The Decision in KwaZulu-Natal High Court in Kadodia v CSARS

The judgment of the KwaZulu-Natal High Court in the case of Kadodia v CSARS, which was delivered on 5 April 2013.

The facts were that the taxpayer, Kadodia, a businessman engaged in the importation of tobacco products and cigarettes into South Africa, was informed by SARS that there had been an underpayment of value-added tax and customs duty amounting to some R171 000. Through his attorney, Kadodia admitted that he had contravened the Customs and Excise Act and proposed that the goods in question either be sold to offset the amounts claimed or be released to him for sale in order to raise the necessary proceeds to pay the tax debt to SARS. 

Not surprisingly, SARS rejected these proposals. 

SARS filed a statement with the registrar of the High Court After the matter had lain dormant for some years, SARS sent a final demand to the taxpayer for payment of the outstanding VAT, duties and penalties. After another extended period of dormancy, SARS exercised its powers in terms of section 114(1)(a) of the Customs and Excise Act to file a statement with the registrar of the High Court, which then has the effect of a civil judgment. The provision in question reads as follows –

‘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 taxpayer applied for rescission of the judgment

The taxpayer brought an application for rescission of the judgment, not in terms of the Uniform Rules of Court, but in terms of the common law. The court applied the usual criteria for determining whether an applicant is entitled to rescission of a judgment and held that, in view of  his admission of liability, the taxpayer had failed to show that he had a bona fide defence to SARS’s claim that had some prospect of success.

The application for rescission of the judgment was dismissed with costs.

Was the “judgment” in question open to “rescission”? 

There can be no doubt that the order made by the court, dismissing the application for rescission, was correct. But were the reasons for the order, as given in the judgment, correct? Arguably, they were not, on the basis that the so-called “judgment” whose rescission was in issue, was not a judgment in the true sense of the word at all, and consequently was not capable of being “rescinded” in the manner and by the process applicable to a judgment in the technical sense of the word.

In Capstone 556 (Pty) Ltd v CSARS [2011] ZAWCHC 297 at paras 37-30 ( a judgment not referred to by the court) Binns-Ward J, referring to the similar provisions of section 91(1)(b) of the Income Tax Act which made provision for the filing of a statement with the clerk or registrar of the court said –

‘Although a statement filed by the Commissioner in terms of s 91(1)(b) has all the effects (ie 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. … the filing of a statement in terms of s 91(1)(b) is nothing more than an enforcement mechanism, as distinct from a means of determining liability …’

If Binns-Ward J was correct in his analysis, it follows that, whatever remedy was available to the aggrieved taxpayer in the Kadodia case, it was not an application for rescission, for if the effect of the filing of the statement was not the coming into existence of a judgment, then an application for rescission was not the appropriate procedure for setting it aside. It has to be acknowledged that the interpretation adopted by Binns-Ward is squarely at odds with dicta in the Appellate Division in Kruger v Sekretaris van Binnelandse Inkomste 1973 (1) SA 394 (A) which held that the filing of a s 91(1)(b) statement results in a judgment in the proper and technical sense of that word.

The Tax Administration Act

The Tax Administration Act 28 of 2011 came into effect on 1 October 2012 but it does not apply to the Customs and Excise Act, nor does it provide a resolution to the disputed status of the “judgment” that can be secured by SARS by filing a statement with the clerk or registrar of a court.

The Tax Administration Act provides in section 172(1) that –

‘If a person fails to pay tax when it is payable, SARS may, after giving the person at least 10 business days notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct.’

The Act then goes on to provide in section 174 that –

‘A certified statement filed under section 172 must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement.’