Singh v Commissioner for the South African Revenue Service (500/2001) [2003] ZASCA 31 (31 March 2003)

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[2003] ZASCA 31
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Singh v Commissioner for the South African Revenue Service (500/2001) [2003] ZASCA 31; 2003 (4) SA 520 (SCA); 65 SATC 203 (31 March 2003)

REPORTABLE
CASE NO: 500/2001
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
In the matter between:
ANIL SINGH APPELLANT
and
COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE RESPONDENT
CORAM: OLIVIER, CONRADIE, CLOETE JJA, JONES and HEHER
AJJA
DATE OF HEARING: 20 FEBRUARY 2003
DELIVERY DATE: 31 MARCH 2003
Summary: VAT Act 89 of 1991: the Commissioner must
give notice to the taxpayer where he has made an assessment in terms
of s 30(1)
before he can recover the assessed amount in terms of s
40(2).
________________________________________________________________
JUDGMENT
________________________________________________________________
CLOETE JA and HEHER AJA
CLOETE JA and HEHER AJA:
[1]
This is an appeal with
leave of the Judge
a quo
(Galgut
AJP) against his judgment which is reported at
2002 (3) SA 94
(D).
[2]
The appellant sought an
order setting aside a judgment obtained against him by the respondent
in terms of s 40(2)(a) of the Value-Added
Tax Act 89 of 1991 on 18
July 2001 in the sum of R2 366 730,63. The taking of judgment was
preceded by the making of assessments
in terms of s 31(1) of the Act
on the previous day. The appellant was not given notice of the
respondent's intention to apply for
judgment. That was not his
complaint (nor could it have been, in the light of what was said in
Metcash Trading Ltd v Commissioner, South
African Revenue Service and Another
2001 (1)
SA 1109
(CC) at para [49]
1
).
Instead, the essence of his case was that notice of the assessments
had not been given to him before the statement contemplated
by s
40(2)(a) was filed (which was common cause) and that the proceedings
under the section were consequently void. The learned
Judge
dismissed the submission and, subject to certain alterations to the
quantum of the judgment caused by the inclusion of an unfounded
claim
for additional tax, the application as well.
[3]
Before this Court the
same argument was advanced, supplemented,
in
the alternative, by reliance on a contention
that the failure to give notice of the assessments before invoking
the s 40(2)(a) procedure
breached the appellant's right to fair
administrative action which received statutory expression in
s 3
of
the
Promotion of Administrative Justice Act 3 of 2000
promulgated on
30 November 2000.
[4]
Since counsel for the
respondent relied upon the judgment of the Court
a
quo
we shall begin by summarising the
reasoning which led to a conclusion favourable to his client-
VAT that is calculable and payable by the taxpayer in
terms of s 28(1) of the Act (as was the position in the case) becomes
due and
payable on or before the specified date in each tax period.
The result is that when an assessment is made by the Commissioner in
terms of s 31(1) the amount assessed has already fallen due and
become payable. Written notice of the assessment to the taxpayer
is
provided for in s 31(4). That notice serves the purpose of fixing
the time for objection to and appeal against the assessment.
The
lodging of such an objection has no effect on the taxpayer's
obligation to pay VAT or the Commissioner's right to recover it.

Section 40 provides the means for summary recovery of VAT, penalty,
interest and additional tax which have become due or payable.
In
proceedings under s 40(2) the correctness of the assessment, on which
the certified statement that the Commissioner files is
based, may not
be questioned (s 40(5)). Notification to the taxpayer of the
assessment serves no purpose in the context of s 40(2)(a)
and is not
a prerequisite to filing of the statement.
[5]
The Act contains no
express requirement that notice of the assessment must be given to
the taxpayer before the Commissioner files
the statement which has
the effect of a civil judgment in terms of s 40(2)(a). The question
is whether such notice is a necessary
implication.
[6]
The reasoning of Galgut
AJP depends, it seems to us, on three propositions. The first is
that any amount assessed by the Commissioner
under s 31 has already
become due and payable by reason of the provisions of s 28(1). The
second is that, because an assessment
merely quantifies a liability
that is already due and payable, the taxpayer, whose duty it is to
assess his own liability, need not
be told that the Commissioner has
undertaken the task and fixed an amount which the taxpayer should
have reflected in his return
made under s 28(1). The third is that
the sole recourse of the taxpayer who disputes his liability to pay
the amount of the assessment
is to adopt the procedure of objection
and appeal; accordingly notice to him of the assessment prior to an
application for judgment
in terms of s 40(2)(a) is a pointless
exercise. As we shall attempt to show, none of these fundamental
propositions is justified.
[7]
We shall deal first with
the acceptance by the Court
a quo
that
any amount which the Commissioner assesses has already become due and
payable, without the need of any preceding action by him.
(This was
also found to be the effect of the statute by Erasmus J in
Traco
Marketing (Pty) Ltd and Another v Minister of Finance and Others
[1996] 2 All SA 467
(SECLD) at 471 d - i.)
