Opposed
Application
ZISENGWE
J:
The
parties in this application are embroiled in a bitter dispute over
the implications of their failure to specifically include Value added
tax (abbreviated herein as “VAT”) matters in agreements for the
milling of sugarcane.
The
applicants are both companies duly incorporated in terms of the laws
of Zimbabwe whose names over the years have become synonymous with
sugar and sugarcane production in Zimbabwe. They grow, source and
mill sugarcane and market its products. They carry on this agro-based
business in and around the Lowveld towns of Triangle and Chiredzi.
The
first respondent is The Zimbabwe Revenue Authority (ZIMRA): a
statutory body whose chief mandate is to assess, collect, and enforce
the payment of all revenues on behalf of the state. It is established
in terms of the Revenue Authority Act, [Chapter 23:11].
Save
for the 10th
and 11th,
the rest of the respondents are organisations representing the
interests of sugarcane farmers in the Lowveld.
The
10th
and 11th
respondents are individual sugarcane farmers.
They
were probably singled out on account of the positons they hold as
members of parliament for the Chiredzi South and Chiredzi North
constituencies respectively over and above their roles as sugarcane
farmers. They also occupy and serve in specialised parliamentary
capacities.
BACKGROUND
Solely
for purposes of convenience and brevity, the 2nd
to 11th
respondents will be referred to simply as “the farmers” and the
1st
respondent as “ZIMRA”.
It
is common cause that pursuant to the terms of either of two types of
written agreements between them, the farmers supply the sugar cane
that they produce to the applicants. These contracts are generally
referred to by the parties as the “Cane milling agreement” and
the “Cane purchase agreement”.
Under
the former, the basic idea (as is implicit in the name) is that the
applicants merely provide a milling service to the farmers. In
addition the applicants also proceed to market on behalf of the
farmers, the sugar and molasses thereby produced as well as other
by-products and thereafter remit to the farmers the proceeds thereof
after deducting the expenses associated with the milling of the
sugarcane and marketing of the sugar and the other by-products.
It
is further common cause that under the cane milling arrangement,
there is an existing agreement that the charge for the milling is
calculated according to a pre-determined ratio referred to as the
“Division of Proceeds” (DoP) ratio. This ratio currently stands
at 23 percent of the proceeds which the applicants retain in the wake
of the marketing of the products of the milling process. The farmer
gets the remainder.
The
cane purchase agreement operates differently.
According
to the parties this agreement involves a direct and complete sale of
the sugarcane by the farmers to the applicants with risk and benefits
passing to the latter upon the delivery of the cane.
During
oral submissions in court, counsel for the applicants referred to a
rather convoluted method by which the purchase price of the cane is
computed under this arrangement, suffice it to say that there is no
convergence as among the parties as to whether the supplies of cane
that gave rise to the current dispute constitute a cane milling
agreement or a cane purchase agreement.
Be
that as it may, it is common cause that in a decision (which has
since been appealed against to the Fiscal Appeals Court), the 1st
respondent determined that the set-up which currently obtains chiefly
characterised by the distribution of proceeds arrangement constitutes
one which attracts VAT.
Therein
lies the genesis of the dispute.
This
is because the simple question to be answered is whether the 23
percent retained by the applicants post the milling and marketing
incorporates VAT (as contended by the farmers) or it does not (as
maintained by the applicants).
It
is further common cause that ZIMRA having made the decision that the
aforementioned arrangement was one that attracts VAT in terms of the
law, and that the applicants were therefore legally obligated to have
all along charged and collected from the consumers (i.e. the farmers)
and remitted the amounts so collected to it directed that the said
amounts be paid to it.
In
compliance with that decision the applicants aver that they have
since calculated the outstanding amounts in this regard and remitted
the same to the 1st
respondent.
Through
the current application the applicants seek a declaratory order to
the effect that they are legally entitled to recover from the farmers
the VAT which they have since paid to 1st
respondent and secondly that they are legally entitled to continue
charging and collecting VAT from the farmers over and above the 23
percent milling charge.
The
applicants also take exception to the fact that the 1st
respondent (through some of its officials) took it upon itself to
render certain advice to the farmers which advice they contend
amounts to an unwarranted interference in matters that are purely
contractual.
Part
of that advice related to the 1st
respondent's interpretation of the tax implications of the failure
to include VAT matters in the cane supply agreements.
The
terms of the declaratur sought by the applicants are captured in the
draft order annexed to the application which reads:
“Wherefore
after reading papers filed of record and hearing counsel, IT IS
ORDERED THAT:
1.
The application succeeds with costs.
2.
