Constitutional Court Confirms VAT Treatment of Recycled Gold

The South African Constitutional Court has unanimously confirmed the South African Revenue Service's (SARS) interpretation of Section 11(1)(f) of the Value-Added Tax Act, No. 89 of 1991, regarding the zero-rating of gold. In the case of *Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service* (CCT 320/23) [2026] ZACC 24, the Court ruled that refined gold originating from previously manufactured sources, such as scrap jewellery, does not qualify for VAT zero-rating, even when supplied to prescribed purchasers like registered banks. This landmark judgment clarifies that for gold to be zero-rated, it must not have undergone any manufacturing process other than refining or manufacturing into prescribed forms, thereby excluding second-hand or recycled gold that had a prior manufacturing history. The decision provides crucial certainty for the gold refining, banking, and precious metals sectors, reinforcing the principle of applying legislation as written and ensuring consistent tax treatment.

The South African legal landscape concerning Value-Added Tax (VAT) on precious metals has received definitive clarity with the recent unanimous judgment by the Constitutional Court. In the matter of *Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service* (CCT 320/23) [2026] ZACC 24, the apex court affirmed SARS's long-standing interpretation of Section 11(1)(f) of the Value-Added Tax Act, No. 89 of 1991. This ruling settles a protracted dispute over whether refined gold, derived from previously manufactured items like scrap jewellery, qualifies for VAT zero-rating when supplied to specific entities such as registered banks.

This judgment carries significant implications for the gold refining, banking, and broader precious metals industries in South Africa. It underscores the importance of a strict textual interpretation of tax legislation and clarifies the conditions under which gold transactions may be zero-rated. For practitioners, understanding the nuances of this decision is critical for advising clients on compliance, managing tax liabilities, and navigating the complexities of the gold supply chain. The Constitutional Court's decision not only resolves a specific interpretative challenge but also reinforces SARS's commitment to fair and consistent application of tax laws, thereby safeguarding the national tax base.

The core of the dispute revolved around the third cumulative requirement for zero-rating under Section 11(1)(f): that the gold must not have undergone any manufacturing process other than refining or manufacturing into prescribed forms. Lueven Metals contended that the act of refining effectively 'eradicates' any prior manufacturing history, making the refined product eligible for zero-rating. SARS, conversely, argued that the historical manufacturing process of the gold was a disqualifying factor, irrespective of subsequent refining. The Constitutional Court sided with SARS, emphasizing that the legislative text must be applied as written.

The Value-Added Tax Act, No. 89 of 1991 (the VAT Act), governs the imposition, collection, and administration of VAT in South Africa. Central to the *Lueven Metals* case is Section 11(1)(f) of the VAT Act, which provides for the zero-rating of certain supplies of gold. Zero-rating effectively means that VAT is charged at a rate of 0%, allowing the vendor to claim input tax deductions on related expenses. This provision was designed to facilitate the trade in primary gold within specific channels, typically involving the South African Reserve Bank, the South African Mint Company, or registered banks.

Historically, the VAT treatment of gold has been a complex area, particularly concerning recycled or second-hand gold. The definition of "second-hand goods" in Section 1(1) of the VAT Act, and subsequent amendments, have sought to address issues around notional input tax deductions and potential fraudulent claims. While not directly at issue in the *Lueven Metals* case, the broader context of VAT on second-hand goods, especially precious metals, highlights the legislature's intent to prevent abuse and ensure that VAT is appropriately accounted for throughout the supply chain.

The specific requirements for zero-rating gold under Section 11(1)(f) are cumulative: the supply must be made to a prescribed purchaser, the gold must be in a prescribed form, and crucially, it must not have undergone any manufacturing process other than refining or manufacturing into those prescribed forms. Lueven Metals (Pty) Ltd, a company involved in trading and refining precious metals, including second-hand gold like scrap jewellery, had for years treated its sales of refined gold bars to Absa Bank as zero-rated. Following an audit, SARS challenged this practice, asserting that the gold's prior manufacturing into jewellery disqualified it from zero-rating, even after refining.

The Constitutional Court's judgment in *Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service* (CCT 320/23) [2026] ZACC 24 meticulously examined the wording of Section 11(1)(f) of the Value-Added Tax Act. The Court affirmed the interpretation that the zero-rating provision applies only if the gold has *not* undergone any manufacturing process other than refining or manufacturing into prescribed forms. This means that gold previously manufactured into non-prescribed forms, such as jewellery or other fabricated items, falls outside the scope of the zero-rating, irrespective of subsequent refining.

Lueven Metals argued that the refining process effectively 'eradicates' the gold's previous form and that the VAT system should focus on the nature of the current supply rather than its historical manufacturing. However, the Constitutional Court rejected this argument, stating that while refining changes the gold's physical state, it does not erase the historical fact that the gold had previously undergone a disqualifying manufacturing process. The Court found SARS's interpretation to be consistent with the plain textual meaning of the statute, avoiding rendering key provisions redundant.

This decision aligns with the rulings of the High Court and the Supreme Court of Appeal, both of which had previously upheld SARS's interpretation. The consistent judicial stance across multiple levels of court underscores the robustness of SARS's position and the clarity of the legislative intent. The judgment emphasizes a strict adherence to the statutory text, reinforcing the principle that tax exemptions and special rates must be narrowly construed and applied only where all stipulated conditions are met.

The Constitutional Court's reasoning highlights the importance of each of the three cumulative requirements in Section 11(1)(f). The supply must be to a prescribed purchaser, the gold must be in a prescribed form, and critically, its manufacturing history must be limited to refining or production into those prescribed forms. The Court found that Lueven's argument, which sought to disregard the prior manufacturing process, was untenable and would have broadened the scope of zero-rating beyond the legislature's clear intention.

While this judgment provides definitive clarity, it is noteworthy that the 2026 National Budget proposed the repeal of Section 11(1)(f) of the VAT Act. Should this repeal proceed, the domestic supply of gold bullion to the South African Reserve Bank, the South African Mint Company, and registered banks would become subject to the standard VAT rate, currently 15%. This prospective legislative change, while separate from the *Lueven Metals* judgment, indicates a broader policy shift regarding VAT on gold, potentially making the Constitutional Court's interpretation of the current provision a precursor to a more simplified, albeit higher-taxed, regime for gold transactions.

The Constitutional Court's unanimous judgment in *Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service* provides unequivocal legal certainty for the gold refining, banking, and precious metals sectors in South Africa. Practitioners must advise clients that refined gold derived from previously manufactured items, such as scrap jewellery, will not qualify for VAT zero-rating under Section 11(1)(f) of the VAT Act. These transactions will now be subject to the standard VAT rate, which has significant implications for pricing, cash flow, and overall tax compliance for businesses dealing in recycled gold.

This ruling reinforces the principle that tax legislation must be applied strictly according to its text, preventing aggressive interpretations that seek to extend tax relief beyond legislative intent. While the judgment resolves a long-standing ambiguity, practitioners should also remain vigilant regarding potential future legislative changes, particularly the proposed repeal of Section 11(1)(f) of the VAT Act. Monitoring these developments will be crucial to ensure ongoing compliance and to adapt business models to any shifts in the VAT treatment of gold in South Africa. The decision serves as a reminder for all taxpayers to meticulously review their supply chains and ensure that their VAT treatment aligns precisely with statutory requirements and judicial interpretations.