Commissioner for the South African Revenue Service v Marula Platinum Mines Limited

Marula Platinum Mines Ltd, a mining company and subsidiary of Impala Platinum Holdings, extracted mineral-bearing ore and subjected it to crushing, milling and flotation processes to produce a saleable mineral concentrate. Marula sold the concentrate to a related entity under a contract where the price depended on future market prices and was only payable five months later. Relying on s 24M of the Income Tax Act 58 of 1962, Marula deferred inclusion of unquantified sales income into later tax years, but claimed deductions in the same year for production-related expenditure under s 11(a). SARS accepted the income deferral but invoked s 23F(2) to disallow portions of the deductions, arguing that the ore and concentrate constituted trading stock produced through manufacturing. The Tax Court partially upheld Marula’s appeal, limiting s 23F(2) to phase 2 operations. SARS appealed to the Supreme Court of Appeal, and Marula cross-appealed.

The appeal by SARS was upheld and Marula’s cross-appeal was dismissed. The Tax Court’s order was set aside and replaced with an order dismissing Marula’s appeal, and referring the assessments for 2007, 2008 and 2009 back to SARS to recalculate the amounts to be added back under s 23F(2), excluding overheads but including on-mine operation costs, concentrating and smelting costs, royalty fees and drying charges. Marula was ordered to pay SARS’s costs, including the costs of two counsel.

The case clarifies the application of s 23F(2) of the Income Tax Act and confirms that mining operations involving the conversion of ore into a saleable concentrate constitute manufacturing for tax purposes. It affirms that raw materials acquired for manufacture can constitute trading stock even if not saleable in their original form, and strengthens SARS’s ability to prevent timing mismatches between deferred income and immediate deductions.