The Tax Administration Act No. 28 of 2011 (TAA) came into effect on 1 October 2012 (save for certain provisions that are still to come into force). This important piece of legislation seeks to incorporate into one Act all those administrative provisions (except for customs and excise) that are generic to all tax Acts and that were previously duplicated across all the different tax Acts. Significantly, the TAA provides the South African Revenue Service (SARS) with substantial powers in relation to important administrative aspects of tax, such as the collection of information and the imposition and recovery of tax.
However, due to the relatively recent enactment of the TAA, there is not a vast amount of case law providing guidance as to the manner in which many of the provisions should be interpreted, and thus the exact scope of SARS’ powers under the TAA.
In the recent case of Commissioner for the South African Revenue Services v Miles Plant Hire (Pty) Ltd [2014] 76 SATC 1 (“Miles Plant Hire”), the North Gauteng Division of the High Court was required to decide on a question of law concerning the interpretation of section 177(3) of the TAA.
Section 177 of the TAA
Section 177 of the TAA grants SARS the power to institute sequestration, liquidation or winding-up proceedings in order to recover a tax debt. Specifically, section 177 states the following:
“(1) SARS may institute proceedings for the sequestration, liquidation or winding-up of a person for an outstanding tax debt.
(2) SARS may institute the proceedings whether or not the person –
- is present in the Republic; or
- has assets in the Republic.
(3) If the tax debt is subject to an objection or appeal under Chapter 9 or a further appeal against a decision by the tax court under section 129, the proceedings may only be instituted with leave of the court before which the proceedings are brought.”
In Miles Plant Hire, it was undisputed that section 177(3) of the TAA confers a discretion on the court, where there is a pending tax dispute, to permit a tax debt due to be recovered in sequestration, liquidation or winding-up proceedings. What was in issue, and what the court was required to decide, was when such discretion must be exercised. The taxpayer argued that section 177(3) involved a “two-step” process i.e.: SARS first has to apply to the court to obtain permission to institute sequestration, liquidation and winding-up proceedings. If leave to institute the proceedings requested is granted, SARS is thereafter required to prepare a further application to actually institute sequestration, liquidation and winding-up proceedings and bring the application before a different judge.
Principles of interpretation to be applied
The court began by setting out the principles of interpretation to be applied, which it stated were recently affirmed by the Supreme Court of Appeal in Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] (4) SA 593 (SCA), where Wallis J held the following:
“[18]…The present state of the law can be expressed as follows. Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document…The ‘inevitable point of departure is the language of the provision itself’, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document…
[25] Which of the interpretational factors I have mentioned will predominate in any given situation varies. Sometimes the language of the provision, when read in its particular context, seems clear and admits of little if any ambiguity. Courts say in such cases that they adhere to the ordinary grammatical meaning of the words used. However that too is a misnomer. It is a product of a time when language was viewed differently and regarded as likely to have a fixed and definite meaning, a view that the experience of lawyers down the years, as well as the study of linguistics, has shown to be mistaken. Most words can bear several different meanings or shades of meaning and to try to ascertain their meaning in the abstract, divorced from the broad context of their use, is an unhelpful exercise. The expression can mean no more than that, when the provision is read in context, that is the appropriate meaning to give to the language used. At the other extreme, where the context makes it plain that adhering to the meaning suggested by apparently plain language would lead to glaring absurdity, the court will ascribe a meaning to the language that avoids the absurdity. This is said to involve a departure from the plain meaning of the words used. More accurately it is either a restriction or extension of the language used by the adoption of a narrow or broad meaning of the words, the selection of a less immediately apparent meaning or sometimes the correction of an apparent error in the language in order to avoid the identified absurdity.
[26] In between these two extremes, in most cases the court is faced with two or more possible meanings that are to a greater or lesser degree available on the language used. Here it is usually said that the language is ambiguous although the only ambiguity lies in selecting the proper meaning (on which views may legitimately differ). In resolving the problem the apparent purpose of the provision and the context in which it occurs will be important guides to the correct interpretation. An interpretation will not be given that leads to impractical, unbusinesslike or oppressive consequences or that will stultify the broader operation of the legislation or contract under consideration.”
Application of principles of interpretation
The court in Miles Plant Hire considered the meaning of section 177(3) of the TAA by way of application of the principles set out above.
Language of section 177(3)
In this regard, the court first considered the language of the subsection. The court found that, based on the ordinary meaning of the wording to “institute” a proceeding, section 177(3) precludes a court, when sequestration, liquidation or winding-up is sought in the face of a pending objection or appeal, from exercising its discretion in relation to the merits of the application to institute sequestration, liquidation or winding-up proceedings unless and until all of the facts and circumstances relevant to the pending tax appeal are considered. The court stated that this does not require the court to determine the appeal, rather to consider the grounds of appeal and whether they might reasonably disclose any merit. The court also noted that the term “proceedings” referred to in section 177(3) can only mean the sequestration, liquidation or winding-up proceedings referred to in section 177(1) of the TAA. Furthermore, the court held that the tense employed by the subsection (“with leave of the court before which the proceedings are brought”) indicates that it is the court before which the proceedings serve that is enjoined to grant or refuse leave, not a court before which at some future date the proceedings are to be brought.
Context and purpose of section 177(3) and potential consequences of different interpretations
The court noted that section 177(3) of the TAA is located in Chapter 11 of that Act, headed “Recovery of tax” and that, more specifically, Part C of Chapter 11 empowers SARS, as one of the means available to it to recover a tax debt, to institute sequestration, liquidation or winding-up proceedings. In this regard, the court noted that section 164 of the TAA sets out the so-called “pay now argue later” rule, i.e.: that a taxpayer’s obligation to pay tax, as well as the right of SARS to receive and recover tax, is not suspended by an objection or appeal or pending the decision of a court of law pursuant to an appeal under section 133 of the TAA.
The court held that if section 177(3) of the TAA was interpreted as a “two-step” process it would lead to an absurd result, where the discretion exercised in the first application potentially fetters the court before which the subsequent, substantive application is served. In this regard, the court firmly stated that “discretion is best exercised once, with full knowledge of all the relevant facts and circumstances”.
Court’s interpretation of section 177(3)
In light of the above, the court concluded that, in its view, the term “the proceedings may only be instituted with the leave of the Court before which the proceedings are brought” means that the disputed tax debt is not recoverable under the “pay now, argue later” rule during winding-up proceedings, unless the court before which those proceedings serve, permits it. In this regard, the court noted that such an interpretation affirms the court’s inherent discretion in winding-up proceedings, and empowers the court to evaluate all of the appropriate facts and circumstances (including the merits of any objection and pending appeal), and to make an appropriate order.
Conclusion
Miles Plant Hire is an important and instructive case, as it sets out the principles of interpretation relevant to the interpretation of the TAA and provides an example of how those principles of interpretation should be applied, specifically in the context of Chapter 11, which governs SARS’ powers to recover tax. This is especially helpful in light of the current lack of case law on many provisions of the TAA.
ENSafrica
TAA: Sections 129, 133, 164, 177