CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT
3/2000
METCASH TRADING LIMITED Applicant
versus
THE
COMMISSIONER FOR THE
SOUTH AFRICAN REVENUE SERVICE First Respondent
THE MINISTER OF FINANCE Second Respondent
Heard on : 28 March 2000
Decided on : 24 November
2000
JUDGMENT
KRIEGLER J:
| [1] | This case concerns the
constitutional validity of section 36(1) and subsections (2)(a) and (5) of
section 40 of the Value-Added Tax
Act 89 of 1991 (the
Act).[1] The question is whether
these provisions unjustifiably limit the right of access to courts protected by
section 34 of the Constitution.[2] In
substance section 36(1) of the Act says that upon assessment by the Commissioner
for the South African Revenue Service (the Commissioner),
and notwithstanding
the noting of an “appeal”, a taxpayer is obliged to pay the assessed
tax, called value added tax
(VAT) plus consequential imposts there and then,
possible adjustments and refunds being left for dispute and determination later.
Concomitantly the other two impugned provisions of the Act empower the
Commissioner to exact summary payment of the assessed amounts:
section 40(2)(a)
empowers the Commissioner, where payment of an assessment is overdue, to file a
statement at court which has the
effect of an exigible civil judgment for a
liquid debt; and subsection (5) puts the correctness of the assessment beyond
challenge
in such execution. |
| [2] | The applicant is Metcash
Trading Limited (Metcash). It is a wholly owned subsidiary, and the principal
operating entity in South
Africa, of Metro Cash And Carry Limited (Metro), a
public company listed on the Johannesburg Stock Exchange. Metcash conducts
business
as a wholesaler and distributor of what it calls “fast moving
consumer goods”, and as a liquor retailer. It employs
some 8 500 people
at 162 outlets throughout the country and enjoyed a turnover of approximately R6
billion for the financial year
to April 1999. Metro’s turnover for that
period exceeded R28 billion. The respondents are respectively the Commissioner
in
his capacity as the official charged with the administration of the Act and
the Minister of Finance, who was cited by reason of his
interest in the validity
of the impugned sections of the Act. |
| [3] | There
had been intermittent rumblings from the revenue authorities about
Metcash’s VAT returns[3] and
payments from as early as mid-1996. These were followed by meetings,
correspondence, investigations and further meetings between
Metcash
representatives and the Commissioner’s staff. Things came to a head on 31
May 1999 when a letter bearing that date
from the Commissioner to Metcash was
delivered by hand. The letter gave Metcash formal notice that the Commissioner
was not satisfied
with the VAT returns furnished by the former for the tax
periods from July 1996 to June 1997 and that, for reasons detailed in an
annexure to the letter and by virtue of his powers under section 31(1)(b) or (c)
of the Act, he had made assessments listed in a
further annexure. The annexures
run to 52 pages and furnish extensive particulars of the grounds for the
Commissioner’s decision.
The schedule detailing the Commissioner’s
grounds commences with a summary alleging that transactions entered into by
Metcash
and /or its associated companies with four named close corporations had
been fictitious. It continues: |
“No goods were sold and delivered and accordingly no input tax on the
transactions in question could be claimed. The total
amount of the claim for
input tax in respect of the fictitious transactions, set out in Annexure 1,
currently known to the Commissioner
. . . is R77 667
722,27.”
The schedule of assessed amounts reflects that
Metcash was also assessed for additional tax of double the original R77 667 722,
27,
namely an amount of R155 335 444,54, plus a penalty of 10% (R7 766 772,22)
and interest as at that date of R25 165
004,01.[4] The total of the
assessments at that stage was R265 934 943,04. In terms of the letter the
assessments adding up to this substantial
sum[5] were to be paid by 30 June
1999, failing which steps for their recovery would be taken without further
notice.
| [4] | On 24 June 1999
Metro’s chairman led a delegation to the Commissioner, followed up by a
letter the next day in which, among
others, the point was made
that: |
“. . . Metcash is a business of considerable size . . . and will be in a
position to pay whatever assessment it may be determined
to be liable
for.”
and continuing:
“To this end, we would request that you do not require Metcash to pay the
assessment pending the outcome of the investigations,
whereafter SARS can assess
its position. We envisage that a period of 60 days should be adequate to draw
satisfactory conclusions
as to what has precisely transpired in this complex
matter.”
On 30 June 1999 attorneys acting on behalf of
Metcash delivered a letter to the Commissioner formally lodging an objection to
the
assessments and submitting argument in support of another request for a 60
day extension. By letter dated 5 July 1999 the Commissioner
granted an
extension of 45 days from 30 June 1999. This period, too, proved inadequate and
at the eleventh hour, namely on 13 August
1999, the attorneys delivered another
lengthy letter, repeating the formal noting of the objection. Although the
letter advanced
and furnished supporting argument in respect of a number of
grounds of objection, there was no serious attempt to join issue with
the
contentions in the annexures to the Commissioner’s letter of 31 May 1999.
The letter did however “place on record”
that Metcash was not able
at that stage “to fully and comprehensively deal with all the
allegations” in the factual schedule.
It was also contended that:
“On the evidence currently at our client’s disposal, . . . the input
tax was duly claimable by our client as it complied
with the relevant provisions
of the Vat [sic] Act . . . [E]nforceable contracts between our client and the
relevant suppliers of
goods, . . . did, in fact,
exist.”
| [5] | By letter dated 13 September
1999 the Commissioner disallowed Metcash’s objection and gave it some 48
hours notice to pay all
the amounts in full, failing which the summary procedure
contemplated by section 40(2)(a) of the Act would be implemented. This
precipitated an urgent application to the High Court in Johannesburg to block
the threatened action by the Commissioner. An interim
arrangement was made and
the case subsequently came before Snyders J, who later delivered a reserved
judgment.[6] The learned judge found
that the relevant sections of the Act infringed the fundamental right of access
to the courts afforded to
everyone by section 34 of the Constitution. In
arriving at that conclusion she relied heavily on the judgment of this Court in
Chief Lesapo v North West Agricultural Bank and
Another,[7] which she regarded as
directly in point. The learned judge then turned to a consideration of the
possible saving of the offending
provisions under section 36 of the Constitution
and concluded[8] that they were
neither reasonable nor justifiable. |
| [6] | She accordingly proceeded to
declare the three challenged provisions of the Act invalid and made certain
ancillary orders, including
an interdict preventing the Commissioner from
enforcing payment of the assessed tax pending conclusion of Metcash’s
appeal
to the Special Income Tax Court (the Special Court) against the
assessments. In addition the judge referred the order of constitutional
invalidity to this Court in terms of sections 167(5) and 172(2) of the
Constitution, which provide that an order of constitutional
invalidity made by a
high court is of no force unless confirmed by the Constitutional
Court. |
| [7] | What this Court therefore
now has to consider is whether or not to confirm the order declaring the three
subsections of the Act invalid.
|
| [8] | The Commissioner and the
Minister oppose confirmation, contending that the judge erred in finding that
the provisions in question
infringe section 34 of the Constitution. Their
principal argument is that the “pay now, argue later” rule in
section
36(1) of the Act nevertheless affords the taxpayer sufficient
opportunities for a hearing on the assessment. These they say are
by objecting
to the assessment; asking the Commissioner to grant an extension of the time for
payment; if he refuses, asking a court
to set aside such refusal on review; and,
ultimately appealing to the Special Court against the assessment and other
charges. Therefore
the provisions do not infringe the requirements of section
34 of the Constitution. They further argue that even if there is such
an
infringement, the quick, reliable and predictable recovery of VAT is of vital
national importance and that the relevant provisions
are saved from invalidity
by section 36 of the Constitution, which permits limitations of the rights
protected in the Bill of Rights
in particular
circumstances.[9] Finally they
contend that even if the provisions are indeed invalid, an order of invalidity
should be suspended for three years
to enable Parliament to draft appropriate
substitute legislation. |
| [9] | Metcash, for its part,
supports the ruling and basic reasoning in the High Court, contending that the
opportunities for protest seen
by the Commissioner in section 36 of the Act are
illusory or inadequate: the taxpayer is effectively compelled to pay up and can
but hope to get the money back later. They also cite the judgment of this Court
in Lesapo,[10] which struck
down provisions in a Bophuthatswana statute which permitted the bank in question
to levy execution against its debtors
without recourse to the courts. The
sections in question are said to be analogous to those dealt with in Lesapo
in that they permit self-help and thus oust the jurisdiction of the courts
in breach of the principle entrenched in section 34 of
the Constitution. In any
event, so it is contended, the impugned provisions breach the Constitution in
that the double tax they
permit the Commissioner to impose is really punishment
for criminal conduct without resort to the courts. Therefore, so they argue,
the provisions infringe the protection afforded by section 34 of the
Constitution in these two respects. |
| [10] | As regards the
justification under section 36 of the Constitution contended for by the
Commissioner, Metcash raises several counter-arguments,
among them that there
are less invasive ways of protecting the national interest in ensuring speedy
and dependable receipt of VAT.
It further contends that the relevant provisions
of the Act are unduly harsh and more invasive of taxpayers’ rights than
any
comparable foreign tax statute. As to the timing of any order invalidating
the sections, the submission on behalf of Metcash was
that there was no
justification for allowing the Commissioner and the Minister time to ask
Parliament to remedy the invalidity. |
| [11] | In order to appreciate the
effect of the challenged provisions and to evaluate the cogency of the
challenge, one must have some understanding
of the VAT system, which replaced
sales tax in South Africa when the Act came into operation in mid-1991. The
system is sophisticated
and its provisions are numerous and complex. For
present purposes, however, a brief outline of its basic principles and main
provisions
will suffice. What follows does therefore not purport to be an
authoritative analysis of any provision of the Act merely touched
on in the
course of this introduction. The Act is interlarded with many terms of art.
Some are defined in the Act itself and others
bear a special meaning in their
context. Brief explanations of such terms are provided as and when necessary in
order to make the
introduction comprehensible. These explanations, too, are not
proffered as authoritative or exhaustive. |
| [12] | VAT is, as its name
signifies, a tax on added value. It is imposed at each step along the chain of
manufacture and distribution
of goods or services that are supplied in the
country in the course of business; and it is calculated on the value at the time
of
each such step. The system was instituted by section 7(1) of the Act which,
reduced to its bare essentials, provides as
follows: |
“. . . there shall be levied and paid . . . a tax, to be known as the
value-added tax —
(1) on the supply by any vendor of goods . . . supplied by him on or after the
commencement date in the course or furtherance of
any enterprise carried on by
him;
(b) . . .
