SARS, coconuts & pulp fiction

A recent SCA ruling restates the methods of interpretation of tariff headings and their applicability to products subject to the Customs and Excise Act.

Peter O’Halloran - Tax advice

The Supreme Court of Appeal (SCA) recently delivered a judgement against SARS, which had wished to overturn a High Court ruling dealing with the classification of coconut emulsion, milk and powder. Had SARS succeeded, higher duties would have been paid for these products.

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The case was The Commissioner, SARS v Coltrade International CC (54/2015) [2016] ZASCA 53 (1 April 2016). Classification is a three-stage process. The first stage involves interpretation, or ascertaining the meaning of the words used in the relevant passages of the Customs and Excise Act.

In the second stage, the nature and characteristics of those goods are considered. In the third, the heading that is most appropriate to such goods is selected. The SCA said it was well-established that the decisive criteria regarding the classification of goods for customs purposes were the objective characteristics and properties of the goods concerned.

Botanically, the coconut is not a nut but a fruit. However, the explanatory note to TH20.08 (the tariff classification desired by the taxpayer) states: “This heading covers fruit, nuts and other edible parts of plants, whether whole, in pieces or crushed, including mixtures thereof, prepared or preserved otherwise and by any of the processes specified in other Chapters…”

It goes on to state that other substances “may be added to the products of this heading provided that they do not alter the essential character of fruit, nuts or other edible parts of plants”. In this instance, the small amount of preservatives and stabilisers added by the taxpayer did not alter the essential characteristics.

SARS argued that because the non- digestible pulp is removed from the crushed product it could not be said that the coconut is ‘crushed’. However, the SCA held that, as in the crushing of grapes in a wine-press, where the skins and other material are filtered out, the removal of non-edible pulp does not alter the fact that the product is indeed crushed. The aroma and the taste of the coconut remain.

SARS had previously conceded that coconut milk, cocoa butter and dried coconut were the same thing. Thus, once the SCA had settled the issue of products being crushed, the SARS appeal had to fail.

The judgement is useful as a restatement of the methods of interpretation of tariff headings and their applicability to products subject to the Customs and Excise Act.