Tax Court Jurisdiction: Commissioner for the South African Revenue Service v Rappa Resources (Pty) Ltd 2023 (4) SA 488 (SCA); 85 SATC 517 (24 March 2023)
On 29 March 2021, the South African Revenue Service (SARS) issued Value Added Tax (VAT) assessments, which included penalties and interest, to Rappa Resources (Pty) Ltd (“Rappa”). Instead of objecting to the assessments under section 104 of the Tax Administration Act (TAA),1 Rappa launched an urgent application in the Gauteng Division of the High Court, Johannesburg, on 28 April 2021, seeking to review and set aside the assessments and declare SARS’ decision to issue them unconstitutional, unlawful, and invalid.
Rappa also demanded the record of SARS’ decision under Uniform rule 53(1)(b). When SARS refused, Rappa launched a further application on 3 June 2021, under Uniform rule 30A,2 to compel SARS to provide the record. SARS opposed both applications, arguing that Rappa’s review application was incompetent as it lacked the High Court’s direction under section 105 of the TAA. Section 105 of the TAA states that a taxpayer may only dispute an assessment by objection and appeal under sections 104 to 107, unless a High Court directs otherwise.
Initially, Rappa argued that section 105 did not impede its review application. However, later, Rappa sought an order under section 105 “insofar as it might be necessary” through an amendment to its notice of motion in the compelling application. On 16 September 2021, the High Court granted an order amending Rappa’s notice of motion to include a prayer for a section 105 direction, postponing the decision on the applicability of section 105 and whether a directive should be issued, and directing SARS to produce the record within 15 days. The High Court also ordered SARS to pay the costs of this application.
SARS was granted leave to appeal this order to the Supreme Court of Appeal (SCA). The key issue in the case where as follows:
- Whether the High Court has the jurisdiction to order the production of a record under Uniform rule 53(1)(b)3 in a review application of a tax assessment before determining whether it has jurisdiction in the review itself, particularly considering section 105 of the TAA; and
- Whether a taxpayer can bypass the objection and appeal procedures under sections 104 to 107 of the TAA and directly approach the High Court for a review of a tax assessment without obtaining a directive from the High Court under section 105 of the TAA.
The SCA held that the High Court did not have the power to order the production of a record of a decision under review unless it has jurisdiction in the review. It emphasised that the High Court must first determine its jurisdiction before making a compelling order. Furthermore, the SCA held that section 105 of the TAA is clear in that a taxpayer may only dispute an assessment through the objection and appeal procedure outlined in the TAA, unless the High Court directs otherwise. Prior to such a direction, the High Court lacks jurisdiction in the review application.
The Court relied on the Constitutional Court’s judgment in Competition Commission of South Africa v Standard Bank of South Africa,4 which held that an order compelling the production of a record under rule 53 is appealable and that a court should first determine its jurisdiction before ordering the production of the record. The rationale is that if the court ultimately lacks jurisdiction, the order for production would be futile and irreversible.
The Court emphasised the purpose and effect of section 105 of the TAA. It noted that the 2015 amendment to section 105 was intended to make it clear that the default procedure for disputing a tax assessment is the objection and appeal process under the TAA. Resorting to the High Court for review is only permissible if the High Court directs otherwise in exceptional circumstances.
The Court found that Rappa’s application clearly concerned assessments issued by SARS, thus falling squarely under section 104 of the TAA, which in turn triggers the application of section 105.
The Court rejected Rappa’s argument that it could circumvent the TAA procedures because its challenge was based on the legality of the assessments rather than their merit. The Court highlighted that the tax appeal process under the TAA, involving the tax board or tax court, is a complete rehearing of the matter (a “revision” in the widest sense). This includes the power to determine the legality of an assessment on review grounds, as established in cases like Kommissaris van Binnelandse Inkompste v Transvaalse Suikerkorporasie.5
While the High Court has jurisdiction to hear tax cases turning on legal issues, section 105 creates a necessary precursor i.e., the High Court must first direct that it will hear the matter outside the standard objection and appeal process. The Court found that the High Court erred by postponing the determination of jurisdiction under section 105 and simultaneously ordering the production of the record. By postponing the jurisdictional question, the High Court acted without established jurisdiction, rendering its subsequent orders nullities.
The Court distinguished the present case from the Standard Bank matter in the Constitutional Court, where a remittal was ordered because the issue of the Competition Appeal Court’s jurisdiction was still a live issue before it. In casu, Rappa did not cross-appeal the High Court’s postponement of the section 105 issue.
