THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

SCA CASE NO: 526/2011
Reportable

In the matter between:

DISTELL LIMITED

APPELLANT

and

THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE

RESPONDENT
Neutral Citation:
Distell Limited v The Commissioner for the South African
Revenue Service (526/2011)

[2012] ZASCA 88 (31 May 2012)
Coram:

Navsa, Heher and Van Heerden JJA

Heard:

22 May 2012
Delivered:

31 May 2012
Summary:
Excise and customs duty – Custom and Excise Act 91 of 1964 -
classification of beverages under tariff headings – fermented or
distilled (spirituous) beverages - International Convention on the
Harmonised Commodity Description and Coding System.

______________________________________________________________
ORDER
______________________________________________________________

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

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

JUDGMENT
______________________________________________________________

Navsa and Van Heerden JJA (HEHER JA concurring)

[1] This appeal involves a dispute about a tariff classification in relation to
excisable goods under the Customs and Excise Act 91 of 1964 (the Act)1. The
appeal turns on whether the products in question are fermented or distilled
(spirituous) beverages. The appellants contended that they are fermented,
and accordingly classifiable under a specific tariff heading, namely 22.05,
alternatively 22.06, of part 1 of Schedule 1 to the Act. The respondent
contended that they are spirituous, and therefore classifiable under tariff
heading 22.08. Once that issue is determined the proper tariff item in part 2A
of Schedule 1 under which the products should be classified will follow as a
matter of course. Each tariff heading has a corresponding tariff item number.
For ease of reference we shall refer only to the relevant tariff heading.

[2] The appellant company is Distell Limited (Distell), which owns and
operates a number of wineries and conducts business as a manufacturer and
distributor of liquor products. It markets and sells a number of well-known
alcoholic beverages to commercial outlets. The respondent is the
Commissioner for the South African Revenue Service (the Commissioner).

[3] The facts giving rise to the appeal are set out hereafter. During 2007
______________________
1 The products in question are goods manufactured in a customs and excise warehouse
which renders them liable for the payment of excise duty: see s 37(1) of the Act.

and 2008 the Commissioner determined all of the products forming the
subject matter of this appeal as falling within tariff heading 22.08 in Part 1 of
Schedule 1 to the Act.2 The tariff headings themselves and an explanation of
how they operate and are applied will be dealt with in due course. The
products in question are the following:

(i) Angels' Share Cream;
(ii) Delgado Supremo;
(iii) GoldCup Creamy Vanilla;
(iv) Barbosa;
(v) GoldCup Banana Toffee;
(vi) Zorba;
(vii) Nachtmusik;
(viii) Mokador;
(ix) Alaska Peppermint;
(x) Copperband;
(xi) VinCoco;
(xii) Clubman Mint Punch;
(xiii) Viking;
(xiv) Castle Brand; and
(xv) Brandyale.

[4] As stated above, the tariff determinations were arrived at on the basis
that the products in question are spirituous beverages. The Commissioner‟s
perspective, put simply, is that the base wines used in the beverages in
question are subjected to processes in terms of which they are stripped of
flavour and colour and have cane spirits added to them in order to bolster the
alcohol content significantly, as well as sweeteners, flavourants and
_____________________
2 Section 47(9)(a)(i) provides, inter alia, that the Commissioner may in writing determine the
tariff headings, tariff subheadings or tariff items of any Schedule under which goods
manufactured in the Republic shall be classified. Section 37(1) of the Act provides, inter alia,
that excise duties are payable in respect of goods manufactured in a customs and excise
warehouse, on entry for home consumption thereof at rates determined in terms of the Act.

colourants, and that they no longer qualify as a wine of any kind, but are
ultimately spirituous and therefore liable to a tariff classification attracting
higher duties.

[5] At the time of the determination, Distell assumed the position that the
products in issue have a „basis of wine of fresh grapes‟, are fermented, not
distilled, and should resort under one or more of the following tariff headings,
namely, 22.04, 22.05 or 22.06, all of which pertain to fermented beverages
and consequently attract lower excise duties. Distell‟s primary contention was
that the products in question fell to be classified under tariff heading 22.04 in
that they were „wine of fresh grapes, including fortified wines‟. Alternatively, it
contended that the products in issue are wine of fresh grapes (fortified wine),
flavoured with plant and aromatic substances and accordingly, fell under tariff
heading 22.05. It contended, in the further alternative, that the products are
mixtures of fermented beverages and non-alcoholic beverages, as
contemplated in tariff heading 22.06, which covers all fermented beverages
other than those in tariff headings 22.03 to 22.05. Distell challenged the
Commissioner‟s determination that tariff heading 22.08 applies, as this
heading does not, so it was contended, include aperitives „with a basis of wine
of fresh grapes‟.

[6] Subsequent to the Commissioner‟s determination, set out in paragraph
3 above, Distell lodged an appeal in terms of section 47(9)(e) of the Act to the
North Gauteng High Court3 on the basis set out in the preceding paragraph.
That court (Pretorius J) found the products to be spirituous beverages and
held that they thus fell under tariff heading 22.08. The present appeal is
before us with the leave of the court below. We shall hereafter use „TH‟ as an
abbreviation for tariff heading.

