Mpande Foodliner CC v Commissioner for South African Revenue Service and Others

(2000 (4) SA 1048 (T))

Transvaal Provincial Division – 22 March and 11 August 2000

Before Patel AJ

to the information in the Commissioner’s possession since it was required by the vendor to protect its right to property, ie its moneys that were seized as well as its right to just administrative action – Held that, given the constitutional backdrop, there was no compelling excuse in denying the information which the vendor sought since there was no conflict of interest nor prejudice to anyone.

Applicant, Mpande Foodliner CC, in this review, sought a reversal of the decision of the Commissioner for the South African Revenue Service, being first respondent, in declaring the Mpumalanga Provincial Government as applicant’s agent, in terms of s 47 of the Value-Added Tax Act 89 of 1991, in respect of certain moneys due and payable by the MEC for Health, Welfare and Gender Affairs, the second respondent, or the Mpumalanga Provincial Government to applicant.

Mr Mfana Mabuza had been a general dealer who had incorporated his business as Mpande Foodliner CC.

Applicant and other general dealers were commercially disadvantaged because as individual entities their purchasing power was limited in negotiating better prices from wholesalers and suppliers and fifteen general dealers, as shareholders, incorporated Tivetonkhe (Pty) Ltd (‘T’) as a wholesale outlet for providing a service to general dealers and Mr Mabuza was elected managing director.

During 1995 the Mpumalanga Provincial Government initiated a nutritional feeding programme for primary school children in disadvantaged areas with funds allocated from the RDP. It did not benefit the children because of misappropriation of funds and was terminated.

Mr Mabuza then investigated the potential viability of the programme in which T could provide supplies to schools. A pilot project authorised T to supply basic foodstuffs to schools at an agreed price and the scheme operated from October 1996 until May 1997 and thereafter T successfully tendered for supplying provisions to certain schools in another area.

All the suppliers as well as the MEC for Health, Welfare and Gender Affairs were under the impression that the supplies would have very little Vat implications.

However, T’s viability in the marketplace was undermined and this adversely impacted on its turnover which dropped by as much as 80% and the small profits derived from the nutritional programme made no difference, so leading to its liquidation.

In the circumstances the MEC for Health, Welfare and Gender Affairs requested that Mr Mabuza continue with the scheme either in his personal capacity or through another entity. He indicated that applicant was probably a suitable vehicle because it had the necessary infrastructure and management capacity. At a meeting of T’s board of directors it was unanimously resolved to cede the feeding scheme to applicant.

It was then confirmed that from January 1998 applicant would be the new supplier and T was finally liquidated on 2 June 1998.

During January 1998 applicant provided the supplies for the feeding scheme to the schools in the Kabokweni area.

Applicant’s claims for payment were submitted to the MEC for Health, Welfare and Gender Affairs and although claims were usually processed within two weeks no payments were forthcoming. Unbeknown to applicant the Commissioner for SARS had issued a s 47 notice in terms of the Value-Added Tax Act 89 of 1991 on 13 February 1998 declaring the MEC for Health, Welfare and Gender Affairs or the provincial government as applicant’s agent regarding all moneys due and payable by the MEC for Health, Welfare and Gender Affairs or the provincial government to applicant, hence the dispute between applicant and the Commissioner.

Applicant, in the absence of any forthcoming payments, was referred to the Commissioner’s office in Nelspruit where an assessor indicated that T had been awarded the tender but the impression that he had gained was that the moneys had been diverted to applicant which should have been received by T and, therefore, the Commissioner had seized the moneys payable to the applicant in order to settle T’s Vat liability.

However, Mr Mabuza explained that applicant and T were two separate legal entities and that the former had been appointed by the MEC for Health, Welfare and Gender Affairs merely to ensure continuity of supplies for the nutritional feeding scheme upon the latter’s demise. Mr Mabuza furnished the relevant company office documentation to the Commissioner and responded that Applicant had been incorporated on 24 July 1996 being several years prior to the dispute.

The Commissioner, after considering the matter, posed the question as to why T was closed down when the main activity, being the feeding scheme, represented approximately 85% of the total turnover of the business. In view of this the Commissioner was of the view that the transfer of the feeding scheme to Mpande Foodliner CC, being the applicant, may have been a scheme designed purely to avoid paying tax and referred applicant to s 73 of the Value-Added Tax Act 89 of 1991 and s 103 of the Income Tax Act 58 of 1962.

The MEC for Health’s Chief Director reiterated that Applicant and T were two separate legal entities and that Applicant’s moneys were diverted pursuant to the Commissioner’s directive. He indicated that the moneys paid over to the Commissioner were due and owing to applicant. Applicant’s attorney addressed a written demand to the Commissioner who responded to the demand by stating that no moneys had been taken from applicant and considered the case as finalised. The Commissioner stated that no money had been taken and allocated to Mpande Foodliner CC’s Vat account and that the money which was received by the Commissioner had been allocated to the correct account, not Mpande’s but he was precluded from furnishing applicant with the name of the specific vendor by the oath of secrecy contained in s 6 of the Value-Added Tax Act 89 of 1991.

There were essentially four issues for consideration in the review:

• whether the transfer of supplying for the feeding scheme from T was a tax-avoidance ploy as contemplated by s 73?

• whether there was a reasonable basis for the preservation of secrecy, as provided for in s 6, in not disclosing the vendor’s identity to Applicant;

• what was the ambit of s 47?

• whether applicant had a right to be heard prior to the Commissioner issuing a notice in terms of s 47.

(i) That s 73 was the general anti tax-avoidance provision in the Value-Added Tax Act 89 of 1991 which provided that where the Commissioner was satisfied that a scheme had been entered into or carried out and which had the effect of granting a tax benefit to any person by means or in a manner not normally employed for bona fide business purposes, other than obtaining of a tax benefit, or it had created rights or obligations that would not normally be created between persons dealing at arm’s length and it was entered into or carried out solely or mainly for the purpose of obtaining a tax benefit, the Commissioner shall determine the liability for any tax imposed by the Act, and the amount thereof, as if the scheme had not been entered into or carried out, or in such manner as in the circumstances of the case he deems appropriate for the prevention or diminution of such tax benefit.

(ii) That all four requirements of s 73 must co-exist before s 73 can be invoked by the Commissioner and, therefore, if the scheme is not abnormal then the statutory provision cannot be applied even if the scheme has the effect of granting a tax benefit and that that was the vendor’s main purpose; similarly, if tax benefit is not the vendor’s sole or main purpose then the statutory provision cannot be applied even if the scheme has the effect of granting a tax benefit and is abnormal since one of the essential requirements (that is, tax-avoidance) is absent.

(iii) That the Commissioner merely had an impression that the transfer of the obligations of the feeding scheme programme from T to the applicant may have been a scheme designed to grant a tax benefit (amounting to tax avoidance) to the applicant but in the context of s 73 regard has to be paid to the substance and surrounding circumstances of the scheme: the sole or main purpose of ceding the obligations of the feeding scheme to applicant was for the continuation of the feeding scheme programme upon T’s demise and both the provincial government and the administrators of the programme accepted the cession; moreover, the transaction between T and the applicant was lawfully concluded at arm’s length and there was nothing untoward or abnormal in transferring the feeding scheme by means of a cession as it was expedient for the continuation of supplying provisions for the feeding scheme.

