MUSAKWA
J:
Following
an urgent chamber application lodged with this court an order by
consent was granted as between the applicant, first, second, third
and fourth respondents on 13 November 2013. Five issues were reserved
for argument and these are:
“(a)
Whether the importation of the base stations by the applicant during
the period January 2009 to July 2013 was conducted within the law.
(b)
Whether in the circumstances of this case, the 1st
and 2nd
respondents are prevented from reviewing the classification for
customs duty purposes of base station components imported by the
applicant between January 2009 and July 2013 by the doctrines of
estoppel, waiver, or functus
officio.
(c)
Whether at law, the 2nd
respondent is entitled to impose and collect without the agreement of
the applicant a fine at all, or of the magnitude imposed on the
applicant, namely, US$47, 654, 830-38.
(d)
Whether it is competent for the 2nd
respondent to collect the fine imposed on the applicant through the
garnishee procedure provided for under section 201A of the Customs
and Excise Act [Chapter
23:02].
(e)
Whether the launching of an appeal or other challenge to the
classification of goods for customs purposes under section 87 of the
Customs and Excise Act precludes the 1st
and 2nd
respondents from collecting the customs duty under challenge under
section 201A of the Act pending the determination of an appeal or
other challenge.”
The
facts of the matter are as follows.
The
first and second respondents placed garnishee orders on the
applicant's bank accounts with the third respondents. On 3 December
2013 the applicant was served with a letter to which was attached
bills of entry relating to base station components imported between
January 2009 and June 2013. Related to the schedule was a revised
tariff calculating the duty now payable. A penalty of 300% was also
imposed. It was stated that the applicant owes customs duty and value
added tax in the sum of US$15,884,943-46. It was contended that the
applicant paid duty on its imports as base stations as opposed to
base station components. Thus, a penalty of US$47,654,830-38 was
imposed, bringing the total amount claimed to US$63,539,773-84. No
reason was given for the penalty that was imposed.
As
regards the garnishee order made under section 58 of the Income and
Tax Act [Chapter
23; 06]
it is contended that the provision relates to tax obligations under
that Act. It is also contended that the procedure relating to the
appointment of representative tax payers does not apply to disputed
tax liabilities. Even if the Income Tax Act is applicable the
applicant would be entitled to object in terms of section 62 and the
time within which to object had not lapsed. Part 111A of the Revenue
Authority Act [Chapter
23:11]
does not empower the Commissioner General to arbitrarily take the
applicant's money.
The
applicant refers to annexures 'F' and 'G' in relation to what
constitutes a base station. Annexure 'F' is a letter written on
behalf of the Director of Customs and Excise on 5 October 1998 and
addressed to the applicant's Manager, General Services. The
enumerated goods are classified for duty free purposes under tariff
8525.2020. Annexure 'G' is another letter written on behalf of
the second respondent and addressed to the applicant's Chief
Logistics Manager on 24 February 2010.
It
is further contended that it is impractical to have a base station
assembled in bond in order to qualify for duty free status. The duty
of an importer is to declare imports and not the assessment of goods
for duty purposes. Thus the respondents are bound by the assessments
they made.
Regarding
the penalty, the applicant contends that there is no law that it
violated. Section 200 of the Customs and Excise Act relates to
penalties where a party admits violating the Act. In such a case the
respondents are not permitted to impose a penalty through an agent
under section 201A. In addition, a penalty of 300% is manifestly
excessive.
In
opposing the application the first and second respondents contend
that the dispute between the parties is over classification of goods
for customs purposes. It is acknowledged that the applicant has
always imported base stations constituted as components. The law
allows importation of assembled base stations.
For
classification of goods for customs purposes, the Customs and Excise
Tariff Notice, Statutory Instrument 245/2002 incorporates General
Rules for Interpretation of Harmonised System for the Classification
of Goods which is a global standard. In that respect, rule of
classification 3(b) provides that composite goods made up of
different components shall be classified as if they consisted of a
component which gives them their essential character. All completely
knocked down components shall be imported at the same time to
constitute the essential character of a base station.
For
an importer to rely on a tariff ruling on imports, the ruling must be
issued according to law in order to constitute a Revenue Advance Tax
Ruling (which includes a Tariff Ruling). The ruling must be issued by
the second respondent and not an administrative head or manager at
station level.
Some
specific agents of the applicant imported base stations without
placing them in bond to enable reconciliations. They also imported
other telecommunications equipment under the guise of base stations.
When this was brought to the applicant's attention the proper
amounts of duty were paid.
