ISA (Pvt) LTD Versus Zimbabwe Revenue Authority

### Preamble
1
HH 422-21
FA 3/21
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ISA (PVT) LTD

versus ‌‌

ZIMBABWE REVENUE AUTHORITY ‌

‌

THE SPECIAL COURT FOR INCOME TAX APPEALS

MTSHIYA,‌ ‌AJ‌ ‌‌

HARARE,‌ ‌6 July 2021 and  24 August 2021

Income‌ ‌Tax‌ ‌Appeal‌ ‌

T Chagudumba, for the appellant

L Chipateni, for the respondent

MTSHIYA, AJ: The present appeal seeks to determine whether the correct classification of goods for customs purposes was applied in terms of s 87 (3) of the Customs and Excise Act [Chapter 23:02] and s 18 of the Fiscal Appeals Court Act.

The Facts

The facts in this appeal are derived from the pleadings filed of record by the parties.

I shall assume that the appellant is a company incorporated in terms of the laws of this country. There was, however, no issue raised about that fact.

In its letter of 16 December 2019, the appellant merely tells us that:

“…………… Our company is licensed to construct 70MW of Solar Parks and our first solar park in Zimbabwe, i.e. 20MW Harawa Solar Park located in Seke Communal lands has been granted National Project Status. This solar park will cost USD25 million to construct and will  provide 20MW of electricity into the national grid through the Dema Power Station. The Harawa Solar Park is 60% complete and we expect to commission the project by 31st March, 2020.”

The appellant avers that it imported a container 40ft with registration number SUDU1467730 with various components for solar systems through the Forbes Border Post.  The appellant, through its clearing agent, registered a bill of entry number C11027 on 2 November 2019 for Customs clearance. The container was then flagged for physical examination by respondent’s officers. The examination was carried on the 7 November 2019.

The respondent’s officers discovered 300 Gem deep cycle batteries that had not been declared on the entry bill number C11027.  The batteries were then seized. The static converters, solar chargers, battery charger, clamp, hydrometer, copper wire and plugs, having been properly declared for in terms of the Customs and Excise law, were released. The respondent’s position was that batteries should have been declared separately. It went on to state in its evidence that:

“3. The batteries and inverters have their own different and distinct headings. Electric static Converters fall under tariff code 85.04 while batteries fall under tariff Code 85.06 and 85.07”

The appellant did not agree with the classification of the goods by the respondent arguing, mainly that:

“13. Static Converter when shipped has to be shipped is SKD format-so that there is no short whilst in transit or else the container can catch fire (sic). Converters are classified as HAZARDOUS CARGO.

14. Just like cell phones when imported the battery is not inserted in the phone but is packed and kept separate so that there is NO explosion whilst in transit. The same is applicable for a Static Converter-the battery is never connected but kept separate. This is done specifically for safe HANDLING during TRANSPORTATION.”

The appellant then appealed to the respondent’s officials for the release of the batteries and on 28 November 2019 the respondent wrote to the appellant in the following terms:

“I refer to your letter dated 18 November 2019 in which you sought release of the goods detained by ZIMRA on the above Notice of Seizure.

The facts of the matter have been carefully considered, however, it cannot be overlooked that the impounded 300 Deep Cycle Batteries were not declared as expected in terms of the Customs and Excise laws.

A physical examination of the consignment was done and it revealed that the said batteries were not declared since your bill of entry contained only one line that declared convertors and accessories. Batteries are distinct and separate goods from convertors and accordingly cannot be classified as accessories to convertors for customs’ purpose. As a result the batteries were impounded under Notice of Seizure 049414L of 11 November 2019.It was also noted that the values declared on the bill of entry were consistent with the values of similar convertors on the supply market. The batteries did not appear on the submitted bill of entry and no duty was levied although it was due and payable at a rate of 20%.ZIMRA thus proceeded to assess the values for the batteries using alternative valuation methods since their value was not invoiced.

In terms of Section 174(1)(d) of the Customs and Excise Act (Chapter 23:02), it is an offence for any person to render among others, any untrue or false report, document, bill of entry, declaration or statement, where one is required to render any such document. Furthermore, it is equally an offence in terms of Section 174(1)(e) of the aforesaid Act any person to import or attempt to import any goods illegally or without payment of the duty thereon. The importation of the batteries requires an import license from Ministry of industry and Commence and it is an offence for one to import restricted goods without the required permit.

