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[2024] ZAKZPHC 110
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Mediterranean Shipping Company (Pty) Ltd v Commissioner for the South African Revenue Services (AR160/2022) [2024] ZAKZPHC 110 (26 April 2024)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
APPEAL
CASE NO: AR160/2022
KZD
CASE NO: D5893/2019
In
the matter between:
MEDITERRANEAN
SHIPPING COMPANY (PTY) LTD
APPELLANT
and
COMMISSIONER
FOR THE SOUTH AFRICAN
RESPONDENT
REVENUE
SERVICES
ORDER
On
appeal from: KwaZulu-Natal Division of the High Court, Durban (Balton
J, sitting as the court of first instance):
1.
The appellant is granted condonation for the late filing of its
notice of appeal;
2.
The appeal is upheld with costs, such costs to include the costs of
senior counsel;
3.
The order of the court
a quo
is set aside and replaced with
the following order:
‘
1.
The decision by the respondent, set out in its letter dated 28 June
2017, in terms
of which it imposed liability on the applicant in
terms of s 88(2)(a) of the Customs and Excise Act 91 of 1964, in the
amount of
R521 442, is reviewed, declared invalid and set aside.
2.
The question of the applicant’s liability under s 88 of the
Customs and
Excise Act 91 of 1964, in respect of container
MEDU6198771, is remitted to the respondent for reconsideration.
3.
In reconsidering the issue of the applicant’s liability, if
any, under
s 88 of the Customs and Excise Act 91 of 1964, the
respondent is directed to consider and apply its published Customs
Code of Instructions
Manual, and, in particular, s 2.1 thereof which
stipulates inter alia that forfeiture must only be demanded in
instances where
evidence exists of intentional fraudulent dealings.’
4.
The respondent is directed to pay the costs occasioned by the
application’.
JUDGMENT
DELIVERED
ON 26 APRIL 2024
Henriques
J (Poyo-Dlwati JP and Voormolen AJ concurring)
Introduction
[1]
This is an appeal against the entire judgment and order of Balton J
of 30 November
2021, in which she dismissed the application by the
appellant (MSC), to review the decision of the respondent (SARS) made
in terms
of s 88 of the Customs and Excise Act 91 of 1964 (the Act).
SARS had invoked s 88(2)(a) of the Act and imposed a penalty of R521
442 in lieu of forfeiture, amounting to the value of duty for certain
goods said to have formed part of irregular and unlawful
conduct by
MSC.
[2]
MSC advanced four grounds of review in the court
a quo
:
(a)
it contended that the EDI release notification constituted a valid
release in terms of the
Act and SARS did not properly consider this
and if it did so, made an error of law by not recognising this as a
valid release;
(b)
SARS failed to have regard to the provisions of s 93 of the Act and
its revised Customs
Code of Instruction Manual (the Code) published
in November 2002, which stipulated that forfeiture must only be
demanded in circumstances
when there is evidence of intentional
fraudulent conduct. MSC contended that SARS did not consider this
Code and that there was
no evidence of fraud by MSC nor had SARS
suggested that there was;
(c)
SARS failed to give consideration to what might be regarded as a
reasonable amount
for forfeiture in the circumstances, even if the
EDI release had not been granted; and
(d)
SARS did not provide proper reasons for its decision as one would
expect from an administrative
body.
[3]
The court
a quo
rejected all four grounds of review and
dismissed the application. Leave to appeal was granted to the full
court on 2 February
2022. The findings of fact and rulings of law
appealed against, as well as its grounds of appeal, are set out in
extensive detail
in MSC's notice of application for leave to appeal
as well as the notice of appeal.
Condonation
for the late filing of the appeal
[4]
Before dealing with the merits of the appeal, it is necessary to
consider the request
for condonation for the late filing of the
notice of appeal. It is common cause that the notice of appeal was
filed out of time
and that SARS does not oppose the request for
condonation. It appears that the late filing of the notice of appeal
was as a consequence
of confusion between the staff of the appeals
offices in Durban and Pietermaritzburg, as to which centre was the
correct one for
the filing of the notice of appeal. The explanation
advanced for the delay meets the requirements for the granting of
condonation,
and is accordingly granted.
Factual
background
[5]
It is necessary to set out the factual background against which SARS
made its decisions,
which prompted MSC to institute the review
proceedings and which were placed before the court
a quo
when
it dismissed the review application.
[6]
MSC, an international shipping line and licensed container operator,
undertook the
carriage of goods which originated in Madagascar, a
SADC member state (whose goods are not subject to duty), on behalf of
the importer,
Acorp Gift (Pty) Ltd (Acorp), in July 2016, on board
the MSC Toronto in container MEDU6198771. Toll Global Forwarding SA
(TGF)
was the licensed clearing agent in terms of s 64B of the Act,
and KRV Logistics (Pty) Ltd (KRV) was the transporter nominated by
Acorp.
[7]
On 28 July 2016, SARS placed a hold on its NAVIS system for the
container as a result
of which it could not be moved. On 29 July
2016, SARS issued a manual detention notice to MSC in respect of the
container in terms
of sections 4 and 88(1) of the Act. In terms of
the detention notice, MSC was required to move the container via the
scanner to
a customs licensed depot in Durban for a physical
examination.
[8]
The detention notice indicated that a decision would be made once
certain documents
were received, being inter alia, the SAD500 import
bill of entry, all other supporting documents, the agent’s
covering letter,
SARS’ release notification, clearing
instructions, the supplier’s commercial invoice, a detailed
packing list, and
a bill of lading.
[9]
Ms Duduzile Madi, an employee of MSC who was tasked with handling
detention notices,
was on leave on the day the detention notice was
issued and as a consequence, the detention notice was not uploaded
onto MSC’s
system.
[10]
On the same day, the hold on the NAVIS system was released. According
to correspondence from
SARS, the purpose of releasing the hold was to
enable the container to be moved via the scanner to a licensed depot
for inspection.