(iv) That there was neither a trick nor a pretence on applicant’s part either to unduly enjoy a tax benefit or engage in tax-avoidance; therefore, it was an erroneous assumption on the Commissioner’s part to have regarded the transfer of the feeding scheme programme to applicant by a cession as a tax-avoidance scheme and it was manifestly unreasonable for the Commissioner simply to have formed an impression that there was indeed a tax-avoidance ploy; moreover, no reasonable person in the circumstances could have formed the impression or come to the conclusion that the Commissioner came to had he applied his mind objectively to the substance and the surrounding circumstances of the transaction between applicant and T.

(v) That it was common cause that moneys seized by the Commissioner were utilised to settle T’s Vat liabilities and the secrecy regarding the vendor’s identity was inexplicable and it certainly fortified the inference that the applicant had no Vat liability.

(vi) That s 6(1)(a) stipulates that the Commissioner’s employee who carries out the provisions of the Value-Added Tax Act may not disclose to anyone any matter regarding any other person except in the exercise of his or her powers or performance of his or her duties in terms of the Act or by an order of a competent court; the section is primarily for the preservation of secrecy and it is designed to enable a free flow of information between the vendor and the Commissioner and obviously it is to protect the vendor against other persons soliciting information from the Commissioner concerning the vendor.

(vii) That, however, there was nothing secret about the information that applicant had sought from the Commissioner and the secrecy provision had no relevance to the facts in this case since neither the applicant nor T were strangers to each other and there was no conflict of interest between them: moreover, this was surely a proper case for the Commissioner to have exercised a discretion and disclosed the vendor’s identity since there could have been no prejudice to either T or the applicant or both and, above all, there was a need for clarification whether the applicant’s moneys were appropriated to pay for T’s Vat liabilities.

(viii) That s 32(1) of the Constitution of the Republic of South Africa Act 108 of 1996 accords every individual a right of access to any information which is required for the exercise or protection of his, her or its rights and the applicant was entitled to the information in the Commissioner’s possession since it was required by the applicant to protect its right to property (ie its moneys that were seized as well as its right to just administrative action) and any limitation to the right of access to information predicated upon a claim to secrecy under the Value-Added Tax Act would only operate if it was established under s 36(1) of the Constitution.

(ix) That given the constitutional backdrop there was no compelling excuse in denying the information which the applicant had sought since there was no conflict of interest nor prejudice to anyone; suffice to say that when invoking s 6(1)(a) of Act 89 of 1991 to preserve secrecy, the Commissioner’s employee must be mindful in exercising his or her discretion reasonably and fairly regarding whether or not to disclose information to the party concerned or else there may be an infringement of right of access to information.

(x) That s 47 empowers the Commissioner to appoint an agent of another person and by doing so make the agent responsible for the payment of any tax, additional tax, penalty or interest owing by that person and the payment may be made from any moneys held by the agent on behalf of or owed to him or her by that person and it enables the Commissioner to summarily appropriate any amount prior to making an assessment or adjudication of any objection to the assessment.

(xi) That s 47 conferred a discretion on the Commissioner, ie, ‘if he thinks it necessary’ to declare a person as an agent of another person but the power must neither be unlimited nor can it be an unfettered discretion and the existence of necessity is a condition precedent to the validity of the Commissioner declaring a person as an agent of another person; moreover, the word ‘necessary’ in the statutory context does not mean absolute necessity or indispensability but ultimately it must be susceptible to the touchstone of reasonableness and, therefore, the appointment of an agent by the Commissioner must be reasonably necessary.

(xii) That the jurisdictional facts that are vital in invoking s 47 are (1) it must be reasonably necessary to declare a person an agent of the taxpaying vendor (2) who can only be declared an errant or a recalcitrant taxpayer if an amount of tax, additional tax, penalty or interest is due and payable (3) only if the agent is required to make payments of such moneys held by him or her for or due to the

taxpaying vendor and (4) only declare the person as an agent if he, she or it is the taxpaying vendor’s debtor; each of the jurisdictional facts must be present and objectively determined before the Commissioner is competent in issuing a s 47 notice.

(xiii) That it was common cause that the moneys seized by the Commissioner were due and payable to applicant by the provincial government and moneys that rightly belonged to applicant were utilised to defray T’s Vat liabilities on a misconceived and erroneous assumption that the two were one and the same legal entities: however the Commissioner conceded that he had erred in regarding applicant and T as a single entity and once there was clarification on that aspect, the Commissioner then raised the issue of the transfer of the feeding scheme programme as being a sham and when it was demonstrated that this was not the case, the Commissioner without any good reason hid behind the shroud of secrecy; the Commissioner’s employees constantly moved the proverbial goal posts to deprive applicant of its moneys and the applicant had no Vat liability which was due and payable and, consequently, it was not reasonably necessary for the Commissioner to have invoked s 47 in declaring the provincial government as applicant’s agent.

(xiv) That, therefore, the requisite jurisdictional facts were absent and consequently the Commissioner had exceeded his statutory powers in issuing the s 47 notice; the Commissioner had misused his discretionary powers, vested in terms of s 47, to the applicant’s detriment by appropriating and utilising its moneys to offset T’s Vat liabilities.

The audi alteram partem principle

(xv) That it was trite that generally a party should be heard before an adverse decision is taken by an official or body concerned unless there are exceptional circumstances, for instance where the party making the decision is required to act with expedition or for some reason it is not feasible to accord a hearing before the decision is taken.

(xvi) That the denial of the audi principle prior to the issuing of the s 47 notice by the Commissioner infringed the provisions of s 33(1) of the Constitution of the Republic of South Africa Act 108 of 1996 since ‘everyone has the right to administrative action that is lawful, reasonable and procedurally fair’; moreover, the denial of a hearing before the issuing of the s 47 notice was not necessitated by exceptional circumstances and the infringement was not reasonable and justifiable, hence the action taken by the Commissioner was unlawful and null and void.

(xvii) That given the paramountcy and potency of the Bill of Rights, s 47 of Act 89 of 1991 must indeed yield to s 33(1) of the Constitution and in the circumstances the fiscus owes a legal duty to the general body of taxpayers to act fairly when deploying its discretionary powers which are subject to the requirements of good management, namely by promoting and maintaining a high standard of professional ethics, efficient, economic and effective use of resources, providing a service that is impartial, fair, equitable and without bias as well as responding to the people’s needs and fostering transparency by providing the public with timely accessible and accurate information, thereby ensuring that there are no favourites and no sacrificial victims.

(xviii) That, accordingly, on the facts of this case, the Commissioner should have given applicant a hearing before issuing the s 47 notice and the Commissioner’s action was unlawful and null and void since he was required to act reasonably and fairly and consequently his decision in issuing the notice was set aside.