[8]
There are two fallacies
in the first proposition: that an amount other than the amount
returned by the taxpayer has fallen due under
s 28 and that the
amount assessed by the Commissioner is to be equated with the amount
payable by the taxpayer under that section.
In
Traco
Marketing
,
loc cit
,
the learned Judge said,
'The Commissioner makes an assessment only when a vendor or importer
fails to fulfil his obligations.'
In so far as that dictum also implies that the
assessment amounts to a correction of the taxpayer's return, it
requires qualification
since, at least in relation to the grounds for
assessment set out in s 31(1)(b) and (c), and, bearing in mind the
power which he
has under s 31(3) to 'estimate the amount upon which
the tax is payable', the Commissioner merely forms an opinion which
may subsequently
be shown to have been wrong.
[9]
Section 40 provides (to
the extent relevant):
'(1) Any amount of any tax, additional tax, penalty or interest
payable in terms of this Act shall, when it becomes due or is
payable,
be a debt due to the State and shall be recoverable by the
Commissioner in the manner hereinafter provided.
(2)(a) If any person fails to pay any tax, additional tax, penalty or
interest payable in terms of this Act, when it becomes due
or is
payable by him, the Commissioner may file with the clerk or registrar
of any competent court a statement certified by him as
correct and
setting forth the amount thereof so due or payable by that person,
and such statement shall thereupon have all the effects
of, and any
proceedings may be taken thereon as if it were, a civil judgment
lawfully given in that court in favour of the Commissioner
for a
liquid debt of the amount specified in the statement.
. . . .
(5) It shall not be competent for any person in proceedings in
connection with any statement filed in terms of subsection (2)(a)
to
question the correctness of any assessment upon which such statement
is based, notwithstanding that objection and appeal may have
been
lodged against such assessment.'
The section is a recovery provision and nothing more.
It does not empower the Commissioner to determine whether an amount
is payable
(or due). The jurisdictional element is that the tax must
be payable before the Commissioner can invoke the procedure for which
the section provides. When that element exists the Commissioner can
rely on ss (5) and recover an amount which he certifies as (already)
due or payable, despite the fact that an objection has been lodged or
an appeal may be pending.
[10]
In the context of the
Act an amount is due when the correctness of the amount has been
ascertained either because it is reflected
as due in the taxpayer's
return or because the circumstances set out in s 32(5) have become
applicable (in both of which cases it
is both due and payable) or, if
there is a dispute, after the procedures relating to objection and
appeal have been exhausted (in
which case the amount so ascertained
was due and payable with the return).
[11]
An amount may be due
but not yet payable, eg additional tax (see the judgment of the Court
a quo
at 100 G - 101
C). Conversely, an amount which is payable may not be due. This may
be the case with an assessed amount
2
prior to the final determination of a dispute: to the extent that
the assessment is finally found to be correct, that amount was
due
(and payable) when the return was rendered; to the extent that the
assessment was not correct, that assessment was not due at
any time,
but it was payable in terms of s 31(1), which provides that where in
the circumstances contemplated in the section, the
Commissioner has
made an assessment of the tax payable by the person liable for the
payment of such amount of tax, 'the amount of
tax so assessed shall
be paid by the person concerned to the Commissioner.' An example will
illustrate this. Suppose the taxpayer
renders a return for 100. The
Commissioner assesses his liability at 200. In the fullness of time,
the amount is finally determined
at 125. 125 was therefore due and
payable when the return was rendered. The balance of 75 was not due;
but it was nevertheless
payable in terms of s 31(1) because of the
assessment. We do not think that the obligation to pay which s 31(1)
creates can be interpreted
other than as an immediate obligation. If
the Commissioner's right is to demand payment forthwith then such
remedies as are provided
for non-payment should logically be
interpreted in a manner which allows for exaction of the amount on
default. Section 40(2)(a)
provides such a remedy and the word
'payable' where it appears in that section must accordingly be
construed as an existing obligation
rather than a future or
contingent one. Section 40(5) which precludes the challenge to an
assessment in such proceedings also justifies
the conclusion that the
right to exact the amount reflected in the assessment flows from the
assessment itself and not some subsequent
event. It should be noted
that s 36, which requires payment of tax pending any appeal,
recognises that an obligation to pay and
the right to recover already
exist; it does not create such obligations.
[12]
The Court
a
quo
assumed that the return of a taxpayer who
is assessed will be incorrect and that the amount of the assessment
will reflect what was
always due. As the example we have given
illustrates, that is not necessarily so. In the absence of a notice
of assessment an amount
which is not due cannot be payable. No such
notice had been given in this case
.
It follows that it was not open to the Commissioner to utilize the
procedures of s 40.
[13]
The second of the
propositions referred to in paragraph [6] above suffers from the same
fallacious approach set out in the previous
paragraph of this
judgment. In addition it has shortcomings of its own.
