Constitutional Court Backs SARS on VAT Rules for Recycled Gold

Commissioner Dr Johnstone Makhubu described the judgment as an important affirmation that laws must be applied consistently and according to their wording.

The South African Revenue Service (SARS) has welcomed a unanimous Constitutional Court ruling that confirms its interpretation of the Value-Added Tax (VAT) Act regarding the tax treatment of gold supplies. The judgment, delivered in a case involving Lueven Metals (Pty) Ltd, clarifies that the zero-rating provision contained in section 11(1)(f) of the VAT Act does not apply to second-hand or recycled gold that has previously undergone a manufacturing process.

SARS said the ruling brings legal certainty to the precious metals industry, strengthens compliance efforts, and closes the door on interpretations that sought to extend VAT relief beyond what the legislation intended. Commissioner Dr Johnstone Makhubu described the judgment as an important affirmation that laws must be applied consistently and according to their wording.

Recycled gold does not qualify for zero-rating

The dispute centred on refined gold supplied by Lueven Metals to a registered commercial bank. The company purchases second-hand gold, including scrap jewellery, refines it, and sells it in gold bar form. Lueven Metals argued that these supplies qualified for VAT zero-rating because the gold was refined and sold to a prescribed purchaser. SARS disagreed, maintaining that the gold had already been manufactured into non-prescribed forms before being refined and therefore did not meet all the legal requirements for zero-rating. The High Court ruled in favour of SARS, and the Constitutional Court has now upheld that decision, dismissing Lueven Metals' appeal with costs.

According to the judgment, three conditions must be met before gold can qualify for zero-rating. The supply must be made to a prescribed purchaser, the gold must be supplied in a prescribed form, and the gold must not have undergone any manufacturing process other than refining or conversion into those prescribed forms. The court found that gold previously manufactured into products such as jewellery falls outside the scope of the VAT relief provision, even if it is later refined.

Ruling expected to strengthen compliance and protect revenue

Makhubu said the decision provides much-needed certainty for banks, refiners, gold traders and other businesses operating in the sector. He noted that the judgment confirms recycled or second-hand gold remains subject to VAT at the standard rate, creating a level playing field for compliant businesses and reducing opportunities for unfair competitive advantages.

The Commissioner said certainty in tax law is essential for building trust and encouraging voluntary compliance. Clear rules allow taxpayers to understand their obligations and conduct business with confidence. SARS believes the ruling also supports its broader goal of protecting the country's revenue base. Revenue collected through proper tax administration helps fund public services such as education, healthcare, infrastructure development and social support programmes. Makhubu stressed that no taxpayer should benefit from interpretations that create unintended advantages, adding that fair tax administration depends on consistent application of the law across all sectors of the economy.