The Commissioner’s decision of 13 February 1998 in declaring the Mpumalanga Provincial Government as an agent of the applicant in terms of s 47 of the Value-Added Tax Act 89 of 1991 regarding all moneys due and payable to the applicant by the second respondent or the Mpumalanga Provincial Government was set aside.

Patel AJ:

[1]  In this review, a close corporation Mpande Foodliner CC is the applicant. It is seeking a reversal of the decision of the Commissioner of the South African Revenue Services (the first respondent) in declaring the Mpumalanga Provincial Government as the applicant’s agent, in terms of s 47 of the Value Added Tax Act 89 of 1991, (1) in respect of certain monies due and payable by the MEC for Health, Welfare and Gender Affairs (the second respondent) or the Mpumalanga Provincial Government (referred to as the ‘provincial government’) to the applicant. The other respondents are the MEC for Finance (the third respondent) and Jan Lodewikus Pretorius who is cited in his nominal capacity as the fourth respondent. He is liquidator of Tivetonkhe (Pty) Limited (referred to as ‘Tivetonkhe’).

[2]  The applicant seeks an order in the following terms:

‘1. Reviewing and setting aside the first respondent’s decision dated 13 February 1998 to declare the second respondent and/or the Mpumalanga provincial government an agent in terms of s 47 of the Value-Added Tax Act (Act 89 of 1991) of the applicant regarding all monies due and payable to the applicant by the second respondent and/or the Mpumalanga provincial government;

2. That the first respondent be ordered to pay the amount of R465 765,46 to the applicant;

3. That the first respondent is ordered to pay interest on the amount of R465 765,46 from 21 March 1998 at a rate of 15,5% per annum to the date of payment;

4. That the first respondent, together with those other respondents opposing the grant of relief, jointly and severally be ordered to pay the costs of this application on an attorney and client scale;

5. That further and/or alternative relief be granted to the applicant.’

[3]  The application is opposed by the first respondent and not the other respondents.

[4]  Lord Templeman, in R v Independent Television Commission, Ex parte TSW Broadcasting Ltd (2) observed:

‘Of course in judicial review proceedings, as in any other proceedings, everything depends upon the facts. The background and the facts to the dispute are summarised from the affidavits.’

[5]  Mr Mfana Mabuza was a general dealer trading as Ofizweni Shopping Centre. He incorporated his business as Mpande Foodliner CC and continued to trade as Ofizweni Shopping Centre. The applicant and other general dealers were commercially disadvantaged because as individual entities their purchasing power was limited in negotiating better prices from wholesalers and suppliers. Fifteen general dealers, as shareholders, incorporated Tivetonkhe (Pty) Limited

Footnotes :

1 Section 47 provides:

‘The Commissioner may, if he thinks it necessary, declare any person to be the agent of any other person, and the person so declared an agent shall for the purposes of this Act be the agent of such other person in respect of the payment of any amount of tax, additional tax, penalty or interest payable by such other person under this Act and may be required to make payment of such amount from any moneys which may be held by him for or be due by him to the other person whose agent he has been declared to be.’

2 [1994] 2 LRC 414 at 430.

as a wholesale outlet for providing a service to general dealers. The directors were drawn from the shareholders. Mr Mabuza was elected managing director.

[6]  During 1995 the provincial government initiated a nutritional feeding programme for primary school children in disadvantaged areas with funds allocated from the RDP. It did not benefit the children because of misappropriation of funds and was terminated. However, Mr Mabuza investigated the potential viability of the programme in which Tivetonkhe could provide supplies to schools. A proposal to implement a pilot scheme in the Kabokweni-White River district was submitted to the second respondent. The pilot project authorised Tivetonkhe to supply basic foodstuffs to schools at an agreed price. The scheme operated from October 1996 until May 1997. Thereafter, the second respondent invited tenders from potential suppliers. It was a closed tender and upon acceptance it constituted the entire agreement. Tivetonkhe successfully tendered for supplying provisions to certain schools in the Kabokweni area. All the suppliers as well as the second respondent were under the impression that the suppliers would have very little VAT implications.

[7]  Tivetonkhe negotiated a franchise agreement with Shield Enterprises (Pty) Limited to procure bulk supplies at discount prices. However, its viability was undermined when Shield commenced supplying goods to Hazyview Cash and Carry at more favourable prices. This adversely impacted on Tivetonkhe and its turnover dropped by as much as 80%. The small profits derived from the nutritional programme made no difference. Its indebtedness worsened and Ernst & Young advised that it should be liquidated. Mr Mabuza approached the Mpumalanga Development Corporation for financial assistance. This was not fruitful. In the circumstances, the second respondent requested that Mr Mabuza continue with the scheme either in his personal capacity or through another entity. He indicated that the applicant was probably a suitable vehicle because it had the necessary infrastructure and management capacity. Ernst & Young, who administered the scheme, advised that Tivetonkhe should cede its rights and title to the applicant. A meeting of Tivetonkhe’s board of directors was held on 3 October 1997 and it was unanimously resolved to cede the feeding scheme to the applicant. The cession was signed by all the directors and was faxed to the second respondent, the Tender Board and Ernst & Young. The provincial government consented to the cession and Ernst & Young accepted it and confirmed that from January 1998 the applicant would be the new supplier. Tivetonkhe continued to provide for the feeding scheme until the end of 1997 school term. It was finally liquidated on 2 June 1998 and the fourth respondent was appointed as liquidator on 13 August 1998.

[8]  During January 1998 the applicant provided the supplies for the feeding scheme to the schools in the Kabokweni area. Its claims for payment were submitted to the second respondent. Although claims were usually processed within two weeks but no payments were forthcoming. Unbeknown to the applicant the first respondent issued a s 47 notice on 13 February 1998 declaring the second respondent or the provincial government as the applicant’s agent regarding all monies due and payable by the second respondent or the provincial government to the applicant. Hence, the dispute between the applicant and the first respondent.

[9]  In the absence of any forthcoming payments, Mr Mabuza on behalf of the applicant approached the second respondent and the Department of Finance. He

was referred to the first respondent’s office in Nelspruit. Mr Bunting, an assessor with the first respondent and who also serves on the provincial Tender Board, indicated that Tivetonkhe was awarded the tender but the impression he gained was that the monies were diverted to the applicant which should have been received by Tivetonkhe. Therefore, the first respondent seized the monies payable to the applicant to settle Tivetonkhe’s VAT liability. Mr Mabuza explained that the applicant and Tivetonkhe were two separate legal entities. The former was appointed by the second respondent merely to ensure continuity of supplies for the nutritional feeding scheme upon the latter’s demise. Mr Bunting referred Mr Mabuza to Mrs De Villiers. She required that he submit proof that Tivetonkhe and the applicant were two different entities. He furnished the relevant company office documentations to her.

[10]  Subsequently, Mr Bunting and Mrs De Villiers conceded that they may have erred regarding the applicant and Tivetonkhe as one and same legal entities. Mrs De Villiers indicated that the applicant was at least prima facie entitled to the February 1998 payments but she had a problem regarding the applicant’s January 1998 claim. She was of the view that the applicant was not registered for VAT during January 1998 and doubted whether it was in existence during that month. According to her the services were rendered by Tivetonkhe and not the appli-
cant during January 1998. Mr Mabuza responded that the applicant was incorporated several years prior to the dispute. It was incorporated on 24 July 1996. Mrs De Villiers indicated that she needed to study the papers and would revert
to him.

