Make sure you don’t fall into this trap when SARS comes knocking
A recent case between a taxpayer and the South African Revenue Service (SARS) has highlighted the importance of following strict court procedures when facing an issue regarding non-compliance.
Esther Ooko and Louis Botha, tax experts from the law firm Cliffe Dekker Hofmyer (CDH), said that if proper procedure is not given enough importance or is blatantly disregarded – one risks walking away with a bigger burden than what was originally at stake.
Such was the case in the matter of Applicant X v The Commissioner for the South African Revenue Service (21 December 2022), which involved a dispute over an amount claimed by the applicant for certain home office expenses, said CDH.
Derogation of court procedure left the applicant with a bit more than she could chew – and a punitive cost order.
According to CDH, the case is a testament that hours of preparation for arguing against a claim can be rendered meaningless if not presented at the correct stage.
“It is an age-old reminder that while the merits of the case are exceptionally significant, failure to follow the correct procedure can be the difference between you walking away with a win or a loss and then some,” CDH said.
Facts
The applicant claimed R137,118 in home office expenses on her 2021 tax return but was issued an additional assessment by SARS.
She filed objections on two occasions, but when SARS did not respond to the second objection, she sought a default judgment order to reinstate the original assessment.
SARS objected to the default judgment order, arguing that the matter was not brought before the court in the proper manner, as the applicant did not comply with the relevant court rules, CDH said.
Specifically, SARS argued that the applicant should have followed Rule 52(1)(b) instead of Rule 56, and that the applicant did not deliver a notice indicating her intention to apply for default judgment within 15 business days if SARS did not remedy the default.
Judgment
The court was tasked with determining whether the application was properly delivered in terms of Rule 56(1)(a) and 56(1)(b).
It looked into what constituted “delivery” and found that when determining the address to which applications on notice ought to be delivered, one should refer to the address as stipulated under Rule 2.
CDH said that Rule 2 goes on to state that the address for delivery may include an address that:
- The taxpayer or appellant must use or has selected under these rules;
- SARS has specified under these rules or, in any other case, the Commissioner has specified by public notice as the address at which the documents must be delivered to SARS; or
is determined under Rule 3 as the address of the clerk or the Registrar.
- Within the context of this case, the address, as stipulated by the Commissioner in a public notice, was key. The public notice in question would be Government Gazette No. 38666, dated 31 March 2015, which indicates the physical and email address to which delivery of any document, notice or dispute request may be addressed.
It was quickly apparent that the applicant did not, in fact, deliver the notices in terms of the rules to the SARS Tax Court Litigation Unit.
The applicant delivered the notices to an email address of the Registrar of the Tax Court only and not to the Tax Court Litigation Unit.
“For this reason, the court found it unnecessary to go into the merits of the case as the application for default judgment stood to fail at that point,” CDH said.
Costs
The court granted SARS’ request for costs against the applicant on an attorney and client scale.
The court found that the applicant’s behaviour was vexatious and imposed a financial burden on SARS to oppose it.
As a result, the court believed that the applicant’s conduct was quite clearly vexatious and thus awarded costs on a punitive scale.
With commentary from Cliffe Dekker Hofmeyr
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