Court refuses R1bn Sars order

• Tax agency fails in bid to claw back refunds of duties and levies paid to PetroSA on fuel exports for nearly 10 years

The SA Revenue Service (Sars) has failed in its attempt to recoup about R1bn from state-owned oil company PetroSA in a case that shows the tax agency allowed companies to export fuel from unlicensed depots for nearly a decade.

Tax law makes provision for Sars to refund excise duties, fuel levies and Road Accident Fund (RAF) levies paid on fuel manufactured in SA but ultimately exported elsewhere.

With Sars’ knowledge, PetroSA has been exporting fuel levy goods from Transnet’s Tarlton

facility since 2013. The Tarlton depot in Gauteng is owned and controlled by Transnet and was not a licensee until recently.

The depot has capacity of 30million litres, and is used mainly for storage and the distribution of liquid fuels into Botswana. PetroSA also owns two unlicensed storage depots at Bloemfontein and Tzaneen, which it bought from BP in 2012.

Evidence led in the high court in Cape Town shows that PetroSA, a subsidiary of the Central Energy Fund (CEF), presented Sars with its business model in 2012. It includes the involvement of intermediaries to export fuel, with PetroSA retaining ownership of the fuel until trucks cross the border.

This means PetroSA would be seen as an exporter of the fuel. Sars did not object to the business model.

However, in 2018 the tax agency disallowed the tax refunds claimed by PetroSA, arguing that refunds were not due on the basis that the storage facility from which the product was ultimately removed before export was not a licensed warehouse in terms of the tax laws.

The tax dispute between Sars and PetroSA is centred on more than 10,000 transactions from May 2015 to March 2017. Sars slapped PetroSA with a letter of demand, saying that it must repay the refunds paid to it and related liabilities of just more than R1bn.

PetroSA’s argument is that it has been exporting fuel levy goods from Tarlton, Tzaneen and Bloemfontein, with the knowledge of Sars, by road since November 2013 and that fuel sold for export from Tarlton and other unlicensed facilities was sold duty-free.

The company also says that it and other oil companies have been subjected to audits by officials from different Sars offices countrywide during this period.

This argument from PetroSA exposed the negligence of Sars, as, according to its own testimony, “once in unlicensed premises the fuel goods leave the controlled environment, and may be mixed with imported fuel or replaced”.

Acting judge Johan de Waal found on Friday that the refunds to PetroSA regarding the Tarlton facility were allowed for nearly a decade without Sars raising issues.

PetroSA “discharged the onus and proved that during the audit period there was a practice generally prevailing to the effect that set-offs (refunds) were allowed in respect of fuel levy goods removed or exported to African countries from unlicensed facilities, provided that fuel levy goods were duty paid stock,” De Waal ruled, setting aside Sars’ letter of demand.

“The knowledge that Sars had of the operations at Tarlton indeed appears clearly from the answering affidavit. The fact that Tarlton was operating unlicensed, to the knowledge of Sars and for a long time, is accordingly common cause.”

In December, the cabinet endorsed PetroSA’s partnership with Russia’s Gazprombank, through its local subsidiary, Gazprombank Africa, to reinstate the gas-to-liquids refinery

in Mossel Bay. Gazprombank is one of the Russian financial institutions under US sanctions in response to Russia’s invasion of Ukraine in 2022.

Business Day reported last week that Sars is going after the local unit of British multinational oil and gas major BP, accusing it of engaging in fraudulent tax conduct at the expense of the fiscus.

The tax agency contends that the more than 11-million litres of diesel the oil major purports to have exported to Zimbabwe in 2019 never left the country, and the company was therefore not due the R220m in rebates it claimed from the national purse.

Sars is demanding about R274m from BP, arguing that instead of delivering the diesel it says it exported to consignees in Zimbabwe, BP was “perhaps unwittingly” part of a scheme by which the diesel was diverted elsewhere.