Case summary written by Wade Jacobs and checked by Musa Mathebula.
This is an application for declaratory relief, whereby SIP Project Managers (“the Applicant”) seeks to set aside and declare null and void the notice to appoint a third party, namely the Applicant’s bank being Standard Bank, in terms of the provision of section 179 of the Tax Administration Act of 28 of 2011 (“the Act”), by the South African Revenue Services (“SARS”) (“the Respondent”). Furthermore, it sought an order for the repayment of the amount of R1,261,077.00 (One Million, Two Hundred Sixty-One Thousand and Seventy-Seven Rand) which was subsequently paid over by the third party to the Respondent in terms of the section 179 notice, together with interest.
The Applicant contends that no letter of demand was delivered prior to the issue of the third-party notice which was required by section 179 of the Act. In the event that the Court finds that a demand letter was indeed delivered, the Applicant contends that the letter was premature as the debt was not yet due and payable at the specific point in time. Alternatively, that the required 10 business day period prior to the issue of the third-party notice in terms of the Act had not expired by the time that the notice was in fact delivered.
The Respondent contends that a valid letter of demand was delivered to the Applicant, as stipulated by the Act. The Respondent mainly relies upon a letter dated 7 November 2019.
On or about 9 October 2019, the Respondent issued an additional assessment to the Applicant. This assessment resulted in the Applicant owing an amount R1,233,231.00 (One Million, Two Hundred and Thirty-Three Thousand, Two Hundred and Thirty-One Rand) (“the amount”) to the Respondent. Per the assessment, this amount was to be paid to the Respondent by 30 November 2019. Thereafter, on or about 6 February 2020, the Applicant received information from its bank that it had received a notice from the Respondent, in terms of section 179 of the Act, requiring the bank to transfer the amount to the Respondent and which transfer was duly done.
The Applicant, for the first time on 6 February 2020, became aware of the additional assessment on its e-filing platform. However, so it contended, it did not receive a letter of demand on its e-filing platform in respect of the amount claimed in terms of the additional assessment. The Applicant would later find out when it contacted the Respondent, through one Mrs Tati, the deponent to the Respondent’s Answering Affidavit, that three letters of demand were previously sent to the Applicant before the notice was given to the bank, and that the letters were uploaded to the taxpayers e-filing profile. For purposes of this application, however, the Respondent would rely on the letter allegedly sent to the Applicant on 7 November 2019. Upon further contact with the Respondent, this time through its call centre, the Applicant was informed that there were no letters of demand uploaded on the Applicant’s e-filing profile. The Applicant contends that it did not receive these said letters, and subsequently demanded repayment from the Respondent and upon not receiving any response from the Respondent, the Applicant applied to the Hight Court for relief.
Section 179(1) of the Act provides as follows –
“A senior SARS official may authorise the issue of a notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, requiring the person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt.”
This section allows the Respondent to collect outstanding tax debts by requiring any debtor of a taxpayer, upon notice, to make payment of the outstanding amount to the SARS and not the taxpayer.
Furthermore, section 179(5) provides that a third-party notice may only be issued after delivery to the taxpayer of a final demand for payment and which demand must be delivered at least 10 business days prior to the issue of the notice.
The High Court proceeded to analyse the Applicant’s screenshots of its e-filing profile, and the fact that there were no letters of demand provided therein from the Respondent. This was corroborated in the papers by the fact that the call centre agent could not find letters of demand on the Applicant’s e-filing profile. The onus therefore fell upon the Respondent to show that letters of demand were in fact uploaded to the Applicant’s e-filing profile.
On the Respondent’s papers, it was stated that the letter of demand was generated on 7 November 2020 however, no proof to the effect that such letter was in fact sent to the Applicant was provided. The Court held that it is not sufficient that the letter of demand was generated. In terms of section 179(5) of the Act, actual delivery of the letters of the demand to the taxpayer is required to show compliance, whether by physical delivery or electronic uploading to the taxpayer’s e-filing profile. As such, the Respondent failed to prove such delivery to the Applicant, and more specifically, that letter of demand was uploaded to the Applicant’s e-filing profile.
Accordingly, the court accepted the Applicant’s version, and found that no letters of demand was delivered to the taxpayer which is required by section 179(5) of the Act. Further to the above, the court held that the requirement in terms of section 179(5) of the Act that a final letter of demand be delivered to the taxpayer at least 10 business days before a notice in terms of section 179(1) of the Act is issued, is peremptory and was not adhered to by the Respondent. Moreover, as at the date when the letter of demand was allegedly sent to the Applicant, being 7 November 2019, the amount had not yet become due and payable as per the assessment, the amount would only be due after 30 November 2019. As such, the letter was premature.
The court had to enquire whether such non-compliance was fatal to the notice issued to the bank, as such debt was indeed owing by the Applicant stemming from the additional assessment. The court had regard to the purpose of section 179(5) of the Act, and provided that the section was introduced to limit the powers of the Respondent to recover tax debts by appointing third parties (such as a bank in this scenario) without advising the taxpayer of its intentions. Therefore, the court held that non-compliance with section 179(5) of the Act was fatal to the notice to the bank and rendered legal process unlawful.
It was declared by the court that the notice issued by the Respondent to the bank was null and void, and accordingly ordered the Respondent to repay the amount of R1,261,077.00 (One Million, Two Hundred Sixty-One Thousand and Seventy-Seven Rand) to the Applicant.
This decision is considered a victory for both taxpayer rights and the wider cause of administrative justice, as taxpayers have a right to be notified before the South African Revenue Service appoints an agent (such as a bank) to collect outstanding tax debts owed to it.
The primary issue that the court had to determine was whether the Respondent had complied with the requirements of section 179(5) of the Act in causing the Applicant’s bank tax amounts due to the Respondent by the Applicant. The Court consequently ruled that the final demand was issued before the tax debt was due and payable and declared the subsequent notice issued to be null and void.
Tax, liability of third party appointed to satisfy tax debts, Tax Administration Act 28 of 2011, Rule 3(2)(b)(ii) of the Rules of Electronic Communications.