(c) . . .
calculated at the rate of 14 per cent on the value of the supply concerned . .
.”
| [13] | Although the tax is payable
on a wide variety of transactions, the present discussion can be confined to the
facts of this case, which
involves the commercial purchase and sale of goods and
can therefore serve as a straight forward example of how the system is supposed
to work. The basic idea of VAT is that it is calculated on the value of each
successive step as goods move from hand to hand along
the commercial production
and distribution chain from their original source to their ultimate user. For
present purposes it can
be accepted that the tax is calculated at the prescribed
rate of 14% on the price[11] at
which each successive act of handing on takes place. Furthermore, the tax is
not only calculated on the value of each successive
supply, but is to be paid at
that time. As goods move along the distribution chain, everyone making up the
sales chain is first
a recipient, then a supplier. The Act calls these
recipients/suppliers who are engaged in enterprises
“vendors”[12] and
section 23 makes provision for them to be registered as such with the
Commissioner.[13] Section 7(2) of
the Act then renders each vendor who supplies goods liable to pay the VAT on
that particular supply. |
| [14] | Being a tax on added value,
VAT is not levied on the full price of a commodity at each transactional
delivery step it takes along
the distribution chain. It is not cumulative but
merely a tax on the added value the commodity gains during each interval since
the previous supply. To arrive at this outcome a supplying vendor, when
calculating the VAT payable on the particular supply, simply
deducts the VAT
that was paid when the particular goods were supplied to it in the first place.
As a commodity is on-sold by a succession
of vendors, each payment of VAT by
each successive supplier must then represent 14% of the selling price less the
14% of the price
which was payable when that commodity was acquired. According
to the scheme of the Act the tax that is payable by a supplying vendor
is called
output tax and the tax that was payable on the supply to that vendor upon
acquisition is called input
tax.[14] |
| [15] | Of course it would be
wholly impracticable to expect merchants to pay and the fiscus to receive
individual payments of VAT on each
and every separate supply. Therefore the Act
provides a detailed mechanism for vendors to keep certain kinds of records and
periodically
to calculate, account for and pay VAT to the Commissioner. In
broad outline the mechanism provides how the deduction of input tax
from output
tax is to be made and specifies the kinds of vouchers that have to be
kept;[15] and then when and how
vendors are to make their payments and complete their supporting returns to the
Commissioner.[16] In the result
vendors are entrusted with a number of important duties in relation to VAT.
First there is the duty to calculate
and levy VAT on each supply of goods; then
to calculate the output tax and the input tax on that transaction correctly;
also to keep
proper records supported by the prescribed vouchers, periodically
to add up the sum of output and input taxes attributable to that
period and
appropriately deducting the total of the input taxes from those of the output
taxes; and, ultimately and crucially, to
make due and timeous return and payment
of the VAT that is payable in accordance with the vendor’s allocated tax
period. |
| [16] | It would be convenient to
pause at this point to recapitulate and fill in some details before moving on to
the next phase of the Act,
which deals with assessments by the Commissioner and
what they may set in train. The first significant point to note is that VAT,
quite unlike income tax, does not give rise to a liability only once an
assessment has been made. VAT is a multi-stage tax, it arises
continuously.
Moreover VAT vendors/taxpayers bear the ongoing obligation to keep the requisite
records, to make periodic calculations
of the balance of output totals over and
above deductible input totals (and any other permissible deductibles) and to pay
such balances
over to the fisc. It is therefore a multi-stage system with both
continuous self-assessment and predetermined periodic
reporting/paying. |
| [17] | An even more important
feature of VAT, particularly in contradistinction to income tax, is that vendors
are in a sense involuntary
tax-collectors. In principle VAT is payable on each
and every sale; the VAT percentage, the details for its calculation and the
timetable for periodic payment are statutorily predetermined, and it is left to
the vendor to ensure that the correct periodic balance
is calculated,
appropriated and paid over in respect of each tax period. By like token the
regularity of VAT payments on the one
hand ensures a steady and generally more
accurately predictable stream of revenue via a multi-staged taxation that is
perceived as
resting less heavily on the taxpayer, but on the other hand it does
require a great deal of book-keeping by vendors and policing
by the revenue
authorities. |
| [18] | A special feature of VAT
relates to exports. VAT is payable only on consumption in South Africa and as a
result output tax is not
payable on goods sold and exported. In the arcane
language of the Act, they are
zero-rated.[17] Therefore a
merchant who buys and sells goods in South Africa and also sells some goods that
are exported does the periodic calculation
by adding up all input taxes for
deduction from the sum of output taxes but, in calculating the latter, includes
no output tax on
the value of the exports. No output tax is payable on the
exported goods but a full credit is given for the input tax. This exemption,
which aims at promoting exports and enhancing their competitiveness in the world
market, holds self-evident benefits for export-orientated
vendors.
Unfortunately those benefits not only attract honest exporters but are a
notorious magnet for crooks who devise all manner
of schemes to exploit the
system to their advantage. |
| [19] | In the case of VAT the
spectre of dishonesty extends beyond export related frauds, however. Although
VAT as a system of raising revenue
clearly has many
advantages,[18] it undeniably also
has weaknesses. For present purposes only a few drawbacks need be mentioned.
VAT spreads the tax base wide,
thus promoting an equitable tax burden, which can
be scored as a plus. But at the same time the multiplicity of
vendors,[19] many of them small and
possibly ill-equipped to perform their statutory duties, places a heavy burden
on the revenue authorities.[20]
They have to administer a sophisticated system and supervise the performance of
a large body of vendors with limited human and material
resources. In his
affidavit the Commissioner complains of a lack of staff adequately trained in
accounting and makes the point that
a backlog in the training of accountants
country-wide puts trained people at a premium in the private sector, leaving the
Department
chronically unable to obtain and retain a sufficient number of
skilled staff. |
| [20] | The Commissioner also
emphasises that unscrupulous vendors take advantage of his Department’s
notorious staffing embarrassment.
He gives depressing statistics in support of
the proposition that general tax morality in the country is low and that there
is a
high rate of tax evasion and fraud. By way of illustration he cites 19 816
field audits conducted from March to September 1999 revealing
irregularities in
38,52% of the cases and involving R638,3 million. During the same period fraud
and evasion cases being investigated
by the audit staff involved approximately
R650 million while the sum involved in investigations relating to the fiscal
years 1996
to 1998 and for the period from April to July 1999 amounted to a
staggering R1,45 billion. In the circumstances it is not surprising
that the
Commissioner’s affidavit stresses the difficulties his Department
encounters in enforcing proper compliance with the
requirements of the
Act. |
| [21] | It would now be convenient
to revert to the summary of the relevant statutory provisions which, it will be
recalled, had reached the
point where a vendor’s obligation to make
timeous periodic returns and payments of VAT to the Commissioner were
outlined.[21] The Act, having
prescribed the VAT obligations of vendors, proceeds to cater for those vendors
who do not voluntarily and faithfully
fulfil those obligations. The first step
to that end is section 31 of the
Act,[22] which empowers the
Commissioner to make an independent assessment of both the VAT and the amount on
which it is payable, and makes
the amount of the assessed tax payable, where
there is a failure to make a VAT return, or where the Commissioner is not
satisfied
with a return or has reason to believe VAT is due but has not been
paid. The Commissioner must give the vendor written notice of
the assessment
and in the notice inform the vendor that objection to the assessment may be
lodged. |
| [22] | Manifestly section 31
constitutes a valuable weapon in the hands of the Commissioner. The prospect of
having the Commissioner independently
assess both the underlying amount and the
VAT that is to be paid thereon must in itself be a powerful disincentive for
recalcitrant,
dishonest or otherwise remiss vendors. But the compulsive force
of this mechanism of the Act goes a good deal further. The dissatisfied
vendor
can, by lodging an objection under section 32 of the
Act[23] and, that failing, by noting
an appeal under section 33[24] or
33A,[25] both compel the
Commissioner to reconsider the assessment and have its correctness reconsidered
afresh by an independent tribunal.
But the burden of proving the Commissioner
wrong then rests on the vendor under section
37.[26] Because VAT is inherently a
system of self-assessment based on a vendor’s own records, it is obvious
that the incidence of
this onus can have a decisive effect on the outcome of an
objection or appeal. Unlike income tax, where assessments can elicit genuine
differences of opinion about accounting practice, legal interpretations or the
like, in the case of a VAT assessment there must invariably
have been an adverse
credibility finding by the Commissioner; and by like token such a finding would
usually have entailed a rejection
of the truth of the vendor’s records,
returns and averments relating thereto. Consequently the discharge of the onus
is a
most formidable hurdle facing a VAT vendor who is aggrieved by an
assessment: unless the Commissioner’s precipitating credibility
finding
can be shown to be wrong, the consequential assessment must
stand. |
| [23] | The Act affords the
Commissioner additional — and formidable — powers aimed at ensuring
proper compliance on the part
of vendors with their obligation to keep proper
records, make correct returns and effect due payments of VAT on time. First
there
is section 39, which imposes an automatic penalty of 10% of the amount of
tax payable where there is a failure to pay any amount
payable under section
28(1).[27] Even more intimidatory
is the power vested in the Commissioner by section 60 of the
Act[28] to charge additional tax up
to double the amount of tax due, in other words to treble tax vendors, in cases
of tax evasion. In the
third place, a vendor is liable to pay interest at a
rate of 1,2% per month on both the outstanding tax and additional
tax.[29] There are many other
enforcement mechanisms built into the Act, e.g. a form of garnishment under
section 47, criminal sanctions
under sections 58 or 59 and extensive powers of
interrogation, entry, search and seizure under Part 9 of the Act. None of these
provisions of the Act is directly in issue in this case and they should merely
be noted as part of the textual context in which the
challenged provisions are
to be interpreted and evaluated. |
| [24] | The target of the challenge
on behalf of Metcash is not the basic functioning of the VAT system, nor the
incentives aimed at ensuring
prompt and proper reporting and payment of VAT.
The challenged provisions relate rather — and solely — to a
two-pronged
supplementary mechanism aimed at enforcing prompt payment pursuant
to an assessment. The one prong is section 36(1) and the other
is made up of
sections 40(2) and 40(5) read together. Shorn of words not germane to the
present discussion, these subsections read
as
follows: |
“36. Payment of tax pending
appeal.—
(1) The obligation to pay and the right to receive and recover any tax,
additional tax, penalty or interest chargeable under this
Act shall not, unless
the Commissioner so directs, be suspended by any appeal or pending the decision
of a court of law, but if any
assessment is altered on appeal or in conformity
with any such decision . . . a due adjustment shall be made, amounts paid in
excess
being refunded with interest . . . and amounts short-paid being
recoverable with penalty and interest calculated as provided in section
39(1).”
