Supreme court of appeal considers imprisonment for fraudulent VAT claims

court image 1By Esther van Schalkwyk (BDO South Africa)

The Supreme Court of Appeal (SCA) recently handed down judgment in Grundling v The State and gave a prison sentence due to contraventions of the Value-Added Tax (VAT) Act. The appellant, Ms Grundling, was sentenced to 10 years in prison by the Pretoria Regional Magistrate’s Court, after pleading guilty to 30 counts of contravening the VAT Act. On appeal to the High Court, her sentence was reduced to 8 years. Her appeal to the SCA concerned the suitability of the sentence.

The VAT Act criminalises contraventions of that act; in particular, where the appellant signed a statement or return ‘without reasonable grounds for believing the same to be true’. As a result, the appellant was guilty of an offence and liable to a fine or imprisonment for a period not exceeding 60 months. These provisions have since been repealed and are now contained in the Tax Administration Act.

The appellant and her late husband were the only two members of two close corporations, both registered as VAT vendors. In 2010 the couple was arrested for submitting false VAT returns between April 2006 and July 2008. During the arrest, the appellant’s husband shot and killed himself.

The appellant made it clear that her husband was responsible for the operational activities of the business and that she assisted only with administration. The husband completed monthly VAT returns and she signed them. In doing so she could have foreseen that the invoices and information were false and had no reasonable grounds for believing the entries to be true. Of the R33 371 375 falsely claimed as VAT refunds, R27 068 197 was paid out to the appellant and her husband. After SARS uncovered the scheme, the balance of R6 603 177 was withheld.

At the trial, a forensic criminologist recommended that the appellant receive a non-custodial sentence as the appellant was a 65-year-old former teacher, a first offender, and capable of rehabilitation. She was a submissive and obedient wife and her husband was domineering and aggressive. She showed remorse by pleading guilty and genuinely appeared to have the intention of not wanting to transgress the law again. A report was submitted which regarded the appellant as suitable for correctional supervision.

The SCA found the Regional Court’s 10-year prison sentence ‘shockingly inappropriate’ given the mitigating circumstances and the statutory prescribed maximum sentence of 60 months. The SCA also found the High Court’s 8-year sentence ‘shockingly out of kilter with the nature of the offences’.

The SCA noted that, although the appellant benefitted from her late husband’s claiming of VAT refunds (which they were not entitled to), it could not be demonstrated that she benefitted equally. The appellant did, however, not disclose what happened to the unaccounted money, which the SCA regarded as an aggravating factor in handing down sentence. It could not be shown that the appellant concealed assets acquired with the refunds and she earned her living by selling pickles and jam to supplement her R5 000 per month pension.

Although the appellant did not pose a threat to society, the SCA held that a non-custodial sentence would dilute the seriousness of the offence and disregard the impact of the actual loss to the state. To reflect the seriousness of the crimes committed and taking mitigating factors into account, the SCA imposed a 3-year prison sentence.