Sars victory will cost Distell millions

A nine-year long court battle
involving one of South Africa’s
premium exports – Amarula
Cream – may still not be over
as drinks producer Distell
weighs up its options to appeal
yet again after being beaten in
court earlier this month.
Customs experts, however,
are not holding their breath
saying it is near impossible
for Distell to avoid paying its
multimillion rand tax bill.
Distell and the South
African Revenue Service (Sars)
have been at loggerheads
over the tariff determination
for Amarula Cream and
several of its other brands for
years after a Sars excise duty
reclassification.
“The products are
collectively known as ‘wine
coolers’, with the alcoholic
bases consisting in part of
de-flavoured wine alcoholic
base and spirits of more than
90% alcohol by volume. Since
the spirituous alcohol by far
exceeds any alcohol derived
from the neutral wine base
(even if the deflavoured wine
exceeded the amount of spirits
added), Sars determined that
the products had the character
of spirituous beverages,” a
customs expert explained
to FTW. “In other words,
rather than being essentially
fermented beverages of some
earlier heading, the Distell
products, including its
flagship product of Amarula
Cream, was now considered a
spirituous product. Wine has
a low alcoholic content (11-15%
in most cases), and so a very
large volume of wine would be
needed to exceed the alcoholic
content of pure spirits of say
90% alcohol by volume.”
According to the experts,
the Sars premise is reasonable
and Distell does not have
much further grounds for
appeal. Whilst the exact
amount owed by the drinks
producer is not known, it is
estimated to be about
R28 million. But, said one
expert to whom FTW spoke,
this did not take into account
the penalties that would have
been incurred or other costs.
It’s a view that has been
shared on a regular basis by the
court which has time and time
again found against Distell – as
was the case in the latest appeal
by the drinks producers.
Not only did the court find
that the Amarula appeal was
lodged four years late, but also
that it had no prospect of any
success since the Sars tariff
determination as it applied
to Amarula and the other
brands involved was correct.
Following the dismissal of
Distell’s 2012 appeal in the
Supreme Court of Appeal
against a range of wine coolers,
excluding Amarula, which
Distell ostensibly considered
similar, Distell changed tack by
furnishing a separate appeal in
relation to Amarula, which the
High Court Gauteng division
dismissed this month, refusing
to grant condonation for late
filing of this appeal.
Distell has not commented
on the matter although it has
been reported that they are
considering heading back to
court.
Sars acting spokesman
Luther Lebelo is saying the bare
minimum as well.
Whilst noting the latest
judgment, Lebelo only said
processes would continue. He
would not elaborate on what
these processes included.
“Sars does not divulge specific
information relating to the tax
affairs of any taxpayer. This is
done to respect and protect the
rights of both taxpayers and
Sars,” he said.
According to one analyst, the
Distell court fight is probably
aimed more at protecting the
Amarula brand than anything
else.
“Sars decided that these
spirituous beverages, as Sars
characterised them, could not
be considered liqueurs of tariff
heading 2208.70, due to the
addition of a neutral fermented
alcohol base (being the stripped
wine base) to the spirituous
alcoholic base in order to
create a composite alcoholic
base. Sars’ determination
infers that the expression
“liqueurs” is restricted to
beverages only containing
a spirituous alcoholic base.
And so Sars determined
tariff heading 2208.90.28,
referring to the current
tariff to apply to them,” he
explained.
This may affect the
branding of the product as
most wine connoisseurs
regard a “fermented alcoholic
base” as being inferior to
spirit-based beverages
such as liqueurs. On the
other hand, even the World
Customs Organisation,
whose classification decisions
are not legally admissible
as evidence in South Africa
unless they are bolstered
with legal amendments to
the harmonised system or its
explanatory notes, considers
“neutral fermented alcoholic
bases” as “undenatured
ethyl alcohol of an alcoholic
strength by volume of less
than 8o% volume” and
hence classifiable in heading
22.08, placing them in the
same heading as “spirits,
liqueurs and other spirituous
beverages”. This is plain
from several formal opinions
published in 2011 by the
World Customs Organisation
in its publication known as
“The WCO Compendium
of Classification Opinions”,
one of the two interpretative
instruments listed in
the Harmonised System
Convention, the other one
being the Harmonised
System Explanatory Notes.