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[2001] ZASCA 129
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Shelton v South African Revenue Service (142/2000) [2001] ZASCA 129; 2002 (2) SA 9 (SCA); 64 SATC 179 (27 November 2001)
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case
No: 142/2000
In
the matter between:
MARK
WILLIAM SHELTON
Appellant
and
THE
COMMISSIONER FOR THE
SOUTH
AFRICAN REVENUE SERVICE
Respondent
Coram
:
Vivier,
ADCJ, Howie, Streicher, JJA Conradie and Cloete, AJJA
Heard
:
15
November 2001
Delivered
:
27
November 2001
Validity
of issuing and execution of a search and seizure warrant issued in
terms of s 74D(9) of the Income Tax Act 58 of 1962.
J U D G M E N T
STREICHER JA
:
[1] This appeal concerns the validity of the issuing and
execution of a warrant authorizing officers employed in the South
African
Revenue Service to enter premises to search for certain
documents and other items (hereinafter jointly referred to as
‘documents’)
and to seize such documents.
[2] Erasmus J issued the warrant on 16 April 1999. On 15
July 1999 the warrant was executed and a number of documents were
seized
in terms thereof. In a joint judgment by a full bench of the
Eastern Cape Division an urgent application by the appellant in terms
of s 74D(9) of the Income Tax Act 58 of 1962 (‘the IT Act’)
for an order directing the respondent to deliver all information,
documents or things seized in terms of the warrant was dismissed.
With the leave of that court the appellant now appeals to this
court.
[3] The appellant is a
businessman. It is common cause that he has an interest in numerous
businesses and properties through partnerships,
companies and trusts.
He is,
inter alia
,
a trustee of the Shelton Trust which holds 50% of the shares in a
company which owns the Heritage Spar in Port Alfred. He is
also a
trustee of the Seaspray Trust which has a 90% interest in the
Peppergrove Spar in Grahamstown. Both Spars are managed by
him and
he and his wife have offices at the Peppergrove Spar. He was
assessed to tax in the Transkei for the 1990 to 1993 tax
years in
respect of income earned in the Transkei but, although registered as
a taxpayer at the Umtata office of the South African
Revenue Service
during the 1994 and 1995 tax years, he was not assessed to tax for
those tax years in respect of income earned
in the Transkei. From
1993 until 1997 he was also assessed to tax in respect of returns
submitted to the East London office of
the South African Revenue
Service. For the 1993 to 1995 tax years his income so assessed did
not include income earned in the Transkei.
By virtue of the repeal of
the Income Tax Act 58 of 1962 of the Transkei by the
Income Tax Act
21 of 1995
the assessments for the 1996 and 1997 tax years included
all of his income earned during those years.
[4] According to the warrant it had
been issued in terms of s 74D of the IT Act s 57D of the Value Added
Tax Act 89 of 1991 (‘the
Vat Act’). Section 74D of the IT
Act provides as follows:
‘
(1) For the purposes of
the administration of this Act, a judge may, on application by the
Commissioner or any officer contemplated
in section 74 (4), issue a
warrant, authorising the officer named therein to, without prior
notice and at any time-
(a) (i) enter and search any
premises; and
(ii) search any person present
on the premises, provided that such search is conducted by an officer
of the same gender as the person
being searched,
for any information, documents
or things, that may afford evidence as to the non-compliance by any
taxpayer with his obligations
in terms of this Act;
(b) seize any such information,
documents or things; and
(c) in carrying out any such
search, open or cause to be opened or removed and opened, anything in
which such officer suspects any
information, documents or things to
be contained.
(2) An application under
subsection (1) shall be supported by information supplied under oath
or solemn declaration, establishing
the facts on which the
application is based.
(3) A judge may issue the
warrant referred to in subsection (1) if he is satisfied that there
are reasonable grounds to believe
that-
(a) (i) there has been
non-compliance by any person with his obligations in terms of this
Act; or
(ii) an offence in terms of this
Act has been committed by any person;
(b) information, documents or
things are likely to be found which may afford evidence of-
(i) such non-compliance; or
(ii) the committing of such
offence; and
(c) the premises specified in
the application are likely to contain such information, documents or
things.
