Case  CCT29/22, CCT57/22 & CCT58/22
[2023] ZACC 31

Hearing Date: 20 October 2022

Judgement Date: 03 October 2023

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 Tuesday, 3 October 2023, the Constitutional Court handed down judgments in three consolidated cases stemming from a prior ruling by the Gauteng Division of the High Court in Pretoria (High Court).

The first application, CCT 29/22, involved a confirmation application brought by Nu Africa Duty Free Shops (Pty) Ltd (Nu Africa), an authorized duty-free retailer catering to Foreign Heads of State, Diplomatic or Consular Missions, and their representatives, including Diplomats. Nu Africa sought confirmation of the High Court's order declaring sections 75(15)(a)(i)(bb) of the Customs and Excise Act (Customs Act) and 74(3)(a) of the Value Added Tax Act (VAT Act), as well as certain amendments to Schedule 4 and 6 of the Customs Act and to Schedule 1 of the VAT Act unconstitutional and invalid to the extent that they constituted an impermissible delegation of plenary power to the Minister of Finance (the Minister).

In the second and third applications, CCT 57/22 and CCT 58/22, the Minister and the Commissioner for the South African Revenue Service (the commissioner of SARS) sought leave to appeal directly to this Court, contesting the aforementioned declaration of invalidity by the High Court. Ambassador Duty Free (Pty) Ltd (Ambassador), Flemingo Duty Free Shops International SA (Pty) Ltd (Flemingo), and International Trade and Commodities 2055 CC, operating as Assortim Duty Free (Assortim), collectively referred to as the retailers, were cited as respondents in all three cases and support the confirmation application filed by Nu Africa.

The background to the case dates back to April 2001, when the Minister published certain amendments to Schedules 4 and 6 of the Customs Act and to Schedule 1 of the VAT Act, relying on the powers conferred to him in terms of sections 75(15)(a)(i)(bb) of the Customs Act and 74(3)(a) of the VAT Act ( the impugned amendments). These amendments were set to take effect on August 1, 2021.

The amendments introduced a quota system to operate on a six-monthly cycle which aimed to address the unauthorized resale of duty-free alcohol and tobacco products by diplomats and imposed VAT liability on importers, including duty- free retailers, in certain situations. To provide guidance, SARS published Rules promulgated in terms of section 120 of the Customs Act. Section 120 authorises the Commissioner of SARS to make Rules with regard to the payment of duties and other charges (impugned Rules).

Aggrieved by the impugned amendments to the Schedules as well as the Rules, the retailers approached the High Court seeking to review and set aside the impugned amendments to the Schedules and Rules. Nu Africa then filed an application to intervene raising an additional point of law; by contending that the provisions in the Customs Act (section 75(15)) and the VAT Act (section 74(3)) were constitutionally invalid to the extent that they conferred on the Minister plenary legislative powers. Thus, Nu Africa argued that the decisions to make the impugned amendments were also unconstitutional and invalid.

The High Court held that the Act did not empower the Minister to create the Schedules. Additionally, that the Schedules were made part of the Act by Parliament. The High Court reasoned that section 75(15) empowers the Minister to amend the Schedules, however, in so doing, the Minister exercises plenary legislative power to amend an original Act. Considering this Court’s decision in Smit, the High Court upheld Nu Africa’s contention that section 75(15)(a)(i)(bb) of the Customs Act and section 74(3)(a) of the VAT Act permits an unlawful delegation of plenary legislation to the Minister. The High Court held that the Minister's amendments should be addressed under the principle of legality, not PAJA. The court concluded that the Minister’s decision to amend the schedules was irrational as there was no evidence put up to show how the Minister arrived at the decision to amend the schedules.

Before this court, in CCT 29-22, Nu Africa sought confirmation of the High Court's declarations that certain sections of the Customs Act and VAT Act were unconstitutional and invalid. Their main argument centred on the assertion that allowing the executive to amend legislative schedules amounted to an impermissible delegation of full legislative power, potentially infringing upon the separation of powers and the constitutional procedures governing money bills. They referred to the Smit case as a precedent to support their claim. However, the Minister who is the first respondent in this matter, opposed Nu Africa's challenge, citing Section 48(6) of the Customs Act, which incorporates parliamentary oversight when amending schedules. The Minister argued that Parliament retained its legislative authority in this context, and the amendments were subject to parliamentary approval, adhering to the appropriate procedures for money bills.

