THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 207/2021

In the matter between:

RENNIES TRAVEL (PTY) LTD
APPELLANT

and

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICES
RESPONDENT

Neutral citation:
Rennies Travel (Pty) Ltd v SARS (207/2021) [2022] ZASCA 83
(6 June 2022)
Coram:
VAN DER MERWE, PLASKET and HUGHES JJA and TSOKA and
MUSI AJJA
Heard:            3 May 2022
Delivered:
6 June 2022
Summary:
Revenue – Value-Added Tax Act 89 of 1991 (VAT Act) – supplementary
commission received by travel agency after achieving agreed sales targets of
international airline tickets – constituted consideration for arranging transport of
international passengers – receipts had to be zero-rated under s 11(2)(a) and (d) of
VAT Act.
Practice – time for lodgement of notice of appeal – conflict between provisions of Tax
Administration Act 28 of 2011 and rules of Supreme Court of Appeal – latter
subordinate legislation – provisions of Tax Administration Act prevail.

ORDER

On appeal from: The Tax Court of South Africa, Johannesburg (Twala J presiding,
sitting as court of first instance):
The appeal is upheld with costs.
The order of the tax court is set aside and replaced with the following:
‘The additional VAT assessments in respect of the appellant’s February 2012 to
December 2016 VAT periods, to the extent that they impose VAT at the standard rate
on supplementary commission paid to the appellant, are set aside.’

JUDGMENT

Van der Merwe JA (Plasket and Hughes JJA and Tsoka and Musi AJJA
concurring):
[1] The appellant, Rennies Travel (Pty) Ltd, conducts a travel agency enterprise.
Part of its business is to make arrangements for the international travels of its clients,
including the sales of airline tickets for international flights. The appellant derives
income in respect of this part of its business from three contractual sources, namely: a
service fee charged to the client; a flat rate charged to the relevant airline in respect of
the sale of an international airline ticket (standard commission); and additional or
increased commission charged to the airline in the event of the appellant reaching
targets of international airline ticket sales agreed with the airline (supplementary
commission).

[2] The respondent, the Commissioner for the South African Revenue Services,
determined that the appellant was liable for the payment of Value-Added Tax (VAT) on

the supplementary commission that it had earned during the period from February 2012
to December 2016 and accordingly issued additional VAT assessments to the
appellant. The appellant maintained that the supplementary commission had been
earned in respect of a supply of services that attracted VAT at zero per cent (zero-
rated) under the Value-Added Tax Act 89 of 1991 (the VAT Act). This issue eventually
came before the tax court (Twala J presiding). It held for the respondent, but granted
leave to the appellant to appeal to this court.

Notice of appeal
[3] The tax court granted leave to appeal on 11 January 2021. The appellant
lodged its notice of appeal to this court on 24 February 2021. Rule 7(1)(b) of the rules
of this court (the SCA rules) provides that a notice of appeal shall be lodged within a
month of the granting of leave to appeal. On the strength of this sub-rule, and having
had regard to the dies non period provided for in rule 1(2)(b), the registrar of this court
reckoned that the notice of appeal had to be lodged by 16 February 2021. The registrar
consequently advised the appellant that it had to apply for the condonation of the late
lodgement of the notice of appeal. The appellant took the stance that the notice of
appeal had been lodged timeously in terms of the provisions of the Tax Administration
Act 28 of 2011. It nevertheless lodged an application for condonation conditional upon
a finding that the notice of appeal had indeed been lodged out of time.

[4] The relevant provisions of the Tax Administration Act are the following. Section
134(1) essentially provides that a party who intends to appeal against a decision of the
tax court must, within 21 business days after the date of the registrar’s notification of
the decision of the tax court, give a notice of intention to appeal. In terms of s 134(2)
the notice of intention to appeal must state, inter alia, in which court the appellant
wishes the appeal to be heard. Should the appellant wish to appeal to this court, the
registrar must in terms of s 135 submit the notice of intention to appeal to the president
of the tax court, who must grant or refuse leave to appeal. Section 137(1)(a) provides
that should such leave to appeal be granted, the registrar of the tax court must notify
the appellant that the appeal must be noted within 21 business days of the date of that

notice. In terms of s 138(3) the notice of appeal must be lodged within the period
referred to in s 137(1)(a), or within a longer period as may be allowed under the rules
of the court to which the appeal is noted.