“40. Recovery of tax.—
(1) . . . .
(2)(a) If any person fails to pay any tax, additional tax, penalty or interest
payable in terms of this Act, when it becomes due
or is payable by him, the
Commissioner may file with the clerk or registrar of any competent court a
statement certified by him as
correct and setting forth the amount thereof so
due or payable by that person, and such statement shall thereupon have all the
effects
of, and any proceedings may be taken thereon as if it were, a civil
judgment lawfully given in that court in favour of the Commissioner
for a liquid
debt of the amount specified in the statement.
. . .
.
(5) It shall not be competent for any person in proceedings in connection with
any statement filed in terms of subsection (2)(a)
to question the correctness of
any assessment upon which such statement is based, notwithstanding that
objection and appeal may have
been lodged against such
assessment.”
It would be as well to quote
a further provision, section 42, which bolsters the summary enforcement
procedure and may therefore bear
on its constitutionality. It reads as
follows:
“42. Evidence as to assessments.—
The production of any document issued by the Commissioner purporting to be a
copy of or an extract from any notice of assessment
shall be conclusive evidence
of the making of such assessment and shall, except in the case of proceedings on
appeal against the
assessment, be conclusive evidence that the amount and all
the particulars of such assessment appearing in such document are
correct.”
| [25] | All the relevant data
having been identified and tagged, we can now turn to an evaluation of the basis
upon which the constitutional
challenges were upheld by the learned judge in the
High Court. The reasoning that led to her conclusion that sections 36(1),
40(2)(a)
and 40(5) are invalid by reason of their infringement of section 34 of
the Constitution was based four-square on the judgment of
this Court in
Lesapo.[30] The statutory
provisions under scrutiny in Lesapo and in this case she regarded as
analogous; and the reasons for the rejection of the one in issue in Lesapo
she regarded as applicable to those under challenge in this case. The
starting point of that line of
reasoning[31] was that, subject to a
qualification to be considered
shortly,[32] it was common cause
that, read together, the sections unequivocally have the effect
that: |
“(a) the obligation by the applicant to pay, which arose as per the
determination of the first respondent on 30 June 1999,
shall not be suspended by
the applicant’s appeal against the assessment, nor by the current
proceedings, nor by any decision
of a court of law;
(b) if the obligation is not settled by the applicant, and for purposes of the
illustration I leave aside the first respondent’s
gratuitous undertaking
not to exercise its powers pending this judgment, the first respondent is
entitled to enforce payment and
even to execute against the applicant on the
assessment as if it amounted to a civil judgment, lawfully given by a court of
law,
by simply filing a statement with the registrar or clerk of any competent
court, which statement is to disclose the amount of the
indebtedness and is to
be certified by the first respondent as correct;
(c) it is not competent for the applicant to question the correctness of the
assessment upon which the statement so filed by the
first respondent is based,
notwithstanding the applicant’s appeal against the assessment;
(d) only a direction by the first respondent could have the effect of suspending
the applicant’s obligation to
pay.”
The judge considered and disposed of
the qualification and
continued:[33]
“The meaning of the Act is that the obligation to pay remains intact: it
cannot be suspended by a court of law but only by
the first respondent. Thus
the power of any court of law to provide an aggrieved vendor with interlocutory
relief is clearly excluded
irrespective of the merits or demerits of his case.
The constitutional challenge by the applicant would therefore remain valid
whether
the first respondent made a decision and whether that decision was taken
on review or not.”
| [26] | The judgment then proceeds
to quote extensively from
Lesapo[34] and wraps up this
particular part of the reasoning with the
conclusion:[35] |
“Sections 36(1), 40(2)(a) and 40(5) explicitly exclude the need for
recourse to a court of law and exclude the powers of the courts of law in
interfering
with that process regardless of the demands of justice. The only
option available to a vendor would be to pay prior to having any
dispute settled
by a court of law or suffer the course of execution outside the auspices of the
judicial process.
There is no doubt that the relevant provisions are inconsistent with the
provisions of s 34 of the Constitution in
that:
(a) it substitutes the first respondent for the court in determining
every facet of the vendor’s liability and the enforcement
thereof;
(b) it precludes any interlocutory relief by a court of law for the
aggrieved vendor whilst the statutory remedy of appeal is
pursued.
The prospect that an eventual successful appeal might reverse the situation is
no answer to the actual infringement which endures
until
then.”
| [27] | Snyders J then turned to
consider whether the impugned procedure could be saved under section 36 of the
Constitution, the saving clause
of the Bill of
Rights,[36] and cited the following
passage from the Lesapo judgment in weighing the nature of the right
infringed:[37] |
“The right of access to court is indeed foundational to the stability of
an orderly society. It ensures the peaceful, regulated
and institutionalised
mechanisms to resolve disputes, without resorting to self help. The right of
access to court is a bulwark
against vigilantism, and the chaos and anarchy
which it causes. Construed in this context of the rule of law and the principle
against
self help in particular, access to court is indeed of cardinal
importance. As a result, very powerful considerations would be required
for its
limitation to be reasonable and justifiable.”
She then
examined the “pressing considerations of public interest” advanced
by the Commissioner and the Minister in defence
of the impugned limitation on
the right guaranteed by section 34 of the Constitution, which limitation she
styled “dramatic
and extensive”. Part of the proffered
justification she found to be argumentative and speculative, largely, as I
understand
the judgment, because it had not been shown that the amounts assessed
in this particular case would have any effect on the national
budget.
| [28] | The learned judge continued
the discussion of the disparity between general considerations and the
circumstances of the particular
case,
holding[38]
that: |
“. . . the approach adopted by the respondents in raising facts relevant
to the importance of the purpose of the limitation
is too general and loses
sight of the particular facts of this case, which is what this Court should be
weighing up and
balancing.”
and[39]
that the
“. . . fairly narrow ambit of the facts of this case in the greater scheme
of national tax necessarily lessens the impact of
a delay in the recovery of the
tax in terms of the present assessment and thus the importance of the purpose of
the limitation.”
She was also of the
view[40] that:
“[n]umerous other measures could be devised in order to discourage or even
prevent all the negative consequences foreseen by
the respondents. Higher
penalties were suggested as a possibility, the furnishing of security, even
higher interest rates or time-linked
penalties are possibilities. The potential
for alternative measures must be numerous and is desirable in order to protect
the right
embodied in the Constitution.”
| [29] | In the course of argument
on behalf of the Commissioner before the High Court reliance was placed on the
judgment in Hindry v Nedcor Bank Ltd and
Another,[41] in which a
comparable fiscal provision[42]
allowing for a form of summary garnishment by the Commissioner of the credit in
a taxpayer’s bank account, had been held justified
under section 36 of the
Constitution. First, Snyders J distinguished the judgment in Hindry as
it had “concerned a different section of a different Act under different
circumstances.” Next she held it to have
been an obiter
dictum[43] insofar as it
pronounced on the constitutionality of the relevant provision of the Income Tax
Act. In the third instance she observed
that the judge concerned had in any
event not had the benefit of studying the judgment in Lesapo, which had
not been delivered at the time the Hindry judgment had been
given. |
| [30] | The following issues seem
to arise out of the judgment of Snyders J: |
(a) The meaning of section 36(1) of the Act and more specifically whether the
section bears on the right of access to the courts
guaranteed by section 34 of
the Constitution.
(b) The meaning of subsections (2)(a) and (5) of section 40 of the Act.
(c) Whether the three challenged provisions jointly have the effect ascribed to
them by the learned judge. In this context the possible
role of section 42 must
also be considered.
(d) Whether the strictures expressed in Lesapo are of application to the
three sections in question in this case.
(e) Whether, in the final analysis, those sections infringe the right to access
to the courts protected by section 34 of the Constitution.
(f) Whether, if indeed they do so infringe, they can be saved under section 36
of the Constitution.
| [31] | Addressing those issues
entails, in the first place, ascertaining what each of the three sections says
and, possibly more pertinently,
does not
say. |
The challenge to section 36(1) of the
Act
| [32] | Section 36 should be seen
in the context of Part V of the Act, which comprises sections 32 to 37 and deals
with objections and appeals.
Section
32,[44] section
35[45] and section
37[46] are not relevant to the
present discussion and can be put aside. Sections 33, 33A and 34 of the Act
deal with the statutory right
afforded aggrieved vendors to challenge the
rejection by the Commissioner of objections to assessments and associated
decisions.
Sections 33 and 33A provide that vendors may bring such challenges
in either the Special Court[47] or
before a board;[48] and section 34
allows a further resort to an ordinary court of law against decisions of the
Special Court. The Act calls the proceedings
before the Special Court/board (as
well as the subsequent resort to a court of law) an “appeal”. The
Commissioner is
not a judicial officer — and assessments and concomitant
decisions by the Commissioner are administrative, not judicial, actions;
from
which it follows that challenges to such actions before the Special Court or
board are not appeals in the forensic sense of
the word. They are proceedings
in terms of a statutory mechanism specially created for the reconsideration of
this particular category
of administrative decisions — and appropriate
corrective action — by a specialist
tribunal.[49] |
| [33] | It is important to have
clarity about the effect of the mechanism created by sections 33 and 33A of the
Act. Were it not for this
special “appeal” procedure, the avenues
for substantive redress available to vendors aggrieved by the rejection of their
objections to assessments and decisions by the Commissioner would probably have
been common law judicial review[50]
as now buttressed by the right to just administrative action under section 33 of
the Constitution,[51] and as fleshed
out in the Promotion of Administrative Justice
Act.[52] Here, however, the Act
provides its own special procedure for review of the Commissioner’s
challenged decisions by specialist
tribunals.[53] But, and this is
crucial to an understanding of this part of the case, the Act nowhere excludes
judicial review in the ordinary
course. The Act creates a tailor-made mechanism
for redressing complaints about the Commissioner’s decisions, but it
leaves
intact all other avenues of
relief. |
| [34] | It is in that light that one must
look at section 36(1). In its textual
context[54] and on its plain wording
the subsection is concerned with ensuring two separate but related objectives:
first, that the obligation
of aggrieved vendors to pay their tax and associated
imposts is not delayed by their pursuing their remedies under Part V of the
Act
and, second, that where necessary refunds, plus interest, will be made later.
