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[2021] ZAGPPHC 1
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Mobile Telephone Networks (Pty) Limited v Commissioner for the South African Revenue Service (79960/2019) [2021] ZAGPPHC 1; 83 SATC 270 (12 January 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG,
PRETORIA
Case No: 79960/2019
In
the matter between:
MOBILE
TELEPHONE NETWORKS (PTY) LIMITED
APPLICANT
And
THE
COMMISSIONER FOR THE SOUTH AFRICAN
RESPONDENT
REVENUE
SERVICE
JUDGMENT
HUGHES,
J
Introduction
[1]
The applicant in
this matter is Mobile Telephone Network (Pty) Ltd (MTN) a private
company which is in the business of a mobile
network operator and
service provider. It provides mobile telephony, data, and related
services and facilities to the South African
customer. Whilst the
respondent is the Commissioner for the South African Revenue Service
(SARS) who is responsible for the administration
and enforcement of
the Tax Administration Act 28 of 2011(the Tax Act) and amongst others
Value-Added Tax Act 89 of 1991 (the VAT
Act).
[2]
It is prudent in these proceedings to set out the
relief sought by the applicant as is set out in the notice of motion.
The reason
therefore becomes evident in the judgment. The orders
sought are in the following terms:
‘
1.
Declaring
that the supply by the Applicant of pre-paid tokens or vouchers for a
consideration denominated in Rand, entitling the
holder to receive
available services and products on the MTN mobile network, as
selected by the holder, to the extent of the monetary
value stated on
or attributed to the tokens or vouchers (“multi-purpose
vouchers”), constitutes a supply as envisaged
in section 10
(18) of the Value-Added Tax Act No 89 of 1991 (“the VAT Act”);
2. Declaring, accordingly, that
the supply of such token or voucher is disregarded for the purpose of
the VAT Act, except to the
extent (if any) that the consideration for
the multi-purpose vouchers exceeds the monetary value stated thereon;
3. To the extent necessary,
declaring to be incorrect and/or setting aside the ruling issued by
the Respondent on 4 April 2019,
to the effect that the pre-paid
vouchers fall within the ambit of section 10 (19) of the VAT Act and
that value-added tax must
accordingly be accounted for by the
Applicant when the voucher is sod to the subscriber;
4. Directing
the Respondent to pay the costs of this application
.’
[3]
The prevailing situation in this
country is that Value-Added Tax (VAT) is imposed in terms of section
16(1) of the VAT Act. A vendor
is obliged to calculate the tax
payable by it in respect of each tax period during which he carried
on an enterprise. The applicant
as a vendor and the particular
category it falls within is obliged in the course of carrying out its
enterprise to submit monthly
returns. Other vendors, depending on
their category, might have a
two, six or twelve month return
obligation. It is trite that the payment of VAT to the respondent is
dependent on the calculation
of VAT by the vendor for that particular
period.
[4]
The dispute between the parties emanates from the
manner in which VAT is attributed when the applicant supplies members
of the public
certain types of pre-paid vouchers or tokens. The
situation is as follows: the applicant provides pre-paid vouchers in
Rand denominations
which provides the voucher holder to access
different types of services and products of the applicant’s up
to the value of
the voucher. The question then is, are these vouchers
to be treated for VAT purposes in terms of section 10(18) or (19) of
the
VAT Act? The applicant submits that it should be treated under
section 10(18) as the supply of multi-purpose vouchers falls under
this section, whilst the respondent contends that the applicable
legislation for the multi-purpose vouchers is section 10(19).
Brief
Background
[5]
During these times the sphere of mobile
technology has evolved over the years and it is a well-known fact
that the applicant provides
various network and technical services at
a cost to its subscribers. This case revolves around the provision
and supply of pre-paid
services, from which the applicant draws two
classifications:
- the first, being
those vouchers purchased which entitle the holder to specific
products or services. This is a single-purpose
voucher.
- the other are
vouchers purchased for multi-purpose. This voucher is a pre-paid
voucher in Rand denominations valid for a specific
period. The holder
may use this voucher for any of the applicant’s services or
products once activated to the value of the
voucher. It is the
latter, multi-purpose voucher, which is the corner stone of this
case.
[6]
In this case, the applicant’s multi-purpose
voucher has been dubbed, the ‘airtime’ voucher. The way
this voucher
works, is that the products and services purchased are
redeemed against the available pre-paid funds of the subscriber at
the prevailing
price when purchased. The applicant states that ‘the
pre-paid amount is effectively currency from which the subscriber
pays
for the services selected from time to time.’