[14]
The Act predicates the
bringing into existence of an assessment prior to the lodging of the
statement under s 40(2)(a). That is
apparent from s 40(5). The
phrase used in the last-mentioned subsection is 'any assessment upon
which such statement
is
based' not any assessment upon which it
may be
based. The reason is obvious. If the position were otherwise, the
Commissioner could obtain a civil judgment with all the consequences
that that entails, including the possibility of sequestration in
terms of s 40(2)(c), without informing the taxpayer how he arrives
at
the amount of such assessment.
[15]
Albeit that an
assessment may be 'a mental act in the nature of a decision'
per
Schreiner JA in
Irvin and Johnson (SA) Ltd v
Commissioner for Inland Revenue
1946 AD 483
at 494, counsel's submission that it is sufficient for the assessment
to exist purely in the Commissioner's head cannot be correct;
the law
is not generally concerned with thoughts but with their outward
manifestations and, in the context of s 40(1), the tax cannot
be
regarded as having become recoverable through judicial intervention
until the taxpayer has been informed of the assessment, a
subject to
which we shall return.
[16]
Section 31(4) requires
the Commissioner to give written notice of the assessment to the
taxpayer concerned. There can thus be no
suggestion that, as between
the two parties, any secrecy attaches to a completed assessment.
[17]
The primary purpose of
giving notice of the assessment is not objection and appeal but
payment by the taxpayer. As we have already
pointed out, section 31
provides that, in the circumstances identified in ss (1)(a)-(e), the
Commissioner may make an assessment
of the amount of tax payable 'and
the amount of tax so assessed shall be paid by the person concerned
to the Commissioner'. In
Metcash
at
para [60] Kriegler J pointed out that
'Ensuring prompt payment by vendors of amounts assessed to be due by
them is clearly an important public purpose . . . Requiring
them to
pay on assessment prior to disputing their liability is an essential
part of the scheme.'
The hypothetical (or assumed) knowledge by the taxpayer
of the correct amount of his liability at the date for rendering his
return
is, no doubt, a convenient fiction for the determination of a
date of liability and payment, but the reality is that no taxpayer
(
bona fide
or
dishonest) who is kept in ignorance of the fact of an assessment and
its content can be expected to reconsider his liability and
pay what
he owes.
[18]
A judgment is an
appropriate remedy for the refusal or neglect of a debtor to pay his
creditor when he knows full well that he owes
money. It is
inapposite to the situation where the alleged debtor neither knows
that he has a creditor nor the amount that is said
to be owing by
him. A VAT vendor may fall anywhere within the spectrum of the two
possibilities. It is true that section 40(2)
creates a summary
procedure which enables the Commissioner to file for judgment and
proceed to execution. No court process initiates
the claim, no
service on the debtor is required and there is no scope for
opposition or a hearing (
Metcash
at
para [49]). All this notwithstanding, it would be extraordinary if
the legislature had intended to authorise the taking of a judgment
in
respect of an indebtedness of which the taxpayer had only deemed
knowledge, given the role of payment in the scheme, the substantial
departure from the common law which such an authorisation would bring
about and the seriousness of the potential consequences to
the
taxpayer, and then manifested that intention simply by its silence on
the matter of service of the assessment before an application
for
judgment can be lodged.
[19]
What is set out in
paragraphs [14] to [18] above provides, in our view,
sufficient reason to regard notification
of the assessment to the taxpayer as a necessity contemplated by the
legislature.
[20]
As to the third
proposition on which the reasoning of the Court
a
quo
is founded,
Metcash
(at paras [53], [54], [56] and [71]) makes it
plain that objection and appeal is not the sole recourse of the
taxpayer who wishes
to dispute his liability. Moreover the judgment
contains clear indications that a taxpayer who is subject to a s 31
assessment is
possessed of remedies which can be exercised
before
judgment is applied for (see para [66]: a wide field of defences is
available to a debtor who wishes to pre-empt the entry of judgment).

In the absence of service of process or notice of set down of the
application for judgment, the potential trigger for the exercise
of
those remedies can only be the assessment. All this, it seems to us,
is entirely logical: if the vendor has available a range
of
defences, why should he only receive their benefit after judgment has
been taken against him? Looked at from a different angle,
what can be
the prejudice to the Commissioner in allowing the taxpayer insight
into the assessment before he moves for judgment?
[21]
Counsel for the
Commissioner submitted from the bar that there is a strong likelihood
that a taxpayer against whom s 31 is invoked
will be untrustworthy
(see
Metcash
at para
[22]) and that the giving of notice of the Commissioner's intentions
may well provoke concealment of assets and even cause
the taxpayer to
decamp before the Commissioner can take judgment and execute on it.
