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[1987] ZASCA 40
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Charles Velkes Mail Order 1973 (Pty) Ltd v Commissioner for Inland Revenue (306/85) [1987] ZASCA 40; [1987] 2 All SA 275 (A) (12 May 1987)
CHARLES VELKES MAIL ORDER 1973 (PTY)
LTD.
APPELLANT
and
THE COMMISSIONER FOR INLAND
REVENUE
RESPONDENT
CASE NO. 306/85
/ccc
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between
CHARLES VELKES MAIL ORDER 1973 (PTY) LTD. APPELLANT
and
THE
COMMISSIONER FOR INLAND REVENUE
RESPONDENT
CORAM: CORBETT, HOEXTER, NESTADT JJA et NICHOLAS, STEYN
AJJA
HEARD
: 9 MARCH 1987
DELIVERED
: 12 MAY 1987
JUDGMENT NESTADT, JA
:
The/
2.
The broad issue in this matter concerns appellant's liability for the
payment of certain amounts of tax in terms of the Sales Tax
Act 103 of 1978
("the Act").
Appellant is a retailer of a wide variety of goods including
clothing, linen, crockery and cutlery, watches, cameras, radios and other
electrical equipment. It has no showroom or other premises where its merchandise
is on display. Its main method of selling is through
the mail order system, ie
orders for goods are sent to it (at an address in Cape Town) by post. Appellant
then, through the same
medium, despatches what has been purchased to the buyer.
Payment either has to accompany the order or has to be made on delivery.
Potential customers
are/
3.
are informed of what items are on offer only by means of catalogues. These
are prepared internally by appellant and then printed for
it by an outside
agency. They áre each marked with a sale price of 10 cents. Their cost of
production, however, was, in the
case of some of the catalogues,54 cents each
and,for the rest,22 cents
each.They contain colour photographs of each type of
article that appellant has for sale, a short description thereof and its
price. The catalogues are, at intervals during the year,
distributed to three
categories of per-sons, viz: (i) customers who have placed an order with
appellant; here a catalogue is sent
with the parcel of goods which is despatched
to them; (ii) those on appellant's mailing list, ie customers who have
bought
from/
4. from it in the past two years; (iii) those who write
in and request one; about half of these were persons who had previously been
on
the mailing list but whose names had been removed because they had not continued
buying from appellant. In each case the catalogues
are sent by post; about
40.75% to persons resident within the Republic of South Africa; the balance to
places beyond the Republic,
namely, Botswana, Swaziland, Transkei,
Bophuthatswana and South West Africa. The catalogues contain an order form in
duplicate. It
is these which (on being cut out and filled in with details of
what is being purchased, together with the buyer's name and address)
are
remitted to appellant.
The dispute relates to the catalogues and
in/
5. in particular to those distributed during the period 3 July 1978
(being the commencement date of the Act) to 29 February 1980.
Appellant paid
sales tax cal-culated at the rate then applicable, viz,4% of the cover price (ie
10 cents) of each catalogue distributed
to persons in the Republic. In respect
of those sent to foreign addresses it did not. It took the view that no tax was
payable on
these. Respondent, however, being of the opinion that appellant was
liable for sales tax on all the catalogues distributed (ie whether
in or outside
the Republic) and that it was calculable on their cost (ie 54 cents and 22 cents
per copy) claimed from appellant an
additional sum of Rl4 477,54 (together with
a penalty in an equivalent amount). In terms of sec
19(5)/
6.
19(5) of the Act respondent notified appellant of his
intention to raise an assessment accordingly. Appellant, being dissatisfied
with
respondent's contemplated action and relying on sec 20(1), requested that the
matter be referred to an advisory committee for
an opinion as to whether the
intended assessment was correct. The opinion given was adverse to appellant. As
it was en-titled to
do, appellant, in terms of sec 21, then objected to the
assessment which had conseguently been issued. When this was disallowed,
it,
under sec 22, appealed to the Cape Income Tax Special Court. The appeal (heard
by Tebbutt J and assessors) was dismissed (save
that, by consent, the penalty
was set aside). The assessment of R14 477,54 was confirmed. This is an appeal
against
such/
7. such decision direct to this court in terms of sec 86(A)(5) of
the Income Tax Act 58 of 1962 (read with sec 22(4) of the Act).