It be and is hereby declared that -
(a)
The conduct by the 1st
respondent to give advice to the applicants and the 2nd
to 11th
respondents on what are purely contractual matters is ultra vires its
functions and responsibilities as an administrative authority and
therefore unlawful.
(b)
To the extent that they are liable to pay VAT for milling costs, the
applicants are entitled to charge, levy and collect such VAT in
accordance with the VAT Act on and in addition to the value for the
milling charge.
3.
The 1st
respondent be and is hereby ordered and directed to refrain from
gratuitously interfering in pricing and contractual issues between
the applicants and the 2nd
to 11th
respondents.
4.
The respondents shall jointly and severally the one paying the others
to be absolved, pay the applicants costs of suit on an
attorney–client scale.”
The
applicants raised a number of arguments in support of their
contention that they should be permitted to recover that which they
have since paid to ZIMRA in the wake of the latter's aforementioned
determination.
The
main thrust of their argument, as I see it, however, is that the very
fact that the Act makes it clear that the burden to pay the tax in
question rests on the consumers who in this case are the farmers yet
it was them (applicants) who were compelled to pay it necessarily
implies that they can recover the same from the farmers.
Reliance
was placed inter alia on the elucidation by GOWORA JA, of the
tripartite relationship in the VAT equation. This was in the case of
ZIMRA
v Packers International (Private) Limited
SC28-16
where the following exposition was made:
“The
system of collection of VAT, as embodied in the VAT Act, involves the
imposition of tax at each step along the chain of manufacture of
goods or the provision of services subject to VAT;”
And
further that:
“… tax
under the VAT Act consists of monies that have been taxed on goods
and services paid by consumers for onward transmission to the
Commissioner. All that is required of an operator is to calculate the
amount so paid, submit a return and make payment.”
Flowing
from this basic premise, according to the applicants, are two
applicable precepts that emanate therefrom, namely unjust enrichment
and equity.
The
latter though not specifically pleaded in their papers was
nevertheless amply canvassed during the oral submissions in court.
Regarding
unjust enrichment it was averred that should the court not find in
the applicants' favour an injustice will ensue in that the
respondents will have been unjustly enriched at their expense.
For
the requirements and application of the principle of unjust
enrichment the following cases were cited as authority; Industrial
Equity v Walker
1996 (1) ZLR 269 (H); Chioza
A.M. v Siziba
S.W. SC04-15; and Trojan
Nickel Mine Ltd v Reserve Bank of Zimbabwe
HH169-13.
It
was contended that the facts of this case point to the fact that all
the prerequisites for a finding for the applicant on the basis of
unjust enrichment have been met.
The
nub of the equity argument is that justice and fairness simply demand
that the applicants be allowed to recoup from the farmers that which
they paid to ZIMRA in compliance with the latter's determination.
It
is clear that this is merely an extension or adjunct of the unjust
enrichment contention.
The
applicants further referred to various sections of the Act which in
their view fortify their position. Reliance was placed in this regard
to section 9(2) which provides as follows:
“The
value placed on any supply of goods or services shall, save as is
otherwise provided in this section, be the value of the consideration
for such supply, as determined in accordance with subsection 3, less
so much of such value as represents tax: Provided that -
(a)…,;
(b)
Where the portion of the value of the said consideration which
represents tax is not accounted for separately by the registered
operator, the said portion shall be deemed to be an amount equal to
the tax fraction of that consideration.”
Similarly
reliance was placed on s9(5) of the Act which provides:
“Where
goods or services are deemed to be supplied by a registered operator
in terms of subsection (2) or (8) of section 7, the supply shall be
deemed to be made for a consideration in money equal to the lesser of
-
(a)
The cost to the registered operator of the acquisition, manufacture,
assembly, construction or production of goods or services, including
-
(i)
Any tax charged in respect of the supply to the registered operator
of such goods or services or any of any components, materials or
services utilised by him in such manufacture, assembly, construction
or production;
(ii)
Where such goods or any right referred to in subsection (2) of
section seven,
when held by the registered operator, constituted trading stock as
defined in section 2 of the Taxes Act, any further costs, including
tax, incurred by him in respect of such goods or right;
(iii)
Any costs, including tax, incurred by the registered operator in
respect of the transportation or delivery of such goods or the
provision of such services in connection with the transfer of such
goods or the provision of such services as contemplated in subsection
(8) of section seven; and
(iv)
Where such goods or services were acquired under a supply in respect
of which the consideration in money was in terms of subsection (4) of
this section deemed to be the open market value of the supply or
would in terms of that provision have been deemed to be the open
market value of the supply were it not for the fact that the
recipient would have been entitled under subsection (3) of section
fifteen to make a deduction of the full amount of tax in respect of
that supply, such open market value to the extent that it exceeds the
consideration in money for that supply: or
(b)
The open market value of such supply.
