The Court was required to determine whether gold that had previously been manufactured into products such as jewellery could subsequently benefit from the zero-rating provisions contained in section 11(1)(f) after being refined and supplied to a prescribed purchaser, namely the South African Reserve Bank (SARB), the South African Mint Company, or a registered bank.
The Constitutional Court’s answer was clear: no.
The judgment provides important guidance on the interpretation of section 11(1)(f) and confirms that the manufacturing history of gold remains relevant when determining whether a supply qualifies for VAT zero-rating. The VAT treatment of gold depends not only on its form at the time of supply, but also on whether it has previously undergone disqualifying manufacturing processes.
SARS Welcomes the Outcome
SARS welcomed the ruling, saying that it provides clear legal guidance, puts an end to aggressive VAT interpretations, and reinforces the tax authority’s commitment to enforcing tax law in a principled manner.
Said SARS Commissioner Johnstone Makhubu: “This judgment provides long-awaited clarity for 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.”
The VAT Dispute Behind the Decision
Lueven Metals (Pty) Ltd (“Lueven”) operates in the precious metals industry and, amongst other activities, acquires, refines and resells second-hand gold-bearing materials, including jewellery and other previously manufactured gold products.
In terms of a long-standing arrangement with Absa Bank Limited (“Absa”), a prescribed purchaser, Lueven refined second-hand gold-bearing material into gold bars with a purity level of at least 99.5% and supplied those bars to Absa. Lueven’s position was that these supplies qualified for VAT zero-rating.
SARS disagreed.
SARS accepted that the gold was supplied to a prescribed purchaser and met the prescribed purity requirements. However, it contended that the gold had previously been manufactured into jewellery and other gold products, rendering the supplies ineligible for zero-rating despite the subsequent refining process.
The High Court found in SARS’ favour. Lueven’s subsequent appeal to the Supreme Court of Appeal was dismissed on procedural grounds, without the Court determining the substantive VAT issue. Lueven thereafter approached the Constitutional Court.
Can Gold’s History Disqualify It from Zero-Rating?
The dispute centred on the proper interpretation of section 11(1)(f) of the VAT Act, which permits certain supplies of gold to prescribed purchasers to be zero-rated.
To qualify, the gold must be supplied to a prescribed purchaser, in a prescribed form, and must not have undergone any manufacturing process other than those specifically contemplated by the provision.
Whilst the parties agreed that the gold supplied by Lueven had been refined into the required form and supplied to a prescribed purchaser, they disagreed on the significance of the gold’s manufacturing history.
The question before the Constitutional Court was whether gold that had previously been manufactured into jewellery could qualify for zero-rating after being refined back into pure gold, or whether that earlier manufacturing process disqualified the gold from the relief afforded by the VAT Act.
Lueven’s Argument: Wipe the Slate Clean
Lueven argued that once recycled gold has been refined into pure gold, its previous existence as jewellery or another manufactured product becomes irrelevant.
Lueven contended that refining and manufacturing are fundamentally different concepts and that the refining process effectively removes the characteristics of the previous manufactured product. On this interpretation, refined gold should qualify for zero-rating irrespective of whether it originated from newly mined gold or recycled jewellery.
Lueven further argued that VAT generally focuses on the nature of the goods being supplied at the time of the transaction rather than their historical origins.
SARS’ Argument: History Matters
SARS adopted a different interpretation, arguing that section 11(1)(f) requires consideration of more than the form and purity of the gold at the point of supply.
SARS argued that the phrase “has not undergone”, as used in section 11(1)(f), requires consideration of the gold’s manufacturing history. On SARS’ interpretation, second-hand gold previously manufactured into jewellery or another product had already undergone a disqualifying manufacturing process. Subsequent refining of that gold does not erase that history.
On SARS’ interpretation, recycled gold derived from jewellery remains historically manufactured gold and falls outside the scope of the zero-rating provision.
The Constitutional Court Looks Beyond the Final Product
The Constitutional Court unanimously agreed with SARS and held that section 11(1)(f) must be interpreted holistically.
The Court rejected Lueven’s argument that the subsequent refining of gold negates the relevance of its prior manufacturing history.
Whilst refining improves the purity of gold by removing unwanted materials, it does not erase the fact that the gold had previously been manufactured.
Accordingly, second-hand gold that has undergone prior manufacturing processes other than those contemplated in section 11(1)(f) does not qualify for VAT zero-rating.
The Broader Significance of the Judgment
The judgment provides important clarity on the scope of the VAT zero-rating provisions applicable to gold supplies.
In particular, the Constitutional Court confirmed that VAT treatment depends not only on the form of the gold at the time of supply, but also on whether it has previously undergone disqualifying manufacturing processes. Taxpayers dealing in recycled or second-hand gold should therefore carefully consider its manufacturing history when assessing whether a supply qualifies for zero-rating under section 11(1)(f).