[7]
According to the applicant an ‘airtime’
voucher is a pre-paid voucher which allows a subscriber to access the
applicant’s
services and it is not only limited to making or
receiving calls on the applicant’s mobile network, though these
services
are included. The ‘airtime’ voucher is deemed to
operate as follows: as soon as the subscriber purchases and activates
this multi-purpose voucher the subscriber’s relevant SIM card
is credited to the value of the voucher. The applicant describes
this
storage of money from which the subscriber can activate funds, as a
‘main wallet’, which can be used for products
and
services on the applicant’s network.
[8]
Thus, according to the applicant, the subscriber
determines when and for what he or she will utilize the pre-paid
value in the main
wallet. Once a particular service is accessed by
the subscriber, the applicable cost of that service based on the
prevailing tariff
is then deducted from the subscriber’s main
wallet.
The Law
[9]
Section 10(18) of the VAT Act provides as
follows:
‘
Where a right to receive
goods or services to the extent of a monetary value stated on any
token, voucher or stamp (other than a
postage stamp as defined in
section 1
of the
Postal Services Act, 1998
, and any token, voucher or
stamp contemplated in subsection (19)) is granted for a consideration
in money, the supply of such token,
voucher or stamp is disregarded
for the purposes of this Act, except to the extent (if any) that such
consideration exceeds such
monetary value.’
[10]
Whilst, section 10(19) states:
‘
Where any token, voucher
or stamp (other than a postage stamp as defined in
section 1
of the
Postal Services Act, 1998
) is issued for a consideration in money and
the holder thereof is entitled on the surrender thereof to receive
goods or services
specified on such token, voucher or stamp or which
by usage or arrangement entitles the holder to specified goods or
services,
without any further charge, the value of the supply of the
goods or services made upon the surrender of such token, voucher or
stamp is regarded as nil.’
The case of
the Applicant
[11]
The applicant contends that the declaratory it
seeks is a means of obtaining proper tax treatment in respect of the
multi-purpose
vouchers, that being the pre-paid airtime vouchers.
Notably the applicant contends that the provision of such vouchers
are in terms
of section 10(18) of the VAT Act.
[12]
The applicant contends that the cornerstone of
its case is that when a subscriber purchases the multi-purpose
voucher it does not
recognize the revenue at that time. It is only
when the voucher is used for a particular service or product, as
requested by the
subscriber, and the main wallet is debited. The
applicant contends that the revenue is now recognized.
[13]
The applicant places reliance on the explanatory
memorandum paragraph 5.6.15 (a) and 5.16.5(b), respectively, which
accompanied
the Bill which introduced sections 10(18) and (19). The
section 10(18) voucher is a voucher which is granted for monetary
consideration
and is regarded as a means of exchange, similar to
money. Importantly, when the voucher is purchased for a consideration
equal
to monetary value, tax is not charged. However, when the
voucher is tendered for goods or services supplied to the holder, tax
is then charged in full on those goods or services.
[14]
On the other hand, the explanatory note of
section 10(19) makes provision for a voucher issued for a monetary
consideration, for
specified goods or services, once surrendered.
Those specified goods or services elected will be without further
charge to the
voucher holder. In this instance the tax is charged on
issuing the voucher and none is charged when the voucher is
surrendered.
[15]
Hence, the applicant contends that their pre-paid
multi-purpose airtime vouchers with a monetary value thereon operates
as money,
which the holder would use in order to pay for a particular
service, subsequently selected. They further contend that the voucher
does not entitle the holder to specific goods or services, instead,
it’s a means to pay for unspecified services in the future.
[16]
Consequently, the applicant sought a VAT ruling
from the respondent to regard the pre-paid multi-purpose voucher as
falling within
the realm of section 10(18). The respondent refused to
grant the ruling sought by the applicant. In short the respondent
made a
ruling that the airtime vouchers of the applicant of which a
ruling is sought, fell within the realm of section 10(19) and not
10(18) of the VAT Act.
The
case of the Respondent
[17]
The respondent contends that the relief sought by
the applicant is not competent in the context of the VAT Act. This is
so, they
say, as the applicant seeks a ‘generic declaratory
order’ that is not time specific and does not have a
termination
date as well, in respect of their supply of airtime
vouchers.
[18]
They further contend that as the applicant’s
multi-purpose airtime voucher could be classified within either
section 10(18)
or (19), depending on the facts, they are adamant that
with the evidence presented by the applicant, the voucher falls
within the
ambit of section 10(19) of the VAT Act. The respondent
explains that this is so as the nature of the voucher in question is
that
‘the recipient of the voucher is entitled on the surrender
thereof to receive goods or services that by usage or arrangement
entitles the holder to specified goods or services.’
