THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case No: 442/2017
In the matter between:

THE COMMISSIONER FOR THE
SOUTH AFRICAN REVENUE SERVICE

APPELLANT
and

THE SOUTH AFRICAN BREWERIES (PTY) LTD

RESPONDENT

Neutral citation:
The Commissioner for the South African Revenue Service v The
South African Breweries (Pty) Ltd (442/2017) [2018] ZASCA 101
(27 June 2018)
Coram:

Ponnan, Wallis and Dambuza JJA and Davis and Rogers AJJA

Heard:

7 May 2018

Delivered:
27 June 2018

Summary:
Revenue – Section 47 of the Customs and Excise Act 91 of 1964 –
Classification of products for determination of excise duty rate – General Rules of
Interpretation restated – classification of goods primarily on explanatory notes
incorrect – appeal dismissed.

___________________________________________________________________

ORDER
___________________________________________________________________

On appeal from: Gauteng Division, Pretoria (Hughes J).
Save as set out in para 2, the appeal is dismissed with costs such costs to
include the costs of two counsel.
Paragraph 3 of the order of the high court is set aside and substituted by the
following:
‘The said tariff determinations are replaced with tariff determinations in terms of Tariff
Heading 2206.00.90 in Part 1 Schedule 1 to the Act and the Tariff Item 104.17.90 in
Part 2A of Schedule 1 to the Act, from the date of the respondent’s determination’.
___________________________________________________________________

JUDGMENT
___________________________________________________________________

Dambuza JA (Ponnan and Wallis JJA and Davis and Rogers AJJA concurring)
[1] This appeal concerns the correct classification of certain products for purposes
of excise duty payable under the Customs and Excise Act 91 of 1964 (the Act). The
products, known as ‘flavoured alcoholic beverages or FABs’, are manufactured by
the respondent, the South African Breweries (Pty) Ltd (SAB), a manufacturer and
distributor of alcoholic beverages.

[2] On 30 October 2013 the appellant, the Commissioner for the South African
Revenue Service (the Commissioner), in the course of discharging his duties as the
administrator of the Act, made a written determination in terms of s 47(9)(a)(i)1 of the
Act for purposes of assessment of excise duty payable in respect of the FAB’s. In the
determination, which was effective from 30 October 2011, the FAB’s were classified

1 In terms of s 47(9)(a) the Commissioner may determine in writing the tariff headings, tariff
subheadings or tariff items of any Schedule under which any goods manufactured in the Republic
shall be classified.

under tariff heading TH2208.90.22 and were therefore taxable under tariff item
104.23.26 in Part 2A of Schedule 1 to the Act. An appeal by SAB, in terms of s
47(9)(e) of the Act, against the determination, was upheld by the Gauteng Division of
the High Court, Pretoria (Hughes J) (the high court). In effect the high court found
that, as had been contended by SAB, the FAB’s were classifiable under
TH2206.00.85. That court then issued the following order:
‘1
The appeal is upheld with costs such costs to include the employment of three
counsel, two being senior counsel;
The respondent’s tariff determinations of 30 October 2013, in terms of which the
products referred to hereunder, were determined to fall within Tariff Heading 2208.90.22 in
Part 1 of Schedule 1 to the Customs and Excise Act 91 of 1964 (the Act) and also under
Tariff Item 104.23.26 of Part 2A of Schedule 1 to the Act is set aside:
2.1 Brutal Fruit Mango
2.2 Brutal Fruit Litchi
2.3 Brutal Fruit Strawberry
2.4 Brutal Fruit Peach
2.5 Brutal Fruit Lemon
2.6 Sarita Dry
2.7 Sarita Ruby Dry
2.8 Redds Original
2.9 Redds Dry
2.10 Blake & Doyle Premium and
2.11 Skelter’s Straight
3.
That the said tariff determinations be replaced with tariff determinations in terms of
Tariff Heading 2206.00.85 in Part 1 of Schedule 1 to the Act and the Tariff Item 104.17.22 in
Part 2A of Schedule 1 to the Act, from date of determination until 27 February 2013 and from
there under TH22.06.90.
The products Blake & Doyle Premium and Skelter’s Straight are not subject to the
tariff determination of 30 October 2013
The respondent is ordered to pay the qualifying fees of the expert witnesses William
John Simpson and the costs of Reading Scientific Services Ltd Laboratory, Qualtech (IFBM)
Laboratory, AromaLAB AG Laboratory, Cara Technology Laboratory, Lorraine Geel and
Christina Stephanie Leighton inclusive of expert’s fees of the experts employed by the
applicant locally and abroad.’

