Liquor giant Distell yesterday lost another round of its legal battle to avoid paying a multimillion-rand tax bill on its spirit-based drinks - but its flagship liqueur Amarula was not part of the challenge.
Distell appealed against the South African Revenue Service’s (SARS) tariff classification on 14 liqueur drinks to avoid paying higher excise duties, but it specifically excluded Amarula from the court case, to avoid negative publicity for the brand.
The Supreme Court of Appeal yesterday dismissed an appeal by Distell against an order of the North Gauteng High Court which ruled that 15 of its beverages should be taxed at the higher rate applicable to spirit-based drinks rather than the lower rate for fermented drinks that the company had claimed for its liqueurs.
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The judgment means Distell owes SARS millions of rand in duties. The products are manufactured in a customs and excise warehouse which makes them liable for excise duty payments.
SARS said yesterday that it could not divulge how much Distell should pay, as it was prohibited from disclosing confidential taxpayer information.
During 2006 and 2008, the SARS commissioner determined 15 Distell products should pay a tariff for spirit-based beverages.
The drinks affected by the determination were Angels Share Cream, Delgado Supremo, GoldCup Creamy Vanilla, Barbosa, GoldCup Banana Toffee, Zorba, Nachtmusik, Mokador, Alaska Peppermint, Copperband, VinCoco, Clubman Mint Punch, Castle Brand, Viking and Brandyale.
Although SARS determined that Distell’s Amarula Cream and three other, almost identical, products - Delgado Supremo, Gold Cup Cream Vanilla and Angels Share Cream - were classifiable under the same tariff in 2006, Distell did not appeal against the decision on Amarula.
The company began legal proceedings against SARS in the North Gauteng High Court last year against the tariff determinations, but excluded Amarula.
To successfully appeal against the determination, Distell would have had to argue that Amarula Cream was not a liqueur or spirit-based product but a wine-based aperitif - generally regarded as being inferior to spirit-based beverages such as liqueurs.
This created a marketing headache for Distell. While the denatured wine - stripped of colour and flavour - used in Amarula may not differ materially from a drink made solely of spirit, it challenges consumers’ image of the drink.
Distell contended in its papers at the Supreme Court of Appeal that its liqueurs were fermented, while SARS argued that they were spirit-based.
The SARS commissioner argued that the base wines used in the beverages were subjected to processes which stripped them of flavour and colour. Cane spirits were added to bolster the alcohol content significantly, as well as sweeteners, flavourants and colourants, SARS argued.
This meant that they no longer qualified as a wine of any kind, but were spirit-based and therefore liable to a tariff classification attracting higher duties.
But Distell argued that the liqueurs had a "basis of wine of fresh grapes" and were fermented, and not distilled.
Judge Mahomed Navsa said in his judgment Distell’s reliance on the overall volume of the stripped wine in relation to the cane spirits was misplaced.
"Clearly, one could have a greater volume of water overwhelmed by a lesser volume of an intense different liquid. It is a question of which essential ingredient is dominant," Judge Navsa said.
Heidi Bartis, communications manager at Distell, said yesterday that the company was studying the judgment and could not yet comment.