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[2023] ZAECMKHC 129
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SMI Pty Ltd and Another v Commissioner for the South African Revenue Services - Appeal (CA25/2023) [2023] ZAECMKHC 129 (21 November 2023)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION, MAKHANDA
Case
No.: CA25/2023
In
the matter between:
SMI
PTY LTD
First
Appellant
JPDP
Second
Appellant
And
COMMISSIONER
FOR THE SOUTH AFRICAN
REVENUE
SERVICES
Respondent
JUDGMENT
EKSTEEN
J:
[1]
This
appeal relates to the protection of taxpayer information.
[1]
The appellants had sought an order in the High Court, Makhanda, that
an application (the main application) instituted by
the South African
Revenue Services (SARS) in that court should be heard
in
camera
and
that the court file should be sealed to the public (the secrecy
application). The secrecy application was dismissed and
the
appeal to the Full Court is with leave of the judge
a
quo
.
Background
[2]
SARS is currently gathering information to
ascertain whether the first appellant’s (SMI’s), tax
liability was correctly
assessed in a previous tax period and, if
not, whether the incorrect assessment was as a result of a tax
offence or non-disclosure
of material facts.
[3]
It
is instructive at the outset, before I deal with the facts of the
matter, to have regard briefly to the statutory structure regulating
SARS’ authority to gather information and to issue additional
assessments for previous periods. SARS was established in terms
of
the South African Revenue Service Act
[2]
in order to provide for the efficient and effective administration of
the revenue collecting system in South Africa. The
Tax
Administration Act
[3]
(the TAA)
was later promulgated in order to ensure the effective and efficient
collection of tax by, amongst others, prescribing
the rights and
obligations of taxpayers and the powers and duties of persons engaged
in the administration of a tax Act.
[4]
The responsibility for the administration of the TAA is entrusted to
SARS
[5]
. The TAA defines
the concept of ‘administration of a tax Act’, in s 3(2)
of the TAA and it includes:
(a)
obtaining full information in relation to-
[1]
anything that may affect the
liability of a person for tax in respect of a previous, current or
future tax period; or
[2]
the
obligation of a person to comply with a tax Act.
[6]
(b)
ascertaining whether a person has filed correct returns, information
or documents in compliance
with the provisions of a tax Act;
[7]
(c)
determining the liability of a person for tax;
[8]
(d)
investigating whether a tax offence has been committed;
[9]
and
(e)
enforcing SARS’ powers and duties
under a tax Act to ensure that an obligation that has been
imposed by
or under a tax Act is complied with.
[10]
In
order to fulfil its obligation to administer the TAA it is afforded
certain powers and duties in respect of the gathering of
information
as set out in Chapter 5 of the TAA. Section 46, which is
contained in Chapter 5, empowers SARS, for purposes
of the
administration of the TAA, to require a taxpayer to submit relevant
material to it. ‘Relevant material’
is defined in s
1 of the TAA to be any information, document or thing that, in the
opinion of SARS, is foreseeably relevant for
the administration of a
tax Act, as referred to in s 3 of the TAA. Where a taxpayer
receives a request under s 46 of the
TAA it is obliged to submit the
relevant material to SARS.
[11]
[4]
All
information submitted by a taxpayer is classified as taxpayer
information and is subject to the confidentiality regime
authorised
in Chapter 6 of the TAA.
[12]
If, after receipt of the information and the completion of its
investigation, SARS is satisfied that an earlier assessment
does not
reflect the correct application of a tax Act, to the prejudice of
SARS or the
fiscus
,
it is obliged to make an additional assessment to correct the
prejudice.
[13]
However,
its power to issue an additional assessment is subject to certain
time limitations, in this case three years after
the original
assessment, unless the incorrect original assessment was due to
fraud, misrepresentation or non-disclosure on the
part of the
taxpayer.
[14]
[5]
In
the event that SARS does issue an additional assessment the taxpayer
is entitled to challenge the assessment in terms of the
dispute
resolution dispensation created in Chapter 9 of the TAA. All
proceedings under this dispensation are confidential
and a hearing
before the tax court
[15]
is
closed to the public, unless otherwise ordered.
