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Tax Court Judgment: Case No VAT 847

Wednesday, 10 April 2013   (0 Comments)
Posted by: Herman van Dyk
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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 revenue stream.

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.

The respondent 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 output VAT?


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.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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