LAN GEORGE MARSHALL N.O. RENE PIETER DE WET N.O. KNOWLEDGE LWAZI MBOYI N.O. JOHN ANDREW DE MARTIN N.O. RAY SIPHOSOMHLE SITHEMBELE MSENGANA N.O.
KOVIN SHUNMUGAM NAIDOO SAMSON MAKHUDU GULUBE
And
THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
1ST APPLICANT
2N” APPLICANT
3RD APPLICANT
4TH APPLICANT STH APPLICANT 6TH APPLICANT
7TH APPLICANT
8TH APPLICANT
RESPONDENT
JUDGMENT
PRETORIUS J
[1] The applicants apply for a declaratory order in terms of:
”1.1 Section 8(S) of the Vofue-Added Tax Act 89 of 1991 (as amended) 'the VAT Act”) appfies not only to services deemed to be rendered but afso to actva/ services rendered;
1.2 The services rendered bp or on behaff of the SA RED CROSS AIR MERCY SERVICE TRUST /fAe porticu/ars of which appear from o reading of the attached Founding a1oaP/¢/ to the various hea/th departments of pro incfaf governments situated in/tA/n the Repubfic o/
:South Africa shou/d be zero rated fn terms of section 11(2)(n) of the
2] At the outset counsel for the respondent indicated that the respondent
abandons the opposition to the application on the ground of jurisdiction.
Background:
The applicants are the seven trustees for the time being of SA Red Cross Air Mercy Service Trust (“the Trust”), who brought the application on behalf of the Trust.
The Trust provides an aero-medical service throughout South Africa which consists of the flying doctor and rural health outreach service, the air ambulance service and rescue service. These services have been rendered since 1994.
The Trust entered into agreements with various health departments of provincial governments to provide services to the provinces. The provincial government departments pay a fee to the Trust as agreed by the parties in the relevant written contracts, which generally consists of a fixed monthly fee and an agreed hourly rate in respect of each flight.
On 30 October 2012 the Trust applied to the respondent for a private binding
VAT ruling regarding the VAT status of the services supplied by the Trust to
the provincial government departments.
The respondent issued its binding private ruling on 25 January 2013, which
caused the present dispute. The ruling was:
”The payments (I.e. the azoifobf/ip See and the 5ffpht See)recei ed bp
of poods and serv/ces. The supp/y of suCh @OOds and servfces are /n the course of furtherance of AMP"enterprfse and are subject to VAT at the standard rate of 14 per cent fn terms of sectfon Z(1)(o). Accordfng/'f, AMS is requfred to /ey and dCCOtlnt for VAT at the standard rate of 14 per cent on the supp/ies made to the Depottment of Health.”
The dispute relates to the interpretation and application of section 8(5) of the
VAT Act. On 13 May 2013 the Trust, through its attorneys of record, requested the respondent to r=ccnsider the private binding ruling. This request was refused by the respondent and hence the present application.
The LegalInterpretation:
Section 7(1)(a) of the Value-Added Tax Act 89 of 1991 (“the Act”) provides:
"(1) Subject to the exemptions, deducyons and ocljustments pro fded for in this ACt, there sho/f be /e red and paid for the beneFt of
On the supp/y by any endor of goods or serviCes suppfied by him on or acer the commencement date /n the course of furtherance of cup enterprfse carrfed on by him;”
Section 8(5) of the Act provides:
"(S) For the purposes of thfs Act o designated entffy shaff be deemed to sapp/z serviCes to our pub/ic outhorfU or munfcipofffy to the extent
to or on beha/fo that designated entity fn the course or furtherance of an enterprise carried on by the designated entftfi.”(Court's emphasis)
Section 1 of the Act defines a designated entity as "a vendor... (iv) which is a we/fare orpan/sat/on”.
A“weffare arpanfsatiorf’ is defined in section 1 of the Act as:
contemp/ated fn paragraph (a) of the definition of 'pub/ic benefit organfsation" in section 30(1) of the Income Tax Act rñar has been approved by the Commissfoner in terms of seCtiof730(3) of fA6f Act, it
under the headings-
We/fare and humanftarian,“
Hea/th care;. ”
A“publ/c authority” is defined in section 1 to mean, fnter a/ia:
”(f) drip department or df ision of the pubffc service as /isted fn
Schedufes 1, 2 or 3 of the Pubfic Service Act, 1994 (Act 105 of 1994);”
The applicants rely on section 11(2)(n) of the Act which provides:
" n) the serv/ces Comprise the carrying on by a welfare orpan/sat/on oP the actfV'itfes referred to fn the deEnitfon of 'weffare orponfsation"in section 1 and to the extent rñat any payment fn respect of those serviCes is made fn terms of sectfon 8(S) those seivfces shaff be
/77/Y/?/C//7a// ,"”(Court's emphasis)
It is important to note that the Trust has been approved as a public benefit organisation as contemplated in section 30 of the Income Tax Act to which reference is made in section 1 of the VAT Act.
