---

CHARLES VELKES MAIL ORDER 1973 (PTY) LTD. APPELLANT
and
THE COMMISSIONER FOR INLAND REVENUE RESPONDENT

CASE NO. 306/85

/ccc

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

In the matter between

CHARLES VELKES MAIL ORDER 1973 (PTY) LTD. APPELLANT
and
THE COMMISSIONER FOR INLAND REVENUE RESPONDENT

CORAM: CORBETT, HOEXTER, NESTADT JJA et NICHOLAS, STEYN AJJA

HEARD: 9 MARCH 1987

DELIVERED: 12 MAY 1987

JUDGMENT NESTADT, JA:

The/

2.
The broad issue in this matter concerns appellant's liability for the payment of certain amounts of tax in terms of the Sales Tax Act 103 of 1978 ("the Act").
Appellant is a retailer of a wide variety of goods including clothing, linen, crockery and cutlery, watches, cameras, radios and other electrical equipment. It has no showroom or other premises where its merchandise is on display. Its main method of selling is through the mail order system, ie orders for goods are sent to it (at an address in Cape Town) by post. Appellant then, through the same medium, despatches what has been purchased to the buyer. Payment either has to accompany the order or has to be made on delivery. Potential customers

are/

3.

are informed of what items are on offer only by means of catalogues. These are prepared internally by appellant and then printed for it by an outside agency. They áre each marked with a sale price of 10 cents. Their cost of production, however, was, in the case of some of the catalogues,54 cents each and,for the rest,22 cents

each.They contain colour photographs of each type of

article that appellant has for sale, a short description thereof and its price. The catalogues are, at intervals during the year, distributed to three categories of per-sons, viz: (i) customers who have placed an order with appellant; here a catalogue is sent with the parcel of goods which is despatched to them; (ii) those on appellant's mailing list, ie customers who have bought

from/

4. from it in the past two years; (iii) those who write in and request one; about half of these were persons who had previously been on the mailing list but whose names had been removed because they had not continued buying from appellant. In each case the catalogues are sent by post; about 40.75% to persons resident within the Republic of South Africa; the balance to places beyond the Republic, namely, Botswana, Swaziland, Transkei, Bophuthatswana and South West Africa. The catalogues contain an order form in duplicate. It is these which (on being cut out and filled in with details of what is being purchased, together with the buyer's name and address) are remitted to appellant.

The dispute relates to the catalogues and

in/
5. in particular to those distributed during the period 3 July 1978 (being the commencement date of the Act) to 29 February 1980. Appellant paid sales tax cal-culated at the rate then applicable, viz,4% of the cover price (ie 10 cents) of each catalogue distributed to persons in the Republic. In respect of those sent to foreign addresses it did not. It took the view that no tax was payable on these. Respondent, however, being of the opinion that appellant was liable for sales tax on all the catalogues distributed (ie whether in or outside the Republic) and that it was calculable on their cost (ie 54 cents and 22 cents per copy) claimed from appellant an additional sum of Rl4 477,54 (together with a penalty in an equivalent amount). In terms of sec

19(5)/

6.

19(5) of the Act respondent notified appellant of his intention to raise an assessment accordingly. Appellant, being dissatisfied with respondent's contemplated action and relying on sec 20(1), requested that the matter be referred to an advisory committee for an opinion as to whether the intended assessment was correct. The opinion given was adverse to appellant. As it was en-titled to do, appellant, in terms of sec 21, then objected to the assessment which had conseguently been issued. When this was disallowed, it, under sec 22, appealed to the Cape Income Tax Special Court. The appeal (heard by Tebbutt J and assessors) was dismissed (save that, by consent, the penalty was set aside). The assessment of R14 477,54 was confirmed. This is an appeal against

such/
7. such decision direct to this court in terms of sec 86(A)(5) of the Income Tax Act 58 of 1962 (read with sec 22(4) of the Act).
The fate of the appeal depends upon an interpretation of certain sections of the Act together with a closer analysis of the evidence. Before em-barking on this,,however, it is, I think, appropriate to briefly outline,in simplified form,the broad scheme of the Act. It has been amended from time to time. Where,in what follows,sections are quoted,the wording is that of the Act as it stood in 1979 (the latter not being materially different to how it originally read). The Act introduced a new type of tax in South Africa, viz,a so-called sales tax. The expression is, however,,

misleading/

8.

