THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 816/2015
In the matter between:

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE

APPELLANT

and

ALAN GEORGE MARSHALL NO

FIRST RESPONDENT
RENE PIETER DE WET NO

SECOND RESPONDENT
KNOWLEDGE LWAZI MBOYI NO

THIRD RESPONDENT
JOHN ANDREW DE MARTIN NO

FOURTH RESPONDENT
RAY SIPHOSOMHLE SITHEMBELE
MSENGANA NO

FIFTH RESPONDENT
KOVIN SHUNMUGAM NAIDOO

SIXTH RESPONDENT
SAMSON MAKHUDU GULUBE

SEVENTH RESPONDENT
(in their capacities, nomine officii, as current and duly authorised trustees of
the SA RED CROSS AIR MERCY SERVICE TRUST)

Neutral Citation:
CSARS v Marshall NO (816/2015) [2016] ZASCA 158 (3
October 2016).
Coram:
Navsa, Bosielo, Dambuza and Van der Merwe JJA and
Makgoka AJA
Heard:

26 August 2016
Delivered:

3 October 2016

Summary: Value Added Tax: whether actual supply of goods and services by a
designated entity to a public authority and a „deemed‟ supply of services under s 8(5)
of the Value Added Tax Act 89 of 1991: whether payment received by a designated
entity from a public authority in respect of such supply is zero-rated under s 11(2)(n)
of the Act : section 8(5) of the VAT Act does not apply to actual supply of services :
payment received is not zero-rated under s 11(2)(n).

___________________________________________________________________

ORDER
___________________________________________________________________

On appeal from:  Gauteng Division of the High Court, Pretoria (Pretorius J, sitting
as court of first instance):
1 The appeal is upheld with costs, such costs to include the costs consequent upon
the employment of two counsel.
2 The order of the court a quo is set aside and replaced with the following:
„The application is dismissed with costs‟.
___________________________________________________________________

JUDGMENT
___________________________________________________________________

Dambuza JA (Navsa, Bosielo, Van der Merwe JJA et Makgoka AJA
concurring):

[1] This appeal involves the interpretation of certain provisions of the Value
Added Tax Act 89 of 1991 (the VAT Act). The question at the heart of this appeal is
whether the aero-medical services supplied by the respondent to provincial health
departments, the details of which are set out later, are a „deemed supply‟ of services
in terms of the provisions of s 8(5) of the VAT Act and whether payments received in
respect thereof thus qualify to be zero rated in terms of s 11(2)(n) of the VAT Act.
The Gauteng Division of the High Court, Pretoria (Pretorius J), granted an order
declaring that such payments qualified for a zero-rating. This appeal is with leave of
the court a quo.

[2] The appellant is the Commissioner for the South African Revenue Services
(the Commissioner). The respondents are the seven trustees of the South African
Red Cross Air Mercy Service Trust (the Trust) which is a non-profit organisation that
is an approved public benefit organisation (PBO) in terms of s 30 of the Income Tax
Act 58 of 1962 (the Income Tax Act). Its receipts and accruals are exempt from

income tax in terms of s 10(1)(cN) of the Income Tax Act. It is registered for value
added tax (VAT) as a vendor in terms of the VAT Act.1

[3] The Trust provides an aero-medical service within the country. This service,
which it has rendered since 1994, consists of a flying doctor and rural health
outreach service, an air ambulance service, and a rescue service. In 2006 the Trust
concluded a written agreement (the aeromedical contract) with the Department of
Health of the Western Cape Provincial Government. It also concluded similar
agreements with other provincial government health departments within the country.
In terms of these agreements the Trust renders, on behalf of the provincial health
departments, a „comprehensive aero-medical service‟. The service entails providing,
amongst other things, specialised intensive care, support and transfer of patients to
and from hospitals, medical rescue services, air ambulance services and training
and support to health workers.

