REPORTABLE

IN
THE HIGH COURT OF NAMIBIA CASE NO: A 417/09

In the matter between:

and

CORAM: GEIER, AJ

Heard: 29 March 2011

Delivered: 11 November 2011

_______________________________________________________________

JUDGMENT:

GEIER, AJ.: [1] The Applicant is in the business of
processing raw Hake, Kingklip, Blue Shark and Monkfish. Its
operations, relevant for purposes of this case, entail the
purchasing, cleaning, skinning and cutting of the raw fish into
various prime cuts, which are thereafter treated by way of glazing to
enhance its shelf- life. This glazing is apparently effected by a
chemical process. The final product is then packaged in accordance
with the regulatory requirements set by the market in the European
Union, were it is sold.

[2] The applicable provisions of the Namibian Income Tax Act, Act 24
of 1981, as amended, provide for the registration of manufacturing
companies, as registered manufacturers, pursuant to which such
registered manufacturers become entitled to claim certain consequent
tax relief.

[3] During July 2004, and for purposes of attaining such
registration, the Applicant caused a first enquiry in this regard to
be made with the Directorate of Inland Revenue.

[4] The Directorate thereafter inspected the Applicant’s
factory. This was done on 2 August 2004.

[5] A formal application for registration in terms of Section 5 A of
the Income Tax Act was launched on behalf of the Applicant during
April 2005, which application was for the first time refused during
August 2005.

[6] The application was reconsidered and again refused during
September 2005.

[7] The application was thereafter renewed and finally refused on 25
September 2006.

[8] On 13 December 2007 an application to review this decision was
made to the Special Court for the hearing of Income Tax appeals. This
was some 15 months later.

[9] Various steps were taken during the period December 2007 to
September 2009 to procure the hearing of the Applicant’s case
as lodged before the Special Court.

[10] From the correspondence exchanged during this
period it becomes clear that the parties were not agreed ‘whether
or not this would be a matter for the Special Court’ and
whether or not the Special Court would be empowered to consider and
grant review relief.¹

[11] Eventually and on 3 December 2009 the
Applicant turned to the High Court²
and brought an application for an order:

“1. Reviewing and correcting or setting
aside the decision of the Respondent not to register the applicant as
a manufacturer in terms of s 5A of the Income Tax Act, 24 of 1981
reiterated on 25 September 2006.

2. Declaring the aforesaid decision unconstitutional and/or null
and void.

3. Declaring that the applicant is entitled to be registered as a
manufacturer pursuant to s 5A aforesaid.

4. Directing the respondent to register the applicant as such.

5. Directing that the respondent pay the costs of this
application.

6. Granting the applicant such further and/or alternative relief
as this Honourable Court deems fit.”

[12] This application was opposed and not surprisingly, and given the
history of this matter, the Respondent, inter alia, raised the
points of undue delay and prescription.

[13] In the Heads of Argument, filed on behalf of Applicant on 2
March 2011, the Applicant, now, for the first time, indicated that
the review application would not be persisted with.

[14] However, and as the Applicant - in tandem with the review - had
also sought declaratory relief, such declaratory relief was persisted
with and accordingly an order was now sought to the effect that the
Applicant should be recognised and registered as a manufacturer as
contemplated by Section 5A of the Income Tax Act, alternatively that
Applicant would be entitled to a declarator that its operations
constitute a ‘manufacturing activity’ as defined in the
Act.

THE ENTITLEMENT TO A DECLARATOR

[15] Before dealing with the other objections and the merits of this
application it became apposite to determine whether or not the
Applicant would, in circumstances, where it had elected not to
persist with the review relief, be nevertheless, entitled to
declaratory relief.

[16] In this regard it was contended by Mr. Barnard, who appeared on
behalf of the Respondent, that the Court should not come to the
assistance of the Applicant who, had utilised the review procedure as
a guise to obtain declaratory relief. He submitted that such
utilisation of the review procedure in the circumstances of the
unreasonable delay constituted an abuse of the process of Court and
that the Court should not come to the assistance of such a party. Mr.
Barnard further alluded to the principle that - in review proceedings
- and where the setting aside of administrative decisions was sought
- as a general principle - the Courts would normally refer such
decisions back to the administrative body for reconsideration unless
there would be special circumstances not to do so. He submitted that
Applicant cannot ask the Court to make a declaration that will have
the effect of the Court deciding an issue which was actually reserved
for the executive, without the decision of the executive first having
been set aside. It was further submitted that a Court should not
substitute its decision with that of the executive unless there are
special circumstances giving reason for the Court to do so.

[17] Mr. Frank SC, who appeared on behalf of the
Applicant, pointed out that -coupled with the review relief - now
abandoned - the Applicant had always also sought a declaratory order
declaring it to be entitled to be registered as a manufacturer
pursuant to Section 5 A of the Income Tax Act. He pointed out that
such declarator would not have any retrospective effect as it would
operate ex nunc.
This would be so, so the argument ran, because a declarator could
only be sought in respect of any “existing, future or
contingent right or obligation”.³

[18] He elaborated:

“ … the relief for review and a
declarator will operate on different time scales, namely the review
ex tunc and the declarator ex nunc. With the review relief applicant
will be entitled to claim the tax benefits attaching to the status of
manufacturer from 2006, whereas if only the declaratory relief is
obtained the tax benefits will only be claimable from the date the
declarator is made.

As far as the declarator is concerned it is submitted that
applicant is entitled to the declarator sought, i.e. to be recognised
as a manufacturer pursuant to sec. 5A of the Act by respondent,
alternatively that it be declared that the applicant conducts a
manufacturing activity as defined for the purposes of sec. 5A.

It is clear that applicant has sought to be regarded as a
manufacturer as from 2004 and a dispute has arisen and is currently
still in place with the respondent as to whether the applicant is
entitled to so be recognised. It is also submitted that, given the
wording of sec. 5A of the Act applicant would be entitled to apply
for such recognition at any time provided it avers it conducts a
manufacturing activity.

