United Manganese of Kalahari (Pty) Ltd v Commissioner, South African Revenue Service

• Jurisdiction: South Africa

United Manganese of Kalahari (Pty) Ltd v Commissioner, South African Revenue Service
2018 (2) SA 275 (GP)

2018 (2) SA p275

Citation	2018 (2) SA 275 (GP)
Case No	74158/2016
Court	Gauteng Division, Pretoria
Judge	Meyer J
Heard	October 3, 2016
Judgment	October 3, 2016
Counsel	JJ Gauntlett QC SC (with PA Swanepoel) for the applicant.; C Loxton SC (N Rajab-Budlender) for the respondent.

Flynote : Sleutelwoorde

Minerals and petroleum — Mines — Taxation — Royalty payable by 'extractor' on 'transfer' of 'unrefined mineral resource' — Gross sales of unrefined mineral resource — What constitutes — Correct interpretation of Mineral C and Petroleum Resources Royalty Act 28 of 2008, s 6(3)(b).

Headnote : Kopnota

In terms of s 6(2)(a) of the Mineral and Petroleum Resources Royalty Act 28 of 2008 (the Act) 'gross sales in respect of an unrefined mineral resource transferred . . . is the amount received or accrued during the year of D assessment in respect of the transfer [thereof]'; in terms of s 6(3)(b) 'gross sales' is to be determined 'without regard to any expenditure incurred by the extractor in respect of the transport, insurance and handling [TIH expenditure] of an unrefined mineral resource after it has been brought to the condition specified [in sch 2 of the Act] or any [TIH] expenditure incurred . . . to effect [its] disposal'. E

The applicant (UMK), a manganese miner, qualified as an 'extractor' of an 'unrefined mineral resource' under the Act and as such was liable for the payment of a royalty on the transfer thereof, based on its 'gross sales'. UMK deducted TIH expenditure incurred after the manganese had been brought to condition specified in sch 2, as well TIH expenditure relating to its disposal for 2010 and 2011 years of assessment. The Commissioner F however insisted that the exclusion of TIH expenditure in s 6(3)(b) was

limited to TIH expenditure invoiced to the customers as part of the purchase price. Attempts at settling the dispute having failed, UMK applied for a declaratory order regarding the correct calculation of 'gross sales' as contemplated in s 6(3)(b).

Held G

The words used in s 6(3)(b) were clear and unambiguous. TIH 'expenditure incurred' post the condition specified, and TIH 'expenditure incurred' to effect the disposal of the mineral resource were excluded from gross sales — regardless of whether or not the extractor 'actually received' or was 'entitled to' recover the TIH costs from its customer. Section 6(3)(b) could only be understood to provide for the exclusion of all expenditure relating H to TIH costs incurred by the seller of an unrefined mineral resource. (Paragraph [37].)

Cases cited

Ackermans Ltd v Commissioner, South African Revenue Service; Pep Stores (SA) Ltd v Commissioner, South African Revenue Service I 2011 (1) SA 1 (SCA): dictum in para [8] applied

Attieh v Commissioner, South African Revenue Service GJ A5024/2015: dictum in paras [15] – [18] applied

Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC) (2004 (7) BCLR 687; [2004] ZACC 15): referred to J

2018 (2) SA p276

Bernstein A and Others v Bester and Others NNO 1996 (2) SA 751 (CC) (1996 (4) BCLR 449; [1996] ZACC 2): referred to

Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) ([2013] ZASCA 176): dictum in para [12] applied

Camps Bay Ratepayers' and Residents' Association and Another v Harrison and Another B 2011 (4) SA 42 (CC) (2011 (2) BCLR 121; [2010] ZACC 19): dictum in paras [28] – [30 applied

Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd 2005 (6) SA 205 (SCA) ([2006] 1 All SA 103): referred to

Durban City Council v Association of Building Societies 1942 AD 27: referred to

Geldenhuys C v Commissioner for Inland Revenue 1947 (3) SA 256 (C): dictum at 270 applied

Geuking v President of the Republic of South Africa and Others 2003 (3) SA 34 (CC) (2003 (1) SACR 404; 2004 (9) BCLR 895; [2002] ZACC 29): referred to

Lategan v Commissioner for Inland Revenue 1926 CPD 203 (2 SATC 16): applied

Metcash D Trading Ltd v Commissioner, South African Revenue Service, and Another 2001 (1) SA 1109 (CC) (2001 (2) JTLR 37; 2001 (1) BCLR 1; [2000] ZACC 21): dictum in paras [32] – [33] and [44] – [45] applied

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) ([2012] 2 All SA 262; [2012] ZASCA 13): dictum in para [18] applied

National E Director of Public Prosecutions and Another v Mohamed NO and Others 2003 (4) SA 1 (CC) (2003 (1) SACR 561; 2003 (5) BCLR 476; [2003] ZACC 4): referred to

Oceanic Trust Co Ltd NO v Commissioner for South African Revenue Service (2012) 74 SATC 127: dictum in para [57] applied

Rennie NO v Gordon and Another NNO 1988 (1) SA 1 (A): dictum at 22E – F F applied

Rossi and Others v Commissioner for South African Revenue Service 74 SATC 387: referred to

Van Zyl NO v The Master and Another 1991 (1) SA 874 (E): dictum at 877G – 877B applied.