The offence attracts a fine not exceeding level twelve or three times the duty paid value of the goods concerned, whichever is the greater. Nevertheless, l am prepared to release the goods from seizure in this instance only subject to the following conditions;

Payment of customs duty amounting to ZWL$ 467,609.11

Payment of proposed fine of  ZWL$ 467,609.11

Payment of a proposed fine of ZWL$ 9,000.00 for importing batteries of tariff code 8507.2000 (Deep cycle batteries) without a valid import license.

Production of valid import license for the batteries from the Ministry of Industry and Commerce.

Payment of state warehouse rent from date of detention until the day of collection.

February 2020, l will assume that, you are no longer interested in the goods and they will be declared forfeit without  any further reference to you.

Kindly be advised that if you are not satisfied with this decision, you can exercise your right to appeal in writing to the Commissioner-Customs and Excise, 6th Floor ZB Centre 1st Street and Kwame Nkrumah Avenue, P.O. Box 4360 Causeway/ Harare.”

There was further exchange of correspondence between the parties and on 3 March 2020, the appellant indicated to the respondent that the shelf life of the batteries was diminishing.

On 18 August 2020, the appellant was allowed to collect the batteries. This was upon meeting all the requirements contained in the Commissioner General’s letter of 28 November 2019.In the meantime the Commissioner General would continue to deliberate on the matter.

On 8 September 2020, a Regional Values Committee, re-valued the batteries and made the following determination:

“1. 	The declared values for battery and inverter was tested and it was observed that the values were within the range of inverters only.

The Committee then invoked he provision of section 111A of the Customs and Excise Act [Chapter 23:03] and re-valued the batteries in terms of the provisions of section 108 of the Customs and Excise Act.”

On 6 April 2021 the appellant filed a notice of appeal which in full read as follows:

“TAKE NOTICE THAT the Appellant hereby appeals against Respondent’s Commissioner of Customs and Exercise’s decision contained in a letter dated 12 February 2020 confirming a 28 November 2019 decision by the Regional Manager Forbes Border Post on the classification of inverters and solar batteries imported by Appellant on 2 November 2019.The decision appealed against is the finding that solar batteries and inverters imported by Appellant cannot be classified under the same tariff codes as these are distinct.

TAKE FURTHER NOTICE that the appeal is filed in terms of Rule (3)(2)(b) of the Fiscal Appeal Court Rules, 2002 (SI 41 of 2002), and that Appellant paid the amount demanded as customs duty by Respondent of ZWL$437 609.11 On 20 October 2020.

TAKE FURTHER NOTICE that Appellant’s address for service is care of its undermentioned legal practitioners.

TAKE FURTHER NOTICE that Appellant’s GROUNDS OF APPEAL incorporating the material allegations of fact and contentious of law on which the appeal is based are attached hereto.

TAKE FURTHER NOTICE THAT the appellant seeks the following relief:

That the Appeal be allowed with costs.

The inverters and solar batteries imported by Appellant on 2 November 2019 should be classified under commodity code 85044000.

An Order that Respondent’s actions were arbitrary and Respondent should bear all costs incurred namely; transportation and damage to the batteries.

DATED at HARARE on this 31st day of March 2021”

It is the above appeal that this court is called upon to determine.

Clearly, the dispute in this matter is anchored on the classification of the appellant’s batteries by the respondent. Such classification is for the purposes of determining the duty payable in terms of the law.

The issues

At the pre-trial hearing on 21 June 2021, the parties agreed that the issues for determination were the following:

“1. Whether or not he Appellant’s claim has prescribed?

Whether or not notice of intention to sue was required?

Whether or not the Respondent misclassified the solar batteries and inverters?”

Resolution of issues

I now proceed to determine the identified issues.

