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[2007] ZASCA 22
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Commissioner for South African Revenue Services Gauteng West v Levue Investments (Pty) Ltd (537/06) [2007] ZASCA 22; [2007] 3 All SA 109 (SCA); 69 SATC 85 (23 March 2007)
REPUBLIC
OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case
number:
537/06
In
the matter between:
COMMISSIONER: SOUTH
AFRICAN
REVENUE
SERVICES, GAUTENG WEST
......................
Appellant
and
LEVUE
INVESTMENTS (PTY) LTD
......................
Respondent
CORAM
:
HOWIE
P, STREICHER, FARLAM, BRAND and COMBRINCK JJA
HEARD
:
2
MARCH 2007
DELIVERED
:
23
MARCH 2007
Summary:
Appeal
– condonation for late filing of record refused despite good
prospects of success
Neutral
citation:
This
judgment may be cited as
CSARS,
Gauteng West v Levue Investments (Pty) Ltd
[2007]
SCA 22 RSA
_____________________________________________________________________
JUDGMENT
_____________________________________________________________________
COMBRINCK
JA:
[1]
The appellant (‘the Commissioner’) in this appeal seeks
the following:
(a)
an order condoning, in terms of Rule 11 read with Rule 12 of the
Rules of this court, the late filing of the record;
(b) reinstatement of the
lapsed appeal;
(c) an order that:
(i) the appeal be upheld;
(ii) the order of the
court below be set aside; and
(iii) costs of the appeal
and of the application in the court below, such costs to include the
costs of two counsel.
The
appeal is against an order made by Victor AJ in the Johannesburg High
Court consequent upon an urgent application brought by the
respondent
(‘Levue’). The order was that the Commissioner
unconditionally pay to Levue an amount of R2 581 317 plus costs
of
the application. This amount was claimed by Levue as a VAT refund the
entitlement to which was disputed by the Commissioner. Resolution
of
the dispute in terms of the Value Added Tax Act 89 of 1991 (‘the
Act’) read with the Income Tax Act 58 of 1962 was
pending at
the time. The appeal is with leave of the court
a
quo
.
[2] The origin of the
dispute between the parties is the purchase by Levue of a number of
properties constituting the little town
of Kragbron in the Heilbron
district. Kragbron is a decommissioned Eskom power facility. It
consists of 540 residential properties,
roads, a school, church and
shops and has a population of some 1 660 residents. The town was sold
to Levue by Vennprop (Pty) Ltd
for a price of R25 650 000. The price
was paid by means of a loan from Investec Bank in whose favour a bond
of R27m was registered
over the property. Levue, a registered vendor
in terms of the Act, intended, (so it said), establishing a township,
selling the existing
homes and developing a golf course and
equestrian estate. The properties were registered in Levue’s
name on 5 January 2005.
Transfer duty paid by Levue amounted to R2
565 000. On 25 February 2005 Levue’s shareholders sold their
shares to Fairfax Marketing
Limited, a company registered in the
British Virgin Islands for R113m.
[3] For the tax period
ending January 2005 Levue on 3 February 2005 rendered a VAT return
which reflected an amount of R2 581 317
as input tax and a nil amount
as output tax. It accordingly in terms of s 16(5) read with s 44
claimed a refund of this amount. The
amount claimed was the aggregate
of R2 581 317 being the transfer duty paid on the properties and R16
317 in respect of taxable supplies.
Levue’s contention was that
it had acquired second hand goods in the form of fixed property, the
input tax on which was, in
terms of the definition of input tax in s
1, limited to the amount of transfer duty. The properties, so it was
alleged, were acquired
wholly for the purpose of making taxable
supplies. (S 17(1)(i) of the Act.) The taxable supplies were the
individual properties it
intended selling once the township had been
established.
[4] In a letter dated 22
April 2005 the Commissioner disallowed the claim. The reasons given
were the following:
‘
In
terms of section 12(c) of the Value Added Tax Act (The Act), the
supply of a dwelling will constitute an exempt supply. As such
the
letting and hiring of the vacant houses will constitute an exempt
supply.
In terms of section 17(1) of the Act, one
may claim an input tax credit to the extent that one is making
taxable supplies. As the
purchase from Vennprop relates to the making
of exempt supplies no input tax credit may be made.
With regard to the vacant land, one must
demonstrate that the acquisition was to make taxable supplies with.
