that Amarula will be excluded, but that the finding on Angels’ Share will apply to Amarula.

[4.19] SARS rejected this proposal and affords Distell until 31 March 2009 to lodge its appeal.

[4.20] On 25 March 2009 Distell lodged a tariff appeal in respect of 6 products in the aperitif range. Distell did not include Amarula.

[4.21] On 7 April 2009 SARS again rejected the proposal that Amarula be excluded from the appeal but be bound to the outcome of Angels’ Share. Distell is afforded until 8 May 2008 to institute separate appeal proceedings or to include Amarula in the launched appeal.

[4.22] SARS granted Distell a further extension until the end of June 2009.

[4.23] On 12 June 2009 Distell again is in writing requested SARS to reconsider its decision not to agree that the outcome of Angels’ Share be applied to Amarula. The reasons forwarded were that Amarula is globally branded product and that consumers would view any litigation negatively and negative publicity would irreversibly damage the reputation and image of Amarula. Again SARS refused this request.

[4.24] At a meeting on 29 June 2009 Distell requested Mr Kosie Louw, SARS’s Chief officer: Legal and Policy, to once again reconsider its earlier decision not to make the outcome of Angels’ Share applicable to Amarula.

[4.25] On 3 July 2009 this request is in writing again denied by SARS in view of the provisions of the Act, also it would be better to proceed with all the products in the litigation. SARS indicated that it would consider that Amarula be referred to under another name, the papers

are secured and the matter be heard in camera.

[4.26] On 13 August 2009 Distell requested that Amarula be added to the appeal but as “Product X” and that the papers be secured at the registrar and the matter be heard in camera.

[4.27] On 25 September 2009 Distell informs SARS that it has decided not to add Amarula to the pending appeal. Distell recorded that it did not however therewith concede the correctness of the tariff determination of Amarula.

[4.28] On 30 October 2009 Distell gave notice to add the other 9 nine products, excluding Amarula to the pending litigation, referred to as “Distell 2”.

[4.29] On 4 May 2011 and in June 2011 Articles in the Business Day with the heading “Distell’s amazing legal battle to save tax on Amarula” are published.

[4.30] On 21 June 2011 judgment by Pretorius J is delivered in Distell 2 pertaining to the 15 products in which the tariff determinations of SARS were upheld.

[4.31] On 30 September 2011 this appeal is instituted. SARS refused to extend the year period in section 96 of the Act any further.

[4.32] On 31 May 2012 the SCA dismisses the Appeal against the judgment of Pretorius J.

CONDONATION

The period of delay

[5] It is common cause that the appeal was lodged 5 years after the determination rendering it 4 years late. SARS granted Distell five extensions of time within which to lodge its appeal with the last extension affording time until 29 May 2009. Distell on 30 September 2010 requested a further extension to lodge an appeal but the Commissioner refused to consent thereto on 17 December 2010. As for the degree of lateness it goes without saying that a delay from 29 May 2009 until 30 September 2011 when the appeal is lodged, is so extreme that condonation should be refused. The time period can however be countenanced with the reasons set out for the delay.

Reasons for the delay

[6] In the founding affidavit the reason for proceeding with the appeal out of time is that Distell did everything in its power to protect the brand name. Distell’s fear for potential damage to the Amarula trade mark was real as evidenced by the negative publicity in the Business Day articles.

[7] It was also submitted that this matter should be held in abeyance until finalisation of the appeal before the High Court matter

[Distell 2] because the final decision of the Court of Appeal should also be made applicable to Amarula in accordance with administrative

fairness. The matter was further to be held in abeyance due to the application of Sections 47(9)(d)(i)(aa) [Commissioner shall amend tariff to be compatible with judgment pronounced] and 47(9)(d)(i)(bb) of the Act [Commissioner to withdraw or amend tariff determination made in error or on any other good cause shown]. This was so because the Commissioner would not be prejudiced if condonation is granted because the parties were in agreement that the products in the Distell 2 matter are for the purposes of tariff classification the same.

[8] In the supplementary affidavit the events after the SCA’s judgment is set out. I do not find them to be relevant to the condonation application as these facts relate to events after the appeal was lodged out of time.