Here we are concerned with the first objective,
namely
that: |
“[t]he obligation to pay . . . any tax , additional tax, penalty or
interest chargeable under this Act shall not, . . . be
suspended by any appeal
or pending the decision of a court of law, . . .
”
Clearly “appeal” denotes the procedure
under sections 33 and 33A and “the decision of a court of law” the
subsequent resort to a court of law under section 34 of the
Act.[55]
| [35] | Cogent authority for such
an interpretation is to be found in CIR v NCR Corporation of SA (Pty)
Ltd[56] where Corbett
JA[57] had occasion to consider
these very words where they appear in section 88 of the Income Tax Act (which
corresponds to section 36
of the Act). The learned judge analysed the
legislative history of both the “appeal” and the “decision of
a court
of law” components of the phrase under discussion and observed
that:[58] |
“[t]he common-law rule of practice that generally the execution of a
judgment is automatically suspended upon the noting of
an appeal . . . could
hardly apply to an appeal noted to the Special Court against the disallowance of
an objection to an assessment
by the Commissioner, . .
.”
However, the analysis reveals that when there was an
amendment to the income tax
legislation[59] affecting the
“pay now, argue later” provision, “it may well have been
thought necessary to state explicitly that
there was no such suspension unless
the Commissioner so
directed.”[60]
The
learned judge then proceeded to consider the meaning of the “decision of a
court of law” component and, once again
tracing the statutory antecedents
of the words, concluded the particular part of the judgment as
follows:[61]
“Be all this as it may, the meaning of the first portion of s 88 is, in my
opinion, clear. It enacts in effect that, subject
to a contrary direction by
the Commissioner, a taxpayer’s obligation to pay tax to which he has
assessed (and the Commissioner’s
correlative right to receive and recover
such tax) are not suspended by the fact that the taxpayer may have
appealed to the Special Court against the Commissioner’s disallowance of
an objection to the assessment,
or by the fact that, the Special Court
having given its decision concerning the assessment, there is an appeal pending
in terms of s 86 or s 86A, at
the instance of either party, against the decision
of the Special Court.” (Emphasis added)
| [36] | Manifestly the reasoning is
equally applicable to section 36 of the Act. The common-law rule of judicial
practice relating to automatic
suspension of execution by the noting of
an appeal, does not apply to the appellate procedure created by sections 33, 33A
and 34 of the Act. Neither the noting
of the statutory “appeal” to
the Special Court (or the board) nor the noting of any subsequent appeal
in itself suspends the vendor’s obligation to pay according
to the tenor of the assessment and accompanying imposts. That means that,
unlike a common-law judgment debtor, an aggrieved vendor cannot procure an
automatic suspension of the obligation to pay by the noting
of an appeal to the
Special Court (or board), and from the Special Court to an ordinary court of
law. As in the case of section
88 of the Income Tax Act discussed by Corbett JA
in the quotation above, section 36 is not concerned with an appeal against a
judgment,
but with a statutory form of revision of an administrative decision
according to a special procedure. |
| [37] | More importantly, section
36(1) is not concerned with access to a court of law and says nothing that can
be construed as a prohibition
against resort to such a court. It also has
nothing to do with judgment on the tax debt; and even less does it have any
bearing
on execution of such a judgment. It does not afford any authority to
circumvent the courts, nor any right to levy execution. The
first part of the
section is simply not concerned with anything other than the non-suspension
— notwithstanding demur —
of the obligation to pay the assessed VAT
and consequential imposts chargeable under the
Act.[62] |
| [38] | That does not mean that the
obligation to pay notwithstanding appeal is inexorable. On the contrary, the
provision is directed at
automatic suspension and expressly gives a
discretion to the Commissioner — “unless the Commissioner so
directs”. This is
the qualification adverted to by Snyders J. She made
reference to it in relation to a submission by counsel for the Commissioner.
Counsel, conceding that section 36(1), read in context with the other two
impugned provisions, effectively barred any judicial relief
being extended to an
aggrieved vendor, argued that the existence of the discretion coupled with the
fact that the exercise of discretion
would be reviewable on administrative law
principles saved the section from unconstitutionality. Snyders J rejected the
contention.
She held
that:[63] |
“I am of the view that s 36(1) of the Act is not reasonably capable of the
interpretation contended for by the respondents.
The words relied upon stand in
the context of the entire subsection and merely create one exception to the
provisions of the subsection.
They cannot be said to create a procedure for an
application to the first respondent to suspend the obligation to pay, which
gives
rise to a right of review.
Even if this very benevolent interpretation is accepted, the rest of the
provisions cannot be clearer in their meaning and effect,
namely that no court
of law, irrespective of the nature of the dispute which serves before it, has
the power to suspend the obligation
to pay. Thus, also, if the review of a
decision by the first respondent not to suspend the obligation to repay was a
competent procedure,
it would not have had the effect of suspending the
obligation to pay, nor could the Court of review order that and the first
respondent
would still have been entitled to proceed to file the appropriate
statement and act on it as if it were a civil judgment. The meaning
of the Act
is that the obligation to pay remains intact: it cannot be suspended by a court
of law but only by the first respondent.”
| [39] | In this Court, counsel for
the Commissioner once again argued that the discretion conferred upon the
Commissioner by section 36(1)
should be interpreted in the light of section
39(2) of the Constitution[64] in a
fashion that would promote the right of access to court and the protection of
the right to administrative justice. Accordingly
it was argued that the
exercise of that discretion would constitute administrative action as
contemplated by section 33 of the Constitution
and a refusal to accede to a
request for the suspension of the obligation to pay would be reviewable before a
court. |
| [40] | It has long been accepted
that when the Commissioner exercises discretionary powers conferred upon him (or
her) by statute, the exercise
of the discretion constitutes administrative
action which is reviewable in terms of the principles of administrative
law.[65] Those principles were
described in Johannesburg Stock Exchange and another v Witwatersrand Nigel
Ltd and another[66] as
follows: |
“Broadly, in order to establish review grounds it must be shown that the
president failed to apply his mind to the relevant
issues in accordance with the
‘behests of the statute and the tenets of natural justice’ . . .
Such failure may be shown
by proof, inter alia, that the decision was
arrived at arbitrarily or capriciously or mala fide or as a result of
unwarranted adherence to a fixed principle or in order to further an ulterior or
improper purpose; or that the
president misconceived the nature of the
discretion conferred upon him and took into account irrelevant considerations or
ignored
relevant ones; or that the decision of the president was so grossly
unreasonable as to warrant the inference that he had failed to
apply his mind to
the matter in the manner aforestated . . . Some of these grounds tend to
overlap.” (Citations omitted)
| [41] | When the interim
Constitution came into force in April 1994, the normative basis of
administrative law shifted. Chaskalson P described
this in Pharmaceutical
Manufacturers Association of SA and Another : In re Ex Parte President of the
Republic of South Africa and
Others[67] as
follows: |
“The interim Constitution which came into force in April 1994 was a legal
watershed. It shifted constitutionalism, and with
it all aspects of public law,
from the realm of common law to the prescripts of a written constitution which
is the supreme law.
That is not to say that the principles of common law have
ceased to be material to the development of public law. These well-established
principles will continue to inform the content of administrative law and other
aspects of public law, and will contribute to their
future development. But
there has been a fundamental change. Courts no longer have to claim space and
push boundaries to find means
of controlling public power. That control is
vested in them under the Constitution, which defines the role of the courts,
their
powers in relation to other arms of government and the constraints subject
to which public power has to be exercised. Whereas previously
constitutional
law formed part of and was developed consistently with the common law, the roles
have been reversed. The written
Constitution articulates and gives effect to
the governing principles of constitutional law. Even if the common law
constitutional
principles continue to have application in matters not expressly
dealt with by the Constitution (and that need not be decided in
this case), the
Constitution is the supreme law and the common law, insofar as it has any
application, must be developed consistently
with it and subject to
constitutional control.” (Footnote omitted)
| [42] | The Commissioner, in
exercising the power under section 36, is clearly implementing legislation and
as such the exercise of the section
36 power constitutes administrative action
and falls within the administrative justice clause of the Constitution. I
cannot agree
with Snyders J to the extent that she considered the exercise of
the discretion conferred upon the Commissioner in section 36 of
the Act not to
be reviewable. The Act gives the Commissioner the discretion to suspend an
obligation to pay. It contemplates,
therefore that notwithstanding the
“pay now, argue later” rule, there will be circumstances in which it
would be just
for the Commissioner to suspend the obligation to make payment of
the tax pending the determination of the appeal. What those circumstances
are
will depend on the facts of each particular case. The Commissioner must,
however, be able to justify his decision as being rational.
The action must
also constitute “just administrative action” as required by section
33 of the Constitution and be in
compliance with any legislation governing the
review of administrative action. |
| [43] | Once the Commissioner has
disallowed an objection an aggrieved vendor can appeal such decision. What
section 36 clearly does not
do is place any impediment in the way of such an
appeal, either to the Special Court or from its decision to an ordinary court of
law. The crucial point, however, is that the section expressly does not
preclude a disgruntled vendor against whom an assessment
has been made from
resorting to a court of law for whatever other relief that may be appropriate in
the circumstances. Although
the Act vests jurisdiction to vary or set aside
assessments — and other decisions by the Commissioner — in the
Special
Court in the first instance (and prescribes the avenue for further
consideration of the case by the ordinary courts thereafter),
there is nothing
in section 36 to suggest that the inherent jurisdiction of a high court to grant
appropriate other or ancillary
relief is excluded. The section does not say so
expressly nor is such an ouster necessarily implicit in its terms, while it is
trite
that there is a strong presumption against such an
implication.[68] It follows that
Snyders J erred in holding[69]
that: |
“. . . the power of any court of law to provide an aggrieved vendor with
interlocutory relief is clearly excluded irrespective
of the merits or demerits
of his
case.”
| [44] | Indeed,
it has for many years been settled law that the Supreme Court has jurisdiction
to hear and determine income tax cases turning
on legal issues. Thus in
Friedman and Others NNO v Commissioner for Inland Revenue: In re Phillip
Frame Will Trust v Commissioner for Inland
Revenue[70] McCreath J was asked
to resolve the legal question whether a testamentary trust was a person within
the meaning of the Income Tax
Act. Having referred to half a dozen reported
cases, four of them in the Appellate
Division,[71] where the existence of
such jurisdiction was accepted without discussion, and one Prentice Hall
report[72] where the point was
specifically considered, McCreath J concluded as follows as to his competence to
determine the
case:[73] |
“I am in agreement with the finding of the Court in that case that where
the dispute involved no question of fact and is simply
one of law the
Commissioner and the Special Court are not the only competent authorities to
decide the issue — at any rate
when a declaratory order such as that in
the present case is being sought.”
