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[2015] ZAWCHC 218
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Lifman and Others v Commissioner for the South African Revenue Service and Others (5961/15) [2015] ZAWCHC 218; [2016] 1 All SA 225 (WCC); 77 SATC 383 (17 June 2015)
Republic
of South Africa
In
the High Court of South Africa
(Western
Cape Division, Cape Town)
CASE
NO
:
5961/15
In
the matter between:
MARK
LIFMAN
First
Applicant
IMVUSA
TRADING 1753
CC
Second
Applicant
THE
BUSINESS ZONE 983
CC
Third Applicant
CASTLHILL
TRADING 79 CC
Fourth
Applicant
CORPCLO
701
CC
Fifth
Applicant
SEASONS
FIND 764
CC
Sixth
Applicant
WANT
2 INVEST
Seventh
Applicant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
First
Respondent
REGISTRAR
FOR THE HIGH COURT,
CAPE
TOWN
WEST
Second Respondent
THE
SHERIFF OF THE HIGH COURT,
CAPE
TOWN EAST
Third Respondent
THE
SHERIFF OF THE HIGH COURT,
CAPE
TOWN WEST
Fourth
Respondent
THE
SHERIFF OF THE HIGH COURT,
WYNBERG
SOUTH
Fifth
Respondent
THE
SHERIFF OF THE HIGH COURT,
WYNBERG
NORTH
Sixth
Respondent
THE
SHERIFF OF THE HIGH COURT,
WYNBERG
EAST
Seventh
Respondent
THE
SHERIFF OF THE HIGH COURT,
MITCHELLS
PLAIN SOUTH
Eighth
Respondent
THE
SHERIFF OF THE HIGH COURT, BELLVILLE
Ninth
Respondent
THE
SHERIFF OF THE HIGH COURT,
CLANWILLIAM
Tenth
Respondent
THE
HONOURABLE MINISTER OF FINANCE
Eleventh
Respondent
JUDGMENT
DELIVERED ON: WEDNESDAY, 17 JUNE 2015
MANTAME,
J
[1]
Applicants brought this urgent interim interdict against first
respondent for an order that default judgments that first respondent
obtained in terms of Section 172 of the
Tax Administration Act 28 of
2011
“
the
TAA
”
on 1 April 2015 in this Court under Case Numbers 2699/2015 against
first applicant, and 2696/2015 against second applicant
as well as
any other judgment granted in favour of the first respondent in terms
of
Section 172
of the TAA against any of the applicants be set aside
or alternatively be suspended; and that first respondent be
interdicted and
restrained from executing on, or taking any further
steps pursuant to the judgments and any further process which the
first respondent
may have caused to be issued pursuant to the
judgments should be suspended and stayed with immediate effect.
[2]
A further relief requested by applicants was that the movable goods
attached and removed by third to tenth respondent under
the warrants
of execution be returned to the applicants or its representatives was
no longer pursued at the hearing of this matter.
Instead,
Counsel for the applicants submitted that the aforesaid respondents
should keep the goods and not sell them, up until
the finalisation of
this matter.
[3]
It is common cause therefore that applicants are taxpayers.
First applicant represented all other applicants in these
proceedings
as they are juristic persons and he is the sole member of the said
close corporations. Pursuant to first respondent’s
statutory duty to collect revenue from the taxpayers, it therefore
became certain that the undisputed tax debt of R13 215
062.21 is
owed by the applicants. This outstanding debt by the applicants
spans over a period of some 10 years. This
became apparent when
first respondent conducted an enquiry in terms of
Section 50(1)
of
the TAA against first applicant and its 35 entities under the Lifman
Group. This enquiry took place between 26 May 2014
and 25
February 2015. During this enquiry, applicants submitted
outstanding tax returns based on their own declarations,
and the
individual tax debt of each applicant was made up as follows:-
First Applicant
-
R3 052
518.23
Second Applicant
-
R8 794 477.88
Third Applicant
-
R294 216.82
Fourth Applicant
-
R77 445.37
Fifth Applicant
-
R853 867.75
Sixth
Applicant -
R142 536.16_
TOTAL
= R13 215 062.21_
[4]
It is not in dispute that this tax debt arose from voluntary
submissions made by the applicants in their income tax and Value
Added Tax returns.