[4] As consideration for the services rendered the provincial governments pays
the Trust in terms of a schedule of tariff that specifies a „monthly availability fee for
three aircraft‟ in the amount of R900 000, a „kilometre rate of R8.26 for [a] fixed wing
aircraft‟ and an „hourly rate of R4 446 for [a] rotary wing aircraft‟ for each flight
undertaken as part of the service rendered under the contract.

[5] On 30 October 2012 the Trust applied to the Commissioner, in terms of s 41B
of the VAT Act2, for a binding private VAT ruling to be issued, clarifying the class of
payments it received from the provincial departments of health for the services it
rendered on their behalf. The Trust was of the view that these payments qualified for
a VAT zero-rating under s 11(2)(n) of the VAT Act.3 I deal with the relevant statutory
provisions later in this judgment.

1 In terms of s 1(1) of the VAT Act a vendor is any person who is or is required to be registered under
the VAT Act.
2 Under s 41B the Commissioner may issue a VAT class ruling or a VAT ruling which, in applying the
provisions of Chapter 7 of the Tax Administration Act 28 of 2011, must be dealt with as if it were a
binding class ruling, or a binding private ruling. (In the same section “VAT class ruling” is defined as a
written statement issued by the Commissioner to a class of vendors or persons regarding the
interpretation or application of this Act, and a “VAT ruling” is a written statement issued by the
Commissioner to a person regarding the interpretation or application of the VAT Act.)
3 Where a taxable supply is taxed at the rate of 0%, no output tax is charged, but the vendor obtains a
full deduction for the tax payable by him on all goods and services acquired and utilised by him in

[6] The reasoning of the Trust was that because it was a welfare organisation as
defined in s 1 of the VAT Act, and as such was a „designated entity‟, as also defined
in s 1 of the VAT Act, and because the services it rendered to the provincial health
departments were in that capacity, it qualified for the exemption provided for by
s 11(2(n) of the VAT Act. The logical conclusion, so it was contended, was that the
services supplied by the Trust were „deemed services‟ under s 8(5) of the VAT Act
which qualified to be zero rated in terms of s11(2)(n).

[7] The Commissioner took a different view. Pursuant to the application by the
Trust, referred to in para 6 above, he issued a binding private ruling in terms of s 41B
of the VAT Act, stating that the services rendered by the Trust to the provincial
health departments were „actual‟ services rather than „deemed‟ services. They fell
outside the provisions of s 8(5) of the VAT Act and were subject to VAT at the
standard rate of 14 per cent in terms of s 7(1)(a) of the VAT Act. The Commissioner
stated that the provisions of s 8(5) of the VAT Act providing for the deeming of a
supply of services only applied to instances where designated entities received
payments which were not made in consideration for the actual supply of goods and
services.

[8] Before us it was common cause that before the ruling referred to in the
preceding paragraph was applied for, the Trust had paid VAT on the remuneration
received from the health departments for services supplied by it and had claimed
deductions for VAT inputs in relations to those services. The services rendered by
the Trust appear in the list of activities published by the Minister of Finance.4 It was
not in dispute that the Trust is a welfare organisation.

[9] Aggrieved at the ruling, the Trust launched an application in the Gauteng
Division of the High Court, Pretoria, seeking a declaratory order in the following
terms:
„1.1
Section 8(5) of the Value-Added Tax Act 89 of 1991 . . . applies not only to services
deemed to be rendered but also to actual services rendered;

making the supply. (See Chris Beneke (ed) Deloitte & Touche: VAT Handbook 4 ed (1997) para
2.6.2.)
4 Determination of Welfare Activities for Purposes of the Definition of „Welfare Organisation‟ in Section
1 of the Value-Added Tax Act 89 of 1991, GN 112, GG 27235, 11 February 2005.