THE
POSITION OF THE RESPONDENTS
The
3rd
and 4th
respondents did not ultimately participate in the proceedings on
account of the fact that the former did not file any opposing papers
and the latter filed its heads of argument outside the prescribed
time and was therefore barred. In a similar vein there was no
appearance by or on behalf of the 6th,
9th
and 11th
respondents on the day of the hearing. Effectively, therefore, only
the positions of the 1st,
2nd,
5th,
7th,
8th,
and 10th
respondents were before the court.
ZIMRA'S
POSITION
Regarding
the implications of the failure by the applicants and the farmers to
specifically incorporate VAT matters in their DoP arrangements, ZIMRA
articulated two distinct positions: namely that which relates to past
supplies of cane and that which attends to present and future
supplies of cane.
In
respect of past supplies of sugarcane ZIMRA averred that a proper
construction of s69 of the Act shows that in the absence of the
express mention of VAT component in any price for goods or services,
then the price will be deemed to contain the said tax.
As
far as the alleged impropriety of the advice it rendered to the
farmers, it contended that whatever advice it gave to the farmers was
not only within its legal powers to give but also that it did so at
the behest of the applicants.
It
further averred that it has a duty to provide education to taxpayers
not only to impart knowledge of the same but also to inculcate and
engender a spirit of compliance.
1st
respondent's position on VAT implications for present and future
supplies of cane
In
its papers opposing this application, ZIMRA does not commit itself on
what the tax implications in respect of present and future supplies
are. It opted instead to confine itself to the question past
supplies.
However,
it soon became apparent that its position is that the applicants are
not only at liberty to charge, levy and collect from the farmers the
said tax, but that they are in fact obligated to do so.
It
suffices, however, to note that this does not address the issue of
whether this will be over and above the 23 percent being charged for
the milling of the cane.
THE
FARMERS' POSITION
As
earlier stated, only the positions of the 2nd,
5th,
7th,
8th
and 10th
respondents were effectively before court.
Save
for a few instances of divergence (which will be highlighted below)
the farmers were united not only in their resistance to the
application but also on the grounds thereof.
The
rallying point in their opposition to the quest by the applicants to
recover the tax for past supplies was section 69 of the Act. Their
position essentially mirrors that of ZIMRA.
Over
and above the import of s69, however, a few additional arguments were
presented to buttress their position and these are:
1.
The very fact that ZIMRA has determined that the 23 percent milling
charge includes VAT as far as the 2nd,
8th
and 10th
respondents are concerned, is dispositive of the whole dispute. They
go as far as contending that the decision of ZIMRA is binding. They
further assert that in their view the applicants have merely
abdicated from their responsibility to remit the VAT so collected to
ZIMRA and the consequences attendant thereto cannot be visited on
them.
2.
That the endeavour on the part of the applicants to recover the VAT
they paid from them amounts to an attempt to vary the implied terms
of their contract.
3.
That as far as the 5th
respondent is concerned its cane supply arrangement with the
applicants is governed by neither a cane milling agreement nor a cane
purchase agreement but rather by what it terms a “memorandum of
understanding.” A copy of which was attached.
4.
A further point raised by the 5th
respondent was that the very fact that invoices relating to
disbursements of the individual farmer's share of proceeds is
silent on the collection of VAT necessarily implies that VAT was
included in the 23 percent milling charge.
5.
During oral addresses in court yet another argument was presented
namely that the DoP ratio was decided upon by the minister
responsible for the superintendence of the sugar sector, namely the
minister of Industry and Commerce.
It
was averred in this regard that during the negotiations leading up
those figures (of 23 percent and 77 percent) it was in the
contemplation of the parties that VAT was incorporated in the 23
percent milling charge.
In
apparent departure from the positions held by the other respondents,
the 7th
respondent maintained that section 69 of the Act applies to all
supplies of cane; past present and future.
THE
ISSUES
In
my view there are two broad issues up for determination in this
dispute and from each two sub questions arise. The two broad
questions are:
(1)
Whether the 23 percent cane milling charge includes or excludes VAT;
and
(2)
Whether there has been an unjustifiable interference by the 1st
respondent in purely contractual matters between the applicants and
the farmers.
The
sub-questions in respect of (1) above are:
(a)
Whether or not the applicants are entitled to recover from the
farmers VAT which they (i.e. applicants) paid to ZIMRA for past
supplies; and
(b)
Whether or not the applicants are entitled to charge, levy and
collect from the farmers VAT over and above the 23 percent milling
charge.
