Summary of Judgment

Introduction

The proceedings took the form of an application in the North Gauteng High Court, Pretoria, seeking declaratory relief connected to the Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006 (referred to in the judgment as “the Act”) and the protection against criminal prosecution said to flow from an approved amnesty application. After oral argument, the applicants confined their relief to declarations that they had complied with their obligations under the amnesty scheme in relation to the charges reflected in the criminal summonses, and that they were therefore entitled to rely on the statutory protection from prosecution, together with a costs order.

The parties were Saira Essa Productions CC (first applicant), Saira Essa (second applicant), and Mark Corlett (third applicant), as applicants, and the South African Revenue Service (SARS) as respondent. The applicants were already facing criminal charges linked to alleged non-compliance with VAT and PAYE obligations, and the application was brought to secure a declaration that the amnesty approvals insulated them from prosecution for those charges.

Procedurally, the matter arose against the backdrop of a SARS investigation that commenced in 2003, subsequent criminal charges and court appearances from 2005, and later amnesty applications lodged in 2006 that were approved during 2007. The application thus sought to resolve the legal effect of the amnesty approvals on ongoing criminal proceedings.

The general subject-matter of the dispute concerned the interaction between the statutory tax amnesty regime, the scope of relief and indemnity purportedly granted, and whether that relief barred continued criminal prosecution for VAT (and related) offences forming the subject of the charge sheets.

Material Facts

It was common cause that a criminal investigation against the applicants was instituted during July 2003. A letter dated 11 August 2004 notified the first applicant of the investigation and indicated that it related to the non-filing and under-declaration of VAT, PAYE and Income Tax.

It was also common cause that the first applicant, represented by the second and third applicants, was charged with non-payment of VAT for the period October 2002 to February 2004 (Schedule A to the charge sheet), and with PAYE not paid over for the period June 2003 to September 2004 (Schedule B). Their first court appearance occurred on 12 August 2005.

On the tax compliance side, the applicants’ accountant compiled financial statements and VAT returns for the VAT periods October 2002 to February 2004. VAT became payable, and, as accepted on the papers, the VAT was in fact paid between August 2004 and September 2005. It was also common cause that the VAT was paid before the amnesty application was submitted.

The applicants submitted an amnesty application on 27 October 2006. The indemnity/amnesty approvals were then issued: the first applicant’s application was approved on 11 May 2007, the second applicant’s on 26 March 2007, and the third applicant’s on 16 April 2007. It was further common cause that the Commissioner did not deliver a notification contemplated in section 5(4) of the Amnesty Act.

A disputed factual issue was whether the amnesty approvals related to, and therefore covered, the same VAT periods forming the subject of the criminal prosecution. The applicants asserted that they were granted amnesty in respect of the VAT periods charged in Schedule A, and that they were therefore entitled to immunity from prosecution. SARS denied this and contended that amnesty was granted in respect of “other periods not covered by the previous assessments”, without specifying those periods.

Legal Issues

The central legal question concerned whether an applicant who applied for and was granted tax amnesty could still be prosecuted for alleged offences relating to the non-payment of VAT to which the amnesty was said to pertain. Embedded in that enquiry was the further question whether, on the evidence before the court, the amnesty approvals in fact covered the VAT periods that were the subject of the charge sheet.

A further set of legal questions arose from the statutory framework itself, in particular whether the amnesty relief was legally capable of being granted in circumstances where (on common cause facts) the relevant tax had already been assessed and paid before the amnesty application, and where an investigation notice had previously been delivered. This engaged the interpretation and application of sections 5(2), 5(4), 8(c), and 10 of the Amnesty Act, as well as the provisions relied upon from the “Second Small Business Tax Amnesty and Amendment of Taxation Laws” legislation referred to in the judgment.

The dispute therefore involved a mixture of fact (the scope of the approved amnesty and whether it covered the charge-sheet periods), law (the effect of sections 10 and 5(2) on the availability of relief), and the application of law to fact (whether the statutory bars prevented reliance on the amnesty approvals, and what consequences followed from the approvals having been issued).

Court’s Reasoning

The court first addressed the dispute about whether the amnesty approvals related to the VAT periods in the charge sheet. It noted that, although SARS asserted that the applicants were granted amnesty in respect of “other periods not covered by the previous assessments”, the answering affidavit did not define what those “other periods” were. The court described this as vague and insubstantial, amounting to a bare denial that did not create a genuine dispute of fact. On that basis, and with reference to the approach in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A), the court held that the Plascon-Evans formulation did not apply in the respondent’s favour because the alleged dispute was not real or genuine.

In analysing the statutory context, the court described the purpose of the Amnesty Act as providing tax relief to small businesses that were not registered, or that had not declared tax, understated tax, or had outstanding returns for years preceding the 2006 year of assessment, within specified qualifying periods. The court referred to the statutory definition of the 2006 year of assessment and reasoned about how the amnesty application requirements (including disclosure of taxable income in respect of amounts accrued, received, or deemed to have been received from carrying on business during the 2006 year of assessment, and the furnishing of an income tax return and statement of assets and liabilities for that year) situated the application within the qualifying period contemplated by the Act. On the papers, SARS did not contend that the applicants failed to provide the disclosure and documentation required by the Act.

