THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No 218/10

In the matter between

COMMISSIONER, SOUTH AFRICAN REVENUE
SERVICES

Appellant

and

MULTICHOICE AFRICA (PTY) LTD

First Respondent
UEC TECHNOLOGIES (PTY) LTD

Second Respondent

Neutral citation:  Commissioner, SARS v MultiChoice Africa (218/10) [2011]
ZASCA 41 (29 March 2011)

Coram:
CLOETE, HEHER, SNYDERS, MAJIEDT JJA and PLASKET
AJA

Heard:
8 March 2011

Delivered:    29 March 2011

Summary: Revenue – customs and excise – classification of articles for
customs duty – interpretation of statutes ─ ordinary meaning of enactment
leading to repugnance ─ interpretation of enactment so as to give effect to the
legislature's intention.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: North Gauteng High Court, Pretoria (Seriti J sitting as court
of first instance).

1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the court a quo is set aside and replaced with the
following order:

'The appeal is dismissed with costs, including the costs of two counsel.'

______________________________________________________________

JUDGMENT
______________________________________________________________

MAJIEDT JA (CLOETE, HEHER, SNYDERS JJA and PLASKET AJA
concur):

Introduction
[1] The ubiquitous digital satellite decoder (the decoder) has become a
common feature in the more affluent South African home. This appeal, which
is with leave of this court, concerns the correct tariff classification of the model
720i decoder in terms of Schedule 1 to the Customs and Excise Act1 (the
Act). The court below (Seriti J, sitting as court of first instance in the North
Gauteng High Court, Pretoria) in terms of s 47(9)(e) set aside the appellant's
(the Commissioner's) determination in respect of the 720i decoder model, in
terms whereof the Commissioner had classified it under Tariff Heading
8528.12.90 of Part 1 of Schedule 1 of the Act which attracts a 7 per cent ad
valorem excise duty.

1 91 of 1964.

[2] The first respondent (MultiChoice) is a subscription based satellite
broadcaster and the second respondent (UEC) is a decoder manufacturer.
MultiChoice's core business entails encrypted analogue broadcasts under the
brand name M-Net and encrypted digital satellite broadcasts under the brand
name DStv. This matter concerns only the latter. The decoder in question
enables subscribers to receive satellite broadcasts from MultiChoice. The
Commissioner's determination in relation to the 720i decoder involves UEC
and in relation to the 988 model decoder, to which I will return later, involves
MultiChoice.

[3] The factual difference between the parties that underlies their dispute
stems from the nature of the decoder. The Commissioner contends that its
primary nature is a television reception apparatus, despite other functions it
may be able to perform. UEC on the other hand, regards it as a multi-
functional apparatus of which not one function could be singled out as
primary. The Commissioner classified the decoder on 10 March 2005 under
Tariff Heading 8528.12.90 ('reception apparatus for television, whether or not
incorporating radio broadcast receivers or sound recording or reproducing
apparatus').

[4] In the court a quo UEC sought a tariff classification under Tariff
Heading 8479.89.90 ('machines and mechanical appliances having individual
functions, not specified or included elsewhere') alternatively under Tariff
Heading 8543.89 ('electrical machines and apparatus having individual
functions, not specified or included elsewhere'). Seriti J upheld the main
argument and directed that the Commissioner reclassify the 720i decoder
under Tariff Heading 8479.89.90.
The evidence

[5] Due to a perceived dispute of fact on the papers the parties agreed to
refer the matter for the hearing of oral evidence. Mr Constant Fourie, an

electronic engineer employed by MultiChoice and Mr David Neil Siedle, an
electronic engineer in the employ of a company affiliated to Naspers,
MultiChoice's parent company, testified on behalf of the respondents. The
evidence of a third witness for the respondents, Ms Amanda Armstrong, an
attorney whose firm advised and represented MultiChoice, was admitted by
agreement. The Commissioner led no evidence.