When the hold was removed, the NAVIS system was
updated and the instruction to move the container to the depot was
captured on
NAVIS. On the same day, SARS also issued an EDI
notification to TGF, reflecting that the container had been released.
[11]
On 1 August 2016, the container left the terminal and was released to
KRV by MSC on the strength
of the EDI release. MSC adopted the view
that, because of the valid EDI release notification, there was no
basis upon which it
could have refused to release the container to
KRV and was of the incorrect assumption that the release was via a
valid EDI release
notification.
[12]
SARS, however, contended that MSC had impermissibly released the
container to the clearing agent.
MSC acknowledged that the container
did not move via the scanner to MSC’s depot, owing to an
unintentional administrative
error because the detention notice had
not been uploaded onto the system by Ms Madi.
[13]
Correspondence was exchanged in August 2016 between SARS and MSC. MSC
was required to book the
container for an examination, which was not
responded to. A follow-up email was sent by SARS on 19 October 2016,
to which MSC responded
advising that the container had been released
by SARS via email correspondence. SARS then requested MSC to provide
this email correspondence.
MSC sent an email showing screenshots of
NAVIS where the hold had been released, as well as the EDI release
itself.
[14]
On 10 April 2017, SARS sent MSC a letter of intent in terms of which
it threatened forfeiture
in terms of s 87(1), read with s 88 of the
Act, as MSC had released goods to the importer despite a detention
notice. Such letter
of intent afforded MSC the election to be dealt
with in terms of s 91, which provided for the imposition of a penalty
for a contravention
of the Act. The letter of intent allowed MSC to
make representations regarding the penalty to be imposed and to
provide any documentary
evidence in support of its motivation,
specifically in relation to SARS’
prima facie
findings
that there had been a contravention of the Act.
[15]
MSC responded to the letter of intent on 28 April 2017, wherein it
disputed liability. In such
representations, it challenged the
penalty imposed in terms of s 88(2)(
a
) of the Act, as a
grossly unreasonable forfeiture and it proposed that the matter be
dealt with in terms of s 91 of the Act and
tendered payment of R8 000
as an appropriate penalty. It was further stated that should SARS
maintain its position that the penalty
in terms of s 88(2)(a) of the
Act would apply, then MSC requested that the matter be referred to
the Internal Administrative Appeal
Committee (IAAC).
[16]
In such response, MSC accepted that a customs hold on the container
was placed on NAVIS on 28
July 2016 and that MSC was instructed to
move the container via the scanner to a licensed depot for physical
examination. It maintained
that due to an administrative oversight,
the hold was not updated on its system and on the same day, an EDI
notice was issued.
As the container reflected on NAVIS as being
released, MSC then released it to KRV and thereafter the container
was delivered to
Acorp. MSC indicated that it had inferred that the
container had been released when the NAVIS hold was uplifted but did
not infer
that SARS had uplifted the manual detention notice.
[17]
According to a MSC employee, Ms Rebecca Ndleleni, in her
communication to SARS on 19 October
2016, it was made clear that all
release documents were provided to MSC by TGF, and MSC incorrectly
released the container on 1
August 2016 without any intent to
prejudice SARS. Notably, in its response, MSC annexed the bills of
lading together with other
supporting documents, which demonstrated
that the consignment was shipped and imported from Toamasina,
Madagascar to Durban and
was declared as 351 cartons of garments.
Correspondence from the shipping manager of Acorp was annexed, which
showed that the seal
of the container on delivery to Acorp was intact
when the cargo was unpacked. In addition, the packing list and
commercial invoice
were annexed, which also demonstrated that 351
cartons had been received, which had been cross referenced, and
coincided with those
manifested, and the number declared on the
SAD500. Consequently, the cargo was not tampered with in any way.
[18]
MSC maintained that the same goods which were declared were accounted
for. SARS had not suffered
a loss and therefore there was no need to
impose a penalty in terms of s 88(2)(a). In the alternative, it
tendered payment of R8
000 in terms of s 91 as an appropriate
penalty. In addition, MSC proposed that the applicability of s 91 as
an appropriate penalty
was in line with the purpose and object of the
Act and SARS’ internal penalty guidelines, as there was no
intention on MSC’s
part to deliberately ignore the detention
notice.
[19]
In addition, there had been no loss to SARS or the fiscus as the
goods were declared for VAT
and were exempt from duty, as they had
emanated from a SADC country. MSC, in addition, was of the view that
should SARS reject
its proposal, then written reasons ought to be
provided, showing how the penalty in terms of s 88(2)(a) had been
applied, taking
into consideration SARS’ penalty guidelines.
[20]
On 28 June 2017, SARS advised MSC of the findings of its
investigation and issued a letter of
demand in which it called for
forfeiture. In terms of the findings, SARS informed MSC that the
goods were detained in terms of
s 88(1)(a) and that the detention
notice required the container to move via the scanner to a licensed
depot for physical examination.
MSC had released the container to the
importer without the container moving to the scanner or MSC’s
depot for inspection.
[21]
SARS considered MSC to be in breach of s 44(5) and (6), read with the
provisions of s 87 of the
Act, as the goods had been dealt with
irregularly and were thus liable to forfeiture in terms of s
88(2)(a). It claimed payment
of R521 442, which was an amount equal
to the value for the duty on the goods. MSC noted an appeal in terms
of the Internal Administrative
Appeal process on 8 August 2017, and
disputed SARS’ decision to impose forfeiture and implored it to
reconsider its position.
[22]
In its appeal, MSC emphasised that the goods were not irregularly
dealt with and that it accepted
responsibility for not ensuring that
the goods were transmitted via the scanner for inspection. It
highlighted the confusion created
by the failure to upload the
detention notice (which it accepted was an error on its part) and the
EDI release. It once again reiterated
that the cargo had been
released to Acorp’s appointed cartage company on receipt of a
valid EDI release notification.
[23]
MSC actioned such release when the NAVIS hold had been lifted and the
EDI release notification
had been produced. It emphasised that its
employee had incorrectly assumed that the container had been
released. It pertinently
referred SARS to the Code, dealing with
forfeiture in terms of sections 88(2) and 93 of the Act, which
provided that
‘
forfeiture must
only be demanded in instances where evidence exists of intentional
fraudulent dealings.’
