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[2018] ZASCA 115
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Commissioner for the South African Revenue Services v Amawele Joint Venture CC (908/2017) [2018] ZASCA 115; 81 SATC 297 (19 September 2018)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case
no: 908/2017
In the
matter between:
THE
COMMISSIONER FOR THE SOUTH
AFRICAN
REVENUE
SERVICES
APPELLANT
and
AMAWELE
JOINT VENTURE
CC
RESPONDENT
Neutral
citation:
CSARS v Amawele
Joint Venture CC
(908/2017)
[2018]
ZASCA 115
(19 September 2018)
Coram:
LEWIS, WALLIS, MBHA, DAMBUZA and VAN
DER MERWE JJA
Heard
:
3 September 2018
Delivered
:
19 September 2018
Summary:
VAT – zero rating of supplies of
services in terms of s 11(2)(
s
),
read with s 8(23) of the Value-Added Tax Act 89 of 1991 –
whether supplies made in terms of the Housing Subsidy Scheme
referred
to in s 8(23).
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Hughes J, Molopa-Sethose and Mothle JJ
concurring), sitting on appeal from the Tax
Court:
1
The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
The order of the High Court is set aside
and the following order substituted:
‘(a) The appeal
is upheld with costs, such costs to include those consequent upon the
employment of two counsel.
(b) The order of the Tax Court is set aside and replaced by an order
dismissing the appeal.’
JUDGMENT
Wallis
JA (Lewis, Mbha, Dambuza and Van der Merwe JJA concurring)
[1]
The respondent, Amawele Joint Venture CC
(Amawele), is a contracting firm with a single client, the
KwaZulu-Natal Provincial Department
of Human Settlements. During the
period from July 2008 to September 2010 it undertook three projects
for the Department. Two of
these, known as the Umsunduzi Project and
the Mooi River Project, involved the ‘revitalisation and
rectification’ of
housing projects undertaken between 1994 and
2002, where the workmanship was inadequate, the houses defective and
extensive remedial
work, including in some instances demolition and
reconstruction, was necessary. The third, known as the Emnambithi
Project, involved
the rehabilitation and repair of 610 houses damaged
by a storm in the Emnambithi (Ladysmith) municipal area in December
2008.
[2]
Was Amawele liable to charge, collect and
pay Value Added Tax (VAT) to the South African Revenue Services
(SARS), at the then standard
rate of 14 per cent, on the amounts it
was paid for this work? It said not, because it took the view that
the services it was supplying
were zero rated in terms of the
provisions of s 11(2)(
s
),
read with s 8(23), of the Value-Added Tax Act, 89 of 1991 (the
VAT Act). It sought a refund of amounts that it claimed it
had paid
in error by way of VAT. In response to this claim SARS conducted an
audit and issued an additional assessment in an amount
of some R38
million. Amawele appealed to the Tax Court against this additional
assessment.
[3]
The Tax Court upheld Amawele’s
contentions, set aside the additional assessment and ordered SARS to
refund R38 162 303.07
to Amawele. SARS’ appeal to the
Full Court of the Gauteng Division of the High Court, Pretoria, was
dismissed and a cross-appeal
in respect of the payment of interest on
the refund was upheld. Its further appeal is with the special leave
of this court. The
sole issue for decision is whether Amawele was
correct in contending that the services it supplied under the
contracts referred
to earlier were zero rated.
The
statutory provisions
[4]
The provision of the VAT Act, on which
Amawele relied in claiming its services were zero rated was
s 11(2)(s), read with s
8(23). These two sections followed a
slightly tortuous route before they came into operation. They were
initially enacted in 2003,
[1]
but not put into operation until 2006,
[2]
after s 8(23) underwent a minor amendment.
[3]
[5]
Prior to 2003 there was no provision of the
VAT Act providing for services rendered in terms of any national
housing programmes
to be zero rated. There were provisions similar to
those eventually incorporated into the VAT Act in 1996, in the form
of a deeming
provision in s 8(5)
[4]
and zero rating provisions related to that deeming provision in
ss 11(2)(
n
),
(
p
) and
(
q
), but
there is nothing to suggest that services under contracts relating to
the implementation of national housing programmes fell
within these.