The commissioner of SARS who is the second respondent in this matter, countered Nu Africa's contentions, emphasising the need to consider the substance of delegated powers rather than their formal structure. They argued that delegation within the constitutional boundaries was permissible, especially in cases involving fiscal necessities that required swift amendments. SARS also disputed Nu Africa's contention that the amendments violated section 77 of the Constitution, asserting that their primary purpose was regulatory rather than revenue-raising. As a remedy, SARS proposed a 24-month suspension of any declarations of invalidity, allowing Parliament adequate time to address potential defects in the legislation.

The first judgment, penned by Mathopo J, held that a finding on the principal ground of rationality against the retailers would be dispositive of the other grounds and nonetheless dealt with the other grounds of review.

The judgment first dealt with the issue of whether the conferral of legislative powers on the Minister by sections 75(15)(a)(i)(bb) of the Customs Act and 74(3)(b) of the VAT Act constitutionally impermissible. The first judgment highlighted that the question to be asked, was what– in accordance with South Africa’s conception of separation of powers – is constitutionally permissible. The judgment further highlighted that we ought to start by recognising the fact that our constitutionalism does not insist on an absolute separation of powers between the three arms of state.

The judgment distinguished Executive Council by stating that, in that matter it was the plenary nature of the delegated power that pointed to unconstitutionality. That the answer turned on what the relevant factors yielded based on the circumstances of each delegation. The first judgment further held that Nu Africa’s argument that it was automatically unconstitutional for any Act of Parliament to empower a member of the Executive to amend a Schedule to the Act was incorrect. That to determine whether a delegation constitutes an affront to the Constitution, the enquiry should be context-specific, and consideration should be given to the scope of the delegation, the subject matter to which it relates, the degree of delegation and the sufficiency of the constraints on the exercise of the discretionary powers conferred by the relevant section.

Mathopo J agreed with the Commissioner of SARS that the amendments to the Schedules were necessary for smooth fiscal law-making and to enable the Executive to act speedily and effectively in capping mischief or abuse. In addition, that Parliament’s involvement under section 48(6) provides the necessary safeguards for parliamentary oversight. The first judgment explained that the Executive was in a much better position than Parliament to appreciate the day-to-day needs and demands of administering the matters contained within the Schedules to the Customs and the VAT Act. the first judgment concluded that the legislative delegation for the Minister to amend the Schedules was not constitutionally impermissible.

Regarding the issue of whether the Minister’s decision was rationally connected to the purpose for effecting the quotas. The first judgment highlighted that the aim of the rationality test is not to determine whether some means will achieve the purpose better.

Instead, it is limited to an assessment of whether the “selected one could also rationally achieve the same end”. Mathopo J held that the Minister and the Commissioner devised a regime in which maximum quotas were imposed. He further held that it was not relevant to the rationality of that choice to interrogate the precise information upon which the Minister relied to determine the maximum quota. Nor does rationality allow for a nit- picking exercise of combing through the Schedules in search of inconsistencies. The judgment held that there can be no question that seeking to curb the abuse of privileges by rogue diplomats purchasing exorbitant quantities of duty-free alcohol and tobacco products, only to resell them for personal profit, is a legitimate objective. Therefore, it was concluded that the Minister clearly diagnosed the problem, being the abuse by the diplomats and the means taken by the Minister are appropriate and justify the end. It is, therefore, difficult to ascertain where the irrationality lies.

Relying on Albutt, Mathopo J noted that courts may not interfere with the means selected simply because they do not like them, or because there are better means that could have been selected. He further noted that rationality concerns the relationship between the exercise of a power and the purpose for which the power was granted. The first judgment further emphasises that this Court in Albutt reiterated that the purpose of the enquiry is to determine not whether there are other means that could have been used, but whether the means selected are rationally related to the objective sought to be achieved. And if objectively speaking they are not, they fall short of the standard demanded by the Constitution. Therefore, the first judgment concluded that the Minister’s conduct was rational.

On the question of procedural fairness and the retailer’s argument that they were not given adequate notice nor afforded an opportunity to participate in the decision-making process prior to the promulgation of the amended rules and regulations, the first judgment held that every endeavour was made to keep all the retailers abreast of the amendments. This included, inter alia, the Minister announcing the review of the tax treatment of duty-free shops in the 2019 Budget Speech; the Commissioner investigated and reviewed previous audit findings of duty-free shops to fully understand the loss to the fiscus; and consultations were held between the DIRCO and the Commissioner to enable SARS to understand current constraints, challenges and future policies and processes. Therefore, Mathopo J concluded that proper notice to amend the Schedules was given to all the retailers. In addition, they were given an opportunity to make representations in respect of the proposed amendments. The Minister and the Commissioner took all procedural steps necessary prior to implementing the amendments.