Author’s opinion
The SCA’s central finding in Rappa Resources, that the High Court lacked jurisdiction to order the production of the record before determining its jurisdiction in the review application (and before a section 105 directive), is logically (and legally) sound. It aligns with the fundamental principle that a court must have the authority to hear a matter before making any substantive orders. The reliance on the Constitutional Court’s precedent in Standard Bank provides strong support for this position, ensuring consistency in the application of procedural principles across various areas of administrative law.
I am, however, left wondering what constitutes the “exceptional circumstances” that would warrant a High Court directive under section 105. While the court acknowledges that it is neither desirable nor possible to provide a precise definition, a more detailed exploration of potential scenarios or guiding principles could have provided greater clarity for taxpayers and the High Courts. The reliance on the general principles outlined in MV Ais Mamas Seatrans Maritime v Owners, MV Ais Mamas6 is helpful, but it might not fully address the specific nuances of tax disputes.
Likewise, while the judgment emphasised the importance of TAA procedure, one wonders whether it could be seen as creating a higher barrier for taxpayers seeking urgent relief in cases where there are strong prima facie arguments for the illegality of SARS’ actions. The requirement to first obtain a section 105 directive, even in urgent situations, might lead to delays and potentially prejudice taxpayers facing unlawful assessments. While the court acknowledges the High Court’s discretion, the judgment’s overall tone strongly favours adherence to the TAA procedures.
Lastly, I feel that the SCA’s finding that the High Court’s orders (including the amendment of the notice of motion and the postponement of the section 105 issue) were nullities might be considered overly strict. While the SCA’s reasoning regarding the lack of initial jurisdiction is sound, the High Court was attempting to navigate a complex procedural issue. A more nuanced approach might have involved remitting the matter to the High Court with specific directions to first determine the section 105 issue. However, the SCA’s concern about the High Court exercising coercive powers (ordering record production) before establishing jurisdiction is a valid counterargument to this point.
Overall, the SCA’s judgment has significant implications for tax litigation in South Africa. It reinforces the tax court’s role as the primary forum for resolving tax disputes and signals a clear preference for the internal dispute resolution mechanisms within the TAA. This will likely lead to a greater emphasis on taxpayers exhausting these internal remedies before approaching the High Court. Taxpayers seeking direct High Court review will need to carefully consider and convincingly articulate the so-called “exceptional circumstances” that justify such a deviation, which could potentially lead to increased litigation on the interpretation and application of section 105.
You can read the full CSARS V Rappa Resources judgement here.
Written by Theo Tembo
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- 28 of 2011. ↩︎
- s30A(1): Where a party fails to comply with these Rules or with a request made or notice given pursuant thereto, or with an order or direction made by a court or in a judicial case management process referred to in rule 37A, any other party may notify the defaulting party that he or she intends, after the lapse of 10 days from the date of delivery of such notification, to apply for an order— (a) that such rule, notice, request, order or direction be complied with; or (b) that the claim or defence be struck out.
(2) Where a party fails to comply within the period of 10 days contemplated in subrule (1), application may on notice be made to the court and the court may make such order thereon as it deems fit. ↩︎ - s53(1): Save where any law otherwise provides, all proceedings to bring under review the decision or proceedings of any inferior court and of any tribunal, board or officer performing judicial, quasi-judicial or administrative functions shall be by way of notice of motion directed and delivered by the party seeking to review such decision or proceedings to the magistrate, presiding officer or chairperson of the court, tribunal or board or to the officer, as the case may be, and to all other parties affected—(a) calling upon such persons to show cause why such decision or proceedings should not be reviewed and corrected or set aside, and (b) calling upon the magistrate, presiding officer, chairperson or officer, as the case may be, to despatch, within 15 days after receipt of the notice of motion, to the registrar the record of such proceedings sought to be corrected or set aside, together with such reasons as the magistrate, presiding officer, chairperson or officer, as the case may be is by law required or desires to give or make, and to notify the applicant that such magistrate, presiding officer, chairperson or officer, as the case may be has done so. ↩︎
- [2020] ZACC 2; 2020 (4) BCLR 429 CC. ↩︎
- 1985 (2) SA 668 (T). ↩︎
- [2002] (6) SA 150 (C) at 156H-157C. ↩︎
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