D v Commissioner for the South African Revenue Service

• Jurisdiction: South Africa
• Judge: Binns-Ward J
• Judgment Date: 14 June 2016
• Citation: 2016 JDR 1129 (Tax)
• Docket Number: VAT 1390
• Court: Tax Court

Binns-Ward J:

[1]

This matter concerns the question whether value-added tax falls to be paid on the taxpayer's delivery charges. The question arose in consequence of the findings made pursuant to an audit of the taxpayer's tax affairs during the 2009 to 2011 assessed tax periods. The audit findings resulted in the taxpayer being assessed for unpaid value-added tax on the basis of its understatement of output tax in its returns for the relevant periods. The taxpayer objected to the assessment on the basis that it was not accountable for the tax on the delivery charges. The question was decided against the taxpayer on appeal by it to the tax board after the disallowance of its objection. The taxpayer is dissatisfied with the tax board's decision and the appeal was

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consequently referred to this court in terms of s 115 of the Tax Administration Act 28 of 2011 for hearing de novo. The parties have agreed on the amount of tax that will be payable by the taxpayer in the event of this court deciding the question in favour of the Commissioner.

[2]

The taxpayer, which is duly registered as a vendor in terms of the Value-Added Tax Act 89 of 1991, carries on a fast foods delivery business. The fundamental issue that falls to be determined in this appeal is whether the delivery of food orders to the taxpayer's customers constitutes a service supplied by it (within the meaning of that word as defined in the Act [1] ) for consideration [2] in the course, or in furtherance, of its enterprise. To that end it is necessary to describe in some detail just how the taxpayer's business is conducted. The facts are uncontentious.

[3]

The taxpayer contracts with fast food outlets and takeaway restaurants to advertise their menus in a booklet or catalogue, which it has printed and distributed to households in the areas in which it makes deliveries. The booklet is apparently referred to by the taxpayer as its 'menu guide'. For obvious reasons, the guide needs regular updating to keep abreast of changes to menus, prices, participating food outlets, delivery prices and the like. The taxpayer therefore produces fresh editions of the booklet periodically.

[4]

An example of a pro forma contract used by the taxpayer for the purpose of its agreements with participating food outlets was put in evidence (at p. 12 of the trial bundle). Its material content provided as follows:

[The Taxpayer] and [the participating restaurant] hereby agree on the following conditions:

1.

[The Taxpayer] will act as a delivery agent for [the participating restaurant] in XXX and Surrounding areas.

2.

20% (twenty percent) + vat (equals 22.8%) of the retail selling price of the products purchased for deliveries will be paid over to [The Taxpayer] on a monthly basis.

3.

This agreement is only valid for the duration of [The Taxpayer's] Table View's 11th edition menu guide due June 2010.

4.

[The participating restaurant] will pay [The Taxpayer] R4 000 LESS R 1000 = R 3 000 + vat = R 3 420 for their advertisement in the [The Taxpayer's] menu guide.

5.

Payment; Due on artwork approval

Advert size. Single Page

Physical address:

[xxx]

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Store phone & fax number: ph xxx Fax. _______________________________

Cell __________________________ e-mail ___________________________________

Name: xxx Signature:________[signature of representative of of participating restaurant]

Capacity: OWNER [of the participating restaurant]

[Taxpayer's name] _____________[Taxpayer's representative's signature]

[5]

Customers wishing to order fast food from any of these outlets for off-site consumption are able to place a telephonic order for the food with the taxpayer. The taxpayer's booklet contains a guide on 'how to order'. It also sets out, immediately under the 'how to order' instructions, certain terms of business, which include the provision: '[The Taxpayer] delivers goods for a 3rd party and are (sic) not responsible for quality and quantity of such goods'. The '3rd party' is obviously any of the fast food outlets or restaurants with which the taxpayer has contracted. There is a table in the booklet in which are set out the 'Delivery areas and charges'. The information in the table is subject to a qualification stating that 'Delivery charges may fluctuate with petrol increases'. All the aforementioned information - together with an index reflecting the names of the fast food outlets and takeaway restaurants, categorised by food type or cuisine, from which food may be purchased - is set out in a single page in the example of the booklet introduced in evidence (at p. 56 of the trial bundle).

