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[2016] ZAGPJHC 144
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Commissioner for the South African Revenue Service v Afri-Guard (Pty) Ltd (A5017/15, VAT 1132) [2016] ZAGPJHC 144 (27 May 2016)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
APPEAL CASE NO : A5017/15
TAX COURT CASE NO : VAT 1132
DATE: 27 MAY 2016
In the matter between:
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE
SERVICE
...........................................................................................
Appellant
And
AFRI-GUARD (PTY)
LTD
...................................................................................................
Respondent
J U D G M E N T
KEIGHTLEY, J
:
INTRODUCTION
[1] This is an appeal from a judgment of the Tax Court, Johannesburg
in terms of section 133(2)(a) of the Tax Administration Act
28 of
2011 (“the TAA”).
[2] The appellant is the Commissioner for the South African Revenue
Service (“SARS”), and the respondent is Afri-Guard
(Pty)
Ltd, a VAT vendor under the Value Added Tax Act 89 of 1991 (“the
VAT Act”).
[3] The dispute between the parties arises out of the imposition by
SARS of additional tax at the rate 200% against the respondent
in
terms of section 60(1) of the VAT Act. This section permits
SARS to raise additional tax in circumstances involving tax
evasion.
It reads as follows, in relevant part:
“
Where any
vendor
or
any
person under the control or acting on behalf of the vendor
fails to perform any duty imposed upon him by (the VAT Act), or does
or omits to do anything,
with intent
-
(a)
to
evade the payment
of any amount of tax
payable by him; or
(b)
…
,
such vendor shall be chargeable with additional tax
not
exceeding an amount equal to double the amount of tax
referred to in paragraph (a) … .
” (emphasis added)
[4] Although the VAT Act has been repealed by the TAA, the parties
are agreed that in terms of the transitional provisions of the
latter
Act, section 60(1) still finds application for purposes of this
dispute. There is less consensus between the parties
regarding
other consequences of that repeal, particularly regarding the
question of the onus in appeals to the Tax Court.
I will revert
to this issue later.
[5] The respondent objected to the imposition of the additional tax,
resulting in the appeal to the court
a quo
. In that
court, Wepener J upheld the respondent’s appeal. He
ordered that:
“
The additional tax imposed upon the Appellant is set
aside. The assessment is referred back to the Commissioner and
it is
directed that the additional tax be remitted to nil.
”
[6] I will deal later with the findings of the court
a quo
that led to this order. Before doing so, it is necessary to set
out a summary of the relevant history of the dispute.
HISTORY OF THE DISPUTE
[7] Following an audit conducted by SARS into the tax affairs of the
respondent, it issued assessments during 2012. The assessment
covered, among other things, respondent’s VAT obligations for
the period from February 2007 to February 2011.
[8] In terms of the assessments, respondent was found to be liable
for amounts due for adjustments made in respect of output VAT
under
declared, input VAT denied, and input VAT overstated. The
present dispute concerns the assessment in respect of the
latter
liability. Additional tax at the rate of 200% was also imposed.
[9] The assessment process commenced in April 2012, when SARS
provided its first letter of audit findings to the respondent.
The respondent was invited to respond and did so. This resulted
in an exchange of correspondence and meetings between the
parties.
[10] This process culminated in a revised assessment by SARS, which
was communicated to the respondent in an assessment letter
dated 24
July 2012. As regards the issue of respondent’s
overstatement of input VAT, this assessment letter recorded
that:
[10.1] The respondent had been requested to provide explanations in
respect of differences in the reconciliations between the input
VAT
control account and the input VAT declared in the VAT 201 returns for
the period March 2009 to February 2011.
[10.2] The respondent had explained that it had been referred to and
had entered into an agreement in respect of labour hire with
an
entity called Zingaro Trade (“Zingaro”). In terms
of this agreement, Zingaro would be entitled to a commission
from the
respondent for the provision of labour services. Zingaro issued
monthly invoices to the respondent in respect of
labour hire,
commission and VAT. The respondent paid the labour hire portion
to its own employees, whereas payment of the
commission and VAT was
paid to Zingaro.
[10.3] SARS had requested the respondent to provide copies of all of
the invoices from Zingaro, and to provide proof of payment,
but
respondent had failed to do so.
[10.4] SARS had found that respondent had showed intentional
disregard of the law by not providing the invoices and proof of
payments
requested. Although it had provided 2 invoices, these
were “materially flawed”. This was the basis on
which
the additional tax of 200% was imposed.