[5]
According to first respondent this tax debt does not include further
tax debt of the applicants which it addressed in their
letters of
finding that were issued in consequence of first respondent’s
inquiry process. That process is still pending.
[6]
It remained undisputed further that during the period of engagement
between applicants and respondent, applicants indicated
their desire
and commitment to be tax compliant and to settle any amount that has
become due and payable which may have been raised
through assessment,
or through an inquiry or otherwise.
[7]
As a result thereof, applicants and first respondent entered into a
security agreement which saw first respondent registering
caveats on
some of applicant’s properties on 04 March 2015 with the
consent of the applicants.
[8]
Prior to the security agreement being concluded, first respondent had
a meeting with first applicant on 3 March 2015 at its
Head Office in
Pretoria where applicants were represented by a legal team. At
the meeting, applicants were notified in writing
about first
respondent’s intention to seek civil judgment on the
outstanding tax debt of the applicants, should applicants
fail to
adhere to the agreed payment date, that is, 31 March 2015. At
that time, a previous letter had already been dispatched
to
applicants on 5 February 2015 notifying them about the same debt that
needed to be settled before end March 2015.
[9]
On 31 March 2015, applicants failed to honour their undertaking to
pay the tax debt as agreed, and as such, first respondent
proceeded
to obtain civil judgment on 1 April 2015 in terms of
Section 172
of
the TAA.
[10]
This Court is now called upon to decide whether the interim relief
sought by applicants is justifiable in the circumstances.
[11]
Mr Potgieter argued that, there are jurisdictional and procedural
requirements that had to be met prior to first respondent
taking
civil judgments.
Section 172(1)
of TAA reads as follows:-
“
If a person has
an outstanding debt, SARS may, after giving the person at least 10
business days’ notice, file with the clerk
or registrar of a
competent court a certified statement setting out the amount of tax
payable and certified by SARS as correct.
”
According
to applicants’ counsel, there is a peremptory stipulation in
this section, compelling first respondent to give 10
business days
notice to the taxpayer, of which SARS failed to do. The warning
in the letter dated 3 March 2015 by first respondent
does not
constitute a “notice” as required by
Section 172(1)
of
the TAA. The said provision must be read with
Section 162
of
the TAA which stipulates as follows:-
“
(1)
Tax
must be paid by the day and at the place notified by SARS or as
specified in a tax Act, and must be paid as a single amount
or in
terms of an instalment payment agreement under
Section 167
.”
In
essence, applicants were deprived their
prima
facie
right
to be notified in terms of the statute. Counsel referred to
Murphy
v South African Railways and Harbours
1946 NPD 252
,
where a plaintiff contended that a correspondence informing the
defendant in writing of the possibility of legal proceedings, was
sufficient to constitute notice of intention to commence legal
proceedings where the institution of proceedings was prohibited
by
statute unless such notice was served on the defendant at least a
month before such proceedings may be commenced with.
The court
rejected the contention, at page 255, and stated that the legislation
itself made provision for a notice of claim, and
a notice of legal
proceedings. It was submitted that the same applies in this
matter.
Section 162
of the TAA makes provision for the
determination of time and manner on which tax must be paid, which is
generally on a date stated
on a notice of assessment, or as on these
facts on a date agreed. It is only when there is failure by the
tax payer to pay
the debt on the due date, that the requirement of
Section 172(1)
that “
person
has an outstanding tax debt
”
is met, and it is only at that date, in this case being 1 April 2015,
that first respondent is entitled to give notice of
10 days prior to
applying for judgment in terms of
Section 172.
[12]
It was applicants’ submission that first respondent is not
entitled to pre-empt the tax debt becoming due by giving a
taxpayer a
“
general
notice
”
that it will apply for judgment in terms of
Section 172
, more than 10
days before it actually becomes outstanding. Further, logic and
precedent dictates that the formulation of
words by first respondent
in respect of the possible procedures in which it may enforce its
rights does not constitute notice in
terms of
Section 172.
