Metcash Trading Ltd v Commissioner, South African Revenue Service, and Another

• Jurisdiction: South Africa
• Judge: Chaskalson P, Langa DP, Goldstone J, Kriegler J, Madala J, Mokgoro J, O'Regan J, Ngcobo J, Sachs J, Yacoob J and Cameron AJ
• Judgment Date: 24 November 2000
• Citation: 2001 (1) SA 1109 (CC)
• Docket Number: 3/2000
• Hearing Date: 28 March 2000
• Counsel: M J D Wallis SC (with P F Louw) for the applicant. G J Marcus SC (with A R Bhana) for the respondents.
• Court: Constitutional Court

Kriegler J:

[1] This case concerns the constitutional validity of s 36(1) and ss (2)(a) J

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and (5) of s 40 of the Value-Added Tax Act 89 of 1991 (the Act). [1] The question is whether these A provisions unjustifiably limit the right of access to courts protected by s 34 of the Constitution. [2] In substance s 36(1) of the Act says that upon assessment by the Commissioner for the South African Revenue Service (the Commissioner), and notwithstanding the noting of an 'appeal', a taxpayer is obliged to pay the assessed tax, called value added tax (VAT) plus consequential B imposts there and then, possible adjustments and refunds being left for dispute and determination later. Concomitantly the other two impugned provisions of the Act empower the Commissioner to exact summary payment of the assessed amounts: s 40(2)(a) empowers the Commissioner, where payment of an assessment is overdue, to file a C statement at court which has the effect of an exigible civil judgment for a liquid debt; and ss (5) puts the correctness of the assessment beyond challenge in such execution.

[2] The applicant is Metcash Trading Ltd (Metcash). It is a wholly owned subsidiary, and the principal operating entity in South Africa, of Metro Cash and Carry Ltd (Metro), a public company listed on the D Johannesburg Stock Exchange. Metcash conducts business as a wholesaler and distributor of what it calls 'fast moving consumer goods', and as a liquor retailer. It employs some 8 500 people at 162 outlets throughout the country and enjoyed a turnover of approximately R6 E billion for the financial year to April 1999. Metro's turnover for that period exceeded R28 billion. The respondents are respectively the Commissioner in his capacity as the official charged with the administration of the Act and the Minister of Finance, who was cited by reason of his interest in the validity of the impugned sections of the Act.

[3] There had been intermittent rumblings from the revenue authorities about Metcash's VAT returns [3] and F payments from as early as mid-1996. These were followed by meetings, correspondence, investigations and further meetings between Metcash representatives and the Commissioner's staff. Things came to a head on 31 May 1999 when a letter bearing that date from the Commissioner to Metcash was delivered by hand. The letter gave Metcash formal notice G that the Commissioner was not satisfied with the VAT returns furnished by the former for the tax periods from July 1996 to June 1997 and that, for reasons detailed in an annexure to the letter and by virtue of his powers under s 31(1)(b) or (c) of the Act, he had made assessments listed in a further annexure. The annexures run to H 52 pages and furnish extensive particulars of the grounds for the Commissioner's decision. The schedule detailing the Commissioner's grounds commences with a summary alleging that

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transactions entered into by Metcash and/or its associated companies with four named close A corporations had been fictitious. It continues:

'No goods were sold and delivered and accordingly no input tax on the transactions in question could be claimed. The total amount of the claim for input tax in respect of the fictitious transactions, set out in annexure 1, currently known to the Commissioner . . . is R77 667 722,27.' B

The schedule of assessed amounts reflects that Metcash was also assessed for additional tax of double the original R77 667 722,27, namely an amount of R155 335 444,54, plus a penalty of 10% (R7 766 772,22) and interest as at that date of R25 165 004,01. [4] The total of the assessments at that stage was R265 934 943,04. In terms of the letter the C assessments adding up to this substantial sum [5] were to be paid by 30 June 1999, failing which steps for their recovery would be taken without further notice.

[4] On 24 June 1999 Metro's chairman led a delegation to the Commissioner, followed up by a letter the next day in which, among others, the point was made that D

'. . . Metcash is a business of considerable size . . . and will be in a position to pay whatever assessment it may be determined to be liable for'

and continuing:

'To this end, we would request that you do not require Metcash to pay the assessment pending the outcome of the investigations, E whereafter SARS can assess its position. We envisage that a period of 60 days should be adequate to draw satisfactory conclusions as to what has precisely transpired in this complex matter.'

