THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO
: 141/04
In the matter between :
COMMISSIONER FOR SOUTH AFRICAN
REVENUE SERVICE Appellant
and
BRITISH AIRWAYS Plc Respondent
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Before: HOWIE P, STREICHER, NUGENT, VAN HEERDEN &
PONNAN JJA
Heard: 15 MARCH 2005
Delivered: 29 MARCH 2005
Summary: Value-added tax – passenger serv ice charge levied on operators by
Airports Company – whether VAT pa yable on recovery of charge
from passengers.
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J U D G M E N T
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NUGENT JA
2
NUGENT JA:
[1] Value-added tax, payable by the ve ndor, is levied by s 7 of the Value-
added Tax Act 89 of 1991 upon the supply by any vendor of goods or services
in the course of or furtherance of any enterprise. The ordinary rate at which
the tax is levied is 14%, calculated upon the value of the supply concerned,
but the supply of goods or services fal ling within s 11 is taxed at 0%. (The
supply of goods or services in the latter category is co lloquially said to be
‘zero-rated.’)
[2] British Airways Plc is an internationa l air carrier that operates aircraft
to and from this country. For purposes of the Act it is a vendor whose supply
of a carrier service attracts value-added tax in terms of s 7 of the Act. Because
the service is one for international carriage it falls within the terms of s 11 and
is zero-rated.
[3] The fare that British Airways char ges its passengers is the aggregate of
various elements that are separately reflected on the passenger ticket. The
bulk of the fare (for convenience I will call it the ordinary part of the fare)
comprises an amount that is designed to recover its operating costs and its
profit. The remainder of the fare comp rises various smaller elements. This
appeal concerns one of those latter elements that go to make up the composite
fare.
[4] Airports in this country are ope rated by the Airports Company Limited
that is established in terms of the Airports Co mpany Act 44 of 1993. The
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company is entitled to – and does – levy ai rport charges, which are defined in
the Act to mean
‘amount[s] levied by the company –
(a) on an operator of an aircraft in connec tion with the landing, parking or takeoff of
such aircraft at a company airport, including an amount determined to any extent by
reference to the number of passengers on board an aircraft; or
(b) on aircraft passengers in connection wi th their arrival at or departure from a
company airport by means of an aircraft.’
[5] The company levies a landing charge upon an aircraft operator –
calculated with reference to the weight of the aircraft – whenever one of its
aircraft arrives at a company airport. It also levies parking charges upon
aircraft operators calculated with refe rence to the length of time that their
aircraft remain parked at a company airport. Those charges are included by
British Airways amongst its operating costs and are recovered in the ordinary
part of its composite fare.
[6] A further charge is levied by the company upon ai rcraft operators,
which is calculated with reference to the number of passengers that are on
board an aircraft when it departs from a company airport. Referred to loosely
as a ‘passenger service charge’ it is levi ed by the company to compensate it
for the general airport services (bagga ge handling facilities, waiting lounges,
check-in counters and the lik e) that it make s available to passengers at its
airports. Because that charge is directly related to the number of passengers
on a flight it is capable of being recove red by the operator directly from each
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of the passengers. British Airways does that by reflecting the charge
separately on the ticket as one of th e elements that goes to make up the
composite fare.
[7] The Commissioner for the South Af rican Revenue Service contends
that British Airways is liable to pay value-added tax at the ordinary rate
(14%) on the element of its composite fare that constitutes the recovery of the
passenger service charge levied on it by the company. British Airways
contends that the element is part of its composite fare for the supply by it of
international carriage, the whole of whic h is zero-rated under s 11 of the Act.
Those respective contentions serve to defi ne the question that arises in this
appeal.
[8] The Commissioner assess ed British Airways for value-added tax at the
ordinary rate on that part of the inte rnational fares that accrued to British
Airways during the period September 1993 to December 1998 that constituted
the recovery of the passenger service charge that was levied on it by the
company, together with interest. British Airways successfully appealed to the
tax court (Goldblatt J and assesso rs) against the assessment and the
Commissioner now appeals with the leave of that court.