[3] The Commissioner appeals against the judgment of the high court, leave
having been granted by that court. Having found that the FABs fell to be classified
under TH2206.00.85 the high court granted leave to the Commissioner to appeal to
this Court because of what it considered to be a conflict between the judgments of
Miller AJA and Trollip JA in Secretary for Customs and Excise v Thomas Barlow and
Sons Ltd.2

[4] From 2001 the FABs had been the subject of various determinations by the
Commissioner. By September 2006 all of them were classified under TH2206.00.90,
tariff item 104.17.22. On 30 October 2013 that classification was revised to
TH2208.90.22 and therefore taxable under TH104.23.26. It is this last determination
that is contested. SAB insists that the FABs should be classified under TH2206.

The legal framework
[5] The applicable legal framework is the following: Section 47(1) of the Act
regulates, amongst other things, the levying of various taxes, including customs and
excise duty, on all imported and excisable goods, in accordance with the provisions
of schedule 1 thereto.3 That schedule is divided into four parts corresponding to the
four categories of goods mentioned in the charging provision. Part 1 imposes
customs duty. Part 2 imposes, amongst others, specific and ad valorem excise
duties. The FABs under consideration in this appeal are not imported and therefore
do not attract customs duty. However, under s 37(1) of the Act excise duty is payable
in respect thereof. Their classification in Part 1 of Schedule 1 is relevant, as the tariff
items appearing in Part 2A of that Schedule (which stipulates excise payment rates
for goods manufactured locally) refer back to the tariff headings and classification in
Part 1.4

[6] Part 1 of Schedule 1 is divided into 21 sections and 97 chapters. This is
intended to provide a comprehensive system of classification for all possible
categories of goods and goods within each category. Classification of goods within

2 Secretary for Customs and Excise v Thomas Barlow and Sons Ltd 1970 (2) SA 660 (SCA).
3 See the preamble to the Act.
4 In terms of s 37(1) of the Act excise duty is payable in respect of goods manufactured in a customs
and excise warehouse. It is not in dispute that the FABs in question are such goods.

the chapters is determined by ‘the objective characteristics and properties of the
goods’.5 Within the chapters, classification of goods is further refined according to
specified headings (the Tariff Headings (TH)) and sub-headings. As happened in this
case, at times the Commissioner and taxpayers are not in agreement as to the
applicable tariff heading in respect of specific goods. Section 47(8)(a) regulates the
relevant interpretative regime as follows:
‘47 Payment of duty and rate of duty applicable
(8)(a) 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 No 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 Notes 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.’

[7] Classification of goods between the headings in Part 1 of Schedule 1 is
determined according to the prescripts of the general interpretative rules applicable to
the whole of Part 1. Goods are classified according to the terms of the headings and
the relevant section and chapter notes. The tariff headings within the chapters mirror
the nomenclature of the Harmonized System established by an international
convention to which South Africa is a signatory. The operation of the Harmonized
System falls under the purview of the World Customs Organisation. In that system
each heading is identified by a four digit code, of which the first two represent the
chapter number and the last two the position of the heading in the chapter. The
Harmonized System also prescribes general rules to ensure uniform interpretation.

5 Commissioner, South African revenue Services v Komatsu Southern Africa (Pty) Ltd 2007 (2) SA
157 (SCA) para 8.

These rules establish step by step classification principles and are applied in
hierarchical fashion.

