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[2020] ZASCA 175
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Consol Glass (Pty) Ltd v Commissioner for the South African Revenue Service (1010/2019) [2020] ZASCA 175; 83 SATC 186 (18 December 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 1010/2019
In
the matter between:
CONSOL
GLASS (PTY)
LTD APPELLANT
and
THE
COMMISSIONER FOR THE
SOUTH
AFRICAN REVENUE
SERVICE RESPONDENT
Neutral
citation:
Consol Glass (Pty) Ltd v
The Commissioner for the South African Revenue Service
(1010/2019)
[2020] ZASCA 175
(18 December 2020)
Coram:
NAVSA, WALLIS, MAKGOKA JJA and
SUTHERLAND and UNTERHALTER AJJA
Heard
:
10 November 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 09h45 on 18 December 2020.
Summary:
Tax liability under the Value-Added Tax
Act 89 of 1991 – services rendered in respect of a debt
refinancing transaction –
disallowance of input tax deduction
claimed in respect of fees paid for services provided by local
vendors – imposition of
tax on imported services in terms of
s7(1)(c) - interpretation of the definitions of input tax and
imported services – meaning
of 'the purpose of consumption, use
of supply in the course of making taxable supplies.'
ORDER
On
appeal from:
The Tax Court, Gauteng
(Louw J, sitting as court of first instance):
The appeal is
dismissed with costs, including the costs of two counsel.
JUDGMENT
UNTERHALTER
AJA (NAVSA, WALLIS and MAKGOKA JJA and SUTHERLAND AJA concurring)
[1]
The Appellant, Consol Glass (Pty) Ltd
(‘Consol’), manufactures and sells glass containers. It
is a vendor, registered
as such under the Value-Added Tax Act 89 of
1991 (‘the VAT Act’). In 2012, Consol restructured its
debt. In doing so,
it procured services, some from local vendors and
others from suppliers resident outside of South Africa. Services of
this latter
kind are defined in the VAT Act as imported services. In
July 2015, the Respondent, the Commissioner, raised additional
assessments
in respect of Consol’s value-added tax (‘VAT’)
liability for five tax periods in 2012. The additional
assessments
disallowed input tax deductions that Consol had claimed
in relation to the services provided by local vendors. The
Commissioner
imposed output VAT on the imported services procured by
Consol.
[2]
Consol lodged an objection to the
additional assessments. The objection was disallowed. Consol appealed
the additional assessments
to the tax court. The tax court dismissed
Consol’s appeal, save in respect of the 10% penalty imposed by
the Commissioner.
There is no cross appeal by the Commissioner of
this order. The appeal before us thus concerns the disallowance by
the Commissioner
of the input tax deductions and the imposition by
the Commissioner of output value-added tax in respect of the imported
services
procured by Consol.
The
facts
[3]
In order to understand why Consol procured
the services that it did in 2012, it is necessary to describe certain
transactions that
took place in 2007. During April 2007, Consol, then
a shell company, acquired the businesses of Consol Limited and two of
its subsidiaries.
These businesses were acquired as going concerns.
Upon making these acquisitions, Consol commenced trading, continuing
the glass
making businesses previously conducted by the three
companies.
[4]
These acquisitions formed part of a
leveraged buy-out. In simple terms, a leveraged buy-out is the
acquisition by one company of
another (or its assets and liabilities)
using a significant amount of debt to fund the cost of acquisition.
[5]
The transaction in 2007 took place in the
following manner. First, in December 2006, through a scheme of
arrangement, Consol Holdings
Limited (Consol Holdings) offered to
acquire the ordinary share capital of Consol Limited, then a listed
company. The shareholders
of Consol Limited approved the scheme, and
upon sanction by the high court, the scheme became operative in April
2007. The scheme
entitled the shareholders of Consol Limited to
receive a cash consideration for their shares, or to elect to receive
cash and Consol
Holdings shares. The effect of the scheme was to buy
out the public shareholders of Consol Limited and to constitute a
consortium
of private equity investors, styled the Brait Fund IV, as
the controlling shareholder of the new holding company, Consol
Holdings.
