Mukuru Africa (Pty) Ltd v CSARS (520/2020)

Mukuru applied to SARS for a ruling in terms of section 41B of the VAT Act, requesting approval for a transaction count (“TC”) apportionment ratio method for tax periods commencing 1 February 2014. SARS approved the TC method but only from tax periods commencing 1 March 2016. Mukuru accordingly submitted an Objection to this decision, which SARS dismissed. Mukuru accordingly appealed against SARS’ decision. The Court has subsequently dismissed the appeal with costs.

Facts

“…Mukuru… a registered vendor, commenced business on 1 February 2014. Mukuru provides money-transfer and bureau de change services, as well as mobile phone credit. It makes both taxable and exempt supplies for VAT purposes and also incurs expenditure in acquiring goods and services for the purpose of use, consumption or supply in the making of those supplies. The input VAT incurred by Mukuru accordingly falls to be apportioned in terms of s 17(1) of the VAT Act (s 17(1)).”

On 20 February 2017, Mukuru applied to SARS for a ruling under s 41B of the VAT Act. It requested approval for the use of a so-called ‘transaction count (TC)’ ratio to apportion its mixed-purpose input VAT deductions for the tax periods commencing 1 February 2014. On 24 July 2018, SARS approved the TC method for use by Mukuru (the July 2018 ruling). It did so for the period commencing 1 March 2016, but not in respect of the earlier period from 1 March 2014 to 29 February 2016. SARS took the view that proviso (iii) [of section 17 of the VAT Act] precluded it from approving the TC ratio for use in any period prior to 1 March 2016.”

“Mukuru objected. SARS initially treated the objection as invalid and refused to entertain or decide it.” Later Mukuru succeeded in applying for an order to compel SARS to consider the Objection. SARS then considered and thereafter disallowed the Objection. Mukuru thereafter appealed this decision. The Tax Court first dismissed the appeal but later the appeal was allowed in this court.

Issues

“The primary issue in the appeal is whether SARS (as it contends and the Tax Court held) was precluded by proviso (iii) [of section 17 of the VAT Act] from granting approval for use of the TC ratio by Mukuru in respect of the period 1 March 2014 to 29 February 2016.”

Finding

When SARS approved the TC method on 24 July 2018, BGR16 was already in effect. “The ratio fixed by BGR16 is described as the standard turnover-based method (the STB method) of apportionment. The STB method, which is the default method of apportionment, applies to all vendors who have not obtained an alternative ruling from SARS….Relying on what was styled a ‘condition’ in BGR16, Mukuru argues that, given the nature of its business, it was not ‘fair and reasonable’ for it to use BGR16. Accordingly, so the argument went, BGR16 did not apply to it.”

The court however held that BGR16 applies to all vendors to whom section 17 of the VAT Act applies to and who have not applied to SARS for a ruling or been granted approval for an alternative apportionment method by SARS.

The Court held that a vendor cannot simply ignore a SARS ruling or apply its own method of apportionment. Accordingly, where the prescribed method is not fair and reasonable a vendor is required to apply to SARS for a ruling. The Court stated BGR16 “…does not provide, as Mukuru appears to suggest, that from the commencement of its operations, no approved apportionment method applied to it. Nor did it provide for Mukuru to simply unilaterally assume its own apportionment; one not sanctioned by SARS. The remedy for any unfairness and unreasonableness or inappropriateness is for a vendor to apply to the SARS for an alternative method of apportionment, not to regard BGR16 as pro non scripto.”

With regards to section 17 of the VAT Act and the application there of, the Court stated that “the legislature contemplates that the apportionment method for the purposes of s 17 of the VAT Act must relate to a time in the future or, if it is to be retrospective, for a period not exceeding the income tax year during which the application is made for a change in the apportionment method. Properly understood therefore, Mukuru’s application for the July 2018 ruling was an application to change from the STB method to the TC method. Accordingly, when SARS approved the change of method in response to Mukuru’s application, it had no power to do so, retrospectively, to a date earlier than 1 March 2016. It follows that the Tax Court was correct in its conclusion that:

‘. . . The STB method set out in BGR16 was the only ratio applicable to the appellant until its private binding ruling had been issued in 2017 and proviso (iii) to section 17(1) expressly precluded SARS from issuing a ruling that had effect from a date earlier than 1 March 2016.’.

The application is dismissed with costs, including the costs of the two counsel.

Find a copy of the court case here.

07/10/2021