Under-Declaring of Imported Goods: An Overview of a Recent Judgement by The Supreme Court of Appeal

Mohamed Raees Hussain | Attorney : Legal Services Division

The South African Revenue Service (SARS) was successful in its appeal to the Supreme Court of Appeal (SCA) in respect of under-declaring of imports. The Case in reference is Commissioner for the South African Revenue Service and others v Dragon Freight (Pty) Ltd and others, Case No.: 751/21 (reportable).


A significant part of the South African Economy deals with imports and exports and with a considerable number of businesses importing goods for resale in South Africa, it is prudent that the importer understands the processes involved to avoid seizure of goods as evidenced in the subject case.

The following provides an insight to Customs Duty, the Clearance Process, and a summary of the aforementioned Judgement in which the decision by SARS to seize under-declared goods was confirmed.

Customs Duty:

Customs duty is imposed by the Customs and Excise Act 91 of 1964. It is levied on imported goods with the aim of raising revenue and protecting the local market. It is usually calculated as a percentage of the value of the goods (as contained in the schedules to the Customs and Excise Act).

The Importing & Clearance Process:

  • Goods arrive in the Republic through various means and in order for Customs to safeguard any revenue due to the State and ensure compliance with national legislation, the importer must declare to Customs what they have brought into the country and the mode of transport used.
  • National legislation gives an importer/agent a period within which to clear goods from the time they have entered the Republic. If goods are not declared on time, these may be removed and detained in a State Warehouse. It must be noted that certain goods will require an import permit, which must be produced at the time of clearance.
  • The clearance process includes accepting and checking the goods declaration against the documents produced (invoice, bill of lading, certificate of origin, permits, etc.), examination of the goods if necessary and the assessment and collection of customs duty and VAT. Customs may require additional information and may also request samples. Customs values are set by the General Agreement on Tariffs and Trade (GATT) valuation code, which involves six valuation methods.

 Background to the Matter:

  • In this matter, SARS detained nineteen containers of goods (clothing and textiles) which were imported from China, on the suspicion that the goods were under-declared.
  • SARS posed certain questions requesting details on how the importer sourced the foreign supply and established a trading relationship, as well as details of travel abroad to negotiate trade including the buyers’ passports. These questions were not directly answered and in response to SARS, it was stated that the goods were acquired from factories in China that were closing down during various trips abroad.
  • Upon further investigations by SARS, it was determined that the invoices furnished were “ridiculously low”. In this regard SARS believed that the importers were liable for under paid customs duty and VAT and proceeded to seize the goods in terms of Section 88 (1)(c) of the Customs and Excise Act.
  • The High Court set aside the decision by SARS to detain the goods and ordered the immediate release of the containers. However, SARS took the High Court’s decision on appeal to the SCA.

Merits of the Case (Supreme Court of Appeal):

  • The first issue in this appeal concerned the lawfulness of a decision taken by SARS to seize nineteen containers of goods, in terms of Section 88 (1)(c) of the Customs and Excise Act.
  • The goods were seized on the basis that the Respondents (Dragon Freight (Pty) Ltd and others) had under-declared the price actually paid for the goods. It was alleged that decision to seize the goods was reviewable in terms of Section 6(2) of Promotion of Administrative Justice Act, 2000 (“PAJA”).
  • The second issue was whether the Respondents complied with Section 96 (1) of the Customs and Excise Act, which requires written notice being issued to SARS at least one month prior to commencing legal proceedings against SARS, in which notice the cause of action must be indicated.
  • In respect of the first issue, the Court:
    • Considered, inter alia, Sections 65, 66, 88(1)(a) and 96(1) of the Customs and Excise Act; and Sections 5 and 6(2) of PAJA and noted that once the disputed decision had been taken, the separate issue of detention was rendered moot with the only relevance of the detention relief being the question of costs, but in the present case, there is no basis for a separate costs award in relation to that relief. 
    • Found that the challenge to the disputed decision on the grounds that SARS was biased or that the decision was taken for an ulterior purpose, had no basis in the evidence, and further, the decision is one that any reasonable decision-maker could reach.
  • In respect of the second issue, the Court held that the notice issued by the Respondents to SARS, did not comply with Section 96(1)(a)(i) of the Customs and Excise Act, in that it did not, and could not, explicitly set out a cause of action because the disputed decision had not yet been taken.
  • The SCA concluded on the facts of the matter and evidence placed before it, that there was significant basis for the decision made by SARS to seize the containers and the appeal was therefore upheld with costs.

So, What does this mean for Importers of Goods?

As an importer of goods, you should ensure:

  • Proper documentation is retained for all imports should there be a request for same.
  • That the clearance process is undertaken expeditiously by yourself or through the use of a reputable clearing agent in order to avoid any delays.
  • That imported goods are disclosed and declared correctly to avoid clearance issues and the possible seizure of goods.
  • Abstain from unlawful practices (over-stating / under-stating) which would be to your detriment.

This Judgement marks a significant victory for SARS especially in its ‘fight’ against tax evasion, specifically in this case, by the under-declaring of imported goods.