The dispute between the parties is not merely of academic or
abstract interest nor is it a hypothetical one, but has a direct
impact on applicant who cannot claim certain tax deductions because
it is not recognised as a manufacturer.

Furthermore, the facts are not in dispute and it is an essentially
legal question. What needs to be determined is whether the admitted
activities of the applicant amount to the conducting of a
“manufacturing activity” as manufacturer. “

[19] The Court’s approach to the question of
a declarator was recently considered by this Court in the unreported
case of Protasius Daniel and Willem
Peter v the Attorney General and Others⁴,
where the Court held :

“[17] The Court approaches the question
of a declarator in two stages. ... First, is the applicant a person
‘interested’ in any ‘existing, future or contingent
right or obligation’. Secondly, and only if satisfied at the
first stage, the Court decides whether the case is a proper one in
which to exercise its discretion.

[18] It was decided in Ex parte Nell 1963 (1) SA 754 (A) that an
existing dispute is not a prerequisite for jurisdiction under section
19(1)(a)(iii). There must, however, be interested parties on whom the
declaratory order will be binding. The absence of an existing dispute
may, or course, incline the Court, in the exercise of its discretion,
not to grant a declarator.”

[20] It was at no stage contended on behalf of the Respondent that
there was no existing dispute between the parties or that the
Applicant would not be an interested party who could be said to not
have any existing, future or contingent right to the determination of
the legal question in issue and whether or not its activities would
constitute ‘manufacturing activities’ as defined
in the Income Tax Act.

[21] It appears immediately that the Applicant
does indeed satisfy the first leg of the requirements for a
declaratory order as set by the applicable case law and section 16 of
the High Court Act. This aspect was virtually common cause.⁵

[22] In deciding whether the case is a proper one in which to
exercise the court’s discretion it is firstly of relevance that
all the arguments mustered on behalf of the Respondent against the
consideration of the declaratory order sought essentially related to
reviews and review relief, which are no longer of application, save
for the question of costs, given the abandonment of such relief and
accordingly they do not materially impact on the determination of
whether or not the Applicant would, per se, be entitled to the
declarator sought.

[23] What is of further relevance in this regard is that the
declaratory relief was sought from the outset. This appears already
from the Notice of Motion filed of record herein. The continued
determination of declaratory relief would therefore never have
prejudiced the Respondent, as all issues relevant thereto, were fully
ventilated, and canvassed in the papers filed of record, the relevant
Heads of Argument and during the hearing of oral argument.

[24] It is also clear that any declaratory order granted by the Court
herein will be binding on parties hereto.

[25] It is further clear that some tangible and justifiable advantage
in relation to the Applicant’s tax position with reference to
its existing and/or future tax obligation would flow from the grant
of the declaratory sought herein.

[26] By that same token the Respondent would obtain the tangible
advantage of being assisted in its assessment of the Applicant’s
future tax liability and possibly that of other taxpayers through the
determination of the declaratory relief sought.

[27] It thus also emerges that, despite the discontinuation of the
review relief, the continued dispute between the parties would not
merely be of academic or abstract interest or would only be a
hypothetical one.

[28] All these factors, save for the aspect of the delay,
cumulatively indicate that this would be an appropriate instance to
entertain the remnants of the review application through the
consideration of the declaratory relief sought.

[29] On the other hand it cannot be argued away
that the factor of undue delay in reviews would have been a factor,
which might have adversely influenced a review court in the exercise
of its discretion.⁶
This factor does however not immediately seem
directly relevant to declarators. Nevertheless - and even if relevant
– the impact of this factor would to a great extent however
have been ameliorated by the fact that the Applicant had initially
lodged its review with the Special Court, which was not convened for
a number of years by the authorities – surely a factor beyond
the Applicant’s control.

[30] It must also be taken into account further that the Respondent’s
decisions regarding the Applicant’s tax liability for 2006 now
continue to stand. In that regard the Respondent is essentially in
the same position as any other successful party in litigation. This
outcome can be recognised - and any prejudice for that matter -
occasioned to the Respondent - through the abandonment of the review
relief – surely - can be cured by an appropriate order for
costs.

[31] Given the fact however that the Applicant has satisfied the
legal requirements for declaratory relief and as tangible and
practical advantages can be achieved through the making of the
declaratory orders sought it seems justified that I nevertheless
exercise my discretion in favour of the Applicant.

[32] Before, however, the merits of the claimed declaratory relief
can be considered, it becomes necessary to determine the issue of
prescription.

HAS THE APPLICANT’S CLAIM FOR A DECLARATOR PRESCRIBED

[33] The issue of prescription was raised crisply in the answering
affidavit as follows:

“ I am advised and submit to the
honourable court that any right or claim which the applicant has to
the relief sought in the notice of motion has become prescribed by
virtue of the provisions of the Prescription Act 68 of 1969. The
decision which is complained about was taken on 25 September 2006.
The application for review was served on 3 December 2009 only, more
than three years later. Legal argument will be addressed to the
honourable court at the hearing of this matter“

[34] Mr. Barnard formulated this argument as follows:

“ … In its heads the applicant
confirms that the declarator is sought to enable it to claim tax
deductions, (par. 20).

Section 10 of the Prescription Act 68 of 1969 provides that a debt
prescribes, in the absence of any specific provision, after the lapse
of a period of three years. The term “debt” is not
defined in the Act. The South African courts have endeavoured to do
so.

