CIV/APN/67/2004
IN THE HIGH COURT OF LESOTHO
In the matter between:
LESOTHO REVENUE AUTHORITY APPLICANT
AND
MASTER OF THE HIGH COURT 1st RESPONDENT
BIKARAMJITH SOOKNANAN 2nd RESPONDENT
(LIQUIDATORS OF SILVERSIDE TEXTILES (PTY) LTD)
ATTORNEY GENERAL 3rd RESPONDENT
MOOSA HOLDINGS (PTY) LTD 4th RESPONDENT
JUDGMENT
Delivered by the Honourable Mr. Justice W.C.M. Maqutu On the 2nd April, 2004
INTRODUCTION
1. On the 17th February, 2004 Mr. Mosae for applicant and Mr. Mpaka for second and fourth respondent appeared before me with an urgent application. The court (in the interim) by consent granted the following:
Dispensed with the normal modes and periods for service provided for by the Rules of court.
2. (a) Interdicted the respondents from including in liquidation of the estate of Silverside Textiles (PTY) Ltd (in liquidation certain property located at Maseru Industrial Area pending finalisation of this application.
2. The court further directed that opposing papers be filed on or before the 27th February, 2004. Replying papers be filed on or before the 3rd March, 2004. The matter was to be heard on the 8th March, 2004.
3. On the 8th March, 2004 the matter was argued. Mr. Mosae appeared for applicant while second and fourth respondent were represented by Mr. Kemp and Mr. Mpaka. Argument was heard and judgment reserved to 2nd April, 2004.
APPLICANT'S CASE
Applicant is the Lesotho Revenue Authority whose deponent is Thabo Khasipe the Commissioner of Customs Excise is charged with collection of custom duties in terms of the Customs and Excise Act of 1982. The authority of applicant's deponent to make the affidavit descends from Mr. Kevin Donovan by special power of attorney dated 12th February, 2004 who in turn had been authorized by General Power of Attorney dated 18th November, 2004 to act for the Lesotho Revenue Authority by its Board of Directors.
The Master of the High Court as first Respondent was nominally cited as an insolvent estate was involved. The third respondent was cited because government was involved through the Master of the High Court.
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The second Respondent Mr. Bikaramjith Sooknanan is the liquidator of Silverside Textiles authorized to take control of assets of the company in terms of Section 188 of the Companies Act of 1967. While Moosa Holdings (Pty) Ltd is cited as an interested party that brought Silverside Textiles (Pty) Ltd under liquidation.
7. When Silverside Textiles (Pty) Ltd. (in liquidation) had problems because their goods were detained at Ficksburg Border Post they had written to applicant. See paragraph 1 of the founding affidavit. In looking into the matter applicant claims it discovered that Silverside Textiles (Pty) Ltd (in liquidation) were clandestinely engaging in the storage and supply of rebated goods therefrom.
In applicant's "LRA 3" dated 14th November, 2004, Silverside Textiles (Pty) Ltd enclosed documents from Lekim Textiles Industries (Pty) Ltd in which it alleged the understanding is that "duties were paid as indicated on the invoice." Applicant is requested to investigate this fact.
Silverside Textiles (Pty) Ltd had bought materials from Lekim Textile Industries (Pty) Ltd. Such materials had been brought into the country duty free to manufacture goods exclusively for export outside the Common Customs Area. If such goods were sold within
Lesotho or within the common Customs Area, duty had first to be paid. On the 14th November, 2003, applicant's manager clearance had said that Lekim Textile Industries (Pty) Ltd had not paid duties on goods sold to Silverside Textiles (Pty) Ltd. Consequently duties and penalties would have to be paid.
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Because Silverside Textiles (Pty) Ltd. (within Lesotho and the Common Customs Area) was in possession of goods acquired from Lekim
Textiles Industries (Pty) Ltd for which full import duties had not been paid - Silverside Textiles (Pty) Ltd could be in breach of the law unless full duty was instantly paid with penalty. Worse still it was disposing these goods within the Common Customs Area without first having paid duty, thereby compounding the initial criminal act.