[11]  The following day Mr Mabuza was handed a letter but, it did not address his concerns regarding the applicant’s claims. It merely dealt with Tivetonkhe’s tax liability in that an assessment was issued against it on the basis that it had under-declared its income. Shortly thereafter Mr Mabuza received a letter from the first respondent addressed to Tivetonkhe. It emanated from Mrs De Villiers. She was of the view that Tivetonkhe could not have been replaced as a contractor by the applicant. The letter reads:

‘Sir

VALUE-ADDED TAX: TIVETONKHE (PTY) LTD

I refer to your visit to my office of 18 March 1998.

Please note that the stop order cannot be released because the original contract was awarded to Tivetonkhe (Pty) Ltd. In your letter dated 26 January 1998 you requested the Department of Health to change the suppliers (sic) trading name to Mpande Foods CC, thereby transferring the original contract. However, I do not agree that this transaction was permittible (sic) as a legal contract cannot be transferred to another supplier.

This matter will now be taken up with the Department of Health, Department of Finance as well as the Tender Board.

I take great exception to your allegations that the Receiver of Revenue is using his power to terminate your business. The fact is that a considerable amount of tax is outstanding – amounting to R844 454,17. The Receiver has a responsibility to use whatever legal means necessary to collect all outstanding taxes. Furthermore I would like to point out that the Receiver cannot be held responsible for the misinterpretation by yourself of the VAT Act concerning the feeding scheme.

The question that arises is why Tivetonkhe (Pty) Ltd was closed down when the main activity being the feeding scheme represents approximately 85% of the total turnover of the business. Surely only the wholesaler should have been terminated.

In view of the above, it would appear that the transfer of the feeding scheme to Mpande Foodliner CC may have been a scheme designed purely to avoid paying tax. I refer you to ss 73 of the VAT and 103 of the Income Tax Act.

My office fully aliens (sic) itself with the principals (sic) entrenched in our National client charter which clearly spells out our commitment to help, to be fair and to protect the constitutional rights of all taxpayers, as well as your obligation to pay tax.

Please note that an Act must be abided by and that ignorance cannot be accepted as an excuse as it is each taxpayer’s duty to acquire the necessary information of the rules set down by the relevant Act.

I hope that his letter clarifies all your concerns.

Sincerely

For RECEIVER OF REVENUE’.

[12]  Mr Mabuza on behalf of the applicant raised the first respondent’s query with the second respondent. As a matter of clarification the latter’s Chief Director for Health Services, in a letter of 25 March 1998, advised the third respondent’s Chief Director as follows:

‘MPANDE FOODLINER CC: TIVETONKHE (PTY) LTD

The above two concerns are two separate legal entities and therefore Tivetonkhe’s liabilities cannot be linked with Mpande.

In view of the fact that the Primary School Nutritional Programme is an ongoing essential programme, and could not come to a standstill, when Tivetonkhe (Pty) Ltd closed and informed us that Mpande could take over the function. The Department appointed Mpande as a temporary measure.

. . .’

[13]  On 5 June 1998 the second respondent’s Chief Director, Dr Karrim, together with Ms Elmarie Becker of Ernst & Young reiterated that as far as they were concerned the applicant and Tivetonkhe were two separate legal entities and that the applicant’s monies were diverted pursuant to the first respondent’s directive. They indicated that the monies paid over to the first respondent were due and owing to the applicant. The applicant’s attorney addressed a written demand to the third respondent for payment of R632 110,17 on 17 June 1998. This demand was followed by a reminder. The third respondent advised that all payments to the applicant were transferred to the first respondent’s Nelspruit office in response to the first respondent’s directive. On 21 July 1998 the applicant’s attorney demanded payment from the first respondent. Mrs Coetzee responded to the demand by stating that no monies were taken from the applicant and considered the case as finalised.

[14]  It is common cause that the monies seized in terms of the first respondent’s directive were monies due and payable to the applicant. In an endeavour to clarify the factual position the applicant’s attorney conveyed to the first respondent that according to the third respondent it received a directive ordering it to transfer the monies payable to the applicant to the first respondent and also recorded that the applicant was never assessed for the tax period 1997/1998. The letter also confirmed the substance of a telephonic conversation between the applicant’s attorney and Mrs Coetzee. According to her the amount which the first respondent claimed from the third respondent was an amount owed by Tivetonkhe and that the amount owed by the applicant was paid to it. Consequently, the applicant’s attorney wrote to the first respondent to clarify that Tivetonkhe ceased its operations in November 1997; the applicant provided its services to the second respondent from January to the end of February 1998; for this period it rendered an account to the second respondent in the amount of

R632 110,79 and that no payment was received for services rendered. Mrs De Villiers on behalf of the first respondent replied as follows:

‘I would once again like to inform you that no money was taken and allocated to Mpande Foodliner CC’s VAT account.

The stop order’s (sic) was (sic) placed at the Department. The money which was received in this office was allocated to the correct account (not Mpande). Unfortunately I am not allowed to furnish you with the name of the specific vendor, as I am bound by the oath of secrecy (Article (sic) 6 of the Value Added Tax Act).’

[15]  On 5 October 1998 a meeting was held between the applicant’s representative, Mr Mabuza and Mrs De Villiers. She once again indicated that she would release the February payment owing to the applicant but still had a problem in releasing any monies for January. According to the applicant Mrs De Villiers’ attitude was motivated by two erroneous views. First, her view was that the applicant’s invoice accompanying the January 1998 claims bore Tivetonkhe’s VAT registration number but the number on the invoice was Mr Mabuza’s personal VAT number. He explained that owing to incorrect advice he obtained from the bookkeeper, the applicant had used his personal VAT registration number and the position was rectified. Secondly, she was of the opinion that the arrangements for the replacement of Tivetonkhe by the applicant as the contracting party was only negotiated during the latter part of January 1998. It was explained to Mrs De Villiers that the cession, with the second respondent’s knowledge, was effected at the beginning of October 1997. Mrs De Villiers undertook to revert back to the applicant’s instructing attorney before 9 October and to see that the February 1998 monies owing to the applicant would be paid over by that date.

[16]  Mrs De Villiers failed to respond as promised. As a result a further meeting was held sometime in November 1998. The applicant was represented by Mr Mabuza and the bookkeeper Mr Mdluli and the first respondent was represented by Mr De Beer, Mr Oosthuizen and Mrs Coetzee. It was indicated that according to the first respondent’s records the February 1998 monies owed to the applicant were released at the beginning of March 1998. However, a letter of 3 March 1998 from the first respondent written by Mrs Coetzee to the third respondent revealed that:

‘The amount due to Mpande Foodliner CC as from 1 February 1998 can be paid over to the company. All payments until 31 January 1998 must be paid over to the Receiver of Revenue.’