First respondent would have been empowered to actually give
applicants notice on 1 April 2015, and only 10 days later, first
respondent would be entitled to act in terms of
Section 172(1)
of the
TAA. First respondent’s actions prior 1 April 2015 was
clearly premature.
[13]
In addition thereto, Section 25(1) of the Constitution guarantees the
right to property. It provides as follows:-
“
(1)
No
one may be deprived of property except in terms of law of general
application, and no law may permit arbitrary deprivation of
property.
”
This
therefore applies to juristic persons such as applicants close
corporations. The effect of judgments and the execution
process
would be to deprive applicants of their property. Counsel made
reference to
First
National Bank of South Arica v Minister of Finance 2002(4) SA 768 CC
at para 45; Mkontwana v Nelson Mandela Metropolitan Municipality
and
Another; Bissett & Others v Buffalo City Municipality &
Others; Transfer Rights Action Campaign & Others v MEC
for Local
Government & Housing in the Province of Gauteng & Others
2005(2) BCLR 150 (CC),
where the Constitutional Court held that a deprivation of property
would be arbitrary if the deprivation is without “
sufficient
reason
”
or is procedurally unfair. It is therefore applicants
contention that filing of certificates by first respondent was
without sufficient reason, unfair and consequently arbitrary.
[14]
Further, the alleged notice which first respondent rely on, breaches
the provisions of Section 33 of the Constitution and Section
3 of
PAJA, as it failed to give the required notice envisaged in Section
172 of TAA; it removed the 10 days to determine how the
affairs of
the applicants can be structured prior to judgment being granted, it
was not a clear statement as to when exactly the
certificate will be
submitted to the Registrar; there was no justifiable nor reasonable
circumstances to depart from the provisions
of Section 3(2) of PAJA.
[15]
Applicants submitted that they have established a
prima
facie
right
that will be infringed and that is contained in their notice of
motion. The balance of convenience favours the applicants
as
first respondent decided to remove the trading goods of the
applicants as the business rescue practitioner can take control
of
the second, third and seventh applicants and act in accordance with
the procedures in Chapter 6 of the Companies Act which cannot
prejudice first respondent at all, as the debt remains and is to be
liquidated. First respondent has not shown any irreversible
harm or palpable inconvenience by acting in accordance with the
prescripts of Section 172 of the TAA nor that it would suffer an
irreparable harm. This should be weighed against the
irreparable harm that applicants will suffer if the execution process
continues; and in essence, they have no alternative remedy but to
seek this interim relief.
[16]
First respondent opposed this application on the basis that the
contention by applicants that they failed to give them notice
is
untrue. Applicants were at all times aware of first
respondent’s demand. In the founding affidavit, first
applicant alleged that the date that was agreed on was an unrealistic
timeframe, although on the other hand he agrees that his
legal
representatives agreed to the payment date being 31 March 2015.
The tax debt of the applicants arose over many years
and had
applicants submitted their tax returns timeously, the amounts would
have been declared and applicants would have been expected
to pay
years ago. Applicants were appraised of the fact that first
respondent will proceed to obtain civil judgments in terms
of Section
172 of the TAA for purposes of recovery of debt. Applicants did
not respond to that letter nor dispute first respondent’s
entitlement to proceed with the collection of debt.
[17]
According to first respondent, the first jurisdictional requirement
for the filing of a certified statement in order to obtain
a judgment
in terms of Section 172(1) is that: “
a
person has an outstanding tax debt
.”
It cannot be disputed that each of the applicants in respect of whom
a certified statement was filed with the Registrar,
(excluding
seventh applicant), has an outstanding tax debt. That
jurisdictional requirement was therefore satisfied.