In the context of section 10(1) of the Income
Tax Act the term “debt” has a wide and general meaning,
and includes an obligation to do something and to refrain from doing
something.⁷

The South African courts have found that the provisions of section
10(1) of the Prescription Act apply in the following situations:

a) A claim that a property developer complies
with conditions imposed by the City Council upon approval of the
development was found to have prescribed three years after the
property developer indicated its refusal to comply. ⁸

b) A claim that ownership of immovable property
be transferred.⁹

c) In the Burley Appliances matter the issue
was whether a right to apply to court for a declarator that a person
should be held liable for the debts of a corporation In terms of the
provisions of section 64 and 65 of the Close Corporations Act could
prescribe in terms of the provisions of section 10(1) of the
Prescription Act. The court found that It did.¹⁰

In South Africa there were two divergent lines of authority, one
as stated in the Burley Appliances matter and the other line, that
such relief was not subject to prescription. In the matter Barnard
and Lynn NNO v Schoeman and Another 2000 (3) SA 168 (N), the South
African Supreme Court of Appeal approved and followed the line of
authority as set out in the Burley Appliances matter. See: Duet and
Magnum Financial Services v Koster 2010 (4) SA 499 (SCA)

In the Duet and Magnum matter the applicant
(the liquidator) claimed that an impeachable transaction be set aside
in terms of the provisions of section 32 of the Insolvency Act 24 of
1936, and an order declaring that the respondent be liable to pay a
certain amount of money to the liquidator. The respondent filed a
plea of prescription. In issue was whether the claims by the
appellant constituted a “debt” as contemplated in
sections 10, 11 and 12 of the Prescription Act.¹¹

The court followed the Burley Appliances
decision. The court stated that the contrary argument in the Barnard
and Lynn matter was the only decision to that effect and was
inconsistent with a considerable body of authority and inconsistent
with the principles underlying every decision of the South African
Supreme Court of appeal on prescription.¹²

The court formulated its conclusion as follows:

“ I agree with the conclusions of Nel J
in Burley, and with his reasons for that conclusion, and in my view
they apply as much in this case. I think it is clear that the
sections of the Insolvency Act with which we are concerned give a
right to a liquidator, in prescribed circumstances, to have a person
declared to be a debtor of the estate, and its compliment is a “debt”
for purposes of prescription, in that the person concerned is liable
to have such a declaration made.”¹³

In the Burley Appliances matter the court found that what
prescribed was the right that:

“... a creditor can enforce the remedy
created by section 64. The remedy is the right to apply to court for
a declaration that a particular person or particular persons should
be held personally liable for all or any of the debts or liabilities
as the court may direct, (p. 614C)

Regarding the concepts “debt”, right, cause of action
and obligations. The South African Supreme Court of Appeal found as
follows:

“[23] Indeed, it is not unusual when
dealing with prescription for courts to ask only when the ‘right
of action’ arose, leaving it to implication that its complement
is a ‘debt’. Thus in Mazibuko v Singer, which has often
been cited in this court, Colman J referred to the ‘right of
action’ prescribing, implying that its complement was a ‘debt’.
Trollip JA said that expressly in Evins v Shield Insurance Co Ltd,
when he said:

“Cause of action” is ordinarily
used to describe the factual basis, the set of material facts, that
begets the plaintiff’s legal right of action and,
complementarily, the defendant’s “debt”, the word
used in the prescription Act.’

[24] A ‘debt’ for purposes of the
Act is sometimes described as entailing a right on one side and a
corresponding ‘obligation’ on the other But if
‘obligation’ is taken to mean that a ‘debt’
exists only when the ‘debtor’ is required to do
something, then I think the word is too limiting. At times the
exercise of a right calls for no action on the part of the ‘debtor’,
but only for the ‘debtor’ to submit himself or herself to
the exercise of the right. And if a ‘debt’ is merely the
complement of a ‘right’, and if all ‘rights’
are susceptible to prescription, then it seems to me that the
converse of a ‘right’ is better described as a
‘liability’, which admits of both an active and a passive
meaning.”¹⁴

It is submitted that there is no difference between situations on
the one hand as in the Duet and Magnum matter, namely the right of a
liquidator to have a person declared to be a debtor of an estate in
terms of the provision of the Insolvency Act; and the situation in
the Burley Appliances matter, the right to apply to court for a
declaration that a particular person should be held personally liable
for the debts of a corporation, and on the other hand in the present
matter the right to apply to court for an order that the applicant is
entitled to be registered as a manufacturer in terms of the
provisions of section 5A of the Income Tax Act. The reasoning and
findings in the two South African judgments are equally applicable in
the present case.

The only purpose why the applicant wants to be registered is to be
able to claim tax benefits from the respondent. The right of the
applicant to apply and obtain the order has as a logical consequence
the corresponding obligation on the respondent to register the
applicant. This constitutes a debt for purposes of section 10 of the
prescription act.

If the right of the applicant to apply for an order declaring that
it is entitled to be registered as a manufacturer does not have the
concomitant obligation upon the respondent to act accordingly, the
order sought is of academic value only.

The South African Supreme Court of Appeal followed the same
reasoning in finding that a claim for rectification cannot prescribe.

“A debt” is not defined in the
Prescription Act. Dealing with the meaning of the Afrikaans “n
skuld’ van Heerden AJA said in Oertel en Andere v Direkteur van
Plaaslike Bestuur en Ander 1983(1) SA 354 (A) at 370 B:

‘Volgens die aanvaarde betekenis van die
begrip slaan “n skuld’ op ‘n verpligting om lets te
doen (hetsy bewyse van betaling of lowering van ‘n saak of
dienste), of nie te doen nie. Dit is die een pool van ‘n
verbintenis wat in die reel ‘n vermoeens bestandeel en –
verpligting omvat ...’

(According to the accepted meaning of the word “a debt”
indicates a duty to do something (whether by way of payment or of
delivery of property or rendering of services), or not to do
something. This is the one side of an obligation which in the rule
contains a patrimonial element and obligation... (counsel’s
translation)

A claim for rectification does not have as a
correlative a debt within the ordinary meaning of the word.
Rectification of an agreement does not alter the rights and
obligations of the parties in terms of the agreement to be rectified,
the rights and obligations are no different after rectification.
Rectification does not create a new contract, it merely serves to
correct the written memorial of the agreement.”¹⁵

The cause of action of the applicant, the application declaring
that the applicant is entitled to be registered as a manufacturer
pursuant to the provisions of section 5A, was first available to the
applicant in August 2005, and most definitely at the latest by 27
September 2006. The whole cause of action arose then. The application
was served on 3 December 2009, after expiry of a three- year period
from the date upon which the cause of action arose.

It is submitted that the claim by the applicant for a declarator
has become prescribed.”

