Case  CCT 60/21
[2022] ZACC 08

Judgement Date: 04 March 2022

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On The Constitutional Court initially handed down judgment in this matter on Friday, 4 March 2022. Shortly after delivery, the judgment was rescinded by the Constitutional Court of its own accord when it emerged that the first respondent, the South African Revenue Service (SARS), had filed written submissions of which the Constitutional Court was unaware. On Friday, 11 March 2022 at 10h00, the Constitutional Court delivered its revised judgment, which takes account of all the written submissions of the parties.

The judgment deals with an application brought by the applicant, Barnard Labuschagne Incorporated (BLI), for leave to appeal against a decision of the High Court which had held that a certified statement in terms of section 172(1) of the Tax Administration Act 28 of 2011 (TAA), filed by SARS with the Registrar of the High Court of South Africa, Western Cape Division, Cape Town (High Court), which recorded that BLI owed SARS an amount of R804 747, was not susceptible of rescission. Section 174 of the TAA provides that a certified statement so filed must be treated as a civil judgment lawfully given in favour of SARS for a liquid debt for the amount specified in the statement (hereafter, for convenience, a “tax judgment”).

A brief history of the matter is that BLI brought an application to rescind the tax judgment. SARS’ main ground of opposition was that the tax judgment was not susceptible of rescission. BLI in response, contended that if a tax judgment was not susceptible of rescission, sections 172 and 174 of the TAA were constitutionally invalid. In view of this contention, the Minister of Finance (Minister) was joined as a second respondent.

The certified statement arose from BLI’s self-assessments for value-added tax, employee’s tax, unemployment insurance fund contributions and skills development levies. BLI’s attack on the judgment was not that its self-assessments were incorrect. Its complaint was that the certified statement was wrong as BLI had made payments which SARS had failed to appropriate to the relevant assessed taxes.

The High Court held that the tax judgment was not susceptible of rescission and dismissed the alternative constitutional challenge. The applicant was ordered to pay the costs of the application. The High Court refused an application for leave to appeal with costs, as did the Supreme Court of Appeal.

Before the Court, the parties were asked to file written submissions on the following issues:

(a) Is a certified statement filed with a court in terms of section 172 read with section 174 of the TAA susceptible of rescission? The parties were referred to various authorities which had to be addressed in the submissions.

(b) If the Court were to hold that a certified statement is, in principle, susceptible of rescission, was BLI’s attack on the certified statement a grievance within the scope of Chapter 9 of the TAA? If this is said to be so by virtue of section 104(2)(c) of the TAA, the submissions must identify the section in any relevant tax Act providing for objection or appeal in respect of such a grievance.

(c) Did the High Court dismiss the rescission application on any grounds other than its finding that a certified statement is not in law susceptible of rescission? If so, what were the other grounds and where in the judgment were the High Court’s findings in that regard to be found?

Submissions were filed by all parties.

Regarding the rescindability of tax judgments, section 172 of the TAA provides that if a person has an outstanding tax debt, SARS may, after furnishing such person at least 10 business days’ notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct. The Court explained that section 172(2) provides that such a statement may be filed despite the tax debt being subject to an objection or appeal in terms of Chapter 9 of the TAA. Section 174 provides that 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”. The Court highlighted three other features of the TAA, namely (a) section 164(1), which embodies the “pay now, argue later” rule: unless a senior SARS official otherwise directs, the obligation to pay tax is not suspended by an objection or appeal in terms of Chapter 9; (b) section 170, which provides for the production of a document issued by SARS purporting to be a copy of an extract from the assessment, which is conclusive of the making of an assessment and, save in proceedings on appeal against the assessment, of the correctness of all the particulars of the assessment; and (c) sections 175 and 176, which empower SARS to amend or withdraw a certified statement filed with a court and, in the case of a withdrawn certified statement, to file a new certified statement in terms of section 172, recording tax which was included in the withdrawn statement.

