MALABA
DCJ:
In Chambers.
This
Urgent Chamber Application was placed before me because the Chief
Justice was not available to hear it. The application raised two
questions for determination. The first question is whether an interim
order suspending the operation of legislation compelling payment by a
taxpayer of the amount of tax liable to be paid notwithstanding an
appeal to the Fiscal Appeal Court or pending a decision of a court
should be granted pending the hearing and determination of the main
application challenging the constitutional validity of the
legislation by the full bench of the Constitutional Court. The second
question is whether an order should be made directing that the main
application be heard on an urgent basis.
The
facts which gave rise to the questions for determination are these.
The applicant is a company incorporated under the laws of Zimbabwe
carrying on the business of supplying transport services and selling
of fuel. The respondent is an administrative authority established in
terms of the Revenue Authority Act [Chapter
23:11].
It is entrusted with the responsibility of assessing taxpayers for
tax liability and collecting revenue due to the fiscus in terms of
the Value Added Tax Act [Chapter
23:12](“the
VAT Act”) and the Income Tax Act [Chapter
23:06]
(“the Income Tax Act”).
The
applicant has been a registered operator in terms of the VAT Act
since October 2010. As from 2010, the applicant has been supplying
transport services to and purchasing fuel for sale at its service
station from an entity called Sakunda Energy. It has always been
aware of its obligation to charge value added tax on the invoices for
the transport services supplied to Sakunda Energy. Instead of
submitting returns of value added tax based on the invoices on the
transport services supplied, the applicant set off the costs of fuel
purchased from Sakunda Energy against the invoices for the transport
services and submitted returns for value added tax in respect of the
balance.
The
respondent commenced investigations into the tax affairs of the
applicant in October 2013. Upon examination of the applicant's
books of account, the respondent concluded that the applicant had
under-declared the value added tax charged on the invoices on
transport services supplied to Sakunda Energy, as a result of the
setting off of the cost of fuel purchased against the value of the
invoices for the transport services. The applicant was advised of the
under declaration on 11 December 2013. The respondent was of the view
that the value added tax on the invoices was liable to be paid to the
fiscus regardless of the purpose for which transport services were
supplied.
On
7 February 2014, the respondent issued the applicant with an
assessment of value added tax liability in an amount of
US$1,619,161.32 including penalties and interest. According to the
respondent, it was what the applicant and Sakunda Energy were doing
in their business transactions as revealed by the examination of
books of account, which produced evidence of tax evasion.
The
applicant was dissatisfied with the tax liability assessment arguing
that it did not owe the whole amount of the value added tax assessed
to be due and payable. On 27 February 2014, the applicant lodged a
formal objection with the Commissioner against the correctness of the
assessment in terms of section 32 of the VAT Act. The allegation was
that the respondent had adopted a wrong method of assessing the
applicant's tax liability. The respondent was accused of having
misunderstood the nature of the applicant's business operations.
Correspondence was exchanged on the matter between the parties
between 14 and 17 March 2014. The Commissioner disallowed the
objection in respect of the assessment of value added tax liability
on 13 May 2014.
The
applicant noted an appeal to the Fiscal Appeal Court against the
correctness of the assessment on 23 May 2014.
On
27 May 2014, the Commissioner reminded the applicant of its
continuing obligation to pay the amount of the tax assessed to be due
and payable notwithstanding the noting of the appeal to the Fiscal
Appeal Court. On 30 May 2014, the applicant's tax consultant simply
expressed a view to the respondent that it would be prudent to await
the outcome of the appeal.
Concurrently
with the review of the applicant's value added tax affairs, the
respondent carried out an assessment of the applicant's income tax
liability. The respondent assessed the applicant's income tax
liability to be an amount of US$2,066,652.84 including penalties and
interest. On 3 June 2014 it sent to the applicant, a complete tax
computation for both value added tax and income tax. The respondent
threatened to put in place measures to recover the taxes in terms of
section 48 of VAT Act should the applicant fail to pay the money
voluntarily. It later appointed three of the applicant's bankers
and Sakunda Energy as agents for the payment of the value added tax
assessed to be due and payable.