misleading. Tax is levied not only on what is termed the taxable value of the sale of goods (calculated at a given percentage thereof) but also on that of a wide-ranging number of other specified transactions (sec 5(1)). Even the concept of sale is, as will be seen, more ex-tensively defined than its ordinary,common law meaning (sec l(xxix) sv "sale" ). It is not every sale of goods (for present purposes I confine the discussion to this type of transaction) that attracts tax. As a general rule those which take place prior to the purchase by what may be called the ultimate consumer or end-user of a particular res vehdita do not. This would exclude the sequence of earlier sales of an article as where it passes from manufacturer, via a wholesaler, to a retailer.

Similarly/

9.

Similarly unaffected are sales of raw materials or other components from a supplier to a manufacturer for use in the production process of the end-product. This is achieved by a series of exemptions created by sec 6 (and,in relation to the examples given, more particu-larly sub secs l(b)(i) and (c)(i) thereof). The result
is that,instead of having a piecemeal taxation of sales
along the line,only the last sale in the chain of transactions leading to it falls within the tax net created by sec 5(1); in effect a type of delayed action taxation. The manner in which the exemp-tions are controlled is the following. Every per-son who carries on the enterprise inter alia of selling goods is required (in terms of secs 12(1) and (2))

to/

10.

to be registered by the Commissioner as a vendor. The utilisation of the registration certificate, which is then issued to him, entitles him to purchase, free of tax, the goods which are intended for resale by him (sec 14(1)). In other words, the registration certificate is the passpost to tax-free purchases. Indeed, the exemptions referred to only apply to regis-tered vendors. The sale to a purchaser who is not one will be taxable. Where tax is thus payable the person primarily liable (on a monthly basis) to the Commissioner is the seller (sec 9(g) read with secs 16 and 17). He may, however, recover it from the purchaser by adding the tax to the price charged or, as it used to be, by including it in such price (sec

10(2)/

11.

10(2) and the original,now deleted,sec 10(3)). It
has been stated that the tax is calculated on the
taxable value of the sale. Tnis is determined by
reference to its gross value (sec 7(1) and (6)).
The manner in which this is calculated will be con-
sidered shortly.

Certain of the sections referred to,
being directly relevant to the issues that arise
for determination,require to be more specifically
dealt with. There is firstly sec 5(1). It pro-
vides (in so far as is material);

"5.(1) Subject to the provisions of section 6 there shall be levied and paid, for the benefit of the State Revenue Fund, a tax (to be known as the sales tax) cal-

culated at the rate of four per cent of

the/

12.

the taxable value of -

(a) every sale of goods concluded on or after the commencement date;

(h) (i) goods acquired by any person in carrying on any enter-prise ...

which are applied on or after the said date by such person to his private or domestic use or consumption or for the use or consumption thereof in such enter-prise or for the use or consumption of any other person or for the purposes of any other enterprise carried on by the person who has so applied such goods or assets."

The importance of deciding whether a particular transaction
falls under sub-sec (a) or (h) lies in the different manner
in which its gross (and accordingly taxable) value is re-
spectively determined. This arises from the following
provisions of sec 7, viz:

"7.(1)/

13.

"7.(1) For the purposes of this Act a gross yalue shall, subject to the provisions of subsections (2), (3), (4) and (5), be placed on any sale of goods, ... as con-templated in section 5(1), and such gross value shall be -

(a) as respects any such sale of goods, the sum of all the amounts of the consideration accruing to the seller in respect of such sale, ...