[9] In the replying affidavit Distell categorises the reasons for the delay in two categories; the first two and half years related to negotiations between the parties about the applicable tariff for Amarula. Distell was in relation to aperitifs the victim of unfair and anomalous legislative policies. This is so because the Liquor Products Act compelled the manufactures of aperitifs to use a wine based component, to remove the taste and aroma of the wine therefrom and to add spirits to achieve an alcohol content of between 15% and 23%. Yet because of the compulsorily prescribed very features of the removal of the taste and aroma of the wine the Customs and Excise Act classify aperitifs as spirits resulting in subjecting the manufacturer of aperitifs to the much higher excise tariff being applicable.

[10] The next two years Distell had a reasonable expectation that the judgment of the High Court would bring clarity on where it stood in regard to the classification of Amarula. This clarity was not realised with the Distell 2 judgment and by then the dispute had already entered the public domain with the Business Day articles. Distell’s conduct was to be understood and excused as a balancing act between its commercial interests and the legal position.

[11] SARS has very little quibble with the first 2 year period, granting extensions. SARS however set out that the real reason why Amarula did not want the brand name Amarula to be mentioned in the Distell 2 papers was to ensure that the public would not become aware of the fact that the product is actually manufactured from wine and contains only a nominal measure of marula spirit. Distell was thus not protecting the brand and trade mark but “the lie about the true nature of the product”.[1] It was submitted that the deliberate and considered inaction founded on improper reasons cannot be condoned by a court as reason for condonation. In reply Distell denied that it wanted to protect the true nature of Amarula because “for purpose of tariff classification, the marketing of a product is irrelevant”.[2] This contention is nonsensical as SARS did not aver that this appeal was a marketing exercise.

[12] SARS further submitted that the application for condonation is fatally flawed because the cornerstone of the condonation application is the fact that Amarula and the other 15 products are identical and that therefore the judgment of Distell 2 must be applied to Amarula. If that was Distell’s only argument then condonation could perhaps be granted, but Distell has supplemented its papers with Mr de Wet now submitting that Amarula and the 15 products have different characteristics and are therefore distinguishable. Succinctly SARS’s argument is set out in paragraphs 1.7.1 and 17.7.2:

”Should the products be the same then, although the explanation for not timeously pursuing the appeal may be accepted by the Court, Distell would have no prospect of success on the merits. It follows that condonation would have to be refused;

Should the products be different then Distell would not even get past the condonation hurdle.”

[13] In reply Distell avers that the true position is that Distell asked SARS to agree that the outcome of the appeal in respect of Angel’s share would also bind the parties in respect of Amarula, but that SARS refused because SARS said the products were different. Distell has now produced evidence of the characteristics of Amarula which was not in the Distell 2 matter. The earlier contentions of the parties are not relevant or determinative to the issue in this appeal.

Reasons for decision

[14] Condonation is “not to be had merely for the asking”.[3] The reason for the delay proffered is that of a deliberate delay; Distell awaited the judgment and wanted to protect the Amarula brand. Distell deliberately did not add Amarula to the Distell 2 matter. A full and reasonable explanation for the entire period of the delay must be provided in an application for condonation; Van Wyk v Unitas Hospital And Another [2007] ZACC 24; 2008 (2) SA 472 CC[4].

[15.1] On 30 September 2009 Distell informed SARS that it was not going to add Amarula to the Distell 2 appeal. Amarula is thus from that date not the object of any tariff appeal. The extension for the late lodging of the Amarula tariff appeal expired on 29 May 2009. The only reason proffered for the time frame from 29 May 2009 to 30 September 2011 is awaiting the outcome of the Distell 2 matter. This would be a reasonable reason if Distell is of the opinion, as they expressed, that Amarula is akin to Angles’ Share and would be bound by the judgment in Distell 2. However after the Distell 2 judgment they then proceed with an appeal pertaining to Amarula, jettisoning the tariff applied to Angels’ Share. This was thus not a good reason

not to proceed with the appeal timeously if they were not going to apply whatever happened to Angels’ Share to Amarula. This is after all the reason proffered in the founding affidavit as to why condonation must be granted and cannot now be ignored as not being relevant.

