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[2021] ZAGPPHC 191
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Commissioner for the South African Revenue Service v Raphela and Others (2091/2021) [2021] ZAGPPHC 191; 84 SATC 143 (29 March 2021)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 2091/2021
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
THE
COMMISSIONER FOR THE
SOUTH
AFRICAN REVENUE SERVICE
Applicant
and
PHELADI
SUZAN RAPHELA
First
Respondent
PSR
SOLUTIONS (PTY) LTD
Second
Respondent
THEMBEKA
KOEKI MDLULWA
Third
Respondent
J
U D G M E N T
This
matter has been heard in open court in terms of the Directives of the
Judge President of this Division. The judgment
and order are
accordingly published and distributed electronically.
DAVIS,
J
[1]
This is the judgment if the anticipated return day of a
temporary preservation order obtained by the Commissioner of the
South African
Revenue Service (“CSARS”) whereby funds
were frozen in the accounts of a taxpayer and the third respondent,
Mrs Tembeka
Koeki Mdlulwa. The anticipation of the order was
heard in the urgent motion court.
[2]
The background facts
2.1
The principal taxpayer involved in this dispute is PSR
solutions (Pty) Ltd (PSR). It takes its name from its sole
director,
Mrs Pheladi Suzan Raphela, who was cited as the first
respondent.
2.2
On 17 August 2020, the Fusion Centre referred a case
concerning PSR to CSARS. The Fusion Centre is a collaborative,
multi-agency
body established by Presidential direction in response
to alleged corruption in the COVID-19 personal protection equipment
(“PPE”)
procurement.
2.3
On 21 April 2021, PSR was awarded a tender to supply 1,5
million facemasks at R30 per mask, apparently for use by the South
African
Police Service (the “SAPS”). As the tender
value was R 45 million, it should have attracted output VAT in the
amount of R 5 869 562, 21.
2.4
It appears that neither
Mrs Raphela nor PSR had the funds to acquire the face masks in order
to fulfill the tender. Through
a Mr Kudzingana, Mrs Mdlulwa was
approached for funding.
This
was four days prior to the expiry of the tender.
2.5
Mrs
Mdlulwa thereafter, on 14 April 2021, paid the amount of R
19 939 000,00 to Chenhu, Jelecoro and J2L Trading, being
the suppliers of the masks.
2.6
After the
fulfillment of the tender by way of delivery of the masks paid for by
Mrs Mdlulwa, PSR paid her R 33 154 000,00
on 21 April 2020
from the proceeds of the tender (a neat profit for Mrs Mdlulwa in
excess of R13 million in 7 days, after the SAPS
had paid 125% more
than the actual cost of the PEE).
2.7
PSR had not
fulfilled its tax obligations in respect of the transactions and, in
particular, has neither disclosed the transaction
in VAT returns nor
has any VAT been paid thereon. A provisional calculation (not
yet being an actual assessment) by CSARS
indicated the amount due in
respect of VAT, late payment and non-disclosure penalties to be R 14,
5 million at the time of the
CSARS replying affidavit. The
non-payment penalties and interest due on this amount continues to
accrue.
2.8
By the end of July
2020, PSR only had R 110 377,72 left in its bank account.
[3]
The relevant legal position
3.1
From the outset, one must distinguish between preservation provisions
and recovery
provisions available to CSARS in respect of unpaid
amounts. The first are primarily catered for in Section 163 of
the Tax
Administration Act, 28 of 2011 (the “TAA”) while
the latter are contained in a host of other sections of the TAA.
One of these, obliquely relevant to the present matter, is section
183, dealing with the liability of persons assisting in the
dissipation of assets.
3.2
Section 163(1) of the TAA provides as follows:
“
A
senior SARS official may, in order to prevent any realizable assets
from being disposed of or removed which may frustrate the
collection
of the full amount of tax that is due or payable or the official on
reasonable grounds is satisfied may be due or payable,
authorize an
ex parte application to the High Court for an order for the
preservation of any assets of a taxpayer or other person
prohibiting
any person, … from dealing in any manner with the assets to
which the order relates
”.
3.3
Section 163(3) of the TAA provides that:
“
A
preservation order may be made if required to secure the collection
of the tax referred to in subsection (1)…
”.
3.4
Section 163(7) of the TAA provides for the granting of ancillary
orders regarding
how the assets must be dealt with, including the
appointment of a
curator bonis
and the realization of the
assets in satisfaction of the tax debt.
3.5
Section183 of the TAA provides that: “
If a person knowingly
assists in dissipating a taxpayer’s assets in order to obstruct
the collection of a tax debt of the
taxpayer, the person is jointly
and severally liable with the taxpayer for the tax debt to the extent
that the person’s assistance
reduces the assets available to
pay the taxpayer’s tax debt
”.