Regarding the similar, but now repealed provisions of the Income Tax Act 58 of 1962 (IT Act) and the Value-Added Tax Act 89 of 1991 (VAT Act), the Court explained that section 91(1)(b) of the IT Act entitled the Commissioner for Inland Revenue to file a certified statement with the court setting out the amount of tax or interest due or payable by the taxpayer, and stipulated that such statement shall thereupon have all the effects of, and any proceedings may be taken thereon as if it were, a civil judgment lawfully given in that court in favour of the Commissioner for a liquid debt of the amount specified in the statement. The Court also referred to section 88 of the IT Act, which contained the pay now, argue later rule. It also referred to section 92 which provided that it was not competent for any person, in connection with a certified statement filed in terms of section 91, to question the correctness of any assessment on which such statement is based, notwithstanding that an objection and appeal may have been lodged against the assessment. It further referred to section 94 of the IT Act, which contained a conclusive evidence provision similar to section 170 of the TAA. Section 91(1)(bA) empowered the Commissioner to withdraw a filed statement, in which event such statement shall thereupon cease to have any effect.

The Constitutional Court further recognised that sections 40(2)(a), 40(2)(b), 40(5) and 42 of the repealed VAT Act were in the same terms as sections 91(1)(b), 91(1)(bA), 92 and 94 of the IT Act. The pay now, argue later rule was contained in section 36 of the VAT Act. These provisions of the IT Act and the VAT Act were repealed when the TAA came into force. Despite modest changes in formulation, the essential features of the repealed provisions were replicated in the TAA.

The Constitutional Court held that the High Court should, in line with earlier binding authority, have found that a tax judgment is in principle susceptible of rescission and ought to have considered whether BLI had made out a case for rescission at common law. It referred to the recognized requirements: first, the applicant must give a reasonable and satisfactory explanation for its default; and second, it must show that on the merits it had a bona fide defence which prima facie carried some prospect of success. Since the procedure for taking a tax judgment did not call for a procedural response from the taxpayer, the Court reiterated that focus inevitably fell on the second of these requirements.

The Court held that the dispute in this case was not covered by the conclusive evidence provisions of section 170, nor was it excluded by section 105. As to section 170, the Court explained that BLI was not challenging the correctness of the self-assessments, but whether they had been paid. As to section 105, the Constitutional Court reviewed the findings of the High Court when it said Chapter 9 was supposedly available to BLI. The Court explained that BLI was not complaining about an assessment, nor was it complaining about a decision as defined in section 104(2) of the Act. Paragraphs (a) and (b) of section 104(2) were obviously inapplicable. Paragraph (c) covered “any other decision that may be objected to or appealed against under a tax Act”. There was no provision in any relevant tax legislation stating that a dispute about whether an assessment has been paid is subject to objection or appeal.

In order to determine appropriate remedy, the Court investigated whether the High Court had, in addition to its legal finding on rescindability, decided the merits of the case, since in that event the merits might not engage the jurisdiction of the Court. The Court referred to the written submissions of the parties, all agreeing that the High Court had not dismissed the rescission application on any ground other than that a certified statement was not in law susceptible of rescission. In the circumstances, it was not necessary for the Court to consider whether the hearing in the High Court, as BLI contended, was restricted to the question of rescindability and the alternative constitutional challenge, with the merits to stand over for a later decision.

The Minister submitted that the Court was not precluded from finding that the rescission application should be dismissed on its merits. It was the view of the Court, however, that it was not appropriate for it to embark on that question. The Constitutional Court held that the proper course was to remit the matter to the High Court to decide the merits of the rescission application. The Court further held that the High Court’s cursory dismissal of the alternative constitutional challenge in this matter was unsatisfactory. Having wrongly found that a tax judgment was not rescindable, the High Court was required to revisit the constitutional challenge dismissed in the Court’s previous decision in Metcash Trading Ltd v Commissioner, South African Revenue Service [2000] ZACC 21 (Metcash), bearing in mind that the rescindability of tax judgments was an integral part of the Court’s reasons in Metcash for dismissing the constitutional challenge.

The Court held that some adverse remarks made by the High Court about BLI, including criticism based on the High Court’s erroneous view on rescindability, dictated that the merits should be heard by a different Judge. It held that the cost of proceedings in the High Court thus far should stand over for determination in the remitted proceedings, and that since BLI’s applications for leave to appeal in the High Court and Supreme Court of Appeal should have succeeded, the respondents must also pay BLI’s costs those applications.

In the result, the Constitutional Court granted leave to appeal and upheld the appeal. The Court set aside the order of the High Court, and BLI’s application for rescission was remitted to the High Court for hearing before a different Judge in order to determine the merits of the application. Costs incurred to date in the High Court proceedings are to stand over for determination in the remitted proceedings and the respondents are to pay the applicant’s costs in the applications for leave to appeal in the High Court, Supreme Court of Appeal and Constitutional Court..

The Full judgment  here