[15.2] In fact they proffered as a further reason that they expected SARS to in terms of administrative fairness apply the tariff of Angels’ Share to Amarula. The matter was further to be held in abeyance due to the application of Sections 47(9)(d)(i)(aa) in that the Commissioner shall amend a tariff to be compatible with the judgment pronounced. The inference is irresistible that Distell was not going to proceed with the Amarula tariff appeal. There would also be no prospects of success because the SCA had spoken in Distell 2 and the tariff had to be applied to Amarula as pronounced. The reason for the delay as set out in the founding affidavit is superficial because they were clearly not going to adhere to the tariff judgment in the Distell 2 matter, if not in their favour. The reasons provided for the delay is accordingly not reasonable.

[16] The Commissioner and Treasury after the SCA judgment agreed that the determination by the SCA of the products as falling under TH22.08 was inappropriate and introduced two additional bands in an amendment to the schedules of the Act in February 2011. The new bands make provision for the products under consideration in the SCA at a lower rate. Despite this the appeal pertaining to Amarula is proceeded with and the new band applicable to Angels’ Share is also not applied to Amarula. This is a further indication of their intent not to apply the tariff determination of Angels’ Share to Amarula.

[17] In the replying affidvit the reason for the delay is to be understood and excused as a balancing act between Distell’s commercial interests and the legal position. Its commercial interests were specified as the protection of the Amarula brand name. The question then is when Distell took deliberate action in putting its commercial interests above its legal position whether that constitutes a reasonable reason for the inordinate delay. I have to agree with the submission on behalf of SARS; one cannot deliberately ignore the legal rules and then pray that the deliberate non-compliance with legal rules be condoned.

[18] In Price Waterhouse Coopers Inc. and Others v Van Vollenhoven NO and Another [2012] All SA 256 (SCA) the delay of 18 months to appeal the Taxing Master’s decision not to provide for forensic auditors’ fees as part of the security to be furnished by the plaintiff was not condoned by the court a quo and was confirmed on appeal. In the attorney’s affidavit the reason for not instituting the appeal at an earlier stage was a deliberate one. He and his clients believed that in the event that the appeal to the SCA did fail, the plaintiff would be able to furnish security and that would be the end of the matter. The court in para [9] found as follows:

“I fail to see why it would not have been equally useful and expedient to have the determination reviewed pending the appeal. Fourth, even if the defendants did not want to launch a substantive application for review while the appeal was pending, a simple letter or telephone call asking for an extension of the 180-day-period or at least informing the plaintiff of the defendant’s intention to launch an application for review could have been directed to the plaintiff. Instead, nothing at all was done to take the Registrar’s

decision on review while the appeal was pending.”

Similarly with wilfully not adding Amarula to the Distell2 matter and not launching an independent tariff appeal on behalf of Amarula

SARS would correctly assume that no further appeal pertaining to Amarula is pending. On 25 September 2009 Distell informed SARS that they are not adding Amarula to the Distell matter. A year later on 30 September 2010 they request a further extension for the institution of the appeal pertaining to Amarula. The reasons for the appeal now surfacing is set out in a letter dated 30 September 2010[5]:

“[8] Although at the time Distell decided not to pursue the tariff appeal, subsequent events have resulted in Distell having reconsidered its decision. In this regard the following events are relevant:

[a] In a letter from SARS dated 29 March 2009, SARS informed Distell of the amounts outstanding in respect of excise duty pursuant to the tariff determinations made and referred to herein … In respect of Amarula Cream the difference is approximately R28 million … On this basis alone Distell has decided to appeal the Commissioner’s tariff determination.

[b] The 3M judgment impacts on the calculation of the refund periods. Should Distell not appeal the tariff determination and if Distell is successful on appeal against the tariff determinations made in respect of the other products, the Commissioner will not be bound to amend the Amarula Cream tariff determination …

[c] Distell was concerned to keep Amarula Cream out of the limelight of a court application. SARS was well are of this consideration. Despite this, the Commissioner made it his business to make reference to Amarula Cream in the answering papers, thereby nullifying any advantage Distell might have had by not appealing the tariff determination in respect of Amarula Cream.”

