Commissioner of Inland Revenue v Namsov Fishing Enterprises (Pty) Ltd (SA 18 of 2007) [2008] NASC 6 (25 June 2008);
style='font-size:12.0pt;font-family:Arial'>REPORTABLE
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style='font-size:12.0pt;font-family:Arial'>CASE NO: SA 18/2007
IN THE
SUPREME COURT OF NAMIBIA
In the
matter between:
COMMISSIONER
OF INLAND REVENUE
style='font-size:12.0pt;font-family:Arial'>APPELLANT
and
NAMSOV
FISHING ENTERPRISES (PTY) LTD
style='font-size:12.0pt;font-family:Arial'>RESPONDENT
Coram:
Maritz, JA, Strydom, AJA, et Mtambanengwe, AJA.
Heard on: 2007/11/07
Delivered
on: 2008/06/25
style='font-size:12.0pt;font-family:Arial'>APPEAL JUDGMENT
style='font-size:12.0pt;line-height:200%;font-family:Arial'>STRYDOM, AJA
style='font-size:12.0pt;line-height:200%;font-family:Arial'>: [1] This is an
appeal from the Special Tax Court of Appeal (Tax Court) constituted in terms of
sec. 73 of the Income Tax Act, Act 24 of 1981.
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[2]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>By letter dated 22nd
January 2004 the respondent claimed a refund in regard to Value Added Tax (VAT)
paid by it in regard to meals and beverages provided to its crew members during
the periods when its fishing vessels were at sea, harvesting fish. This claim
was submitted in terms of sec. 38(3) of the Value Added Tax Act, Act 10 of 2000
(the VAT Act).
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[3]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>By letter dated 21st
April 2004 the Acting Deputy Commissioner of Inland Revenue informed the
respondent that its claim was unsuccessful. As a result the respondent lodged
an objection to the appellant’s disallowance of its claim. This was done by
letter dated 7th July 2004 in terms of sec. 27 of the VAT Act. In
each of the above instances the respondent fully motivated its claim and its
objection.
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[4]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>By letter 21st
July 2004 the respondent was again informed by the Acting Deputy Commissioner
that its objection was dismissed and by letter dated 20th September
2004 the respondent then lodged an appeal to the Tax Court which was heard on
the 13th May 2005.
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[5]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>A statement of
agreed facts was presented to the Tax Court which formed the basis of that
Court’s deliberation and decision. On this occasion the respondent was
successful and the relevant findings by the Tax Court were as follows:
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“The
provision of food and beverages to the crew members of the vessels as set out
in paragraph 4 above constitutes ‘entertainment’ as envisaged in section 19 of
Value Added Tax Act, Act 10 of 2000, as amended.
The
input tax payable in respect of the food and beverages referred to in paragraph
4 above is deductible as envisaged in section 19 (read with section 18) of the
Value Added Tax Act, Act 10 of 2000.
Accordingly
the Court finds that the Appellant has successfully discharged the burden of
proof cast upon it by section 29.”
[6]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>The appellant was
not satisfied with this outcome and thereupon launched an appeal to this
Court. Mr. Narib appeared on behalf of the appellant and Mr. Emslie appeared
on behalf of the respondent.
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[7]
style='font-size:12.0pt;line-height:200%;font-family:Arial'>The appeal launched
by the appellant was against the whole judgment of the Tax Court and on the
following grounds:
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“1. The Learned President of the Court erred in law
and/or in fact by finding that the respondent is in the business of
entertainment, as defined in section 19(1) of the Value-Added Tax Act, Act No.
10 of 2000.
2. The Learned President of the Court erred in law
and/or in fact by finding that the respondent was entitled to deduct input VAT
on supplies of food made to it for purposes of victualing its fishing vessels
and providing meals to seamen.
3.
The
Learned President of the Court erred in law and/or in fact in finding that the
provision of food and beverages to the crew members of the vessels as set out
in paragraph 4 of the statement of agreed facts constituted ‘entertainment’ as
envisaged in Section 19 of the Value-Added Tax Act, Act 10 0f 2000, as amended.
4.
The
Learned President of the Court erred in law by holding that Practice Note 17
dated 22nd November 2000 was admissible in the particular circumstances
in which it was presented in this matter.”
[8]
The
dispute between the parties is crystalized in the Statement of Agreed Facts
which reads as follows:
“1. The Appellant, Namsov Fishing Enterprise
(Proprietary) Ltd, is a fishing company and its business comprises the
harvesting and processing of fish.
