By SAIT Technical
The taxpayer, a close corporation owned by a single member, appealed against a decision by SARS to imposing VAT and a punitive levy of 200% on the taxpayer’s tax liability.
The taxpayer, a registered VAT vendor, issued three tax invoices in January, March and April 2004 respectively to another close corporation ("PQR”) for the supply of seafood products. PQR duly paid the amounts invoiced. The taxpayer thereafter submitted a nil VAT return for the relevant VAT periods. PQR submitted an input tax claim to the respondent. Pursuant thereto the respondent conducted an audit to verify whether the suppliers listed in the schedules provided by PQR had accounted for the corresponding output tax, and found that the appellant had submitted a nil VAT return for the relevant VAT periods.
As a result of the taxpayer’s failure to account for output tax in respect of the supplies allegedly made during the January, March and May 2004 VAT periods, SARS raised additional assessments on 18 March 2005 in terms of s 31 of the Value Added Tax Act 89 of 1991 (the Act) and levied 200% additional tax against the appellant in terms of s 60 of the Act.
The taxpayer admitted that on the documentation received by SARS, it was entitled to raise the additional assessments and to impose a 200% levy. However, the member claims that the invoices were fictitious and that the taxpayer had supplied nothing to PQR.
At issue was whether the explanation given by the member is credible, and if it is found to be, whether it exonerates the appellant from liability.
The member, who is an accountant by profession and fully acquainted with the provisions of the VAT Act, gave the following explanation:
The members of PQR were Mr. B and Mr. C. They are related to a woman working in the office of his family business. Although he is not a close friend of the two men, they did meet socially from time to time. They proposed to him that he establish a close corporation with the business of supplying seafood products. They promised to order supplies from him. He duly incorporated the close corporation and registered as a VAT vendor. Thereafter the men asked him to issue fictitious invoices to PQR for the supply of seafood products. They told him that they wanted to raise a loan from D Bank. In order to acquire the loan they had to convince D Bank that they required the loan for the purpose of purchasing stock for their business. In truth, they did not require stock, but wanted to use the money for some nefarious purpose. The member said that he did not know what the purpose was. According to him, the men had assured him that they would take care of any tax implications that may arise from the issuing of the fictitious invoices. He said that they had sent him faxes explaining exactly what the invoices should look like, including he fictitious supplies and the amounts of the invoices. The arrangement was that D Bank would deposit the amounts invoiced into the appellant’s bank account and that the appellant would return the money immediately to PQR. Mr. A duly compiled three invoices for R474 194.40, R332 766.00 and R217 436.76 respectively. The amounts included VAT.
The member first testified that he had been forced to submit the fake invoices, but later explained that what he had meant was that Mr. B and Mr. C had badgered him on a daily basis until he relented. Mr. B and Mr. C left the country, leaving the member in the lurch.
The appeal was dismissed with costs on the following grounds:
1. The member did not provide a credible account of the circumstances under which he had submitted the tax invoices, and thereafter a nil VAT return
2. Whatever his explanation may be, he is patently liable in terms of the provisions of the Act for the VAT collected as well as the punitive levies.