20 Apr 2022

Customs obligations: Steps to avoid liability for duty, VAT and penalties as a result of the flooding!

by Siphesihle Ngubane, Associate, Durban,

The recent floods have wreaked havoc in KwaZulu-Natal causing serious damage to infrastructure, water, electricity supply and the knock-on effect of business interruption. From a Customs perspective, there has been damage to container terminals, depots, and other storage facilities which are custom control areas. The damage caused within these facilities, including the containers and goods stored therein, will have serious financial consequences, not only the owners of the goods, but also for the management of these facilities, shipping lines and other parties liable in terms of section 44 of the Customs and Excise Act 91 of 1964 (“the Act”).

It is important to remember that where there has been a loss or damage to goods stored in a Customs licensed facility, there is a reporting obligation to SARS to advise them of the loss or damage to goods held in bond i.e., before payment of import duty or excise duty and VAT.

There is however a silver lining for those that have suffered loss during the recent floods. Rebate Item 412.09 of Schedule 1 of the VAT Act and Rebate Item 412.09 of Schedule 4 of the Act (which mirror each other) reads as follows:

Goods, excluding goods contemplated in rebate item 497.02, in respect of which the customs duty, together with the fuel levy (where applicable), amounts to not less than R2 500, proved to have been lost, destroyed or damaged on any single occasion in circumstances of vis major or in such other circumstances as the Commissioner deems exceptional while such goods are –

(a) in any customs and excise warehouse or in any appointed transit shed or under the control of the Commissioner;

(b) being removed with deferment of payment of duty or under rebate of duty from a place in the Republic to any other place in terms of the provisions of this Act; or

(c) being stored in any rebate storeroom:

Provided that -

  1. no compensation in respect of the customs duty or fuel levy on such goods has been paid or is due to the owner by any other person;
  2. such loss, destruction or damage was not due to any negligence or fraud on the part of the person liable for the duty; and
  3. such goods did not enter into consumption; and

provided further that circumstances contemplated in this item exclude robbery or theft”.

This rebate provides full relief for duty and VAT applicable on all goods lost, destroyed, or damaged as a result of the flooding which qualifies as an incident of vis major.  In Wille’s Principles of South African Law, 9th edition at p849, a vis major is described as:

Some force, power or agency which cannot be resisted or controlled by the ordinary individual, and includes not only the acts of nature, vis divina, or ‘act of God’, but also the acts of man.”

It is important that all parties liable for duty in terms of Section 44 of the Act, take note of the  rebate and immediately take the necessary steps to make a full disclosure to the South African Revenue Service (“SARS”) of all goods lost, destroyed, or damaged as a result of the floods. This includes:

  • Making a full inventory of the goods which were at the depot before the floods occurred;
  • From the above list, assess which of the goods cannot be accounted for and which of the goods have been damaged;
  • Whilst conducting this exercise, one must be careful not to break any of the SARS seals, as this will lead to duty and VAT being payable and penalties and forfeiture possibly being imposed; and
  • One needs to ensure that this process is conducted thoroughly and diligently as any information not contained in the disclosure to SARS, will be excluded from the benefit of the abovementioned rebates.

Remember a rebate is a special concession and it requires strict compliance with the terms of the rebate, lest a claimant otherwise be disappointed.

For example, the loss or damage must be due to the floods. We have seen from footage that containers were displaced by the floods but were not destroyed or damaged. Thereafter, those same containers were looted by the public, who broke the SARS seals. Can the duties and VAT be avoided by making use of the abovementioned rebate items in this situation?

The circumstances surrounding the potential rebate are not always simple. As demonstrated, issues such as the causal link highlighted above can be complicated and give rise to legal interpretation and debate.

When a lot is at stake it is penny wise and pound foolish not to get expert assistance. Too many people wait until things go wrong, or their claim is rejected, before seeking assistance. It is often far more cost effective and quicker to ensure that you meet the requirements, or that the claim is fully and correctly motivated, at the outset.

When in doubt, or should you require assistance, you could always call a friend like Shepstone & Wylie!