[11] The respondent filed an objection to this assessment, supported
by a letter from one Mr Strydom, the respondent’s auditor,
setting out the respondent’s grounds of objection. As far
as the overstatement of input VAT was concerned, the objection
letter
recorded that:
“
We hold the necessary tax invoices supplied to us by the
relevant registered VAT vendor and now gladly supply all to you.
All these invoices comply with the requirements of section 20 for
valid Tax Invoices
and we do not accept your finding that
we failed to provide sufficient proof of the input tax claimed nor do
we have any reason
to believe that implied adjustment can be made for
the previous years.
” (emphasis added)
[12] The letter went on to explain how the business agreement with
Zingaro Trade worked. It addressed the issue of the additional
tax imposed. In this regard, the respondent denied that it had
intended to evade tax or obtain an improper refund.
It stated
that “
the mistakes were made in the normal course of
business and bona vide
(sic)”.
[13] It is also relevant to record that the respondent provided SARS
with a document from Zingaro purporting to confirm the business
relationship between the entities and the terms thereof.
[14] When SARS denied the objection, the respondent filed a Notice of
Appeal. This was on 11 March 2013.
[15] The grounds of appeal were set out in an accompanying letter
signed by a tax practitioner. This letter made it clear
that
the respondent was no longer disputing the capital amounts owing in
terms of the assessment. As regards the input VAT
overstatement
is concerned, the grounds of appeal extracted from the letter
indicate that:
[15.1] the respondent continued to dispute that it had the intention
to evade the payment of tax;
[15.2] the directors had been under the impression that Mr Strydom
had handled all of their tax affairs;
[15.3] they did not have tax and accounting experience and so they
had trusted Mr Strydom’s judgment;
[15.4] they requested leniency from SARS in the form of a waiver of
additional tax, penalty and interest.
[16] Shortly thereafter, on 15 March 2013, the respondent again wrote
to SARS advising as follows:
[16.1] The respondent confirmed that it “
never had any
dealings with
” Zingara. (emphasis added)
[16.2] All respondent’s financial transactions were either done
by Mr Strydom “
and/or done on his advise
(sic)” as
respondent’s auditor, to its detriment.
[16.3] Mr Strydom had also handled all of the respondent’s tax
affairs
and/or advised Afri-Guard (Pty) Ltd how to handle same
”.
[16.4] The respondent reiterated that it was never its intention to
defraud or mislead SARS.
[16.5] It undertook to pay the capital amounts due under the
assessments.
[16.6] It advised that if it were forced to pay additional tax,
penalties and interest, it would not survive.
[17] In preparation for the appeal before the Tax Court, SARS filed a
Statement of Grounds of Assessment, and the respondent filed
a
Statement of Grounds of Appeal.
[18] In its statement, SARS set out the history of the matter,
including details of the contents of the letters of 11 March and
13
March 2013. It made the following significant submissions:
[18.1] The respondent had failed to provide valid tax invoices.
[18.2] The subsequent denial on the part of the respondent that it
ever did business with Zingaro illustrated an undisputable intention
on its part to defraud the
fiscus
.
[18.3] The respondent’s statement that all its financial
transactions were done on the advice of its auditor, Mr Strydom,
indicates that the respondent was at least complicit in, if not the
moving force of the attempt to defraud the
fiscus
.
[18.4]On this basis, SARS submitted that it had rightly imposed the
200% additional tax.
[19] In its statement, the respondent made the following relevant
submissions:
[19.1] The directors of the respondent held no tertiary educational
qualifications, and were “
not acquainted with
” the
VAT Act. Thus, it had appointed the auditors to ensure
compliance with the VAT Act.
[19.2] The respondent only became aware of the overstated input tax
during 2012, as all correspondence up to then had been with
Mr
Strydom.
[19.3] It claimed that Mr Strydom had not contacted the respondent
for its input, and that the contents of the letter of 28 September
2012 (the objection letter) was attributable to Mr Strydom and not to
the respondent.
[19.4] Once the respondent had become aware of the overstatement in
respect of input VAT, it had immediately arranged for the down
payment of the capital amount to be paid.
[19.5] The respondent was not aware that Mr Strydom was not entitled
to act as both its accountant and auditor.
[19.6] It claimed that Mr Strydom had disguised the improper VAT
claim he had made. The respondent had relied on him for
professional advice and this had caused respondent’s
overstatement of input VAT.