[9] In support of his conten tion that the element of the composite fare that I
have referred to was taxable at the or dinary rate, notwithstanding that the
remainder of the fare was zero-rated, the Commissioner relied upon s 8(15) of
the Act, which provides as follows:
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'For the purposes of this Act, where a single supply of goods or services or of goods
and services would, if separate considerations had been payable, have been charged with
tax in part at the rate applicable under secti on 7(1)(a) and in part at the rate applicable
under section 11, each part of the supply conc erned shall be deemed to be a separate
supply.'
[10] The section applies to a single s upply of goods or se rvices comprising
parts that would each, if they had been supplied separately, have attracted a
different rate of tax. In such cases each part of the single service is deemed to
be a separate supply of goods or service s – although in truth they are not –
with the result that the separate parts each attract the tax that is levied by s 7
but at different rates (0% for that pa rt of the service that, had it been
separately supplied, would have fall en within s 11, and 14% for the
remainder).
[11] A ‘single supply of services’ is only capable of notional separation into
its component parts, as contemplated by the section, if the same vendor
supplies more than one service, each of which, had it been supplied
separately, would have attracted a differ ent tax rate. If that was not so there
would be no parts of the ‘s ingle supply of services’ by the vendor capable of
notional separation from one another.
[12] In this case, subm its the Commissioner, Britis h Airways supplies, as
parts of a ‘single supply’, not only an ai r-carrier service in consideration for
part of the composite fare (which is zero-rated in terms of s 11) but also
airport services to its pa ssengers in consideration for the charge that is
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separately reflected on the ticket (attrac ting the ordinary tax rate in terms of
s 7).
[13] I do not think that is correct. S ection 8(15) does not purport to levy a
tax upon a vendor for a service that it does not supply. The tax is levied by s 7
upon the supply of a service by a vendor, and not merely upon the receipt by
the vendor of moneys that arise in so me way from the suppl y of a service by
another. The section does no more than apportion the rate at which the vendor
is required to pay the tax that is levied by s 7 wh en the vendor has supplied
different goods or services as a composite whole.
[14] It is true that British Airways pa ssengers receive airport services before
they board its aircraft and after th ey disembark, as submitted by the
Commissioner’s counsel, and that part of the fare that passengers pay arises
from the provision of those services, but it does not follow that the services
are supplied by British Airways. On the contrary, it is clear that the services to
which the charge relates are supplied by the compa ny. The charge that the
company makes to British Airways is no more than a cost that British
Airways has to bear in order to operate its carrier service, similar to those that
it pays to land and park its aircraft, which it rec overs from its passengers
directly rather than indirectly.
[15] It was also submitted by the Commissioner’s counsel that although the
company supplies the airport services fo r which the passenger service charge
is made, it supplies those services to British Airways, which in turn supplies
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them to its passengers, whereupon the supply of the services by British
Airways attracts the tax. I do not thin k the evidence provides any support for
that submission. The services that passengers enjoy are supplied by the
company and the tax accrues in terms of s 7 (and is payable by the vendor of
the service) when that supply occurs. A further tax does not accrue when the
vendor of another service (British Ai rways) does no more than bring to
account and recover the charge that it was required to pay for the supply of
that service by the company (whether it is supplied to the passengers
themselves, or to the airline for the benefit of its passengers). The moneys that
are recovered by British Airways are no t a consideration for the supply by it
of airport services simply because it does not supply them at all.
[16] That was the conclusion that was arrived at by the ta x court and in my
view the tax court was correct. The appe al against its decision is dismissed
with costs including the costs of two counsel.
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R W NUGENT
JUDGE OF APPEAL
HOWIE P)
STREICHER JA)
VAN HEERDEN JA) CONCUR
PONNAN JA)