Milner Street Properties (Pty) Ltd v Eckstein Properties (Pty) Ltd

The respondent sold immovable property with a factory to the appellant for R3.5 million. Both parties were registered VAT vendors and intended the sale to be of an income-earning enterprise as a going concern, qualifying for zero-rated VAT under s 11(1)(e) of the Value Added Tax Act 89 of 1991. However, due to ignorance of a 1994 amendment to s 11(1)(e), the written agreement did not expressly record the newly required formalities for zero rating. After transfer, the appellant attempted to claim input VAT of R429,824.56 and demanded a VAT invoice reflecting VAT at 14%, which would have shifted the VAT burden to the respondent. The respondent refused, asserting the sale was zero rated, and sought rectification of the agreement to reflect the parties’ true intention.

The appeal was dismissed. The order of the court a quo was upheld, dismissing the appellant’s claim and granting rectification of the agreement in favour of the respondent, with costs.

The case is significant for South African VAT and contract law as it confirms that rectification is available to cure non-compliance with statutory formalities relating to VAT zero rating, provided the substantive requirements are met. It draws a clear distinction between constitutive statutory formalities and fiscal or probative formalities, emphasizing substance over form in tax law.