Court name
Supreme Court of Appeal of South Africa
Case number
509 of 2005

Commissioner, South African Revenue Service v Motion Vehicle Wholesalers (Pty) Ltd (509 of 2005) [2006] ZASCA 157 (26 September 2006);

Law report citations
[2007] 4 All SA 1207 (SCA)
Media neutral citation
[2006] ZASCA 157

THE
SUPREME COURT OF APPEALOF
SOUTH AFRICA

CASE NO: 509/05

Reportable

In the
matter between

COMMISSIONER,
SOUTH AFRICAN REVENUE

SERVICE
Appellant

and

MOTION
VEHICLE WHOLESALERS (PTY) LTD Respondent

Coram: HARMS, BRAND, CLOETE JJA, THERON and CACHALIA
AJJA

Heard: 5 SEPTEMBER 2006
Delivered:
26 SEPTEMBER 2006

Summary:
Revenue –
Customs and Excise Act 91 of 1964 – Classification of goods for
purposes of customs duty ─ whether vehicles
imported by the
respondent, with temporary modifications to increase their seating
capacity, should be classified as vehicles for
the transport of
either less than ten persons or of ten or more persons.

Neutral
citation: This case may be cited as Commissioner, SA Revenue Service
v Motion Vehicle Wholesalers [2006] SCA 119 (RSA)

JUDGMENT

THERON AJA

[1] The sole question in this appeal is whether the
vehicles imported by the respondent are, for purposes of customs
duty, to be classified
as vehicles for the transport of either less
than ten persons or of ten persons or more.

[2] The respondent is an importer of Toyota Land Cruiser
100 Series vehicles. The vehicles are manufactured by the Toyota
Motor Corporation
(TMC) in Japan as eight-seater vehicles comprising
two bucket seats in the front row and two bench seats for the second
and third
rows, with the latter two rows each providing seating for
three persons. The third row is attached to the base of the vehicle,
by
being clipped onto brackets, which are built into and form part of
the base of the vehicle. Behind the third row is a luggage
compartment.
The third row is optional and can be removed. It is
common cause that the vehicles, as described, fall to be classified
under tariff
heading 87.03.1

[3] After being manufactured in Japan, the vehicles are
modified in Australia. Two additional seats are added in the luggage
compartment
at the rear of the vehicle, each facing the other. The
vehicles are presented, on importation, with these two additional
seats. It
is common cause that the two additional seats are removed
after customs clearance, returned to Australia for re-use in the same
manner
and the vehicles are sold as suitable for the transport of
eight persons.

[4] On 21 March 1998 the appellant, acting in terms of
s 47(9)(a)(i) of the Customs and Excise Act 91 of 1964,2
issued a determination that the vehicles were classifiable under
tariff heading 87.02.3
Since that date the respondent has imported more than 580 vehicles
all of which have been classified under heading 87.02. On 28 November
2003, the appellant revoked the determination and issued a new
determination to the effect that the vehicles were classifiable under
heading 87.03.

[5] The respondent, in terms of s 47(9)(e),4
appealed to the High Court against the new determination. R Claassen
J found that the goods are to be classified under heading 87.02
and
set aside the determination. The appellant appeals to this court
against such classification with the leave of this court, the
court a
quo having refused leave to appeal.

[6] The appellant’s case is essentially that the
vehicles were superficially modified in Australia in a transparent
attempt
to bring them within the ambit of heading 87.02 thereby
attracting a lower customs duty rate. It is common cause that for
each vehicle
classified under heading 87.02 instead of under heading
87.03, the respondent saved an amount of R135 000 in customs duties
and VAT.

[7] The question to be answered is whether the vehicles
were designed for the transport of ten or more persons or whether
they were
disguised as such as part of a scheme to limit the
respondent’s liability in respect of the payment of customs
duty?

[8] In the accompanying judgment in Commissioner,
SA Revenue Service v Komatsu SA (Pty) Ltd,5
I discussed the general principles applicable to tariff
classification and the manner in which they are to be applied and
interpreted.
I do not intend to add to what was stated therein.

[9] Chapter 87, under which the disputed headings
resort, covers various types of vehicles, including tractors,
passenger vehicles,
goods vehicles and special purpose vehicles. The
different types of vehicles are grouped together under their
respective headings
according to their purpose. It is clear from the
Explanatory Notes to heading 87.036
that all vehicles designed for the transport of persons reside
thereunder, but for the exclusions. The exclusions relate to vehicles
falling under heading 87.02.7
All vehicles designed for the transport of ten or more persons fall
to be classified under heading 87.02. The distinguishing factor
between the two headings is the number of persons the vehicle was
‘designed’ to transport. In other words, the design
of
the vehicle determining the classification of the goods in this
instance.

[10] The respondent relies on Autoware
(Pty) Ltd v Secretary for Customs & Excise,8
for the contention that the intention of the
manufacturer and designer, the modifier and the importer of the
vehicles is irrelevant.
That is generally correct, but it should be
noted that Autoware
dealt with the difference between a panel van and a station wagon.
There was no doubt that the vehicles, on importation, were panel
vans. The only issue was whether the importer’s intention to
change them after import into station wagons meant that they had
to
be classified as the latter. They were indeed constructed and
designed as panel vans. In any event, Colman J, with reference to
Secretary for Customs & Excise v Thomas
Barlow & Sons Ltd,9
accepted that depending on the headings under
consideration, ‘purpose and intention’ may be relevant.10

[11] Where a court is confronted with an alleged
simulation,11
it is entitled to take into account all the surrounding
circumstances.12
It has been accepted by this court that a taxpayer may minimise his
or her tax liability by arranging his or her tax affairs in a
suitable manner. But a court, in considering whether the taxpayer has
properly achieved a reduction of the tax, will give effect
to the
true nature and substance of the transaction and will not be deceived
by its form.13
The same considerations apply to the determination of customs
classifications.

