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[2012] ZASCA 178
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H R Computek (Pty) Ltd v Commissioner for the South African Revenue Services (830/2012) [2012] ZASCA 178; 75 SATC 104 (29 November 2012)
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THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 830/2011
In the matter between
H R COMPUTEK (PTY) LTD
............................................................................
Appellant
and
THE COMMISSIONER FOR
THE SOUTH AFRICAN
REVENUE SERVICE
...................................................................................
Respondent
Neutral citation:
Computek v The Commissioner, SARS
(830/2011)
[2012] ZASCA
178
(29 November 2012)
Bench
: CLOETE,
LEWIS, PONNAN and CACHALIA JJA and ERASMUS AJA
Heard:
12 NOVEMBER
2012
Delivered:
29
NOVEMBER 2012
Summary:
Value-Added Tax Act 89 of 1991 –
value-added tax – assessment of − objection to
−
appeal against disallowance of objection
–
taxpayer
limited
to the grounds stated in notice of objection.
___________________________________________________________________
ORDER
___________________________________________________________________
On
appeal from
:
Tax
Court (Johannesburg) (Coppin J sitting as court of first instance):
The appeal is dismissed
with costs.
___________________________________________________________________
PONNAN JA (
CLOETE,
LEWIS, PONNAN and CACHALIA JJA and ERASMUS AJA
concurring)
[1] During October 2003
the respondent, the Commissioner for the South African Revenue
Services (SARS),
conducted an audit in respect of
the tax affairs of the appellant, H R Computek (Pty) Ltd (formerly H
R Computek CC) (the taxpayer).
The audit revealed that the taxpayer
had under-declared and, in consequence, underpaid value-added tax to
SARS in terms of the
Value-Added Tax Act 89 of 1991 (the VAT Act). On
9 March 2004 SARS wrote to the taxpayer:
‘
The Vat 201
returns submitted for the periods 03/2002 to 09/2003 inclusive, have
been revised to account for vat charged and not
disclosed / declared
on the appropriate Vat 201 returns. Additional tax equal to two
hundred percent has been levied in terms of
s 60 of the Value Added
Tax Act No. 89 of 1991 (herein referred to as the ACT).’
The taxpayer was thus
assessed to tax in the total sum of R4 040 377.28, being: (a) R1 246
177.57 as to under-declared output tax
(the capital amount); (b) R2
492 355.06 as to additional tax levied on the capital amount in terms
of s 60 of the VAT Act; (c)
R124 617.75 as to a penalty levied on the
capital amount in terms of section 39(1)(a)(i) of the VAT Act; and
(d) R177 226.90 as
to interest levied on the capital amount in terms
of s 39(1)
(a)(
ii) of
the VAT Act. The revised assessment concluded with these words:
‘
Should you
wish to lodge an objection, kindly do so in writing and clearly
marked for the attention of the writer. The objection
must be
received within 30 days of receipt of this notice. You are obliged in
terms of s 32 of the ACT to specify in detail the
grounds for the
objection.’
[2] On 24 March 2004 Mr
Harry Chakhala, who described himself as the sole member of the
taxpayer, filed a notice of objection with
SARS. For ease of
reference a copy of the relevant portion of the standard notice of
objection form (ADR 1) as duly completed by
Mr Chakhala is reproduced
here:
Assessment detail
(Mark applicable tax type with an X)
Type
of Tax: Income Tax/STC
X
VAT
X
PAYE/SDL/UIF Estate
Duty Donations Tax Other
X
If
'Other', please specify
PROCEDURAL MATTERS
Nature
of the amount in dispute Income Deduction Additional tax X Income
Deduction Other
X
Year
of Assessment/Tax Period
20040309
Date of assessment/notice
20040304
Amount
of tax in dispute in terms of the assessment/notice R
4040377.23
Grounds of
objection
In
the event of a discrepancy/dispute you are required to mark the
nature of dispute with an X in the appropriate box(es)
to enable
SARS to consider the objection.
Please
note that you may select more than one box.
Provide
detailed grounds upon which the objection is made on a separate
page(s) together, with any supporting documentation
attached
thereto.