[19.7] The respondent did not intend to cause a refund in excess of
the lawful amount, and therefore the imposition of 200% additional
tax was improper. It should be remitted or reduced.
[20] Prior to the hearing before the Tax Court, the parties agreed to
certain common cause facts. These included the fact
that:
[20.1]respondent never had any dealings with Zingaro;
[20.2]Mr Strydom handled all the respondent’s tax affairs;
[20.3]all financial transactions were done by or on the advice of Mr
Strydom; and
[20.4]the respondent acted on the advice of Mr Strydom.
[21] The pre-trial statement by the parties also recorded that the
only issue for determination by the Tax Court was whether, in
the
circumstances, SARS had correctly imposed additional tax of 200% in
terms of section 60(1) of the VAT Act.
HEARING BEFORE THE TAX COURT
[22] At the hearing before the Tax Court, SARS accepted that it had
the onus of proving that the 200% additional tax was correctly
imposed. Whether this concession was correctly made is one of
the issues before this court. I will deal with it in
more
detail later.
[23] Each party called a witness to testify before the Tax Court.
[24] Mr Claasen testified for SARS. He is employed as an
auditor by SARS, and works as an operational specialist conducting
audits. He testified that he was the auditor who had raised the
assessment in respect of the respondent.
[25] In his evidence he stated that as part of the audit process he
had held a number of meetings with the respondent and its
representatives. He had dealt with the respondent directly,
save for one meeting when only Mr Strydom had attended as the
respondent’s representative.
[26] Mr Claasen estimated that there had been approximately four
meetings, and that at three of these one of the directors, Mr
Olivier, had been present together with Mr Strydom. Mr Olivier
was involved in the discussions with Mr Claasen concerning
the issues
raised in the audit. The meetings had been aimed at obtaining
information, explanations and material from the
respondent regarding
the issues raised in the audit. Mr Olivier was present in the
meeting when Mr Strydom had provided the
two Zingaro invoices, and
Zingaro’s registration documentation to Mr Claasen.
[27] Mr Claasen testified that he was the co-author of the first
letter of audit findings to the respondent, dated April 1012.
He had hand delivered the letter to Mr Olivier, and had met with Mr
Olivier at the time of delivery to discuss it.
[28] In his evidence, Mr Claasen dealt with the contents of the
letter of assessment, including the paragraph dealing with Zingaro.
[29] Mr Claasen also testified that he was the co-author of the final
assessment letter, dated 24 July 2012. He explained
that as
part of the audit process SARS considers the vendor’s audit
history. In the case of the respondent, SARS took
into account
that it had previously been found to have overstated VAT inputs.
This was one of the contributing factors as
to why additional tax had
been imposed in respect of the present audit.
[30] He testified further that the overwhelming factor taken into
account as far as imposing an additional tax was concerned was
the
issue regarding the Zingaro invoices, which appeared at the time of
the assessment to be fraudulent. On further investigation,
SARS
determined that although Zingaro’s VAT number on the invoices
was a valid VAT number, it was not yet in existence at
time when the
input VAT was claimed, i.e. as at the date of the invoices. In
other words, Zingaro was not registered as a
VAT vendor under the
number reflected when the invoices were issued.
[31] The import of Mr Claasen’s evidence in this regard was
that Zingaro claimed to have supplied vatable services to the
respondent at a time when Zingaro was not registered for VAT.
It should be noted, at this stage, as I have already indicated,
that
on 13 February 2013, the respondent ultimately conceded that the
dubious role of Zingaro in the whole affair went even further,
viz.
that respondent had never done business with Zingaro at all.
[32] Mr Claasen also explained in his evidence what procedure is
followed within SARS when an assessment is made. He testified
that once a finding is made, following an audit, a taxpayer, like the
respondent, is given an opportunity to provide relevant information
and material as to why additional tax should not be imposed. He
testified that it was part of his role in the whole process
to make
recommendations to the relevant SARS committees regarding an
appropriate decision. His recommendation to the effect
that a
200% additional tax should be raised was based on the findings of the
audit and assessment process, the nature of the respondent’s
transgression, and the fact that it had a previous history of input
VAT overstatement.
[33] Mr Claasen readily conceded that he was not the ultimate
decision-maker. He explained that his recommendations had been
considered by two committees. These committees had the
authority to veto his recommendation.