There may have been circumstances in which payments to vendors by a
public authority in respect of a taxable supply
to a third party
would have qualified for zero rating as ‘transfer payments’,
but the position in that regard was unclear.
Generally it seems that
rendering such services constituted a VAT-able supply and attracted
VAT at the standard rate.
[6]
Once the two sections came into operation,
s 11(2)(
s
)
provided that services deemed to be supplied to a public authority
under s 8(23) of the VAT Act would be zero rated. Section
8(23)
read:
‘
For the purposes of this Act a
vendor shall be deemed to supply services to any public authority or
local authority to the extent
of any payment in terms of the Housing
Subsidy Scheme referred to in section 3(5)
(a)
of the Housing Act, 1997 (Act No 107 of 1997), made to or on behalf
of the vendor in respect of the taxable supply of goods and
services
by the vendor.’
Beyond
this cross-reference, the VAT Act did not identify the scheme it
referred to as the Housing Subsidy Scheme. Unfortunately,
neither did
s 3(5)(
a
)
of the Housing Act 107 of 1997 (the
Housing Act). It
referred in
terms to the Housing Subsidy Scheme, but did not define or
circumscribe that description in any way.
[7]
The problem this raised is a familiar one
in the context of construing documents. The difficulty lies not in
understanding the meaning
of the words used, because they are
entirely clear. It is instead a matter of identifying something or
someone referred to in these
provisions, in this case the Housing
Subsidy Scheme. The authorities show that the court is entitled to
look to evidence extrinsic
to the document itself in order to
identify that to which it refers.
[5]
In argument it was suggested that some guidance could be obtained
from the later history of
ss 8(23)
and
11
(2)(
s
)
and it is convenient to set that out at this stage, before turning to
deal with the history of legislation governing public assistance
for
the development of housing and its implementation.
[8]
No amendments to
ss 8(23)
and
11
(2)(
s
)
were made between July 2008 and September 2010, being the period
relevant to the supplies in issue in this appeal. In 2010
s 8(23)
was amended to remove the reference to the Housing Subsidy Scheme and
replace it with the words:
‘…
a
national housing programme contemplated in the
Housing Act 1997
…,
which is approved by the Minister by regulation after consultation
with the Minister of Human Settlements.’
Under
this provision the identification of services provided under a
national housing programme that would enjoy zero rating was
left to
the Minister of Finance in consultation with the Minister for Human
Settlements. There was no automatic zero rating of
such services.
According to correspondence in the record the Minister of Finance
expressly excluded payments for the rectification
and repair of
existing housing stock from the ambit of
s 8(23).
This would
have included both the rectification and revitalisation programme
(RRP), which will be discussed later, and an earlier
programme for
renovating and repairing social housing constructed prior to 1994.
[9]
To complete the legislative picture in
regard to VAT, with effect from 1 January 2017, both
ss 8(23)
and
11
(2)(
s
)
were repealed and replaced.
[6]
The replacement sections provide that any payment to or on behalf of
a vendor in terms of a national housing programme is deemed
to be a
supply to a public authority or municipality making the payment and
the deemed supply is zero rated.
[7]
The
origins of the Housing Subsidy Scheme
[10]
In the pre-democratic era public housing
was dealt with in terms of the Housing Act 4 of 1966 (the 1966 Act).
In 1993, the South
African Housing Fund (the Fund) was established in
terms of s 12B(1)
(a)
of the Housing Arrangements Act 155 of 1993. The purpose was to
centralise in a single fund all amounts appropriated for the purpose
of housing development and to provide for its control and
distribution. In 1994 ss 10A to 10C were inserted in the 1966
Act
to make provision for the uses to which the Fund could be put.
These were of the widest amplitude. Funds could be made available
for
any purpose arising from or related to the provision of housing to
members of the public. In the case of natural persons money
could be
made available for that person’s housing purposes. The
recipients of those funds could be local authorities, natural
persons, institutions, trusts or any other body in respect of the
provision of housing. In each instance the National Housing
Commission was entitled to make the funds available on the basis that
no interest would be charged and no amount would be repayable
to the
Fund.
