Constitutional Court shuts door on VAT zero-rating for recycled gold

Lueven Metals, a gold refiner, purchased second-hand and scrap gold (including old jewellery), refined it into gold bars in prescribed forms, and supplied those bars to prescribed purchasers such as registered banks. Lueven zero-rated these supplies under s 11(1)(f) of the VAT Act 89 of 1991. SARS assessed Lueven for output VAT at the standard rate, contending that recycled gold does not qualify for zero-rating. The dispute turned on whether refining scrap gold into compliant bars erases the disqualifying history of prior manufacture.

The court held: The Court held unanimously that s 11(1)(f) imposes three cumulative requirements for zero-rating: the supply must be to a prescribed purchaser, in a prescribed form, and the gold must not have undergone any manufacturing process other than refining or manufacture into the prescribed forms. Refining recycled gold eradicates its previous physical form but does not alter the fact that it previously underwent a disqualifying manufacturing process. The textual interpretation prevails over broader policy arguments about VAT neutrality. The Court also held that SARS binding class rulings on documentary requirements did not constitute interpretations of the substantive requirements of s 11(1)(f), and that co-mingling of newly mined and recycled gold at refineries does not excuse compliance. The appeal was dismissed with costs.

Legal impact: This is a final, unanimous Constitutional Court ruling that definitively settles a contested interpretation. Recycled or second-hand gold is excluded from zero-rating under s 11(1)(f) regardless of subsequent refining. Vendors who have been zero-rating supplies of recycled gold face potential SARS reassessments for output VAT at the standard rate. The judgment also clarifies that the manufacturing history of gold is a permanent characteristic that refining cannot cure, and that generalised observations about the VAT scheme do not override clear statutory language. Practitioners advising gold supply-chain participants must now treat the distinction between newly mined gold and recycled gold as determinative for VAT purposes.