About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2016
>>
[2016] ZAGPPHC 1070
|
|
Commissioner for the South African Revenue Service v Amewele Joint Venture CC (A174/15) [2016] ZAGPPHC 1070 (15 December 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
15/12/2016
Case
Number: A174/15
Tax
court case no: VAT1005
Reportable:
No
Of
interest to other judges: No
Revised.
In
the matter between:
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE APPELLANT
and
AMEWELE
JOINT VENTURE
CC RESPONDENT
Coram:
HUGHES J
JUDGMENT
HUGHES
J
[1]
This is an appeal against the judgment of Mali J in the Tax Court in
terms of
section 133
(2) (a) of the
Tax Administration Act 28 of
2011
. The dispute focuses on the interpretation of
section 11
(2)
read with
section 8
(23) of the Value Added Tax Act 89 of 1991 (the
Vat Act) and section 3 (5) of the Housing Act 107 of 1997 (the
Housing Act). The
respondent cross appeals the said judgment in so
far as it orders the amount to be refunded be payable with interest
from the date
of the order. Instead, the order sought by the
respondent is that the refund amount payable should attract interest
from the date
when the refund was due.
[2]
The respondent seeks condonation for the late filing of its heads of
argument which were due on 17 August 2016 but only filed
on 19 August
2016, two days after the due date. This matter was due to be heard on
31 August 2016. The appellant has not opposed
the condonation sought
by the respondent. The 1rounds advanced by the respondent leans
towards experiencing some difficulties in
obtaining instructions as
their client operates from KwaZulu-Natal and the availability of
counsel to draft the papers. Though
the reasons advanced are to my
mind weak to say the least, the length of the delay is not
inordinately long and as I have to consider
the two together and not
in isolation, I am persuaded to grant the condonation sought.
[3]
The respondent provided the Department of Housing - KwaZulu-Natal
(DoH) with the supply of services for rectification of houses
contracted during the period 1994 until April 2002 and rehabilitation
services of 610 damaged houses in the Emnambithi Municipality
area as
well as building completely new house for the DoH. When charging DoH
the respondent charged VAT of 14% which was paid by
DoH. DoH picked
up that it had paid VAT to the respondent when in fact it should not
have and took a decision to stop paying the
respondent. The
respondent claimed the VAT back from the appellant and requested a
revised assessment reflecting a zero rating.
In doing so the
respondent was claiming a refund which was refused by the appellant.
The appellant went even further by disallowing
the respondent's
objection which then led to the appeal being lodged with the Tax
Court which decision is on appeal to this court.
[4]
The respondent contends that the supplied services to DoH were
rendered in terms of the Housing Subsidy Scheme alluded to in
section
3
(5) (a) of the
Housing Act and
as such the appellant had
incorrectly levied VAT at 14% in respect of the supplies mentioned
above. This was taken up on appeal
to the Tax Court and Mali J found
in favour of the respondent. She ordered the appellant to pay back
the VAT refund in the amount
of R38 162 303.07 to the respondent with
interest from the date of the judgment at a rate of 9% with each
party to pay their own
costs. In the Tax Court the appellant
submitted it was legally correct to levy VAT at 14% on the respondent
who deemed to have
supplied services to a provincial Human Settlement
department under the Rectification Programme and the Emergency
Assistance Programme
for the VAT period July 2008 until September
2010. Thus the respondent contends that the services it rendered
were in accordance
with the Housing Subsidy Scheme and as such
should be zero-rated in terms of section 11 (2) (s) of the VAT Act
and the appellant
ought to reduce the assessment raised and refund
the respondent.
[5]
The appellant's fortified in their view that they were entitled to
charge VAT at the standard rate of 14% and that section 11
(2) (s) of
the VAT Act was not applicable, thus we find ourselves on this
venture of interpreting the relevant sections mentioned
above.
However, before doing so the appellant requires of this court to find
that the Tax Court erred on either a policy, statutory
or evidentiary
level and/or on all three levels when it found that that the
appellant was wrong in charging the VAT that it did.
A finding on any
one of these levels will put to bed the matter and there will be no
need to deal with the other levels, so the
argument goes.
Policy
point of law raised
[6]
The first point of law raised by the appellant is that the Tax Court
erred on a policy level when it encroached on the executive
terrain.