[35] Mr. Frank countered these arguments and submitted that no case
for prescription has been made out and that only once assessed, a
debt, in terms of the Income Tax Act, could arise. The Applicant had
simply applied for the recognition of its manufacturing processes as
a ‘manufacturing activity’ within the meaning and
ambit of the Income Tax Act, in terms of which it was seeking the
recognition and the achieving of the status of a ‘manufacturer’
in terms of Section 5A. It was thus a question of law, which required
the determination by the Court and a debt could therefore only arise
once the Directorate of Inland Revenue had made a decision in regard
to the tax liability of the Applicant as a tax payer, based on the
declarator.

[36] He submitted therefore that the (court’s) duty to
make such decision, in accordance with the interpretation of the
Income Tax Act, pursuant to a declarator does not constitute a debt
within the meaning of the Prescription Act 1969, that in any event, a
declarator does not have, as its correlative, necessarily a debt
within the ordinary meaning of the word and that the Respondent’s
claim for a special plea of prescription should not be upheld
therefore.

[37] It appears from the abovementioned
authorities that they all follow upon the judicial forensic analysis
of the relief sought in each particular instance. The first factor of
significance relevant to the determination of the present issue
between the parties must therefore be the consideration of the nature
of declaratory relief. A declarator is surely also and necessarily a
remedy antecedent¹⁶
to the enforcement of a party’s right, here
a statutory right to claim tax relief in accordance of the provisions
of the Income Tax Act, (on the interpretation of which the parties do
not agree), pursuant to the declarator.¹⁷

[38] It is also clear that the declaratory relief
sought is not in itself a claim for the enforcement of tax relief
with an inherent corresponding duty on the Directorate to recognise
the ultimate claimable tax deduction. Only once declaratory order
would have been issued would such declarator clarify how any rights
and the corresponding obligations flowing therefrom could be
enforced. In that sense Mr Frank is correct when he submits that a
debt can in terms of the Income Tax Act only arise thereafter and
only once the Directorate of Inland Revenue has made a decision in
regard to the tax liability¹⁸
of the Applicant as a tax payer, based on the
declaratory order.

[39] On proper analysis the declarator sought would in this instance
on its own merely result in an accurate interpretation of the
statute. In this sense the declaratory relief sought is akin to a
procedural device resorted to before being able to enforce a right on
the basis of it and thus also any correlative obligation of such
right. Most importantly a claim for a declarator does not alter the
rights and obligations of the parties in terms of the particular
statute - to be interpreted - such rights and obligations - created
in terms of such statute – remain the same and are no different
before or after the declarator. The only aspect that might change is
the manner in which the statute – which continues to remain
unchanged throughout - was interpreted by a party before the judicial
pronouncement by way of declaratory order and which then might have
to change in compliance with such order. That however is ‘neither
here nor there’. The particular statutory provision will merely
- from then on - be interpreted in accordance with the declaratory
order granted. The declaratory order does simply not create a new
statute, it merely serves to declare what the correct interpretation
of the statutory provision in question is. A claim for a declaratory
order therefore cannot have, as a correlative, a ‘debt’
within the ordinary meaning of the word.

[40] I cannot agree with Mr Barnard that ‘the
right to apply to court for a declaration that a particular person,
in prescribed circumstances, should be held personally liable for the
debts of a corporation – and were the court actually found that
what had prescribed - was the right of a creditor to enforce the
remedy created by section 64¹⁹
- is similar to the
present matter’ - were the parties differ on the interpretation
to be accorded to a particular statutory provision - such declarator
being merely being antecedent to any right of the Applicant to claim
consequent tax relief - ex nunc
- or for any antecedent right of the Respondent to
afford, or not to afford such tax relief consequent to such
declarator - ex nunc – and
pursuant to the further provisions
of the Income Tax Act,
as opposed to - and were conceivably - both the Applicant’s
right to enforce tax relief – ex
tunc – as well as the
Respondent’s corresponding rights – ex
tunc – could, in principle,
become liable to prescription.

[41] If the Respondent’s argument were to be accepted that a
claim for a declarator would constitute a separate and self- standing
debt for purposes of the running of prescription, the uncertain and
anomalous situation would arise that a claim for future performance
under a statute could be defeated on the basis that a claim for a
declaratory order has prescribed.

[42] In conjunction with this it must also be of
relevance that the High Court Act expressly provides²⁰
for the disrectionary power of the court to
inquire into and determine existing, future or contingent rights or
obligations only and not retrospective rights and that a declaratory
order therefore essentially operates ex
nunc as submitted by Mr Frank.

[43] The Applicant’s tax rights and obligations are surely
existing and probably future and contingent. Also the Respondent’s
rights and obligations in terms of the Act are definitely existing
and ongoing. To hold that the Applicant’s claim to a declarator
in regard thereto would have prescribed would simply be absurd.

[44] The special plea of prescription is therefore dismissed.

THE APPLICABLE STATUTORY PROVISIONS

[45] The Applicant wishes to be recognised as a
manufacturer by the Respondent pursuant to the provisions of Section
5 A of the Income Tax Act²¹,
the relevant portion whereof reads as follows:

“(1) A company which conducts or intends
to conduct a manufacturing activity and which requires to be
recognized as a registered manufacturer in respect of that
manufacturing activity for the purposes of this Act, may apply for
registration to the Minister.

(2) .........

(3) Upon receipt of an application in term of subsection (1), the
Minister may register a company in respect of the manufacturing
activity applied for if the Minister, acting with the concurrence of
the Minister of Trade and Industry, is satisfied that the
manufacturing activity concerned –

1. 
   Is or will be beneficial to the Namibian economy by way of net
   employment creation, net value addition, replacement of imports or
   an increase in net exports; and
   

   
   

2. 
   Represents or will represent an investment in a new manufacturing
   activity or a substantial expansion of an existing manufacturing
   activity…

   
   

[46] In in support of the Applicant’s quest it was thus
submitted by Mr Frank that it is clear from the wording of section 5A
that an application for recognition as a manufacturer can be made at
any stage from prior to the commencement of the activities to any
time subsequent when such activities are concluded. The section
expressly states this:

“A company which conducts or intends to
conduct a manufacturing activity...”.

