Shedding some light on default judgements in the tax court: part 1 of 2

Introduction

It is often said that the law is like a double-edged sword. Depending on the strength of one’s case lady justicia may spare you, and, in keeping with her impartiality, the same law may on another occasion not be so merciful. 

This 2-part series of articles analyses two tax court judgements where an application for default judgement was applied for by the taxpayer. The aim is to show why the one taxpayer was successful while the other was not. This article focusses on the first case. It is our view that these two perfect opposites will offer some clarity to taxpayers on what the court expects when seeking a final order against SARS – to ensure that you approach such an application with certainty.  

The first case: F taxpayer v The Commissioner for the South African Revenue Services in IT 45842 (F taxpayer) 

The taxpayer had launched a default judgement application under Rule 56 of the tax court rules (“the rules”) for an order in terms of section 129 of the Tax Administration Act 28 of 2011 (“TAA”) against the South African Revenue Service (“SARS”) for its failure to deliver a Rule 31 statement timeously. SARS opposed this default judgement application and made a counter application for the condonation of the late filing of its Rule 31 statement, and, in similar fashion the taxpayer opposed SARS’ application for condonation. 

A condensed version of the facts is that SARS had conducted an audit into the taxpayer’s affairs and issued additional assessments in relation to the taxpayer’s 2016 to 2018 year of assessments. The taxpayer timeously requested reasons for the assessment which SARS is obliged to deliver within 45 days after such a request. SARS delivered the reasons out of time which is precluded unless an extension of time has been requested under Rule 6(6). SARS requested no such extension.

After receipt of the reasons the taxpayer delivered its notice of objection timeously, SARS was supposed to deliver its decision on the objection 60 days later, which it also failed to do and only delivered after the taxpayer launched an initial default judgement in terms of Rule 56(1)(a). The taxpayer then delivered its notice of appeal timeously. In turn SARS was to deliver its Rule 31 statement within 45 days but failed to do so. The taxpayer delivered another Rule 56(1)(a) default judgement application, putting SARS on terms in order to solicit the Rule 31 statement. 

Instead of remedying the default SARS informed the taxpayer that it is unable to submit the Rule 31 statement due to capacity constraints owing to short staffing and then requested an extension, which the taxpayer granted for a period of one month. SARS then failed to honour that extension and requested a further extension. The taxpayer refused this request and a day after the expiry of the one month extension the taxpayer informed SARS that it would be seeking a final order in terms of section 129(2) of the TAA and that SARS would be required under Rule 52(6) to bring a condonation application for the late filing of its Rule 31 statement. It is also noteworthy that throughout this entire period the taxpayer suffered other prejudices at the hands of SARS in that the taxpayer had incorrectly been reflected as non-compliant on its e-filing profile which was detrimental to its business operations which required tax compliance in order to be registered with certain regulatory bodies 

In delivering its judgement the court dealt with the issue of condonation and held that it is settled law that an application for condonation is in the interests of justice. The court then cited paragraph 22 of the case of Grootboom v National Prosecuting Authority 2014 (2) SA 68 (CC) and held that a consideration of the interests of justice includes:

“ ‘…the nature of the relief sought; the extent and cause of the delay; the effect of the delay on the administration of justice and other litigants; the reasonableness of the explanation for the delay; the importance of the issue to be raised…; and the prospects of success. It is crucial to reiterate that both Brummer and Van Wyk emphasise that the ultimate determination of what is in the interests of justice must reflect due regard to all the relevant factors but it is not necessarily limited to those mentioned above. The particular circumstances of each case will determine which of these factors are relevant.” 

The court then referred to section 195 of the Constitution of the Republic of South Africa, 1996 (“the Constitution”), citing the state’s responsibility to provide professional and efficient public administration. The court also cited section 33 of the Constitution that provides for administrative action that is lawful, reasonable and procedurally fair. In applying the law the court took particular issue with the fact that SARS displayed a persistent disregard for the time limits prescribed for in the rules. At paragraph 47 the court held:

“Whatever gloss SARS seeks to put on it, the facts set out above demonstrate, in my view, that the delay was egregious; there has been no reasonable explanation for the delay; and the consequent prejudice to the taxpayer (which prejudice SARS admits, since it sought to ameliorate it) is severe.” 

When considering the merits of SARS’ case, the court held that since there was an application for condonation on the part of SARS, and an application for default judgement by the taxpayer (both of which were opposed), there was an overlap regarding the determination of which party’s case had the stronger merits. Therefore, both the parties’ merits were juxtaposed, and in doing so the court found that on the papers before it, the issues in dispute had been crystalised and were thus capable of being fully ventilated. The court held that SARS had no case because it had advanced arguments that were contradictory to its filed papers, and the filed papers failed in the face of the taxpayer’s argument which was backed up by expert opinion. It is also noteworthy that the court accepted SARS’ Rule 31 statement but this too was insufficient to change the court’s decision. Against this backdrop, the court decided in favour of the taxpayer.    

Comment

 F taxpayer was important because it illustrated that even in the face of public administration that falls short of sections 33 and 195 of the Constitution, when a default judgement is opposed by SARS, the core issues in the dispute must be fully ventilated and the taxpayer is required to put up an argument that allows the court to make a final order.  The case also highlighted that the taxpayer’s behaviour throughout the entire dispute counts when seeking a final order against SARS. These takeaways feed into our second and final instalment in this 2-part series.

Mabhelandile Ntuli Attorneys are registered tax practitioners who provide assistance on a range of tax matters. We approach tax and legal issues with certainty.