[17]  Consequently, the applicant’s representatives approached the third respondent’s Acting Chief Director, Mr Hamlet Mona. But he confronted them with a letter of 11 March 1998 from Mrs Coetzee on behalf of the first respondent instructing the third respondent that under no circumstances must any monies be paid to the applicant and should be paid over to the first respondent. The third respondent also made copies of the s 47 declarations available to Mr Mabuza from which it became apparent that the monies for January and February had been paid over to the first respondent sometime in April 1998. Subsequently, Mr Oosthuizen informed Mr Mdluli that the State Attorney advised the first respondent not to pay over any funds to the applicant.

[18]  It is apparent from the factual background that the first respondent’s employees at the Nelspruit office conducted themselves in a gratuitous manner. Lord Bingham in R v Board of Inland Revenue, exp MFK Underwriting Agencies (3) remarked:

Footnotes :

3 [1990] 1 All ER 91 (QB) at 110D-E.

‘Every ordinary sophisticated taxpayer knows that the Revenue is a tax-collecting agency, not a tax-imposing authority. The taxpayers’ only legitimate expectation is prima facie, that he will be taxed according to statute, not concession or wrong view of the law . . . Such taxpayers would appreciate, if they could not so pithily express, the truth of Walton J’s aphorism: ‘One should be taxed by law, and not be untaxed by concession . . .’.’

(a) An introduction

[19]  There are essentially four issues for consideration in this review, namely:

(1) Whether the transfer of supplying for the feeding scheme from Tivetonkhe was a tax-avoidance ploy as contemplated by s 73?

(2) Whether there was a reasonable basis for the preservation of secrecy, as provided for in s 6, in not disclosing the vendor’s identity to the applicant?

(3) What is the ambit of s 47?

(4) Whether the applicant had a right to be heard prior to the first respondent issuing a notice in terms of s 47.

(b) First issue: Was there a tax-avoidance ruse?

[20]  Mrs De Villiers was of the view that the transfer of supplying provisions for the feeding scheme programme to the applicant may have been a stratagem to avoid paying tax. To this end, s 73 is the general anti tax-avoidance provision. Subsection (1) provides that where the first respondent is satisfied that:

(1) a scheme has been entered into or carried out;

(2) which has the effect of granting a tax benefit to any person;

(3) by means or in a manner not normally employed for bona fide business purposes, other than obtaining of a tax benefit, or it has created rights or obligations that would not normally be created between persons dealing at arms length; and

(4) it was entered into or carried out solely or mainly for the purpose of obtaining a tax benefit. (4)

[21]  For the purposes of subs (1), in subs (2) a ‘scheme’ is broadly defined as any transaction, operation, scheme or understanding, whether or not enforceable including all steps and transactions by which it is carried into effect and a ‘tax

Footnotes :

4 Section 73(1) provides:

‘Notwithstanding anything in this Act, whenever the Commissioner is satisfied that any scheme (whether entered into or carried out before or after the commencement of this Act, and including a scheme involving the alienation of property)–

(a) has been entered into or carried out which has the effect of granting a tax benefit to any person; and

(b) having regard to the substance of the scheme–

(i) was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes, other than the obtaining of a tax benefit; or

(ii) has created rights or obligations which would not normally be created between persons dealing at arm’s length; and

(c) was entered into or carried out solely or mainly for the purpose of obtaining a tax benefit, the Commissioner shall determine the liability for any tax imposed by this Act, and the amount thereof, as if the scheme had not been entered into or carried out, or in such manner as in the circumstances of the case he deems appropriate for the prevention or diminution of such tax benefit.’

benefit’ is defined to include any reduction in the liability of the person to pay tax; increase in the entitlement of a vendor to a refund; reduction in the consideration payable by a person in respect of any supply; or other avoidance of postponement of liability for the payment of any tax, duty or levy imposed by the Act or any other law administered by the first respondent. (5) Comparatively s 73 is wider than s 103 of the Income Tax Act 58 of 1962.

[22]  The four requirements must co-exist before s 73 can be invoked by the first respondent.(6) Therefore, if the scheme is not abnormal then the statutory provision cannot be applied even if the scheme has the effect of granting a tax benefit and that that was the vendor’s main purpose.(7) Similarly, if tax benefit is not the vendor’s sole or main purpose then the statutory provision cannot be applied even if the scheme has the effect of granting a tax benefit and is abnormal since one of the essential requirements (that is, tax-avoidance) is absent.

[23]  The first respondent merely had an impression that the transfer of the obligations of the feeding scheme programme from Tivetonkhe to the applicant may have been a scheme designed to grant a tax benefit (amounting to tax avoidance) to the applicant. In Hicklin v Secretary for Inland Revenue, (8) in the context of s 103 of the Income Tax Act, Trollip JA observed at 494 in fine-495C:

‘When the ‘transaction, operation or scheme’ is an agreement . . . it is important . . . to determine first whether it was concluded ‘at arm’s length’. . . . For ‘dealing at arm’s length’ is a useful and often easily determinable premise with which to start the inquiry. It connotes that each of the parties is independent of the other and, in so doing, will strive to get the utmost possible advantage out of the transaction for himself . . . Hence, in an arm’s length agreement the rights and obligations it creates are more likely to be regarded as normal than abnormal in the sense envisaged . . . And the means or manner employed in entering into it or carrying it out are more likely to be normal than abnormal in the sense envisaged . . . The next observation is that, when considering the normality of the rights and obligations so created or of the means or manner so employed, due regard has to be paid to the surrounding circumstances.’

[24]  In the context of s 73 regard has to be paid to the substance and surrounding circumstances of the scheme. The sole or main purpose of ceding the obligations of the feeding scheme to the applicant was for the continuation of the feeding scheme programme upon Tivetonkhe’s demise. Both the provincial government and the administrators of the programme accepted the cession. The transaction between Tivetonkhe and the applicant was lawfully concluded at arm’s length. There was nothing untoward or abnormal in transferring the feeding scheme by means of a cession. It was expedient for the continuation of supplying provisions for the feeding scheme.

Footnotes :

5 Section 73(2) reads:

‘For the purposes of this section– "scheme" includes any transaction, operation, scheme or understanding (whether enforceable or not), including all steps and transactions by which it is carried into effect; "tax benefit" includes–

(a) any reduction in the liability of any person to pay tax; or

(b) any increase in the entitlement of any vendor to a refund of tax; or

(c) any reduction in the consideration payable by any person in respect of any supply of goods or services; or

(d) any other avoidance or postponement of liability for the payment of any tax, duty or levy imposed by this Act or by any other law administered by the Commissioner.’

6 Secretary for Inland Revenue v Geustyn Forsythe and Joubert 1971 (3) SA 567 (A) at 570H-572A, 33 SATC 113 at 116-7; Commissioner for SARS v Knuth; Commissioner for SARS v Industrial Holdings (Pty) Ltd 2000 (1) SA 1088 (E) at 1102H-1103A (A), 62 SATC 65 at 78.

7 Smith v Commissioner for Inland Revenue 1964 (1) SA 324 (A) at 332, 26 SATC 1 at 11.

8 1980 (1) SA 481 (A) (41 SATC 279).