[19]
The respondent emphasized that all along the
applicant had treated the multi-purpose vouchers in terms of section
10(19) of the
VAT Act, until it sought a ruling from the respondent.
The respondent states that the reason for the applicant seeking that
these
vouchers be treated under section 10(18), is solely to gain a
financial advantage when these voucher are considered by the
respondent.
The respondent contends that the applicant in effect
seeks to disregard the supply of the voucher but rather seeks to
subject to
Vat the ‘supplies made using the voucher’.
[20]
The respondent contends that the overall
position that the applicant seeks by way of this application is the
delay of the VAT consideration
at the point of sale of the voucher
and if the voucher is not used the retention of the VAT consideration
on the voucher purchased.
Discussion
[21]
As far back as 15
November 2017, the applicant requested of the respondent to issue a
VAT ruling in terms
of
section 41B of the VAT Act to confirm that multi-purpose vouchers be
dealt within
the
realm of section 10(18) of the VAT Act. Thus, the supply of such
vouchers would not attract VAT, as the goods or services are
unspecified at the time of supply and would only do so when such
voucher is redeemed for goods and services to the extent of the
monetary value stated on such voucher. Stated differently, the
applicant seeks a declaratory that its multi-purpose voucher attain
rights as envisaged in section 10(18) ‘to receive goods to the
extent of a monetary value’ as opposed to entitling
the holder
to ‘specific goods or services’ as envisaged by section
10(19).
[22]
On 4 April 2019
after discussions and further information was requested and received
by the respondent, it delivered its ruling
in terms of section 41B.
The ruling requested was refused and such refusal was set out as
follows:
‘
the
Commissioner cannot accede to your request. The airtime vouchers as
described …fall within the ambit of section 10(19)
…
and VAT must be accounted for by MTN when the voucher is sold to the
subscriber.’
Is
the declaratory relief sought competent?
[23]
As set out above the
relief sought by the applicant is declaratory in nature. The
applicant contends that it is trite that the High
Court may be
approached for the granting of such an order in tax matters and it is
appropriate to seek such relief, in light of
the refusal of the
ruling sought. Accordingly, so the argument goes, a real dispute with
regards to the interpretation of the relevant
VAT legislation exists.
The applicant contends that
there is no
dispute
of fact, as the
issue is merely one on interpretation and application of the law,
that being the VAT Act. The applicant seeks this
court to exercise
its discretion in the granting of the declaratory.
[24]
In
advancing
its case for
the
declaratory sought the applicant relied on the
dicta
in
Commissioner
for the South African Revenue Service v Langholm Farms (Pty) Limited,
where Supreme Court of Appeal state the following:
‘
SARS
made it clear that refunds may only be claimed on fuel that was
delivered, stored and dispensed from storage facilities on
the
premises of Langholm. In so doing SARS expressed a clear view as to
the proper construction of s 75(1C) (a)(iii). Langholm
disagreed and
responded with the application, in an effort to resolve this dispute.
It is true that Langholm could have waited
and provided SARS with the
documents it required for a revised assessment, and then challenged
such an assessment, and argued the
point of law at that stage. The
issue is whether it was obliged to do so. In my view there was
nothing objectionable in Langholm
seeking clarity on an issue of
statutory interpretation that would clearly influence the outcome of
SARS’ audit. If the court
accepted Langholm’s view of the
proper interpretation of s 75(1C)
(a)
(iii)
of the Act, SARS would have had to return to the audit and re-assess
its position in the light of any further information
and debate with
Langholm. There was little point in Langholm entering into a debate
or providing further information when none
of it would be at all
relevant given SARS’ legal view. That Is exactly the situation
for which declaratory orders are made
and seeking one in the context
of a taxing statute was endorsed by the Constitutional Court
in
Metcash
.
[3]
’
[1]
[25]
Conspicuously, the
respondent accepts that an applicant as a taxpayer may seek a
declaratory order from this court in the appropriate
circumstances.
However, it contends that the circumstances presented in this case
are not appropriate. This is so as firstly the
applicant seeks of the
court to advise it which section of the statute is correct to be
adopted.
