Tax Court Judgment: Case No VAT 847
10 April 2013
Posted by: Herman van Dyk
By SAIT Technical
The Tax Court
delivered its judgment in VAT Case No 847 on 8 November 2012.
A (Pty) Ltd ("appellant”)
appealed to the Tax Court against a VAT assessment issued by SARS ("respondent”)
in respect of the appellant’s liability for undeclared output VAT in terms of
the VAT Act.
Mr X is the sole
director and shareholder of the appellant. The appellant rented out a
commercial property in Bryanston to B (Pty) Ltd.
The appellant further
entered into lease agreements with C (Pty) Ltd and D (Pty Ltd). The appellant
and all three lessees constituted a group of affiliated companies and Mr X was
a director and shareholder of the appellant as well as the three lessees.
Mr X testified that B
(Pty) Ltd was the main trading company in the group and employed a large number
of employees based at the address in Bryanston.
By contrast, C (Pty)
Ltd was a brokering company and D (Pty) Ltd was a BEE company. These companies
did not have any employees and did not occupy any premises.
Mr X initially denied
that the appellant had rented out property to C (Pty) Ltd and D (Pty) Ltd, but
did not deny in evidence before the court that the appellant had concluded
lease agreements with the companies. However, he contended that the appellant
had elected not to enforce such lease agreements.
Mr X had generated 54
tax invoices relating to monthly rentals by C (Pty) Ltd and D (Pty) Ltd to the
appellant. The tax invoices had a heading in large bold letters stating "tax
invoice” and stipulated further details such as VAT registration number and the
goods or services was described as "rent”.
He contended that such
invoices were only generated for the purposes of opposing an application for
the liquidation of the appellant in the North Gauteng High Court. During this
time, he had stated under oath that the assets of the appellant included the
rental amounts due. He had been advised by an attorney to do so and contended
that the invoices generated were only "pro forma” to demonstrate a potential
He further testified
that C (Pty) Ltd and D (Pty) Ltd had not utilised the tax invoices to claim
input VAT. He testified that the provisions of the lease agreements were not
executed and that the appellant had elected not to enforce the said agreements.
The respondent (SARS)
issued an "assessment letter” stating that output tax had been under declared
and that capital of R985,251.21, interest of R235,570.41 and a penalty of
R108,157.80 was due.
contended that the letter did not constitute an assessment as contemplated in
sections 31(4) and (5) of the VAT Act because it made use of verbs in the future
tense and did not stipulate a due date.
Issues/matters to decide
1. Does the letter
issued by SARS constitute an assessment?
2. Did the appellant
make supplies to C (Pty) Ltd and D (Pty) Ltd and therefore under-declared
The judgment referred to
Commissioner for Inland Revenue v South African Custodial Services (Pty) Ltd 2012
(1) SA 522 (SCA); 74 SATC 61 where the court dealt with the issue of the
finality of an assessment in circumstances where the Commissioner sent a letter
to a taxpayer relating to the assessment of a taxpayer’s income tax for
specified years, where the taxpayer concerned was also advised in the said
letter that "Tax assessments will be issued to you in due course”. The SCA had
found that the said sentence in the letter was simply intended to convey to the
taxpayer that the determination having been made, an appropriate computer
generated form would be sent to the taxpayer in due course.
In the present case,
the Tax Court held that the letter was indeed an assessment as its heading
clearly stipulates that it is an "assessment letter” and that the appellant
referred to it as an "assessment” when objecting to it.
Section 9(1) of the VAT
Act provides that the supply of the goods or services by a vendor is deemed to
take place at the time a VAT invoice is issued. The tax invoices generated by
Mr X complied in all material aspects with section 20(4) of the VAT Act.
It was held that whether
or not the appellant actually enforced payment of rentals by C (Pty) Ltd and D
(Pty) Ltd were of no consequence.
It was further held
that declaration of output tax by the appellant to SARS is not dependent upon a
correlating claim for input tax by a vendor to whom the appellant "performed”
in terms of a rental agreement.
The appellant was
therefore held to be liable for the output VAT assessed.
The appeal was
dismissed and the appellant was directed to pay the respondent’s costs.
Please click here for the full judgment.