On
5 June 2014, the applicant filed an application with the
Constitutional Court in terms of section 85(1) of the Constitution,
challenging the validity of sections 36 of the VAT Act and 69(1) of
the Income Tax Act. The allegation is that the legislative provisions
violated the applicant's fundamental right of access to the courts
enshrined in section 69(3) and the right to administrative justice
guaranteed under section 68(1) of the Constitution. The applicant
sought, as the relief, a final order declaring sections 36 of the VAT
Act and 69(1) of the Income Tax Act to be ultra
vires
sections 68(1) and 69(3) of the Constitution and therefore void.
Simultaneously
with the filing of the main application, the applicant filed the
urgent chamber application seeking an order that the main application
be heard on an urgent basis. It also sought interim relief in the
following terms:
“INTERIM
RELIEF GRANTED
1.
Pending the hearing and finalization of Applicant's appeal in the
Fiscal Appeal Court, Applicant's obligation to pay value added tax
and income tax be and is hereby suspended.
2.
Respondent be and is hereby ordered to forthwith provide written
reasons for its decision to compel payment of value added tax and
income tax pending Applicant's appeal to the Fiscal Appeals Court.”
Section
36 of the VAT Act provides:
“36.
Payment of Tax pending appeal
The
obligation to pay and the right to receive and recover any tax,
additional tax, penalty or interest chargeable under this Act shall
not, unless the Commissioner so directs, be suspended by any appeal
or pending the decision of a court of law, but if any assessment is
altered on appeal or in conformity with any such decision or a
decision by the Commissioner to concede the appeal to the Fiscal
Appeal Court or such court of law, a due adjustment shall be made,
amounts paid in excess being refunded with interest at the prescribed
rate (but subject to section forty-six) and calculated from the date
proved to the satisfaction of the Commissioner to be the date on
which such excess was received, and amounts short-paid recoverable
with penalty and interest calculated as provided in subsection (1) of
section thirty-nine.”
The
obligation to pay the amount of tax assessed to be due and payable is
imposed by s 38 of the VAT Act.
Section
69 of the Income Tax Act provides:
“69.
Payment of tax pending decision on objection and appeal.
(1)
The obligation to pay and the right to receive any tax chargeable
under this Act shall not, unless the Commissioner otherwise directs
and subject to such terms and conditions as he may impose, be
suspended pending a decision on any objection or appeal which may be
lodged in terms of this Act.
(2)
If any assessment or decision is altered on appeal, a due adjustment
shall be made, for which purpose amounts paid in excess shall be
refunded and amounts short paid shall be recoverable.”
The
obligation to pay income tax assessed to be due and payable is
imposed by section 71(1) of the Income Tax Act.
Mr
Sakhe
for the respondent took a point in
limine.
It is that section 167(5)(a) of the Constitution makes provision for
the making of Rules of the Constitutional Court allowing a person to
bring a constitutional matter directly to the Constitutional Court
with or without leave of the Constitutional Court, when it is in the
interests of justice to do so. He argued that the makers of the
Constitution did not envisage a situation where a person alleging
that a fundamental right or freedom enshrined in [Chapter 4] has
been, is being or is likely to be infringed can approach the
Constitutional Court for appropriate relief without first showing, on
an application, that it was in the interests of justice to do so.
Mr
Sakhe's
contention is based on the fact that whilst the Constitutional Court
has jurisdiction to decide only constitutional matters and those
matters reserved for its exclusive jurisdiction under section 167(2)
of the Constitution, it certainly is not the only court with
jurisdiction to decide constitutional matters. The Supreme Court and
the High Court have jurisdiction to decide constitutional matters.