On 30 June 1999 attorneys acting on behalf of Metcash delivered a letter to the Commissioner formally lodging an objection to the F assessments and submitting argument in support of another request for a 60-day extension. By letter dated 5 July 1999 the Commissioner granted an extension of 45 days from 30 June 1999. This period, too, proved inadequate and at the eleventh hour, namely on 13 August 1999, the attorneys delivered another lengthy letter, repeating the formal noting of the objection. Although the letter advanced and G furnished supporting argument in respect of a number of grounds of objection, there was no serious attempt to join issue with the contentions in the annexures to the Commissioner's letter of 31 May 1999. The letter did, however, 'place on record' that Metcash was not able at that stage 'to fully and comprehensively deal with all the H allegations' in the factual schedule. It was also contended that

'on the evidence currently at our client's disposal, . . . the input tax was duly claimable by our client as it complied with the relevant provisions of the Vat (sic)

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Act. . . . (E)nforceable contracts between our client and the relevant suppliers of goods, . . . did, in fact, exist.' A

[5] By letter dated 13 September 1999 the Commissioner disallowed Metcash's objection and gave it some 48 hours' notice to pay all the amounts in full, failing which the summary procedure contemplated by s 40(2)(a) of the Act would be implemented. This precipitated an urgent application to the High Court in B Johannesburg to block the threatened action by the Commissioner. An interim arrangement was made and the case subsequently came before Snyders J, who later delivered a reserved judgment. [6] The learned Judge found that the relevant sections of the Act infringed the fundamental right of access to the courts afforded to everyone by s 34 of the Constitution of the C Republic of South Africa Act 108 of 1996. In arriving at that conclusion she relied heavily on the judgment of this Court in Chief Lesapo v North West Agricultural Bank and Another, [7] which she regarded as directly in point. The learned Judge then turned to a consideration of the possible saving of the offending provisions under s 36 of the D Constitution and concluded [8] that they were neither reasonable nor justifiable.

[6] She accordingly proceeded to declare the three challenged provisions of the Act invalid and made certain ancillary orders, including an interdict preventing the Commissioner from enforcing payment of the assessed tax pending conclusion of Metcash's appeal to the Special Income Tax Court (the Special Court) against the E assessments. In addition the Judge referred the order of constitutional invalidity to this Court in terms of ss 167(5) and 172(2) of the Constitution, which provide that an order of constitutional invalidity made by a High Court is of no force unless confirmed by the Constitutional Court. F

[7] What this Court therefore now has to consider is whether or not to confirm the order declaring the three subsections of the Act invalid.

[8] The Commissioner and the Minister oppose confirmation, contending that the Judge erred in finding that the provisions in question infringe s 34 of the Constitution. Their principal argument is that the 'pay now, argue later' rule in s 36(1) of the Act nevertheless G affords the taxpayer sufficient opportunities for a hearing on the assessment. These they say are by objecting to the assessment; asking the Commissioner to grant an extension of the time for payment; if he refuses, asking a court to set aside such refusal on review; and, ultimately appealing to the Special Court against the assessment and H other charges. Therefore the provisions do not infringe the requirements of s 34 of the Constitution. They further argue that even if there is such an infringement, the quick, reliable and predictable recovery of VAT is of vital national importance

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and that the relevant provisions are saved from invalidity by s 36 of the Constitution, A which permits limitations of the rights protected in the Bill of Rights in particular circumstances. [9] Finally they contend that even if the provisions are indeed invalid, an order of invalidity should be suspended for three years to enable Parliament to draft appropriate substitute legislation. B

[9] Metcash, for its part, supports the ruling and basic reasoning in the High Court, contending that the opportunities for protest seen by the Commissioner in s 36 of the Act are illusory or inadequate: the taxpayer is effectively compelled to pay up and can but hope to get the money back later. They also cite the judgment of this Court in Lesapo, [10] which struck down C provisions in a Bophuthatswana statute which permitted the bank in question to levy execution against its debtors without recourse to the courts. The sections in question are said to be analogous to those dealt with in Lesapo in that they permit self-help and thus oust the jurisdiction of the courts in breach of the principle entrenched in s 34 of the Constitution. In any event, so it is contended, the impugned provisions breach the Constitution in that the D double tax they permit the Commissioner to impose is really punishment for criminal conduct without resort to the...