Income Tax Case No VAT 304
| Jurisdiction | South Africa |
| Judge | Southwood J |
| Judgment Date | 07 November 2006 |
| Docket Number | VAT 304 |
| Hearing Date | 07 November 2006 |
| Citation | 2007 JDR 0428 (CSpCrt) |
Southwood J:
In July 2005 the parties agreed that these appeals should be enrolled for hearing on 6 - 7 and 10 - 13 October 2005. On 22 September 2005 the respondent informed the second appellant (B (Pty) Ltd) that the respondent no longer relies on the provisions of section 73 of the Value-Added Tax Act, 89 of 1991 ('VAT Act') in respect of its assessment of October 2003 and that the 'monies seized in terms of the provisions of section 47 of the VAT Act' (i.e. R70 917 268,48) would be refunded to the second appellant. The respondent considered that the second appellant's appeal would fall away as no assessment had been raised against it. In so advising the second appellant the respondent did not comply with Rule 23(2) of the rules made in terms of section 107A ('the rules') of the Income Tax Act 58 of 1962 ('IT Act'). The respondent did not deliver a notice of concession and did not deal with the costs of the appeal. On 23 September 2005 the appellants' attorney, C, pointed this out to the respondent's representative and on 28 September 2005 the respondent delivered a notice in terms of Rule 23(2)(a)(i) which states simply that the respondent concedes the appeal of the second appellant. The respondent's representative explained that he had no mandate to tender costs. At the pre-trial conference held on 30 September 2005, when questioned about the failure to tender the costs of the appeal, the respondent's representative refused to do so and informed the second appellant's legal representatives that the second appellant would have to make application therefor. No reason was given for the refusal to tender the costs or why it was necessary for the second appellant to formally apply to court for a costs order. On 3 October 2005 it became apparent that the first appellant's appeal could not proceed on the dates agreed. The primary reason was that the respondent's expert witness, Mr D, would not be available to testify during the period for which the appeal had been enrolled. The first appellant agreed to this postponement but insisted that the respondent pay the wasted costs. The respondent refused to tender these wasted costs. The appellants have brought a substantive application seeking costs orders against the respondent.
Appreciating that counsel had been retained for the hearing of the appeals the appellants and the respondent decided to address the question of costs. They agreed that the first appellant's appeal would be postponed sine die and that the question of liability for the wasted costs occasioned by the postponement of the first appellant's appeal as well as the liability for the costs of the second appellant's appeal would be argued. The court agreed to hear this argument. The parties also sought a ruling as to whether this court has the power to make orders concerning the constitutional validity of the VAT and IT Acts. In its grounds of appeal the first appellant contends that section 60(2) of the VAT Act is inconsistent with the Constitution and invalid.
2007 JDR 0428 p2
Southwood J
There is a dispute as to whether this court has the power to consider this issue and make an appropriate order. The court decided that it would hear argument on the following issues -
whether, in terms of the rules, the VAT Act and the IT Act it has the power to decide a stipulated issue separately from and before deciding any other issue and to make an order on that issue; and if so
whether this court has jurisdiction to decide whether a provision in the VAT Act or the IT Act is inconsistent with the Constitution and accordingly invalid and to make appropriate orders in that regard.
On 7 October 2005 the respondent sought an opportunity to answer the appellants' application for costs and the court postponed the hearing of the application to 14 October 2005 to enable the parties to exchange affidavits. The court then heard full argument on the two jurisdictional issues and indicated that it would take time to consider its judgment on those issues.
The following issues must be decided:
whether the respondent must be ordered to pay the first appellant's wasted party and party costs occasioned by the postponement of the hearing set down for 6-7 and 10-13 October 2005, including the costs consequent upon the employment of three counsel;
whether the respondent must be ordered to pay the second appellant's costs of the appeal, on the scale as between attorney and client, including the costs consequent upon the employment of three counsel;
whether the respondent must be ordered to pay the costs of the application for costs, on the scale as between attorney and client, including the costs consequent upon the employment of three counsel;
whether this court has the power to decide a limited issue separately and before deciding any other issue, and to make an order on that issue; and if so
whether this court has jurisdiction to decide whether any provision in the VAT Act or the IT Act is inconsistent with the Constitution and invalid and to make appropriate orders in that regard.