Consol Holdings made use of bridging finance to buy the
shares of Consol Limited.
[6]
Second, a reorganisation was effected.
Consol, a shell company and a wholly owned subsidiary of Consol
Holdings, was used to acquire
the businesses of Consol Limited and
its two subsidiaries. Consol was able to make these acquisitions by
securing debt funding.
The debt funding took the form of
Eurobonds issued by Consol. The debt was denominated in Euros, and
hence Consol’s obligations
to pay interest and redeem the bonds
were in Euros. In order to cover the risk of Rand volatility against
the Euro (since Consol’s
revenue was Rand based, but its debt
obligations were in Euros), Consol entered into collateral hedging
agreements to cover its
Euro exposure.
[7]
Third, the consideration paid by Consol for
the acquisition of the businesses was then distributed as a dividend
by the vendor companies
to the holding company, Consol Holdings.
Consol Holdings, in turn, was obliged to use the proceeds of the
dividend to repay the
bridging loan secured by it.
[8]
One salient feature of the transaction in
2007, relevant for present purposes, was that the operating
businesses of the listed company
Consol Limited, and its two
subsidiaries, were, upon the execution of the reorganisation,
acquired by Consol, funded by the debt
that Consol had secured by
issuing Eurobonds. Functionally these businesses were otherwise
unchanged and continued precisely the
same business operations that
they had engaged in prior to the transaction in 2007.
[9]
The evidence of Mr Nayager, the Chief
Financial Officer of Consol, who testified before the tax court on
behalf of Consol, was that,
in the period 2007 – 2012, the cost
of servicing Consol’s Euro debt and securing hedging cover for
its Euro exposure
became ever more expensive. This was because the
Rand depreciated against the Euro and was subject to much volatility.
As a result,
in 2012, Consol sought competitive funding in the South
African market, denominated in Rand, to replace its Eurobond debt and
unwind
the hedging positions. A consortium of South African banks
agreed to lend some R5 billion to Consol. This took place in terms of
an agreement, styled the Common Terms Agreement, concluded on 7 July
2012 between Consol and a number of lenders. In terms of the
Flow of
Funds Agreement, concluded at the same time as part of these
arrangements, the debt funding secured by Consol was to be
used to
redeem the Eurobonds and unwind the hedging instruments. I shall
refer to these arrangements as the refinancing transactions.
[10]
In order to retire the Eurobond debt,
unwind the hedge positions and secure domestic loans, Consol procured
various services. The
services fell into two categories. First,
Consol procured the services of local service providers. The South
African banks that
participated in the lending consortium charged
arranging and structuring fees. Consol retained the services of two
firms of South
African attorneys. These firms gave advice and drafted
agreements to put in place the refinancing transactions. Second,
foreign
service providers were retained to advise upon the early
redemption of the Eurobonds and the unwinding of Consol’s
hedging
positions.
[11]
These service providers, local and foreign,
raised fees that were paid by Consol. Consol’s liability for
VAT, arising from
the fees incurred by it, gives rise to the appeal
before us.
The
Issues
[12]
Two issues require determination in this
appeal. First, was the tax court correct to find that the
Commissioner was entitled to
disallow the input tax claimed by Consol
on the fees charged to it by local service providers? Second, was the
tax court correct
to find that Consol was obliged to declare and pay
VAT on the fees paid by Consol to non-resident suppliers for their
services?
[13]
The first issue turns upon the meaning and
application of the definition of input tax. In relevant part, ‘input
tax’
in s1 of the VAT Act is defined as:
'
(a)
tax
charged under section 7 and payable in terms of that section by –
(i) a supplier on
the supply of goods or services made by that supplier to the vendor;
…
where
the goods or services concerned are acquired by the vendor wholly for
the purpose of consumption, use or supply in the course
of making
taxable supplies….'
