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[2019] ZASCA 163
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Commissioner for the South African Revenue Service v Langholm Farms (Pty) Ltd (1354/2018) [2019] ZASCA 163; 82 SATC 135 (29 November 2019)
Links to summary
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 1354/2018
In
the matter between:
COMMISSIONER FOR THE
SOUTH AFRICAN
REVENUE
SERVICE
APPELLANT
and
LANGHOLM
FARMS (PTY)
LTD
RESPONDENT
Neutral
citation:
Commissioner for the South African Revenue Service v
Langholm Farms (Pty) Ltd (
1354/2018)
[2019] ZASCA 163
(29
November 2019).
Coram:
Cachalia, Wallis and Saldulker JJA
Heard:
08 November 2019
Delivered:
29 November 2019
Summary:
Revenue – diesel fuel rebate – interpretation of s
75(1C)
(a)
(iii) of the Customs and Excise Act 91 of 1964 –
exercise of court’s discretion in terms of
s 21
of the
Superior
Courts Act 10 of 2013
– whether court appropriately exercised
its discretion in circumstances where Commissioner for the South
African Revenue
Service had not issued a final assessment.
ORDER
On
appeal from:
Eastern Cape Division of the High Court, Grahamstown
(Smith J sitting as court of first instance):
1
The appeal is upheld with costs, including the costs of two counsel.
2
The order of the court a quo is set aside and is replaced with the
following order: ‘The application is dismissed with costs.’
JUDGMENT
Saldulker
JA (Cachalia and Wallis JJA concurring)
[1]
The respondent, Langholm Farms (Pty) Ltd (Langholm) operates a
pineapple growing enterprise that is located about 27 km from
Grahamstown in the Eastern Cape. It is a successful concern producing
between 13,500 and 16,000 metric tons of raw pineapples annually.
It
sells its pineapples to Summerpride Foods (Pty) Ltd (Summerpride), to
be processed into various juice products for export. Summerpride’s
factory is situated approximately 147 km away from Langholm, in East
London.
[2]
Langholm delivers its pineapples to the Summerpride factory mainly
using its own trucks. The pineapples are transported in loading
bins
specifically designed to facilitate the loading and offloading of
such produce. When the trucks deliver the pineapples to
Summerpride,
they fill up with diesel fuel at the Bathurst Co-Operative dispenser,
a depot located at the Summerpride factory,
before returning to
Langholm with the empty bins. The trucks that are used for the
transportation to Summerpride are not refuelled
on the respondent’s
farm.
[3]
Langholm is
registered as a VAT vendor and as a recipient of a diesel rebate as
envisaged in terms of
s 59A
[1]
of the Customs and Excise Act 91 of 1964 (the Act). In or around
October and November 2016, Langholm submitted to the appellant,
the
Commissioner for the South African Revenue Service (SARS), a claim
for diesel rebates for the period October 2015 to August
2016. On 18
November 2016, Langholm received a notification from SARS that it
intended to conduct an audit of the diesel rebate
claimed by the
respondent for that tax period.
[4]
After completing the audit, on 13 February 2017, SARS furnished
Langholm with a ‘Notice of Intention to Assess’
which
stated in relevant parts that:
(a)
the diesel used in transporting the pineapples and obtained from the
Bathurst Co- Operative, was a ‘non-eligible usage’
because SARS was of the opinion that in terms of s 75(1C)
(a)
(iii)
of the Customs and Excise Act 91 of 1964 (the Act) a rebate could
only be claimed in respect of diesel delivered, stored and
dispensed
from storage tanks situated on Langholm’s premises;
(b)
SARS was of the opinion that the carting of the storage bins on the
return journey from Summerpride’s premises was not
a primary
production activity as defined in the relevant item of Schedule 6 to
the Act;
(c)
SARS said that Langholm’s claims for diesel rebates were, as a
result, excessive.
[5]
SARS said that in light of its view, there were ineligible purchases
for diesel in the amount of R 328 250.66, and an assessment
was to be
raised in this amount. Langholm was invited by the appellant to
respond to the Notice of Intention to Assess, specifically
by
providing evidence that it had complied with the Act. Langholm did
not take up the appellant’s offer. It took the view
that the
approach adopted by SARS was not in accordance with the relevant
statutory provisions. This was understandable given an
exchange
between Ms Roestoff, the accountant representing Langholm, and Mr van
Deventer of SARS. In an e-mail sent on 15 April
2016 Ms Roestoff
queried SARS’ interpretation of s 75(1C)
(a)
(iii)
of the Act, and on 21 April 2016, Mr van Deventer replied saying that
SARS had sought the view of its legal section and its
approach was
dictated by the response of the legal section. On 6 June 2016 Mr
Tilney from Summerpride was told by a SARS representative,
Mr La
Fontaine that their main issue was that the fuel should have been
delivered to the claimant’s premises. On 13 March
2017,
Langholm launched the present proceedings in the high court seeking
declaratory orders confirming its understanding of s
75(1C)
(a)
(iii)
of the Act. SARS opposed the application.
