Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B –

5.4 REVIEW APPLICATION DIRECTLY TO THE TAX COURT

Can a review be brought directly to the Tax Court, as an alternative to an application to the High Court? The Electronic Meyerowitz commentary on Income Tax Cases and Materials37 with reference to the Transvaalse Suikerkorporasie38 case, states:

The Income Tax Act confers three types of discretion on the Commissioner: (a) those which are subject to objection and appeal, (b) those which are excluded from objection and appeal, and (c) those which are neither subject to nor excluded from objection and appeal. In regard to (a), the proceedings before the Special Court amount to a rehearing of the matter and the Special Court is entitled to make its own finding; in regard to (b), no resort to the remedies of objection and appeal is possible; and in regard to (c), the taxpayer is entitled to object and to appeal to the Special Court by virtue of the provisions of s 81 and s 83 of the Act, applicable to all assessments issued by the Commissioner. In the latter case, however, the appeal amounts to a review of the Commissioner’s exercise of his discretion on the recognised grounds of review (KBI v Transvaalse Suikerkorporasie Bpk …).

The effect of the Transvaalse Suikerkorporasie39 case is that, despite the lack of reference to an objection and appeal procedure in ss 74A and 74B, SARS is exercising a discretion that is reviewable in the Tax Court. However, it is unlikely that the Tax Court is a ‘tribunal’ contemplated in s 6(1) of PAJA for the purposes of a decision in terms of ss 74A and 74B. Support for this contention can be found in the Supreme Court of Appeal judgment Rustenburg Platinum Mines Ltd (Rustenburg Section) v Commission for Conciliation, Mediation and Arbitration40 where is was concluded that ‘the codificatory purpose’ of s 6 of PAJA has subsumed and extended limited grounds for review (in the context of the Labour Relations Act 66 of 1995 (LRA)) where Cameron JA reasoned that on the basis of s 39(2) of the Constitution ‘the overriding factor in determining the impact of PAJA on the LRA is the constitutional setting in which PAJA was enacted’ where he found that both s 33 of the Constitution and PAJA superseded the specialised provisions of the LRA in the field of administrative justice. This dictum will apply equally to a decision of SARS in terms of ss 74A and 74B in the absence of a clear objection and appeal process that clearly ousts PAJA, either by means of an initial tribunal inquiry in the Tax Court, or generally – due to lack of prejudice to the taxpayer, lack of ‘ripeness’ to adjudicate the matter, or ‘mootness’ where the court is loath to give opinions about abstract propositions of law.41 This view is also supported by Metcash42 where the Constitutional Court made it clear that review applications to the High Court are available to taxpayers. However, Metcash is also quoted to support the argument review to the High Court only pertains to a question of law, as opposed to the merits and the facts.43

The provisions of s 7(2)(a) of PAJA have been described as stringent provisions cast in peremptory language:

‘The Court is obliged to turn the applicant away if it is not satisfied that internal remedies have been exhausted, and may grant exemption from the duty only in exceptional circumstances where it is in the interests of justice to do so.’44

Plasket J in Reed and Others v Master of the High Court of South Africa and Others45 held that section 7(2) must be interpreted restrictively because it restricts the jurisdiction of a Court to determine an otherwise justiciable issue before it. He went on to say, the section applies to internal remedies, and not simply to any form of potential extra-curial redress. A remedy, in this context, is defined in the New Shorter Oxford English Dictionary as a ‘means of counter-acting or removing something undesirable, redress, relief; legal redress’. Inherent in this concept, as it is used in its legal context is the idea that a remedy, must be an effective remedy. Section 7(2) of PAJA does not, in other
words, place an obligation on a person aggrieved by a decision to exhaust all possible avenues of redress provided for in the political or administrative system – such as ‘approaching a Parliamentary committee or a Member of Parliament, or writing to complain to the superiors of the decision-maker…(or) one or more of the Chapter 9 institutions – such as Public Protector or the Human Rights Commission – prior to resorting to judicial review’. The Tax Court is a body that provides an entirely effective remedy to a person aggrieved by the issue of an assessment. Of more assistance is the following portion of the judgment:

[25] The dictionary definitions of the words “internal” and “remedy” that I have cited are in harmony with the way the composite term “internal remedy” is understood in the more specialised context with which this matter is concerned: when the term is used in administrative law, it is used to connote an administrative appeal – an appeal, usually on the merits, to an official or tribunal within the same administrative hierarchy as the initial decision-maker – or, less common, an internal review. Often the appellate body will be more senior than the initial decision-maker, either administratively or politically, or possess greater expertise. Inevitably, the appellate body is given the power to confirm, substitute or vary the decision of the initial decision-maker on the merits. In South Africa there is no system of administrative appeals. Instead internal appeal tribunals are created by statute on an ad hoc basis.