The fate of
the appeal depends upon an interpretation of certain sections of the Act
together with a closer analysis of the evidence.
Before em-barking on
this,,however, it is, I think, appropriate to briefly outline,in simplified
form,the broad scheme of the Act.
It has been amended from time to time.
Where,in what follows,sections are quoted,the wording is that of the Act as it
stood in 1979
(the latter not being materially different to how it originally
read). The Act introduced a new type of tax in South Africa, viz,a
so-called
sales tax. The expression is, however,,
misleading/
8.
misleading. Tax is levied not only on what is termed the
taxable value of the sale of goods (calculated at a given percentage thereof)
but also on that of a wide-ranging number of other specified transactions (sec
5(1)). Even the concept of sale is, as will be seen,
more ex-tensively defined
than its ordinary,common law meaning (sec l(xxix) sv "sale" ). It is not every
sale of goods (for present
purposes I confine the discussion to this type of
transaction) that attracts tax. As a general rule those which take place prior
to the purchase by what may be called the ultimate consumer or end-user of a
particular
res vehdita
do not. This would exclude the sequence of earlier
sales of an article as where it passes from manufacturer, via a wholesaler, to
a
retailer.
Similarly/
9.
Similarly unaffected are sales of raw materials or other
components from a supplier to a manufacturer for use in the production process
of the end-product. This is achieved by a series of exemptions created by sec 6
(and,in relation to the examples given, more particu-larly
sub secs l(b)(i) and
(c)(i) thereof). The result
is that,instead of having a piecemeal taxation of
sales
along the line,only the last sale in the chain of transactions leading
to it falls within the tax net created by sec 5(1); in effect
a type of delayed
action taxation. The manner in which the exemp-tions are controlled is the
following. Every per-son who carries
on the enterprise
inter alia
of
selling goods is required (in terms of secs 12(1) and (2))
to/
10.
to be registered by the Commissioner as a vendor. The
utilisation of the registration certificate, which is then issued to him,
entitles
him to purchase, free of tax, the goods which are intended for resale
by him (sec 14(1)). In other words, the registration certificate
is the passpost
to tax-free purchases. Indeed, the exemptions referred to only apply to
regis-tered vendors. The sale to a purchaser
who is not one will be taxable.
Where tax is thus payable the person primarily liable (on a monthly basis) to
the Commissioner is
the seller (sec 9(g) read with secs 16 and 17). He may,
however, recover it from the purchaser by adding the tax to the price charged
or, as it used to be, by including it in such price (sec
10(2)/
11.
10(2) and the original,now deleted,sec 10(3)). It
has been stated that the
tax is calculated on the
taxable value of the sale. Tnis is determined
by
reference to its gross value (sec 7(1) and (6)).
The manner in which
this is calculated will be con-
sidered shortly.
Certain of the sections referred to,
being directly relevant to the issues
that arise
for determination,require to be more specifically
dealt with.
There is firstly sec 5(1). It pro-
vides (in so far as is material);
"5.(1) Subject to the provisions of section 6 there shall be levied and paid,
for the benefit of the State Revenue Fund, a tax (to
be known as the sales tax)
cal-
culated at the rate of four per cent of
the/
12.
the taxable value of -
(a) every sale of goods concluded on or after the commencement date;
(h) (i) goods acquired by any person in carrying on any enter-prise ...
which are applied on or after the said date by such person to his private or
domestic use or consumption or for the use or consumption
thereof in such
enter-prise or for the use or consumption of any other person or for the
purposes of any other enterprise carried
on by the person who has so applied
such goods or assets."
The importance of deciding whether a particular transaction
falls under
sub-sec (a) or (h) lies in the different manner
in which its gross (and
accordingly taxable) value is re-
spectively determined. This arises from the
following
provisions of sec 7, viz:
"7.(1)/
13.
"7.(1) For the purposes of this Act a gross yalue shall, subject to the
provisions of subsections (2), (3), (4) and (5), be placed
on any sale of goods,
... as con-templated in section 5(1), and such gross value shall be -
(a) as respects any such sale of goods, the sum of all the amounts of the
consideration accruing to the seller in respect of such
sale, ...
