In Commissioner for the South African Revenue Services ("SARS") v Virgin Mobile South Africa (Pty) Ltd, the High Court considered whether the South African Revenue Services ("SARS") had failed to file its statement of grounds of assessment and opposing appeal ("rule 31 statement") in time based on the rules promulgated under section 103 of the Tax Administration Act 28, 2011 ("TAA"). In this matter, the taxpayer issued a notice under rule 56(1)(a) informing SARS of its intention to apply to the tax court for a final order under section 129(2) of the TAA in the event that SARS fails to remedy its default within 15 days. SARS filed its rule 31 statement shortly thereafter, but the taxpayer applied for default judgment in terms of rule 56(1)(b). The taxpayer averred that the rule 31 statement alone did not remedy SARS' default as SARS failed not only to address the reason for its delay but also to apply to the High Court for an order to condone its non-compliance with the rules.
The court considered whether the word "default" in rule 56(1)(a) refers to the failure of SARS to file a statement in terms of rule 31 or whether it refers to the failure of SARS to apply for condonation for the late filing of its rule 31 statement.
The court also held that the word "default" relates to the words "failed to comply with a period or obligation described under the rules". The court then stated that SARS must file a rule 31 statement within the 45-day period. Where SARS files the statement outside of the required 45 days, it means that SARS has failed to comply with its obligations in terms of rule 31, and such failure must be remedied. The court found that to interpret rule 56(1)(a) as allowing SARS an opportunity to file a rule 31 statement which does not comply in form, substance or time to rule 31 and without availing itself of the remedies provided for to cure such default, would render the rules to do so superfluous and dimmish SARS' accountability.
In a dissenting judgment, Judge Mabuse agreed with an earlier decision reached by the tax court in the matter between P Taxpayer v CSARS. In this matter, following the termination of alternative dispute resolution, the taxpayer afforded SARS a time extension to deliver its rule 31 statement, which SARS failed to do. The taxpayer delivered a rule 56(1)(a) notice. The rule 31 statement was subsequently delivered by SARS within the 15-day period. However, the taxpayer was of the view that the rule 31 statement needed to be accompanied by an application for condonation for the "late filing" of this statement.
The taxpayer argued that the plain language of rule 52(6) requires that a rule 31 statement must be accompanied by a condonation application if filed out of time, and since the tax court is a creature of statute, rule 52(6) must be read as requiring strict compliance. SARS argued that the purpose of a rule 56(1)(a) notice is to afford a defaulting party an automatic extension of 15 days within which to remedy its default, thereby absolving that party of the necessity to apply for condonation as contemplated by rule 52(6) if it complies with the 15-day period.
The court considered the relevant provisions and found that if SARS remedied the default within the 15-day period referred to in rule 56(1)(a), then the rule 31 statement is properly before the tax court. The court thus dismissed the taxpayer's rule 30 of the Uniform Rules of Court application with costs.
Given the High Court's decision in favour of the taxpayer and the dissenting judgment in the Tax Court, SARS may well be minded to apply for leave to appeal to the Supreme Court of Appeal.
In the meantime, taxpayers ought to carefully consider their plan of action in litigation proceedings where SARS fails to deliver its rule 31 statement timeously.
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