Processing-related
objections Factual and interpretative disputes
There
is a miscalculation on the assessment in that an
X
Additional tax in the amount of R
2492355.70
amount(s)
was taken into account/not taken into account imposed must be
remitted to an amount of
to
determine the liability for tax. R _________
Penalty
imposed for the late rendition of a tax return must
X
Interest
in the amount of R
177 266.90
imposed
be
remitted. must be remitted.
Penalty
for late payment of tax must be remitted.
X
Penalty for underestimation of provisional tax must be remitted.
An amount of R claimed as a
deduction
but which has been disallowed
must
be allowed.
X
Interest on underpayment of provisional tax must be remitted in
X
I do not agree with a notice/decision issued by SARS which in
An amount of R included as
terms
of legislation, is subject to objection on appeal. income by SARS
must not be so included .
X
Other (please elaborate).
Refer to attachments
X
Other
(please elaborate).
Refer
to attachments
[3] In an addendum to ADR
1 Mr Chakhala described the grounds of objection as:
'1 Unfair application of procedural
matters by SARS Special Investigations.
2 Excessive add tax of 200% plus
penalties and interest charges.
3. Interference of SARS Special
Investigation officer into the affairs of the businesses including HR
& Associates without any
form of negotiations or consultations.
4 Reparations of damages caused by
SARS interference and actions in the said businesses in order to put
things right.
5 SARS contraventions of its own SARS
CHARTER and SARS SSMO and Dispute Resolution processes.'
One of the attachments to
which Mr Chakhala refers next to the tick box ‘other’ at
the foot of ADR 1 is a three page
letter written by him on behalf of
the taxpayer. Whilst it touches on a range of issues, its primary
focus was the conduct of one
of the special investigators in the
employ of SARS. To the extent here relevant it reads:
'Uncontested VAT Assessment value of
R1 246 177.69 was presented to the said business on the 10
th
March
2004. It was noted that the said businesses have 30 days period to
lodge an objection to the evaluation of the assessment.
However
during the same meeting, we were informed that SARS would immediately
take the cash balances amounting to R821 115.22 (65.9%
of the capital
amount) from the said businesses accounts. We did not contest this
decision though the businesses have been denied
adequate resources
for re-establishing meaning operations.'
[4] On 28 July 2004 SARS
informed the taxpayer that its objection had been disallowed. As the
first reason given for disallowing
the objection SARS stated:
'No objection to the quantum of
additional vat output raised suggesting your acceptance of these
figures. Revised additional vat
assessments raised on the basis of
vat invoices issued and payments received for services rendered’.
On 7 October 2004 Dr W A
A Gouws, a chartered accountant, wrote a letter to SARS on behalf of
the taxpayer. After referring to a
meeting of the previous morning
and ‘various discussions that had taken place’, paragraph
two of that letter records:
'I would like to note that we are in
agreement with your turnover figures.
The difference between your figures
and those of the VAT returns relate to different methods of
accounting for VAT liabilities.
A further letter in this matter will
be addressed to you.’
On 22 January 2007 the
appellant filed a notice of appeal (form ADR 2) in respect of SARS'
disallowance of its objection. It advanced
the following grounds of
appeal:
'1 Unfair imposition of 200%
additional tax.
2 Unfair imposition and incorrect
penalty.
3 Unfair imposition and incorrect
interest charge.
4 Unfair tax procedural matters.'
[5] In the statement of
the grounds of assessment delivered on 17 February 2011 in terms of
rule 10 of the tax rules (made in terms
of s 107A of the Income Tax
Act 58 of 1962 (the Income Tax Act)) SARS contended:
‘
When the
objection (Notice of Objection and the letter of the grounds of
Objection) and the appeal (Notice of Appeal and the letter
of the
grounds of Appeal) [are considered], it is clear that the Appellant
does not dispute liability for the capital amount.
The only amounts of the assessment
that the Appellant objected to and appealed against were the levying
of additional tax at 200%,
interest and penalty’.
In response on 15 March
2011 the taxpayer filed a rule 11 statement, which for the first time
asserted that in calculating its VAT
liability SARS had included the
turnover figures of a related entity, HR & Associates, of which
Mr Chakhala was also the 'managing
member'.