[8] The Harmonized System plays a secondary role in the process of
interpretation. The basic principles of statutory interpretation are to be invoked as a
primary tool for determining the meaning applicable in the identification of taxable
dutiable FABs. The starting point is that the language of the Schedule must be
considered in context and given a sensible meaning.6 The following useful approach
articulated by Trollip JA in Thomas Barlow was affirmed by this court in Distell Ltd
and Another v Commissioner of South African Revenue Service as follows:
‘In Secretary for Customs and Excise v Thomas Barlow and Sons Ltd Trollip JA referred to
Rule 1 of the Inerpretative Rules which states that the titles of sections, chapters and sub-
chapters are provided for ease of reference only and that, for legal purpose, classification as
between headings shall be determined according to the terms of the headings and any
relative section or chapter notes and (unless such headings or notes otherwise indicate)
according to paragraphs 2 to 5 of the Interpretative Rules. He pointed out that this rendered
the relevant headings and section and chapter notes not only the first but also the paramount
consideration in determining which classification should apply in any particular case. The
Explanatory Notes, he said, merely explain or perhaps  supplement the headings and section
and chapter notes and do not override or contradict them’.

[9] In International Business Machines SA (Pty) Ltd v Commissioner for Customs
and Excise7 this Court identified the following three stages in the classification
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’.

[10] It is not in dispute that the FABs in question in this case are classifiable under
Chapter 22 in Part 1 of Schedule 1. That chapter bears the heading ‘Beverages,
spirits and vinegar’. A chapter explanatory note clarifies that the goods in that chapter

6 Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun (Edms) Bpk 2014 (2) SA 494
(SCA) at paras [10] to [12].
7 International Business Machines SA (Pty) Ltd v Commissioner for Customs and Excise
1985 (4) SA 852 (SCA).

fall into four main groups: water and non-alcoholic beverages and tea, fermented
alcoholic beverages (beer, wine, cider, etc); distilled alcoholic liquids and beverages
(liquors, spirits, etc) and ethyl alcohol, and vinegar and substitutes for vinegar.

[11] Within Chapter 22, FABs are classified under tariff headings TH22.03 to
TH22.06 and in TH22.08. Tariff heading TH22.03 bears the heading ‘Beer made from
malt’, TH22.04 relates to ‘wine of fresh grapes, including fortified wines, grape must
other than that of heading TH22.09’, and TH22.05 relates to ‘Vermouth and other
wine of fresh grapes flavoured with plants and aromatic substances’. As already
stated the dispute in this appeal is whether the SAB FABs are classifiable within
TH22.06 or TH22.08.

[12] In relevant part the headings read as follows until 27 February 2013. TH22.06:
‘Other fermented beverages (for example, cider, perry, mead, sake); mixtures of
fermented beverages and mixtures of fermented beverages and non-alcoholic
beverages, not elsewhere specified or included.
2206.00.05 -  Sparkling fruit or mead beverages; mixtures of sparkling fermented beverages
derived from the fermentation of fruit or honey ; mixtures of sparkling
fermented fruit or mead beverages and non-alcoholic beverages
2206.00.15 -   …
2206.00.85 -  Other, mixtures of fermented beverages and mixtures of fermented beverages
and non-alcoholic beverages, unfortified, with an alcoholic strength not exceeding 9 per cent
by volume.
2206.00.90 -   Other’
With effect from 27 February 2013 item 2206.00.85 was amended to read: ‘Other
mixtures of fermented fruit beverages or mead beverages and non-alcoholic
beverages, unfortified, with an alcoholic strength of at least 2,5 per cent by volume
but not exceeding 15 per cent by volume’.

[13] Tariff heading TH22.08 reads:
‘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
obtained by distilling fermented sugar cane products
2208.50 - Gin and Geneva
2208.60 - Vodka
2208.70 - Liqueurs and cordials
2208.90 - Other’.

