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[2015] ZAGPPHC 304
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Marshall N.O. and Others v Commission For The South African Revenue Service (39219/2014) [2015] ZAGPPHC 304; 77 SATC 395 (6 May 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 39219/2014
In
the matter between:
ALAN
GEORGE MARSHALL
N.O
..........................................................................
1
ST
APPLICANT
RENE
PIETER DE WET
N.O
...................................................................................
2
ND
APPLICANT
KNOWLEDGE
LWAZI MBOYI
N.O
.......................................................................
3
RD
APPLICANT
JOHN
ANDREW DE MARTIN
N.O
.........................................................................
4
TH
APPLICANT
RAY
SIPHOSOMHLE
SITHEMBELE
....................................................................
5
TH
APPLICANT
MSENGANA
N.O
........................................................................................................
6
TH
APPLICANT
KOVIN
SHUNMUGAM
NAIDOO
...........................................................................
7
TH
APPLICANT
SAMSON
MAKHUDU
GULUBE
.............................................................................
8
TH
APPLICANT
And
THE
COMMISSIONER FOR THE SOUTH
AFRICAN
REVENUE
SERVICE
.................................................................................
RESPONDENT
JUDGMENT
PRETORIUS
J
[1]
The
applicants apply for a declaratory order in terms of:
“
1.1
Section 8(5) of the Value-Added Tax Act 89 of 1991 (as amended) (“the
VAT Act”) applies not only to services deemed
to be rendered
but also to actual services rendered;
1.2 The services rendered by
or on behalf of the SA RED CROSS AIR MERCY SERVICE TRUST (the
particulars of which appear from a reading
of the attached founding
affidavit) to the various health departments of provincial
governments situated within the Republic of
South Africa should be
zero rated in terms of section 11(2)(n) of the VAT Act;”
[2]
At
the outset counsel for the respondent indicated that the respondent
abandons the opposition to the application on the ground
of
jurisdiction.
[3]
Background:
The applicants are the seven
trustees for the time being of SA Red Cross Air Mercy Service Trust
(“the Trust”), who
brought the application on behalf of
the Trust.
[4]
The
Trust provides an aero-medical service throughout South Africa which
consists of the flying doctor and rural health outreach
service, the
air ambulance service and rescue service. These services have
been rendered since 1994.
[5]
The
Trust entered into agreements with various health departments of
provincial governments to provide services to the provinces.
The provincial government departments pay a fee to the Trust as
agreed by the parties in the relevant written contracts, which
generally consists of a fixed monthly fee and an agreed hourly rate
in respect of each flight.
[6]
On
30 October 2012 the Trust applied to the respondent for a private
binding VAT ruling regarding the VAT status of the services
supplied
by the Trust to the provincial government departments.
[7]
The
respondent issued its binding private ruling on 25 January 2013,
which caused the present dispute. The ruling was:
“
The
payments (I.e. the availability fee and the flight fee)received by
AMS from the Department of Health are in respect of a taxable
supply
of goods and services. The supply of such goods and services
are in the course of furtherance of AMS’ enterprise
and are
subject to VAT at the standard rate of 14 per cent in terms of
section 7(1)(a). Accordingly, AMS is required to levy
and
account for VAT at the standard rate of 14 per cent on the supplies
made to the Department of Health.”
[8]
The
dispute relates to the interpretation and application of section 8(5)
of the VAT Act. On 13 May 2013 the Trust, through
its attorneys
of record, requested the respondent to reconsider the private binding
ruling. This request was refused by the
respondent and hence
the present application.
[9]
The Legal Interpretation:
Section 7(1)(a) of the
Value-Added Tax Act 89 of 1991 (“the Act”) provides:
“
(1)
Subject to the exemptions, 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 the 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 of furtherance
of any
enterprise carried on by him;”
[10]
Section
8(5) of the Act provides:
“
(5)
For the purposes of this Act a
designated
entity shall be deemed to supply services to any public authority or
municipality to the extent of any payment made by
the public
authority or municipality concerned
to
or on behalf of that designated entity in the course or furtherance
of an enterprise carried on by the designated entity.”
(Court’s
emphasis)
[11]
Section
1 of the Act defines a designated entity as “
a
vendor… (iv) which is a welfare organisation”
.
[12]
A
“
welfare
organisation
”
is defined in section 1 of the Act as:
“’
welfare
organisation
’ means any
public benefit organisation contemplated in paragraph (a) of the
definition of ‘public benefit organisation’
in section
30(1) of the Income Tax Act that has been approved by the
Commissioner in terms of section 30(3) of that Act, if it
carries on
or intends to carry on any welfare activity determined by the
Minister for purposes of this Act, relating to those activities
that
fall under the headings-
(a)
Welfare
and humanitarian;
(b)
Health
care;…..”