(h) as respects goods, referred to in section 5(1)(h), the cost of such goods to the person who has appliedv such goods, as contemplated in the said paragraph,

(3) Subject to the provisions of subsection (4), where under any agreement or transaction treated as a sale of goods for the purposes of this Act goods are disposed of or the ownership therein passes or is to pass without the payment of any consideration to the seller in relation to such sale or for a consideration which is less than the cost of such goods

to/

14.

to the seller, a consideration in respect

of such sale shall be deemed to have accrued

to the seller equal in value to such cost

or if the market value thereof at the time

of such sale is less than such cost, such mar-

ket value."

It follows that in the case of a sale (ie where sec 5(1)(a)
applies) the tax is calculated on the price (sec 7(1)(a))
orr(where sec 7(3) applies) on the cost or market value,
whichever is the lesser. Where,however,the transaction

is one falling under sec 5(1)(h), the tax is (in terms
of sec 7(1)(h)) determined on the basis of cost.

Finally, reference must be made to sec 6(l)(a)(i). It

creates an exemption in the following terms:

"6.(1) The tax shall not be payable in respect of any taxable value which, but for the provisions of this section, would be determinable

in/

15.

in respect of the following, namely

(a)(i) the sale of goods exported from the

Republic... within a period of twelve months after the date of such sale."

Against this background I turn to a consideration

of the specific issues between the parties. This must be
done on the basis that appellant, who at all material times
was a registered vendor, and whose acquisition of the cata-
logues can therefore be assumed to have taken place free of
tax, is the person to whom respondent is entitled to look

for payment - if it is liable. It will be evident that
this question involves a two-fold enquiry. The first

turns on whether the transaction,in terms whereof the cata-

logues were distributed by appellant within the Republic

of South Africa, constituted sales of goods within the

meaning/

16.

meaning of sec 5(1)(a). Appellant's contention, both
in the court a quo and before us, was that the transaction did, that it was for a consideration that rendered sec 7(3) applicable, that the market value of the catalogues was 10 cents each and that, this being less than their cost, their market value governed the determination of the gross and taxable values and, accordingly, the sales tax payable by it. On the other hand, the argument for respondent (which was upheld by the Special Court) was that sec 5(l)(h)(i) applied and that, by virtue of sec 7(1)(h), appellant was liable for the tax calculated on the cost of the catalogues (ie 54 cents and 22 cents each). Here, therefore, only quantum is in issue. The second enquiry relates to the catalogues sent out of the Republic. What was to be decided here is whether sales tax is payable at all.

This/
17. This depends on whether the exemption created by sec 6(l)(a)(i) applies and,in particular, on whether it was pursuant to sales that the catalogues were exported (within the specified period). Consistent with its finding on the first issue, the Special Court decided that they had not been sold and that the exemption therefore did not apply and that tax was payable as claimed by respondent.
The fundamental question,therefore,is whether the distribution of the catalogues constituted sales within the meaning of sec 5(1)(a) or whether sec 5(l)(h)(i)' applies. The relevant sub-sections of sec 7 respectively and ultimately relied on by the parties (on the first issue)

are/

18.

are wholly dependent for their application on which

part of sec 5(1) is to be invoked. The problem is

one of classification.

Basic to appellant's reliance on sec

5(1)(a) is the definition of "sale" contained in sec 1.

ït reads:

"(xxix) 'sale' in relation to goods, means

an agreement whereby a party thereto agrees to sell, grant, donate or cede goods to another or exchange goods with another or otherwise to dispose of goods to another, in-cluding,without in any way limiting the scope of this definition -

(d) any other transaction whereby

the ownership of goods passes or is to pass from one person to another wheresoever such agreement or trans-action is entered into or concluded

There/

19. There follow a number of sub-sections which contain

exclusions from the definition. It was not suggested
that any of them applied. Nor was it in dispute that
catalogues are goods (as defined in sec 1 (xvi)). What
has to be decided is whether, as was argued by Mr Swersky
on behalf of appellant, their distribution in each case