[5] The registrar of the tax court gave notice in terms of s 137(1)(a) of the Tax
Administration Act on 2 February 2021. The appellant lodged the notice of appeal within
21 business days thereafter. It follows that the application of the provisions of the Tax
Administration Act and the SCA rules would produce different results as to whether the
notice of appeal was late. The SCA rules, however, were made by the Rules Board in
terms of s 6 of the Rules Board for Courts of Law Act 107 of 1985. As such, they
constitute subordinate legislation. It is trite that in the event of conflict, national
legislation must prevail over subordinate legislation. (See 25 Lawsa 2 ed Part 1 para
294). Thus, the appellant’s notice of appeal was lodged timeously and condonation was
not required.

VAT Act
[6] Section 7(1)(a) of the VAT Act at the relevant time provided:
‘Subject to the exemptions, exceptions, deductions and adjustments provided for in this Act,
there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known
as the value-added tax-

(a)

on the supply by any vendor of goods or services supplied by him on or after
the commencement date in the course or furtherance of any enterprise carried on by him;

(b)

. . .
calculated at the rate of 14 per cent on the value of the supply concerned. . .’

[7] The VAT Act defines ‘supply’ and ‘services’ in wide terms. The definition of
‘supply’ includes ‘performance in terms of a sale, rental agreement, instalment credit
agreement and all other forms of supply, whether voluntary, compulsory or by operation
of law, irrespective of where the supply is effected’. According to the main part of the
definition of ‘services’ it means ‘anything done or to be done’. Section 10 deals with the
value of the supply of goods or services. In essence, that is the consideration for the

supply, the definition of which, in turn, includes ‘any payment made or to be made . . .
whether in money or otherwise’.

[8] Section 11 provides for zero-rating as one of the exceptions referred to in s 7.
Subsections 11(2)(a) and (d) are material to this matter. They read as follows:
‘Where, but for this section, a supply of services, other than services contemplated in section
11(2)(k) that are electronic services, would be charged with tax at the rate referred to in section
7(1), such supply of services shall, subject to compliance with subsection (3) of this section, be
charged with tax at the rate of zero per cent where-
(a) the services (not being ancillary transport services) comprise the transport of
passengers or goods-
(i)
from a place outside the Republic to another place outside the Republic; or
(ii)
from a place in the Republic to a place in an export country; or
(iii)
from a place in an export country to a place in the Republic; or . . .

(d)  (i)
the services comprise the-

(aa)
insuring;

(bb)
arranging of the insurance; or

(cc)
arranging of the transport,

of passengers or goods to which any provisions of paragraph (a), (b) or (c)
apply; or . . .’
In short, in terms of these provisions the supply of the services of arranging of the
transport of passengers for international travel is zero-rated.

Undisputed facts
[9] The additional assessments that I have referred to, were issued pursuant to a
tax audit conducted by the respondent. They related to both the standard commission
and the supplementary commission that the appellant had received in respect of the
period in question from the three airlines mentioned below. The appellant lodged an
objection to the additional assessments on the ground, inter alia, that these receipts
had to be zero-rated under s 11(2)(a) and (d) of the VAT Act. The respondent rejected
this objection and the appellant noted an appeal under the Tax Administration Act. The
hearing of the appeal was preceded by alternative dispute resolution proceedings.

They resulted in a written settlement agreement between the parties in terms of which
the standard commission in question would be zero-rated. In the result the appeal to
the tax court concerned only the additional VAT assessments in respect of the
supplementary commission and interest thereon.

[10] The appellant  received payment of the supplementary commission in question
in terms of three agreements (the incentive agreements). They were entered into with
international airlines with a South African corporate presence. The incentive
agreements were: a Retail International Supplementary Commission Agreement with
South African Airways (SOC) Ltd (the SAA agreement); an Incentive Agreement with
Air Mauritius SA (Pty) Ltd (the Air Mauritius agreement); and an Agent Incentive
Agreement with Virgin Atlantic Airways Ltd (the Virgin Atlantic agreement). The
standard commission was payable under separate agreements with these airlines.