[4]
The preservation order
4.1
CSARS investigations revealed that, since the receipt of the tender
amount,
which “SAPSfin” has paid by way of nine tranches
of R 5 million each, all on 21 April 2021, PSR has made some 61
payments
from its bank account, resulting in the remaining balance of
some R 110 000.00 (only) referred to in paragraph 2.7 above.
4.2
Apart from the more than R 33 million paid to Mrs Mdlulwa, the other
payments
included:
4.2.1
R 1 041 000.00 into Mrs Raphela’s bank account over
the period from 22 April 2020 to 6 July
2020;
4.2.2
R 1 million to aforementioned Mr Kudzingana;
4.2.3
R 2,2 million for the purchase of a property in Mooikloof, Pretoria;
4.2.4
R 778 682, 05 for the purchase of a BMW X 5 registered to Mrs
Raphela;
4.2.5
R 556 967, 40 to Absa Vehicle Finance in respect of a Mercedes
Benz X2500 owned by Mrs Raphela;
4.2.6
R 2,5 million to Absa bank in respect of two MAN trucks, owned by Mrs
Raphela.
4.2.7
4.3
Details of all the payments, bank accounts, holders thereof and
vehicle particulars
were contained in the founding affidavit deposed
to on behalf of CSARS by a Senior Manager: Tactical Analysis and
Investigations
– Criminal and Illicit Activities Division, who
is also a Senior SARS official as contemplated in section 6 of the
TAA.
4.4
based on all of the above, and the facts mentioned in paragraph 2
abbove, the
official was satisfied babBased on all of the above and
the facts mentioned in paragraph 2 above, the official was satisfied
that
reasonable grounds existed that tax may be due or payable and
that a preservation order is needed to secure realizable assets from
being disposed or removed which may frustrate the collection of tax.
4.5
baseeBased on the above, this Court, per Basson, J, granted an order,
with return
day 15 March 2021, but with immediate effect, whereby a
curator bonis
was appointed with extensive powers, as
contemplated in the TAA (the powers are not in dispute) in order to
seize assets for the
preservation thereof in terms of section 163 of
the TAA.
4.6
The return day in respect of the order against Mrs Raphela and PSR
has since
been extended to 30 July 2021. Neither of these two
parties have delivered any affidavits at the time of this judgment.
4.7
Pursuant to the preservation order, the curator proceeded to locate
assets.
He produced an interim report, confirmed by an
affidavit. He found that Mrs Raphela’s savings bank
account at Absa
only contained R 3 597,94 and that PSR’s
account then had a closing balance of R 1235 241,78. He found
that Mrs
Mdlulwa was residing in Spain with her family and that her
residence in Bridle Park Country Estate in South Africa has not been
maintained or occupied for a number of years. The curator has
placed a “hold” on accounts of Mrs Mdlulwa at Investec
with balances totaling some R 24 million. It is this
lastmentioned amount which Mrs Mdlulwa now claims in her anticipation
application, should be released.
[5]
Mrs Mdlulwa’s case
Apart
from peripheral disputes between the parties relating to condonation
needed by Mrs Mdlulwa for not filing her affidavit timeously,
an
application by CSARS for striking out certain portions of Mrs
Mdlulwa’s affidavit on the basis that it contains an
unwarranted
attack on SARS officials and the curator and a huge
disputes about the making available of funds to allow Mrs Mdlulwa to
travel
from Spain (and back) to sign her affidavit, the crux of her
opposition against the continued existence of the preservation order,
is the following:
5.1
The allegation that Mrs Mdlulwa was the “mastermind” of
the tender
transactions is unfounded. Coupled herewith, is the
allegation that the requirements of section 183 of the TAA have not
been
met.
5.2
There was an insufficient disclosure in the founding affidavit to
satisfy the
test for ex parte applications. In particular,
reliance was placed on the fact that the CSARS deponent had failed to
disclose
that Mrs Mdlulwa had the necessary permission in terms of
the Foreign Exchange Control Regulations when she expatriated funds
to
Spain.
5.3
There is a disproportionality between the extent of funds “frozen”
in terms of the preservation order, and the extent of the tax
liability of PSR (and Mrs Raphela).
[6]
Evaluation
6.1
Mrs Mdlulwa not only denies that she was a mastermind of any sorts
regarding
the transactions in question, but avers that she has no
relationship with Msr Raphela and only got involved as a result of Mr
Kudzingana’s
intervention. However, seven months after
her loan to PSR, she furnished Mrs Raphela with an “invoice”.