[6] Fourie testified in detail about the technical operations of MultiChoice,
the process of broadcasting services to consumers via a satellite and the
functioning of a decoder, with particular reference to the 720i model. Siedle
testified about the role and functioning of the conditional access system in a
decoder, which is his field of expertise. Prior to the hearing of oral evidence,
the parties' respective experts met and recorded their agreements and
disagreements on the issues in a schedule. In summary, according to the
undisputed evidence MultiChoice broadcasts an encrypted signal from its
broadcast centre in Randburg via the satellite dish to the decoder. A number
of complex processes are performed inside the decoder which include re-
encryption of the signal, demultiplexing of the subscriber's selected channel,
decryption by the conditional access module through the decoder's smart card
and decoding of the decrypted signal.

[7] It was not in dispute that the decoder has multiple functions, namely:
7.1
it receives satellite transmissions containing audio and/or visual and/or
interactive data;
7.2
it decodes these satellite transmissions by descrambling the
transmission (ie by granting conditional access to it)2 and by converting the
signal into pictures and/or sound;
7.3
it converts the audio and/or visual data into a format capable of being
used by a television set or radio;

2 Not all instances require descrambling of the transmission ─ there are free-to-air services
available on the decoder for which no descrambling is necessary.

7.4
it transmits interactive services such as electronic games, weather,
news and so forth; and
7.5
when connected by a modem to a telephone line, it serves as a
messaging service similar to electronic mail on a personal computer.

The legal principles

[8] This court has, in a long line of cases, established the legal principles
which apply to tariff classification. In International Business Machines SA (Pty)
Ltd v Commissioner for Customs and Excise,3 Nicholas AJA set out these
principles as follows:
'Classification as between headings is a three-stage process: first, interpretation ─ the
ascertainment of the meaning of the words used in the headings (and relative section and
chapter notes) which may be relevant to the classification of the goods concerned; second,
consideration of the nature and characteristics of those goods; and third, selection of the
heading which is appropriate to such goods.'4
This is still the approach of this court5 and it was not in issue before us. For
present purposes it bears emphasis that it is trite that the intention of the
manufacturer or importer of goods and the use to which the goods are put are
not relevant considerations for an appropriate tariff classification in terms of
the Act. What is relevant is the nature, characteristics and properties of the
goods and the subjective intention of the manufacturer or importer and use of
the goods can only be of some relevance in establishing those aspects.6 I
now turn to consider the appropriate tariff classification by following the
process enunciated in International Business Machines.

3 International Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise 1985
(4) SA 852 (A). See also Secretary for Customs and Excise v Thomas Barlow and Sons
Limited 1970 (2) SA 660 (A) at 676B-F.
4 At 863G-H.
5 See Commissioner, South African Revenue Service v The Baking Tin (Pty) Ltd 2007 (6) SA
545 (SCA); [2007] 4 All SA 1352 (SCA); [2007] ZASCA 100 para 5; Commissioner, South
African Revenue Service  v Komatsu Southern Africa (Pty) Ltd 2007 (2) SA 157 (SCA); [2007]
4 All SA 1094 (SCA); [2006] ZASCA 156 para 8.
6 See Komatsu para 8; The Baking Tin para 12.

The headings, sub-headings and relevant section and chapter notes
[9] Tariff Heading 8528.12.90 reads as follows:

'Tariff Heading 85.28.12.90:
Heading
Sub-Heading
CD
Article Description

85.28

8528.1

8528.12
.30

.90

Reception Apparatus for Television, Whether  or Not
Incorporating Radio-broadcast Receivers or Sound or Video
Recording or Reproducing Apparatus; Video Monitors and
Video Projectors:
•   Refer to General Rebates of Customs Duties and Fuel-
Levy
460.16 Temporary Rebates of Customs Duties
•   Refer to Ad Valorem Excise Duties from Page 691
-  Reception apparatus for television, whether or not
Incorporating radio-broadcast receivers or sound
recording or reproducing apparatus:
=  Colour:
-   Reception apparatus, incorporating or designed to
Incorporate cathode ray tubes or other screens with a
screen size not exceeding 3 m x 4 m .............................
-   Other ..............................................................................'

