At the
time that the applicant filed this application it sought an order in the
following terms:
“IT IS
DECLARED THAT:
1.
The applicant's Belmont Plant in Bulawayo is a licensed premises that is not a
warehouse nor a licenced premises deemed to be a warehouse;
2.
Section 71 of the Act, ss 91 and Article IV of the Customs and Excise (General)
Regulations 2001 do not apply to the losses at the Belmont plant as it is
neither a warehouse nor a premises deemed to be a warehouse;
3.
Section 146(2) of the Customs and Excise Act [Cap 23:02]
is applicable to the matter and the losses incurred at the plant; and
4.
Applicant has taken every reasonable effort and every precaution to prevent
loss of beer in terms of section 146(2)(a) of the Act.
5.
Respondent shall bear the costs of the application.”
By
the time of the hearing, on 4 September 2013, and due to concessions made by
the respondent in its papers, the applicant was only seeking the relief sought
in paragraph 4 of the Draft Order insofar as substantive relief is concerned,
the relief in paragraphs 1,2 and 3 no longer being pursued.
Section
146 of the Customs and Excise Act [Chapter 23:02] provides:
“146 Duty to be paid in respect of deficiency
in stock, etc.
(1)
When a deficiency is found on licensed premises in the stock of goods liable to
excise duty, or surtax the manufacturer shall, subject to the provisions of
this Act, forthwith pay duty on the amount of the deficiency less any allowance
which may be granted in accordance with the provisions of this Act.
(2) If
the Commissioner is satisfied that –
(a) Goods
liable to duty were –
(i) Lost
in the course of and by reason of the process of their manufacture; or
(ii)
Destroyed by accident, or lost by accident without going into consumption, in
the course of manufacture; or
(iii)
Destroyed by accident or lost, by accident or otherwise, without going into
consumption, in the course of manipulation;
in
or at a place on licensed premises which is not a place deemed to be a
warehouse in terms of subs (5) of section seventy–one; or
(b)…,.
(c)…,.
(d)…,.
and
that every reasonable effort was made and precaution taken to prevent their
loss or destruction,
the Commissioner shall remit the duty or the excise duty or surtax, as the case
may be, payable on the food.”…,.
The
applicant challenges the refusal of the respondent to grant a rebate of excise
duty in respect of losses of beer in the manufacturing process at the plant
operated by the applicant in Belmont, Bulawayo. The applicant contends
that by virtue of section 146(2) of the Customs and Excise Act [Chapter 23:02],
the Commissioner was obligated to remit the excise duty claimed. Hence the
declaratory order sought by the applicant in paragraph 4 of the Draft Order to
the effect that it made every reasonable effort and took every precaution to
prevent the losses of beer in the manufacturing process.
The
applicant avers that it is the owner of a beer processing plant in Belmont,
Bulawayo and that the plant is a licensed premises in terms of section 128 of
the Customs and Excise Act [Chapter 23:02] and also in terms of the licence
issued by the respondent and the manufacturers bond as required in terms of section
136 of the Customs and Excise Act [Chapter 23:02]. It also avers that
between the years 2007 and November 2010, significant product losses were being
incurred at the Belmont plant. The beer losses were incurred at the bottling
and packaging stage of production and were made up of product spillages,
under-filled bottles and quality rejections.
The
applicant also avers that following a report on the losses, it conducted
intensive investigations and discovered that the losses were caused by the use
of deteriorated and antiquated equipment at the plant. Power outages also
contributed significantly to inefficiencies during the pasteurising and bottling
process carried on at the plant. The plant machinery, equipment and parts
had been purchased by the applicant from the equipment manufacturer, KHS AG in
Germany. It had, thereafter, always purchased all its equipment and spare
parts in foreign currency from the said company through its South African
Division. However, during the period 2008 and 2009, the applicant
experienced critical foreign currency shortages which were the result of a
hyper-inflationary environment and a volatile macro-economic climate during
that period. The applicant, so it avers, failed to purchase new equipment
or spare parts for the plant due to these challenges. The applicant further
avers that at the end of 2008, it sourced and obtained funding, part of which
was allocated to conducting repairs and extensive maintenance work of the
plant. In July 2009, an extensive audit by the manufacturers, KHS AG, engineers
from Bevtek Engineering Company, and consultants from SAB Miller, culminated in
a major refurbishment of the packaging lines. This, it is said, resulted
in reduction in production losses from 10 to 15% to an average of 5% by October
2009. In an effort to further reduce losses, a decision was made to retire
one of the two packaging lines by January 2010. In November 2010, a new
packaging line was commissioned at a cost of US$16 million. This allegedly
resulted in the reduction of production losses to below 2% despite the
challenges that were still being faced with the remaining packaging line.
