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[2011] ZAGPJHC 152
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Modibane v South African Revenue Service (09/9651) [2011] ZAGPJHC 152; 74 SATC 398 (20 October 2011)
REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
09/9651
DATE:20/10/2011
In the matter between:
JOSEPH
GADIFELE MODIBANE
Applicant
and
SOUTH
AFRICAN REVENUE SERVICE
Respondent
J U D G M E N T
TSOKA, J
:
[1] This is an application for
rescission of judgment obtained by the respondent, South African
Revenue Service (“
SARS
”),
on 5 March 2009. The application is opposed by SARS.
[2] The background facts that
gave rise to the application in this matter are as follows. On 13
August 2007, the Commissioner issued
an assessment for income tax,
interest and additional tax against the applicant. In terms of the
assessment, the applicant was
liable to SARS in an amount of R 22
million. This amount was not paid. On 17 January 2008 the applicant
lodged an objection to
the assessment. On 30 January 2008 the
Commissioner dismissed the objection. On 7 March 2008 the applicant
lodged an appeal to
the Tax Court against the disallowance of the
objection. This appeal is still pending. After several attempts
were made to discuss
the applicant’s tax liability, which
discussions were proving fruitless, on 5 March 2009, the
Commissioner, in terms of section
91 (1)(b) of Act 58 of 1962 (“
the
Act
”), obtained
judgment from the Registrar of this Court against the applicant. The
judgment was in the amount of R 25 million
inclusive of interest.
[3] On 18 November 2009, the applicant approached SARS to request
that the judgment be withdrawn as he stands to lose a substantial
tender should the judgment be allowed to stand. SARS refused to have
the judgment withdrawn against the applicant. On 16 March
2011, the
applicant launched the present application.
[4] At the hearing of the
application, the applicant, who appears in person, contends that the
application was rescinded on 3 May
2011 by Sutherland AJ with the
result that there is no longer any
lis
between the parties.
[5] The respondent averred and
argued that the order rescinding the judgment was recalled by
Sutherland AJ after the applicant was
duly notified and failed to
attend court when the order was recalled.
[6] At the time Sutherland AJ
rescinded the judgment of 5 March 2009, it appears that the
applicant, instead of serving the notice
of set down on SARS’
attorneys of record, served the notice on the State Attorney who did
not oppose the application for
rescission of judgment. It is my
understanding that it was on this basis that Sutherland AJ granted
the order rescinding the judgment.
When Sutherland AJ was apprised
of the full facts, he recalled his order after the applicant was duly
notified that the order
was to be challenged or recalled.
[7] The order of Sutherland AJ
recalling the earlier rescission of judgment stands. The recall was
effective. The judgment is
thus no longer rescinded and stands. The
rescission is the issue (
lis
)
between the parties. There being a
lis
between the parties, I requested the applicant to argue the
application for rescission of judgment. In the main, the applicant
argued that as there was at all material times, and still is, an
appeal pending in the assessment, it was wrong of SARS to proceed
to
obtain judgment against him. The applicant furnished the court with
a copy of a judgment in the matter between
Mr
Prepaid (Pty) Ltd v IDC
Case no 1956/2007 and 1956/2007 as confirmation that his tax
assessment by SARS for the relevant period was wrong.
[8] From the founding affidavits
the judgment of 5 March 2009 is attacked on three main grounds.
First, it is contended by the
applicant that his assessment by SARS
is incorrect as the applicant did not earn any moneys from his
company, Mr Prepaid (Pty)
Ltd. Secondly, the judgment is attacked on
procedural grounds. Thirdly, the applicant contends that it was
wrong of SARS to have
obtained judgment as the appeal on his
assessment was still pending.
[9] In terms of the Act, the
Commissioner issued an assessment setting out the amount of income
tax that was due by the taxpayer.