[11]
In March 1994 a scheme, called the Housing
Subsidy Scheme, was instituted as the primary housing assistance
measure to consolidate
all existing government subsidy schemes, other
than instances where commitments had already been made. By 1995 it
consisted of
five component schemes, namely, an individual subsidy, a
consolidation subsidy, an institutional subsidy, a project linked
subsidy
and relocation assistance. The Hosuing Subsidy Scheme was one
of four housing assistance measures in operation at the time, the
others being the Discount Benefit Scheme, the Public Sector Hostel
Redevelopment Programme and the Bulk and Connector Infrastructure
Grant. In 1997, when the 1966 Act was repealed, provision was made in
s 3(5)(
a
)
for these four housing assistance measures to continue as national
housing programmes under s 3(4)(
g
)
of the Housing Act. Each one was referred to by name without more.
[12]
Section 3(4)(
g
)
authorised the Minister of Housing to institute and finance national
housing programmes. In terms of the definition of that expression
in
s 1 of the Housing Act a national housing programme meant any
national policy framework to facilitate housing development,
including both the existing four programmes and any other measures
to:
‘
(
a
)
assist persons who cannot independently provide for their own housing
needs;
(
b
) facilitate housing delivery; or
(
c
)
rehabilitate and upgrade existing housing stock, including municipal
services and infrastructure.’
[13]
The Housing Act required the responsible
Minister to publish a National Housing Code (the Code) containing
national housing policy.
[8]
This was done in 2000. Under the general heading of National Housing
Programmes it identified general rules for the Housing Subsidy
Scheme
and then, in separate chapters, dealt with seven different subsidiary
schemes it described as forming part of the Housing
Subsidy Scheme.
These were the original five component schemes and two further
component schemes, namely, rural subsidy and Peoples’
Housing
Process. The Discount Benefit Scheme and the Hostels Redevelopment
Programme were listed as National Housing Programmes
and clearly
identified as not forming part of the Housing Subsidy Scheme. The
other original programme, the Bulk and Connector
Infrastructure
Grant, had by this stage been transferred to another department and
no longer fell under housing.
[14]
The General Rules in Chapter 2 of the Code
dealt with the criteria for qualifying for a housing subsidy. There
were six of these.
Applicants had to be married
[9]
or have financial dependants; be lawful residents of South Africa; be
competent to contract; have gross monthly household incomes
not
exceeding R3 500; not yet have benefited from government funding
and be first time property owners. All of the component
schemes
of the Housing Subsidy Scheme were based on the entitlement of
individuals to receive a housing subsidy in terms of these
criteria,
albeit that in certain instances they would not receive the subsidy
in cash. This latter would apply to both institutional
subsidies,
under which accommodation would be provided to beneficiaries by the
institution, and project linked subsidies, which
related to the
construction and provision of low cost housing to enable
beneficiaries to acquire such housing. The Discount Benefit
Scheme
did not involve the construction of homes, but was based on the sale
to qualifying persons at a discount of existing housing
stock,
usually owned by local authorities. As a result the question of VAT
did not arise. The programme for redeveloping hostels
was supported
by grants to public sector institutions, not by subsidies to
individuals.
[15]
When the Code was revised in 2009, it
ceased to use the expression Housing Subsidy Scheme, but listed a
number of separate national
housing programmes. These included
individual, consolidation, institutional and rural subsidy
programmes, as well as an enhanced
peoples’ housing process,
all of which appear to correspond with some of the previously
existing components of the Housing
Subsidy Scheme. It is unclear
whether project linked or relocation subsidies continued to exist or
whether they had been given
different names. Apart from a few
references to persons qualifying for benefits under some of these
programmes, if the household
qualified under the Housing Subsidy
Scheme criteria, there were no other references to that scheme under
that name. Instead, all
National Housing Programmes were said to fall
under the Housing Subsidy System. Included among these programmes was
a programme
to provide housing assistance in emergency circumstances.