(i) resulted in or involved an agreement, or, (ii) constituted
a transaction whereby ownership in them passed from appellant
to the recipients (so that, in either event, there was,
in terms of sec 5(1)(a), a sale). These two submissions
were advanced separately. It was said that "trans-
action" in sub-paragraph (d) of the definition was in-
dependent of and not governed by the earlier part

thereof/

20.

thereof reading "sale ... means an agreement whereby a party thereto agrees . .."; in other words, to qualify as a transaction,there only had to be the transfer of ownership; there was no need for an agreement; a sale could accordingly be proved either on a consensual or a proprietary basis. Counsel, besides referring to certain judicial and dictionary definitions of "trans-action" (which is not defined in the Act) drew attention, in support of this approach, to the use of "agreement or transaction" in the definition of "sale" (just after sub-paragraph (d)) in apparent contrast to each other. It is, however, unnecessary to express an opinion on the point. I shall, in favour of appellant, assume its correctness.

Now,/

21.

Now,plainly, certain sales of cata-logues (in either sense) did take place. These, in the words of Mr Felthun, appellant's auditor and financial consultant, who testified on its behalf, related to the "very small proportion" of persons on the mailing list who paid for the catalogues sent to them (part of category (ii) above). They would also include those catalogues requested by persons in category (iii). But these too, so the witness con-ceded, represented but a minor percentage of the total number of catalogues involved. In the result, the number of catalogues "actually sold" was described by

the/
22.
the Special Court as "minimal" and was, for practical purposes,

ignored. Mr Swersky, wisely and fairly, accepted this;

he conceded that if they were the only catalogues in re-
spect whereof sales were established, the appeal should
fail. It follows that the catalogues in category (iii)

From appellant's point of view, it can, I

think, be accepted that the distribution of catalogues (to whatever category of persons) constituted offers

by it either to donate or dispose of them (or to sell them in the conventional sense) and, at the same time, established an intention to transfer ownership in them. However, the reaction, if any,of the addressees of the catalogues must naturally also be looked to.

Both/ .....

23.

Both agreement and the passing of ownership are strictly bilateral concepts; thé former involves consensus and the latter mutual intentions (constituting a "saaklike ooreenkoms" - Air-Kel (Edms) Bpk h/a Merkel Motors v Bodenstein en 'n Ander 1980(3) S A 917 (A) at 922 F).In particular, the question is whether the

evidence establishes either that the offers were accepted

by them or that they took delivery of the catalogues with the intention of acquiring ownership thereof. Only then would there,in each case,be an agreement or a transac-tion (and, accordingly, a sale). There was no direct evidence of such acceptance or intention. No sample selection of customers was called by appellant to testify in this regard. Appellant's case was, however, that these facta probanda were to be inferred from the

circumstances/

24.

circumstances and the conduct of the parties. The
argument was, in summary, the following:

(i) (a) The catalogues were not unsolicited.

Those sent to persons in category (i) formed part of the goods ordered, ie, there was a composite sale of both, the catalogues being . sent free of charge. As regards those in category (ii), there was a tacit understanding or contemplation, when the original purchase was made, that a follow-up catalogue would subsequently be sent. (b) Alternatively, there had been an acceptance, by conduct, of appellant's offer. This was to be inferred from the following. The effect of the evidence was that there was

no/
25. no random distribution of catalogues; it

was to an interested and identifiable market
which comprised persons with whom appellant
had a business connection. Moreover "tight
control" (in the words of Mr Felthun) was exer-
cised over the mailing list; it was "clean".
Accordingly, those in category (ii),to whom
catalogues were sent (also without charge),
were persons "who we felt wanted" catalogues.
This assertion had not been challenged in cross-

examination. The catalogues were useful; far
more so than the normal advertising pamphlets

placed in post boxes of homes. On the probabi-

lities, then, they were accepted. And the

making of a further purchase showed that the

catalogues/

26.

catalogues sent had, indeed, been used by the persons concerned; this was a signification of their assent to the offer (the communication

whereof to appellant had been dispensed with). (ii) It was also to be inferred from the fact of

customers "wanting" the catalogues plus their utility and that they were used, that, on delivery, ownership was acquired. In any event, ownership passed, on receipt of the catalogues, even thoúgh they might have been immediately discarded.
It will be apparent that the main thrust of the argument was that a tacit agreement (in respect of each catalogue) was concluded.