(h) as respects goods, referred to in section 5(1)(h), the cost of such goods
to the person who has appliedv such goods, as contemplated
in the said
paragraph,
(3) Subject to the provisions of subsection (4), where under any agreement or
transaction treated as a sale of goods for the purposes
of this Act goods are
disposed of or the ownership therein passes or is to pass without the payment of
any consideration to the seller
in relation to such sale or for a consideration
which is less than the cost of such goods
to/
14.
to the seller, a consideration in respect
of such sale shall be deemed to have accrued
to the seller equal in value to such cost
or if the market value thereof at the time
of such sale is less than such cost, such mar-
ket value."
It follows that in the case of a sale (ie where sec 5(1)(a)
applies) the
tax is calculated on the price (sec 7(1)(a))
orr(where sec 7(3) applies) on
the cost or market value,
whichever is the lesser. Where,however,the
transaction
is one falling under sec 5(1)(h), the tax is (in terms
of sec 7(1)(h))
determined on the basis of cost.
Finally, reference must be made to sec 6(l)(a)(i). It
creates an exemption in the following terms:
"6.(1) The tax shall not be payable in respect of any taxable value which,
but for the provisions of this section, would be determinable
in/
15.
in respect of the following, namely
(a)(i) the sale of goods exported from the
Republic... within a period of twelve months after the date of such
sale."
Against this background I turn to a
consideration
of the specific issues between the parties. This must be
done on the basis
that appellant, who at all material times
was a registered vendor, and whose
acquisition of the cata-
logues can therefore be assumed to have taken place
free of
tax, is the person to whom respondent is entitled to look
for payment - if it is liable. It will be evident that
this question
involves a two-fold enquiry. The first
turns on whether the transaction,in terms whereof the cata-
logues were distributed by appellant within the Republic
of South Africa, constituted
sales
of goods
within the
meaning/
16.
meaning of sec 5(1)(a). Appellant's contention, both
in
the court a
quo
and before us, was that the transaction did, that it was
for a consideration that rendered sec 7(3) applicable, that the market value
of
the catalogues was 10 cents each and that, this being less than their cost,
their market value governed the determination of the
gross and taxable values
and, accordingly, the sales tax payable by it. On the other hand, the argument
for respondent (which was
upheld by the Special Court) was that sec 5(l)(h)(i)
applied and that, by virtue of sec 7(1)(h), appellant was liable for the tax
calculated on the cost of the catalogues (ie 54 cents and 22 cents each). Here,
therefore, only quantum is in issue. The second enquiry
relates to the
catalogues sent out of the Republic. What was to be decided here is whether
sales tax is payable at all.
This/
17. This depends on whether the exemption created by sec
6(l)(a)(i) applies and,in particular, on whether it was pursuant to sales
that
the catalogues were exported (within the specified period). Consistent with its
finding on the first issue, the Special Court
decided that they had not been
sold and that the exemption therefore did not apply and that tax was payable as
claimed by respondent.
The fundamental question,therefore,is whether the
distribution of the catalogues constituted sales within the meaning of sec
5(1)(a)
or whether sec 5(l)(h)(i)' applies. The relevant sub-sections of sec 7
respectively and ultimately relied on by the parties (on the
first issue)
are/
18.
are wholly dependent for their application on which
part of sec 5(1) is to be invoked. The problem is
one of classification.
Basic to appellant's reliance on sec
5(1)(a) is the definition of "sale" contained in sec 1.