[14]
Whether Consol was entitled to deduct as
input tax the VAT paid on the services supplied to it by local
service providers depended
upon whether these services were acquired
by Consol for the purpose of consumption, use or supply in the course
of making taxable
supplies. That enquiry raised two issues. First,
for what purpose did Consol acquire the services? Second, did Consol
do so in
the course of making taxable supplies. The relationship
between the purpose for which the services were acquired and the use
to
which these services were put lies at the heart of the matter.
[15]
As to the second issue, that is, whether
Consol was obliged to pay VAT on the services supplied to it by the
service providers who
carried on their business outside of South
Africa, a similar enquiry is required. Section 7(1)(c) of the VAT Act
levies VAT on
the supply of any imported services by any person.
‘
Imported
services’ are defined in s1 of the VAT Act to mean:
‘
a
supply of services that is made by a supplier who is resident or
carries on business outside of the Republic to a recipient who
is a
resident of the Republic to the extent that such services are
utilized or consumed in the Republic otherwise than for the
purpose
of making taxable supplies.’
[16]
Stated affirmatively, this provision
entailed that no VAT could be levied on the supply of services to
Consol by suppliers who carried
on business outside of South Africa
if those services were utilized or consumed in South Africa by Consol
for the purpose of making
taxable supplies. Here too, the issue is
this: did Consol make use of the services of foreign suppliers for
the purpose of making
taxable supplies?
Exempt
Supply
The
Commissioner submitted that the services, local and foreign, were not
acquired by Consol to make taxable supplies, but rather
to make an
exempt supply in the form of a financial service.
A ‘debt
security’ in terms of s 2(2)(iii) of the VAT Act means ‘an
obligation or liability to pay money that
is, or is to be, owing by
any person’. In terms of s 2(1)(
c
) of the VAT Act:
‘
The
issue, allotment, drawing, acceptance, endorsement or transfer of
ownership of a debt security’
is
deemed to be a financial service.
Consol procured
the services to enable it to conclude the new loan facility.
Section 12 lists the goods and services that
are exempt from VAT
imposed under s7(1)(a). One category of exempt supply is the supply
of any financial service. One variant of
a financial service defined
in s2(1)(c) is the issue of a debt security. The Commissioner
contended that, in securing the loans
from the consortium of banks
under the refinancing transactions, Consol issued a debt security.
[17]
If that be so, it was contended, Consol did
not acquire the local services for the purpose of use in the course
of making taxable
supplies. Nor did Consol utilize the foreign
services for the purpose of making taxable supplies. Taxable supply
is defined in
s1 to mean any supply of goods or services which is
chargeable with tax under the provisions of s7(1)(a). However, since
s12(a)
read with s2(1)(c) excludes the issue of a debt security from
VAT imposed under s7(1)(a) the issue of debt is not the making of
a
taxable supply.
[18]
It would then follow that if Consol made
use of the local and foreign services supplied to issue a debt
security, it did not utilize
these services for the purpose of
making, nor in the course of making, a taxable supply. Hence, Consol
was not entitled to the
deduction of input tax that it had claimed in
respect of the local services acquired by it. So too, Consol was
obliged to declare
and pay VAT on the fees paid by Consol to
non-resident suppliers for their services. I shall refer to this
submission, made on
behalf of the Commissioner, as the exempt supply
submission.
[19]
The
exempt supply submission failed to comprehend the position of Consol
as a vendor within the scheme of the VAT Act. It is essential
in any
VAT enquiry to identify at the outset the enterprise that the vendor
is conducting.
[1]
Section 23(1) requires that every person who carries on an
enterprise, and is not registered for VAT, is required to be
registered.
A vendor is defined in s1 to be any person who is or is
required to be registered under the VAT Act. An enterprise, in the
case
of a vendor, is defined in s1 to mean any enterprise or activity
which is carried on continuously or regularly by any person in
the
Republic.
[20]
Consol registered as a vendor under the VAT
Act. It did so because it carried on an enterprise. The enterprise
carried on by Consol
was the manufacture and sale of glass
containers. The imposition of VAT in terms of s7(1) was levied on the
supply by any vendor
of goods or services supplied by that vendor. In
the case of Consol, VAT was levied on its sales of glass containers.