The judgment was
confirmed on appeal.[74] Although
those cases concerned income tax and the Income Tax Act, not specifically VAT
and the Act, there is no reason to doubt
the applicability of the jurisdictional
principle in the present — analogous — context. Indeed, it is
evident from a
comparison of the sections that the drafters of the Act borrowed
freely from the Income Tax Act, the terminology of which is frequently
echoed.[75]
| [45] | There is more recent and
directly applicable authority for the proposition that, pending the resolution
of disputes under the special
appeal procedure provided by the Act, a superior
court has jurisdiction to consider — and where appropriate grant relief
—
in VAT cases. It is the judgment in the case of Contract Support
Services (Pty) Ltd and Others v Commissioner, South African Revenue Services,
and Others.[76] The applicants
in that case, vendors against whom the Commissioner had made assessments and had
then used the garnishment mechanism
of section 47 of the Act to enforce payment,
applied to the Witwatersrand High Court for urgent interlocutory relief against
the
Commissioner pending the resolution of their disputes in the Special Court.
Part of what they sought was an order reviewing and
setting aside the
assessments and freezing the situation pending the determination of that issue.
There was no suggestion that the
Court’s jurisdiction to consider relief
had been ousted by the Act. On the contrary, the argument on both sides and the
judgment
implicitly accepted that the Court was empowered to issue an interim
declaratory order pending the resolution of the contemplated
application to
review and set aside the relevant assessments. Similarly in Shell’s
Annandale Farm (Pty) Ltd v Commissioner, South African Revenue
Service,[77] an application for
a declaratory order by a vendor who intended lodging objection under the Act to
an assessment, a preliminary issue
raised on behalf of the Commissioner was
whether the High Court had the power to grant the
order.[78] The learned judge, Davis
J, in dismissing the Commissioner’s preliminary objection, referred to
some of the cases mentioned
above as well as to two further tax cases considered
in the Appellate Division and one in the Cape Provincial
Division[79] where it was accepted
that declaratory relief was competent in cases where a taxpayer wished to
challenge an assessment. |
| [46] | It is therefore clear that
any decision of the Commissioner to make a VAT assessment under section 31
and/or to levy additional tax
under section 60, and not only a refusal by the
Commissioner to grant relief under the power to do so vested in the office by
section
36(1) of the Act (“unless the Commissioner so directs”), is
subject to judicial intervention in certain circumstances.
The implacable
interpretation of section 36(1) contended for in argument on behalf of Metcash
and accepted by the learned judge
in the High Court is not warranted. Neither
the injunction to pay first, regardless of a resort to the Special Court, nor
the non-suspension
provision is intended or has the effect of prohibiting
judicial intervention. Nor is there any hidden or implicit ouster of the
jurisdiction of the courts to be found in section 36 as it stands. That
section, therefore, cannot be said to bar the access to
the courts protected by
section 34 of the Constitution. |
| [47] | Section 36 does not by
relegating the specialised subject matter of the Act to
the |
Special Court purport to oust the jurisdiction
of the courts protected by section 34 of the Constitution. In any event, by the
very
referral of cases to that specialist tribunal, the Act can be seen to have
designated an independent and impartial tribunal specifically
tooled to deal
with disputed tax cases. The Special Court operates to all intents like an
ordinary court and has extensive powers
to interfere with, amend or set aside
decisions of the Commissioner. Although the procedure is referred to in the
legislation as
an appeal, it is a full hearing more akin to a trial. The
relevant provisions of the Income Tax Act that establish the Special Court
and
prescribe its procedure, principally contained in section 83 thereof, are
eminently fair and afford a dissatisfied vendor more
than a merely formal right
of appeal. The court is presided over by a judge, who sits with an accountant
and a representative of
the business community. There is a right to legal or
other expert representation, to adduce evidence and to challenge or rebut
adverse
evidence in a full-blown trial on the issues raised in the
taxpayer’s notice of
appeal.[80] Withal, therefore, a
hearing before the Special Court meets the criteria of section 34 of the
Constitution.[81] It should also be
noted that only the first level of adjudication of tax disputes takes place
outside the normal forensic hierarchy.
There is an unqualified right of appeal
from the hearing at the first level in the Special Court to either a full bench
of a high
court or, if the presiding judge so directs, to the Supreme Court of
Appeal.[82]
| [48] | It follows that none of the
grounds for contending that section 36(1) of the Act falls foul of the
constitutionally protected right
of access to the courts can be supported. In
relation to a vendor who is aggrieved by an assessment by the Commissioner under
section
31, or by the imposition of additional tax under section 60 of the Act,
such right is not impaired by section 36(1) of the Act.
|
The challenge to section 40(2)(a) and
(5)
| [49] | What then of the other two
impugned provisions, sections 40(2)(a) and (5)? Subsection (2)(a), it will be
recalled, allows the Commissioner
to file a document with the clerk or registrar
of a competent court, which then has the effect of a civil judgment in the
Commissioner’s
favour for a liquid debt. Undoubtedly the provision
creates a short-cut. The Commissioner need not cause the issue of court process
initiating a claim for judicial enforcement of a debt, as is normally the case
where a creditor seeks to recover a debt. There need
not be service of process
summoning the debtor to court to answer to the claim, as happens in ordinary
litigation. There is no scope
for opposition, nor for a hearing of sorts to
resolve disputes. But the indictment against section 40(2)(a) — and the
finding
of the High Court[83]
— is not that it short-circuits the judicial process in these or other
respects. The analysis founding the order of invalidation
of the subsection was
that the procedure it permits the Commissioner to employ, like that condemned in
the Lesapo case, constitutes a form of self-help which by-passes the
courts of the land. |
| [50] | The statutory provision
condemned in Lesapo[84]
expressly empowered the Bank, “without recourse to a court of law”,
to attach and sell up the assets of its defaulting
debtors through its own
agents and on such conditions as the Bank’s board of directors might
determine. The thrust of the
criticism which founded the invalidation of the
section in question was, as Mokgoro J makes quite
clear,[85] that it infringed section
34 of the Constitution and breached the rule of law by sanctioning self-help:
the Bank was permitted to
be the judge in its own cause. In two more recent
cases similar powers vested in the Land and Agricultural Bank of South Africa
were likewise struck down as impermissible infringements of section 34 of the
Constitution.[86] Mokgoro J once
again made plain that the fundamental objections against this kind of provision
were:[87] |
“It permits the Land Bank to bypass the courts and gives it sole
discretion over the conditions of sale. This procedure, unlike
the ordinary
civil process of execution, allows the Land Bank to take the law into its own
hands and serve as judge in its own cause.
The Act also authorises it to usurp
the inherent powers and functions of the courts by deciding its own claims and
relief.”
(Footnotes omitted)
| [51] | That is neither what
section 40(2)(a) of the Act says, nor what it implies. On a plain reading of
its words, the provision expressly
contemplates the involvement of the courts.
In contradistinction to the self-initiated, self-driven and self-supervised
mechanism
involved in Lesapo and the two cases following it, the
execution process created by section 40(2)(a) of the Act specifically goes via
the ordinary judicial institutions. It requires
the intervention of court
officials and procedures. The subsection, by saying that once the
Commissioner’s statement has been
filed it has “all the effects . .
. of a civil judgment”, quite unequivocally includes by reference the
whole body of
legal rules relating to execution. Filing the statement sets in
train the ordinary execution processes of the particular court.
Execution in
the high courts is primarily governed by rules 45, 45A and 46 of the Uniform
Rules of Court, and in the magistrates’
courts by rule 36 and following of
the rules of those courts. Whether and to what extent the rules of court and
the myriad of common
law and judge-made ancillary rules relating to execution
have to be adapted to fit this particular process, need not be determined
here.
The substance of the matter is that the ordinary civil process of execution is
employed; and the Commissioner is not authorised
to usurp any judicial
functions. Manifestly section 40(2)(a) of the Act is a far cry from the kind of
open ticket to self-help condemned
in the Lesapo and kindred
cases. |
| [52] | Indeed, in a particular
sense, section 40(2)(a) of the Act is the direct reverse of the provision found
constitutionally unacceptable
in Lesapo. Here we have an administrative
decision fixing liability for a statutory debt on the part of a vendor which, in
terms of the scheme
of the Act, cannot be executed upon otherwise than by
involving the judiciary. In Lesapo this Court was concerned with a
contractual debt which could be executed upon domestically without involving the
judiciary. The two
statutory provisions, far from being closely similar, are
virtually diametrical opposites. |
| [53] | That leaves the third of
the impugned sections, section 40(5) of the Act. It relates in terms to the
certified statement permitted
by section 40(2)(a) and is clearly intended as a
back-up to it. The language is clear and the intention plain: in proceedings
based
on such a section 40(2)(a) certificate the taxpayer’s scope for
challenge is limited. Yet, on that very language, the limitation
is not as
sweeping as counsel’s argument would have it. In the first place section
40(5) does not purport to bar legal proceedings
by a vendor/taxpayer against
whom the Commissioner has lodged a section 40(2)(a) certificate. On the
contrary, the subsection expressly
contemplates the possibility of such
proceedings and was inserted to limit the rights of a vendor in those very
circumstances.
Therefore, although the subsection is couched in broad and
general language — “any person”, “proceedings”,
“in connection with” — it pertinently limits possible
grounds for challenge but does not prohibit
litigation.[88] Not only is that
the tenor of the provision but it is as well to remember that we are engaged in
the interpretation of a taxation
statute, where verbal precision is essential.
Nothing that is not stated is to be read in, especially not an element as
important
as an ouster. |
| [54] | In the second place the
prohibition is specifically narrowly focussed on the correctness of the
assessment. Looking fairly at the
language the meaning of the subsection is
quite clear. The prohibition is aimed at “the correctness of any
assessment”.
Reading the prohibition as striking at a challenge to the
assessment itself overlooks the words “the correctness of”,
which
identify the essential core in the prohibition. That is that “[i]t shall
not be competent . . . to question the correctness
of any assessment upon which
such statement is based, notwithstanding . . . objection and appeal . . .