[6]
On 28 August 2018, the high court per Smith J delivered judgment in
favour of Langholm and granted the following declaratory
orders:
‘
1.1
Section 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964 as
amended, is to be interpreted and is properly interpreted,
that
diesel fuel used in the course and scope of the registration of the
Applicant as user, is eligible for diesel rebate claims
under the
Customs and Excise Act when the Applicant’s trucks are
refuelled at the Bathurst Co-op at Summerpride Foods in
East London.
1.2
In instances where the Applicant hired transport contractors on a dry
basis, i.e. without diesel, the diesel purchased being
to the account
of the Applicant, that the diesel fuel purchased from the Bathurst
Co-op at Summerpride Foods in East London for
purposes of
transporting of pineapples to or of farming requirements from
Summerpride Foods in East London to the Applicant’s
farming
property, such diesel purchases are eligible for diesel rebate under
the Custom and Excise Act 91 of 1964 as amended.’
[7]
This appeal
by SARS is with the leave of the court below. Before us, counsel for
SARS submitted that the application was academic,
and that the
declaratory orders did not fall within the ambit of s 21 of the
Superior Courts Act 10 of 2013 (the
Superior Courts Act).
[2
]
Simply put, no dispute had arisen as yet between the parties
concerning the interpretation of
s 75(1C)
(a)
(iii)
and, as such, the application was premature. In the alternative SARS
contended that the high court should not have exercised
its
discretion in favour of granting declaratory orders. In contrast, the
respondent contended that SARS had completed its audit,
and made its
prima
facie
views
known on the interpretation of the provisions of
s 75(1C)
(a)
(iii),
which was that distillate fuel obtained from any storage other than
the diesel storage on the Langholm farm, precluded a
claim for the
refund of any rebate. This raised a clear legal dispute the
resolution of which by way of a declaratory order was
appropriate.
[8]
In terms of s 21(1)
(c)
of the Superior Court Act, the court
has the power:
‘
In
its discretion and at the instance of any interested person, to
enquire into and determine any existing, future or contingent
right
or obligation, notwithstanding that such a person cannot claim any
relief consequential upon the determination.’
[9]
The question thus is whether this was an appropriate case for the
exercise of the judge’s discretion. In the opening paragraph
of
the appellant’s Notice of Intention to Assess, SARS stated:
‘
The
purpose of this letter is to inform you of the status and
prima
facie
findings of our inspection to establish whether the use of
diesel was contrary to the provisions of the Customs and Excise Act,
No 91 of 1964 (the C&E Act), to afford you the opportunity to
respond thereto and to advise you of the steps that will be taken
after receiving your response’.
Under
the heading ‘Non-eligible usage’, SARS stated:
‘
The
fuel used by the trucks for carting empty crates from Summerpride
Foods to the farm is not regarded as primary production activity.
Furthermore
the fuel used by the contractors for the delivery of the produce
(pineapples) to Summerpride Foods (Pty) Ltd was not
delivered to the
premises of Langholm Farm (Pty) Ltd and thus not dispensed from their
bulk storage on the farm.’
Later
in the notice SARS stated again under ‘Non-Eligible usage’
the following:
‘
In
applying this statutory law Schedule 6 Part 3 Note 6(a). . . the
carting of the empty crates from Summerpride Foods to Langholm
Farms
do not qualify as a primary production activity. Furthermore in
applying the statutory law, Section 75(1C)
(a)
(iii) of the C &
E Act, rebates may only be claimed on fuel delivered, stored and
dispensed from storage facilities located
on Langholm Farm’s
(Pty) Ltd’s premises.
It
is our intention to adjust the litres claimed for the delivery of the
produce by the contractors to the Summerpride Foods (Pty)
Ltd as well
as the litres claimed for the non-primary production activities
.
. .
