Background

Under Rule 31 of the Tax Court Rules, the South African Revenue Service (SARS) must file its statement of grounds of assessment and opposing appeal within 45 business days after receiving the taxpayer’s Rule 10 notice of appeal. If SARS fails to meet this deadline, the taxpayer may invoke Rule 56(1)(a), placing SARS on terms to remedy the default within 15 business days or face default judgment in terms of section 129(2) of the Tax Administration Act 28 of 2011 (TAA).

In the Virgin Mobile case, SARS missed the initial 45-day deadline but filed its Rule 31 statement within the 15-day period stipulated in the taxpayer’s Rule 56 notice. SARS, however, did not simultaneously apply for condonation in terms of Rule 52. The taxpayer argued that the late filing was invalid without a condonation application and sought a default judgment.

Voluntary excuse versus opposing party notice

Before we delve into the SCA’s findings, let’s recap the distinct roles of Rule 52 and Rule 56 of the Tax Court Rules.

Rule 52 allows a defaulting party to apply to the Tax Court for condonation where it has failed to comply with a procedural deadline, typically on its own initiative and before a Rule 56 notice is served. In contrast, Rule 56 allows the opposing party to issue a notice demanding compliance within 15 business days, failing which it may apply for default judgment under section 129(2) of the TAA.

In essence, Rule 52 is a request for leniency, while Rule 56 is a demand for compliance. The two serve distinct procedural purposes.

The SCA’s findings

The SCA rejected the taxpayer’s position, holding that compliance with a Rule 56 notice within the 15-day period does not require a separate application for condonation. In the court’s view, Rule 56 operates as a complete mechanism for addressing procedural default. Where a party remedies its non-compliance within the grace period afforded by Rule 56, the matter should proceed on its merits.

The SCA likened Rule 56 to Rule 26 of the Uniform Rules, which allows a party to lift a bar by simply complying within the notice period. It emphasised that once SARS complied with the Rule 56 notice, “the purpose of Rule 56 was achieved”, and no condonation under Rule 52 was necessary. Requiring both would, in the court’s words, introduce “unnecessary duplication” and procedural inefficiency.

Why this judgment matters

The ruling confirms that, while procedural timelines remain important, the courts will not endorse outcomes that elevate form over substance, particularly where a party acts swiftly to correct a default. SARS, having responded within the timeframe specified in the Rule 56 notice, was entitled to proceed without the need for condonation.

For taxpayers, this judgment offers the following key takeaways:

• Rule 56(1) should be used as a prompt and not a hammer. The SCA clearly set out that the purpose of Rule 56 is to drive compliance. If the defaulting party responds within 15 days, a default judgment is no longer available, even if the original non-compliance was clear.
• Plan your timelines carefully. Rule 56 creates a built-in 15-day extension period. If a party misses the original deadline but files within the Rule 56 notice period, litigation must proceed on the merits. Only where non-compliance continues after the Rule 56 notice period will the taxpayer be entitled to seek a default judgment under section 129(2) of the TAA.
• Be careful of overreach. Once SARS complied with the Rule 56 notice in Virgin Mobile, the taxpayer’s continued pursuit of a default judgment was found to be an “irregular step”. Attempting to extract procedural advantage where the default has been cured may result in adverse cost orders.

The “possum” paradox

The SCA acknowledged a perceived tension in the Rules’ design and in this context, the following statement by Musi AJA is apt:

“The majority of the high court found it irrational that a party can ignore the Rules and wait for a Rule 56(1) notice to comply therewith and so avoid having to apply for condonation. It is how the Rules were designed. They allow a party to play possum…”

It arguably refers to the implied fallacy in the Rules that if one engages with SARS on an amicable basis, asking it to comply and it continuously fails (especially if it does not reveal the reasons behind the delay and whether they are reasonable), by serving the Rule 56 notice, the taxpayer could be shooting themselves in the foot. It also becomes, to some extent, a game of procedural poker.

For those taxpayers, the SCA has the following instructive lesson:

“In an adversarial system such as ours, where the Rules allow the parties to regulate the advancement of a matter, specifically before litis contestatio, it is important for the innocent party to timeously invoke a Rule that is aimed at ensuring compliance with the Rules. The innocent party must be vigilant. The law favours and assists those who timeously pursue their procedural and substantive rights, and not those who delay or neglect them. The taxpayer could have invoked Rule 56(1) immediately after the lapse of the 45 days stipulated in Rule 31.”

There is therefore little doubt that this judgment will have an impact on the interactions and tactical approaches between taxpayers and SARS in relation to compliance with the time periods in the Tax Court Rules. One thing is clear, Rule 56 is a powerful enforcement tool, but its strength lies in timely invocation.

Conclusion

This judgment reinforces that tax procedure must serve fairness, not formalism. The SCA’s approach ensures that technical non-compliance, if swiftly remedied, does not derail substantive progress. However, it also raises important questions about what the most appropriate method to adopt is when enforcing compliance with stipulated time periods.

For both SARS and taxpayers, the message is clear: resolve procedural defaults promptly and focus on the merits.