Since "LRA 3" from Silverside Textiles (Pty) Ltd and the letter from Applicant marked "LRA 4" are both dated the 14th November 2003 it becomes uncertain that applicant had made investigations before it wrote "LRA 4". In "LRA 4" applicant informed Silverside Textiles (Pty) Ltd that they shall consult SARS for further details concerning the detained goods.
On the 28th November 2003 applicant wrote to Silverside Textiles (Pty) Ltd informing the company that in terms of Section 109 of the Customs and Excise Act No. 10 of 1982 has placed the goods in the warehouse found in the possession of Silverside Textiles (Pty) Ltd under embargo. Such goods were to remain where they are until the embargo is lifted.
Applicant added that in Terms of Section 103 Silverside Textiles (Pty) Ltd was to disclose and prove the following:
The person from whom the goods were obtained.
The place where duties thereon were paid and date of payment
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Particulars of entry for home consumption marks and number of packages and other articles concerned - which shall tally with marks, numbers and documents brought in proof of payment.
Applicant was further informed that the goods would be sold in 90 days at an auction. Consequently the company was requested to indicate within one month if applicant intended to claim the goods.
On the 1st December, 2003 Silverside Textile (Pty) Ltd per applicant's "LR 6" responded and referred to a meeting with the Mr. Muso who acted for applicant. The company blamed Lekim Textiles Industries (Pty) Ltd for not having paid duties although the company had paid them to Lekim Textiles Industries (Pty) Ltd.
The company averred that it was an innocent purchaser. The company demanded the return of the goods and possession of the warehouse.
Attached to "LRA 6" are the invoices from Lekim Textiles Industries (Pty) Ltd with a date including the words "INCLUDE
ALL DUTIES". The invoices of Lekim Textile Industries (Pty) Ltd seem to back up Silverside Textile (Pty) Ltd that the price the company paid included duties. What Silverside Textile is not in a position to prove is that Lekim Textile Industries (Pty) Ltd remitted the duties to applicant.
Silverside Textiles Industries (Pty) Ltd. In applicant's "LRA 6" says it is prepared to consider paying without prejudice and request for a round table conference between the company and applicant. On the 10th December 2003 applicant wrote "LRA T to Silverside Textile' (Pty) Ltd that the invoices of Lekim Textile Industries (Pty) Ltd do
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not prove that duties were paid to applicant. Consequently applicant was advised that:
"Customs and Excise has ruled that in accordance with Section 88 of the Customs and Excise Act 1982 all the goods as well as the plant in which the goods are currently housed be subjected to forfeiture. You are advised to note that forfeiture of the goods and plant shall not affect the liability that you may have to other penalty or punishment that may arise vi-a-vis yourselves under the above stated Act or any other law"
On the 15th December 2003 the fourth respondent obtained an order of provisional liquidation urgently against Silverside Textiles (Pty) Ltd Ex parte (on account of urgency. Without the other interested parties being heard). In terms of the provisional liquidation order second respondent was appointed provisional liquidator. In terms of that order second respondent was authorized to take control of the assets of Silverside Textiles (Pty) Ltd in terms of Section 188 of the Companies Act of 1967. On the 13th January 2004 applicant received second respondent's letter "LRA 8" inviting applicant to be present when "an inventory of goods left" at the warehouse was taken. These goods had been placed under embargo by applicant. On the 26th January 2004 the provisional liquidation order become final as it was not opposed.
On the 23rd January 2004 applicant had written "LRA 9 a" to second respondent stating that the Customs and Excise Division had "ruled that both the goods and the warehouse in which the goods were housed when discovered were subject to forfeiture."
Applicant reiterated that decision still stands. The applicant in its affidavit at
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paragraph 10 of its founding affidavit says it requested second respondent to omit the property from the inventory."
First and second respondent (according to applicant) never responded to applicant's letter, but "proceeded to the premises in question and began locking the gates and taking control of the premises in all likelihood preparing for liquidation process." It is not clear from applicant's affidavit - when respondents did what they did. There is applicant's letter "LRA 9" purportedly written on the 4th January 2004, but which from its contents could not possibly have been written on that date. I will assume that it could have been written on the 4th February 2004. hi it applicant said it takes the view that to all intents and purposes the goods and the warehouse ceased to be part of the assets of Silverside Textiles (Pty) Ltd.