The relevant explanatory note reads:
'(4)  Receivers of satellite television broadcasts. These apparatus, which do not include a
display device (cathode-ray tube LCD, etc) are similar to video tuners in that they serve to
receive amplified signals whose frequency has been lowered by a down converter, to select a
single signal (channel) and to convert it to a signal suitable for display on a video monitor.
They may incorporate a modulator capable of producing a standard television broadcast
signal for outputting to the aerial connection of a television receiver. They may also
incorporate a device for receiving remote signals to change the channel selection or to rotate
the aerial and polarizer. These satellite receivers may also incorporate a modem for
connection to the internet' (own underlining).
Note 3 to Section XVI is also relevant with regard to multifunctional machines
with a principal function. It states:

'3.     Unless the context otherwise requires, composite machines consisting of two or more
machines fitted together to form a whole and other machines designed for the purpose of
performing two or more complementary or alternative functions are to be classified as if
consisting only of that component or as being that machine which performs the principal
function' (own underlining).

[10] The Commissioner's contention in support of this tariff classification is
that the decoder is dependent on receiving a satellite signal, the
overwhelming majority of MultiChoice subscribers (99.9 per cent) use their
decoders as a television reception apparatus and that the reception of a
television signal is its principal function.

[11] UEC conceded that the decoder receives satellite television
broadcasts; its case is that this is not the decoder's principal function. On the
common cause facts therefore, the decoder slots comfortably into this tariff
heading and explanatory note 4 above. The deciding factor will be whether, as
a multifunctional device, the decoder can be said to have a principal function
as envisaged in note 3 to Section XVI above. Before I deal with that, I
consider briefly the two classifications propounded by UEC.

[12] As stated, the court below upheld UEC's principal contention for
classification under Tariff Heading 8479.89.90. Classification under Tariff
Heading 8543.89 was advanced by UEC in the court a quo as an alternative
argument. The reason why UEC adopted the curious approach of contending
in this court for a classification under the latter heading, while nonetheless
defending the judgment and order of the court below, is simply this: the
parties' experts agreed in item 12 of their schedule that since decoders do not
have any moving parts (they are electronic devices), they cannot be
considered to be mechanical devices. This agreed fact firmly and conclusively
puts paid to any possible classification under Tariff Heading 84.79, which
reads as follows:

'Tariff Heading 84.79:
Heading
Sub-Heading
CD
Article Description

84.79

84769.89

.30
.31

.33
.90

Machines and Mechanical Appliances Having Individual
Functions, Not Specified or Included Elsewhere in this
Chapter:

=  Other
-   Vacuum cleaners of a value for duty purposes not
Exceeding R650 ..........................................................
-   Other vacuum cleaners, electrical ..............................
-   Floor polishers and scrubbers, electrical, non-
Domestic ...................................................................
-   Other .........................................................................'

The explanatory notes to this heading state, inter alia, that 'this heading is
restricted to machinery having individual functions' which 'is not covered more
specifically by a heading in any other chapter of the nomenclature'. Fourie
conceded that the decoder does not have an individual, stand alone function.7
UEC was consequently compelled to find refuge in a classification under Tariff
Heading 85.43. No argument at all was advanced in its heads of argument on
Tariff Heading 84.79 in defence of the judgment and order of the court below.
In view of my conclusion below, a consideration of heading 85.43 is not strictly
necessary, but I do so nonetheless for the sake of completeness. UEC
contended that Tariff Heading 85.43 is the most appropriate heading that
specifically covers multifunction machines. It contended further that a
multifunction machine moves out of this tariff heading only if it has a principal
function and that principal function is specifically described in another tariff

7 In this regard Fourie concurred in the analogy drawn by counsel who was cross-examining
him with the role of a fuel injection system in an internal combustion engine which does not
perform an individual function.

heading. Plainly therefore, UEC's submissions are dependent on the question
whether a decoder has a principal function or not.

