The Commissioner for the South African Revenue Service (SARS), Dr Johnstone Makhubu, has welcomed a unanimous Constitutional Court judgment in the matter against Lueven Metals (Pty) Ltd, which confirms SARS' interpretation of the Value-Added Tax Act.
The court confirmed that the zero-rating of gold under section 11(1)(f) of the Value-Added Tax Act, 1991, does not apply to second-hand or recycled gold that has already undergone prior manufacturing.
SARS said the ruling provides clear legal guidance, puts an end to aggressive VAT interpretations, and reinforces its commitment to enforcing tax law in a principled manner.
"This judgment reaffirms a foundational principle of our constitutional democracy: that legislation must be applied as written, consistently, and fairly.
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"The Constitutional Court has provided unequivocal clarity, and that certainty benefits vendors, financial institutions, and the precious metal industry regarding the VAT treatment of gold supplied under section 11(1)(f)," the Commissioner said on Tuesday.
The judgment clarifies that the zero-rating of gold supplied to the South African Reserve Bank, the South African Mint Company (Proprietary) Limited, or a registered bank applies only when the gold is supplied in one of the prescribed forms and has not undergone any manufacturing process other than refining or the manufacture or production of those prescribed forms.
The matter arose from a dispute over the VAT treatment of refined gold supplied to prescribed purchasers, such as registered banks.
Lueven Metals, a buyer and refiner of second-hand gold, treated its sales of refined gold bars to a commercial bank as zero-rated, despite the gold originating from previously manufactured sources, such as scrap jewellery.
Following an audit, SARS determined that these supplies did not qualify for zero-rating under the VAT Act.
The High Court upheld SARS' interpretation, and the Constitutional Court has now conclusively confirmed that position, dismissing the appeal with costs.
SARS said that, in its unanimous judgment, the Constitutional Court held that section 11(1)(f) sets out three cumulative requirements for zero-rating.
These include that the supply must be to a prescribed purchaser; the gold must be supplied in one of the prescribed forms; and, critically, the gold must not have undergone any manufacturing process other than refining or manufacturing into those prescribed forms.
"Gold that has previously been manufactured into non-prescribed forms, such as jewellery or other fabricated items, falls outside the scope of the zero rating," SARS said.
The court found that SARS' interpretation gives proper meaning to the statutory text and avoids rendering key provisions redundant.
"While refining does eradicate the recycled gold's previous form, it does not alter the fact that such gold previously underwent a disqualifying manufacturing process. Thus, on a purely textual reading, Lueven's supply of recycled gold cannot benefit from zero-rating," Makhubu said.
He said the judgment provides long-awaited clarity for the gold, refining and banking sectors by confirming that recycled or second-hand gold remains subject to VAT at the standard rate, supporting compliant businesses and fair competition.
"Voluntary compliance is built on trust, and trust depends on certainty. This ruling removes ambiguity as it reinforces that when taxpayers know precisely where the law stands, they can comply with confidence," the Commissioner said.
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Makhubu added that the judgment also aligns directly with SARS' strategic intent to promote voluntary compliance.
It also helps protect the tax base while ensuring that all revenue due to the State is collected.
"Fair tax administration means that no taxpayer gains an unintended advantage at the expense of others. This outcome ensures that compliant businesses are not undercut by aggressive practices that erode fairness and distort competition.
"As SARS, we have a constitutional and statutory responsibility to protect the revenue base for the benefit of all South Africans. Every rand improperly lost through misinterpretation or non-compliance is a rand unavailable for schools, healthcare, infrastructure and social protection," he said.
