SARS is at the moment carrying out wide-spread diesel rebate audits in the mining sector.
On completion of such an audit the mining company usually receives a 'Letter of audit findings' to which it must respond. Where SARS disputes the mining company's entitlement to the rebates claimed, SARS threatens an adjustment in relation to so-called 'ineligible purchases' under s75(1A) of the Customs and Excise Act, No 91 of 1964 (Customs Act) read with Schedule 6/Part 3. SARS furthermore indicates that additional tax (potentially 200%) might be imposed in terms of s60(1) of the Value-Added Tax Act, Act No 89 of 1991 (VAT Act) and that, in addition, forfeiture could be applied under s75(4A)(h)(i) of the Customs Act.
It appears that SARS' application of the diesel rebate provisions follows a 'black letter' approach, that is the provisions of the Customs Act and the Schedule governing the diesel rebate regime are applied literally. This flies in the face of the case BP Southern Africa (Pty) Ltd v Secretary for Customs and Excise and Another  1 All SA 398 (A), which specifically dealt with the interpretation of the Customs Act and its regulations. Van Heerden JA held that "... I have little doubt that it could not have been the intention to grant a rebate subject to compliance with each and every provision of the Act and the regulations". The BP case thus suggests a practical purposive approach rather than a 'tick box' mentality when it comes to policing the requirements of the diesel rebate scheme.
Causing particular difficulty is the requirement that diesel rebate claims can only be made "by a person who is in possession of the necessary authorisation granted in terms of the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002)". The question here pertains to the exact nature of the 'necessary authorisation' that is statutorily required under Schedule 6/Part 3/Note 6 (b)(iii), including the exact circumstances under which such 'authorisation' should be required for diesel rebate purposes. Our discussions with SARS confirm that it interprets the 'necessary authorisation' requirement to mean that the person/entity claiming the diesel rebates should also be the exact same person/entity in whose name such 'authorisation' had been issued under the MPRDA (previously under the Minerals Act).
When it comes to additional tax and forfeiture SARS regards the claimant as having "...falsely applied for such refund or who uses or disposes of such fuel contrary to such provisions". It appears that SARS is relying on s75(4A)(h)(i) and (ii) of the Customs Act when it comes to imposing additional tax and applying forfeiture.
The meaning of 'falsely' in the above-mentioned section is crucial taking into account the magnitude of the potential additional tax and forfeiture amounts we have seen recently.
In Commissioner of the South African Revenue Service v Formalito (Pty) Ltd  4 All SA 16 (SCA) the SCA considered the meaning of 'false'. It held that: " ...'false' must mean untrue to the knowledge of the maker of the statement."
The above means that the diesel rebate claimant should have been subjectively aware that his/its actions amounted to deception/fraud in order to obtain rebates to which he/it was not entitled. An allegation of 'falsely applied' consequently requires of SARS to show that the claimant had the intent to fraudulently obtain the disputed diesel rebates. Each case will of course depend on its specific facts.
The SCA also dealt in the Formalito case with forfeiture in the context of SARS' own policies on that score. The SCA held: "Had those guidelines been invoked the penalty in this case would have been less than twenty percent of the value of that actually declared forfeit by SARS. A deviation to that extent from its own policy by SARS is grossly unreasonable."
SARS on its website under "Customs Offences" distinguishes between 'Administrative Offences', 'Less Serious Offences' and 'Serious Offences'. In respect of 'serious offences' it states that these are "offences where there is evidence of intentional conduct by the declarant to achieve a specific objective, vis., the smuggling of goods and / or the evasion of duty, knowing that the conduct, action or declaration is unlawful. Gross negligence on behalf of the declarant." The afore-mentioned website information is accordingly in line with the Formalito case.
The Formalito case and SARS' own policy guidance indicate that forfeiture in relation to disputed diesel rebate claims should be the exception rather than the rule. Unfortunately one sees forfeiture being threatened in virtually all disputed diesel rebate matters.
SARS calculates the potential forfeiture amount using the then - prevailing retail price in respect of all 'ineligible purchases' of diesel. In one matter the diesel rebate adjustment amounted to R5,7 million. However, the 25% penalty amounted to R1,4 million and the s88(2)(a) forfeiture amount was R41,2 million. The claimant's total liability came to almost tenfold the value of the disputed diesel rebates.
Ironically, there is a document on the SARS website stating that "Customs do not impose penalties as a source of revenue for the State but is merely a measure to ensure compliance with the law". No wonder a recent press article referred to SARS' diesel rebate audits as a 'blitzkrieg' and 'extortionist tactics'.
The Commissioner himself in January this year made the following statement in an interview: "At the same time though, we are also in unison that we must work together to make it difficult for non-compliant local and international taxpayers who subscribe to the principle of paying tax to the letter of the law rather than to the spirit of the law."
Unfortunately, thus far diesel rebate claimants in the mining sector have only seen the letter of the law – the spirit of the law remains elusive.
Written by Johan van der Walt, Director, Tax, Cliffe Dekker Hofmeyr