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[2023] ZAFSHC 254
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Motloung and Another v Commissioner South African Revenue Service and Others (5492/2021) [2023] ZAFSHC 254 (23 June 2023)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE
DIVISION, BLOEMFONTEIN
Appeal
Case Number: 5492/2021
REPORTABLE: YES/NO
OF
INTEREST TO OTHER JUDGES: YES/NO
CIRCULATE TO MAGISTRATES:
YES/NO
In
the matter between: -
KETSISE
MOTLOUNG
First
Applicant
REATLEHILE
DEVELOPMENT CC
Second
Applicant
and
COMMISSIONER:
SOUTH AFRICAN REVENUE
SERVICE
First
Respondent
MINISTER
OF FINANCE
Second
Respondent
NATIONAL
DIRECTOR OF PUBLIC PROSECUTIONS
Third
Respondent
MINISTER
OF JUSTICE AND
CONSTITUTIONAL
DEVELOPMENT
Fourth
Respondent
CORAM:
MBHELE, DJP
HEARD
ON:
14 APRIL 2023
DELIVERED
ON:
23 JUNE 2023
[1]
This is an application for leave to appeal against
my judgment that was delivered on 21 November 2022, in which I
dismissed the
applicants’ application to declare
sections 235
and
222
of the
Tax Administration Act 28 of 2011
unconstitutional.
[2]
The grounds on which leave to appeal is sought are
listed extensively in the application and to avoid prolixity I shall
not repeat
same herein.
The
grounds
are mainly a rehash of what was argued before me and dealt with in
the judgment. I will also not repeat some of the issues
that were
dealt with in the judgment.
[3]
Applications for leave to appeal are regulated by Section 17(1) of
the Superior Courts Act 10
of 2013 (SCA). It reads as follows:
“
(1)
Leave to appeal may only be given
where the judge or judges concerned are of the opinion that—
(a)
(i) the appeal would
have a reasonable
prospect of success; or
(ii)
there is some other compelling reason why the appeal should be heard,
including conflicting
judgments on the matter under consideration;
(b)
the decision sought on appeal does not fall within the ambit of
section 16(2)(a); and
(c)
where the decision sought to be
appealed does not dispose of all the issues in the case,
the appeal
would lead to a just and prompt resolution of the real issues between
the parties.
”
[4]
The court hearing the application for leave to appeal must satisfy
itself that there is a real
prospect of success. The Act places
a heavy onus on the applicant to show why another court would come to
a different conclusion.
It is no longer about the applicant having an
arguable case, it must be clear at the time of granting leave to
appeal that prospects
of success are real and not fanciful.
[5]
Section 17(1)(a)(i) has not only raised the bar for applications for
leave to appeal but also
fettered the Judge’s discretion when
considering such applications. Leave to appeal may only be given when
the Judge or Judges
are of the opinion that the appeal would have a
reasonable prospect of success. The word “only” is
indicative of the
fact that this section limits the Judge’s
discretion to grant leave to appeal. The Judge’s discretion is
circumscribed
because he or she may not grant leave to appeal based
on a reason other than the one mentioned in it. Considerations such
as an
applicant, for leave to appeal, having an arguable case or that
there is a possibility of success on appeal are irrelevant.
[1]
[6]
Central to the applicants’ application for leave to appeal is
that I erred in finding that
the understatement penalty constitutes
an administrative penalty. The applicants submitted that
Pather
And Another v Financial Services Board And Others
[2]
is
not applicable in the circumstances of this case. The applicants
further submitted that the court did not dispose of all the
issues
when it did not deal with section 223 in its final analysis.
[7]
The applicants further contended that the definition of ‘accused’
in section 35 (3)
of the constitution extends to civil proceedings.
They find support for their argument from
Grayston
Technology Investment Pty (Ltd) and Another v The State
[3]
where Spilg, J remarked as
follows in relation to double jeopardy and civil or
administrative tribunals penalties:
“
124
An issue of double jeopardy might have arisen. However, the evidence
before the court did not indicate what administrative penalties
were
imposed, nor could they be determined because the interest portion of
the judgment debts was not disclosed. In addition, the
issue was not
ventilated as both parties accepted that the suspended sentences
would not change. This case should therefore not
be regarded as
finding that double jeopardy may not have arisen. In brief the issue
of double jeopardy may have arisen by reason
of the following.
