Barnard Labuschagne Incorporated v CSARS and Another (CCT 60/21)

Facts

During the course of its operations as a practicing firm of attorneys, Barnard Labuschagne Incorporated (“BLI”), owed the South African Revenue Service (“SARS”) taxes that arose from self-assessments for value-added tax, employee’s tax, unemployment insurance fund contributions and skills development levies. It seems that BLI did make the appropriate payments, but SARS failed to allocate money to the relevant assessed taxes. 

On 15 December 2017, SARS filed with the High Court a certified statement in terms of section 172(1) of the Tax Administration Act No 28 of 2011 (“TAA”), recording that BLI, owed SARS R804,747. In terms of section 174 of the TAA, a certified statement so filed must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement.  BLI brought an application to set aside the tax judgment, i.e the certified statement.  SARS opposed the application stating that a certified statement is not susceptible of rescission. BLI maintained that the self-assessments were not wrong, but complained that the certified statement, i.e the tax judgment, was wrong since the payments were made, but not allocated correctly. BLI also contended that if a certified statement is not susceptible of rescission, then sections 172 and 174 of the TAA are constitutionally invalid. The High Court held that the tax judgment against BLI was not susceptible of rescission and dismissed the alternative constitutional challenge. The High Court further ordered BLI to pay the cost and refused an application for leave to appeal, as did the Supreme Court of Appeal. BLI then turned to the Constitutional Court.  The Constitutional Court found that it does have jurisdiction in this instance, since several recent High Court judgments, including the High Court judgment in this matter, failed to apply binding precedent. 

Issue

Whether or not a certified statement is susceptible of rescission.

Finding

In their written submissions, all the parties agreed that the High Court did not dismiss the rescission application on any ground other than that a certified statement is not in law susceptible of rescission. The High Court quoted a passage from Capstone 556 (Pty) Ltd v CSARS (“Capstone”) to the effect that although a tax judgment, i.e a certified statement, has all the effects of a judgment, “it is nevertheless not in itself a judgment in the ordinary sense” and “does not determine any dispute or contest between the taxpayer the Commissioner”. However, in Capstone the Court was not dealing with rescindability, but whether SARS could lawfully take a tax judgment when there was a pending objection or an appeal. The High Court also relied on Modibane v CSARS (“Modibane”), which also concerned a certified statement. Capstone was again quoted in Modibane as authority for the proposition that a tax judgment is not rescindable. Lastly, the High Court cited CSARS v Van Wyk (“Van Wyk”), where a statement was made that a Magistrate’s Court was not entitled to entertain the rescission application “as it was not a civil judgment in the ordinary sense” and that the certified statements “could not be regarded as having the character of a judicially delivered judgment”.  In its submissions, SARS cited Hamid v CSARS (“Hamid”), where the High Court also stated that a certified statement filed with a court is not susceptible of rescission. 

The Constitutional Court made it clear that Capstone cannot be seen as an authority on whether or not a tax judgment is susceptible of rescission, and noted that in Van Wyk, no reference was made to Kruger v Commissioner for Inland Revenue (“Kruger I”).  In Kruger I, the Cape Provisional Division heard an appeal against a decision of a Magistrates’ Court refusing rescission of a tax judgment on the basis that such a judgment was not rescindable. The Full Court held in Kruger I that a tax judgment was indeed susceptible of rescission in terms of section 36(a) of the Magistrates’ Courts Act no 32 of 1944. The question of rescission of a tax judgment was again raised in Kruger v Sekretaris van Binnelandse Inkomste (“Kruger II”). In Kruger II the court stated that there is indeed a wide field of defenses available to a taxpayer in rescission proceedings.  In Traco Marketing (Pty) Ltd v Minister of Finance the Court held that, with reference to the Kruger judgments, a tax judgment was rescindable in terms of common law.  In Metcash Trading Ltd v CSARS (“Metcash”) the Constitutional Court confirmed the Kruger II statement that there is a wide field of defenses available in rescission proceedings. Accordingly, Modibane and Van Wyk were bound by the decisions in Kruger II and Metcash, and in Hamid, no reference was made to Kruger II or Metcash.  In the case, the Constitutional Court further stated that the power to withdraw and amend a certified statement given to SARS in terms of the TAA, is at odds with a “supposed requirement of finality” of certified statements.  Therefore, the High Court should have found that the tax judgment was susceptible of rescission, and should have considered whether BLI had made out a case for rescission at common law. Accordingly, the Constitutional Court ordered that the case be remitted to the High Court to decide the merits of the rescission application.

Find a copy of the court case here.

07/04/2022