Mr
Uriri
relied on the broad terms of section 85(1) of the Constitution giving
any of the persons listed under the section the right to approach “a
court” alleging that a fundamental right or freedom enshrined in
Chapter 4 has been, is being or is likely to be infringed.
Mr
Sakhe's
contention finds support from a decision of the Constitutional Court
of South Africa in Satchwell
v President of the Republic of South Africa & Another
2003 (4) SA 266 (CC).
Not
only was the decision in Satchwell
supra
based on the construction of section 167(6)(a) of the Constitution of
the Republic of South Africa 1996 which has the same wording as
section 167(5)(a) of our Constitution, it was arrived at in the
light of section 38 which lists persons with the right to approach “a
competent court” alleging infringement of a fundamental right or
freedom in the same manner as section 85(1) of the Constitution.
The
fact that section 167(1)(a) of the Constitution defines the
Constitutional Court as “the highest court in all constitutional
matters” may suggest that its competence is to ensure the uniform
application of law and equal justice to all on constitutional matters
and should exceptionally decide the matter as a court of first
instance.
Whatever
the merits or demerits of Mr Sakhe's
argument there is no doubt that it raises an important constitutional
question. It is a matter for determination by the full bench of the
Constitutional Court.
As
a judge sitting in chambers, I have no competence to make a
pronouncement on the matter. It is after all a constitutional
matter. I now turn to decide the first question. It is important to
mention that the purpose of these proceedings is not to determine the
correctness or otherwise of the tax assessments made by the
respondent. That is the question to be determined by the Fiscal
Appeal Court in the appeal lodged by the applicant. On the question
before this Court, the decision is that a case has not been made for
the granting of the relief sought. The reasons for the decision
follow:
There
is no doubt that a judge of the Constitutional Court may grant
interlocutory relief by way of an interim order pending determination
of a constitutional matter by the full Bench of the court. Section
166(3) of the Constitution provide for interlocutory matters to be
heard by one or more judges of the court. See Williams
& Anor v Msipha N.O. & Ors
2010(1) ZLR 552(S) at 562H-563A.
The
applicant seeks an order suspending the statutory obligation to pay
the amount of the tax it was assessed to be liable to pay to the
fiscus pending the hearing and finalization of the appeal in the
Fiscal Appeal Court. It is in the heads of argument that the
applicant reveals that the relief sought is an interim interdict.
There is need to have regard to the substance and not the form of the
relief sought. The fact that the applicant calls the order sought an
interim interdict does not make it one.
The
subject of the application is not the kind of subject matter an
interdict, as a remedy, was designed to deal with. An interdict is
ordinarily granted to prevent continuing or future conduct which is
harmful to a prima
facie
right, pending final determination of that right by a court of law.
Its object is to avoid a situation in which, by the time the right is
finally determined in favour of the applicant, it has been injured to
the extent that the harm cannot be repaired by the grant of the
right.
It
is axiomatic that the interdict is for the protection of an existing
right. There has to be proof of the existence of a prima
facie
right. It is also axiomatic that the prima
facie
right is protected from unlawful conduct which is about to infringe
it. An interdict cannot be granted against past invasions of a right
nor can there be an interdict against lawful conduct. Airfield
investments (Pvt) Ltd v Minister of Lands & Ors
2004 (1) ZLR 511 (S); Stauffer
Chemicals v Monsato Company
1988 (1) SA 895; Rudolph
& Anor v Commissioner for Inland Revenue & Ors
1994 (3) SA 771.
The
applicant accepted in the founding affidavit that the respondent
acted lawfully in enforcing the obligation to pay the tax
notwithstanding the noting by it of the appeal to the Fiscal Appeal
Court against the correctness of the assessment. It did not allege
any unlawful conduct on the part of the respondent which would
justify the granting of an interdict.