The
sub-questions from (2) above are:
(a)
Whether the applicants have satisfied the requirements for the
declaratur sought in paragraph 2(a) of the draft order; and
(b)
Whether the applicants have satisfied the requirements for the
interdict sought in paragraph 3 of the draft order.
WHETHER
THE 23% CANE MILLING CHARGE INCLUDES OR EXCLUDES VAT
This
is arguably the most significant question as it lies at the very
heart of the dispute.
As
indicated above the applicants used various arguments in support of
their contention that the 23 percent milling charge must be taken as
excluding VAT.
They
relied inter alia on subsections 2 and 5 of section 9 of the Act.
I
however fail to see how s9(2)(b) assists the applicants.
Section
9 in general is aimed at the determination of the value of supply of
goods or services. Paragraph 2(b) in particular is a proviso to the
general provision that the value to be placed on any supply of goods
or services is the value of the consideration.
This
proviso however addresses a situation where the registered operator
neglects to separately account for the value of the consideration
which represents tax in which case it will be deemed to be the tax
fraction of the consideration.
Implicit
in this proviso is that the tax fraction is to be calculated from
that consideration: not in addition to that to the consideration. A
fraction of something is piece, part, portion or component of
something. Put in context, therefore, the tax fraction is
incorporated in not excluded from or to be added to the 23 percent
milling charge which is consideration.
Subsection
(5) of Section 9 of the Act equally does not avail the applicants.
It
is simply a method aimed at assisting in the computation of the
consideration of the supply of the goods or services in question in
instances of “deemed supply”. The basic idea being that this
involves a calculation of all the expenses incurred in or attendant
to the acquisition of the goods or services (or any lesser amount) or
simply the open market value of such supply.
Needless
to say that this provision does not even come close to unlocking the
current legal logjam, let alone assist the applicants.
UNJUST
ENRICHMENT
The
applicants averred that if they are not permitted to recoup that
which they have since paid to ZIMRA by way of VAT emanating from past
supplies of cane, then the farmers would have been unjustly enriched
at their (applicants') expense. This is because the ultimate
responsibility to pay VAT rests on the farmers who are the consumers
of the milling service.
All
things being equal, this argument would perhaps have carried the day
for applicants had it been established one way or the other that the
23 percent milling charge does not include VAT.
What
has to be established first is whether or not it does.
It
is only after that determination that one can legitimately argue that
placing the burden on the applicants to foot this tax when the
milling charge did not include tax as amounting to unjustly enriching
the farmers at the applicants' expense or conversely that
permitting the applicants to recoup from the farmers what they
(applicants) have since paid to ZIMRA when it is established that the
23 percent actually incorporated the tax can one argue the applicants
as having been unjustly enriched at the expense of the farmers.
EQUITY
Counsel
for the applicants made an impassioned plea for the court in the name
of equity to find that the applicants are entitled to recoup the VAT
in question which they have already paid.
In
Sanudi
Masudi v David Jera
HH67/2007 MAKARAU JP (as she then was) made short shrift of an
argument based entirely on equity (a position I adopt in casu) she
had this to say:
“That
argument would have won the day were we a court of equity. We are but
a court of law and as correctly advanced by both counsel, we are to
be restricted by the pleadings filed by the parties to establish the
cause of action that was before the trial court and the defense that
was raised to meet that cause of action.”
Although
the circumstances of that case were admittedly different from the
present one, the fact remains that the court is confined to an
application of the letter of the law to the facts and not necessarily
the parties' subjective views of what is right or wrong.
Proceeding
now to address some of the arguments raised by the farmers.
In
furtherance of their argument that the court should find that the
milling charge included VAT, there was what may be termed a
half-hearted suggestion that the impasse should be resolved on the
basis of some ministerial directive which preceded or was
contemporaneous with the agreement on the DoP ratio.
That
argument cannot find traction for two basic reasons.
(i)
Firstly, a copy of the supposed ministerial directive does not
constitute part of the court papers in these proceedings. If the
directive was oral then a supporting affidavit from the minister in
question should have been annexed.
(ii)
Secondly, the parol evidence rule finds application in this regard.
This rule has been described in the following terms:
“When
a contract has been reduced to writing, the writing is, in general,
regarded as the exclusive memorial of the transaction and in a suit
between the parties no evidence to prove the terms may be given save
the document or secondary evidence of its contents, nor may the
contents of such document be contradicted, altered, added to or
varied by parol evidence.”
See
Union Government v Vianini Ferro-Concrete Pipes (Pty) Ltd 1941 AD 43
at 47; Purchase De Huizemark Alberton (Pty) Ltd t/a Bob Percival
Estates 1994 (1) SA 281 (W) at 283 I-J.
