Distell Limited and Stellenbosch Farmers' Winery Limited v The Commissioner for the South African Revenue Service

The appellants, Distell Limited and Stellenbosch Farmers' Winery Limited (SFW), manufactured alcoholic beverages including ten 'wine coolers'. These products consisted of variations of an unfortified wine base to which flavouring and water were added, and the mixture was carbonated to produce the end product. The first appellant acquired the second appellant's business on 1 January 2001 and continued manufacturing the products. The dispute concerned the correct classification of these wine coolers for excise duty purposes under the Customs and Excise Act 91 of 1964, particularly whether they were 'other fermented beverages' or 'mixtures of fermented beverages and non-alcoholic beverages', and whether water constituted a 'non-alcoholic beverage'. The Commissioner for SARS made various determinations regarding classification, which changed over time, and the appellants contested these determinations seeking appeals under s 47(9)(e) or alternatively applications to compel correction under s 47(9)(d)(i). The classification issue had significant financial implications relating to excise duty rates and eligibility for rebates on duty already paid on the wine component used in manufacturing the coolers.

• What is the correct tariff classification of wine coolers under Schedule 1 to the Customs and Excise Act 91 of 1964?
• Whether wine coolers constitute 'other fermented beverages' falling under the first part of tariff heading 22.06
• Whether wine coolers constitute 'mixtures of fermented beverages and non-alcoholic beverages' falling under the second part of tariff heading 22.06
• Whether water qualifies as a 'non-alcoholic beverage' within the context of tariff heading 22.06
• What relief the appellants are entitled to if they succeed on the classification issue
• The extent to which refunds may be claimed given the time limitations in s 76B(1)(a)(i) of the Act
• Whether condonation should be granted for belated appeals under s 47(9)(e)

The appeal succeeded with costs including costs of two counsel. The order of the court a quo was set aside. The Court corrected the Commissioner's determination of 13 October 2004 to provide that: (a) prior to 18 February 2004, only the wine portion used in manufacturing the final wine cooler products (the eight coolers excluding Bernini and Crown) was liable to excise duty under item 104.15.10; (b) after 18 February 2004, the whole of the final wine cooler products was classifiable in tariff item 104.17.22; and (c) Bernini and Crown were classifiable in tariff item 104.17.22 after 18 February 2004. Relief was refused in respect of Bernini and Crown for the period prior to 18 February 2004 due to the time-barred appeals and absence of timely refund applications.

A 'fermented beverage' under tariff heading 22.06 of Schedule 1 to the Customs and Excise Act is one where the beverage itself is the end product of a fermentation process, not merely a product that contains a fermented ingredient. Wine coolers manufactured by mixing wine with water, flavouring and sweetening agents, and then carbonating the mixture, are not 'other fermented beverages' under the first part of TH 22.06, but rather 'mixtures of fermented beverages and non-alcoholic beverages' under the second part of that heading. Water can constitute a 'non-alcoholic beverage' within the context of TH 22.06 where it plays an important functional role in the character of the finished product and contributes commercial value beyond the fermented beverage component.

Harms DP made additional observations that wine coolers are not 'still' beverages as they are carbonated, providing an alternative ground for rejecting the Commissioner's classification under item 104.15.50. He also noted the irony that if the Commissioner's argument that water is not a beverage were accepted, it would mean wine coolers could not be classified under the second part of TH 22.06 either, potentially exempting them from excise duty altogether. The Court commented on the opportunistic changes of position by both parties throughout the litigation, though declined to attach epithets to such conduct. The judgment also discussed the relationship between rebate provisions in Schedule 6 and the correct tariff classification, noting that the legislature's formulation of rebate item 620.05 supported the appellants' interpretation by providing rebates for wine used in making mixtures but not for wine used in making 'other fermented beverages', implying the legislature knew the first part of TH 22.06 did not apply to wine-based beverages.

This case establishes important principles for tariff classification under the Customs and Excise Act, particularly regarding composite products. It clarifies that a 'fermented beverage' under TH 22.06 must be the end product of a fermentation process, not merely a product containing a fermented ingredient. The judgment also confirms that water can constitute a 'non-alcoholic beverage' within the context of tariff headings, depending on its commercial function in the final product. The case demonstrates the application of the Harmonized System interpretative rules and the primacy of tariff headings and notes over general titles. It also illustrates the strict time limits applicable to tariff appeals and refund claims under s 76B, following the interpretation in 3M South Africa (Pty) Ltd v CSARS. The decision has significant implications for manufacturers of mixed alcoholic beverages and the application of excise duty rebates to prevent double taxation.