ït reads:
"(xxix) 'sale' in relation to goods, means
an agreement whereby a party thereto agrees to sell, grant, donate or cede
goods to another or exchange goods with another or otherwise
to dispose of goods
to another, in-cluding,without in any way limiting the scope of this definition
-
(d) any other transaction whereby
the ownership of goods passes or is to pass from one person to another
wheresoever such agreement or trans-action is entered into
or concluded
There/
19. There follow a number of sub-sections
which contain
exclusions from the definition. It was not suggested
that any of them
applied. Nor was it in dispute that
catalogues are goods (as defined in sec 1
(xvi)). What
has to be decided is whether, as was argued by Mr
Swersky
on behalf of appellant, their distribution in each case
(i) resulted in or involved an agreement, or, (ii) constituted
a
transaction whereby ownership in them passed from appellant
to the recipients
(so that, in either event, there was,
in terms of sec 5(1)(a), a sale). These
two submissions
were advanced separately. It was said that "trans-
action"
in sub-paragraph (d) of the definition was in-
dependent of and not governed
by the earlier part
thereof/
20.
thereof reading "sale ... means an agreement whereby a party
thereto agrees . .."; in other words, to qualify as a transaction,there
only had
to be the transfer of ownership; there was no need for an agreement; a sale
could accordingly be proved either on a consensual
or a proprietary basis.
Counsel, besides referring to certain judicial and dictionary definitions of
"trans-action" (which is not
defined in the Act) drew attention, in support of
this approach, to the use of "agreement or transaction" in the definition of
"sale"
(just after sub-paragraph (d)) in apparent contrast to each other. It is,
however, unnecessary to express an opinion on the point.
I shall, in favour of
appellant, assume its correctness.
Now,/
21.
Now,plainly, certain sales of cata-logues (in either sense)
did take place. These, in the words of Mr Felthun, appellant's auditor
and
financial consultant, who testified on its behalf, related to the "very small
proportion" of persons on the mailing list who
paid for the catalogues sent to
them (part of category (ii) above). They would also include those catalogues
requested by persons
in category (iii). But these too, so the witness con-ceded,
represented but a minor percentage of the total number of catalogues
involved.
In the result, the number of catalogues "actually sold" was described by
the/
22.
the Special Court as "minimal" and was, for practical
purposes,
ignored.
Mr Swersky
, wisely and fairly, accepted this;
he conceded that if they were the only catalogues in re-
spect whereof
sales were established, the appeal should
fail. It follows that the
catalogues in category (iii)
From appellant's point of view, it can, I
think, be accepted that the distribution of catalogues (to whatever category
of persons) constituted offers
by it either to donate or dispose of them (or to sell them in the
conventional sense) and, at the same time, established an intention
to transfer
ownership in them. However, the reaction, if any,of the addressees of the
catalogues must naturally also be looked to.
Both/ .....
23.
Both agreement and the passing of ownership are strictly
bilateral concepts; thé former involves consensus and the latter mutual
intentions (constituting a "saaklike ooreenkoms" -
Air-Kel (Edms) Bpk h/a
Merkel Motors v Bodenstein en 'n Ander
1980(3) S A 917 (A) at 922 F).In
particular, the question is whether the
evidence establishes either that the offers were accepted
by them or that they took delivery of the catalogues with the intention of
acquiring ownership thereof. Only then would there,in each
case,be an agreement
or a transac-tion (and, accordingly, a sale). There was no direct evidence of
such acceptance or intention.
No sample selection of customers was called by
appellant to testify in this regard. Appellant's case was, however, that these
facta probanda
were to be inferred from the
circumstances/
24.
circumstances and the conduct of the parties. The
argument
was, in summary, the following:
(i) (a) The catalogues were not unsolicited.
Those sent to persons in category (i) formed part of the goods ordered, ie,
there was a composite sale of both, the catalogues being
. sent free of charge.
As regards those in category (ii), there was a tacit understanding or
contemplation, when the original purchase
was made, that a follow-up catalogue
would subsequently be sent. (b) Alternatively, there had been an acceptance, by
conduct, of
appellant's offer. This was to be inferred from the following. The
effect of the evidence was that there was
no/
25. no random distribution of catalogues; it
was to an interested and identifiable market
which comprised persons with
whom appellant
had a business connection. Moreover "tight
control" (in the
words of Mr Felthun) was exer-
cised over the mailing list; it was
"clean".
Accordingly, those in category (ii),to whom
catalogues were sent
(also without charge),
were persons "who we felt wanted" catalogues.