____________________
3 Section 47(9)(e) provides that an appeal against any such determination shall lie to the
division of the High Court of South Africa having jurisdiction to hear appeals in the area
wherein the determination was made, or the goods in question were entered for home
consumption.

[7] The Republic of South Africa is a party to the General Agreement on
Tariffs and Trade and is a member of the World Customs Organisation, which
employs an internationally Harmonised System, referred to in the Act. Part 1
of Schedule 1 to the Act comprising the Section and Chapter Notes, the
General Rules for the Interpretation of the Harmonised System and the tariff
headings, is a direct transposition of the nomenclature of the Harmonised
System.

[8] Section 47(8)(a) provides that:
„The interpretation of–
(i)
any tariff heading or tariff subheading in Part 1 of Schedule 1;
(ii)
(aa) any tariff item or fuel levy item or item specified in Part 2, 5 or 6 of the
said Schedule, and
(bb) any item specified in Schedule 2, 3, 4, 5 or 6;
(iii)
the general rules for the interpretation of Schedule 1;  and
(iv)
every section note and chapter note in Part 1 of Schedule 1,
shall be subject to the International Convention on the Harmonized Commodity
Description and Coding System done in Brussels on 14 June 1983 and to the
Explanatory Notes4 to the Harmonised System issued by the Customs Co-
operation Council, Brussels (now known as the World Customs Organisation)
from time to time: Provided that where the application of any part of such Notes
or any addendum thereto or any explanation thereof is optional the application of
such part, addendum or explanation shall be in the discretion of the
Commissioner.‟

[9] In the court below, Pretorius J started her reasoning leading to the
conclusion referred to above by referring to the purpose of the correct tariff
headings, namely, to determine the excise duty payable in terms of the Act.
She considered TH 22.04, the relevant parts of which, together with their
Explanatory Notes, read as follows:

_____________________
4 Also referred to as the Brussels Notes.

‘Wine of fresh grapes, including fortified wines; grape must other than that of
heading 20.09.
. . .
(I)
Wine of fresh grapes

The wine classified in this heading is the final product of the alcoholic fermentation of
the must of fresh grapes.
The heading includes:

(1) Ordinary wines (red, white or rosé).
(2) Wines fortified with alcohol.
(3) Sparkling wines. These wines are charged with carbon dioxide, either by
conducting the final fermentation in a closed vessel (sparkling wines proper),
or by adding the gas artificially after bottling (aerated wines).
(4) Dessert wines (sometimes called liqueur wines). These are rich in alcohol
and are generally obtained from must with a high sugar content, only part of
which is converted to alcohol by fermentation. In some cases they are
fortified by the addition of alcohol, or of concentrated must with added
alcohol. Dessert (or liqueur) wines include, inter alia, Canary, Cyprus,
Lacryma Christi, Madeira, Malaga, Malmsey, Marsala, Port, Samos and
Sherry.‟

[10] In regard to this TH, Distell contended that, since it included wines
fortified with alcohol, the beverages in question should continue to be
regarded as fermented beverages, rightly resorting under this classification.

[11] As indicated, Distell relied in the alternative on TH 22.05, the relevant
part of which, accompanied by the Explanatory Notes, reads as follows:

‘Vermouth and other wine of fresh grapes flavoured with plants or aromatic
substances . . . This heading includes a variety of beverages (generally used as
aperitives or tonics) made with wine of fresh grapes of heading 22.04, and flavoured
with infusions of plant substances (leaves, roots, fruits, etc.) or aromatic substances.‟

[12] The third alternative TH relied on by Distell was TH 22.06, the salient

provisions and Explanatory Notes of which, are:
„Other fermented beverages (for example, cider, perry, mead); mixtures of
fermented beverages and mixtures of fermented beverages and non-alcoholic
beverages, not elsewhere specified or included.
This heading covers all fermented beverages other than those in headings 22.03 to
22.05.‟

[13] In contradistinction, the court below referred to the TH regarded by the
Commissioner to be the appropriate one, namely 22.08, the applicable parts
and Explanatory Notes of which, provide:
‘22.08 – Undenatured ethyl alcohol of an alcoholic strength by volume of less
than 80 % vol; spirits, liqueurs and other spirituous beverages.

2208.20 – Spirits obtained by distilling grape wine or grape marc

2208.30 – Whiskies

2208.40 – Rum and other spirits obtained by distilling fermented sugar-cane products

2208.50 – Gin and Geneva

2208.60 – Vodka

2208.70 – Liqueurs and cordials

2208.90 – Other

The heading covers, whatever their alcoholic strength:

(A) Spirits produced by distilling wine, cider or other fermented beverages or
fermented grain or other vegetable products, without adding flavouring;  they
retain, wholly or partly, the secondary constituents (esters, aldehydes, acids,
higher alcohols, etc.) which give the spirits their peculiar individual flavours and
aromas.

(B) Liqueurs and cordials, being spirituous beverages to which sugar, honey or

other natural sweeteners and extracts or essences have been added (e.g.,
spirituous beverages produced by distilling, or by mixing, ethyl alcohol or distilled
spirits, with one or more of the following : fruits, flowers or other parts of plants,
extracts, essences, essential oils or juices, whether or not concentrated). These
products also include liqueurs and cordials containing sugar crystals, fruit juice
liqueurs, egg liqueurs, herb liqueurs, berry liqueurs, spice liqueurs, tea liqueurs,
chocolate liqueurs, milk liqueurs and honey liqueurs.

