Barnard Labuschagne Incorporated (“BLI”), a firm of attorneys, filed returns (and therefore self-assessments) in respect of its tax liability for VAT and employees’ tax. BLI regarded the tax liability amounts set out in these self-assessments as correct and therefore contended that it had subsequently made payment of this tax liability to SARS. 

SARS, on the other hand, believes that there is an outstanding tax debt. Accordingly, SARS filed with the High Court a certified statement in terms of section 172 of the Tax Administration Act, No. 28 of 2011 (“the TAA”), in order to obtain a civil judgment for the recovery of, what it believes, is an outstanding tax debt in respect of the self-assessments (“the judgment”).

Owing to the fact that the judgment was obtained by SARS against BLI, BLI brought an application to the High Court to rescind the judgment. SARS averred that the judgment was not susceptible of rescission and argued that the taxpayer was required to pursue the objection process set out in Chapter 9 of the TAA. 

In its ruling, the High Court held that the judgment was not susceptible of rescission on the basis that it was not final and thus not an ordinary civil judgment, as SARS has the power to amend or withdraw a certified statement under sections 175 and 176 of the TAA. 

Subsequently, BLI’s applications for leave to appeal in the High Court and Supreme Court of Appeal were refused. This resulted in BLI approaching the Constitutional Court for leave to appeal the High Court ruling on rescindability of the judgment, in terms of which the Constitutional Court has delivered a judgment on 11 March 2022. 

What follows below is insight into the Constitutional Court judgment; including the Constitutional Court’s scathing remarks regarding the judgment delivered by the High Court and its failure to follow binding precedent.

Constitutional Court Judgment

It is not surprising that the Highest Court in South Africa held that:

• Despite all relevant prior court cases being drawn to the High Court’s attention, it is “unacceptable that it did not discuss them and either follow them or explain why it thought they were indistinguishable”. It also remarked that “observance of rules of precedent 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”.
• Although the TAA entitles SARS to amend or withdraw a certified statement, this power cannot be regarded as materially changing its legal character. This is so because, in relation to a court and a judgment debtor (taxpayer), the judgment is final as a court does not have a power to vary or discharge the judgment.
• in this matter, the taxpayer was not challenging the correctness of the underlying self-assessment on which the judgment is based. Section 170 of the TAA (which stipulates that a document issued by SARS that purports to be an extract of an assessment is conclusive evidence of the making of the assessment) did not create an impediment to the rescindability of the judgment.
• Instead, the taxpayer was challenging the fact that the tax liability set out in the self-assessments have been paid. As there is no provision in any tax legislation that states that a dispute on whether an assessment has been paid is subject to objection or appeal, the taxpayer in this matter was not complaining about a “decision” referred to in section 104(2) of the TAA. As such, section 105 of the TAA (which indicates that a taxpayer can only dispute an assessment or “decision” through the objection procedure in Chapter 9 of the TAA, unless a High Court directs otherwise) likewise does not create an impediment to the rescindability of the judgment.

As the High Court merely dismissed the rescission application on the basis that the certified statement was not in law susceptible of rescission, the merits of this specific matter are yet to be decided on, in order to rule on whether the judgment in this matter is to be rescinded. Therefore, the Constitutional Court directed that the matter be remitted back to the High Court for the merits of the rescission application to be decided upon.

Commentary

It is rather unfortunate that a simple dispute involving whether a tax liability has indeed been paid became litigious and resulted in the taxpayer approaching the Constitutional Court for intervention; which intervention was limited to deciding on whether the judgment was susceptible of rescission. The matter is therefore not finalised yet, despite the time taken to reach this point in the dispute. 

This begs the question on why the taxpayer’s representative was unable to properly engage with SARS in order to come to an amicable, out of court, resolution of the dispute. Put differently, if the taxpayer maintains that it has indeed made payment of its tax liability, surely it would be as simple as providing proof to SARS of such payments and requesting that SARS withdraw the certified statement in terms of section 176(3) of the TAA which provides: 

“If SARS is satisfied that a person has paid the full amount of the tax debt set out in a certified statement filed under section 172 and has no other outstanding tax debts, SARS must withdraw the statement if requested by the person in the prescribed form and manner” (emphasis added)

While this judgment confirms that a judgment obtained by SARS under section 172 of the TAA is susceptible of rescission, it also places emphasis on the tax advisor a taxpayer chooses. This is so because having a tax advisor in your corner who is able to engage with SARS in a meaningful manner will avoid unnecessary legal costs and time being expended on tax dispute that is simple in nature. Such a tax advisor will instead, reserve litigation as a last resort for complex matters where there is no other option available. This will not only be beneficial for the taxpayer himself but for SARS and our courts, to not be overly congested with simple disputes.

Our legal team regularly engages with SARS in an amicable setting, in an attempt to bring finality to disputes in the most efficient manner possible for all parties concerned. Contact us for more information.

Written by Natasha Wilkinson, Head of Tax Disputes and Legal Strategy at Tax Consulting SA