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[2021] ZASCA 116
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Mukuru Africa (Pty) Ltd v Commissioner for the South African Revenue Service (520/2020) [2021] ZASCA 116; 84 SATC 304 (16 September 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 520/2020
In
the matter between:
MUKURU
AFRICA (PTY) LTD
APPELLANT
and
COMMISSIONER
FOR THE SOUTH
AFRICAN
REVENUE SERVICE
RESPONDENT
Neutral
citation:
Mukuru
Africa (Pty) Ltd v Commissioner for the South African Revenue Service
(Case
no 520/2020)
[2021] ZASCA 116
(16 September 2021)
Coram:
PONNAN,
MBHA, MATHOPO, MAKGOKA and HUGHES JJA
Heard:
30
August 2021
Delivered:
This
judgment was handed down electronically by circulation to the
parties’ representatives via email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 10:00 am on 16 September
2021.
Summary:
Value-added
tax (VAT) -
apportionment
of input VAT under s 17(1) of the Value-Added Tax Act 89 of 1991.
ORDER
On
appeal from:
Tax
Court of South Africa, Western Cape (Savage J, sitting with
assessors):
The
appeal is dismissed with costs, including those consequent upon the
employment of two counsel.
JUDGMENT
Ponnan
JA (Mbha, Mathopo, Makgoka and Hughes JJA concurring)
[1]
This appeal, against a judgment of the Tax Court of South Africa,
Cape Town, is concerned with the apportionment
of input value-added
tax (VAT) under s 17(1) of the Value-Added Tax Act 89 of 1991 (the
VAT Act).
[2]
As it was put in
Commissioner for the South African Revenue
Service v Tourvest Financial Services (Pty) Ltd
):
‘
.
. . VAT incurred by a vendor: (a) wholly for the purpose of
consumption, use or supply, in the course of making taxable supplies
may be deducted in full as input tax; (b) wholly for the purpose of
consumption, use or supply in the course of making exempt supplies,
or for some other non-taxable purpose, may not be deducted as input
tax at all; and (c) on goods or services acquired partly for
the
purpose of making taxable supplies and partly for the making of
exempt supplies or some other non-taxable purpose (i.e. mixed
supplies) must be apportioned in accordance with s 17(1), and is
only input tax (and hence deductible) to the extent that
it pertains
to a taxable supply.’
[1]
[3]
Section 17(1) (without its provisos) reads:
‘
Where
goods or services are acquired or imported by a vendor partly for
consumption, use or supply (hereinafter referred to as the
intended
use) in the course of making taxable supplies and partly for another
intended use, the extent to which any tax which has
become payable in
respect of the supply to the vendor or the importation by the vendor,
as the case may be, of such goods or services.
. . is input tax,
shall be an amount which bears to the full amount of such tax or
amount, as the case may be, the same ratio (as
determined by the
Commissioner in accordance with a ruling as contemplated in Chapter 7
of the Tax Administration Act or section
41B) as the intended use of
such goods or services in the course of making taxable supplies bears
to the total intended use of
such goods or services. . . .’
[4]
Proviso (iii) to s 17(1) (proviso (iii)), does, however, limit in
certain circumstances the extent to
which the respondent, the
Commissioner for the South African Revenue Service (SARS or the
Commissioner), may determine a ratio
with retrospective effect. It
reads:
‘
where
a method for determining the ratio referred to in this subsection has
been approved by the Commissioner, that method may only
be changed
with effect from a future tax period, or from such other date as the
Commissioner may consider equitable and such other
date must fall –
(aa)
in the case of
a vendor who is a taxpayer as defined in section 1 of the Income Tax
Act, within the year of assessment as defined
in that Act; or
(bb)
in the case of
a vendor who is not a taxpayer as defined in section 1 of the Income
Tax Act, within the period of twelve months
ending on the last day of
February, or if such vendor draws up annual financial statements in
respect of a year ending other than
on the last day of February,
within that year, during which the application for the aforementioned
method was made by the vendor.’
[5]
The appellant, Mukuru Africa (Pty) Limited (Mukuru), a registered
vendor under the VAT Act, commenced
business on 1 February 2014.
Mukuru provides money-transfer and
bureau de change
services,
as well as mobile phone credit. It makes both taxable and exempt
supplies for VAT purposes and also incurs expenditure
in acquiring
goods and services for the purpose of use, consumption or supply in
the making of those supplies. The input VAT incurred
by Mukuru
accordingly falls to be apportioned in terms of s 17(1) of the VAT
Act (s 17(1)).
[6]
On 20 February 2017, Mukuru applied to SARS for a ruling under s 41B
of the VAT Act.
