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 –

5.5.2 Sections 6, 7 and 8 of PAJA50

If SARS in making a decision in terms of ss 74A and 74B of the Income Tax Act, acts inconsistently with its constitutional obligations (ss 1(c), 33, 41(1), 195(1) and 237 of the Constitution) as analysed in this thesis, or fails to give adequate notice as required in terms of s 3(2) of PAJA, and adequate reasons after making a decision in terms of s 5(1) and (2) of PAJA, taxpayers will have the remedies available to them in terms of ss 6, 7 and 8 as read with the codified grounds of review in s 6(2) of PAJA.

It has been submitted in this thesis that a decision in terms of ss 74A and 74B ‘adversely affects the rights of any person and which has a direct, external legal effect’, as contemplated in the definition of ‘administrative action’ in PAJA. With the development of constitutional law and the promulgation of PAJA giving effect to s 33(3) and the rights referred to in ss 33(1) and (2) of the Constitution, the provisions of PAJA must now, first and foremost, be considered in any review proceedings initiated against SARS for unconstitutional conduct. Chaskalson CJ in Minister of Health v New Clicks South Africa (Pty) Ltd51 rejected the Supreme Court of Appeal’s approach to review the regulations for lawfulness by applying the provisions of s 33(1) of the Constitution and the common law directly, and not in terms of PAJA. Chaskalson pointed out that PAJA had been enacted pursuant to a constitutional command to give effect to the right to administrative justice.

To allow applicants to go behind the provisions of PAJA to utilise s 33(1) of the Constitution to review administrative action would frustrate the purpose with which s 33(3) of the Constitution required the enactment of PAJA. In a concurring judgment, Nqcobo52 held that to allow access for review to s 33(1) of the Constitution would allow for the development of two parallel systems of law with the same subject matter which would be untenable. He went on to state that litigants would only be entitled to rely directly upon s 33(1) of the Constitution where it was alleged that the remedies afforded by PAJA were deficient – the action would be directed at the offending provision of PAJA, namely the restrictive definition of ‘administrative action’, and not at the
offending administrative action itself. The provisions of ss 6(1), 7(1) and 8(1) of PAJA relevant to a review application state:

6. (1) Any person may institute proceedings in a court or a tribunal for the judicial review of an administrative action…

7. (1) Any proceedings for judicial review in terms of section 6(1) must be instituted without unreasonable delay and not later than 180 days after the date…

8. (1) The court or tribunal, in proceedings for judicial review in terms of section 6(1), may grant any order that is just and equitable…

The starting point for any review application in terms of PAJA in relation to a ss 74A and 74B decision by SARS would be the failure by SARS to comply with the provisions of s 3 of PAJA before making a decision:

3. (1) Administrative action which materially and adversely affects the
rights or legitimate expectations of any person must be procedurally fair.
(2)(a) A fair administrative procedure depends on the circumstances of
each case.
(b) In order to give effect to the right to procedurally fair administrative
action, an administrator, subject to sub-section (4), must give a person
referred to in sub-section(l) –
(a) adequate notice of the nature and purpose of the proposed
administrative action;
(b) a reasonable opportunity to make representations;
(c) a clear statement of the administrative action;
(d) adequate notice of any right of review or internal appeal, where
applicable; and
(e) adequate notice of the right to request reasons in terms of section 5.
(3) In order to give effect to the right to procedurally fair administrative
action, an administrator may, in his or her or its discretion, also give a
person referred to in sub-section (1) an opportunity to –
(a) obtain assistance and, in serious or complex cases, legal
representation;
(b) present and dispute information and arguments; and
(c) appear in person.
(Emphasis supplied)

If SARS, without proper justification, fails to adhere to these fair administrative
procedures when making a decision in terms of ss 74A and 74B, its ‘administrative action’ will be subject to the ground of review in s 6(2)(c) that the decision or ‘administrative action’ was ‘procedurally unfair’.

In terms of s 5(1), (2) and (3) of PAJA, SARS must adhere to the following provisions and give adequate reasons for its decision in terms of ss 74A and 74B:

5. (1) Any person whose rights have been materially and adversely affected by administrative action and who has not been given reasons for the action may, within 90 days after the date on which that person became aware of the action or might reasonably have been expected to have become aware of the action, request that the administrator concerned furnish written reasons for the action.

(2) The administrator to whom the request is made must, within 90 days after receiving the request, give that person adequate reasons in writing for the administrative action.

(3) If an administrator fails to furnish adequate reasons for an administrative action, it must, subject to sub-section (4) and in the absence of proof to the contrary, be presumed in any proceedings for judicial review that the administrative action was taken without good reason. (Emphasis supplied)

Bearing in mind that if SARS ‘fails to furnish adequate reasons…it must…be presumed in any proceedings for judicial review that the administrative action was taken without good reason’, if SARS, without proper justification, fails to adhere to these fair administrative procedures when making a decision in terms of ss 74A and 74B, its ‘administrative action’ will also be subject to the ground of review in s 6(2)(c) that the decision or ‘administrative action’ was ‘procedurally unfair’, or in terms of s 6(2)(i) as ‘otherwise unconstitutional or unlawful’.

Apart from these preliminary fair administrative procedures, the lawfulness and reasonableness of a decision by SARS in terms of ss 74A and 74B, the decision must not be conduct is inconsistent with s 2 of the Constitution, otherwise it will be contrary to the constitutional principle of legality, or the codified grounds of review of s 6(2) of PAJA53 are applicable.54

If the court holds that the decision by SARS is not ‘administrative action’ as defined, then the taxpayer would have two further alternatives: (1) challenging the constitutionality of the restrictive definition of ‘administrative action’ in PAJA alleging that the remedies afforded by PAJA are deficient where the action is directed at the offending provision of PAJA; and (2) an application for review where the transgression of the constitutional principle of legality would be the cause of action, on the basis that SARS’ conduct is unlawful, unreasonable, procedurally unfair and exercised without giving adequate reasons. In essence similar grounds of review to those set out in s 6(2) of PAJA come into play.55

In both a review application brought in terms of PAJA, or it terms of the principle of legality, the preferred route, in the absence of express court rules applicable to PAJA, would be by way of Rule 53 application to the High Court.

Next:  5.5.3 Rule 53 of the Uniform Rules of Court

Daniel N Erasmus

International Tax Attorney, EA, US Tax Court Practitioner in the USA, Counsel of the High Court in South Africa, adjunct Professor of International Tax at Thomas Jefferson School of Law.