In terms of section 1, an
assessment is a determination by SARS of the amount of tax payable by
the taxpayer. In terms of section
89 of the Act, the amount of tax
set out in the assessment is payable by the taxpayer within the
period set out in the assessment.
In the present matter, the
applicant’s assessed tax, was due for the periods 2002 –
2005 and was payable on 31 September
2007.
[10] In terms of section 81 of
the Act, a taxpayer has a right to object to the assessment. If the
objection is disallowed, the
taxpayer is, in terms of section 83,
entitled to appeal against the assessment to the Tax Court.
[11] However, in terms of section
88(1) of the Act, prior to its amendment by the Taxation Laws
Amendment Act 18 of 2009, the obligation
to pay any tax and the
Commissioner’s right to receive and recover any tax under the
Act is not suspended by such an appeal.
The section then reads –
‘’
(1)
The –
(a) obligation to pay any tax chargeable under this Act shall not,
and
(b) the right to receive and recover any tax chargeable under this
Act, shall not, unless the Commissioner so directs,
be suspended by an appeal or
pending the decision of a court of law under section 86A, but if any
assessment is altered on appeal
or in conformity with any such
decision or a decision by the Commissioner to concede the appeal to
the tax board or the tax court
or that court of law, a due adjustment
shall be made, amounts paid in excess being refunded with interest a
the prescribed rate,
the interest being calculated from the date
proved to the satisfaction of the Commissioner to be the date on
which that excess
was received and amounts short-paid being
recoverable with interest calculated as proved in section 89
”.
[12] From the plain language of
section 88(1) it is clear that a taxpayer’s obligation to pay
tax and the Commissioner’s
right to receive and recover tax is
not suspended by an objection or appeal to the Tax Court, unless the
Commissioner directs that
such taxpayer’s obligation to pay tax
and its right to receive and recover tax is suspended. That such a
taxpayer’s
appeal would not be prejudiced by the Commissioner’s
right to receive and recover any tax in the meantime, is clear.
Should
the taxpayer’s appeal be upheld, such taxpayer has
nothing to lose as he is to be refunded the excess amount paid
together
with interest thereon.
[13] SARS’ right to recover
tax and execute against a taxpayer’s assets is provided for in
section 91 of the Act which
reads as follows –
“
(1)
(a)
Any tax or any interest payable in terms of section 89 (2) or 89
quat
shall, when such tax or interest becomes due or is payable, be deemed
to be a debt due to the State and shall be payable to the
Commissioner in the manner and at the place prescribed.
(b)
If
any person fails to pay any tax or any interest payable in terms of
section 89 (2) or 89
quat
when such tax or interest becomes due or is payable by him, 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 of the tax or interest 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 judgment
lawfully given in that court in favour of the Commissioner for a
liquid debt of the amount specified in the statement.
(b
A
)
The
Commissioner may by notice in writing addressed to the aforesaid
clerk or registrar, withdraw the statement referred to in
paragraph
(b)
and such statement shall thereupon cease to have any effect: Provided
that, in the circumstances contemplated in the said paragraph,
the
Commissioner may institute proceedings afresh under that paragraph in
respect of any tax or interest referred to in the withdrawn
statement.
”
[14] It seems to me somewhat
misleading to refer to the certified statement by the Commissioner
filed with the Registrar in terms
of section 91(1) of the Act, as
judgment. The Registrar is not granting any judgment or making any
pronouncement on the statement.
The statement merely has the effect
of a civil judgment as if it were indeed a civil judgment. The sole
purpose of the provisions
of Section 91, in my view, is to compel a
taxpayer to comply with his obligations to pay tax and to facilitate
the Commissioner’s
right to receive and recover such tax that
is due and payable.
[15] In the unreported judgment
of
Capstone 556 (Pty)
Ltd v Commissioner, SARS and Another
[2011] ZAWCHC 297
, delivered on 22 June 2011, the Court in paragraph
[375] said the following –
“
Although
a statement filed by the Commissioner in terms of section 91(1)(b)
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
”
[16] I agree with the observation
made in
Capstone 556
that the certified statement by the Commissioner in terms of section
91(1) of the Act is not a judgment in the ordinary sense of
the word.