[11] The only witness in the tax court was Mr Colin Mitchley. He previously served
as the chief financial officer of the appellant and was called by the appellant. He
explained the background to the incentive agreements in these terms:
‘18.
As regards the manner in which travel agents earn their income, the position has
changed over time.
19.
Up until about 2005, travel agents did not receive any fees or remuneration directly
from customers. The entire income stream was earned by way of commissions paid by the
suppliers or service providers (including airlines) with whom customers books.
20.
The industry standard in South Africa was for airlines to pay agents a commission of
7% of the value of flights arranged on their carrier.
21.
By 2005 an international trend was developing to reduce the agent commission. SAA,
as the dominant market player in South Africa, followed this trend and announced that it would
reduce the standard commission to 1%. Other carriers followed suit.
22.
To ensure that the industry remained viable, travel agents started charging service
fees directly to clients over and above the standard commissions earned.
23.
At around the same time, there was an increase in volume-driven commission
structures, which agents specifically negotiated on an airline-by-airline basis. Such agreements

were not unknown before 2005, but now they became prominent. They were based on meeting
certain agreed targets of ticket sales revenue on that particular airline.
24.
These types of arrangement – referred to as supplementary commission – also helped
agents to make up what was lost when the percentage of standard commissions was reduced.
25.
In summary, what was an income stream comprising a 7% standard commission has
been replaced by a lower standard commission, a negotiated supplementary commission
based on volumes of sales, and a fee charged directly to clients.’
The witness emphasised that despite this change of the remuneration structure, the
appellant’s services remained the same.

[12] The material terms of the incentive agreements were not identical. The Air
Mauritius agreement and the Virgin Atlantic agreement were so-called ‘back to rand
one’ agreements. Each provided, in essence, that once the agreed target in respect of
international airline ticket sales was reached, supplementary commission would be
payable to the appellant in respect of all of these sales during the relevant period, in
addition to the standard commission. The SAA agreement was not a ‘back to rand one’
agreement. In terms thereof, only supplementary commission would be payable in
respect of sales of airline tickets after the target was reached. In other words, for airline
ticket sales up to the target, only the standard commission would be earned and for
sales thereafter, the appellant would only charge the supplementary commission.

[13] Both the SAA agreement and the Virgin Atlantic agreement contained
provisions in respect of marketing campaigns to be conducted by the appellant. In
terms of these provisions, such marketing campaigns would be executed in accordance
with agreed plans and budgets. The appellant accordingly charged separate fees, as
well as VAT at the standard rate, for its services in respect of marketing campaigns.

[14] In the pleadings in the tax court the respondent’s case was that the appellant
had received supplementary commission as incentives for promoting the sales of
international airline tickets above agreed targets, the payment of which was conditional
upon the appellant achieving the predetermined sales targets. The cross-examination

of Mr Mitchley focused on this contention. The tax court, however, determined the
matter on a basis that the respondent had not relied upon. It held that the
supplementary commission had been paid for the supply of the services of marketing
and promotion of the sales of airline tickets for international travel. It said that the
supplementary commission was payable because of successful marketing and
promotion campaigns. This approach was impermissible and wrong. As I have
demonstrated, the SAA and Virgin Atlantic agreements contained separate provisions
in respect of marketing and promotional services and the Air Mauritius agreement made
no such provision.

Discussion
[15] It is convenient to commence the analysis by stating the obvious, namely that
in the context of this case VAT could only be payable on a supply of services as defined
in the VAT Act. If there was no such supply of services, there could be no liability for
VAT at all. This takes care of the case of the respondent before the tax court, as well
as the variation thereof presented before us. It will be recalled that in the tax court the
respondent’s case was that the supplementary commission was an incentive for
promoting sales of airline tickets, the payment of which was conditional upon the
appellant achieving the predetermined sales targets. In this court the respondent
submitted that the incentive was earned on meeting the revenue targets and not for
arranging the transport of passengers. But these contentions did not identify a supply
of services for which the incentive was paid. The meeting of a revenue target is not a
supply of services. That payment of supplementary commission was conditional upon
reaching the targets, says nothing about the supply of services that it was paid for.

[16] So, what was the supply of services for which the supplementary commission
was paid? The respondent correctly accepted that the services of arranging of the
transport of international passengers were rendered through the sales of airline tickets.
That formed the basis of the concession that the standard commission was zero-rated
under s 11(2) of the VAT Act. The facts of this matter make clear that the supplementary

commission was earned for exactly the same supply of services than the standard
commission.

[17] Under the SAA agreement, the supplementary commission was the only
consideration for the sales of airline tickets after the target had been reached. In terms
of the Air Mauritius and Virgin Atlantic agreements the supplementary commission
constituted additional consideration for the sales of airline tickets. Once the agreed
threshold was reached, each ticket sold attracted both standard and supplementary
commission. Put differently, in terms of these agreements the supplementary
commission was paid for the sale of a particular volume of airline tickets. That the same
services gave rise to more than one type of consideration could not alter the nature of
the services. It follows that the supplementary commission falls to be zero-rated under
s 11(2) of the VAT Act and that the appeal has to succeed. The order of the tax court
should be altered to set aside the additional assessments in respect of the
supplementary commission in question.