[12] It is common cause that TMC manufactures five, six,
eight, nine and ten-seater Land Cruiser 100 Series vehicles. It is
also common
cause that the vehicles at the centre of this dispute are
originally manufactured as eight-seaters. This court is enjoined to
determine
whether the vehicles are designed for the transport
of ten or more persons and not merely whether they are capable
of doing so, as contended by the respondent.

[13] The modification in question is effected in the
following manner. The third row is removed from its original factory
fitment
points. A framework is attached to the middle brackets and
another contraption is fitted. The additional seats are not attached
or
anchored to the vehicle but are kept in place by their base being
placed under the framework. The third row is replaced; not onto
its
original attachment but further forward onto the framework. This
results in the leg room between the second and third rows being
reduced from 270mm to 90mm. The space between the two extra seats
which face each other is 180mm. Counsel for the respondent conceded
that if one of these extra seats is occupied it would be difficult
and uncomfortable - if not impossible - to accommodate an adult
person on the opposite seat.

[14] The allegation made on behalf of the respondent
that the vehicles are ‘designed, through modification, for the
transport
of ten persons’ is not supported by the evidence. The
entire modification process takes no more that five minutes and the
cost
thereof is negligible. The two additional seats are cheap and
are upholstered in material of an inferior quality, very different
from the leather used for the rest of the vehicle and not in keeping
with a luxury sport utility vehicle. No permanent changes are
made to
the vehicles enabling them ever to be sold or used as ten-seaters.
After importation the whole framework and contraption
accommodating
the two extra seats is removed. The third row is moved back to its
original factory position. The vehicles are sold
as eight-seater
vehicles, as designed and manufactured in Japan.

[15] It is clear from the objective evidence that the
respondent, together with the modifier, has attempted, in a
superficial and
unsophisticated manner, to conceal the true nature of
the vehicles by giving them a temporary different form. In
other words, they have attempted to disguise vehicles designed for
the transport of eight persons as vehicles designed
for the transport
of ten or more persons, solely for the purpose of evading higher
customs duty. The vehicles were modified with
the intention of
circumventing the Act. The modification was clearly a sham.

[16] In the result the following order is made:

The appeal is upheld with costs, such costs to include
those occasioned by the employment of two counsel. The order of the
court a quo is set aside and the following is substituted:

‘The application is dismissed with costs, such
costs to include those occasioned by the employment of two counsel.’

_________________________
L
V THERON
ACTING
JUDGE OF APPEAL

CONCUR:
HARMS
JA
BRAND
JA
CLOETE
JA
CACHALIA
AJA

1
Heading 87.03 read at the time:
‘Motor cars and
other motor vehicles principally designed for the transport of
persons (other than those of heading 87.02), including
station
wagons and racing cars.’

2
The relevant portion of Section 47(9)(a)(i) provides:

‘The
Commissioner may in writing determine-
(aa)
the tariff headings, tariff subheadings or tariff items or other
items of any Schedule under which any imported
goods, goods manufactured in the Republic or goods exported shall be
classified.’

3
Heading 87.02 read at the time:
‘Motor vehicles for
the transport of ten or more persons, including the driver.’

4
Section 47(9)(e) reads:
‘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.’

5
[2006] SCA 118 (RSA).

6The
Explanatory Notes to heading 87.03 reads:
‘This
heading covers motor vehicles of various types (including amphibious
motor vehicles) designed for the transport of persons:
it does
not, however, cover the motor vehicles of heading 87.02.

The
heading also includes:

Motor
cars (e.g. saloon cars, hackney carriages, sports cars and racing
cars).
Specialised
transport vehicles such as ambulances, prison vans and hearses.
Motor-homes
(campers, etc), vehicles for the transport of persons, specially
equipped for habitation (with sleeping, cooking,
toilet facilities,
etc.).
Vehicles
specially designed for travelling on snow (e.g. snowmobiles).
Golf
cars and similar vehicles.
Four-wheeled
motor vehicles with tube chassis, having a motor-car type steering
system (e.g. a steering system based on the Ackerman
principle).’

(Emphasis added.)

7
The Explanatory Notes to heading 87.02 reads:
‘This heading
covers all motor vehicles designed for the transport of ten
persons or more (including the driver).’ (Emphasis added.)

8
1975 (4) SA 318 (W).

9
1970 (2) SA 660 (A).

10
At 322A-B.

11
A simulation is ‘where parties to a transaction for whatever
reason attempt to conceal its true nature by giving it some
form
different from what they really intend … It is important to
emphasise that a transaction which is disguised in this
way is
essentially a dishonest transaction; the object of … which …
is to deceive the outside world’. (Per
Scott JA in Mackay v
Fey NO 2006 (3) SA 182 (SCA) para 26.)

12
Erf 3183/1 Ladysmith (Pty) Ltd v Commissioner for Inland Revenue
[1996] ZASCA 35; 1996 (3) SA 942 (A) at 950I-952C; Maize Board v Jackson 2005
(6) SA 592 (SCA) para 1; Mackay v Fey, above, n 11, op
cit.

13Commissioner
for Inland Revenue v Conhage (Pty) Ltd (Formerly Tycon (Pty) Ltd)
1999 (4) SA 1149 (SCA) para 1. See the authorities cited in
n 12 above.