This “invoice” was addressed to “Suzan” and
purported to provide a basis for the loan. PSR attempted
to use
this invoice to support a claim for input VAT, but this attempt was
rejected by SARS due to the obvious deficiencies in
the invoice.
Even if Mrs Mdlulwa was not a “mastermind”, she appears
to have a closer relationship with Mrs Raphela
than she is prepared
to concede, but for present purposes, nothing much turns on this.
The order sought and obtained against
Mrs Mdlulwa was not on the
basis of her tax liability, but that of PSR (and Mrs Raphela).
Although CSARS had relied on her
involvement in the dissipation of
funds, it was as recipient and not (yet, at least, on these papers)
on grounds such as those
contemplated in section 183 of the TAA, i.e
as co-perpetrator. CSARS has also not claimed that she be held
jointly and severally
liable. Her reliance on the applicability
of section 183 is therefore misplaced. Counsel for CSARS also
made this clear
during argument: CSARS is currently relying on asset
preservation provisions and not on tax recovery provisions of the
TAA.
6.2
In this regard, Mrs Mdlulwa contends that, although she had received
the funds
in question from PSR, it is “untenable” that
CSARS may “freeze” the funds. In heads of argument
filed
on her behalf, it is suggested that CSARS “…
should only freeze the account of the taxpayer or the account of
any person who knowingly assisted the taxpayer in dissipating assets
…
”.
6.3
The restricted interpretation which Mrs Mdlulwa seeks to place on
section 163,
is not supported by the wording thereof. The
section clearly contemplates the granting of the order against a
taxpayer
or
“other person”, lastmentined clearly
being someone other than the taxpayer. Applying the principles
of interpretation
as set out by Wallis JA in
Natal Joint Municipal
Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA) and
the annotations thereof, this is the only sensible manner on which
the words “other person”, can be interpreted
in the
context of the section as a whole and its intended aim, namely, to
prevent (further) dissipation of assets by the taxpayer
which, if not
“followed” and “preserved”, might lead to the
tax being unrecoverable. This is particularly
in circumstances,
such as in the present case, where, after such dissipation, the
taxpayer appears to be unable to meet its estimated
tax liability.
6.4
The “reading in” into section 163 of the requirement of
collusion
or an intention of dissipation on the part of the “other
person” is, as aforesaid, not supported by the wording of the
section. CSARS, in utilising the preservation provisions, is
empowered to pursue and preserve
assets
in order to secure the
recoverability of a taxpayer’s tax liability, not to punish or
attach assets of a person who may (also)
be a co-perpetrator (as
contemplated in section 183). For this purpose, it has been
found that CSARS need not prove any intention
of such “other
person” in the same manner as may be required for an
anti-dissipation interdict (a
Mareava
injunction in English
law) as set out in
Knox D’Arcy Ltd and Others v Jamieson and
Others
[1996] ZASCA 58
;
1996 (4) SA 348
(A). All that CSARS has to show, is
that there is a material risk that assets which would otherwise be
available (or which
would otherwise have been available) for the
satisfaction of the taxpayer’s tax liability would, in the
absence of a preservation
order, no longer be available. See
Commissioner of South African Revenue Service v Tradex (Pty) Ltd
and Others
2015 (3) SA.
6.5
In the present case, the bulk of the funds from which PSR would have
been able
to satisfy its tax obligations have already been dissipated
to Mrs Mdlulwa and some of those funds have already been expatriated
out of the country. It matters not that such expatriation
had been done with compliance with Foreign Exchange Control
Regulations, the consequence is that those funds are already no
longer recoverable. The facts also show that Mrs Mdlulwa
is no
longer living in the country on a full-time basis, her daughters are
also overseas, playing tennis on the international circuit
and that
she uses funds, expatriated funds at that, to support that
lifestyle. She herself, hints at an increase of the need
for
funds outside the country as the one daughter is now being enrolled
for residential study at a university in the United State
of
America. Preserving the funds which have emanated from the
taxpayer and which are now in the hands of Mrs Mdlulwa as an
“other
person” and which funds are, for the time being, in South
Africa, in my assessment, constitute sufficient grounds
to indicate
the “practical utility” of a preservation order.
See, again: the
Tradex
– judgment at paragraph [37].
6.6
Mrs Mdlulwa’s contentions that the provisions of section 163
should not
apply to her as an alleged “innocent” person
and should not apply without satisfaction of the requirements of
section
183 of the TAA, can neither in fact nor in law, be upheld.