It
also accepted that at the time the respondent put in place measures
to collect the tax, the provisions of sections 36 of the VAT Act and
69(1) of the Income Tax Act were binding on it. That means that the
applicant had no prima
facie
right in existence at the time not to pay the amount of tax it was
liable to pay to the fiscus. Sections 36 of the VAT Act and 69(1) of
the Income Tax Act protect a duty, not a right.
The
provisions are designed to remove any doubt in the mind of the
taxpayer, as to whether an appeal to the Fiscal Appeal Court, or a
decision of a court, would have the effect of suspending the
obligation to pay the tax assessed to be due and payable.
Sections
36 of the VAT Act and 69(1) of the Income Tax Act provide that the
Commissioner may, by a directive in appropriate circumstances give
the appeal to the Fiscal Appeal Court the effect they prohibit on the
obligation to pay the assessed tax. The Commissioner may, in the
exercise of discretion, and upon consideration of the facts presented
to him by the taxpayer, direct that the obligation to pay the tax be
suspended pending determination of the appeal by the Fiscal Appeal
Court or pending a decision by a court of law.
Whilst
sections 36 of the VAT Act and 69(1) of the Income Tax Act provide
that the occurrence of any of the specified events shall not suspend
the taxpayer's obligation to pay the tax assessed to be due and
payable, they at the same time create a remedy for the amelioration
of possible financial hardships faced by an individual taxpayer. They
give the Commissioner the discretionary power to suspend the
obligation pending the determination of the appeal by the Fiscal
Appeals Court or pending the decision by a court.
Failure
to fulfill an obligation may be due to a variety of circumstances.
The legislature decided to place the responsibility of deciding
whether or not the particular circumstances of a taxpayer, entitle
him or her to a directive suspending the obligation to pay the
assessed tax, on the Commissioner. A court of law would be acting
unlawfullly if it usurped the discretionary powers of the
Commissioner and ordered a suspension of the obligation on a taxpayer
to pay assessed tax pending determination of an appeal by the Fiscal
Appeal Court.
The
effect of the interim order sought by the applicant, has a direct
relevance to the determination of the question whether the obligation
imposed on a taxpayer to pay the amount of the tax assessed to be due
and payable, infringes the taxpayer's fundamental right of access
to a court and the right to administrative justice enshrined in ss
69(3) and 68(1) of the Constitution respectively.
Mr
Sakhe
put the matter in its proper context. He said that what the applicant
is seeking is an interim order suspending its statutory obligation to
pay the amount of the tax assessed to be due and payable pending an
anticipated declaration by the Constitutional Court of constitutional
invalidity of sections 36(1) of the VAT Act and 69(1) of the Income
Tax Act.
The
question is therefore not whether the respondent is likely to act
unlawfully in future so as to be interdicted. It is whether an
interim order should, in the circumstances, be granted suspending the
operation of provisions of Acts of Parliament pending the hearing and
determination by the Constitutional Court of the question of the
constitutionality of the statutory provisions.
There
is no basis on which the interim order sought may be granted except
the possibility relied on by the applicant that the existing
legislation would be held unconstitutional. Any court faced with an
application challenging the constitutionality of a statutory
provision is required to proceed on the presumption that the
legislation is constitutionally valid until the contrary is clearly
established.
The
principle of presumption of constitutional validity of legislation
pending determination of the main application is an important
limitation to the exercise of judicial power. Zimbabwe
Township Developers (Pvt) Ltd v Lou's Shoes (Pvt) Ltd
1983 (2) ZLR 376 (S) at 382B-D. By observing the principle, due
respect is accorded to the legislative branch of Government
consistent with the fundamental principle of separation of powers.
The task of the Constitutional Court is to declare legislation
invalid only after thorough examination of the factual and legal
issues. A finding has to be made first that there has been a
contravention of a fundamental right or freedom.
The
legal consequences of a decision by the Constitutional Court that a
law, a regulation or some of their provisions, are unconstitutional
are that they lose their legal force on the day of the publication of
the Constitutional Court decision. Until then, the law, regulation or
any provision has legal force. An impression should not be created in
the minds of right thinking members of the public that the outcome of
the hearing by the Constitutional Court of the question of
constitutionality of legislation has been pre-determined.