[24]
MSC asserted its right to administrative action which was lawful,
reasonable, and procedurally
fair and relied on various case
authorities for its appeal submissions. It emphasised that there was
no fraudulent conduct; duty
was not payable as the goods had emanated
from a SADC member country, being Madagascar; that the goods had not
been irregularly
dealt with; and forfeiture ought not to have been
the value for the duty of the goods.
[25]
Needless to say, on 3 May 2018, SARS advised MSC that its internal
appeal had been unsuccessful.
In such letter, the Chairperson of the
IAAC noted that the appeal related to the decision to impose a
forfeiture amount in terms
of s 88(2)(a), in circumstances where SARS
had requested that the container be detained and moved via the x-ray
scanner facility
to a licensed depot for inspection.
[26]
The relevant portion of the response from the IAAC reads as follows:
‘
Kindly note that
after considering the case history, facts, circumstances, the
relevant sections of the Customs and Excise Act,
No. 91 of 1964 (the
“Act”), as well as the appellant's mitigation, the
committee has determined as follows:-
•
The Committee considers
the bypassing of X-Ray Scanner Facility and release to the Importer
without due authorisation to be a serious
offence.
•
The Appellant’s
mitigation is deemed insufficient to warrant a partial or full
remittance of the Forfeiture.
•
The Section 88(2)(a)
Forfeiture amount of R521 442,00, in this matter, should therefore be
maintained.’
[27]
MSC was then advised in such letter to either apply for alternative
dispute resolution (ADR)
or to initiate litigation. Once the appeal
failed, MSC followed the ADR process which was subsequently
terminated. MSC then sought
to review the decision of SARS in terms
of the Promotion of Administrative Justice Act 3 of 2000 (PAJA).
Analysis
[28]
The parties agree that s 88(2) of the Act is a penal provision which
allows SARS to impose a
penalty equal to the value of goods which
have been dealt with contrary to the Act. Section 93(2) of the Act
affords SARS the power
to remit any penalty. It is accepted that
these powers are discretionary,
[1]
and any decisions made pursuant to such sections to impose a penalty
and not to remit it, constitute administrative action which
must meet
the requirements of s 33 of the Constitution and PAJA in that the
exercise of such administrative action must be lawful,
reasonable,
and procedurally fair.
[29]
The Code requires ‘forfeiture to be demanded in instances where
evidence existed of intention
fraudulent dealings’.
[2]
MSC maintains that the Code applied at the time when the decision was
taken and would have impacted on the manner in which the
decision for
forfeiture had to be considered by SARS. SARS contends otherwise,
specifically contending in its answering affidavit
that the Code was
an internal document, having no legal force or effect and had been
withdrawn on 22 February 2018.
Review
[30]
At the outset, the parties agree that the court
a quo
committed a misdirection when it dealt with the review application.
From a reading of the judgment, the court
a quo
approached the
review application as an appeal. In addition, they further agree that
the court
a quo
impermissibly considered the reasons contained
in the answering affidavit as the basis for SARS’ decision, ex
post facto,
as opposed to considering the content of documents
exchanged, which had actually formed the basis of the decision.
Consequently,
both parties are
ad idem
that this court is at
large to approach the proceedings as a review and to consider the
grounds advanced by MSC and the opposition
thereto by SARS afresh,
having regard to the documents exchanged which resulted in the
decision.
[31]
In dealing with the review, the parties accept that SARS is bound by
the provisions of the PAJA.
Promotion
of Administrative Justice Act 3 of 2000 (PAJA)
[32]
The provisions of s 6 of PAJA deal with the judicial review of
administrative action and provide
for a court to review
administrative action if ‘the action was procedurally
unfair’,
[3]
‘the
action was materially influenced by an error of law’,
[4]
or in circumstances where the action was taken ‘for a reason
not authorised by the empowering provision’,
[5]
or ‘because irrelevant considerations were taken into account
or relevant considerations were not considered’
[6]
or in circumstances where the administrative action
‘
(ii)
is not rationally connected to—
(aa) the purpose
for which it was taken;
(bb) the purpose of the
empowering provision; (cc) the information before the
administrator; or
(dd)
the reasons given for it by the administrator.’
[7]
[33]
In circumstances where a court finds the conduct reviewable, it may
inter alia set aside the
administrative action and remit ‘the
matter for reconsideration by the administrator, with or without
directions’
[8]
or in
exceptional cases, substitute or vary the administrative action or
correct ‘a defect resulting from the administrative
action’.
[9]
[34]
Importantly, s 5 of PAJA deals with the reasons for administrative
action and provides for
‘
Any person whose
rights have been materially and adversely affected by administrative
action and who has not been given reasons
for the action may, within
90 days after the date on which that person became aware of the
action ... request that the administrator
concerned furnish written
reasons for the action.’
Subsection 3 provides
that
‘
If an
administrator fails to furnish adequate reasons for an administrative
action it must, subject to subsection (4) and in the
absence of proof
to the contrary, be presumed in any proceedings for judicial review
that the administrative action was taken without
good reason.’
[35]
That the requirements of PAJA apply to the exercise of the discretion
by SARS to impose penalties
is not in dispute. The duty to provide
reasons is integral to the constitutional duty to act fairly. The
failure to provide proper
or adequate reasons would ordinarily render
the disputed decision reviewable. In addition, the reasons must be
apparent at the
time the decision was taken or which the record
demonstrates had actuated and informed the decision at the time it
was made. In
other words, it must be self-evident from the documents
provided and from the correspondence exchanged between MSC and SARS,
that
SARS provided reasons for its decision. Our apex courts have
stressed that reasons need to be both true and adequate.