Power of the tax court to make costs orders
Section 83 (17) of the IT Act makes provision for costs orders by the tax court. It reads -
Where -
the claim of the Commissioner is held to be unreasonable;
2007 JDR 0428 p3
Southwood J
the grounds of appeal of the appellant are held to be frivolous;
the decision of the tax board contemplated in section 83A is substantially confirmed;
the hearing of the appeal is postponed at the request of one of the parties;
the appeal has been withdrawn or conceded by one of the parties after a date of hearing has been allocated by the Registrar,
the tax court may, on application by the aggrieved party, grant an order of costs in favour of that aggrieved party, which costs shall be determined in accordance with the fees prescribed by the rules of the High Court.'
There is a dispute about the effect of this subsection. The appellants contend that the subsection is clear and unambiguous. It provides for five discrete situations in which the tax court has a discretion to make an order for costs. In each case, the jurisdictional fact or facts provided for in the relevant paragraph must be present before the court may exercise its discretion. The discretion exercised by the court is similar to that exercised by the High Court when making a costs order. The appellants also contend that the costs orders may include costs on the scale as between attorney and client. The respondent disputes these contentions. The respondent argues that the court may only exercise its discretion in making a costs order against the respondent if it is established that he acted unreasonably. In this regard the respondent refers to a number of cases decided before the present subsection 83(17) came into force. The respondent also argues that the tax court cannot make a costs order on the scale as between attorney and client because the enabling Act (i.e. the IT Act) does not provide for this.
Subsection 83(17) has been significantly amended since it was first enacted. In 1962 the subsection provided -
'The court shall not make any order as to costs save when the claim of the Commissioner is held to be unreasonable or the grounds of appeal therefrom to be frivolous'.
The subsection clearly prohibited the making of costs orders by the tax court except in the specified situations. It limited the power of the tax court to make an order against the Commissioner to situations where the court held the Commissioner's claim to be unreasonable.
After the IT Act was amended by the introduction of section 83A (to make provision for appeals to be heard by a tax board) subsection (17) was substituted by section 36(b) of Act 129 of 1991. It then read as follows -
'The court shall not make any order as to costs save when the claim of the Commissioner is held to be unreasonable or the grounds of appeal therefrom to be frivolous or where the decision of the Board referred to in section 83A is substantially confirmed'.
The prohibition on the making of costs orders by the tax court, subject to the specified exceptions, and the limitation of the power of the tax court to make a costs order against the respondent were therefore maintained.
2007 JDR 0428 p4
Southwood J
The subsection as it presently reads was substituted by section 54(1)(n) of Act 60 of 2001, with effect from 1 April 2003, which is also the date upon which the rules came into force. Subsection 17 now expressly provides that costs orders may be made in the situations specified and that costs shall be determined in accordance with the fees prescribed by the rules of the High Court.
Subsection 83(17) is radically different from its predecessors. Such a change indicates a radical change of intention. Instead of a prohibition on making costs orders the court now has a discretion to make costs orders in each of the five situations. The discretion is not limited in any way. There is no justification for reading into the subsection a qualification that a costs order may be made against the respondent only if it is established that he acted unreasonably. There is also no justification for limiting the meaning of the word 'costs' to party and party costs. The legislature is presumed to know that courts may make costs orders on the scale as between attorney and client. By expressly conferring on the tax court the power to make costs orders it is a necessary implication that these costs orders may be on the well-known and recognised scales used by the High Court, the magistrates' courts and other courts.
The first appellant's appeal is to be postponed at the request of the respondent and the respondent conceded the second appellant's appeal after a date of hearing was...
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