If the statement is a judgment, I fail to see how the said judgment
could, in terms of section 91(1) (bA), be unilaterally
withdrawn by
the Commissioner and again the Commissioner be at liberty to
institute proceedings afresh based on the said withdrawn
statement.
[17] It seems to me that the
provisions of section 91(1) of the Act are enforcement and recovery
mechanisms enabling SARS to carry
its obligation in terms of the Act,
that is, to receive and recover any tax owed to it by a taxpayer and,
if necessary, to execute
on the certified statement which has all the
consequences of a civil judgment. In
Singh
v Commissioner, South African Revenue Service
2003 (4) SA 520
SCA at 527A, the Court pointed out that there is no
court process that initiates the claim for enforcement of the debt,
no service
on the debtor is required and that there is not even a
scope for opposition or hearing of sorts to resolve disputes. See
also
Metcash
at 1137H.
[18] In my view, no judgment in
the ordinary sense of the word was granted by the Registrar on 5
March 2009. There is consequently
no judgment that is susceptible
for rescission, either in terms of the rules or the common law
particularly having regard to the
provisions of section 92 which
reads –
“
It
shall not be competent for any person in any proceedings in
connection with any statement filed in terms of
paragraph
(
b
)
of
subsection
(1)
of
section
ninety-one
to question the correctness of any assessment on which such statement
is based, notwithstanding that objection and appeal may have
been
lodged thereto
.”
[19] That, in my view, disposes
of the issue. There is no judgment to be rescinded by this court.
In the event that the conclusion
I have reached as aforesaid is
incorrect, then I deal with the matter as set out below.
[20] In the event that the
Registrar granted judgment on 5 May 2009, in the ordinary sense of
the word and as understood by the
applicant, and which judgment is
susceptible to rescission, then the applicant must show sufficient
cause why the said judgment
should be rescinded.
[21] In
Chetty
v Law Society of Transvaal
1985
(2) SA 756
(AD), the court pointed out that ‘sufficient cause’
(or ‘good cause’) defies precise definition. The court
went further to state that the long-standing practice of our courts
has established that ‘sufficient cause ‘…comprises
of two essential elements, namely that (a) the party seeking relief
must present a reasonable and acceptable explanation for his
default
and (b) that on the merits such party has a bona fide defence which
prima facie, carries some prospect of success. These
elements must
be met by a party seeking to rescind a judgment granted in his
absence.
Wilful Default
[22
] The
applicant does not complain about not receiving a notification of his
tax assessment. His complaint is that after the judgment
was
obtained it was not properly served on him as a different address to
the one reflected in the judgement was used. Furthermore,
the
applicant complained that the judgment was not served by registered
mail.
[2
3] In
the affidavit the applicant does not state that he did not know that
the judgment was obtained. Neither does he state what
prejudice was
caused to him by the non-receipt of the judgment after same was
granted by the Registrar. What is clear is that
the applicant was
aware of his tax assessment as early as September 2007. By this time
the applicant engaged the services of Price
Waterhouse Coopers
(“
PWC
”)
who indicated to the Commissioner that he intends to object to the
assessment. The objection was only filed by PWC on
behalf of the
applicant on 17 January 2008. The objection was disallowed by the
Commissioner on 30 January 2008. On 12 February
2008 PWC advised the
Commissioner that an appeal would be lodged. How then could the
applicant have taken these steps if he had
not received the
assessment? The unequivocal answer is that the applicant reacted to
the assessment precisely because he received
the assessment.
[24
] Did
the applicant receive the judgment? The applicant was without doubt
aware of the judgment, otherwise PWC would not have notified
the
Commissioner that an appeal would be lodged against the assessment.