The
EAP and the RRP
[16]
None of the services rendered by Amawele in terms
of the Umsunduzi Project, the Mooi River Project and the Emnambithi
Project fell
within any of the seven components of the Housing
Subsidy Scheme identified above. All three were undertaken in terms
of two new
national housing programmes. The first of these in point
of time was the Emergency Assistance Programme (EAP) formulated in
April
2004 and inserted as Chapter 12 of the Housing Code. It was the
scheme relevant to the Emnambithi Project. The second new national
housing programme was the RRP. The other two projects were funded
under the RRP.
[17]
The EAP was introduced largely as a result
of the Constitutional Court’s judgment in
Grootboom
,
[10]
which held that the government’s housing policy was
unconstitutional in failing to make reasonable provision within its
available resources for people with no access to land, no roof over
their heads, and who were living in intolerable conditions or
crisis
situations. The response was to formulate and incorporate Chapter 12
into the Code, dealing with assistance to be provided
in emergency
housing circumstances. Several features of the scheme embodied in
Chapter 12 should be highlighted.
[18]
Unlike the other schemes falling within the
ambit of the Housing Subsidy Scheme the assistance provided under the
EAP falls short
of formal housing as provided in ‘other
Programmes of the Housing Subsidy Scheme’, although wherever
possible it should
represent an initial phase towards a permanent
housing solution. Presumably for that reason it was separately
instituted in terms
of s 3(4)(
g
)
of the Housing Act. In other words it was a scheme instituted and
financed by the Minister exercising his powers under that section.
Unlike the components of the Housing Subsidy Scheme, the assistance
would take the form of grants to municipalities to enable them
to
respond to emergency situations. The municipalities would apply for
these grants. The beneficiaries of the EAP were not restricted
to
those meeting the criteria for a subsidy under the General Rules of
the Code. They could include households with a monthly income
exceeding the R3 500 threshold; non-lawful residents; minors
heading households but unable to contract; persons without
dependants;
persons who were not first time home owners; and, persons
who had previously received housing assistance.
[19]
A person’s entitlement to a subsidy
was unaffected by any assistance provided under the EAP, unless it
contributed materially
to a permanent housing solution for the
beneficiary. Any future subsidy could then be discounted by the
amount of an emergency
grant to the extent of that contribution.
Chapter 12 contained detailed specifications regarding the assistance
that could be rendered
under the EAP and the amounts available for
different types of expenditure. Of interest is that all the amounts
are specified as
including VAT.
[20]
The RRP was instituted because many low
cost houses erected pursuant to the RDP policy after 1994 were poorly
built and structurally
unsound. It was approved at a MINMEC
[11]
on 3 March 2005, with effect from 1 April 2005 and came into
operation in KwaZulu in November 2006. Any project in terms of
this
programme would have to be part of a municipal infrastructure
development plan or a housing plan. Rectification would only
take
place where the original subsidy beneficiary occupied the house, or
if approved by the MEC. The municipality would make the
application,
but payment on satisfactory completion of the work would be by the
provincial Department of Housing.
[21]
Like the EAP, the RRP was instituted as a
separate national housing programme. That occurred on 3 March 2005 in
terms of s 3(4)(
g)
of the Housing Act. It was described as the National Policy on
Rectification of Houses delivered between 15 March 1994 and 31 March
2002. Its implementation in KwaZulu-Natal occurred in the light of
policies and procedures promulgated by the MEC for Local Government,
Housing and Traditional Affairs.
Discussion
[22]
The legislative history traversed above
reveals that, when the VAT Act was first amended in 2003 to provide
for zero rating of the
deemed provision of services to public
authorities and municipalities funded by the Housing Subsidy Scheme,
it did not apply to
the EAP and the RRP for the simple reason that
they were not in existence at the time. The constituent elements of
the Housing
Subsidy Scheme were by that stage clear. The Scheme had
been in existence since 1994, when it had five subsidiary elements.
Two
more were added when the Scheme was incorporated in the Code in
2000. Neither the EAP nor the RRP were included. In order for
payments
to vendors in respect of projects falling under either the
EAP or the RRP to enjoy the zero rating on payments to them, it
needed
to be demonstrated that after their creation something
occurred to bring them within the scope of the Housing Subsidy
Scheme. A
failure to show that would be fatal to Amawele’s
contentions.
