South Africa: A Rare Victory For Taxpayers: The High Court – A Proper Referee For Certain Tax Disputes – Blows The Final Whistle On The Interpretation Of Section 4(2) Of The Mineral Royalty Act

In the case of Richards Bay Mining (Pty) Ltd v C:SARS (Case no.: 2023-045310), the High Court deliberated on two pertinent questions of law. The taxpayer sought a declaratory order from the High Court relating to the proper interpretation of s 4(2) of the Mineral and Petroleum Resources Royalty Act, 2008 (“Royalty Act”), and, whether, in the determination of an extractor's mineral royalty liability, all unrefined mineral resources transferred by the same extractor should be aggregated or determined on a mineral-by-mineral basis. The Commissioner for the South African Revenue Service (“SARS”) raised a point in limine objecting to the High Court's jurisdiction to hear the matter on the basis that s 105 of the Tax Administration Act, 2011 (“TAA”) ousted such jurisdiction. The Court was therefore required to address the issue of jurisdiction before considering the main issue. 

Jurisdiction

In broad strokes, s 105 of the TAA provides that a dispute of an “assessment” or “decision” by SARS described in s 104 of the TAA is to be heard by the Tax Court unless a High Court otherwise directs. SARS contended that s 105 of the TAA confers exclusive jurisdiction to the Tax Court in all tax-related matters, and therefore is an ouster of the High Court's jurisdiction. The High Court acknowledged that s 105 of the TAA has been the subject of scrutiny by the Courts and that there are conflicting approaches by the Courts. 

Most recently, the Supreme Court of Appeal (“SCA”) in Lueven Metals (Pty) Ltd v C:SARS 2023 refused to issue a directive in terms of s 105 of the TAA in an application for declaratory relief in circumstances similar to this case. The judgment in the Lueven Metals case followed a procession of precedents handed down by the SCA in recent months (see C:SARS v Rappa Resources (Pty) Ltd 2023 and United Manganese of Kalahari (Pty) Ltd v C:SARS 2023). These cases are however all pending before the Constitutional Court and therefore suspended. As such, it was not for the Court in Richards Bay to resolve the divergent decisions. Instead, the Court applied itself, independently of the decisions pending before the Constitutional Court, to s 105 of the TAA in applications for declaratory relief. 

The Court held that inherently s 105 of the TAA acknowledges that a High Court may entertain a disputed assessment or a decision – going against the grain of the suspended legal precedents of the SCA on s 105 of the TAA. The Court held that the High Court has inherent jurisdiction regardless of whether there is a disputed assessment or decision, relying on the confirmation of the Constitutional Court that jurisdiction is to be determined by the pleadings (see Transnet (SOC) Ltd v Total South Africa (Pty) Ltd and Another 2022). In that respect, the Court held that the issue for consideration per the taxpayer's notice of motion was declaratory relief relating to the proper interpretation of s 4(2) of the Royalty Act and not a decision concerning an “assessment” or “decision” by SARS. Importantly, the Court relied on the judgments of the Constitutional Court in Barnard Labuschagne Incorporated v SARS 2022 and Metcash Trading Ltd v C:SARS 2001), the latter of which held that the Constitution of the Republic of South Africa, 1996 confers the power on the High Court to grant declaratory relief and make any order that is just and equitable and that there is a strong presumption against any ouster or curtailment of any court's jurisdiction. As such, the Court held that s 105 of the TAA did not find application in the present instance and the Court dismissed SARS' point in limine. 

Declaratory relief on the interpretation of s 4(2) of the Royalty Act

Section 4(2) of the Royalty Act provides for the percentage to be applied in the calculation of an extractor's mineral royalty liability in respect of unrefined mineral resources extracted by that extractor. The case concerned the interpretation of the said section, particularly whether the words “mineral resources” in s 4(2) of the Royalty Act should be taken to mean each mineral resource individually (as contended by SARS) or encompass an aggregated approach for all mineral resources extracted by the extractor (as contended by the taxpayer). 

The Court held that in the context of the Royalty Act as a whole, the legislature applied the singular form of mineral resources where so intended (e.g., ss 1, 2, 3, 6, 6A of the Royalty Act). For example, s 6 of the Royalty Act applies the singular form as it requires an individual approach to each mineral resource for the purpose of establishing the tabulated condition of each particular mineral resource in the Schedules to the Royalty Act. Conversely, the legislature intentionally referred to mineral resources in the plural form in ss 4 and 5 of the Royalty Act as it was intended that one overall mineral royalty applicable to the extractor of the ore body which may contain multiple minerals mined in a single mining operation as part of a single extraction exercise be calculated. So, too, may it not be practicable to allocate the capital and operational expenditure incurred in such exercise to each individual mineral resource. It therefore followed that the change in the meaning of the wording in s 4(2) of the Royalty Act was intentional (see Van Zyl v Auto Commodities (Pty) Ltd 2021).

The Court therefore held that a single percentage is to be calculated (i.e., only one royalty rate) in respect of all unrefined mineral resources transferred by an extractor. SARS' contention that the calculation be performed by adopting a mineral-by-mineral or category-by-category approach was therefore rejected.

Impact

The Court's decision marks a significant victory for the mining industry as it clarifies the approach to calculating mineral royalties in a manner that could reduce the financial burden on companies that extract multiple types of mineral resources. The judgment not only resolves the dispute at hand but also sets a precedent that will guide the calculation of mineral royalties in South Africa moving forward, ensuring a clearer and more equitable framework for both the mining industry and the government. 

Although the High Court judgment accords with Constitutional Court precedent on declaratory orders, it is a departure from recent SCA precedent (which is being appealed to the Constitutional Court and thus suspended) and confirms that s 105 of the TAA does not serve as an automatic ouster of the High Court's inherent jurisdiction in granting declaratory relief. While SARS may very well appeal the judgment, it marks a refreshing turn in recognising taxpayer's constitutionally entrenched rights to approach the High Court in tax-related matters in certain instances.

*ENS represented Richards Bay Mining (Pty) Ltd in this matter.

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