Purveyors South Africa Mine Services (Pty) Ltd v CSARS (135/2021) [2021] ZASCA 170

Facts

The facts are uncomplicated and common cause between the parties.  On 12 January 2015, Purveyors South Africa Mine Service (Pty) Ltd (“Purveyors”) entered into a dry lease agreement with a foreign lessor to use an aircraft in South Africa. In terms of various tax rulings, such a foreign lessor was not required to register in South Africa for Value-added Tax (“VAT”) purposes, if the lessee declare and pay the VAT on the importation of such goods, in this case, the aircraft.  Even though the lessor changed on 16 November 2016, the circumstances of the agreement stayed the same, i.e the lessor was still a foreign lessor, and the aircraft was still used in South Africa. During this time, Purveyors received a VAT technical opinion from PwC, indicating that VAT could have been due and payable to SARS.  On 30 January 2017, based on this opinion, Purveyors approached SARS, via e-mail to arrange a meeting in order to “regularize the VAT that was supposed to be paid over”.  On 1 February 2017, SARS responded with an e-mail stating that the aircraft was subject to penalty implications and that SARS also wanted to review the documentation in terms of section 101 of the Customs and Excise Act 91 of 1964.  On 2 February 2017, Purveyors acknowledge receipt of the SARS e-mail and indicated that it would revert as soon as possible with the requested information.  Various e-mails were exchanged between Purveyors and SARS from the beginning of February 2017 until 16 May 2017.  In the emails, SARS explained the reasons why VAT and the penalties were payable.  SARS also sought to clear any misunderstanding and indicated that there existed no waiver of potential penalties and that if the tax to SARS was late, Purveyors would be liable for penalties and interest.  Purveyors took no further steps to regularise its liability for VAT and penalties until 4 April 2018 when it applied for voluntary disclosure relief in terms of section 226 of the Tax Administration Act, 28 of 2011 (“the TA Act”).  Relying on section 227 of the TA Act, SARS rejected the application on the grounds that it was not voluntary, and did not contain facts of which SARS was unaware, as those facts had already been disclosed to it prior to the application. The Tax Court agreed with SARS and dismissed Purveyor’s case.  It found inter alia, that the application was not voluntary, as there was an element of compulsion on the part of Purveyors when it submitted the application.  The appeal by Purveyors to the Supreme Court of Appeal was with the leave of the Tax Court.

Issues

The primary issue in this appeal is whether SARS was correct in rejecting Purveyors’ voluntary disclosure application for non-compliance with section 227 of the TA Act, more specifically, on the ground that it was not made voluntarily.

Finding

The issue, therefore, is whether or not the exchange or discussions between the representatives of SARS and the officials of Purveyors have any material bearing on the application?  Purveyors believed that such discussions are irrelevant and have no formal or binding effect on the views expressed by the taxpayer. Essentially, Purveyors argued that the application must not be considered at the historical point, but at the time when the application is made. SARS argued that the application did not comply with section 227 of the TA Act since Purveyors was prompted by SARS.  In essence, SARS believed that the application was brought because Purveyors was warned that it will be liable for penalties and interest arising from its failure to have paid the relevant tax.  SARS further contended that the Customs Officials had already gained knowledge of the default and had advised Purveyors on 1 February 2017 that the aircraft should be declared in South Africa and VAT paid thereon.  In its findings, the court stated that section 227 of the TA Act must be used in the context, with regard to the apparent purpose of the section.  The court concluded that the words “voluntary” and “disclosure” in section 227 of the TA Act, require that the voluntary disclosure application must measure up fully to the requirements of the section, i.e in terms of the textual interpretation of the section.  Accordingly, the language in section 227 of the TA Act indicates that the legislature intended to arm the Commissioner with extensive powers to prevent taxpayers from disclosures that are neither voluntary nor complete in all material respects.  According to the court, section 227 of the TA Act will serve no purpose if it enables errant taxpayers to obtain informal advice and when it does not suit them, to then apply for voluntary disclosure relief.  Whether a voluntary disclosure has been prompted by a compliance action is a question of fact, to be determined by examining the circumstances in which it was made.  It was the court's view, that on a proper interpretation of section 227 of the TA Act, there is no room for Purveyors submission that this section must be construed as excluding any prior knowledge on the part of SARS.  In conclusion, the contention by Purveyors that the decision by SARS falls to be reviewed and set aside because notice of an audit or criminal investigation as contemplated in section 226(2) of the TA Act had not been given, is misconceived.  The application was rejected because it did not comply with section 227 of the TA Act.

The appeal was dismissed with costs, including the costs of the two counsel.

Find a copy of the court case here.

28/01/2022