(C) All other spirituous beverages not falling in any preceding heading of this
Chapter . . .  .„

[14] The court below rightly held that it had to decide the meaning of the
words in the various tariff headings, determine the nature and characteristics
of the products in question, and thereafter select the most appropriate TH. In
this regard Pretorius J referred to the following dictum in International
Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise
1985 (4) SA 852 (A) at 863G-H:
„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, the selection of the heading which is most appropriate to such goods.‟

[15] At this stage it is necessary to record, as did the court below, the
proper approach to the consideration of tariff headings, Section Notes,
Chapter Notes and Explanatory Notes. In Secretary for Customs and Excise v
Thomas Barlow and Sons Limited 1970 (2) SA 660 (A) at 675D–676D, the
following appears:
„„The duty which is payable is set out in Schedule 1 to the Act.  This Schedule is a
massive part of the statute in which all goods generally handled in international trade
are systematically grouped in sections, chapters, and sub-chapters, which are given
titles indicating as concisely as possible the broad class of goods each covers. Within
each chapter and sub-chapter the specific type of goods within the particular class is

__________________
5 In terms of s 47(9)(e) an appeal against a determination by the Commissioner of a tariff

heading is heard as a de novo application.
itemised by a description of the goods printed in bold type. That description is defined
in the Schedule as a “heading”. Under the heading appear sub-headings of the
species of the goods in respect of which the duty payable is expressed. The
Schedule itself and each section and chapter are headed by “notes”, that is, rules for
interpreting their provisions.

„It is clear that the above grouping and even the wording of the notes and the
headings in Schedule 1 are very largely taken from the Nomenclature compiled and
issued by the Customs Co-operation Council of Brussels.  That is why the Legislature
in sec. 47(8)(a) has given statutory recognition to the Council‟s Explanatory Notes to
that Nomenclature. These Notes are issued from time to time by the Council
obviously, as their name indicates, to explain the meaning and effect of the wording
of the Nomenclature. By virtue of sec. 47(8)(a) they can be used for the same
purpose in respect of the wording in Schedule 1. It is of importance, however, to
determine at the outset the correct approach to adopt in interpreting the provisions of
the Schedule and in applying the explanations in the Brussels Notes.

„Note VIII to Schedule 1 sets out the “Rules for the Interpretation of this Schedule”.
Para. 1 says:
“The titles of sections, chapters and sub-chapters are provided for ease of reference
only; for legal purposes, classification (as between headings) shall be determined
according to the terms of the headings and any relative section or chapter notes and,
provided such headings or notes do not otherwise indicate, according to paras. (2) to
(5) below.”

That, I think, renders the relevant headings and section and chapter notes not only
the first but the paramount consideration in determining which classification, as
between headings, should apply in any particular case. Indeed, right at the beginning
of the Brussels Notes, with reference to a similarly worded paragraph in the
Nomenclature, that is made abundantly clear. It is there said:
“In the second provision, the expression „provided such headings or Notes do not
otherwise require‟ (that is the corresponding wording of the Nomenclature) is
necessary to make it quite clear that the terms of the headings and any relative
section or chapter notes are paramount, i.e., they are the first consideration in
determining classification.”
It can be gathered from all the aforegoing that the primary task in classifying

particular goods is to ascertain the meaning of the relevant headings and section and
chapter notes, but, in performing that task, one should also use the Brussels Notes
for guidance especially in difficult and doubtful cases. But in using them one must
bear in mind that they are merely intended to explain or perhaps supplement those
headings and notes and not to override or contradict them. They are manifestly not
designed for the latter purpose, for they are not worded with the linguistic precision
usually characteristic of statutory precepts; on the contrary they consist mainly of
discursive comment and illustrations. And, in any event, it is hardly likely that the
Brussels Council intended that its Explanatory Notes should override or contradict its
own Nomenclature. Consequently, I think that in using the Brussels Notes one must
construe them so as to conform with and not to override or contradict the plain
meaning of the headings and notes.‟

[16] The court below went on to have regard to Rule 1 of the General Rules
for the Interpretation of the Harmonised System, which states:
‘The titles of Sections, Chapters and sub-Chapters are provided for ease of
reference only; for legal purposes, classification shall be determined according
to the terms of the headings and relative Section or Chapter Notes . . .  .’

[17] Pretorius J considered the Explanatory Notes to the Chapter Notes in
relation to Chapter 22, under which the tariff headings in question reside.
Those Explanatory Notes divide the products in Chapter 22 into four main
groups, the relevant two of which are:
„(B) Fermented alcoholic beverages (beer, wine, cider, etc.).
(C) Distilled alcoholic liquids and beverages (liqueurs, spirits, etc.) and
ethyl alcohol.‟
It will be recalled that Distell contended that the products in question fall under
category B, whereas the Commissioner determined that they fell under
category C.

[18] The court below dealt with Distell‟s contention that the products should
be classified under TH 22.04, set out in paragraph 9 above, which refers to
wine of fresh grapes, including fortified wines. Distell‟s reliance on this TH was
driven, inter alia, by the increased alcohol content of the products in question
about which more will be said later. It will be recalled that the Explanatory

Note to TH 22.04 states that the heading includes „wines fortified with alcohol‟
and „dessert wines‟.