The
parol evidence rule is closely linked to the integration rule.
Schwikkard
and Van Der Merwe in Principles of evidence (4th
edition) on page 40 refer to Wigmore's famous passage (Wigmore on
Evidence 3rd
edition Vol 9 at para 2425) explaining the integration rule:
“[The]
process of embodying the terms of a jural act in a single memorial
may be termed the integration of the act, i.e. its formation from
scattered parts into an integral documentary unity. The practical
consequence of this is that its scattered parts, in their former and
inchoate shape, do not have any jural effect; they are replaced by a
single embodiment of the act. In other words: when a jural act is
embodied in a single memorial, all other utterances of the parties on
that topic are legally immaterial for the purposes of determining
what are the terms of their act.”
In
the context of this case, therefore, neither party can purport to
supplement what is contained in their sugarcane supply agreement by
reference to extrinsic evidence.
See
also Macey's
Stores Ltd v Tanganda Tea Co Ltd SC122/83.
Should
the minister have indeed brokered an agreement (or directed) that VAT
be incorporated in (or excluded from) the 23 percent milling charge
that should appear ex-facie the written memorandum.
Equally
untenable is the argument advanced on behalf of the 2nd,
8th
and 10th
respondents that the very fact that ZIMRA has deemed that the 23
percent milling charge as being inclusive of VAT is determinative of
the issue.
ZIMRA
as with any other individual or entity is bound by the provisions of
the law (in this case the VAT Act). Its interpretation of its
provisions is also subject to judicial review. The court is still
enjoined to determine the correctness or otherwise of that
interpretation.
The
5th
and 7th respondents implored the court to first make a determination
of the species of the agreement between the farmers and the
applicants before deciding on the tax implications thereof.
The
8th
respondent further averred that its arrangement with the applicants
was governed neither by the cane purchase agreement nor the cane
milling agreement but rather by a special memorandum of
understanding.
This
entire argument leads nowhere.
It
is not the name ascribed to the agreement but the terms (or absence
thereof) as they relate to VAT and the legal consequences flowing
therefrom.
A
perusal of the agreements by whatever name they were called reveals
that there was no express mention of VAT.
In
any event it is instructive to note two important things;
(i)
firstly, this issue not being the basis of these current proceedings
was not properly argued by the parties, reference to it was merely
peripheral and incidental.
(ii)
Secondly, that issue is currently before the Fiscal appeals Court.
The
real issue as I see it, lies in the interpretation of sections 69 and
72 of the Act and their application to the facts of this matter.
REGARDING
PAST SUPPLIES OF CANE
As
indicated earlier, in this regard ZIMRA relied almost exclusively on
the provisions of S69 of the Act (and the farmers adopt a similar
stance) which provides as follows:
“69
Prices deemed to include tax
(1)
Any price charged by the registered operator in respect of any
taxable supply of goods or services shall for the purposes of this
Act be deemed to include any tax payable in terms of paragraph (a) of
subsection (1) of section six in respect of such supply, whether or
not the registered operator has included tax in such price.”
According
to ZIMRA the significance of this section is that where the
price/charge (which in this case the milling price which is pegged at
23 percent of the value of the proceeds from the cane) is silent on
the VAT component thereof, it is deemed, ex
lege
that VAT is included in that price.
Put
in perspective, therefore, according to the 1st
respondent, it is deemed that the consumer of the goods or service
(in this case the farmer) has already paid VAT in that price and by
logical extension, all the registered operator (in this case the
applicants) needs to do is to remit it to ZIMRA.
Any
purported attempt to recover the same from the consumer is untenable
because that would not only amount to taxing the consumer twice but
also runs contrary to the tenor and spirit of that section.
ZIMRA
further contended that doing so would inevitably lead to a fresh
computation of the VAT payable because the one calculated and
subsequently paid by the applicants was on the basis of section 69.
In
a nutshell accepting the position adopted by the applicants would
yield higher figures for the VAT payable.
The
applicants took a contrary view and argued;
(i)
Firstly that there is no need to resort to the deeming provision of
any legislation when in fact the issue in question is adequately
provided for elsewhere in that Act.
This
is because, so the argument goes, it should only be resorted to in
instances of omission on the part of a party with the duty to comply
with a statutory obligation.
(ii)
Secondly, they contended that the Section 69 only serves to remove as
a potential defence in situations such as the present when ZIMRA
demands from it the VAT component of any price where same is not
expressly stated therein.
