REPUBLIC OF SOUTH AFRICA

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable
Case Number:  328 / 04

In the matter between

THE COMMISSIONER OF THE SOUTH AFRICAN
REVENUE SERVICE
APPELLANT

and

FORMALITO (PTY) LTD
RESPONDENT

Coram :
MPATI DP, STREICHER, BRAND, LEWIS and PONNAN  JJA

Date of hearing :
20 MAY 2005

Date of delivery : 31 MAY 2005

SUMMARY

S 44(11)(a) of the Customs and Excise Act 91 of 1964 – false declaration –
means untrue to the knowledge of the person making the declaration.

___________________________________________________________________

J U D G M E N T
___________________________________________________________________

PONNAN  JA
[1] Since 1964 the respondent (‘Formalito’), a licenced dealer in terms
of the Arms and Ammunitions Act 75 of 1969, has imported firearms and
ammunition into the country.  During November 2000, the appellant, the
Commissioner of the South African Revenue Service (‘SARS’), received
information from a former employee of Formalito that the latter had
under-declared the value of goods imported by it.

[2] Ms Denyssen, a member of the Special Investigations Unit of
SARS, who investigated the complaint, concluded that certain goods
imported by Formalito had been incorrectly cleared and that SARS in
consequence had been underpaid customs duties, ad valorem duties
and VAT to the tune of R696 652.95.  She advised Formalito that the
goods in question were liable to forfeiture in terms of s 87(1) of the
Customs and Excise Act 91 of 1964 ('the Act'), alternatively and in the
event that those goods could not be found, then in lieu thereof SARS
was entitled in terms of s 88(2)(a) to an amount equal to the value of
those goods, which in this instance amounted to R3 792 912.

[3] On 22 January 2002 Dennysen accordingly demanded, in writing,
payment
of
those
sums
of
money.
In
response
to
certain
representations, Denyssen advised Formalito on 26 September 2002
that it had been decided ‘to levy an amount in lieu of forfeiture equivalent

to 50% of the value of the goods in issue’, which in monetary terms
amounted to R1 896 456.

[4] Against that backdrop, Formalito sought and obtained, on review,
an order in the High Court (Pretoria), setting aside the decisions by
SARS, that it: (i) pay customs duty, ad valorem duty and VAT in the sum
of R696 652.95; and, (ii) forfeit an amount of R1 896 456.00 in terms of s
88(2)(a) of the Act.  SARS was ordered to pay the costs of that
application.  The present appeal is against those orders with leave of the
judge a quo (Hartzenberg J).

[5] It is not in dispute that firearms of a certain type and calibre
(details whereof are not relevant for present purposes) came to be
reflected on relevant bills of entry under the wrong tariff code resulting in
the underpayment by Formalito of duty in the sum of R696 652.95 for
the period 1998 to 2000. The thrust of the argument advanced by
Formalito before this court, as indeed before the court below, is: First,
there was no false declaration by it; and, secondly, the penalty imposed
was unreasonable. Each of those contentions will be considered in turn.

Was the declaration false?
[6] Any person entering any imported goods into the country in terms
of the provisions of the Act is required by s 39(1), in addition to paying all

duties, to deliver a bill of entry in the prescribed form setting forth full
particulars of the goods being entered, the purpose for which the goods
are being entered and to make and subscribe to a declaration as to the
correctness of the particulars and purpose shown on such bill of entry.

[7] Section 44(11)(a) (inserted by the Revenue Laws Amendment Act
53 of 1999), to the extent here relevant, then provided:

'Notwithstanding anything to the contrary contained in this Act, but subject to
the provisions of sections 47 (10) and (11), 65 (7) and (7A) and 69 (6) and (7) and
subsection (12) of this section, there shall be no liability for any underpayment of
duty on any goods where such underpayment is due to the acceptance of a bill of
entry bearing any incorrect information, after such period of two years from the date
of entry of such goods:
Provided that such liability shall not cease-
(i)
if a false declaration has been made for the purpose of this Act;
or

(ii)
…. ‘
(underlining added for emphasis).