It was in order to maintain its position regarding the embargoed goods and assets of Silverside Textiles (Pty) Ltd that applicant has come before this court to ask for an order in the following terms:
Interdicting respondents from including in liquidation of the estate of silverside Textiles (Pty) Ltd (in liquidation) certain property located at Maseru Industrial Area pending finalisation hereof.
Declaring certain property at Maseru Industrial Area besides National Motors and next to Imperial Fleet Services and formerly belonging to Silverside Textiles (Pty) Ltd (in liquidation) to be lawfully forfeited to applicant with consequences that such property is not subject to be included in
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the assets of Silverside Textiles (Pty) Ltd by 2nd respondent.
Directing respondents to pay costs only in the event of opposition hereof.
Granting applicant any further and/or alternative relief.
RESPONDENTS' ANSWER
Second respondent says if applicant did not want the embargoed goods to be included among the assets of Silverside Textiles (Pty) Ltd (in liquidation) - applicant should have opposed the confirmation of the provisional liquidation order. Consequently second respondent has the statutory to take control of all assets of the insolvent, to preserve them and to liquidate them and pay those who file claims. Second respondent says he was still gathering information and seeking advice from senior counsel when applicant brought this application.
Second respondent says he has taken steps to take control of the warehouse and its contents as he should do. The warehouse was leased from fourth respondent. The lease dated 23rd October 2003 is annexed. Second respondent questions the basis of applicant's claim that the warehouse is forfeited. Second respondent claims the entire seizure of the goods and the underlying decisions are tainted because applicant has never provided second respondent with an inventory of goods that were rebated from Lekim. Such seized goods have to be "clearly identified and inventoried". On grounds of deliberate vagueness (according to the second respondent) "the embargo and forfeiture are simply void".
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Second respondent says he was surprised to meet with opposition when he invited applicant and its officials to the warehouse to make an inventory. Second respondent further says there are items of the insolvent in the warehouse that have nothing to do with the current dispute. Applicant by denying second access to the premises is obstructing second respondent from performing his statutory duties.
Second respondent says once goods in the warehouse - which may or may not still be there - have been inventoried, competing rights will be addressed. Non-rebated goods and materials will be returned. Second respondent says he is counterclaiming for the return of the warehouse and the goods in it - and annexes "SI" which is a list of orders that second respondent seeks.
The managing director of Silverside Textiles (Pty) Ltd also made a supporting affidavit to second respondent. He denies that the
materials or garments were rebated and that duties were not paid. He says not even the barest evidence was given to support applicant's
allegations on this aspect. Consequently he cannot prove or disprove such allegations. The Managing Director of Silverside Textiles (Pty) Ltd says he was led to believe that duties had not been paid on the company's goods detained in Ficksburg and approached applicant for assistance as he verily believed duties had been paid.
The Managing Director of Silverside Textiles (Pty) Ltd says the company had no reason to get licences for importing and manufacturing goods for export, outside the Common Customs Area that was not the company's line of business. The company was not engaged in any such clandestine activities as applicant alleges. Consequently when problems arose, applicant could approach
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applicant openly. The company bought goods for sale in Lesotho. Lekim has been a supplier and manufacturer of textile goods in Maseru for some years. It is therefore difficult to identify and link to a specific batch of material imported under rebate. Only Lekim and Customs and Excise can know the truth.
If Lekim acted dishonestly only documents can tell. Only applicant would have the detail of the goods in question, their value and duties payable. The Managing Director adds that "under the Act, the obligations to pay duty on rebated goods rests on the actual importer and the applicant holds security for that. Lekim has closed down, consequently it is impossible for the company to get the details applicant seeks. The Managing Director says it is applicant that has the statutory power to investigate Lekim's affairs and which can even seize its documents.
The Managing Director of Silverside Textile contests the forfeiture of goods especially the warehouse that contained the items. He also shows that the warehouse contains the company's property not bought from Lekim including pieces of equipment belonging to the company. He says Applicant never applied its mind to the issue raised by applicant. He also says applicant is visiting its failure to supervise Lekim's rebate on the company. Furthermore applicant is violating the company's Constitutional rights.