[13] Tariff Heading 85.43 reads as follows:
'22.1
Heading
Sub-Heading
CD
Article Description

85.43

8543.1
8543.11
8543.19
8543.20
8543.30

8543.40
8543.81

Electrical Machines and Apparatus, Having
Individual Functions, not Specified or Included
Elsewhere in this Chapter:
-   Particle accelerators;
=  Ion inplanters for doping semiconductor materials
=  Other ..........................................................................
-   Signal generators ......................................................
-   Machines and apparatus for electroplating, electrolysis or
electro-phoresis ..........................................................
-   Electric fence energizers ............................................
-   Other machines and apparatus ..................................
=   Proximity cards and tags ..........................................'

Plainly this heading only relates to electrical apparatus which do not fall in any
other heading of this chapter or which, according to the explanatory notes, are
not covered specifically by the heading of any other chapter of the
nomenclature.  It should be evident from the above that Tariff Heading 85.28
is plainly such a heading. Tariff Heading 85.43 is applicable to machines and
devices with individual functions which a decoder is not, as conceded by
Fourie under cross-examination. Tariff Heading 85.43 is therefore also not the
appropriate classification for the decoder.

[14] As stated, the nub of the enquiry as far as the second leg is concerned,
is whether the decoder has a principal or primary function. UEC contends that
it has multiple functions which complement each other. The Commissioner on
the other hand contends that the principal function is the reception of a
television signal, in which event it will be dutiable. In resolving this issue it is

useful to have regard to the role and function of the conditional access
module inside the decoder, alluded to earlier. The primary purpose of the
conditional access module is to provide an auditable means of ensuring that a
user pays for the consumption of broadcasting programme rights. Its purpose
is to ensure that a subscriber only receives access to the particular services
subscribed to and that access is only granted if a subscriber's payments are
up to date and lastly that subscribers do not get access to services governed
or restricted by certain governments or in terms of certain broadcasting
rights.8

[15] The court below erred in finding that the decoder does not have a
principal function. Its finding is based mainly on Fourie's evidence. But Fourie
made a number of important concessions in this regard, over and above the
fact that the decoder does not perform an individual stand alone function,
alluded to above. These are the concessions:
15.1 One of the decoder's functions is to operate as a television reception
apparatus;
15.2 The transport stream transmitted from MultiChoice to the user contains
both television and audio services;
15.3 According to Fourie a decoder has to be able to receive television
services and be able to apply conditional access, neither of which is its
primary function. But he was driven to concede that descrambling, performed
by the conditional access system, was not a prerequisite since free-to-air
services were beamed without having to be descrambled;
15.4 He applied different criteria to determine whether television reception is
its primary function as opposed to conditional access and he readily conceded
this inconsistency when it was pointed out to him;
15.5 The death knell for the respondents' case is in my view Fourie's
evidence under cross-examination that 'for MultiChoice purposes . . . you
need to have conditional access as well, you cannot only have television

8 MultiChoice broadcasts to various Southern African countries and the satellite broadcasts
extend over a number of such countries located close to each other.

reception'. This emphasizes MultiChoice's intention with and purpose of the
decoder, which, as stated, is an irrelevant consideration in law;
15.6 It was also conceded that decoding cannot be the decoder's principal
function, because it cannot operate without the reception apparatus part of the
decoder; and
15.7 He conceded further that if the conditional access function were to be
disabled one would still be able to use the reception part of the decoder, but if
the latter were to be removed, the decoder would be useless.

[16] It was contended on MultiChoice's behalf that the conditional access
system is as important in the decoder as the receiving of a signal, because it
ensures compliance with MultiChoice's licensing conditions. The contention is
misconceived ─ as stated, the enquiry must be directed primarily at the
decoder's nature and characteristics, not its intended purpose or use. It is of
considerable significance that, on the common cause facts, the overwhelming
majority of MultiChoice subscribers receive a television signal, ie they use
their decoders as a television reception apparatus. To conclude: the decoder
plainly has a principal function which is the reception of a television signal.