Applicant maintains that it conducts a manufacturing activity.

A “manufacturing activity” is defined in the Act as:

“(a) the physical
or chemical transformation of materials or components into new
products –

1. 
   whether manually or by mechanical or other process;

   
   

2. 
   whether in a factory; at a private dwelling or any other place;
   or
   

   
   

3. 
   whether for the purposes of sale in the wholesale or retail
   trade; or
   

   
   

2. 
   the assembly of the component parts of manufactured products...”.

   
   

The dispute between the parties centres around requirement (a) of
the definition, respondent maintaining that :

“there is no physical transformation
at all. The raw fish with which
the process is started remains exactly the same. The end product is
still raw fish.”

[47] The Applicant’s further submissions in this regard read as
follows:

“In summary, the applicant purchases raw
fish and processes it in such a way as to clean, skin and to cut such
fish into various prime cuts and thereafter treating such fish for an
enhanced shelf life. The fish is then frozen and packaged for the
retail market.

A more detailed breakdown of the process, which is also not in
dispute, is set out by applicant in the original attempt to deal with
the matter in the Special Income Tax Appeals Court, eg. Hake fillets,
hake steaks in skinless form as well as the glazing of the products.

Whereas the courts have not had the opportunity to apply the
definition of “manufacturing activity”, the courts
In South Africa have dealt with the concept of “process of
manufacture” and in this regard have required a
transformation.

“The word ‘process’
can cover an unlimited multiplicity of types
of operations; ‘manufacture’, in its widest sense, can be
said to mean the making of any sort of article by physical labour or
mechanical power. DARLING, J.,
in McNicol v Finch, (1906) 2 K.B. 352 at p. 361, stated that

‘the essence of making or
manufacturing is that what is made shall be a different thing from
that out of which it is made’.

Some judicial dicta seem to emphasise ‘a change of the
character of the raw materials’ out of which something is made.
Others again state that the ‘difference’ must be
‘substantial’ or ‘essential’.

In Income Tax Case 1052, 26 S.A.T.C. 253 at p. 255, VAN WINSEN,
J., refers to some of these dicta and he concludes that

‘the article claimed to have resulted
from a process of manufacture must be essentially different from the
article as it existed before it had undergone such process’.

With this statement I do not disagree. But it
must be recognised that the term ‘essentially’ obviously
imports an element of degree into the determination of the
sufficiency of the change that must be effected for a process to be
one of ‘manufacture’. As
a result of being processed, a change may take place in regard to the
nature or form or shape or utility, etc., of the previous article or
material or substance. There can be no fixed criteria as to when any
such change can be said to have effected an essential difference.
It is a matter to be decided on the
particular facts of the case under consideration. The
most exhaustive examination of imaginary examples of change really
does not carry the matter further.” ²²

[48] Mr Frank submitted that guidance can be taken from the above
approach in that the definition of “manufacturing activity”
also refers to the “physical transformation ... into new
products” and that the following statement appearing in the
Hersamar case was thus applicable in the current context,
namely that the transformation must be “in regard to the nature
or form or shape or utility, etc., of the previous article”.

“In the Hersamar case the activities of a
metal merchant who purchased scrap metal and compressed it into
“briquettes” and “blocks” for supply to
foundries for smelting did constitute a manufacturing process. The
reasoning of the Court was as follows:

“Turning to the present case, it is quite
clear, on the facts found and submitted as part of the stated case,
that, ‘unprocessed’
scrap metal in which the respondent traded was not a commodity which
it could sell to the main purchasers of such scrap – the steel
manufacturers. In this uncompacted and shapeless form in which it
originally exists, such scrap cannot, and apparently will not, be
used in the foundries. The evidence shows that ‘steel scrap’
of the very light category and of the light category is only usable
economically in the furnace employed for the manufacture of steel if
it Is compacted to specified densities and sizes and shapes. The
accepted manner of obtaining these requirements is by making very
light steel scrap into the briquettes and light steel scrap into the
blocks referred to above. The blocks
and briquettes are articles specifically made by expensive machines
exercising very great pressure - articles which can be and are dealt
in the trade between steel manufacturers and metal merchants.

Although a briquette (or a block of light
steel scrap) is physically the same material, unaltered
metallurgically, as the steel scrap of which it is made, it has
become essentially something different. It is now, not a shapeless
quantity of loose steel scrap, but a definite article, formed to
certain desired specifications and compressed to great density, which
has thereby acquired a utility and a commercial purpose which it did
not previously possess. This article has been brought into existence
by processing loose scrap steel with a machine for the purpose of the
respondent’s trade, as a metal merchant. The process involving
the use of the machines was in
the circumstances, in my view, a process whereby this specific type
of article was manufactured;”²³

“In the Safranmark²⁴
case the South African Appellant Division
reaffirmed the approach taken in the Hersamar case and held that the
changes effected to pieces of chicken by Kentucky Fried Chicken were
sufficient to constitute a “process of manufacture”
despite the fact that, obviously, in
general terms the process started with chicken and ended with
chicken. Part of the reasoning was that “inedible raw chicken
had become an edible product” and
the Court quoted with approval the judgment of the Special court part
of which read as follows:

“In the present case it
seems relevant to me that a standardised product is produced on a
large scale by a continuous process utilising human effort and
specialised equipment in an organised manner. When to that is added
the factor that the end product is, in terms of its nature, utility
and value, essentially different from its main component, the process
must, it seems to me, be described as one of manufacture.”²⁵

“In the Ovation Recording Studios²⁶
case the South African Appellate Division held
that the process used in a recording studio to produce a master tape
from a blank recording tape was a “process of manufacture”
even though such tape could be wiped clean after recording and did
not differ visibly from the tapes from which it was created. This
was so because the nature and utility of the master tape produced the
required change.