[10]
[36]
The Supreme Court of Appeal held in
Minister
of Environmental Affairs and Tourism v Phambili Fisheries (Pty)
Ltd
[11]
as follows:
‘
What constitutes
adequate reasons has been aptly described by Woodward J, sitting in
the Federal Court of Australia, in the case
of
Ansett Transport
Industries (Operations) Pty Ltd and Another v Wraith and Others
[1983] FCA 179
;
(1983) 48 ALR 500
at 507 (lines 23 - 41), as follows:
“
The passages from
judgments which are conveniently brought together in
Re Palmer and
Minister for the Capital Territory
(1978) 23 ALR 196
at 206 - 7;
1 ALD 183
at 193 - 4, serve to confirm my view that s 13(1) of the
Judicial Review Act requires the decision- maker to explain his
decision
in a way which will enable a person aggrieved to say, in
effect: ''Even though I may not agree with it, I now understand why
the
decision went against me. I am now in a position to decide
whether that decision has involved an unwarranted finding of fact, or
an error of law, which is worth challenging.'' This requires that the
decision-maker should set out his understanding of the relevant
law,
any findings of fact on which his conclusions depend (especially
if those facts have been in dispute), and the reasoning processes
which led him to those conclusions
. He should do so in clear and
unambiguous language, not in vague generalities or the formal
language of legislation. The appropriate
length of the statement
covering such matters will depend upon considerations such as the
nature and importance of the decision,
its complexity and the time
available to formulate the statement. Often those factors may suggest
a brief statement of one or two
pages only.”
To the same effect, but
more brief, is Hoexter
The New Constitutional and Administrative
Law
vol 2 at 244:
“
(I)t is
apparent that reasons are not really reasons unless they are properly
informative
. They must explain why action was taken or not taken;
otherwise they are better described as findings or other
information.”’
(Underlining is my emphasis.)
[37]
What is most noteworthy about the submissions in this matter in
relation to the reasons for the
decision, is the fact that MSC
submitted that adequate reasons were not provided at the time when
the decision was taken, and were
provided for the first time in SARS’
answering affidavit.
[38]
The Constitutional Court in
National
Energy Regulator of South Africa and another v PG Group (Pty) Ltd and
others
[12]
held the following:
‘…
reasons
formulated after a decision has been made cannot be relied upon to
render a decision rational, reasonable and lawful.’
[39]
In
National
Lotteries Board and others v South African Education and Environment
Project
[13]
the following was held:
‘
The duty to give
reasons for an administrative decision is a central element of the
constitutional duty to act fairly. And the failure
to give reasons,
which includes proper or adequate reasons, should ordinarily render
the disputed decision reviewable. In England
the courts have said
that such a decision would ordinarily be void and cannot be validated
by different reasons given afterwards
- even if they show that the
original decision may have been justified. For in truth the later
reasons are not the true reasons
for the decision, but rather an ex
post facto rationalisation of a bad decision.’ (Footnote
omitted.)
[40]
The following was also held in
Jicama
17 (Pty) Ltd v West Coast District Municipality
:
[14]
‘
It is not open to
the first respondent to raise the other defences raised for the first
time in its answering papers. The applicant
has come to court in
order to deal with the reason which was conveyed to it as being the
basis on which the decision to cancel
the tender had been made.’
Submissions
[41]
Ms Annandale SC, who appeared for MSC, submitted that the enquiry
which this court must embark
on, is to establish whether there is
evidence from the record that SARS properly considered MSC's
submissions and arguments relating
to the following:
(a)
the EDI, its existence, its effect (which is not in dispute), that
the EDI was issued, and
that it may constitute a release;
(b)
MSC's explanation of how the container was released, that it was an
innocent administrative
error which arose as a consequence of an
employee being on leave, and not uploading the detention notice onto
MSC’s system;
(c)
that on SARS’ own version, it made no finding of fraud or
malicious intent on
MSC’s part; and
(d)
that as a matter of law, whether SARS can decide to impose
forfeiture; and if it decides
to impose forfeiture, whether it was
appropriate to remit the amount that it did as a penalty in the
circumstances.
[42]
She submitted that the record must show that there was a
consideration of all four of these aspects
and that the record, at
present, does not show that there was a proper, or even any,
consideration of MSC’s submissions.
There are four key
documents which she relies on and which form part of the record:
(a)
the letter of intent from SARS dated 10 April 2017;
(b)
MSC's response thereto dated 28 April 2017;
(c)
SARS’ response, which is contained in the letter of demand
dated 28 June 2017;
and
(d)
MSC’s appeal submissions, and the response thereto, as
contained in the letter from
the Chairperson of the IAAC, Mr F Essop,
dated 3 May 2018.
[43]
MSC further submitted that the deponent to the answering affidavit
had no personal knowledge
of the matters which formed the subject
matter of the review, which further exacerbates SARS’ failure
to properly consider
MSC’s submissions, and further
demonstrates that SARS never properly considered MSC’s
contentions, if regard is had
to the four documents identified. MSC
further submitted that it is evident that no reasons were provided by
SARS for its decision
to impose forfeiture and the terse reasons
provided were not adequate for purposes of SARS arriving at its
decision. She submitted
that forfeiture was not appropriate in the
circumstances, given the provisions of the Code, and even if SARS was
entitled to impose
forfeiture, the amount imposed was unreasonable.
[44]
Mr Pammenter SC, who appeared for SARS, submitted that the responses
from SARS demonstrate that
it had properly applied its mind to the
submissions and properly considered imposing forfeiture and the
penalty. He acknowledged
that during the course of the proceedings,
he made a concession that SARS had a discretion in terms of s 93(2)
of the Act to mitigate
or remit the penalty. He indicated that this
concession emanated from a proper understanding of how the Act
operates. One is dealing
with two separate chapters of the Act, the
first being chapter 5, which deals with the importation and clearing
of goods, which
is to be read together with rule 38,
[15]
which sets out the procedures for clearing goods through customs. It
involves a paperless notification, an EDI notification being
issued
where the importer submits information to SARS, with the relevant
duty and VAT being paid, after which SARS issues an EDI
release,
which means that the imported goods can pass through the harbour.
