A Tale of Two Approaches

Recent case law on diesel refunds under the Customs and Excise Act, 1964 (the C&E Act), reveals an emerging tension in how courts may approach refunds and tax incentives.

On the one hand, the High Court in Trakman NO v CSARS adopted a strict, compliance-driven interpretation.

On the other hand, the Supreme Court of Appeal (SCA) in Glencore Operations SA (Pty) Ltd v CSARS endorsed a more pragmatic, substance-over-form approach.

For businesses—particularly in mining, agriculture and forestry—this raises an important question: should diesel refund claims be approached with rigid formalism, or is there room for commercial reality to prevail?

What Trakman Decided

In Trakman, the court dealt with diesel refunds exceeding R23 million claimed by Silver Lake, a mining company that had only registered as a diesel refund user after the diesel had already been purchased and used.

The court found in favour of SARS, holding that registration as a diesel refund user is a prerequisite for claiming refunds. It interpreted the two-year period in section 75(4A)(b)(ii) as relating only to the timing of submission—not to the underlying entitlement.

The judgment reinforces a familiar tax principle: a rebate is a privilege, not a right, and requires strict compliance with statutory conditions.

But Is Registration Clearly a Prerequisite?

The reasoning in Trakman seems, however, open to debate.

A close reading of section 75 does not explicitly state that registration must precede the purchase or use of diesel. Rather, the statutory framework:

•  defines a ‘user’ as a registered person; and
• regulates the process and timing of claims, including the two-year submission rule.

The High Court effectively read these provisions together with the Rules to conclude that registration is indeed a prerequisite before claims can be made.

An alternative interpretation seems, however, possible: that registration is primarily an administrative gateway to participate in the scheme, rather than a strict bar to underlying entitlement. On this reading, section 75(4A) governs how and when claims are made, not whether a claimant qualifies in principle.

This ambiguity leaves room for further judicial development.

The Role of SARS’ Discretion

Importantly, the diesel refund regime is not entirely mechanical.

Under Part 3 of Schedule 6, read with the relevant Notes and Rules, SARS is required to:

• assess whether diesel was used in qualifying activities;
• determine whether purchases are eligible; and
• evaluate compliance with record-keeping and verification requirements.

These functions necessarily involve administrative judgment. In this sense, SARS exercises a structured discretion in applying the scheme.

This was recognised in Glencore, where the SCA criticised SARS for adopting an overly rigid approach and failing to properly consider whether, in substance, the taxpayer met the requirements of the scheme, in particular whether the joint venture had the required authority to mine.

SARS’ discretion is, however, not unlimited. SARS is bounded by the statutory framework and does not have unlimited power to relax fundamental requirements. This is precisely where Trakman takes a stricter stance.

The Glencore Counterpoint: Substance Over Form

In Glencore, the SCA took a markedly different approach. Faced with a dispute over whether a joint venture could claim diesel refunds despite not holding the mining right in name, the Court looked beyond legal form to commercial reality.

It found that:

• the joint venture conducted the mining operations;
• it used the diesel in qualifying activities; and
• it was effectively the authorised operator.

On that basis, the Court allowed the claims, prioritising substance over technical form and emphasising that the purpose of the diesel refund scheme is to support economic activity—not to defeat it through formalistic interpretation.

Reconciling the Two Decisions

Rather than being irreconcilable, Trakman and Glencore may reflect different points on a compliance spectrum:

• In Trakman, the taxpayer sought to claim outside the system, having failed in being registered at the relevant time.
• In Glencore, the taxpayer was within the system, but misaligned in form rather than substance.

This suggests a practical dividing line:

• Where a taxpayer is substantively compliant but imperfectly structured, SARS’ discretion and a purposive approach may apply.
• Where a taxpayer has not complied with foundational entry requirements to participate in the Scheme, courts are more likely to insist on strict compliance.

Practical Implications for Business

For CFOs and tax teams, the takeaway is more balanced than a strict reading of Trakman might suggest:

• Early compliance remains critical
  Businesses should ensure that registration and administrative requirements allowing for refunds under the C&E Act are in place before engaging in qualifying activities. Trakman shows that the lack of adherence carries real financial implications.
   
• But form is not everything
  Where a business is substantively compliant, Glencore confirms that courts may take a commercially sensible view.
   
• Discretion is real—but limited
  SARS is not confined to a purely mechanical role, but its discretion is structured and does not clearly extend to curing fundamental non-compliance.
   
• Expect continued litigation
  Given the interpretive tension, further judicial clarification—potentially at the SCA or even the Constitutional Court levels in a Trakman-or a Glencore-type dispute is not out of the realm.

Conclusion: A Measured Approach

Trakman should, however, not be ignored in partaking in the diesel refund scheme, especially when the question as to the registration for such scheme comes into play.

When read alongside Glencore, a different picture emerges, because rigorous compliance enforcement may have to be tempered to give effect to the commercial reality and still serving the purpose of the legislation.