Marshall NO and Others v Commissioner for the South African Revenue Service

Seven applicant trustees brought an application on behalf of the South African Red Cross Air Mercy Service Trust (Trust) against the Commissioner for the South African Revenue Service. The Trust rendered actual services to provincial health departments and received payments for these services. The dispute concerned whether the Trust was exempt from paying Value Added Tax (VAT) on these payments. The Supreme Court of Appeal held that the Trust was not exempt from paying VAT on payments it received for actual services rendered to provincial health departments. In reaching this conclusion, the Supreme Court of Appeal referred to Interpretation Notes issued by SARS on 8 February 2013 regarding VAT treatment of public authorities, which had been in circulation for years without being challenged. The application for leave to appeal was brought approximately ten months late, with the Trust citing its financial situation and change of legal representation as reasons for the delay.

• Whether the Trust was exempt from paying VAT on payments received for actual services rendered to provincial health departments under sections 8(5) and 11(2)(n) of the Value Added Tax Act 89 of 1991
• To what extent, if any, may a court consider or defer to an administrative body's interpretation of legislation, such as SARS Interpretation Notes
• Whether reliance on SARS Interpretation Notes offends sections 9 and 34 of the Constitution (equality and fair hearing rights)
• Whether the interpretive practice of considering administrative interpretation is consistent with constitutional principles in a constitutional democracy as opposed to legislative supremacy
• Whether condonation should be granted for the late filing of the application for leave to appeal

1. Condonation was granted for the late filing of the application for leave to appeal. 2. The application for leave to appeal was dismissed. 3. No order as to costs.

1. In a constitutional democracy, courts should not give weight to unilateral interpretive practices of an executive organ, particularly when that organ is a litigating party, in determining the objective, independent meaning of legislation according to constitutionally compliant precepts. The historical rule allowing consideration of administrative interpretation originated in the context of legislative supremacy and ascertaining legislative intention, and is not appropriately adapted merely by reformulating its rationale as assisting with determining "reasonable meaning." 2. Under the Value Added Tax Act: (a) Section 7(1) imposes VAT on actual services supplied by vendors; (b) Section 8(5) is a deeming provision that extends VAT to government subsidies (which are not actual services) paid to designated entities; (c) Section 11(2)(n) provides zero rating for welfare organizations only in respect of deemed supplies under section 8(5), not actual services under section 7(1); (d) An entity that provides actual services to public authorities is liable for VAT on those actual services under section 7(1), regardless of whether it qualifies as a welfare organization.

The Court made several non-binding observations: (1) Evidence of interpretive practice by administrative bodies might conceivably be justified where the practice is evidence of impartial application of custom recognized by all concerned, but not where the practice is unilaterally established by one of the litigating parties. (2) The reference to subsequent contractual conduct made in the Bosch case does not necessarily assist in interpreting legislation through a constitutional lens. (3) While the application for leave to appeal was ultimately refused for lack of prospects of success, the interpretive issue regarding deference to administrative interpretation was worthy of the Constitutional Court's attention, justifying the expenditure of judicial resources to address it. (4) The fact that SARS Interpretation Notes had been in circulation for years without challenge (as noted by the Supreme Court of Appeal) should not be treated as legally significant or as confirming the correctness of an interpretation.

This case is significant in South African jurisprudence for several reasons: (1) It clarifies the limited role, if any, that administrative interpretations (such as SARS Interpretation Notes) should play in judicial statutory interpretation in the constitutional democracy era, marking a departure from pre-constitutional practice rooted in legislative supremacy. (2) It establishes that unilateral interpretive practices by an executive organ that is also a litigating party should not influence courts' independent, objective interpretation of legislation in accordance with constitutionally compliant precepts. (3) It provides authoritative guidance on the interpretation of key VAT provisions, specifically distinguishing between actual supplies of services (taxed under section 7(1)) and deemed supplies (under section 8(5) with potential zero rating under section 11(2)(n)). (4) It illustrates the application of the Biowatch principle regarding costs where litigation serves the public good and raises issues worthy of constitutional consideration. (5) It demonstrates how historical interpretive rules must be reconsidered and adapted in light of South Africa's constitutional transformation from legislative supremacy to constitutional democracy.