[19] In this regard, the learned judge had regard to additional note 2 to
Chapter 22:
„The expressions “unfortified wines” . . . shall be taken to mean wine . . . with an
alcoholic strength not exceeding 16 per cent of alcohol by volume and the
expressions “fortified wine” . . .  shall be taken to mean wine . . . with an alcoholic
strength exceeding 16 per cent of alcohol by volume‟,
He also referred to Explanatory Note (I)(4) to TH 22.04, the full wording of
which is set out in paragraph 9 above. According to that note dessert wines
are rich in alcohol and in some cases are fortified by the addition of alcohol.

[20] In deciding whether the contentions by Distell were justified, Pretorius J
took into account the expert evidence of Dr Loubser (Loubser), a chemist and
the Director: Quality Management and Research of Distell. In relation to
dessert wines, Loubser testified to the effect that such wines are fermented
and only alcohol or concentrated must, with additional alcohol are introduced
to increase the overall alcohol content. Using the example of Madeira, which
is a dessert wine, Loubser pointed out that no colourants, flavourants or
sweeteners are added to create dessert wines.

[21] The court below considered the Commissioner‟s submission that the
products could no longer be classified as wine or fortified wine due to the fact
that the wine had been stripped of the taste and flavour of wine and fortified
by the addition of cane spirits to increase the alcohol content. The colourants,
flavourants and sweeteners are then added and can thus be distinguished
from dessert wines to which, as indicated above, no colourants, flavourants
and sweeteners are added. Pretorius J sought assistance from a dictionary
definition of wine which essentially describes a wine as an alcoholic liquor
product from fermented grape juice. „Vinous‟ is defined as being of the nature
of/or resembling wine; made of or prepared with wine‟.6
_______________________
6 Taken from the New Shorter Oxford English Dictionary 6 ed (2007)

[22] Pretorius J then went on to cite a decision of the European Court of
Justice, namely Siebrand BV v Staatssecretaris van Financiën [2009] EUECJ
C-150/08. The court there was considering a case concerning a fermented
alcohol-based beverage corresponding originally to TH 22.06, to which a
certain proportion of distilled alcohol, water, sugar syrup, aromas, colouring
and, in some cases, a cream base had been added, resulting in the loss of
the taste, smell and/or appearance of a beverage produced from a particular
fruit or natural product. The court held that this beverage did not fall under
heading 22.06, but rather 22.08, as contended for in this case by the
Commissioner. Although referring to the Siebrand case, Pretorius J
considered this decision not to be binding on South Africa. For that, she relied
on the decision of this court in the International Business Machines case,
where the following appears (873J–874B):
„Whatever may be the status of such a decision so far as customs administration and
international organisations are concerned, it is not, until it is reflected in an
Explanatory Note, authoritative in a South African Court. Before that, it is no more
than an expression of opinion which involves the interpretation of the relative tariff
headings and the Notes relating thereto.
Under our system, question of interpretation of the documents are matter of law, and
belong exclusively to the Court.‟

[23] Distell had submitted before the court below that the Explanatory Notes
to 22.07, although not directly applicable, provided guidance in reaching a
conclusion on the dispute in issue. The Explanatory Notes to 22.07 provides:
„Ethyl alcohol is the alcohol which occurs in beer, wine, cider and other alcoholic
beverages. It is obtained either by fermentation of certain kinds of sugar by means of
yeast or other ferments and subsequent distillation, or synthetically.‟
In juxtaposition are Explanatory Notes (A) and (B) to TH 22.08, which appear
in paragraph 13 above. That deals with spirits produced by distillation and
includes liqueurs and cordials.

[24] The court below had regard to a dictionary definition of „spirituous‟,
being „of or pertaining to spirit or alcohol; containing (much) spirit or alcohol‟.7
Pretorius J went on to consider Distell‟s submission that TH 22.08 only has

application to spirits produced by distillation and not by fermentation.
According to Distell, the products in question are not liqueurs or cordials as
set out in Explanatory Note (B) of TH 22.08, as they are not spirituous
beverages. It is further provided that TH 22.08 does not include „(a)
Vermouths, and other aperitives with a basis of wine of fresh grapes (heading
22.05)‟. Thus, Distell contended TH 22.08 only applies to spirituous
beverages and that, should the court find the products in question to be
fermented beverages (as is their submission), TH 22.08 will not be applicable.

[25] Returning to the evidence by Loubser, Pretorius J considered his
explanation that fermentation and distillation were two distinct processes and
that distillation could lead to an alcohol content of 96 per cent per volume,
while fermentation cannot be utilised to attain an alcohol content of more than
16 per cent. In both instances the alcohol contained in the products is ethyl
alcohol. Furthermore, Loubser testified that a cane spirit is only added to the
products in question to increase the alcohol content and the addition thereof
does not deprive the wine of its character. Even when wine is fortified with
spirits, the essential base character remains wine. Furthermore, by volume all
the products in issue contain more wine than spirits and the wine component
exceeds the spirit component (excepting Zorba). The absolute alcohol content
of spirits in the products, excepting Brandy Ale, is higher than that of wine.
Loubser, however, admitted that the wine is stripped of its taste and flavour,
but did not explain the reason for so doing.