1.2
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; . . . .‟

[10] The court a quo found in favour of the Trust and granted the order sought.
The following are the important paragraphs in the judgment of the court below:
‟35.
I have listened to and read all the arguments of both parties, but I cannot find that I
agree with the [Commissioner‟s] argument that “deem” in section 8(5) means that this
section does not deal with actual services. The payment received by the Trust from 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.
36.
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:
“Welfare and Humanitarian
(e)
The rescue or care of persons in distress”
37.
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. Therefore 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).‟

[11] Before us counsel for the Commissioner submitted that the provisions of
s 8(5) apply only in respect of unrequited or gratuitous payments made by a public
authority5 or municipality to a designated entity. These would be payments received
as donations, subsidies and grants. He submitted that the provisions of s 8(5) do not
apply in respect of services actually rendered by a designated entity and that
payments received by a designated entity from a public authority or municipality for
such services constitute „consideration‟6 for taxable supplies in terms of s 7(1)(a)  of
the VAT Act. VAT was therefore payable at the standard rate.

5 A public authority includes all departments or divisions listed in schedules 1, 2 and 3 of the Public
Service Act, 1994, and the public entities listed in Part A or C of Schedule 3 to the Public Finance
Management Act 1 of 1999, as well as entities designated by the Minister for the purposes of the VAT
Act as such.
6 Under s 1 of the VAT Act „consideration‟ in relation to supply of goods or services to any person,
includes any payment made or to be made (including any deposit on any returnable container and

[12] Counsel for the Trust submitted that to limit the application of s 8(5) to
unrequited or gratuitous payments as contended for by the Commissioner militated
against the clear wording of s 8(5), particularly the words „any payment‟ and more
specifically the word „any‟ as a word of „wide and unqualified generality‟. He argued
that the legislature must have intended that the deeming provision (s 8(5)) be
applicable in respect of all payments received by a designated entity from a public
authority or municipality. He also submitted that the submission on behalf of the
Commissioner misconstrued the definition of „consideration‟. Further, that if the
legislature had intended to limit the application of s 8(5) to grants and subsidies,
which are defined in the VAT Act, it would have expressed itself accordingly.
Underpinning the submissions on behalf of the Trust was the argument that the
purpose of s 8(5) was to enable public authorities to claim input tax under s 16(3)(a)
of the VAT Act.7 This purpose would be undermined if the argument on behalf of the
Commissioner is upheld.

[13] The Trust also contended that s 8(5) was intended to dispel possible
confusion as to the end consumers of the services rendered by it. This argument is
drawn from the definition of the word „recipient‟ in the VAT Act which, „in relation to
any supply of goods or services, means the person to whom the supply is made‟.
The submission on behalf of the Trust is that, on this definition, the communities who
are the ultimate beneficiaries of the services rendered by the Trust could be viewed
as the persons to whom the Trust renders the services. And should there be such
confusion the public authority could be denied the deduction of input tax. Section
8(5), so it was submitted, addressed this problem by deeming the services to be
supplied by the designated entity to the public authority or municipality and not to the
communities.

[14] To further bolster its submissions the Trust referred to the following
explanatory memorandum issued by SARS in respect of the Revenue Laws
Amendment Act 45 of 2003:

tax), whether in money or otherwise, or any act of forbearance, whether or not voluntary, in respect of,
or in response to, or for the inducement of the supply of any goods or services, whether by that
person or by any other person, but does not include any payment made by any person as a donation
to any association not for gain.
7 Section 16 relates to the calculation of VAT payable in various instances.

„The proposed amendment to section 8(5) places it beyond doubt that any payment made by
a public authority or local authority to a “designated entity” in respect of the taxable supply of
goods and services is a payment for the supply of services.8

[15] The Trust argued that in terms of s 8(5), (i) services supplied to persons in
distress and (ii) goods actually supplied to a public authority, are deemed to be
services supplied to a public authority. I may as well indicate, at this early stage, that
in my judgment the argument is flawed and self-destructive. First, as I have said, in
this matter the services were rendered to the provincial health departments
themselves in terms of written agreements. Second, there is no discernible reason
for the actual supply of goods to be deemed to be a supply of services. And finally,
on the Trust‟s own argument, services actually supplied to the public authority, are
not deemed to be anything other than what they actually are, and can therefore not
be zero-rated in terms of s 11(2)(n).

