Commissioner for the South African Revenue Service v United Manganese of Kalahari (Pty) Ltd

United Manganese of Kalahari (Pty) Ltd (UMK), a major manganese mining company, paid mineral royalties under the Mineral and Petroleum Resources Royalty Act 28 of 2008 for the 2010 and 2011 tax years. In calculating its royalties, UMK deducted expenditure it incurred on transport, insurance and handling (TIH) costs for manganese sold to foreign purchasers on FOB and CIF terms. SARS audited the returns and disputed the method used to determine UMK’s ‘gross sales’ under s 6 of the Royalty Act, contending that TIH costs could only be deducted where they were separately specified in the sales price. UMK sought declaratory relief in the High Court, which ruled in its favour. SARS appealed to the Supreme Court of Appeal.

Paragraph 1 of the High Court order was amended to clarify that UMK was entitled to deduct TIH expenditure incurred after the mineral reached the Schedule 2 condition or to effect disposal, irrespective of whether such costs were separately specified in the sales price. The appeal was otherwise dismissed with costs, including the costs of two counsel.

The case is a leading authority on the interpretation of the Mineral and Petroleum Resources Royalty Act and confirms that mineral royalties are calculated on the value of the mineral excluding post-extraction transport, insurance and handling costs. It clarifies the meaning of ‘gross sales’ under the pre-2019 version of the Act and affirms a purposive, commercially informed approach to statutory interpretation in South African tax law.