As the property is not
zoned yet for the purposes of making taxable
supplies, you have not discharged the onus of demonstrating the
intention of making
taxable supplies.
As such the transfer duty may not be
claimed as an input tax credit in terms of section 17(1) supra.’
Despite protest by Levue
that of the 540 residential properties 415 were subject to existing
leases when it acquired ownership and
that it had by June 2005
already sold 141 houses, the Commissioner remained adamant – no
payment was going to be made until
further investigation had been
made.
[5] On 24 June 2005
Levue, in terms of s 32(3) of the Act, lodged a notice of objection.
By this time it was experiencing pressing
financial problems.
Investec Bank was demanding the first instalment of R5m which was due
on the loan and was threatening foreclosure.
The local municipality
was demanding payment of an amount of R 617 210,24 outstanding in
respect of water supplied to Kragbron. Despite
frantic letters and
telephonic calls from Levue’s attorney, the Commissioner
remained unrepentant. Levue then launched the
urgent application
referred to earlier. The substantive relief sought was a mandatory
interim interdict that the Commissioner pay
Levue the sum of R2 581
317. Although the order sought in the Notice of Motion was for
unconditional payment of the amount, it is
clear from the founding
affidavit that what was being claimed was an interim order pending
resolution of the dispute between the
parties. The Commissioner
opposed the application principally on three grounds. Firstly that
the matter was not urgent. Secondly
that the court had no
jurisdiction as a determination of the dispute was one which had to
be determined by a Tax Court and thirdly
that the application was
premature as the Commissioner had then as yet not decided whether to
allow or disallow the objection (s 32(4)).
[6]
The judge in the court
a
quo
found
that Levue had established grounds for urgency. Relying on the
judgment in
Metcash
Trading Ltd v Commissioner, South African Revenue Service and Another
2000
(1) SA 1109
(CC) she found that the court had jurisdiction to grant
what she termed interlocutory relief while a dispute was pending in
the Tax
Court. Although the order she made was in terms
unconditional, properly interpreted in the light of the judgment as a
whole, it was
a form of interim order. Levue in its founding
affidavit stated that it was advised to tender security. It did not,
despite the advice,
tender any security. From the judgment it appears
that at the hearing of the application there was a debate about
security. The judge
says that she suggested that security be put up
pending the appeal process in the Tax Court. She records that the
Commissioner’s
attitude was that he would only accept cash and
not even a bank or other form of guarantee. Instead of then deciding
what reasonable
and adequate security would be and making an order
subject to the furnishing of such security, a finding was made that
the Commissioner’s
demand for cash was unreasonable and would
destroy Levue. No security was therefore ordered. Elsewhere in the
judgment it is said
that an order that the VAT refund be made will
not result in prejudice to the Commissioner as the shareholding in
Levue had been
sold for R113m and he would be able to recover the
refund should it ultimately be found that payment should not have
been ordered.
[7] As recorded at the
commencement of this judgment the Commissioner seeks condonation for
the late filing of the record and reinstatement
of the appeal. A
substantive application on notice of motion has been filed. Levue
opposes the application and has filed an opposing
affidavit. The
Commissioner replied. The affidavits filed by the Commissioner were
attested to by the attorney of record. In the
founding affidavit he
sets out the history of events from the time leave to appeal to this
court was granted. Principally the delay
in filing the record is
ascribed to the transcribers who were instructed to compile the
record, Sneller Verbatim (Pty) Ltd (‘Sneller’).
The
attorney claims that he did everything in his power and control to
expedite the compilation and filing of the record. No blame
for the
late filing can, he says, be attributed to any failure on his part.
The Commissioner, he concludes should be granted condonation
because
he has reasonable prospects of success on appeal.
[8]
An analysis of events does not support the attorney’s claim
that he was not at fault. The record runs to 119 pages. It consists
of the formal application papers, the main judgment and the
application for and judgment on leave to appeal. No evidence was led
and no transcription of oral evidence was therefore required. An
attorney’s office the size of the Deputy State Attorney,
Johannesburg
ought to be able to compile a record of this nature
within a day or two. It took from the 30
th
November
2005 when leave to appeal was granted, to 29
th
September
2006 to file the record – a period of 10 months. The claim that
the delay was due to Sneller does not stand up to
scrutiny. On his
own version the attorney waited 55 days before he on the 13
th
February
2006 instructed Sneller to compile the record. No reason whatsoever
is given for this delay. Thereafter it is apparent from
the
correspondence that Sneller had not been furnished with all the
documents necessary to make up the record. Sneller wrote a number
of
letters asking for a complete set of court papers. In May 2006 it was
still calling for the application papers making up the Commissioner’s
complete answering affidavit, the application for leave to appeal and
the name and address of Levue’s Bloemfontein correspondent.
