Without accurate and complete records, it is almost impossible to obtain diesel refunds, writes Mona Appalsamy of Shepstone & Wylie lawyers.
By Mona Appalsamy
The diesel refund scheme, introduced by government in 2000, was intended to offer some sort of reprieve on fuel related levies to assist primary producers in certain sectors, such as the farming, mining, forestry and fishing sectors.
However, farmers are faced with many compliance challenges. Therefore, what was implemented to assist farmers has turned out to be a compliance nightmare.
The scheme, administered by the VAT system, and regulated by item 670.04 read with Note 6 of Part 3 of Schedule No. 6 to the Customs and Excise Act No.91 of 1964 (“the Act”), provides for a relief of the fuel and Road Accident Fund (“RAF”) levy for those sectors using diesel under circumstances which is referred to in the legislation as so-called “qualifying activities” in their sector operations.
Although the system appears to be complex if one reads the legislation, in brief, it boils down to the fact that to qualify for a diesel refund (or “rebate”), the “user” of the diesel must satisfy certain requirements. These requirements are set out in rebate item 670.04 read with Note 6 and included in Part 3 of Schedule 6 of the Act and provide guidance to users on the circumstances under which a claimant could qualify for a diesel refund.
For example, to qualify for a diesel refund, the user must satisfy SARS that the diesel was purchased and paid for by the user, the diesel was used in qualifying activities, and that the record keeping methods of the user are accurate and complete to underpin the diesel refund calculation.
This is where extreme challenges set in, in the form of meticulous record keeping. It needs to be noted that the recordkeeping requirements are so strict, that failure to comply with SARS’ standard of record keeping renders most if not all claims invalid.
In most cases farmers aren’t even aware of the requirements, which further complicates the matter as it leads to non-compliance that could result in SARS disallowing refunds and raising penalties.
What exacerbates the matter further is that the courts have cemented the position of strict compliance with record keeping on the issue of diesel refunds.
In an unreported judgement of Sandbaken Boerdery (Pty) Ltd v Commissioner for the South African Revenue Service and Another (053180/2022) ZAGPPHC 54 (“Sandbaken case”), delivered on 21 January 2025, the court dismissed Sandbaken’s appeal with costs on the basis that for a user to claim a refund of general fuel levies and RAF levies, strict compliance with legislation is required.
Sandbaken conducts a mixed farming operation, inclusive of livestock and crop farming. In its farming operations, Sandbaken used diesel for farming purposes, and in accordance with the relevant provisions of the Act applied for a refund of the fuel and RAF levy.
The Commissioner disallowed the refund. One of the reasons for SARS rejecting the claim was on the basis that the logbooks did not comply with Note 6 to the Act. This prompted Sandbaken to institute a statutory appeal in terms of section 47(9)(e) of the Act.
On the issue of record keeping, the court held that Sandbaken had failed to provide diesel usage logbooks that accord with Note 6 and that it is not possible from the “logbooks” furnished by Sandbaken to make a determination or a verification of the correctness of the amount of eligible and non-eligible diesel usage.
The court also held that the diesel storage logbooks also do not comply with the requirements of Note 6. The records submitted, are not accurate or complete. The evidence presented by Sandbaken renders it impossible to conclude that all of the diesel for which Sandbaken claims a rebate was used in primary production activities in farming for purposes of rebate Item 670.04.
Unfortunately, the Sandbaken judgement follows a long list of authorities already cementing the legal position of strict record keeping with regards to diesel refunds.
In Naude v Commissioner for the South African Revenue Service and Another (51712/2017) [2025] ZAGPPHC 152 (13 February 2025) (“Naude case”), delivered on 13 February 2025 the court once again dealt with the issue of strict compliance with record keeping. The applicant in this matter conducts farming and forestry activities.
SARS disallowed its diesel refund claims on the basis that, that Bonnie Brooks and not the applicant purchased the diesel, the diesel was not used for eligible activities and lastly the applicant failed to keep proper records, in that the logbooks did not show what qualifying activities the diesel was used for.
The court held that Naude has not satisfied the requirements set out in rebate item 670.04 included in Part 3 of Schedule 6 of the Act, ultimately dismissing the application.
These strict requirements were also addressed in the earlier Umbhaba Estates (Pty) Ltd v CSARS (66454/2017) [2021] ZAGPPHC (10 June 2021) judgement. In this judgment the court held that logbooks must have a full audit trail of the diesel usage from purchase to use.
In terms of the current diesel regime, 80% of diesel consumption qualifies for a refund in terms of the rebate item 670.04 of Schedule 6 to the Act. This is indeed a substantial monetary relief to our farmers. It therefore goes without saying that it would be in the best interest of farmers to keep proper records detailing full audit trail of the diesel from purchase to use thus ensuring compliance with the Act.
Considering the above it is apparent that whilst the diesel refund scheme may have been introduced by the government to offer some relief to farmers and primary producers in certain sectors, such reprieve entails strict compliance with the law. SARS are just not willing to pay out claims, in the absence of compliance. Therefore, the end consumer is paying the price as receipt of the refund would or should have a positive effect on prices.
Failure to maintain proper records and to ensure that controls are in place to ensure compliance with the diesel refund scheme will not only expose users to substantial risks of non-compliance with the legislation but will also impact the financial health of a farming operation if it is only discovered at a later stage that refunds obtained must be paid back to SARS.
Although not yet in law, the above is an extract of the draft logbook that was published on the SARS website addressing the information required for a usage logbook. You will find that SARS requires a full audit trail of the diesel usage from purchase to use.
Consequently, as with all farming activities, it is prudent to ensure that if the diesel refund scheme is utilised, that maintenance of an accurate and complete record-keeping procedure is key to reaping the benefits thereof.
*Mona Appalsamy is an attorney at Shepstone & Wylie Attorneys.
