Taxpayer M v CSARS ( VAT 1826)

Facts

On 3 June 2019, Taxpayer M submitted notices of appeal (NOA) against the disallowance of its objection letter by the South African Revenue Service (SARS). In terms of the Rules promulgated under section 103 of the Tax Administration Act No 28 of 2011 (the Rules), more specifically Rule 31(1)(d), SARS had to deliver a statement of the grounds of assessment, and opposing appeal within 45 days after the delivery of the NOA. SARS’s attorney addressed an email to Taxpayer M’s attorney on 31 July 2019, requesting that litigation be pended until a meeting is held between the party’s legal representatives.  Taxpayer M’s council noted the contents of that email.  Between 15 August 2019 to 4 September 2019, further emails between the attorneys of SARS and Taxpayer M were exchanged, with the attorney of Taxpayer M suggesting in the last email that, “the parties continue to hold over pleadings so as to provide an opportunity to ventilate the disputes…”  On 14 October 2020, Taxpayer M proposed a without prejudice settlement of the disputes.  On 12 April 2021, SARS rejected the proposal.  On 15 April 2021, Taxpayer M sent a notice of default in terms of Rule 56(1) to ABC Inc. and not the attorneys of SARS.  On 26 April 2021, SARS’s attorney informed Taxpayer M that the Rule 56-notice was sent to the wrong attorneys and that it only became aware of the notice when ABC Inc. informed Mr. T, i.e SARS’s attorney, thereof. ABC Inc. informed Mr. T on 22 April 2021.  If the 45 days were calculated from 15 April 2021, then SARS had until 21 June 2021 to file its Rule 31 statement.  SARS filed it on 21 July 2021.

Issues

Issue 1: Whether SARS had shown good cause for its default to timeously file the Rule 31 statement,  and whether the court should condone the late filing of the Rule 31 statement, and direct that the appeal should proceed on the merits;

Issue 2: If the failure to submit the Rule 31 statement by SARS is not condoned, whether the default judgment in terms of Rule 56 should be granted in favour of Taxpayer M; and

Issue 3: Whether or not two applications submitted by Taxpayer M to strike out in terms of Rule 42, read with the Uniform Court Rules, should succeed.

Findings

Taxpayer M contended that the failure by SARS to deliver its Rule 31 statement should be calculated from the date the notice of appeal was submitted, i.e. 3 June 2019.  According to Taxpayer M, the Rule 31 statement is almost two years late.  SARS argued that there was an agreement between SARS and Taxpayer M to suspend the litigation to provide for an opportunity to ventilate the dispute.  The court was satisfied that the unambiguous wording of the emails sent by the counsel of Taxpayer M, gave the impression that litigation was indeed suspended.  The court was of the opinion that the agreement to suspend the litigation was only terminated by Taxpayer M when its attorneys served a notice on ABC Inc, (even though it was not served on the attorneys of SARS).  Therefore, SARS was not in any default prior to 21 June 2021, which is 45 days from 15 April 2021.  What is of interest is that the court suggested that Taxpayer M had two options regarding the calculation of the 45-day period provided for in Rule 31. Taxpayer M could have calculated the 45 days afresh, i.e from 15 April 2021, when the notice was sent to SARS; or Taxpayer M could account for the days that were not suspended by the agreement between the parties.  Meaning, that the period from the date the notice of appeal was submitted, until the date the parties agreed to suspend litigation, will be included in the calculation of the 45 days.  That said, it seems that the court accepted that SARS should have filed its Rule 31 statement on 21 June 2021, but only filed it on 21 July 2021.  The court, therefore, turned its attention to the reasons provided by SARS for filing the Rule 31 statement a month late.  The counsel for SARS pointed out that initially the Rule 56 notice was sent to the wrong attorneys, and that they only became aware of the notice when ABC Inc. informed them of this.  Also, during the beginning of June 2021 both the attorney of SARS, as well as the junior counsel contracted COVID-19.  SARS argued that having regard to the timeline, it was only in default for a short period and that the delay was not a result of any non-compliance on the part of SARS, but a result of the conduct of SARS’s attorneys and counsel.  When the court considered those arguments, it made it clear that a litigant cannot escape the consequences of any default that arose from the conduct of its legal representative, but that there are certain instances where the non-compliance on the legal representative’s part is not severe and not attributable to any fault of the litigant.  The court was thus satisfied that it was not proper to close the doors of the court to SARS in this instance since SARS was not to blame for the delay and that the prejudice against SARS would be severe.  SARS also dealt in great detail with the prospects of success in the tax appeal, and the court agreed that “lateness” is not the only consideration, and the test for condonation is whether or not it will be in the interest of justice to grant such a condonation.  Accordingly, the court was satisfied that the SARS was not in any default prior to 21 June 2021 and that SARS provided reasonable grounds for the default period between 21 June 2021 and 21 July 2021.  Those explanations, combined with the prospects of success, convinced the court to condone the late submission of the Rule 31 statement.

Issue two became irrelevant since the court allowed the condonation request submitted by SARS.  However, the court did make the following observation.  Before 15 April 2021, SARS was not in default.  The sub-rule of Rule 56 makes it clear that there must be a default prior to the delivery of a Rule 56 notice.  Since there was no default on 15 April 2022 when Taxpayer M issued the Rule 56 notice, the application for default judgment was premature and fatally defective.  Taxpayer M also incorrectly indicated in its Rule 56 application that the reason for the default was SARS’s failure to indicate whether or not this could be resolved via the alternative dispute resolution (ADR) proceedings, and not SARS’s failure to file a Rule 31 statement.  This did not make sense, since the capital assessments were already subject to a tax appeal, and not capable of an ADR proceeding. This oversight by Taxpayer M was a further indication that the Rule 56 notice was invalid.

Issue 3 related to Taxpayer M’s request to strike out certain portions of SARS’s answering affidavit in respect of the default application, and SARS’s entire replying affidavit in its condonation application.  The basis on which Taxpayer M wished this to be done was that the allegations in those documents constituted new matters, and/or are scandalous, and/or vexatious, and/or irrelevant and that they were argumentative.  The court found that the content of the replying affidavit was important, especially the fact that it referred to the agreement to suspend the litigation process, which was not disclosed by Taxpayer M.  The court also felt that the content of the affidavits was not scandalous, vexatious, irrelevant, or argumentative.  However, the court did feel that the documents SARS wanted to rely on could have easily been summarised, and even though SARS was successful in its opposition to this application, should be deprived of any costs in the striking out application.

The application for default judgment was dismissed with cost, including the cost of two counsel.

The application for condonation was granted with cost, including the cost of two counsel

The application to strike out was dismissed.  No order as to cost.

The appeal was dismissed with cost.

Find a copy of the court case here.

03/06/2022