The payment of excise duty

[17] The finding that the decoder was correctly classified by the
Commissioner under Tariff Heading 8528.12.90 raises the next question,
namely whether it is subject to payment of ad valorem duty in terms of the
provisions of Item 124.75 of Part 2B of Schedule 1 to the Act. Ordinarily, no
duty is payable on goods under Part 1 of Schedule 1 to the Act, under which
the three tariff headings under discussion appear. But the Commissioner has
levied ad valorem excise duty on locally manufactured decoders by virtue of
Item 124.75. This tariff item was amended on 22 February 2001 in terms of s
48 of the Act to provide with effect from 1 July 2001 for duty at a rate of 7% on
the following goods:

'Reproducing apparatus for television, whether or not incorporating radio-broadcast receivers
or sound or video recording or reproducing apparatus; video monitors and video projectors.'
Counsel for UEC argued that the one thing that the decoder is not, is a
'reproducing apparatus for television', which is plainly correct. Counsel went
on to illustrate why the tariff item makes perfect grammatical sense and why
there is no need to give any word a different meaning than its ordinary
grammatical meaning.

[18] UEC contends that the Item is framed in unambiguous terms and effect
should be given thereto. Reliance was placed on the contra fiscum rule and
on a passage in Johannesburg City Council v Norven Investments (Pty) Ltd9
and the following dictum by Lord Blackburn in Coltness Iron Co v Black:10
'. . . [n]o tax can be imposed on the subject without words in the Act of Parliament clearly
showing an intention to lay a burden on him.'11
The Commissioner contends that the word 'reproducing' is a patent mistake
on the part of the legislature and that it should read 'reception'.

[19] The conundrum is that this wording of Item 124.75 is completely at
variance with the structure of the enactment, particularly with Tariff Heading
85.28 which uses the word 'reception' instead of 'reproducing'. There are
compelling reasons to uphold the Commissioner's contention that the word
'reproducing' is the result of a patent error by the legislature. First, the Item as
it stands would plainly be repugnant to the entire structure of the enactment
and to the legislature's intention. It is common cause that the decoder is not a
'reproducing apparatus for television'. Each and every item heading repeats
the Tariff Heading word for word, except 124.75 which replaces the word
'reception' with 'reproducing'. In Venter v R12 Innes CJ held that a court may
depart from the ordinary meaning of the plain words of a statute where to give
effect thereto 'would lead to absurdity so glaring that it could never have been

9 Johannesburg City Council v Norven Investments (Pty) Ltd 1993 (1) SA 627 (A) at 638A-C.
10 Coltness Iron Co v Black 1881 (6) App Cas 315.
11 At 330.
12 Venter v R 1907 TS 910.

contemplated by the legislature'.13 In a separate, concurring judgment
Solomon J held that departure from the ordinary meaning of plain words in a
statute is warranted if the result of a literal interpretation would be 'something
which is repugnant to the intention of the legislature'.14 The contra fiscum rule
only finds application where there is some doubt as to the true meaning of an
ambiguous enactment.15 Here the repugnance is overwhelmingly evident
when the entire structure of the enactment is examined. It is permissible for a
court to interpret an enactment which is repugnant to the intention of the
legislature so as to give effect to that intention and to make it compatible with
other provisions.16 This applies equally to the Act.17

[20] Second, a tariff item such as 124.75 is always defined with reference to
a specific tariff heading. It co-exists with that heading and does not differ or
extend beyond the ambit of that heading. Cronje, Customs and Excise
Service18 explains this as follows: 'the classification of goods under headings
or sub-headings of Part 1 of Schedule 1 quoted in the said items . . . primarily
determines whether goods are classifiable under the item concerned'. Item
124.75 is listed with its tariff heading being 85.28 and sub-heading 85.28.00.
If, as the respondents contend, the legislature intended to impose duties on
only a part of Tariff Heading 85.28, namely on television sets, one would
expect the legislature to have specified accordingly by inserting for example
sub-headings 85.28.12 (colour televisions) or 85.28.13 (black and white or
other monochrome televisions). Item 124.75, correlated to Tariff Heading
85.28 and sub-heading 85.28.00, fortifies the conclusion that the word
'reproducing' in that item is a patent mistake and should read 'reception', in
harmony with the rest of the enactment. This finding obviates the necessity to