[19] The commercial reasons herein, which were not forwarded as reasons for condonation in the founding or supplementary affidavit, are Rands and Cents; “a case about money” - as Schutz JA said in Commissioner for Customs and Excise v Capital Meats CC (in liquidation) and Another [1998] ZASCA 80; 1999 (1) SA 570 (SCA) and referred to in CSARS v Terraplas South Africa (Pty) Ltd [2014] 3 All SA 11 (SCA)[6]. Having referred to Rands and Cents I am however not insensitive to the fact that increased excise duty will impact on the product, its production and its revenue for the country and Distell. The letter wherein SARS informed Distell of the Rands and Cents was dated exactly a year before this appeal is instituted. No reasons are set out why it took 12 months after this letter to institute the appeal. There are accordingly not reasons for the full period of the delay set out as required in the Van Wyk-matter supra. An important principle is that an inordinate delay induces a reasonable belief that the tariff determination became unassailable.

This is so because the principle of finality entitles a litigant to have closure on litigation[7].

[20] Distell relied on the commercial interest of avoiding to put Amarula in the limelight and SARS’ frustration thereof by referring to Amarula in the application. I accept that this was a commercial consideration. I understand that the Business Day articles proved the negative publicity that Distell expected, but these articles were published 6 months after the letter of 20 September 2010 to SARS to request a further extension wherein they already expressed the view that the reference to Amarula in the papers already “… nullifying any advantage Distell might have had by not appealing the tariff determination in respect of Amarula Cream”.

Yet no further steps were taken to proceed with the appeal.

[21] In the Price Waterhouse Coopers-matter supra the court found that when the explanation for the delay did not comply with the three requirements laid down in the Van Wyk-matter supra the applicant for condonation had failed to prove that it would be in the interests of justice to grant condonation and condonation must be refused. In the Van Wyk-matter supra the court found that even if an important matter is raised in a case it is in itself no reason to come to the assistance of a litigant who has been dilatory in the conduct of the litigation[8]. On these facts alone the condonation must thus be refused.

Prospects of success

[22] Much was made of the prospects of success and interests of justice as factors to consider for condonation and that the prospects of success can negate the dilatory actions of Distell.

[23] In the founding affidavit it is Distell’s contention that Amarula falls to be classified in TH 22.04 alternatively TH 22.05, alternatively 22.06, but not as SARS contended under TH 22.08. The basis for this is that Amarula and the 15 products in Distell 2 are the same and that the Court’s determination in the Distell-matter must be applied to Amarula.

[24] In the supplementary affidavit Distell contended that in the alternative to the contentions in paragraphs 36 to 85 of its founding affidavit Amarula’s characteristics is distinguishable from the aperitifs decided in the Distell 2 matter and therefore Amarula is distinguishable from the Distell 2 matter on the facts. This alternative basis is different to the basis upon which the SCA was called upon and required to decide and this case is thus distinguished also on its legal basis.

[25] In the replying affidavit Mr de Wet denied that Distell relied on the fact that the 15 products and Amarula were identical. What Distell did was it asked SARS to agree to the outcome of the appeal in respect of Angels’ Share to bind the parties in respect of Amarula, but SARS refused to do so because the products were different.

[26] In answer SARS contended that Distell had 2 affidavits before Court that has mutually contradictory evidence regarding the nature and characteristics of Amarula and the 15 products. The effect of relying on two contradictory versions is that the application is rendered fatally defective. If the products are the same then Distell has no prospects of success due to the pronouncement in Distell 2. If the products are different then condonation could never be granted.