(4) A warrant issued under
subsection (1) shall-
(a) refer to the alleged
non-compliance or offence in relation to which it is issued;
(b) identify the premises to
be searched;
(c) identify the person alleged
to have failed to comply with the provisions of the Act or to have
committed the offence; and
(d) be reasonably specific as to
any information, documents or things to be searched for and seized.
(5) Where the officer named in
the warrant has reasonable grounds to believe that-
(a) such information,
documents or things are-
(i) at any premises not
identified in such warrant; and
(ii) about to be removed or
destroyed; and
(b) a warrant cannot be obtained
timeously to prevent such removal or destruction,
such officer may search such
premises and further exercise all the powers granted by this section,
as if such premises had been
identified in a warrant.
(6) Any officer who executes a
warrant may seize, in addition to the information, documents or
things referred to in the warrant,
any other information, documents
or things that such officer believes on reasonable grounds afford
evidence of the non-compliance
with the relevant obligations or the
committing of an offence in terms of this Act.
(7) The officer exercising any
power under this section shall on demand produce the relevant warrant
(if any).
(8) The Commissioner, who shall
take reasonable care to ensure that the information, documents or
things are preserved, may retain
them until the conclusion of any
investigation into the non-compliance or offence in relation to which
the information, documents
or things were seized or until they are
required to be used for the purposes of any legal proceedings under
this Act, whichever
event occurs last.
(9) (a) Any person may apply to
the relevant division of the High Court for the return of any
information, documents or things seized
under this section.
(b) The court hearing such
application may, on good cause shown, make such order as it deems
fit.
(10) The person to whose affairs
any information, documents or things seized under this section
relate, may examine and make extracts
therefrom and obtain one copy
thereof at the expense of the State during normal business hours
under such supervision as the Commissioner
may determine.’
The wording of s 57D is identical
save that ss (1) thereof contains a reference to s 57(1) and not to s
74(1).
No constitutional challenge to the
validity of either section was mounted at any stage of the
proceedings and facts relevant to
such a challenge do not appear from
the record. The respondent’s counsel submitted in their heads
of argument that the appeal
should be decided on the basis that the
section is constitutionally valid and the appellant’s counsel
did not take issue
with this approach. In the circumstances I see no
reason not to follow it.
[5] By providing in s 74D(9) that a
court may ‘on good cause shown, make such order as it deems
fit’ without in any
way specifying what would constitute ‘good
cause’ the legislature clearly intended to confer a wide
discretion on a
court dealing with an application for an order
directing the return of documents seized under s 74D. Counsel for the
appellant
submitted that good cause was established in that:
The application for a warrant did not comply with s
74D(2) of the IT Act and s 57D(2) of the VAT Act.
Material facts were not disclosed to Erasmus J.
The application for the warrant was fatally defective.
The warrant itself was fatally effective.
The execution of the warrant was irregular.
I shall deal with each of these grounds in turn.
[6] The first main ground on which the appellant relied
was that the application did not comply with s 74D(2) of the IT Act
and
with s 57D(2) of the VAT Act in that it was not ‘supported
by information supplied under oath or solemn declaration,
establishing
the facts on which the application [was] based’ as
required by these sections.
[7] The application upon which Erasmus J issued the
warrant consisted of a notice of motion and two affidavits annexed
thereto in
support of the application. The one affidavit, dated 5
November 1998, was deposed to by Mr Nortje, the Receiver of Revenue
at Port
Elizabeth, an officer to whom the Commissioner for the South
African Revenue Service, in terms of s 74(4), delegated the powers
vested in him by s 74D. The other affidavit, dated 11 November 1998,
was deposed to by Mr Hewson, a Revenue Inspector at the East
London
office of the Special Investigation Division of the South African
Revenue Service. The facts on which the application was
based were
set out in the latter affidavit. Nortje said in his affidavit:
‘
In support of this
application I respectfully refer to the sworn affidavit of LINDEN
JAMES HEWSON that contains the facts upon which
this application is
based, which facts I have perused and which satisfies me that
reasonable grounds exist for this application.’