In Government Gazette No. 27235 (Government Notice 112) published on 11 February 2005 the Minister of Finance published the activities listed which constitutes welfare activities for the purpose of a “welfare organisation” in the VAT Act, which included:
“(e) The rescue or care oTpersons in distress”
Is the Trust to be exempt from VAT?:
Statutory Interpretation:
The Law of South Africa Volume 1 seconc! edition para 130 set out:
what did the Lepfs/ature intend to achfeve w/tñ the part/CUlar lep/slative
/nstr menu? In determfning the purpose of fegisfation one fs seeking
the c/ear or man/feet purpose — fn other words one is actuaf/y seekfng the object, aim, ambit or function of the statute as determined by the ase of /ego//y recognfsed rufes of fnterpretation. the most fmportant ru/e of statutory interpretation /s that the /nterpretahon must v/¢/safe/y re5/ect the purpose of the /egfs/ation...”
The court made it clear in Standard Bank Investment Corporation Ltd v Competition Commission and Others; Liberty Life Association of Africa Ltd v Competition Commission and Others 2000(2) SA 797
(SCA) at para 20:
"{20a in terms of section 43 of the Constftution, the /epis/atfve authority of the nationa/ sphere of government /s vested in Parliament. Par/iament exercises its authority mainly by enacting Acts. Acts are expressed fn words. there is therefore
Abrohomse 199a(4) SA 613 (TSCA) at 632G-H.
'Interpretayon concerns the meaninc! of the words used bz the Leg/s/ature and ft is therefore usefu/ to appEOâCh the task be referr/ng to the words used, and to /eave extraneous considerations for later’.
enthusiastic supporter oP 'purpDsf e constructfon' fn the sense stated by Sma/berper EA fn Pabffc Carrfers Association and
Others To/f Road Concessionories (Pfy) tt# and Others
’Mindful of the fact that the pr/mary aim of sLa/vto
/nterpretation is to arrive at the intention of the Lepis/ature, the purpose of a stotutom pro fsfon can provide a re/iob/e pointer to such /ntenhon where there is ambiguity’.”(Court's emphasis)
In Standard General Ins v Commissioner for Customs and Excise
2005(2) SA 166 (SCA) at paragraph 25 the court held:
fntention from on uncertain premise we he e found greater assistance fn reachf/7 DLir concfusion from considering the extent to whfch the meaning tAfit fs given to the words dChfe es or defeats the apparent scope and purpose of the fegis/ation. As pointed out bp Nienaber EA fn
'export’ for tAe purpose of seCtfon 20(4) — which dress o distinctfon between export and home consumption — the word mvst 'take its COfDLlF, ffke o chome/eon, from its setting and surrounds fn the Act".”
In Natal 3oint Municipal Pension Fund v Endumeni Municipality
2012(4} SA 593 (SCA) at para 18 Wallis JA held:
”The present state of the few Can be expressed as fof/oivs.
Tnterpretation i“s the process of attF/butinp mean/FiQ tc the words used
/n a document, be /t /epis/ation, some other statutory instrument, or contract, hdVfng regard to the Context prozfded by reading the pdXictI/dr proV'fslon or proZfslons fn the ffght of the document os o
who/e and the Circumstances attendant upon its coming /nto existence. Whatever tAe nature of the document, consideratfon mvst be gfzen to the /anpuape used in the l/pht of the ordinary rules of grammar and
purpose to which it fs directed and the materiaf known to those responsfb/e for fts prodtlCtion. Where more tAan one meaning is possibfe each possfbl/f must be wefghed in the /fght of off these factors. the process fs objective, not suDjectf e. A sensib/e meaning is to be preferred to one that feeds to insensib/e or unbusfness/ine resu/ts or undermfnes the apparent purpose of the document. Judges must be a/ert to, and puard apa/nst, the temptation to substftute rr//at they regard as reasonabfe, sensfbfe or businessffke for the words actva//y used. To do so in repard to a statute or statuto instrument is to cross the divide between fnterpretayon and fegis/otion; in o contractua/ context /r is to make a Contract for the parties other than the one they in fact made. The ’inev/tab/e point of departure /s the
/anquage of the provis/on /tse/f’. read /n context and haV/ng regard to the purpose of the prD fsion and the background to the preparation and production of the document.”(Court's emphasis)
The respondent explained that the definition of “grant” specifically excludes
payments made by public authorities for that actual supp!y of goods and services to the public authority. It is a gratuitous payment with no reciprocity of goods and services expected in return. I have no quarrel with this interpretation of the word “grant”.
According to the respondent section 8(5) of the Act will only apply if no actual supply of goods and/or services was made to the respective provincial departments of health in turn for the payment received by the Trust. The availability and usage fees paid to the respective departments of health are thus actual payments and not deemed payments as it is an availability fee as well as for actual services rendered and is therefore not a grant.
