The tension between the Tax Administration Act and the Uniform Rules of Court
06 February 2014
Posted by: Author: PwC
Author: PwC (Tax Synopsis January 2014)
The decision of the Pretoria High Court in Huang v Commissioner of the South African Revenue Service  ZAGPPHC 370, handed down on 18 November 2013, is the first reported judgment on important aspects of the inter-relationship between an inquiry held in terms of Part C of chapter 5 of the Tax Administration Act 28 of 2011 and an application for the "reconsideration” and setting aside of an earlier ex parte court order, on the application of SARS, for the search and seizure of a taxpayer’s property.
The Tax Administration Act provides in section 50(1) that a senior SARS official –
"may authorise a person to conduct an inquiry for the purposes of the administration of a tax Act.”
Significantly, therefore, the person who conducts the inquiry does not have to be a High Court judge.
The expression, in this provision, the purposes of the administration of a tax Act is widely defined in section 6(2) of the Act and includes obtaining full information in relation to anything that may affect the liability of a person for tax. The scope of the inquiry may consequently be extremely wide-ranging.
In this particular instance, the foreshadowed inquiry was into alleged non-compliance, by the applicants and a large number of other persons, with the provisions of certain (but unspecified) tax legislation.
Search and seizure preceded the order for the inquiry
In this matter the order for the inquiry in terms of the Tax Administration Act had been preceded by a successful ex parte application (that is to say, an application of which no prior notice was given to the taxpayer and in which the judicial order was given without hearing the taxpayer’s version of events) by SARS to a High Court judge in chambers for a search and seizure warrant as provided for in section 59(2) of the Tax Administration Act. The searches were carried out on 26 April 2013 and a large number of documents were seized.
The interest of this particular judgment is that it involved a precursor to an application by the applicants for the reconsideration of the judicial order granting the search and seizure warrant. In this preliminary application, the taxpayers sought to be excused from testifying at the foreshadowed inquiry until the reconsideration application had been held and determined by the High Court.
Provision is made in rule 6(12)(c) of the Uniform Rules of Court for reconsideration of any urgent court order that had been granted in the absence of the other party to the dispute. The rule reads as follows –
"A person against whom an order was granted in his absence in an urgent application may by notice set down the matter for reconsideration of the order.”
But if the court that hears the reconsideration application sets aside the earlier search and seizure warrant, does this mean that material garnered in the search and seizure operation must be ignored in the subsequent inquiry? And what if the inquiry is to take place prior to the reconsideration application, with the result that the lawfulness of the search and seizure operation is determined after the inquiry has already been concluded? These important issues were raised by the court and are discussed below.
Can the court hearing the reconsideration application take into account materials not considered by the court that made the original order?
A significant procedural and evidential issue is whether, at the hearing for reconsideration of the order authorising search and seizure, the court is confined to the materials that had been laid before the court that made the order, or whether further materials (for example, facts or materials that have since come to light) can be placed before the court now that the order is being reconsidered.
In a case not referred to by Tuchten J in the present matter, namely, Rhino Hotel and Resort Pty Ltd v Forbes 2000 (1)SA 1180 (W) at 1182 A Joffe J said in this regard that:
"In terms of Rule 6(12)(c) of the Uniform Rules of Court, a party against whom an order was granted in his absence in an urgent application may, by notice, set the matter down for reconsideration of the order. The Rule envisages a redetermination of the matter. The Court that entertains the application in the absence of the respondent does not have the benefit and advantage of argument from the respondent. Accordingly, when the application is re-enrolled by the respondent for consideration, it is a redetermination with the benefit of argument from the respondent. . . . Where Rule 6(12)(c) is utilised, the original application is reconsidered on its own without reference to anything else.” (Emphasis added.)
However, in another decision, also not referred to by Tuchten J, namely, Oosthuizen v Mijs 2009 (6)SA 266 (W) Wepener AJ adopted a contrary view and, after expressly dealing with Joffe J’s views quoted above, he held that:
"To hold that the court is confined only to the original application without reference to anything else is in conflict with various decisions on this point ..."
As will be noted below Tuchten J accepted the principle laid down in the latter dictum.
The relief sought by the taxpayers in the present proceedings
In the proceedings that are the subject of judgment under discussion, the applicants were seeking (in addition to other relief) a direction that the envisaged inquiry in terms of Part C of chapter 5 of the Tax Administration Act should not proceed until the reconsideration application had been adjudicated.
In particular, the applicants sought, on an urgent basis, an order that, until the final outcome of the reconsideration application, the first, second and third applicants were to be excused from giving evidence at that inquiry.
Clearly, those applicants were aware that they would be asked questions at the inquiry that might expose them to tax liability, and were trying to avoid being exposed to such questions. Significantly, section 57(1) of the Tax Administration Act provides that, at such an inquiry, a person may not refuse to answer a question on the grounds that it may incriminate him.
