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SUPREME COURT OF APPEAL: LIQUIDATORS UNHINDERED BY OUTSTANDING VAT OR CUSTOMS

The Customs and Excise Act 91 of 1964 does not prevent a liquidator from taking possession of property in terms of the Insolvency Act 24 of 1936.

Commissioner, South African Revenue Service v Van der Merwe and Others (598/2015) [2016] ZASCA 138 (29 September 2016).

  1. The Background
    • Pela Plant (Pty) Limited (Pela), was provisionally liquidated on 20 July 2014 after a failed business rescue. By the time that the liquidation order was made final on 16 September 2014 twenty three pieces of heavy earthmoving equipment belonging to Pela had not yet been cleared by the Customs authorities and was retained in Durban’s harbour.
    • The company had exported the equipment, valued at R25 million, to the Democratic Republic of the Congo. After completing its operations there, it was repatriated to South Africa.
    • During March and June 2014, the equipment arrived in the country and was stored in the warehouse of Trans-Med Shipping CC, acting as UTI’s sub-agent, who was appointed by Pela as it’s clearing and forwarding agent regarding the equipment. A dispute arose between SARS and Pela as to whether or not VAT and customs duties were payable and if so how much. A dispute that had not been resolved at the time of the Pela’s liquidation.
    • The intervention of Pela’s liquidation created an interesting further complication. Usually, customs duty and VAT have to be paid in full prior to the release of any items held in bond. However the liquidators refused to pay SARS prior to the release of the equipment and contended that the provisions of the Insolvency Act are peremptory in this regard and that SARS was obliged to release the equipment to them and to submit a claim in the winding up of Pela’s affairs, as provided for in terms of the Insolvency Act. SARS disagreed and refused to release the equipment.
  1. The Appeal
    • Having unsuccessfully demanded the release of the equipment from UTI and the SARS, the liquidators launched an urgent application in the Durban High Court (DHC) contending that the provisions of the Insolvency Act trump those of the Customs and Excise Act.
    • SARS and UTI opposed the application essentially contending it couldn’t release the equipment unless all custom duties and VAT were paid in full.
    • The DHC ruled in favour of the liquidators and order SARS and UTI to release the equipment to the liquidators. Both SARS and UTI sought to appeal the order of the DHC and the Supreme Court of Appeal (SCA) was left with the final determination.
    • The SCA found, unlike SARS had argued, that there was no inferred “embargo” in favour of SARS and that there is nothing in either the Customs Act  in or the Insolvency Act which infers that goods subject to a lien in favour of SARS cannot be dealt with under the laws of insolvency.
  1. Conclusion:
    • The SCA concluded that the Customs and VAT Acts do not absolve SARS from releasing the equipment to the liquidators, to be dealt with in terms of the laws of insolvency, without the liquidators first having to pay duty and VAT and ordered the immediate release of the equipment.
    • The appeal was dismissed with costs, including the costs of two counsels.

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