[18]
First respondent contended further that, the second jurisdictional
requirement for the exercise of the power to file a certified
statement in terms of Section 172(1) is that this power may only be
exercised “
after giving the person at least 10 business
days’ notice
.” There is no stipulation for the
form or content of such notice. It is no specified whether the
notice should
be made to a person with outstanding tax debt or
whether it must be a notice that first respondent intends to file a
certified
statement with the registrar in order to obtain a civil
judgment for recovery of tax. It was submitted therefore that
letters
of 20 February 2015 and 3 March 2015 constituted a written
notice which satisfied the second jurisdictional requirement for the
exercise by first respondent of the powering terms of Section 172(1)
of the TAA. Further, these letters should not be interpreted
in
isolation, but in the context and having regard to the background
circumstances preceding the sending of these letters to the
taxpayers. That context includes the agreement concluded
between applicants and first respondent, prior to 20 February 2015,
in respect of adjusted returns submitted by the taxpayers, the
amounts of which had to be settled by end of March 2015; the request
for deferral of payment of the assessed amounts which was made on 9
February 2015. This without doubt indicates that the
taxpayers
were well aware of the precise amount which was due, owing and
payable by each of the taxpayers in respect of which assessment
had
been issued. The letter of 3 March 2015, was the most explicit
and gave the taxpayers more than enough notice.
The notice
given by first respondent on 3 March 2015 was formulated in clear and
precise terms. It is absurd to suggest that
the date and manner
of payment should be contained in the notice and further reference to
Section 162 of the TAA is a misleading
reference in the context of
this case. In any event, if applicants did not know where or
when to pay, they would not have
requested for a deferral of
payment. In his own founding affidavit, first applicant
confirms that there was an agreement
that he would be allowed until
the end of March 2015 to pay the amounts.
[19]
Mr Maritz for first respondent submitted that in
Anil
Singh v Commissioner for the South African Revenue Service 2003(4) SA
520 (SCA)
,
the Court was concerned with the question whether a tax liability was
established by raising of an assessment where notice of the
assessment had not yet been given to a taxpayer. In that matter
SARS took a judgment against a vendor in terms of the VAT
Act
pursuant to an assessment raised, without notice of the assessment
having been given to the vendor before the statement was
filed to
obtain the judgment. Whereas in this matter, assessments have
been issued and notice thereof have been given to
the taxpayers.
The taxpayers have unequivocally accepted the correctness of the
assessment and that the amounts payable in
terms thereof are due.
The taxpayers have agreed to make payment of the assessed taxes by 31
March 2015, but failed to do
so. No objection or appeal against
the assessments have been raised or was contemplated by the
taxpayers. As the facts
currently stood, they are faced with an
insurmountable hurdle in seeking interdictory relief against the
enforcement of their tax
liability. Even if there was an
objection or appeal lodged by applicants, it was argued that in
Metcash
Trading Limited v Commissioner SARS 2001(1) SA 1109 (CC)
,
the Constitutional Court re-affirmed the principle that the taxpayer
must “
pay
now argue later
.”
In this case, applicants have failed to do any of this, and as such,
the application should be dismissed with costs.
[20]
In my judgment, I will not deal with the issue of urgency, as this
matter appeared before me on a semi-urgent roll. This
means
therefore that its urgency fell away on 7 April 2015, when applicants
and respondents reached an agreement for the further
conduct of this
matter, pending the adjudication of Part A of the relief claimed by
the applicants. This is the matter before
me for adjudication.
[21]
Further, I have taken due notice of the fact that the parties before
me argued extensively on the fact that second, third and
seventh
applicants have filed for business rescue on 2 April 2015, 7 April
2015 and 9 April 2015 respectively. As first respondent
has
correctly put it, the business rescue proceedings need not be
adjudicated in these proceedings. Be that as it may, that
does
not mean that I will not comment on those proceedings in my judgment,
as they will impact on the findings and further directives
of this
Court. This, I will also deal with later in my judgment.
