Abc Ltd v Commissioner for the South African Revenue Service

• Jurisdiction: South Africa
• Judge: Louw J
• Judgment Date: 14 March 2013
• Docket Number: 179
• Court: Tax Court
• Hearing Date: 14 March 2011
• Citation: 2013 JDR 0350 (Tax)

Louw J

[1]

The relevant background facts to this VAT appeal are set out in the judgment in the income tax appeal ITC 11470 delivered simultaneously with this judgment.

[2]

The respondent made a determination that the amount of R67m received by the appellant pursuant to the early termination of the exclusive distribution right which entitled the appellant to exclusively distribute JK whisky, YZ whisky and ST whisky (the defined products) in South Africa, Lesotho, Botswana and Swaziland (the designated territory) was subject to

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VAT at the rate of 14 per cent. The appellant was assessed for VAT of R9 380 000, a penalty of R938 000 and interest of R7 804 274.09. The appellant's objection to the assessment was disallowed. The appellant appeals this decision and contends that the amount of R67m was not subject to VAT at all, or in the alternative, was leviable with VAT at the rate of zero per cent.

[3]

The appellant is registered as a vendor for VAT purposes in terms of the Value-Added Tax Act, 89 of 1991 (the Act). Section 7(1) of the Act provides:

Imposition of Value-Added Tax

(1)

Subject to the exemptions, exceptions, deductions and adjustments provided for in this Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, known as Value-Added Tax;

(a)

on the supply by any vendor of goods or services supplied by him … in the course of furtherance of any enterprise carried on by him; calculated at the rate of fourteen per cent on the value of the supply concerned …

[4]

It is common cause that this case does not turn on the supply of goods. Consequently, the receipt of the amount of R67m will only be subject to VAT, if

1.

a supply was made by the applicant

2.

of services

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3.

in the furtherance of the appellant's enterprise.

[5]

Section 37 of the Act provides that

The burden of proof that any supply … is exempt from or not liable to any tax chargeable under this Act or is subject to tax at the rate of zero per cent … shall be upon the person claiming such exemption, non liability, rate of zero per cent …, and upon the hearing of any appeal from any decision of the Commissioner, the decision shall not be reversed or altered unless it is shown by the appellant that the decision is wrong.

[6]

The crucial terms are defined in section 1 of the Act. 'Enterprise' is widely defined to include

Any enterprise or activity which is carried on regularly … and in the course or furtherance of which goods or services are supplied to any other person for a consideration …

The first proviso to the definition of 'enterprise' contains a deeming provision. It provides that

anything done in connection with the commencement or termination of any such enterprise or activity shall be deemed to be done in the course or furtherance of that enterprise or activity.

Supply is defined to include

all … forms of supply, whether voluntary, compulsory, or by operation of law, irrespective of where the supply is effected.

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The term 'services' is very widely defined to include

anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage …

[7]

During the currency of the distribution right, the appellant carried on its enterprise as liquor wholesaler and exercised that right by buying in and selling the defined products in the designated territory. The appellant then voluntarily entered into the termination agreement, thereby terminating the distribution right.

[8]

Mr. Emslie, who appeared with Mr. Sholto-Douglas on behalf of the respondent, submitted that by entering into the termination agreement, the appellant 'surrendered a right', the right in question being the exclusive right to distribute the defined products, 41 months before the right would otherwise have come to an end.

[9]

Mr. Cilliers, who appeared with Mr. Louw on behalf of the appellant, submitted that, because the right would in any event have expired in January 2002 in fact no 'surrender' of a right occurred at all. The appellant merely agreed to the expiry date of the right being anticipated. This resulted at most, in a curtailment in the time the right would endure, he submitted.

[10]

I do not agree with the latter contention. By agreeing to the early termination of the right, the appellant surrendered the remaining portion of the

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right which would otherwise have endured for a further 41 months. Put differently, the appellant surrendered the right it otherwise had to exclusively distribute JK whisky for a further 41 months. The surrender of the right constituted 'services' as defined in section 1 of the Act and by concluding the termination agreement, the appellant voluntarily 'supplied' as defined in section 1 the services (being the surrender of the right).

[11]

The 'value' on which VAT is to be calculated at the rate of 14 per cent is in terms of section 10(2):

The amount of the consideration for such supply … less so much of such amount as represents tax

and section 1 provides that the term 'consideration'

In relation to the supply of goods or services to any person, includes any payment made or to be made … whether in money or otherwise … in respect of, in response to, or for the inducement of, the supply of any goods or services, whether by that person or by any other person …

[12]

The value of the services supplied was consequently the R67m.

[13]

I turn to the third requirement, namely, whether the 'surrender' of the right occurred in the 'course or furtherance of any enterprise carried on' by the appellant.

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[14]

Mr. Cilliers...