Regarding the question of whether the delegation to DIRCO by the Minister to amend the quotas to a lessor or greater quantity amounts to an unlawful delegation of authority, the first judgment emphasised that the purpose of the quota system was to prevent rogue diplomats from purchasing excessive duty-free alcohol and tobacco products for personal profit. DIRCO would have to consider whether to authorise a lesser or greater volume based on the applicant's personal or official needs, based on evidence provided. Mathopo J concluded that this discretion is not unlawful, as the factors relevant to the exercise of discretionary powers are clear and the reasons for the decision are indisputably clear.

On the question whether the impugned provisions of the Customs Act and the VAT Act violate section 77 of the Constitution. The first judgment held that in determining whether a charge is a tax, one has to find the dominant purpose of the legislation and referred to the case Shuttleworth where it was stated that, “if regulation is the primary purpose of the revenue raised under the statute, it would be considered a fee or a charge rather than a tax.” The first judgment considered the long title of the Customs Act and held that the Customs Act’s mandate was to, inter alia, control the importation and use of certain goods. Taking into consideration that the Minister reiterated that the primary purpose for the amendments was to curb abuse by diplomats, the first judgment concluded that the Minister, in amending the Schedules, did not violate section 77 of the Constitution.

On the issue of Vienna Conventions, the respondent argued that both the 1961 and the 1963 Conventions have been incorporated into domestic law by section 2 of the Diplomatic Immunities Act, and that Article 36 of the 1961 Convention and Article 50 of the 1963 Convention granted exemption from all custom duties and taxes on goods purchased by diplomats for their personal or official use. The first judgment endorsed the reasoning of the High Court to the effect that the contents of the Articles should be considered having regard to the context provided by reading all of them as a whole, taking into account the language used, the apparent purpose to which they are directed and choosing a sensible meaning as opposed to one that leads to insensible or unbusinesslike results.

The first judgment concluded that the High Court erred in declaring section 75(15)(a)(i)(bb) of the Customs Act and section 74(3)(a) of the VAT Act unconstitutional and invalid. Consequently, the application for confirmation was refused. Furthermore, the first judgment held that the High Court erred in setting aside the decision of the Minister and the Commissioner of SARS to amend the Schedules to the Customs Act and VAT Act. As such, the first judgment upheld the Minister’s and the Commissioner of SARS’ appeal.

In the second judgement penned by Justice Rogers, the focus is on the constitutionality of delegating legislative authority to the Minister, specifically outlined in sections 75(15)(a)(i)(bb) of the Customs Act and 74(3)(b) of the VAT Act. The second judgment partially agreed with the first judgment, asserting that the Minister's power to amend the Schedules is constitutionally acceptable. The second judgment argued that Nu Africa's strict interpretation of the separation of powers and delegation may be too restrictive for modern governance. The second judgment introduced additional factors supporting this viewpoint. One key aspect is the requirement for legislative confirmation of ministerial amendments, with such legislation processed as a money Bill and involving public participation. Furthermore, the second judgment pointed out that numerous statutory provisions grant the Minister similar powers across various legal domains, all necessitating subsequent legislative confirmation for sound fiscal administration. While the first judgment placed emphasis on combating abuse and closing legislative gaps, the second judgment posited that most amendments to the Schedules serve routine fiscal management objectives. This raises questions about addressing tax abuse through retrospective parliamentary legislation, which is practical when taxpayers are informed in advance, as opposed to the Customs and VAT Acts' context, where retroactivity is unfeasible due to real-time tax collection. Finally, the judgment rejected the idea that the Executive's superior familiarity with legislative details should be a decisive factor. Instead, it underscored the crucial constitutional function of the Executive in formulating bills for parliamentary consideration and providing vital briefings to parliamentary committees.

In the second constitutional complaint of this case, Nu Africa contended that certain provisions in the Customs Act and VAT Act allowed the Minister to introduce money bills without following the constitutional framework set out in Section 77 of the Constitution. However, the second judgment criticises Nu Africa's argument as being flawed. It emphasises that all bills, including money bills, are required to conform to the general principles laid out in section 73 and other applicable provisions of the Constitution. The second judgment considered that the Parliamentary amendment of the schedules falls within the scope of the Constitution's provisions regarding money Bills. Nonetheless, it reiterates that these constitutional provisions do not apply when the Minister is authorised to amend schedules through Gazette notices.