13 At 915.
14 At 921.
15 Johannesburg City Council v Norven Investments (Pty) Ltd supra at 638B-C and cases
cited there.
16 Hanekom v Builders Market Klerksdorp (Pty) Ltd & others  2007 (3) SA 95 (SCA); [2006]
ZASCA 2 paras 7-9.
17 Commissioner, South African Revenue Service v Trend Finance (Pty) Ltd & another 2007
(6) SA 117 (SCA); [2007] ZASCA 59 para 6 and footnote 2.
18 At 5-41.

consider the alternative argument advanced by the Commissioner, namely to
have regard to the Afrikaans text of Item 124.75 and the countervailing
argument that it would be impermissible to do so, in view of the provisions of s
82 of the Constitution.

[21] I turn lastly to MultiChoice's position in relation to the model 988
decoder.
The Commissioner issued a determination in respect of the model 988
decoder to MultiChoice on 2 April 2002. MultiChoice prosecuted its appeal in
February 2006 well out of time and it had to obtain condonation from the court
for this non-compliance. MultiChoice argued that there was no need to seek
condonation and that s47(9)(d)(i)(bb) of the Act entitles MultiChoice to an
order directing the Commissioner to reclassify the 988 decoder in accordance
with the reclassification of the 720i decoder, because they are similar. This
issue need not be decided, given the outcome of this appeal.

Conclusion

[22] The appeal must therefore be upheld with costs and the
Commissioner's original determination must stand.

[23] The following order is issued:
1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the court a quo is set aside and replaced with the
following order:

'The appeal is dismissed with costs, including the costs of two counsel.'

___________

S A MAJIEDT

JUDGE OF APPEAL

APPEARANCES:

Counsel for Appellant
:
C E PUCKRIN SC

I ENSLIN
Instructed by

:
The State Attorney, Pretoria

Counsel for Respondent
:
A P JOUBERT SC

C J McASLIN
Instructed by

:
DLA Cliffe Dekker Hofmeyr Inc, Sandton

Webbers, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
29 March 2011

STATUS: Immediate

COMMISSIONER, SOUTH AFRICAN REVENUE SERVICE v MULTICHOICE
AFRICA (PTY) LTD AND ANOTHER

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

1.
The SCA today held that for purposes of tariff classification in terms of
Schedule 1 to the Customs and Excise Act, 91 of 1964, a decoder has a principal
function which is the reception of a television signal. It should therefore be classified
under tariff heading 8528.12.90 of Part 1 of the said Schedule.

2.
The Commissioner for Customs and Excise had classified the decoder under
the aforementioned heading, but on appeal to the North Gauteng High Court,
Pretoria, the determination was set aside and the Commissioner was ordered to
reclassify the decoder under tariff heading 8479.89.90. On appeal, the SCA held that
tariff heading 8479.89.90 was not appropriate, since on the facts agreed between
the parties' respective experts, decoders cannot be mechanical devices since they
do not have any moving parts. Tariff heading 8479.89.90 applies to machines and
mechanical appliances.

3.
The SCA held further that the decoder can also not be classified under Tariff
Heading 85.43 since this heading applies to machines and devices with  individual
functions which a decoder is not, as conceded by one of the respondents' expert
witnesses.

4.
The SCA held that an ad valorem excise duty of 7% is payable on the
decoder in terms of Tariff Item 124.75 of Part 2B of Schedule 1 to the
aforementioned Act. It held that the word 'reproducing' in the Item is a clear mistake
on the part of the Legislature which, if literally interpreted, leads to a glaring
absurdity and repugnance in the enactment. The word 'reproducing' should therefore
read 'reception' in Item 124.75.

5.       The appeal by the Commissioner was therefore upheld with costs and the
Commissioner's original determination was confirmed.

--- ends ---