[26] The court below also took into account evidence on behalf of the
Commissioner by Mr Michael Fridjhon (Fridjhon), an internationally
recognised wine authority and wine judge and one of the country‟s most
respected wine tasters and widely published wine writers. Fridjhon testified
about the organoleptic8 characteristic of the stripped wine. Fridjhon‟s
___________________
7 Taken from the New Shorter English Oxford Dictionary 6 ed (2007).
8 Defined in the Concise Oxford English Dictionary 12 ed (2011) as „involving the use of, the
sense organs‟.

conclusions were:
‟19.8.1 the residual aromas and tastes left in the wine after subjecting it to the
stripping process are insignificant and would definitely not be discernible in the final
product;
19.8.2 the perceptible difference between the stripped fortified wine and cane spirit
diluted with water to approximately the same alcoholic strength is minimal . . . ‟

[27] The court noted, on the basis of the evidence of Mr van Niekerk, the
General Manager of Distell, that the wines used in the production of the
products in question, were selected because they were low in flavour
intensity, colour intensity, acid, phenolics and sulphur dioxide, and high in
alcohol.

[28] The court below considered the Commissioner‟s contention that the
products in question should be classified under TH 22.08, the particulars of
which appear in paragraph 13 above and more specifically that they resorted
under subheading 2208.90, namely „other‟. In this regard the court below had
regard to the evidence on behalf of the Commissioner by Mr G Taylor
(Taylor), who is a biochemist from the United Kingdom. According to him, the
presence of spirits in the products in question was essential to obtain the
required alcohol level and preserve it, as well as to add to the stability of
added flavourants. Taylor, with reference to the evidence of Fridjhon, was of
the view that it was not necessary to use the stripped wine as the same
products could be produced by using neutral spirits as the alcohol base. The
opposite was not true as the required alcohol strength could thus not be
obtained. The unique characteristics of wine were not required in the end
product.

[29] Pretorius J stated that it was clear from the processes employed by
Distell, which were demonstrated to and observed by Fridjhon, that the
beverages in question were not only a mixture of a fermented beverage and
cane spirits, but that they were individually designed, each with a unique taste
and characteristic. She held that the beverages in question consisted of
several components, but that in each instance it was spirits that gave these

products their essential character.

[30] The court below found that the Commissioner‟s argument, that the
alcohol component that gave the products in question their essential character
was the spirits and not the wine, was well founded. Whilst concluding that all
the products in issue were fermented alcohol-based beverages, Pretorius J
nevertheless held that they can „by no stretch of the imagination‟ be wines.
The following appears in the judgement:
“The addition of cane spirit, water, sweeteners, flavourants, colourants and cream in
some instances, have caused new products to be created, which have lost all the
aroma and taste of wine. Tariff Heading 22.04 can thus not be applicable.‟

[31] Turning to the alternative classification, namely TH 22.05, the court
below could not agree that it was an appropriate TH for the beverages in
question. This conclusion was based on what she regarded as being common
cause, namely that the products were not ‘Vermouth and other wine of
fresh grapes flavoured with plants or aromatic substances’. In this regard
the court had regard to the Explanatory Note under this TH, which made it
quite clear that the heading dealt with „a variety of beverages (generally used
as aperitives or tonics) made with wine of fresh grapes of heading 22.04 and
flavoured with infusions of plant substances (leaves, roots, fruits, etc.) or
aromatic substances‟. The addition of spirits, colourants, flavourants,
sweetener and cream is not mentioned and thus, according to Pretorius J, this
TH could never be the appropriate one.

[32] Referring to Distell Ltd v The Commissioner, SARS [2011] 1 All SA 225
(SCA), Pretorius J held that the beverages are produced in a multiple stage
process – two beverages are not mixed to get the relevant product. The
colourant, flavourant and sweetener mixture cannot be described as
„lemonade like‟ or „cooldrink like‟ (as Distell contended), does not constitute a
non-alcoholic beverage and thus could not fall under one of the „mixtures‟
referred to in TH 22.06 which is set out in paragraph 12 above.

[33] Finally, the learned judge concluded that the wine in the products in

issue does not contribute to the organoleptic characteristics of the final
products as it is neutral and cannot give it its essential character. Accordingly,
the court found that all of the products in issue are spirituous and resort under
TH 22.08 and, more particularly, under TH 2208.90.20.

[34] Thus it is the correctness of the reasoning and the conclusions set out
above that are at issue in this appeal.

[35] Before us, reliance on TH 22.04 was abandoned by Distell. Its case in
the present appeal is that two of the beverages in question, namely Zorba and
Brandyale, fell under TH 22.05 and the remaining 13 under TH 22.06. The
reason for this distinction, so they contended, was because, in the case of the
former two products, water was not added, and they could thus not be
considered to be mixtures as contemplated in TH 22.06.

[36] It is now necessary to follow the approach set out in the International
Business Machines case, described in paragraph 14 above. First, we have to
interpret the tariff headings concerned. Starting with TH 22.05, it is clear that
this TH refers to wine which is the fermented product derived from fresh
grapes. The Explanatory Note states that the beverages under this heading
include a wide variety of beverages (generally used as aperitives or tonics)
made with wine of fresh grapes of TH 22.04 and flavoured with infusions of
plant substances or other aromatic substances. It is clear that what is dealt
with in this paragraph is a product derived through the fermentation process to
which fresh grapes are subjected, with plants or aromatic substances being
added to the fermented liquid.

