While both sides present equally topical issues to the court’s table, the question thus becomes whether a party’s misstep in court procedure trumps the merits in their case. This question was faced in the Tax Court (Court) in the case of Taxpayer N v the Commissioner for the South African Revenue Service (Case No 2022/37). In this case, the Court was faced with ascertaining whether the South African Revenue Service’s (SARS) delay in its submission of a Rule 31 statement was of good cause such that a default judgment order may be granted against the appellant.

The appellant is a private company and had conducted its routine payroll taxes for each of the one-month periods from April 2019 until February 2021. In completing these taxes, the appellant claimed Employment Tax Incentive allowances for these periods in terms of the Employment Tax Incentive Act, Act 26 of 2013 (ETI Allowances). SARS subsequently issued the appellant with revised assessments in which it disallowed the ETI Allowances claimed by the appellant.

The appellant disputed the revised assessments and objected to same on 27 September 2021. Its objection was disallowed on 12 October 2021. The appellant then appealed against the disputed assessment on 12 November 2021. Both parties elected not to refer the dispute to alternative dispute resolution proceedings in terms of rule 10(2)(e) and rule 13(2) of the Rules promulgated under section 103 of the Tax Administration Act, 2011 (TAA). As such, the respondent’s Rule 31 statement detailing the grounds on which it disputed the assessment and opposed the appeal was due within 45 days from 12 November 2021 which would be by 15 February 2022. Following the expiry of these 45 days, the appellant delivered a notice in terms of rule 56(1)(a) to SARS. This notice afforded SARS with an additional 15 days from the date of notice to remedy its failure to file its Rule 31 statement. 

When the respondent failed to remedy its default, the appellant proceeded to file a notice in terms of rule 56(1)(a), in terms of which it sought an order:

1)  for its appeal against the assessments in respect of its payroll taxes to be upheld in terms of rule 56(2)(a) of the Rules; and

2)  to direct SARS to issue reduced assessments in respect of each of the assessments.

At this point, 133 business days had lapsed after 15 February 2022, being the date on which SARS’ Rule 31 statement was initially due. While SARS did seek condonation from the court for its late filing, the appellant countered this request on the basis that the respondent had failed to demonstrate good cause for this default to be condoned.

Findings

This led the court down a rabbit hole of understanding just what it takes for good cause to be effectively established, and in this case, whether same was established well enough for the court to grant the appellant default judgment. In this deep dive, the court considered varying positions taken by other courts on similar issues. It began by first considering what Rule 56(2) provides which is that in the absence of good cause demonstrated by the defaulting party for the default in issue, an order may be made under section 129(2) of the TAA. With reference to case law, the TAA and the Rules, the court took into account the reasoning behind the delay, the prospects of success of SARS’ case and the overriding interest of justice in determining good cause in this matter and came to the following conclusion.

The Court found that there was not sufficient explanation to explain the delay in the delivery of the Rule 31 statement. SARS’ legal representative too conceded that there was no adequate explanation for the delay in the delivery of the Rule 31 statement. When considering the prospects of success, respondent was of the opinion that the appellant did not qualify for this allowance for various reasons. Further to this, SARS requested the appellant in terms of rule 7(2)(b)(iii) to furnish documents to further substantiate its claim to the ETI Allowance. However, the appellant did not deliver the requested documents. If SARS’ grounds for assessment and opposing the appellant’s appeal were to be upheld, it would demonstrate that the appellant fraudulently claimed allowances in terms of the ETI Act.

With the above in mind, the overall consideration was whether it would be in the interest of justice to condone the default. Considering the reason behind the delay, SARS’ prospects of success and the overarching interests of justice, the court was of the view that SARS demonstrated good cause as to why the default judgment should not be granted in favour of the appellant. However, adhering to court processes is just as important and the court still wanted to demonostrate this fact. As such, due to the delay in the delivery of the Rule 31 statement, the court ordered costs on an attorney client scale.

With respect, while one appreciates some of the issues raised in the judgment, the court’s interpretation of the “good cause” criterion raises the risk of watering down the utility of the default judgment procedure. However, one must keep in mind that Tax Court judgments are not binding and that the court’s finding was likely influenced by the facts, potentially including facts not referred to in the judgment.