This/
27. This, on one of the recognised tests, is established where, by a process of inference, it is found that the most plausible conclusion from all the relevant proved facts and circumstances is that a contract came into
existence (Plum v Mazista Ltd 1981(3) S A 152(A) at

163 -4; Spes Bona Bank Ltd v Portals Water Treatment
S A (Pty) Ltd 1983(1) S A 978(A) at 981 A - D; Muhlmann
v Muhlmann 1984(3) S A 102(A) at 124 C; but cf Joel
Melamed and Hurwitz v Cleveland Estates (Pty) Ltd 1984(3)
S A 155(A) at 164 G - 165 G). Where the acceptance of an
offer by conduct is relied on it must be shown that the
offeree acted with the intention (actual or apparent)
of accepting the offer (Chitty on Contracts: General
Principles, 25th ed para 55 at p 34). In the case

of/

28.

of contracts of sale such conduct may be the retention
by the "purchaser" of goods sent to him (Christie:
The Law of Contract in South Africa, 62). Instances
of this are where a purchaser, to whom there is delivered
á quantity of goods on approval or in excess of his
order or not answering the description contracted for,

keeps them (MacKeurtan: Sale of Goods in South Africa 5th ed, 8). The factor underlying these cases is a
prior or existing business relationship or course of
dealings between the parties. Where, however, this is
absent the position will ordinarily be otherwise. In
this situation, ie where unsolicited goods are sent to

a person, the failure per se to return them would not

normally found a sufficient inference that they had

been/

29.

be accepted. As Corbin on Contracts, vol 1, sec 72, p 306 puts it:

"(I)t may indicate that he pre-ferred to give no thought to the offer and to waste no time and effort in making a reply, whether orally or by a writing. In such cases, the offeror is not reasonable in giving to the offeree's mere silence an interpretation that he accepts. So, if a party sends a book or paper or other goods to another, with a letter saying he is offering it for sale at a spe-cified price, the party to whom it is sent is not bound by a con-tract to pay for it if he does nothing and says nothing."

To/

30.

To similar effect is Wessels: The Law of Contract in South Africa, 2nd ed, vol 1, para 269, where it is stated:

"The want of a reply to an offer which one is not bound to answer may not be a refusal, but it certainly is not equivalent to an acceptance. Consent is a positive act not a negative act.

Thus, if tickets, newspapers or goods are sent to my address with a notice that if I do not return them within a certain time I shall be taken to have accepted them, my silence and my not returning things cannot be construed into an acceptance on my part. There is no legal duty laid upon me to incur the trouble and expense of returning the articles so sent to me, and therefore my passive attitude cannot be interpreted into an implied consent to take them."

On/

31.

On the other hand, were the offeree to make beneficial

use of the goods or otherwise exercise ownership over them, an acceptance may and probably would be inferred (see Williston on Contracts, 3rd ed, vol 1 sec 91(D) pp 333-4). Ultimately, of course, whether the offeree's conduct was such that an acceptance (or intention

to acquire ownership) can be inferred, is a question

of fact to be decided on the circumstantial evidence

of each case. The party bearing the onus would have to convince the court that such inference is

the most readily apparent and acceptable one (A A Onderlinge Assuransie-Assosiasie Bpk v De Beer 1982(2) S A 603(A) at 614 H); in other words that the circumstances justify the inference sought

to/ .