The appellant submitted that, in the light of the fact
that Hewson’s affidavit was dated after Nortje’s
affidavit, another
affidavit than the one referred to by Nortje must
have been annexed to the notice of motion and that the application
for a warrant,
for this reason, did not comply with s 74D(2) and s
57D(2).
[8] Hewson admitted that the affidavit (‘the
second affidavit’) annexed to the notice of motion was not the
same affidavit
as the one perused by Nortje (‘the first
affidavit’). However, according to him the content of the
second affidavit
was exactly the same as that of the first affidavit
except that the second affidavit was commissioned by another
commissioner of
oaths and that each page thereof was initialed by him
and the commissioner. He explained that it was considered necessary
to depose
to a second affidavit because the first affidavit had not
been initialed by him and the commissioner. Although Hewson did not
explain
how it came about that Nortje and the commissioner who
commissioned Nortje’s affidavit initialed Hewson’s second
affidavit
there is in my view no reason to believe that, save as
aforesaid, the content of the affidavit Nortje perused differed from
the
affidavit annexed to the notice of motion. In any event it is
quite irrelevant whether or not Nortje had perused the second
affidavit
and whether or not he was satisfied that reasonable grounds
existed for the application. Erasmus J had before him an application
supported by information supplied under oath establishing the facts
on which the application was based as required by s 74D(2)
and he,
and not Nortje, had to be satisfied that reasonable grounds existed
for the application.
[9] The second main ground on which the appellant relied
was that the respondent failed to disclose to Erasmus J facts which,
according
to him, were ‘highly relevant’. He submitted
that these non-disclosures were material and that, in the absence of
any
plausible explanation for the non-disclosures, the interests of
justice required that the documents seized should be returned. The
facts which should according to the appellant have been disclosed are
the following:
9.1 The discrepancy between the dates of the affidavits
by Nortje and Hewson.
9.2 The fact that Hewson, a month prior to the
application, deposed to an affidavit in respect of a similar
application in the Transkei
High Court in which almost all of the
equivalent of paragraph 6(f) of his affidavit in the present matter
was deleted.
9.3 The fact that at the time when the application for
the warrant was brought the respondent knew that there would be a
substantial
delay in its execution.
[10] The discrepancy between the dates of the affidavits
was not concealed by the respondent and was only relevant to an
irrelevant
statement by Nortje. In the circumstances I do not think
that the failure by the respondent to direct the attention of Erasmus
J thereto constituted a material non-disclosure.
[11] Para 6(f) of Hewson’s affidavit contained a
reference to an allegation that a business associate of Hewson paid a
bribe
to a staff member at the Umtata office of the South African
Revenue Service to ‘lose’ his (the business associate’s)
income tax file. The corresponding reference in his affidavit in the
application to the Transkei High Court (‘the Transkei
application’) was deleted from that affidavit. Hewson explained
that Mr Jacobs who represented the State Attorney in the
Transkei
application effected the deletion. Hewson deposed to the affidavit
and initialed the deletion but that is not to say
that he was
persuaded that the portion deleted was incorrect or untruthful. He
stated in his answering affidavit that he had not
received any
information which cast doubt on the veracity of the informants
concerned. The fact that Jacobs did not consider it
necessary or
advisable that Hewson should refer to the allegation was once again
irrelevant and need not have been disclosed to
Erasmus J.
[12] The warrant was issued on 16 April 1999 and
executed on 15 July 1999. Hewson explained that he was required to
co-ordinate
searches in East London, Umtata, Port St Johns,
Grahamstown and Port Alfred as it was necessary for an effective
search and seizure
operation that the searches should take place
simultaneously. This entailed that a time had to be found when the
persons who had
been authorized in terms of the warrants to conduct
the search and seizure operation were available. According to Hewson
the searches
were conducted as soon as it became practical to conduct
them simultaneously. There was in my view no reason for the
respondent
to think that circumstances might change during the time
that it would take to co-ordinate the searches or that the appellant
might
be prejudiced if the warrant was executed on 15 July 1999
rather than 16 April 1999. Moreover, the appellant did not allege
that
circumstances could have changed or that he was prejudiced by
the delay. In these circumstances it cannot be said that the
respondent’s
failure to disclose to Erasmus J that there would
be a delay in the execution of the warrant constituted a material
non-disclosure.
