Pahad Shipping CC v The Commissioner for the South African Revenue Service

The appellant, Pahad Shipping CC, imported goods and paid amounts to Al Ajwad International LLC in Dubai, including what were described as 'finance charges' of 5% of the purchase price. The Commissioner for SARS determined that these 'finance charges' formed part of the transaction value of the imported goods for customs duty purposes, and that the appellant had underpaid customs duty by R247,440.20, plus VAT of R130,104.24 and penalties of R94,386.04. The appellant provided a written agreement with Al Ajwad describing it as a 'confirming/trade finance facility' with a 'confirming commission' of 5%. However, the appellant's sole member, Nassim Pahad, deposed to affidavits denying that Al Ajwad was a confirming agent and alleging that the written agreement did not reflect the true nature of their relationship. He claimed Al Ajwad only provided finance after goods were cleared in South Africa, acting as a trade finance facility, not a confirming agent. The respondent's investigation revealed various inconsistencies between Pahad's evidence and documentary evidence, including invoices, payment instructions, and bills of entry that suggested Al Ajwad was involved in transactions earlier than alleged, and that payment terms differed from those described by Pahad.

• Whether the 'finance charges' paid to Al Ajwad formed part of the transaction value of imported goods for customs duty purposes under sections 65, 66 and 67 of the Customs and Excise Act 91 of 1964
• Whether the appeal in terms of section 65(6)(a) of the Act is an appeal in the wide sense, ordinary strict sense, or a review
• Whether the court below correctly rejected the appellant's evidence as to the nature of its relationship with Al Ajwad on the papers
• Whether the matter should be referred to oral evidence for cross-examination of the deponent

The appeal was upheld with costs including costs of two counsel. The order of the court below was set aside and substituted with an order: (1) adjourning the application for cross-examination of Mr Nassim Pahad regarding his evidence in the founding and replying affidavits; (2) providing that rule 35 would apply to the adjourned hearing; and (3) that costs of the hearing would stand over for determination at the adjourned hearing. The matter was thus remitted to the High Court for the taking of oral evidence.

An appeal against a determination of transaction value by the Commissioner for SARS under section 65(6)(a) of the Customs and Excise Act 91 of 1964 is an appeal in the wide sense - a complete re-hearing of the matter on the merits with the possibility of additional evidence - rather than an appeal in the strict sense or a review. This is necessitated by: (a) the absence of any requirement for SARS to hear evidence, give reasons or maintain a record; (b) the statutory provision that SARS's determination ceases to be in force upon the court's judgment, implying the court must make its own determination; and (c) the absence of any hearing procedure before SARS makes its initial determination. Where there are reasonable grounds for doubting the correctness of allegations in affidavits, particularly regarding facts peculiarly within the knowledge of the deponent, oral evidence should be allowed even in motion proceedings. While ordinarily an application to refer a matter to evidence should be made at the outset and not after argument on the merits, in exceptional circumstances - such as where there are serious credibility concerns and potential injustice - a court may order such referral even where no application was made in the court below.

The court expressed serious reservations about the credibility of the appellant's factual averments, noting that counsel for the appellant was unable to explain apparent inconsistencies between the evidence and documentation. The court observed that Pahad's reply denying knowledge of what stamps on documents were being referred to was 'on the face of it, blatantly dishonest' where only two stamps appeared on the document and only one was relevant. The court noted that the written agreement had been provided by the appellant to SARS when queried about its relationship with Al Ajwad, only for the appellant to later deny that the agreement governed their relationship. The court commented that it was 'not unreasonable' for SARS to have thought that Pahad's version would be rejected on the papers. While expressing these concerns, the court noted that Pahad 'may of course be able to explain the inconsistencies' and that referring the matter to oral evidence would give him an opportunity to do so. The court also noted that Al Ajwad was 'not a trade finance bank as was alleged by Pahad' without elaborating further on this finding.

This case is significant in South African customs and excise law for establishing that appeals to the High Court under section 65(6)(a) of the Customs and Excise Act 91 of 1964 are appeals in the wide sense, allowing for a complete re-hearing with fresh evidence. The judgment also demonstrates the court's approach to credibility assessments in motion proceedings where there are material factual disputes, and confirms that in exceptional circumstances, a court may refer a matter to oral evidence even where no application was made in the court below, particularly where there are serious concerns about credibility and potential injustice. The case illustrates the importance of proper scrutiny of documentary evidence in customs matters and the consequences of inconsistencies between deponents' evidence and objective documentation.