DIESEL REBATES – GUIDANCE FROM THE SUPREME COURT OF APPEAL
21 Feb 2020
Farming is a qualifying activity under the Diesel Refund Scheme. Most farming enterprises will qualify to be registered for the Diesel Refund Scheme. The person carrying on the farming enterprise may, therefore, apply for registration with the Diesel Refund Scheme, provided the enterprise is registered for VAT.
In terms of section 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964 (the section):
“the Commissioner may investigate any application for a refund of such levies on distillate fuel to establish whether the fuel has been... (iii) delivered to the premises of the user and is being stored and used or has been used in accordance with the purpose declared on the application for registration…”
On 29 November 2019, the Supreme Court of Appeal (SCA), in a unanimous judgment in Commissioner for the South African Revenue Service v Langholm Farms (Pty) Ltd (1354/2018)  ZASCA 163, provided guidance on the interpretation of the section.
Langholm Farms (Pty) Ltd (Langholm) operates a pineapple growing enterprise and delivers the fruit, using its own trucks, to a factory in East London for further processing. The trucks that are used for the transportation of the fruit to the factory are not refuelled on Langholm’s farm. After a diesel rebate audit was conducted by SARS on Langholm’s operations, they issued Langholm with a “Notice of intention to assess”, based on the following contentions:
- The diesel used by Langholm for the transportation of the fruit was ‘non-eligible usage’ because they were of the opinion that a rebate could only be claimed in respect of diesel delivered, stored and dispensed from storage tanks situated on Langholm’s premises, which was not the case; and
- SARS was of the opinion that the carting of the storage bins on the return journey from the factory’s premises to the farm was not a primary production activity
Without formally responding to SARS’s contentions, Langholm successfully approached the high court for a declaratory order that it is eligible for diesel rebate claims under the section when its trucks are refuelled at the Bathurst Co-op in East London.
Langholm interpreted the word ‘used’ in the section to mean either used on the premises or used elsewhere under schedule 6 of the Customs and Excise Act. Simply put, the case of Langholm is that ‘stored and used’ and ‘has been used’ refer to two different usages. One usage, they contend, is usage on the premises while the other is usage off the premises.
In considering this interpretation, the SCA confirms the statutory interpretation of rules in a South African context:
“A statute must be interpreted in line with ordinary rules of grammar and syntax taking cognisance of the context and purpose thereof. That approach is equally applicable to a taxing statute.”
The court finds that a plain reading of the statute does not allow for the interpretation that Langholm seeks. The language of the section is clear and unequivocal and there is nothing in the context to suggest that any departure is warranted from the words used. As a result, the court finds that the section means that a taxpayer can only claim a refund for the diesel fuel stored and used on its own premises. The declaratory orders (by the high court) were, thus, granted on a mistaken view of the law.
Gerhard van Graan (firstname.lastname@example.org / 082 900 4441)
Herman Nieuwoudt (email@example.com / 083 864 0654)