THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No: 529/08

PAHAD SHIPPING CC
Appellant

and

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE
Respondent

Neutral citation:
Pahad Shipping v SARS (529/08) [2009] ZASCA 172
(2 December 2009)

Coram:
STREICHER, BRAND, SNYDERS, MALAN and BOSIELO
JJA

Heard:
16 NOVEMBER 2009

Delivered:
2 DECEMBER 2009

Summary:
Customs duty – determination of transaction value – appeal in
terms of Act 91 of 1964 a wide appeal - serious reservations
about credibility of applicant’s factual averments – reference
to evidence.

ORDER

On appeal from: High Court Johannesburg (Tsoka J sitting as court of
first instance)

The appeal is upheld with costs including the costs of two counsel.
The following order is substituted for the order by the court below:
‘(1)
The application is adjourned to a date to be arranged with the
Registrar for the cross-examination of Mr Nassim Pahad in respect of the
evidence deposed to by him in the applicant’s founding and replying
affidavits.
(2)
The provisions of rule 35 will apply in regard to the adjourned
hearing.
(3)
The costs of the hearing are to stand over for determination at the
adjourned hearing.’

JUDGMENT

STREICHER JA (BRAND, SNYDERS, MALAN and BOSIELO JJA
concurring):

[1] The issue to be decided in this matter is whether amounts labelled
‘finance charges’ paid by the appellant as an importer of goods to an
import export agent in Dubai, Al Ajwad International LLC, forms part of
the transaction value of the goods imported by the appellant. The
respondent determined that they do, that the appellant underpaid the

customs duty payable in respect of such goods and that, as a result,
customs duty in an amount of R247 440,20, VAT in an amount of
R130 104,24 and penalties in an amount of R94 386,04 were payable by
the appellant. An appeal by the appellant against the determination was
dismissed by the Witwatersrand Local Division (per Tsoka J) which
thereafter granted leave to the appellant to appeal to this court.

[2] Customs duty is payable on imported goods at the time of entry for
home consumption of the goods.1 In terms of s 65(1) of the Customs and
Excise Act 91 of 1964 the value for customs duty purposes of any
imported goods shall, at the time of entry for home consumption, be the
transaction value thereof, within the meaning of s 66.  Section 66
provides that the transaction value of any imported goods shall be the
price actually paid or payable for the goods when sold for export to the
Republic, adjusted in terms of s 67. The ‘price actually paid or payable’
means ‘the total payment made or to be made, either directly or
indirectly, by the buyer to or for the benefit of the seller of the goods, but
does not include dividends or other payments passing from the buyer to
the seller which do not directly relate to the goods’.2 Section 67 provides
that in ascertaining the transaction value of any imported goods certain
amounts, inter alia ‘any commission other than a buying commission’,
shall be added to the price actually paid or payable for the goods.3 In
terms of s 65(4)(a)(i) the respondent may in writing determine the
transaction value of imported goods and an appeal against such
determination lies to the High Court.4

1 Section 47(1) of the Customs and Excise Act 91 of 1964.
2 Section 65(9).
3 Section 67(1)(a)(i).
4 Section 65(6)(a).

[3] The appellant paid to Al Ajwad what purports to be the purchase
price in respect of the imported goods plus amounts described as ‘bank
charges’ consisting of ‘payment commission and cable charges’, ‘postage
and petties’, ‘finance charges’ being 5% of the aggregate of these
amounts and ‘finance costs’ being 6,5% pa of the aggregate of these
amounts. The dispute between the parties is whether the 5% ‘finance
charges’ formed part of the transaction value of the goods.

[4] When queried about its relationship with Al Ajwad, the appellant
provided the respondent with a copy of a document which purports to be
a written agreement between them. The agreement provides as follows:
‘We, Al Ajwad International (L.L.C.), (“Al Ajwad”) agree to make available to you
Pahad Shipping C.C. (“the Buyer”), a confirming / trade finance facility subject to the
terms and conditions set out herein. Under the terms of this facility, Al Ajwad will act
as principal for the Buyer in the puchase of goods on the Buyer’s behalf and will
provide its confirmation, by way of Letters of Credit to the seller, for payment of the
purchase price of the goods.