[27] I accept that a new Tariff classification leads to a time consuming negotiation process between SARS and Distell and that stances from both sides may be adapted as part of the process. However an applicant must make out its case in the founding affidavit. It is true that Distell implored SARS to apply the tariff determination by the court in Distell 2 to Amarula as determined on Angels’ Share. The averment by Mr de Wet in the supplementary affidavit that Distell did not rely for its cause of action for tariff classification thereon that Amarula is similar to the 15 products in the Distell 2 matter is simply unfounded and untrue. Not only did Distell pertinently in the founding affidavit aver that specifically the composition of Angels’ Share and Amarula is the same, save that in Angel’s Share a brandy spirit component is used while with Amarula a amarula spirit is used; “however the different spirit components are of similar quantity and alcohol levels”. Distell went a step further and submitted that the “… the Commissioner and Distell are in agreement that the products in issue in Case No 16919/09 (NGP)[Distell 2] and Amarula are, for the purposes of tariff classification, the same.

The final decision of the Court Of Appeal should also be made applicable to Amarula for the following reasons:

a Administrative fairness, in terms of section 33 of the Constitution and sections 3 and 6 of the Promotion of Administrative Justice Act, no 3 of 2000(PAJA), requires that when the Commissioner makes a

tariff determination in respect of similar products, [my bolding] these products should be classified under the same heading”.[9]

[28] The question then is whether Distell’s supplementary affidavit setting out the evidence for their submission which tariff classification is applicable to Amarula is contradictory to the evidence contained in the founding affidavit. In paragraph 2.6.3 of the supplementary affidavit it is submitted that the contentions in the supplementary affidavit is in the alternative to the contentions in paragraphs 36 – 85 of its founding affidavit. It is submitted that the interpretative grounds for classification are wider than those advanced in the founding affidavit.

[29] New evidence pertaining to the physical characteristics of Amarula is set out. These physical characteristics were sensorially gauged by members of a trained sensory panel and it is now argued that Amarula is a mixture due to the characteristics given to it by all the components therein of which the dominant characteristics is its sweet taste, viscosity, creamy mouth coating, caramel and brandy-like aromas and flavour, and alcohol burn as mouth feel. These are the characteristics of the mixture as at the time of the entry thereof for home consumption. This would lead thereto that Amarula’s tariff interpretation in a nutshell correctly classified should be in accordance with General Rule 4 under TH22.06. This sensory evaluation is described as a scientific process to evoke, measure, analyse and interpret responses to products experienced through the senses of sight, smell, touch and hearing. A panel of 10 independent trained sensory panel members followed a methodology known as Flash

Profiling, “which is a scientifically recognised methodology used inter alia to evaluate the overall sensory differentiation within a sample set and gain a holistic understanding thereof”.[10]

A spider web diagram reflects that the aroma is moderate to strong condensed milk, moderate to less intense brandy-like and caramel and slightly milky, vanilla, creamy and citrus/fruit. The taste is moderate to a strong sweet taste. The flavour is moderate to strong milky flavour, moderate caramel, brandy-like flavour with a slightly less intense vanilla, creamy, fruity flavour. The texture is a moderate to strong creamy mouth coating effect with a moderate alcohol burn. The colour of Amarula is cream-caramel. The effect of drinking Amarula includes a lingering of the aroma, taste texture and flavour. The effect of the alcohol component is mild. Reliance is also placed as a characteristic on social behaviour and consumption; “The use of Amarula, mostly or many times consumed on crushed ice and also widely used in cooking or as topping on desserts as well as a post-dinner drink, results from it having the aforesaid characteristics. Due to the low alcoholic content of Amarula, its

effect on the consumer is accordingly mild”.[11] There is as a characteristic also set out that the volume of an Amarula drink may vary from a small glass to a tall glass. In this affidavit reference is made to the fact that the physical characteristics and composition of Amarula is deposed to by De Wet and confirmed by Dr Loubser.

[30] In the founding affidavit the nature and characteristics of Amarula is deposed to by Mr de Wet with reference to the production process. He also avers that by volume Amarula contains more wine than spirit. The wine used in Amarula is quite distinct from a top quality table wine and is selected for its low flavour, colour, acid, phenolis and sulphur dioxide properties. It is also high in alcohol. Despite the processes used to treat the base wine this wine still has the taste and flavour of wine, even though much less prominent than that of a table wine. The dairy component added is by volume more than the wine and the spirit components combined. The cane spirit used to fortify the wine is neutral. The essential character of Amarula is determined

by its fermented wine base, rather than the distilled neutral cane spirit.