[37] It was Distell‟s case that the addition of spirits does no more than
„fortify‟ the stripped wine used in the making of the beverages. TH 22.04, so it
was contended, provides for the fortification of wines of fresh grapes by way
of the addition of alcohol in whatever form. According to Distell this fortification
process does not in any way change the essential vinous character of the
base of stripped wine. Following that logic, Distell submitted that the two
products in question, therefore, resided more logically and appropriately under

TH 22.05.

[38] On behalf of the Commissioner it was contended that the base of
stripped wine was no longer wine and that this liquid could, even if alcohol be
added to it, not qualify as fortified „wine‟, as none of the base liquid‟s essential
vinous qualities were retained. Moreover, they submitted that the ingredients
added at the end of the process can hardly be described as being „flavoured
with aromatic substances‟.

[39] We now turn to consider TH 22.06. This TH covers all fermented
beverages other than those provided for in TH 22.03, TH 22.04 and TH 22.05.
TH 22.06 refers to ‘[o]ther fermented beverages (for example, cider,
perry, mead); mixtures of fermented beverages and mixtures of
fermented beverages and non-alcoholic beverages, not elsewhere
specified or excluded’.
It was common cause that the beverages in question do not fall within the
genus under which cider, perry and mead reside. We were required to
consider whether the beverages were mixtures of the kind contemplated in
this TH. The mixtures that are contemplated are clearly of a combination of
fermented beverages or of fermented beverages with non-alcoholic
beverages added, which do not properly reside under any other TH.

[40] In respect of the remaining 13 products, Distell contended in relation to
TH 22.06 that these products were mixtures of fermented beverages and non-
alcoholic beverages. The non-alcoholic beverage on which Distell relied, is
the mixture of water and flavourants, sweeteners and colourants. Distell
argued that TH 22.06 does not require that a mixture of a fermented beverage
(eg fortified wine) and a non-alcoholic beverage should retain the character of
a particular type of fermented beverage, for instance wine. Furthermore, they
argued, that whatever the processes the wine was subjected to, in order to
reduce it to an almost wholly neutral alcoholic liquid, it still retains its essential
character, namely, of wine. Lastly, Distell contended that, in any event, the
mixture resulting in the products is not spirituous in character, in that the
volume of the stripped wine is greater than that of the cane spirits, except for

one of the products, and they submitted that the mixture in itself does not
have the essential characteristics of spirits.

[41] In making the argument referred to in the preceding paragraph, Distell
submitted that one could not argue, as the Commissioner does, that what we
were dealing with in relation to the products in question was a mixture or
combination of a once fermented beverage with a distilled beverage. In order
to counteract the Commissioner‟s contention in this regard, Distell was driven
to submitting that the addition of the cane spirits was merely a fortification of
the existing stripped wine. In this sense, so it was submitted, one was dealing
with a fortified wine which on its own was undoubtedly a fermented beverage
to which the non-alcoholic components, which flavoured, coloured and
sweetened the beverage, together with the water were added.

[42] It is now necessary to have regard to the evidence about the nature of
the beverages in question. The parts of Fridjhon‟s evidence, referred to in
paragraph 26 above, were dealt with by Loubser, as stated hereafter.
Loubser‟s response was not to contest that the flavour and aroma of the
stripped wine is negligible. Loubser adopted the position that a fermented
product such as wine can only change its „essential character‟ when distilled
and not when subjected to the processes in question. However, in Loubser‟s
founding affidavit the following is stated:
„Wine is selected for its sensory and analytical characteristics.‟
This is in line with Fridjhon‟s primary assertions. In Fridjhon‟s answering
affidavit he refers to the Oxford Companion of Wine, in which flavour is said to
be „arguably a wine‟s most important distinguishing mark‟. Fridjhon went on to
state that vinosity is the defining element of wine.

[43] The evidence of Taylor, referred to in paragraph 28 above, is
important. Loubser‟s evidence concerning a fortified wine such as Madeira, in
support of Distell‟s case, is unhelpful. It is true that Madeira, a fermented
product, has brandy, which is a distilled product, added to it to increase its
alcohol content. Fridjhon‟s responding affidavit makes it clear that like all
recognised fortified wines, the addition of spirits does not cause Madeira to

lose its essential vinosity. On the contrary, its vinosity is bolstered by the
addition of spirits.

[44] It was common cause that the stripped wine‟s maximum alcohol
content was between 12.5 per cent and 16 per cent, the latter of which is
recognised as a general maximum for an unfortified wine. The addition of the
cane spirits increased the alcohol content to between 18 per cent and 23 per
cent.

[45] Another important part of the evidence on behalf of Distell is that the
production sequence in relation to the beverages ultimately produced was
unimportant. More particularly the stripped wine could have been added at the
end of the production process.