SARS vigorously resisted any postponement of the inquiry but accepted that, if the court were to order that the applicants’ testimony to the inquiry was to be postponed, then the applicants were justified in demanding that they be excused from giving evidence at the inquiry until the reconsideration application had been determined and that, until this occurred, no document or information derived from the contentious search and seizure in question be employed in the examination of any witness – unless the document had been obtained from a source other than the search and seizure.
The limited scope of the issues to be determined in the present proceedings
In these proceedings, Tuchten J was called on to pronounce only on the application for postponement of the reconsideration application and on the use of documents and information derived from the search and seizure operation, pending the determination of the reconsideration application.
In order to reach a decision on these issues, Tuchten J said that it would be necessary for him to analyse the powers of a presiding officer in an inquiry under the Tax Administration Act and the status, at such an inquiry, of information derived from a warrant of search and seizure that may, conceivably, later be declared invalid.
The judge noted that SARS has broad powers in terms of sections 59 – 64 of the Tax Administration Act to search premises for and to seize relevant material, which is defined in section 1 as any information, document or thing that is foreseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing the commission of a tax offence.
Tuchten J pointed out that, save where relatively small amounts are involved, the search and seizure has to be authorised by a warrant issued by a judge, that SARS is fully entitled to apply ex parte in terms of section 59(2) for such a warrant, and that a person affected by the ex parte issuing of such a warrant has a right to apply to court for reconsideration of the order so granted.
A reconsideration application involves a rehearing of the application for the warrant, but with additional material added, usually by way of an answer by the taxpayer to the allegations made by SARS in the initial ex parte application, and a reply by SARS. In the present case, the applicants wished to deliver an affidavit in response to that reply by SARS.
Tuchten J, citing the Constitutional Court decision in Thint (Pty) Ltd v National Director of Public Prosecutions; Zuma v National Director of Public Prosecutions 2009 (1) SA 1 (CC) said at para 16 of his judgment that –
"Although the search and seizure process potentially invades the privacy and dignity of the subject of the process, the process itself is permissible and, indeed, essential in a constitutional state such as ours if conducted strictly in accordance with law. But the law also recognises that, when the warrant under which a seizure has been made is unlawful, the court which finds the warrant to be unlawful may in certain circumstances direct that the evidence seized pursuant to the unlawful warrant may be preserved. That is certainly the case where criminal proceedings are pending.”
Tuchten J said that it had been argued that the decision of the Supreme Court of Appeal in the case of Ivanov v North West Gambling Board 2012 (6) SA 67 (SCA) is authority for the proposition that, where no criminal proceedings are pending, no preservation order is competent (that is to say, an order to secure the preservation of evidence to be used in later judicial proceedings) but he said that he did not agree with this proposition, Moreover, he said, section 66(4) of the Tax Administration Act explicitly gives the court the power, in its discretion, to authorise SARS to retain seized material, or a copy thereof, in the interests of justice.
The judge said that the court hearing a reconsideration application might uphold the attack on the search and seizure warrant and set that warrant aside. Moreover, if that court were to uphold the attack, the court might also direct that some or all of the seized material be returned to the applicants. However, said Tuchten J, an order for the return of the seized materials to the taxpayer would not be the inevitable consequence of a successful attack on the warrant, and a material fact to be taken into account by the court in deciding this question was that the taxpayer had been obliged to make the seized material available to SARS on demand by the latter.
Implicitly, therefore, it would be illogical to order the taxpayer to return to SARS material that he would have been obliged to furnish to SARS on demand, in the first place, even if no warrant of search and seizure had taken place.
The limited powers of the presiding officer at an inquiry in terms of the Tax Administration Act
Tuchten J said that the presiding officer at an inquiry in terms of Tax Administration Act does not have the power to conduct the kind of inquiry necessitated by the reconsideration application, and consequently is not in a position to evaluate the prospects of a successful challenge to the lawfulness of a search and seizure operation, nor in regard to the means whereby a particular document had been obtained or the use of such a document in the inquiry.
Moreover, the discretion provided for in section 66(4) of the Tax Administration Act to authorise SARS to retain the original or a copy of the document in question in the interests of justice, despite the setting aside of the warrant, was a discretion that was vested only in the court, and not in the presiding officer at an inquiry. Consequently, these were issues that had to be determined by the High Court.
Tuchten J declined to enter into the prospects of success in the reconsideration application on the grounds that this was a matter for the court hearing that application.
In the result, the Court handed down an order excusing the first, second and third applicants from giving evidence at the foreshadowed inquiry and he also ordered that no document derived from the search and seizure warrant issued by the High Court judge was to be employed in the examination of any witness at that inquiry.
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This article first appeared on PwC.co.za.