“From a purely physical point of view,
the change is minute and the difference not even discernible to the
naked eye. In many cases the
physical characteristics and dimensions of the difference between the
original article and the finished product may be important and even
decisive, but that is not invariably the position.
There are other factors to be taken into
account (see the remarks of Grosskopf J, made in the Court a quo in
the Safranmark case supra and cited with approval by Galgut AJA in
this Court at 124E – H). In the extract quoted above from
Hersamar’s case, viz ‘change.., in regard to the nature
or form or shape or utility, etc, of the previous article...’,
the words ‘form’ and ‘shape’ refer to
physical attributes, but neither the word ‘nature’ nor
the word ‘utility’ is so limited, and under the umbrella
of ‘etc’ must certainly be included, I consider, the
factor of ‘value’. As a matter of principle I can see no
reason for generally according more weight to features of ‘form’
and ‘shape’ than to the attributes of ‘nature’
(in a non-physical sense), ‘utility’ and ‘value’.
The relative weight to be given
to the various features of change must depend on the particular facts
of each case. In the
circumstances of the present case it would be wholly unrealistic and
artificial. In my opinion, to focus attention on the insignificant
degree of physical difference between the blank master tape and the
finished master tape. Instead, it
is both appropriate and necessary, in my view, to concentrate on the
degree of difference in relation to nature (in a general sense),
utility and value.”²⁷

[49] Mr Frank therefore concluded by submitting that “as far
as applicant is concerned the physical transformation into new
products is also effected as :

1. 
   there is a transformation in relation to the “nature (in a
   general sense), utility and value;
   

   
   

2. 
   there is a change in nature from raw unprocessed and unclean
   inedible fish to specially cut ready for consumption fish - from
   something which cannot be sold to the end-consumer to something
   which can;

   
   

3. 
   here is a change in utility in that the fish changed from
   something that only a processing plant or fishmonger would be
   interested in to a product ready made and packaged for sale by
   retailers to the ultimate consumer. Thus the end product has a
   commercial purpose, which the initial product did not have;

   
   

4. 
   there is a change in value in that the process cuts, cleans and
   generally prepares the fish to be in such portions and visual state
   to present value to the ultimate consumer;

   
   

5. 
   the process physically transforms the original state of the raw
   fish so as to shape it into pieces with a different functionality
   and purpose. It is ready made for the retail market with an enhanced
   shelf life. From something that could not be sold in the retail
   space it had changed to something that can.Whereas the product
   remains fish in general sense of the word it is physically
   transformed through the process to change it from something that the
   consumer would not purchase and/or value less to a product that is
   desirable in terms of its nature, utility and value.
   

   
   

It is respectfully submitted that applicant thus conducts a
‘manufacturing activity’ as defined.”

[50] The Respondent’s submissions on the other hand ran as
follows:

“The applicant maintains that its
processing of raw fish constitutes a manufacturing activity. The
respondent found that the processing of raw fish as done by the
applicant does not constitute a manufacturing activity.

In the papers filed on behalf of the applicant there are numerous
explanations of the manufacturing process and even diagrams and
photos. If all these descriptions are evaluated and all components of
the process as explained are put together, the processing of raw fish
by the applicant constitutes the following:

1. 
   The purchase of raw fish;

   
   

2. 
   The cleaning and skinning of the raw fish;

   
   

3. 
   The cutting of the raw fish into shapes or prime cuts of the raw
   fish;

   
   

4. 
   The treatment of the raw fish for enhancing the shelf life (or
   glazing);

   
   

5. 
   The freezing and packaging of the raw fish.

   
   

It is alleged that the glazing process constitutes a chemical
transformation of the raw fish. This was specifically denied by the
respondent in the answering affidavit. The deponent on behalf of the
respondent specifically states that no facts are given by the
applicant on how the glazing can possibly effect the physical or
chemical transformation of the raw fish. In the reply the applicant
did not give any further facts or an explanation. The officials of
the respondent, before the decision, had visited the premises of the
applicant on invitation and were demonstrated the process. After the
inspection it was concluded from the facts that the glazing is not a
separate chemical process but amounts to freezing the fish.

It is submitted that the processing of raw fish by the applicant
does not constitute a manufacturing activity, which results in the
physical or chemical transformation of materials or components into
new products. The raw fish remains raw fish. The end product is still
raw fish. It is only prepared for marketing. It is not physically or
chemically transformed.

If the contention by the applicant is correct, such an
interpretation of “manufacturing activity” would lead
thereto that every butcher would be a manufacturer for purposes of
this act. It is totally conceivably that on such an interpretation
the marinated meat cutlets in vacuum packed bags, the biltong and the
boerewors would then be physically or chemically transformed meat,
new products. Similarly, conceivably a producer of vegetables who
grows the raw vegetables and then picks the vegetables, washes it,
dresses it and packages it attractively and freezes it for enhanced
shelf life could also be a manufacturer. It is submitted that this
could lead to absurdities.

In South African Tax legislation, section 12(2)(d) of the Income
Tax Act 58 of 1962 the phrase “process of manufacture” is
used. This phrase is not defined in the South African Income Tax Act.
The South African courts have declined to define the phrase. It was
held that there must be a substantial or essential change in the
material before it would constitute a process of manufacture. In this
regard the following was said:

“There can be no fixed criteria as to
when any such change can be said to have effected an essential
difference. It is a matter to be decided on the particular facts of
the case under consideration. The most exhaustive examination of
imaginary examples of change really does not carry the matter
further”²⁸

In the Namibian Income Tax Act the phrase “manufacturing
activity” is defined. The South African authorities are thus of
no assistance. The definition in our Act must be applied to each
situation.

It is submitted that the processing of raw fish by the applicant
does not constitute the physical or chemical transformation of the
raw fish into new products. It remains raw fish, simply prepared for
sale.”

[51] It appears that I have quoted extensively from both counsels
heads of argument - which were thoroughly prepared - and which proved
extremely helpful, despite the seeming differences between the South
African and Namibian underlying statutory provisions.

[52] If one then has closer regard to the statutory definitions
contained in both the South African and Namibian legislation it
appears immediately that the differences between them are not as
material as would appear at first glance.