[13]
A
“
public
authority
”
is defined in section 1 to mean,
inter
alia
:
“
(i)
any department or division of the public service as listed in
Schedules 1, 2 or 3 of the Public Service Act, 1994 (Act 103 of
1994);”
[14]
The
applicants rely on section 11(2)(n) of the Act which provides:
“
(n)
the services comprise the carrying on by a welfare organisation of
the activities referred to in the definition of ‘welfare
organisation’ in section 1 and to the extent that any payment
in respect of those
services
is made in terms of section 8(5) those services shall be deemed to be
supplied by that organisation to a public authority
or municipality;
”
(Court’s
emphasis)
[15]
It
is important to note that the Trust has been approved as a public
benefit organisation as contemplated in section 30 of the Income
Tax
Act to which reference is made in section 1 of the VAT Act.
[16]
In
Government Gazette No. 27235 (Government Notice 112) published on 11
February 2005 the Minister of Finance published the activities
listed
which constitutes welfare activities for the purpose of a “welfare
organisation” in the VAT Act, which included:
“
(e)
The rescue or care of persons in distress”
[17]
Is the Trust to be exempt from
VAT?:
Statutory
Interpretation:
The Law of South Africa Volume 1
second edition para 130 set out:
“…
The
legislative function is a purposive activity: the real question
is what did the Legislature intend to achieve with the
particular
legislative instrument? In determining the purpose of
legislation one is seeking the clear or manifest purpose
– in
other words one is actually seeking the object, aim, ambit or
function of the statute as determined by the use of legally
recognised rules of interpretation. The most important rule of
statutory interpretation is that the interpretation must ultimately
reflect the purpose of the legislation…”
[18]
The
court made it clear in
Standard
Bank Investment Corporation Ltd v Competition Commission and Others;
Liberty Life Association of Africa Ltd v Competition
Commission and
Others 2000(2) SA 797 (SCA)
at para 20:
“
[20]
In terms of section 43 of the Constitution, the legislative authority
of the national sphere of government is vested
in Parliament.
Parliament exercises its authority mainly by enacting Acts.
Acts are expressed in words. There
is therefore elementary
merit in what was said by Harms JA in Abrahamse v East London
Municipality and Another; East London Municipality
v Abrahamse
1997(4) SA 613 (SCA) at 632G-H:
‘
Interpretation
concerns the meaning of the words used by the Legislature and it is
therefore useful to approach the task be referring
to the words used,
and to leave extraneous considerations for later’.
[21] … However,
as I have endeavoured to show, our law is an enthusiastic supporter
of ‘purposive construction’
in the sense stated by
Smalberger JA in Public Carriers Association and Others v Toll Road
Concessionaries (Pty) Ltd and Others
1990(1) SA 925 (A) at 943G-H:
‘
Mindful
of the fact that the primary aim of statutory interpretation is to
arrive at the intention of the Legislature, the
purpose
of a statutory provision can provide a reliable pointer to such
intention where there is ambiguity’
.”
(Court’s
emphasis)
[19]
In
Standard
General Ins v Commissioner for Customs and Excise 2005(2) SA 166
(SCA)
at paragraph 25 the court held:
“
[25]
Rather than attempting to draw inferences as to the drafter’s
intention from an uncertain premise we have found
greater assistance
in reaching our conclusion from considering the extent to which the
meaning that is given to the words achieves
or defeats the apparent
scope and purpose of the legislation. As pointed out by
Nienaber JA in De Beers Marine (supra at
para [7]) when dealing with
the meaning of ‘export’ for the purpose of section 20(4)
– which draws a distinction
between export and home consumption
– the word must ‘take its colour, like a chameleon, from
its setting and surrounds
in the Act’.”
[20]
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality 2012(4) SA 593
(SCA)
at para 18 Wallis JA held:
“
The
present state of the law can be expressed as follows:
Interpretation is the process of attributing meaning to the words
used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon its
coming
into existence. Whatever the nature of the document,
consideration must be given to the language used in the light
of the
ordinary rules of grammar and syntax; the context in which the
provision appears; the apparent purpose to which it is directed
and
the material known to those responsible for its production.
Where more than one meaning is possible each possibility
must be
weighed in the light of all these factors. The process is
objective, not subjective. A sensible meaning is
to be
preferred to one that leads to insensible or unbusinessline results
or undermines the apparent purpose of the document.
Judges must
be alert to, and guard against, the temptation to substitute what
they regard as reasonable, sensible or businesslike
for the words
actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between interpretation
and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact made.
The
‘inevitable point of departure is the language of the provision
itself’, read in context and having regard to the
purpose of
the provision and the background to the preparation and production of
the document.
”
(Court’s
emphasis)
[21]
The
respondent explained that the definition of “grant”
specifically excludes payments made by public authorities for
the
actual supply of goods and services to the public authority. It
is a gratuitous payment with no reciprocity of goods
and services
expected in return. I have no quarrel with this interpretation
of the word “grant”.
[22]
According
to the respondent section 8(5) of the Act will only apply if no
actual supply of goods and/or services was made to the
respective
provincial departments of health in turn for the payment received by
the Trust. The availability and usage fees
paid to the
respective departments of health are thus actual payments and not
deemed payments as it is an availability fee as well
as for actual
services rendered and is therefore not a grant.
