In recent years, the South African Revenue Service (SARS) has been tightening its grip on diesel refund claims and related compliance requirements. A time has come where diesel refund compliance must be seen as assembling a puzzle, with each piece having to fit perfectly to reveal the full picture (of compliance).
Understanding the Diesel Refund System
The diesel refund is governed by the Customs and Excise Act, No. 91 of 1964 (the Act), which aims to provide relief to certain industries that are dependent on diesel usage, which include agriculture, mining, and fisheries.
Due to high levels of non-compliance and fraudulent claims, SARS has since adopted a stricter approach when assessing validity of diesel refund claims. This increased vigilance has led to more audits, as SARS seeks to verify whether Claimants have adhered to all regulatory requirements.
Participants of the diesel refund scheme, ought to always consider the requirements of Note 6 of Part 3 of Schedule 6 to the Act. This note details the requirements and compliance measures and record keeping requirements to prove compliance for a successful diesel refund claim.
Note 6(q) of Schedule 6 details the required supporting documents and information for the purposes of claiming a refund. Note 6(v) of Schedule 6 further outlines the documents to be kept that were used for the purchase of the fuel that was used, sold, or otherwise disposed of, in attending to the qualifying activities.
All the above aspects were given full considerations in Umbhaba Estate (Pty) Ltd v CSARS ((66454/2017) [2021] ZAGPPHC (10 June 2021) (the Umbhaba Judgment).
Umbhaba Estate (Pty) Ltd v CSARS
In the Umbhaba case, the crux of the dispute centred on whether Umbhaba had provided adequate proof to justify the diesel refund claims. The central issue was the obligation on the Claimant to not merely "motivate" compliance but to prove compliance, a principle that is critical to diesel refund audits.
The Court had to decide on whether SARS was correct in refusing Umbhaba's application for a diesel refund. Umbhaba had approached the Court to challenge SARS' decision to disallow its diesel refund claims.
In coming to its decision, the Court impressed on the need for Claimants to keep accurate records an in the prescribed form. The Court further emphasised that the onus is on Claimants to prove to SARS that the diesel was used for a qualifying activity as prescribed in Note 6 of Schedule 6. It was emphasised that if the usage of diesel is unclear or cannot be distinctly linked to eligible activities, the claim will have to fail.
Key Takeaways
The Umbhaba judgment's key highlights were that SARS will not merely accept the validity of a claim based on the submission of a claim. The claim must be supported by additional (indisputable) proof of compliance such as detailed logbooks that are in the prescribed form.
The Court reinforced that logbooks ought to provide a full audit trail of the diesel usage, from purchase to specific activities. The Court rejected Umbhaba's approach of using generic records, which it deemed failed to distinguish between eligible and non-eligible activities clearly.
The Court held that in a diesel refund audit, it is the Claimant that has the onus to provide comprehensive documentation that substantiates their entitlement to the refund. It is not sufficient to make general assertions of compliance or simply rely on industry practice. Instead, the Claimant must present concrete, verifiable evidence that aligns with SARS' requirements. This is a factual inquiry: either the requisite documents have been provided, or they have not.
This stricter shift by the SARS (and Courts) will now demand businesses to maintain logbooks that clearly specify the purpose of the diesel usage, the equipment or vehicles involved, and whether the activity falls within eligible categories.
The Umbhaba case brings to light a critical distinction in
diesel refund audits: the difference between "motivating"
compliance and "proving" compliance.
For those involved in diesel refunds the takeaway is that
acceptable compliance will only be established by producing the
necessary documentary evidence. As such, proving compliance becomes
a factual exercise, i.e. whether SARS has been presented with the
required proof of compliance.
Legal Reprieve for Claimants
The Court did however leave some reprieve for Claimant, holding that 'when a Claimant has provided the necessary documentation, the onus shifts to SARS to verify the content and determine compliance within a reasonable time frame.
If all required documents are submitted, the ball moves to SARS, on whether SARS has had sufficient time to verify those documents and determine the validity of the refund claim. Should a dispute arise due to delays on SARS' part, a Claimant then has the legal right to approach the courts (as seen in the Umbhaba case), to request that the refunds be paid pending final verification or that the court makes the determination.
Diesel refunds Claimants should ensure that all diesel usage record and supporting documents are maintained in the prescribed form and in a manner that can be easily verified by SARS. The Umbhaba judgment serves as a powerful reminder that precise, organized documentation is essential for substantiating claims.
Proving compliance is no longer just about good intentions—it's about providing irrefutable evidence that withstands close examination.
At Andersen, our team of specialists is ready to support your business through these challenges, guiding you through the compliance maze and helping you secure the refunds you're entitled to. Reach out to us for expert guidance and to ensure your claims are backed by the evidence SARS requires.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