[14] The definitions of ‘fermentation’ and ‘distillation’ processes as set out in SAB’s
founding affidavit are not in dispute. Therein ‘fermentation’ is described as ‘the
transformation of carbohydrates, particularly sugars, into other compounds by
microorganisms (without involvement of oxygen). An example of fermentation is the
formation of ethanol and carbon dioxide by yeast, together with lesser amounts of
glycerol and other by-products of fermentation as a result of their degradation of
sugars. Alcoholic fermentation is usually effected by yeast belonging to the genus
Saccharomyces’.

[15] Distillation is the ‘process by which the components of a liquid mixture are
separated from one another on the basis of a difference in their boiling point. This is
achieved by heating the mixture to selectively vaporise the components, followed by
re-condensing the resulting vapours. In production of distilled spirits, it is the primary
method of separating ethanol from the aqueous solutions of alcohol derived from
fermentation of sugars by yeast’. So in the production of alcoholic beverages,
distillation is a further process – after fermentation – in order to achieve a higher
alcohol concentration.

The opposing contentions
[16] In classifying the FAB’s under TH22.08, the Commissioner relied on
explanatory note 14 in that heading which provides for the inclusion of ‘alcoholic
lemonade’ thereunder. The expert evidence established that the FABs would qualify
as ‘alcoholic lemonade’ as that term is understood in the trade. It was argued that
because alcoholic lemonade (which is mentioned in TH22.08) can be produced by
either fermentation or distillation, the absence of distillation in the production of the
FABs could not be the basis for exclusion from TH22.08. Further, for the FABs to
qualify for classification under TH2206.00.85 (as contended for by SAB) each of the

components (alcoholic and non-alcoholic) had to be beverages in their own right. In
this case the FABs were not a mixture of two main components; they were merely
flavoured alcohol produced by adding ingredients (eg flavourants, colourants,
sweeteners) to the base alcohol. Instead of a true non-alcoholic component as
contemplated in TH22.02, the non-alcoholic components were only a preparation as
contemplated in TH21.06 (read with explanatory note 7 in the relevant sub-heading).
For these submissions the Commissioner relied on General Rule of Interpretation 1
(GRI 1), alternatively GRI 4.

[17] SAB on the other hand contended that the FABs were fermented alcoholic
beverages which could only be properly classified under TH22.06 (with the
corresponding tariff item 104.77). That tariff heading provides for all fermented
beverages other than those not resorting under TH22.03, TH22.04 and TH 22.05.
The argument was that the FABs were mixtures of a fermented beverage and a non-
alcoholic beverage and should thus be classified under TH2206.00.85 until 27
February 2013 and under TH2206.00.90 thereafter, and had not been specified or
included elsewhere (in the chapter). They contained no distilled alcohol and could not
be classified under TH22.08. (The reason for SAB’s acceptance of the change in
classification as from 27 February 2013 is that, with effect from that date,
classification under TH2206.00.85 required the fermented beverage to be the product
of fermented fruit whereas the FABs are made from fermented maize.)

[18] In support of this argument SAB referred to the uncontested evidence
concerning the the production process of the FABs. (1) The first stage, which is
outsourced to Tongaat Hulett due to economic and efficacy considerations, entails
the production of dextrose syrup from maize. Maize is soaked and heated to allow
starch, protein and oil portions to be separated. The starch portion, now a wet ‘slurry’,
is heated to ‘gelatinise’ it, and then treated with enzymes derived from
microorganisms. The sugars are concentrated by evaporation and thereafter
delivered to SAB’s breweries as unfermented dextrose syrup. (2) The next production
stage takes place at the SAB breweries’ ‘Brewhouse’ and ‘Cellars’ areas at Chamdor,
Newlands and Prospecton. There the dextrose syrup is diluted with water. The
sugars released at this stage are fermented by yeast to produce ethanol, carbon
dioxide, glycerol and flavour compounds. The carbon dioxiode formed during

fermentation is retained, resulting in a mildly carbonated alcoholic base. The
alcoholic base is produced at ‘high gravity’ (either 12.3% or 7.6% alcohol by volume
(ABV). (3) The third phase involves the addition of various non-alcoholic components
by an in-line process in which the components are added to the alcohol base in a
particular sequence as the liquid flows through the pipeline. These additions include
water (to standardise the base at 7% alcohol content), carbon dioxide (to supplement
the carbonation from the fermentation process), flavourants, stabilisers, acidity
regulators, colourants and so forth. Some of these additives are in liquid form, so that
the end-product has an alcohol content ranging from 4.5% to 5.5% depending on the
particular FAB.