On
29 June 2006 Levue launched an application seeking an order declaring
the appeal to have lapsed and leave to execute on the original
order
granted. One would have thought this would have galvanised the
attorney into action. In his founding affidavit, having recorded
the
launch of the application, and the fact that the Commissioner opposed
the application, he describes his actions during July and
until the
17
th
August
when he went to see Sneller in these words:
‘
Despite
that application by the Respondent I continued to push Sneller to
expedite compilation of the appeal record.’
On
his own version despite the fact that the appeal had lapsed months
earlier, he remained virtually supine. Even when he received
the
record, which he says was on 6 September 2006, he waited till 29
September before lodging it.
[9]
On two occasions before the application was launched Levue through
its attorney advised the Commissioner that the appeal had lapsed.
The
first was in a letter dated 20 February 2006 which wrongly
recorded that the appeal had lapsed by that date. In fact it
only
lapsed on 6 March 2006. Nevertheless it alerted the attorney of the
danger of the appeal lapsing. The second was at a meeting
on 9 May
2006 between representatives of the parties. When advised that the
appeal had lapsed the Commissioner’s official,
a senior
auditor, responded with words interpreted by the respondent to mean
that she was aware that the appeal had lapsed, the Commissioner
had
no intention of taking steps to reinstate the appeal, that there was
a prohibition against execution against the Commissioner
and he
therefore intended disregarding the order. Despite the official being
named in Levue’s answering affidavit, no affidavit
by the
official contesting these allegations was filed in reply. The
attorney in his affidavit states that he could not get hold
of her to
find out what she said and meant. This evidence lends credence to
Levue’s contention that members of the Commissioner’s
staff deliberately delayed the appeal proceedings in the hope that
the financial embarrassment caused to Levue would cripple it
financially.
[10] It is indeed so that
the Commissioner has good prospects of success. The order granted is
an extraordinary one. It is unprecedented
that where a creditor seeks
to recover a disputed debt from a debtor, the latter can be ordered
pending resolution of the dispute
to pay the debt. Even if the order
were to be made against the furnishing of security, it is still one
which should only be granted
in exceptional circumstances, if at all.
In this case the balance of convenience which has to be considered in
an application for
interim relief has not been addressed at all.
[11]
This court has repeatedly warned that a party seeking condonation
cannot rely solely on prospects of success to entitle it to
be
excused for not complying with the rules. I need only refer to two
judgments of this court.
P
E Bosman Transport Works Committee v Piet Bosman Transport (Pty) Ltd
1980
(4) SA 794
(AD) and
Ferreira
v Ntshingila
1990
(4) SA 271
(AD) at 281D-282A. Muller JA in the former case said the
following (at 799 D-E):
‘
In
a case such as the present, where there has been a flagrant breach of
the Rules of this Court in more than one respect, and where
in
addition there is no acceptable explanation for some periods of delay
and, indeed, in respect of other periods of delay, no explanation
at
all, the application should, in my opinion, not be granted whatever
the prospects of success may be.’
These
remarks were
endorsed
in the
Ferreira
judgment
(supra) at the passage cited.
[12]
I consider the explanation tendered for the delay to be unconvincing
and inadequate. Despite knowledge that the appeal had lapsed
nothing
was done about applying for condonation until the day of the hearing
of the application for a declarator and leave to execute,
13
September 2006, when the present application was filed. There was in
my view a flagrant disregard of the rules which despite the
Commissioner’s prospects of success does not entitle him to
condonation. In addition, I consider the attitude adopted by the
Commissioner’s official towards the court order and the appeal
to be inexcusable.
[13]
The application for condonation of the late filing of the record is
refused with costs. The appellant is ordered to pay respondent’s
costs of appeal, such costs to include the costs of two counsel.
P C COMBRINCK JA
CONCUR:
HOWIE P
STREICHER JA
FARLAM JA
BRAND JA