That was
the enterprise carried on by it. Consol at no stage carried
on a financial services enterprise.
[21]
Consol, like every other enterprise,
required a variety of inputs in order to carry out the enterprise
upon which it is engaged.
As the facts of this case make plain,
Consol raised loans to acquire the businesses that then constituted
the enterprise conducted
by it. Consol concluded the refinancing
transactions, which included taking out loans with a consortium of
local banks, when it
had previously raised funds by issuing
Eurobonds.
[22]
Neither the original issuance of the
Eurobonds, nor the loans secured from the local consortium,
transformed Consol from a vendor
engaged upon the enterprise of
selling glass containers into a vendor engaged also upon the
enterprise of supplying financial services
by issuing debt. Consol
elected to borrow money to acquire the businesses. It did so to carry
on the enterprise of selling glass
containers. When Consol entered
into the refinancing transactions and borrowed moneys from the
lending consortium, it remained
the same enterprise – a seller
of glass containers. It did not become, in addition, a supplier of
financial services. Put
simply, when an enterprise borrows money, it
is supplied a financial service, it does not become the supplier of a
financial service.
To hold otherwise is to confuse a borrower with a
lender. The lender supplies the financial service, the borrower
receives that
service. Consol is simply not a vendor of financial
services. It registered as a vendor in respect of the enterprise upon
which
it engaged, that is, as a manufacturer and seller of glass
containers and so it remained.
[23]
That disposes of the exempt supply submission. It is therefore
unnecessary to reach any of the other issues raised by this
submission. One problem is that a conventional loan agreement does
not readily fall within the concept of a ‘debt security’.
The definition in s 2(2)(iii) provides that it is ‘an interest
in or right to be paid money’; or ‘an obligation
or
liability to pay money’ that is, or is to be, owing by person.
An obvious example of a debt security is a bond or a similar
financial instrument of the type that banks, some large companies,
public authorities, public enterprises and various levels of
government issue to secure funding. Another is a letter of credit or
bill of exchange other than a cheque. A conventional loan
agreement
under which a bank agrees to lend money to its customer does not fit
comfortably within this definition. What is contemplated,
as is
apparent from s 2(1)(
c
), is a document that may be issued,
allotted, drawn, accepted, endorsed or the ownership of which may be
transferred. Again, that
is typical of bonds and certain types of
financial instruments, of which a loan agreement is not one.
[24]
The definition says that a debt security does not include a cheque.
However, the definition of a cheque in s 2(2)(i) goes far
beyond the
conventional notion of a cheque. It means:
‘
A bill drawn
on a bank payable on demand, a postal order, a money order, a
traveller’s cheque, or any order or authorisation
(whether in
writing, by electronic means, or otherwise) to a financial
institution to credit or debit any account’.
[25]
This exclusion casts light on the meaning of a debt security.
Particularly in international trade, payment of the price of
goods is
conventionally secured by way of either a bill of exchange or, more
frequently, a letter of credit. Once that is drawn,
and perhaps
accepted or endorsed by the drawer’s bank, such instruments can
be transferred from one person to another, usually
by way of
endorsement. On presentation they constitute a right to be paid money
by the holder thereof. Conversely they constitute
an obligation by
various parties, but particularly the issuer or drawer of the bill or
letter of credit, to pay money. All of this
is entirely inconsistent
with the notion that a conventional agreement of loan constitutes a
debt security.
[26]
That being the case, the exempt supply submission must fail. Consol
was not a supplier of financial services. Consol was a
manufacturer
and supplier of glass containers. Those were not goods exempt from
VAT imposed under s7(1)(a). VAT was levied on the
supply by Consol of
its glass containers. And it followed that the exempt supply
submission could not avoid the principal issues
as to whether the
local services acquired by Consol were acquired for the purpose of
use in the course of making taxable supplies
and whether the imported
services were utilized by Consol for the purpose of making taxable
supplies.
Taxable
supplies
[27]
I turn to consider these issues. Counsel were at odds as to the
nature and closeness of the connection that must exist between
the
use of the services acquired by Consol and the making of taxable
supplies by Consol, that is to say, the supply of glass containers.