[16] It is necessary to set out the legal framework within which these contentions
by the parties should be viewed. VAT is a broad-based indirect tax applicable in
respect of a wide range of goods and services supplied by vendors within the
Republic. Unlike its predecessor, the general sales tax, which collected the tax at
one stage, when the commodity or service was supplied for final use or
consumption, VAT is collected in instalments at each stage in the production and
distribution chain. The liability to charge VAT arises each time a taxable transaction
is carried out by a vendor and does not depend on the profitability or outcome of the
transaction because VAT is not a tax on business profits or turnover, but on
consumption.9

[17] A registered vendor pays VAT, but the amount so paid is ultimately passed on
to the end consumer. Each time a vendor invoices a customer, the vendor claims a
credit for the VAT previously invoiced to it. The VAT paid by the vendor is deducted
from the amount of tax charged and, ultimately, the vendor is liable only for the
difference between its output tax10 and the consumer‟s input tax.11

8 Explanatory Memorandum on the Revenue Laws Amendment Bill, 2003 at 109.
9 See the title on „Revenue‟ by G C Palmer in 22 (Part 2) Lawsa 2 ed para 137.
10 „Output tax‟ is defined in s 1 of the VAT Act as the tax which is levied when a vendor supplies
goods and services in the course of conducting any enterprise.

[18] The VAT Act regulates taxation in respect of the supply of goods and services
and importation of goods and services within the country.12 The vast majority of
transactions relating to supply, by a vendor, of goods or services, fall within the
scope of s 7(1) of the VAT Act. This is because the definition of „supply‟ in s 1 of the
VAT Act includes a very wide range of transactions.

[19] Section 7(1)(a) of the VAT Act provides:
‘7 Imposition of value-added tax
(1) Subject to the exemptions, exceptions, deductions and adjustments provided for in this
Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be
known as the value-added tax-
(a)   on the supply by any vendor of goods or services supplied by him on or after the
commencement date in the course or furtherance of any enterprise carried on by him;
. . .
calculated at the rate of 14 per cent on the value of the supply concerned or importation, as
the case may be.‟

[20] Under s 1 of the VAT Act, „supply‟ includes:
„performance in terms of a sale, rental agreement, instalment credit agreement and all other
forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where
the supply is effected. . . .‟
It is in terms of the exceptions or qualifications referred to in s 7(1) that the Trust
seeks zero-rating of payments received by it from the provincial health departments.

[21] Linked to the exemptions, exceptions and deductions provided for in s 7, s 8
deems goods or services to have been supplied in certain circumstances. Of
relevance to this appeal is s 8(5) which provides that:
„For the purposes of this Act a designated entity shall be deemed to supply services
to any public authority or municipality to the extent of any payment made by the public
authority or municipality concerned to or on behalf of that designated entity in the course or
furtherance of an enterprise carried on by that designated entity.‟

11 Input tax is the tax payable by a vendor when goods or services are acquired by him wholly for the
purpose of consumption, use or supply in the course of making taxable supplies (see s 1 of the VAT
Act).
12 Section 7 of the VAT Act.

[22] Section 11(2)(n) of the VAT Act provides for zero-rating of VAT payable in
respect of certain payments received for the deemed supply of services provided for
in s 8(5). The section provides that:
„(2) Where, but for this section, a supply of services . . . would be charged with tax at the rate
referred to in section 7 (1), such supply of services shall, subject to compliance with
subsection (3) of this section, be charged with tax at the rate of zero per cent where-
. . .
(n) the services comprise the carrying on by a welfare organisation of the activities
referred to in the definition of 'welfare organisation' in section 1 and to the extent that
any payment in respect of those services is made in terms of section 8 (5) those
services shall be deemed to be supplied by that organisation to a public authority or
municipality;‟13

[23] Section 8(5) therefore is the gateway to a zero rating under s 11(2)(n). Under
s 11(2)(n) a zero-rating will be granted if the services constitute the carrying on of
activities of a welfare organisation by a welfare organisation and the services are a
deemed supply to a public authority in terms of s 8(5).