[34] He testified that he had considered whether there were any
mitigating factors on the basis of the respondent’s submissions
to SARS, but that there had been none. He pointed out that the
respondent runs a multi-million Rand business, and is responsible
for
over 4000 employees. SARS had taken into account as a
mitigating factor that the directors had relied on Mr Strydom.
However, given the size of the enterprise, it stood to reason that
the directors had some business acumen and it could not be contended
that Mr Strydom should shoulder all of the blame.
[35] The witness for the respondent was Mr Muller. He is the
respondent’s current accountant. He was employed
by
the respondent in March 2013. Mr Muller was not in the employ
of the respondent when the relevant events pertaining to
the dispute
took place. He had no personal knowledge of them, and did not
seek to give any evidence regarding what had transpired
at that
time.
[36] Mr Muller’s evidence was directed at establishing the
current financial position of the respondent. He testified
about its major contracts, its revenue for 2014, its anticipated
revenue for the next 12 months, and the respondent’s expenses.
He also testified that the capital amount of the assessment raised by
SARS had been paid, although under cross-examination some
uncertainty
arose as to whether this was so, taking into account the monthly
interest accruing on the outstanding amounts.
[37] Under cross-examination, Mr Muller indicated that the
respondent’s monthly income was approximately R22 million.
He also confirmed that if the respondent was successful in securing
pending tenders it would be in a position to pay the additional
tax
amount levied.
[38] The respondent called no other witnesses. Significantly,
none of the respondent’s directors, nor Mr Strydom were
called
to testify on its behalf.
JUDGMENT OF THE COURT
A QUO
[39] The court
a quo
delivered a brief judgment. A
substantial portion of the judgment recited what the court referred
to as the common cause
facts between the parties. There was
consensus at the hearing before us that the facts recited by the
court
a quo
were not the agreed common cause facts.
However, nothing turns on this.
[40] The gist of the court
a quo’s
judgment can be
summarised as follows:
[40.1]The court noted that SARS had accepted that it bore the onus of
establishing that the additional tax had been correctly imposed.
[40.2]It noted that the decision to impose additional tax was
discretionary.
[40.3]The court noted further that on the basis of established
authority, in this case
Rand Ropes (Pty) Ltd v Commissioner for
Inland Revenue
,
[1]
a hearing before the Tax Court involves a re-hearing of the whole
matter; the Tax Court considers the issue afresh and may substitute
SARS’ decision with its own.
[40.4]The court emphasised the fact that Mr Claasen had not had the
authority to make the final decision regarding the imposition
of
additional tax. Further, that SARS did not call any witness to
explain the decision of the senior committee that had made
the final
decision.
[40.5]Accordingly, said the court, it was unable to assess the
correctness of the decision of the committee.
[41] The court a quo concluded that:
“
The Commissioner, having failed to place any evidence
before the court as to how and why the senior committee arrived at a
decision
to impose the 200% additional tax failed to prove that the
imposition of the additional tax was justified and the imposition
thereof
cannot be upheld.
”
[42] On this basis, the court
a quo
upheld the respondent’s
appeal, and set aside the additional tax imposed. The court
directed SARS to remit the additional
tax to nil.
THIS APPEAL
[43] It is well established that a court hearing an appeal against a
decision of the Tax Court may only interfere with that decision
on
limited grounds. These were identified by the Appellant
Division in the leading case of
CIR v Da Costa
as being: “
if
the Special Court did not bring an unbiased judgment to bear on the
question, or did not act for substantial reasons, or exercised
its
discretion capriciously or upon a wrong principle
.”
[2]
[44] The reason for this is because the Tax Court, in hearing the
matter afresh, exercises its own discretion. In
Da Costa
,
the court explained the situation thus:
“
It seems clear, therefore, that in cases involving the
exercise of a discretion by the Commissioner the Special Court on
appeal
to it
is called upon to exercise its own, original
discretion
… .
” (emphasis added)
[45] In
Da Costa
, one of the issues before the Tax Court was
whether it was competent for the Commissioner to delegate his power
to impose penalties
to a committee. In this regard, and flowing
directly from the above-cited dictum, the Appellate Division held
that:
“
And since the appeal is directed against the penalty
determined by the Court a quo, it is immaterial whether the
Commissioner was
entitled to delegate his function to the aforesaid
committee
.”