Against this framework, the court reasoned that, because the amnesty application reflected that the applicants had sought relief relating inter alia to VAT and PAYE, and because SARS did not meaningfully identify any alternative (“other”) periods for which amnesty had supposedly been approved, the only inference available on the respondent’s pleaded case was that the approved amnesty encompassed the VAT referred to in the charge sheet. The court also recorded that SARS did not answer or argue that the applicants were not granted amnesty pertaining to the charges in Schedule B.

The court then turned to the respondent’s principal legal contention that amnesty could not lawfully have been granted for the VAT forming the subject-matter of prosecution because the tax had already been assessed and paid before the amnesty application. This argument was anchored in section 10 of the Amnesty Act, which excludes the application of amnesty relief to the extent that the tax had already been paid before submission of the amnesty application, or was payable in consequence of information furnished before submission, or was payable in terms of an assessment issued before submission. The court accepted that, on the common cause facts, the applicants had furnished information, assessments were issued, and the VAT was paid prior to the amnesty application. It therefore accepted that, prima facie, section 10 would bar amnesty relief in those circumstances.

Relatedly, the court considered section 5(2) of the Amnesty Act, which prohibits approval of an amnesty application where, before submission, the Commissioner delivered a notice informing the applicant of an audit, investigation or enforcement action relating to non-compliance in respect of the tax for which amnesty is sought, subject to section 5(4). It was common cause that an investigation notice had been delivered before submission of the amnesty application, and that no section 5(4) notification (withdrawing the notice or indicating the audit/investigation had been concluded) was delivered. The court noted these facts in addressing whether the Commissioner could approve the amnesty application.

Having acknowledged these apparent statutory impediments, the court emphasised that, as a matter of fact, the Commissioner did grant amnesty to the applicants. The court reasoned that either the Commissioner failed to take account of material information (because it was not before him) or failed to act upon it. On the court’s approach, the approved amnesty existed and could not simply be ignored in these proceedings. The respondent’s contention that the Commissioner had no power to approve the application in respect of the VAT in issue was characterised as an assertion that the Commissioner acted ultra vires, but the court highlighted that it had not been asked to declare the amnesty approvals void or voidable. In the absence of such relief, and while the approvals remained extant, the court held that they provided the foundation for reliance on the statutory protection against prosecution contemplated in the provisions invoked by the applicants, including the linkage between section 8 relief and the indemnity provision relied upon from the “Second” amnesty legislation referenced in the judgment.

Finally, the court stated that, under the statutory scheme, it was for the Commissioner (not the applicants) to know which applications could lawfully be approved and which could not. On the court’s reasoning, the applicants had complied with their obligations under the amnesty process relevant to the relief they sought, and the approvals issued by SARS entitled them to rely on the statutory protection against prosecution in respect of the charges.

Outcome and Relief

The court granted the declaratory relief sought after oral argument. It declared that the applicants had duly and properly complied with their obligations under the Small Business Tax Amnesty and Amendment of Taxation Laws Act 2006 in respect of the charges levied against them as set out in the summonses.

It further declared that the applicants were entitled to rely on the protection afforded by section 8(c) of the Amnesty Act read with section 5 of the “Second Small Business Tax Amnesty and Amendment of Taxation Laws” legislation referred to in the judgment, and that they were accordingly protected and/or relieved from prosecution in respect of the charges.

The respondent was ordered to pay the applicants’ costs, including the costs of two counsel where employed.

Cases Cited

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

Legislation Cited

Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006.

Second Small Business Tax Amnesty and Amendment of Taxation Laws Act, 2006 (referred to in the judgment, including a section 5 indemnity provision).

Value-Added Tax Act (referred to by name in section 8(c) as quoted in the judgment).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that SARS’s assertion that amnesty had been granted only for “other periods” was insufficiently particularised and amounted to a bare denial, failing to raise a genuine dispute of fact as to whether the approved amnesty covered the VAT periods in the charge sheet.

Although the court accepted that sections 10 and 5(2) of the Amnesty Act appeared, on the common cause facts, to preclude the granting of amnesty relief in the applicants’ circumstances, it held that the Commissioner had in fact granted amnesty and that, in the absence of a challenge seeking to set aside the approvals, the court could not ignore their existence. On that footing, the court held that the applicants were entitled to rely on the statutory protection linked to approved amnesty relief and were protected and/or relieved from prosecution in respect of the charges.

LEGAL PRINCIPLES

An asserted factual dispute in motion proceedings must be genuine and substantive; a vague, unparticularised denial may be treated as a bare denial and may not trigger the usual approach to disputes of fact associated with motion proceedings, as considered with reference to Plascon-Evans.

Under the amnesty statutory scheme considered in the judgment, the relief afforded by section 8(c) is expressly subject to section 10, and the Commissioner’s approval powers are constrained by provisions such as sections 5(2) and 5(4). The judgment nonetheless treated the existence of an issued amnesty approval as a legally operative fact for purposes of the relief sought, in circumstances where the validity of the approval was not attacked in proceedings seeking to set it aside.

Where an amnesty approval exists and has not been set aside, the judgment treated it as capable of grounding reliance on the statutory protection against criminal liability to the extent that relief has been granted under the amnesty framework, with responsibility placed on the Commissioner to ensure that approvals are granted only in legally permissible circumstances.