The circular definition: Sars’ civil judgment for recovery of tax debt

September 1st, 2020
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In a string of recent judgments dealing with the South African Revenue Service (Sars) appointing agents to collect outstanding tax debts, the case of Barnard Labuschagne Inc v SARS and Another (WCC) (unreported case no 23141/2017, 15-5-2020) (Mantame J) sheds some light on taxpayer’s recourse prior to the granting of a ‘civil judgment’ in terms of s 174 of the Tax Administration Act 28 of 2011 (the Act).

It has become a common occurrence when taxpayers are not in a position to pay their tax debt for Sars to appoint agents to collect the outstanding tax debt. The Act was promulgated with the motive of efficient and effective collection of tax and, therefore, enables Sars, in terms of s 172 – to file with the clerk or registrar of a competent court – a certified statement setting out the amount of tax payable. This certified statement may, in turn, be treated as civil judgment, lawfully given in favour of Sars, who will then utilise the certified statement to recover the taxpayer’s tax debt.

When the legal practitioner in you thinks that the aggrieved taxpayer must apply for a rescission of the civil judgment – you will certainly tumble down the rabbit hole.

The dispute

In the case of Barnard Labuschagne Inc the applicant brought a rescission application to the High Court against the respondent for a recovery judgment obtained in the same court, based on the applicant’s tax debt comprising of value added tax (VAT), pay as you earn (PAYE), unemployment insurance fund (UIF) and skills development levies (SDL). It was not the applicant’s contention that notice was not given of the tax debt or recovery proceedings, but rather that the certified statement filed by Sars constituted a civil judgment in the ordinary sense.

It was further submitted by the applicant that they may approach the court in terms of s 105 of the Act read with r 31(2)(b) and r 42 of the Uniform Rules of Court for the judgment to be rescinded. Lastly, and on a constitutional point, the applicant submitted that should the court find that they do not have jurisdiction to rescind judgments granted in terms of ss 172 and 174 of the Act, these sections should be declared constitutionally invalid. The applicant’s constitutional argument stemmed from their rights, as set out in ss 34, 165 and 169 of the Constitution, which enables the applicant to approach the same court that granted a judgment for relief.

The respondents, on the other hand, submitted that the applicant ought to have followed the dispute resolution process as contemplated in ch 9 and s 104 of the Act before approaching the High Court. It was further submitted by the respondents that the court did not have jurisdiction to rescind the civil judgment in that it lacked the determining character of a judicially issued judgment, as the tax debt may be subsequently altered, amended, erased or withdrawn as contemplated by ss 174, 175 and 176 of the Act. The respondents argued that the judgment itself was not a civil judgment in the ordinary sense and, therefore, not subject to rescission.

On the constitutional point, the respondents advanced the argument that no prejudice or unfairness was suffered by the applicant, as they failed to pay their tax liabilities and did not comply with the procedures as set out in the Act. Should the applicant have fully ventilated their tax position through the ch 9 procedures, they would, should they have wished to do so, have been able to approach the court.

The judgment

The court held that it was Sars’ mandate to collect tax debts and for the taxpayer to comply with the Act, which was ‘promulgated for the cultivation of tax compliance other than to oust the jurisdiction of the Courts as alleged’. On the question of whether the High Court has jurisdiction to rescind a civil judgment granted in terms of ss 172 and 174 of the Act, there must firstly be a civil judgment of the court in existence. It was determined that ss 172 and 174 of the Act constitutes a lawful enforcement mechanism and that there is no finality to this enforcement mechanism as it cannot be accorded a status of a judgment.

The certified statement filed does, therefore, not constitute a civil judgment nor is it a civil judgment as is evident from ss 172 – 176 of the Act. It only serves as an enforcement of an assessment issued by Sars. Instead of adopting the ‘pay now, argue later’ principle, the submissions made by the applicant created the impression that the taxpayer downplayed the fact that the tax debt needed to be resolved, whereas the dispute could have been properly ventilated prior to filing of its papers in the court. It is thus clear that there was no judgment to be rescinded by the court.

In analysing the constitutionality of ss 172 and 174 of the Act, the court applied the common law wherein the party seeking rescission must present ‘sufficient cause’ and/or ‘good cause’ in a case where the judgment given is final. As stated above, s 174 only breathes life into the certified statements to the point where it is treated as a civil judgment, lawfully given for purposes of recovering a tax debt. The applicant could not prove that the judgment had final effect and the rescission under the common law, therefore, had no merit. The court further held that the applicant could not rely on r 42, which deals with the variation and rescission of orders as there is no judgment to be rescinded.

The applicant also prayed that should the judgment not be rescinded, the court should declare ss 172 and 174 constitutionally invalid, as it impacted the applicant’s access to court. The applicant’s constitutional challenge failed as it was clear to the court that these sections cannot be unconstitutional and cannot impact on the constitutional rights contained in ss 34, 164 and 169 of the Constitution in instances where the applicant disregarded the provisions of the Act and chose its own jurisdiction by applying to the High Court.

The taxpayer’s recourse

The taxpayer has the full arsenal of ch 9 of the Act at their disposal, which includes objections, appeals, application to the Tax Court and the Promotion of Administrative Justice Act 3 of 2000 reviews to the High Court. Only when all avenues have been exhausted in terms of the Act, may the taxpayer approach the court – it is thus not for the taxpayer to choose the platform for adjudication where another recourse is available.

In essence, a certified statement obtained by Sars from a court with competent jurisdiction over the taxpayer will be treated as a civil judgment for purposes of recovery of a tax debt. As such, it does not constitute a judgment in the ordinary sense this cannot be rescinded.

Ruan Botha BA LLB (UP) is a legal practitioner at Roets van Rensburg Inc in Pretoria.

This article was first published in De Rebus in 2020 (Sept) DR 11.