It
is further stated that the applicant did, and continues to, take all possible
measures to prevent beer losses at the plant. It is also stated that the
applicant has always kept the respondent abreast with the challenges faced and
all the efforts made to increase efficiency at the plant.
Despite
this, on 7 September 2010, the applicant received a letter from the respondent
informing it that it owed a total of $2,120,368=56 in excise duty calculated
from February 2009 to July 2010. This included a 100% penalty of $1,060,184=28
for unpaid duty. It is avered that this came as a shock to the applicant
as the respondent was aware of the challenges that the applicant was facing and
the efforts that it had made to reduce losses as well as the fact the applicant
had already paid a total US$15,8 million in excise duty for the period February
2009 to August 2010. The applicant further saw no justification for the
respondent to demand a 100% penalty for unpaid duty. The applicant,
accordingly, wrote to the respondent on 16 September 2010 highlighting these
concerns.
On
21 September 2010, the applicant further wrote to the respondent contending
that section 9 of the Customs and Excise Regulations and the maximum allowable
percentage losses in the Schedule do not apply to the losses incurred at the Belmont
Plant as it was neither a bonded warehouse nor part of a licenced premises
deemed to be a warehouse, and, furthermore, that section 146 of the Customs and
Excise Act [Chapter 23:02] is applicable to the losses suffered at the
plant. On 21 September 2010, the applicant wrote to the respondent seeking
a recalculation of duty and appealing for a remission of duty in terms of section
146(2) of the Customs and Excise Act [Chapter 23:02].
The
respondent's response reiterated that the excise duty stipulated was due and
payable and maintained that the losses were covered by section 146 of the
Customs and Excise Act [Chapter 23:02] as well as section 91 of the Customs and
Excise Regulations, S.I.154 of 2001 as the licenced premises are deemed to be a
warehouse. On 16 November 2010, the respondent wrote to the applicant outlining
what was termed the respondent's “final position”; this being that it was
stated that the plant was a warehouse as defined in the Customs and Excise Act [Chapter
23:02] and that the provisions of section 91 of the Customs and Excise
Regulations, S.I.154 of 2001 were being invoked as the most appropriate and
specific provision dealing with losses encountered during production or
bottling.
This
was at variance with an earlier stance to the effect that the plant was deemed
to be a warehouse.
On
17 November 2010, the applicant lodged an appeal with the Commissioner
highlighting that they had taken every precautionary measure to prevent loss
and contending therein that it was entitled to remission in terms of section
146(2) of the Customs and Excise Act [Chapter 23:02]. On 12 May 2011, the
applicant was asked to demonstrate the measures it had taken to prevent
losses. It furnished the information during the months of May and June
2011. On 16 February 2012, the applicant received a letter from the
respondent. It stated, inter alia:
“Reference
is made to your letters of appeal and meetings held with ZIMRA in
connection with the abovementioned subject. The facts of the matter have been
carefully considered but I cannot overlook the fact that an offence was
committed in that you incurred excessive losses, failed to report the losses to
ZIMRA and you also went on to treat them as adjustments to stock in the Beer
Excise Returns.
Having
considered the provisions of s146(2)(a)(iii), I wish to advise you that you
continued incurring beer losses in order to save employment and maintain your
marker share. The effort you made did not help reduce the losses, and, as
such, I am not satisfied that every precaution was taken to prevent the
loss. This disqualifies you from being granted a remission of duty on the
beer losses.
It
should also be noted that while s136(2) of the Customs and Excise Act requires
you to render a truly and complete return, you did not disclose the losses that
you incurred as required in terms of the law. The non-disclosure was only
discovered during the audit period. Such non-disclosure is an offence and
in terms of s174(1)(d) of the Customs and Excise Act. (sic)
You
are therefore required to discharge your obligations to the Regional Manager by
paying the following:-
Excise
duty $966,996=
Penalty
$ 2,
000=”
The
letter quoted above gives the impression that the Commissioner General's
attitude was that the efforts made by the appellant did not help to reduce the
losses. Furthermore, and curiously so, that the losses were deliberately
incurred by the appellant in order to save employment and maintain its market
share.