[6] At a pre-trial
conference held during July 2011 the parties agreed:
'2.1 . . . that the following
preliminary point must be argued and determined by the Court before
the trial on main issues commences.
2.1.1 Whether or not the Appellant
objected to the capital portion (i.e. dispute amount
minus
additional tax, penalties and interest) in its Notice of Objection
(ADR 1 form) read with the letter of Grounds of Objection attached
to
the Notice of Objection. (If the Court finds that the Appellant did
not object to the capital amount, the Appellant will not
be entitled
to raise the capital amount as an issue on trial, without leave to
amend. Conversely, if the Court finds that the Appellant
objected to
the capital amount, the Appellant will be entitled to raise the
capital amount as an issue on trial)’.
[7] The Johannesburg Tax
Court presided over by Coppin J decided the preliminary point against
the taxpayer, but granted leave to
it to appeal to this court.
[8] The taxpayer has
sought, on appeal, to assail the conclusion of the tax court:
'.
. .
that the notice of objection and the letter
accompanying it does not cover the issue which the appellant now
wishes to raise, namely,
that the capital amount levied for VAT is
wrong'.
In my view, for the reasons that follow,
the conclusion of the tax court is unassailable.
In
its notice of objection read together with the letter that
accompanied it (both dated 24 March 2004), it is quite clear that
the
taxpayer did not object to the capital amount. That Mr Chakhala could
quite easily have done by ticking the first box which
reads: ‘There
is a miscalculation on the assessment in that an amount(s) was taken
into account/not taken into account to
determine the liability for
tax’. The letter, far from objecting to the revised capital
assessment, goes so far as to refer
to the capital assessment of R1
246 177.60 as being ‘uncontested’. In disallowing the
objection SARS made it clear
to the taxpayer that it had not objected
to ‘the quantum of additional VAT output raised’. In the
face of that, the
taxpayer intimated through
Dr
Gouws, that it was in agreement with SARS' turnover figures. That was
followed by its notice of appeal where once again no mention
is made
of a challenge to the revised capital assessment.
[9] The provisions of s
107A of the Income Tax Act and any rules made under that Act apply to
objections and appeals (ss 32 (2))
and 33(4) respectively of the VAT
Act). Rule 4 states that the notice of objection must be in a form
prescribed by the Commissioner
of SARS and must ‘be in writing
specifying in detail the grounds upon which it is made’. That
had earlier been brought
to the attention of the taxpayer by SARS in
its revised VAT assessment notice. The thrust of the taxpayer’s
case before us
was that in referring to the globular amount of R
4 040 377 as being the ‘amount of tax in dispute in terms
of the assessment’
the taxpayer had by necessary implication
raised an objection to the capital assessment, which was but one
component of that globular
sum. But that, as I shall show,
misconceives the inquiry.
[10] Section 32 of the
VAT Act identifies the subject matter in respect of which a taxpayer
may object. It includes an assessment
made upon a taxpayer in terms
of s 31. 'Assessment' is not defined in the VAT Act. But it is in the
Income Tax Act.
As Harms DP
put it (
First South
African Holdings (Pty) Ltd v Commissioner for South African Revenue
Service
73 SATC 221
para 15) an assessment -
‘
is a
“determination” by the Commissioner of one or more
matters (compare
ITC
1077
28
SATC 33
at 38
per
Corbett
J). This appears from the definition of the word in s 1 of the Income
Tax Act:
‘“
assessment”
means the determination by the Commissioner, by way of a notice of
assessment (including a notice of assessment
in electronic form)
served in a manner contemplated in section 106 (2)—
(a)
of an amount upon which any tax leviable under
this Act is chargeable; or
(b)
of the amount of any such tax; or
(c)
of any loss ranking for set-off; or
(d)
of any assessed capital
loss determined in terms of paragraph 9 of the Eighth Schedule,
and for the purposes of Part III of
Chapter III includes any determination by the Commissioner in respect
of any of the rebates
referred to in section 6 and any decision of
the Commissioner which is in terms of this Act subject to objection
and appeal.’
That definition does not
countenance an objection to a globular amount. The capital amount was
an assessment to tax in terms of
s 31 of the VAT Act with which the
taxpayer was dissatisfied and to which it ought to have objected
pursuant to the provisions
of s 32(1)
(b)
.