The appellant’s batteries were seized under s 223 A (4) of the Custom and Excise Act

[Chapter 23:02] which provides as follows;

“(4) 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 or any officer or person authorized by him or her in writing may—

(a) carry out inspections at the premises of the owner of the goods, or at the place to which the goods are destined, or at the premises where any documentation or data relating to the goods in question is located or may reasonably be expected to be found; and

(b) question any person at any premises or place referred to in paragraph (a), or any person having possession or custody of the documentation or data there referred to;

(c) at any premises or place referred to in paragraph (a), inspect or examine the goods, and any books, written records, computer records, and other data or documentation relating to the import, export or subsequent disposal of the goods in question;

(d) take possession of and remove or make extracts from or make copies of the records, data or documentation referred to in paragraph (c).”

There is no dispute on the fact that the procedure followed in seizing the batteries was lawful. However, and as can be seen from the issues for determination, the respondent has raised two preliminary issues (i.e. points in limine) namely;

Whether or not the appellant’s claim has prescribed and

Whether or not notice of intention to sue was required.

I think it is clear that attention should first be given to the second point in limine because if that point is upheld, it will then mean that there is no proper appeal before this court. It would therefore become improper to consider both the issue of prescription and the merits of the case (i.e. issue of classification) when there is no appeal before the court. It goes without saying that these two aspects of the appeal can only be proceeded with if there is a proper appeal before the court.

The Law with respect to Notice of Intention to sue.

I shall now consider the issue of whether or not notice of intention to sue was required.

Section 6 of the State Liabilities Act [Chapter 8:14] provides as follows:

“ Notice to be given of intention to institute proceedings against State and officials in respect of certain claims.

Subject to this Act, no legal proceedings in respect of any claims for-

Money, whether arising out of contract, delict or otherwise; or

(b)      The delivery or release of any goods and whether or not joined with or made as alternative to any other claim, shall be instituted against-

The State; or

(ii) the President, a Vice-President or any Minister or Deputy Minister in his official capacity; or

(iii) any officer or employee of the State in his official capacity;

Unless notice in writing of the intention to bring the claim has been served in accordance with subsection (2) at least sixty days before the institution of the proceedings.

A notice referred to in subsection (1)-

Shall be given to each person upon whom the process relating to the claim is required to be served; and

Shall set out the grounds of the claim;and

Where the claim arises out of goods sold and delivered or services rendered, shall specify the date and place of the sale or rendering of the services and shall have attached copies of any relevant invoice and requisition, where available; and

Where the claim is against or in respect of an act or omission of any officer or employee of the State, shall specify the name and official post, rank or umber and place of employment or station of the officer or employee, if known.

The court before which any proceedings referred to in subsection (1) are bought may condone any failure to comply with that subsection where the court is satisfied that there has been substantial compliance therewith or that the failure will not unduly prejudice the defendant.

For the purposes of this section, legal proceedings shall be deemed to be instituted by the service of any process, including a notice of application to court and any other document by which legal proceedings and commenced, in which the claim concerned is made.”(My own underling for emphasis).

Section 196 of the Customs and Excise Act (Chapter 23:02) provides as follows:

“Notice of action to be given to officer

(1)No civil proceedings shall be instituted against  the State, the Commissioner or an officer for anything done or omitted to be done by the Commissioner or an officer under this Act or any other law relating to customs and excise until sixty days after notice has been given in terms of the State Liabilities Act [Chapter 8:15]

(2) Subject to subsection (12) of section one hundred and ninety-three, any proceedings referred to in subsection (1) shall be brought within eight months after the cause thereof arose, and if the plaintiff discontinues the action or if judgement is given against him, the defendant shall receive as costs full indemnity for all expenses incurred by him in or in respect of the action and shall have such remedy for the same as any defendant has in other cases where costs are given by law”.(My own underlining for emphasis)

This appeal was filed in terms of s 18 of the Fiscal Appeal Court Act (Chapter 23:05) which states:

“Appeals from classifications of Director of Customs and Excise

Any importer or intended importer of any goods who considers that the Commissioner has incorrectly classified or varied or confirmed a classification of those goods in terms of section 87 of the Customs and Excise Act [Chapter 23:02] may appeal to the Court against that classification.

Any manufacturer or intended manufacturer of any goods liable to excise duty who considers that the Commissioner has incorrectly classified or varied or confirmed the classification of those goods in terms of section 96 of the Customs and Excise Act [Chapter 23:02] may appeal to the Court against that classification.