[45]
Chapter 11 deals with the penalty provisions of the Act. Section 87
deals with forfeiture, and
s 88(1)(
a
) deals with the detention
of goods to ascertain if they are liable for forfeiture. Section
88(2)(
a
) allows SARS, where goods are liable to forfeiture, to
demand payment of an amount equivalent to the value of the imported
goods.
Up until this stage, SARS does not enjoy a discretion to remit
or reduce the penalty. The only time SARS can reduce or remit a
penalty is when the provisions of s 93 are invoked, and provided an
applicant demonstrates ‘good cause’.
[46]
The various grounds of review will now be considered.
Is
there evidence that there was a proper consideration by SARS of MSC’s
submissions?
[47]
This ground of review is inextricably linked to the other grounds of
review. In the letter of
intent, SARS notified MSC of the
prima
facie
findings of its investigation. In essence, SARS set out
what transpired on 28 and 29 July 2016. It recorded that it had
placed
a hold on the NAVIS system for the container and on 29 July
2016, issued a detention notice for an inspection to be conducted of
the container. Because the container was released to KRV, in breach
of the detention notice, SARS contended that the goods were
dealt
with irregularly. However, despite the detention in terms of s
88(1)(a), the container was not moved via the scanner to a
licensed
depot for physical examination but was released. SARS’
detention notice required MSC to make available documentation
in
order for SARS to satisfy itself that the goods had been dealt with
regularly.
[48]
If one has regard to MSC’s response dated 28 April 2017, it
pertinently drew SARS’
attention to the fact that the container
did not move via the scanner to MSC’s depot due to an
unintentional administrative
error. Because the hold on NAVIS had
been uplifted, the container was then inadvertently released to KRV
and did not go past the
scanner. MSC pertinently stated that it at no
stage sought to infer that SARS had uplifted the manual detention
notice and did
not attempt to deliberately dissuade SARS that the
NAVIS release amounted to an upliftment of the detention.
[49]
MSC annexed correspondence from Ms Rebecca Ndleleni of MSC to SARS,
in which all relevant documents
were provided to SARS to satisfy
itself that the goods were not dealt with irregularly. The
documentation evidenced that the goods
emanated from Madagascar and
were not subject to duty, the number of cartons shipped corresponded
with the number delivered to
the importer, and that the seal was
still intact on delivery to the importer. All the documentation
submitted equally corresponded
with the SAD500.
[50]
All this was done to demonstrate that the goods were not dealt with
irregularly and that the
fiscus had not suffered any loss and that
consequently, there would be no need to impose forfeiture and to
apply a penalty in terms
of s 88(2)(a). SARS’ attention was
specifically drawn to its internal penalty guidelines as well as the
applicable case law.
MSC requested that a s 88(2)(a) penalty not be
imposed and requested written reasons as to how the penalty was
applied, taking
into account SARS’ penalty guidelines, should
MSC's proposal be rejected.
[51]
SARS’ response to this was to issue a letter of demand. If
regard is had to the letter
of demand, none of the submissions in
relation to the imposition of the penalty were considered by SARS,
nor were the accompanying
documents, which evidenced that the goods
had not been dealt with irregularly. On receipt of the documents,
SARS, interestingly,
did not take the view that the goods had been
dealt with irregularly or that there was any intent by MSC to
fraudulently deal with
the goods. There is simply no reference to
this in the demand.
[52]
What is evident from paragraph 31 of the response from MSC was that
it pertinently indicated
that it had no intention to cause any loss
to SARS or the fiscus, that the goods were declared for VAT and were
not dutiable, and
that the container was released as a consequence of
an administrative error. It is for these reasons that it implored
SARS not
to impose a penalty in terms of s 88(2)(
a
) of the
Act. None of this was dealt with by SARS and there is no reference
made to any of this in the subsequent letter of demand.
SARS’
only response was the letter of demand.
[53]
When one considers the letter of demand, it does not appear to
reflect any acknowledgement of
the content of the response from MSC
or why it rejected MSC's submissions and imposed the penalty. There
is no answer or response
to MSC's contentions. The only difference
between the letter of intent and the letter of demand is that a final
decision imposing
forfeiture in terms of s 88(2)(
a
) had been
made. There is no reference to the circumstances under which the
container was released, and there is no reference in
the letter of
demand to MSC's contention that it did not say that there was a valid
release. There is no reference at all to the
explanation provided by
MSC.
[54]
If one has regard to the letter of demand, specifically paragraphs 30
and 31, SARS' position
is that, as a fact, there has been a
contravention, and it is imposing the penalty. There is no reference
to any fraudulent conduct
by MSC nor is there any reference made to
the penalty guidelines or why it has rejected MSC’s submissions
in that regard.
[55]
Similarly, when one considers the grounds of appeal, a detailed
explanation is contained therein.
Once again, SARS’ attention
was drawn to the response to the letter of intent. In addition, SARS’
attention was pertinently
drawn to the fact that the goods were
released as a consequence of an oversight and that MSC admitted to an
administrative contravention,
and that having regard to the documents
annexed to its response to the letter of intent, there was no
question of the goods having
been dealt with irregularly. SARS’
attention is once again pertinently drawn to the Code, and that
forfeiture ought only
to be demanded in instances where intended
fraudulent dealings exist.
[56]
Reference was made to various decisions as well as the provisions of
PAJA and s 88 of the Act.
The reasonableness of the penalty is once
again raised by MSC. SARS’ response to the appeal is contained
in the letter from
the IAAC. The sum total of such response to MSC’s
submissions is that SARS considered the
‘
case history,
facts, circumstances, the relevant provisions of the Customs and
Excise Act and the appellant's mitigation but the
committee
considered the bypassing of the x-ray scanner facility and the
release to the importer without authorisation to be a
serious offence
and that the appellant's mitigation was insufficient to warrant a
partial or full remittance of the forfeiture.’
[57]
Having regard to the response from the IAAC, it is not evident what
was considered, and which
facts and circumstances informed its
decision. What one is able to ascertain is that what it considered
was that because the container
bypassed the scanner and was released
to the importer without the upliftment of the detention notice, it
constituted a serious
offence warranting forfeiture.
