Default judgement in tax litigation

court hoodAuthor: Robert Gad and Jadyne Devnarain (ENSAfrica)

In terms of the current Tax Court rules published under the Income Tax Act No. 58 of 1962, where the Commissioner for the South African Revenue Service (“SARS”) did not comply with the prescribed time frames in respect of dispute resolution, practically, there was little that a taxpayer could do. This could change in terms of the proposed new Tax Court rules expected to come into force later this year.

To illustrate the current difficulty faced by the taxpayer in having matters promptly dealt with, SARS, in a fairly recent unreported case, sought condonation for the late filing of a Statement in terms of rule 10 of the current Tax Court rules. In delivering its judgment in favour of SARS, the court noted that it should be very careful to place a threshold at so high a level that it would result in the inability of SARS to prosecute what may well be a legitimate case regarding unpaid taxes from a party such as the taxpayer, that the public interest demands that all South African citizens pay their due taxes and that technical arguments should be placed in proper perspective. The court acknowledged that the purpose of the condonation application was to introduce some nature of pragmatism into the manner in which parties litigate and was of the view that the taxpayer’s insistence that the condonation application be made, postponed the matter unduly. The court concluded that this was not the kind of case where condonation should be refused and it would be a significant ‘overreach’ of the scope of the powers of the court to set aside SARS’ assessment.

Had the court dismissed the condonation application, this would have left the matter in limbo since it would not have been possible for the next step of the dispute resolution process to be taken by SARS. However the assessment would still stand. In this case, the taxpayer would have been required to make yet a further application to court to set the matter aside.

It appears that the draft new Tax Court rules, if promulgated, will somewhat simplify this process. Part F of the draft new Tax Court rules allow for an application for default judgment in the event of non-compliance with the rules by either the taxpayer or SARS. If, for example, SARS is at fault, the taxpayer may deliver a notice to SARS informing SARS of its intention to apply to the Tax Court for a final order in the event that SARS fails to remedy the default within 15 days of delivery of the notice. In the event that SARS fails to remedy the default within the prescribed period the taxpayer may apply, on notice to SARS, to the Tax Court for a final order to the effect that SARS’ assessment or decision be altered.

From a litigation point of view, for example, careful consideration of issues such as delays, requests for extensions and the granting of extensions may become very important if an application under this new proposed rule is to be brought.

The proposed new dispensation could thus prove to be favourable to both the taxpayer and SARS where either party does not comply with the prescribed time periods and obligations in the dispute resolution process.