That it did not do.
[11] What then is the
effect of the conclusion that the taxpayer did not object to the
capital assessment? In
Matla Coal Ltd v
Commissioner for Inland Revenue
1987 (1) SA
108
(A) Corbett JA held (at 125C-J):
‘
Section
81(3) of the Act provides that every objection shall be in writing
and shall specify in detail the grounds upon which it
is made. And in
terms of s 83(7)
(b)
the
appellant in an appeal against the disallowance of his objection is
limited to the grounds stated in his notice of objection.
This
limitation is for the benefit of the Commissioner and may be waived
by him . . .
. . .
It is naturally important that the
provisions of s 83(7)
(b
) be adhered to, for otherwise the
Commissioner may be prejudiced by an appellant shifting the grounds
of his objection to the assessment
in issue. At the same time I do
not think that in interpreting and applying s83(7)
(b)
the
Court should be unduly technical or rigid in its approach. It should
look at the substance of the objection and the issue as
to whether it
covers the point which the appellant wishes to advance on appeal must
be adjudged on the particular facts of the
case.’
Here,
although
we do not have a similar statutory provision to that encountered in
Matla Coal,
I can
conceive of no reason why the principle that is established there
should not apply with equal force to an objection and appeal
under
the VAT Act. The rationale for such a principle is
explained
by
Cloete JA
(
Commissioner, South
African Revenue Service v Brummeria Renaissance (Pty) Ltd &
others
2007 (6) SA
601
(SCA) para 26) thus:
‘
. . . It is
obviously in the public interest that the Commissioner should collect
tax that is payable by a taxpayer. But it is also
in the public
interest that disputes should come to an end –
interest
reipublicae ut sit finis litium
;
and it would be unfair to an honest taxpayer if the Commissioner were
to be allowed to continue to change the basis upon which
the taxpayer
were assessed until the Commissioner got it right – memories
fade; witnesses become unavailable; documents are
lost. That is why s
79(1) seeks to achieve a balance: it allows the Commissioner three
years to collect the tax, which the Legislature
regarded as a fair
period of time; but it does not protect a taxpayer guilty of fraud,
misrepresentation or non-disclosure. If
either of the Commissioner's
arguments were to be upheld, this balance would be unfairly tilted
against the honest taxpayer.'
[12] It follows that not
having raised an objection to the capital assessment in its notice of
objection, the taxpayer was precluded
from raising it on appeal
before the tax court. That that must be so finds support in rule
6(3)
(a)
, which
provides:
'(3) In the taxpayer's notice of
appeal in terms of subrule (2), he or she —
(a)
must indicate in respect of
which of the grounds specified in his or her objection in terms of
rule 4 he or she is appealing.'
Thus
when
the taxpayer challenged the capital amount for the first time in its
rule 11 statement, it effectively raised a ‘new
objection’
directed at an individual assessed amount that had not previously
been objected to.
It remains to add that
in terms of s 32(5) of the VAT Act as no objection had been lodged
against SARS’ assessment that the
taxpayer was liable to SARS
for additional
VAT output tax
in the sum of R1 246 177.60, that assessment became final and
conclusive in April 2007. And as a period of three
years has elapsed
(s 31A), the taxpayer cannot now lawfully require SARS to revisit its
assessment even if it was wrong to have
included the turnover of a
related entity in calculating the taxpayer’s VAT liability
(
First South African
Holdings
para17-18).
It follows that the taxpayer’s appeal must fail.
[13] That leaves costs:
SARS sought the costs of two counsel on appeal. In my view the matter
was devoid of any factual or legal
complexity. There was thus no
warrant for the employment of two counsel by SARS. In those
circumstances it would be unjustified
to mulct the taxpayer with
those costs and I would accordingly only allow the costs of one
counsel.
[14] In the result the
appeal is dismissed with costs.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant: B G Savvas
Instructed by:
Venn & Muller Attorneys
Pretoria
Honey Attorneys
Bloemfontein
For Respondent: V Ngalwana
N Nxumalo
Instructed by:
Advocate L Haskins
Legal Representative for SARS
Pretoria
The State Attorney
Bloemfontein