[2]
It requested approval for the use of a so-called ‘transaction
count (TC)’ ratio to apportion its mixed-purpose input
VAT
deductions for the tax periods commencing 1 February 2014. On 24 July
2018, SARS approved the TC method for use by Mukuru (the
July 2018
ruling). It did so for the period commencing 1 March 2016,
but not in respect of the earlier period from 1
March 2014 to
29 February 2016. SARS took the view that proviso (iii)
precluded it from approving the TC ratio for use in
any period prior
to 1 March 2016.
[7]
Mukuru objected. SARS initially treated the objection as invalid and
refused to entertain or decide
it. On 12 June 2019, Mukuru launched
an application with the Tax Court seeking,
inter alia
, an
order compelling SARS to consider and decide the objection. Mukuru’s
application succeeded before Binns-Ward J. Following
upon the order
of Binns-Ward J, SARS considered and disallowed Mukuru’s
objection. Mukuru then appealed to the Tax Court.
[8]
In accordance with the rules of the Tax Court, SARS filed its
statement of grounds of assessment in
terms of rule 31 and Mukuru its
statement of grounds of appeal in terms of rule 32. The parties
agreed that the matter could be
determined on the basis of: (i) the
common cause facts in the rule 31 and rule 32 statements; (ii) the
facts that were common cause
on the application papers before
Binns-Ward J; and, (iii) certain further additional admissions. It
was thought unnecessary to
lead
viva vice
evidence. Both
parties, accordingly, closed their respective cases and proceeded to
argument before the Tax Court.
[9]
The Tax Court (
per
Savage J, sitting with assessors) dismissed
Mukuru’s appeal on 15 November 2019. The further appeal by
Mukuru to this Court
is with the leave of the learned judge.
[10]
The primary issue in the appeal is whether SARS (as it contends and
the Tax Court held) was precluded by proviso
(iii) from granting
approval for use of the TC ratio by Mukuru in respect of the period 1
March 2014 to 29 February 2016.
[11]
Section 17(1) of the VAT Act does not stipulate a ratio. That is to
be determined by way of a ruling from SARS
as contemplated in Chapter
7 of the Tax Administration Act 28 of 2011 (the TAA) or s 41B of
the VAT Act. When SARS issued
the July 2018 ruling, there was already
in existence a ruling as envisaged in Chapter 7 of the TAA, namely
Binding General Ruling
16 (BGR16). BGR16, which determined a ratio
for the purpose of s 17(1), was first issued by SARS on 25 March 2013
(with effect
from 1 April 2013) and re-issued on 30 March 2015
(with effect from 1 April 2015).
[12]
The ratio fixed by BGR16 is described as the standard turnover-based
method (the STB method) of apportionment.
The STB method, which is
the default method of apportionment, applies to all vendors who have
not obtained an alternative ruling
from SARS.
[13]
Relying on what was styled a ‘condition’ in BGR16, Mukuru
argues that, given the nature of its business,
it was not ‘fair
and reasonable’ for it to use BGR16. Accordingly, so the
argument went, BGR16 did not apply to it.
The ‘condition’
reads:
‘
1
The vendor may only use this method if it is fair and reasonable.
Where the method
is not fair and reasonable or inappropriate, the
vendor must apply to SARS to use an alternative method.’
Mukuru
proceeds to argue that because BGR16 did not apply to it, the July
2018 ruling did not constitute a change to an existing
apportionment
method and therefore, proviso (iii) does not preclude the
retrospective operation of the July 2018 ruling.
[14]
The 25 March 2013 iteration of BGR16,
inter alia
, provides:
‘
1
Purpose
This
BGR reproduces the statement in paragraph 8.4.3 of the
Value-Added
Tax Guide for Vendors (VAT 404)
under the heading “Formula:
Turnover-based method of apportionment”, which comprises a BGR
under section 89 of the
TA Act.
2
Background
The
Guide, which is updated annually, sets out the apportionment method
which must be used to calculate the amount of VAT to be
deducted as
input tax in respect of the acquisition of goods or services for a
mixed purpose. This BGR updates references to section
76P of the
Income Tax Act, No. 58 of 1962 with references to the TA Act and
incorporates subsequent amendments to sections of the
VAT Act.’
[15]
The Value Added Tax Guide for Vendors (VAT 404) (the Guide) predates
BGR16 by ten days. Paragraph 8.4.3 of the
Guide records in part:
‘
The
only approved method which may be used to apportion VAT incurred for
mixed purposes without specific prior written approval
from the
Commissioner, is the turnover-based method. This method applies by
default in the absence of a specific ruling obtained
by the vendor to
use another method as there is usually a fairly good correlation
between the turnover of a business and the resources
(or inputs)
which are employed to produce that turnover.’