1. The Facility
The facility is a revolving facility and the amount of the facility available at any
time, subject to the terms and conditions hereof, shall be up to a maximum amount
of USD 75,000.00 . . .. Such amount shall be calculated by reference to amounts
paid out or agreed to be paid out by Al Ajwad to suppliers of goods.
2 Payment, Interest, Commission and Other Charges
2.1
The Buyer undertakes:
2.1.1 to reimburse Al Ajwad all sums expended by it under the terms
hereof, together with all fees, commission and other sums payable
to it in accordance with the terms thereof; and
2.1.2 . . .
2.2
The maximum repayment term from the date of Al Ajwad’s payment
to any supplier shall be 180 days. Payment will be secured by bills

drawn by Al Ajwad in US Dollars or other currencies as agreed
between the Buyer and Al Ajwad through the Buyer’s bankers.
2.3
Interest on all amounts outstanding hereunder will be payable by the
Buyer to Al Ajwad at a rate of 2% over the US prime rate.
2.4
Any amounts remaining unpaid after the due date for payment will be
subject to default interest payable by the Buyer to Al Ajwad at the rate
referred to in 2.3.
2.5
The Buyer will pay to Al Ajwad a confirming commission calculated
at a rate of 5% of the total disbursements made on behalf of the Buyer.
2.6
All the following charges will be made for the Buyer’s account and
will be included in the bills of exchange drawn by Al Ajwad:
2.6.1 bank charges;
2.6.2 letter of credit fees;
2.6.3 postage and all other petty disbursements.’

[5] Relying, inter alia, on clause 2.5 in terms of which it was agreed
that the appellant would pay a confirming commission of 5% to Al
Ajwad, the respondent determined that the ‘finance charges’ of 5% paid
by the appellant to Al Ajwad represented a confirming commission and
that it formed part of the transaction value of the goods purchased. On the
basis of this determination the respondent contended that the appellant
had contravened s 84(1) of the Act and demanded payment of the
customs duty underpaid together with a penalty for the contravention of
the Act.

[6] The appellant thereupon, in terms of s 65(6)(a), applied to the court
below for the setting aside of the respondent’s determination. Mr Nassim
Pahad (‘Pahad’) the sole member of the appellant, who deposed to the
appellant’s founding affidavit, denied that Al Ajwad was a confirming
agent. He alleged that the written agreement does not accord with the
intention of the parties or with the true nature of the transactions

concluded between them. In regard to the ‘agreement’ that Al Ajwad
would ‘act as principal for the buyer in the purchase of goods on the
buyer’s behalf and will provide its confirmation, by letters of credit to the
Seller for payment of the purchase price of the goods’ he alleged that Al
Ajwad never provided this form of service to the respondent and that it
was not the intention of the parties that such a service would be provided.
It was sometimes the appellant but primarily appellant’s client who
negotiated the price of goods from an overseas supplier. Appellant
purchased the goods and the supplier invoiced the appellant. No
prepayment of goods took place and the appellant did not secure payment
by means of letters of credit. Payment was only made to the supplier after
clearance of goods in South Africa. In the normal course appellant’s
instruction to make payment occurred approximately 45 days after the
clearance of the goods. Al Ajwad then paid the invoice value to the
supplier and levied finance charges at the rate of 5% of the disbursed
amount and interest at the US prime rate over a period of six months. The
system afforded the appellant approximately 225 days to make payment
of the purchase price. Al Ajwad would not have known, until instructions
for payment had been received from the appellant, who the seller or
supplier was. The provision that appellant would pay to Al Ajwad ‘a
confirming commission calculated at the rate of 5% of the total
disbursements made on behalf of the buyer’ was inaccurate and did not
reflect the true intention of the parties or the factual relationship between
them. These payments comprised finance charges and interest. Al Ajwad
at no stage confirmed a purchase between the appellant and its supplier or
guaranteed payment of the purchase price to the supplier. The supplier
had no recourse against Al Ajwad. This relationship, Pahad submitted,
was the very antithesis of a confirming agent relationship.