Based
on the aforesaid, the Commissioner is therefore of the
prima facie
view that the diesel in question were dealt with contrary to the
made it clear that refunds provisions of the C & E Act as
explained
above and intends to issue a letter of demand for all
refunds which was not duly payable to Langholm ’
[10]
SARS made
it clear that refunds may only be claimed on fuel that was delivered,
stored and dispensed from storage facilities on
the premises of
Langholm. In so doing SARS expressed a clear view as to the proper
construction of s 75(1C)(a)(iii). Langholm disagreed
and responded
with the application, in an effort to resolve this dispute. It is
true that Langholm could have waited and provided
SARS with the
documents it required for a revised assessment, and then challenged
such an assessment, and argued the point of law
at that stage. The
issue is whether it was obliged to do so. In my view there was
nothing objectionable in Langholm seeking clarity
on an issue of
statutory interpretation that would clearly influence the outcome of
SARS’ audit. If the court accepted Langholm’s
view of the
proper interpretation of s 75(1C)
(a)
(iii)
of the Act, SARS would have had to return to the audit and re-assess
its position in the light of any further information
and debate with
Langholm. There was little point in Langholm entering into a debate
or providing further information when none
of it would be at all
relevant given SARS’ legal view. That Is exactly the situation
for which declaratory orders are made
and seeking one in the context
of a taxing statute was endorsed by the Constitutional Court in
Metcash
.
[3]
The Statutory Provisions
[11]
A statute
must be interpreted in line with ordinary rules of grammar and syntax
taking cognisance of the context and purpose thereof.
[4]
That approach is equally applicable to a taxing statute.
[5]
[12]
I turn to consider the interpretation of the relevant parts of s 75.
Section 75(1A) of the Act provides that:
‘
Notwithstanding
anything to the contrary contained in this Act or any other law –
(a)
(i) A refund of the fuel levy leviable on distillate fuel in
terms of Part5 A of Schedule I…shall be granted in accordance
with the provisions of this section and of item 670.04 of Schedule
No. 6 to the extent stated in that item.’
Section
75(1C)
(a)
(iii) reads as follows:
‘
Notwithstanding
the provision of subsection (1A), the Commissioner may investigate
any application for a refund of such levies on
distillate fuel to
establish whether the fuel has been-
(i)-
(ii) . . .
(iii)
delivered to the premises of the user and is being stored and used or
has been used in accordance with the purpose declared
on the
application for registration and the said item of Schedule No 6.’
[13]
There is no dispute that Langholm is a ‘user’ as defined
in the aforegoing section and that diesel fuel is included
in the
expression distillate fuel. Item 670.04 of Schedule No 6, paragraph
(h) in Part Three of that Schedule, deals with farming
activities
that enjoy a right to a refund of levies. In relevant part it reads:
‘
Farming:
Refund of levies on eligible purchases of distillate fuel for farming
as specified in paragraph (b)(i) to this Note.
(i)
In accordance with the definition of ‘eligible purchases’,
the distillate fuel must be purchased by the user for
use and used as
fuel for own primary production activities in farming as provided in
paragraphs (h)(ii)(cc), (h)(ii) and (h)(iv)
to this Note. . .’
[14]
SARS has interpreted s 75(1C)
(a)
(iii) to mean that the
respondent only qualifies for the diesel rebate on diesel fuel that
has been delivered to its premises, Langholm
Farms, and is being
stored and used or has been used there. Its view is that the
applicant is precluded in terms of the provisions
of s 75(1C)
(a)
(iii)
from claiming diesel rebates for fuel purchased at Summerpride’s
factory site, a diesel depot owned by Bathurst Co-operative,
because
the factory is a distance from the farm where the respondent
operates. On the other hand, the central submission made on
behalf of
the respondent is that it would be absurd to hold that the taxpayer
could not claim for diesel fuel that is not stored
on the farm and is
stored offsite. Langholm’s submissions laid great stress on the
word ‘or’ in the section.
[15]
On Langholm’s construction of the section, ‘used’
in the section means either ‘used’ on the premises
or
used elsewhere under schedule 6. Simply put the whole case of
Langholm is that ‘stored and used’ or ‘has been
used’ refer to two different usages. The one usage they contend
is usage on the premises and the other is usage off the premises.
But
that is not how the section plainly reads. The section reads: ‘is
being stored and used or has been used’. The
word ‘used’
is used twice. One usage is present use (‘is being stored and
used’) and the other is historic
use (‘has been used’),
but both refer to use of diesel on the taxpayers’ premises.