[19] At no stage is there distillation. Hence glycerol, which is not found in distilled
FABs, remains present in the fermented alcohol base. Further, unlike distilled
products in which almost all flavour is stripped from the base component (save those
associated with ethanol), SAB’s fermented beverage base has a ‘huge’ variety of
flavour compounds and these contribute significantly to the flavours of the final FABs.
Although there is a factual dispute on the papers as to whether and to what extent
the alcohol base and the FABs retain any flavour peculiar to maize (as distinct from
other plant sources of sugar), it is common cause that they have flavour
characteristics distinctly attributable to the fermentation by yeast of the dextrose
syrup. The evidence is further that the alcohol base and the FABs are markedly
different from solutions of distilled spirit of equivalent alcohol strength.

[20] It followed therefore, contended SAB, that, by their nature, the beverage
mixtures fell within TH22.06 (more particularly sub-heading 2206.00.85) as mixtures
of ‘fermented alcoholic beverages and non-alcoholic beverages’. And, by virtue of
GRI 1 , they should be classified  under that tariff heading.

Correct classification
[21] In para 52 of Distell this Court held that:
‘In the specific context of TH22.06, the second half of the heading is directed at combinations
of fermented beverages and non-alcoholic beverages which together result in a product
which possesses a commercial or trade potential (as with all products in the tariff
schedules)’.

[22] In this case it is significant that the Commissioner does not contend that the
FABs are spirituous beverages. Nor is the ‘fermented character’ of the FAB in
dispute. The Commissioner’s argument rests not only on impermissibly subverting
the heading to explanatory note 14 but also on misconstruing evidence. On the
record, the evidence in this regard was that FABs can be produced in different ways;
they can be made either from a non-distilled fermented base or from distilled spirit.
Only where a FAB is made from distilled spirits can it be contemplated or included in
TH22.08 as provided under explanatory note 14. Put differently, although ‘alcoholic
lemonade’ in trade parlance may be capable of including FABs made from either
fermented alcohol or distilled alcohol, in the context of TH22.08 an ‘alcoholic
lemonade’ is a flavoured beverage conforming with the properties of beverages
covered by TH22.08, ie made from distilled spirit or from ethanol which has otherwise
lost the characteristics of fermented alcohol (this could occur by stripping processes
not involving distillation).

[23] As stated above this court held in Distell that the headings are the first and
paramount consideration in determining classification between headings. Where, as
in this case, the distinctive feature (fermented beverage) of an FAB is clearly
provided for in the tariff, it is impermissible to ignore the appropriate heading. While in
this case the FABs may be capable of being classified under two headings, that
would only serve to make Rule 3(a) of application and that rule would direct us to
TH22.06. So whether classification is under GRI 1, on the footing that the FABs do
not resort under TH22.08, or under Rule 3(a) on the basis that they may possibly fall
under both 22.06 and 22.08, the outcome is the same.8

[24] General Rule of Interpretation 4, on which the Commissioner also relies, finds
no application in this case. That Rule provides that:
‘Goods which cannot be classified in accordance with the above Rules shall be classified
under the heading appropriate to the goods to which they are most akin’.

8 Rule 3(a) says:
‘When by application of Rule 2 (b) or for any other reason, goods are prima facie, classifiable under
two or more headings, classification shall be effected as follows:
(a)
The heading which provides the most specific description shall be preferred to headings
providing a more general description. However, when two or more headings each refer to part only of
the materials or substances contained in mixed or composite goods or to part only of the items in a set
put up for retail sale, those headings are to be regarded as equally specific in relation to those goods,
even if one of them gives a more complete or precise description of the goods.’