[16]
However, any judgment of the tax court must be published, but without
revealing the identity of the taxpayer.
[17]
Thereafter either party may appeal, either to the full court of a
division of the high court or to the supreme court of appeal,
and
there is no provision for confidentiality in such an appeal.
[18]
[6]
I revert to the facts of this matter.
In pursuit of its investigation adumbrated earlier SARS had issued a
request in terms
of s 46 of the TAA requiring SMI to submit
information to SARS which it considered to be relevant material. SMI
resisted the request
and declined to provide the information.
[7]
As
a result of the position adopted by SMI, and in June 2021, SARS
launched the main application, to compel compliance with its
s 46
request.
[19]
In August
2021 SMI filed its answering affidavit in the main application.
It contended that it was entitled to resist
the s 46 request for it
argued that the request was made pursuant to an unlawful criminal
investigation and for an ulterior purpose.
In addition, SMI
argued that the request did not comply with the jurisdictional
requirements in s 46 of the TAA. The contentions
relate to the
proper interpretation and application of s 46 and s 99 of the TAA.
These are matters to be determined in the main
application and I
express no view on these issues. The second appellant was
joined in the main application as an interested
party and no relief
was sought against him.
[8]
Simultaneously
with the answering affidavit in the main application the appellants
brought the secrecy application for an order
that the main
application be heard
in
camera
and that the court file be sealed to the public.
[20]
In preparing the founding affidavit in the secrecy application the
appellants chose to incorporate the papers in the main
application by
reference, and various passages in the founding affidavits and
annexures to the answering affidavit were cross-referenced
in
footnotes in the secrecy application.
[9]
In October 2021 SARS delivered a reply in
the main application and an opposing affidavit in the interlocutory
application and the
appellants responded with a replying affidavit in
the interlocutory application.
[10]
Thus,
a full set of three affidavits had been filed in the main application
and the secrecy application. They all formed part
of the papers
in the secrecy application and are all included in the present appeal
record. Accordingly, when the secrecy
application was
dismissed, more than eighteen months ago, all the papers filed in the
main application and in the secrecy application
were in the public
domain and they have been in the public domain ever since. The
secrecy application itself was heard in
open court and no attempt was
made for it to be heard
in
camera
.
Such a step, it seems to me, would in appropriate circumstances have
been possible.
[21]
[11]
That
brings me to the appeal. Section 16(2)(a)(i) of the Superior
Courts Act
[22]
provides:
‘
(2)
(
a)
(i)
When at the hearing of an appeal the issues are of such a nature that
the decision sought will have no practical effect
or result, the
appeal may be dismissed on this ground alone.’
Accordingly,
at the commencement of the argument I enquired from Mr Botha, on
behalf of the appellants, what practical effect the
decision sought
in this appeal could have in the present matter. Mr Botha
acknowledged, fairly in my view, that the papers
filed thus far
already fall within the public domain. However, he contended
that the prejudice to the appellants could be
contained.
Firstly, it was argued that the information currently published on
the SARS website could be either deleted or
amended so as to remove
the reference as to the identity of the appellants. Secondly,
he submitted that further procedures
in the litigation could disclose
taxpayer’s information.
[12]
In respect of
the first argument the obvious difficulty is that information that
has already been published is in the public domain
and there is no
application for an interdict to compel SARS to remove information
from its website. The issue is simply not
before us and the
first argument must accordingly fail.
[13]
In respect of
the second argument the appellants set out in the heads of argument
three further phases of litigation in which they
contended that
confidential taxpayer information may emerge. The first, it was
submitted, relates to any prehearing procedures
which may arise.
It was suggested that it was possible that one of the parties may
choose to file a supplementary affidavit
and, if, for instance, SARS
were to make a request in terms of rule 35(11), (12) or (14) in
respect of taxpayer information, that
would constitute a disclosure
of taxpayer information inconsistent with the relevant sections of
the TAA.