[3]
[46] The Eastern Cape Special Court in
ITC 1430
adopted an
approach consistent with
Da Costa
in a matter similar to the
present. In that case, the Commissioner, acting through a
penalty committee, had imposed additional
tax. There was no
evidence before the court as to the basis on which the Commissioner
had reached his decision. The
court held that, while this made
their task more difficult, it was not simply restricted to deciding
whether the decision by the
Commissioner was right or wrong.
The process before it was a re-hearing, in which evidence could be
placed before it.
The court concluded that:
“
Nor does it seem to me that the Special Court is restricted
to evidence of facts existing as at the date of assessment or of
imposition
of the additional charges. This would be the
situation in an ordinary civil or criminal appeal, where the court on
appeal
is confined solely to the record. … In the
present case, however, we have to decide not whether the
Commissioner’s
decision was correct or not, but how we should
exercise our discretion. There seems therefore to be no logical
reason why
we should not consider the facts existing as at the date
of the appeal in exercising our powers on appeal … .
”
[4]
[47] Before us it was submitted on behalf of SARS that this court is
entitled to interfere with the decision of the court
a quo
in
that it had made its decision based on the application of a wrong
principle. More specifically, it was submitted that
the
question before the court
a quo
was not whether the
Commissioner had made the right or wrong decision, or what the
reasons were for that decision. Instead,
and consistent with
Da
Costa
, as well as he approach adopted in other cases, including
ITC 1430
, the court
a quo
was required to hear the
matter afresh, based on the evidence before it, and to decide for
itself whether SARS was entitled to
impose additional tax.
[48] In other words, SARS submitted that the court
a quo
had
applied the wrong principle in basing its decision on whether the
decision of the Commissioner was correct. The court
ought
properly to have considered the evidence before it, and on this basis
made a determination on whether the jurisdictional
requirements for
the imposition of additional tax in terms of section 60(1) were met,
viz. was there an intent to evade tax on
the part of the respondent,
or a person acting on its behalf or under its control.
[49] In countering these submissions, the respondent focused as its
starting point on the issue of the onus in proceedings before
the Tax
Court. The parties agree that prior to the adoption of the TAA,
the onus was on the taxpayer to establish that the
imposition of
additional tax was unfounded. The respondent submitted that
this position has been altered by the adoption
of the TAA and, in
particular, section 102(2), read with section 270(3) thereof.
[50] Section 102(2) provides that:
“
The burden of proving whether … the facts on which
SARS based the imposition of an
understatement penalty
under chapter 16 is upon SARS.
” (emphasis added)
[51] Section 270(3) reads as follows:
“
A form, notice, demand or other document issued given or
received by a person or SARS under the provisions of a tax Act
repealed
by this Act, must be regarded as issued, given or received
in terms of any comparable provision of this Act, as from the date
that
the form, notice, demand or other document was issued, given or
received under the repealed provisions.
”
[52] Moving from its primary proposition, the respondent contended
that SARS bore the onus of establishing that the jurisdictional
requirements for the imposition of additional tax had been met.
It submitted that SARS had failed to meet this onus in that
it did
not produce any evidence to establish on what basis the senior
committee had made its decision to impose additional tax.
Respondent submitted on this basis that the court
a quo
had
correctly concluded that SARS had failed to prove that the tax was
justified.
[53] The respondent accepted that an appeal before the Tax Court
involves a re-hearing of the matter. However, it contended
that
one of the jurisdictional facts that must be established by SARS is
that the Commissioner was satisfied that additional tax
ought to be
levied. SARS must produce evidence at that re-hearing directed
at establishing that the Commissioner was satisfied
that the
additional tax was warranted, and the basis for his satisfaction in
this regard. Accordingly, the basis for the
Commissioner’s
decision (or more specifically, that of the senior committee) was not
irrelevant to the appeal before the
court
a quo
, and that
court had correctly identified this as being critical to its finding
that SARS had not met its onus.
[54] The respondent relied for this proposition on
ITC 1876
,
[5]
a decision of the Western Cape Tax Court. In particular, it
referred to the following dictum:
“
In the case of the powers which the Commissioner can
exercise upon being satisfied of particular matters, one is dealing
with a
different situation. One is not dealing with a situation
where the law prescribes that certain expenses shall be disallowed
or
certain income shall be taxed if a certain state of affairs
objectively exists.
