In a recent matter heard in the High Court[1], the taxpayer tried to hold SARS accountable for what it alleged was effectively a breach by SARS of its right to administrative action that is lawful reasonable and procedurally fair (the procedural issue). It turned out, however, that the taxpayer instituted action in the wrong court. The taxpayer should, according to the High Court, raise its concern in the Tax Court. This despite the taxpayer previously being “told” by the Tax Court it cannot entertain the matter and that the taxpayer should in fact raise the procedural issue in the High Court. It appears then, at first glance, the issue complained about is simply being “hit around” between the courts with neither willing to decide the procedural issue. Is that really what is going on here?   

To answer this question, it is good to start with the relevant judgment of Cloete J in the Tax Court[2]. By way of background, SARS, following certain investigations, it conducted on the taxpayer, raised a few assessments. The taxpayer duly objected to these assessments and when the objections were disallowed, noted an appeal, ultimately to the Tax Court. In both the objection and the appeal to the Tax Court, the taxpayer complained about several things, including substantive issues and the procedural issue.

The taxpayer later (and whilst the pleadings were still open in respect of the appeal) took advice to the effect that it can “isolate” the procedural issue and have that adjudicated upon by the Tax Court by launching a legality review in the Tax Court pending the appeal.  That advice, it turned out, was not entirely correct as the taxpayer found out after SARS blocked that application by successfully seeking an order to have it set aside as an irregular step.

The reason for this, based on our reading of the judgment of the Tax Court is simply this: the Tax Court is a creature of statute. When considering the rules that govern the Tax Court, it is clear that the Tax Court does not have jurisdiction to hear a legality review application. With respect, that conclusion can hardly be faulted.  The High Court, however, should have the requisite jurisdiction. The Tax Court accordingly ordered that the taxpayer’s appeal proceedings be stayed pending a determination by the High Court on the procedural issue.

Sometime later, the taxpayer launched its application in the High Court. This time, however, there was another issue standing in the taxpayer’s way: section 105 of the Tax Administration Act, 28 of 2011 (“the TAA”).

In terms of this section, the High Court’s jurisdiction to hear certain tax disputes (such as the one in question) is ousted in favour of the Tax Court, unless the High Court directs otherwise. The High Court has previously ruled[3] that it can direct otherwise in terms of section 105 of the TAA and thereby hear these tax disputes (as opposed to it being heard in the Tax Court) only in exceptional circumstances, for example, where the dispute revolves only around a point of law.  

Enter then the nature of the procedural issue complained about by the taxpayer in the High Court (and in its appeal in the Tax Court and in its legality review application in the Tax Court): the taxpayer complained that SARS, amongst other issues, complained about, did not comply with its obligations under section 42 of the TAA in the process leading up to the making of the assessments.

Section 42 places an obligation on SARS to do certain things when it is auditing the taxpayer and, in the process leading up to the issue of an assessment following an audit.

It however transpired in the High Court that it was under dispute between the taxpayer and SARS whether the investigation conducted by SARS before raising the assessments in question constituted an ‘audit’ or a ‘verification’.  An audit and a verification are quite simply not the same things and compliance with section 42 is only required when SARS is conducting an audit (similar obligations may arise though under other legislation in the context of verifications). There clearly being a dispute of fact also (i.e., whether the investigation conducted by SARS before raising the assessment was an audit or a verification) the High Court held it cannot direct otherwise under section 105 of the TAA and sent the taxpayer back to the Tax Court to have the procedural issue adjudicated upon by the Tax Court.

Directing the taxpayer back to the Tax Court might seem strange given the Tax Court directed the taxpayer to the High Court in the first place.  However, the High Court did not direct the taxpayer to launch the legality review again in the Tax Court. The High Court simply held that the taxpayer should raise its procedural issues in its appeal that was pending in the Tax Court together with the substantive issues raised there.

In the end, then, the to-and-fro between the Tax Court and High Court appears to have been the result of an attempt by the taxpayer to “isolate” the procedural issue from the substantive issues raised in the appeal and not the results of the courts trying to dodge, so to speak, the issue.

What might be the reason for the taxpayer trying to isolate the issue.?[4]  

Whilst we can only speculate, our experience has shown that some seem to take the view that the Tax Court has no jurisdiction to hear cases relating to procedural issues arising before the making by SARS of an additional assessment and taxpayers should rather approach the High Court on these matters. Whilst the correctness of this view has been the subject of much debate in some circles, the High Court judgment discussed here[5] as well as those in, amongst others, a Way to Explore v CSARS[6] and South Atlantic Jazz Festival V CSARS[7] seems to support the view that the tax court can hear these issues during an appeal “together” with substantive issues in an appeal[8].

We can only hope that attempts to defend complaints about pre-assessment non-compliance by SARS, on the basis of the Tax Court’s jurisdiction, are now finally a thing of the past, lest we end up in a situation where no court has jurisdiction to hear these issues.[9]

[1] Forge Packaging (Pty) Ltd v The Commissioner for the South African Revenue Service (21634/2021) [2022] ZAWCHC 119 (13 June 2022)

[2] CSARS v FP (Pty) Ltd (Case Nos: 25330, 25331, 25256).

[3] Absa Bank Limited and Another v CSARS (2019/21825 [P]).

[4] Apart from the fact that the procedural issue may be dispositive of the entire dispute, including the substantive issue because the taxpayer could have also have raised the procedural issue as a point in limine as was done in ITC 1921, 81 SATC 373.

[5] Forge Packaging (Pty) Ltd v The Commissioner for the South African Revenue Service (21634/2021) [2022] ZAWCHC 119 (13 June 2022)

[6] [2017] ZAGPPHC, [2018] 80 SATC 211

[7] 2015 (6) SA 78 (WCC)

[8] Or indeed as a point in limine.

[9] It is worth mentioning also that the taxpayer also complained in the High Court about SARS’ alleged non-compliance with section 106(5) of the TAA. This section states that SARS must provide a basis for its decision in respect of an objection. Whilst the exact nature of this complaint is not clear from the judgment, we can only guess, based on our experience, that SARS did not respond to the grounds for objection regarding SARS’ non-compliance with section 42 in the notice of outcome of objection. If correct, then the correct procedure for this complaint would likely have been a default judgment application under rule 56 of the Tax Court rules especially in light of the fact that the obligation on SARS to provide a basis for a decision on objection is also contained in rule 9(1) of the Tax Court rules.