However,
according to them, it offers no sanctuary to a consumer when the
registered operator now seeks to recover from him (i.e. consumer)
that which they paid pursuant to ZIMRA's decision.
In
my view the position adopted by the applicants cannot be sustained.
Firstly
s9(2) and s9(5) which they relied on have already been found to be of
no application to the current dispute.
Secondly,
the plain and literal meaning of the section suggests that it is
irrelevant whether or not the registered operator has in fact charged
the tax in question, where the price does not reflect the tax
component thereof it is presumed that the tax is incorporated in that
price.
In
other words the phrase “whether or not the registered operator has
included tax in such price” operates a twin blow to the registered
operator: it serves to estop him from denying that the price in
reality did not include tax in a bid to avoid accounting for the tax
to the commissioner. At the same time it precludes him from
purporting to claim from the consumer the tax that he may or may not
have collected from the consumer.
The
question of who bears the obligation under the Act to pay the tax
(who is obviously the consumer) which the applicants expended so much
effort on is hardly the issue.
To
contend that s69 should be construed so as to permit the registered
operator to pursue the consumer for the recovery of the tax they paid
to ZIMRA would in my view run contrary to the clear intention of the
legislature.
The
legislature must obviously have been alive to the fact that in most
day to day supply of goods and services the customer disappears
without trace soon after the transaction.
How
then would the registered operator be able to recoup the tax that he
claims he did not in fact charge and collect?
Even
if the customer could be traced, there would be an unnecessary
proliferation of disputes between him and the registered operator as
to whether the price included VAT or not.
It
would create unnecessary uncertainty and confusion in the market
place where the consumer will never know whether or not the price
charged includes VAT and where he always runs the risk of being
informed ex post facto that the price he paid actually did not
include tax.
If
the applicants are permitted to recover the tax in question from the
farmers then the deeming provision will be rendered nugatory. It
would mean the price cannot then be deemed to include tax: it is as
simple as that.
Further,
related to the above; the deeming provision cannot be interpreted to
mean two different things to two different people.
The
interpretation that the applicants want to foist on s69 will result
in a mathematical or accounting incongruence and an absurdity in
logic.
ZIMRA
in its papers vividly illustrate the mathematical inconsistency that
will arise when they juxtapose the outcomes of the two contrasting
positions using the hypothetical figure of $1,000 as proceeds for the
sale of sugar thus:
(a)
Where section 69 is invoked
Proceeds
from sale of sugar = $1,000
Price
for milling services at 23% of the proceeds = ($1,000 x 23%) = $230
VAT
due after deeming that that price includes VAT = ($230 x 15/115) =
$30
(b)
Where the applicants recover the section 69 ($30) VAT from the
farmers
Proceeds
from sale of sugar = $1,000
Price
for milling services at 23% of the proceeds = ($1,000 x 23%) = $230
VAT
due after deeming that that price includes VAT = ($230 x 15/115) =
$30
VAT
due after the applicants recover the $30 VAT from the farmers = 15%
($230-30+30) = $34.50
What
the applicants are moving the court to accept will also yield a
further absurd result in the following context:
Where
from the standpoint of the 1st
respondent vis a vis the applicants, VAT is deemed to be included in
the price, yet from the standpoint of the applicants vis-a-vis the
farmer, the price is deemed not to include the tax.
It
could never have been the intention of the legislature to produce
such an absurd or anomalous situation.
The
net result of the interpretation should be uniform, consistent and
certain not only to the parties but also to other persons similarly
situated.
Section
69 effectively places the registered operator on guard on the
consequences of his failure to specifically include in his price the
VAT component thereof.
Viewed
differently, it is the responsibility of the registered operator to
ensure that VAT matters are addressed in his dealings with the
consumer. It is not a responsibility that the registered operator
jointly shares with the consumer because the duty to account to the
Commissioner ultimately rests with him (i.e. Registered Operator).
There
can never be a conflation of the roles, duties and responsibilities
among the various parties: the burden to pay the tax lies with the
consumer (the farmer), the duty to charge, collect and remit the tax
lies with the registered operator (the applicants).
In
the context of this case, whether occasioned by inadvertence,
oversight or a misinterpretation of the nature of the contract, the
consequences of the failure to specifically include the VAT are that
VAT is deemed included in the milling price.
During
the proceedings resort was made by the applicants to s72(1) of the
Act which provides as follows:
“72
Contract price or consideration may be varied according to rate of
value-added tax
(1)
Whenever the value-added tax is imposed or increased in respect of
any supply of goods or services in relation to which any agreement
was entered into by the acceptance of an offer made before the tax
was imposed or increased, as the case may be, the registered operator
may, unless agreed to the contrary in any agreement in writing and
notwithstanding anything to the contrary contained in any law,
recover from the recipient, as an addition to the amounts payable by
the recipient to the registered operator, a sum equal to any amount
payable by the registered operator by way of the said tax or
increase, as the case may be, and any amount so recoverable by the
registered operator shall, whether it is recovered or not, be
accounted for by the registered operator under this Act as part of
the consideration in respect of the said supply.”