One is dealing, rather, with a
situation where a particular fiscal result follows only if the
Commissioner himself is satisfied
of certain matters. In the
latter class of case it is the Commissioner’s satisfaction upon
the points in question which
constitute the jurisdictional fact for
the issuing of the assessment.
” (emphasis supplied by
respondent)
[55] As regards the respondent’s primary proposition on the
effect of the TAA on onus in cases like the present, SARS pointed
out
that the tax in question in this matter is “additional tax”,
under section 60(1). Section 102(2) of the TAA
does not deal
with “additional tax” in placing the onus on SARS.
It deals with and an “understatement penalty
under Chapter 16”.
[56] The respondent’s contention is that the effect of section
270 is that, for purposes of onus, additional tax must be
treated as
an understatement penalty. SARS countered these submissions on
the basis that this was not the effect of section
270, and that in
appeals concerning additional tax, the burden remains on the
taxpayer.
[57] In my view, it is not necessary to make a determination on this
issue. The present appeal can be resolved on the assumption
(without reaching any conclusion thereon) that SARS bore the onus
before the court
a quo
of justifying the imposition of
additional tax.
[58] What of the respondent’s second proposition viz. that SARS
had to provide evidence of the basis on which the senior
committee
was satisfied that additional tax should be imposed, failing which
the jurisdictional requirements for additional tax
were not met?
[59] I have difficulty in accepting the respondent’s
submissions in this regard. They are contrary to the
established
approach laid down in
Da Costa
. On the
established approach, the Tax Court conducts a re-hearing. It
may admit new evidence. It has wide appeal
powers and,
critically, exercises its own discretion in making a decision.
[60] The respondent’s approach, on the other hand, suggests a
power more akin to that of judicial review, than that of a
wide
appeal. In a review, it is often critical for a court to have
evidence of the basis on which the decision under review
was
reached. This is because a review is concerned primarily with
whether that decision was exercised lawfully or not. A
court on
review typically does not exercise its own discretion: its task is to
determine the lawfulness of the discretion involved
in the decision
under review. But the situation is fundamentally different when
the Tax Court exercises its appeal powers.
I am in respectful
agreement with the finding of the court in
ITC 1430
to the
effect that the question on appeal to the Tax Court is not whether
the Commissioner’s decision was correct or not,
but how the Tax
Court should exercise its own discretion on the evidence before it.
[61] Is there any merit in the respondent’s reliance on
ITC
1876
? The respondent submitted that this case throws new
light on the powers of the Tax Court in circumstances where the onus
rests on SARS to establish the jurisdictional requirements. In
particular, it was submitted that this case was important in
establishing that where the satisfaction of the Commissioner or
senior committee is a jurisdictional requirement, SARS must place
evidence before the Tax Court as to the basis for that satisfaction.
Failing this, it follows that SARS has not met its onus.
The
respondent submitted that
ITC 1876
and the present case were
similar in that both involved the discretion of the Commissioner (or
senior committee).
[62] Again, I have difficulty in accepting this proposition.
The situation facing the Tax Court in
ITC 1876
was not the
same, or analogous to the situation that faced the court a quo.
To begin with, it was not an appeal. In
ITC 1876
SARS
applied to the Tax Court to amend its grounds of assessment under
Rule 10. The court refused the application.
In doing so,
it was not exercising its powers of appeal.
[63] Furthermore, in ITC 1876, the underlying dispute between the
parties did not involve section 60(1) of the VAT Act. Instead,
it involved section 103(2) of the Income Tax Act 58 of 1962.
That section provides that “
whenever the Commissioner is
satisfied
” of certain matters, he may disallow the set-off
of assessed losses against income. In other words, the
satisfaction
of the Commissioner was an express jurisdictional
requirement for the exercise of the power under consideration in that
case.
[64] Thus, the findings in
ITC 1876
upon which the respondent
relied have no application to the present matter. The findings
were not made in the course of that
court exercising its appeal
powers. In addition, unlike section 103(2), section 60(1) does
not provide that the Commissioner
must be satisfied on certain
matters before he can exercise his powers. Accordingly, I find
no merit in the respondent’s
submissions in this regard.
[65] In my view, the correct approach in the present matter is that
set out in
Da Costa
, which approach was preceded by the
decision in the
Rand Ropes
matter.
[6]
The court
a quo
correctly cited the relevant dictum from Rand
Ropes setting out the principle involved. However, in my view
SARS is correct
in its submission that the court then went on to
apply that principle incorrectly. It did this by erroneously
identifying
the correctness of the senior committee’s decision
as the critical issue for determination in the appeal before it.
