Generally, a vendor is not entitled to deduct input tax on the acquisition of a "motor car." This general rule is however subject to certain exceptions which are contained in the provisos to section 17 (2)(c) of the Value-Added Tax Act 89 of 1991 ("the VAT Act").
According to the facts in the case of RTCC v Commissioner for the South African Revenue Service, the taxpayer was a close corporation that engaged in a courier business. SARS conducted an audit on the taxpayer and found that the taxpayer had claimed input tax in respect of a 2007 Mercedes Benz Cab Crew vehicle. The basis of the taxpayers' claim was that the vehicle was acquired for the purposes of making taxable supplies. In other words, the taxpayer claimed that the vehicle was used to deliver packages to customers.
For the purposes of section 17 (2)(c) of the VAT Act, the definition of "motor car" is significant. In terms of section 1 of the VAT Act, a motor car includes a motor car, station wagon, mini bus, double cab light delivery vehicle and any other motor vehicle of the kind normally used on public roads, which has three or more wheels and is constructed or converted wholly or mainly for the carriage of passengers, subject to certain exclusions.
The issue before the tax court was whether the vehicle purchased by the taxpayer was constructed or converted wholly or mainly for the carriage of passengers as per the definition of "motor car". In this regard, the court used an objective test to determine the purpose for which the vehicle was acquired or used. SARS Interpretation Note No. 82 provides that, in applying the objective test, the passenger area of the vehicle and the loading space are of relevance. Accordingly, if the passenger area takes up more than 50% of the vehicle space, then it can be concluded that the vehicle is mainly used for the carriage of passengers.
The onus is ultimately on the taxpayer to show that the vehicle is not wholly or mainly constructed for the carriage of passengers.
In this case, the court found that the taxpayer failed to discharge the onus that the vehicle was used to transport goods and not passengers. What the taxpayer needed to show was that the vehicle was not wholly or mainly constructed for the carriage of passengers. Furthermore, in considering the evidence in the trial bundle prepared by the taxpayer and in applying the objective test, the court found that the passenger area was essentially more than the loading space of the vehicle, as it had two front row seats.
The court also highlighted the importance of taxpayers having legal representation. In terms of section 12 of the Tax Administration Act 28 of 2011, SARS must be represented by a senior SARS official who is an admitted advocate or attorney, however the same requirements are not applicable to a taxpayer. Taxpayers may be represented by an ordinary lay person or an accountant/consultant, however, this can lead to a misinterpretation of the law. In this case, the taxpayer employed the services of a tax consultant, and the court was of the view that the taxpayer had thus laboured under the false assumption that if the vehicle was used to load cargo or for the transportation of goods it was entitled to deduct input tax.
Finding in favour of SARS, the court dismissed the appeal with no order as to costs.
What can be taken away from this case is that even though the vehicle was used for the purposes of loading cargo or for the transportation of goods, the vehicle was physically constructed for the purposes of carrying passengers and therefore considered a "motor vehicle" for the purposes of VAT.
This case also a reminder to taxpayers to take precaution when interpreting the VAT Act and to ensure they obtain the relevant legal advice.