[25
] Several
attempts were made to contact the applicant on his cellphone number
and through PWC but the applicant refused to engage
SARS to
fruitfully resolve his obligation to pay tax. On 2 March 2008, PWC
informed SARS that they no longer represented the applicant
and that
they too had difficulty in contacting the appellant who by that time
owed PWC some fees. As a result of applicant’s
recalcitrant
attitude and his failure to co-operate in this matter, the
Commissioner on 5 March 2009 filed the certified statement
in terms
of section 91 of the Act. Upon the judgment having been entered
against the applicant same was delivered at his residence.
[26
] In
the result I find that the applicant was in wilful default.
Bona Fide Defence
[
27] The
gravamen of applicant’s defence is that he lodged an appeal and
as the appeal is still pending, SARS was not entitled
to obtain
judgment against him on 5 March 2009.
[28] The provisions of section
91(1)(b) of the Act are clear. Notwithstanding that an objection and
appeal have been lodged,
the
Commissioner
is
entitled to obtain judgement against the applicant who is not without
remedy should his appeal succeed. In terms of section
88 of the Act,
should the applicant succeed with his objection or appeal, he would
be refunded what he has paid to SARS together
with interest.
[29] The applicant seems to rely
on the judgment of Spilg J in
Mokoena
v Commissioner, South African Revenue Service
2011 (2) SA 556
(GSJ) wherein the court in paragraph [16] of the
judgment said the following –
[16] It
is self-evidently incompetent, having regard to the rights of
objection and appeal, to obtain judgment in the interim. It
is
inconsistent with the framework of the Act and its provisions, eg the
express right to collect tax despite an objection and
appeal would be
unnecessary if judgment could be obtained in the interim. See also
Metcash
in para 58, as well as the general principles regarding a right of
hearing and access to courts (again
Metcash
in para 58), and the safeguards that objection and appeal provide
within the context of the administrative exercise of the
Commissioner's
powers.
’
[30] In terms of section 88(1) of
the Act, the obligation to pay tax and the right to receive and
recover tax is not suspended by
any appeal or any pending decision of
the appeal court in terms of section 86A of the Act. A tax payer’s
obligation and
the
Commissioner’s
right to receive and recover tax from any taxpayer may only be
suspended if directed so by the Commissioner. This has given rise
to
the ‘pay now, argue later’ principle which has become
established in our law.
[31] In
Singh
v Commissioner, South African Revenue Service
2003 (4) SA 520
(SCA), the Supreme Court of Appeal dealing with the
provisions of section 40 of the Value Added Tax Act 89 of 1991, which
provisions
are identical to the provisions of section 92 of the Act,
at 524H – the Court said the following –
“
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 jurisdictional element is that the tax must be payable before the
Commissioner can invoke the procedure for which
the section provides.
When that element exists the Commissioner can rely on ss(5) and
recover an amount which he certifies as
(already) due or payable,
despite the fact
that an objection has been lodged or an appeal may be pending
.”
[32] In
Metcash
Trading Ltd v Commissioner, South African Revenue Service and Another
2001 (1) SA 1109
(CC) the Constitutional Court, in approving the ‘pay
now and argue later’ principle, in the context of VAT, the
provisions
of which are in substance identical to the relevant
provisions of the Act, in paragraphs [60] and [61] of the judgment
said –
“
[60]
In considering justification it is important to remember that the
limitation under s 40(5) is limited in its scope, temporary
and
subject to judicial review. There are three additional features.
First, the public interest in obtaining full and speedy settlement
of
tax debts in the overall context of the Act is significant. In their
affidavits the Commissioner and the Minister mentioned
a number of
public policy considerations in favour of a general system whereby
taxpayers are granted no leeway to defer payment
of their taxes.