[14]
As
I have said, the papers in the main application are complete and
neither party have expressed an intention to file further
affidavits.
A party to application proceedings is, in any
event, not entitled to file any further affidavits of its own accord
and the registrar
is not empowered to permit the filing thereof.
[23]
The filing of any supplementary affidavit is therefore subject to
judicial oversight and the disclosure, if any, of confidential
taxpayer information in such an affidavit would be a matter for the
discretion of the court. Any further disclosure will
be
considered, if it arises, by a judge, who may make an appropriate
direction in respect of how the information must be treated.
Of
significance, for present purposes, is that neither party has
expressed an intention to seek leave to file further affidavits
and
the argument is presented on a purely speculative basis.
[15]
Rule
35 of the Uniform Rules of Court relates to discovery and the
provisions of the rule do not generally apply to application
proceedings.
[24]
They
may only be invoked insofar as the court may direct. Rule
35(14) provides for a defendant in action proceedings to require
the
other party to make available for inspection documents or tape
recordings for purposes of pleading. By analogy, if the
rule
were to be applied to application proceedings, it would entitle a
respondent to seek discovery of documents for purposes of
the
preparation of an answering affidavit. As adumbrated earlier,
the proceedings in this matter have advanced far beyond
that stage
and no reason emerged from the papers in the secrecy application to
believe that further affidavits may be filed.
As I have said,
the suggestion is purely speculative and would, in any event, be
subject to the oversight of a judge.
[16]
Rule 35(11) is
similarly subject to the discretion of a judge, who may not only
order the production of further material, but may
direct how such
documents are to be dealt with when produced. In the event that
an application in terms of rule 35(11) were
to arise it would be
subject to the directions of a judge in respect of the treatment of
the documents which may preserve the confidentiality
thereof.
Again, as in the case of rule 35(14), the argument does not relate to
any identifiable document, but merely to the
theoretical possibility
that such an application may be made and that it may reveal taxpayer
information.
[17]
Rule 35(12)
does apply automatically in application proceedings and it entitles a
party to proceedings to require the other party
to produce any
documents or tape recording to which another party has referred in
their affidavit. As I have explained, all
the affidavits
required for purposes of the application have been filed and neither
party has thus far requested the inspection
of any document referred
therein. Mr Botha did not, during argument, identify any
document referred to in the papers that
contains taxpayer information
that is not yet in the public domain and that may be called for.
On a consideration of the
conspectus of the evidence and the argument
presented I do not consider that any case has been made that a
reasonable prospect
of the disclosure of further confidential
information exists if the appeal were not upheld.
[18]
That brings me
to the second and third remaining phases of the litigation raised.
The appellants argue that not only is the
publication of the judgment
and order in the main application a disclosure of taxpayer
information, but the disclosure of the information
compelled therein,
should an order be granted in favour of SARS, will become part of the
record which will constitute disclosure.
Thereafter, so the
argument went, either party may appeal the judgment with the
resultant publication of taxpayer information contrary
to the
confidentiality provisions in the TAA.
[19]
These
arguments cannot be sustained. The high-water mark of the
appellants’ argument is founded upon the confidentiality
provisions in the TAA. As adumbrated earlier, even under the
TAA, judgments of the tax court are published, subject to the
protection of the identity of the taxpayer.
[25]
The TAA does not provide for a similar confidentiality in respect of
an appeal either to the full court of a division or
to the supreme
court of appeal and these courts are subject to the principle of open
justice set out in s 32 of the Superior Courts
Act.
[26]
Moreover, the appellants do not require a hearing
in
camera
nor that the file be sealed from the public in order to protect
disclosure of the appellants’ identity. That may be
achieved by simply not reflecting the identity in the judgment of the
court.
[20]
In the event
that the main application is successful the information compelled
will be provided to SARS in terms of the s 46 request.
It will
not be part of the record and it will be subject to the Chapter 6
confidentiality regime of the TAA. Accordingly,
the order that
may be granted in the main application presents no threat of public
disclosure of taxpayer information.