Sections
36 of the VAT Act and 69(1) of the Income Tax Act are laws of general
application. Although the applicant framed the interim order on the
belief that it would affect its immediate interests only, the truth
of it is that the relief cannot be granted without bringing into
question the efficacy of the whole revenue collection system. The
interim order would be suspending the operation of the statutory
provisions for all taxpayers who are under the same continuing
obligation to pay the assessed tax liability as the applicant. All
such taxpayers would obtain relief from the statutory obligation
premised on the presumed constitutional invalidity of the legislation
contrary to section 167(3) of the Constitution. The section makes it
clear that only the Constitutional Court has the power to make the
final decision whether an Act of Parliament is constitutional.
The
order would create uncertainty and confusion about the status of the
provisions of the Acts of Parliament. In MEC
Development Planning & Local Govt. v Democratic Party
1998 (4) SA 1157 at para. 61 the Constitutional Court of South Africa
on a similar issue said:
“It
is sufficient to point out here that considerable difficulties stand
in the way of the adoption of a procedure which allows a party to
obtain relief which is in effect consequent upon the invalidity of a
provision of an Act of Parliament without any formal declaration of
the invalidity of that provision.”
Sections
36 of the VAT Act and 69(1) of the Income Tax Act make provision for
a remedy, compliance with which is designed to give effect to the
protection of the fundamental rights the applicant claims have been
infringed. See Metcash
Trading Ltd v The Commissioner for the South African Revenue Service
and Another
2001 (1) SA 110 (CC).
The
fact that the statutory provisions give the Commissioner the
discretionary power to direct that the continuing obligation to pay
the tax be suspended pending an appeal to the Fiscal Appeal Court
means that a mechanism was put in place to ameliorate financial
hardships experienced by individual taxpayers as a result of the
enforcement of the “pay now, argue later rule”. Suspension of
the operation of the “pay now, argue later rule” can be decided
and should be decided by the Commissioner. He cannot act mero
motu.
As the facts on which the Commissioner would exercise the
discretionary power would be within the exclusive knowledge of the
taxpayer he or she must place them before the Commissioner.
In
this case the Commissioner was not formally requested by the
applicant to direct the suspension of the continuing obligation to
pay the charged tax pending determination of the appeal by the Fiscal
Appeal Court. No decision was made by the Commissioner on the
matter. The respondent cannot be ordered to give reasons for a
decision it did not make. The applicant merely expressed an opinion
that it would be prudent for the respondent not to demand payment of
the tax pending determination of the appeal. The respondent cannot be
ordered to give reasons for reminding the applicant of its statutory
obligation.
The
decision on the second issue is that the facts ascertained have not
established that the main application should be heard on an urgent
basis. An order that a constitutional matter should be heard on an
urgent basis is an extraordinary remedy designed to be granted in the
clearest of cases.
The
principle of equality of treatment requires that a litigant whose
case is pending hearing in a court must be subjected to the same
procedure as is applied to others for the determination of the
question whether his or her case is ready to be set down for hearing
by the court. The decision that a case should be set down for hearing
by the Constitutional Court is made by the Registrar. It is only in
exceptional circumstances and upon an application on a certificate of
urgency signed by a legal practitioner, that the Chief Justice will
order that a matter should be heard on an urgent basis.
A
party favoured with an order for a hearing of the case on an urgent
basis gains a considerable advantage over persons whose disputes are
being set down for hearing in the normal course of events. A party
seeking to be accorded the preferential treatment must set out, in
the founding affidavit, facts that distinguish the case from others
to justify the granting of the order for urgent hearing without
breach of the principle that similarly situated litigants are
entitled to be treated alike.