[24] As already stated, it was common cause that the Trust is a welfare
organisation. The issue was whether its supply of services was a deemed service
under s 8(5). The principles applicable in the process of ascertaining the meaning of
legislative provisions have been repeatedly stated by this court. It is settled law that
the process entails attributing meaning to the relevant statutory provision, in the light
of the language used, the context in which the provision is set, including the material
known to the drafters, and the purpose which the provision is intended to serve.
These factors are not mutually exclusive. See Natal Joint Municipal Pension Fund v
Endumeni Municipality.14

[25] The contention by the Trust that the words „any payment‟ must be given a
literal meaning to the exclusion of the remaining words of s 8(5) is untenable. It is

13 Subsection 3 relates to keeping of documentary proof by a vendor where a zero per cent rate has
been applied to substantiate its entitlement to apply such a rate.
14 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593
(SCA) para 18.

inconsistent with the established approach to interpretation of documents. It ignores
the distinction between the actual supply of goods and services catered for by
s 7(1)(a) and the deemed supply of services as provided for in s 8(5). In Chotabhai v
Union Government,15 this court said the following at 33:
„The use of the word “deemed” was perhaps not a happy one, because that term
may be employed to denote merely that the person or things to which it relates are to be
considered to be what they really are not, without in any way curtailing the operation of a
Statute in respect of other persons or things falling within the ordinary meaning of the
language used. If the word were so employed, the result would be artificially to extend the
scope of the expression referred to, without attempting to define it.‟
As contended by the Commissioner, the word „deemed‟ is primarily appropriate when
it is intended to imbue a person or thing with features or qualities he or it does not, in
reality, have. The word is not appropriate when the person or thing actually has
those features.

[26] The supply of goods and services by the Trust to the provincial health
department constituted „performance‟ in terms of the written agreement. The
payments received were fees charged in terms of the tariff set out in the agreement.
As submitted on behalf of the Commissioner, it is only where a payment cannot be
linked to any performance on such basis that it becomes necessary to „deem‟ it to be
provided in terms of s 8(5).

[27] The use of the undefined word „payment‟ in s 8(5) is not coincidental. The
legislature must have intended to distinguish the „payment‟ contemplated in s 8(5)
from „consideration‟ which is defined s 1, in relation to a supply of goods and
services, as including any payment made „in respect of, or in response to, or for the
inducement of, the supply of any goods or services‟. The legislature must have
intended that the „payment‟ contemplated in s 8(5) would be an unrequited payment
such as a grant, subsidy or a donation to a designated entity.

[28] Under s 1 of the VAT Act, a grant is defined as:

15 Chotabhai v Union Government (Minister of Justice) and Registrar of Asiatics 1911 AD 13.

„any appropriation, grant in aid, subsidy or contribution transferred, granted or paid to a
vendor by a public authority, local authority or constitutional institution listed in Schedule 1 to
the Public Finance Management Act, 1999 (Act 1 of 1999), but does not include-
(a) a payment made for the supply of any goods or services to that public authority or
municipality, including all goods or services supplied to a public authority,
municipality or constitutional institution listed in Schedule 1 to the Public Finance
Management Act, 1999 (Act 1 of 1999) in accordance with a procurement
process prescribed-
(i)
in terms of the Regulations issued under section 76(4)(c) of the Public
Finance Management Act, 1999 (Act 1 of 1999); or
(ii)
in terms of Chapter 11 of the Local Government: Municipal Finance
Management Act, 2003 (Act 56 of 2003), or any other similar process;
or
(b) A payment contemplated in section 8 (23); . . . .‟

[29] A „donation‟ is defined in s 1 of the VAT Act as:
„a payment whether in money or otherwise voluntarily made to any association not for gain
for the carrying on or the carrying out of the purposes of that association and in respect of
which no identifiable direct valuable benefit arises or may arise in the form of a supply of
goods or services to the person making that payment to any other person who is a
connected person in relation to the person making the payment, but does not include any
payment made by a public authority or local municipality.‟

[30] It will be seen that the common feature between these two terms is the
absence of a (commensurate) direct benefit. In using the term „payment‟, the
legislature must have intended the provisions of s 8(5) to be applicable in respect of
these sorts of payment.

