Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B –

5.1 INTRODUCTION

The access to courts under the auspices of the Constitution, through the process of review either in terms of ss 6, 7 and 8,1 or the constitutional principle of legality, in terms of a Rule 53 application,2 is the practical manifestation of a state of perfect freedom3 where any public power is subject to constitutional scrutiny. It is through the enlightened approach, expounded  in this thesis, that the Constitution is used for the protection of taxpayers’ rights (when SARS uses its powers in terms of ss 74A and 74B), nurturing the development of constitutional law in the making of investigative decisions that will ultimately materially and adversely affect taxpayers, with a direct, external legal effect.

In the words of Stu Woolman:4

[B]efore one can engage in indirect application and the development of new rules of law in terms of s 39(2) [of the Constitution],5 one must first ascertain what the ambit is of the allegedly applicable constitutional provisions. Only when one has determined that ambit, and found that it does not speak to the issues raised by an ordinary rule of law, can one turn to the more open-ended invitation of s 39(2).

It has been reasoned in this thesis that to apply the fundamental principles of s 33 in the Bill of Rights to the power of SARS in ss 74A and 74B, leads the taxpayer through the constricted provisions of PAJA, where the definition of ‘administrative action’ could be too restrictive to include decisions of this nature. However, that is not where the enquiry ends. The taxpayer is entitled to expect that SARS adheres to its constitutional obligations in terms of ss 1(c), 33, 41(1), 195(1) and 237 of the Constitution. In theory, this line of reasoning concludes that the taxpayer has, at the very least, a review remedy through the constitutional principle of legality6 – entitling taxpayers to lawfulness, reasonableness, procedural fairness and reasons, just as with the codified provisions of PAJA.

Also, the rule of law and the principle of legality form the basis for the judicial review of administrative powers. Since the advent of the Constitution the law pertaining to review of administrators decisions has changed considerably.7 If there is no law supporting the conduct of SARS, SARS oversteps the rule of law. If there is a law which SARS oversteps, it is acting ultra vires8 the law. That includes compliance with its constitutional obligations.

If SARS fails to cite ss 74A and 74B as the basis for its inquiry and audit, it is making a voluntary request not binding on the taxpayer, which can then be ignored by the taxpayer. Any enforcement of a voluntary request by SARS would be a transgression of the rule of law.

If SARS asks for information in respect of persons who are not taxpayers, or fails to hold a letter of authority, or fails to adhere to the jurisdictional facts of s 74 and the definition of ‘the administration of the Act’, or does not comply with a legitimate expectation9 created (such as compliance with its Code of Conduct10 read with the SARS Internal Audit Manual),11 it is acting unlawfully, unreasonably or procedurally unfairly.

What is the remedy, and what is the best forum to access this remedy? Furthermore, what is the next procedural step in the process of enabling the taxpayer to exercise its constitutional rights, and to ensure that SARS complies with its constitutional obligations?

The appropriate remedy is for the taxpayer to apply to a court to review SARS’ decision or powers as exercised under ss 74A and 74B. Which court? The correct forum is the High Court, which has inherent jurisdiction to hear all reviews12 through s 172(1) of the Constitution, in terms of ss 6, 7 and 8 of PAJA, or failing that, in terms of the principle of legality, and both in terms of a Rule 53 application. The Rules of Procedure for Judicial Review of Administrative Action released in GG 32622 of 9 October 2009 have not yet come into effect, and at the time of writing had been re-released during March 2013 in redrafted form for further public comment, after being held back from promulgation, as explained by Plasket.13 To date there are no rules of procedure in effect for judicial review of administrative action under PAJA, and therefore Rule 53 would continue to apply, through s 172. Section 172 of the Constitution reads as follows:

Section 172 Powers of courts in constitutional matters

(1) When deciding a constitutional matter within its power, a court –

(a) must declare that any law or conduct that is inconsistent with the Constitution is invalid to the extent of its inconsistency (with the Constitution); and

(b) may make any order that is just and equitable, …(Emphasis supplied)

If SARS transgresses is duty of ‘diligently and without delay’ executing its constitutional obligations, taxpayers have a clear review remedy in the courts, despite any specific restrictions imposed by the definition of ‘administrative action’ in PAJA. Taxpayers can seek an order to review the invalid conduct of SARS. In Oudekraal Estates (Pty) Ltd v City of Cape Town and Others Howie P  and Nugent JA stated14: ‘Until the Administrator’s approval (and thus the consequences of the approval) is set aside by a court in proceedings for judicial review it exists in fact and it has legal consequences that cannot simply be overlooked.’ The taxpayer has no choice but to approach the courts for a review of the unlawful and unconstitutional decision. The other avenue open to the taxpayer is to ignore the SARS request for information, documents or things where ‘just cause’ is shown.15

Next:  5.2 WHAT IS MEANT BY REVIEW?