[23]
The
respondent is of the opinion that the provisions of section 11(2)(n)
of the Act only applies where it is “a deemed supply”
and
not on actual supply. The respondent set out that the Trust did
not qualify for zero-rating in terms of section 11(2)(n)
of the act,
as it is not deemed to supply to a public authority in terms of
section 8(5). I cannot agree with this interpretation
as
section 11(2)(n) of the Act is clear that it deals with “services”
supplied by a welfare organisation to a “public
authority”,
which will include the respective Departments of Health of the
provinces with which the applicant had contracted.
[24]
The
respondent admitted that the services rendered by the Trust
constitute aeromedical rescue, healthcare and relief network to
all
communities in need and that the services provided comprise the
carrying on by a welfare organisation of the activities referred
to
in the definition of “welfare organisation”.
[25]
In
the present instant the Trust, a welfare organisation, receives
payment by a “public authority”, the various contracted
provincial departments of health. Section 8(5) provides that
such an entity as the Trust shall be deemed to make a supply
of
services to the public authority in the furtherance of the enterprise
carried on by the Trust.
[26]
The
services provided by the Trust to the provincial government
departments of health have not been granted to the respective
provincial
government departments, but the right to use the aircraft
remains with the trust.
[27]
Section
11(2)(n) of the Act does not provide that zero rate is only
applicable to deemed supplies falling within the ambit of section
8(5). The Afrikaans translation for deem should be “geag”.
If that is so, then section 8(5) merely sets
out that if services
supplied by a designated enterprise to the various provincial
departments of health for payment those services
are deemed to make a
taxable supply of services to the furtherance of an enterprise, which
is a welfare organisation.
[28]
I
must agree with counsel for the applicant that the argument that
section 8(5) must be used to qualify for zero rating in terms
of
section 11(2)(n) is not supported by the meaning of the wording of
section 11(2)(n) of the Act. Section 8(5) makes provision
in
regard to the use of the word “deem”, deems the supply of
services to be made and deems the supply of such services
to be made
to the relevant authority or municipality concerned.
[29]
A
“designated entity” must be a vendor in terms of the Act
and involved with the actual supply of services or goods
to be able
to claim a zero rating in terms of section 11(2)(n). If that
was not the case then the provisions of section 8(5)
and section
11(2)(n) would not have been necessary.
[30]
Section
1 of the Act makes it clear that the term “consideration”
includes payments by one entity to another in respect
of supplies
made to the other entity, which is the case in the present instance.
[31]
I
agree with the argument that the purpose of the deeming provision
contained in section 8(5) of the Act is to deem payments received
by
a designated entity from a public authority or municipality to be
consideration in respect of “services” as opposed
to
“goods”.
[32]
I
find in the present instance that the wording of section 8(5) and
section 11(2)(n) of the Act are quite clear when the ordinary
meaning
of the words in these sections are examined in the context of the VAT
Act.
[33]
I
cannot find that an additional purposive approach is required as
there is no ambiguous or unclear words in these sections, which
should be clarified as the words in these sections are clear as they
stand.
[34]
I
have applied the principles enunciated in the authorities and have
considered the context and the wording in these two sections
objectively. I cannot find any reason why the wording should
not be given its ordinary meaning in this context once an objective
process has been followed.
[35]
I
have listened to and read all the arguments of both parties, but I
cannot find that I agree with the respondent’s argument
that
“deem” in section 8(5) means that this section does not
deal with actual services. The payment received
by the Trust
from the provincial governments, being public authorities as defined,
are received in the furtherance of the enterprise
activities of the
Trust, being a designated entity as defined. The payments
received from the provincial governments are
subject to VAT.
[36]
Therefore
I find that section 11(2)(n) of the Act applies as the services
rendered by the Trust qualify for the zero rate of VAT.
The
services rendered by the Trust comprise the activities listed in
paragraph 1(e) of Government Notice 112 which provides:
“
Welfare
and Humanitarian
(e) The rescue or care of
persons in distress”
[37]
Section
11(2)(n) further provides that to the extent that the payment in
respect of the services are made in terms of section 8(5)
it is
deemed that it is supplied to the particular provincial governments.
Therefor these payments received by the Trust
for the services should
be subject to VAT at zero per cent in terms of section 11(2)(n).
[38]
I
therefor make the following order:
1.
Section
8(5) of the Value-Added Tax Act 89 of 1991 (as amended) (“the
VAT Act”) applies not only to services deemed
to be rendered
but also to actual services rendered;
2.
The
services rendered by or on behalf of the SA RED CROSS AIR MERCY
SERVICE TRUST to the various health departments of provincial
governments situated within the Republic of South Africa should be
zero rated in terms of section 11(2)(n) of the VAT Act;
2.
That
the Respondent be and is hereby ordered to pay the costs of this
application.
__________________________
Judge C
Pretorius
Case
number: 39219/2014
Matter
heard on: 14 April 2015
For the Applicant: Adv. PA
Swanepoel
Instructed
by : Edward Nathan Sonnenbergs Inc.
For the Defendant: Adv. A
Sholto-Douglas SC / Adv. M. Ncumisa
Instructed
by : State Attorney
Date
of Judgment: 6 May 2015