In developing this argument the appellant contends that the appellant
only consulted National Treasury, which it did in
this case, on big
policy issues which could influence a policy query. On enquiry the
National Treasury would then confirm its policy
position on an issue
so queried. Now in the trial, as argued correctly by the respondent,
the appellant's own witness, Mr Bailie,
a senior specialist in legal
and policy at SARS with 30 years' experience, conceded that no
specific policy had been given from
National Treasury in respect of
this specific case from DoH. In addition the respondent points out
correspondence of 25 November
2011 where the appellant informs the
respondent's tax representative that there was no formal regulation
as yet and that same was
still in the process of being prepared for
VAT rates applicable to subsidy payments. A further indicator pointed
out by the respondent
is the letter dated 23 May 2011 where the
appellant writes to the Minister of Finance recommending that a
standard rating for VAT
for purposes of rectification and
revitalization work on low cost housing be confirmed. Coupled with
this no documentary proof
of such policy which the appellant places
reliance on was produced at the trial in the Tax Court.
[7]
What is evident to me from the record in these proceedings is that
the National Treasury, as stated in the correspondence and
the
testimony were still in discussions on how to deal with the sections
required to be interpreted. That being said the respondents
are
correct in asserting that there was no policy which the Tax Court was
going to usurp and therefore in my view the appellant's
argument on
the policy level must fail.
The
interpretation of section 11 (2) (s) read with section 8 (23) of the
VAT Act and
section 3
(5) (a) of the
Housing Act
[8
]
I find it prudent that I commence by setting out the relevant
statutes pertinent to this specific matter. Thereafter I will proceed
to engage in the interpretation of the relevant statute. The first
relevant section is that of section 7 (1) (a) of the VAT Act
which
states the following:
"7(1)
Subject to the exemptions, exceptions, deductions and adjustments
provided for in this Act, there shall be levied and
paid for the
benefit of the National Revenue Fund a tax, to be known as
value-added tax-
(a) 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;"
Thus
value added tax is levied or paid on the supply by a vendor of goods
or services in the course or furtherance of his/ her enterprise.
"
...
Section
11 of the VAT Act provides that where ordinarily a vendor would have
been charged VAT but for this section read with subsection
3 of
section 11, the charge of tax would be zero-rated. In this instance
we are concerned with section 11 (2) (s):
"Where, but for this section, a
supply of goods would be charged with tax at the rate referred to in
Section 7 (1), such supply
of goods shall, subject to compliance with
subsection (3) of this section, to be charged with tax at the rate of
zero percent where;-
…
(s) The services are deemed to be
supplied to a public authority or municipality in terms of Section 8
(23); or"
In
this matter it is common cause that the services were supplied to a
public authority or municipality. The spanner in the works
is whether
these services were in terms of section 8 (23) of the VAT Act.
Section
8 (23) states:
"For
the purpose of this Act, a vendor shall be deemed to supply services
to any public authority or municipality to the extent
of any payment
in terms of the Housing Subsidy Scheme referred to in Section 3 (5)
(a) of the Housing Act, 1997 (Act no 107 of
1997), made to or on
behalf of that vendor in respect of the taxable supply of goods and
services by the vendor."
[9]
In this instance, in order for the vendor to receive
a zero-rating on the payment
for goods
supplied or services, in terms of the VAT Act, it is required that
the payment fall within the ambit of the Housing Subsidy
Scheme
referred to in section 3 (5) (a) of
Housing Act. For
easy
reference I set out
section 3
(5) (a) to (d) below:
"The
following housing assistance measures, which were approved for
financing out of the Fund in terms of Section 1DA,108,1DC
or 10D of
the Housing Act, 1966 (Act 4 of 1966), are deemed to be National
Housing Programmes instituted by the Minister under
subsection (4)
(g):
(a) The Housing Subsidy Scheme;
(b) The Guidelines for the
Discount Benefit Scheme to promote Home Ownership, subject to section
17;
(c) The Hostels Redevelopment
Programme: Policy for the Upgrading of Public Sectors Hostels;
(d) The Criteria and procedures
govern.ng the allocation of the built and Connected Infrastructure
Grant until it is phased
out on a date determined by the Minister in
consultation with the Minister for Provincial Affairs and
Constitutional Development."
[10]
The appellant contends that none of the services rendered by th13
respondent falls within the categories set out in section
3 (5) (a)
to (d) above and as such this should be the end of the road for the
respondent, if one is interpreting the said statute.
Thus the
respondent's services supplied under the Rectification Programme and
the Emergency Assistance Programme do not fall under
the Housing
Subsidy Scheme and as such none of them fall under the Housing Act,
2007, so the argument goes. The appellant persists
that there is no
need to even look at the National Housing Code, 2009 as it does not
add value to the debate.
