Diageo SA has emerged victorious in a High Court appeal on the lower excise tax rate it will pay on its Cape Velvet Cream liqueur.

A Business Day report says the case hinged on whether the inclusion of vanilla essence in its Cape Velvet liqueur – one of the ingredients marginally affecting the alcohol volume – disqualified it from a lower tax rate.

The SARS Commissioner interpreted the presence of even the small amount of alcohol in the vanilla essence as disqualifying Cape Velvet from the new tariffs that specify the products can contain no additional alcohol besides wine-based spirits.

Diageo argued that the alcohol content of the vanilla flavouring is so minimal that it is ‘insignificant and should be disregarded’.

‘A 750ml bottle of the Cape Velvet cream with an alcohol rate of 16%, thus contains 0.0003ml of alcohol from the vanilla,’ the judgment reads. 

The High Court initially agreed with SARS’ interpretation and ruled Cape Velvet could not benefit from the lower tariff, but on appeal, a full Bench of the Gauteng High Court (Pretoria) overturned the decision.

The court concluded the alcohol content in vanilla essence did not disqualify Cape Velvet from the lower tax rate. The full Bench found the lower tariffs were introduced to encourage and promote the use of the more expensive wine spirits in the manufacturing process of liqueur and it would undermine their purpose due to the use of vanilla essence with its minimal alcohol content.

The judgment reads: ‘It would be inherently contradictory to find that a product of which the alcohol beverage volume is only increased by 0.00004% excluded from reaping the benefit associated by the introduction of the lower tariff. To find otherwise would be to apply a meaning that will lead to insensible and unbusinesslike results.’

The report notes Diageo won with costs.

Full Business Day report

Judgment