The
ratio in BGR16 thus applies to all vendors to whom s 17 finds
application and who had not applied for and been granted an
alternative
ruling by the Commissioner. Mukuru fell within that
category, until such time as the Commissioner issued the July 2018
ruling in
its favour (and at its request), permitting the use of the
TC method.
[16]
It is so that BGRI6 does indeed contain a section headed
‘Conditions’. Those are however manifestly
not conditions
in the true sense. They do not relate to the ratio referred to in s
17, but rather to the requirement to apply to
SARS for an alternative
ruling in the event that the STB method operates unfairly and
unreasonably or is inappropriate. The condition,
such as it is,
cannot qualify s 17(1). BGR16 does no more than fix the ratio, left
to the Commissioner for determination by s 17(1).
[17]
In any event, it is not open to a vendor to simply ignore a SARS’
ruling or to unilaterally apply its own
method of apportionment. What
is more, in terms of BGR16, if the method prescribed is not fair and
reasonable or appropriate, the
vendor must apply to SARS for a fair,
reasonable and appropriate ruling. It does not provide, as Mukuru
appears to suggest, that
from the commencement of its operations, no
approved apportionment method applied to it. Nor did it provide for
Mukuru to simply
unilaterally assume its own apportionment; one not
sanctioned by SARS. The remedy for any unfairness and
unreasonableness or inappropriateness
is for a vendor to apply to the
SARS for an alternative method of apportionment, not to regard BGR16
as
pro non scripto
.
[18]
The purpose served by the requirement that a vendor must make an
application to the Commissioner, is to enable
the latter to evaluate
whether there is indeed any unfairness, unreasonableness or
inappropriateness and if so, to approve an alternative
method. Thus,
even were it to be assumed in Mukuru’s favour that the
‘condition’ is a condition in the true sense,
Mukuru did
not, at the level of fact, claim any unfairness, unreasonableness or
inappropriateness.
[19]
The legislature contemplates that the apportionment method for the
purposes of s 17 of the VAT Act must relate
to a time in the future
or, if it is to be retrospective, for a period not exceeding the
income tax year during which the application
is made for a change in
the apportionment method. Properly understood therefore, Mukuru’s
application for the July 2018 ruling
was an application to change
from the STB method to the TC method. Accordingly, when SARS approved
the change of method in response
to Mukuru’s application, it
had no power to do so, retrospectively, to a date earlier than 1
March 2016. It follows that
the Tax Court was correct in its
conclusion that:
‘
.
. . The STB method set out in BGR16 was the only ratio applicable to
the appellant until its private binding ruling had been issued
in
2017 and proviso (iii) to section 17(1) expressly precluded SARS from
issuing a ruling that had effect from a date earlier than
1 March
2016.’
[3]
[20]
In the result, the appeal must fail and it is accordingly dismissed
with costs, including those consequent upon
the employment of two
counsel.
V
M Ponnan
Judge
of Appeal
APPEARANCES
For
appellant:
M W Janisch SC
Instructed
by:
Dingley Marshall Lewin Inc, Cape Town
Phatshoane
Henney Attorneys, Bloemfontein
For
respondent:
A R
Sholto-Douglas SC (with C Tsegarie)
Instructed
by:
State Attorney, Cape Town
State
Attorney, Bloemfontein.
[1]
Commissioner
for the South African Revenue Service v Tourvest Financial Services
(Pty) Ltd
[2021]
ZASCA 61
;
2021 (5)
SA 86
(SCA)
para
10.
[2]
Section 41B
headed ‘VAT class ruling and VAT ruling’ provides:
‘
(1)
The Commissioner may issue a VAT class ruling or a VAT ruling and in
applying the provisions of Chapter 7 of the
Tax Administration Act,
a
VAT class ruling or a VAT ruling must be dealt with as if it were
a binding class ruling or a binding private ruling, respectively:
Provided that –
(a)
the
provisions of
section 79(4)
(f),
(k),
(6)
and 81(1)
(b)
of the
Tax Administration Act shall
not apply to any VAT class
ruling or VAT ruling;
(b)
an
application for a VAT class ruling or a VAT ruling in terms of this
section shall not be accepted by the Commissioner if the
application
(i) is for an
advance tax ruling that qualifies for acceptance in terms of Chapter
7 of the
Tax Administration Act; and
(ii) falls within a
category of rulings prescribed by the Minister by regulation for
which applications for rulings
in terms of this section may not be
accepted.’
[3]
Paragraph 17 of the judgment.