The Commissioner for the South African Revenue Service v The South African Breweries (Pty) Ltd

The South African Breweries (SAB) manufactured flavoured alcoholic beverages (FABs) through a fermentation process without distillation. SAB produced an alcoholic base by fermenting dextrose syrup (derived from maize) with yeast, creating ethanol, carbon dioxide, glycerol and flavour compounds. Various non-alcoholic ingredients (flavourants, colourants, sweeteners, water) were then added in-line to create the final FABs with alcohol content ranging from 4.5% to 5.5% ABV. From 2001 to 2013, the FABs had been classified under TH2206.00.90. On 30 October 2013, the Commissioner for SARS reclassified the FABs under TH2208.90.22 (and tariff item 104.23.26), which would attract higher excise duty rates. SAB appealed this determination under s 47(9)(e) of the Customs and Excise Act 91 of 1964. The High Court upheld SAB's appeal and classified the FABs under TH2206.00.85. The Commissioner appealed to the Supreme Court of Appeal.

• What is the correct classification of the FABs for purposes of excise duty under the Customs and Excise Act?
• Should the FABs be classified under TH22.06 (fermented beverages) or TH22.08 (spirits and spirituous beverages)?
• What is the proper application of the General Rules of Interpretation when classifying goods?
• What is the role of Explanatory Notes in the interpretation of tariff headings?
• Can beverages produced from fermentation without distillation be classified under TH22.08?
• Do the FABs qualify as 'mixtures of fermented beverages and non-alcoholic beverages' under TH2206.00.85?

The appeal was dismissed with costs (including costs of two counsel). Paragraph 3 of the High Court order was set aside and replaced with: 'The said tariff determinations are replaced with tariff determinations in terms of Tariff Heading 2206.00.90 in Part 1 Schedule 1 to the Act and the Tariff Item 104.17.90 in Part 2A of Schedule 1 to the Act, from the date of the respondent's determination.' The Commissioner was ordered to pay SAB's costs.

Fermented alcoholic beverages produced without distillation cannot be classified under TH22.08 (spirits and spirituous beverages) but must be classified under TH22.06 (other fermented beverages not elsewhere specified). For goods to qualify as 'mixtures of fermented beverages and non-alcoholic beverages' under TH2206.00.85, both component beverages must exist as distinct beverages before being mixed; sequential addition of ingredients to a fermented base does not constitute such a mixture. In the classification of goods for customs and excise purposes, tariff headings and relevant section and chapter notes are the first and paramount consideration; Explanatory Notes serve only to explain or supplement headings and cannot override their plain meaning. Classification must be determined primarily by the terms of the headings and notes themselves, applying the General Rules of Interpretation in hierarchical order.

The Court noted that even if a hypothetical conflict arose between Explanatory Notes and tariff headings, the plain meaning of headings should prevail, as confirmed in Thomas Barlow. The Court observed that the distinction between classification under TH2206.00.85 and TH2206.00.90 was likely financially insignificant given the alcoholic content of the FABs, which influenced the costs order. The judgment referenced the historical classification of FABs from 2001 onwards and the various determinations made by the Commissioner over time. The Court also commented on production efficiency considerations (such as the in-line blending process versus the 'lemonade tank' method) but noted these do not affect the legal classification of the final product. While acknowledging that the High Court granted leave to appeal based on a perceived conflict between judgments in Thomas Barlow, the Supreme Court of Appeal did not find such conflict to be material to the decision.

This case provides important guidance on the classification of goods for customs and excise duty purposes under the Customs and Excise Act 91 of 1964. It reaffirms the hierarchy of interpretative tools: tariff headings and chapter/section notes are paramount, with Explanatory Notes playing only a supplementary role. The judgment clarifies that fermented alcoholic beverages (produced without distillation) cannot be classified as spirits or spirituous beverages under TH22.08. It establishes that the distinctive production method (fermentation vs distillation) is critical to classification. The case also clarifies that for goods to qualify as 'mixtures' of beverages under the tariff schedules, the component beverages must exist as distinct products before being mixed, not merely ingredients added sequentially. The judgment demonstrates the proper application of the General Rules of Interpretation in a hierarchical manner, and reinforces the principle established in Thomas Barlow that Explanatory Notes cannot override the plain meaning of tariff headings.