Tax Administration Act – Applications to rescind a "judgment"

court hoodThe judgment reported as Kadodia v CSARS [2013] 75 SATC 313 is a decision of the KwaZulu-Natal High Court in which the applicant taxpayer unsuccessfully applied to court for rescission of a “default judgement” granted against him in terms of section 114(1)(a)(ii) of the Customs and Excise Act, No. 91 of 1964 (the Customs and Excise Act). The judgment was in respect of an alleged underpayment of customs duty and value-added tax amounting to R171 731.

The taxpayer admitted liability for the tax in question
A letter of demand by SARS had been hand-delivered to the applicant taxpayer; in response the latter’s attorneys had effectively admitted liability, saying that their client “realises that he has no option herein but to accept contraventions of the section you mention”. However, the taxpayer proposed that the goods in question be disposed of for the benefit of SARS so that the proceeds of the disposal could be set off against the amounts due by him to SARS, alternatively that the goods be released to him so that he could arrange for such a disposal. SARS rejected the taxpayer’s proposals in this regard, as involving a process not countenanced by the Act.

SARS filed a statement with the registrar of the court
For reasons not explained, the matter had then lain dormant for some five years, after which SARS sent a final demand for payment of the outstanding amounts. When no payment was forthcoming from the taxpayer, SARS took action in terms of section 114(1)(a)(ii) of the Customs and Excise Act in order to enforce payment. This provision reads as follows:

114. Duty constitutes a debt to the State.—(1) (a) (i) Any amount of any duty, interest, penalty or forfeiture incurred under this Act and which is payable in terms of this Act, shall, when it becomes due or is payable, be a debt due to the State by the person concerned and shall be recoverable by the Commissioner in the manner hereinafter provided.
(ii) If any person fails to pay any amount of any duty, interest, fine, penalty or forfeiture incurred under this Act, when it becomes due or is payable by such person, the Commissioner may file with the clerk or registrar of any competent court a statement certified by him as correct and setting forth the amount thereof so due or payable by that person, and such statement shall thereupon have all the effects of, and any proceedings may be taken thereon as if it were a civil judgement lawfully given in that court in favour of the Commissioner for a liquid debt of the amount specified in the statement.”

The obtaining of the judgment and the taxpayer’s application for its rescission
Having filed the requisite statement with the Registrar of the High Court in June 2012, SARS duly obtained “judgment” against the taxpayer in terms of this provision.

The taxpayer then applied to the High Court for rescission of the judgment taken against him by way of the aforementioned process. In adjudicating on the taxpayer’s application for rescission of that judgment, de Beer AJ pointed out that, in light of the taxpayer’s admission that he owed SARS the amount in question, there was no dispute between the parties, and that the taxpayer had not made out any defence to SARS’s claim.

On these grounds, the application for rescission of the judgment was dismissed.

Critical overview
The first point that is striking about this decision is that the judge cites no authority for his reasons or his conclusions.

And indeed, although the judge was correct in his conclusion that the taxpayer’s application for rescission had to be dismissed, his reasons were, with respect, wholly incorrect.

The provisions of section 114(1)(a)(ii) of the Customs and Excise Act that lie at the core of this matter are essentially identical to the now-repealed section 91(1)(b) of the Income Tax Act No. 58 of 1962 (the Act) – which has been the subject of a plethora of High Court decisions. Those provisions of the Act have now been relocated, essentially unchanged, in sections 172 – 174 of the Tax Administration Act  No. 28 of 2011 (the TAA).

Had the legal issues been researched, it would have been revealed that there are indeed decisions in favour of the proposition that a judgment, secured by SARS by filing a statement with the clerk or registrar of the court as provided for in tax legislation, is capable of rescission. See for instance Spilg J’s judgment in Mokoena v Commissioner for South African Revenue Service [2011] 72 SATC 279.
However, the judgment to the contrary of Binns-Ward J in Capstone 556 (Pty) Ltd and Kluh Investments (Pty) Ltd v CSARS [2011] 74 SATC 20 is, in the present writer’s view, unanswerable.

In his judgment in the last-mentioned case, Binns-Ward J said –

“Although a statement filed by the Commissioner in terms of s 91(1)(b) [of the Income Tax Act 58 of 1962] has all the effects (i.e. consequences) of a judgment, it is nevertheless not in itself a judgment in the ordinary sense. It does not determine any dispute or contest between the taxpayer and the Commissioner. It has the effect of a judgment, however, in enabling the
Commissioner to obtain a writ to attach and sell in execution the taxpayer’s assets to exact payment of an amount that is payable.”

In Singh v Commissioner for the South African Revenue Service [2003] 65 SATC 203 at para 9 Cloete JA and Heher AJA said, apropos the similar provisions in section 40(1), (2)(a) and (5) of the Value-Added Tax Act, No. 89 of 1991 (the VAT Act) (section 40(2)(a) of which mirrored section 91(1 )(b) of the Income Tax Act and section 40(5) of which mirrored section 92 of the Income Tax Act) –

“The section is a recovery provision and nothing more. It does not empower the Commissioner to determine whether an amount is payable (or due).”

The power accorded to SARS to file a statement with the clerk or registrar of a court, and thereby secure a document that has the effect of a civil judgment, without being a judgment as such, flows from internal logic of tax legislation in terms of which the noting of an appeal by a taxpayer against an assessment does not suspend his obligation to pay the assessed tax – in short, the taxpayer must pay now and argue later, even though he is entitled to dispute his liability, and such liability has at this juncture not yet been judicially determined.

In other words, a “judgment” secured by SARS by filing a statement with the clerk or registrar of the court in terms of the (now-repealed provisions of) the Income Tax Act or in terms of the substantially identical provisions of the VAT Act, the Customs and Excise Act, and now the TAA, is not a judgment in the true sense of the word in that it does not have what Binns-Ward J called the rights-determining character of a judicially delivered judgment.

A determination of the taxpayer’s rights will occur only when the Tax Court or, on appeal, a superior court hands down a judgment upholding or setting aside the disputed assessment in question.

Since the filing by SARS of such a statement does not result in an actual judgment in favour of SARS for the amount of tax, penalties and interest in question (but merely sets in train a process to enforce an assessment) it follows that it is not capable of rescission in the manner appropriate to a judgment.

For this reason, the court in Kadodia v CSARS should have dismissed the application for rescission on the ground that it was ill-founded in law and should not have applied the criteria appropriate to the rescission of a default judgment in the strict sense of the word as the basis for dismissing the taxpayer’s application.

 

Customs and Excise Act: Section 114
ITA: Sections 91 (repealed) and 92 (repealed)
TAA: Sections 172 – 174
VAT Act: Section 40

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