Annandale Farms case – A useful judgement to bear in mind

The route taken by Shell in this case might be the answer to the problems faced by many taxpayers.

Peter O’Halloran - Tax advice

Although the ‘Annandale Farms judgement’, involving Shell and SARS, was delivered in 2000, it remains valid, especially as many farmers currently believe they are being ‘unreasonably’ targeted by SARS.

In the Annandale Farms case, Shell acted as a lessor of agricultural land. The Cape Town Provincial Administration then bought the land to build low-cost housing.

After an interval, SARS issued an assessment, raising VAT upon the income received by Shell. In response, Shell contended that the expropriation of land did not involve the supply of goods and services by it and that, therefore, Section 7(1)(a) of the VAT Act was not applicable.

Invariably, taxpayers who disagree with SARS lodge objections and then appeals if the objections fail. In this instance, however, Shell went directly to the High Court for a declaratory order. (A declaratory order is sought when there is doubt as to the legal rights of parties.)

The Court held that there were indications in the VAT Act that appeared to employ an active, rather than passive, meaning of the word ‘supply’, and that VAT could only be levied in the event of a ‘supply’ undertaken in the course of any enterprise carried on by a vendor.

However, no such ‘action’ was involved on the part of a vendor whose land is expropriated. In fact, the Expropriation Act makes it clear that ownership of the property changes from the date of expropriation.

In addition, Shell’s application for a declaratory order was opposed by SARS. It claimed the taxpayer was precluded from approaching the High Court for a declaratory order in this instance, as the VAT Act provided a comprehensive system for objections and disputes.

Thankfully, the Court held that it had discretion in the matter and that there was a real dispute, rather than an academic type question. It, therefore, ruled in favour of the taxpayer, saving much time and expense.

The actions of SARS in these times are often perplexing. Taxpayers’ resources are spent in trying to resolve disputes that seem to arise in consecutive years. The route taken by Shell in this matter might be the answer to the problems faced by taxpayers. Note, however, that the Court has discretion to refuse to entertain such an application.

To get before the Court, the reason for the application must be valid and well motivated.