[7] In support of these allegations and by way of example Pahad
annexed documents relating to a particular transaction comprising an
instruction by the appellant to Al Ajwad to pay an invoice from
Kingsburg Exports Ltd for goods purchased to which instruction was
attached: a copy of the invoice by Kingsburg; a customs release
notification; an arrival notification by a shipping agent; and an invoice by
Al Aljwad. Pahad stated that all invoices generated by Al Ajwad for
payment by the appellant followed the same format. According to the
documents the goods were shipped on 8 April 2005, the expected time of
arrival was 2 May 2005, the goods were released on 13 May 2005 and Al
Ajwad was instructed to pay the invoice on 1 August 2005. Al Ajwad’s
invoice is dated 7 August 2005. Interest was claimed for a period of 120
days and the amount of the invoice was stated to be due on 11 September
2005. Pahad’s version as to the true nature of the transactions between the
appellant and Al Ajwad would seem not to be borne out by these
documents. First, according to the documents the invoice is addressed to
the appellant as well as Al Ajwad contrary to Pahad’s averment that Al
Ajwad would not have known until instructed to pay who the seller or
supplier was. Second, the payment instruction is dated 68 days after the
goods had been released contrary to Pahad’s averment that it was given
approximately 45 days after the goods had been cleared. Third, interest
for a period of 120 days was claimed by Al Ajwad contrary to Pahad’s
averment that Al Ajwad levied interest over a period of 180 days. Fourth,
if Al Ajwad only became involved in the transaction upon the instruction
to pay, ie on 1 August 2005, Al Ajwad could only have been entitled to
interest for the period 1 August 2005 to 11 September 2005 (the due
date), ie for a period of 42 days. Al Ajwad would therefore appear to have
been involved in the transaction in some way or other before the
instruction to pay was given so as to entitle it to charge interest for a

period of 120 days. Apart from the inconsistencies between the
documents and Pahad’s evidence, Al Ajwad is not a trade finance bank as
was alleged by Pahad.

[8] Another set of documents referred to in the respondent’s answering
affidavit consists of an instruction by Geochris Investments (Pty) Ltd
dated 18 January 2005 to Al Ajwad to pay an amount of US$19 772,60 to
Kingsburg relating to invoice number KE5950; an invoice by Al Ajwad
to Geochris dated 1 February 2005 in respect of the execution of the
instruction; and a bill of entry dated 31 December 2004 indicating that the
expected time of arrival in South Africa was 3 January 2005. The bill of
entry bears a stamp:
‘Habib Overseas Bank
$21 595-16
07 Mar 2005
Exchange
Provided’
In the respondent’s answering affidavit it is alleged that the stamps on the
bill of entry indicate that the amount of US$21 595,16 was paid and
remitted from South Africa to Al Ajwad. In reply Pahad did not deal with
the allegation. He said that he was unsure as to what stamps were being
referred to. The reply is, on the face of it, blatantly dishonest. There are
two stamps on the document, the one quoted above and another one
which is clearly not relevant. There could have been no doubt in Pahad’s
mind as to the stamp being referred to. In these circumstances the
allegation that according to the stamps on the document the amount of
US$21 595,16 was paid and remitted from South Africa to Al Ajwad
stands undisputed. The stamp is dated 7 March 2005 and therefore
indicates that payment was effected on or before that date.

[9] The Al Ajwad invoice dated 1 February 2005 included 5% ‘finance
charges’ as well as interest for 120 days. According to the invoice the
total amount of the invoice was due on 26 April 2005. Again Pahad’s
averments as to the true nature of the transactions between the appellant
and Al Ajwad would seem not to be borne out by these documents. First,
the amount of US$21 595,16 which was claimed to be due to Al Ajwad
on 26 April 2005 included interest for a period of 120 days ie, so it would
seem, from 27 December 2004 a date prior to the date of the bill of entry
and prior to the estimated time of arrival of the goods in South Africa.
Again, Al Ajwad must in some way or other have been involved before
the instruction to pay was given. Second, the payment instruction was
given on 18 January 2005 and payment was effected on 7 March 2005
contrary to Pahad’s averment that the payment instructions were given
approximately 45 days after the goods had been cleared in South Africa
and the averment that the system allowed the appellant 225 days for
payment. Third, the payment instruction was given by Geochris
Investments (Pty) Ltd and not by the appellant. The appellant gave no
explanation of what its relationship with Geochris was or what the nature
of the involvement of Geochris was. Fourth, credit was ostensibly
extended by Al Ajwad for a period of 120 and not 180 days as averred by
Pahad. Fifth, payment of the Al Ajwad invoice was effected some 50
days before the due date in terms of the invoice. If that payment included
the interest for a period of 120 days claimed in the Al Ajwad invoice it
would mean that Al Ajwad became involved in the transaction in some
way or other on 23 November 2004, ie long before the goods arrived in
South Africa, the date of Al Ajwad’s invoice and the date of the
instruction to pay.

