Applying Uniform r 23 into the landscape of tax litigation

February 1st, 2019

Picture source: Gallo Images/Getty

By Dr Fareed Moosa

Tax courts are created by s 116(1) of the Tax Administration Act 28 of 2011 (TAA). As such, by virtue of s 166(e) of the Constitution, they are part of South Africa’s (SA’s) judicial system. Under s 107(1) of the TAA, a tax court adjudicates taxpayer appeals against tax assessments, as well as appeals against a ‘decision’ falling within the remit of s 104(2). For the meaning of ‘assessment’, see HR Computek (Pty) Ltd v Commissioner for the South African Revenue Service (SCA) (unreported case no 830/2012, 29-11-2012) (Ponnan JA). For a discussion of s 104(2), see Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Services (SCA) (unreported case no 301/2017, 27-3-2018) (Ponnan JA). Unlike a tax board established under s 108 of the TAA, a tax court is ‘a court of record’ (s 116(2)) headed by a judge or acting judge of the High Court (s 118(1)(a)) who is empowered by s 117(3) to ‘hear and decide interlocutory application or an application in a procedural matter relating to a dispute under this Chapter as provided for in the “rules”’ promulgated in terms of s 103 of the TAA. Presently, the rules governing tax appeals are those gazetted in GN550 GG37819/11-7-2014.

In terms of s 109(5) and s 115(2) of the TAA, a tax court must hear an appeal de novo. This entails a full hearing or re-hearing of a matter, as the case may be. Proceedings in a tax court are, thus, akin to a trial. Evidence of witnesses, including experts, is led. In the same vein as the Magistrates’ Courts Rules and Uniform Rules of Court pertaining to civil trials, the tax court rules provide for discovery of documents (r 36), for a ‘pre-trial conference’ (r 38), and for subpoena of witnesses (r 43). These steps do not apply to conventional appeals in ordinary courts of law where litigants are bound by the record of proceedings in a court a quo. Indeed, a tax court may itself be a court of first instance, such as where a dispute falls beyond the monetary jurisdiction of the tax board as prescribed under s 109(1)(a) of the TAA. Therefore, a tax court is not an appeal court in the ordinary sense. Like its predecessor, that is, the Special Court, a tax court is a court of revision. See Metcash Trading Ltd v Commissioner, South African Revenue Service and Another 2001 (1) SA 1109 (CC) at para 47.

In terms of tax court r 34, ‘[t]he issues in an appeal to the tax court will be those contained in the statement of the grounds of assessment and opposing the appeal [filed by the South African Revenue Service (Sars) under tax court r 31] read with the statement of the grounds of appeal [filed by a taxpayer under tax court r 32] and, if any, the reply to the grounds of appeal [filed by Sars under tax court r 33]’. In common parlance, documents of this nature in the tax court are referred to as ‘pleadings’ (see ITC 1846 73 SATC 96 at para 18). As with pleadings in actions before ordinary courts of law (Presidency Property Investments (Pty) Ltd and Others v Patel 2011 (5) SA 432 (SCA) at 440A – B), the object of the pleadings filed pursuant to tax court rs 31, 32 and 33 is to formulate the factual and legal issues to be ventilated at the (re-)hearing of the case and to place each party (that is, Sars and the taxpayer) in a position whereby it knows the case that it has to meet.

In a manner comparable to Uniform r 18(4), tax court r 32(2) stipulates that a taxpayer’s statement of grounds of appeal filed under tax court r 32(1) ‘must set out clearly and concisely –

(a) the grounds upon which the appellant appeals;

(b) which of the facts or the legal grounds in the statement under rule 31 are admitted and which of those facts or legal grounds are opposed; and

(c) the material facts and the legal grounds upon which the appellant relies for the appeal and opposing the facts or legal grounds in the statement under rule 31’.