[26]
The respondent
contends that when the applicant sought the ruling in terms of
section 41B the applicant’s characterisation
was that it sought
a ruling on the VAT treatment of sales of pre-paid ‘airtime’
vouchers. However, the respondent argues
that before this court, the
characterisation has changed, as the applicant now seeks ‘the
proper VAT treatment of multi-purpose
vouchers’. In light of
the aforesaid, the respondent argues that this court is not enjoined
to make a determination on such
general terms and contends that a
determination could only be made on the proper VAT treatment of the
applicant’s sales of
‘airtime’, if on a factual
basis
it was clear
and
certain. It contends this is not the case, as the applicant has
failed to put up sufficient facts for such a determination to
be
made.
[27]
In my view, the fact
that the respondent has expressed an interpretation in its ruling
coupled with the fact that the applicant
disagrees with this
interpretation, the applicant is not precluded from
bringing
this application to resolve the difference of opinion. Since the
respondent has made an interpretation of the ambit within
which the
‘airtime’ vouchers fell, in terms of the VAT Act, this
entitles the applicant who disagrees to seek clarity
with regards to
the respondent’s interpretation.
[28]
Further,
the applicant is entitled to seek this courts assistance in light of
the respondent’s legal stand point on this matter.
Nothing
would change the respondent’s interpretation of this specific
section of the statute and no amount of further facts
or information
would alter the respondent’s legal view
.
It is trite that such court assistance may be sought in terms of tax
statutes.
[2]
In the
circumstances, the applicant’s declaratory application is
properly before this court.
Interpretation
[29]
Turning to deal with
the relevant sections, I do not propose to restate same.
[30]
The
rules of interpretation of statutes have been expressed succinctly,
that being, a
statute
must be interpreted in line with ordinary rules of grammar and syntax
taking cognisance of the context and purpose thereof.
[3]
[31]
The Supreme Court of
Appeal expanded on this as regards the interpretation of tax
statutes, in
Commissioner
for the South African Revenue Service v Bosch and Another
:
‘
The
primary issue in dispute was whether the two taxpayers exercised a
right to acquire the shares, within the meaning of that expression
in
s 8A(1)
(a)
,
when they exercised the options, or whether they only did so when the
time for payment and delivery arrived. That involves the
proper
construction of the section in accordance with ordinary principles of
statutory construction. The words of the section provide
the starting
point and are considered in the light of their context, the apparent
purpose of the provision and any relevant background
material. There
may be rare cases where words used in a statute or contract are only
capable of bearing a single meaning, but outside
of that situation it
is pointless to speak of a statutory provision or a clause in a
contract as having a plain meaning. One meaning
may strike the reader
as syntactically and grammatically more plausible than another, but,
as soon as more than one possible meaning
is available, the
determination of the provision’s proper meaning will depend as
much on context, purpose and background
as on dictionary definitions
or what Schreiner JA referred to as ‘excessive peering at the
language to be interpreted without
sufficient attention to the
historical contextual scene’.
[4]
[32]
In my view the best
place to
begin this exercise is to set
out
the intended purpose of each section, as is set out in the
Explanatory Memorandum, paragraphs 5.6.15(a) and 5.16.5(b)
respectively.
These accompanied the Bill before it was enacted as
statute.
‘
Clause
10(18)
applies in respect of a token, voucher or stamp [other
than those contemplated in sub-paragraph (b)] which has a monetary
value
stated thereon and is granted for a consideration in money e.g.
a gift voucher. The supply of the token, voucher or stamp is to
be
disregarded except to the extent that the consideration exceeds the
monetary value. The token, voucher or stamp is regarded
as a medium
of exchange similar to money. When the holder purchases the token,
voucher or stamp for a consideration equal to the
monetary value tax
is not then chargeable. When he subsequently tenders the token,
voucher or stamp in payment or part payment
for goods or services
supplied to him tax is chargeable in full on the supply of the goods
or services.’
‘
Clause
10(19)
applies where a token, voucher or stamp is issued for a
consideration in money and the holder thereof is entitled on
surrender
thereof to receive goods or services
specified on such
token,
voucher
or stamp or which by usage or arrangement
entitles the holder to
specified goods or services
without
further charge. The value of the supply of the goods or services made
upon the surrender of the token, voucher or stamp
is deemed to be
nil. In this case, tax is charged when the token, voucher or stamp is
issued.’
[33]
The applicant
issued
two categories of vouchers the one granting the holder thereof to
acquire specified services or products and the other voucher
is a
multi-purpose voucher, which once activated for its monetary value
the holder is entitled to use it for any service or product
on the
applicant’s network
.
The later voucher is the bone of contention in this case. The
multi-purpose voucher is termed by the applicant as ‘airtime’
voucher. Once the ‘airtime’ voucher is used for a service
or product, the holder is charged at the prevailing rate
and such
amount is deducted from the value of the ‘airtime’
voucher.
