CASE SUMMARY: LUEVEN METALS (PTY) LTD V COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE

The recently delivered judgement from the Supreme Court of Appeal (“SCA”) in Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service involved the Court having to consider whether, absent a directive in terms of section 105 of the Tax Administration Act 28 of 2011 (“TAA”), the High Court could enter into and pronounce on the merits of the application for declaratory relief.

The case was on appeal from the Gauteng Division of the High Court, Pretoria, which dismissed an application for declaratory relief pertaining to the interpretation and application of certain words and provisions in relation to section 11(1)(f) of the Value Added Tax Act 89 of 1991 (“VAT Act”).

The Applicant (“Lueven Metals”) is engaged in the business of the trade and refining of precious metals. During the 2018 and 2020 tax periods, Lueven Metals supplied gold bars to Absa Bank Ltd and zero-rated such supplies in terms of section 11(1)(f) of the VAT Act. The Applicant held the position that they were entitled to refunds due by SARS.

Subsequent to a VAT audit, SARS issued a Letter of Audit Findings informing the Applicant that the gold purchased by it had previously been subjected to a manufacturing process. SARS held the view that section 11(1)(f) of the VAT Act prohibits the supply at a zero-rate to the South African Reserve Bank, the South African Mint Company (Pty) Ltd (Mintco) or any bank registered under the Banks Act, of gold in any form that has undergone any manufacturing process ‘other than the refining thereof or production of such bars.

In its Founding Affidavit, the Applicant specifically pleaded that its application was not intended to dispute an assessment or decision as contemplated in section 104 of the TAA and asserted that the jurisdiction of the High Court was consequently not ousted by the absence of a directive as contemplated in section 105 of the TAA. By the time the Application was heard in the High Court, SARS had not issued any assessments.

During the Appeal, the argument advanced by both counsels was that there was neither an “assessment” nor a “decision” as described in section 104 of the TAA and as the nature of the relief sought was a declaration of rights, the default rule that a taxpayer may only dispute an assessment by the objection and appeal procedure under the TAA, did not find application.

Section 21(1)(c) of the Superior Courts Act 10 of 2013 provides a statutory basis for the grant of declaratory orders without removing the common law jurisdiction of courts to do so. An Applicant is not entitled to an order even if the jurisdictional requirements are met.

The SCA considered certain judgements held prior to the amendment of section 105 of the TAA. The SCA reiterated that previously, the authority for granting declaratory orders in tax matters was clearly established. The SCA referred to prior decisions (Emary) and acknowledged that

there was an acceptance without discussion of the existence of the jurisdiction of the High Court to hear and determine income tax cases turning on legal issues.

The Court thereafter referred to the Metcash decision and the position of the legislator subsequent to the amendment of section 105 of the TAA which makes it clear that the default rule is that a taxpayer is required to follow the prescribed procedure, unless a High Court otherwise directs. The SCA highlighted that the judgements previously considered did not consider that where declaratory orders are sought in tax matters, different principles apply.

The SCA stated that a declaratory order is not appropriate if there are other specific statutory remedies available. The SCA expressly refrained from formulating a test as they believed that each case can be determined by each Court and its judge in the exercise of its broad general discretion.

After considering numerous factors and the cumulative consequences of each factor, the SCA found that an application for declaratory relief was not appropriate in this matter. The SCA further found that the nature of the dispute more properly leaned towards resolution by use of the special machinery of the TAA set up for that purpose as the dispute was not simply one of law but also involved questions of fact.

At paragraph 26 the Court stated as follows:

“The circumstances here certainly did not favour a piecemeal consideration of the case and, as it transpires, failed to lead to a reasonably prompt resolution of any of the real issues between the parties. If anything, the approach adopted opened “the door to the “fractional disposal” of actions and the “piecemeal hearing of appeals”.

The Majority of the SCA disagreed with the High Court for entertaining an application for declaratory relief, however, it agreed that the High Court was correct in dismissing it. The SCA further stated that it was not entitled to interfere with the exercise of the High Court’s discretion to deal or not to deal with a matter, unless there was a failure to exercise judicial discretion.

The Minority agreed that the appeal should have been dismissed, however, it believed the Majority erred in respect of its finding that the High Court incorrectly entertained the application for declaratory relief.

The Minority’s position was founded on the basis that there was neither an assessment nor decision within the contemplation of section 104 of the TAA in the present case and therefore section 105 has not been implicated and its directive did not find application.

The Minority referred to the Rappa case and stated that it is clearly distinguishable on the facts as in Rappa, an assessment had already been issued by SARS whereas no assessment had been issued in Lueven, further that the Applicant in Rappa had instituted a review application and not sought a declarator as in the present case.

The Minority determined that nothing barred the High Court from entertaining the Applicant's application for the declaratory relief and founded this position by considering the Langholm Farms and United Manganese of Kalahari judgements in which the Courts considered the interpretation of legislative provisions to be within the realm of disputes of a legal nature in respect of which a High Court could grant a declarator in tax matters. On this basis, the Minority held that where the only issue for determination was the interpretation of a provision of the VAT Act, the High Court had the jurisdiction to entertain the application for declaratory relief.

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