[22]
It is common cause that first respondent is tasked by legislation to
provide for the effective and efficient collection of
tax; to make
provision in respect of tax assessment; to make provision for the
payment of tax; to provide for the recovery of tax;
and to recover
interest on outstanding tax debts amongst the others. In the
course of first respondent executing their mandate,
it became
apparent to the applicants that their rights were trampled upon,
hence they deemed fit to come before this court and
seek an interim
interdict.
[23]
For the applicants to be successful in their interim interdict; they
should satisfy this Court that they have established the
trite
principles such as a
prima
facie
right, the balance of convenience, any irreparable harm and that
there is no alternative remedy, other than this interdict.
[24]
Interdicts in their nature are based on rights to sustain a cause of
action. The right upon which applicants base their
application
on is that first respondent failed to give notice to the applicants
as required by the provisions of Section 172(1)
of the TAA. The
letter dated 3 March 2015 that first respondent relies on does not
constitute a “
notice
”
as required by Section 172(1) of the TAA.
[25]
The word “
notice
”
in Oxford Dictionary means “
notification
or warning of something especially to allow preparations to be
made
.”
It is applicant’s contention that there is a peremptory
stipulation in Section 172(1) compelling first respondent
to give the
person at least 10 business days’ notice, to file with the
clerk or registrar of a competent court a certified
statement setting
out the amount of tax payable and certified by SARS as correct.
Applicants do not dispute the existence
of a tax debt as it arose
pursuant to their voluntary submission of outstanding returns by
themselves.
[26]
I turn to agree with first respondents submissions that this Court
should have due consideration to the background circumstances
preceding to the sending of the letters to the applicants, in order
for it to arrive at a correct finding. It is common cause
therefore that preceding these letters, on 3 November 2014, an
agreement was entered into between first respondent and first, fourth
and sixth applicants. In that agreement applicants indicated
their desire to be fully compliant and to pay to the first respondent
any amount due and payable which may be raised through assessment
pursuant to the inquiry or otherwise, and applicants further
tendered
as security some of the assets or property which first respondent
registered the caveats by consent of first applicant
on 4 March
2015. Upon perusal of this agreement, though the assessment
process was not yet finalised at that stage, applicants
were more
than willing to settle any tax debt resultant on those assessments,
hence applicants were prepared to give security in
advance.
[27]
On 5 February 2015, first respondent’s attorneys addressed a
letter to first applicant. The purpose of the letter
was to
advise applicants of the “
current
tax debt
”,
at that time it was standing at the amount of R11 662 015.09.
Applicants were notified in this letter that payment
of the current
tax debt was expected before the end of March 2015.
[28]
Applicants, through their attorneys, responded to this letter on 9
February 2015 not disputing any of the contents, but rather
proposing
to settle their indebtedness of R11 662 015.09 by way of monthly
instalments of R300 000.00, and first instalment
to be paid on
13 February 2015 and so on. Applicants even proposed to
increase this offer should they sell any immovable
properties
registered in their names. This proposal was rejected by first
respondent on their letter dated 20 February 2015.
[29]
On 3 March 2015, first respondent’s attorneys caused a letter
to be dispatched to applicants’ attorneys informing
them that
the current tax debt must be met by end March 2015, failing which,
SARS will resort to all procedures available to it
to collect the
debt from the taxpayers which may include obtaining civil judgments
and if necessary, sequestration and liquidation
proceedings. In
their replying papers, applicants do not take issue with the fact
that first respondent intended to seek
civil judgment but only take
issue with the fact that no notice was given to the applicants as
required in terms of Section 172(1)
of the TAA.
[30]
This brings us to the question of whether indeed applicants were not
given “
notice
”
within the confines of Section 172(1) of the TAA or even after
employing the meaning of the word “
notice
”
from the English Oxford dictionary quoted at paragraph [25] above.
Firstly, if one employs the literal meaning of
the oxford dictionary,
could it be said that applicants did not receive any notification or
warning of what first respondent intended
to do? Could it be
said that they were not allowed to make preparations of whatever they
needed to do. Secondly, applicants’
cause of complaint is
based upon the fact that, in terms of Section 172(1) they were not
given the 10 day period by first respondent
as this is a
jurisdictional requirement in that section. According
applicants the letter dated 3 March 2015, that first respondent
relied on, is a “
general
notice
”
and could not serve as a notice within the confines of Section 172(1)
of the TAA.