Legislation cited

Statutes

The G Mineral and Petroleum Resources Royalty Act 28 of 2008, s 6(3)(b): see Juta's Statutes of South Africa 2016/17 vol 6 at 2 – 291.

Case Information

JJ Gauntlett SC QC (PA Swanepoel) for the applicant.

C H Loxton SC (N Rajab-Budlender) for the respondent.

An application for declaratory relief as to the correct interpretation of a statutory provision. The order is at [41].

Judgment

Meyer J:

[1] I The applicant seeks declaratory relief in relation to the correct interpretation and application of s 6(3)(b) of the Mineral and Petroleum Resources Royalty Act 28 of 2008 (the Royalty Act) in order to resolve the dispute that had arisen between it and the respondent, the Commissioner for the South African Revenue Service (Sars), pertaining to the J correct manner of determining its 'gross sales' for the purpose of

2018 (2) SA p277

Meyer J

calculating the royalty payable by it in terms of s 3(2) of the Royalty Act. A UMK also seeks specific relief in relation to the monetary amounts which it is entitled to deduct for purposes of calculating its mineral royalty liability in respect of the 2010 and 2011 years of assessment.

[2] Section 2 of the Royalty Act imposes the obligation on a person to B 'pay a royalty for the benefit of the National Revenue Fund in respect of the transfer of a mineral resource extracted from within the Republic'. In terms of s 3(2) the royalty —

'in respect of the transfer of an unrefined mineral resource is determined by multiplying the gross sales of the extractor in respect of that mineral resource during the year of assessment — C

(a)

by the percentage determined in accordance with the formula in section 4(2); or

(b)

by the percentage determined in accordance with the formula as the Minister may announce in the national annual budget contemplated in section 27(1) of the Public Finance Management Act, 1999 (Act 1 of 1999) with effect from a date mentioned in that announcement'. D

The formula in s 4(2) is presently applicable; it is '0,5 + [earnings before interest and taxes (gross sales in respect of unrefined mineral resources x 9)] x 100', and the percentage determined in terms of ss (2) must not, in terms of s 4(3)(b), exceed 7%. E

[3] Subsections 6(2)(a) and 6(3)(b), the construction of which provisions are presently in dispute, read as follows:

'(2) Gross sales in respect of an unrefined mineral resource transferred —

(a)

as mentioned in paragraph (a) of the definition of "transfer" in F section 1 in the condition specified in Schedule 2 for that mineral resource is the amount received or accrued during the year of assessment in respect of the transfer of that mineral resource; . . . .

(3)(b) For purposes of subsection (2), gross sales is determined without regard to any expenditure incurred in respect of transport, insurance and handling of an unrefined mineral resource after that G mineral resource was brought to the condition specified in Schedule 2 for that mineral resource or any expenditure incurred in respect of transport, insurance and handling to effect the disposal of that mineral resource.'

[4] UMK is currently the fourth largest producer of manganese in this H country. It owns a mine in the John Taolo Gaetsewe District Municipality in the Northern Cape Province. There it extracts unrefined manganese (manganese ore), which it crushes and screens before it is stockpiled. It brings the manganese — it is common cause — to the condition specified under sch 2 of the Royalty Act. The manganese ore I is loaded onto a truck or train for delivery to UMK's customers. It bears the obligation for the incurrence of all costs necessary to effect delivery of the manganese from the mine to its customers, if so required in terms of the relevant contract delivery terms. These costs include transport, insurance and handling (TIH) costs in delivering the unrefined manganese to its customers. J

2018 (2) SA p278

Meyer J

[5] A UMK conducts 'mining operations' as contemplated in the definition of the phrase in s 1 of the Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA). It is an 'extractor' of an 'unrefined mineral resource' (it mines unrefined manganese) and is liable for payment of a 'royalty' in terms of s 3 the Royalty Act.

[6] B The declaratory relief which UMK seeks in terms of prayers 1 and 2 of the notice of motion only concerns the correct manner of calculation of UMK's 'gross sales', as contemplated in s 6(3) of the Royalty Act in respect of the unrefined mineral resource transferred by it in the 2010 and 2011 years of assessment, and in particular whether the C transport, insurance and handling costs incurred by UMK after a particular point (the condition specified) may be deducted in determining its gross...