Subject to subsections (4)(5) and (6), an appeal in terms of this section shall be noted and prosecuted within the period and in the manner prescribed in the rules.

Before noting an appeal in terms of this section, an importer or manufacturer or intended importer or intended manufacturer, as the case may be, shall either pay the amount demanded as duty by the Commissioner or furnish security to the satisfaction of the Commissioner for the due payment of the amount.

On good cause being shown or with the agreement of the parties, the Court may extend the period for the noting or prosecution of an appeal in terms of this section.

At least one month before the hearing of an appeal in terms of this section, the President of the Court shall cause  notice of the date of the hearing to be published in the Gazette, and any person who imports into Zimbabwe or manufactures within Zimbabwe goods of the class or kind to which the appeal relates may be heard in the appeal if he enters an appearance within the period and in the manner prescribed in the rules.

On any appeal in terms of this section, the Court may confirm or set aside the classification appealed against and if it sets aside the classification, shall refer the matter back to the Commissioner to make a further classification.”

Rule 3 of the Fiscal Court Rules, 2002 provides as follows:

“Notice of appeal

An appeal shall be instituted by means of a written notice which shall-

clearly identify the decision or classification appealed against; and

specify clearly all the grounds of appeal and material allegations of fact and contentious of law on which the appeal is based:

Provided that the material allegations of fact and contentious of law may be specified in a separate document;

And

specify an address where service of any notice or document pertaining to the appeal may be effected.

An appellant shall cause his notice appeal and, if there is one, the separate document referred to in the proviso in paragraph (b) of subrule (1) to be served on the appropriate officer-

within sixty days after the appellant was notified of the decision appealed against, in the case of an appeal in terms of Part III OF THE Act; or

within three months after paying the amount demanded as customs or excise duty or furnishing security for the due payment of  that amount, in the case of an appeal in terms of Part IV of the Act

For the purpose of calculating the sixty-day  period referred to in paragraph (a) of subsection (2) if notification of the decision appealed against has been posted to the appellant, the appellant shall be deemed to have been notified of the decision when the notification would  have been delivered in the ordinary course of post.”

The reason for quoting the above various provisions of the law in the different statutes is because in response to this appeal, the respondent has raised a preliminary issue which relates to the various provisions of the law quoted above.

The point in limine is couched in the following terms:

“26. The Appellant’s claim is improperly before the court as no notice of intention to sue was given. In terms of section 196(1) of the Customs and Excise Act [Chapter 23:02] (the Act, sixty days’ notice must be given before any legal proceedings can be instituted against the state, the Commissioner or any officer for any acts done in terms of the Act. The said Section 196 (1) of the Act provides as follows;

“No civil proceedings shall be instituted against the State, the Commissioner or any officer under this Act or any other law relating to customs and excise until sixty days notice has been given in terms of the State Liabilities Act [Chapter 8:15]”

27. The need to give notice in terms of section 196(1) was also extended to proceedings being instituted against the Zimbabwe Revenue Authority-see Care International in Zimbabwe v ZIMRA and ORS SC76/17.

28. It is submitted that it permits of no doubt that the current appeal by the appellant is a civil proceeding that has been instituted against the Respondent in respect of something done (classification) by the Respondent in terms of the Customs and Excise Act. In this case the appellant has instituted civil proceedings against the Respondent for what the appellant calls a wrong classification of batteries done in terms of section 87 of the Customs and Excise Act.”

In its detailed submissions, the respondent relied mainly on Care International in Zimbabwe v Zimbabwe Revenue Authority SC 76/17, where in a similar situation, the Supreme Court had this to say:

“In casu, the first respondent is the body which is now conferred with the assessment, collection and enforcement of taxes which include custom duties. In light of the purpose of section 196 of the Customs and Excise  act, it would be remiss of this court to find  that the provision applies to the State and not to the first respondent, which is the appointed agent for the collection of taxes. It does so through an agent. It therefore follows that the right the State derives from the provision is conferred upon the first respondent.”