[46] It is clear from the evidence that the wine was subjected to the
stripping process to neutralise its taste and aroma. Final fermented products,
even in the case of fortified wines, do not lose their essential vinous
characteristics. Much as distillation changes the essential characteristic of a
fermented product, so too do the processes which result in the stripped wine.
The following question posed by Taylor illustrates the point:
„If, as is argued, these are wine based products and the wine is an integral
component, why then is the base wine neutralised? If the wine character is that
important, then surely it should be retained and the fortification be utilised to enhance
that character and help carry it into the final product? The fact that the wine character
is removed prior to fortification strongly suggests not only that the wine character is
not required, but that it is actually undesirable.‟

[47] In our view, Distell‟s reliance on the overall volume of the stripped wine
in relation to the cane spirits is misplaced. Clearly, one could have a greater
volume of water overwhelmed by a lesser volume of an intense different
liquid. It is a question of which essential ingredient is dominant. In this regard
General Rules of Interpretation 3(b) provides that in the case of mixtures, the
goods are to be classified as if they consisted of the material or component
which gives them their essential character, in so far as this criterion is

applicable.

[48] It is now necessary to revisit TH 22.05, set out in paragraph 11 above.
As stated earlier, the essential characteristic of a beverage resorting under
this TH is that of a „wine of fresh grapes‟. For the reasons set out in the
preceding paragraph it cannot be, in our view, said that the stripped wine
forming the basis of the two beverages in question qualifies as wine under this
TH, for the reasons provided by Fridjhon and Taylor and due to the common
cause facts mentioned above. As Fridjhon, supported by Taylor and Dr
Croser, the wine maker who also testified on behalf of the Commissioner,
pointed out:
„What such processes would have removed would have been precisely what
fermentation contributed in the first place: the essential vinosity of the product. The
restoration of the alcohol to the fluid left after the flavour and alcohol had been
removed would not thereby produce wine . . . ‟

[49] Distell‟s contention that, even though the stripped wine has lost much
of its flavour and aroma, it is nevertheless a fermented product and a wine is,
in our view, for the reasons stated above, fallacious. Consequently, the two
products in question do not fit under TH 22.05.

[50] Turning to the remaining 13 beverages, we now reconsider TH 22.06.
In our view, Distell‟s reliance on this TH is also unjustified. An essential
requirement of this TH, for the purposes of Distell‟s argument, was that the
fermented beverage used in the production of the products was fortified wine
(„wine‟ in the sense of TH 22.04). As we have already demonstrated, the
„stripped wine‟ cannot be regarded as wine for the purposes of TH 22.04, and
therefore cannot be made „fortified wine‟ in the sense used in TH 22.06.
Furthermore, a fortified wine does not itself lose any of its vinous qualities and
it appears that, if anything, the vinosity is thereby enhanced. That is not the
case with the beverages in question. The fact that the sequence of production
is irrelevant demonstrates further that the submission by Distell is
unsustainable.

[51] Following on the conclusions reached in the preceding paragraphs it
follows that the next enquiry is whether the beverages in question rightly
resort under TH 22.08, which is set out on paragraph 13 above. It is clear,
when one has regard to the TH, that the beverages do not resort under tariff
sub-heading 2208.20, in that they are not spirits obtained from distilling grape
wine or grape marc. It is common cause that they do not fall under any of the
other tariff sub-headings between 2208.30 and 2208.70. It is equally clear that
they cannot be classified under tariff notes (A) or (B). As set out above, the
cane spirits was added to the stripped wine to boost alcohol content
significantly. According to Taylor, he had tested all 15 beverages
organoleptically and concluded that they all have a distinct spirituous
character. Considering our line of reasoning set out above, in relation to the
beverages in question, and in particular paragraph 47, the compelling
conclusion is that the ultimate distinctive nature of the beverages is spirituous,
that they rightly resort under TH 22.08, and are covered by tariff note (C).

[52] Distell‟s reliance on the decision of this court in Distell Ltd and Another
v Commissioner for SARS [2011] All SA 225 (SCA) is misplaced. In that case
it was common cause that TH 22.06 applied. The dispute was whether the
beverages fell under the first or second part of the item. It was submitted on
behalf of Distell that there was no difference to the facts of this case in that
the „wine coolers‟ in issue in that case constituted wine, to which flavourants
and water had been added. It was submitted that the vinous nature of the
„wine coolers‟ were not challenged in that case and that in the present case,
neither should the vinous character of the beverages in question. It was
submitted on behalf of the Commissioner that, contrary to this case, there had
been no attempt in the first Distell case to mask the flavour of the wine by a
stripping process. We agree that the facts of that case are poles apart from
those in the present appeal.

[53] We were referred by the Commissioner to another decision by the
European Court of Justice (ECJ), namely Paderborner Brauerei Haus Cramer
KG v Hauptzollamt Bielefeld [2011] EUECJ C-196/10. In that case, the ECJ
was called upon by the Finanzgericht Düsseldorf to make a preliminary ruling

on whether „a liquid described as a “malt beer base”, such as that in issue in
the main proceedings, with an alcoholic strength by volume of 14% and
obtained from brewed beer which has been clarified and then subjected to
ultra-filtration, by which the concentration of ingredients such as bitter
substances and proteins has been reduced, must be classified under tariff
heading 2208 of the CN‟.