Costs
[18] Costs of the appeal should follow this result. The appellant asked to be
awarded its costs in the tax court. It contended that the grounds of the additional
assessments in respect of the supplementary commission were unreasonable as
contemplated in s 130(1)(a) of the Tax Administration Act. The mere fact that the
grounds of the additional assessments did not subsequently withstand scrutiny, could
not render them unreasonable. I am not persuaded that there is a proper foundation for
a finding that they were unreasonable. Consequently, there should be no order as to
the costs in the tax court.

[19] For these reasons the following order is issued:

The appeal is upheld with costs.
The order of the tax court is set aside and replaced with the following:

‘The additional VAT assessments in respect of the appellant’s February 2012 to
December 2016 VAT periods, to the extent that they impose VAT at the standard rate
on supplementary commission paid to the appellant, are set aside.’

_______________________
C H G VAN DER MERWE
JUDGE OF APPEAL

Appearances:

For appellant:

M W Janisch SC
Instructed by:

Werksmans Attorneys, Johannesburg

Symington & De Kok Attorneys, Bloemfontein

For respondent:

A E Bham SC with N K Nxumalo

Instructed by:

The State Attorney, Johannesburg

The State Attorney, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
6 June 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Rennies Travel (Pty) Ltd v SARS (207/2021) [2022] ZASCA 83 (6 June 2022)
Today the Supreme Court of Appeal (SCA) upheld an appeal from the Tax Court of South
Africa (tax court). The SCA set aside the order of the tax court and replaced it with one that
sets aside the appellant’s February 2012 to December 2016 assessments to the extent that
they had imposed value-added tax (VAT) at the standard rate on supplementary commission
paid.
The appellant, a travel agency, made arrangements for the international travels of passengers,
including the sale of international airline tickets. In terms of these arrangements, the appellant
derived income from three contractual sources with three airlines, namely a service fee
charged to the client, a flat rate charged to the airline and a supplementary commission
charged to the airline in the event that certain sales targets had been reached. The South
African Revenue Service (SARS) determined that the appellant was liable for the payment of
VAT on the supplementary commission and maintained that the supplementary commission
had been earned because of a supply of services that attracted VAT at the standard rate (then
14 per cent). Accordingly, SARS issued additional assessments for the period concerned.
The assessments were issued pursuant to a tax audit that had been conducted by SARS, and
related to both the standard and supplementary commission received by the appellant for the
period by the airlines. The appellant objected to the additional assessments and maintained
that the receipts had to be zero-rated under s 11(2)(a) and (d) of the Value-Added Tax Act 89
of 1991 (VAT Act). The matter proceeded on appeal, which only revolved around the
supplementary commission.

The material terms of the agreements that the appellant had entered into with the airlines were
not identical. Two of the agreements provided that, once a certain target had been reached in
terms of ticket sales, supplementary commission was payable in addition to standard
commission for all tickets sold, whereas the remaining agreement entailed the payment of
supplementary commission only for all tickets sold after a particular target had been reached.
These agreements also provided for the charging of separate fees for marketing campaigns.
SARS maintained that the appellant had received supplementary commission as incentives
for promoting sales above certain agreed targets. The tax court held that the supplementary
commission had been paid for the supply of services of marketing and promotion of
international airline tickets, and held that the supplementary commission was payable
because of successful marketing and promotion campaigns.
Upon appeal, the SCA highlighted that VAT was only payable on a supply of services. If there
was no supply of services, there could accordingly not be any liability for VAT. In the tax court
it was submitted that the supplementary commission was an incentive for meeting certain
sales targets. The SCA held, however, that the supplementary commission was earned for
the same supply of services than the standard commission, that is, the arranging of the
transport of international passengers. The fact that the same services gave rise to more than
one type of consideration could not alter the nature of the services. Accordingly, the SCA held
that the supplementary commission falls to be zero-rated under s 11(2) of the VAT Act.
In the result, the SCA upheld the appeal and set aside the order of the tax court and replaced
it with one that sets aside the appellant’s February 2012 to December 2016 assessments, to
the extent that they had imposed VAT at the standard rate on supplementary commission
paid.

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