Unlike Uniform r 23(1), which permits exceptions to be raised by a defendant against any pleading filed by a plaintiff on any recognised ground (such as, the pleading is vague and embarrassing or lacks averments necessary to disclose an action), the tax court rules are silent on whether Sars has the procedural right to raise an exception against the tax court r 32 statement.

Exceptions play an important role in civil litigation generally, namely, ‘[t]hey provide a useful mechanism to weed out cases without legal merit’ (Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA) at para 3). The test in exception applications is whether – on all possible readings of the facts – an excipient has proved that the conclusion of law for which the pleader on the other side contends cannot be supported on any interpretation that can be placed on the facts. Consequently, in Eastern Produce Cape (Pty) Ltd t/a Linton Park Wines v Glen Faure International Consultancy (WCC) (unreported case no 2916/2010, 17-5-2011) (Steyn J) at para 15, it was held that ‘[a] pleading is only excipiable if no possible evidence led on the pleadings can disclose a cause of action or defence’.

The absence of a tax court rule providing for exceptions raises the question whether – as a matter of law – the exception procedure also applies to litigation before a tax court. Put differently, can Sars file an exception to a tax court r 32 pleading? If so, on what basis can this be done? This question was recently answered in the affirmative by Meyer J in Commissioner for the South African Revenue Service v Massmart Holdings Limited (unreported case no IT 4294, 11-7-2018) (Meyer J) at paras 6 and 7. The starting point of the inquiry is the empowering provision in tax court r 42(1). It reads: ‘If these rules do not provide for a procedure in the tax court, then the most appropriate rule under the Rules for the High Court made in accordance with the Rules Board for Courts of Law Act and to the extent consistent with the Act [that is, the TAA] and these rules, may be utilised by a party or the tax court’ (my italics). In the absence of tax court r 42(1), a tax court, being a creature of statute (Lion Match Company (at para 6), would not be imbued with the discretionary power (‘may’) to resort to the Uniform Rules when a lacuna appears in the tax court rules. The directive in tax court r 42(1) is aimed at ‘plugging holes’ in the latter rules so as to promote enhanced efficiency and effectiveness in the administration of justice in tax appeals. Unlike the High Court, a tax court – although presided over by a judge or acting judge – does not have any inherent power to regulate its own processes by deviating from the tax court rules. It is in this context that tax court r 42(1) plays a pivotal role.

In the Massmart Holdings case Meyer J, at para 6, held that ‘[t]he exception procedure is consistent with the TAA and the Tax Court Rules’. However, the judge did not elaborate on, nor indicate, the nature and extent of the consistency. In support for his conclusion, Meyer J relied exclusively on the fact that in ITC 1899 79 SATC 315 ‘Eksteen J upheld the exception on the basis that the proposed amendment was not legally sustainable’. Meyer J’s reliance on ITC 1899 is misplaced because a reading of Eksteen J’s judgment reveals that the appeal in casu against a tax assessment was lodged on 4 July 2012, that is, prior to the coming into effect of the TAA on 1 October 2012 and prior to the tax court rules being gazetted on 11 July 2014. Although the appeal before Eksteen J was heard on 7 December 2016, the judge did not refer to, nor apply tax court r 42(1). Eksteen J also makes no mention of Uniform r 23(1), nor comments on its applicability to tax court litigation. This is because that issue was never raised. It arose for the first time in the Massmart Holdings case. Thus, ITC 1899 provides no legal foundation for the conclusion reached by Meyer J. This notwithstanding, and for the reasons outlined below, I submit that Meyer J’s decision to apply Uniform r 23(1) to tax court litigation ought to be welcomed for its precedential value under stare decisis.