Following
such a development, the first respondent, as it is entitled to do,
conducted a post-clearance audit relating to base stations. In the
process significant anomalies were noted. There was an erroneous
declaration of base stations. The applicant was advised of the
outcome of the audit and asked to pay in terms of the Special Warrant
Customs Duty. The applicant asked for more time to consider the
issue. The respondents conceded that the wrong garnishee form was
used. Instead of the one used for Customs and Excise they used the
one for Income Tax. The erroneous garnishee was subsequently
withdrawn.
Lawfulness
of the Imports
Mr
Nyambirai
submitted that illegality does not arise by virtue of the letter
dated 3 December 2013. This is because the letter made reference to
an administrative arrangement. An allegation of illegality
presupposes that the applicant acted on its own. Bills of Entry were
reviewed by the respondents. The duty to classify is not that of the
importer. He further submitted that if there is any
misclassification, it is the fault of the respondents.
Mr
Chinake
submitted that the applicant can only succeed in the relief sought if
the facts do not support the respondents' actions. He further
submitted that ordinarily courts should not interfere with the powers
bestowed on administrative authorities.
According
to the Customs and Excise (Tariff) Notice, Statutory Instrument
245/2002 general rules for the interpretation of the Harmonized
System Classification of Goods in the nomenclature shall be governed
by the following principles:
“Rule
2
(a)……………………………………………………………………………………………….
(b)
Any reference in a heading to a material or substance shall be taken
to include a reference to mixtures or combinations of that material
or substance with other materials or substances. Any reference to
goods of a given material or substance shall be taken to include a
reference to goods consisting wholly or partly of such material or
substance. The classification of goods consisting of more than one
material or substance shall be according to the principles of Rule 3.
Rule
3
When
by application of Rule 2(b) or for any other reason, goods are prima
facie,
classifiable under two or more headings, classification shall be
effected as follows:
(a)……………………………………………………………………………………………….
(b)
Mixtures, composite goods consisting of different materials or made
of different components, and goods put up in sets for retail sale,
which cannot be classified by reference to 3(a), shall be classified
as if they consisted of the material or component which gives them
their essential character, insofar as this criterion is applicable.
(c)………………………………………………………………………………………………”
The
respondents' contention is that following a post-clearance audit
regarding imports made by the applicant between January 2009 and June
2013 certain anomalies were detected. These included the importation
of certain telecommunication equipment other than equipment that
constituted a base station. In other instances the applicant is said
to have imported individual components that could have constituted a
base station had they been imported at the same time and moved into a
bonded warehouse. In fact, the respondents' contention is that the
equipment was imported under the guise of a base station. This
resulted in the declared base stations by the applicants amounting to
491142. In contrast, the Postal and Regulatory Authority noted that
the applicant had 2440 base stations.
The
applicant acted through agents. It is the duty of an importer to make
an entry of the importation of goods in a bill of entry. In this
respect see sections 39 and 40 of the Customs and Excise Act [Chapter
23: 02].
It is also clear that a principal is liable for the transgressions of
an agent. In this respect see section 218(3) of the Act.
It
is only when the individual components of telecommunication equipment
constituted a base station that they could not attract duty. I cannot
see for example how cables could be billed as base station.
Therefore
in light of the audit conducted in respect of the importations done
by the applicant, the false declarations amount to a contravention of
the Act. It matters not that these declarations were made by the
applicant's agents.
Estoppel
Mr
Nyambirai
submitted that the acts of functionaries are deemed to be those of
the principal. This acts to protect the rights of others who rely on
the acts of administrative authorities as in the present case. Thus,
it is inappropriate for the respondents to turn around and claim duty
for goods that previously did not attract duty. A reclassification
can only be done on appeal. He referred to section 87(2).
Mr
Chinake
submitted that the dispute must be analysed in the context of the
provisions of the Customs and Excise Act. Thus the statute in
question bestows certain powers on the respondents which cannot be
overridden by common law principles. For example, there is provision
for payment of duty pending the resolution of a dispute.
The
defence of estoppel was explained by McNally JA in Mashave
v
Standard Bank of S.A. Ltd
1998 (1) ZLR 436 (SC), at 438 as follows:
“The
Roman-Dutch law protects the right of an owner to vindicate his
property, and as a matter of policy favours him as against an
innocent purchaser.” See for instance Chetty
v Naidoo
1974
(3) SA 13 (A) at 20A-C.
The
innocent purchaser's only defence is estoppel. Estoppel depends upon
an allegation that a D representation was made by the owner/claimant.