125.
There would appear to be a constitutional safeguard against double
jeopardy irrespective of whether the forum empowered to
impose the
sanction is a criminal court, a civil court or an administrative
tribunal. Section 35(3)(m) of the Constitution gives
expression to a
fundamental principle which transcends the confines of purely
criminal procedure. The provisions of that section
are illustrative
of the broader concept which underpins the plea of
autrefois
convict
and
acquit,
and also
res judicata
; nl,
". . .
die eenvoudige feit dat dit weersinwekkend is vir ons
gevoel van billikheid en regverdigheid,
dat . . . die
gestrafte
vir die tweede maal
. . .
weens dieselfde misdaad vervolg sou
word
"
R v Manasewitz
1933 (AD) 165 at 177.”
[8]
I do not agree with the view expressed in
Grayston
above. The rights protected in Section 35 of the constitution only
accrue to an accused person, being a person facing criminal
prosecution or someone called upon to answer a criminal charge. See
Nel
v Le Roux NO and Others
[4]
. The section is aimed at protecting an individual’s right to
liberty. It guarantees protection against unlawful and arbitrary
arrest and detention. A taxpayer upon whom additional tax is
levied is not an accused person within the meaning of section
35(3)
of the Constitution, there is no question of him being tried for an
offence or of the proceedings culminating in a conviction
with a
concomitant criminal record. There is no likelihood of the taxpayer
being sentenced to a term of imprisonment or of being
deprived of his
liberty
[5]
.
[9]
In the case of
Federal-Mogul
Aftermarket Southern Africa (Pty) Ltd v the Competition Commissioner
and Another
[6]
the Competition Appeal Court, in considering an argument
similar to that in the present matter, said the following:
‘
The
rights set out in section 35(3) of the Constitution are reserved for
those people who have been charged in criminal matters
and who are
likely to be sentenced to a term of imprisonment. It is the
imprisonment aspect, which deprives a charged or accused
person, of
his liberty, which is sought to be protected by the entrenchment of
the rights, set out in section 35(3). It is thus
the threat of
imprisonment which triggers off the rights set out in section 35(3).’
[10]
The applicants’ argument that the imposition of an
understatement penalty for intentional tax evasion
constitutes a form
of criminal punishment is without basis and falls to be rejected.
In view of the above the argument that
Pather
is not
applicable to this matter is unsubstantiated and misplaced.
[11]
In
Federal
Commissioner of Taxes v Trantwein
[7]
Evatt J in dealing with the imposition of penalty
for intentional evasion of tax said:
“
The
object of the section is to impose a heavy penalty so as to ensure
the accuracy of returns, upon which the whole income tax
system of
the Commonwealth is based. The penalty is imposed ‘by way of
additional tax’ but as I endeavoured to point
out in
Richardson's case, although the penalty is collected via the
machinery of assessment, the section is definitely a penal
provision.”
[12]
An understatement penalty, like the penalty
dealt with in
TC Case no: 11641/
2006
above and
prescribed in section 75 and 76 of the Income Tax Act 58 of 1962, is
a penalty of an administrative nature. The penalty
was imposed by an
administrative body after an assessment and audit were done. Its
purpose is to ensure effectiveness of the tax
administration system.
[13]
Section 208 of the Act defines Administrative noncompliance
penalty or penalty as follows:
‘
administrative
non-compliance penalty’
or ‘
penalty’
means a
“penalty” imposed by SARS accordance with this Chapter or
a tax Act other than this Act, and excludes an understatement
penalty
referred to in Chapter 16.’
Section
210 provides as follows:
‘
210.
Non-compliance subject to penalty
(1)
If SARS is satisfied that non-compliance by a person referred to in
subsection (2)
exists, SARS must impose the appropriate ‘penalty’
in accordance with the Table in section 211.
(2)
Non-compliance is failure to comply with an obligation that is
imposed by or under
a tax Act and is listed in a public notice issued
by the Commissioner, other than—
(a)
the failure to pay tax subject to a percentage based penalty under
Part C;
(b)
non-compliance in respect of which an understatement penalty under
Chapter 16 has been imposed; or
(c)
the failure to disclose information subject to a reportable
arrangement penalty under section 212.
