F Taxpayer v Commissioner for the South African Revenue Service

F Taxpayer v Commissioner for the South African Revenue Service

• 11 April 2022
• Tax Administration
• SARS

Background

The matter at hand was heard in the Tax Court (Western Cape Division) on 27 January 2022 and involves two interrelated applications:

1. The taxpayer applied for a final order against the South African Revenue Service (“SARS”) due to SARS’ failure to deliver a rule 31 statement timeously; and
2. SARS applied for condonation and determination of a further period for delivery of the rule 31 statement.

The issues

Pursuant to an audit of the taxpayer’s corporate income tax returns, SARS issued additional assessments on 17 March 2020 as a result of SARS refusing to allow deductions claimed by the taxpayer for insurance premiums paid.

The taxpayer, in terms of rule 6, requested reasons for the additional assessments and duly submitted an objection to the additional assessments. SARS failed to adhere to the delivery of the reasons within the prescribed deadlines for the additional assessments. SARS submitted a counterapplication to the court for condonation and the determination of a further period for delivery of the rule 6(5) statement. A fundamental point to note is that SARS failed to submit even the counterapplication for condonation within the prescribed timeframe.

The taxpayer was aggrieved by the fact that SARS declared them “non-compliant” during the dispute resolution process and as such caused the taxpayer severe prejudice. Specifically, the taxpayer was unable to obtain export permits, credit facilities were jeopardised and it was disqualified from government funding to attend international trade exhibitions.

The facts

Subsequent to the additional assessments raised by SARS, the taxpayer on 2 April 2020 requested SARS, in terms of rule 6 of the dispute resolution rules issued in terms of s 103 of the Tax Administration Act 28 of 2011 (“the TAA”), to provide it with reasons for the additional assessments raised. However, SARS failed to provide the reasons within the stipulated 45 day period, i.e. by 10 June 2020.

Rule 6(6) allows SARS to extend the 45 day period in the following specific instances:

1.  In exceptional circumstances; or
2.  Complex matters of principle; or
3.  The amount involved.

SARS requires that notices of extension be communicated to the taxpayer before the initial 45-day period lapses.  SARS failed to comply with this requirement in this instance as they only notified the taxpayer 16 days after the initial 45-day period had lapsed. The taxpayer was only supplied with the reason on 7 September 2020 which was the last day of the extension.

The taxpayer then exercised their right to object to the additional assessment following them receiving the reasons from SARS. The taxpayer duly submitted their notice of objection on 20 October which still fell within the prescribed timeframe as per Rule 7(1)(a).

Rule 9(1)(a) provides that SARS has 60 days to deliver a decision once a notice of objection has been submitted. However, SARS again failed to meet this deadline. SARS only delivered its decision to partially disallow the objection on 22 February 2021. This was subsequent to the taxpayer serving SARS with a Rule 56(1)(a) notice to apply for a final order in terms of s 129(2) of the TAA.

Subsequent to the outcome of the objection, on 31 March 2021 the taxpayer delivered its notice of appeal to SARS within the prescribed time frame as provided for in Rule 10(1)(a). SARS was required to deliver its Rule 31 statement by 7 June 2021. However, SARS did not comply with this deadline.

SARS only communicated with the taxpayer on 8 June 2021. The communication was to notify the taxpayer that their appeal had been referred to the Tax Court. A fundamental point to note in this instance is that SARS did not make any application for condonation for them having filed the Rule 31 statement late. Furthermore, SARS provided no explanation for their delay in this instance.  

The taxpayer duly delivered it’s rule 56(1)(a) notice on 11 June 2021. The reason for this notice was to require SARS to rectify the fact they had defaulted within the prescribed 15-day period. In an instance where SARS failed to do this, the taxpayer then intended to submit an application for a final order as per section 129 of the TAA.  

SARS only made delivery of the Rule 31 statement on 21 September 2021.

Findings and court order

The court ruled in favour of the taxpayer. The reasons brought forward by the court were that SARS were negligent in the way they carried out their responsibility to provide fair administrative action as far as the taxpayer is concerned. SARS failed in their execution of the obligations under the TAA, the Rules and section 195 of the Constitution. The court made the following order:

1. To dismiss SARS’ counter application for condonation.
2. To uphold the taxpayers appeal with regards to their 2016 to 2018 application.
3. SARS was to pay the costs of the taxpayer for the main and counterapplications in the scale agreed on by both parties.  

Click here to view full judgment.

This article first appeared on sars.gov.za

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