The South African Revenue Service (SARS) often fails to meet the required deadlines set out in the rules introduced under Section 103 of the Tax Administration Act (TAA). In February, the High Court found SARS’s delay in providing reasons for the additional assessment (Rule 31 statement) to the taxpayer to be so heinous that it quashed the assessment and paid the costs against SARS.
Read: Taxpayers are victims of deadly prejudice at the hands of SARS
However, Judge Wendell, in a different case, ruled in a tax court on May 10, finding that the one-month deadline was “a short-lived” loss, and forgave SARS’s failure to provide a timely Rule 31 statement.
The taxpayer had applied to the court for a default judgment in respect of Rule 56 (1) of the TAA, setting aside the following SARS assessment (USP) assessment, after SARS failed to provide the basis for the assessment by opposing the taxpayer’s application. SARS USP has estimated R175 million.
SARS has instead applied for an apology for the failure to deliver the Rule 31 statement on time.
Taxpayers have complained that SARS has failed to provide a basis for its assessment for two years and has failed to provide sufficient reasons for doing so.
SARS argued that there was an agreement between the parties to suspend the lawsuit, which only expired in April 2021. SARS further argued that the delay in filing the assessment was “minor and should be forgiven”.
The tax court had to determine if SARS could give a reasonable excuse for missing the deadline – or, if missing the SARS deadline could not be excused, should the taxpayer be given a default judgment?
The taxpayer filed a notice of appeal on June 3, 2019 against the denial of SARS’s letter of objection. Rule 31 of SARS had 45 working days to make statements.
On July 31, 2019, SARS’s attorney emailed the taxpayer’s attorney stating that SARS had requested that the case be adjourned until a meeting between the parties’ legal representatives. The taxpayer mentioned this on August 1, 2019. The court was thus satisfied that the agreement to hold the case pending until further notice had already reached August 1, 2019.
The court noted that “the parties tried to settle disputes over various tax issues”.
About 15 months later, on October 14, 2020, the taxpayer filed a lawsuit against SARS “without resolving the dispute.”
SARS rejects taxpayer settlement proposal on April 12, 2021.
On April 15, 2021, the taxpayer, subject to Rule 56 (1), sent a notice of default to the erroneous attorneys, giving SARS 45 days to file a Rule 31 statement. This means that SARS must submit its statement before June 21, 2021.
SARS’s attorney was only aware that the pending lawsuit was revoked by the taxpayer on April 22, 2021.
The court found that there was “therefore no default” on the part of SARS prior to June 21, 2021, and that the agreement was best concluded for the taxpayer only when notice was given on April 15, 2021. Wrong lawyer.
The court noted that the taxpayer must meet the requirements of Section 56 (1) before instituting the default judgment and default before giving notice to SARS. The court found that the taxpayer’s “application for default judgment was premature and fatally flawed.”
The court found that:
- SARS “defaulted to submit its Rule 31 Statement only for a short period of time”, in which SARS submitted Rule 31 Statement on July 21, 2021, instead of June 21, 2021 only.
- The delay was not the result of SARS’s disapproval, but of SARS’s attorney and counsel’s conduct. The SARS Junior Council tested positive for Covid on June 28, 2021, and had difficulty filing the Rule 31 statement electronically on July 20, 2021.
- “The court will hate to close the court doors” to a plaintiff where the guilt on the part of the legal representative is “slight” and “prejudice against the defendant will be serious”.
This ruling raises a number of questions:
- The court, considering that it was “in the interest of granting the grant justice”, stated that if SARS proved to be the default, it would be biased and would refrain from “protecting” the USP. But of course Rule 56, in order to minimize untimely delays, should those who ignore deadlines, including SARS, be punished?
- Will the taxpayers, who stand against an unwanted SARS every day and have to pay hefty fines for being one day late in the required period, surely feel superstitious?
- Will SARS allow taxpayers to rely on the excuses of cowardly and / or fraudulent tax practitioners?
- How can the court find that missing a one-month deadline is “a short time”? Will SARS now give taxpayers an extra month to file something automatically?
- It is not uncommon for SARS to require external consultation in compiling Rule 31 statements. At the time of raising the USP, SARS officials, in order to exercise their discretion, should have compiled the basis of the assessment, which should have been finalized at the time of denial of the taxpayer’s application.
SARS may have won this court case, but it is not a victory to celebrate.