2.
The
Appellant supplies in raw form and in whole round condition to customers for
consideration, be it in Namibia or outside.
3.
For
the purposes of harvesting the fish, the harvesting vessels often go out to sea
for extended periods of time, that is overnight or for longer periods.
4.
During
this time members of the crew of such vessels receive the food and beverages
(referred to as ‘rations’) for their personal sustenance.
5.
The
food and beverages attract input Value Added Tax as contemplated in section 6
of the Value Added Tax Act, Act 10 of 2000. The Appellant actually pays such
tax when it acquires the food and beverages concerned from the suppliers of
such vessels, being ‘Spar’ and ‘Namibia Ship Chandlers’.
6.
The Issue
This Court is called upon to decide:
style='font-size:10.0pt;line-height:150%;font-family:Arial'>Whether the
provision of food and beverages to the crew members of the vessels as set out
in paragraph 4 above constitutes “entertainment” as envisaged in section 19 of
Value Added Tax Act, Act 10 of 2000, as amended
style='font-size:10.0pt;line-height:150%;font-family:Arial'>In any event
whether the input tax payable in respect of the food and beverages referred to
in paragraph 4 above is deductible as envisaged in section 19 (read with
section 18) of the Value Added Tax Act, Act 10 of 2000.”
[9]
The
dispute between the parties turns on the interpretation of sec. 19 of the VAT
Act read together with sec. 18 thereof. The relevant part of sec. 18, together
with its heading, provides as follows:
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“Calculation
of tax payable by registered person for a tax period
18
style='font-size:10.0pt;line-height:150%;font-family:Arial'>(1) The tax
payable by a registered person for a tax period shall be the total amount of
output tax payable by the registered person in respect of taxable supplies made
by the registered person during the tax period less –
(a)
subject
to this section and section 19, the total amount of input tax –
(i)
payable
in respect of taxable supplies made to the registered person during the tax
period, or during preceding two tax periods (and has not been claimed under
this subparagraph in those periods); and
(ii)
….”
style='font-size:12.0pt;line-height:200%;font-family:Arial'>The relevant
provisions of sec. 19, together with its heading, provide as follows:
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“Rules
relating to input tax
19.
style='font-size:10.0pt;line-height:150%;font-family:Arial'>(1) In this
section -
“entertainment” means the provision of food, beverages,
tobacco, accommodation, amusement, recreation or hospitality of any kind by a
registered person, whether directly or indirectly, to any person in connection
with a taxable activity carried on by the registered person; …
(2)
No
amount may be deducted under section 18(1) by a registered person for input tax
paid in respect of –
(a)
…..
(b)
a
taxable supply to, or import by, the registered person of goods or services
acquired for the purposes of entertainment or providing entertainment, unless -
(i)
the
registered person is in the business of a tour operator or of providing
entertainment and the taxable supply or import relates to the provision of
taxable supplies of entertainment in the ordinary course of such business; or
(ii)
…..”
[10]
Both
counsel provided the Court with interesting and innovative arguments. Mr.
Narib submitted that the words of the definition should be interpreted ejusdem
generis. Counsel further submitted that the provision of food and
beverages to the respondent’s crew members constitute a fringe benefit and the
tax could therefore not be deducted. Lastly he argued that such provision did
not form part of the overall business of the respondent.
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[11]
Mr.
Emslie submitted that the catching of fish and the marketing thereof fell
squarely within the definition of ‘entertainment’ as this constituted the
provision of food which is part of the definition of the word in sec. 19. The
definition is as wide as possible because its intention is to deny to a
registered person the deduction of input tax in regard to entertainment. However,
so counsel argued, there is an exclusion from the denial and the exclusion
would prevail where the registered person provided entertainment and the
taxable supply relates to the provision of taxable supplies of entertainment in
the ordinary course of such business. By way of illustration counsel stated
that if the provision of rations to the respondent’s crew members did not
constitute entertainment then there was no necessity to have to come to Court
as the VAT would then be deductible as it was not hit by the section.
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[12]
I
agree with Mr. Emslie that the definition of entertainment was stated for the
very purpose to deny the deduction of input tax in certain circumstances, and
the issue is not only whether the activity of the respondent fell within the
exception to the denial of input tax as contemplated by sec. 19(2)(b)(i) but
also whether the taxable activity of the respondent, namely the catching and
marketing of fish, is covered by the definition of "entertainment" in
sec. 19(1), and more particularly the words "the provision of food".
