Case  CCT 79/23
[2024] ZACC 26

Ordered Date: 20 August 2024

Judgement Date: 20 December 2024

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 Friday, 20 December 2024, the Constitutional Court handed down judgment in an application for leave to appeal against the judgment and order of the Supreme Court of Appeal dated 3 March 2023.

Medtronic International Trading S.A.R.L. (Medtronic) was victim to embezzlement committed by an employee to the tune of more than R537 000 000. The embezzlement was structured such that it resulted in underpayments of VAT to SARS. Flowing from this, Medtronic applied to the SARS voluntary disclosure unit for relief in respect of the underpayments in terms of the voluntary disclosure programme pursuant to sections 225 to 233 of the Tax Administration Act (TAA). Subsequently, a voluntary disclosure agreement (VDA) was concluded. The legal position is that after making a voluntary disclosure and concluding a VDA with SARS, a taxpayer is entitled to relief in the form of an expungement or reduction of penalties and absolution from criminal prosecution.

After the VDA had been concluded, Medtronic made a request to SARS in terms of section 39(7) of the VAT Act for remission of the interest levied on the capital representing the unpaid VAT amount. SARS refused on the basis that remission of interest post conclusion of a VDA was not competent. Effectively, SARS refused to consider the request on its merits.

Medtronic brought an application in the High Court for, first, a declaratory order that sections 225 to 233 of the TAA did not prohibit a request for remission of interest in terms of section 39(7) of the VAT Act and, second, the review and setting aside of the decision refusing Medtronic’s request.

The High Court held that there was no express provision in the TAA that prohibited the remission of interest after conclusion of a VDA. As a result, the decision of the Commissioner was reviewed and set aside and Medtronic’s request for remission of interest was remitted to the Commissioner for decision afresh.

On appeal by the Commissioner to the Supreme Court of Appeal, that Court held by majority that SARS bears a statutory duty to consider the request made. By failing to even consider the request, SARS undermined the right to just administrative action. Consequently, it concluded that the matter should be remitted to SARS. On the other hand, the minority held that on a proper interpretation of the TAA, remission of interest after conclusion of a VDA is not competent.

The Commissioner then applied to the Constitutional Court for leave to appeal against the judgment of the Supreme Court of Appeal.

In a unanimous judgment, Acting Deputy Chief Justice Madlanga (Maya CJ, Kollapen J, Majiedt J, Mathopo J, Mhlantla J, Rogers J, Theron J, Tolmay AJ and Tshiqi J concurring), held that, on a proper interpretation, the TAA does not permit remission of interest post conclusion of a VDA. Interest is an integral component of a VDA. Remitting it post conclusion of the VDA would undo the agreement itself. An interpretation that permits such remission undermines the salutary principle of pacta sunt servanda, which means agreements must be honoured. Also, the interpretation urged upon the Court by Medtronic was susceptible to taxpayers negotiating in bad faith. A taxpayer would negotiate with SARS and seal a deal in accordance with the voluntary disclosure programme, but do so well knowing that, soon after conclusion of the VDA, the taxpayer would apply for remission of interest. That is inimical to concluding a VDA in the first place. Therefore, on a proper interpretation of the relevant provisions of the TAA, the remission of interest post conclusion of a VDA could not have been envisaged. For these reasons, leave to appeal was granted and the appeal was upheld with costs.

The Full judgment  here