It was submitted on behalf of Consol that there must be
some
nexus or link between the services acquired and the making of taxable
supplies. Unsurprisingly, this undemanding test did not find
favour
with the Commissioner’s counsel who submitted that the use of
the services must be closely associated with the making
of taxable
supplies or an integral part of the processes used to make taxable
supplies. Anything less is too remote.
[28]
The relevant part of the definition of input tax, quoted above, has
these components. The services must be acquired wholly
or partly for
the purpose of consumption, use or supply. Acquisition for some other
purpose will not do. Acquiring to consume,
use or supply will not
suffice if the purpose of the acquisition is not in the course of
making taxable supplies. In this case,
this means in the course of
manufacturing and selling glass containers. The Commissioner
submitted that ‘in the course of’
connotes ‘during’
or ‘in the process of’ manufacturing and selling glass
containers, rather than steps
preparatory to such process.
[2]
[29]
It is of limited assistance to make use of synonyms in order to
understand the specificity of the statutory formulation: in
the
course of making taxable supplies. Two observations assist the
interpretative exercise. First, the diversity of goods and services
that may constitute taxable supply in a modern economy and the
complexity of the lines of supply that may be used in the making
of
such goods and services should not be underestimated. An
interpretation that is too restrictive of what is required to make
taxable supplies runs the risk of underestimating this diversity and
complexity.
[30]
Second, since the purpose of acquisition is for consumption, use or
supply, it is helpful to consider how these attributes
of the goods
or services acquired have utility in the making of the taxable
supplies. It is this functional relationship that signifies.
One way
of analysing this relationship is to consider the following: for a
given quantity of output, what inputs of goods or services
are
consumed, used or supplied to make or produce that output. Some
inputs will clearly qualify. For example, in the making of
glass
containers, cullet (waste glass) is often used as a raw material.
Other goods and services will not qualify at all and others
may
require difficult judgments in determining on which side of the line
they fall.
[31]
Similar considerations are of application in the interpretation and
application of the definition of imported services in s1.
The
definition specifies a relationship between the supply of imported
services to a recipient and the extent to which such services
are
utilized or consumed, otherwise than for the purpose of making
taxable supplies. Although the definition focuses upon supply
for a
purpose other than the making of taxable supplies, the enquiry is
much the same as that contemplated by the relevant portion
of the
definition of input tax. In both definitions there is a
differentiation between the purpose of making taxable supplies and
other purposes. Under both definitions, the determination as to
whether the supply was for the purpose of making taxable supplies
provides an answer as to whether the requirements of the definition
are met. The definition of imported services does not extend
to the
supply (as opposed to the use or consumption) of services otherwise
than for the purpose of making taxable supplies. But
this difference
has no relevance for present purposes. I turn next to the application
of these statutory concepts to the facts
of this case.
[32]
Consol procured and made use of the local and imported services for
the purpose of executing the refinancing transactions.
Consol’s
grounds of appeal as to the application of the law to the facts
relied upon the contention that the Eurobonds were
utilized to
acquire the assets in order to make taxable supplies, that is to say,
to manufacture and sell glass containers. The
refinancing
transactions substituted local debt for foreign debt with the same
object.
[33]
It is therefore to the original transaction in 2007, in terms of
which Consol acquired its glass manufacturing businesses,
that we
must look to determine the purpose for which the local and imported
services were procured in 2012. The premise of Consol’s
contention was that the purpose of securing funding to acquire the
businesses to make taxable supplies in 2007 did not, in substance,
change and remained in place in 2012. The substitution of local debt
for foreign debt permitted Consol to continue the very same
businesses it had acquired in 2007. Those businesses were fully
functional and engaged upon the very enterprise that Consol now
conducts.
[34]
I have described above how Consol came to acquire the businesses of
Consol Limited and its two subsidiaries as part of a leveraged
buy-out.