[31]
After careful consideration of Section 172(1) of the TAA, I am
satisfied that applicants are disingenuous in their reading
and
interpretation of this Section. Firstly, they do not dispute
the fact that they have an
outstanding
tax debt,
and that first respondent intended to take a
civil
judgment
amongst others should they fail to make payment by end of March
2015. Applicants are not upfront with this Court as to what
would empower first respondent to rely on these two above underlined
undisputed points amongst others, if it is not Section 172(1).
Applicants took issue with the
10
business days’ notice
that he was not given by the first respondent. In my opinion,
this point is absurd, as the purpose of giving notice is to
give
notification or warning to that person or entity to allow
preparations to be made.
[32]
In my view, preparations started when applicants and first
respondents entered into an agreement on 3 November 2014; to when
he
was advised on the current debt on 5 February 2015. In turn,
first applicant requested for a deferral of payment in his
letter of
9 February 2015 which was rejected by first respondent in their
letter of 20 February 2015. The letter of 3 March
2015, in my
view, gave applicants more than enough notice to do whatever they
intended to do. It was not necessary for the
first respondent
to expressly state that applicant was giving applicants 10 days of
their intention to apply for a civil judgment,
as it has afforded
more than the 10 business day period for that purpose. For
those reasons alone, I am satisfied that applicants
were given
adequate notice within the confines of Section 172(1) of the TAA and
have not established a
prima
facie
right to be granted an interim interdict. As a result, this
application fails.
[33]
I now turn to deal with the consequences of the business rescue
proceedings in as far as this application has failed.
Section
133 of the Companies Act 71 of 2008 (“the
Companies Act&rdquo
;)
provide as follows:-
“
133.
General
moratorium on legal proceedings against company
.-(1)
During business rescue proceedings, no legal proceeding, including
enforcement action, against the company, or in relation
to any
property belonging to the company, or lawfully in its possession, may
be commenced or proceeded with in any forum, except-
(a)
with
the written consent of the practitioner;
(b)
with
the leave of the court and in accordance with any terms the court
considers suitable;
(c)
as a
set-off against any claim made by the company in any legal
proceedings, irrespective of whether those proceedings commenced
before or after the business rescue proceedings began;
(d)
criminal
proceedings against the company or any of its directors or officers;
(e)
proceedings
concerning any property or right over which the company exercises the
powers of a trustee; or
(f)
proceedings
by a regulatory authority in the execution of its duties after
written notification to the business rescue practitioner.
[34]
In
casu,
I am satisfied that
Section 133
has no retrospective application for
steps taken prior to the filing for business rescue. First
respondent obtained judgment
on 1 April 2015 and applicants filed for
business rescue as follows; second applicant on 2 April 2015, third
applicant on 7 April
2015 and seventh applicant on 9 April 2015.
In my view first respondent or third to tenth respondents actions,
prior to the
dates of filing for business rescue could not be had to
be in breach of
Section 133
of the
Companies Act, more
especially the
attachment and execution process prior to their filing for business
rescue in the abovementioned respective dates.
[35]
Regarding applicant’s dispute of liability to first respondent
or any alleged debt amounting to approximately R7,4 million
in their
business rescue application, I direct that copy of this judgment be
made available to the appointed Business Rescue Practitioner
Raneel
Maharaj or any subsequent Business Rescue Practitioner who may in
future be appointed in his stead, should he not be available.
I
further direct that a further copy of this judgment should be
dispatched to the Companies and Intellectual Property Commission
for
their perusal and attention. These directions are based on the
fact that throughout these proceedings, Applicants never
disputed the
current tax debt that arose as a result of their self-assessment in
the total amount of R1 321 506.21.
[36]
In the result, I therefore make the following order:
-
Application
for an interim interdict is dismissed with costs, including costs of
three Counsel.
_______________________
MANTAME,
J