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SARS must also follow the Rules of the tax dispute resolution process

There are comprehensive rules promulgated under section 103 of the Tax Administration Act, 2011 (the “TAA” and the “Rules”) which govern the tax dispute resolution process between taxpayers and the Commissioner for the South African Revenue Service (“SARS”). The Rules provide for timelines and procedures to ensure that disputes between taxpayers and SARS are dealt with in a streamlined, timeous and fair manner.

Rule 56 of the Rules provides for either a taxpayer or SARS to bring an application for default judgment in the event of non-compliance with the rules. This is a powerful tool for both taxpayers and SARS where the Rules are not adhered to by either party.

The recent decision of the Western Cape Tax Court in F Taxpayer v CSARS provided an important victory for the taxpayer (and taxpayers in general) where, due to SARS’ persistent disregard of the Rules, and as a result of the successful use Rule 56 of the Rules by the taxpayer, the taxpayer’s appeals were ultimately upheld. We briefly explore some of the details from this case.

The matter involved two interrelated applications.

The first was that of the taxpayer for a final order against the Commissioner due to the Commissioner’s failure to timeously deliver his Rule 31 Statement of Grounds of Assessment and Opposing Appeal.

The second was the Commissioner’s counter-application for condonation and the determination of a further period for delivery of that statement. Both applications were opposed.

The facts

The taxpayer was assessed in March 2020 in respect of its 2016-2018 years of assessment. In the dispute processes following the issue of the assessments, namely the request for reasons and the objection and appeal, the taxpayer complied with the relevant Rules.

None of the timelines contained in the Rules were adhered to by SARS at any stage of the dispute process, namely in responding to the request for reasons, responding to the objection and in respect of delivering the Rule 31 Statement following the submission of the taxpayer’s appeal. It was the non-delivery of the Rule 31 Statement that finally pushed the taxpayer to bring the application for a final order, which was the subject matter of the case.

The Rule 31 Statement was due on 7 June 2021. On 11 June, the taxpayer delivered its Rule 56 Notice putting SARS to terms to remedy its default within the prescribed 15-day period, failing which it intended to apply for a final order under section 129(2) of the TAA.

Following the receipt of the Rule 56 Notice, SARS offered the following reasons as to why it hadn’t delivered the Rule 31 Statement timeously, namely “Covid-19, lack of capacity and no filling of vacancies across SARS”. The relevant SARS official had also not completed her reviews of the matter and stated that the document still had to go through a number of governance processes and requested an extension to 20 August. The taxpayer agreed to an extension to 21 July and then to 30 July. SARS did not deliver its Rule 31 Statement by 30 July and requested a further extension to 31 August. On 2 August, the taxpayer refused to grant any further extensions and stated that SARS would have to bring an application for condonation.

The taxpayer launched its application for a final order that its appeals be upheld on 10 August.

SARS ultimately only delivered its Rule 31 Statement on 21 September 2021, which was 36 days after the agreed extended deadline (ie 30 July) and 15 days after the expiration of the deadline which it itself had thereafter requested (ie 31 August).

The judgment

Following a fairly detailed exposition by the court of the SARS reasons or rather lack thereof for its non-compliance with the Rules, the court states as follows:

“[21] To sum up, SARS has displayed a persistent disregard for the time limits prescribed in the rules. Of particular significance is its failure to seek the extension it required to provide reasons to the taxpayer before the period for furnishing reasons expired; its failure to request an extension to file its rule 31 statement before the prescribed time limit expired; its failure to provide any explanation whatsoever to the taxpayer for these delays; and its woefully inadequate, generalised explanation furnished 10 days later that the matter had only been allocated to Mukwehvo after expiry of the prescribed time limit for the filing of the rule 31 statement ‘due to backlog as a result of Covid-19, lack of capacity and no filling of vacancies across SARS’.” (our emphasis)

The court then explored what the standard was to be applied in determining an application for condonation and stated that it is settled law that the standard to be applied is what is in the interests of justice which is “a wide and elastic concept”.

With reference to the Constitutional Court case of Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd, the Constitutional Court held that “if the delay is unreasonable and no satisfactory explanation has been provided, it is necessary to consider whether the delay should be overlooked, which is a flexible approach. One of the factors to be taken into account is the conduct of the applicant concerned, particularly for State litigants (which would be SARS in the present case) because they are often best placed to explain the delay and are subject to a higher duty to respect the law.” (our emphasis)

The court went on to state as follows:

“[30] I am not aware of any authority which would militate against applying the same principles to SARS in the instant matter, particularly since s 33 of the Constitution entrenches the right of everyone to administrative action that is lawful, reasonable and procedurally fair. This leads me to the issue of prejudice to the taxpayer.”

The issue of prejudice to the taxpayer was dealt with by the court in some detail, mainly with reference to the suspension of payment application process which takes place in accordance with the provisions of section 164 of the TAA.

The provisions of section 164 of the TAA and particularly section 164(6), which provide that during the period commencing on the day that SARS receives a request for suspension under section 164(2) until 10 business days of notice of SARS’s decision, no recovery proceedings may be taken by SARS unless it holds a reasonable belief that there is a risk of dissipation of assets by the taxpayer concerned, are not always implemented in practice and the legal provisions do not always align with SARS’ systems.

This results in taxpayers often being prejudicially labelled as “non-compliant” throughout the lengthy dispute process, which may have a severe impact on a taxpayer’s day-to-day business dealings. The court placed significant emphasis on this and found that the suspension of payment process and the time and costs incurred by the taxpayer in having to force SARS to comply with its statutory obligations, together with the fact that the taxpayer was also unable to arrange some of its financial affairs with any reasonable degree of predictability, since it was unclear whether or not its dispute with SARS would be resolved in its favour, was severely prejudicial. The court remarked that none of the taxpayer’s allegations were challenged in any meaningful way by SARS. In particular, the court held:

“[47] Whatever gloss SARS seeks to put on it, the facts set out above demonstrate, in my view, that the delay was egregious; there has been no reasonable explanation for the delay; and the consequent prejudice to the taxpayer (which prejudice SARS admits, since it sought to ameliorate it) is severe.

[48] Put simply, the evidence shows that in the present case SARS has failed dismally to fulfil its obligations, both under s 195 of the Constitution as well as the TAA and its rules. It has displayed an egregious lack of regard for the taxpayer’s constitutionally entrenched right to fair administrative action and, cut to its bare bones, has been reduced to relying on what it considers to be a novel issue of public importance to persuade this court to grant condonation.”

Finally, in respect of assessing the public importance of the matter which SARS raised as being a novel issue of public importance, the taxpayer’s prospects of success were evaluated. In this regard, the court held that the taxpayer’s case (supported by independent expert opinion) had sufficient merit to enable the court to grant it final relief.

The court therefore found that the taxpayer was entitled to the final order it sought by default against SARS and its appeal were upheld, with the SARS application for condonation being dismissed. While the court acknowledged that in tax matters an award of costs is the exception rather than the norm, having regard to the facts in this matter, the court was of the view that a costs award in favour of the taxpayer was warranted.


Other than constituting a victory for the taxpayer, this is an important judgment in respect of maintaining the integrity of the tax dispute resolution process.

It is beneficial to both SARS and taxpayers to have disputes heard timeously and in accordance with the comprehensive legal provisions governing same, and the court recognised this.

Taryn Solomon

Tax | Principal Associate