Two noteworthy High Court judgments have emphasised the substantial financial and adverse repercussions resulting from non-compliance with the onerous obligations imposed on licensees of customs and excise warehouses under the Customs and Excise Act 91 of 1964 (“the Act”).

Legislative backdrop:

Sections 19 and 20 of the Act principally govern the operation of customs and excise warehouses and the strict obligations imposed on such licensees whilst goods are within the control of licensed warehouses. According to section 19(6) of the Act, a licensee shall be liable for the duty on all goods stored or manufactured in such warehouse from the time of receipt into such warehouse of such goods or the time of manufacture in such warehouse, as the case may be. It is critical to maintain a proper audit trail of all documents related to the goods from the time they enter the warehouse until liability has ceased, as explained below.

Section 20(4) of the Act provides that, subject to section 19A, no goods which have been stored or manufactured in a customs and excise warehouse shall be taken or delivered from such warehouse except in accordance with the rules and upon due entry for the following purposes:

1. Home consumption and payment of any duty due thereon;
2. Rewarehousing of the goods in another customs and excise warehouse or removal in bond as provided in section 18; and
3. Export from the customs and excise warehouse.

Liability for duty shall cease, in terms of section 19(7) of the Act, when the licensee has proven that the goods in question have been duly entered according to one of the three purposes outlined above and have been delivered or exported in terms of such entry.

Extent of liability:

Section 20(4)bis of the Act states that: “No person shall, without the written permission of the Controller, divert any goods entered for removal from or delivery to a customs and excise warehouse, except goods entered for payment of the duty due thereon, to a destination other than the destination declared on entry of such goods or deliver or cause such goods to be delivered in the Republic except in accordance with the provisions of this Act.”

The wording of section 20(4)bis is explicit that, should the goods not be delivered from a licensed warehouse in one of the three processes prescribed by section 20(4), the goods will be deemed to have been diverted. Diversion is a serious transgression of the Act, which could result in SARS deeming the goods to have been irregularly dealt with and therefore, liable to forfeiture, as prescribed by section 87 of the Act.

In the normal course of events, once the goods have left the warehouse, physical control of the goods no longer vests with the warehouse licensee and from a practical perspective, it becomes almost impossible to locate the whereabouts of the goods. It is therefore vital that proper records are maintained to identify, with certainty, the whereabouts of the goods. When goods cannot be located, they naturally cannot be forfeited to the State. This exacerbates the position, as section 88(2)(a)(i) of the Act provides that if any goods liable to forfeiture cannot readily be found, the Commissioner may, demand from any person who imported, exported, manufactured, warehoused, removed or otherwise dealt with such goods contrary to the provisions of the Act or committed any offence under the Act rendering such goods liable to forfeiture, payment of an amount equal to the value for duty purposes or the export value of such goods plus any unpaid duty thereon, as the case may be. The schedule that SARS can demand is therefore exorbitant and includes liability of a licensee of a customs and excise warehouse.

Case Law:

Zacpak Cape Town Depot (Pty) Ltd v CSARS & O (Case No: 07301/2021) KZND, 3 October 2024 (“the Zacpak judgment”):

Zacpak Cape Town Depot (Pty) Ltd. (“Zacpak”) is a licensee of a customs and excise warehouse. Zacpak had stored certain consignments of alcohol in its warehouse, which were subsequently released to a road carrier for export to Mozambique. It was ascertained that the goods were impermissibly diverted for home consumption and were never in fact exported. SARS successfully claimed a total amount of R37 416 153.27 from Zacpak.

Zacpak relied on the relevant forms and instructions provided by the clearing agent, authorising Zacpak to release the goods to the remover, but was unable to produce the respective final bills of entry. SARS contended that the proof of exports provided by Zacpak was falsified or fraudulently obtained. SARS argued that in the absence of proof that the goods had indeed been exported, Zacpak’s liability in terms of the Act had not ceased.

SARS contended that Zacpak, in its capacity as a licensee in charge of the consignment, had a role to play in the sequence of events leading up to the diversion of the goods. The Court emphasised the importance of proper record keeping, echoing the argument made by SARS, that the extent of proper record keeping should entail sufficient particularity to correlate the goods warehoused with the removal thereof, in accordance with the respective bills of entry. 

The Court was not persuaded that Zacpak was successful in proving export, due entry of the goods stored in its warehouse and delivery or export in terms of such entry. Zacpak’s appeal was accordingly dismissed with costs.

This matter highlights the crucial obligation upon warehouse licensees to maintain proper records of all goods entered into and removed from the warehouse, with sufficient detail to readily identify the goods warehoused.  

Woods Warehousing (Pty) Ltd v Commissioner for the South African Revenue Services and Others (2022/026798) [2025] ZAGPPHC 162 (14 February 2025) (“the Woods Warehousing judgment”):

The Zacpak judgment was cited in another high court matter, underscoring the importance of ensuring compliance with the relevant provisions of the Act. Woods Warehousing (Pty) Ltd (“Woods”) is a licensee of a customs and excise storage warehouse. The goods in question were imported and subsequently stored in Woods' warehouse. Pursuant to an investigation conducted by SARS, it was established that the goods were never duly exported and had been diverted for home consumption without due entry and payment of the relevant duties. It was also established that the goods were delivered to an unauthorised remover of goods without obtaining prior approval from the Commissioner.

The Court reaffirmed the importance of strict compliance with the provisions of section 19 of the Act and the fact that the obligations of a licensee extend beyond the provisions of the Act, such as self-assessment and voluntary declaration of certain activities governed by the Act.

Woods was held liable for the amount demanded of R7 113 015.00.

Summary:

The obligations imposed on the licensee of a customs and excise warehouse are arduous. The courts have affirmed this. Of importance is that a licensee is entrusted with the custody and eventual destination of the goods, which entails a duty of due diligence, accurate record keeping and strict compliance with legislation. The reliance on documents provided by other role-players shall not suffice to exonerate a licensee from liability.

It is important to note that although the Act makes provision for joint and several liability, any recourse by a licensee against any other role-player will become a separate civil action which the licensee must pursue. Litigation is time-consuming, expensive and the prospects of success can never be guaranteed. The obligations imposed on a licensee of a customs and excise warehouse must be adhered to at all times. Compliance is non-negotiable.