Osman S.M. Moosa as Managing Director of fourth respondent made an affidavit. In it he stated that he owned the warehouse in person -as an individual. He annexed the Deed of Transfer annexure "MI" which showed he bought from Mohamed Salim Karim the property on plot number 12282 - 342 for M30,000.00 on the 31st March 2003.
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Osman M. Moosa then sublet the said property to Moosa Holdings (Pty) Ltd on the 23rd June 2003 the rental being Ml.00 only. Moosa Holdings (Pty) Ltd in turn sub-let the said property to Silverside Textiles (Pty) Ltd on the 23rd October 2003 rental being M12,000.00 per month.
The deponent of fourth respondent Mr. Osman S.M. Moosa expressed surprise that the company Moosa Holdings (Pty) Ltd had sublet the warehouse yet he had not given notice to fourth respondent and to the deponent personally of applicant's intention to seize the warehouse or that applicant has ruled that it is forfeited. That being the case there can never be a valid seizure. The warehouse in fourth respondent's submission can house a "plant" but it certainly is not a plant.
Applicant being aware that fourth respondent is innocent of the activities of Lekim which is the one applicant was dealing with cannot declare the deponent's warehouse leased to fourth respondent's and in turn sublet the Silverside Textiles (Pty) Ltd forfeited. Such an act of applicant is invalid and unconstitutional because it is arbitrary seizure of property. As the creditor of Silverside Textiles (Pty) Ltd 4th respondent was entitled to liquidate it to protect fourth respondent's interests. Applicant's conduct is an abuse of power.
APPLICANT'S REPLY
Applicant in reply averred that he had no interest in the liquidation of Silverside Textiles (Pty) Ltd. That is why he did not oppose it. Applicant insisted that the warehouse had been forfeited to applicant despite the rights fourth respondent claimed to the warehouse.
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Applicant further added that second respondent has no right to protect and preserve the warehouse, because the right of Silverside Textiles (Pty) Ltd "to the warehouse vanished when forfeiture was effected".
Applicant further said in reply that it had no obligations to furnish Silverside Textiles (Pty) Ltd with an inventory of goods in question. All it had to do was to place an embargo on the goods as well as the warehouse they were in. It was for the company to say what did not constitute rebated goods.
Applicant's Customs officials in applicant's view had no obligation to accept second respondent's invitation to the warehouse. Second respondent (according to applicant) had no business to visit it. Second respondent is not being specific about goods that are in the warehouse, that are not rebated. The admission in "LRA 6" that duties were paid LEKJM is proof that duties were not paid to applicant. Ignorance that duties have not been paid does not absolve Silverside Textiles (Pty) Ltd.
ROLE OF TAXATION IN GOVERNMENT AND THE STATE
Taxation and revenue collection are the oldest source of empowerment of government. Without it a modem state cannot exist. In the days of feudalism taxes in kind went to the feudal lords - who in turn reluctantly paid part of them that was due to the King who was the central authority in the State. The functions of government in the olden days were to maintain law and order, to protect life and to defend a country from external enemies. Since we inherited our form of government from the United Kingdom, the British form of government is our reference point.
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It was over the collection of revenue in the form Customs that the Stuart dynasty in Britain had a crisis that eventually made Britain temporarily a republic. It was over revenue collection and taxation that the Boston Tea Party sparked of the war of independence gave birth to the United States of America. The Old Regime in France and its monarchy collapsed because the existing taxes and revenue collection could no more meet state expenditure.
It remains a fact that taxation was at the root of the creation of Parliament in England in the thirteenth century in the days of Simon de Montford. It was through the lever of taxation that the House of Commons wrested power from the House of Lords. At the birth of the United States of America during the war of independence, the rallying cry was "no taxation without representation". In France when the Old Regime wanted to raise taxes, the States General (a form of representative parliament) was convened when it had not met for over two hundred years.
These historical developments have led to the acceptance that through taxation - in Parliamentary democracies individual financial
resources and property can be legitimately taken with that individual's presumed consent through elected parliamentary representatives. Consequently nothing is allowed to stand in the way of revenue collection and taxes - because the survival of the state and the continuing of governance depend on the solvency of the State. It is not surprising (in modern times) that extraordinary powers are given to the revenue collections organs of the State.