The
reorganisation placed the operating businesses into a new entity,
Consol. A new holding company, Consol Holdings, held all the
equity
in Consol Limited and Consol. And Consol Holdings was controlled by a
private equity consortium. The net proceeds of the
Eurobond debt were
used to effect this reorganisation.
[35]
Consol’s appeal rested upon the initial premise that the
Eurobonds were utilized by Consol in 2007 to acquire the assets
so as
to make taxable supplies. Was this premise correct?
[36]
One aspect of the reorganisation was indeed Consol’s
acquisition of the operating businesses and the use of the Eurobond
debt to do so. But the reorganisation must be considered in its
totality. What change did the reorganisation effect? The operating
businesses, both before and after, continued to make glass
containers. That these operating businesses were now held in a
different
entity within the Consol group was of no consequence to the
enterprise carried on by these businesses. The structure of the group
changed, and new shareholders were placed in control of a new holding
company. But not, on the evidence, to bring about some material
change to the business of making glass containers. And most important
of all, the stated purpose of the Eurobond debt was to effect
the
reorganisation of the Consol group of companies. Nothing of that
reorganisation was directed to any change in the making of
taxable
supplies, that is, in the manufacture of glass. That being so, there
was no functional link between the issue of the Eurobonds
and the
making of taxable supplies. Consol’s initial premise does not
hold.
[37]
It follows according to the logic of Consol’s argument, that if
the Eurobond debt was not issued in 2007 with the purpose
of making
taxable supplies, then neither was the raising of local debt in 2012.
The purpose remained the same: to maintain the
funding for the
reorganisation of the Consol group of companies. Once that was so,
the procurement of local and imported services
in 2012 was not used
by Consol in the course of making taxable supplies. The purpose of
using these services was to replace Eurobond
debt with local debt and
thereby continue to finance the reorganisation that had taken place
in 2007.
[38]
Something was made in the evidence and in the argument before us of
the fact that in 2007 some R227 million was spent on capital
expenditure. Mr Nayager testified that the main item of such
expenditure was the rebuild and expansion of the Bellville plant.
Reference was also made in the offering memorandum to the use of the
proceeds of the Eurobonds for prefunding capital expenditure.
The
relevant footnote stated that any remaining funds, after the
repayment of short-term borrowings, would be used partially to
fund
the expansion of the Bellville facility.
[39]
The use of funds for capital expenditure, set out in the offering
memorandum, was hedged about with qualifications. The memorandum
sought to raise some R4 billion by issuing Eurobonds, the balance of
R2.5 billion was to be sourced from share capital and shareholder
loans. Of the total funding of R6.5 billion, R200 million was
allocated to the repayment of debt and the prefunding of capital
expenditure. Of this sum, short term borrowing was first be repaid.
If anything remained after the completion of the transaction,
then,
what remained would be used partially to fund the expansion of the
Bellville facility.
[40]
This provision for the Bellville facility was so modest and subject
to such conditionality that it simply cannot be said to
amount to the
purpose for which the Eurobonds were issued. The Eurobonds were
issued to facilitate the reorganisation. Without
the reorganisation,
there would have been no need to secure Eurobond debt. The
reorganisation was not undertaken to expand the
Bellville facility.
The expansion was entirely incidental to the reorganisation. That
being so, there is no basis to contend that
the Eurobond was issued
with the purpose of funding capital expansion, and in this sense, for
the making of taxable supplies.
[41]
One further matter arose in the course of argument before us.
Although the issue of the Eurobonds was to effect the reorganisation,
the raising of local debt in 2012 was undertaken to provide a more
cost effective debt structure, and thereby reduce Consol’s
costs of servicing its debt and avoid its hedging costs. In this,
Consol was successful. Consol produced a schedule comparing the
cost
of the original debt in the period 2007- 2013 and the cost of the
refinanced debt in the period 2013 – 2018. The difference
in
the cost of the debt over the periods compared is some R275 million.
[42]
The local and imported services procured by Consol in 2012 were used
to effect the refinancing of Consol’s debt. That
refinancing
reduced Consol’s costs. The consequences of this for Consol’s
free cash flow, its profits and Consol’s
capacity to fund
capital expenditure or otherwise to enhance its manufacturing
capability was little explored in evidence, since
this was not the
focus of the trial before the tax court.