Assuming the validity of this apprehension,
if the Commissioner has a
well-founded belief that such conduct will result from service of the
assessment he has his remedies at
common law, or he may (if so
advised) avoid the consequence by allowing only a short period of
time after service of the assessment
before applying for judgment,
bearing in mind that fairness of administrative procedure depends on
the circumstances of each case:
s 3(2)(a)
of the
Promotion of
Administrative Justice Act.
[22
]
We therefore agree with
counsel for the appellant that, in a case such as the present,
non-payment of an assessed amount is a jurisdictional
fact upon which
the exercise of powers under
s 40(2)(a)
depends. It is a necessary
corollary that the taxpayer should have been given notice of the
assessment before he can regarded as
one who is in default of payment
for the purpose of taking judgment against him. Notice of the
assessment to the taxpayer before
the statement contemplated in
s
40(2)(a)
is filed is necessary to give effect to the objects of the
Act. To exclude notice would be to deprive the taxpayer of rights at
common law which are not excluded by the Act. We conclude that the
learned Judge in the Court below was wrong in finding the
Commissioner
was entitled to implement the procedures of s 40(2)(a)
before notice of the assessment had been given.
[23]
Certain submissions
were addressed to us on the strength of
s 3
of the
Promotion of
Administrative Justice Act. The
contention was that fair
administrative procedures necessitated notice of assessment prior to
judgment. Counsel for the Commissioner
conceded that failure to
serve constituted a breach of the appellant's fundamental rights. He
sought to justify the breach by the
general submissions to which we
have referred in paragraph [21]. He was not able to point to any
circumstance applicable to the
appellant's case which provided such
justification.
[24]
The reliance on the
breach of a constitutional right was raised by the appellant for the
first time in his counsel's heads of argument
on appeal. Although
counsel for the respondent raised no objection, the situation is
clearly unsatisfactory. As emphasised in
Prince
v President, Cape Law Society and Others
2001(2)
SA 388 (CC) at para [22], in relation to a challenge to the
constitutionality of a provision in a statute, it is not sufficient
for a party to raise such a matter only in heads of argument without
laying a proper foundation for it in the papers or pleadings.
That
applies equally to a complaint of breach of a fundamental right which
the other party is entitled to justify by evidence as
well as
argument. In the circumstances we find it unnecessary to enter
further into this question as it is clear that the appellant
must
succeed on his main submission.
[25]
It would likewise be
superfluous to address the other findings of the Court
a
quo
which were the subject of attack by the
appellant. The right of the Commissioner to take judgment even
before the expiry of the period
within which objection may be made in
terms of
s 31(5)
will, if objection is duly lodged against the
assessment, certainly result in some degree of prejudice to the
taxpayer. The taxpayer
is confined to the, perhaps illusory,
consolation of an eventual adjustment in his favour in terms of
s
36(1)
and repayment of or compensation for that which was wrongly
taken from him. Naturally, if the Commissioner purports to take
steps
beyond those which the Act authorises, as he has done in this
case, the remedies available to the taxpayer may be more extensive.
[26]
In the result we concur
in the order made by Olivier JA.
____________________________
T D CLOETE
JUDGE OF APPEAL
_____
_______________________
J A HEHER
ACTING JUDGE OF APPEAL
CONRADIE JA )Concur
JONES AJA )
OLIVIER JA
[1] In this appeal, we are unanimous as far as the order
to be made is concerned. That order is the one at the end of this
judgment.
There are, however, differences in the reasoning leading
up to that conclusion. In what follows, I set out my thoughts on the
subject.
The factual background
[2] In August 2001 the appellant approached the Durban
and Coast Local Division on notice of motion for an order setting
aside, alternatively
rescinding, a judgment granted by that court on
18 July 2001 against the appellant and in favour of the
respondent for payment
of the sum of R1 032 961,43
[3] The judgment resulted from the filing by the
respondent of a statement in terms of s 40(2)(a) of the Value-Added
Tax Act, 89 of
1991 ("the Act").
[4] It is common cause that the judgment under
consideration was obtained in the course of the day of 18 July 2001.
Only afterwards,
at approximately 17:00, were certain VAT assessment
notices (form VAT 217P), relating to periods from 1996 to September
2002, served
upon the appellant.
[5] The sole complaint raised in the application by the
appellant, who at all relevant times had been a registered Value
Added Tax
vendor, was that the respondent was required to give him
notice of an assessment prior to seeking a judgment in terms of s 40
of
the Act.
[6] The application, which was opposed by the respondent
was heard and in the main dismissed by Galgut J, who also granted
leave to
the appellant to appeal against the dismissal to this Court.
[7] Neither in the court below, nor in argument in this
Court, was the procedural basis of the application for rescission of
the default
judgment, obtained by the respondent, raised or debated.
Such basis could only have been the rescission provisions of rule
42(1)(a)
of the Uniform Rules of Court or the common law remedy of
restitutio in integrum
.
Absent objection by the respondent to the procedural correctness of
the application and argument on this point, I will say no more
on
this aspect.
