Puma Energy Procurement South Africa (Pty) Ltd v CSARS

Facts

The appellant, Puma Energy Procurement South Africa (Pty) Ltd (“Puma”) is a licensed and limited risk distributor of fuel for the purposes of section 64F of the Customs and Excise Act No 91 of 1964 (“CE Act”).  For the period 2011 to 2015, Puma sourced and purchased from South African refineries for resale to customers outside South African borders. Puma was required to pay an amount representing excise duties and levies.  In terms of the CE Act, an exporter of fuel, when complying with the requirements, could be entitled to a refund of these excise duties or levies paid.  Puma claimed such a refund, but the South African Revenue Services (“SARS”), rejected the claims since it was claimed outside the two-year period allowed in terms of section 76 B of the CE Act.  Puma then resorted to claiming these rejected levies and duties as a loss in its 2015 income tax return in terms of section 11(a) of the Income Tax Act No 58 of 1962 (“IT Act”).  SARS disallowed the deduction and levied understatement penalties at the rate of 10 percent.  Puma lodged an appeal to the Tax Court.  SARS argued that Puma wanted to circumvent the prescription of the customs refunds by claiming the prescribed claims in the income tax return.  The Tax Court confirmed the additional assessment raised by SARS, stating that prescription was applicable to the claim for a deduction of losses in terms of section 11(a) of the IT Act.

Issues

Issue 1 – Was the Tax Court correct in upholding the point in limine that prescription was applicable to the claim for a deduction of losses in terms of section 11(a) of the IT Act?

Findings

Puma argued that the Prescription Act No 68 of 1969 (“Prescription Act”) was not applicable to section 11 of the IT Act.  Puma stated that the term “debt” in the Prescription Act had to be characterised in terms of the nature of the cause of action.  Extinction prescription could not find application because Puma did not claim payment of a debt from SARS.  The court found that the Prescription Act is not applicable to a loss claimed as a deduction, since the word “debt” in the Prescription Act does not include every obligation to do something or refrain from doing something, apart from payment or delivery.  A taxpayer invoking section 11(a) of the IT Act, is not claiming a payment from SARS, but a loss as a deduction in assessing its taxable income.  SARS’s argument that there was a revival of a claim, and should therefore not be allowed, cannot hold water.  The loss existed and is not a nullity.  The arguments should rather have revolved around whether the loss complies with the requirements of section 11(a) of the IT Act.  The Prescription Act does not apply to losses claimed in terms of section 11(a) of the IT Act, and the matter was referred to the Tax Court for adjudication.

Find a copy of the court case here.

10 February 2023