Should importers have to pay VAT and duties on goods stolen from a customs warehouse?
SARS says yes, but a court disagrees, in a ruling that could also be brought to bear in certain cases of hijacking and theft of goods in transit
A recent appeal relating to the payment of excise duty and value-added tax (VAT) on goods stolen from customs or excise warehouses has opened the debate on the payment of the duty in the case of armed robberies, hijackings, theft and burglary.
In an armed robbery at a bonded warehouse in 2009, 200 cases of cigarettes imported from Zimbabwe were stolen.
The importer, a trust trading as Classic Tobacco, argued it was entitled to a full rebate on the duties levied by the South African Revenue Service (SARS) because the robbery amounted to a vis major.
A vis major is defined as "some force, power or agency which cannot be resisted or controlled by the ordinary individual, and includes not only the act of nature, vis divina, or act of God, but also the acts of man", in Wille’s Principles of South African Law.
The court agreed with the importers.
One of the provisions to qualify for a full rebate on goods that are irrevocably lost or destroyed is that it must not have "entered into consumption".
In the case of the stolen cigarettes, SARS held that they would have been sold by the robbers and would therefore have "entered into home consumption".
It assessed the duties and VAT on the stolen cigarettes and requested payment of R1.01m. This was subsequently reduced to R910,171 and eventually an amount of R58,877 was deducted from the trust’s bank account.
Virusha Subban, partner at law firm Bowmans, says the Customs and Excise Act allows a full rebate of duty on goods which are proven to have been lost, destroyed or damaged on any single occasion in circumstances of vis major.
The provisions under which the full rebate will be allowed include circumstances where the goods were lost, destroyed or damaged while in any customs and excise warehouse or in any appointed transit shed or under the control of the SARS commissioner.
The rebate will also be applicable if the goods were lost while being removed from one place to another, and the loss or destruction was not due to any negligence or fraud on the part of the person who must pay the duty.
Riaan Smit, head of excise at Deloitte, says a significant issue in this case was that the court decided it was not whether the goods may go into home consumption after being stolen or lost, but whether it was already in home consumption at the time of the robbery.
If goods are lost while in home use, the rebate on the duty would not apply.
"In the case of hijackings we have always advised clients that there is no rebate available. The excepted interpretation of that provision was that it went into home consumption – because once the truck is hijacked, the goods will be sold and so enter the market for home use."
Smit says in this case the issue was not whether the goods were going into home use in some or other way, but whether they were in home use when the robbery took place.
The judge did not pronounce on the issue of hijackings. However, he did note that if a hijacking happened while the goods were being removed from a place in the country to another place "in terms of the act", it may well invite a debate around vis major, as happened in the armed robbery case.
Georgia Mavropoulos, customs and international trade consultant at BMW Group, says she expects debates to extend to burglary, theft and hijacking of goods in transit.
This is provided there is force or violence, and no negligence or evidence of a connection or control of the act by individuals or the importer, she says.
"Goods being transported in bond which are stolen via force or violence, which a reasonable person or importer could not have prevented or where there was no negligence on the part of the transporter, could receive the same relief as in this case," says Mavropoulos, who is also the customs policy adviser at the South African Institute of Tax Professionals.
Smit says proving the goods have not entered the market for home consumption is not that difficult.
The proof is based on where the goods were at the time of the occurrence and what kind of documentation has been submitted to SARS relating to the goods, says Smit.
When goods are hijacked when moved from one customs-controlled area to another certainly, there is certainly a very strong case that the full rebate item should apply, he says.
Mavropoulos warns that customs legislation, which is currently being drafted, might "address" the interpretation of the circumstances in which the rebate item will be allowed.
Importers have to continue taking the necessary precautions against potential losses, provide for proper insurance, and give accurate and concise clearing instructions to their clearing agents, she advises.