[34]
The applicant
contends that on issuing the multi-purpose voucher to the voucher
holder it does
not
equate to revenue and only when the voucher is activated and in fact
used that is when it is considered as revenue. In my view,
this
cannot be correct as in terms of section 9(1) of the VAT Act the
applicant is entitled to account for VAT charged on the sale
of a
voucher in the period in which the voucher was sold. As the supply of
‘airtime’ in the form of a voucher attracts
revenue for
the applicant, in terms of section 7(1)(a) of the VAT Act tax is
levied ‘on the supply by any vendor of goods
or services
supplied by him on or after the commencement date in the course or
furtherance of any enterprise carried on by him’.
[35]
In
addition, the voucher supplied is specifically an ‘airtime’
voucher. It cannot be said that an ‘airtime’
voucher is
akin to a gift voucher, which is a means of payment for goods or
services, as is proposed by the applicant. This is
so as the
‘airtime’ voucher can be used to
make
calls, receive calls, send messages, use the internet and for data
and as such does not take away from the fact that the supply
of
‘airtime’ falls within the category of specific goods or
service.
[36]
The ‘airtime’ voucher as a specific
good or service could be used for multi-purpose. However, this does
not change the
nature of the voucher being specifically an ‘airtime’
voucher. Thus, the respondent was correct when it ruled that the
‘airtime’ voucher falls within the ambit of section
10(19).
[37]
I need to make mention of the fact that
from the tim
e ‘airtime’
vouchers were introduced by the applicant and over the many years of
its usage the applicant acceded to
the interpretation ascribed by the
respondent for such ‘airtime’ voucher. This is a vital
and ought to be factored
in when addressing a statutory
interpretation and examining of the words, their contexts, the
determination of their meaning and
purpose of the statutes. To this
end I refer to
Bosch
:
‘
There
is authority that, in any marginal question of statutory
interpretation, evidence that it has been interpreted in a consistent
way for a substantial period of time by those responsible for the
administration of the legislation is admissible and may be relevant
to tip the balance in favour of that interpretation.
[11]
T
his
is entirely consistent with the approach to statutory interpretation
that examines the words in context and seeks to determine
the meaning
that should reasonably be placed upon those words. The conduct of
those who administer the legislation provides clear
evidence of how
reasonable persons in their position would understand and construe
the provision in question
.
[12]
As
such it may be a valuable pointer to the correct interpretation. In
the present case the clear evidence that for at least
eight years the
revenue authorities accepted that in a DDS scheme the exercise of the
option and not the delivery of the shares
was the taxable event,
fortifies the taxpayers’ contentions.’
[5]
[38]
Consequently,
considering the factual background, the purpose of the relevant
sections of the statute in question, its context and
wording, I am
satisfied that the interpretation ascribed by the respondent to the
airtime voucher being endorsed as falling within
the realm of section
10(19) is correct, for the reasons I have set out above.
[39]
Turning to the issue
of costs of two counsel I am not persuaded by the applicant’s
argument that costs of only one counsel
should be permitted. This
matter is of importance to the respondent, the public at large and
the
fiscus
.
The respondent was justified in employing two counsels.
Order
[1]
The application for a declaratory order as set out in the notice of
motion of the applicant is dismissed with costs. Such costs
are to
include the employment of two counsel, where so employed.
W.
Hughes
Judge
of the High Court
Virtually
Heard: 12 November 2020
Electronically
Delivered: 12 January 2021
Appearances:
For
the Applicant: Adv Janisch SC
Instructed
by: Werksmans Attorneys
For
the Respondent: Adv Sholto-Douglas SC
Instructed
by: State Attorney
[1]
Commissioner
for the South African Revenue Service v Langholm Farms (Pty) Limited
[2019]
ZASCA 168
at para 10; Footnote [3]
Metcash
Trading Limited v Commissioner, South African
Revenue
Service 2001
(1)
SA 1109 (CC).
[2]
Ibid
Langholm
Farms (Pty) Limited
[3]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593 (SCA).
[4]
Commissioner
for the South African Revenue Service v Bosch and Another
2015(2) SA 174 SCA at para 9.
[5]
Ibid
para
17; [11]
Nissan
SA (Pty) Ltd v Commissioner for Inland Revenue
[1998] ZASCA 59
;
1998
(4) SA 860
(SCA) at 870E-H;
[12]
MTK
Saagmeule (Pty) Ltd v Killyman Estates (Pty) Ltd
1980
(3) SA 1
(A) at 12F-H.