[58]
I agree with the submission of MSC that there was no engagement by
SARS with any of the grounds
advanced or MSC's explanation for how
the container had been released. None of the explanations advanced by
MSC were dealt with
in any of the responses by SARS. In fact, if one
has regard to the responses, it is clear that there was no
consideration of these
matters at all. If there had been, SARS would
have said so in either the letter of demand or in the outcome of the
appeal by the
IAAC. An examination of these four documents indicates
that SARS did not apply its mind to any of the submissions when
arriving
at the decision to impose forfeiture of the full amount of
the value of the goods.
[59]
There was no consideration of the relevant facts, which implies that
the decision was not rationally
connected to the information SARS had
before it when it took the decisions in the letter of demand and in
dismissing the appeal.
[60]
Having found that there was no proper consideration of the content of
the correspondence exchanged,
this then brings me to the second
ground of review, namely, can it then be said that SARS provided
proper reasons for its decision?
Did
SARS provide proper reasons for its decisions?
[61]
One of the main complaints of MSC, which also overlaps with the other
grounds of review, is that
SARS did not provide proper reasons for
its decisions. Prior to the delivery of the answering affidavit, MSC
submitted that SARS
had not furnished reasons which dealt with its
contentions relating to the EDI release. In addition, none of its
contentions in
relation to the fact that no duty was payable on the
goods were ever addressed or pertinently disputed by SARS. MSC
submitted that
it was presented with a series of findings and
conclusions of law, as opposed to reasons, which it was entitled to.
[62]
Ms Annadale submitted that once SARS failed to furnish adequate
reasons, and in the absence of
proof to the contrary, the
administrative action is presumed in terms of s 5(3) of PAJA to have
been taken without good reason.
As a consequence, the failure by SARS
to provide reasons for its decision renders the decision reviewable
on its own. Mr Pammenter
submitted that this contention by MSC is
without substance. According to him, the letter of 28 June 2017,
which is the decision
taken by SARS, dealt fully with MSC’s
various submissions.
[63]
Mr Pammenter submitted that although the reasons were terse, the
reasons supplied were sufficient
and there was nothing wrong with the
reasons, as MSC was able to make out a reasonable case on appeal. The
facts were set out,
the relevant provisions of the Act were referred
to, as well as the conclusions drawn by SARS.
[64]
In addition, he relied on the provisions of s 77D which provide that
an aggrieved party can request
reasons. It was submitted that MSC
could have requested further reasons in the event that it was not
satisfied with the reasons
provided. He submitted that the terse
reasons of the IAAC indicated that it had considered the law and the
reasons and that it
came to the conclusion that there was no basis
for mitigating the decision to impose forfeiture and to impose the
relevant penalty.
[65]
He further submitted that the provisions of s 5 of PAJA were
available to MSC and it could have
requested ‘further’
reasons if it was dissatisfied with those supplied. MSC countered
these submissions and reiterated
that these were not reasons but
conclusions arrived at by SARS. An organ of state is obliged to give
reasons for its decision.
The provisions of s 77D, properly
construed, do not make provision for ‘further and better
reasons’. Properly interpreted,
they allow an aggrieved party
to request reasons if no reasons have been supplied, and thus SARS’
reliance on the provisions
of s 77D is misplaced.
[66]
Mr Pammenter submitted that the reasons given in the letter of demand
and by the IAAC in relation
to the outcome of the appeal had met the
threshold for adequate reasons. In support of his contention, he
relied on
Koyabe
and others v Minister for Home Affairs and others (Lawyers for Human
Rights as amicus curiae)
.
[16]
[67]
I have considered
Koyabe
. Mokgoro J said the following:
‘
Although the
reasons must be sufficient, they need not be specified in minute
detail, nor is it necessary to show how every relevant
fact weighed
in the ultimate finding. What constitutes adequate reasons will
therefore vary, depending on the circumstances of
the particular
case. Ordinarily, reasons will be adequate if a complainant can make
out a reasonably substantial case for a ministerial
review or an
appeal.’
[17]
(Footnotes
omitted.)
[68]
The court went on at para 64 to state the following, and relied on
Maimela
[18]
which set out the factors to be considered in determining the
adequacy of the reasons:
‘“
the factual
context of the administrative action, the nature and complexity of
the action, the nature of the proceedings leading
up to the action
and the nature of the functionary taking the action. Depending on the
circumstances, the reasons need not always
be “full written
reasons”; the “briefest pro forma reasons may suffice”.
Whether brief or lengthy reasons
must, if they are read in their
factual context, be intelligible and informative. They must be
informative in the sense that they
convey why the decision-maker
thinks (or collectively think) that the administrative action is
justified.”
The
purpose for which reasons are intended, the stage at which these
reasons are given, and what further remedies are available
to contest
the administrative decision are also important factors. The list,
which is not a closed one, will hinge on the facts
and circumstances
of each case and the test for the adequacy of reasons must be an
objective one.’ (Footnotes omitted.)
[69]
I do not agree with the submission of Mr Pammenter that sufficient
reasons were provided on the
particular facts of this matter. To say
that the reasons provided were ‘terse’, is an overly
generous description.
It does not behove SARS to say that the
provisions of s 77D are available. The authorities make it clear that
proper and adequate
reasons must be provided at the time the decision
is made. The letter of demand does not appear to have considered the
submissions
made by MSC in relation to the circumstances under which
the EDI notification was interpreted by it. It fails to consider that
the EDI notification may constitute a release.
[70]
It did not consider the submission by MSC that the failure to retain
the container pursuant to
the detention notice was an innocent
administrative error and was not intended to cause harm to SARS. In
any event, and most importantly,
what was not factored into the
equation by SARS was the fact that no duty was payable on these
goods, that VAT had already been
paid, and that the fiscus did not
suffer any financial harm, nor did the release of the container to
the importer cause any prejudice
to SARS.
