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Tax Court condones Sars’s tardiness

Finds a one-month delay to be ‘short’.
Will Sars now give taxpayers an extra month to file things? Image: Shutterstock

The South African Revenue Service (Sars) frequently fails to meet the required time limits prescribed in the rules promulgated under Section 103 of the Tax Administration Act (TAA). In February, the High Court considered the delays by Sars in providing the taxpayer with the grounds for additional assessments (Rule 31 statement) so egregious that it voided the assessments, and costs were awarded against Sars.

Read: Taxpayer suffered severe prejudice at the hands of Sars

However, Judge Windell, in a different matter, handed down a Tax Court judgment on May 10, finding that missing a deadline by one month was “a short period of time”, and condoned Sars’s failure to deliver the Rule 31 statement timeously.

Background

The taxpayer applied to court for a default judgment in terms of Rule 56(1) of the TAA, to have Sars’s understated penalty (USP) assessments set aside, after Sars had failed to deliver its grounds of assessment in opposing the taxpayer’s appeal. Sars had raised USP assessments amounting to R175 million.

Sars in turn filed for a condonation of its failure to deliver the Rule 31 statement timeously.

The taxpayer alleged that Sars had failed to deliver its grounds of assessment for a period of two years, and also failed to provide adequate reasons for doing so.

Sars argued that there was an agreement between the parties to suspend litigation, which only lapsed in April 2021. Sars also argued that the delay in filing the grounds of assessment “was slight and should be condoned”.

The Tax Court had to determine whether Sars could provide a reasonable excuse for missing the deadline – or, if Sars’s missing of the deadline could not be condoned, should the taxpayer be granted a default judgment?

Facts

The taxpayer delivered its notice of appeal against Sars’s disallowance of objection letter on June 3, 2019. Sars had 45 business days to deliver its Rule 31 statement.

On July 31, 2019, Sars’s attorney emailed the taxpayer’s attorney stating that Sars requested that litigation be suspended until the meeting between the parties’ legal representatives. The taxpayer noted this on August 1, 2019. The court was thus satisfied that the agreement to pend litigation until further notice was already reached on August 1, 2019.

The court noted that “the parties attempted to settle the disputes in respect of various tax issues”.

Some 15 months later, on October 14, 2020, the taxpayer proposed a “without prejudice settlement of the disputes” against Sars.

Sars rejected the taxpayer’s settlement proposal on April 12, 2021.

On April 15, 2021, the taxpayer sent a notice of default, in terms of Rule 56(1), to the incorrect attorneys, giving Sars 45 days to file the Rule 31 statement. That meant that Sars had to file its statement on or before June 21, 2021.

Sars’s attorney only became aware that the agreement to pend litigation was terminated by the taxpayer on April 22, 2021.

The court’s findings

The court found that there was “therefore no default” on the part of Sars prior to June 21, 2021, and that the agreement was only terminated, at best for the taxpayer, on April 15, 2021, when the notice was served on the incorrect attorneys.

The court noted that the taxpayer had to meet the Section 56(1) requirements before it launched the default judgment, and that Sars had to be in default prior to the delivery of the notice. The court found that the taxpayer’s “application for default judgment is premature and fatally defective”.

The court found that:

  • Sars “was only in default for filing its Rule 31 statement for a short period of time”, in that Sars only filed the Rule 31 statement on July 21, 2021, instead of on June 21, 2021.
  • The delay was not as a result of any non-compliance on the part of Sars, but as a result of the conduct of Sars’s attorney and counsel. The junior counsel for Sars had tested positive for Covid on June 28, 2021, and had difficulty in filing the Rule 31 statement electronically on July 20, 2021.
  • The “court will be loath to close the doors of the court” to a litigant where the blame on the part of the legal representative is “slight” and the “prejudice to the litigant would be severe”.

This judgment raises a number of questions:

  • The court, in considering if it is “in the interests of justice to grant condonation”, noted that Sars would be prejudiced if found to be in default, and would be precluded from “defending” the levying of the USP. But surely Rule 56, with the objective of shortening untimely delays, should penalise those who ignore timelines, including Sars?
  • Taxpayers, who on a daily basis come up against an unwieldy Sars, and who have to cough up mighty penalties for being one day late of a required time limit, will surely feel prejudiced?
  • Would Sars allow taxpayers to rely on the excuse of Covid and/or bungling tax practitioners?
  • How can the court find that missing a deadline by one month is “a short period of time”? Will Sars now automatically give an extra month to taxpayers to file anything?
  • It is incomprehensible that Sars requires external counsel to compile Rule 31 statements. At the time of raising the USP, the Sars official/s should have, in applying their minds, compiled the grounds of assessment, which should then have been finalised as at the time of denying the taxpayer’s appeal.

Sars may have won this court matter, but it isn’t a victory to be celebrated.

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COMMENTS   1

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This continues to happen because there are no real hard consequences for SARS. Once they suffer real consequences, SARS will change their behaviour.

The same approach they have taken against taxpayers must be taken against them for real change to take place in that organisation and in the way they handle matters.

End of comments.

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