Admittedly, in the above case, the Supreme Court was faced with an application and not an appeal. However, l must hasten to say it cannot be denied that in casu the appellant has sued the respondent or in other words the appellant has issued a court process or instituted legal proceedings against the respondent as contemplated by sections 6 and 196 of the State Liabilities Act and the Customs and Excise Acts respectively. To that end, my view is that an appeal in the circumstances of this case is a civil proceeding as correctly submitted by the respondent.

In response to the preliminary issue the appellant submitted, in part, as follows:

“1. The points in limine that have been raised by the Respondent lack merit and ought not to detain the court. The points are based on Section 196(1) of the Customs and Excise Act (Chapter 23:02).”

This section is inapplicable to the present matter simply because the present matter is an appeal against classification. The preliminary points can be disposed of by reference to the case of W Investments (Pvt) LTD v Zimbabwe Revenue Authority HH 866/15 wherein Kudya J (as he then was) said that:

“Whether or not s196 of the Customs and Excise Act [Chapter 23:02] is applicable in the present appeal and if so whether or not the appellant complied with the provisions of the said section? At the commencement of hearing Mr Magwaliba correctly conceded that s 196 of the Customs and Excise Act was inapplicable to a classification appeal. Section 196 (i) requires that any civil proceedings be instituted against the Commissioner for any customs and excise acts of commission or omission on 60 days’ notice. In my view, the section provides for the initial commencement of civil proceedings as opposed to appeals against classification of goods which are specifically governed by the provisions of s 18 (1 and 3) of the Fiscal Appeal Court Act. Section 196 does not provide for appeals against classification decisions of Customs officers and the Commissioner. Appeals against such decisions are specifically provided in s 18(1) of the Fiscal Appeal Act and recognized in s 87(3) of the Customs and Excise Act. The noting of such an appeal is prescribed by s 18(3) of the Fiscal Appeal Court and r 3 of the Fiscal Appeal Rules. The present appeal to this Court follows an elaborate three tier appeal process within the structures of the Commissioner involving a station manager, regional manager and the Commissioner. Such an appeal cannot be categorized as an institution of civil proceedings. The concession was properly made. The appellant was not required to comply with the 60 day notice mandated by s 196(1) of the Customs and Excise Act.”

I must acknowledge the fact that several authorities were cited but the appellant, in the main, relied on W Investments (Pvt) Ltd, supra.

As l have already pointed out, l regard an appeal as a court process or legal proceeding envisaged in the various sections of the law  enunciated in the  statutes already referred to in  the preceding paragraphs. The fact that the proceedings are commenced by way of an appeal, does not, in my view, in any way detract from the plain truth that the appellant is suing the respondent. The appellant has instituted legal proceedings against the respondent challenging the action of the respondent, namely the classification of its batteries.

I am, in casu, inclined to agree with the respondent’s submissions, mainly on the basis that the Supreme Court has already made a decision on the issue. It should be noted that the High Court decision of 2015 in W Investments (Pvt) LTD, supra, which the appellant relies on, was prior to the Supreme Court decision in Care International In Zimbabwe, supra, which was decided in 2018.It appears both parties did not address their minds to that fact.

That decision of the Supreme Court, addressed all the various provisions of the law as quoted herein relating to ‘the assessment, collection and enforcement of taxes which include custom duties’. That is why the court said:

“In light of the purpose of section 196 of the Customs and Excise Act, it would be remiss of this court to find that the provision applies to the State and not to the first respondent, which is the appointed agent for the collection of taxes. It does so through an agent.”

The court went further to say:

“A construction of the body of statutes concerned with matters of revenue assessment, collection and enforcement requires a purposive approach from the courts as a whole. The purpose of the statutes as a whole should be the guiding factor in the determination of the enquiry.In Ebrahim v Controller of Customs & Excise (supra) , DUMBUTSHENA CJ concurred with Osler v Johannesburg City Council 19481) SA 1027, that the primary purpose of notice was to give the defendant an opportunity to avoid litigation. The author G Devenish in his book Interpretation of Statutes (Juta 1992) at p 33 describes the Purposive Rule of Interpretation as:

“The purposive approach requires that interpretation should not depend exclusively on the literal meaning of words according to the semantic and grammatical analysis…The interpreter must endeavor to infer the design or purpose which lies behind the legislation. In order to do this, the interpreter should make use of an unqualified contextual approach, which allows an unconditional examination of  all internal and external sources…words should only be given ordinary grammatical meaning if such meaning is compatible with their complete context.” (My own underlining for emphasis)

