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

2.4 THE RELEVANCE OF PAJA AND THE PRINCIPLE OF LEGALITY

2.4.1 Introduction
With the development of constitutional law and the promulgation of PAJA giving effect to s 33(3) and the rights referred to in ss 33(1) and (2) of the Constitution, the provisions of PAJA must now, first and foremost, be considered in any review proceedings initiated against SARS for invalid conduct.106 PAJA regulates ‘administrative action’ (in the absence of applying the constitutional principle of legality). Chaskalson CJ in Minister of Health v New Clicks South Africa (Pty) Ltd107 rejected the Supreme Court of Appeal’s approach to review the regulations for lawfulness by applying the provisions of s 33(1) of the Constitution and the common law directly, and not in terms of PAJA. Chaskalson pointed out that PAJA had been enacted pursuant to a constitutional command to give effect to the right to administrative justice. To allow applicants to go behind the provisions of PAJA to utilise s 33(1) of the Constitution to review administrative action would frustrate the purpose with which s 33(3) of the Constitution required the enactment of PAJA. In a concurring judgment, Nqcobo108 held that to allow access for review to s 33(1) of the Constitution would allow for the development of two parallel systems of law with the same subject matter which would be untenable. He went on to state that  litigants would only be entitled to rely directly upon s 33(1) of the Constitution where it was alleged that the remedies afforded by PAJA were deficient – the action would be directed at the offending provision of PAJA, and not at the offending administrative action itself.

If the conclusion drawn in section 2.3.3 above is incorrect, and a court determines that the narrow definition of ‘administrative action’ in PAJA excludes a decision in terms of ss 74A and 74B, it is submitted that the definition of administrative action in PAJA would be questionable,109 and the definition would be subject to constitutional review.

If PAJA does not apply, the other avenue of review open to the taxpayer would be the constitutional principle of legality, as an overriding general provision of constitutional law, creating justiciable rights for the taxpayer, empowering the taxpayer to apply to court to review conduct that is invalid under s 2 of the Constitution. The principle of legality is ‘capable of filling the “accountability vacuum” (footnote omitted) when PAJA does not apply.’110

This submission is also based on the judgment of Chaskalson CJ in Minister of Health v New Clicks South Africa (Pty) Ltd:111 [97] Professor Hoexter sums up the relationship between PAJA, the Constitution and the common law, as follows:

“The principle of legality clearly provides a much-needed safety net when the PAJA does not apply. However, the Act cannot simply be circumvented by resorting directly to the constitutional rights in s 33. This follows logically from the fact that the PAJA gives effect to the constitutional rights… Nor is it possible to sidestep the Act by resorting to the common law… The common law may be used to inform the meaning of the constitutional rights and of the Act, but it cannot be regarded as an alternative to the Act.” (footnotes and emphasis omitted) I agree.

Raz112 defined the essence of the rule of law as relating to two features:

(a) that all people (including the government) should be ruled by the law and obey it; and
(b) that the law should be such that people should be able to be guided by it.113

The rule of law principle requires that all government action must comply with the law, including the Constitution. Government action includes the exercise of public power. As such, the exercise of all public power is subject to the Constitution. The Constitution contains constitutional obligations such as those in ss 41(1), 195(1) and 237 of the Constitution, irrespective of whether or not such exercise of power amounts to administrative action. The standards demanded by the Constitution for the exercise of public power by the Executive and other functionaries (such as SARS) are that it should not be arbitrary. Decisions must be rationally related to the purpose for which the power was given: whether a decision is rationally related to the purpose for which the power was given calls for an objective inquiry.114

In relation to the exercise by SARS of ‘public power’ under ss 74A and 74B, the rule of law will require that the exercise of public power not be arbitrary, and that the decision taken to request information, documents or things be rationally related to the purpose for which the power was given; namely, for purposes of administration115 of the Income Tax Act as defined in s 74. In applying these principles to ss 74A and 74B in making a decision to request information, documents or things, SARS must carry out its constitutional obligations in line with the rule of law.

SARS (as an organ of State) can exercise only those powers lawfully conferred upon them as set out in s 41(1) of the Constitution. This is part of the rule of law. This can also be extended to mean, from the authorities quoted infra, that compliance with the Constitution is the starting point of compliance with the rule of law. Non-compliance would mean that the organ of state has acted unlawfully and ultra vires the Constitution. As such, the Constitution extends the meaning of compliance by the organ of state (such as SARS) with the powers conferred upon them to include compliance with constitutional values, principles and obligations.

Next:  Chapter 2 – 2.4.2 The principle of legality

In accordance with Circular 230 Disclosure

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Footnotes

106 Hoexter (2012) at pages 121-5 and 359; Fedsure Life Assurance Ltd v Greater Johannesburg Transitional Metropolitan Council 1999(1) SA 374 (CC) at para’s [56] and [58] (principle of legality is an aspect of rule of law); President of the Republic of South Africa v SARFU 2000(1) SA 1 (CC) para [148] (act in good faith and do not
miscontrue powers – see also section 3.3: Lawfulness and 3.3.3.2: Mala Fides or Bad Faith infra); Pharmaceutical Manufacturers case supra footnote 11 at para’s [20], [44], [45], [49] – [51], and [79] – [90] (public power should not be arbitrary or irrational, and rationality is a minimum threshold for the exercise of public power – see also section 3.4: Reasonableness and 3.4.1: Rationality infra).
107 2006 (2) SA 311 (CC) at para [95].
108Ibid. para’s [436] and [437].
109 See also the analysis supra in 2.3: A Constitutional Balance of SARS’ Powers and the ‘Administrative Action’ Debate; Croome B Taxpayers’ Rights in South Africa Juta 2010 at page 208 where the author states: ‘I submit that if the taxpayer can show that PAJA unreasonably restricts his constitutional rights in violation of s 36 of the Constitution, he may challenge the validity of PAJA.’ He cites Currie I & Klaaren J The Promotion of Administrative Justice Act Benchbook SiberInk 2001 para 1.29 at page 29.
110 Hoexter (2012) at page 248 and footnote 577: Michael Taggart ‘The Province of Administrative Law Determined?’ in Michael Taggart (ed) The Province of Administrative Law (1997) 1 at page 3.
111 2006(2) SA 311 (CC) at para’s [93] to [96].
112Raz J The Rule of Law and its Virtue (1977) 93 Law Quarterly Review195, at page 198.
113 Stewart C The Rule Of Law And The Tinker bell Effect: Theoretical Considerations, Criticisms And Justifications For The Rule Of Law. MacQuarie Law Journal at page 7.
114Pharmaceutical Manufacturers case supra footnote 11 at paras [20], [44], [45], [49] – [51], and [79] – [90]; See also University of Cape Town v Ministers of Education & Culture (House of Assembly & House of Representatives) 1988 3 SA 203 (C) ; LAWSA Volume 1 2nd ed Administrative Law Lexis Nexis at para 139 footnote 6.
115In Industrial Equity Ltd v Deputy Commissioner of Taxation and Others (1990) 170 CLR 649 at 659 the Australian High Court held that the powers of access and inquisition must be exercised for the purpose of the Act and that question is to be considered in the context of the provision levying income tax – as envisaged in the definition of ‘administration of this Act’ in s 74 of the Income Tax Act 58 of 1962.