[31] In the founding affidavit the evidence of Dr Loubser, the expert on behalf of Distell, emphasised that distillation and fermentation are two wholly distinct processes. It was his considered opinion that the addition of the neutral cane spirits to the wine base did not deprive the wine of its character, as the addition of the spirits merely serves to increase the alcohol content of the final product. This fortification of the wine with spirits does not alter the essential character of the base product. The products are accordingly not spirituous beverages to which sugar, honey etc. have been added. He then confirmed the opinion of Mr de Wet that the mixture of water, sweetening agents, powdered ingredients, flavourants and/or colourants forming part of Angels Share, the Gold Cup products, Delgoda and Barbosa is comparable to a mixture which would comprise what is commonly known as a cold drink and which would fall under tariff heading 22.02. His opinion is that the essential character of Amarula is determined by its fermented wine base, rather than the neutral distilled cane spirit. “In light of the above, I am of the view that Amarula is a fermented beverage blended with a non alcoholic beverage and the addition of cane spirit to fortify the product does not change it to a spirituous beverage”.[12]

[32] In the founding affidavit every attempt is thus made to counter SARS’s tariff determination based on the fact that Amarula is a spirituous beverage. The whole basis of this application was that that the outcome of the Distell 2 matter would be made applicable to Amarula. The ultimate question was whether the products where spirituous. In this “spirit” it is thus submitted that the essential character of Amarula is determined by its fermented wine basis, rather than the distilled

neutral cane spirit and therefor it cannot be classified as a spirituous beverage. This was also the issue in the Distell 2 matter

and the court found that “… the compelling conclusion is that the ultimate distinctive nature of the beverages is spirituous”[13]. This was so because the expert evidence in regard to the organoleptic testing was that all the products had a distinct spirituous

character.

[33] Dr Laubscher filed a supplementary affidavit wherein he confirmed the statements in Mr de Wet’s supplementary affidavit and specifically paragraph 3.2. In paragraph 3.2.2 Mr de Wet concluded that Amarula is a mixture due to the characteristics given to it by all the components therein of which the dominant characteristics is its sweet taste, viscosity, creamy mouth coating, caramel and brandy-like aromas and flavour, and alcohol burn as mouth feel. Dr Laubscher in confirming Mr De Wet’s submissions is contradicting his own expert opinion.

[34] Affidavits in these proceedings must contain both the pleadings and the evidence to sustain the cause of action, which in this matter is the setting aside of the tariff determination of the Commissioner pertaining to Amarula. It is trite that the evidence in the affidavits is of paramount importance. The expert evidence of Dr Laubscher in the founding affidavit is that the essential character of Amarula is determined by its fermented wine base, rather than the neutral distilled cane spirit and therefore Amarula is a fermented beverage blended with a non- alcoholic beverage. The addition of cane spirit to fortify the product does not change it to a spirituous beverage. However in the supplementary affidavit Ms Scheepers’, another expert, is relied on to conclude that Amarula is a mixture due to the characteristics given to it by all the components therein of which the dominant characteristics is its sweet taste, viscosity, creamy mouth coating, caramel and brandy-like aromas and flavour, and

alcohol burn as mouth feel. The factual basis in the supplementary affidavit is not just wider than in the founding affidavit, but in fact contradictory; from one essential component giving Amarula it character to many sensory components which in unison gives Amarula its character. Amarula went from a fermented beverage blended with a non-alcoholic beverage to in the supplementary affidavit being most akin to a mixture. It is now argued that the Amarula mixture does not contain a component which still can be described as a fermented beverage, albeit it that the alcohol is derived from a fermentation process. The alcoholic characteristic is now swamped by the other characteristics as set out by Ms Scheepers.