The respondent is of the opinion that the provisions of section 11(2)(n) of the Act only applies where it is “a deemed supply” and not on actual supply. The respondent set out that the Trust did not qualify for zero-rating in terms of section 11(2)(n) of the act, as it is not deemed to supply to a public authority in terms of section 8(5). I cannot agree with this interpretation as section 11(2)(n) of the Act is clear that it deals with “services” supplied by a welfare organisation to a “public authority”, which will include the respective Departments of Health of the provinces with which the applicant had
contracted.
The respondent admitted that the services rendered by the Trust constitute aeromedical rescue, healthcare and relief network to all communities in need and that the services provided comprise the carrying on by a welfare organisation of the activities referred to in the definition of “welfare organisation”.
In the pres nt instant the Trust, a welfare orgar.isation, r c=. Yes payment by a “public authority”, the various contracted provincial departments of health. Section 8(5) provides that such an entity as the Trust shall be deemed to
make a supply of services to the public authority in the furtherance of the enterprise carried on by the Trust.
The services provided by the Trust to the provincial government departments of health have not been granted to the respective provincial government departments, but the right to use the aircraft remains with the trust.
Section 11(2)(n) of the Act does not provide that zero rate is only applicable to deemed supplies falling within the ambit of section 8(5). The Afrikaans translation for deem should be “geag”. If that is so, then section 8(5) merely sets out that if services supplied by a designated enterprise to the various provincial departments of health for payment those services are deemed to make a taxable supply of services to the furtherance of an enterprise, which is a welfare organisation.
I must agree with counsel for the applicant that the argument that section
8(5) must be used to qualify for zero rating in terms of section 11(2)(n) is not supported by the meaning of the wording of section 11(2)(n) of the Act. Section 8(5) makes provision in regard to the use of the word “deem”, deems the supply of services to be made and deems the supply of such services to be made to the relevant authority or municipality concerned.
A “designated entity” must be a vendor in terms of the Act and involved with
the actual supply of services or goods to be able to claim a zero rating in terms cf section 11(2)(n). If that was not the case thorn the provis:one of section 8(5) and section 11(2)(n) would not have been necessary.
Section 1 of the Act makes it clear that the term “consideration” includes payments by one entity to another in respect of supplies made to the other entity, which is the case in the present instance.
I agree with the argument that the purpose of the deeming provision contained in section 8(5) of the Act is to deem payments received by a designated entity from a public authority or municipality to be consideration in respect of “services” as opposed to “goods”.
I find in the present instance that the wording of section 8(5) and section 11(2)(n) of the Act are quite clear when the ordinary meaning of the words in these sections are examined in the context of the VAT Act.
I cannot find that an additional purposive approach is required as there is no ambiguous or unclear words in these sections, which should be clarified as the words in these sections are clear as they stand.
I have applied the principles enunciated in the authorities and have considered the context and the wording in these two sections objectively. I cannot find any reason why the wording should not be given its ordinary
meaning in this context once an objective process has been followed.
I have listened to and read all the arguments of both parties, but I cannot find that I agree with the respondent's argument that “deem” in section 8(5) means that this section does not deal with actual services. The payment rece.ved by the Trust frcm the provincial governments, being public authorities as defined, are received in the furtherance of the enterprise activities of the Trust, being a designated entity as defined. The payments received from the provincial governments are subject to VAT.
Therefore I find that section 11(2)(n) of the Act applies as the services rendered by the Trust qualify for the zero rate of VAT. The services rendered by the Trust comprise the activities listed in paragraph 1(e) of Government Notice 112 which provides:
"We/fare and Humanitarian
(e) The rescue or care ofpersons fn distress”
Section 11(2)(n) further provides that to the extent that the payment in respect of the services are made in terms of section 8(5) it is deemed that it is supplied to the particular provincial governments. Therefor these payments received by the Trust for the services should be subject to VAT at zero per cent in terms of section 11(2)(n).
I therefor make the following order:
Section 8(5) of the Value-Added Tax Act 89 of 1991 (as amended) (“the VAT Act”) applies not only to services deemed to be rendered but also to actual services rendered;
The services rendered by or on behalf of the SA RED CROSS AIR MERCY SERVICE TRUST to the various health departments of provincial governments situated within the Republic of South Africa should be zero rated in terms of section 11(2)(n) of the VAT Act;
2. That the Respondent be and is hereby ordered to pay the costs of
this application.
Judge C Pretorius
Case number
Matter heard on
For the Applicant
Instructed by
For the Defendant Instructed by
Date of Judgment
39219/2014
14 April 2015
Adv. PA Swanepoel
Edward Nathan Sonnenbergs Inc.
Adv. A Sholto-Douglas SC / Adv. M. Ncumisa State Attorney
6 May 2015