AB (Pty) Ltd v CSARS, case number 1132 - Johannesburg Tax Court delivered on 18 November 2014
27 November 2014
Posted by: Author: Joon Chong
Author: Joon Chong (Webber Wentzel)
In this case, the Tax Court was called upon to decide an appeal against the levy of additional tax of 200%, late payment penalty of 10%, and interest in the context of VAT defaults.
SARS had conducted an audit on the Appellant's tax affairs where subsequent to the audit, the Appellant was requested to provide supporting documentation and explanations for the differences of output and input VAT as shown in its accounting system and as declared in its VAT returns. The Appellant did not provide any supporting documentation in response to the request.
Based on this, the Tax Court concluded in paragraph 16 of the judgement that:
The Tax Court observed that by withdrawing its appeal against the capital amounts, the Appellant essentially conceded to the audit findings.
"The Respondent, due to the failure of the Appellant to furnish it with any of the documentation mentioned above, raised additional tax of 200% as it rightly concluded that such failure on the part of the Appellant, constituted an intent by the Appellant to obtain an improper VAT refund with a view of defrauding the fiscus."
The Tax Court had found for the taxpayer on the issue of the imposition of additional tax and had remitted the additional tax to nil.
The Tax Court noted that the Commissioner had the duty to commence proceedings and bore the onus of proving that the imposition of additional tax of 200% was correctly imposed. The only witness called was the auditor who had audited the Appellant. The auditor testified on the imposition of additional tax and reasons for his recommendation to the committee for the imposition of 200% additional tax. This committee then referred the decision to a more senior committee which made the final decision to impose the 200% additional tax.
The Commissioner had failed to produce evidence by calling a witness to testify as to how and why the senior committee at SARS made the decision to impose the additional tax of 200%. The Commissioner had advised the Tax Court at the outset of the hearing that it no longer sought 200% additional tax but 100% additional tax. Therefore, it became even more crucial for the Commissioner to lead evidence justifying the amount of additional tax imposed.
The Tax Court accepted that the failure by the Appellant to produce supporting documentation was an intent to obtain an improper VAT refund with a view of defrauding the fiscus. In doing so, it is likely that the Tax Court had accepted the testimony of the SARS auditor that there was intent to evade tax.
The Tax Court had remitted the additional tax to nil because there was no evidence from the ultimate "decision-maker" justifying the amount of additional tax imposed, especially since the initial 200% had been reduced to 100%. It is submitted that the evidence justifying the amount of 100% became more crucial because the only witness, the auditor, had recommended the imposition of 200%. The concession to 100% by the Commissioner at the outset of the hearing appears then to have had the opposite desired effect.
The Tax Court judgement was silent on the issues of remission of penalties and interest.
The imposition of additional tax (of a maximum of 200%) in terms of the Value-Added Tax Act 89 of 1991 ("VAT Act") in this case was in terms of the now repealed section 60(1)(a). The mechanism to impose additional tax in this section is markedly different to the mechanism to impose understatement penalties in terms of the Tax Administration Act 28 of 2011 ("TAA"). Section 60(1)(a) of the VAT Act required the Commissioner to prove that there was an intent to evade tax before any additional tax can be imposed. If there was no intent to evade tax, no additional tax could be imposed at all. Further, if there was any intent to evade tax, the amount of the additional tax which could be imposed would be subject to open-ended discretion as a taxpayer could incur a penalty anywhere between 0% and 200%. The additional tax penalty scheme also allowed for the recognition of extenuating circumstances to reduce penalties from 200%. The TAA had introduced a structured approach based on taxpayer behaviour categories which made the exercise of discretion less open-ended.