That is what the plain language
of the section says. What the
respondent misconstrues is that the word ‘used’ is both
in the present tense, ie, current
use and in the past tense, historic
use. This is the ordinary grammatical meaning. It is clear from the
ordinary language of the
section ‘used’ and ‘has
been used’ relate to the premises of the taxpayer, whether it
is in the past or
in the present, and not to any other premises.
[16]
Langholm contended that it would be absurd to interpret s
75(1C)
(a)
(iii) in the manner SARS does, because it would mean
that even if diesel was procured elsewhere, the purpose was
nevertheless to
grant a rebate. Langholm may consider this absurd,
but that is not what is in the language and the context of the
section. It refers
to present or past use but on the premises of the
taxpayer. The premises remain the premises of the taxpayer. The issue
is put
beyond doubt when one considers the effect of Langholm’s
interpretation on the broader language of the section. The enquiry
mandated by the section is ‘whether the fuel has been . . .
delivered to the premises of the user and is being stored and
used or
has been used’. Langholm’s approach would result in the
enquiry being:
‘
.
. . whether the fuel has been:
(a)
delivered to the premises of the user and is being stored and
used; or
(b)
has been used.’
The
repetition of language involved in asking whether the ‘fuel has
been . . . has been used’ makes it plain that this
cannot be
the correct construction.
[17]
Thus Langholm’s complaint of absurdity must fail. A plain
reading of the statute does not allow for the interpretation
that
Langholm seeks. The language of the section is clear and unequivocal.
And there is nothing in the context to suggest that
any departure is
warranted from the words used. The section affords a rebate to
taxpayers and defines the terms upon which the
rebate is given. That
reflects the policy adopted by the legislature and courts may not,
under the guise of absurdity, depart from
that policy. Words used in
a statute must be given their ordinary grammatical meaning unless
they lead to absurdity. In
City of Johannesburg v Cantina Tequila
& another
[2012] ZASCA 121
, this court warned that the clear
language of a provision could not be ignored under the guise of
absurdity merely because the
result may be unpalatable, stating at
para 8:
‘
A
court is entitled to find that an interpretation is absurd if an
omission is so glaring or out of kilter with the overall purpose
of
the scheme that the result could simply not have been contemplated.
But a court may not, under the guise of a concern to avoid
absurdity,
ignore the clear language of a provision simply because of any
perceived harshness or lack of wisdom. Nor may it construe
the
provision in a manner that the language does not permit, for in so
doing it is improperly substituting its will for that of
the
lawmaker.’
[18]
Section 75(1C)(
a
)(iii) means that a taxpayer can only claim
for the diesel fuel stored and used on its own premises. In the
result the declaratory
orders were granted on a mistaken view of the
law. Accordingly, the appeal must succeed.
[19]
The following order is made:
1
The appeal is upheld with costs, including the costs of two counsel.
2
The order of the court a quo is set aside and is replaced with the
following order:
‘
The
application is dismissed with costs.’
_________________
H K Saldulker
Judge
of Appeal
APPEARANCES:
For
Appellant: J Peter SC with K Magano
Instructed
by: MacRobert Inc, Bloemfontein
E
G Cooper Majiedt, Bloemfontein
For
Respondent: P J J Zietsman with P Ó Halloran
Instructed
by: De Jager & Lordan Inc, Grahamstown
Phatsoane
Henney Inc, Bloemfontein
[1]
‘59A Registration of persons participating in activities
regulated by this Act
(1)(a)
Notwithstanding any registration prescribed in terms of any other
provision of this Act, the Commissioner may require all
persons or
any class of persons participating in any activities regulated by
this Act, to register in terms of this section and
its rules.’
[2]
‘21. Persons over whom and matters in relation to which
Divisions have jurisdiction. - (1) A Division has jurisdiction
over
all persons residing or being in, and in relation to all causes
arising and all offences triable within, its area of jurisdiction
and all other matters of which it may according to law take
cognisance, and has the power—
(a)
to hear and determine appeals from all Magistrates’ Courts
within its area of jurisdiction;
(b)
to review the proceedings of all such courts;
(c)
in its discretion, and at the instance of any interested person, to
enquire into and determine any existing, future or contingent
right
or obligation, notwithstanding that such person cannot claim any
relief consequential upon the determination.’
[3]
Metcash Trading Limited v Commissioner South African Revenue
Services & another
[2000] ZACC 21
;
2001 (1) SA 1109
(CC) para 44
[4]
Natal Joint Municipal Pension Fund v Endumeni Municipality [2012]
ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA).
[5]
Commissioner, South African Revenue Services v Bosch & another
[2014] ZASCA 171
;
2015 (2) SA 174
(SCA) para 9.