Metcash Trading Ltd v C:SARS (63 SATC 13)
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Objections and Appeals – “Pay now, argue later”
The Commissioner: South African Revenue Service (SARS) adheres strictly to the Pay Now, Argue Later rule once an objection to an assessment has been disallowed. This means, that the taxpayer who challenges an assessment must first pay the assessment before proceeding to argue the matter in the Tax Court after an appeal is noted to the disallowance of the objection. This very point was considered in the case of Metcash Trading Ltd v C:SARS (63 SATC 13) where the Constitutional Court held that the provisions contained in section 36 of the Value Added Tax Act, Act 89 of 1991, as amended (the VAT Act) are constitutionally valid. Section 88 of the Income Tax Act, Act 58 of 1962 (the Act) contains provisions that are for all practical purposes identical to those contained in section 36 of the VAT Act.
The provision confers a discretion on the Commissioner to agree to a postponement of payment once an appeal has been noted, but failing the exercise of that discretion the taxpayer is legally required to pay the tax in dispute.
Enforcement of payment
It must be noted that the Constitutional Court was not required to consider whether SARS can collect the tax in dispute before an objection is disallowed in the Metcash case. In Metcash, the Constitutional Court was only required to consider the validity of SARS powers to enforce the payment of tax once the taxpayers objection had been disallowed.
Many years ago The Taxpayer considered this question in an article entitled “Effect of lodging an objection on payment of tax” which appeared in the September 1964 edition. The author analysed the provisions contained in section 88 of the Act and reached the conclusion that the Commissioner cannot enforce payment of the tax until a decision is made on the objection lodged by the taxpayer.
The Supreme Court of Appeal was required to consider, inter alia, this question in Singh v Commissioner: SARS (65 SATC 203).
In the Singh case the court had to consider whether it was necessary for an assessment to be issued to a taxpayer before SARS can invoke the collection and recovery provisions of the VAT Act. The court held unanimously that the taxpayer is entitled to receive an assessment before SARS commences the collection procedures contained in the VAT Act.
Olivier J A analysed the difference between the noting of an objection and the noting of an appeal against the disallowance of an objection at paragraph 35 of the Singh decision and stated as follows:
“It should be noted that the obligation to pay the amount assessed by the respondent in terms of s31 is suspended by the lodging of an objection, because of the provisions of that section and s32, whereas the obligation to pay the amount assessed in terms of s32 is not suspended by the lodging of an appeal by virtue of s36. This distinction is important, because it indicates, once again, that the respondent may only approach a court for judgement in terms of s40(2)(a) of the Act after the objection provisions of the Act (s32) have been completed and, as shown, these provisions are predicated on notice of the s31 assessment having been given to the vendor concerned and the time in which he can lodge an objection with the respondent has expired or the objection has been dealt with in terms of s32, as explained above.”
Thus, the court has held that SARS cannot seek to enforce payment of an assessment where the taxpayer has lodged an objection thereto and no decision has been made on that objection.
Based on the decision of the Supreme Court of Appeal in Singh v C: SARS, taxpayers would be within their rights to resist SARS attempts to recover tax reflected on assessment where an objection has been lodged against that assessment. Once the new provisions of section 88 come into effect the taxpayer will be hard pressed to show that the tax in dispute should not be paid. However, SARS does have a discretion to exercise and that discretion must be exercised in conformity with the provisions of administrative justice contained in the Constitution of the Republic of South Africa Act 108 of 1996 and the Promotion of Administrative Justice Act, Act 3 of 2000. Where SARS fails to adhere to the principles of administrative justice, a taxpayer is entitled to seek judicial review of that decision in the High Court. It would be far preferable if section 88 of the Act were amended to specifically provide what criteria will be considered in deciding whether to agree to a postponement of payment of tax pending an appeal