[53] The word ‘activity’
is used in the Namibian definition as opposed to
the word ‘process’,
as utilised in the definition contained in the South African
legislation.²⁹

[54] The word ‘activity’
is defined in both the Chambers³⁰
and Collins³¹
English Dictionaries as “the
state or quality of being active”.
The Chambers Dictionary adds
that it can also mean: ‘doings’,
whereas the Collins English Dictionary
adds that the word can also mean ‘any
specific deed, action, pursuit’.

[55] The word ‘activity’
therefore has a very wide and general meaning.

[56] The word ‘process’
was held to ‘cover
an unlimited multiplicity of types of operations’.³²
This is similarly very wide and general.

[57] The word ‘process’
and its meaning covering an
’unlimited multiplicity of types of
operations’ obviously also
includes ‘doings’
and “the state
or quality of being active” Nothing
significant thus turns on this difference.

[58] The common denominator between the two
statutory definitions, is the word ‘manufacture’.³³

[59] The Namibian definition is given its specific connotation by the
defined attributes listed in sub-sections (a) (i), (ii) and (iii) of
the definition of ‘manufacturing activity’ as
contained in Section 1 of Act 24 of 1981.

[60] These specific connotations are expressly listed to be ‘the
physical’ or ‘chemical transformation of materials or
components into new products’ –whether ‘manually’
or by ‘mechanical’ or ‘other process’;
whether in a ‘factory’; at a ‘private dwelling’
or any ‘other place’; or whether for the purposes of sale
in the wholesale or retail trade; etc

[61] The South African definition is given its
specific connotations by the attributes assigned to it by judicial
interpretation were it has for instance been held
that ‘what is required is a
transformation of the product’.³⁴
Mr Frank has further correctly pointed out that
the Namibian definition of “manufacturing activity” also
refers to the “physical
transformation ... into new products”.
There are thus identical/ overlapping/ characteristics/ requirements
contained in both definitions.

[62] Due to the virtually identical language
employed in both statutory definitions and due to the close
overlapping of some of the express attributes, contained in the
Namibian definition with the elements extracted through the process
of judicial interpretation of the South African definition I find
myself in disagreement with the submission made on behalf of the
Respondent that ‘the South African
authorities are of no assistance’. I find that the
judicial interpretations accorded to the South African statutory
definition are, on the contrary, of high relevance, and thus of
guidance in the determination of the dispute between the parties
herein.

[63] When one turns to these authorities in order
to determine whether or not the Applicant does indeed conduct a
‘manufacturing’ activity’
it must again be noted that the word
‘manufacture’, in its widest sense,
can be said to mean the making of any sort of article by physical
labour or mechanical power’³⁵.
This very wide and all-encompassing
meaning - the general nature of which is underscored even more by the
word ‘activity’ -
immediately shows that almost all activities,
through which any sort of article is made by way of physical or
mechanical process –ie by way of an ’unlimited
multiplicity of types of operations’³⁶
- fall within the ambit of the meaning of these
words.

[64] The South African
courts have further held that ‘the
article claimed to have resulted from a process of manufacture must
essentially be different from the article as it existed before it had
undergone such process’³⁷
and in England Darling J said that ‘The
essence of making or manufacturing is that what is made shall be a
different thing from that out of which it is made’³⁸.
This is the element of
‘transformation’, which was expressly written into the
Namibian statute by way of definition. This is therefore then also
the first express qualification of the abovementioned
‘all-encompassing general meaning’ of the concept
‘manufacturing activity’
from which it now also appears that a different
thing is to be the end-result of the ‘manufacturing
activity’, whether by way of
‘physical; or ‘chemical process’.

[65] Some South African judicial dicta seem to
emphasise ‘a change of the character of the raw materials’
out of which something is made³⁹.
Others again state that the ‘difference’ must be
‘substantial’ or ‘essential’.⁴⁰
Whether or not ‘a change of the character’
of raw materials has been achieved or not, and whether or any such
change is ‘substantial’ or ‘essential’, would
obviously be a question of degree.

[66] Also this factor has been assimilated into
the Namibian statute. It lays down that the degree of
‘transformation’ required is - that at the end – of
the ‘physical’ or chemical ‘transformation’,
- of materials – by way of either a ‘manual’ or
‘mechanical process’ – the process should result in
a ‘new product’
or ‘products’.

[67] If one then considers the facts of this case it appears that the
Applicant maintains that its establishment of a factory, in Namibia,
is unique (and different), as traditionally fish, currently
caught by (other) Namibian companies, is usually exported to
other countries, where it is processed to meet the requirements of
the final customer. The Applicant on the other hand employs ‘raw
materials’ such as Hake, Kingklip, Blue Shark and Monkfish.
These raw materials are processed here in Namibia by the various
production lines set up in Applicant’s factory in order to
produce the final product that is then packed and priced for the
consumer market.

[68] It does not take much to conclude, given the
wide import of the language employed by the legislature here that the
Applicant conducts a ‘manufacturing
activity’ in that it makes its
final product either manually and/or mechanically or by way of other
process. It is also clear that some physical transformation of the
raw material takes place, at least in the various ways set out above.

[69] In so far as the Respondent has disputed that
a chemical transformation occurs – as a result of the glazing
process – as maintained by Applicant – I do not take this
aspect into account for purposes of deciding this matter on the
application of the governing approach to disputed facts in motion
proceedings.⁴¹

[70] It appears further that also the additional
factors/requirements - listed in sub-sections (ii) and (iii)⁴²
of the definition - are met.

[71] The only aspect which ultimately therefore
requires determination for purposes of deciding this case is whether
or not the said aforesaid transformation results in a ‘new
product’ or products?

[72] The Respondent has maintained that ‘the processing of
raw fish by the applicant does not constitute the physical or
chemical transformation of the raw fish into new products. It remains
raw fish, simply prepared for sale’.

