Director of Public Prosecutions, Western Cape v Parker (103/14)  ZASCA 223 (12 December 2014)
14 January 2015
Posted by: Author: Erich Bell (SAIT)
Author: Erich Bell (SAIT)
This case is an appeal from the Western Cape High Court and considers whether a vendor who has misappropriated an amount of VAT which it became liable to pay to SARS can be charged with the common law crime of theft.
The respondent is the sole representative of Step-in-Time Supermarket CC, a registered VAT vendor charged in the Belville regional court for a number of counts under the Income Tax Act (No. 58 of 1962) and the Value-Added Tax Act (No. 89 of 1991) (hereinafter ‘VAT Act’) together with sixteen counts of common law theft for the failure to pay VAT to SARS between the period February 2001 to February 2006.
The respondent was found guilty to all charges and was sentenced to 5 years’ imprisonment in terms of sec 276(1)(i) of the Criminal Procedure Act (No. 51 of 1977) for the alleged ‘VAT theft’. However, the trial court granted the respondent leave to appeal to the Western Cape High Court against the sentence imposed in respect of the VAT theft. The Western Cape High Court held that the respondent did not commit VAT theft given the fact that the money in question belongs to the vendor and not SARS. The court consequently set aside the conviction and sentence which resulted in the state appealing the case to the Supreme Court of Appeal.
The State’s appeal resolved around the question as to whether a VAT vendor who has misappropriated an amount of VAT which it has collected and became liable to pay to SARS can be charged with the common law crime of theft. The motivation behind the State’s appeal was that the sanction imposed on the failure to pay VAT in terms of sec 58(d) of the VAT Act is a fine or imprisonment not exceeding two years which is too lenient and that a conviction of theft would lead to a sterner sanction.
In opposing the Western Cape High Court’s judgement, the State argued that the said court started out on the wrong premise by asking whether SARS became the owner of that money. Based on sec 7(1) of the VAT Act, paras 15 and 17 of Metcash Trading Ltd v Commissioner, South African Revenue Service 2001 (1) SA 1109 (CC) and the decision in Estate Agency Affairs Board v McLaggan2005 (4) SA 531 (SCA) it was argued that the vendor acts as an agent on behalf of SARS in a position of trust and that a vendor who therefore uses VAT for purposes other than to pay the Commissioner, misappropriates those funds and is therefore guilty of theft, despite the fact that the vendor may be the owner of that money. This argument is set out in para  of the judgement where the following was stated (emphasis mine):
‘Where X holds money in trust on Y’s behalf or receives money from Y with instructions that it be used for a specific purpose and X misappropriates that money by using it for a different purpose, X commits theft of the money. In these types of cases the rule that one cannot steal one’s own money is no bar to a conviction. Y, according to these decisions, has a special interest or property in the money. However, unless X is obliged to keep the money in a separate account, he does not commit theft if, at the time he uses the money for a different purpose, he has at his disposal a liquid fund large enough to enable him to repay it (see eg S v Gathercole 1964 (1) SA 21 (A) at 25; S v Visagie 1991 (1) SA 177 (A) at 182-183; S v Boesak 2000 (1) SACR 633 (SCA) paras 96 and 99).’
By specifically referring to the now repealed sec 40 of the VAT Act, which held that VAT due or payable is a ‘debit to the State’, the court held that sec 7(1) of the VAT Act creates a debtor-creditor relationship between the vendor and SARS and does not, expressly or impliedly create a relationship of trust. In this regard, Pillay JA stated the following at paras  and :
‘ It is clear that the Act is a scheme with its own directives, processes and penalties. The relationship it creates between SARS and the registered vendor is sui generis – one with its own peculiar nature. The Act does not confer on the vendor the status of a trustee or an agent of SARS. If it did, the vendor would either have to keep separate books of account or alternatively, would have to be sufficiently liquid at any given time in order to cover the outstanding VAT. The Act makes no provision for this situation nor does it seek to compel a vendor to keep separate books of account in respect of VAT.
 To find that the Act creates a trust relationship (in whatever form) would require an innovative approach. The Act, in particular s 58, does not incorporate theft as an offence. If the State wants the legislature to do so, or if the sentences provided for in s 58 are found to be inadequate, the obvious solution is to approach the Legislature. For the courts to extend the crime of theft to resolve the State’s difficulties, would be contrary to the principle of nullum crimen, nulla poena sine praevia lege poenali (without a law, no charge is possible).’
It was furthermore held that the reference to para  and  of the Metcash case stating that ‘vendors are entrusted with a number of important duties in relation to VAT’ and that ‘vendors are in a sense involuntary tax collectors’ was misconstrued by the State. In this regard, the following was held at para :
‘…What Kriegler J said in para 15, after broadly discussing what the Act compels the registered vendor to do in calculating and VAT, was that ‘In the result vendors are entrusted with a number of important duties in relation to VAT’. In this sense ‘entrusted’ might very well be replaced with ‘burdened with’. In other words the vendor is expected to comply with various sections of the Act which serve to safeguard the operation thereof and minimise the effects of its weaknesses. The learned judge certainly did not suggest that a trust relationship or one resembling that as between a trustee and a beneficiary of a trust, had been created. Second, counsel for the appellant misconceives the import of the Metcash decision in citing the judgment as authority for the proposition that VAT vendors are involuntary tax-collectors on behalf of SARS, and are therefore in a position of trust and would commit theft if they appropriate such collected VAT for uses other than to submit it to SARS. What the learned judge in fact said at para 17 is ‘that vendors are in a sense involuntary tax-collectors’. The omission to consider the phrase ‘in a sense’ has far reaching consequences which give a totally different meaning to what the learned judge intended. It is clear that he did not classify VAT vendors as official tax-collectors but explained that ‘in a sense’ they could be described in this way. All the learned judge was conveying is that VAT is payable on every sale and that details of the manner of calculation of VAT, the timetable for periodic payment and the amount to be paid are statutorily controlled and it is left for the vendor to ensure compliance therewith. This is quite different from imposing the status of a formal tax-collector or a trustee of SARS on a registered vendor.’
The court further held that the reliance on the McLaggan case was incorrect given the fact that the element of dishonesty was of importance on appeal not to determine whether or not he was guilty of theft, but rather to determine whether McLaggan’s fidelity fund certificate lapsed by reason of dishonesty.
The appeal was consequently dismissed with costs, including the costs resulting from the employment of two counsel.
Please click here to access the judgement.