Commissioner for the South African Revenue Service v Diageo SA (Pty) Ltd

Diageo SA (Pty) Ltd manufactures a liqueur product called Cape Velvet Cream Original, which has a wine spirit base to which a flavouring is added. The flavouring contains vanilla extract with an alcohol by volume (ABV) content of 0.6%. Once all ingredients are mixed, the flavouring itself has a significantly lower ABV of 0.002%. The final product has an ABV of 16%. The Commissioner for SARS classified the product under Tariff Heading 2208.470.22 and corresponding Tariff Item 104.23.22, determining it to be a spiritous beverage with a wine spirit base to which "alcoholic ingredients" have been added, as contemplated in Additional Note 4(b) to Chapter 22 of Schedule 1 Part 1 to the Customs and Excise Act. Diageo contended the product should be classified under Tariff Heading 2208.70.21 and Tariff Item Heading 104.23.21, arguing that the flavouring constituted a "non-alcoholic ingredient" given its minuscule ABV of 0.002%. The high court dismissed Diageo's appeal and upheld the Commissioner's classification. The full court reversed this decision, finding in favour of Diageo's classification. The Commissioner appealed to the Supreme Court of Appeal.

• What is the correct interpretation of the term 'non-alcoholic ingredient' in Additional Note 4(b) to Chapter 22 of Schedule 1 Part 1 to the Customs and Excise Act 91 of 1964?
• Whether an ingredient with an ABV of less than 0.5% should be construed as 'non-alcoholic' for purposes of tariff classification of liqueurs?
• Whether Note 3 to Chapter 22 (defining 'non-alcoholic beverages' as beverages with ABV not exceeding 0.5%) applies to the interpretation of 'non-alcoholic ingredients' in Additional Note 4(b)?
• Whether the de minimis non curat lex principle applies to the classification of alcoholic beverages for excise duty purposes?
• Whether provisions in other statutes (such as the Road Traffic Act) or SARS policy can be used as interpretational aids for giving meaning to 'non-alcoholic' in the context of Additional Note 4(b)?
• What is the correct tariff classification for Cape Velvet Cream Original under the Customs and Excise Act?

The special appeal was upheld with costs. The order of the full court was set aside and replaced with an order dismissing Diageo's appeal to the full court with costs.

The term 'non-alcoholic ingredient' in Additional Note 4(b) to Chapter 22 of Schedule 1 Part 1 to the Customs and Excise Act 91 of 1964 must be given its ordinary grammatical meaning of 'no alcohol', not an ABV of less than 0.5%. Where statutory terms are not defined in the Act or with reference to relevant Headings, Subheadings and Notes, they must be given their ordinary meaning in their immediate and wider context. Annotations and definitions in one part of a tariff schedule (such as Note 3 to Chapter 22 defining 'non-alcoholic beverages' for purposes of Tariff Heading 22.02) do not apply to other parts (such as Additional Note 4) unless expressly stated or clearly intended by the legislature. An ingredient that contains any amount of alcohol, regardless of how minuscule, is not a 'non-alcoholic ingredient' for purposes of Additional Note 4(b). Both primary and secondary components added to a wine spirit base constitute 'ingredients' for classification purposes. The three-stage process for tariff classification (interpretation of headings, consideration of the nature of goods, and selection of appropriate heading) must be maintained with clear distinctions between each stage to avoid conflation.

The Court made several non-binding observations: (1) The use of provisions from other statutes (such as section 65 of the Road Traffic Act) as interpretational aids for customs and excise classification is generally impermissible unless the need flows effortlessly from context or the provision cross-references the other statute. (2) The de minimis non curat lex principle, while applied in criminal cases in South Africa, has not been used as an interpretational aid in customs and excise cases. The Court expressed reservations about its unrestricted application as an interpretational tool, noting concerns about separation of powers and judicial law-making, as the law-making function is pre-eminently that of the legislature. The application of this principle for interpretational purposes has implications that require fuller argument and is not appropriate for determination in a customs classification case. (3) SARS policies, while binding on SARS, do not determine legislative intention and cannot be used to assign special meanings to statutory terms. (4) It would be difficult to formulate a definition of a 'minimum' that would be valid in all circumstances in tariff classification matters, as the amount of alcohol is not the only relevant factor - the revenue implications of classification may also be significant even if the amount of alcohol seems trifling.

This case establishes important principles for the interpretation of tariff classifications under the Customs and Excise Act. It reaffirms the primacy of textual interpretation and the ordinary grammatical meaning of words in statutory interpretation, particularly in the context of customs and excise law. The judgment clarifies that annotations and definitions in one part of a tariff schedule (such as Note 3 to Chapter 22) do not automatically apply to other parts unless expressly stated or clearly intended. The case also addresses the limits of using provisions from other statutes or administrative policies as interpretational aids, confirming that such cross-references are impermissible unless they flow effortlessly from context or the provision itself cross-references another statute. Significantly, the judgment expresses reservations about the application of the de minimis principle as an interpretational tool in South African law, particularly in the context of customs and excise classification, noting concerns about separation of powers and judicial law-making. The case reinforces the three-stage process for tariff classification (interpretation, consideration of the nature of goods, and selection of appropriate heading) and warns against conflating these stages. This decision provides certainty and uniformity in the classification of liqueurs and similar products, ensuring consistent application of the Act by SARS.