[6]

The customer is thus able to determine from the booklet how much he will have to pay for any food order delivery. The amount will be the sum of the indicated menu price of the food ordered and the indicated 'delivery charge' for deliveries to addresses in the area in which the customer resides, or wishes the food to be brought to. The booklet produced in evidence indicates that an additional charge of R4 per additional outlet would be levied if any order placed by a customer included food to be purchased from more than two food outlets. The evidence suggested that the operator at the taxpayer's premises that takes a customer's order over the telephone would, in the course of the telephone conversation, confirm the total amount that the customer would be charged.

[7]

Upon receipt of an order from a customer, the taxpayer's staff pass on the details to the relevant fast food outlet and despatch a driver to that outlet to collect and pay for the food that has been ordered. The driver is provided by the taxpayer with a cash float for this purpose. The driver then takes the ordered food to the taxpayer's customer and collects payment, which can be made by cash or credit card. The driver is required to wear clothing specially branded to identify him or her with the taxpayer's business. The driver purchases the clothing (referred to as 'the uniform') from the taxpayer. The taxpayer undertakes to repurchase the uniform

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from the driver upon termination of the driver's contract 'depending on the condition of the uniform'. The drivers are required to convey the food delivered by them to the taxpayer's customers in a hotbox container, which is also branded to identify the taxpayer's business. Cold foods are required to be carried in a branded 'six pack bag'.

[8]

The customer is presented with an invoice by the driver when the food order is delivered and payment collected. Specimen invoices were presented in evidence at the hearing. The invoice that is presented describes itself as a 'Tax Invoice'. It bears the taxpayer's business logo in the top left corner and its VAT registration number in the top right corner. The other information set out in the invoice includes the customer's name and address, the name(s) of the fast food outlet(s) from which the food was purchased and the particulars of the items of food delivered, including the price. The invoice reflects an amount, given as the 'Vatable total', which equates to the total of the individually indicated prices of the items of food delivered as per the menu(s) from which they were selected. It also includes an item indicated as 'Drivers Petrol Money'. The pertinent monetary amounts are summarised at the bottom right of the invoice as follows:

Vatable total	Rx
Drivers Petrol Money	Ry
Total due to Driver	Rz (being the sum of Rx and Ry)

'Ry' in the above example would correspond with the pertinent delivery charge advertised in the booklet that the taxpayer distributes to solicit custom for its business.

[9]

It is quite clear then that the contracts entered into by the taxpayer with its customers entail the service of purchasing items from the menus of participating food outlets at their behest and having the food delivered to them. The taxpayer does not mark up the price of the food it purchases for its customers. It negotiates a commission with the food outlets and takeaway restaurants that advertise in its booklet. The commission is calculated as an agreed percentage of the price of the food purchased by it for its customers. [3] Value added tax is accounted for by the taxpayer on those commissions. The commission plainly constitutes consideration received by the taxpayer for a service supplied by it to the participating restaurant. The service consists of soliciting and executing orders for food for off-site

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consumption from the participating restaurants. The collection and delivery of the food constitutes a separate service, which is supplied to the taxpayer's customers.

[10]

The drivers who collect and deliver the food ordered by the taxpayer's customers are engaged by the taxpayer in terms of a pro forma contract entitled 'Memorandum of Agreement for the Provision of Services by an Independent Contractor'. It might be useful to set out those various terms of the contract which the parties considered of sufficient relevance to draw to our attention in the course of the evidence:

1.

INTRODUCTION

1.1

The Company operates a fast food delivery business whereby:

1.1.1

Members of the public (CLIENTS) order certain prepared foods and/or services ("PRODUCTS") from various restaurants and/or fast food outlets ("VENDORS") via the COMPANY.

1.1.2

The COMPANY places the CLIENT's order with the selected VENDOR;

1.1.3

The COMPANY collects the PRODUCT from the VENDOR and delivers the same product to the CLIENT's premises.

1.2

The COMPANY out sources its delivery services to drivers who specialize in the delivery of goods in and around the Table View area.

1.3

The COMPANY wishes to utilize the services of an INDEPENDENT CONTRACTOR on a limited term...