[71]
In the response to the letter of intent, detailed submissions were
made by MSC as to the circumstances
under which the container was
released, and various documents were annexed. None of this is dealt
with in the letter of demand
nor in the results of the outcome of the
appeal by the IAAC.
[72]
If one has specific regard to the content of the letter from the
IAAC, MSC is correct that these
are conclusions of law. I do not
agree with Mr Pammenter that the fact that the letter states that it
had regard to the facts and
the documents constitutes proper reasons.
Specificity was required and whether it rejected the fact that the
goods were not dutiable.
What also needed to be dealt with was
whether it applied the penalty policy and if not, the reason why.
Consequently, it must follow
that I do not accept that SARS provided
proper reasons for its decision.
[73]
I agree with the submission of Ms Annandale that the first time that
the issue arose as to whether
the goods were dutiable, was in SARS’
answering affidavit. SARS never advanced the argument in its
decision-making process
that the goods were dealt with irregularly,
nor did it indicate that it did not accept the documentation
submitted to indicate
where the goods originated from. I agree that
SARS cannot blindside MSC by raising this for the first time in its
answering affidavit,
and this appears to be an attempt by SARS to ex
post facto provide reasons for its decision.
The
failure by SARS to apply its own Code
[74]
It is common cause between the parties that, from time to time, SARS
had a Code. Although SARS
indicates that it was an internal document
which had no legal force or effect, MSC submitted that when deciding
to impose forfeiture,
it did so while ignoring the provisions of its
Code. SARS, in its answering affidavit, contended that the document
was an internal
one, had no legal force or effect, was finally
withdrawn on 22 February 2018, and had no relevance to the matter. Ms
Annandale
submitted that such response implies that SARS did not even
consider the Code. It was raised in the appeal as one of the grounds
of appeal and ought to have been considered.
[75]
Mr Pammenter submitted that the Code did not apply, as although the
letter of demand was delivered
prior to the date of the impugned
decision, it was never a final decision and was subject to review or
amendment by the IAAC. Because
the decision of the IAAC was made on 3
May 2018, the Code no longer had any effect. He submitted, in
addition, that, having regard
to the reasons given by the IAAC,
despite them being terse, consideration was given to mitigating the
penalty imposed in terms
of s 93(2) of the Act. The submissions of
SARS seem to suggest that the only time the provisions of the Code
ought to have been
considered, if it applied, would be at the s 93
stage. He also submitted that the withdrawal of the policy was
retrospective and
was not binding.
[76]
Firstly, it is not correct that the Code did not apply when the
decision was taken in 2017, neither
was its withdrawal retrospective.
The relevant section of the Code stipulates that ‘forfeiture
must only be demanded in instances
where evidence exists of
intentional fraudulent dealings’. In
Commissioner,
South African Revenue Service v Formalito (Pty) Ltd
[19]
the court found that the exercise of a discretion relating to
forfeiture must be informed by the relevant policy. SARS ought to
have considered whether or not the Code applied and in the absence of
any evidence that SARS considered the Code, one must accept
that it
did not consider that it had to apply the Code.
[77]
Two questions arose for determination in
Formalito
. The first
being whether the declaration of the tariff codes on the bill of
entry was false. The court found that they were false
and that the
incorrect tariff codes were used to maximise the monetary benefit to
Formalito
, to the financial detriment of the Commissioner. The
second question which arose for determination was whether the
imposition of
the penalty was reasonable. It found that it was not,
as the decision maker did not have regard to the policy which had
been in
place at the time when making the decision.
[78]
This accords with the submission of MSC, that given the circumstances
under which the goods came
to be released and the fact that SARS did
not allege or conclude that MSC was involved in any fraudulent
dealings, it ought to
have exercised its discretion by applying the
Code in an appropriate manner. It ought to have also done so when MSC
alleged that
the imposition of the forfeiture amount was unreasonable
in the circumstances.
[79]
This was the same issue which the Supreme Court of Appeal had to
grapple with in
Formalito
. Paragraph 12 of
Formalito
is
incisive in this regard. The court had found that a deviation from
SARS’ policy was grossly unreasonable, as the official
who took
the decision believed that the guidelines did not apply and simply
ignored them. It was for this reason that the Supreme
Court of Appeal
held that the decision could not stand and that the matter had to be
referred to SARS for reconsideration.
[80]
The court in
Formalito
[20]
held the following:
‘
In determining the
monetary value of the penalty, Denyssen ignored the Customs Offences
and Penalty Policy of the South African
Revenue Service. Those
guidelines, the purpose of which is
“
to define the
policy and procedure for customs offences and to provide guidelines
for the uniform imposition of penalties to declarants
that are
non-compliant with customs law”,
stipulate, for a
contravention of this kind, a penalty of “50% of the
underpayment with a minimum of R500”. Had those
guidelines been
invoked the penalty in this case would have been less than 20% of the
value of that actually declared forfeit by
SARS. A deviation to that
extent from its own policy by SARS is grossly unreasonable. Denyssen,
who took the decision, believed,
without advancing any plausible
justification, that those guidelines did not apply. She accordingly
ignored it. That decision plainly
cannot stand. On this aspect of the
case, the matter must accordingly be referred back to SARS for
reconsideration…’
[81]
In my view, this is a further basis on which the decision of SARS is
reviewable. Firstly, it
is self-evident from its answering affidavit
that it did not consider the Code which applied at the time it made
the decision to
invoke the forfeiture provisions of the Act.
Secondly, the imposition of the penalty, in my view, was not
reasonable as SARS failed
to have regard to its own Code. Given the
circumstances under which the container was released and the fact
that SARS did not find
any intentional fraudulent dealings on behalf
of either the importer or MSC, the penalty imposed was unreasonable
and without any
plausible justification.
[82]
Mr Pammenter attempted to suggest that the forfeiture provisions of
sections 87 and 88 must be
read separately from that of s 93. He
submitted that it is only when one is making a decision to impose the
forfeiture amount,
that mitigating circumstances apply. This approach
was rejected by Horn AJ in
Deacon
v Controller of Customs and Excise
,
[21]
and I find myself in agreement with the conclusions reached. The
court in Deacon took the view that the seizure and forfeiture
provisions in sections 87 and 88 are not to be separated from the
mitigation and remission procedures in s 93.