32.

to be drawn (Smit v Arthur 1976(3) S A 378(A) at 384 H).
I proceed to apply these principles to the facts in casu. It can, I think, be accepted that most of the catalogues were properly addressed and posted and,in the ordinary course,reached their destination and were received by the addressees. I am, nevertheless, unable to agree with appellant's argument. I deal,firstly, with that part of it relating to the alleged consensual sales. There is, in my opinion, no merit in the propo- sition that the catalogues were part of the goods ordered or that it was an implied term of each sale that a catalogue would subsequently be sent to the erstwhile purchaser. Neither directly nor indirectly is there any evidence in support of this. The matter must therefore be approached on the basis that the catalogues were unsolicited.

Can/ ....

33. Can it be said that they were never- theless accepted by conduct? In considering this, it must be stressed that, what appellant had to prove was a multiplicity of sales and, in particular, if respondent's assessment (which was obviously based on

the total quantity of catalogues printed and distributed)

was to be successfully challenged, a reasonably precise
estimate of the number thereof. Otherwise one would not know what (lesser) amount of tax was payable. But in order to quantify the number of alleged sales, it did not suffice for appellant to rely on the proposition that, in the ." nature of things, the catalogues must have been responded

to/
34.
to because, unless that happened, its business would
have collapsed. This generalisation is no doubt true,
but it would not result in the quantum of sales of
catalogues being established. For this to be achieved,
it was incumbent on appellant to lay a sufficient basis
for inferring the probability of particular sales (in-
volving individual recipients of catalogues) having taken
place - and the approximate number thereof. In my
opinion, it did not do this.
Whilst there was no evidence on the point, it can be assumed that no catalogues were returned by any of the recipients. But this is neither surprising nor of any consequence. The relationship between the parties was not such as to require this to be done (on

pain/

35.

pain of an inference of acceptance arising). There is
no warrant for a finding that anything more than one

isolated purchase had been made by any particular cus-
tomer prior to the despatch of a catalogue to him.
Though the catalogues are perhaps advertising material
of a superior kind, they remain such. I do not think
that a customer who, on receiving one, and seeing what
it is (even though, in order to do so, he may page through
it), discards it, can be said to have the intent either
of accepting it or of acquiring ownership thereof.
Rather the opposite seems true. Thus Williston (op cit)

at 334 - 5 says:

"It should be noted that to come within the operation of this general principle the taking or exercise of

dominion/

36.

dominion must be something more than mere temporary taking or handling for purpose of inspection or to determine whether to accept."

(The "general principle" is that the taking or retention
by an offeree of possession of property offered to him may
constitute an acceptance "in the absence of other controlling
circumstances" - see sec 91 D at 332). It would, moreover, not
occur to a customer that an article of this kind (being a,
catalogue with a price of only 10 cents marked on it)
should be returned to appellant if he did not wish to
accept it.

What remains, then, is the contention

that (former) customers of appellant, on the probabi-

lities, in fact used the catalogues and must thus be

taken to have accepted appellant's offer. The

fallacy/

37.

fallacy inherent in the argument, and rendering it

still-born, is that its basic premise,viz, that the

addressees "wanted" the catalogues,is flawed. It
was founded on Mr Felthun's bald, unsubstantiated alle-
gation (amounting to an opinion) to that effect. There
was no evidence that he had any direct dealings with any
of the persons whose subjective state of mind he was
testifying to. What he said really begs the question
and was simply conjecture. A taxpayer's ipse dixit
does not necessarily have to be accepted (Malan v
Kommissaris vir Binnelandse Inkomste 1983(3) S A 1(A):
at 18 E); uncontradicted evidence is not necessarily
cogent, (Patel v Grobbelaar 1974(1) S A 532(A) at 534 C - C

There/
38. There was no information as to the volume of orders or how many customers who ordered goods at any given time had previously purchased from appellant. The

number of repeat orders would have been indicative of the use to which catalogues (whether in category (i) or (ii)) were put. Indeed, the Special Court was left

in the dark as to the actual number of catalogues involved,

the dates when they were sent out, what proportion those

in the two categories bore to each other and how many were

on the mailing list. In the absence of evidence along

these lines, it was not possible to infer whether any,specifi
(and, if so, how many)addressees of the catalogues re-

sponded to their distribution by using and thus accepting

them.