[11]
I am of the view that disregarding the National Housing Code is where
the appellant's problem lies in addition to ignoring
the rule of
interpretation. The court a quo was correct when it stated that the
only way one was able to attain the definition
of housing subsidy as
it was not catered for in the definitions of the Housing Act, was by
way of the National Housing Code as
this was the only piece of
legislation that had a definition of what defined a housing subsidy.
The court a quo was also correct
in using the principles of
interpretation enunciated in
Natal Joint Municipal Pension Fund v
Endumeni Municipality
2012 (4) SA 593
(SCA) at [18].
[12]
In a nutshell the respondent argued that the letter dated 22 March
2005, the guidelines to the National Housing Programme,
the
rectification of houses delivered for 1994 to 2002 and the agreement
between the appellant and the DoH clearly indicates that
the
appellant's intention was to fund the services to be provided by the
respondent through the Housing Subsidy Scheme or at the
least as
indicated in Annexure C of the Policy and Procedure which makes
provision for the various subsidy programmes. Which incidentally
was
not disputed by the appellant but what rather emerged was that DoH
was wrong in doing so.
[13]
What did the court a quo have before it when it made its decision? It
had an approved submission from the MEC for Local Government
Housing
and Traditional Affairs KZN, for a service provider to rehabilitate
and repair houses in Emnambithi area. This document
specified that
the subsidy amount of R54 650.00 was to be allocated for informal
structures and a specific amount of R32 065. 92,
in terms of the
financial provisions, allocated for formal structures. This was
followed on by the contract which was concluded
between the service
provider and DoH which stated that the VAT will be treated as
follows:
'The Developer hereby acknowledges
that services rendered in accordance with the provisions of the
Housing Subsidy Scheme are
zero rated
for Value Added Tax in
accordance with Section 11 (2) (s) of the Value Added Tax Act, 89 of
1991.'
[14]
As regards the evidence the court a quo had before it the testimony
of Mr Bailie, a witness for the appellant, who testified
that DoH had
the thinking of zero rating the housing subsidies in order to deliver
more houses. I find that the evidence of Mr
Bailie is fortified in
Chapter 8 - Guide to Fixed Property and Construction, of the SARS VAT
GUIDE 409 26 March 2013 Edition at
"8.5.1 Various amendments to the
VAT Act were therefore made with effect from April 2005 to clarify
the position, including:
·
Section 8(23) and 11(2)(s) were introduced to zero rate housing
subsidy receipts for the construction of low cost
housing under
the Housing Subsidy Scheme in terms of section 3 (5) (a) of the
Housing Act, 1997 (the
Housing Act);"
[15
]
In addition, the testimony of Ms Sheasby, the auditor whom dealt with
the respondent's objection, stated that she commenced her
assessment
with the incorrect material facts as evidence before her when she
conducted the respondent's assessment. Thus her decision
was based on
wrong facts and the court a quo was correct in pointing this out.
[16]
Bearing in mind that the only pieces of legislation which make
mention of what constitutes a housing subsidy scheme is found
in the
National Housing Code. The initial code of 2000 was revised and the
National Housing Code, 2009 came into operation which
was meant to
simplify the implementation of the housing projects and be less
prescriptive by providing clear guidelines. It is
stated specifically
at Part C of the revised National Housing Code of 2009:
"2.4 VALUE -ADDED TAX
... , housing subsidies fall within
the definition of "transfer payments" as contemplated in
the Value Added Tax Act,
1991(Act No.22 of 1991) and is subject to
VAT at a rate of zero percent (0%).
2.10 THE HOUSING SUBSIDY SYSTEM
The National Housing Programme are
administered through the Housing Subsidy System (HSS). . . "
[17]
In addition there was the conduct of the appellant in dealings with
previous projects similar to that which the respondent
had
undertaken, specifically the Thubelisha Homes project. From
correspondence on record from the appellant to Thubelisha
Homes dated
13 May 2008, Thubelisha Homes as an agent to DoH, were advised that
they would be entitled to qualify to acquire the
goods and/or
services at a zero rate in terms of section 11 (2) (s) read with
section 8 (23) of the VAT Act.
[18]
Lastly, the costing of the rectification work was as far back as 22
March 2005, not to exceed the detailed breakdown of the
housing
subsidy. This was as per correspondence from the Acting Director
General of DoH to the Head of Department of DoH.