[8] The proper interpretation of s 44(11)(a)(i) depends in no small part
on the meaning to be ascribed to the word 'false'.  According to the
Concise Oxford English Dictionary, the word ‘false’ in its narrower sense
means 'deliberately intended to deceive' and in its wider sense 'not
according with truth or fact'.  It follows that 'false' could mean untrue in

an objective sense as also untrue to the knowledge of the maker of a
statement. In the present context, as I see it, ‘false’ must mean untrue to
the knowledge of the maker of the statement. That narrower construction
accords with the scheme of the section and gives proper effect to the
distinction between 'incorrect' used in the first part of s 44 (11)(a) and
'false' as employed in subsec (i).  Further, as was held in R v Mahomed
1942 AD 191 at 202: ‘the word “false” when used in relation to a
statement is more commonly used to mean “untrue to the knowledge of
the person making the statement”, than to mean “incorrect”'.  In this
case, to ascribe to the word ‘false’ its wider meaning – a meaning
synonymous with ‘incorrect’ - would be absurd and illogical and do
violence to the intention of the legislature.

[9] Was the declaration false to the knowledge of Formalito? No
discernible pattern consistent with a genuine error arising from the
misapplication of the relevant tariff codes emerges on the papers.  On
the contrary, the evidence such as it is (given that any bona fide dispute
of fact must be resolved in favour of SARS) points strongly in the
opposite direction.  Ignoring his own professed ignorance about such
matters, Mr Engelbrecht, the managing director of Formalito, when
asked by one of his clearing agents which tariff codes should be
employed, ventured an answer.  An admittedly wrong tariff code was

utilised resulting in an under-declaration of customs duty.  Faced with
such a query, Engelbrecht should simply have referred the clearing
agent in question to SARS for a directive.  Instead, undeterred that in
truth there was no choice, he instructed his clearing agents to reflect
tariff codes of his choosing on the bills of entry. Those particular tariff
codes were carefully chosen by him to garner the greatest possible
financial benefit for Formalito and, it goes without saying, loss to SARS.
He expressed the view to his clearing agents that clearance documents
should be submitted with those tariff codes to test the attitude of SARS.

[10] Although instructions apparently emanated from the same source
(Engelbrecht), the different clearing agents employed by Formalito
utilised different tariff codes resulting in disparities in duty. That could
hardly have passed unnoticed.  Frequently enough imported goods
entered the bonded warehouse under one tariff code and exited, after
having been cleared, under another.  Errors extended in many instances
beyond tariff codes to the actual description of the imported firearms.
That no doubt was designed to achieve a measure of consistency on the
bill of entry, in the belief, so it would seem, that the risk of detection
would be reduced.

[11] It is inconceivable that the disparities that arose in consequence of
the employment of incorrect tariff codes went undetected in the ultimate

pricing structure of Formalito over a protracted period of several years.
On the view that I take of the evidence the declaration was, to the
knowledge of Formalito, false. It follows that on this aspect of the case
Formalito had to fail.

Was the penalty reasonable?
[12] In determining the monetary value of the penalty, Denyssen
ignored the Customs Offences and Penalty Policy of SARS.  Those
guidelines, the purpose of which is 'to define the policy and procedure
for customs offences and to provide guidelines for the uniform imposition
of penalties to declarants that are non-compliant with Customs Law',
stipulate, for a contravention of this kind, a penalty of '50% of the
underpayment with a minimum of R500'. Had those guidelines been
invoked the penalty in this case would have been less than twenty
percent of the value of that actually declared forfeit by SARS.  A
deviation to that extent from its own policy by SARS is grossly
unreasonable.  Denyssen who took the decision believed, without
advancing any plausible justification, that those guidelines did not apply.
She accordingly ignored it.  That decision plainly cannot stand.  On this
aspect of the case, the matter must accordingly be referred back to
SARS for reconsideration (see Erf One Six Seven Orchards CC v
Greater
Johannesburg
Metropolitan
Council
(Johannesburg

Administration) 1999 (1) SA 104 (SCA) at 109 C-J; Commissioner,
Competition Commission v General Council of the Bar of South Africa
2002 (6) SA 606 (SCA) paras 14-15).
In the result:

The appeal succeeds with costs.

The order of the court below is set aside and replaced with:
‘(a)
The application to review and set aside the decision of
SARS to claim customs duty, ad valorem duty and VAT
from Formalito in the amount of R695 652.95 is
dismissed.
(b)
The decision of SARS that Formalito forfeit an amount
of R1 896 456.00 in terms of s 88(2)(a) of the Customs
and Excise Act is set aside. The matter is remitted to
SARS for reconsideration.

(c)
SARS is ordered to pay the costs of the application.’

V M  PONNAN
JUDGE OF APPEAL
CONCURRING:

MPATI   DP
STREICHER  JA
BRAND  JA
LEWIS  JA