In the applications for leave to appeal, CCT 57/22 and CCT 58/22, the Minister sought leave to appeal, contending that the lawfulness of executive and legislative actions rested on constitutional matters. He argued that granting leave to appeal would uphold justice and prevent unnecessary costs, asserting that the High Court had applied a narrow test for legality. The Minister challenged claims of irrationality, stating that varying quantities in the quota system did not render the decision irrational. He also defended against allegations of contravening the Vienna Conventions and supported the sub-delegation of authority to the Department of International Relations and Cooperation (DIRCO). SARS echoed the Minister's arguments, emphasizing the High Court's misunderstanding of the rationality test and stressing that rationality reviews should focus on the relationship between means and ends. The retailers supported the Minister's request for leave to appeal, underscoring the need for a rational process in determining quotas and contesting the High Court's findings regarding the Vienna Conventions. They advocated for a less restrictive means and expressed concerns about the sub-delegation of authority to DIRCO. Ambassador, aligning itself with these positions, pointed out the vagueness of certain provisions and the absence of evidence regarding rational decision-making.

Both judgments concur that the applications are within the court's constitutional jurisdiction, given the constitutional nature of reviewing public power exercises. They also acknowledge the presence of significant and important legal issues in the review grounds, such as the validity of imposing a quota system on duty-free goods for diplomats and the permissibility of the Minister delegating authority to adjust rebate quantities. Additionally, both judgments affirm the standing of the review applicants to bring their legal actions, upholding the High Court's previous ruling. They underscore that the applicants' interests were directly impacted by the matters under consideration. The Minister's amendments, which restricted the sale of duty-free goods to diplomats, not only affected the retailers' revenue but also imposed administrative burdens. Given the retailers' primary role and direct involvement, both judgments found the objection to their standing to be without merit.

As a preliminary matter, both judgments consider the implications of the Taxation Laws Amendment Act and the transition of the amendments to national legislation enacted by Parliament. The first judgment notes that the Schedules remain in effect today as their constitutional invalidity has not been confirmed, and the Taxation Laws Amendment Act effectively confirmed their status as national legislation. In the second judgment’s view, however, the Amendment Act only keeps alive amendments validly promulgated by the Minister. If the amendments are set aside on review, the Amendment Act does not resurrect them.

As another preliminary matter the second judgment agreed with the High Court that the retailers had the legal standing to bring review applications. This was because the amendments to the Schedules restricted the quantities of products they could sell to diplomats, which would have a negative impact on the retailers. Furthermore, these changes required retailers to participate in the administration of the quota system, adding administrative burdens that were not previously in place.

The second judgment then considered the review grounds directed at the Minister’s amendment of the Schedules. In considering the first ground of review, the second judgment examined the retailer’s contention that the imposition of quotas contradicted the Vienna Conventions and section 10 of the DIPA. This argument posited that imposing quotas on exemptions may run afoul of international treaties and domestic law. However, the second judgment found that the High Court's decision, which rejected this argument, was sound. According to the second judgment, the Vienna Conventions empower recipient nations, such as South Africa, to grant exemptions based on their own enacted laws and regulations. These laws and regulations can include quantitative limits, as long as their purpose is to curb abuse rather than nullify the exemptions altogether. Section 10 of the DIPA was found to apply only in cases where exemptions are withdrawn due to a lack of reciprocity from another nation. Thus, the first ground of review challenging the legality of quotas was dismissed, affirming the Minister's authority to implement them in line with the Vienna Conventions and applicable domestic law.

The second ground of review focused on issues pertaining to procedural rationality in the Minister's decision-making process regarding amendments to the Schedules to the Customs and VAT Acts. This ground of review posed the question of whether the Minister had failed to consult with the retailers adequately, a matter not previously addressed by the High Court. In this context, the court's second judgment underscored the fundamental principle of procedural rationality. It highlighted the essential need for a logical and rational connection between the means employed by a public authority and the intended purpose of their actions, including the establishment of a procedural framework for the collection and evaluation of pertinent information. Crucially, the second judgment argued that consultation with the retailers was imperative due to their substantial stake in the matter. The introduction of a quota system would profoundly impact their operations, making their input invaluable. The court criticised the Minister's approach, characterising it as lacking in transparency and failing to sufficiently engage with the retailers. Further scrutiny revealed that the interaction between the SARS and the retailers in February 2020 did not meet the standard of fulfilling the Minister's duty. The retailers were presented with new processes, but there was no mention of changes to the VAT system, which was integral to their business operations. Additionally, the publication of draft amendments on SARS' website was deemed inadequate, as the retailers primarily used alternative platforms for submissions. In conclusion, the second judgment found that the Minister had not adhered to a rational process when amending the Schedules to the Customs and VAT Acts. The second judgment reached a similar conclusion, for similar reasons, in relation to the Commissioner’s amendments of the Customs Rules.

