On 11 March 2022, the Constitutional Court (“CC”) handed down judgment in the matter of Barnard Labuschagne Incorporated / South African Revenue Service and Another CCT60/21. This case concerns the rescindability of civil judgments obtained by SARS in terms of the Tax Administration Act No. 28 of 2011 (“TAA”).
Section 172(1) of the TAA provides that if a person owes SARS a tax debt, SARS may file a certified statement with the competent court. Section 174 of the TAA holds that a certified statement so filed must be treated as a civil judgment lawfully given in favour of SARS for a liquid debt for the amount specified in the statement. Importantly, aligned with the “pay now, argue later” rule, section 172(2) determines that SARS may file the statement irrespective of whether the tax debt is subject to an objection or appeal.
FACTS OF THE CASE
The taxpayer in this case (the “Taxpayer”) applied for leave to appeal against the decision of the High Court (“HC”) that a certified statement filed with the Registrar of the HC is not susceptible to recission. The certified statement arose from the Taxpayer’s self-assessments for VAT, PAYE, UIF and SDL. The Taxpayer did not contend that the assessments were incorrect but rather that it had made payments which SARS had failed to appropriate to the relevant assessed taxes.
In the HC the Taxpayer argued that the judgment obtained by SARS is susceptible to rescission and, in the alternative, that sections 172 and 174 of the TAA are unconstitutional. The HC held that the judgment cannot be rescinded and dismissed the alternative constitutional challenge. The HC refused an application for leave to appeal with costs, as did the Supreme Court of Appeal (“SCA”).
IN THE CONSTITUTIONAL COURT
In considering whether certified statements may be rescinded, the CC outlined the operation of the legislative framework under sections 172 and 174 and further highlighted three other features of the TAA, namely:
- Section 164(1), which embodies the “pay now, argue later” rule;
- Section 170, which provides for the production of a document issued by SARS purporting to be a copy of an extract from the assessment, which is conclusive of the making of an assessment and its correctness; and
- Sections 175 and 176, which empower SARS to amend or withdraw a certified statement filed with a court.
The CC then noted that these provisions in the TAA had antecedents in the Income Tax Act No. 58 of 1962 (“ITA”) and the Value-Added Tax Act No. 89 of 1991 (“VAT Act”). These provisions of the ITA and the VAT Act were repealed when the TAA came into force. The CC explained, however, that “Despite modest changes in formulation, the essential features of the repealed provisions were replicated in the TAA.”
The court then considered the body of case law on the subject, where the fact that judgments of his nature can be rescinded was established and confirmed in several cases, albeit in the context of the antecedent yet similar provisions.
Special note was made of Metcash Trading Ltd / Commissioner, South African Revenue Service  ZACC 21; 2001 (1) SA 1109 (CC); 2001 (1) BCLR 1 (CC), where the rescindability of certified statements was central to the CC’s reasoning in finding that the cumulative effect of the impugned statutory provisions was not unconstitutional.
On this basis, the CC held that that the HC should have found, in line with binding authorities, that a certified statement is in principle susceptible to rescission and ought to have considered whether the Taxpayer had made out a case for rescission at common law.
Since the procedure for taking a judgment of this nature did not call for a procedural response from the Taxpayer, the question of rescindability turned on if it had a bona fide defence which prima facie carried some prospect of success.
The CC set aside the order of the HC, and the Taxpayer’s application for rescission was remitted to the HC for hearing before a different Judge to determine the merits of the application. SARS was ordered to pay the Taxpayer’s costs in the applications to the HC and the SCA for leave to appeal, as well as the costs in the CC.
The CC’s detailed and well-reasoned judgment is a welcome addition to our jurisprudence. While the CC’s decision is based on existing binding precedent, it reaffirms the position that certified statements are rescindable, albeit (importantly) within the context of the TAA.
Even though there exists an avenue to reverse a certified statement, taxpayers are advised to remain alive to their tax status and to act before the matter reaches the stage where SARS’ collection proceedings are set in motion.