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[13]
In
my view, the purpose and meaning of sec. 19 is perhaps best understood if it is
considered against the scheme designed by the VAT Act to levy a tax on the
value added to the supply of certain goods and services in the course of
taxable activities. Even if sec. 19 had not been enacted the definitions of
"input tax" and "output tax" would have been wide enough,
when read together with the provisions of sec. 6, to catch the taxable
activities of entertainment businesses within their sweep. Registered persons
who provide entertainment in the ordinary course of their businesses would have
been entitled to deduct input tax on taxable supplies to them made for the
purposes of entertainment from output tax payable for entertainment provided by
them just like any other registered person conducting another type of taxable
activity would have been entitled to deduct "any tax charged under section
6(1)(a) on a taxable supply to such registered person" from the tax
"charged under section 6 on a taxable supply made by such registered
person". This would have been so because sec. 6 is the source for the
duty of registered persons to levy and pay VAT and the calculation could have
been done under sec. 18 of the VAT Act.
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[14]
Why
then was sec. 19 necessary? Whereas the Legislator wanted to accord to those
registered persons in the entertainment business the same rights of deduction
of input tax, as registered persons in other businesses would have, it was well
aware of the fact that entertaining was not limited to registered persons in
the entertainment business. Entertaining is often done by businesses who are
not in the entertainment business (e.g. as part of a strategy or campaign to
advance or advertise a business). The purpose of sec. 19 seems to me to close
the door on these latter instances and to deny those businesses whose taxable
activity was not entertainment, the opportunity to deduct input tax expended on
entertainment from their output tax recovered from their taxable activity. As
such the purpose of sec. 19 and the definition of entertainment was not to deny
the deduction of input tax in general, because that would have created an
inequality between registered persons in the entertainment business and
registered persons involved in the supply of goods and services in other
businesses, but to prevent registered persons, not involved in the business of
entertainment, from claiming the deduction of input tax where and when they do
entertain. This, so it seems to me is made clear by the fact that the
definition only applies in regard to sec. 19. Furthermore this purpose is
clear when the definition contained in the section is read in context with
sub-sec. 19(2)(b)(i), which allows such deduction in regard to taxable supplies
where the taxable activity of the registered person is entertainment.
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[15]
In
my opinion the word “entertainment” colours and indicates the context in which
the various instances, mentioned in the definition of sec. 19, must be
understood. During argument Mr. Emslie was constrained to concede that the
provision of food, beverages etc. (referred to in the definition of
"entertainment") were to be interpreted as the provision of food etc.
to human beings and not to animals or plants. Furthermore the instances
defined as entertainment in sec. 19 are instances which one would normally
associate with entertainment.
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[16]
There
is therefore no ambiguity which would necessitate the application of the ejusdem
generis rule of interpretation as argued by Mr. Narib. I do not find
anything in the definition of entertainment which indicates that it was the
intention of the Legislator to cast the net wider and to include therein
instances which one would not normally associate therewith. If that was the
intention the wording of the definition would have been different. Instead of
defining entertainment as meaning the activities set out therein, it
would have used different words, such as entertainment includes, and
then set out what it wanted to include in the meaning of the word, and those
could then include instances which one would not normally associate therewith.
(See R v Hathorn and Others 1948 (4) SA 162 (NPD) at 166).
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[17]
I
am therefore of the opinion that the definition in sec. 19 must be interpreted
in the context of providing those amenities mentioned in the definition as entertainment.
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[18]
To
determine the ordinary meaning of the word "entertainment" it would
be permissible to look at what is set out in authoritative dictionaries.
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1.
The Concise Oxford English Dictionary,
style='font-size:12.0pt;line-height:200%;font-family:Arial'>10th
edition: 1. Entertain: to provide with amusement or enjoyment – show
hospitality. Entertainment is the noun of entertain.
2.
Longman: Dictionary of Contemporary English,
style='font-size:12.0pt;line-height:200%;font-family:Arial'>New edition: Entertain:
1. to amuse and interest, esp. by a public performance; keep
the attention of (people watching or listening) 2. To give a party; to
provide food and drink for (We’re entertaining our neighbours) = giving
them a meal. Entertainment: the act or profession of entertaining;
something, esp. a public performance, that entertains.
