Commissioner for the South African Revenue Service v Langholm Farms (Pty) Ltd

Langholm Farms (Pty) Ltd operates a pineapple growing enterprise approximately 27 km from Grahamstown in the Eastern Cape, producing 13,500 to 16,000 metric tons of pineapples annually. Langholm sells its pineapples to Summerpride Foods (Pty) Ltd for processing, whose factory is located approximately 147 km away in East London. Langholm delivers pineapples using its own trucks, which refuel with diesel at a Bathurst Co-Operative dispenser located at Summerpride's factory (not on Langholm's farm) before returning with empty bins. Langholm is registered as a VAT vendor and as a recipient of diesel rebates under s 59A of the Customs and Excise Act 91 of 1964. In October/November 2016, Langholm submitted diesel rebate claims for October 2015 to August 2016. SARS conducted an audit and issued a Notice of Intention to Assess on 13 February 2017, stating that diesel obtained from the Bathurst Co-Operative was 'non-eligible usage' because rebates could only be claimed for diesel delivered, stored and dispensed from storage tanks on Langholm's own premises, and that carting empty storage bins on the return journey was not a primary production activity. SARS took the view that claims were excessive by R 328,250.66. Langholm disagreed with SARS' interpretation and launched proceedings in the high court seeking declaratory orders. The high court per Smith J granted declaratory orders in Langholm's favour on 28 August 2018.

• Whether the application for declaratory relief was premature or academic given that SARS had not yet issued a final assessment
• Whether the high court properly exercised its discretion to grant declaratory relief under s 21(1)(c) of the Superior Courts Act 10 of 2013
• The proper interpretation of s 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964, specifically whether diesel fuel must be delivered to, stored and used on the taxpayer's premises to qualify for the diesel rebate

The appeal was upheld with costs, including the costs of two counsel. The order of the court a quo was set aside and replaced with an order dismissing the application with costs.

The binding legal principle is that s 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964 requires that for a diesel fuel rebate to be claimable, the fuel must have been delivered to the premises of the user (taxpayer) and be stored and used, or have been used, on those premises. The words 'is being stored and used or has been used' refer to present and past use respectively, but both usages must occur on the taxpayer's premises. Fuel obtained from off-site locations, even if used for otherwise eligible farming activities, does not qualify for the rebate under this provision. The ratio also includes that where SARS has expressed a clear view on the proper construction of a statutory provision in a Notice of Intention to Assess, a taxpayer may appropriately seek declaratory relief under s 21(1)(c) of the Superior Courts Act to resolve the dispute about statutory interpretation, and such an application is not premature merely because a final assessment has not yet been issued.

The court made observations about the appropriate use of declaratory relief in tax matters, endorsing the Constitutional Court's approach in Metcash Trading Limited v Commissioner South African Revenue Services. The court observed that there was little point in a taxpayer entering into a debate or providing further information to SARS when none of it would be relevant given SARS' legal view on the statutory interpretation. The court also reinforced the principle from City of Johannesburg v Cantina Tequila that a court is only entitled to find an interpretation absurd if an omission is so glaring or out of kilter with the overall purpose of the scheme that the result could simply not have been contemplated, but a court may not ignore clear statutory language simply because of perceived harshness or lack of wisdom, as doing so would improperly substitute the court's will for that of the lawmaker.

This case is significant for establishing the proper interpretation of s 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964 regarding diesel fuel rebates for farming activities. It clarifies that taxpayers can only claim diesel rebates for fuel that has been delivered to, stored and used on their own premises, not fuel obtained from off-site locations even if used for eligible farming activities. The case also provides guidance on the appropriateness of declaratory relief in tax disputes, confirming that taxpayers may seek declaratory orders to resolve disputes about statutory interpretation before final assessments are issued, particularly where SARS has expressed a clear legal position that would affect the taxpayer's rights. The judgment reinforces principles of statutory interpretation, particularly that courts must give effect to the plain and ordinary meaning of statutory language and cannot depart from clear legislative language under the guise of avoiding absurdity merely because the result may be considered harsh or unwise.