Alan George Marshall N.O. and Others v Commissioner for the South African Revenue Service

The South African Red Cross Air Mercy Service Trust (Trust), represented by seven trustees as applicants, challenged a decision of the Supreme Court of Appeal regarding the interpretation of sections 8(5) and 11(2)(n) of the Value Added Tax Act 89 of 1991. The Supreme Court of Appeal held that the Trust was not exempt from paying Value Added Tax (VAT) on payments it received for actual services rendered to provincial health departments. In reaching its decision, the Supreme Court of Appeal referred to Interpretation Notes issued by the South African Revenue Services on 8 February 2013, which explained VAT treatment of public authorities. The Trust provided actual services to provincial health departments under agreements with them. The Trust sought leave to appeal to the Constitutional Court, filing its application approximately ten months late, citing financial difficulties and a change in legal representation.

• Whether the Trust is exempt from paying VAT on payments received for services rendered to provincial health departments
• The proper interpretation of sections 8(5) and 11(2)(n) of the Value Added Tax Act
• The extent to which a court may consider or defer to an administrative body's interpretation of legislation, such as SARS Interpretation Notes
• Whether consideration of SARS Interpretation Notes in statutory interpretation offends constitutional rights under sections 9 and 34 of the Constitution
• Whether reliance on Interpretation Notes is consistent with the contra fiscum rule and proper purposive interpretation

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

In the context of constitutional democracy, a court should not give weight to the unilateral interpretative practice of an administrative body when interpreting legislation, particularly where that body is a party to the litigation. Courts must engage in objective and independent interpretation of legislation in accordance with constitutionally compliant precepts. The practice of one part of the executive arm of government does not assist in determining the reasonable meaning to be given to a statutory provision. This represents a departure from the traditional rule that evidence of consistent administrative interpretation could 'tip the balance' in cases of ambiguous legislation. On the substantive VAT issue: Section 7(1) of the VAT Act applies to actual services supplied by vendors. Section 8(5) is a deeming provision extending VAT to government subsidies (not actual services). Section 11(2)(n) provides zero rating only for welfare organisations in respect of deemed supplies under section 8(5), not for actual services rendered. Entities providing actual services to government departments are liable for VAT under section 7(1), regardless of their status as welfare organisations.

The Court observed that the rule allowing consideration of administrative practice might be justified where the practice is evidence of an impartial application of a custom recognized by all concerned, but not where the practice is unilaterally established by one of the litigating parties. The Court noted that the rule originated in Rex v Detody in the context of legislative supremacy and aimed at ascertaining the intention of the legislature, and that while it was adapted in Bosch to contextual statutory interpretation, it failed to account for the fundamental shift from legislative supremacy to constitutional democracy. The Court commented that the Trust's application was ultimately directed to the public good, warranting application of the Biowatch principle on costs despite the dismissal of the application.

This case is significant for clarifying the role of administrative interpretations in statutory interpretation in the constitutional era. The Constitutional Court departed from the traditional approach of giving weight to consistent administrative interpretations of legislation, particularly where such interpretations are made by a party to the litigation. The judgment emphasizes that in a constitutional democracy, courts must engage in objective and independent interpretation of legislation without deferring to unilateral practices of the executive. This reinforces the principle of separation of powers and judicial independence. The case also clarifies the application of VAT provisions to entities providing actual services versus those receiving government subsidies, distinguishing between section 7(1) (actual supplies), section 8(5) (deemed supplies), and section 11(2)(n) (zero rating for welfare organisations). The Biowatch principle regarding costs was applied, recognizing that despite the dismissal, the interpretative issue raised was worthy of the Court's attention and ultimately directed to the public good.