It is clear that this Rule becomes relevant only when application of the preceding
Rules (1, 2, and 3) does not yield any classification results. That is not the case here.
The Commissioner has not alleged or shown that the goods cannot be classified by
application of the preceding Rules.

[25] The main basis on which the Commissioner seeks to classify the FABs under
TH22.08 (that is, the inclusion, under this heading, of ‘alcoholic lemonade’) creates a
false conflict between heading TH22.08 and note 14 thereto. In Thomas Barlow,
Miller AJA and Trollip JA9 postulated instances of direct and irreconcilable conflict
between an Explanatory Note and the terms of a relevant heading. But, it must be
stressed that even in Thomas Barlow the conflict was hypothetical. In the end, the
following principles enunciated by Trollip JA in that case have prevailed for almost
five decades:10
‘… [T]he 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. If an irreconcilable conflict between the two should arise, which in my
view is not the case here, then possibly the meaning of the headings and notes should
prevail, because, although sec 47)(8)(a) of the Act says that the interpretation of the
Schedule shall be subject to’ the Brussels Notes, the latter themselves say in effect that the
headings and notes are paramount, that is, they must prevail’.

9 Miller AJA, whilst noting that the situation did not arise in that case remarked that ‘the Brussels Notes
appear to serve as guides and aids to classification properly to be made in accordance with the terms
of the headings read with the relevant sections and chapter notes’.
10 See also Commissioner of Customs and Excise v Capital Meats CC (In Liquidation) and Another
1999(1) SA 570 (SCA) [1998] ZASCA 80.

[26] The Commissioner’s further complaint that TH22.06 does not contemplate
alcohol produced only by fermentation of sugar must also fail. To recap, an example
was made that a cider is expressly included in TH22.06 because it is ‘an alcoholic
beverage obtained by fermenting the juice of apples’, and not by fermenting sugar
extracted from apples or apple juice. The argument was that on a correct
interpretation of TH22.06, only a cider produced by fermenting apple juice resorts
under TH22.06. On SAB’s argument, both sugar-based and juice-based fermented
beverages would be classifiable under TH22.06. Such interpretation cannot be
countenanced, so it was submitted. Further, so the argument went, the FABs
contemplated in the second part to TH22.06 are those with unique organoleptic
characteristics deriving from both components (ie from the fruit or vegetable and from
the fermentation of the plant’s sugar), whereas the FABs in question, or some of
them, only result in fake ciders (with no unique organoleptic sense).

[27] However, it seems to me that what is of relevance in heading TH22.06 are the
properties of the end-product which would derive their qualities from the fermentation
process. It matters not whether the organoleptic properties of the beverage are
referable only to the fermentation of sugar or to such fermentation as well as to the
flavours of the base fruit or vegetable. TH22.06 does not justify SARS’ contention
that the beverage must retain flavours which are distinctive of the plant. It is common
cause that the fermentation of dextrose syrup can and does result in distinct
organoleptic qualities of fermentation which are desirable characteristics of the end-
product.

[28] Tariff heading 22.08 for which the Commissioner contends, provides for spirits,
liqueurs and other spirituous beverages. Spirits are by their nature, a concentrate and
are made by a process of distillation. The FABs in question bear neither of these
qualities. They do not have the qualities of or essence of distilled FABs.11 And they
are clearly not liqueurs. Neither the ascertainment of the meaning of the words used
in TH22.08, nor the characteristics of the FABs, result in classification under that tariff
heading.

11 See the meaning of spirituous in the Oxford Dictionary.

[29] The Commissioner’s reliance on Distell 2 for its submission that beverages
produced from fermented alcohol can be included in TH22.08 is misplaced. The
nature of the FABs that were under consideration in Distell 2 are distinguishable from
those which form the subject in this appeal. Their production involved use of wine
which had been stripped to neutralise its taste and then fortified with (distilled) cane
spirits. The Court in that case held that:
‘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 TH22.08, and are covered by tariff note
(C)’.
In our case, by contrast, and on a proper application of the approach to interpretation
developed by this Court, and as I have set it out above, the goods can only be
classified under TH22.06.