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Footnotes:

1 The Rules of Procedure for Judicial Review of Administrative Action released in GG 32622 of 9 October 2009 have not yet come into effect, after the original rules were subjected to Constitutional review in the North Gauteng Court and held back from promulgation as explained by Plasket C Administrative Law Annual Survey 2009 (Juta) at pages 1- 5. To date there are no rules of procedure in effect for judicial review of administrative action under PAJA, and therefore Rule 53 of the Uniform Rules of Court, GNR 48 of 12 January 1965 apply.
2 Rule 53, Uniform Rules of Court, GNR 48 of 12 January 1965, made under s 43(2)(a) of the Supreme Court Act 59 of 1959, hereinafter referred to as ‘Rule 53’.
3 As envisaged in Locke J The second treatise of government (1953) NewYork: Liberal Arts Press at sect. 4.
4 Woolman S The Amazing, Vanishing Bill of Rights South African Law Journal (2008)page 124 at page 777.
5 Section 39(2) of the Constitution of the Republic of South Africa 108 of 1996 provides: ‘When interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.’ Section 173 of the Constitution provides: ‘The Constitutional Court, Supreme Court of Appeal and High Courts have the inherent power to protect and regulate their own process, and to develop the common law, taking into account the interests of justice.’
6 Which in terms of Pharmaceutical Manufacturers Association of South Africa and another: In Re: Ex Parte President of the Republic of South African and Others 2000 (2) SA 674 (CC) entails inter alia, a basic level of rationality in SARS’ decision-making, that SARS should apply its mind properly in deciding whether and in what manner to exercise its discretionary investigative powers, and that SARS should exercise such powers only for the purposes they were conferred: satisfying the jurisdictional facts of the empowering provisions of ss 74A and 74B, read with the Constitution; and, ensure its conduct is not inconsistent with the Constitution, and in doing so, adhering to the norms, spirit and purpose of the Constitution, by fulfilling its constitutional obligations such as those in terms of s 195(1) of the Constitution.
7 Ibid.
8 See section 3.3: Lawfulness supra.
9 Legitimate expectations are not defined in the s 1 definition of ‘administrative action’ in PAJA; However, the Constitutional Court in Premier of Mpumalanga and Another v Executive Committee of the Association of Governing Bodies of State-Aided Schools: Eastern Transvaal 1999 (2) BCLR151 (CC) at para [31] has indicated that a ‘right’ should probably be interpreted more broadly to include liability incurred by the state through the making of unilateral promises or undertakings, which includes in its ambit legitimate expectations; See Currie I & Klaaren J Promotion of Administrative Justice Act Benchbook (2001) SiberInk at page 80; See also Williams R C et al Silke on Tax Administration (April 2009) Lexis Nexis at para 3.25 generally; See also section 3.6: Legitimate expectations supra.
10 http://www.sars.gov.za/home.asp?pid=54195 (last accessed 31 March 2013).
11 See section 3.2: The SARS Internal Audit Manual supra.
12 As its jurisdiction has not been specifically ousted under ss 74A and 74B or any other provision in the Income Tax Act 58 of 1962. See also Harms LTC Civil Procedure in the Superior Courts, www.lexisnexis.co.za (accessed 30 March 2013), at para B53.2; See also s 172(1) of the Constitution.
13 Plasket C Administrative Law Annual Survey 2009 (Juta) at pages 1- 5.
14 2004 (6) SA 222 (SCA) at para’s [26] – [31]; As to the form and content of the application see Safcor Forwarding (Pty) Ltd v National Transport Commission 1982 (3) SA 654 (A).
15 See section 3.8: ‘Just Cause’ Defence supra.