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AB (Pty) Ltd v CSARS ITC 1132 GTC (18 November 2014)

05 December 2014   (0 Comments)
Posted by: Author: Erich Bell
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Author: Erich Bell (SAIT Technical)

Introduction

This case considers an appeal against additional tax, penalties and interest charged on the understatement of output tax and overstatement of input tax by the Appellant.

Facts

The Appellant is a private company supplying security services and is registered as a vendor. During July 2012, the Respondent (SARS) issued assessments against the Appellant relating to the 02/07 to 02/11 VAT periods. The assessments were issued as a result of an understatement of output tax, the Appellant’s failure to provide supporting documents to substantiate its input tax deductions and the Appellant’s failure to explain certain discrepancies between its VAT declarations and its VAT control accounts in its books. This led to the imposition by the Respondent of additional tax of 200 per cent in terms of sec 60 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter ‘VAT Act’) based on the grounds that the failure to submit the requested documents constitutes an intent to obtain an improper VAT refund with the view of defrauding the fiscus. The Respondent further imposed a 10 per cent late payment penalty in terms of sec 39 of the VAT Act and interest on the capital amounts owing to it.

The Appellant filed an objection which was partially allowed by SARS resulting in revised assessments that disallowed the objection to the overstated input tax, additional tax, interest and the late payment penalties. The matter subsequently went on appeal after which, on 11 March 2014, the Appellant has abandoned its appeal against the capital amounts payable which limited the appeal to the above additional tax, interest, and penalties.

The Respondent had the burden of proving that the additional tax of 200 per cent was correctly imposed and called one of its auditors as a witness. It was testified that the auditor would typically make a recommendation as to the percentage of additional tax to a committee who would then further escalate the matter to a senior committee who will then decide what percentage of additional tax to impose in terms of sec 60 of the VAT Act. Given the fact that no witness was called to explain the decision of the senior committee, the court held that it is unable to assess the correctness of the senior committee’s decision and that little reliance can be placed on the auditor’s testimony. At par [5] of the judgement, Wepener J referred to Rand Ropes (Pty) Ltd v Commissioner for Inland Revenue 1944 AD 142 at 150 and CSARS v Foskor (Pty) Ltd [2010] 3 All SA 594 (SCA) at par 51 to state the following (emphasis mine):

‘Where the correctness of a discretionary decision, which is subject to objection and appeal, is contested in a tax court, there is a re-hearing of the whole matter, including the additional tax, by the tax court. Accordingly, the tax court can consider the issue afresh and substitute the respondent’s decision in that regard.’

With regard to the Respondent’s burden of proof, Wepener J stated the following at par [6]:

‘The Commissioner, having failed to place any evidence before the court as to how and why the senior committee arrived at a decision to impose the 200% additional tax, failed to prove that the imposition of the additional tax was justified and the imposition thereof cannot be upheld…’

Held

The court has set aside the additional tax and the assessment was referred back to the Respondent who was directed that the additional tax be remitted to nil. No reference was made to the late payment penalty and interest.

Please click here to access the judgement.


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