The
certificate of urgency should show that the legal practitioner
carefully examined the founding affidavit and documents filed in
support of the urgent application for facts which support the
allegation that a delay in having the case heard on an urgent basis
would render the eventual relief ineffectual. See Pickering
v Zimbabwe Newspapers
(1980) Ltd 1991 (1) ZLR 71 (H); Dilwin
Investments (Pvt) Ltd v Jopa Engineering Company (Pvt) Ltd HH-116-98;
Triple
C Pigs & Anor v Commissioner General, Zimbabwe Revenue Authority
2007 (1) ZLR 27 (H).
An
examination of the founding affidavit reveals that the applicant
bases its claim for an order that the main application be heard on
urgent basis on the allegation that the respondent wrongly assessed
its tax liability. The allegation is that payment of the tax will
destroy the applicant's business. The applicant sees in the appeal
before the Fiscal Appeal Court, or the constitutional proceedings a
remedy that will secure for it, immediate release from the burden of
having to pay tax it claims is not due to the fiscus.
The
certificate of urgency gave as grounds for having the matter treated
as urgent the tax recovery measures the respondent was about to put
in place. It also alluded to the need to prevent financial hardships
the applicant would suffer as a result of payment of the tax.
Paragraphs
5 and 6 of the certificate of urgency refer to the threatened tax
recovery measures and their possible effects:
“5.
This collection is imminent and due to happen any time soon and if it
happens not only will the outcome of the appeal be rendered academic
but the collection may quite literally destroy Applicant's business
in such a manner that Applicant will never recover even if the appeal
is successful. This is especially so given the huge amounts of money
involved.
6.
Whilst the need for Respondent to be able to collect taxes
efficiently and effectively is acknowledged, it is imperative that
this Honourable Court clarify the constitutional issues that are
raised by Respondent's arbitrary and summary procedures whose
effects on small businesses such as that of Applicant and indeed
across Zimbabwe may be ominous and permanent.”
Mr
Sakhe
argued that the applicant has not advanced any cogent reasons on the
papers as to why the constitutional matter should be heard on an
urgent basis.
The
certificate of urgency is clearly unhelpful. It does not assist the
court to decide whether or not to exercise its discretion in favour
of the applicant. Not only does the certificate of urgency make bald
and unsubstantiated allegations of imminent financial ruin befalling
the applicant should the tax recovery measures be effected some of
the statements are false. It is making a false statement to say that
by adopting the tax recovery measures the respondent is enforcing
“arbitrary and summary procedures”. The respondent is authorized
by the law to adopt the tax recovery measures.
What
is clear from the applicant's papers is that it is intent on
stopping dead all efforts to make it pay the tax demanded by the
respondent. The subjective desire for a remedy is not in itself a
factor on the basis of which an order affording a party the privilege
of jumping the queue and have his or her matter heard ahead of other
litigants in a similar situation can be granted.
The
question of validity of sections 36 of the VAT Act and 69(1) of the
Income Tax Act which is the subject matter of the constitutional
proceedings is to be decided from the point of view of the
Constitution. It cannot be determined by having regard to the
legality of the conduct of the respondent. The effect on the
applicant's business of the tax recovery measures adopted by the
respondent, would be irrelevant to the consideration of the question
whether the statutory provisions are constitutionally valid or not. A
legal basis has not been established for an order that the main
application be heard on an urgent basis.
It
is ordered that:
(1)
The constitutional application challenging the validity of sections
36 of the Value Added Tax [Chapter23:12]
and 69(1) of the Income Tax Act [Chapter
23:06]
is not urgent.
(2)
The application for an interim order suspending the obligation
imposed on the applicant to pay the tax assessed to be due and
payable pending the hearing of the appeal by the Fiscal Appeal Court
or the constitutional matter filed in Case No. CCZ41/14 be and is
hereby dismissed.
(3)
The applicant is to pay the costs of the urgent chamber application.
Machingura
Legal Practitioners,
applicant's legal practitioners
Kantor
& Immerman,
respondent's legal practitioners