[73] At first glance this contention has substance, particularly if
one takes into account the meaning of the word ‘new’,
which for instance is described in the Concise Oxford Dictionary
of Current English to mean :

“ … not existing before, now first
made, brought into existence, invented, introduced … or
discovered … “.⁴³

[74] At a second glance the word can however also mean :

“ … renewed, fresh, further,
additional, different, changed … “⁴⁴

[75] If one then considers that the raw fish - in unprocessed form -
not marketable in that form in the target European Union market –
is processed by the Applicant’s workforce in an organized
manner – by utilizing specialized equipment – by
physically transforming the raw fish –into portions –
which have been cleaned, trimmed and neatly packed - in a form
suitable for sale – then treated for an enhanced shelf-life –
and delivered to the retailers and end-customers - it appears that a
‘new’ product is created - in the wide and further
sense of the word - in that the end- result has ‘changed’
and is ‘different’ to the raw material with which
it commenced.

[76] Mr Frank’s analysis, of the various other ways, in which
such change manifests itself, fortifies this conclusion.⁴⁵

[77] Finally this transformation is also depicted by the ‘Product
Examples’ annexed to the founding papers filed of record and by
way of which, for instance, the transformation, of the raw hake into
the final product, was graphically illustrated as follows:

Product Examples

HAKE / MERLUZA

[Portrait on PDF]

WHOLE HAKE

[Portrait on PDF]

HAKE STAKES STEAKS RETAIL BAG

Whole hake is headed and gutted, trimmed and neck end
and steaks are cut of approximately 2 cm each, glazed for protection,
portioned and packed in retail plastic bags ready for Supermarket

HAKE MEDALLIONS MEDALLIONS RETAIL BAG

Whole hake is headed and gutted, skinned and filleted.
Smaller fillet pieces are compressed into a sausage form from which
medallions are cut of approximately 2 cm thick, glazed for
protection, portioned and packed ready for Supermarket

[Portrait on PDF]

[Portrait on PDF]

SKINLESS HAKE FILLET SKINLESS FILLET RETAIL BAG

Whole hake is headed and gutted, skinned and filleted,
glazed for protection, portioned and packed in retail bag ready for
Supermarket

[Portrait on PDF]

MASTER CARTON

Retail bags are neatly packed into a marked master
carton and sealed.

[78] It appears that the alleged transformation is not merely
insignificant.

[79] In so far as the word ‘new’, as used in the
in the definition section of the statute, is capable of more than one
meaning, and as the legislature’s intention cannot immediately
be ascertained from the language employed, it appears that the
concept ‘new product’ requires interpretation.

[80] “As in a case of interpretation of all other statutes,
fiscal legislation is to be interpreted by ascertaining what the
legislature intended in using the words it chose to use (Glen Anil
Development Corporation Ltd v Secretary for Inland Revenue 1975
(4) SA 715 (A) at 727G-H. Of cardinal importance is the scope and
purpose of the legislation and the context in which the words or
phrases are used (Standard General Insurance Co Ltd v Commissioner
for Customs and Excise 2005 (2) SA 166 (SCA) para 25 [also
reported at [2004] 2 All SA 376)”⁴⁶

[81] On examination of the scope and purpose of this part of the
Namibian Income Tax Act in its context it becomes apparent that its
express scope and purpose is to allow for, and to enable companies to
achieve recognition as ‘registered manufacturers’
for Income Tax purposes, particularly if this would be beneficial to
the Namibian economy by way of net employment creation, net value
addition, replacement of imports or an increase in net exports; and
represents or will represent an investment in a new manufacturing
activity or a substantial expansion of an existing manufacturing
activity⁴⁷.
In return, the scheme, created by the Act, grants certain tax
benefits,⁴⁸
to a tax paying company, after such company has achieved the
recognition of such status. To interpret the phrase restrictively -
given the declared purpose of the Act which clearly is intended to
benefit the nation as a whole - would surely be counter-productive to
- and would only restrictively achieve - those listed aims, purposes⁴⁹
and objects of the scheme created by the Act. It is highly unlikely
that the legislators, in this context, intended to only restrictively
achieve these benefits for the nation – surely this is not what
the legislator’s had in mind – and I thus find that a
narrow interpretation would be in conflict with the legislator’s
intention, as expressed here.

[82] By that same token it becomes clear that if a wide, and general,
interpretation would be given to the meaning of the words used in the
definition, that such interpretation would not defeat the apparent
scope and purpose of the Income Tax Act⁵⁰
and would thus also not lead to the absurdity contended for on behalf
of Respondent.⁵¹
The assigning of a wide meaning to the word ‘new’ would,
as Nienaber JA has so aptly put it, then also give the word the
'colour’, ‘like a chameleon, would take its colour
from its setting and surrounds in the Act'⁵².

[83] I am in the premises driven to the conclusion that the degree of
transformation required by way of the ‘manufacturing
activity’, as defined in section 1 of the Income Tax Act 24
of 1981, for purposes of section 5A thereof, is not only the
transformation of (raw) ‘materials’ into
‘new products’, in the sense that the required
degree of transformation is to only entail the transformation of raw
products into products not existing before or
now made for the first time, but that the legislature
intended the concept ‘new products’ to be wide
enough to also include a transformation which results in a ‘changed’
or ‘different’ product.

[84] The latter is then also what the Applicant’s manufacturing
process actually achieves - at the very least – and –
accordingly - I hold that the Applicant conducts a ‘manufacturing
activity’ within the ambit of the meaning assigned to it by
the definition contained in section 1 of the Income Tax Act 24 of
1981, as amended, which finding will entitle the Applicant further,
in accordance with such declaration, to be recognized as such, and
accordingly to apply afresh for the sought registration - in respect
of the above considered ‘manufacturing activities’ - in
terms of Section 5A (1) of the Act, - should it be so advised and if
it so chooses.

[85] The declaratory relief sought is accordingly granted with costs.

[86] In so far as I have already indicated that I deem it also
appropriate to cure any resultant prejudice
occasioned to the Respondent through the abandonment, by the
Applicant, of the review relief – I also direct that the
Applicant is to pay the Respondent’s wasted costs occasioned
thereby.

_____________________

GEIER,
AJ

Counsel for Applicant: Adv TJ Frank SC

Instructed by: HD Bossau & Co

Counsel for Respondent : Adv P.C.I. Barnard

Instructed by : Government Attorney