[10] Referring to the written agreement between the appellant and Al
Ajwad and to the other documents referred to above, the respondent in its
answering affidavit submitted that the documents demonstrate that Al
Ajwad purchased goods from the supplier and resold them to the
appellant or Geochris. In the alternative the respondent submitted that, in
the event that it cannot be considered that Al Ajwad purchased and resold
the goods, ‘it is clear that the 5% levied by Al Ajwad under the
description “finance charges”, was a commission for its  services as a
payment intermediary.’ In a further alternative the respondent indicated
that in the event of the court not being inclined to uphold the appellant’s
appeal he would seek the opportunity of cross-examining the deponent to
the founding affidavit.

[11] The court below rejected the appellant’s denial of what it called
‘unambiguous terms’ of the agreement and held that the 5% ‘finance
charges’ was a commission in the ordinary sense and within the meaning
of ‘any commission’ in s 67. It was of the view that the section is clear
and that it was not a requirement that commission that has to be added in
terms of s 67 had to be for the benefit of the seller. Only buying
commission was excluded. In this regard the court below referred to the
evidence that Al Ajwad was not involved at all during the procurement of
goods, stated that it was clear that Al Ajwad was not the appellant’s agent
and held that the 5% ‘finance charges’ was not a buying commission. It is
against this judgement that the appellant now appeals.

[12] The appellant’s application to the court below for the setting aside
of the respondent’s written determination that the ‘finance charges’
formed part of the transaction value of the imported goods  was brought
in terms of s 65(6)(a) which provides as follows:

‘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.’
In terms of s 65(4)(c)(ii)(bb) the respondent’s written determination shall
cease to be in force from the date of a final judgment by the High Court
or a judgment by the Supreme Court of Appeal.

[13] In Tikly and others v Johannes NO and others 1963 (2) SA 588 (T)
at 590G-591A Trollip J held that the word ‘appeal’, used in a similar
context could have one of three meanings:
‘(i)
an appeal in the wide sense, that is, a complete re-hearing of, and fresh
determination on the merits of the matter with or without additional evidence or
information . . .;
(ii)
an appeal in the ordinary strict sense, that is, a re-hearing on the merits but
limited to the evidence or information on which the decision under appeal was given,
and in which the only determination is whether that decision was right or wrong . . .;
(iii)
a review, that is, a limited re-hearing with or without additional evidence or
information to determine, not whether the decision under appeal was correct or not,
but whether the arbiters had exercised their powers and discretion honestly and
properly . . ..’

[14] The parties dealt with the case as if it was an appeal in the wide
sense, ie as if it was a complete re-hearing of the case and a fresh
determination of the merits of the case. Correctly so, in my view, for the
following reasons: (a)
The Act does not require of the respondent to
hear evidence, to give any reasons for his determination or to keep any
record of proceedings. As was held in Tikly at 592B-C these
considerations militate completely against the ‘appeal’ being an appeal in
the strict sense. (b) It is implicit in the provisions of s 65(4)(c)(ii)(bb) to
the effect that the determination by the respondent cease to be in force

from the date of a final judgment by the high court or this court that the
court must itself make a determination upon appeal to it. That eliminates
the appeal being a review in the sense set out in (iii) above (see Tikly
591H-592A). (c) As there is no provision for a hearing before the
determination of the transaction value by the respondent the legislature
must in my view have intended ‘appeal’ to be an appeal in the wide
sense.

[15] It is on this basis that the appellant applied to the court below for
an order setting aside the respondent’s determination and directing that all
amounts paid by the appellant to Al Ajwad forming the subject matter of
the determination appealed against are not to be included in the
transaction value of goods imported by the appellant.

[16] I now turn to the question whether the court below correctly
rejected the appellant’s evidence as to the nature of its relationship with
Al Ajwad.