This
assertion had not been challenged in cross-
examination. The catalogues were useful; far
more so than the normal
advertising pamphlets
placed in post boxes of homes. On the probabi-
lities, then, they were accepted. And the
making of a further purchase showed that the
catalogues/
26.
catalogues sent had, indeed, been used by the persons
concerned; this was a signification of their assent to the offer (the
communication
whereof to appellant had been dispensed with). (ii) It was also to be
inferred from the fact of
customers "wanting" the catalogues plus their utility and that they were
used, that, on delivery, ownership was acquired. In any event,
ownership passed,
on receipt of the catalogues, even thoúgh they might have been
immediately discarded.
It will be apparent that the main thrust of the
argument was that a tacit agreement (in respect of each catalogue) was
concluded.
This/
27. This, on one of the recognised tests, is established where, by
a process of inference, it is found that the most plausible conclusion
from all
the relevant proved facts and circumstances is that a contract came
into
existence (
Plum v Mazista Ltd
1981(3) S A 152(A) at
163 -4;
Spes Bona Bank Ltd v Portals Water Treatment
S A (Pty)
Ltd
1983(1) S A 978(A) at 981 A - D;
Muhlmann
v Muhlmann
1984(3) S A 102(A) at 124 C; but cf
Joel
Melamed and Hurwitz v
Cleveland Estates (Pty) Ltd
1984(3)
S A 155(A) at 164 G - 165 G). Where
the acceptance of an
offer by conduct is relied on it must be shown that
the
offeree acted with the intention (actual or apparent)
of accepting the
offer (Chitty on
Contracts
:
General
Principles
, 25th ed
para 55 at p 34). In the case
of/
28.
of contracts of sale such conduct may be the retention
by
the "purchaser" of goods sent to him (Christie:
The Law of Contract in
South Africa
, 62). Instances
of this are where a purchaser, to whom there
is delivered
á quantity of goods on approval or in excess of
his
order or not answering the description contracted for,
keeps them (MacKeurtan:
Sale of Goods in South Africa
5th ed, 8). The
factor underlying these cases is a
prior or existing business relationship or
course of
dealings between the parties. Where, however, this is
absent the
position will ordinarily be otherwise. In
this situation, ie where
unsolicited goods are sent to
a person, the failure
per se
to return them would not
normally found a sufficient inference that they had
been/
29.
be accepted. As Corbin on
Contracts
, vol 1, sec 72, p 306 puts it:
"(I)t may indicate that he pre-ferred to give no thought to the offer and to
waste no time and effort in making a reply, whether orally
or by a writing. In
such cases, the offeror is not reasonable in giving to the offeree's mere
silence an interpretation that he accepts.
So, if a party sends a book or paper
or other goods to another, with a letter saying he is offering it for sale at a
spe-cified price,
the party to whom it is sent is not bound by a con-tract to
pay for it if he does nothing and says nothing."
To/
30.
To similar effect is Wessels:
The Law of Contract in South
Africa
, 2nd ed, vol 1, para 269, where it is stated:
"The want of a reply to an offer which one is not bound to answer may not be
a refusal, but it certainly is not equivalent to an acceptance.
Consent is a
positive act not a negative act.
Thus, if tickets, newspapers or goods are sent to my address with a notice
that if I do not return them within a certain time I shall
be taken to have
accepted them, my silence and my not returning things cannot be construed into
an acceptance on my part. There is
no legal duty laid upon me to incur the
trouble and expense of returning the articles so sent to me, and therefore my
passive attitude
cannot be interpreted into an implied consent to take
them."
On/
31.
On the other hand, were the offeree to make beneficial
use of the goods or otherwise exercise ownership over them, an acceptance may
and probably would be inferred (see Williston on
Contracts
, 3rd ed, vol 1
sec 91(D) pp 333-4). Ultimately, of course, whether the offeree's conduct was
such that an acceptance (or intention
to acquire ownership) can be inferred, is a question
of fact to be decided on the circumstantial evidence
of each case. The party bearing the onus would have to convince the court
that such inference is
the most readily apparent and acceptable one (
A A Onderlinge
Assuransie-Assosiasie Bpk v De Beer
1982(2) S A 603(A) at 614 H); in other
words that the circumstances justify the inference sought
to/ .
32.
to be drawn (
Smit v Arthur
1976(3) S A 378(A) at 384
H).
