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14 June 2018 South African High Court judgment: Failure by SARS to follow due process in revoking tax compliance status This was an urgent application by the taxpayer against the South African Revenue Service (SARS) for revoking its compliant status under the Tax Administration Act 28 of 2011, following the lapsing of a deferral agreement entered into between the parties. The taxpayer's primary complaint was SARS's failure to afford it the right to be heard (the audi principle). SARS argued that it did not have any duty to notify the applicant before revoking its compliant status since the deferral only remained in effect for the term of the deferral agreement. The court found in favor of the applicant and held that SARS had an obligation to follow due administrative processes and it cannot disregard the taxpayer's right to fair administrative justice. The crux of this decision lies in the right to fair administrative justice and procedural fairness consistent with the provisions of section 3 of the Promotion of Administrative Justice Act 3 of 2000 and section 33 of the Constitution. SARS cannot take decisions which have a direct external and material effect on the rights of the taxpayer without prior notice of the decision, especially if the process is codified in the legislation that SARS is mandated to administer. In many instances the absence of a Tax Compliance Status affects the ability of a taxpayer to conduct or even continue with business operations. This judgment confirms the right of the taxpayer to be notified prior to the change in its tax compliance status. The Tax Controversy team at EY can assist in matters where SARS has unilaterally altered a tax compliance status without prior notice. On 21 May 2018, a judgment was handed down in the case, Red Ant Security Relocation and Eviction Services (Pty) Ltd v Commissioner for the South African Revenue Service case no. 2999/18 (GNP) (unreported), in respect of the following issues related to the taxpayer's loss of its tax compliance status (TCS): The High Court was approached by the taxpayer on an urgent basis to overturn the decision taken by the South African Revenue Service (SARS) to revoke the applicant's TCS. The applicant (Red Ant security relocation and eviction services (Pty) Ltd), applied for an urgent interdict against the Commissioner's decision to revoke its TCS. The applicant argued that proper procedure and due process for the aforementioned was disregarded and not taken into consideration by the Commissioner. The taxpayer's income was mainly derived from the provision of services to public and municipal entities, including essential services such as emergency accommodation and temporary water supply. Without a valid tax clearance certificate (TCC), the taxpayer could not receive payment for its services, nor tender to provide new services, thus creating severe financial constraints. The application against the Commissioner was brought on the basis that section 256(6) of the TAA was not taken into account as the Commissioner did not provide the taxpayer notice prior to altering its TCS and affording the taxpayer the opportunity to make representation. However, the Commissioner contended that it was not necessary to provide notice of the revocation or afford the taxpayer an opportunity to be heard as a deferred payment agreement between both parties had lapsed in which there was still an outstanding liability for which no payment arrangement was made. The Commissioner further denied the taxpayer's contentions that it revoked the taxpayer's TCS, and submitted that the TCS lapsed by operation of law. In support of this position, the Commissioner relied on section 256(3) and section 167(3) of the TAA and contended that it had no duty in law to notify the taxpayer due to the termination of the deferral agreement. In the judgment, EF Dippenaar AJ, found that the Commissioner's approach was a narrow one in which the provision of section 256(6) of the TAA was not considered. The judge dismissed the Commissioner's submission disputing the urgency of the application and finding that the submissions lacked merit and that the taxpayer had illustrated that it would not be afforded substantial redress at a hearing in due course. The court considered and dealt with all the requirements of an interdict finding that the taxpayer had a prima facie right to administrative justice and procedural fairness consistent with the provisions of section 3 of PAJA. The judge emphasized that "it appears that the respondent may not fully appreciate its obligations in relation to procedural fairness that decision makers who are entrusted with the authority to make administrative decisions by any statute are… required to do so in a manner which is consistent with PAJA." The taxpayer submitted evidence illustrating imminent irreparable harm and the court was satisfied that the taxpayer met this requirement of an interdict. When considering the balance of convenience, the court was of the view that there was no risk to the Commissioner being constrained from exercising its statutory rights in a lawful manner, pending the determination of the review application and accordingly, found that the interim relief would not bar the Commissioner to any future lawful action against the taxpayer. The court dismissed the Commissioner's contention that the taxpayer could have concluded a further deferral agreement or challenged the non-compliance status by overriding the decision made by the Commissioner and providing reasons for this challenge. In turn, the court found that the taxpayer had no alternative remedy but for the interim relief sought. It was concluded that due to the Commissioner's failure to give proper consideration to section 256(6) of the TAA and afford the taxpayer the right to make representation, the interim relief sought was granted. 2. The order was subject to the proviso that the Commissioner is not prohibited from exercising any of its statutory rights and duties in relation to the taxpayer's TCS, subject to compliance with the provisions of section 256(6) of the TAA.
Document ID: 2018-5767 |