Deacon
recognised that throughout the process, an aggrieved party has the
right to just administrative action and the rules of natural
justice.
[83]
Once one accepts that this is the position which prevails, then it is
self-evident that SARS
did not have regard to its Code, as it was of
the view that it did not apply, and secondly, it did not have proper
regard to the
mitigating submissions made by MSC. It is for these
reasons that the decision taken was irrational and arbitrary and
cannot stand.
Remedy
[84]
What, then, is the appropriate order in the circumstances? It is, in
my view, not appropriate
for this court to substitute its decision
for that of the decision maker as no exceptional circumstances exist
to warrant such
intervention. None were also presented for
consideration. The most appropriate order would be to remit the
matter to SARS for proper
consideration. Neither Ms Annandale nor Mr
Pammenter suggested otherwise.
Costs
[85]
It is evident that given MSC’s success on appeal, there is no
reason to depart from the
usual order in relation to the award of
costs, and once again, neither party suggested otherwise. Given the
nature of the issues
in the matter, the use of senior counsel was
warranted.
Order
[86]
In the result, the following order will issue:
1.
The appellant is granted condonation for the late filing of its
notice of appeal;
2.
The appeal is upheld with costs, such costs to include the costs of
senior counsel;
3.
The order of the court
a quo
is set aside and replaced with
the following order:
‘
1. The
decision by the respondent, set out in its letter dated 28 June 2017,
in terms of which it imposed liability on the
applicant in terms of s
88(2)(
a
) of the Customs and Excise Act 91 of 1964, in the
amount of R521 442, is reviewed, declared invalid and set aside.
2.
The question of the applicant’s liability under s 88 of the
Customs and
Excise Act 91 of 1964, in respect of container
MEDU6198771, is remitted to the respondent for reconsideration.
3.
In reconsidering the issue of the applicant’s liability, if
any, under
s 88 of the Customs and Excise Act 91 of 1964, the
respondent is directed to consider and apply its published Customs
Code of Instructions
Manual, and, in particular, s 2.1 thereof which
stipulates inter alia that forfeiture must only be demanded in
instances where
evidence exists of intentional fraudulent dealings.
4.
The respondent is directed to pay the costs occasioned by the
application.”
HENRIQUES
J
Case
Information
Date
of Argument :
21 April 2023
Date
of Judgement :
26 April 2024
Appellant’s
attorneys: Shepstone
& Wylie 24 Richefond Circle Ridgeside
Office Park Umhlanga Rocks Durban
Ref: QVND/ss/MED12.304
Email: QVDN@wylie.co.za
C/O Shepstone & Wylie
15 Chatterton Road
Townhill
Pietermaritzburg Tel: 033
355 1797
Email:
jmanuel@wylie.co.za
Ref: JTM/mm/MED12.284
Appellant's
counsel :
A Annandale SC
annandale@umhlangachambers.co.za
Respondent’s
attorneys: Linda Mazibuko &
Associates
231 / 233 Mathews Meyiwa
Road (Stamfordhill Road)
Morningside Durban
Ref: Mr Mazibuko/LLG/SARS
19/1/LLG.NTO
Tel: 031 303 1006
Email: linda@qint.co.za
C/O Sangham Inc
188 Retief Street
Pietermaritzburg
Email:
sunira@sanghaminc.co.za
Respondent’s
counsel: CJ Pammenter SC
john@umhlangachambers.co.za
M N Xulu
xulundum@gmail.com
[1]
Commissioner
of Customs and Excise v Tayob and others
2002 (6) SA 86
(T) at 95H–96E;
Deacon
v Controller of Customs and Excise
1999 (2) SA 905
(SE) at 923E.
[2]
Annexure ‘K’, vol 1, para 2.1 at page 68.
[3]
Section 6(2)(c).
[4]
Section 6(2)(d).
[5]
Section 6(2)(e)(i).
[6]
Section 6(2)(e)(iii).
[7]
Section 6(2)(f)(ii).
[8]
Section 8(1)(c)(i).
[9]
Section 8(1)(c)(ii).
[10]
See for example
Minister
of Social Development and others v Phoenix Cash and Carry –
Pmb CC
[2007] ZASCA 26
;
[2007] 3 All SA 115
(SCA) para 23;
National
Lotteries Board and Others v South African Education and Environment
Project
[2011] ZASCA 154
;
2012 (4) SA 504
(SCA) para 27.
[11]
Minister
of Environmental Affairs and Tourism and others v Phambili Fisheries
(Pty) Ltd; Minister of Environmental Affairs and
Tourism and others
v Bato Star Fishing (Pty) Ltd
2003
(6) SA 407
(SCA);
[2003] 2 All SA 616
(SCA) para 40.
[12]
National Energy Regulator of South Africa and another v PG Group
(Pty) Ltd and others
[2019] ZACC 28
;
2020 (1) SA 450
(CC) para 39.
[13]
National Lotteries Board and others v South African Education and
Environment Project
[2011] ZASCA 154
;
2012 (4) SA 504
(SCA) para 27.
[14]
Jicama
17 (Pty) Ltd v West Coast District Municipality
2006 (1) SA 116
(C) para 11.
[15]
GN R1874, GG 16860, 8 December 1995.
[16]
Koyabe
and others v Minister for Home Affairs and others (Lawyers for Human
Rights as amicus curiae)
[2009] ZACC 23
;
2010 (4) SA 327
(CC) paras 63-64.
[17]
Ibid para 63.
[18]
Commissioner,
South African Police Service, and others v Maimela and another
2003 (5) SA 480 (T).
[19]
Commissioner,
South African Revenue Service v Formalito (Pty) Ltd
2005 (5) SA 526
(SCA) (‘Formalito’).
[20]
Ibid para 12.
[21]
Deacon
v Controller of Customs and Excise
1999 (2) SA 905
(SE) (‘
Deacon’
).