[31] The various aspects of the argument made by the Trust are addressed in
Interpretation Note 39, issued by SARS on 8 February 2013. The Interpretation Note
sets out the VAT treatment of public authorities prior to and after April 2005. It
explains the rationale behind the current wording and application of sections of the
VAT Act. The Note says the following about actual and deemed supply of goods and
services (para 2.1 at 5):

„When a public authority or municipality acquires goods from a vendor, it is normally
quite clear that an actual taxable supply is made in terms of section 7(1)(a) and there is no
need to apply any deeming provision. However, when a third party becomes involved, the
position becomes unclear. For example, when a public authority pays for a specific supply of
goods or services made by a vendor to a third party, a question arises as to whether the
supply is made to the person making payment, or the person receiving the supply.‟
The Note continues (para 4.6 at 21):
„Part of the uncertainty in regard to the application of section 8(5) was that some
vendors adopted the view that as long as the payment came from a public or local authority,
the receipt was subject to VAT at the zero rate. This view was contrary to the meaning of a
“transfer payment” being unrequited financial support to cover the capital and operational
expenses of certain businesses that make taxable supplies which government regarded as
worthy of this support, or which was required by government subsidy programmes. It was
never intended as a way of extending the zero-rating provisions of section 11.‟
In terms of the agreement for the supply of aero-medical services, the services were
to be rendered to the provincial health departments. That much is clear from clause
7 of the agreement under the heading „Obligations of the parties‟.

[32] As to the VAT treatment of public authorities and public entities on or after 1
April 2005 in relation to the supply of goods and services the Interpretation Note
explains that (para 2.2 at 6):
„Certain public entities which conduct enterprises, as well as welfare organisations
and public private partnerships (PPPs) which make taxable supplies, fall within the definition
of “designated entity”. If a designated entity receives any payment from a public authority,
municipality or constitutional institution, it is deemed to supply a taxable service in terms of
section 8(5) to that entity (provided that there is no actual supply in terms of section 7(1)(a)
to which that payment relates). The deemed supply is generally taxable at the standard rate,
unless the payment is in respect of exempt supplies (e.g. financial services). This is to
ensure that entities in which government has an interest do not have an unfair competitive
advantage over other vendors participating in the market for the goods or services
concerned. However, where a designated entity receives a training grant from a Sectoral
Education Training Authority (SETA), or where the grant recipient is a “welfare organisation”,
the deemed supply to which that payment relates is taxed at the zero rate.‟

[33] The Interpretation Note says the following regarding the position of welfare
organisations (para 2.9 at 8):
„A welfare organisation is also a “designated entity”, but the zero-rate applies in this
case to unrequited payments which it receives from any public authority, constitutional
institution or municipality, if it does not constitute consideration for a taxable supply in terms
of section 7(1)(a).‟
These Interpretation Notes, though not binding on the courts or a taxpayer,
constitute persuasive explanations in relation to the interpretation and application of
the statutory provision in question.16 Interpretation Note 39 has been in circulation for
years and has not been brought into contention until now.

[34] In summary, the scheme of the VAT Act is such that generally, the supply of
goods and services attracts an obligation to pay VAT at the standard rate of 14 per
cent. In certain instances a zero VAT rating is applicable where payment is not linked
to an actual supply of goods and services. The deeming provision operates to create
an imagined supply of goods and services, which may qualify for a zero rating.
Already, grants and subsidies provide a substantial incentive for PBOs to supply
goods and services on behalf of public authorities. Zero rating is the most favourable
treatment for any transaction in the VAT system. Vendors making zero rated
supplies are usually owed refunds by SARS.17 There is no conceivable reason why,
where PBO‟s engage in commercial activities they should be treated differently from
other commercial entities.

