There have been two cases recently which raise interesting conundrums when a taxpayer is engaged in litigating with the South African Revenue Service (SARS).

In case number VAT 399 heard before the Tax Court sitting at Megawatt Park, SARS had issued an assessment relating to a VAT input credit (reported on SARS' website). The taxpayer was a Property Fund listed on the JSE. It had raised capital on the Exchange, and had initially claimed an input credit on the promoter's fee it had been charged for creating and issuing the linked units and buying the rental producing properties.

Some six months later, the taxpayer reversed the input credit claim, and apportioned that input credit, treating some of the expenditure as pertaining to the creating and issuing of the linked units and the balance to the purchase of the properties (and therefore pertaining to the furtherance of making taxable supplies).

The assessment was issued on the basis of the original input credit claim; there was confusion about the taxpayer's reversing that position and only subsequently claiming an input credit of R1,3 million.

The court found that there was actually no dispute between SARS and the taxpayer: that the taxpayer had fully repaid the original input credit claim, and the subsequent R1,3 million was not in dispute based on the Rule 10 and 11 pleadings.

The court arrived at an interesting conclusion as to how one claims an input credit.

Relying on section 16(3) of the VAT Act, one must deduct the input tax from the sum of the output tax for that period. You cannot note on the side of the return that you are claiming such. If you did not claim it on the return, then it cannot be said that such amount was properly claimed.

The correspondence did not serve to put the issue in dispute. So the matter was removed from the roll. It appears that you must claim the input credit on the return, and leave it for SARS to ascertain whether it wants to disallow the input.

In the Supreme Court of Appeal, the case of Sprigg Investments 117 cc was delivered on 1 December 2010 ([2010] ZASCA 172). This was a matter appealed by SARS from the Tax Court sitting in Cape Town.

The Tax Court had ordered SARS to furnish the taxpayer with adequate reasons for assessments for PAYE, VAT and income tax. When one gets into the body of Maya JA's judgment, the core problem in the matter was that the Tax Court had not been properly constituted. Thus the judgment being appealed to Bloemfontein was not a valid decision. Moreover, the highest court felt the judgment in the Tax Court had been poorly reasoned. Yet a decision of an improperly constituted court gets appealed directly to the highest court in terms of section 86A?

Legally this is competent, but is it an appropriate use of SARS resources? But here was a real sting in the tail - the Supreme Court of Appeal held that the original matter should be struck from the roll. Because the taxpayer's original application for adequate reasons was held to be "mischievous" and costs were awarded against the taxpayer. The taxpayer (or his advisers) had better be careful what you ask a Tax Court for.

Written by Alastair Morphet, Director, Tax, Cliffe Dekker Hofmeyr