DISTELL suffered a blow yesterday when the North Gauteng High Court ruled that 15 of its cream liqueurs should be taxed at the higher rate applicable to spirit-based drinks rather than the lower wine-based category the company had claimed.

"I come to the conclusion that the wine in the products in issue does not contribute to the organoleptic (sensory) characteristics of the final products as it is neutral and therefore cannot give it its essential character," Judge Cynthia Pretorius ruled. "The court finds all the products in issue as spirituous."

The ruling over the tax status of garishly named drinks like Zorba, Alaska Peppermint and Nachtmusik is a milestone in the long and convoluted battle between the South African Revenue Service (SARS) and Distell over a much more important product - flagship drink Amarula.

Distell excluded Amarula from the case it brought against SARS to avoid the publicity it feared from the public admission that a drink competing with spirit-based liqueur Bailey's Irish Cream was made mainly of wine, despite enjoying the perception of being spirit-based.

At the same time, it wanted to preserve Amarula's classification as a wine-based drink to keep the duty lower and margin higher on the drink. While this year's budget unified the excise duty for both spirit-based and fortified wine-based drinks, the change of duty on Amarula from R4,33 per litre of absolute alcohol to R93,03 created a liability dating back to 2006 that remains unclear.

Yesterday's ruling is likely to strengthen SARS's hands in its battle with Distell over that liability.

Neither side commented in detail after the judgment yesterday.

"SARS welcomes the judgment. We are studying the findings of court and how it will impact on the application of tariffs," spokesman Adrian Lackay said.

"We're disappointed in the ruling," Distell spokeswoman Heidi Bartis said. "We have to study the actual judgment and only then can we ascertain the impact."

The case made public a number of facts the company would probably have liked to keep to itself, such as that while Amarula for the local market is wine-based, the export version has only spirits.

Separately, in a bid to keep the local version classified as a wine- based liqueur, the company reduced the volume of cane spirits from 129,70ml/l to 114,82ml and raised the proportion of fortified wine from 100ml to 171,82ml.

blebym@bdfm.co.za