Finally,/

39.

Finally, if there was agreement, what were the terms thereof? It is difficult, in this re-gard, to reconcile the price marked on the catalogues with the contention that the offer was to supply them free of charge. If it was not thë latter, the fact that no payment was made by any of the recipients (save to the extent already mentioned) is a strong indication, not merely of non-performance of the contract, but of non-acceptance of the offer. It, accordingly, does not avail appellant to argue that communication of the acceptance of the offer was dispensed with.
To sum up so far, the evidence was, in my opinion, insufficient to enable the inference to be drawn that appellant's offer (whether to sell, donate

or/
40. or dispose of the catalogues) was accepted by conduct.
Equally so, and for substantially the same reasons, it
cannot be said to have been proved that its customers
intended to acquire ownership of the catalogues received
by them. They were there for the taking, but gifts are not
always accepted. Accordingly, appellant failed to estab-
lish (and the onus was on it, in terms of sec 23) that
any particular catálogues (and, a fortiori, the number
thereof) were sold and its attempt to have sec 5(1)(a)
apply was rightly rejected by the Special Court. Mr Seligson,
on behalf of respondent, submitted that appellant had not
proved that the market value of the catalogues was 10 cents
each, so that, in any event, even if sec 7(3) applied,
their cost should be the yardstick of the taxable value.

In/ ....

41. In the light of the conclusion come to, it is unnecessary to decide this point.
I am hot sure whether a decision that sec 5(1)(a) is.not applicable, does not dispose of the first issue. This is because I undérstood it to be common cause that either this section or sec 5(l)(h)(i) governed; it was one or the other. However, in case . this approach be unfair to appellant and, in any event, in order to determine whether the facts of the present matter, on their own merits, fall within the ambit of sec 5(l)(h)(i), I propose to consider the question. But in so doing it is unnecessary to deal with the argument, advanced on behalf of appellant, that sec 5(1)(h) only applies where a particular transaction does not fall

within/
42.

within any of the earlier sub-sections of sec 5(1); it was to be invoked as a last resort so to speak; thus if there was a sale of goods, tax would be calculable on the basis that sec 5(1)(a) applied, even though the transaction was, at the same time, one within the meaning of sec 5(l)(h). That this could happen was submitted
to us. Particular reference was, in this regard, made-to that part of the latter section (towards the end) reading: "which are applied ... for the use or consumption of any other person..." Unless some restrictive meaning was given to this expression, it could, as counsel put it, cover every sale (under sec 5(1)(a)) by an enterprise of its goods. One can conceive of other examples falling under sec 5(1)(h) and other sub-sections of

sec /

43.

sec 5(1). The problem in these circumstances,is which of the differing parts of sec 7 will apply to determine the taxable value of the transaction. However, in view of the finding that appellant's evidence fell short of proving the requisites for the operation of sec 5(1)(a), the problem of the two sub-sections possibly overlapping and the proper approach to be adopted where this occurs,can be and is left unresolved.
The broad purpose of sec 5(1)(h) is to tax goods which have inter alia been acquired by a registered vendor free of tax and which, instead of being disposed of or utilised in such a way as to eventually generate tax, are appropriated or devoted

by/

44. by him (i) to his private or domestic use or consumption, or, (ii) for use or consumption in his enterprise, or, (iii) for the use or consumption by a third person, or, (iv) for the purposes of another enterprise of his. In most of these cases,the person or enterprise concerned will, as a result of what may
be called the internal employment of the goods in any

of these ways, become the end-user thereof (and thus,

in principle, liable for tax). Examples illustrative
of the categories referred to are the following:

(i) groceries taken by a grocer from his stock for
consumption by himself or his family; (ii) the use
by a retailer of motor vehicles of a car for demonstration
purposes; (iii) the giving of free samples or gifts

to/

45.

to customers as part of a sales promotion exercise; (iv) any of the aforementioned where the use is by

an associate enterprise. Normally,the goods in ques-

tion will be those traded in by the enterprise, but

this is not essential for the operation of the sec-

tion.