[19]
In light of the above, reading the statutes with each other rather
than in isolation, looking at the circumstances and the
intention of
the legislature as regards what they aspired to achieve and the
purpose of the statutes together with the manner in
which they had
dealt with a previous matter akin to this matter of the respondents,
all these factors weighed and examined collectively,
as instructed by
Natal Joint Municipal Pension Fund
supra, there can be no
doubt that the payments made by DoH were payments in terms of
section
3
(5) (a) of the
Housing Act.
[20
]
The appeal of the appellant must fail.
Cross
Appeal - Interest payable
[21]
There is nothing contentious as regards this aspect as both parties
place reliance on
section 189
(3) of the
Tax Administration Act, 28
of 2011
. It is common cause that the interest in respect of the
refund payable by the appellant if not paid on the effective date
(that
being the date when tax is due and payable for that tax period)
is liable to run from that date. Thus the court a quo erred when
it
ordered that interest was to run from the date of the order. In
addition the rate of interest was incorrectly calculated by
the court
a quo and this too amounts to an error on the part of the court a
quo. The appellant provided the publication duly prescribed
by the
Minister of Finance in terms of interest to be levied on debts owing
by the state in terms of
section 80
(2) of the
Public Finance
Management Act, 1 of 1999
and for the period of the relevant tax
assessment (1 January 2011 to 28 February 2014) the applicable rate
is gazetted as 8, 5%.
The rate has changed further from 1 March 2014
to 28 February 2015 to 9% and lastly to 10, 5% for the period 1 March
2015 to 28
February 2016.
[22]
The applicable rate in this instance is as set out in the preceding
paragraph and not 9% as ordered by the court a quo. The
cross appeal
therefor succeeded.
Costs.
[23]
This matter though it was an appeal in the tax court was conducted in
the form of a trial. The court a quo sets out the reasons
why it
granted costs in the manner that it did, that each party pay its own
costs. In the appeal process the appellant seeks a
costs order if it
is successful and on the other side so too does the respondent. In
this instance I am of the view that the principles
set out in
Affordable Medicines Trust and Others v Minster of Health and
Others
[2005] ZACC 3
;
2006 (3) SA 247
(CC) at
[138]
and further reiterated in
Biowatch Trust v Registrar, Genetic Resources and Others
2009 (6)
SA 232
(CC) at [24]
are applicable in that the government organ
having lost the appeal is to pay the costs of the respondent. I say
so because the writing
was on the wall from the onset that a
zero-rating should be applied however even in the face of all the
evidence supra and that
on record the appellant still persisted to
resist paying the respondent its refund.
[24]
The respondent seeks costs for the employment of two counsel and I am
of the view that this is warranted taking into account
the volume of
the work as regards the interpretation of the applicable statutes.
[25]
Thus the appeal is dismissed with costs. Such costs to include the
employment of two counsels.
[26]
The cross appeal succeeds and as the error was not of any one of the
parties' doing but rather that of the court a quo each
party pays
their own costs as regards the cross appeal.
[27]
Consequently the following order is made:
[1]
The appeal of the appellant, SARS, is dismissed with costs such costs
are to include the employment of two counsels;
[2]
The respondent, Amawele Joint Venture CC, succeeds in the cross
appeal with each party to pay their own costs:
[3]
The refund due to be paid by SARS to the respondent, Amawele Joint
Venture CC, in the sum of R38 162 303.07 for the VAT periods
07/ 2008
to 09/2010 is with interest as set out below:
For
tax assessment period 1 January 2011 to 28 February 2014 the
applicable rate as gazetted is 8, 5%;
For
the period 1 March 2014 to 28 February 2015 the applicable rate is
9%;
Lastly
10, 5% for the period 1 March 2015 to 28 February 2016.
__________________________
W.
Hughes
Judge
of the High Court Gauteng Division, Pretoria
I
agree.
_________________________
L.M.
Molopa-Sethosa
Judge
of the High Court Gauteng Division, Pretoria
I
agree.
__________________________
S.P.
Mothle
Judge
of the High Court Gauteng Division, Pretoria
For
the Appellant:
Adv. V Ngalwana SC
(082 328 9420)
Adv. R M Molea (082 467 0766)
Instructed
by South African Revenue Services
For
the Respondent:
Adv. H Mpshe (083 407 0619)
Adv. K. D Magano (082 563 9413)
Instructed
by MMS INC. Attorneys