A long standing dispute was finally resolved in the Supreme Court of Appeal in the matter between Commissioner, South African Revenue Service (SARS) and Multichoice Africa (Pty) Ltd and Another, Case No. 218\/10.<\/p>\n
The dispute concerned the classification of a digital satellite decoder (model 720i) as either: a reception apparatus for television, whether or not incorporating radio broadcast receivers or sound recording or reproducing apparatus (Class 1); or a machine and mechanical appliance having individual functions, not specified or included elsewhere (Class 2).<\/p>\n
If the decoder was classified under Class 1, the classification would attract a 7 per cent ad valorem excise duty. The nub of the issue was whether the primary function of the decoder is a reception apparatus for televisions (despite other functions it may be able to perform).<\/p>\n
In determining which tariff classification the decoder fell under the court confirmed the legal principles which apply to tariff classification (i.e. the three step approach of i) interpreting the tariff heading ii), considering the nature and characteristics of the goods and iii), selecting the appropriate heading for the goods). Importantly, the court confirmed the principle that:<\/p>\n
“is trite that the intention of the manufacturer or importer of goods and the use to which the goods are put are not relevant considerations for an appropriate tariff classification in terms of the Act. What is relevant is the nature, characteristics and properties of the goods and the subjective intention of the manufacturer or importer and use of the goods can only be of some relevance in establishing those aspects.”<\/p>\n
Applying these legal principles, the court held that despite the fact that the decoder has multiple functions (for instance, receiving satellite transmissions, decoding these transmissions, converting audio and visual data, transmitting interactive services and providing messaging services), the primary function of the decoder was that of a reception apparatus for television.<\/p>\n
Some of the overwhelming evidence relied on by the court was that: approximately 99.9% of the subscribers use their decoders as a television reception apparatus; the descrambling performed by the system was not a prerequisite since free-to-air services were beamed without having to be descrambled; if the reception part of the decoder were to be removed the decoder would be useless; and the evidence on the respondents’ intention with and purposes of the decoder (ie. that the respondent used the decoder for multiple purposes) was held to be irrelevant in law.<\/p>\n
The court held that the enquiry must be directed primarily at the decoder’s nature and characteristics.<\/p>\n
Having established the correct tariff heading, the court had to determine whether the respondent was liable for the ad valorem excise duty which, according to the wording of the legislation, only arose in respect of a “reproducing apparatus for television” as opposed to “reception” apparatus for television.<\/p>\n
The respondent argued that in terms of the contra fiscum rule no tax can be imposed unless the wording in the legislation clearly shows an intention to lay a burden on the taxpayer. However, the court held that the contra fiscum rule only finds application where there is some doubt as to the true meaning of an ambiguous enactment. Further, the court concluded that it is permissible to interpret an enactment which is repugnant to the intention of legislature so as to give effect to the intention and to make it compatible with other provisions.<\/p>\n
Accordingly, the court held that the word “reproducing” was a patent mistake and should read “reception”, in harmony with the rest of the enactment.<\/p>\n