In
my view this provision is meant to address the adjustments that may
have to be made in contractual situations wherein at the time the
offer was made there was no VAT imposable on that contract or it
stood at a certain level, however by the time the acceptance is made,
that type of contract by operation of the law, now attracts VAT or
had been increased.
The
imposition of or the increase in the VAT was not in the contemplation
of the parties thereby necessitating an adjustment in the price.
This
provision is clearly not applicable to the current dispute.
There
was no imposition of a “new” tax which hitherto did not exist,
nor was there an increase of the VAT chargeable and payable. The
parties merely failed to take into account a tax which was already in
existence.
PRESENT
AND FUTURE SUPPLIES OF CANE
Therefore,
against the backdrop of a finding that the parties (whether through
inadvertence, oversight or misapprehension) failed to address VAT
matters in their contracts, one cannot legitimately vouch for the
perpetuation of the status quo.
It
behoves the parties to renegotiate or clarify the terms of their
contract to plug that lacuna.
It
suffices to state that failure to do so may very well result in s69
being continuously invoked.
I
did not get the impression from the concession made on behalf of the
2nd,
8th
and 10th
respondent that they are necessarily agreeable to the charging of VAT
by the applicants over and above the 23 percent milling charge.
What
I gathered was a concession merely that the applicants can charge,
levy and collect VAT from the farmers in compliance with the
requirements of the Act.
THE
DECLARATUR AND INDERDICT SOUGHT IN PARAS (2a) AND 3 OF THE DRAFT
ORDER RESPECTIVELY
The
relief sought in each of the above emanates from the same alleged
culpable conduct. In both instances the applicants complain that the
1st
respondent has in the past overstepped its mandate (i.e. it acted
ultra vires its functions and responsibilities) and has unjustifiably
(and gratuitously) interfered in matters that are purely contractual
as between themselves and the farmers.
The
Declaratur
In
MDC
v The President of the Republic of Zimbabwe & Ors
HH28/2007, MAKARAU JP (as she then was) on the strength of the
approach by VAN DIJKHORST J in Family
Benefit Friendly Society v Commissioner for Inland Revenue and Anor
1995 (4) SA 120 summarises the factors to be considered in an
application for a declaratur. She stated that the applicant or
plaintiff must show that:
1.
It is an interested person;
2.
There is a right or obligation which becomes the object of the
inquiry;
3.
It is not approaching the court for what amounts to a legal opinion
upon an abstract or academic matter;
4.
There must be interested parties upon which the declaration will be
binding;
5.
Considerations of public policy favour the issuance of the
declaratory.
As
far as the first requirement is concerned it can hardly be disputed
that the applicants are interested persons.
To
the extent that they stand to be affected by any opinion or advice
rendered by the 1st
respondent to the contracting parties in the sugarcane supply
agreements, the applicants do have an interest thereto.
The
second requirement however poses a stern challenge to the applicants.
In
the MDC v The President of the Republic of Zimbabwe case (supra) the
court reviewed a number of decisions on the import of this
requirement (among them Electrical Contractors' Association (South
Africa) and Another v Building Industries Federation (South Africa)
(2) 1980 (2) SA 516 (T); Durban City Council v Association of
Building Societies 1942 AD 27; and Caluza v Independent Electoral
Commission and Another 2004 (1) SA 631 (Tk) and concluded as follows:
“It
appears to me from a reading of the above authorities that what is
required to be contended is a legal right and not a factual basis
upon which a right may then be founded.
In
casu, all the declaratory orders do not relate to a right. Nowhere
has the applicant, as a political party with the majority of
opposition seats in parliament, contended that its rights are in
issue and what those rights are.
I
would therefore hold that the declarators sought in this application
are incompetent as they relate to a factual situation and not to any
rights, existing or future, that the applicant has or may have.
As
has been stated in the authorities, the applicant must set forth its
contention as to what the alleged right is. This, the applicant has
failed to do. It is not for me to speculate as to what that right is
or may be.”
In
my respectful view, the applicants in the present case find
themselves in a similar situation.
Apart
from alleging a certain factual situation as obtaining (namely the
giving of advice by the 1st
respondent) they have not asserted precisely what right they purport
to have.
For
that reason the application for the declaratur in paragraph 2(a) must
fail.
