The Enviroserv Case: A SHIFT IN INTERPRETATION OF WHAT IS A PROCESS OF MANUFACTURE

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v15_n2_a4
• Author: Michael Rudnicki Rudnicki
• Pages: 24-30
• Date: 01 July 2024
• Published date: 01 July 2024
• Published By: Siber Ink

24 © Juta and Company (Pty) Ltd

The Enviroserv Case:

A SHIFT IN INTERPRETATION OF WHAT IS A PROCESS

OF MANUFACTURE

MICHAEL RUDNICKI*

ABSTRACT

This article explores the case of Enviroserv Waste Management (Pty) Limited v

the Commissioner for the South African Revenue Service in relation to the facts,

the outcome and the principles developed therein.

The case focuses on the business of waste management services conducted

by Enviroserv and whether the decomposition and biodegradation of waste in

the cells within a landf‌i ll site constitute a process of manufacture or a similar

process.

The article considers the objective transformation of the input into the

process as considered in some of the older court decisions. In those decisions

the court argued that an article must be ‘essentially different’ from the article

that existed before it had undergone the process. The more recent cases focus

on the nature, form, shape or utility of the article and that a non-physical

transformation could also be an essential difference in a product.

The disputed issue related to whether the process that took place in the

cells constituted plant used directly in a process of manufacture or a similar

process, as contemplated in section 12C of the Income Tax Act, 1962 (‘the

Act’). SARS argued that the cells are a storage facility, and that leachate is a

byproduct of the waste disposal process. The Commissioner further argued

that the cells are buildings and not plant. The provisions of section 12C do

not apply to buildings.

Section 12C provides a taxpayer a deduction of 20% per annum of the

cost of machinery or plant, owned by the taxpayer and used directly in a

process of manufacture or a similar process.

The court considered the meanings of ‘process’ and ‘manufacture’, which

are not def‌i ned in the Act from various precedent, to be something made

which is different from that out of which it is made. The court held that the

process undertaken by Enviroserv constituted a process of separation of the

leachate from the solid waste.

SARS argued that the cells are ‘waste disposal assets’, def‌i ned in section37B

of the Act, are not ‘plant’ as def‌i ned in section 12C and are akin to dumps or

reservoirs contemplated in the section. Def‌i ning features of section 37B are

that assets are used in a process that is ancillary to a process of manufacture

and are required by environmental law. The provisions of section 12C do not

have such requirement. The court also did not f‌i nd it necessary to consider

whether the structure was permanent. The focus was on the process under-

taken inside the cell and that this process was intended and desired by the

taxpayer within its manufacturing process and therefore not ancillary thereto.

* Tax Executive, Bowman’s Attorneys, Johannesburg.