In Aris
Enterprises
(Finance)
(Pty) Ltd
v
Protea Assurance Co Ltd
1981 (3) SA 274 (A), Corbett JA (as he then was) said at 291:
'The
essence of the doctrine of estoppel by representation is that a
person is precluded, i.e estopped, from denying the truth of a
representation previously made by him to another person if the
latter, believing in the truth of the representation, acted thereon
to his prejudice (see Joubert The
Law of South Africa
vol 9 para 367 and the authorities there cited). The representation
may be made in words, i.e expressly, or it may be made by conduct,
including silence or inaction, i.e tacitly (Ibid para 371); and in
general it must relate to an existing fact (Ibid para 372).'”
See
also Grosvenor
Motors (Potchefstroom) Ltd v
Douglas
1956 (3) SA 420 (A) at 427G; Johaadien
v
Stanley Porter (Paarl) (Pty) Ltd
1970 (1) SA 394 (A); Oakland
F
Nominees
(Pty) Ltd v
Gelria Mining & Invstm Co Ltd
1976 (1) SA 441 (A); Jones
& Ors
v Trust
Bank of Africa Ltd & Ors
1993 (4) SA 415 (C) at 424-5; Basson
t/a Repcomm
Community
Repeater Svcs v
Postmaster General
1994 (3) SA 224 (SE) at 235A-C; Rabie
The Law of Estoppel in South Africa
p1; Miller
The Acquisition and Protection of Ownership p
306 et seq; Visser and G Potgieter Estoppel: Cases
and Materials
p 240; Silberberg & Schoeman's The
Law of Property
3 ed 284-299; Gibson's SA
Mercantile & Company Law
6 ed 186-7.
Section
87(2) of the Customs and Excise Act provides that-
“The
Commissioner shall vary or set aside a classification of goods made
in terms of subsection (1) if he is satisfied, whether on appeal by
the importer of the goods or otherwise, that the classification was
incorrect.”
The
provision empowers the Commissioner to vary an erroneous
classification of goods. Such variation is not limited to an appeal
as contended by Mr Nyambirai.
I am fortified in this view by the wording- “whether
on appeal by the importer of the goods or otherwise,……”
The
ordinary dictionary meaning of otherwise is - “in another or
different way; in other or different respects: or apart from that.”
Therefore,
I construe that provision to mean that the Commissioner-General may
vary or set aside a classification of goods, if he is satisfied,
whether on appeal by the importer of goods or in any other
circumstances, that the classification was incorrect.
It
would be absurd to restrict the Commissioner General's intervention
to an appeal when there is provision for a post clearance audit as
provided in section 223A of the Act. In this respect section 223(4)
of the Act provides that:
“The
Commissioner, after releasing the goods subject to entry and in order
to satisfy himself or herself as to the accuracy of the particulars
contained in the declaration, may undertake a post-clearance audit in
relation to those goods, that is to say he or she any officer or
person authorised by him or her in writing may—
(a)…………….
(b)…………….
(c)…………….
(d)……………”
Waiver
Mr
Nyambirai
submitted that by virtue of classifying some components for base
stations as duty free, the respondents waived an intention not to
impose duty on the class of goods so specified. This is sufficient to
invoke estoppel. He further submitted that the applicant published
its financial statements over the years based on this information and
it had impact on the public. Therefore, the respondents must be
estopped from reclassifying the components.
It
is also contended that the classifications made in the letters dated
5 October 1998 and 24 February 2010 were made by agents of the
Commissioner-General and not officers in terms of section 87 of the
Customs And Excise Act. In that context it is tantamount to a
classification made by the Commissioner-General himself.
Consequently, the Commissioner-General would be precluded from
reclassifying goods that were classified by his agents.
As
previously noted, of the letters in contention, the one dated 5
October 1998 was signed by T. Chimunhu on behalf of the Director
of Customs and Excise. That of 24 February 2010 was signed by M.
Madongorere on behalf of the Commissioner General.
Mr
Chinake
countered this argument by submitting that the respondents have an
unfettered right to conduct post-clearance audit within six years.
Just
as the argument on estoppel, I find merit in the argument advanced by
the respondents. The people who signed the letters referred to are
officers of the first respondent as defined in the Customs and Excise
Act. It is those officers who made the classifications of the imports
in terms of section 87(1) of the Act. It is clear that the
classification was not made by the second respondent. In that event
the applicant's recourse was either to appeal to the second
respondent (if the classification was made by an officer) or to
appeal to the Fiscal Appeal Court (if the classification was made or
varied by the second respondent). See section 87(3) of the Act.