”. The sole purpose
of the words “the correctness of”is to
qualify — and hence limit — the scope of the prohibition; and the
result of the limitation they bring about is that a vendor remains free to raise
any challenge to the assessment or the
certificate[89] falling outside the
purview of the circumscribed prohibition. |
| [55] | A prohibition which
specifically bars challenges to the correctness of the assessment, as distinct
from barring other disputes foundational
to, arising from or otherwise relating
to it, makes perfectly good sense. A special tribunal has been created to
adjudicate upon
objections by vendors and has been given the tools to thrash out
any factual disputes relating to the calculation of VAT returns
and supervening
assessments. Objectors ought therefore to be precluded from entering into the
kind of factual debate inevitably entailed
in challenging the correctness of
assessments made under section 31 of the Act, which can and should be thrashed
out in the Special
Court. Having regard to the nature of VAT and its system of
primary self-assessment, disputes about the correctness of assessments
made by
the Commissioner are likely to involve complicated and contentious issues of
fact. As has been observed about the special
nature of VAT and VAT returns,
assessment under section 31 is tantamount to a finding by the Commissioner that
the returns rendered
by the vendor have not been truthful. Credibility disputes
of this kind belong in the Special Court where the procedure is geared
to deal
with
them.[90] |
| [56] | But whatever other defences
a vendor may wish to raise are left undisturbed by section 40(5) of the Act.
And it is notorious that
the field of tax law can and often does raise a whole
panoply of procedural or substantive issues derived from one or more of the
individually complex and usually interlocking fields of law involved in tax
disputes. They remain at the disposal of the aggrieved
vendor against whom the
Commissioner has put in motion the special weaponry of the fisc contained in
section 40 of the Act. The
dividing line between challenges that are
permissible under section 40(5) and those that are not may at times be faint;
but the distinguishing
principle is clear and will have to be applied on a
case-by-case basis. |
| [57] | Section 40(5) of the Act
can therefore not be said to constitute, on its own, a complete bar to legal
proceedings by a vendor with
a view to obtaining some form of relief in relation
to an impending judgment in favour of the Commissioner under section 40 of the
Act. Nor can it have that effect if read in conjunction with section 40(2)(a).
There is no holistic magic that renders their combined
effect greater than that
of the component parts. The first provision puts the machinery of the courts at
the disposal of the Commissioner
as a process in aid of enforcing payment of VAT
and ancillary imposts claimed by the revenue authorities pursuant to the
exercise
of administrative powers; the latter excludes a specific category of
— usually disruptive — potential defences in such
process. |
| [58] | In this context a different
and distinctive point of substance should be made. That is that however
restrictive of a vendor’s
possible claim for relief section 40(5) of the
Act may be, its effect is temporary only. The scheme of the Act is that
sections
33, 33A and 34 provide an aggrieved vendor ample opportunity for fair
judicial determination in due course of any dispute with the
Commissioner
arising out of the exercise of the latter’s powers to impose tax liability
by assessment or associated impost.
The Act can therefore not be said to
constitute a complete bar to access to the courts; at most it obliges the
taxpayer to pay the
disputed amount(s) subject to appropriate restitution, with
interest, once the judicial dispute resolution process has run its course.
Moreover, having regard to the fundamental nature of VAT and the painstakingly
detailed mechanism provided by the Act for calculating,
collecting, recording
and regularly transmitting VAT by vendors, an amount assessed by the
Commissioner under section 31[91] is
in the nature of a liquidated debt. |
| [59] | The applicant argues that
to the extent that section 40(5) does limit access to a court prior to the full
airing of the issues before
the Special Court and does prevent a disgruntled
taxpayer from obtaining interdictory relief to suspend the operation of the
“pay
now, argue later” rule, it is in breach of section 34 of the
Constitution. I am prepared to assume in favour of Metcash for
the purposes of
this judgment that section 40(5) does occasion such a limitation. The question
that then arises is whether that
limitation is justifiable in terms of section
36 of the
Constitution.[92] |
| [60] | In considering
justification it is important to remember that the limitation under section
40(5) is limited in its scope, temporary
and subject to judicial review. There
are three additional features. First, the public interest in obtaining full and
speedy settlement
of tax debts in the overall context of the Act is significant.
In their affidavits the Commissioner and the Minister mentioned a
number of
public policy considerations in favour of a general system whereby taxpayers are
granted no leeway to defer payment of
their taxes. These are in any event
well-known and self-evident. Ensuring prompt payment by vendors of amounts
assessed to be due
by them is clearly an important public purpose. As stated
earlier, the scheme of VAT instituted by the Act is a complex one which
relies
for its efficacy on self-regulation by registered vendors and regular periodic
payments of VAT. Requiring them to pay on
assessment prior to disputing their
liability is an essential part of this scheme. It reduces the number of
frivolous objections
and ensures that the fiscus is not prejudiced by the delay
in obtaining finality. Section 40(5) plays an important role in this
scheme.
In order for a “pay now, argue later” scheme to work, it is
necessary that the Commissioner is able to obtain
execution against a taxpayer
without having first to air the subject matter of the objection which will be
adjudicated upon by the
Special Court in due course. There is therefore a close
connection between the overall purpose of the “pay now, argue later”
rule and the effect of section
40(5). |
| [61] | Secondly, the principle “pay
now, argue later” is one which is adopted in many open and democratic
societies.[93] In many of these
jurisdictions, as well, some scheme for immediate execution against a taxpayer
is provided to ensure that the rule
is efficacious. Given its prevalence in
many other jurisdictions, it suggests that the principle is one which is
accepted as reasonable
in open and democratic societies based on freedom,
dignity and equality as required by section 36. |
| [62] | Thirdly, the effect of the
rule on individual taxpayers is ameliorated by the power conferred upon the
Commissioner to suspend its
operation.[94] The rule is not
absolute but subject to suspension in circumstances where the Commissioner
considers it appropriate. The exercise
of this power by the Commissioner
constitutes administrative action within the contemplation of section 33 of the
Constitution and
as such is reviewable as discussed above. The existence of
this discretionary power therefore reduces the effect of the principle
“pay now, argue later” in an appropriate manner. In all these
circumstances, therefore, I am persuaded that even if
the effect of section
40(5) constitutes a limitation on the right entrenched in section 34 of the
Constitution, it is a limitation
which is justifiable within the meaning of
section 36. |
| [63] | A further challenge to these
provisions warrants consideration, albeit in passing. It was contended in
argument that one must look
pragmatically and not theoretically at the
challenged sections and must gauge their effect jointly and contextually,
especially in
conjunction with section 42. In a sense that appears to have been
the underlying reasoning of Snyders J in the High Court and it
would be as well
to consider it at this juncture. |
The combined
effect of sections 36(1), 40(2), 40(5) and 42
| [64] | The suggestion was that
subsections 40(2)(a) and (5), seen against the backdrop of section 36(1) and
read together with section 42,
so effectively nobbles the vendor who wishes to
challenge adverse assessments de hors the statutory appeal procedure, that it
really
ousts the jurisdiction of a court of law once the Commissioner has filed
the certified statement with the registrar or clerk of the
court. In substance,
so the argument ran, the filing of the statement under section 40(2)(a) does not
really entail a resort to
a court of law to levy execution, but is a mere
administrative step aimed at facilitating the extra-judicial recovery of tax:
the
trappings of a judicial process are used to afford the enforcement a
semblance of legitimacy. |
| [65] | However, there is clear
judicial authority to the contrary in the analogous procedure under the
corresponding — and virtually
identically worded — provisions of the
Income Tax Act. The authority arose in the context of a forensic war of
attrition conducted
for some fifteen years by a Mr Kruger with the revenue
authorities relating to estimated assessments and additional tax levied on
him.
The numerous court battles included an application for rescission of a
“judgment” obtained by the revenue in the
magistrate’s court
on a certified statement by the Commissioner under section 91(1)(b) and (2) of
the Income Tax Act.[95] The
magistrate ruled that the judgment was not susceptible to rescission under
section 36 (read with rule 46) of the Magistrates’
Courts
Act[96] as it was not truly a
judgment but merely a step in an administrative procedure. On appeal the
Supreme Court held[97] that the
judgment was a judgment for the purposes of section 36 of the Magistrates’
Courts Act and was indeed susceptible to
rescission under that section, e.g.
because it had been taken by default or that it had been obtained by fraud or
mistake common
to the parties. |
| [66] | That finding was considered
and approved by the Appellate Division in a later attempt by Kruger to have the
original imposition of
additional tax set aside on a variety of procedural
grounds.[98] Of particular
importance in the context of the present discussion is the careful analysis by
Jansen JA[99] of counsel’s
argument that a “judgment” pursuant to section 91(1)(b) of the
Income Tax Act (the forerunner of section
40(2) of the Act) did not block a
claim for restitution. In the course of considering the finality of that
statutory “judgment”
the learned judge examined the
“conclusive evidence” provision in section 94 of the Income Tax Act
(the precedent for
section 42 of the Act), which ostensibly prohibits a
challenge to an assessment backed by the Commissioner’s certified
statement.
He concluded that, notwithstanding section
94, |
“. . . bly daar dus ’n wye veld vir verweer oop by ’n aansoek
om tersydestelling van die ‘vonnis’.”
The
observation not only signifies that section 42 is no bar to an application for
rescission once a judgment has been entered under
section 40(2) of the Act, but
necessarily implies that a “wide field of defences” would be
available to the taxpayer
who wishes to pre-empt the entry of such
judgment.
| [67] | The reasoning in the
Kruger cases links up with the views expressed in the judgments
discussed above in connection with section
36.[100] These views point
consistently to the conclusion that none of the sections challenged, either
singly or in combination, constitutes
a constitutionally offensive limitation of
the right of access to the courts that is guaranteed by section 34 of the
Constitution.
In other words the “pay now, argue later” rule
applicable to a vendor who is aggrieved by an assessment under our VAT
legislation does not infringe such vendor’s constitutional right to due
adjudication or if it does, the limitation is justified.
In the result I cannot
agree with the learned judge in the High Court with regard to either
infringement by or justification of the sections in question. Likewise the
opinion as to the constitutional
justifiability of an enforcement mechanism in
the Income Tax Act expressed by Wunsh J in Hindry’s
case,[101] which Snyders J
regarded as obiter and which this Court referred to but left open in
Lesapo,[102] is once again
left open. The provision that was considered in Hindry’s
case in any event differs quite materially from those in issue in this case
and no purpose would be served by discussing it
further. |
| [68] | What cannot be left there,
however, is the belief that was common to the parties in both courts and that
coloured the approach and
conclusion of the learned judge in the High Court.
