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:(i) 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 ...
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:
(i) 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.
(ii) 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 Value Added Tax Act [Chapter 23:12] 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 the Value Added Tax Act [Chapter 23:12] 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 Value Added Tax Act [Chapter 23:12] 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 section 38 of the Value Added Tax Act [Chapter 23:12].
Section 69 of the Income Tax Act [Chapter 23:06] 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 [Chapter 23:06]….,.
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 provides 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)…,.
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 facieright 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 Value Added Tax Act [Chapter 23:12] and 69(1) of the Income Tax Act [Chapter 23:06] 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 unlawfully 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….,.
Sections 36 of the Value Added Tax Act [Chapter 23:12] and 69(1) of the Income Tax Act [Chapter 23:06] 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…,.
(1)…,
(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.