[25]  In R v Inland Revenue Commissioners ex parte Matrix Securities Ltd (9) Lord Templeman remarked:

‘Every tax avoidance scheme involves a trick and a pretence.’

There was neither a trick nor a pretence on the applicant’s part either to unduly enjoy a tax benefit or engage in tax-avoidance. Therefore, it was an erroneous assumption on the first respondent’s part to have regarded the transfer of the feeding scheme programme to the applicant by a cession as a tax-avoidance scheme. It was manifestly unreasonable for Mrs De Villiers simply to have formed an impression that there was indeed a tax-avoidance ploy although the second respondent appointed the applicant as ‘a temporary measure’ upon Tivetonkhe’s cessation of business. No reasonable person in the circumstances could have formed the impression or come to the conclusion that Mrs De Villiers came to had she applied her mind objectively to the substance and the surrounding circumstances of the transaction between the applicant and Tivetonkhe.

(c) Second issue: Was there any need for secrecy?

[26]  Mrs De Villiers was not forthcoming in disclosing the vendor’s identity except for noting in parenthesis ‘not Mpande’. Her excuse was that she was bound in terms of s 6(1)(a) by the oath of secrecy. On this basis the applicant submitted (possibly as a matter of inference rather than conjecture) that the first respondent’s response confirmed that the applicant had no VAT liability when the s 47 notice was issued.

The first respondent did not counter this submission either in the answering affidavit or in argument. It was common cause that monies seized by the first respondent were utilised to settle Tivetonkhe’s VAT liabilities. The secrecy regarding the vendor’s identity was inexplicable and it certainly fortified the inference that the applicant had no VAT liability.

[27]  Section 6(1)(a) stipulates that the first respondent’s employee who carries out the provisions of the VAT Act may not disclose to anyone any matter regarding any other person except in the exercise of his or her powers or performance of his or her duties in terms of the Act or by an order of a competent court. (10) The section is primarily for the preservation of secrecy. It is designed to enable a free flow of information between the vendor and the first respondent.(11) Obviously it is to protect the vendor against other persons soliciting information from the first respondent concerning the vendor. (12)

Footnotes :

9 [1994] 1 WLR 334 (HL) at 345C.

10 Section 6(1) provides:

‘A person employed in carrying out the provisions of this Act shall not–

(a) disclose to any person or his representative any matter in respect of any other person that may in the exercise of his powers or the performance of his duties under the said provisions come to his knowledge;

(b)  . . . except in the exercise of his powers or the performance of his duties in terms of this Act or by order of a competent court: Provided that the Attorney-General in the performance of his duties in terms of s 3 of the Auditor-General Act, 1995 (Act 12 of 1995), shall have access to all records and documents in the possession or custody of the commissioner for the purposes of this Act.’

11 Jeeva and Others v Receiver of Revenue, Port Elizabeth and Others 1995 (2) SA 433 (E) at 458D, 57 SATC 187 at 209.

12 Ferela (Pty) Ltd and Others v Commissioner for Inland Revenue and Others (1998 (9) BCLR 1085 at 1090I, 60 SATC 513 at 522).

[28]  There was nothing secret about the information that the applicant sought from the first respondent. Then, what was the purpose of preserving secrecy by precluding the very person who initially gave the information in one form or another from having access to it in order to seek clarity? The secrecy provision has no relevance to the facts in this case since neither the applicant nor Tivetonkhe were strangers to each other and there was no conflict of interest between them.(13) This was surely a proper case for the first respondent’s employee Mrs De Villiers to have exercised a discretion and disclosed the vendor’s identity since there could have been no prejudice to either Tivetonkhe or the applicant or both. And above all there was a need for clarification whether the applicant’s monies were appropriated to pay for Tivetonke’s VAT liabilities.

[29]  Although it was neither contended nor argued by the applicant, it is significant to allude that s 32(1) of the Constitution accords every individual a right of access to any information which is required for the exercise or protection of his, her or its rights.(14) The applicant was entitled to the information in the first respondent’s possession since it was required by the applicant to protect its right to property (ie its monies that were seized as well as its right to just administrative action). Any limitation to the right of access to information predicated upon a claim to secrecy under the VAT Act would only operate if it is established under s 36(1) of the Constitution.(15) Given the constitutional backdrop there was no compelling excuse in denying the information which the applicant sought since there was no conflict of interest nor prejudice to anyone. Suffice to say that when invoking s 6(1)(a) to preserve secrecy the first respondent’s employee must be mindful in exercising his or her discretion reasonably and fairly regarding whether or not to disclose information to the party concerned or else there may be an infringement of right of access to information.

(d) Third issue: What is the ambit of s 47?

[30]  The gravamen of the applicant’s case is essentially that the first respondent did not apply his mind when issuing the s 47 notice and declaring the provincial government as the applicant’s agent. In order to consider the cogency of the applicant’s pivotal contention that the issuing of the notice was premised on certain erroneous assumptions, it is compelling to deal briefly with s 47. (16)

Footnotes :

13 Above n 11 at 459B, 57 SATC at 210.

14 Section 32(1) of the Constitution provides: ‘Everyone has the right of access to

(a) any information held by the State; and

(b) any information that is held by another person and that is required for the exercise or protection of any right."

15 Section 36 of the Constitution provides:

‘(1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors including–

(a) the nature of the right;

(b) the importance of the purpose of the limitation;

(c) the nature and the extent of the limitation;

(d) the relation between the limitation and its purpose; and

(e) less restrictive means to achieve the purpose.

(2) Except as provided in subsection (1) or in any other provision of the Constitution, no law may limit any right entrenched in the Bill of Rights.

16 Above n 1.

[31]  This section empowers the first respondent to appoint an agent of another person and by doing so make the agent responsible for the payment of any tax, additional tax, penalty or interest owing by that person. The payment may be made from any monies held by the agent on behalf of or owed to him or her by that person. It enables the first respondent to summarily appropriate any amount prior to making an assessment or adjudication of any objection to the assessment.

[32]  Section 47 confers a discretion on the first respondent, that is, ‘if he thinks it necessary’ to declare a person as an agent of another person. First, the expression is of wide import and confers an untrammelled discretion on the first respondent. If the legislature intended by the usage of those words to confer upon the first respondent a power to appoint an agent then it has certainly done so in extremely comprehensive and wide terms. Surely, the power must neither be unlimited nor can it be an unfettered discretion.(17) Secondly, the existence of necessity is a condition precedent to the validity of the first respondent declaring a person as an agent of another person. Thirdly, the word ‘necessary’ in the statutory context does not mean absolute necessity or indispensibility. (18) Ultimately it must be susceptible to the touchstone of reasonableness.(19) Therefore, the appointment of an agent by the first respondent must be reasonably necessary.