When applying tax court r 42(1) with a view to ascertaining if a particular High Court rule is appropriate to tax litigation and consistent with the TAA and the tax court rules, a purposive cum contextualist methodology must be adopted (see Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) paras 18 to 22 as amplified in Commissioner for the South African Revenue Service v Daikin Air Conditioning South Africa (Pty) Ltd (SCA) (unreported case no 185/2017, 25-5-2018) (Van der Merwe JA) at paras 31 to 33 (read with footnotes 1 to 2 therein)). In this regard, important considerations include –

  • the purpose of tax court rules generally;
  • the nature and purpose of the Uniform Rule concerned in the context of ordinary High Court litigation;
  • the intended role to be played by the relevant Uniform Rule in the context of tax court litigation;
  • if more than one procedural Uniform Rule exists, which may serve the same or similar purpose as the rule selected, then whether the selected one is ‘the most appropriate rule’; and
  • whether the selected rule, and its utilisation, is in harmony with the TAA and the tax court rules.

If it is inconsistent for any reason, then the express wording of tax court r 42(1) permits the relevant Uniform Rule to be applied, but then only ‘to the extent consistent’ with the TAA and the tax court rules.

The tax court rules, just as the rules of the High Court, exists for the court and not the court for the rules. As such, the rules are invaluable tools that are not to be applied in a mechanical fashion. See PFE International and Others v Industrial Development Corporation of South Africa Ltd 2013 (1) SA 1 (CC) at paras 30 to 31. The tax court rules are designed to promote efficient and effective administration of justice by facilitating and regulating the orderly, structured adjudications of tax appeals. This is its underlying purpose. The nature and function of the exception procedure in Uniform r 23(1) is outlined above (see also Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others 2013 (2) SA 213 (SCA) paras 34 to 37). There is no other Uniform Rule that serves the same or similar purpose. Therefore, Uniform r 23(1) would be ‘the most appropriate rule’ for dealing with a pleading filed by either party which is objectionable on any ground recognised in this sub-rule.

The adoption of Uniform r 23(1) onto the landscape of tax litigation will, on the one hand, aid Sars to ‘weed out’ appeals that are spurious or otherwise unsustainable; on the other hand, an exception will enable taxpayers to overcome baseless defences or grounds of opposition raised by Sars. In this way, exceptions will promote the expeditious resolution of tax appeals, which will foster protection of the public purse against wasteful costs incurred in the administration of tax appeals. At the same time, the private purse of taxpayers may also be protected, particularly in the light of the ‘pay now, argue later’ rule that is legislated in s 164(1) of the TAA.

It must at all times be borne in mind that taxpayer appeals to a tax court triggers the access to court provisions in s 34 of the Bill of Rights. Since the tax court rules constitute subordinate legislation and the TAA primary legislation, the interpretive directive in s 39(2) of the Constitution finds application when the relevant legislative provisions are interpreted with a view to establishing whether harmony exists between Uniform r 23(1), the TAA and the TCR. I submit that the use of the exception procedure in Uniform r 23(1) promotes the ‘spirit, purport and objects of the Bill of Rights’ because, as explained above, it fosters fairness and the speedy resolution of tax disputes. These are values engrained respectively in s 34 and s 35(3)(d) of the Constitution and form part of the ‘spirit’ of the Bill of Rights (see Makate v Vodacom Ltd 2016 (4) SA 121 (CC) at paras 87 to 89).

In conclusion, the view expressed in this article also finds support in the Lion Match Company case where the Supreme Court of Appeal, at para 9, held that jurisdictional challenges to a tax court’s jurisdiction ‘should be raised either by exception or special plea’. Although the judgment in casu makes no reference to the absence of provision in the tax court rules for either exceptions or special pleas, it appears that the court endorses the view that such procedures are appropriate for tax litigation. Accordingly, by virtue of tax court r 42(1), the relevant High Court rules may be resorted to in order for these procedures to find application in a tax court.

Dr Fareed Moosa BProc LLB (UWC) LLM (UCT) LLD (UWC) is the Head of the Department of Mercantile and Labour Law at the University of the Western Cape in Cape Town.

This article was first published in De Rebus in 2019 (JanFeb) DR 30.