In other words, it approached the matter on the basis that SARS had
to establish that
the senior committee had correctly exercised its
discretion
. This was not the issue before the court
a
quo
. The issue before it was whether,
on the evidence
before the court
a quo
, SARS could justify the
imposition of additional tax
(assuming, for present purposes,
that SARS bore that onus).
[66] The imposition of additional tax under section 60(1) requires
intent on the part of the taxpayer of a person acting under
the
taxpayer’s control, or on its behalf to evade payment of tax.
That SARS was able to establish the necessary intent
is patently
clear from the undisputed evidence presented before the Tax Court,
and the common cause facts.
[67] It was common cause, contrary to their assertions until February
2013, that the respondent had no dealings with Zingaro at
all.
The undisputed evidence of Mr Claasen established that one of the
respondent’s directors, Mr Olivier, was present
in the meeting
when the documents purporting to prove the business relationship and
the VAT paid to Zingaro where provided to SARS.
Mr Olivier did
not come to testify to shed any additional light on the matter, or to
explain how, despite this, he was ignorant
of Mr Snyman’s
machinations.
[68] In any event, even if one takes into account the respondent’s
assertions in its correspondence with SARS that Mr Strydom
should
bear responsibility for attempting to mislead SARS in this regard, it
was the respondent’s own case that he was employed
as the
respondent’s financial manager and auditor. On this basis
alone, the provisions of section 60(1) would have
been satisfied, as
Mr Snyman was, at the very least, acting on behalf of the respondent
in attempting to mislead SARS by presenting
the purported contract,
and supporting invoices involving Zingaro.
[69] It is clear from the evidence presented by respondent at the
hearing that the sole purpose thereof was to deal with the issue
of
mitigation. It was not directed at the issue of intent, and
hence at whether the imposition of additional tax was justified.
It was concerned only with the question of what percentage of
additional tax would be appropriate in the circumstances.
[70] On this undisputed evidence, and the common cause facts, the
only reasonably possible conclusion to draw is that the Zingaro
explanation, and the documentation presented in support of it (which
subsequently proved to be fraudulent) was provided to SARS
with the
intention of misleading SARS about the respondent’s true VAT
inputs, and thus of evading the payment of tax.
[71] Even if the matter is approached on the assumption that SARS
bore the onus in the appeal before the court
a quo
, there was,
at the very least a
prima facie
case establishing intent,
which required a rebuttal on the part of the respondent. The
respondent failed to produce any evidence
to rebut the case made out
by SARS.
[72] I conclude that the court
a quo
based its decision on an
incorrect application of the applicable legal principles and,
consequently, on the incorrect facts.
Accordingly, its decision
was based on a wrong principle, and falls to be set aside by this
court.
[73] Finally, it was common cause before us that SARS had, prior to
the hearing before the court a quo, advised the respondent
that it
was prepared to remit the rate of additional tax originally imposed
from 200% to 100%. This was on the basis primarily
that the
respondent had ultimately come clean as to the true position
regarding Zingaro, and on the basis that Mr Strydom’s
central
role in the affair was a mitigating factor
vis-a-vis
the
respondent’s position.
[74] At the hearing before this court, SARS confirmed its position in
this regard.
[75] In the circumstances, I propose the following order:
1. The appeal is upheld.
2. The decision of the court
a quo
is set aside, and is
replaced by the following order:
“
The additional tax imposed upon the Appellant is referred
back to the Commissioner and it is directed that the additional tax
be
remitted to 100%
”.
3. The respondent in this court is directed to pay the appellant’s
costs in the proceedings before the court
a quo
and in the
appeal before this court, the costs of the latter proceedings to
include the costs of two counsel.
R KEIGHTLEY
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
I AGREE
MASIPA J
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
I AGREE
MASHILE J
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
Date Heard: 16 March 2016
Date of Judgment: 27 May
2016
Counsel for the
Applicants: HGA Snyman SC
KD Magano
Instructed by: The State
Attorney, Johannesburg
Counsel for Respondent: C
Louw SC
Instructed by: Rothman
Phahlamohlaka Inc
[1]
1944 AD 142
150
[2]
1985 (3) SA 768
(A) at 775G
[3]
at 775A
[4]
(1987) 50 SATC 51
(E) at 56-7
[5]
77 SATC 175
[6]
Note 1 above.