[13] The third main ground on which the appellant relied
was that the application for the warrant was fatally defective. The
appellant
submitted that that was so for the following reasons:
13.1 Despite the fact that the application was made in
terms of s 57 of the VAT Act there were no averments in the
respondent’s
affidavits regarding any non-compliance by the
appellant with his obligations in terms of the VAT Act.
13.2 There was an inordinate delay between the making of
the affidavits used in support of the application and the moving of
the
application for a warrant.
13.3 No basis was laid in the respondent’s
affidavits for bringing the application without notice to the
appellant.
13.4 Hewson’s affidavit contained inaccuracies and
hearsay allegations with the result that no adequate factual basis
for
the application was laid.
[14] It is correct that the respondent’s
affidavits did not contain an averment regarding any non-compliance
with the VAT
Act as is required by S 57D of the VAT Act. However, the
warrant was also issued in terms of the IT Act and would have read no
different, except for the references to the VAT Act, had it been
issued in respect of the IT Act only. The failure to aver any
non-compliance with the VAT Act was therefore of no consequence.
[15] The affidavits used in support of the application
were deposed to in November 1998 and the application was moved in
April 1999.
Hewson explained that it was decided to first obtain
warrants in respect of the appellant and his former partners in the
Transkei
Division and that a delay was caused when the application
papers lodged with the Transkei Division got lost with the result
that
new papers had to be prepared. He stated furthermore that there
was no change in circumstances between November 1998 and April 1999.
It was not alleged by the appellant that he was prejudiced by the
delay. Again the delay was of no consequence.
[16] The appellant
submitted that the respondent had to give notice to him of the
application for a warrant unless a case could
be made out that notice
should be dispensed with; that the respondent failed to make out such
a case; and that the respondent’s
application for a warrant
should, therefore, have been refused. As authority for this
proposition the appellant relied on
Cooper
NO v First National Bank of SA Ltd
2001
(3) SA 705
(SCA). In that case the issue to be decided was whether
notice should have been given of an application in terms of
s 69(3)
of the
Insolvency Act 24 of 1936
for a warrant to search for and take
possession of property. Smalberger JA said at 713F:
‘
[A]s
a general principle, a warrant should not be issued without affording
the person or persons affected, or likely to be affected
(to the
extent that their identities are ascertainable or reasonably
ascertainable), an opportunity to be heard, unless it can
be said
that
s 69(3)
(the authorising provision) excludes that right either
expressly or by necessary implication. An opportunity to be heard
would
require the giving of appropriate notice to the person or
persons concerned.’
And at 714E:
‘
When
seeking to recover concealed items suspected of belonging to an
insolvent estate, the giving of prior notice and affording
a right to
be heard would, or at least might, defeat the very object and purpose
of the section. From this it must be inferred,
by way of necessary
inference, that the Legislature intended to exclude the giving of
notice (and the concomitant right to be heard)
in cases involving
concealed items.’
In the present case the warrant was applied for and
issued on the basis of allegations, among others, suggesting that the
respondent
failed to comply with his obligations in terms of
s 66
of
the
Income Tax Act of the
former Transkei in that he did not submit
income tax returns to the office of the Receiver of Revenue in Umtata
in respect of the
1994 and 1995 tax years. Furthermore, that he
committed an offence in terms of s 104(a) of the IT Act in that there
were reasonable
grounds for believing that he, with intent to evade
the payment of income tax levied under the IT Act, made a false
statement in
relation to his personal assets and liabilities in a
return rendered in terms of the IT Act. In these circumstances the
giving
of prior notice of the application for a warrant would have
defeated the object and purpose of the section which is, among other,
to enable the respondent to enter premises to search for information
intentionally concealed from him. In the circumstances the
section,
by necessary implication, did not require the giving of notice.
[17] The submission that Hewson’s affidavit used
in support of the application for a warrant contained material
inaccuracies
and hearsay allegations is made in the appellant’s
heads and, although not abandoned, was not pressed in argument before
us. I do not consider it necessary to deal with the alleged
inaccuracies and hearsay allegations save insofar as they relate to
a
failure to submit income tax returns and to disclose assets.