The three provisions in question, section 36(1), section 40(2)(a) and section
40(5) of the Act, are found to pass constitutional muster because they do
not bear the meaning ascribed to them in terms of the common belief. Not
one of these sections means, nor do any of them read together
mean, that a
vendor aggrieved by an assessment or other decision of the Commissioner is
precluded from seeking appropriate judicial
relief, notwithstanding that an
appeal under the Act may be pending, whether to the Special Court or against its
judgment. However,
the nature of the relief that could be afforded is limited
by the provisions of sections 40(5) and 42 to the extent discussed
above. |
| [69] | The variety of
VAT-contentious circumstances that may arise in the affairs of VAT vendors is
infinite and their range of legal constructions
equally limitless. It would
therefore be foolish to try to delineate with any pretence at ultimate accuracy
where in a given case
the dividing line between permissible interlocutory relief
and unwarranted impairment of the “pay now, argue later” rule
should
be found to lie. Over the years the courts have managed to draw the analogous
line in income tax cases, where a closely similar
division exists between the
discrete but supplementary — and occasionally overlapping —
jurisdictions of the Special
Court and the ordinary courts. It is a decision
that will continue to be made in the unique circumstances of each particular
case. |
| [70] | This much can be said,
however. Because the very basis of VAT is that it is the vendor that
calculates, collects and pays over the
tax on each transaction, and because each
such payment must be backed by the vendor’s records and vouchers, the
scope for
factual disputes in good faith is very limited
indeed.[103] Therefore the formal
constraints of sections 40(5) and 42 of the Act add little to the limitations
inherent in the VAT system.
Even if one thinks away these two provisions, a
vendor seeking to establish a basis for interim relief against an assessment
pending
the resolution of the underlying factual dispute in the Special Court,
will in practice have a formidable hurdle to surmount. The
very assessment
would postulate that the vendor’s records had been found untruthful by the
revenue authorities and very unusual
circumstances would be necessary before a
court would intervene in any way in the dispute resolution mechanism created by
the Act. |
| [71] | But that does not mean that
a court is prohibited from hearing an application for interlocutory relief in
the face of a pending VAT
appeal, or from granting other appropriate relief.
Nor does it mean that the jurisdiction is theoretically extant but actually
illusory.
A court would certainly have jurisdiction to grant declaratory relief
to such a vendor if, for instance, it were to be alleged that
the Commissioner
had erred in law in regarding the applicant as a vendor; or had misapplied the
law in holding a particular transaction
to be liable to VAT; or had acted
capriciously or in bad faith; or had failed to apply the proper legal test to
any particular set
of facts. There are as many examples as can be contemplated
in the wide field of administrative law defences, to paraphrase Jansen
JA in
Kruger’s case. In particular the vendor may take on review a
decision by the Commissioner under section 36(1) of the Act refusing
to suspend
the “pay now, argue later” principle. Moreover, a vendor would now
be able to found a cause of action for
interim relief on any appropriate
constitutional ground as
well. |
Summary
| [72] | The first three issues
identified above[104] have now
been analysed. This analysis indicates that sections 36(1), 40(2)(a) and 40(5)
of the Act do not oust the jurisdiction
of the courts of law. To the extent
that it can be argued that section 40(5) does indeed limit an aggrieved
vendor’s access
to an ordinary court of law, such limitation is justified
under section 36 of the Constitution. |
| [73] | Little need be said with
regard to the contention on behalf of Metcash that the power vested in the
Commissioner under section 60
of the Act to impose additional tax is a form of
punishment, and therefore trespasses on the exclusive terrain of the judiciary.
The validity of section 60 did not form part of the debate in the court of first
instance, does not figure in the invalidation order
made there, and consequently
cannot be considered by this Court. We are concerned here with proceedings
under section 172(2) of
the Constitution for the confirmation or otherwise of
the order made by Snyders J. |
Order
| [74] | In terms of sections 167(5)
and 172(2)(a) the Court declines to confirm the order made in the Witwatersrand
High Court declaring sections
36(1), 40(2)(a) and 40(5) of the Value-Added Tax
Act 89 of 1991
invalid. |
Chaskalson P, Langa DP,
Goldstone J, Madala J, Mokgoro J, O’Regan J, Ngcobo J, Sachs J, Yacoob J
and Cameron AJ concur in the
judgment of Kriegler
J.
On behalf of the Applicant : MJD Wallis SC and PF Louw instructed by Fluxman
Rabinowitz Raphaely Weiner.
On behalf of the Respondents : GJ Marcus SC and AR Bhana instructed by the
State Attorney, Johannesburg.
[1] The three impugned subsections are
quoted in paragraph 24 below.
[2] Section 34 of the Constitution of
the Republic of South Africa, 1996
provides:
“34. Access to
courts.—
Everyone has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court or, where
appropriate, another independent and impartial tribunal or
forum.”
[3] The term will be explained in
paragraph 15 below.
[4] The statutory authority for a
penalty of 10% of the amount of tax and interest at a prescribed rate is to be
found in sections 39(1)(a)(i)
and (ii), while section 60(1) empowers the
Commissioner to impose treble tax in cases of tax evasion, ie to charge “.
. . additional
tax not exceeding an amount equal to double the amount of tax . .
.”
[5] According to a calculation by the
Commissioner, interest on the amount accrues at over R3 million per month.
[6] The judgment is reported as
Metcash Trading Ltd v Commissioner for the South African Revenue Service and
Another 2000 (2) SA 232 (W); 2000 (3) BCLR 318 (W).
[7] Chief Lesapo v North West
Agricultural Bank and Another [1999] ZACC 16; 2000 (1) SA 409 (CC); 1999 (12) BCLR 1420
(CC), of which paragraphs 11, 13, 14, 16, 17, 19 and 20 are extensively
quoted.
[8] At 245 B.
[9] The section reads as follows:
“36. Limitation of
rights.—
(1) The rights in the Bill of Rights may be limited only in terms of law of
general application to the extent that the limitation
is reasonable and
justifiable in an open and democratic society based on human dignity, equality
and freedom, taking into account
all relevant factors, including—
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision of the
Constitution, no law may limit any right entrenched in
the Bill of
Rights.”
[10] Above n 7.
[11] Section 10(2) of the Act
prescribes that the “value to be placed on any supply of goods . . .
shall, . . . be the value of
the consideration for such supply, . . .” and
subsection (3)(a) that “to the extent that such consideration is a
consideration
in money, the amount of the money” is the value of the
consideration.
[12] “Vendor” is defined
in section 1.
[13] Section 23(1)(a)
obliges:
“[e]very person who, . . . carries on any enterprise . . . to be
registered — at the end of any month where the total
value of taxable
supplies made by that person in the period of 12 months ending at the end of
that month in the course of carrying
on all enterprises has exceeded R300
000;”
[14] Both terms are more elaborately
defined in section 1 of the Act but for present purposes these simple
definitions suffice.
[15] Particularly sections 16, 20
and 21. Section 16(3)(a)(i) provides that:
“. . . the amount of tax payable in respect of a tax period shall be
calculated by deducting from the sum of the amounts of
output tax of the vendor
which are attributable to that period, . . . [among others] the amounts of input
tax —. . . in respect
of supplies of goods . . . made to the vendor during
that tax period.”
[16] Section 27, which provides for
vendors to be allocated tax periods, and section 28, which requires specified
returns to be made and
payments to be made by the 25th of the month following
the end of each tax period. See also section 38(1) which requires tax payable
to be paid in full within the time allowed by, among others, section 28.
[17] Section 11(1)(a) of the
Act.
[18] These are discussed in the
Report of the Commission of Inquiry into the Tax Structure of South Africa
RP 34/1987, the consequential , WP C-88 and the so-called Vatcom Report by a
broad-based commission appointed by the Minister of
Finance in 1990, Report
of the Value-Added Tax Committee, 1990.
[19] According to the
Commissioner’s opposing affidavit there are close on half a million
registered vendors in the country.
[20] Thus, for example, the
Johannesburg revenue office, the largest in the country, has only 145 people in
its audit section, of whom
some 40% lack tertiary qualifications, and has to
audit the returns of approximately 120 000 vendors. The ratio of 827 vendors
per
auditor is very far below the international norm of 1:200.
[21] At paragraph 16 above.
[22] Section 31, insofar relevant,
provides as follows:
“31. Assessments.—
(1) Where—
(a) any person fails to furnish any return . . . ; or
(b) the Commissioner is not satisfied with any return . . . ;
or
(c) the Commissioner has reason to
believe that any person has become liable for the payment of any amount of tax
but has not paid
such amount; or
. . . .
the Commissioner may make an assessment of the amount of tax payable, . . . and
the amount of tax so assessed shall be paid by the
person concerned to the
Commissioner.
(2) . . . .
(3) In making such assessment the Commissioner may estimate the amount upon
which the tax is payable.
(4) The Commissioner shall give the person concerned a written notice of such
assessment, . . .
(5) The Commissioner shall, in the notice of assessment referred to in
subsection (4), give notice to the person upon whom it has
been made that any
objection to such assessment shall be lodged or be sent so as to reach the
Commissioner within 30 days after the
date of such
notice.”
[23] Section 32 in substance
provides:
“32. Objections to certain decisions or assessments.—
(1) Any person who is dissatisfied
with—
(a) . . . .
(b) any assessment made upon him [by the Commissioner] under . . . section
31, . . . or;
(c) . . . .
may lodge an objection thereto with the Commissioner.
(2) Every objection shall be in writing and shall specify in detail the grounds
upon which it is made.
(3) No objection shall be considered . . . which is not delivered . . . within
30 days . . . unless the Commissioner is satisfied
that reasonable grounds exist
for delay . . . : Provided that any decision of the Commissioner . . . under
this subsection shall
be subject to objection and appeal.
(4) . . . the Commissioner
may—
(a) . . . .
(b) alter or reduce any assessment . . . ; or
(c) disallow the objection,
and shall send to the objector a written notice of such alteration, reduction or
disallowance . . . .
(5) . . . .”
[24] Section 33, insofar here
relevant, provides:
“33. Appeals to special court.—
(1) . . . an appeal against any . . . assessment . . . shall lie to the
special court for hearing income tax appeals constituted
under the provisions of
section 83 of the Income Tax Act . . .
(2) Every appeal shall be . . . in writing and shall be lodged . . . within
30 days . . . : Provided that the Commissioner may
. . . condone any delay . . .