If this proposition is correct then an appeal to the Tax Court is not an internal remedy that must first be satisfied before a taxpayer can approach the High Court to review a decision. The Tax Court is not part of the administrative hierarchy of SARS. It is, instead, as Kriegler J pointed out in Metcash Trading Limited v CSARS,46 a body that satisfies the requirements of section 34 of the Constitution as being an ‘independent and impartial tribunal’ established for the purpose of resolving disputes that can be resolved by the application of law. It is presided over by a judge appointed by the Judge President of the division in which the Court is sitting and its decisions are appealable directly to the High Court and, with leave, directly to the Supreme Court of Appeal.

However, a review of a decision by SARS in terms of ss 74A and 74Bcan be brought directly to the Tax Court as part of the objection and appeal process (as opposed to a review application), through ss 81 and 107A of the Income Tax Act, and the Rules of the Tax Court promulgated in terms of s 107A, following the principles in the Transvaalse Suikerkorporasie47 case above. The typical process in terms of these provisions is that the taxpayer will object within 30 days after receiving the revised assessment, setting out in its grounds of objection the conduct of SARS that is inconsistent with the constitution, together with the grounds of objection that deal with the merits of the tax dispute. The Rules of the Tax Court promulgated in terms of s 107A allow for SARS to submit its Grounds of Assessment, and for the taxpayer to submit its Grounds of Appeal, after SARS has rejected the objection. The taxpayer would once again set out the complained about conduct of SARS in the Grounds of Appeal.

The problem with this approach is the timing. The conduct of SARS will only be considered by the Tax Court alongside the merits of the revised assessment, which by now would have been issued with an enforcement of the ‘pay now argue later’ principle. In practice the procedural transgressions that took place before the revised assessment pale into insignificance as the Tax Court tends to focus on the substantive merits of the tax dispute. The advantage of bringing a review application to the High Court is that the current conduct of SARS will be reviewed, prior to any revised assessment being raised.  Any decision by SARS to raise a revised assessment would also be suspended, pending the decision of the High Court.

The taxpayer could also wait for the revised assessment to be issued, and then raise as one or more of his or her grounds for objection the administrative law grounds of review, in addition to those applicable to the merits of the revised assessment. Here the grounds of review will form part of the usual objection and appeal process in the Income Tax Act.

Again, the difficulties raised in the previous paragraph are equally applicable to this scenario.

It is, consequently, more advantageous for the taxpayer to take the conduct of SARS on review to the High Court, provided there is no dispute of fact, otherwise the application stands to be dismissed, first tier, or if a dispute of fact becomes apparent to the court at the hearing of the matter, the Plascon-Evans rule will find application,48 where the courts will apply certain second tier rules to determine whether or not a conflict of fact exists. In simplistic terms, the court will accept the version of the respondent (usually SARS in these applications), resulting in a usual insurmountable difficulty for the taxpayer to have the court accept its version of the facts, to require the court to make a finding in favour of the taxpayer.

Next:  5.5 REVIEWING UNCONSTITUTIONAL CONDUCT – 5.5.1 Introduction

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Footnotes:

37 On DVD from Meyerowitz D, at para 24.1.
38 1985 (2) SA 668 (T).
39 1985 (2) SA 668 (T); See also Van Schalkwyk L The discretionary powers of the Commissioner for the South African Revenue Service – Are they constitutional? Meditari Accountancy Research Vol. 12 No. 2 2004: pages 165-83 at page 170.
40 2007 (1) SA 576 (SCA) at para [25].
41 Hoexter (2012) at pages 583-8.
42 Metcash Trading Limited v C SARS and Another2001(1) SA 1109 (CC) at para [33].
43 Ibid. at para [44].
44 Hoexter (2012) at page 540.
45 [2005] 2 All SA 429 (E) at para [45].
46 2001(1) SA 1109 (CC).
47 1985 (2) SA 668 (T).
48 The rule emanates from Plascon-Evans Paints Ltd v Van Riebeeck Paints 1984 (3) SA 623 (A) at pages 634E –
635C.