I proceed to apply these principles to the facts in
casu
. It can,
I think, be accepted that most of the catalogues were properly addressed and
posted and,in the ordinary course,reached their
destination and were received by
the addressees. I am, nevertheless, unable to agree with appellant's argument. I
deal,firstly, with
that part of it relating to the alleged consensual sales.
There is, in my opinion, no merit in the propo- sition that the catalogues
were
part of the goods ordered or that it was an implied term of each sale that a
catalogue would subsequently be sent to the erstwhile
purchaser. Neither
directly nor indirectly is there any evidence in support of this. The matter
must therefore be approached on the
basis that the catalogues were
unsolicited.
Can/ ....
33. Can it be said that they were never- theless accepted by conduct? In
considering this, it must be stressed that, what appellant
had to prove was a
multiplicity of sales and, in particular, if respondent's assessment (which was
obviously based on
the total quantity of catalogues printed and distributed)
was to be successfully challenged, a reasonably precise
estimate of the
number thereof. Otherwise one would not know what (lesser) amount of tax was
payable. But in order to quantify the
number of alleged sales, it did not
suffice for appellant to rely on the proposition that, in the ." nature of
things, the catalogues
must have been responded
to/
34.
to because, unless that happened, its business would
have
collapsed. This generalisation is no doubt true,
but it would not result in
the quantum of sales of
catalogues being established. For this to be
achieved,
it was incumbent on appellant to lay a sufficient basis
for
inferring the probability of particular sales (in-
volving individual
recipients of catalogues) having taken
place - and the approximate number
thereof. In my
opinion, it did not do this.
Whilst there was no evidence
on the point, it can be assumed that no catalogues were returned by any of the
recipients. But this is
neither surprising nor of any consequence. The
relationship between the parties was not such as to require this to be done
(on
pain/
35.
pain of an inference of acceptance arising). There is
no
warrant for a finding that anything more than one
isolated purchase had been made by any particular cus-
tomer prior to the
despatch of a catalogue to him.
Though the catalogues are perhaps advertising
material
of a superior kind, they remain such. I do not think
that a
customer who, on receiving one, and seeing what
it is (even though, in order
to do so, he may page through
it), discards it, can be said to have the
intent either
of accepting it or of acquiring ownership thereof.
Rather
the opposite seems true. Thus Williston (op
cit
)
at 334 - 5 says:
"It should be noted that to come within the operation of this general
principle the taking or exercise of
dominion/
36.
dominion must be something more than mere temporary taking or
handling for purpose of inspection or to determine whether to accept."
(The "general principle" is that the taking or retention
by an offeree of
possession of property offered to him may
constitute an acceptance "in the
absence of other controlling
circumstances" - see sec 91 D at 332). It would,
moreover, not
occur to a customer that an article of this kind (being
a,
catalogue with a price of only 10 cents marked on it)
should be
returned to appellant if he did not wish to
accept it.
What remains, then, is the contention
that (former) customers of appellant, on the probabi-
lities, in fact used the catalogues and must thus be
taken to have accepted appellant's offer. The
fallacy/
37.
fallacy inherent in the argument, and rendering it
still-born, is that its basic premise,viz, that the
addressees "wanted" the catalogues,is flawed. It
was founded on Mr
Felthun's bald, unsubstantiated alle-
gation (amounting to an opinion) to
that effect. There
was no evidence that he had any direct dealings with
any
of the persons whose subjective state of mind he was
testifying to.
What he said really begs the question
and was simply conjecture. A taxpayer's
ipse dixit
does not necessarily have to be accepted (
Malan
v
Kommissaris vir Binnelandse Inkomste
1983(3) S A 1(A):
at 18
E); uncontradicted evidence is not necessarily
cogent, (
Patel v
Grobbelaar
1974(1) S A 532(A) at 534 C - C
There/
38. There was no information as to the volume of orders or how
many customers who ordered goods at any given time had previously purchased
from
appellant. The
number of repeat orders would have been indicative of the use to which
catalogues (whether in category (i) or (ii)) were put. Indeed,
the Special Court
was left
in the dark as to the actual number of catalogues involved,
the dates when they were sent out, what proportion those
in the two categories bore to each other and how many were
on the mailing list. In the absence of evidence along
these lines, it was not possible to infer whether any,specifi
(and, if so,
how many)addressees of the catalogues re-
sponded to their distribution by using and thus accepting
them.
