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Huang & Others (Incl. Mpisi Trading 74 (Pty) Ltd) v CSARS NGHC 1/2013 (13 August 2013)

Monday, 15 September 2014   (0 Comments)
Posted by: Author: Pieter Faber
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Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy)


This case is one of a series between the parties and is a continuance of the legal dispute between SARS and the three applicants. On 18 April 2013 SARS (2/2013), on ex parte application to the high court, obtained a warrant to conduct a search and seizure on the property of the three applicants. Furthermore, on 9 October 2013 (3/2013) SARS obtained a court order in terms of section 50 of the Tax Administration Act 28 of 2011(‘TAA’) to conduct inquiry proceedings into the tax affairs of the three applicants. However, on 18 November 2013 (4/2013), the applicants approached the North Gauteng High Court for an injunction to stop the inquiry proceedings on the basis that that the applicants contested the validity of the search warrants and would be prejudiced in the proceedings should the warrants be held to be invalid at a later date. The court accepted the applicant’s plea and held that the inquiry proceedings would temporarily exclude the applicants and any information obtained in terms of the search warrants until the validity of the search warrants had been reviewed by the court, which is the matter at hand (1/2013) in the Pretoria High Court.


The applicants are Mr Jen-Chih Huang (1st applicant), his wife Shou-Fang Huang (2nd applicant) and a company owned by the 1st applicant, Mpisi Trading 74 (Pty) Ltd (3rd applicant) with the respondent being the Commissioner of SARS. 

The applicants contended that the search warrants that were issued to SARS were invalid on the basis that:

a.    the search warrant application did not satisfy the requirements of an ex parte application on the basis of material non-disclosures and misrepresentations by SARS;

b.    the application for the warrants did not satisfy the requirements of the Tax Administration Act; and

c.    the ex parte application by SARS for the warrant was an abuse of the court process.

a.  Requirement of bona fides for ex parte applications

The applicants alleged that various material facts were not disclosed by SARS to the court when applying for the warrant. The court approached this first matter by confirming the principle that ex parte proceedings are a departure from the ordinary principles applicable to civil proceedings and therefore the person applying bears a duty of utmost good faith in placing before the court all relevant material facts within its knowledge that might influence the court in coming to a decision. This principle of bona fides also applied to SARS in proceedings brought ex parte as prescribed by section 59(2) TAA and the court would be entitled to reconsider the warrant if material facts were withheld, irrespective of whether it was wilful or not. As to what is material, the court held that the person applying would have to make a judgement call as to which facts would influence the judicial officer in reaching his or her decision. However, the test for materiality should not be set so high as to make it practically impossible for the state to comply with its disclosure obligation. 

The applicants aver that SARS provided irrelevant or vexatious facts and withheld material facts to mislead the judicial officer which included that:

  • SARS’ reference to the 1st applicants previous murder allegation was vexatious; 
  • the reliance on vague media reports of the involvement of the applicants in respect of unrelated matters is inappropriate; 
  • the reference to the criminal charges on customs matters was incorrect as the charges had been withdrawn;
  • SARS misled the court by cloaking the 3rd applicant’s business as an import and export business when it was according to SARS’ full knowledge a clearing and forwarding agent;
  • SARS failed to disclose that the applicant’s tax affairs were by large up to date; and 
  • SARS failed to distinguish between the TAA and Customs Act in their application though they knew that the 3rd applicant’s activities fell within the latter Act.

SARS submitted that some of the information such as the previous conviction and media reports were only used as introduction and background information and not to support the application. The matter of the 3rd applicant’s activities was according to SARS dealt with as it was noted that he conducted both import and export activities as well as those of a clearing and forwarding agent. In respect of the criminal charges SARS submitted that when they applied for the warrant they were not aware that those charges had been withdrawn and this was a mere oversight.

b.  Jurisdictional facts required by the Tax Administration Act (TAA)

The applicants alleged that the allegations made by SARS to secure the warrant were not reasonable grounds as required by section 60 TAA as no proof was submitted of the alleged offences and the facts presented to the judicial officer were misleading to such extent that he could not apply his mind properly.

c.  Abuse of the court’s process

The applicants alleged that SARS abused the court process by clothing the application under the guise of income tax and VAT offences so that they could use the TAA whereas it was actually matters that should be dealt with under the Customs Act. They submitted that the alleged offences under consideration for which the warrant was granted were under the exclusive jurisdiction of the Customs Act which section 4 of the TAA specifically excludes from its ambit and therefore a warrant should have been sought under the provisions of the Customs Act.