[54] The ECJ found that the „malt beer base‟ was not a beverage for the
following reasons. Although suitable for human consumption in the sense that
it was drinkable, it was not an end product primarily intended for consumption,
but rather an intermediate product for use in the production of another
product; the malt beer base was not sold to consumers as an end product; it
was not obtained purely and simply by fermentation, but was after
fermentation subjected to ultra-filtration which caused it to lose its „objective
properties and characteristics particular to beer‟. The Explanatory Note to TH
22.08 expressly states that the heading also covers ethyl alcohol, whether
intended for human consumption or for industrial purposes and, although this
Explanatory Note excludes from that heading alcoholic beverages obtained
from fermentation, the malt beer base, not being a beverage, was not affected
by the exclusion. Finally, the fact that the malt beer base was not completely
devoid of any aroma did not exclude it from being classified under TH 22.08.
The malt beer base, after being treated, was ethyl alcohol and as a
consequence must be classified under TH 22.08.

[55] Counsel for the Commissioner submitted that, like the malt beer base,
the stripped wine is not produced purely and simply by fermentation; is devoid
of the vinous character of wine of fresh grapes; is not sold to customers as an
end product; is an „intermediate product‟ specifically „prepared‟ to be used,
and used, in the production of the products in issue, and that it satisfies the
requirements of the Explanatory Note proviso to TH 22.08. Thus, following the
analysis and interpretation of the ECJ in this case, the stripped wine is not
„wine‟ as contemplated by TH 22.04 and would be classifiable under TH
22.08.

[56] We were warned on behalf of Distell to be cautious about the dangers
of relying on decisions by the ECJ. According to counsel, the ECJ had simply
made a „preliminary ruling‟ concerning the interpretation of the combined
nomenclature of the common customs tariff. The main proceedings were
before the Düsseldorff Court. This „preliminary opinion‟ is a non-binding
opinion, the admissibility and status of which should not be over-emphasised.
Moreover, counsel contended the Parderborner case does not support the
Commissioner‟s contentions. The treatment of wine does not change the
essential character of wine, and the Commissioner did not lay any factual
foundation why the process used in the Parderborner case (ie to treat the malt
beer base by ultra-filtration) is comparable to the processes used by Distell in
respect of the wine it used in the manufacturing of the beverages in issue.

[57] None of these submissions is convincing. Clearly the decisions of the
ECJ are not binding on South African courts. They may have persuasive
force, but it is up to the South African court to decide the relevance of the
foreign decision in question. It was also not necessary for the Commissioner
to demonstrate that the processes followed in the Parderborner case were
identical to those followed by Distell in relation to the beverages in question.

[58] Whilst the conclusions in Parderborner and Siebrand accord with our
own, we have arrived at our decision by applying the Harmonised System as
catered for by the Act and following the line of logic and reasoning set out in
the preceding paragraphs.

[59] In the result, the appeal is dismissed with costs, including the costs of
two counsel.
_______________________
MS NAVSA
JUDGE OF APPEAL

_______________________
BJ VAN HEERDEN
JUDGE OF APPEAL

APPEARANCES:

FOR APPELLANT:

A.P. Joubert SC (with him C Louw)

Instructed by

Shepstone & Wylie Attorneys

Pretoria

Webbers Attorneys

Bloemfontein

FOR RESPONDENT:
C.E. Puckrin SC (with him J.A. Meyer SC
and I A Enslin)

Instructed by

The State Attorney

Pretoria

The State Attorney

Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

31 May 2012

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment.

Distell Limited v The Commissioner for the South African Revenue
Service  (526/2011) [2012] ZASCA 88 ( 31 May 2012)

The Supreme Court of Appeal (SCA) today dismissed an appeal against an
order of the North Gauteng High Court, Pretoria involving a dispute regarding
a tariff classification in relation to excisable goods under the Customs and
Excise Act 91 of 1964. The appeal turns on whether the 15 beverages in
question1 are fermented or distilled (spirituous) beverages. The appellants
contended that they are fermented and therefore classified under tariff
heading (TH)  22.05, alternatively 22.06. The respondent contended that they
are spirituous, and therefore classifiable under TH 22.08.
The products in question consist of base wines which are stripped of flavour
and colour and have cane spirits added to them in order to bolster the alcohol
content significantly. Sweeteners, flavourants, colourants and water are also
added.
The SCA held that the stripped wine, forming the basis of the beverages in
question, does not qualify as ‘wine of fresh grapes’ under TH 22.05. This
could thus not be the applicable TH as the essential characteristic of a
beverage resorting under this TH is that of a ‘wine of fresh grapes of heading
22.04’. The beverages could also not be ‘wines fortified with alcohol’. As the
Court had already found that the stripped wine cannot be regarded as wine for

1 Angels’ Share Cream, Delgado Supremo, GoldCup Creamy Vanilla, Barbosa, GoldCup
Banana Toffee, Zorba, Nachtmusik, Mokador, Alaska Peppermint, Copperbamd, VonCoco,
Clubman Mint Punch, Viking, Castle Brand and Brandyale.

the purposes of TH 22.04, it therefore cannot be made fortified wine in the
sense used in TH 22.05.
As regards TH 22.06, the court held that the beverages could not be regarded
as a mixture of fermented beverages and non-alcoholic beverages as all the
attributes of the fermentation process had been removed from the stripped
wine. They therefore did not resort under TH 22.06.
Thus, the SCA held that these beverages fall under TH 22.08 and more
particularly, ‘[a]ll other spirituous beverages not falling in any preceding
heading of this Chapter’.
As a result the appeal was dismissed with costs, including the costs of two
counsel.