Several recent High Court decisions have held that tax judgments taken by SARS cannot be rescinded. The Constitutional Court has now set the record straight, holding that tax judgments can be rescinded.
In Barnard Labuschagne Inc. v CSARS the taxpayer applied to the Western Cape High Court to rescind a tax judgment, not on the basis that the assessment was wrong, but rather that SARS had failed to appropriate payments to the relevant assessed taxes. The High Court held that tax judgments cannot be rescinded. It made much of the fact that SARS can amend or withdraw a judgment, using this to justify that it is not a final judgment and not like an ordinary civil judgment.
After being refused leave to appeal by the High Court and the Supreme Court of Appeal, leave was sought from the Constitutional Court (“ConCourt”).
The ConCourt pointed out that several recent High Court decisions, including the present one, had failed to apply binding precedent. Following judicial precedent is a core component of the rule of law, which is a founding value of the Constitution. Specifically, the 1973 Appeal Court decision Kruger v Sekretaris van Binnellandse Inkomste and the 2001 ConCourt case Metcash Trading Ltd v CSARS were overlooked. Both these cases were precedent for the fact that tax judgments can be rescinded. The High Court was bound by these decisions and had to follow them.
According to the ConCourt, tax judgments in the Magistrates Court can be rescinded in terms of section 36 of the Magistrates Court Act, while those in the High Court can be rescinded in terms of the common law.
However, the ConCourt cautioned that if the grounds for the rescission are those that are or can be pursued through the tax objection and appeal process, the taxpayer will not be able to establish a bona fide defence. Before granting a rescission, a taxpayer must give a satisfactory explanation for the default and show that on the merits, he has a bona fide defence with some prospects of success.
It is welcomed that the uncertainty around the rescindability of tax judgments has finally been put to rest by the apex court. Taxpayers must however be mindful that the instances where a rescission of a tax judgment can be sought are limited.
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