[14]
A closer look at section 208
and 210 of the Act shows that an understatement penalty is not the
only penalty that is excluded in
Part B of the Act. Section 210
excludes the penalty levied under Part C, a reportable arrangement
penalty under section 212 as
well as an understatement penalty when
dealing with administrative non- compliance penalty. The mere fact
that the aforementioned
categories are excluded from Part B of the
Act does not mean that they are not administrative penalties for the
purposes of tax
administration.
[15]
It is clear that the Act creates various forms of administrative
penalties which are subjected to different
regimes. The exclusion of
understatement penalties from Section 208 does not make them criminal
in nature.
[16]
Section 223 of the TAA only serves as a tool to determine the
understatement penalty percentage. The most
serious transgression is
intentional tax evasion which carries an understatement penalty of
150%. Section 223 serves as a guideline
for the imposition of an
appropriate penalty fitting the severity of the offending
conduct. It does not alter the nature
of the understatement
penalties.
[17]
Having
considered the merits of the application for leave to appeal, I am
not persuaded that there are reasonable prospects of success
on
appeal. The applicants contend that I erred in granting a
costs order against them and that they ought to have been
afforded
the protection of
Biowatch
[8]
rule. The
Biowatch
principle was articulated as follows:
‘
If there should be
a genuine, non-frivolous challenge to the constitutionality of a law
or of State conduct, it is appropriate that
the State should bear the
costs if the challenge is good, but if it is not, then the losing
non-State litigant should be shielded
from the costs consequences of
failure. In this way the responsibility for ensuring that the law and
State conduct are constitutional
is placed at the correct door’.
[18]
The starting point in constitutional litigation is
that
an unsuccessful private litigant in proceedings
against the State ordinarily ought not to be ordered to pay costs
.
Biowatch has not stripped the
court
off its discretion to award costs. Biowatch serves as a guide for
awarding of costs in constitutional litigation. The rule
is not
unqualified. The court in Biowatch further held:
‘
[24]
At the same time, however, the general approach of this Court to
costs in litigation between private parties and the state,
is not
unqualified. If an application is frivolous or vexatious, or in
any other way manifestly inappropriate, the applicant
should not
expect that the worthiness of its cause will immunise it against an
adverse costs award. Nevertheless, for the reasons
given above,
courts should not lightly turn their backs on the general approach of
not awarding costs against an unsuccessful litigant
in proceedings
against the state, where matters of genuine constitutional import
arise. Similarly, particularly powerful
reasons must exist for
a court not to award costs against the state in favour of a private
litigant who achieves substantial success
in proceedings brought
against it.
[25]
Merely labeling the litigation as constitutional and dragging in
specious references to sections of the Constitution would,
of course,
not be enough in itself to invoke the general rule as referred to in
Affordable
Medicines
.
The issues must be genuine and substantive, and truly raise
constitutional considerations relevant to the adjudication.
The
converse is also true, namely, that when departing from the general
rule a court should set out reasons that are carefully
articulated
and convincing. This would not only be of assistance to an
appellate court, but would also enable the party
concerned and
other potential litigants to know exactly what had been done wrongly,
and what should be avoided in the future.’
[9]
[19]
I have no doubt that Biowatch rule is aimed at
protecting litigants who approached court to enforce a right
that is
guaranteed in a constitution.
In
Motala
v Master, North Gauteng High Court
,
Pretoria
[10]
the Supreme Court of Appeal remarked that
Biowatch
principle does not constitute a licence to litigate with impunity
against the State. In
Lawyers
for Human Rights v Minister in the Presidency and Others:
[11]
‘
[The
Biowatch
rule],
of course, does not mean risk-free constitutional litigation. The
court, in its discretion, might order costs,
Biowatch
said, if the constitutional grounds of attack are frivolous or
vexatious - or if the litigant has acted from improper motives or
there are other circumstances that make it in the interests of
justice to order costs. The High Court controls its process. It
does
so with a measure of flexibility. So a court must consider the
“character of the litigation and [the litigant's] conduct
in
pursuit of it”, even where the litigant seeks to assert
constitutional rights.’
