Alliance Fuel vs SARS legal battle returns to lower court

Date: 01 November 2024 By: Andries van Zyl

The ongoing legal dispute between Alliance Fuel and the South African Revenue Service (SARS) has taken a new turn, with the battle returningto the magistrate’s court where everything began. Alliance Fuel is seeking to overturn the original search warrant that allowed SARS to raid its Louis Trichardt depot in July.

Alliance Fuel's recent legal manoeuvre

On 23 October, under instruction from the Limpopo High Court, Alliance Fuel initiated a reconsideration application in the Louis Trichardt Magistrate’s Court. The company aims to nullify the court's earlier decision to grant SARS the search warrant. This action follows several legal encounters in both the Limpopo and Johannesburg High Court, where Alliance Fuel challenged the validity of the search warrants and SARS’s actions in detaining its premises.

A history of legal clashes

The conflict began on 10 July this year, when SARS officials raided Alliance Fuel's depots in Louis Trichardt and Meyerton. SARS suspected the company of engaging in illicit fuel-trading practices, in contravention of, among other things, the Customs and Excise Act (Act 91 of 1964), which governs the illegal trade, storage, transport, and mixing or blending of fuel products.

According to documents filed in court, the allegations include the movement and sale of illegally mixed diesel across the country. A further allegation is that the mixing and removal of the A1 marker in the diesel occurred at the Meyerton depot. Oil companies use a SARS-approved tracer, known as the A1 marker, to mark paraffin. If this marker is detected in diesel fuel above 1 mg/ℓ, it indicates illegal adulteration with paraffin. The allegation is that, after removing the marker, thousands of litres of mixed or altered fuel were transported weekly to Louis Trichardt, with Alliance Fuel potentially under-declaring taxes by over R3 billion.

During the raids, SARS officials seized various items, including fuel tanks, documents, and equipment.

Alliance Fuel, represented by TAYFIN Forensic and Investigative Auditors, has consistently contested SARS’s actions, arguing that the search warrants were invalid and that SARS had exceeded its authority by detaining the entire premises. The company achieved a partial victory in the Limpopo High Court on 25 July, when Acting Judge Nathi Gaisa ruled that SARS could not use any evidence seized from the Louis Trichardt depot. However, a similar application in the Johannesburg High Court regarding the Meyerton depot was dismissed, with the judgment on the reasons for dismissal reserved.

A setback for Alliance Fuel

On 15 October, Johannesburg High Court Judge Modiba finally provided reasons for the dismissal, dealing a blow to Alliance Fuel, the first applicant, and Inspacial Properties (Pty) Ltd, the second applicant. The respondent in the case was the Commissioner of the South African Revenue Service.

Judge Modiba dismissed the application to nullify the Meyerton search warrant on the grounds that the applicants had failed to comply with Section 96 of the Customs and Excise Act 91 of 1964, which requires a mandatory one-month notice period before initiating legal proceedings against SARS. The notice sent by Alliance Fuel via email on 25 July 2024, with a request to shorten the notice period to that same day, did not satisfy the Act’s requirements. The judge emphasised that the extremely short notice—just one hour and 18 minutes—prevented SARS from adequately investigating the claims or preparing a response, defeating the purpose of Section 96.

Additionally, the notice did not clearly articulate a cause of action. Inspacial Properties, meanwhile, failed to provide any notice, which proved fatal to its claim.

The court found the Section 96 notice invalid for several reasons: it was sent to an incorrect SARS official, it did not identify Inspacial Properties as a litigant, and it failed to specify a clear cause of action. The applicants’ argument for spoliation relief was also poorly articulated. Moreover, the court ruled that SARS’s actions in restricting access to the premises were lawful, further weakening the applicants’ case.

Judge assesses the merits

While non-compliance with Section 96 was sufficient to dismiss the application, the court proceeded to assess the merits of the case. The applicants argued that they had been unlawfully dispossessed of their properties in Meyerton and Louis Trichardt. However, the court found this claim lacked merit as Alliance Fuel was determined not to be a trading entity and thus could not claim possession.

SARS argued that Alliance Fuel is a dormant company, registered only for income tax, with no registration for VAT, PAYE, or customs activities. It has submitted only one income tax return, declaring no income. Since Alliance Fuel did not meaningfully dispute these claims, the judge accepted SARS’s version.

The court further noted the involvement of a third entity, Agrifuels (Pty) Ltd (Agrifuels), which, although not a party to the case, featured prominently in the application. Agrifuels, with its head office at the Louis Trichardt property, is a registered legal entity, with Mr Walter Gilfillan serving as its sole director since 2018. The applicants allege that Alliance Fuel trades as Agrifuels.

However, SARS contends that it is Agrifuels, not Alliance Fuel, that operates at both the Meyerton and Louis Trichardt sites. Agrifuels is registered with SARS for income tax, VAT, PAYE, and customs activities. Between 2019 and 2023, it declared revenue exceeding R5.667 billion and VAT turnover of over R7.041 billion. Agrifuels also submitted VAT returns for 2024 and PAYE returns, having deducted and paid more than R1.141 million in PAYE. Its bank accounts recorded inflows exceeding R8.667 billion during the same period. The applicants did not respond to these allegations.

The current focus: Overturning the search warrant

Last week’s development in the Louis Trichardt Magistrate’s Court saw Alliance Fuel returning to where the dispute began, with its legal team arguing that the ex parte order granting the search warrant should be reconsidered. However, this application concerns only the Louis Trichardt depot and not the Meyerton site. The magistrate, Magistrate Kwena Molokomme, has reserved judgment, with no date set for a decision.

High stakes remain

The latest legal manoeuvre underscores the high stakes in the Alliance Fuel versus SARS case. Alliance Fuel continues to face accusations of substantial tax evasion, with allegations of under-declaring over R3 billion. The company remains barred from accessing its depots, impacting its operations and financial stability.

The outcome of the reconsideration application in the Louis Trichardt Magistrate’s Court will significantly influence the trajectory of the case. If the court decides to set aside the search warrant, it could potentially weaken SARS’s case and affect the ongoing investigations.

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Andries van Zyl

Andries joined the Zoutpansberger and Limpopo Mirror in April 1993 as a darkroom assistant. Within a couple of months he moved over to the production side of the newspaper and eventually doubled as a reporter. In 1995 he left the newspaper group and travelled overseas for a couple of months. In 1996, Andries rejoined the Zoutpansberger as a reporter. In August 2002, he was appointed as News Editor of the Zoutpansberger, a position he holds until today.