[18] In regard to the submission of income tax returns
to the office of the Receiver of Revenue in Umtata the appellant
alleged
in his founding affidavit that he did submit such returns for
the 1994 and 1995 tax years and annexed incomplete unsigned copies
thereof without copies of the schedules referred to in the returns.
According to the appellant the copies were incomplete because
they
were made prior to signature and submission and because he did not
keep copies of the schedules. He stated that an accountant,
from whom
a confirming affidavit was annexed to his affidavit, prepared the
returns. He did not say how and when the returns were
submitted. It
is not surprising that the submission that the appellant did submit
these returns was not pressed in argument before
us. In my view it is
so improbable that an experienced businessman such as the appellant
would have submitted his income tax returns
without himself or his
accountant keeping copies of the detailed schedules annexed thereto,
that the allegation cannot be taken
seriously.
[19] In his affidavit in support of the application for
a warrant Hewson referred to a calculation he had done on the basis
of information
contained in the appellant’s income tax returns
submitted to the East London Office of the South African Revenue
Service
for the 1995, 1996 and 1997 tax years and an estimation of
the appellant’s annual living expenditure. According to this
calculation a decrease of the appellant’s capital during those
three years in an amount of R963 394 was unaccounted for. Hewson
stated that the reason for a taxpayer to understate his net asset
worth was normally to conceal the omission of taxable income.
In his
founding affidavit the appellant denied that he had not properly
disclosed his net worth or that he omitted taxable income.
However,
although he should have been able to explain the discrepancy, he made
no attempt to do so with the result that the discrepancy
remains
unaccounted for. In my view an adequate factual basis for the
granting of a warrant in terms of s 74D(4) had been laid.
[20] The fourth main ground on which the appellant
relied was that the warrant itself was fatally defective for the
following reasons:
20.1 Contrary to s 57D(4)(a) of the VAT Act the warrant
did not refer (other than in general terms) to any non-compliance by
the
appellant with the VAT Act.
20.2 The warrant authorized a search of the Peppergrove
Spar and the Heritage Spar supermarkets but no allegation was made in
the
affidavits filed in support of the application for a warrant that
the premises on which the two Spars were situated were likely
to
contain any documents which could afford evidence of non-compliance
by the appellant with his obligations in terms of the IT
Act.
[21] As in the case of the application for the warrant
the fact that the warrant itself did not refer to any specific
non-compliance
with the provisions of the VAT Act and therefore did
not comply with the provisions of the VAT Act was of no consequence.
[22] According to the affidavits the appellant was in
control of the two Spars. That fact was in my view sufficient to
justify the
belief that the premises on which those Spars were
situated were likely to contain documents which could afford evidence
of the
commission of the suspected offence namely the failure by the
appellant to disclose assets.
[23] Three other reasons for the warrant being fatally
defective were advanced in the heads of argument filed by the
appellant.
They were not pressed in argument before us, are without
merit and do not warrant detailed consideration.
[24] The fifth and last main ground on which the
appellant relied was that the execution of the warrant was irregular
for the following
reasons:
24.1 The respondent unjustifiably delayed the execution
of the warrant from 16 April 1999 when it was issued, to 15 July
1999. I
have already dealt with this submission in another context.
24.2 Unauthorized persons were involved in the searches
of appellant’s home in Port Alfred and the Heritage Spar. In
the case
of the search and seizure at the Heritage Spar Mr Champion,
who was authorised in terms of the warrant to conduct the search,
employed
the services of a person not mentioned in the warrant to
compile an inventory of the documents to be seized. His involvement
did
not extent to participation in the search and seizure itself and
could for that reason not have invalidated it. In the event only
one
item was seized. In the case of the search of the appellant’s
home the search was indeed conducted by persons not authorised
to do
so in terms of the warrant. However, no documents were seized. There
are therefore no documents to be returned as a result
of this
unauthorised search.
[25] It follows that the appellant has not shown good
cause in terms of s 74D(9) for the return of the documents seized in
terms
of the warrant.
The appeal is therefore dismissed
with costs including the costs of two counsel.
___________
P
E Streicher
Judge
of Appeal
Vivier ADCJ)
Howie
JA)
Conradie
AJA)
Cloete
AJA) concur