In
its opposing affidavit to this application, the Commissioner General states, inter alia, that the only conclusion that can be drawn from
the applicant's conduct is that no reasonable steps were taken to prevent the
losses and that that is the reason why it did not want the respondent to know
of the beer losses. It is stated:
“If
the applicant was indeed taking all the necessary steps to prevent the losses;
why was it not making correct excise beer returns to the respondent since it
knew that it was entitled to a remission?”
The
appellant's answering affidavit was sworn to by the one Alex Makamure, the
appellant's Company Secretary. He states, amongst other things, that the
deponent to the respondent's opposing affidavit has no knowledge of matters as
they occurred in Bulawayo or dealings between the appellant's officials in
Bulawayo and the respondent's officials in Bulawayo. For the details he
refers to the affidavit of Luke L.K. Matara which is annexed to his.
One
Luke L.K. Matara deposed to an affidavit which is referred to in, and attached
to, the applicant's answering affidavit deposed to by Alex Makamure. Luke
L.K. Matara states that he is employed by the applicant as Finance Manager –
Southern Region and based at the Belmont Plant in Bulawayo from April 2006 to
March 2012. He states, in the affidavit, that during the relevant period,
from 2007 to 2010, the appellant had regular meetings with officials from ZIMRA
on matters related to excise returns, excise duty payments and issues related
thereto. The ZIMRA officials were involved in site audits, authorisations of
beer decants and transfers and matters related to the correct accounting and
timely payment of excise duty.
He
states that some queries were raised by the Station Manager of ZIMRA, Bulawayo
concerning excesses in beer losses incurred at the plant from January 2009 and
that one of the issues that arose was whether the losses which were incurred at
the bottling stage could be regarded as losses incurred during the process of
manufacture. He also states that the Bulawayo station of the respondent,
and in particular the named officers whom they had regular meetings with, were
alive to the nature and quantum of the production beer losses recorded by the
appellant at the Belmont plant and the reasons giving rise to the same. He
further states that the losses were being shown as “adjustments to stock” on
the excise returns in terms of the existing understanding with ZIMRA and as
accepted by the ZIMRA offices over time. The underlying records such as
the production records and stock sheets provided the supporting detail on the
make-up and nature of the losses; which documents were always available to the
ZIMRA officials and were, in fact, often examined by them to confirm the
contents of the excise returns.
Luke
L.K. Matara further states that this dispute arises from an audit by ZIMRA's
Technical Department on the operations of the Bulawayo Customs Port. The
auditors challenged the station on why they were accepting remission of excise
on the losses without limiting them to 2% as provided in the Customs and Excise
Regulations, S.I.154 of 2001 (section 91 of S.I.154 of 2001). The applicant's
Bulawayo office, on the advice of the Company Secretary, challenged this change
in the application of the Customs and Excise Regulations, S.I.154 of 2001 and
maintained that the treatment of the beer losses on the excise returns was
correct and that the purported limits arising from the Customs and Excise
Regulations, S.I.154 of 2001 (S.I. 154/2001) did not apply to the Belmont
Plant. He also states that current returns (as at March 2013 when he deposed to
the affidavit) which are prepared in similar fashion are being accepted by the
same office.
In
essence, the applicant's contention is that it took every reasonable effort and
every precaution to prevent loss of beer and that, in the circumstances, it is
entitled to remission of duty. The respondent's contention, on the other
hand, is to dispute that the applicant took reasonable steps and precautions to
prevent the beer losses. In response to the respondent's opposing
affidavit, the applicant, in the answering affidavits, gave details of the
respondent's officers who they had regular meetings with and who were aware of
the beer losses and with whom it was agreed how these would be dealt
with. The applicant also therein contends that the deponent to the
opposing affidavit, the Acting Commissioner of Customs and Excise, was not
aware of the site audits, authorisation of beer decants, and transfers as well
as matters relating to the correct accounting and timely payment of excise
duty, which matters were dealt with by the respondent's named officials at the
regular meetings.
It
is unfortunate that the respondent did not seek leave to file further
affidavits subsequent to the applicant's answering affidavit and attachments in
order to respond to the specific details given therein relating to the
respondent's previous involvement and attitude or approach to the applicant's
situation. The specific details were raised in response to the averments
in the opposing affidavit.
In
the result, the applicant's said specific details have not been responded to.
It is thus not possible for this court to make any findings as to the facts -
even on a robust approach to the matter.