SARS conceded that customs transgressions did not fall within the ambit of the current proceedings but that the applicants were also subject to the Income Tax Act and VAT Act which did fall within the ambit of the TAA and the warrant was sought in respect of offences that SARS believed occurred in terms of those Acts.


a.  Requirement of bona fides for ex parte applications

The court accepted SARS’ explanation of the introductory and background information and noted that the applicants had themselves used similar introductory statements. It also accepted SARS’ explanation of the criminal charges and concluded that this fact alone would not have misled the judge. In respect of the exclusion of the applicant’s compliance status, the court held that this was misguided as it was not the submission of the returns but its contents which was suspect. Lastly, the court also rejected the applicant’s submission that SARS had to make a distinction between the application of the two Acts to the judge as it was solely relying on the provisions of the TAA for the matter at hand.

b.  Jurisdictional facts required by the Tax Administration Act (TAA)

The court stated that when the validity of a warrant is considered it must first determine whether the jurisdictional facts have been determined and secondly if the discretion was exercised judicially. In respect of the first matter a judge, before issuing the warrant must be satisfied that there are reasonable grounds to believe that a person failed to comply with an obligation imposed under a tax Act or that such person committed a tax offence and furthermore that there were reasonable grounds to believe that relevant material would be found on the premises specified as evidence in respect of the failure or offence.

The court held that the SARS affidavits sufficiently set out what the suspected offences or failures to comply were and that the grounds on which SARS based its reasonable belief was also set out in the founding affidavit. The court rejected the applicant’s submission that reasonable grounds require prima facie proof of the non-compliance or offences as the innocence or guilt of the applicant is not an issue in such a case. The court held that the TAA merely requires a suspicion that the offences have been committed and that reasonable grounds exist for the granting of the warrant. The requirement is therefore merely that there is an objective set of facts which caused the judicial officer to have the required belief which belief was established from the total picture presented by SARS in the warrant application. The court further found that SARS is not obligated to make the judicial officer aware of less intrusive measures to retrieve the information as it is the duty of the judicial officer hearing the matter to decide whether the warrant sought by SARS would be reasonable in the circumstances. SARS merely needs to place the objective facts before the court to make the determination. The court concluded that the jurisdictional facts were therefore determined and that no material non-disclosure occurred by SARS.

As to the applicant’s submission that the judge did not apply his mind due to the facts presented by SARS, the court confirmed that section 60 of the TAA provides a discretion to a judge to issue a warrant once the jurisdictional facts have been determined. The court further confirmed the principle that it may interfere with the decision of a judge where he or she did not apply his or her mind as alleged by the applicant. However, the court rejected the applicant’s submission on the basis that it had already found that there was no material non-disclosure by SARS and therefore sufficient evidence was before the judge to apply his mind. Accordingly no grounds existed to interfere with such decision. The court also confirmed SARS’ submission that they merely have to believe that a single offence or non-compliance event existed and did not have to show or believe that the applicants were multiple offenders or failed with numerous obligations in terms of a tax Act. 

c.  Abuse of the court’s process

The court found that though the business of forwarding and clearing agent falls within the ambit of the Customs Act, those same actions result in income tax and VAT obligations for the applicants. The court further noted that the applicants as agent could even under section 180 TAA incur liability on the VAT of the importer or exporter where they were held to have been negligent. The court further noted that though the alleged offences fall in periods preceding the TAA, section 270 TAA specifically allowed the retrospective application of its provisions to offences occurring prior to the commencement of the TAA. The court rejected the submission by the applicants that SARS abused the court process by applying for the warrant as they were entitled to so to administer the tax Acts. It also rejected the submission that SARS should have in the current instance distinguished between the TAA and Customs Act as it correctly solely relied on the TAA.

The court also rejected the applicant’s contention that SARS had to substantiate the other reasons mentioned in the affidavit for the warrant on the basis that SARS was compelled to use the ex parte proceedings per section 59(2) TAA and was according to that process, not required to give notice to the applicants. SARS therefore did not need to give evidence as to why it used the ex parte proceedings. Lastly, the court also rejected the applicant’s contention that SARS abused the court process by targeting the applicant for other motives. The court found that the fact that the applicants felt targeted by SARS is no basis to reconsider the warrant as the motive is irrelevant. The court concluded that a bad motive does not render a warrant invalid just as a good motive does not render a non-compliant warrant valid.

The court dismissed the application on all grounds and awarded the cost of three counsel as used by SARS against the applicants.  

Please click here to view full judgement.



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