The legal background
[8] The question then is whether the statutory
'judgment' obtained by the respondent in the High Court by virtue of
the provisions
of s 40(2) of the Act, can be set aside because the
appellant had not, prior to such judgment having been obtained by the
respondent,
been given notice of the assessment envisaged by s 31 of
the Act.
[9] The Act is not at all clear and the answer to the
question posed above is not obvious. What is required as a first
step is an
overview of the procedure that must be taken by the
respondent before the application for judgment in terms of s
40(2)(a). I summarise
the provisions as follows.
[10] Every registered vendor must, at a certain date,
furnish the respondent with a return, containing information as to
the output
and input tax pertaining to the preceding tax period,
calculate the amount of the tax payable to the respondent or the
amount of
any refund due to the vendor (sec 28), and pay to the
respondent the amount which,
ex facie
the said return, is payable.
[11] If the respondent is satisfied with the vendor's
return, and payment, that is the end of the matter.
[12] However, in certain circumstances, the respondent
may make an assessment of the amount of tax payable by the vendor and
the amount
of tax so assessed shall be paid by the person concerned
to the respondent (sec 31(1)). The circumstances which may lead to
such
an assessment being made are set out in s 31(1), which reads as
follows:
'31.
Assessments
.─(1) Where─
(a) any person fails to furnish any return as required by section 28,
29 or 30 or fails to furnish any declaration as required by
section
13 (4) or 14; or
(b) the Commissioner is not satisfied with any return or declaration
which any person is required to furnish under a section referred
to
in paragraph (a); or
(c) the Commissioner has reason to believe that any person has become
liable for the payment of any amount of tax but has not paid
such
amount; or
(d) any person, not being a vendor, supplies goods or services and
represents that tax is charged on that supply; or
(e) any vendor supplies goods or services and such supply is not a
taxable supply or such supply is a taxable supply in respect of
which
tax is chargeable at a rate of zero per cent, and in either case that
vendor represents that tax is charged on such supply
at a rate in
excess of zero per cent,
the Commissioner may make an assessment of the amount of tax payable
by the person liable for the payment of such amount of tax,
and the
amount of tax so assessed shall be paid by the person concerned to
the Commissioner.'
Section 31(1) of the Act was the basis on which the
respondent made the assessment now under discussion. The point is
that the amount
reflected in the assessment becomes 'payable',
subject to what is said hereunder.
[13] The next step is that the respondent, in terms of
sec 31(4)
' . . . shall give the person concerned a written notice of such
assessment, stating the amount upon which tax is payable, the amount
of tax payable, the amount of any additional tax payable in terms of
section 60 and the tax period (if any) in relation to which
the
assessment is made.'
[14] The notice of assessment must include notice to the
person concerned that any objection to such assessment shall be
lodged or
sent so as to reach the Commissioner within 30 days after
the date of such notice (s 31(5)).
[15] This brings me to the steps to be taken by a vendor
who is dissatisfied with an assessment. He or she may lodge an
objection
thereto with the respondent within 30 days after the date
on which notice of the assessment was given (s 32). The respondent
must
consider the objection and if it is disallowed, give notice
thereof to the vendor. Such decision (or amended assessment) shall,
in terms of s 32(5), and subject to the right of appeal mentioned
hereunder, ' . . . be final and conclusive'.
[16] An appeal against a decision by the respondent to
disallow an objection, or against an amended assessment, lies to the
special
court for hearing income tax appeals. Notice of such an
appeal must be given to the vendor within 30 days (s 33). In the
circumstances
set out in s 33A the appeal shall be heard by the Board
established by s 83A(2) of the Income Tax Act.
A further appeal against a decision of the special court
exists in terms of s 34.
[17] Section 36 then introduces a principle that has
been described as 'pay now, argue later'. The section provides that
the obligation
to pay and the right to receive and recover any tax,
additional tax, penalty or interest chargeable under the Act, shall
not, unless
the respondent so directs, be suspended by any appeal or
pending the decision of a court of law. If the vendor's appeal is
upheld
or conceded, the respondent is obliged to make a due
adjustment (s 36).
[18] The principle 'pay now, argue later' also underlies
the provisions of s 40. It provides that any amount of tax,
additional tax,
penalty or interest payable in terms of the Act
shall, '. . . when it becomes due or is payable' be a debt due to
the State and
shall be recoverable by the respondent (s 40(1)).
Section 40(2)(a) sets out how the respondent may then proceed. It
reads as follows:
'(2)(a) If any person fails to pay any tax, additional tax, penalty
or interest payable in terms of this Act, when it becomes due
or is
payable by him, the Commissioner may file with the clerk or registrar
of any competent court a statement certified by him as
correct and
setting forth the amount thereof so due or payable by that person,
and such statement shall thereupon have all the effects
of, and any
proceedings may be taken thereon as if it were, a civil judgment
lawfully given in that court in favour of the Commissioner
for a
liquid debt of the amount specified in the statement.'