The
Interdict
The
parties sparred on the precise nature of the relief sought in
paragraph 3 of the applicant's draft order.
It
was submitted on behalf of the applicants that what they seek is in
fact an interdict although they did not characterise it as such in
their papers.
The
requirements for an interdict are well known; they may be summarised
as:
1.
A clear right on the part of the applicant;
2.
Actual or reasonably apprehended injury; and
3.
Absence of any other remedy by which the applicant can be protected
with the same results.
See
Flame
Lily Investments Company (Pvt) Ltd v Zimbabwe Salvage (Pvt) Ltd &
Anor
1980 ZLR 378; Setlogelo v Setlogelo 1914 AD 221.
As
far as the first requirement is concerned, the current application is
blighted by several shortcomings.
(i)
Firstly the imprecision of the term “gratuitous interference”
renders the relief sought virtually unenforceable. When does
interference cross the line from “normal” (hence acceptable) to
“gratuitous” (and therefore merits censure)?
(ii)
Secondly, there is no evidence that the 1st
respondent has interfered in the pricing
issues between the applicants and the farmers.
The
evidence placed during this application shows that the advice which
1st
respondent gave relates to VAT matters.
The
paragraph of the letter by the 1st
respondent which the applicants find offensive reads:
“Having
gone through the report by Ernst and Young Consultants on the review
of Division of Proceeds (D.o.P.) and the cane purchase agreement, I
noted that the two documents are silent on tax issues. In that regard
the legislation provides that VAT is included in the 23% milling
charge.”
It
is clear that the advice given only related to 1st
respondent on VAT matters in view of the circumstances which the
parties to the contract found themselves in.
That
advice can neither be termed gratuitous nor unjustified interference.
It
does not in the least relate to pricing.
In
any event, tax issues in the context of this case can hardly be
referred to as pricing (or contractual) matters: they are matters of
statutory interpretation.
(iii)
Thirdly, there is an email from one Bigboy Shava acting on behalf of
the 2nd
respondent which email is dated 12 June 2019 directed to the 1st
respondent among, other issues, urging the latter to essentially
register and educate the farmers on the implications of its (i.e. 1st
respondent's) tax directive (which the applicants were and still
are challenging).
It
was then that meetings were held on 28 August and 6 September 2019.
These
meetings were followed up with the letter dated 9 September 2019.
Therefore
the applicants having requested the 1st
respondents to address the farmers on the tax implications of their
agreement cannot turn around and cry foul and allege gratuitous
interference.
In
the circumstances there can be no justification in granting the
interdict sought.
The
3rd,
4th,
6th,
9th
and 11th
respondents fell by the wayside for the various reasons outlined
earlier in this judgment.
Counsel
for the applicants sought for default judgment to be entered against
them.
Ordinarily
that would be course of action that would ensue when a party is
barred or is in default.
However,
in view of the findings of the court above, that would create an
untenable inherent contradiction. The court cannot in one breath
grant the order sought (albeit by default) against those respondents
yet in the next breath rule that the application is unmeritorious.
For that reason the court will not grant the said default judgment.
COSTS
The
general rule is that the successful party is entitled to his costs.
In
determining who the successful party is the court looks to the
substance and not the form of the judgment.
In
the present case the respondents who participated in this application
(i.e. the 1st,
2nd,
5th,
7th,
8th
and 10th
respondents have been substantially successful. There is no
justification in denying them of their costs.
In
the final analysis, therefore, the following order is hereby given:
1.
The application for a declaratur as sought in paragraph 2(a) of the
draft order be and is hereby dismissed.
2.
The application for a declaratur as sought in paragraph 2(b) of the
draft order as it relates to past supplies of sugar cane be and is
hereby dismissed.
3.
In respect of present and future supplies of sugar cane it is hereby
ordered that the applicants and the 2nd-11th
respondents are at liberty to renegotiate and/or clarify the terms of
their contracts to specifically incorporate VAT issues and proceed on
that basis.
4.
The application for an interdict as sought in paragraph 3 of the
draft order be and is hereby dismissed.
5.
The applicants are hereby ordered to meet the costs of the 1st,
2nd,
5th,
7th,
8th,
and 10th
respondents costs.
Scanlen
and Holderness;
Applicants Legal Practitioners
Chuma,
Gurajena and Partners;
1st
Respondent's Legal Practitioners
Muzenda
and Chitsama Attorneys;
2nd,
8th
& 10th
Respondents Legal Practitioners
Ndlovu
and Hwacha;
5th
Respondent's Legal Practitioners
Ross
Chavi Law Office;
7th
Respondent's Legal Practitioners