The
duty to classify goods rests with the first respondent's officers
or the second respondent. In the event of error in the classification
of such goods, such classification can be varied by the
Commissioner-General who is the second respondent. Therefore, an
erroneous classification of goods cannot be viewed as waiver of duty
payable on the class of goods affected by such erroneous
classification. The respondents would be failing in their statutory
obligations were they to turn a blind eye to the need to rectify any
anomaly exposed by a post-clearance audit.
A
party relying on waiver has the onus to show that the other party had
full knowledge of its rights and abandoned such rights expressly or
impliedly. See
Barclays Bank of Zimbabwe v
Binga
Products 1984
(2) ZLR 26 (SC). The classification of goods in their correct tariff
cannot be viewed as a right. It is a duty and where it is not done
correctly, it must be rectified.
Effect
of Noting Appeal
Mr
Nyambirai
submitted that section 201A relates to appointment of agents by the
Commissioner-General. Since an appeal was noted against the decision
of the Commissioner-General, the decision made in the letter of 3
December 2013 was suspended. He based this submission on the common
law. However, Mr Nyambirai
further submitted that there is conflict regarding the effect of
noting an appeal against the decision of an administrative authority.
Nonetheless Mr Nyambirai
placed reliance on the case of Econet
v
Telecel Zimbabwe (Pvt) Ltd 1998
(1) ZLR149 (HC). He also referred to section 14 of the Fiscal Appeals
Court Act.
Mr
Chinake
countered this submission with the argument that the respondents have
no problem with the importation of complete base stations duty free.
Rather, it is the fact that the applicant imported single components
which were then classified as base stations. In such a case the
imports would be liable for duty.
Regarding
the effect of noting of the appeal, section 14 of the Fiscal Appeal
Court Act [Chapter
23:05]
provides that -
“The
obligation to pay and the right to receive and recover any tax,
additional tax, penalty or interest chargeable under this Act shall
not, unless the Commissioner so directs, be suspended by any appeal
in accordance with section 11 or 13 or pending the decision of the
court, but if any assessment is altered on appeal or in conformity
with any such decision or a decision by the Commissioner to concede
the appeal to the court, a due adjustment shall be made, amounts paid
in excess being refunded with interest at the prescribed rate and
calculated from the date proved to the satisfaction of the
Commissioner to be the date on which such excess was received, and
amounts short-paid being recoverable with penalty and interest.”
In
Econet
v
Telecel
Zimbabwe
(supra)
Smith J held that in civil cases the noting of an appeal
automatically suspends the execution of any judgment or order granted
by the court of first instance. Having noted that there are statutes
that provide against the suspension of a judgment or order upon the
noting of an appeal the learned judge went further to recommend that
the law be amended in as far as it provides for the automatic
suspension of the execution of a judgment or order upon the noting of
an appeal.
In
Longman
Zimbabwe (Pvt) Ltd v
Midzi & Others
2008 (1) ZLR 198 (S) the Supreme Court noted that the common law rule
on the effect of noting an appeal has not been applied uniformly,
resulting in a divergence of opinion. However, at pp 205-206 Garwe JA
had this to say:
“There
is a presumption in our law that Parliament does not intend to alter
the common law unless it does so expressly or by necessary
implication. Silence by the Legislature should not be taken to mean
that the Legislature intends to alter the common law position. If the
enabling legislation is silent, then the common law position must
apply: PTC
v
Mahachi
1997 (2) ZLR 71 (H).
The
position may now be accepted as settled in this jurisdiction that,
unless empowered by law to do so, an inferior court, tribunal or
other authority has no power to order the suspension of its own
orders or judgments and, further, that the noting of an appeal
against the judgment or order of such a court, tribunal or other
authority, in the absence of a statutory provision to that effect,
does not have the effect of suspending the operation of the judgment
or order that is sought to be appealed against.”
In
light of section 14 of the Fiscal Appeal Court Act, the noting of an
appeal with the Fiscal Appeal Court did not suspend the decision of
the Commissioner-General. I did not hear any contention that the
Commissioner-General directed the suspension of the order against the
applicant pending the appeal noted.
Whether
the Respondents Can Impose and Collect A Penalty without Agreement
Mr
Nyambirai
submitted that the second respondent cannot impose a penalty where an
importer has not consented. He referred to section 200 of the Act.
Where an importer does not admit the matter should be referred for
prosecution. He further submitted that a penalty of 300% was not
justified. Even where there is such power to impose a penalty, it was
unreasonably exercised.
