The supreme court of appeal on late tax appeals

It was recently held by the SCA[1] that the tax court had no jurisdiction to hear an application by a taxpayer for condonation of a late tax appeal. It is respectfully submitted that the Tax Court and SCA judgments raises more questions than it gives guidance and makes what is already, in the SCA’s own words “hardly a model of clarity” even more obscure.

Facts of the case

The taxpayer in this case objected to an assessment raised by SARS, which objection was partly allowed. The taxpayer, not being satisfied with a partial win instructed its tax consultant to lodge an appeal. This the tax consultant did on e-filing. Unfortunately, however, the appeal was, unbeknown to the consultant at the time, never received by SARS. It turned out the reason for this was the consultant’s faulty internet line. Six months later the consultant eventually found out that the appeal never went through and submitted the appeal again. While the second one went through to SARS, it was unfortunately for the taxpayer, late. As such, SARS had to condone the late appeal before they could consider the merits of the appeal. SARS refused to condone the late appeal.

Legal basis for SARS’ refusal

Section 107 of the Tax Administration Act, No. 28 of 2011 (“the TAA”) states that:

“(1)          After delivery of the notice of the decision referred to in section 106 (4), taxpayer objecting to an assessment or “decision” may appeal against the assessment or “decision” to the tax board or tax court in the manner, under the terms and within the period prescribed in this Act and the “rules”,

(2)           A senior SARS official may extend the period within which an appeal must be lodged for 21 business days, if satisfied that reasonable grounds exist for the delay; or up to 45 business days, if exceptional circumstances exist that justify an extension beyond 21 business days.”

The period referred to in section 107(1) above is stated in rule 10(1)(a) of the “rules”[2] as follows:

“A taxpayer who wishes to appeal against the assessment to the tax board or tax court under section 107 of the Act must deliver a notice of appeal in the prescribed form and manner within—

  • 30 days after delivery of the notice of disallowance of the objection under rule 9; or …”

In short therefore, section 107(1) read with rule 10(1)(a) of the rules state that an appeal must be lodged within 30 days from the date that SARS disallows the objection. Section 107(2) read with rule 10(1)(a) state that SARS can extend the 30-day period by 21 days if reasonable grounds exists and up to 45 days if exceptional circumstances exist.

It follows that if the taxpayer has 30 days to object and SARS can extend up to 45 days in exceptional cases, then SARS cannot extend the period within which a taxpayer must lodge an appeal by more than 75 days (30 + 45) from the date of disallowance of the objection.

In all honesty, it is hard to fault SARS’ interpretation of rules and section 107.

The Taxpayer’s response to SARS’ refusal

The taxpayer, not being satisfied with the decision by SARS not to condone the late appeal launched an application in the Gauteng Tax Court under rule 52(2)(e) of the rules. Rule 52(2)(e) of the rules state that a taxpayer or appellant may apply to a tax court –

“(e)  if the period of time to lodge an appeal against an assessment has not been extended by SARS under section 107(2) of the Act on request of the taxpayer … for an order extending the period within which an appeal must be lodged by the applicant”.

I.e rule 52(2)(e) provides the taxpayer with an opportunity to approach the Tax Court if SARS refuses to extend the period for lodging an appeal.

The Tax Court’s judgment

The Tax Court rules in favor of the taxpayer to condone the taxpayer’s late appeal for the reason:

“It seems to me from the wording of this section, that the empowering provisions grant to a senior SARS official the power to extend the time frame in which an appeal is to be lodged for a further 21 days from the date of the request where the senior SARS official is satisfied that reasonable grounds exist and 45 days if the senior SARS official is satisfied that exceptional grounds exist.”

The Tax Court accordingly rules that SARS can extend the period for lodging an appeal up to 45 days from the date the taxpayer requests condonation (if exceptional circumstances exist) and not from the date that following the 30-day appeal period.

With respect, I fail to see the basis for this conclusion.[3] If this were to be the correct position, then SARS has a discretion to condone late appeals subject only to prescription. When reading the TAA and rules as a whole, this could not have been the intention of the legislature.