[33]  Concomitantly, the jurisdictional facts that are vital in invoking s 47 are:

(1) it must be reasonably necessary to declare a person an agent of the taxpaying vendor;

(2) who can only be declared an errant or a recalcitrant taxpayer if an amount of tax, additional tax, penalty or interest is due and payable;

(3) only if the agent is required to make payments of such monies held by him or her for or due to the taxpaying vendor; and

(4) only declare the person as an agent if he, she or it is the taxpaying vendor’s debtor. Each of the jurisdictional facts must be present and objectively determined before the first respondent is competent in issuing a s 47 notice.

[34]  It is common cause that the monies seized by the first respondent were due and payable to the applicant by the provincial government. Monies that rightly belonged to the applicant were utilised to defray Tivetonkhe’s VAT liabilities on a misconceived and erroneous assumption that the two were one and same legal entities. Both Mr Bunting and Mrs De Villiers conceded that they erred in regarding the applicant and Tivetonkhe as a single entity. In this regard the second respondent’s Chief Director of Health Services in a letter clarified that the two concerns were separate legal entities and Tivetonkhe’s liabilities could not be linked to the applicant. They were in law independent from each other and the applicant had no VAT liability. Once there was clarification on this aspect, the first respondent then raised another, namely the transfer of the feeding scheme programme as being a sham. When it was demonstrated that this was not the case, Mrs De Villiers without any good reason hid behind the shroud of secrecy.

Footnotes :

17 Arkell v Carter NO and Others 1971 (3) SA 243 (R) at 245E.

18 R v Magana 1961 (2) SA 654 at 654B-C.

19 Pelechowski v Registrar, Court of Appeal [1999] 162 ALR 336 in para [51] at 348.

[35]  The first respondent’s employees constantly moved the proverbial goal post to deprive the applicant of its monies. The applicant had no VAT liability which was due and payable. Consequently, it was not reasonably necessary for the first respondent to have invoked s 47 in declaring the provincial government as the applicant’s agent. Under the circumstances, the requisite jurisdictional facts were absent. Therefore, the first respondent exceeded his statutory powers in issuing the s 47 notice. Powers bestowed upon a public body for one purpose cannot be utilised for ulterior purposes.(20) I find that the first respondent misused its discretionary powers, vested in terms of s 47, to the applicant’s detriment by appropriating and utilising its monies to offset Tivetonkhe’s VAT liabilities.

(e) Fourth Issue: Is the taxpayer entitled to a hearing?

[36]  This last issue raises two fundamental questions that need to be considered: firstly, when should the audi alteram partem principle (referred to as ‘audi principle’) be applied? Secondly, can the audi principle be whittled away in the light of the Constitution?

[37]  Regarding the first question the applicant’s counsel Mr De Wet contended that the audi principle was not applied prior to the first respondent issuing the s 47 notice. It is trite, that generally a party should be heard before an adverse decision is taken by an official or body concerned unless there are exceptional circumstances, for instance where the party making the decision is required to act with expedition or for some reason it is not feasible to accord a hearing before the decision is taken. (21)

[38]  In retort the first respondent’s counsel relied on Hindry v Nedcor Bank Ltd and Another. (22) It was a case concerning the appointment of a bank as an agent in terms of s 99 of the Income Tax Act to recover refunds made in error. On the basis of this case Mr Cloete submitted that there could be no complaint of unfairness or that the audi principle had not been applied, even though the applicant had an opportunity of being heard after the adverse decision had been taken.

[39]  This aspect of ex post facto hearing was considered in J in Rangani v Superintendent General, Department of Health and Welfare, Northern Province. (23) It was a case about a decision to suspend the applicant’s disability pension which was neither overtly nor implicitly sanctioned by statute. In the light of the Constitution, Kirk-Cohen J stated:

‘In my view, the applicant had an existing right which was not only threatened but suspended or terminated. She also had a legitimate expectation to a prior hearing before her pension was terminated or suspended. Procedurally fair administrative action in casu includes the right to be heard prior to any deprivation. See Traub’s case supra. Insofar as it is suggested that in this case an ex post facto hearing was both permissible and appropriate I am of the opinion that, on the facts there is no justification to apply that principle. Compare, for example Burns, Administrative Law under the Constitution at 168 and 169. In any event, there was no ex post facto hearing at all.

Footnotes :

20 Orangezicht Estates Ltd v Cape Town Council (1906) 23 SC 296 at 308; Van Eck NO and Van Rensburg NO v Etna Stores 1947 (2) SA 984 (A) at 996-7.

21 Administrator, Transvaal and Others v Traub and Others 1989 (4) SA 731 (A) at 750C-F; Attorney-General, Eastern Cape v Blom and Others 1988 (4) SA 645 (A) at 665A-666B.

22 1999 (2) SA 757 (W) (1999 (4) JTLR 77), 61 SATC 163.

23 1999 (4) SA 385 (T).

Besides the Constitution, common law and natural justice postulates as a sine qua non the application of the audi alteram partem rule. This requirement is of ancient origin and I refer to R v University of Cambridge [1723] 1 Strange 557 where the following was said:

‘I remember to have heard it observed by a very learned man upon such an occasion, that even God Himself did not pass sentence upon Adam before he was called upon to make his defence. ‘Adam, says God, where art thou? Has thou not eaten of the tree, whereof I command thee that thou shouldst not eat?’ And the same question was put to Eve also.’

. . .

I am of the view that in terms of common law and natural justice and also in terms of the Constitution, which enshrines common law and natural justice, and on the facts of this case, the applicant had the right and/or legitimate expectation to a hearing before her pension was suspended that was not accorded to her.’ (24)

[40]  Having regard to the supremacy of the Constitution, I do not consider Hindry’s case as authority for the issue pertinent in the present matter. The issue in that matter was about a different statutory provision and under different factual circumstances. In my view the denial of the audi principal prior to the issuing of the s 47 notice by the first respondent infringed the provisions of s 33(1) of the Constitution since: ‘everyone has the right to administrative action that is lawful, reasonable and procedurally fair’. It was not contended on behalf of the first respondent that the denial of a hearing before the issuing of the s 47 notice was necessitated by exceptional circumstances or the infringement was reasonable and justifiable. Therefore, the action taken by the first respondent was unlawful and null and void.

[41]  I now turn to consider the second question, that is, whether the audi principle can be whittled away in the light of s 33 of the Constitution. This question arises as a result of Mr Cloete’s reliance on Contract Support Services and Others v Commissioner of Inland Revenue and Others.(25) This case was an application for interim orders to review and set aside the Commissioner’s decision in issuing notices in terms of s 47 of the VAT Act. Brett AJ held,

‘that not all administrative acts required the application of the audi alteram partem rule before they were given effect to. Section 47 itself required no prior hearing and, in addition, the requirement of a prior hearing would defeat the very purpose of the notice by altering the defaulting VAT payer of the intention to require payments from the latter’s debtor, thus making it possible for the VAT payer to defeat this end. By necessary implication the provisions of s 47 therefore excluded the audi alteram partem principle.’ (26)

[42]  With all due deference, I respectfully disagree with Brett AJ’s conclusion. My point of departure is twofold. First, Lord Morris in Ridge v Baldwin and Others (27) stated:

‘[The audi principle] is something which is basic to our system: the importance of upholding it transcends the significance of any case.’

