A dichotomy of cases
The Supreme Court of Appeal (SCA) recently heard four cases in quick succession, where the taxpayers sought to engage the High Court’s jurisdiction (HC) directly to challenge SARS’ actions in the making of assessments. The taxpayers in these cases were United Manganese of Kalahari (Pty) Ltd (UMK), Rappa Resources (Pty) Ltd (Rappa), ABSA Bank Limited (ABSA) and Richards Bay Coal Terminal (Pty) Ltd (RBCT).
The judgments in UMK and Rappa were handed down on 24 March 2023. RBCT followed a week later with a diametrically opposite outcome and approach, even though it was penned by the same judge (Ponnan ADP). ABSA’s judgment is pending but likely imminent.
What follows is a condensed analysis of the judgments handed down to date and what we may expect in ABSA and beyond.
Legal Context
Section 105 of the Tax Administration Act No. 28 of 2011 (TAA) enjoins a taxpayer to use the prescribed dispute resolution process under Chapter 9 to dispute an assessment and it only permits deviation if “a High Court otherwise directs”. SARS seeks to corral taxpayers into using the tailor-made dispute process to challenge every aspect of their dispute. The pith of SARS’ argument is that the appeal process under the TAA constitutes a complete revision and rehearing of the matter, including administrative issues. The same argument was presented in the context of the Customs and Excise Act No. 91 of 1964 (CEA) in RBCT.
UMK and Rappa
In UMK and Rappa, both taxpayers primarily sought to review the making of the impugned assessments. UMK did so in terms of the Promotion of Administrative Justice Act No. 3 of 2000 (PAJA) and the principle legality (Rappa only relied on the latter). As both UMK and Rappa approached the HC for relief in the context of a review, they argued that s 105 does not apply. They nevertheless argued in the alternative that a directive under s 105 is warranted in their respective cases.
The SCA disagreed and found that direct access to the HC, even where the taxpayer takes SARS’ actions on review, may only be granted where the taxpayer requests permission in terms of s 105 of the TAA. Fundamentally, the SCA concluded that an appeal heard by the Tax Court is sufficiently wide to deal with every basis for challenging an assessment, including the administrative actions involved in its making.
While both taxpayers sought a s 105 in the alternative, the SCA held that UMK and Rappa failed to make out a proper case for a directive to be issued.
RBCT
RBCT launched, concurrently, a review application in the HC and an internal appeal under s 47(9)(e) of the CEA. RBCT sought to compel production of the record, which SARS opposed. The basis of the appeal was, again, that the tailored appeal procedure under s 47 of the CEA, too, is an appeal in the wide sense i.e., a full revision and rehearing of the matter. Fundamentally, the basis of SARS’ argument is no different than what it presented in UMK and Rappa. The fact that the impugned decisions were made in the context of the CEA does not have any bearing on the divergence in the judgments of a week before.
In RBCT, the SCA explained, compellingly, that PAJA is enacted to give effect to the provisions of section 33 of the Constitution, which provides that all public power is subject to constitutional control and the doctrine of legality. It further noted that SARS’ argument loses sight of what is sought to be achieved by a review – to enforce the right to just administrative action. This cannot be conflated with a remedy to rectify a decision on its merits. The SCA then concluded that SARS’ argument conflicts with the right to just administrative action, the rule of law and section 169 and 172 of the Constitution.
RBCT cannot be reconciled with UMK and Rappa. Respectfully, the former is correct, whereas the latter upends the longstanding principle that the HC enjoys a role of oversight in tax matters, where it is invariably empowered to review SARS’ actions. The notion that a taxpayer requires permission under the umbrella of s 105 to launch a review in the HC is, with respect, incorrect and unconstitutional. UMK and Rappa’s cases warrant the Constitutional Court’s (CC) attention on this basis alone.
When does s 105 of the TAA apply?
Even if we accept that the ouster of reviews by s 105 will be overturned, it is still not clear when and how a s 105 directive must be obtained. What can be discerned from UMK and Rappa is, first, that where a directive is required, the taxpayer must expressly request for a deviation under s 105. Secondly, the request must be supported by a “proper case”. UMK and Rappa’s arguments on this score were apparently deficient, but the SCA opted not to explain why.
The SCA quoted itself in UMK (referring to Rappa) that a deviation will only be permitted in “exceptional circumstances”. In this regard the SCA cited the HC judgment in ABSA. It is important to note that the HC in ABSA set this threshold as it was “common cause” that a deviation under s 105 is only appropriate under “exceptional circumstances”. Beyond what appeared to be a mutual concession among the parties, no other authority was cited by the HC to arrive at this conclusion. Nevertheless, the HC went further to find that a dispute on a point of law would meet this threshold.
Pursuant to UMK and Rappa, it appears the “exceptional circumstances” threshold will be upheld. Whether a dispute on a pure point of law is a satisfactory gateway remains to be seen. The SCA may be pressed to expand on the workings of s 105 in its anticipated ABSA judgment. This expectation resides in the fact that the HC actually issued a directive in ABSA, which distinguishes the case from its predecessors. But the facts in ABSA are comparatively unique and the matter may be decided on an unrelated basis.
Nevertheless, even if ABSA is upheld, it is likely that the final word on the HC’s jurisdiction to hear tax matters will be spoken by the CC. This is in part due to the incongruence of the SCA judgments delivered thus far. But perhaps more so because there is a great deal at stake for taxpayers and SARS in the ultimate precedent. Clearly, it is anathema to SARS where taxpayers circumvent Chapter 9 of the TAA. A win for the taxpayers would go some way to even the scoreboard on tax disputes in the SCA and the CC, which at this stage favours SARS by some margin.