[35] Mr de Wet classified the new evidence of Ms Scheepers of the sensory testing as an alternative to the contentions in paragraphs 36-85 of the founding affidavit. If it is an alternative to the founding affidavit then it does not widen the grounds in the founding affidavit, it set ups new facts. Of course tariff classification can be pleaded in the alternative, but the facts stay the same with just different interpretations placed on the same facts. An applicant cannot set up contradictory facts as evidence in an application because obviously the court is then faced with two mutually exclusive versions. In argument reliance was placed only on the new evidence of Scheepers to determine the correct tariff determination. The court can however not ignore the evidence in the founding affidavit. Ms Scheepers does not refer to the evidence of Dr Laubscher at all. Even if I accept that they are experts in different fields there is simply no attempt by Distell to reconcile the 2 experts’ evidence, obviously because it simply cannot be done. The only attempt is by Dr Laubscher in the supplementary affidavit wherein he refers to Mr de Wet’s evidence that Amarula is a mixture due to the characteristics given to it by all the components therein of which the dominant characteristics is its sweet taste, viscosity, creamy mouth coating, caramel and brandy-like aromas and flavour, and alcohol burn as mouth feel. This evidence is in contrast to Dr Laubcher’s own evidence.

[36] SARS argued that Distell had abandoned its original cause of action and substituted it with a new cause of action. This argument is correct; Distell urged the Court to on the new contradictory facts make a tariff determination. SARS argued that the reason for this is that Distell had to conjure up a new case because the clarity Distell sought from the Distell 2- matter did not emanate in their favour and destroyed their prospects of success in this matter. The foundation of this argument is in fact common cause because on behalf of Distell it was argued that Scheeper’s evidence distinguished this matter from Distell 2.

[37] Much was made of the fact that Scheeper’s evidence was not contradicted by SARS. This however does not solve the court’s dilemma; Distell’s own version that must be made out on the papers. It was in any event SARS’s submission that Mr Taylor, their expert, agreed with Ms Scheepers as he essentially did the same exercise and made the same sensorial findings although not presented in the same format as Ms Scheepers. Ms Scheepers however did not express an opinion as to whether Amarula can be said to be spirituous of nature. Ms Scheepers also did not compare the essential organoleptic characteristics of Amarula with the other 15 products. Dr Laubcher also did not compare the products in Distell 2 and differentiated them from Amarula, simply because that was not their case in the founding affidavit.

[38] I accordingly do not find it necessary to address the prejudice to SARS as a factor when considering condonation.

[39] The condonation is refused in summary for the following reasons:

39.1 The period of the delay;

39.2 For some periods of the delay no reasons were provided;

39.3 The reasons provided for the delay were not reasonable

39.4 It would not be in the interests of justice to grant condonation;

39.5 Distell has no prospects of success.

[40] I accordingly do not find it necessary to make findings on the 2 points in limine raised by SARS.

[41] SARS submitted that the costs should be paid on an attorney client scale because Distell was dishonest with the public and showed disrespect to the Courts. Distell preferred to adhere to their own commercial interests instead of complying with the rules of law. On behalf of Distell it was argued that no punitive cost order was called for.

[42] When awarding costs a court must exercise its discretion judicially. To grant a special costs order special grounds must be present; dishonesty, fraud or vexatious, reckless, frivolous or malicious motives. I cannot find that these special grounds exist.

[43] I accordingly make the following order:

43.1 The application for condonation is dismissed.

43.2 The applicant is to pay the costs on a party and party scale including the costs of two cousel.

S. POTTERILL

JUDGE OF THE HIGH

COURT

CASE NO: 56295/11

HEARD ON: 8 & 9 September 2015 FOR THE APPLICANT: ADV. S.A. CILLIERS SC AND ADV. C. LOUW

INSTRUCTED BY: Shepstone & Wylie Attorneys FOR THE RESPONDENT: ADV. J.A. MEYER SC AND I.A. ENSLIN

INSTRUCTED BY: State Attorney, Pretoria

DATE OF JUDGMENT: 7 October 2015

[1] Paragraph 14.6 of the answering affidavit

[2] Paragraph 11 of replying affidavit

[3]

CSARS v Van der Merwe [2015] 3 All SA 387 (SCA)

[4] Paragraph [22]

[5] FA 11

[6] Paragraph [2]

[7] Van Wyk matter supra at paragraph [31]

[8] Paragraph [32]

[9] Paragraph [151]

[10] Paragraph 6.1

[11] Paragraph 3.1(i)

[12] Paragraph [34]

[13] Paragraph [51]