: Provided further that any decision of the Commissioner . . . under this
subsection shall be subject
to objection and appeal.
(3) At the hearing by the special court . .
.
(a) the appellant shall be limited to
the grounds of objection stated in the notice of objection . . . unless the
Commissioner agrees
. . . or . . . is given leave by the special court to amend
. . .
(b) the special court may . . . confirm, cancel or vary any decision of the
Commissioner . . . or, in the case of any assessment,
order that assessment to
be altered, reduced or confirmed . . .
(4) The provisions of sections 83 (8), (9), (10), (11), (12), (14), (15), (16),
(17), (18) and (19), 84 and 85 of the Income Tax
Act and any regulations under
that Act relating to any appeal to the special court shall mutatis
mutandis apply with reference to any appeal under this section . . .
”
[25] Section 33A allows disputes not
exceeding R30 000 to be heard by a board in stead of the special court.
[26] In substance section 37
provides:
“37. Burden of proof.—
The burden of proof that any supply . . . is exempt from or not liable to any
tax chargeable under this Act or . . . that any amount
should be deducted as
input tax, shall be upon the person claiming such exemption, non-liability, . .
. deduction . . . and . . .
any decision of the Commissioner, . . . shall not be
reversed or altered unless it is shown . . . that the decision is
wrong.”
[27] The section imposes the penalty
in a variety of circumstances, but we are concerned only with a default under
section 28(1). The
section also empowers the Commissioner to remit the penalty
where appropriate.
[28] Section 60(1)(a)
provides:
“Where any vendor . . . fails to perform any duty imposed . . . by this
Act . . . with intent — to evade the payment
of any amount of tax payable
. . . such vendor shall be chargeable with additional tax not exceeding an
amount equal to double the
amount of tax [payable] . .
.”
[29] Section 39 and the definition
of prescribed rate in section 1.
[30] Above paragraph 5 and n 7.
[31] Above n 6 at 238 I—239
D.
[32] Below paragraph 38.
[33] Above n 6 at 239 J—240
B.
[34] From paragraphs 11—20
thereof.
[35] Above n 6 at 242 C—F.
[36] Above n 9.
[37] Above n 6 at 242 I—243
A.
[38] Above n 6 at 243 G—H.
[39] Id at 244 B.
[40] Id at 244 E—G.
[41] 1999 (2) SA 757 (W), a judgment
of a single judge sitting in the same high court.
[42] Section 99 of the Income Tax
Act 58 of 1962.
[43] The implication of this
categorisation is that the particular finding, not having been part of the
essential reasoning in Hindry, was therefore not a precedent binding on
Snyders J.
[44] Dealing with objections.
[45] Allowing members of the Special
Court to participate despite their possible liability under the Act.
[46] Relating to the burden of proof
in appeal proceedings.
[47] The Special Court for hearing
income tax appeals constituted under section 83 of the Income Tax Act.
[48] In the case of disputes with a
lesser monetary value or by mutual consent.
[49] Although the subsequent resort
to an ordinary court against a decision of the Special Court is not really a
routine appeal either
but an extraordinary procedure with its own special rules,
to be found in section 86A of the Income Tax Act, the introduction of
section
86A by section 24 of Act 103 of 1976 rendered it “a rehearing of the case
[determined] in the ordinary, well-known
way” (per Trollip JA in
Hicklin v Secretary for Inland Revenue 1980 (1) SA 481 (A) at 485
E—F).
[50] As to the scope and origin of
which, see Johannesburg Consolidated Investment Co v Johannesburg Town
Council 1903 TS 111.
[51] Section 33(1) of the
Constitution provides that “[e]veryone has the right to administrative
action that is lawful, reasonable
and procedurally fair.” and subsection
(2) safeguards the right “. . . to be given written reasons.” where
rights
“have been adversely affected by administrative action”.
[52] Act 3 of 2000, more
particularly in section 6 thereof.
[53] In Part V, comprising sections
32—7.
[54] Within Part V of the Act.
[55] Read with section 86A of the
Income Tax Act.
[56] 1988 (2) SA 764 (A).
[57] With Viljoen JA, Smalberger JA,
Vivier JA and Nicholas AJA concurring.
[58] Above n 56 at 774 C—D.
The judgment cites South Cape Corporation (Pty) Ltd v Engineering Management
Services (Pty) Ltd 1977 (3) SA 534 (A) at 544 H—545 A.
[59] By section 85 of Act 41 of
1917.
[60] Above n 56 at 774
E—F.
[61] Id at 775 C—E.
[62] Those debts arise and become
due by operation of the Act: under section 31 upon assessment; under section 60
upon being charged with
additional tax; and the penalty and interest under
section 39. Under sections 31(6)(b) and 60(2) the Commissioner fixes the time
for payment of assessed tax and additional tax respectively. That time stands
unless the vendor lodges an objection under section
32(1)(b), in which event the
obligation to pay is suspended during its consideration by the Commissioner.
[63] At 239 G—40 A of the
reported judgment.
[64] Section 39(2)
reads:
“When interpreting any legislation, and when developing the common law or
customary law, every court, tribunal or forum must
promote the spirit, purport
and objects of the Bill of Rights.”
[65] Contract Support Services
(Pty) Ltd and Others v Commissioner, South African Revenue Services, and Others
1999 (3) SA 1133 (W) at 1144— 5; ITC 1470 52 SATC 88 at 92 and
Kommissaris van Binnelandse Inkomste v Transvaalse Suikerkorporasie Bpk
1985 (2) SA 668 (T) at 671 H and 676 E—F.
[66] 1988 (3) SA 132 (A) at 152
A—E.
[67] [2000] ZACC 1; 2000 (2) SA 674 (CC); 2000 (3)
BCLR 241 (CC) at paragraph 45.
[68] See, for example, Richards
Bay Bulk Storage(Pty) Ltd v Minister of Public Enterprises [1996] ZASCA 23; 1996 (4) SA 490
(A) at 494 G—I and the cases there cited.
[69] At 240 A of the judgment.
[70] 1991 (2) SA 340 (W).
[71] Shell Southern Africa
Pension Fund v Commissioner for Inland Revenue 1982 (2) SA 541 (C);
Thorne and Another NNO v Receiver of Revenue 1976 (2) SA 50 (C);
Commissioner for Inland Revenue v Jacobson's Estate 1961 (3) SA 841 (A);
Commissioner for Inland Revenue v MacNeillie's Estate 1961 (3) SA 833
(A); Commissioner for Inland Revenue v Emary NO 1961 (2) SA 621 (A) and
Estate Smith v Commissioner for Inland Revenue 1960 (3) SA 375 (A).
[72] Emary NO & Another v CIR
1959 (2) PH T 16 (D).
[73] Above n 70 at 341
I—J.
[74] The judgment is reported as
Commissioner for Inland Revenue v Friedman and Others NNO [1992] ZASCA 190; 1993 (1) SA 353
(A).
[75] Sections
in Income Tax Act Corresponding sections of the Act
91(1)(a) 40(1)
91(1)(b) 40(2)(a)
91(1)(bA) 40(2)(b)
91(c) 40(2)(c)
91(2) 40(3)
92 40(5)
94 42
[76] Above n 65.
[77] 2000 (3) SA 564 (C).
[78] As to whether the
applicant/vendor was liable for VAT on compensation it had received pursuant to
a particular land transaction.
[79] Van Zyl NO v Commissioner
for Inland Revenue 1997 (1) SA 883 (C); Chancellor, Masters and Scholars
of the University of Oxford v Commissioner for Inland Revenue 1996 (1) SA
1196 (A) and Commissioner for Inland Revenue v Shell Southern Africa Pension
Fund 1984 (1) SA 672 (A).
[80] The procedure is set out in
sections 83 and 84 of the Income Tax Act and the regulations promulgated
thereunder. Absent a specific
provision, regulation 4 prescribes that the
“practice and procedure of the magistrates’ courts” apply.
[81] Ironically, the one and only
significant respect in which a tax appeal departs from the constitutional norms
is that tax cases are
heard behind closed doors, a provision for the protection
of the confidentiality of the taxpayer’s business.
[82] Section 86A of the Income Tax
Act.
[83] Above paragraph 5.
[84] Section 38(2) of the North West
Agricultural Bank Act 14 of 1981.
[85] Especially at paragraphs 10,
11, 19 and 20.
[86] Reported as First National
Bank of SA Ltd v Land and Agricultural Bank of South Africa and Others; Sheard v
Land and Agricultural Bank of South
Africa and Another 2000 (3) SA 626 (CC);
2000 (8) BCLR 876 (CC).
[87] Id at paragraph 5.
[88] Were that not the clear tenor
of the language, if there were ambiguity, one would in any event have read the
provision restrictively
by reason of the presumption against judicial ousters,
both at common law and under the Constitution.
[89] Or any other aspect of the
case.
[90] Above paragraph 47.
[91] And the amounts of any
consequential liability for additional tax, a penalty and interest.
[92] Above n 9.
[93] The United States: Phillips
et al, Executors v Commissioner of Internal Revenue [1931] USSC 146; 283 US 589 (1931);
Bob Jones University v Simon, Secretary of the Treasury et al [1974] USSC 94; 416 US 725
(1974); McKesson Corporation v Division of Alcoholic Beverages and Tobacco,
Department of Business Regulation of Florida et al 496 US 18 (1990).
Australia: Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; 127
ALR 21; Deputy Commissioner of Taxation (NSW) v Mackey 45 ALR 284;
Customs and Excise Commissioners v Holvey [1978] 1 QB 310. Canada:
Lambert v The Queen (1975) 58 DLR (3d) 74.
[94] See discussion at paragraph 42
above.
[95] The corresponding subsections
of the Act are 40(2)(a) and (3).
[96] Act 32 of 1944.
[97] The judgment is reported as
Kruger v Commissioner for Inland Revenue 1966 (1) SA 457 (C) and the
relevant passage appears at 462 A. The appeal failed on grounds that are not
relevant here.
[98] Reported as Kruger v
Sekretaris van Binnelandse Inkomste 1973 (1) SA 394 (A). The report is
preceded by the report of the judgment in the trial court.
[99] Id at 412 F—H.
[100] The Friedman, Contract
Support and Shell cases referred to in paragraphs 44 and 45
above.
[101] Adverted to in paragraph 29
above.
[102] Above n 7.
[103] See the discussion in
paragraph 22 above.
[104] Above paragraphs 30(a), (b)
and (c).
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