Finally,/
39.
Finally, if there was agreement, what were the terms thereof?
It is difficult, in this re-gard, to reconcile the price marked on the
catalogues with the contention that the offer was to supply them free of charge.
If it was not thë latter, the fact that no
payment was made by any of the
recipients (save to the extent already mentioned) is a strong indication, not
merely of non-performance
of the contract, but of non-acceptance of the offer.
It, accordingly, does not avail appellant to argue that communication of the
acceptance of the offer was dispensed with.
To sum up so far, the evidence
was, in my opinion, insufficient to enable the inference to be drawn that
appellant's offer (whether
to sell, donate
or/
40. or dispose of the catalogues) was accepted by conduct.
Equally
so, and for substantially the same reasons, it
cannot be said to have been
proved that its customers
intended to acquire ownership of the catalogues
received
by them. They were there for the taking, but gifts are not
always
accepted. Accordingly, appellant failed to estab-
lish (and the onus was on
it, in terms of sec 23) that
any particular catálogues (and, a
fortiori
, the number
thereof) were sold and its attempt to have sec
5(1)(a)
apply was rightly rejected by the Special Court. Mr
Seligson
,
on behalf of respondent, submitted that appellant had
not
proved that the market value of the catalogues was 10 cents
each, so
that, in any event, even if sec 7(3) applied,
their cost should be the
yardstick of the taxable value.
In/ ....
41. In the light of the conclusion come to, it is unnecessary to decide this
point.
I am hot sure whether a decision that sec 5(1)(a) is.not applicable,
does not dispose of the first issue. This is because I undérstood
it to
be common cause that either this section or sec 5(l)(h)(i) governed; it was one
or the other. However, in case . this approach
be unfair to appellant and, in
any event, in order to determine whether the facts of the present matter, on
their own merits, fall
within the ambit of sec 5(l)(h)(i), I propose to consider
the question. But in so doing it is unnecessary to deal with the argument,
advanced on behalf of appellant, that sec 5(1)(h) only applies where a
particular transaction does not fall
within/
42.
within any of the earlier sub-sections of sec
5(1); it was to be invoked as a last resort so to speak; thus if there was a
sale of
goods, tax would be calculable on the basis that sec 5(1)(a) applied,
even though the transaction was, at the same time, one within
the meaning of sec
5(l)(h). That this could happen was submitted
to us. Particular reference
was, in this regard, made-to that part of the latter section (towards the end)
reading: "which are applied
... for the use or consumption of any other
person..." Unless some restrictive meaning was given to this expression, it
could, as
counsel put it, cover every sale (under sec 5(1)(a)) by an enterprise
of its goods. One can conceive of other examples falling under
sec 5(1)(h) and
other sub-sections of
sec /
43.
sec 5(1). The problem in these circumstances,is which of the differing parts
of sec 7 will apply to determine the taxable value of
the transaction. However,
in view of the finding that appellant's evidence fell short of proving the
requisites for the operation
of sec 5(1)(a), the problem of the two sub-sections
possibly overlapping and the proper approach to be adopted where this occurs,can
be and is left unresolved.
The broad purpose of sec 5(1)(h) is to tax goods
which have
inter alia
been acquired by a registered vendor free of tax
and which, instead of being disposed of or utilised in such a way as to
eventually
generate tax, are appropriated or devoted
by/
44. by him (i) to his private or domestic use
or consumption, or, (ii) for use or consumption in his enterprise, or, (iii) for
the
use or consumption by a third person, or, (iv) for the purposes of another
enterprise of his. In most of these cases,the person or
enterprise concerned
will, as a result of what may
be called the internal employment of the goods
in any
of these ways, become the end-user thereof (and thus,
in principle, liable for tax). Examples illustrative
of the categories
referred to are the following:
(i) groceries taken by a grocer from his stock for
consumption by himself
or his family; (ii) the use
by a retailer of motor vehicles of a car for
demonstration
purposes; (iii) the giving of free samples or gifts
to/
45.
to customers as part of a sales promotion exercise; (iv) any of the
aforementioned where the use is by
an associate enterprise. Normally,the goods in
ques-
tion will be those traded in by the
enterprise, but
this is not essential for the operation of the sec-
tion.