[21]
I have
concluded, accordingly, that the appellant has not demonstrated any
reasonable prospect of further taxpayer information,
which is not
already in the public domain, emerging unless the appeal were
upheld. That being so, the decision sought will
have no
practical effect or result. To the extent that taxpayer
information has already emerged and is reflected herein,
I have, in
this judgment, referred to the appellants in an abbreviated form so
as not to disclose their identity.
[22]
In the result, the
appeal is dismissed with costs, such costs to include the costs of
two counsel.
J
W EKSTEEN
JUDGE
OF THE HIGH COURT
MAKAULA
J:
I
agree.
M
MAKAULA
JUDGE
OF THE HIGH COURT
ZILWA
AJ:
I
agree.
H
ZILWA
ACTING
JUDGE OF THE HIGH COURT
Appearances:
For
Appellants:
Adv A
C Botha SC and Adv J F Pretorius
Instructed
by:
Pieterse
Sellner Erasmus TRM Tax Attorneys, Gqeberha c/o De Jager &
Lordan, Makhanda
For
Respondents:
Adv A
R Sholto-Douglas SC and Adv K Reynolds
Instructed
by:
Joubert
Galpin Searle, Gqeberha c/o Huxtable Attorneys, Makhanda
Date
Heard:
13
November 2023
Date
Delivered:
21
November 2023
[1]
Taxpayer
information is defined in the Tax Administration Act, 28 of 2011
(the TAA) as any information provided by a taxpayer
or obtained by
SARS in respect of a taxpayer. The confidentiality of such
information is protected under Chapter 6 of the
Act.
[2]
34
of 1997.
[3]
28
of 2011.
[4]
Section
2 of the TAA.
[5]
Section
3 (1) of the TAA.
[6]
Section
3(a) of the TAA.
[7]
Section
3(2)(b) of the TAA.
[8]
Section
3(2)(d) of the TAA.
[9]
Section
3(2)(f) of the TAA.
[10]
Section
3(2)(g) of the TAA.
[11]
Section
46(4) of the TAA.
[12]
See
fn 1.
[13]
Section
92 of the TAA.
[14]
Section
99(1)(a), read with s 99(2)(a) of the TAA.
[15]
Created
in terms of s 116, and exercising jurisdiction in terms of s 117 of
the TAA.
[16]
Section
124 of the TAA.
[17]
Section
132 of the TAA.
[18]
Section
133 of the TAA.
[19]
The
TAA has no provision to compel compliance with s 46 and the
appellants do not dispute the jurisdiction of the high court to
grant and order compelling compliance. See
Commissioner
for the South African Revenue Servies v Brown
2016 JDR 0826 (ECP).
[20]
The
interlocutory application further sought condonation for the late
filing of the answering affidavit in the main application
and the
striking out of certain passages in SARS’ founding affidavit.
Only the secrecy application was argued and
the appeal concerns the
secrecy application.
[21]
Cerebos
Food Corporation Ltd v Diverse Foods SA Pty Ltd and Another
1984
(4) SA 149
(T) at 159G-H; and
Botha
v Die Minister van Wet en Orde en Andere
1990 (3) SA 937
(W) at 944D-E.
[22]
Superior
Courts Act 10 of 2013
.
[23]
Standard
Bank of South Africa Limited v Sewpersadh
2005
(4) SA 148
(C) at 153H;
Sealed
Africa Pty Limited v Kelly and Another
2006
(3) SA 65
(W) at 67B-E;
Hano
Trading CC v J R 209 Investments Pty Limited
and
Another
2013
(1) SA 161
(SCA) at 165A-C.
[24]
Rule
35(13)
provides: ‘
(13)
The provisions of this rule relating to discovery shall
mutatis
mutandis
apply,
in so far as the court may direct, to applications.’
[25]
Section
132
of the TAA.
[26]
Section
32
of the
Superior Courts Act provides
: ‘
Save
as is otherwise provided for in this Act or any other law, all
proceedings in any Superior Court must, except in so far as
any such
court may in special cases otherwise direct, be carried on in open
court.’