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[19]
For
purposes of this judgment it is also necessary to refer to two other
definitions set out in the VAT Act. These are the definitions of “taxable
supply” and “taxable activity”. Sec. 1 defines “taxable supply” as meaning
“any supply of goods or services in the course or furtherance of a taxable
activity, other than an exempt supply.” “Taxable activity” is defined by sec
4(1) as “any activity….that involves or is intended to involve….the supply of
goods or services to any other person for consideration.”
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[20]
The
context in which these concepts are used in sec. 19 further explains what is
deductible as input tax. It was not any supply which is deductible but only
supplies of goods and services which are made in the course of or for the
furtherance of the taxable activity. To that extent sec. 19(2)(b)(i) conforms
and is in line with the overall intention of the Legislator as expressed in the
definitions of "taxable supplies" and "taxable activity".
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[21]
Considering
the words entertain/entertainment it would be far- fetched to describe the taxable
activity of the respondent, namely the catching and marketing of fish, as
entertainment. The provision of food, in the context of sec 19, does not have
the general and wide meaning ascribed to it by Mr. Emslie. In order to comply
with the intent of the Legislator the provision of food is the provision of
food for entertainment and does not mean more than the food as an act of
hospitality. Just as little as the registered person who is the owner of a
supermarket or the farmer, who are both providing food, can claim to be in the
entertainment business, just as little can the harvester of fish claim to be in
the entertainment business when it catches and markets that fish.
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[22]
The
distinction drawn by Mr. Emslie why the respondent could, and the supermarket
owner could not, deduct VAT expended on the rations provided to its employees,
is in my opinion not valid. Mr. Emslie submitted that although both are in
the business of providing food the exception, set out in sec. 19(2)(b)(i), did
not apply to the supermarket owner because he need not, in order to realise his
taxable activity, provide his employees with food whereas the respondent is
obliged to provide food in order to realise its taxable activity when at sea.
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[23]
In
terms of the VAT Act it seems to me to be clear that the reason why the
harvester of fish, the supermarket owner and the farmer cannot deduct input tax
for entertainment is simply because the ordinary nature of their businesses is
not that of entertaining. To qualify for deduction in terms of sec. 19 two
things are necessary, firstly the taxable activity of the registered person
must comply with the definition of entertainment and secondly the taxable
supply must likewise fall within the definition of entertainment. Only then
can it be said that the taxable supply is “taxable supplies of entertainment in
the ordinary course of such business.” (Sec. 19(2)(b)(i).)
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[24]
Although
there is no doubt that the meals or rations that the respondent provided for
its crew members, while out at sea, fall within the ambit of the definition
contained in sec. 19, and, but for sec. 19, would have been deductible, as was
also pointed out by Mr. Emslie, the respondent falls foul of the first
qualification because its taxable activity cannot be said to be entertainment
in terms of the section.
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[25]
The
present instance is a good example of what the Legislator had in mind when it
enacted sec. 19. Although the provision of food or rations for its crew
members amounts to entertainment the catching and marketing of fish cannot by
any stretch of the imagination be described as entertainment. In order for the
VAT to be deductible the provision of food must, in terms of sec 19(2)(b)(i) be
“taxable supplies of entertainment in the ordinary course of such business.”
The ordinary course of the business of the respondent is not entertainment and
consequently the exception provided for in the sub-section does not apply to
the provision of food to the crew members of the respondent. The input vat
paid in regard to such food or rations is therefore not deductible by the
respondent.
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[26]
In
the result the following order is made:
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1.
The
appeal succeeds with costs.
2.
The
order of the Special Tax Court, handed down on the 5th December
2005, is set aside.
3.
The
following order is substituted therefor:
“The
objection raised by the respondent in its letter dated 7th July
2004, concerning the rejection of its claim to be refunded input vat in terms
of sec. 27 of the Vat Act, is dismissed.”
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________________________
STRYDOM, AJA
I agree
________________________
MARITZ, JA
I agree
________________________
MTAMBANENGWE, AJA
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COUNSEL
ON BEHALF OF THE APPELLANT:
Instructed
by:
MR. G.
NARIB
Government
Attorney
COUNSEL
ON BEHALF OF THE RESPONDENT:
Instructed
by:
Mr. T.S.
Emslie, S.C.
H.D.
Bossau Legal Practtioners