[19] All these steps ─ the taking of judgment against
the vendor and proceedings for sequestration or liquidation ─ may
thus take
place while an appeal is pending. To exacerbate this
draconic procedure, s 40(5) provides:
'(5) It shall not be competent for any person in
proceedings in connection with any statement filed in terms of
subsection (2)(a)
to question the correctness of any assessment upon
which such statement is based, notwithstanding that objection and
appeal may have
been lodged against such assessment.'
[20] Must the vendor receive notice of the assessment
before judgment is taken against him by virtue of s 40(2)(a) of the
Act?
The Act gives no clear answer. Section 40(2)(a)
requires the respondent to file with the clerk or registrar of the
court concerned,
in order to obtain judgment, ' . . . a statement
certified by him as correct and setting forth the amount thereof so
due or payable
. . . '. But the Act does not explain the link
between the assessment and the statement; nor does it require
notification of the
statement to the vendor before judgment is
obtained. In the result, the requirement that a statement be filed,
does not provide
an answer to the question posed.
[21] Another way of approaching the problem, is to ask:
what does the Act (in secs 40(1) and 40(2)(a)) mean when it requires,
as
a precondition for the respondent obtaining judgment, that the
amount of any tax, additional tax, penalty or interest shall be
recoverable
by the procedure allowed in sec 40(2)(a) ' . . .
when
it becomes due or is payable
'?
To circumscribe the problem more narrowly : if
the VAT
' . . . becomes due or is payable' even if no notice is
given to the VAT-debtor of an assessment, such assessment is not a
prerequisite
for the obtaining of judgment.
Ergo
,
prior notification of the assessment is only necessary, for the
purposes of s 40(2)(a) if its effect is that the debt ' . . . becomes
due . . ' or is rendered 'payable'.
Does notification of the assessment serve these
purposes?
[22] In the court
a quo
the learned judge came to the conclusion that prior notification of
the assessment was not necessary because the VAT assessed '
. . .
will in all cases already have become overdue by the date on which
the Commissioner makes the assessment. The same applies
to the
penalty and interest on unpaid VAT, because on an interpretation of
sec 39(1)(a) such a penalty, in the sum of 10% of the
unpaid VAT, and
such interest, are automatically payable, and as such they are
payable from the date upon which the VAT had become
payable.' The
underlying philosophy of the judgment follows what Kriegler J said in
Metcash Trading Ltd v Commissioner, South
African Revenue Services and Another
2001 (1)
SA 1109
(CC) at 1122 C that ' . . . VAT is payable on each and every
sale; the VAT percentage, the details for its calculation and the
timetable
for periodic payment are statutorily predetermined, and it
is left to the vendor to ensure that the correct periodic balance is
calculated,
appropriated and paid over in respect of each tax
period.'
[23] This philosophy was echoed by Erasmus J in
Traco
Marketing (Pty) Ltd and another v Minister of Finance and others
[1996] 2 All SA 467
(SE). In that case, the assessment was served on
the vendor earlier the same day that the certified statement was
filed with the
registrar of the court. It was argued on behalf of
the vendor that it could never have been the intention of the
legislature that
a judgment and subsequent execution could be taken
against the taxpayer by an assessment that is neither final nor
conclusive
ie
pending
the final outcome of objections and appeals (see 470 f-h). The
learned judge held that by virtue of the provisions of s
38(1) of the
Act, which requires that the tax payable under the Act shall be paid
in full within the time allowed by the specified
periods in which the
returns must be filed (secs 13(4), 14, 38 or 29), it is a feature of
the Act. ' . . . that the tax becomes
due and payable without any
preceding action by the Commissioner.' (at 471 d)
The learned judge proceeded (at 471 i):
'It appears that the provision relates to tax payable but unpaid at
the time of the assessment. The assessment therefore does not
create the obligation to pay the tax. That obligation arises from
the operation of s 38(1), read with the other relevant provisions
of
the Act. Section 40(2)(a) provides for the speedy and effective
recovery of tax which has become due or is payable
before
assessment. Within the scheme of the Act, the right to object to an
assessment does not affect and therefore cannot suspend the
pre-existing obligation to pay the tax. Nothing in the Act provides
or indicates otherwise.'
[24] If the underlying philosophy and the interpretation
given to the Act in
Metcash
,
Traco
and the court
a
quo
cannot be shown to be wrong, it must
follow that the giving of a notice of the assessment by the
respondent to the VAT debtor is
irrelevant because it does not render
the debt due or payable, it having become due or payable before such
assessment.
The correctness of the said philosophy and
interpretation thus requires close scrutiny.
