Tax Admistration Act – Jurisdiction of the courts

When litigating against SARS, it is of critical importance that the taxpayer institute proceedings in the proper forum. In this regard, an important question arises as to which issues are justiciable in the Tax Court and which in the High Court. A wrong decision by the taxpayer and his advisers may have the consequence that time limits to bring proceedings in the correct court have expired, and that the taxpayer is left without a remedy.

There have recently been two significant judicial decisions in this regard, which are discussed below.

Currently, the relevant provisions of the Tax Administration Act, No. 28 of 2011 which came into effect (except for a few provisions relating to interest) on 1 October 2011 must be borne in mind.

Also significant is the Promotion of Administrative Justice Act, No. 3 of 2000 (PAJA) which creates a right to apply to the High Court for the judicial review of any decision of an administrative nature that satisfies the criteria for reviewability laid down in that Act.

Thus, decisions of the Commissioner for the South African Revenue Service or his officers, (which includes a failure to make a decision) or conduct on their part that adversely affect the
rights of a taxpayer can be taken on judicial review, and the High Court has the power to set the decision or conduct aside.

The High Court decision in MTN v CSARS
The most recent judgment in regard to the boundaries between the jurisdiction of the Tax Court and that of the High Court was that of the North Gauteng High Court in MTN International (Mauritius) Ltd v CSARS [2013] 75 SATC 171 which was delivered on 31 January 2013.

In this case, the taxpayer, a company that was registered in Mauritius and was a subsidiary of MTN Group Ltd, a company listed on the Johannesburg Securities Exchange, applied in terms of section 6 of PAJA for the review of alleged procedural defects in the actions of SARS in issuing an additional tax assessment in terms of section 79 of the Income Tax Act, No. 58 of 1962 (the Act).

In the application, the taxpayer sought an order setting aside additional tax assessment for particular years of assessment. The taxpayer simultaneously instituted proceedings in the Tax Court to contest the merits of the additional assessments.

The High Court proceedings raised the issue (see para [19]) of the judgment) whether “due process” had been followed by SARS in issuing the additional assessments in question.

SARS argued that, in terms of section 94 of the Act, the production of a document issued by the Commissioner that purports to be an extract from a notice of assessment is “conclusive evidence of the making of such assessment” and that the validity of the assessment could therefore not be challenged.

At issue was whether the High Court had jurisdiction to determine the validity of the assessment in question.

The Constitutional Court decision in Metcash
In Metcash Trading Ltd v Commissioner, South African Revenue Service [2001] 63 SATC 13 (CC) Kriegler J, giving the judgment of Constitutional Court, said that –

[44] Indeed, it has for many years been settled law that the Supreme Court has jurisdiction to hear and determine income tax cases turning on legal issues. Thus in Friedman and Others NNO v Commissioner for Inland Revenue: In re Phillip Frame Will Trust v Commissioner for Inland Revenue McCreath J . . . concluded as follows as to his competence to determine the case:

‘I am in agreement with the finding of the Court in that case that where the dispute involved no question of fact and is simply one of law the Commissioner and the Special Court are not the only competent authorities to decide the issue – at any rate when a declaratory order such as that in the present case is being sought.’

This principle had been applied in more recent decisions in relation to VAT, and it was therefore competent for the High Court to hear applications for interlocutory relief.

Of course, if a taxpayer is entitled to institute proceedings for relief in the High Court, he escapes the strictures of the tight time limits imposed by tax legislation (now consolidated into the Tax Administration Act) for objection and appeal.

In the present case, the taxpayer sought to impugn the validity of the additional assessments in terms of PAJA on the grounds (see para [32] of the judgment) that SARS had acted mala fide in issuing the additional assessment and that the assessment was consequently invalid.

Thlapi J held (at para [32] of the judgment) that he was unable, in the present High Court proceedings, to determine the alleged mala fides of SARS in this regard because this would involve examining whether SARS had satisfied itself that it was, in the circumstances, proper to raise the additional assessment, and that this was an issue that had to be decided by the Tax Court. He therefore dismissed with costs the taxpayer’s application to the High Court, in terms of PAJA, to impugn the validity of the assessment.

The High Court decision in Rossi
The second significant decision (only recently reported in the South African Tax Cases, although the judgment itself was handed down on 22 February 2011) is that of the South Gauteng High Court in Rossi v Commissioner for South African Revenue Service [2012] 8 SATC 387.

The decision in this case was based solely on the issue of jurisdiction.

One of the issues in this case was whether the Tax Court has jurisdiction to adjudicate applications under section 102 of the Act which provides for taxpayers to be refunded amounts paid in excess of what was properly chargeable under the Act. The ancillary question was whether a taxpayer who has failed to follow the remedies set out in the Act can avail himself of an additional and alternative forum, namely the High Court, on the basis that this court exercises concurrent jurisdiction with the Tax Court.

Giving judgment, Satchwell J expressed agreement with the decision in van Zyl NO v The Master [1986] 49 SATC 165 in which it was held that the only way in which an assessment can be contested is in the manner provided for in the Act (and now provided for in the Tax Administration Act) by lodging an objection and then, if the objection is turned down, appealing to the Tax Court in terms of section 83 of the Act.

In the present case, the taxpayer had disputed the very existence of a valid assessment. The court held that the only way in which the taxpayer could dispute this point was by challenging the assessment in the Tax Court.

Satchwell J pointed out that the benefits to the taxpayer of a specialised tax court had been articulated by the Constitutional Court in the Metcash decision (Metcash Trading Ltd v Commissioner, South African Revenue Services [2001] 63 SATC 13 (CC) in which the court had referred to the Tax Court as a specialist tribunal that was “specifically tooled to deal with disputed taxes”. Satchwell J said that the motion court of the High Court was not a court that was specifically equipped to deal with disputed tax cases.

In any event, said Satchwell J, the order sought by the taxpayer in the present matter was a final order, and the Constitutional Court had held in Metcash that the High Court could only give relief of an interlocutory nature. Moreover, where the High Court did have jurisdiction to adjudicate in income tax matters, this was in respect of legal issues and disputes of fact had to be decided by the Tax Court.

Satchwell J emphatically refuted the proposition that a taxpayer who has failed to follow the remedies set out in the Act can have recourse to an additional and alternative forum, namely the High Court, on the basis that the latter court exercises concurrent jurisdiction with the Tax Court.

The provisions of the Tax Administration Act
Significantly, the Tax Administration Act now provides in section 105 that –

“A taxpayer may not dispute an assessment or ‘decision’ as described in section 104 in any court or other proceedings, except in proceedings under this Chapter [that is to say, by way of objection and appeal or the other forms of dispute resolution provided for in Chapter 9 of the Tax Administration Act] or by application to the High Court for review.”

The intent of this provision seems to be to ensure that a bright line is drawn between contesting an assessment on the merits – that is to say, whether the assessment correctly reflects the amount of tax due – and a constitutional attack (which includes an attack in terms of PAJA, which is itself constitutional legislation) on the fairness or rationality of the process by which the assessment was arrived at.

Section 104 provides, in effect, that an assessment can be contested on the merits only in the Tax Court, and that proceedings can be brought in the High Court only to contest the validity of the process whereby the assessment was made as distinct from the merits.

ITA: Sections 79, 83, 94 and 102
TAA: Sections 104 and 105
PAJA: Section 6