[35] It is clear from the above discussion that payment received by a designated
entity such as the Trust in this case, from a public authority such as a provincial
health department, for actual supply of services taxable under s 7(1)(a) of the VAT
Act, fall outside the scope of s 8(5). Therefore the deeming provision is not
applicable to them and they do not qualify for zero-rating under s 11(2)(n). To hold
otherwise would be to do violence to the fundamental architecture of the VAT Act,
create uncertainty and impact negatively on the fiscus and its ability to assist the
government in service delivery.

16 See eg AP de Koker and RC Williams Silke on South African Income Tax [Service Issue 57, 2016]
at § 18.270; and David Meyerowitz Meyerowitz on Income Tax 2007-2008 (2008) para 3.4.
17 Chris Beneke (ed) (supra) para 2.6.2.

[36] In the result:
1.
The appeal is upheld with costs, such costs to include the costs consequent
upon the use of two counsel.
2.
The order of the court a quo is set aside and is replaced with the following:
„The application is dismissed with costs‟.

________________
N Dambuza
Judge of Appeal

Appearances:

For the Appellant:

A R Sholto-Douglas SC (and H Cassim)

Instructed by:

Mothle Jooma Sabdia Inc, Pretoria

Webbers Attorneys, Bloemfontein

For the Respondents:

P J J Marais SC (and P A Swanepoel)

Instructed by:

Edward Nathan Sonnenbergs, Sandton

Honey Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

September 2016

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

CSARS v Marshall NO (816/2015) [2016] ZASCA 158 (3 October 2016).

MEDIA STATEMENT

Today the Supreme Court of Appeal handed down a judgment overturning an order
of the Gauteng High Court, Pretoria, declaring certain payments received by the SA
Red Cross Air Mercy Service Trust from various provincial health departments
around the country were declared to be zero rated for VAT purposes.

The Trust is a welfare organisation. In 2006 it concluded an agreement with the
Western Cape Health Department in terms of which it was to render a
‘comprehensive aero-medical service’. This service entails providing, amongst other
things, specialised intensive care service, support and transfer of patients to and
from hospitals, medical rescue services, air ambulance services and training and
support to health care workers. The Western Cape Health Department would pay for
the services at a rate determined in terms of an agreed schedule of tariff that
specifies a monthly availability fee of R900 00 for three aircraft, a kilometre rate of
R8.26 for a fixed wing aircraft and an hourly rate of R4 446 for a rotary wing aircraft.
Subsequent to 2006 the Trust included similar agreements with other provincial
health departments within the country.

In October 2012 the Trust applied to the Commissioner for the South African
Revenue Service for a ruling to be issued, declaring the payments received by it
from the government to be zero rated.

The application for the ruling was purportedly made in terms of section 8(5) of the
VAT Act which provides for the deeming of a supply of services in certain
circumstances. The Commissioner refused to give the ruling applied for, instead he
ruled that the services supplied by the Trust to the provincial health departments
were ‘actual services’ and could therefore not be regarded as ‘deemed services’.
The Trust then approached the High Court, seeking an order in the terms it had
proposed to the Commissioner. The high court granted an order accordingly. This
meant that payments received by the Trust from the provincial health departments
were to be in respect of deemed services and as such, were zero rated for VAT
purposes under s 8(5) of the VAT Act.

In overturning the order of the high court the Supreme Court of Appeal held that on
the Trust’s own argument the services were actually supplied to the health
departments. They could therefore not be deemed to have been supplied. Further,
the payments received were for the services actually supplied in terms of the written
agreements. The court held that the deeming provision is only applicable in respect
of subsidies and grants or gratuitous payments. Where the Trust engages payment
in consideration for services actually rendered there was no basis for a zero-rating of
the taxable supplies.

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