I reiterate the fact that the appellant has sued the respondent through a procedure provided for under s 18 of the Fiscal Court Act as read with rule 3 of the Fiscal Appeal Rules, 2002. The suit or court process against the respondent happens to commence in the form of an appeal as provided for in the law. The fact that litigation or court process commences as an appeal in the Fiscal Court of Appeal, does not remove it from the provisions of Section 196 of the Customs and Excise Act, which section calls for notice of intention to institute proceedings to be given to the respondent. To that end, l am in agreement with the respondent’s submission that:

“Section 196 is all embracing, it provides for any proceedings and of which an appeal is any proceeding. Section 87(5) of the Customs and Excise Act states that

If the classification of goods for the purposes of this Act is an issue in any proceedings before any court…………

This shows that an appeal is clearly covered in section 196(1) as it is a civil proceeding. The reasoning of the court in the W Investments case supra is untenable as it would mean that such classification claims can never prescribe. It would effectively mean that a cause of action for a claim of classification of goods that would have arisen, say in 2021 can be appealed against in 2025 as long as the Appellant notes an appeal within 3 months of paying duty in terms of section 18(1) and 18(3) of the Fiscal Appeal Court Act. It is submitted with respect, that such reasoning is flawed and falls foul of the clear provisions of section 196(2) of the Customs and Excise Act.”

In its submissions the appellant, citing Care International in Zimbabwe, supra, were specific claims were referred to as pre-requisites for the application of section 196 of the Customs and Excise Act, the appellant submitted as follows:

“6. It is clear from the above authority that notice of intention to sue is required only in specific circumstances and that failure to give notice is not necessarily fatal, the court can condone depending with the circumstances of a particular case. The point was also made in the recent case of Kirstein v Registrar General of Zimbabwe HH 823/19.The court stated that:

Therefore, l note that for the section to be activated and to be applicable the proceedings must be in respect of any claim for money, whether arising out of contracts, delict or otherwise; or the delivery or release of any goods.

In casu applicant is not claiming money or delivery of goods from the 4th respondent.

7. The authorities apply with equal force to the present matter. The present case does not fit under Section 6 of the State Liabilities Act. To the extent that paragraph 3 of the relief sought in the notice of appeal can be interpreted to be a claim for money, the paragraph is abandoned. Accordingly, the point in limine raised must fail.”

Clearly the above submissions cannot form the basis for this court to depart from what the Supreme Court has already said in Care International In Zimbabwe. The attempt to abandon paragraph 3 of its prayer wherein a prayer for money is made is, in my view, borne out of a realization that there is merit in the respondent’s case on the issue of the point in limine.

True, a challenge to the classification of goods does not necessary sound like a prayer for money. However, the point to be made is that the dispute in casu encompasses the payment of duty. If appellant succeeds in its appeal, duty reimbursement shall follow. In any case l do not think that a narrow application of the relevant provision of the law is helpful. The law clearly envisages a challenge or attack on the actions/omissions of the respondent.

It is true that, the failure to give notice as required by law can, where necessary be condoned. However, my view is that, such condonation ought to be applied for. That is not the case in casu. I do not think l can mero-motu proceed to condone the failure to comply with a mandatory provision of the law without a formal application having been made before me.

In view of the foregoing and mainly on the basis that the Supreme Court has already pronounced itself on this issue, the conclusion l come to is that the point in limine should be upheld.

The upholding of the point in limine speaks out to the fact that there is no proper appeal before this court. That being the case, I have no lawful mandate to proceed to deal with the other issues, namely prescription and the merits of the case. Accordingly my upholding of the point in limine relating to the failure by the appellant to give notice of its intention to proceed against the respondent disables me to go any further in this matter.

I therefore order as follows:

The point in limine regarding the appellant’s failure to comply with provision of s 196(1) of the Customs and Excise Act [Chapter 23:02] be and is hereby upheld.

The appeal be and is hereby struck off the roll; and

Each party shall bear its own costs.

Rubaya & Chatambudza, appellant’s legal practitioners

Zimbbwe Revenue Authority, Legal Department