South Africa: Tax In Brief | Issue 114

case law

• Ken CC v CSARS VAT2218 (VAT) [2023] ZATC CPT
• • This case concerns the taxpayer's appeal to the Tax Court against additional VAT assessments raised by the Commissioner for the South African Revenue Services ("SARS") concerning the supply of services to foreign tour operators ("FTOs") incorporated outside of South Africa.
  • The taxpayer, being a registered VAT vendor, argued that it provides a single supply of tourism package assembly services to its FTO customers outside South Africa and accordingly the services were zero-rated under section 11(2)(l) of the Value Added Tax Act, 1991 ("VAT Act"). In regard to the local services (such as accommodation, guides, greeting services) contracted for by the taxpayer on behalf of its FTO customers as part of its package assembly function, the taxpayer contended it acted as agent on behalf of the FTOs and did not itself supply the services (which would be subject to the standard rate) to the FTO as principal.
• The appeal was upheld, and the additional VAT assessments set aside.
• Find a copy of the judgment here.

• JA Walter v CSARS (A2023-008433)
• • This matter concerns an appeal against a judgment by the Tax Court. The main issue was whether a payment of R60 million received by the taxpayer as consideration for, and pursuant to, a restraint of trade ("RoT") agreement should be classified as income or capital received.
  • Both the court a quo and appellate court held that the payment under the RoT fell within the definition of "gross income" under section 1(cB)(ii) of the Income Tax Act, 1962 ("ITA"), as a sufficient causal link existed between the RoT payment and the taxpayer's past employment, thus classifying the payment as income, not capital.
  • The appellate court however remitted the understatement penalty imposed by the court a quo, finding that the taxpayer placed reliance on a document from SARS which purported to be a tax directive classifying the amount as a capital gain, and was acting bona fide in declaring the amount on the basis of the directive.
• Find a copy of the judgment here.

• Enviroserv Waste Management (Pty) Ltd v CSARS (154/2022) [2023] ZASCA 180
• • This appeal to the Supreme Court of Appeal ("SCA") concerned:
  • • the interpretation of section 12C(1)(a) of the ITA and whether cells constructed by the appellant on its landfill sites constitute a plant used directly in a process of manufacture or a process similar to manufacture;
    • whether the appellant was entitled to claim a depreciation allowance from SARS in respect of the cells; and
    • whether the understatement penalty levied by SARS from the appellant's failure to disclose interest due to it from its Ugandan subsidiary was properly imposed.
• The appeal was upheld on all three points above.
• Find a copy of the judgment here.

• Assmang Proprietary Limited v CSARS and Others (91960/2015) [2023] ZAGPPHC 2036
• • This is an application for judicial appeal concerning a review against the decision taken by SARS to refuse a rebate on the basis that fuel consumed by the applicant's contractors had not been used in terms of item 670.04 as required in section 75(1A) of the Customs and Excise Act, 1964 ("Customs and Excise Act").
  • The issue for decision was whether the mining operations in relation to which the diesel refunds were claimed by the applicant had been carried out in accordance with item 670.04 in Part 3 of Schedule 6 to the Customs and Excise Act where the diesel was purchased and used in accordance with Note 6.
  • The High Court held that the purchases of diesel on which the refunds were claimed were not "eligible purchases" for the purposes of Note 6 as the diesel was used in mining activities carried on by the applicant on a wet basis and the applicant failed to keep proper records with substantial and sufficient particularity in terms of Note 6 (q). Consequently, the purchases of diesel did not qualify for refund under the provisions of section 75(1A) and Schedule 6 of Part 3 as claimed by the applicant and the determination by SARS to disallow the refunds was upheld.
• Find a copy of the judgment here.

• Karino Homeland Distribution (Pty) Ltd v CSARS (21279/2023) [2023] ZAWCHC 329
• • The applicant sought a partial upliftment of a lien imposed over its goods by SARS in terms of section 114 of the Customs and Excise Act as security for an admitted debt.
  • The applicant contended that the value of the goods attached in terms of the statutory lien far exceeded the debt it owed SARS in that the lien cannot operate concerning subsequent debts that may have been incurred in favour of SARS. The applicant contended that SARS had abused the provisions of section 114 of the Customs and Excise Act.
  • Subject to the determination of a number of points in limine, the High Court held that there is no requirement for a lien to be exercised over only so much of the value of the property as is equal to the indebtedness. Furthermore, nowhere does section 114 of the Customs and Excise Act provide an amount concerning the lien. Importantly, it is goods that are subject to a lien and not the value of the goods.
• The application was dismissed.
• Find a copy of the judgment here.

• FITA and Others v CSARS and Another (115176-2023) and Bozza and Others v CSARS and Others (115375-2023) [2023] ZAGPPHC
• • Two urgent applications were consolidated for hearing, launched by several tobacco product manufacturers.
  • In both applications, the applicants sought urgent relief against SARS preventing it from implementing Rule 19.09 promulgated under the Customs and Excise Act, while they challenge the legality thereof.
  • Rule 19.09 is published under section 19, 60 and 120 of the Customs and Excise Act and requires registered licensees who manufacture or store tobacco products, such as the applicants, to allow SARS to install CCTV monitoring equipment at licensed customs and excise warehouses operated by tobacco product manufacturers.
  • The High Court held that given the substantial delay in launching both the applications and the absence of an adequate explanation, the applicants had failed to meet the peremptory requirements necessary for the grant of urgent relief.
• Find a copy of the judgment here.

• Unitrans Holdings v CSARS (A3094/2022) [2023] ZAGPJHC
• • The High Court had to determine the correctness of the partial disallowance by SARS of an amount claimed by the taxpayer as deductible interest expenditure.
  • The High Court held that it cannot be said that the interest expenditure was incurred by the taxpayer in the production of income whilst the taxpayer was conducting its trade as an investment holding company. On this basis, it was held that the taxpayer did not meet the requirements of section 24J(2) of the ITA and was not entitled to the interest deduction claimed.
• The appeal was dismissed.
• Find a copy of the judgment here.

Click here to continue reading . . .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.