[23]
If either of these programmes had
been introduced on a basis that brought them within the scope of the
Housing Subsidy Scheme, another
question would arise. Would it be
permissible, as a matter of interpretation of s 8(23), to
construe it as applying to national
housing programmes under that
scheme that did not exist at the time the section was formulated? Any
such programme could not have
been in the contemplation of those who
drafted the section, or the officials from National Treasury and the
Department of Human
Settlements (as it was then known) responsible
for negotiating the zero rating, much less the members of parliament
who voted in
favour of the new sections. While statutes must often be
construed as ‘always speaking’,
[12]
that principle cannot ordinarily be used to make legislation apply to
matters to which it plainly did not apply when enacted.
[13]
[24]
I do not discount the possibility
that the subsidy programmes that existed and formed part of the
Housing Subsidy Scheme in 2003
could be varied and changed to meet
changing needs, without removing the advantages of zero rating on
payments to or on behalf
of vendors. However, it would be an entirely
different matter for a new programme to be introduced and, without
more, enjoy the
advantages of zero rating. One would expect that if
the Department of Human Settlements wished to achieve that purpose it
would
have raised the matter with National Treasury, to ensure that
adverse fiscal consequences in the form of lower collections of VAT
were appreciated and accepted and that a possible amendment to the
VAT Act to make that clear was canvassed. Before reaching those
difficult questions, however, it is first necessary to determine
whether either the EAP or the RRP was introduced on a basis that
brought them within the Housing Subsidy Scheme as identified in
s 8(23).
[25]
Starting with the EAP there are a number of
obstacles to that conclusion. Firstly, it was established as a
separate national housing
programme, not as part of the overall
Housing Subsidy Scheme in the Code. It appears to have been on the
same footing as the Discount
Benefit Scheme and the Hostels
Redevelopment Programme, both of which were part of the Code, but
separate and distinct from the
Housing Subsidy Scheme.
[26]
Secondly, the manner in which the EAP
functioned was distinct from the manner in which the various
components of the Housing Subsidy
Scheme functioned. Unlike them it
was not restricted by eligibility criteria in providing relief, and
payments under the EAP were
made by way of grant to municipalities.
They were not earmarked as relating to eligible beneficiaries of
subsidies. Apart from
cases where the emergency relief provided a
stepping stone towards permanent accommodation, receipt of emergency
relief had no
impact on a person’s entitlement to a subsidy.
[27]
Thirdly, there was no indication of an
intention that the EAP be incorporated in the Housing Subsidy Scheme
and payments made to
or on behalf of vendors thereunder be zero
rated. Such a significant extension of the right to zero rate
supplies would have required
input from National Treasury and could
not have been done inadvertently or without discussion and careful
consideration. At the
very least it would be expected that the
Department of Human Settlements would have sought clarification and
consent from Treasury
before embarking on such a course. There is no
evidence in the documents in the record of that occurring, and my own
researches
have not disclosed any material suggesting an intention to
incorporate the EAP into the Housing Subsidy Scheme.
[28]
The position of the RRP is, if anything,
even more precarious. It too was constituted separately as a national
housing programme.
It provided for the rehabilitation and upgrading
of existing housing stock, including municipal services and
infrastructure. In
terms of the definition of ‘national
housing programme’ in s 1 of the Housing Act, this was a
permissible purpose
for such a programme. However, that means that it
stood in stark contrast to programmes directed at assisting persons
unable independently
to provide for their own accommodation needs or
to facilitate housing delivery, under which latter head the Housing
Subsidy Scheme
and its component parts fell
.
[29]
The second and third points made earlier,
in relation to the EAP, apply with equal force to the RRP. In regard
to the latter it
is clear from the correspondence in regard to
Amawele’s claim for a refund that SARS adopted a consistent
stance that the
RRP did not form part of the Housing Subsidy Scheme.