[17] Counsel for the appellant was asked to explain the apparent
inconsistencies between the appellant’s evidence and the documentation
but was unable to do so. He was again invited to do so after the lunch
adjournment but was still unable to do so. In the light of these
inconsistencies and also the fact that the appellant provided the written
agreement to the respondent when queried about its relationship with Al
Ajwad only to later deny that the agreement governed their relationship I
have serious reservations about the credibility of the appellant’s factual
averments.

[18] Unfortunately the inconsistencies were not properly explored in the
affidavits. For this reason I do not think that the court below should, on
the papers, have rejected Pahad’s version which is confirmed by Anwar
Paruk the manager of Al Ajwad International LLC. As a result of the
court below’s view on the reliability of the appellant’s averments the
respondent never asked for an opportunity to cross-examine the deponent
to the founding affidavit. But before us counsel for the respondent in
accordance with what was said in the respondent’s answering affidavit
did indicate that the respondent still wanted to have such an opportunity
should we be of the view that the appeal should succeed.

[19] Had the respondent at the outset of the hearing in the court below
applied for an opportunity to cross-examine the deponent to the founding
affidavit such a request should have been granted. In terms of rule 6(5)(g)
a court has a wide discretion in regard to the hearing of oral evidence
where an application cannot properly be decided on affidavit. In Moosa
Bros & Sons (Pty) Ltd v Rajah 1975 (4) SA 87 (D) at 93H Kumleben J
said:
‘(c) Without attempting to lay down any precise rule, which may have the effect of
limiting the wide discretion implicit in this Rule, in my view oral evidence in one or
other form envisaged by the Rule should be allowed if there are reasonable grounds
for doubting the correctness of the allegations concerned.
(d)
In reaching a decision in this regard, facts peculiarly within the knowledge of
an applicant, which for that reason cannot be directly contradicted or refuted by the
opposite party , are to be carefully scrutinised.’
The passage was referred to with approval in Khumalo v Director-
General of Co-operation and Development and others 1991 (1) SA 158
(A) at 167I-J.

[20] However, it has been held in a number of cases that an application
to refer a matter to evidence should be made at the outset and not after
argument on the merits (see Kalil v Decotex (Pty) Ltd and another 1988
(1) SA 943 (A) at 981D-F). As was stated by Corbett JA in Kalil at 981E-
F the rule is a salutary general rule. Unnecessary costs and delay can be
avoided by following the general rule. But Corbett JA also stated that the
rule is not inflexible. In Du Plessis and another NNO v Rolfes Ltd 1997
(2) SA 354 (A) at 366G-367A this court dealt with an application which
was made for the first time during argument in this court. The application
was dismissed but it is implicit in the judgment that, in appropriate
circumstances, this court may decide that a matter should be referred to
evidence even where no application for such referral had been made in
the court below. It would naturally be in exceptional cases only that a
court will depart from the general rule (Bocimar NV v Kotor Overseas
Shipping Ltd 1994 (2) SA 563 (A) at 587 C-D). In my view this is such a
case. The respondent probably misjudged the strength of his case. Having
regard to the reservations expressed about the credibility of Pahad’s
averments it was not unreasonable of the respondent to have thought that
Pahad’s version would be rejected on the papers as was done by the court
below. Moreover, there is, as is apparent from the above, good reason to
believe that an injustice may be done should the respondent not be given
an opportunity to cross-examine Pahad. Pahad may of course be able to
explain the inconsistencies and what I have described as, on the face of
the documents, blatant dishonesty on his part. Referring the matter to
evidence would give him an opportunity to do so.

[21] For these reasons the following order is made:
The appeal is upheld with costs including the costs of two counsel.
The following order is substituted for the order by the court below:

‘(1)
The application is adjourned to a date to be arranged with the
Registrar for the cross-examination of Mr Nassim Pahad in respect of the
evidence deposed to by him in the applicant’s founding and replying
affidavits.
(2)
The provisions of rule 35 will apply in regard to the adjourned
hearing.
(3)
The costs of the hearing are to stand over for determination at the
adjourned hearing.’

________________
P E STREICHER
JUDGE OF APPEAL

APPEARANCES:

For appellant:
A P Joubert SC

F P Strydom

Instructed by:

Dockrat Incorporated, Johannesburg

Mpobole & Ismail, Bloemfontein

For respondent:
J Peter

Instructed by:

The State Attorney, Johannesburg

The State Attorney, Bloemfontein