[30] That then leaves the question as to where, in TH22.06, do the FABs stand to
be classified. The parties are agreed that if TH22.06 is the correct heading, the
correct sub-heading as from 27 February 2013 is TH2206.00.90. The question is
whether, prior to that date, the FABs qualified as mixtures contemplated in
TH2206.00.85 as then worded, namely ‘[o]ther, mixtures of fermented beverages and
mixtures of fermented beverages and non-alcoholic beverages, with an alcoholic
strength not exceeding 9 per cent by volume’.

[31] SAB’s response in this regard is that when the FABs were first developed in
2002 the non-alcoholic beverage component (soft drink) was based on existing
commercial products at the time, such as Appletiser and flavours of Just Juice. The
non-alcoholic elements were brought together in a so-called ‘lemonade tank’ where
they existed as a beverage before being added, as such, to the alcohol base. In

actual production, however, and, to promote efficiency and for economical reasons,
the lemonade tank method was replaced with the on-line blending process previously
described earlier.

[32] Dr Dehrman’s evidence is instructive in this regard. She explains that, after the
alcoholic product has been filtered and transferred to a final product tank, the brand
specific flavours, fruit juices, acidity regulators and stabilizers are added. Carbon
dioxide is also added. This evidence does not seem to bear out the existence of a
complete non-alcoholic beverage at any stage of production. The described method
of production does not result in the coming into existence, at any stage, of a non-
alcoholic beverage which is then mixed with the alcoholic base. What TH22.06 and
TH2206.00.85 require is the mixing of two beverages. The plain and ordinary
meaning of the words require the beverages to exist prior to mixing. SAB’s counsel
was constrained to argue that the non-alcoholic component was a beverage even
though it is not produced as a separate beverage and had never been introduced into
the market as a separate beverage. Whilst the efficacy of the in-line process may
render it a superior method of production for the purposes of the beverage which is
sold by SAB on the market, it has not been shown that the ultimate FABs which are
the subject of this appeal are mixtures of two distinct beverages within the meaning
of TH 2206.00.85. Even if the alcohol base qualifies as a ‘fermented beverage’ (a
hotly contested question which we need not resolve), such a beverage is at no stage
mixed with a non-alcoholic beverage. Instead, the fermented base is simply modified
sequentially by addition of various ingredients. For this reason the FABs can only be
correctly classified under ‘other’ (2206.00.90) in both Part 1 and Part 2A of the
Schedule.

Costs
[33] Accordingly, although the court a quo was correct to set aside the
Commissioner’s determination, its substituted determination requires modification.
This modification does not justify granting the Commissioner the costs of the appeal.
The Commissioner’s primary stance has throughout been that the FABs should be
classified under TH22.08, a position correctly rejected by the court a quo and again
rejected by us on appeal. All indications are that, from a financial perspective, the
distinction between classification under TH2206.00.85 and TH2206.00.90 is likely to

be insignificant, having regard to the alcoholic content of the FABs. SAB, it may be
added, accepted that as from 27 February 2013 the FABs fell under TH2206.00.90.

[34] Consequently, the following order is made:

Save as set out in para 2, the appeal is dismissed with costs such costs to
include the costs of two counsel.
Paragraph 3 of the order of the high court is set aside and substituted by the
following:
‘The said tariff determinations are replaced with tariff determinations in terms of Tariff
Heading 2206.00.90 in Part 1 Schedule 1 to the Act and the Tariff Item 104.17.90 in
Part 2A of Schedule 1 to the Act, from the date of the respondent’s determination.’

___________________
N Dambuza
Judge of Appeal

For the Appellant:
J A Meyer SC (with him K Kollapen)
Instructed by:
RW Attorneys, Pretoria

Phatshoane Henney Attorneys, Bloemfontein

For the Respondent:
C E Puckrin SC (with him A P Joubert SC and C
Louw SC)

Instructed by: Bowman Gilfillan Inc, Johannesburg

McIntyre Van der Post, Bloemfontein