These are in any event well-known and self-evident. Ensuring prompt
payment by vendors of amounts assessed to be
due by them is clearly
an important public purpose. As stated earlier, the scheme of VAT
instituted by the Act is a complex one
which relies for its efficacy
on self-regulation by registered vendors and regular periodic
payments of VAT. Requiring them to
pay on assessment prior to
disputing their liability is an essential part of this scheme. It
reduces the number of frivolous objections
and ensures that the
fiscus is not prejudiced by the delay in obtaining finality. Section
40(5)
[Section
91(1) of the Act – my emphasis]
plays an important role in this scheme. In order for a 'pay now,
argue later' scheme to work, it is necessary that the Commissioner
is
able to obtain execution against a taxpayer without having first to
air the subject-matter of the objection which will be adjudicated
upon by the Special Court in due course. There is therefore a close
connection between the overall purpose of the 'pay now, argue
later'
rule and the effect of s 40(5).
[Section
91(1) of the Act – my emphasis]
[61]
Secondly, the principle 'pay now, argue later' is one which is
adopted in many open and democratic societies. In many
of these
jurisdictions, as well, some scheme for immediate execution against a
taxpayer is provided to ensure that the rule is
efficacious. Given
its prevalence in many other jurisdictions, it suggests that the
principle is one which is accepted as reasonable
in open and
democratic societies based on freedom, dignity and equality as
required by s 36.
”
[33] In
Commissioner,
South African Revenue Service v Hawker Air Services (Pty) Ltd
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) in paragraph [17] of its judgment, the Court
said –
[17] The
argument that the 'pay now, argue later' rule, the constitutionality
of which was established by
Metcash
Trading Ltd v Commissioner, South African Revenue Service, and
Another
,
applies only where the Commissioner takes a statutory 'judgment', and
not to an application for liquidation, is unsustainable.
Once the
Commissioner is a creditor, he is entitled to whatever remedy a
creditor may have for the enforcement or collection of
the debt.
”
[34] In
Capstone
556
in paragraph [36] the court said the following –
‘
[
36]
However, as evident from the passage from para 16 of the judgment
referred to earlier,
in
the course of giving judgment Spilg J held it to be incompetent for
the Commissioner to file a statement in terms of s 91(1 )(b)
of the
IT Act when there was an undetermined appeal by the taxpayer in terms
of s 83 of the Act still pending before the tax court.
If the
judgment is sound in this respect the applicant would undoubtedly be
entitled, in the face of the threats by the Commissioner
to make use
of s91(1)(b) against it, to a prohibitory interdict pending the
determination of its appeal. However, with respect
to the learned
judge. I find myself unable to agree with the statements at para 16
of
Mokoena.
In
my judgment Spilg J s view that the Commissioner cannot have resort
to s 91(1)(b) when an appeal is pending is not supported
by a proper
construction of the pertinent provisions of the statute, or by
relevant precedential authority.
’
[35] Like
the court in
Capstone
556
,
I am unable to agree with my learned brother Spilg J in
Mokoena
.
Section 91(1)(b) of the Act entitles the Commissioner to exact
payment from a taxpayer pending an appeal. The previous judgments
referred to above all allude to and confirm the competency of the
Commissioner to exact payment of tax pending an appeal.
[36] In my
view, Spilg J in
Mokoena
is not supported by the provisions of the Act and the
dicta
of
both the Supreme and Constitutional Courts. The judgment, in my
view, is clearly wrong. The applicant’s contention that
the
Commissioner is incompetent to obtain judgment is without merit. It
is rejected.
[37] In the
circumstances the application deserves to be dismissed.
[38] The
respondent argues for costs of two counsel. The applicant did not
argue otherwise. There is no reason why such an order
for costs
should not be made.
[39] In the
result the application is dismissed with costs which costs include
costs consequent upon the engagement of two counsel.
_____________________________
M TSOKA
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
APPLICANT APPEARED IN PERSON
COUNSEL
FOR RESPONDENT : GILBERT MARCUS SC
STEVEN BUDLENDER
INSTRUCTED
BY : EDELSTEIN-BOSMAN INC