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S.Africa: Tax Case – No evidence justifying penalty

No evidence justifying penalty

On November 18 2014 the Tax Court ruled on AB (Pty) Ltd v The Commissioner for the South African Revenue Service (Case 1132, as yet unreported).


In this matter the South African Revenue Service (SARS) audited and assessed a vendor in respect of value added tax (VAT). It appeared that the vendor could not adequately explain or provide supporting documentation in respect of discrepancies between its VAT declarations for the relevant periods and the VAT control account in its books.

The vendor objected against the assessments, but the objection was only partially allowed. The revised assessments, following the partial allowance, were in respect of:

  • overstated input VAT;
  • additional tax at 200{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} in terms of Section 60 of the VAT Act (89/1991) (as it read at the time);
  • a 10{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} late payment penalty in terms of Section 39 of the VAT Act; and
  • interest.

The vendor appealed against SARS’s decision not to allow the objection in full. However, the vendor subsequently conceded that the capital amount of the tax was due and proceeded with the appeal only in respect of the additional tax, late payment penalty and interest.

In support of its appeal, the vendor submitted to SARS that it had never intended to evade tax and that it had been under the impression that its auditor was correctly dealing with its tax affairs (not having any tax or accounting experience itself). Further, it requested that SARS be lenient and waive the penalties and interest.

In respect of the 200{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} additional tax, the parties agreed that SARS had the duty to begin and that the onus was on SARS to prove that the imposition of the additional tax was correct.

SARS called one of its auditors as a witness, who recommended to an internal committee that the additional tax be imposed. However, the decision to impose the additional tax was ultimately made by a more senior committee; thus, little reliance could be placed on the witness.

The court noted that SARS placed no evidence before the court as to how and why the senior committee arrived at its decision; thus, there was no evidence that would enable the court to assess the correctness of the decision. The court also noted that SARS, at the outset of the hearing, advised the court that it no longer sought to impose 200{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} additional tax, but only 100{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} additional tax. This implied that SARS conceded that the decision of the committee was incorrect.


The court took the approach that a court is allowed to re-hear the entire matter where the correctness of a discretionary decision (which is subject to objection and appeal) is contested.

On such a rehearing, SARS must lead evidence afresh to show how the percentage of additional tax was arrived at and that it was correct; but in this case no such evidence was presented. SARS did thus not discharge the onus, which it had accepted.

The court accordingly set aside the imposition of the additional tax and directed that “the additional tax be remitted to nil”. The court did not deal with the late payment penalty and the interest.

Heinrich Louw