Page 779 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
In approaching the judgment the SCA con rmed various principles relating to tax disputes. The rst being that that the Tax Court is a court of revision and not of appeal in the strict sense, therefore it has to rehear the whole matter and can substitute the Commissioner’s decision for its own. It also held that the taxpayer’s ipse dixit, which in many instances in this case went unchallenged by SARS, will not lightly be regarded as decisive, but it must be considered together with all the other evidence in the case. The interests of justice require that the taxpayer’s evidence and questions of its credibility be considered with great care.
Furthermore, everything would depend upon the nature of the dispute between the parties as de ned by the grounds of assessment and the grounds of appeal. It was stressed that SARS is under an obligation throughout the assessment process leading up to the appeal and the appeal itself, to indicate clearly what matters and which documents are in dispute so that the taxpayer knows what is needed to present its case.
Held
Before dealing with the substantive matters, the SCA criticised SARS’ approach to the assessments as being fallacious. The SCA held that the raising of an additional assessment must be based on proper grounds for believing that, in the case of VAT, there has been an underdeclaration of supplies and hence of output tax, or an unjusti ed deduction of input tax. In the case of income tax it must be based on proper grounds for believing that there is undeclared income or a claim for a deduction or allowance that is unjusti ed. It is only in this way that SARS can engage the taxpayer in an administratively fair manner, as it is obliged to do. This is also the only basis upon which SARS can, as it must, provide grounds for raising the assessment to which the taxpayer must then respond by demonstrating that the assessment is wrong.
The SCA held that SARS is under an obligation throughout the assessment process leading up to the appeal and the appeal itself to indicate clearly what matters and which documents are in dispute so that the taxpayer knows what is needed to present its case.
The following substantive issues were raised on appeal by SARS and on cross-appeal by the taxpayer:
SARS’ Appeal
Input tax on the purchase of second-hand vehicles
SARS disallowed input VAT deductions on the basis that the taxpayer had not kept the necessary records as required by the VAT Act. The taxpayer contended that the relevant transactions fell into three categories which they had brought to the attention of the SARS auditor. The information was made available for inspection and a sample to be scrutinised by SARS. SARS’ auditors continued to treat all the transactions the same, which approach the SCA held to be untenable. In respect of two of the categories of transactions the court held that supplier declarations under s 20 (8) of the VAT Act, that were not retained by the taxpayer, was not a requirement to ful l the input tax requirements of s 16 (2) (a) of the VAT Act. It was held that the appeal by SARS in relation to this ground failed.
Fuel coupons
SARS disallowed income tax deductions claimed pertaining to the use of fuel coupons to obtain fuel for demonstration vehicles, delivery of vehicles or for other internal purposes. The taxpayer contended that the coupons were used as payment for the petrol and that all the underlying supporting documentation was made available to SARS, who chose not to peruse them. The court held that SARS did not reject the taxpayer’s account of the facts and merely did not respond. It was held that the appeal by SARS failed.
Parking rentals
SARS disallowed income tax and VAT input deductions in respect of rentals paid in cash to a landlord for additional parking which were not re ected on the invoice. The SCA held that the Tax Court had erred by merely addressing the purpose of the payments and not the onus pertaining thereto which the taxpayer had failed to discharge. Accordingly SARS’ appeals was upheld and referred for assessment by SARS.
Taxpayer’s Cross Appeal
Difference between VAT returns and VAT report and turnover liability
SARS assessed the taxpayer on the basis of the differences on the gross amounts identi ed between the VAT returns and VAT reports as well as the difference between the returns and turnover liability. The court dealt with the two grounds together as only a single assessed amount could result from the differences. The taxpayer contended that SARS’ methodology was awed in that it used the gross amounts which included amounts not subject to VAT and internal transactions that did not constitute a supply for VAT, which amounts SARS had ignored. The taxpayer’s evidence and calculations concluded that it had in fact overpaid VAT. SARS could also not explain how it established the turnover gure. After considering the submitted evidence the court upheld the taxpayer’s appeal for all the years but one where an underdeclaration of a lesser amount than submitted by SARS was evident and only such lesser difference referred back to SARS for reassessment.
The zero per cent VAT amounts
The taxpayer contended that certain vehicles were removed from regular or ‘ oor plan’ stock to be used as ‘demo vehicles’ or were sold to staff or directors. The nance underlying the vehicle had to be changed for such vehicles; it was effected in the records as an internal sale, but no VAT output resulted from this. The SCA held that output VAT must only be collected when there is a supply by a vendor in the furtherance of the enterprise of the taxpayer. The internal transactions, re ecting only a reallocation of existing assets, should have been disregarded and the SCA upheld the cross-appeal.
Sales at no consideration
According to SARS, a number of sales of vehicles by the taxpayer to third parties had apparently been effected at no consideration. SARS was of the opinion that the cancellation of a trade-in transaction should only result in output VAT
SAIT CompendIum oF TAx LegISLATIon VoLume 1 771
CASE DIGEST 2013-2014