[43]
The issue that arises is whether the refinancing, by reason of these
cost savings, may be found to have a functional link to
the
manufacture by Consol of glass containers, and hence, to the making
of taxable supplies.
[44]
The difficulty in considering this issue is whether it formed part of
the case before the tax court. Rule 32(1) of the tax
court rules
requires an appellant to deliver a statement of its grounds of
appeal. The statement must set out the material facts
and legal
grounds upon which the appellant relies for the appeal. The statement
is a pleading, defining the issues so that the
Commissioner knows the
case to be adjudicated.
[3]
[45]
Consol’s statement of grounds included the following:
‘
Consol
Glass operates in a very competitive market. The reduction of input
costs is essential in order to maintain a competitive
position in the
market. The expenses that were incurred, substituting (refinance) the
Eurobonds with local funding was in order
to put in place less
expensive funding which made Consol Glass more competitive and more
productive in making taxable supplies,
ie producing glass bottles.’
[46]
The statement of grounds was divided into facts, legal grounds and
the application of the law to the facts. The ground of appeal
just
cited was advanced as a fact. The ground of appeal advanced that
applied the law to the facts was quite different. It is summarized
in
paragraph [31] above. There it was contended that the Eurobonds were
utilized to acquire assets in order to be able to make
taxable
supplies. The substitution of this debt with locally acquired finance
fulfilled the same function, that is, to finance
the assets needed by
Consol to make taxable supplies.
[47]
A fair reading of the statement of grounds indicates that Consol’s
case was based upon the contention that the Eurobonds
and the
replacement funding were utilized to acquire assets so as to
manufacture glass containers. It requires some ingenuity to
appreciate that Consol could also have been contending that the
refinancing was undertaken to make Consol more competitive. The
first
ground was predicated upon the continuity of purpose to acquire
assets that commenced in 2007 when Consol acquired the businesses
and
remained the purpose of the refinancing. The ground of appeal, based
on Consol’s competitive positioning, raises entirely
distinctive issues. For example, what were the competitive
constraints under which Consol operated, in what market, requiring
what competitive response that informed the refinancing transaction?
[48]
The parties did not understand the case to be concerned with Consol’s
competitive positioning and the relationship of
this to the
refinancing transaction. This was not the basis upon which the trial
was run, nor was it the basis upon counsel argued
their cases, either
in the tax court or before this court. There can be little doubt that
the refinancing was intended to place
Consol in a position to
continue to fund the original reorganisation at a lesser cost, and it
did so. What the savings achieved
by Consol permitted it to then to
do was a matter of effect rather than purpose, beyond the remit of
the pleaded case.
[49]
In these circumstances, no injustice is done to Consol to hold it to
the case that it sought to make out. Furthermore, the
paucity of
evidence that bears upon a case predicated upon competitive
positioning, and the many questions that arise from it that
cannot be
answered on the evidence before us, provides a strong indication that
we should not entertain such a case. And I decline
to do so.
[50]
For these reasons, the appeal is dismissed. Counsel were in agreement
that the costs of the appeal should follow the result.
The following
order is made:
The
appeal is dismissed with costs, including the costs of two counsel.
________________________
DAVID UNTERHALTER
ACTING JUDGE OF APPEAL
Appearances
For
appellant: C Louw SC
Instructed
by: Cliffe Dekker Hofmeyr, Johannesburg;
Honey
Attorneys Inc, Bloemfontein
For
respondent: M W Janisch SC (with him ST Seshoka)
Instructed
by: State Attorney, Cape Town and Bloemfontein
[1]
Commissioner
for the South African Revenue Services v De Beers Consolidated Mines
Ltd
[2012]
ZASCA 103
;
2012 (5) SA 344
(SCA) paras 44 – 47.
[2]
Relying
upon
ITC
174465
SATC
154.
[3]
Commissioner
for the South African Revenue Service v Massmart Holdings Limited
IT
14294 para 5