[25] The ordinary meaning of 'due' is that ' . . .
there must be a liquidated money obligation presently claimable by
the creditor
for which an action could presently be brought against
the debtor. Stated another way, the debt must be one in respect of
which
the debtor is under an obligation to pay immediately.' (per
Galgut AJA in
The Master v I L Back and Co Ltd
and Others
1983 (1) SA 986
(A) at 1004 G;
see also
Western Bank Ltd v S J J van Vuuren
Transport (Pty) Ltd and Others
1980 (2) SA
348
(T) at 351;
HMBMP Properties (Pty) Ltd v
King
1981 (1) SA 906
(N) at 909;
Whatmore
v Murray
1908 TS 969
per Innes CJ at 970;
Banque Paribas v The Fund Comprising Proceeds
of Sale of the MV Emerald Transporter
1985
(2) SA 448
(D and C) at 463 C - E;
Commisioner
for Inland Revenue v People's Stores Walvis Bay (Pty) Ltd
[1990] ZASCA 1
;
1990 (2) SA 353
(A) at 366 G per Hefer JA).
[26] The word 'payable' can have at least two different
meanings, viz ' . . . (a) that which is due or must be paid, or (b)
that
which may be paid or may have to be paid. . . . . The sense of
(a) is a present liability ─ due and payable ─ . . . . (b) . .
.
. a future or contingent liability.' (per Trollip JA in
Marine
and Trade Insurance Co Ltd v Katz NO
1979 (4)
SA 961
(A) at 975 D - F; followed by Hefer JA in
Administrateur,
Tranvsvaal v J D van Niekerk en Genote BK
[1994] ZASCA 128
;
1995 (2) SA 241
(A) at 245 B - C). Depending on the context of the
statute involved, the word payable may refer to ' . . . what is
eventually due,
or what there is a liability to pay' (per Searle J
in
Stafford v Registrar of Deeds
1913 CPD 379
at 384
in fin
)';
'. . . . "payable at a future time", or "in respect
of which there is liability to pay".' (per Searle J
in
Stafford
v Registrar of Deeds
,
supra
,
at 385
in fin
.
(Approved of by Trollip JA in
Marine and Trade
Insurance Co Ltd v Katz NO
supra
,
at 975D-G; and by Melunsky J in
Schenk v
Schenk
1993 (2) SA 346
(ED) at 350 A - 51C).
[27] The Act does not couple the word
due
and payable, in s 40, with
and
.
They are distinguished by
or
.
It follows that a separate meaning must be given to the two terms.
From what has been stated above, '
due
'
must be given, in s 40 of the Act, the meaning of ' . . . a
liquidated money obligation presently claimable by the creditor for
which an action could presently be brought against the debtor'.
'
Payable'
in order to
distinguish it from 'due' must be given the meaning of a ' . . .
future or contingent liability'.
[28] I must now apply these conclusions to the
provisions of the Act. When does the obligation to pay VAT become
'due or payable'?
[29] Section 16(1) of the Act obliges the vendor to
calculate, in the manner set out in that section, the tax '
payable
'
by the vendor, and s 28(1) requires the vendor to furnish the
respondent with a return '. . . and pay the tax
payable
'
to the respondent. It is clear that the word 'payable' in these two
provisions cannot mean anything more than a future or contingent
liability to pay an amount as later finally assessed by the
respondent. Thus: the amount reflected in the return must be paid
immediately
because it is, in the sense described above, 'due';
however, there may be a future or contingent liability to pay more
than that
reflected in the return depending on the final decisions of
the respondent or a court. Such contingent liability is not 'due',
because it is not yet liquidated by a court or by agreement; nor is
it payable because it is uncertain whether the vendor is liable
for
the future payment of any amount.
[30] However, the contingent liability for the correct
amount payable in terms of the Act, becomes 'owing', in the sense
described
above, not only when the assessment is made and notice
thereof is given to the vendor, but somewhat later by virtue of the
provisions
of s 32(5) and read with s36.
[31] Section 32(5) deals with the situation where no
objection is lodged to the respondent's assessment, or where the
objection has
been disallowed or withdrawn or the assessment has been
altered or reduced. In these cases, the assessment becomes ' . . .
final and conclusive
'.
This means, at least, that the amount assessed now becomes
due
.
[32] Two deductions from the provisions of s 32 of the
Act seem to me to be incontrovertible, viz: (a) that the whole
procedure of
objection is predicated on the vendor having been
notified of the assessment ─ otherwise the objection procedures
cannot ever be
implemented and the assessed amount cannot become due;
and (b) that where the provisions of the section have been complied
with
and the objection properly dealt with the assessment becomes
final and conclusive
,
and the amount thus arrived at becomes
due
,
in the sense used above,
ie
there is now a liquidated money obligation presently claimable by the
creditor for which an action could presently be brought against
the
debtor; the debt is now one in respect of which the debtor is under
an obligation to pay immediately (see the authorities quoted
in par
[25] above). It now becomes clear why the legislator in secs
40(1) and 40(2)(a) of the Act used the words '
. . .
becomes due'. The liquidated amount for which the vendor is finally
and conclusively liable, becomes due by virtue of the
completion of
the objection procedures of s 32.