6.7
In a recent judgment by Sutherland ADJP in this division in case no
35696/2020
in
CSARS v Hamilton Holdings (Pty) Ltd & Others
,
1 March 2021 a similar stance to that of Mrs Mdlulwa was taken with
regard to the CSARS’ founding affidavit. It was
also
alleged in that application that the founding affidavit failed to
disclose all relevant facts and therefore breached the
uberrima
fides
-requirements relating to
ex parte
applications.
The principal “non-disclosures” relied on by Mrs Mdlulwa
were the lack of proof relating to the
“mastermind”
allegation, already dealt with in paragraph 6.1 above, and the fact
that, the funds that had been expatriated
to Spain, had been
expatriated legally. Based on these non-disclosures, counsel
for Mrs Mdlulwa argued that CSARS’
application should be
non-suited
in toto
. In similar fashion as in the matter
before Sutherland ADJP, I am of the view that these facts were not so
material that,
had they been communicated to the judge who granted
the initial order, she would not have granted the order.
6.8
The last issue is that of alleged disproportionality between the
estimated future
tax liability of PSR and the amounts frozen in Mrs
Mdlulwa’s accounts. Reduced to its most basic, Mrs
Mdlulwa’s
argument is that, on CSARS’ estimate R 14,5
million would constitute the “maximum” possible tax
liability (calculated
as the R 5,8 million unpaid VAT plus 150%
penalties), but some R 24 million have been blocked in terms of the
preservation order.
6.9
As already indicated, the R14,5 million, continues to attract
non-payment penalties
and interest. In addition, PSR’s
income tax liabilities still have to be calculated. These might
also attract
non-disclosure and other penalties. Interest is
also already due in respect of non-payment of provisional tax.
Sutherland
ADJP also dealt with a similar objection in the matter
which served before him. He found (at [26]) that, even if it
may be
that the estimated liability may be higher than what may
eventually be determined or assessed, that does not establish
“overbroadness”
for purposes of a preservation order.
In the present instance, the position is even “worse” for
the taxpayer
and Mrs Mdlulwa’s argument: taking everything into
account, even the facts averred by Mrs Mdlulwa in her answering
affidavit,
the relevant CSARS official contemplated in section 163,
was of the view that the “
amount preserved may not even be
sufficient to cover or satisfy the tax liability when it becomes due
and /or is levied
”. It must further be borne in mind
that the preservation order is not final in nature. See the
Tradex
– judgment at [40]. In this regard further, Sutherland
ADJP made the following remarks in
Hamilton Holdings
(above)
at [20]: “
The officials can, on the basis of fragmentary
information available, at best, make an estimate and self-evident
practicality dictates
that the estimate should be generous rather
than conservative because its purpose is to ensure that all due tax
shall be collected
… a dispute of fact about the estimate in
interim proceedings is futile. If hardship because of the seizure of
assets has
resulted, the section makes provision for relief
”.
6.10
The section the learned judge had in mind regarding the relief of
hardship, is section 163(7)(d),
providing for a variation of the
order, upon the satisfaction of certain further disclosure
requirements relating to living expenses
of the person against whom
an order had been made and, in this case, her defendants. Apart
from vague allegations, none of
the required particulars have been
disclosed. CSARS has also indicated that it would be willing to
consider sufficient alternative
forms of security instead of the
preservation order. To date, none have been suggested.
6.11
In the premises I am satisfied that the jurisdictional requirements
for the preservation order
have been met. In the circumstances
of this case, I further find no cogent reason to depart for the
customary rule that costs
should follow the event.
[7]
Having reached the above conclusions, I find it unnecessary to deal
with
CSARS’ application for striking out, the separate
adjudication of Mrs Mdlulwa’s application for condonation (all
papers
files of record had been considered), the spat between Mrs
Mdlulwa (and her Attorneys) and the curator regarding the release of
funds for travelling, the extent and timing thereof and the heated
exchanges contained in related e-mails, particularly on an urgent
basis.
[8]
The order:
1.
The provisional order against the third respondent is confirmed.
2.
The third respondent is ordered to pay the costs of the application
against her.
3.
The extension of the rule nisi as against the other two respondents
to 30 July 2021, remains in place.
N
DAVIS
Judge
of the High Court
Gauteng
Division, Pretoria
Date
of Hearing: 19 March 2021
Judgment
delivered: 29 March 2021
APPEARANCES:
For
the Applicant:
Adv. K D Magano
Attorney
for Applicant:
Ledwaba Maswai Attorney,
Pretoria
For
the 3
rd
Respondent:
Adv.
M D Stubbs together with
Adv
M Musandiwa
Attorney
for 3
rd
Respondent:
Selepe
Attorney, Johannesburg
c/o Hills Incorporated
Attorney, Pretoria