The third ground of review considered by the second judgment delved into another facet of procedural rationality. Specifically, it addressed concerns raised regarding the complaint of arbitrariness and the absence of reliable information underlying the decision. The High Court upheld this ground of review, a ruling deemed correct in the eyes of the second judgment. The crux of the matter lay in the necessity for the Minister to have gathered and duly considered pertinent information when making his decision. No substantiated evidence was provided regarding the information that was at the Minister's disposal at the time of approving the amendments in question. In an attempt to substantiate their stance, SARS referred to research conducted by DIRCO outlining quantitative limits imposed by other countries. However, this information was characterised, even by the Minister's own counsel, as "gobbledygook." Furthermore, there was no evidence that this research was presented to the Minister and, if so, how it factored into the limits ultimately imposed by the Minister.

The fourth ground of review under consideration revolved around the provision inserted by the Minister into Schedule 4, which purported to authorise DIRCO to either reduce or increase the quantitative limits set by the Minister. The central question was whether such a delegation of authority to DIRCO was permissible. In addressing the vagueness of this delegation, the second judgment acknowledged that the delegation may be understood as being to the "Director-General … or an official acting under his or her authority." However, a notable absence of guidelines raised significant concerns. Even if it was assumed that the guiding principle was to permit quantities that do not constitute an abuse, critical questions remained unanswered. What constituted sufficient evidence or information to justify imposing lesser or greater quantities? Should the diplomat's input be mandatory, or could the DIRCO official apply a reasonableness test? Moreover, could quantities be reduced as a sanction for past infractions? The lack of clarity in these matters created a considerable degree of uncertainty. At a more fundamental level, there was the issue of whether it was permissible, even with proper guidelines in place, to grant DIRCO such substantial power. Typically, it was the responsibility of Parliament to impose duties and grant exemptions. While Parliament had granted the Minister the power to amend these duties temporarily, it did not expressly permit the Minister to further delegate this authority, which was essentially what had transpired. Such a delegation was viewed as contravening the limits of delegation outlined in section 118 of the Customs Act and ran counter to the legal maxim delegatus delegare non potest, signifying that a delegatee cannot further delegate. The second judgment reached a similar conclusion, for similar reasons, in relation to a matching delegation found in the Customs Rules.

Turning to the sixth issue, the second judgment focused on the potential vagueness of the contested amendments. It emphasised the importance of legislation being clear enough for those subject to it to reasonably understand its requirements. Despite complaints by retailers regarding the clarity of specific provisions, the Court found that distinctions in rebate item headings and omissions of certain details in notes did not reach the level of impermissible vagueness. The court also addressed concerns about specific amendments and ruled that they could be sensibly interpreted, ensuring legal clarity and adherence to the rule of law.

In the context of the Nu Africa case and related review cases, the second judgment considered, and ultimately disagreed with, the proposition adopted in the first judgment, namely that Biowatch principles did not apply to litigants, such as the retailers, engaged in constitutional litigation with commercial motives.

The second judgment underscores the significance of this matter by affirming that Nu Africa's challenge was substantive, not frivolous. The second judgment argued that, unless there are compelling and well-founded reasons to deviate from Biowatch, Nu Africa should not bear the financial burden. The second judgments examination of legal authorities revealed, in his view, an absence of jurisprudential support for the proposition that commercial litigants should be excluded from the benefits of Biowatch protection. Given this significant gap and the fact that the matter was not fully argued in this specific case, the second judgment concluded that this was not the appropriate occasion to establish such a carve-out. Furthermore, the second judgments examination of costs led to the conclusion that, even if the review applications brought by Flemingo, Assortim, and Ambassador had failed, the review cases held merit and the potential for success. They, too, should therefore have been entitled to Biowatch protection.

In CCT 29/2022, the second judgment would have made the same order as the first judgment In Cases CCT 57/2022 and CCT 58/2022, the second judgment, like the first judgment, would have granted the Minister and Commissioner leave to appeal but would have dismissed their appeals As to consequential relief, the second judgment would have suspended the setting aside of amendments made by these officials to the Customs Act, VAT Act, and related Rules to 30 June 2024, to avoid disruption and to allow the Minister and Commissioner the opportunity to investigate, consult and promulgate fresh amendments. Moreover, the second judgment would have ordered the applicants in these cases (the Minister and Commissioner) to pay the costs incurred by the first, second, and third respondents, including the costs of two counsel..

The Full judgment  here