[33] For present purposes, however, it must be stressed
that the section 32 objection procedure is predicated upon the vendor
having
received notice of the assessment, as is required by s 31(4)
which notice, furthermore, must give the vendor notice of his right
to lodge an objection (s 31(6)).
[34] The following conclusions seem to me to be
warranted:
[34.1] If the respondent is not satisfied with the
return furnished by the vendor,
ie
in the circumstances set forth in s 31(1) of the Act, he may make an
assessment.
[34.2] The respondent must give the debtor notice of
such assessment ─ s 31(4) ─ including notice of the right of
objection, which
right may be exercised within a period of 30 days
after such notification (s 31(5)).
[34.3] It follows that if the respondent has not made an
assessment and given notice thereof to the vendor he cannot obtain
judgment
in terms of s 40(2)(a) of the Act, because any amount
claimed by him will not be liquidated and thus not due.
[34.4] If no objection to an assessment made by the
respondent in terms of s 31(1), is lodged by the vendor, the
respondent, after
the lapse of the 30 day period, may apply for
judgment in terms of s 40(2)(a), because the amount is now due,
having become liquidated,
final and conclusive by virtue of the
provisions of s 32(5).
[34.5] Once an objection is lodged, the respondent may
only obtain judgment in terms of s 40(2) if, in accordance with s
30(5)
the objection has been withdrawn or the assessment altered or
reduced. It is only then, again, that the amount for which the
vendor
is liable, has becomes
due
,
because it is now liquidated.
[34.6] Pending finalisation of the objection procedures
the respondent may not apply for judgment in terms of s
40(2)(a).
Pending such finalisation, the amount in dispute is
neither due, because it is not immediately claimable : the
obligation to pay
is suspended pending the finalisation of the
objection procedures. The amount is also not payable, because, not
being finalised,
it is not immediately but only contingently payable.
[35] This brings me to the case where the vendor, having
objected to the s 31(1) assessment and not being satisfied with the
sec 32
decision or assessment of the respondent, appeals. He must do
so within 30 days after having been notified of the outcome of the
objection-procedures (see secs 33(1) and (2) which refer back to the
provisions of s 32(4)). It is at this stage, and this stage
only,
that the 'pay now, argue later' philosophy enters into the picture.
That is so because the obligation to pay the amount assessed
in the
course of the objection proceedings and of which notice was given to
the vendor in terms of s 32(4), is
not
suspended by the noting of an appeal
by
virtue of the provisions of s 36, which expressly provide that the
noting of an appeal does not suspend the obligation to pay
the
assessed tax etc immediately. The consequence of this provision is
that payment of the amount assessed in terms of s 32 (not
s 31) is no
longer suspended and has to be paid immediately. It should be noted
that the obligation to pay the amount assessed by
the respondent in
terms of s 31 is suspended by the lodging of an objection, because of
the provisions of that section and s 32,
whereas the obligation to
pay the amount assessed in terms of s 32 is
not
suspended by the lodging of an appeal by
virtue of s 36. This distinction is important, because it indicates,
once again, that the
respondent may only approach a court for
judgment in terms of s 40(2)(a) of the Act after the objection
provisions of the Act (s
32) have been completed ─ and, as shown,
these provisions are predicated on notice of the s 31 assessment
having been given to
the vendor concerned and the time in which he
can lodge an objection with the respondent has expired or the
objection has been dealt
with in terms of s 32, as explained above.
Conclusion
[36] It follows that the question before us,
viz
whether a judgment in respect of VAT obtained by the respondent in
terms of s 40(2)(a) of the Act, can be set aside because the
appellant
had not, prior to such judgment having been obtained, been
given notice of the s 31 assessment on which the respondent relies,
must
be answered in the
affirmative
.
The judgment obtained by the respondent against the appellant in the
present case cannot be allowed to stand, nor the other proceedings
taken against the respondent pursuant to such judgment. The judgment
of the court
a quo
can
also not be allowed to remain in force.
[37] The following orders are made:
1 The appeal succeeds with costs, including the costs of
two counsel.
2 The order of the Court
a quo
is set aside and the following is substituted therefor:
(a) The judgment granted against the applicant on 18
July 2001 under case no 4467/2001 is set aside.
(b) The writ of attachment effected by the respondent
pursuant to the aforesaid judgment, is hereby set aside.
(c) The respondent is ordered to pay the costs
occasioned by this application, such costs to include those
consequent upon the employment
of two counsel.
P J J OLIVIER JA
1
The scheme of the Act was analysed and explained in detail by
Kriegler J in paras [11] to [24].
2
In
Metcash supra
Kriegler J noted (at fn 62) that the debt
arising from the obligation to pay assessed VAT becomes
due
by operation of the Act upon assessment. The learned Justice was
not specifically directing his attention to the distinction between
what is due and what is payable and the remark was obiter.