SARS, obviously not happy with this judgment (understandably), appeals to the Supreme Court of Appeal (“the SCA”.) Three questions were placed before the SCA as evident from the judgment, only the first of which was necessary to decide on. This question was:

“(1) whether a Tax Court has the necessary jurisdiction to entertain and thereafter grant an application for condonation of the late filing of an appeal against an assessment;”

The SCA’ judgment

The SCA[4] ruled that the tax court never had jurisdiction to hear the taxpayer’s rule 52 application in the first place and sets aside the judgment of the Tax Court.

SARS therefore ultimately ended up victorious, which I believe is the correct result.

What is interesting, however, is the basis for the conclusion and it is the basis for the conclusion that sets a precedent and effect the rest of us operating in the tax dispute resolution arena.

Basis of the SCA’s judgment

On our interpretation of the SCA judgment, the reasoning for this conclusion is as follows:

  • The Tax Court’s jurisdiction is determined by section 117 of the TAA.
  • Section 117(1) states that the Tax Court has jurisdiction over appeals lodger under section 107.
  • Appeals can be lodged against assessments and decisions.
  • The term ‘decision’ includes a decision by SARS not to condone a late appeal.
  • Under section 129(2) of the TAA, the Tax Court may order that a decision not to condone a late appeal be altered.
  • The Tax Court’s power under section 129(2) is, however, subject thereto that the taxpayer objected first as a decision by SARS not to condone a late appeal is subject to objection.

What does it all mean

There are various types of interlocutory applications that may be brought under rule 52 of the rules. At least two of the applications provided for in rule 52 are influenced by this judgment. One is for an order from the Tax Court to condone a late appeal if SARS did not condone it (used by the taxpayer in the case Tax Court case under consideration) and the other for an order from the Tax Court to condone a late objection if SARS did not condone it.

Both of these decisions (i.e. a decision not to condone a late appeal and a decision not to condone a late objection) are subject to objection under section 104 of the TAA. Based on the SCA judgment, a taxpayer who is not satisfied with SARS decision not to condone the late submission is forced to ask SARS, through objection, to reconsider their own decision again before the taxpayer can approach the Tax Court to override SARS’ decision.

Our two cents’ worth

If this is the conclusion to be drawn from the judgment, various questions arise regarding these two interlocutory applications provided for in the rules and may even render these applications redundant.

If SARS, for example, does not condone a late objection/appeal and the taxpayer objects to that decision (as it must following the SCA judgment), then SARS must disallow that objection before the interlocutory application will be of any use (the taxpayer will not bring the court application if SARS reverse the decision that would have been the cause of the application in the first place).

Assuming then SARS does not allow the objection, what is the taxpayer supposed to do then? Lodge an appeal to the Tax Court or bring the interlocutory application in the Tax Court? The same issues will have to be considered by the court either way. This begs the question – why provide for these applications in the first place?

It is submitted these two applications serve (or perhaps the correct word is “served”) a vital role in the dispute resolution process with SARS. They are arguably there to allow the taxpayer the option to ask the Tax Court to review SARS’ decision not to condone a late objection or appeal rather than having to ask SARS to review its own decision. This conclusion is also arguably supported by the TAA:

  • Section 117(3) of the TAA states that the Tax Court has jurisdiction to “hear and decide an interlocutory application or an application in a procedural matter relating to a dispute under this Chapter as provided for in the rules”.
  • Nothing in the plain wording of section 117(3) suggests, in our view, that the Tax Court’s jurisdiction over interlocutory applications is subject to the taxpayer lodging an objection if the cause of the application was a decision by SARS that is subject to objection.
  • The Tax Court therefore arguably has (or perhaps the correct word is “had”) jurisdiction over both appeals under section 107 and interlocutory applications.

Author: N Theron

[1] CSARS v Danwet (399/2017) [2018] ZASCA 38 (28 March 2018)

[2]Rules gazette under section 103 of the Tax Administration Act, No. 28 of 2011 (Government Gazette 550 of 11 July 2014)

[3] The SCA in CSARS v Danwet (399/2017) [2018] ZASCA 38 (28 March 2018) arguably also does not agree with this per obiter at par 17

[4]Supra, n3