The question to be decided is whether

that part of sec 5(l)(h)(i) reading "for the use or

consumption thereof in such enterprise" applies in the present matter. Clearly, the catalogues were either acquired under a sale or produced by appellant. There

was/
46.

was no suggestion that any of the exclusions contained
in the section applied. It was not disputed that if they had been used (or consumed) as stated, this was con-

sequent upon them having been "applied". The real question,
then, is whether the catalogues were used in appellant's
business within the meaning of the section. The word

"thereof" presents some difficulty. It could relate to

(the use or consumption of) the goods or to (the use of
or consumption by) the registered vendor (ie "such person").
The use in the Afrikaans text of "daarvan" indicates that
it is the former. But on the facts of the present matter
this possible ambiguity is not important. What has to
be decided is whether the distribution of the catalogues
by appellant to its customers constituted a use of them
by appellant in its business. I think it did. The

evidence/

47.

evidence was that appellant was "not in the business of selling catalogues"; they were rather "the vehicle" that it used in order to "demónstrate" what goods it has for sale - its "selling medium" (containing,of course,order forms). Indeed, appellant itself, as the docket shows, in a letter that it wrote to respondent, admitted that "catalogues not sold but sent to customers are treated as being consumed in terms of sec 5(1)(h)". In my view, such admission was correctly made. "Use" is a word of wide meaning (R v Tru Products (Pty) Ltd & Others, 1954(4) S A 356(C) at 365 E; R v Appel 1959(3) S A 944(C) at 947 E; S v Naicker 1963(4) S A 610(N) at 613 G; Shell-Mex and B P Ltd v Clayton (Valuation Officer) and Another (1955) 3 AllE R l02 (C A) at 117 B - D;

1956/
48.

(1956)3 All E R 185(H L) at 195 I - 196 C). Moreover, save that the use must be "in such enterprise" there is no reference and therefore no restriction in the section concerning the manner in or purpose for which the goods must be used. A person in the position of appellant would be using the catalogues where he exer- cises his rights of ownership by disposing of them. And, in so doing, appellant was using them "in" its enterprise. "In" is an elastic preposition synonymous with "in regard to", "respecting" and "with respect to" (Black's Law Dictionary 5th ed sv "In"). It is there-fore not a requirement that the use or consumption of the goods, ie, the disposal of the catalogues, be confined to persons within the enterprise, ie members of appellant's

staff/

49.

staff (as was argued). There is no warrant for giving

it this narrow meaning. Secs 7(5)(f) and (h), which
were relied on in this regard, were only inserted by
amendments subsequent to 1980. In any event, they mere-

ly deal with how the cost or value of goods is to be

calculated in particular applications of sec.5(l)(h).

In so far as may be necessary, appellant itself can be regarded as an end-user of the catalogues, or,

as Tebbutt J, found "the real user".
Perhaps the present case is a somewhat un- usual illustration of the application of sec 5(l)(h)(i), but, for the reasons stated, I think it falls within the sub-section. In the result, respondent rightly applied sec 7(1)(h) in order to arrive at the taxable value of the catalogues.

There/
6.

There was no dispute that, so calculated, the assessment

was correct and (in terms of sec 9(e)) payable by appellant. The first issue must be resolved in re-spondent's favour..

So, too, must the second issue. Appellant, having failed to prove that the catalogues were sold, could not rely on the exemption created by sec6(l)(a)(i). It follows that tax was payable, as claimed by respondent, on those catalogues distributed outside the Republic.

The appeal fails and is dismissed with costs including those incurred by the employment of two counsel.

H H NESTADT, JA CORBETT, JA )
HOEXTER, JA ) CONCUR NICHOLAS, AJA)

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