CSARS v Hamiltonn Holdings (Pty) Ltd and Others (2020/35696)

Facts

The sixth respondent, Hamilton Ndlovu (Ndlovu), has a symbiotic relationship with the first five respondents with a probability that all the five companies are “alter egos” of Ndlovu.

The entities are engaged in the supply of various goods relating to the Covid-19 pandemic, exclusively to state organs. Contracts to supply goods were awarded to the first five respondents at the time.

The Hawks were investigating the contracts and raided the respondents a few days prior to SARS obtaining the provisional preservation order as contemplated in section 163 of the Tax Administration Act (“the TAA”). That investigation is of no relevance to the section 163 order.

Ndlovu made a number of posts on social media, in May 2020, relating to the purchase of five luxury vehicles to the value of R10.5 million, SARS looked into his tax affairs and found that he had not filed any tax returns since 2016. The matter was referred to the Illicit Economy Unit which investigates the mismatch of income and expenditure. It was found that there were cash-flows between the entities in question, which did not have any rational business purpose. Further to this, there was no evidence of money spent to acquire or produce the goods which related to the contracts. The Tax and VAT affairs of several respondents were not in order and others had declared themselves as dormant even though they were trading during the period of dormancy.

SARS estimated a collective amount due from tax liability and VAT of the five entities to the tune of R12.440 million for tax and VAT of R11.920 million. Ndlovu’s estimated tax liability from 2017 to 2021 amounted to R36.840 million.

Issues

“The issues in dispute were crystalised by the parties and agreed to in a practice note.

These are the key questions for decision.

• In relation to the ex parte application, did SARS fail to disclose material information which, had it been communicated to the judge, could have resulted in her refusing the order?

• Did SARS make out a cogent case for a section 163 Order? Of the three key elements pertinent, one is common cause, i.e, the assets seized are indeed “realisable” assets as contemplated in section 163(1). The other two elements are whether the official who formed the opinion that an order was required acted reasonably, and moreover, has it been shown that the order was indeed required to prevent the frustration of the collection of TAX and VAT that was likely to be due as contemplated in section 163(1).”

Finding

Section 163 of the Tax Administration Act 28 of 2011 (TAA) empowers a senior SARS official to authorise an ex parte application to the High Court for a preservation order to prevent the disposal or removal of any realisable assets, which may frustrate the collection of tax. In terms of this provision the preservation order can be obtained in respect of:

• the full amount of tax that is due or payable; or
• the amount of tax which to the satisfaction of the SARS official may, on reasonable grounds, be due or payable.

The court found that the preservation order was wholly reasonable and appropriate.

The respondents had a chance to refute the facts, however the answering affidavits lacked any useful responses. The duration of non-compliance indicates that there was no intention to pay the amount due.

The judge notes that “The cash flows which objectively show that the several corporate respondents are mere fronts for Ndlovu...is telling; the answer offered to explain that flow is that the various entities assist one another with loans.” It was found that there was no rational business model for these loans and they were simply conduits for which the respondents had no explanation.

The estimated liability is likely to be higher than that which will be established. As such, it is found that the preservation order is not overboard.

In conclusion it was found that the order is required as contemplated in section 163, there was no material non-disclosure in the ex parte application and that the order is not overboard.

The provisional order of 10 September 2020 was confirmed and final. The judge ruled that the respondents shall bear the costs, including the costs of the two counsel, jointly and severally, the one paying and the others to be absolved.

Find a copy of the court case here.

11/02/2022