Another ‘Taxpayer vs Sars’ saga

On March 11, 2022, the Constitutional Court (ConCourt) handed down a welcome judgment in the matter of Barnard Labuschagne Inc (BLI) versus the South African Revenue Service (Sars) and the Minister of Finance (Case No CCT 60/21), setting out existing binding precedent in earlier case law pertaining to the rescindability of a civil judgment taken out by Sars on a taxpayer.

On why the high court did not discover the existing binding precedent, the ConCourt opined that several recent high court judgments, including this matter, “appear to have failed to apply binding precedent, a core component of the rule of law, which is a founding value of our Constitution”.

The ConCourt thus allowed BLI’s appeal, and unanimously agreed that it had the jurisdiction to hear this matter on whether a civil judgment can be rescinded – as it “raises an arguable point of law of general public importance”.

Background

BLI appealed to the Constitutional Court when it was refused an application to appeal the judgment handed down by the Western Cape High Court in the case of Barnard Labuschagne Inc (BLI) versus the South African Revenue Service (Sars) and the Minister of Finance, Case No. 23141/2017. Both the high court and the Supreme Court of Appeal refused BLI’s application to appeal.

This matter spanned the years 2007 to 2017. In 2017 BLI compiled a “self-assessment” for value-added tax, employees’ tax, unemployment insurance fund contributions and skills development levies. BLI contended that this statement reflected the assessed taxes payable, not what had not been paid, and that it had made payments which Sars had failed to allocate to the relevant assessed taxes.

Sars however, filed this self-assessment with the Registrar of the High Court as a certified statement reflecting BLI’s indebtedness to Sars per Section 172 of the Tax Administration Act (TAA).

In terms of Section 174, this certified statement is to be treated as a civil judgment.

The ConCourt referred to this “civil judgment” as a “tax judgment”.

Precedence for rescindability of tax judgments

BLI contended that a tax judgment is not a tax assessment, against which a taxpayer can object and appeal to the tax court. It therefore had to approach the high court to rescind the tax judgment.

Sars averred that a tax judgment is not rescindable. BLI contended that if a tax judgment is not rescindable, then the applicable sections of the TAA are constitutionally invalid.

The ConCourt discussed previous judgments that had considered the question of rescindability.

Two previous judgments – Kruger II (Kruger versus Sekrataris van Binnelandse Inkomste 1973) and Metcash (Metcash Trading Ltd versus Commissioner Sars) – which had been decided on older yet similar legislation, gave binding authority that a tax judgment can be rescinded.

The ConCourt pointed out that a taxpayer has certain defences against a tax judgment.

For example, Sars would not be entitled to register a tax judgment if the taxpayer has already lodged an objection.

The ConCourt determined that:

• The fact that tax judgments are rescindable, and that the taxpayer has other defences as pointed out above, sections 172 and 174 are not unconstitutional.
• The high court in this present case was bound by case law precedent contained in Kruger II, Metcash, Kruger 1 ( Kruger versus Commissioner for Inland Revenue 1966) and Barnard (Barnard versus Kommissaris Ban Binnelandse Inkomste, case number A127/97, unreported).

Criticism of the high court judgment

In the ConCourt’s view it is “unacceptable” that the high court did not discuss the judgments referred to above, and “either follow them or explain why it thought they were distinguishable”, and that it is “difficult to fathom the Court’s statement in denying the leave to appeal” in that “there were no conflicting judgments on rescindability”.

The ConCourt also noted the importance of observing the rules of precedence, and that this “is not a display of politeness to courts of higher authority; it is a component of the rule of law, which is a founding value of the Constitution”.

The ConCourt also found the high court’s “cursory dismissal” of the taxpayer’s alternative argument of the unconstitutionality of sections 172 and 174 to be “unsatisfactory”.

The ConCourt opined that the high court should have found that the tax judgment was “susceptible of rescission”, and should have considered whether BLI had made out a case for rescission at common law. The ConCourt referred to the “well-known requirements” of BLI having to provide a reasonable and satisfactory explanation for its default, and said it can show that it has some prospect of success for rescission.

The ConCourt decided that the matter is to be referred back to the high court to decide the merits of the recission application, but because the high court had made adverse comments about BLI, the matter should be heard by a different Judge.

Sars, was all this worth it?

The ConCourt directed that Sars is to pay BLI’s costs incurred for the leave to appeal applications to the high court, the Supreme Court of Appeal, plus the costs incurred in the ConCourt application.

This amounts to an expensive admonishment.

It will be easier to understand the full facts when the matter is again heard by the high court under a different judge. Was BLI a recalcitrant taxpayer? Was Sars misallocating payments? Will BLI be able to provide a reasonable and satisfactory explanation for its default, and show grounds for rescission?

The overarching question Sars should explain though: was there not an easier way?