[20]
The applicants are delinquent tax payers on whom
SARS has imposed 150
% understatement
penalty on both Income Tax and VAT for intentional tax evasion. At
the time of hearing this matter they had not
as yet paid the
penalty imposed. They approached court claiming that there is no
authoritative South African case law that
deals with the issue at
hand. They were made aware of the existing authorities which are
relevant to the issue and directly on
point. There is no genuine
constitutional issue raised by the applicants.
Biowatch
was not aimed at protecting litigants who bring frivolous and
vexatious issues to court. The
Biowatch
protection is available to litigants who are raising genuine
constitutional issues. Furthermore the applicants did not seek
protection
from
Biowatch
in any of their papers.
[21]
Having concluded that none of the grounds of
appeal enjoy reasonable prospects of success, whether
taken
singly or cumulatively, the application for leave to appeal must
fail. I, therefore. make the following order
Order
1.
Application for leave to appeal is
dismissed with costs
N.M. MBHELE, DJP
Appearances:
For
the 1
st
& 2
nd
Applicants:
Adv.MB
Mojaki & Adv J Nkhahle
Instructed
by
Modisenyane
Attorneys
Bloemfontein
For
the 1
st
& 2
n
Respondents:
Adv.G
Marcus SC, Adv K Tsatsawane SC & Adv E Mkhawane
Instructed
by
Claude
Reid Attorneys
Bloemfontein
[1]
School
Governing Body Grey College, Bloemfontein v Scheepers and Others
(South African Teachers Union Intervening) (2612/2018)
[2019] ZAFSHC
25 (17 January 2019) at par. 4,
also
Mothuloe
Incorporated Attorneys v The Law Society of the Northern Province
2017 JDR 533 (SCA) at para 18.
[2]
Pather
And Another v Financial Services Board And Other
2018 (1) SA 161
(SCA)
“
Accordingly,
for all of the reasons given, I take the view that proceedings
before the EC do not lie within the criminal sphere
and cannot be
classified as being criminal in nature. The court below was
accordingly correct in holding that the EC, when imposing
administrative penalties 'decidedly remains administrative'. Its
conclusion in this regard is consistent with decisions in this
country by the Competition Appeal Court, Tax Court and Labour
Court.”
[3]
Grayston
Technology Investment (Pty) Ltd v S [
2016] 4 All SA 908
GJ at
paragraph 124 - 125
[4]
Nel
v Le Roux and Another
[1996] ZACC 6
;
1996 (4) BCLR 592
(CC) para 11.
[5]
TC
Case no: 11641 [
2006] ZATC 6
(4 December 2006) The appellant was
challenging payment of an additional
t
ax
in terms of section 76(1) of The Income Tax Act 58 of 1962
after he was convicted and fined in the magistrate court for the
same transgression
.
The appellant argued that imposition of additional payment infringed
upon his rights in terms of section 35 (3) (m) of the Constitution.
The
court found as follows:
Additional
tax in terms of section 76(1)(a) of the Act is a penalty of an
administrative nature which cannot be equated with a
fine imposed by
a criminal court. It is collected via the machinery of assessment
and its main purpose is to ensure the accuracy
of returns.
[6]
Federal-Mogul
Aftermarket Southern Africa (Pty) Ltd v the Competition Commissioner
and Another 2005 (6) BCLR 613 (CAC).
[7]
Federal
Commissioner of Taxes v Trantwein,
[1936] HCA 48
;
4 A.T.D. 92
at p. 96
[8]
Biowatch Trust v Registrar Genetic Resources and Others (CCT 80 /
08)
[2009] ZACC 14
; 2009(6) SA 232 (CC)
[9]
Biowatch Trust v Registrar Genetic Resources and Others (CCT 80 /
08)
[2009] ZACC 14
; 2009(6) SA 232 (CC)
[10]
Motala
v Master, North Gauteng High Court
[2019]
ZASCA 60
;
2019 (6) SA 68
(SCA) para 98.
[11]
Lawyers
for Human Rights v Minister in the Presidency and Others
[2016]
ZACC 45
;
2017 (1) SA 645
(CC);
2017 (4) BCLR 445
(CC) para 18.