The proper forum and process for contesting a tax assessment
04 August 2014
Posted by: Author: PwC
The Constitution of the Republic of South Africa provides that
– Everyone … has the right to equal protection and benefit of the law
[and] Everyone has the right to have any dispute that can be resolved by
the application of law, decided in a fair public hearing before a court
or, where appropriate, another independent and impartial tribunal or
These fundamental constitutional rights are, of course, as
applicable to disputes between the South African Revenue Service and
taxpayers as they are to any other civil dispute. However, the courts
have been explicit that, where disputed tax assessments are
concerned, a specific process must be followed in any legal
challenge, with specific statutory time limits.
If the taxpayer does not institute legal proceedings in
relation to a disputed tax assessment within the stipulated time period, and does not bring the matter before the
correct court or tribunal via the proper process, he will find himself
without a legal remedy for the perceived wrong that he has suffered
as a result of the allegedly incorrect assessment – and no appeal to the above-quoted
constitutional provisions will avail him.
Nowhere have these principles been more clearly articulated
and affirmed than in the recent judgment of the Pretoria High Court
in Medox Limited v Commissioner for the South African Revenue Service
 ZAGPPHC 98, in which judgment was given on 20 February 2014.
The taxpayer sought a High Court order that certain
tax assessments were void as being ultra vires
In this case, the taxpayer was seeking to have all income
tax assessments issued after its 1997 tax year declared null and void.
What had transpired (see para [2.1] of the judgment) was
that, before issuing the assessment for 1997, SARS had issued
assessments for the 1998 and following tax years, and that the
assessments for the latter years had failed to set off the balance of
assessed loss that had been incurred in the 1996 year. The taxpayer
averred that, because SARS had failed to set off the balance of
assessed loss that was incurred in the 1996 tax year, the assessments
issued for the following years were ‘void’ in that SARS had acted
‘ultra vires’ in disregarding the mandatory provisions of
section 20(1)(a) of the Income Tax Act that govern the treatment of
assessed tax losses that had been incurred in previous years and that
qualified to be carried forward.
However (see the judgment at para [7.2]), the facts were
that the taxpayer had lodged its 1998 tax return before submitting its
1997 tax return, and had then failed to lodge an objection for the
1998 tax year. Nor (it seems – see para [7.2]) did the taxpayer ever
assert, even outside of an objection, that it had incurred an
assessed loss. Further, it appears that the taxpayer did not file a
return for the 1997 tax year.
The time limit for objecting to the assessments
By the time the dispute came to court, the assessment for
the 1998 year of assessment had been issued more than three
years previously and the statutory time limit for objecting to
the assessment had therefore expired; see section 104(5)(b) of the
Tax Administration Act 28 of 2011.
However, the taxpayer decided (so the judgment says – see
para [7.2]) to ‘re-submit’ its 1997 return in 2011. ‘Re-submit’
does not seem to be the appropriate word, given that there
had apparently been no prior submission of its 1997 return.
SARS’s response (see para [2.3] of the judgment) was that
the High Court did not have jurisdiction to hear the application
because the dispute between the parties concerned the merits of
the assessment in question, and that this was an issue falling within
the exclusive domain of the Tax Court.
The court pointed out (at para [7.3]) that the Income Tax
Act – makes it clear that the lawfulness and correctness of disputed assessments must be dealt with by the Tax
Court. and said that, in dealing with the application for a
declaratory order, the High Court would have had to deal with ‘the
merits of the assessment’.
The taxpayer conceded (see para [8.4]) that its right to
object to the 1998 assessment in terms of the Income Tax Act had expired,
and argued that, since no internal remedies were now available, its
only remedy was to bring the matter to the High Court on review or
by seeking a declaratory order.
The court quoted from the judgment in Van Zyl NO v
Master 1991 (1) SA 874 (E) where Eksteen J said at 877-878 that–
The only way in which these assessments can be questioned is in
the manner provided for in the Act, viz, by objecting to the
[Commissioner] in terms of s 81 of the [Income Tax] Act and then
appealing to the Special Court [now called the Tax Court] in terms of
s 83 of the Act.
The judgment in the present case is explicit (see para
) that a taxpayer who fails to avail himself of remedies provided for in the Income Tax Act in relation to
a disputed assessment (namely, objection and appeal in respect of
a disputed assessment) cannot – when the time limits applicable to such remedies have passed – thereafter claim relief from the High Court on
the basis that he has no internal remedies in terms of that Act.
In particular (see para ), he cannot seek a declaratory
order in the High Court that would have the same effect as a review of
the Commissioner’s decision such as occurs where administrative
action is brought under judicial review in terms of the Promotion
of Administrative Justice Act 3 of 2000.
In the present case, the court said (at para ) that the
application now being made by the taxpayer could not be entertained
without going into the merits of the dispute’s assessments, and that
those merits fell within the competency – by which the court meant
the exclusive competency – of the Tax Court.
Overall, the court held (at para ) that once SARS has
issued an assessment, the parties ‘are locked into the jurisdiction of the
Tax Court’ and must exercise their rights in the Tax Court, from
which they can appeal to the Supreme Court of Appeal and the
In the result, the court held (at para ) that the High
Court did not have jurisdiction to entertain this particular dispute,
which ought to have been pursued by way of an objection and appeal to
the Tax Court.
This article first appeared on pwc.com/za.