Mr
Chinake submitted
that the Act provides for a penalty up to three times the value of
the goods. It is up to the court to determine whether that was
justified in the present case. In the event of the penalty being
excessive the court can vary it or direct the second respondent to
amend it.
Regarding
the imposition of a fine by the Commissioner-General, section 200(1)
of the Customs and Excise Act provides that -
“If
any person has contravened any provision of this Act and has admitted
to the contravention, he shall pay a fine determined by the
Commissioner, which does not exceed the maximum penalty provided by
this Act for the offence in question:
Provided
that if criminal proceedings have been instituted against the person
concerned for such offence, the power conferred by this subsection
shall not be exercised without the prior approval of the
Prosecutor-General.”
The
above provision is analogous to the payment of admission of guilt
fines in terms of section 356 of the Criminal Procedure and Evidence
Act [Chapter
9:07].
The major difference though is that in terms of section 356 of the
Criminal Procedure and Evidence Act the payment of fines in lieu of
appearing before a court is restricted to minor offences.
A
plain reading of section 200(1) of the Customs and Excise Act leaves
no doubt that the Commissioner-General can only determine a fine
where a person is admitting. The only other situation is where
criminal proceedings have been commenced and there is prior approval
by the Prosecutor-General. There is no evidence of such a development
taking place.
Propriety
of Collecting a Fine By Way of Garnishee
Section
201A of the Customs and Excise Act provides that:
“(1)
For the purpose of subsection (1) —
“person”
includes —
(a)
the People's Own Savings Bank constituted in terms of the People's
Own Savings Bank Act [Chapter
24:22]
and any financial institution registered or required to be registered
in terms of the Banking Act [Chapter
24:20]
or the Building Societies Act [Chapter
24:02];
and
(b)
a partnership or company.
(2)
The Commissioner may, if he thinks it necessary, declare any person
to be the agent of any importer or excise manufacturer, and the
person so declared an agent shall be the agent of such importer or
excise manufacturer for the purposes of paying any duty due in terms
of this Act, and, notwithstanding anything to the contrary contained
in any other law, may be required to pay any duty due from any moneys
in any current account, deposit account, fixed deposit account or
savings account or from any other moneys, including pensions, salary,
wages or any other remuneration, which may be held by him for, or due
by him to, the importer or excise manufacturer whose agent he has
been declared to be.
(3)
For the purpose of this section, the Commissioner may require any
person to give him within a specified period information in respect
of any moneys, funds or other assets which may be held by him for or
due by him to, any importer or excise manufacturer.
(4)
Any person who fails to comply with any provision of this section
with which it is his duty to comply shall incur a penalty of five per
centum of
the unrecovered revenue for every day during which the default
continues, and every such penalty shall be recoverable by the
Commissioner by action in any court of competent jurisdiction.”
In
the general definition section of the Act, duty is defined as -
“'duty',
subject to subsection (4) of section thirty-four,
subsection (4) of section thirty-eight,
subsection (6) of section thirty-nine,
subsection (5) of section forty,
subsection (6) of section forty-five,
subsection (3) of section forty-six,
subsection (1) of section one
hundred and eighteen,
subsection (2) of section one
hundred and ninety-two,
subsection (2) of section one
hundred and ninety-three,
subsection (3) of section two
hundred and four and
subsection (10) of section two
hundred and nine,
means any duty leviable under this Act or any other law relating to
customs and excise and includes surtax;”
Therefore,
a fine cannot be duty. A fine is a penalty. Section 201A(2) relates
to the appointment of an agent for collection of duty. It makes no
reference to a fine. Therefore a garnishee cannot operate in relation
to a fine.
Since
no draft order was prepared, the issues raised by the parties are
disposed of as follows:
1.
The declarations made by the applicant amounted to a contravention of
the law.
2.
The respondents were entitled to reclassify goods arising from the
post-clearance audit.
3.
The respondents could not waive a duty to correctly classify the
goods.
4.
The noting of appeal to the Fiscal Appeal Court did not suspend the
decision of the second respondent.
5.
The second respondent could not impose a penalty without the consent
of the applicant.
6.
The second respondent could not collect the penalty imposed by way of
garnishee.
None
of the parties completely succeeded in the arguments advanced. It is
ordered that each party shall bear their own costs.
Mtetwa
& Nyambirai,
applicant's legal practitioners
Kantor
& Immerman,
1st
and 2nd
respondents' legal practitioners
