A line of recent decisions of the High Court has shown an emerging trend where the courts are called upon to come to the assistance of taxpayers on the receiving end of procedurally unfair conduct by the South African Revenue Service (the “SARS”). Such conduct can relate to the collection of a tax debt from the taxpayer through the appointment of a third party, the change of a taxpayer’s tax compliance status without any notice being given to the taxpayer or any other administrative decision by the SARS which could prejudice a taxpayer.
A prime example of this trend is found in the recent judgment of Fourie J in WPD Fleetmas CC v the Commissioner: South African Revenue Service1 (“WPD”) where the Gauteng High Court was asked to declare the appointment of a third party to pay the tax debt of WPD in terms of section 179 of the Tax Administration Act, 28 of 2011 (“TAA”) null and void. The court made several important findings. The first being that the matter was found to be urgent. In this matter more than R6 million which was owed to WPD was paid by the third party to the SARS under section 179. Without this money WPD would not be able to pay the salaries of its employees and its service providers. This finding of urgency makes it clear that a court will regard substantive commercial harm as adequate reasons to entertain a claim against the SARS due to a failure of the SARS to follow the correct procedures.
The second important finding by the court relates to the requirement in section 11(4) of the TAA that, unless a court otherwise directs, no legal proceedings may be instituted in the High Court against the SARS unless the applicant has given the SARS ten business days notice of an intention to institute legal proceedings. The court found that a taxpayer is not required to apply on notice or in the application itself to condone a failure to comply with section 11(4). In considering whether the court should in the matter at hand condone non-compliance with section 11 of the TAA, the court held that the fact that the SARS was able to file an answering affidavit and a supplementary answering affidavit and had the opportunity to address the court regarding the issues in dispute, meant that the matter could proceed without any prejudice to the SARS.
In dealing with the merits of the application the court was confronted by conflicting versions between WPD and the SARS in that WPD claimed it had not received a final demand as required by section 179(5) of the TAA, whilst the SARS alleged that the letter of demand was timeously sent. The court ultimately decided in favour of WPD based on a screenshot of their e-filing profile which showed that the letter of demand was not indicated under the date suggested by the SARS. The court concluded that the failure by the SARS to comply with the requirements of section 179(5) of the TAA meant that the notice to appoint a third party is null and void and the SARS was ordered to repay the amount received from the third party together with interest thereon.
The judgement in WPD reaffirms the principles which were illuminated in Red Ant Security Relocation and Eviction Services (Pty) Ltd v Commissioner For South African Revenue Service2 (“Red Ant”) and later in Sip Project Managers (Pty) Ltd v Commissioner For South African Revenue Service3 (“Sip Projects”) that the procedural provisions of the TAA are peremptory and must be complied with by the SARS and that the taxpayer has a right to procedurally fair administrative action as set out in section 3 of Promotion of Administrative Justice Act, 4 of 2000 (“PAJA”). Section 3 of PAJA explains that giving effect to a persons right to procedural fairness includes providing that person inter alia with:
- adequate notice of the nature and purpose of any proposed administrative action;
- a reasonable opportunity to make representations; and
- a clear statement of the relevant administrative action.
In Sip Projects the court declared a third party notice null and void on a similar footing as the court in WPD, whilst in Red Ant the court ordered the SARS to restore a taxpayer’s tax compliance status which was revoked without any notice being provided to the taxpayer on the basis that the taxpayer’s prima facie right to procedural fairness, as explained in section 3 of PAJA, had been infringed. The court explained the onus which is placed on the SARS as follows:
It appears that the respondent may not fully appreciate its obligations in relation to procedural fairness being that 'decision makers who are entrusted with the authority to make administrative decisions by any statute are. . . . required to do so in a manner which is consistent with PAJA
In all three these judgements the SARS had failed to follow the peremptory provisions of the TAA and/or to act in a procedurally fair manner, which meant that the actions subsequently taken were tainted by illegality and were to be reversed. These decisions by the SARS had in all three cases posed an imminent and very serious threat to the continued viability of the businesses of these taxpayers and their ability to pay their suppliers and it was only through the legal process that the taxpayer could vindicate their rights and correct the illegal steps taken in order to mitigate the prejudice to their respective businesses.
What is important to take from these decisions of the High Court is that a taxpayer is entitled to expect the SARS to follow the procedural rules laid down in the TAA and to act in a procedurally fair manner when any action is taken which could prejudice the taxpayer. Should the SARS fail in this regard then the courts will come to the assistance of the taxpayer.
This bulletin was prepared by partner Conor McFadden and candidate attorney Johan Coertze.
[1] Unreported judgement, case number 31339/2020.
[2] 80 SATC 431.
[3] 82 SATC 306.
