The South African Revenue Service (SARS) has been dealt a rare loss in a Supreme Court of Appeal case against Glencore.
Johan Kotze and Freek van Rooyen from Shepstone & Wylie Attorneys said that the ruling provided valuable guidance for joint ventures in the mining sector participating in the diesel refund scheme.
The case centres on diesel refunds under refund item 670.04, read with Note 6 of Part 3 of Schedule 6 of the Customs and Excise Act, 1964.
These refunds allow qualifying businesses to recover part of the levies paid on diesel used in primary production activities, such as mining.
“While the scheme is intended to support economic activity, it comes with strict compliance requirements emphasised by past judgments,” the legal experts noted.
Glencore and ARM Coal operated a coal mine via joint venture (JV), known as the Goedgevonden Joint Venture.
The JV used diesel in its mining operations and claimed diesel refunds from SARS. While SARS initially disallowed the claim in a modest amount, it later escalated it to over R80 million.
SARS’s argument was technical, as the JV did not hold the mining rights. Glencore itself formally registered for the mining rights.
SARS said that only the legal holder of the mining right could qualify for the diesel refunds. As the JV was not a registered holder, it was not entitled to claim payment of the refunds.
Supreme Court of Appeal Ruling
While the High Court agreed with SARS’s view, the SCA adopted a different stance and overturned the High Court’s ruling, favouring Glencore and its partners.
The SCA looked at the primary focus: what it means to be “a person in possession of the necessary authorisation” to conduct mining.
Instead of adopting a technical approach, the SCA applied a substance-over-form analysis when making its ruling.
The SCA noted that the mining right could only be exercised via the JV, even if it was formally registered in Glencore’s name.
The JV structure was not incidental; it was a condition of the mining right and was approved by the government.
The JV conducted all mining operations and used diesel for lawful, authorised activities. With this, the SCA viewed the JV as the entity authorised to mine and therefore qualified for the refund.
“In short, the Court prioritised the commercial and regulatory reality of the arrangement over its formal legal structure,” said the experts.
The experts said that the case involved several practical principles, such as substance matters more than form, alignment with regulatory regimes is key, and JVs are recognised structures.
Another key part of the case is that SARS must exercise its discretion properly. The SCA criticised SARS for failing to consider its discretion to allow refunds in appropriate cases.
“In particular, the Court emphasised SARS’s discretion under Note 5 of Part 3 of Schedule 6 of the Act,” added the experts.
“Even where there is technical non-compliance, SARS must still consider whether fairness justifies relief.”
Another dispute concerned the powers of an appeal committee constituted under the Act, with the SCA finding that SARS’s internal appeal committee acted beyond its powers.
The SCA said the committee was wrong to dramatically increase the amount it reclaimed and to introduce new grounds during the appeal process.
The experts said that this Court ruling strengthens taxpayers’ protections in disputes.
“For business leaders, the message is clear: compliance remains critical, but courts are willing to adopt a pragmatic, commercially sensible approach where structures are legitimate, and activities are lawful.”
“The judgment is a strong endorsement of common-sense tax interpretation, ensuring that incentives like diesel refunds achieve their intended economic purpose, rather than being defeated by technicalities.”
The ruling by the SCA can be found below:
