Page 759 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
operated fully with SARS during the audit and agreed to the capital amount of the VAT liability raised on assessment, the late payment penalty of 10% and the interest imposed due to its non-compliance. It did, however, object to the 200% additional tax that was imposed under s 60 of the VAT Act on the basis that it did not have any intent to evade taxation. Subsequent to the audit, the taxpayer stopped operations and engaged an accountant to compile the accounting records of the taxpayer, including the tax liabilities.
Mr Y on behalf of the taxpayer submitted that when he took over the business from his father in 2006 he did not understand how the VAT system operated and merely charged VAT on sales as they had been charged with VAT on purchases without knowing that VAT had to be paid to SARS. He, however, did not dispute that no returns had been submitted between 2001 and 2010 and that no accounting of cer had been appointed during that period. Mr Y also contended that although he accepted the assessed amounts, neither he nor the taxpayer had any assets to satisfy the amount claimed by SARS.
SARS stated that the taxpayer had been indicated as dormant since 2000 with no returns being submitted since then. SARS con rmed that it had the taxpayer’s full cooperation during the audit; however, SARS has, based on the documents provided by the taxpayer, arrived at different amounts compared to what the accountant arrived at with various invoices being missing and various inputs being denied. SARS did, however, concede that the deregistration of the taxpayer for VAT could have occurred without the taxpayer’s knowledge as the deregistration was a result of the taxpayer not meeting the minimum turnover threshold. The witness of SARS also conceded that he did not agree with the 200% penalty imposed by the SARS Penalty Committee and that under the TAA, the taxpayer would have been viewed as a standard case with a 150 per cent penalty.
The court therefore had to determine the various matters between the parties which included the in limine matters raised by the taxpayer, which law applied to the matter subsequent to the coming into operation of the Tax Administration Act 28 of 2011 (‘TAA’) and whether the amount of additional tax was properly chargeable.
Held
In limine objections
The taxpayer had raised four in limine objections namely that (1) SARS had breached the secrecy provisions in the TAA by disclosing who the taxpayer was on which the audit was performed which led to the taxpayer being selected for audit; (2) SARS had not complied with the pre-trial discovery requirements by failing to make available the minutes of the penalty committee meeting; (3) the onus of proof and duty to begin proceedings was on SARS which it alleged had been agreed with the CSARS in pre-trial; and lastly (4) the additional tax provisions were unconstitutional. The court dismissed all four matters on the basis that (1) the secrecy matter was not relevant to the current proceedings; (2) the minutes of the penalty committee were also not relevant as the tax court would be hearing the matter anew; (3) rule 22 of the tax court rules provided for the taxpayer to begin and reason existed to depart from this, notwithstanding the onus being on CSARS; and lastly (4) the taxpayer, as conceded, had not followed the proper procedure to review on constitutional grounds, including that the tax court had no jurisdiction on the matter in any event.
Application of the TAA
The 200 per cent additional tax had been imposed in terms of s 60 of the VAT Act in 2010, which section had been repealed in 2012 with the coming into operation of the TAA. Furthermore, the appeal had been noted on 11 April 2012 prior to the TAA commencement date of 1 October 2012. The court stated that the transitional provisions in s 270 of the TAA allowed the ongoing proceedings to continue under the TAA subject to no prejudice resulting therefrom. The court concluded without ruling on the matter that the onus for the additional tax rested on SARS in terms of s 270, read with 129 (3) of the TAA. The court also concluded that the determination of the intention to evade, as made in the discretion of CSARS, is a question of fact to be decided by the court as the tax court is not an appeal or review court in the normal sense but rehears the whole matter as a court of rst instance.
Additional tax
The court concluded that Mr Y was not a credible witness as to his knowledge and awareness of the taxpayer’s VAT responsibilities and was therefore unable to accept his contention that he was unaware of the true role of VAT. The court stated that in examination, Mr Y, as a person with matric, was readily able to explain and understand various commercial concepts such as selling price and cost price and as a previous employee, understood the need for submitting his IRP 5 to SARS each year. The court was therefore unable to understand Mr Y’s confusion as to the application of VAT. The court held that it cannot rely on Mr Y’s suggestion of ignorance of VAT as being acceptable. The court concluded on the facts that SARS had discharged the onus that the taxpayer knew he had an obligation to discharge and chose not to do so which meant it sought to evade the payment of VAT.
In imposing a penalty the court was mindful of the relevant factors such as the punishment of the taxpayer and the deterrent effect on the taxpayer and other taxpayers. The court concluded that it is mindful that a 150 per cent penalty would have been imposed under the TAA and that that provision was not applicable in the current instance. The court therefore held that a penalty of 100%, given the circumstances, was appropriate.
Costs
The court noted that the taxpayer had only sought to appeal the additional tax and was largely successful with such appeal. No cost award was made and each party must pay its own costs.
8. Capstone 556 (Pty) Ltd v CSARS [2014] JOL 32201 (WCC)
Introduction
This is an appeal by the taxpayer to a full bench of the Western Cape High Court against the judgment of the Western Cape Tax Court (ITC 13003 (13 June 2013)) that an amount received by the taxpayer for the sale of shares constitutes a
SAIT CompendIum oF TAx LegISLATIon VoLume 1 751
CASE DIGEST 2013-2014