
What’s in a Drop? The Case of Cape Velvet and the Price of Classification
By Marcus Schaefer | Senior Associate
When is a drop of alcohol just a drop, and when does it carry weight in the eyes of the law? For Diageo, the makers of the famed Cape Velvet liqueurs, this was more than a rhetorical question – it was a dispute that reached the Supreme Court of Appeal of South Africa. At stake was the classification of Cape Velvet Cream Original for excise duty purposes, with implications not just for taxes but for how brand owners interpret and respond to regulatory frameworks.
The debate centred on whether the vanilla-based flavouring in the liqueur qualified as a “non-alcoholic ingredient.” Diageo argued that the alcohol content in the vanilla, which started at 0.6% ABV and diluted to a minuscule 0.002% in the final product, was negligible. Relying on the legal principle of de minimis non curat lex – the idea that the law does not concern itself with trifles – they contended that their product should fall under a tariff heading for liqueurs with wine spirit bases and non-alcoholic ingredients. SARS (the South African Revenue Service), however, stood firm: non-alcoholic means just that – no alcohol, regardless of how small the percentage.
The judgment ultimately sided with SARS. The court emphasised that the interpretation of “non-alcoholic” should follow its ordinary, grammatical meaning. The principle of de minimis – while relevant in other jurisdictions and contexts – was not a recognised tool for interpreting customs and excise classifications under South African law. The court highlighted that if the legislature intended to permit trace amounts of alcohol in “non-alcoholic” ingredients, it would have explicitly said so, as it did in other parts of the Customs and Excise Act.
This ruling carries weight for brand owners in the beverage industry. It reinforces the importance of adhering strictly to statutory definitions and the risks of assuming that minor deviations or negligible quantities won’t matter. For producers of liqueurs, spirits, and other excisable goods, the case underscores the need for precision – not just in formulation but in understanding the legal environment.
The case also illustrates the challenges of interpreting complex legislation. Diageo’s reliance on analogies from other laws, such as the Road Traffic Act, and international customs practices ultimately proved unpersuasive. The court noted that customs and excise law operates in a distinct context and must be interpreted according to its specific text and purpose. For brand owners, this means staying within the parameters of local regulations, even if practices elsewhere appear more lenient.
The financial implications of this case are far from trivial. Classification under a less favourable tariff heading can result in significantly higher excise duties, affecting profitability. This is a stark reminder that understanding the interplay between product composition and regulatory requirements is as essential as quality control or marketing. Ambiguities or assumptions can prove costly, as this judgment demonstrates.
For the average brand owner or manager, the lesson is clear: precision is not optional. Whether it’s the ingredients listed on a label or the way products are presented to regulators, every detail matters. This case is a call to action for businesses to work closely with legal and compliance teams to ensure products align with statutory definitions and expectations.
So, what’s in a drop? For Cape Velvet Cream Original, it was enough to stir a legal battle. For brand owners, it’s a reminder that the smallest elements can have the largest consequences. As this judgment shows, every drop counts.