The Commissioner for the South African Revenue Services v Foskor (Pty) Ltd

Foskor (Pty) Ltd, a mining company, acquired mineral-bearing foskorite ore from Phalaborwa Mining Company Limited (PMC) under contractual arrangements whereby PMC mined the ore as a by-product of its copper mining operations and delivered it to Foskor. Upon delivery, ownership passed to Foskor. Foskor subjected the ore to complex processes involving crushing, milling, flotation, magnetic concentration and gravity separation, resulting in phosphate concentrate and other minerals, which were stockpiled and sold worldwide for use in fertiliser production. For the 1999 year of assessment, the Commissioner for SARS included R203 205 437 in Foskor’s taxable income as closing trading stock under ss 1 and 22 of the Income Tax Act 58 of 1962. Foskor disputed that the ore stockpiles constituted trading stock and further sought remission of interest imposed on unpaid tax.

The appeal was upheld. The order of the Tax Court was set aside and replaced with an order dismissing Foskor’s appeal against the inclusion of R203 205 437 as trading stock for the 1999 year of assessment, but upholding Foskor’s appeal against the refusal to remit interest. The interest of R51 170 908 imposed under s 89quat was remitted. Foskor was ordered to pay 50% of SARS’s costs.

This case is a leading authority on the scope of 'trading stock' under South African income tax law, particularly in the context of mining-related operations and beneficiation processes. It confirms that raw materials acquired for purposes of manufacture fall within the definition of trading stock, even if they are not saleable in their unprocessed form. The judgment reinforces the rationale underlying ss 1 and 22 of the Income Tax Act in ensuring proper annual tax accounting and preventing deferral of tax through stock accumulation.