The question to be decided is whether
that part of sec 5(l)(h)(i) reading "for the use or
consumption thereof in such enterprise" applies in the present matter.
Clearly, the catalogues were either acquired under a sale or
produced by
appellant. There
was/
46.
was no suggestion that any of the exclusions contained
in
the section applied. It was not disputed that if they had been used (or
consumed) as stated, this was con-
sequent upon them having been "applied". The real question,
then, is
whether the catalogues were used in appellant's
business within the meaning
of the section. The word
"thereof" presents some difficulty. It could relate to
(the use or consumption of) the goods or to (the use of
or consumption
by) the registered vendor (ie "such person").
The use in the Afrikaans text
of "daarvan" indicates that
it is the former. But on the facts of the present
matter
this possible ambiguity is not important. What has to
be decided is
whether the distribution of the catalogues
by appellant to its customers
constituted a use of them
by appellant in its business. I think it did.
The
evidence/
47.
evidence was that appellant was "not in the business of
selling catalogues"; they were rather "the vehicle" that it used in order
to
"demónstrate" what goods it has for sale - its "selling medium"
(containing,of course,order forms). Indeed, appellant itself,
as the docket
shows, in a letter that it wrote to respondent, admitted that "catalogues not
sold but sent to customers are treated
as being consumed in terms of sec
5(1)(h)". In my view, such admission was correctly made. "Use" is a word of wide
meaning (
R v Tru Products (Pty) Ltd & Others
, 1954(4) S A 356(C) at
365 E;
R v Appel
1959(3) S A 944(C) at 947 E;
S v Naicker
1963(4)
S A 610(N) at 613 G;
Shell-Mex and B P Ltd v Clayton (Valuation Officer) and
Another
(1955) 3 AllE R l02
(C A) at 117 B - D;
1956/
48.
(1956)3 All E R 185(H L) at 195 I - 196 C).
Moreover, save that the use must be "in such enterprise" there is no reference
and therefore
no restriction in the section concerning the manner in or purpose
for which the goods must be used. A person in the position of appellant
would be
using the catalogues where he exer- cises his rights of ownership by disposing
of them. And, in so doing, appellant was
using them "in" its enterprise. "In" is
an elastic preposition synonymous with "in regard to", "respecting" and "with
respect to"
(Black's Law Dictionary 5th ed sv "In"). It is there-fore not a
requirement that the use or consumption of the goods, ie, the disposal
of the
catalogues, be confined to persons within the enterprise, ie members of
appellant's
staff/
49.
staff (as was argued). There is no warrant for giving
it this narrow meaning. Secs 7(5)(f) and (h), which
were relied on in
this regard, were only inserted by
amendments subsequent to 1980. In any
event, they mere-
ly deal with how the cost or value of goods is to be
calculated in particular applications of sec.5(l)(h).
In so far as may be necessary, appellant itself can be regarded as an
end-user of the catalogues, or,
as Tebbutt J, found "the real user".
Perhaps the present case is a
somewhat un- usual illustration of the application of sec 5(l)(h)(i), but, for
the reasons stated, I
think it falls within the sub-section. In the result,
respondent rightly applied sec 7(1)(h) in order to arrive at the taxable value
of the catalogues.
There/
6.
There was no dispute that, so calculated, the assessment
was correct and (in terms of sec 9(e)) payable by appellant. The first issue
must be resolved in re-spondent's favour..
So, too, must the second issue. Appellant, having failed to prove that the
catalogues were sold, could not rely on the exemption created
by sec6(l)(a)(i).
It follows that tax was payable, as claimed by respondent, on those catalogues
distributed outside the Republic.
The appeal fails and is dismissed with costs including those incurred by the
employment of two counsel.
H H NESTADT, JA CORBETT, JA )
HOEXTER, JA ) CONCUR NICHOLAS, AJA)