The endeavour to invoke the subsequent amendment of s 8(23) to
support
Amawele’s contentions also did not stand up to
scrutiny. While in some circumstances an amendment of a statute can
be seen
as an exposition and clarification of the meaning of the
provision prior to its amendment,
[14]
the amendment in 2010, if anything, pointed away from Amawele’s
contention. The issue of zero rating was determined by the
Minister
of Finance after consulting the Minister of Human Settlements and
resulted in it being stated expressly that it did not
cover payments
made for the rehabilitation of existing housing stock.
[30]
For those reasons it seems to me that
Amawele’s case foundered at the first hurdle. All the evidence
showed that the Housing
Subsidy Scheme referred to in s 8(23) of
the VAT Act, from 2003 until 2010, covering the entire period with
which we are concerned,
was the Scheme that had existed since 1994 as
incorporated in the Housing Code in 2000 with two additional
components. Neither
the EAP nor the RRP formed part of the Housing
Subsidy Scheme as so identified and there was no evidence to show
that either of
them had, after their creation, been incorporated in
some way into the Housing Subsidy Scheme. The services rendered in
respect
of the three projects in issue in this case were rendered
directly to the Department of Housing, KwaZulu-Natal and attracted an
obligation to charge, collect and account for VAT at the standard
rate under s 7 of the VAT Act.
Result
[31]
The appeal must therefore succeed. The
following order is made:
1
The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
The order of the High Court is set aside
and the following order substituted:
‘(a) The appeal
is upheld with costs, such costs to include those consequent upon the
employment of two counsel.
(b) The order of the Tax Court is set aside and replaced by an order
dismissing the appeal.’
_________________________
M J D WALLIS
JUDGE OF APPEAL
Appearances
For
appellant: A R Sholto-Douglas SC (with him H Cassim)
Instructed
by: MacRobert Incorporated, Pretoria
Honey
Attorneys, Bloemfontein.
For
respondent: H G A Snyman SC (with him H A Mpshe and K D Magano)
Instructed
by: Kgokong Nameng Tumagole Inc, Pretoria
Motaung
Attorneys, Bloemfontein.
[1]
Under ss 166(1)(
d
)
and 169(1)(
k
)
of the
Revenue Laws Amendment Act 45 of 2003
.
[2]
Under
ss 42
(1)(
e
) and
44(1)(
e
)
of the Small Business Amnesty and Amendment of Taxation Laws Act 9
of 1996.
[3]
The original section 8(23) referred to a
municipality while the final version referred to a local authority.
[4]
Considered by this court in
Commissioner,
South African Revenue Service v Marshall NO and Others
[2016]
ZASCA 158; 2017 (1) SA 114 (SCA).
[5]
See the authorities collected in
Hill
v Faiga
1964 (4) SA 594
(W) at
596H-597A.
[6]
By ss 129 and 132 of the Taxation Laws Amendment
Act 25 of 2015.
[7]
Sections 8(23) and 11(2)(
s
)
of the VAT Act inserted by ss 78(1)(
a
)
and 81(1)(
d
)
of the Taxation Laws Amendment Act 17 of 2017.
[8]
Housing Act s 4(1).
[9]
Or in a customary union or habitually cohabiting
with any other person.
[10]
Government of Republic of South Africa and
Others v Grootboom and others
[2000]
ZACC 19; 2000 (1) SA 46 (CC).
[11]
An acronym to describe meetings dealing with
issues of national and provincial concern between the minister at
national level
and the MEC’s of the various provinces.
[12]
Malcolm v Premier, Western Cape Government
[2014] ZASCA 9
;
2014 (3) SA 177
;
[2014] 2 All SA 251
(SCA) paras 10 and 11.
[13]
See
R
v Secretary of State for Health: Ex parte Quintavalle
[2003]
UKHL 13
;
[2003] 2 AC 687
;
[2003] 2 All ER 113
paras 8–10 and
Lord Bingham’s illustration of this point in saying that the
always speaking principle could not be
used to extend the
application of a statute concerning dogs to cats.
[14]
NEHAWU v University of Cape Town and others
[2002] ZACC 27
;
2003 (3) SA 1
(CC);
2003 (2) BCLR 154
; para 66