[43]  Section 33(1) constitutionalises the ancient rules of natural justice: audi alteram partem and nemo iudex in sua causa by adding a dynamic third

Footnotes :

24 At A 394F-G – 395A.

25 1999 (3) SA 1133 (W) (1999 (8) JTLR 191), 61 SATC 338.

26 At 1134F-G. See also at 1146C-E; 1147A-B; 61 SATC at 339-40, see also at 350.

27 [1963] 2 All ER 66 (HL) at 102I.

dimension: the duty to act fairly. (28) This complementary facet entitles a person to procedural fairness which Lord Morris of Borth-y-Gest in Wiseman v Boreman (29) aptly described as:

‘The principles and procedures are to be applied which, in any particular situation or set of circumstances, are right and just and fair. Natural justice . . . is open ‘fair play in action’.’

[44]  In my view, therefore, the right to a hearing encapsulated in the audi principle cannot be whittled away by the common law presumption of interpretation under the rubric of ‘by necessary implication’. Chaskalson P in Pharmaceutical Manufacturers Association of SA and Another; In re: Ex parte President of the Republic of South Africa and Others, (30) said:

‘The common law supplements the provisions of the written Constitution but derives its force from it. It must be developed to fulfil the purposes of the Constitution and the legal order that it proclaims – thus, the command that law be developed and interpreted by the courts to promote the ‘spirit, purport and objects of the Bill of Rights’. This ensures that the common law will evolve within the framework of the Constitution consistently with the basic norms of the legal order that it establishes. There is, however, only one system of law and within that system the Constitution is the supreme law with which all other law must comply.’

[45]  Hence, neither the audi-principle nor the right to procedural fairness can competently be excluded by the common law interpretational device of ‘by necessary implication’. It may only be limited by s 36(1) of the Constitution. (31) Subsection (2) of s 36 is emphatic that no law may limit any right entrenched in the Bill of Rights.

[46]  Secondly, given the paramountcy and potency of the Bill of Rights, s 47 of the VAT Act must indeed yield to s 33(1) of the Constitution. In the circumstances, the fiscus owes a legal duty to the general body of taxpayers to act fairly when deploying its discretionary powers which are subject to the requirements of good management, namely, by promoting and maintaining a high standard of professional ethics, efficient, economic and effective use of resources, providing a service that is impartial, fair, equitable and without bias as well as responding to the people’s needs, and fostering transparency by providing the public with timely accessible and accurate information.(32) Thereby ensuring that that there are no favourites and no sacrificial victims.(33) Sir Thomas Bingham MR (as he then was) in R v Inland Revenue Commissioner ex parte Unilever plc and Related Application said:

‘Public authorities in general and taxing authorities in particular are required to act in a highly principled way, on occasions being subject to a stricter duty of fairness than would apply as between private citizens. This approach is reflected in Lord Mustill’s

Footnotes :

28 Van Huyssteen and Others NN0 v Minister of Environmental Affairs and Tourism and Others 1996 (1) SA 283 (C) at 304A-B; 305C-D; Maharaj v Chairman, Liquor Board 1997 (1) SA 273 (N) at 277F-G; Du Preez and Another v Truth and Reconciliation Commission 1997 (3) SA 204 (A) at 231G.

29 [1971] AC 297 (HL) at 308H-309B.

30 2000 (2) SA 674 (CC) (2000 (3) BCLR 241) in para [49].

31 Above n 15.

32 Section 195(1)(a), (b), (d), (e) and (g) of the Constitution.

33 See generally Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93 at 112-113; Preston v Inland Revenue Commissioners [1985] 2 All ER 372 at 339; F & I Services Ltd v Custom and Excise Commissioners [2000] STC 364 (QB) at 377; Income Tax Case 1674 (2000) 62 SATC 116 (ZA).

reference in Matrix-Securities . . . to ‘the spirit of fair dealing which would inspire the whole of public life’.’ (34)

[47]  Considering that s 47 is neither limited by s 36(1) of the Constitution nor expressly or impliedly excluded and having regard to the particular facts and circumstances of this case I do not regard myself bound to follow the Contact Support Service’s decision. In my judgment the applicant should have been accorded a hearing by the first respondent prior to the issuing of the s 47 declaration. In reaching this decision I am mindful that in a nascent democracy such as ours with a developing economy the fiscus plays a vital role in the public interest of collecting taxes because the economic well-being of the nation is a fundamental imperative in pursuit of developmental goals to improve the quality of life of all citizens and liberate the potential of all. The Constitution calls for instilling the basic democratic values through good management in the public administration which includes the revenue service. To attain this objective the precept of just administrative action imbues a degree of flexibility. There may be circumstances, when the needs of the fiscus in the public interest may take precedence over individual expectations. This certainly requires a perceptive recognition of the greater public interests in acknowledging the complexities and exigencies for efficient and effective tax collection. The fiscus has an overriding duty to act reasonably and fairly towards all taxpayers but those who purloin by means of gratuitous tax profiteering, evasion or avoidance stratagems must face the full rigour of the law without misusing the Constitution which may legitimately supersede those rights of exaggerated individualism.

[48]  In conclusion, on the facts of this case the first respondent should have given the applicant a hearing before issuing the s 47 notice. The first respondent’s action was unlawful and null and void since he was required to act reasonably and fairly. Accordingly, the first respondent’s decision in issuing the notice is set aside.

[49]  The applicant asked that the first respondent should be ordered to pay costs on the scale as between attorney and client. In almost every opposed application, the successful party is put to expense which, consequently, is seen to be unnecessary. But, it is only where the unnecessary expense is something which the party ought not to bear that a special order for costs is made. Generally, that situation exists only where the unsuccessful party has acted unreasonably in the manner of conducting the proceedings or where the conduct is in some way reprehensible.(35)

[50]  The applicant is entitled to his costs but it is fair and just that the first respondent was justified in opposing the application in determining the nature and ambit of his powers under s 47 as a matter of public importance. The first respondent was accordingly confronted with either to submit to the applicant’s claim or test the nature and ambit of statutory provision which was neither unreasonable nor in any way reprehensible. I, accordingly, do not consider that this matter invites an award of attorney and client costs. In the circumstances, the applicant is entitled to the costs of the opposed application.

[51]  In the result, I make the following order:

(1) Setting aside the first respondent’s decision of 13 February 1998 in declaring the Mpumalanga Provincial Government as an agent of the applicant in terms of s 47 of the Value Added Tax Act 89 of 1991, regarding all monies due and payable to the applicant by the second respondent or the Mpumalanga provincial government.

(2) The first respondent is ordered to pay the amount of R465 765,46 to the applicant.

(3) The first respondent is ordered to pay interest on the amount of R465 765,46 from 13 February 1998 (that is, the date of the s 47 notice when the applicant’s monies were seized), at the rate of 15,5% per annum, to the date of payment.

(4) The first respondent is ordered to pay the applicant’s costs.

Footnotes :

34 [1996] STC 681 (CA) at 695f (my emphasis in italics).

35 In re: Alluvial Creek Ltd 1929 CPD 532 at 535.