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. In a modern State too much is expected of the government and the State. The role of government is no more confined to issues of national defence, maintenance of law and order, and protection of life and property. Government responsibility, now covers, national education, health, town and country planning, provision of water, electricity telecommunications, agriculture, poverty alleviation and old age pensions Morrison in government and Parliament 3rd Edition at pages 301 or to 302 concludes:
"If governments were to be able to carry out its obligations to the country in this difficult situation it had to be given the necessary statutory powers by Parliament, largely free from any restriction on the subject matter ... With us taxation became a major weapon for economic planning. It was maintained at a high rate to pay for the developing social services, including education and housing and social insurance, but to limit purchasing power to avoid 'too much money chasing too few goods', and to provide for necessary capital investment."
Courts and legal policy have had to adapt to this expanded role of government. Courts are obliged to protect the rights of the
individual while not impeding government and the State from meeting its increased obligations to society through revenue collection. The Principles of State Policy in the part.III Constitution of Lesotho oblige the government, courts and other organs of the state to recognize more and more socio-economic rights (through legislation and otherwise) incrementally as the countries economic capacity to meet them grows. This means an expanded revenue and more taxes will be needed to meet these obligations.
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So long as there is accountability of organs of government within the country - the rule of law is accepted as existing. "In this respect the practice of the Romans deserved admiration; Magistrates of all denominations were accountable for their administration
except censors." See Montesquiew The Spirit of the Laws Volume I Book V Chapter 8 page 65. This expectation that power will be exercised fairly and reasonably by authorities (who will one day account) is part of the civilization from Western Europe that we inherited from ancient Rome. It is this rule of law that Dicey in the Introduction to Study of the Law of the Constitution speaks of.
Parliament was once the place at which governments and statutory authorities account. In a modern State Parliament is increasingly becoming the organ through which governments of the day implement policy. It makes laws and has such numerous and widespread responsibilities that it cannot police organs of government. It has been forced to give too much power to Ministers, public officials and statutory bodies. Courts are not designed to police the exercise of government powers. They can only hear limited grievances concerning the method adopted in the use of these powers. They also check whether the empowering law has been followed in the exercise of statutory powers.
In Commissioners of Customs and Excise v Cure and Deeley Ltd [1962] I QB 340 the courts found themselves dealing with delegated
legislation that authorized Commissioners to fix any sum that they saw fit. This assessed sum became final unless the tax-payer
satisfied the Commissioner that some other sum was due. The court found the
Regulation invalid because it purported to prevent the tax-payer from
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proving in court the amount of tax actually due. The regulation substituted for tax authorized by Parliament some other sum arbitrarily
determined by the Commissioners.
PURPOSE OF THE CUSTOMS AND EXCISE ACT 1982
The long title of the Customs and Excise Act 1982 states the purpose of the Act as being:
To provide for the levying of customs, excise and sales
duties and surcharges.
The prohibition and control of the importation, export or
Manufacture of certain goods, and
Matters incidental thereto:
The Section 3 of the Act charges the Director with administration subject to the direction of the Minister including the interpretation of schedules of the Act. Sub-Section (2) provides that:
"The officer shall perform his duties and exercise his powers under this Act with due regard to any lawful instructions issued by the director."
It will also be observed that nothing in the Act authorizes the Director not to act lawfully or to overcharge or otherwise take more than is due from an individual. Indeed Section 78 makes provision for refund of amounts overpaid; if there is no set-off.
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Chapter XI of the Act enforces compliance with the Act by imposing punishments for offenders. Among the offences is using false
documents and making false declarations - see Section 85 of the Act.
What we are concerned with are goods irregularly dealt with - against which Section 88 (1) refers to "any goods imported, exported, manufactured, warehoused, or otherwise dealt with contrary to the provisions of this Act ... or any plant used contrary to the provisions of this Act in the manufacture any goods shall be liable to forfeiture wheresoever and in possession of whomsoever found."
Nowhere is a warehouse mentioned. In any event a warehouse is not a plant "used in the manufacture of any goods." Furthermore in the papers before me there is no allegation of manufacturing. "Plant" in Section 2 (e) dealing with definitions "includes vessels, utensils, appliances, and fittings". I was taken aback to find applicant had extended the meaning of "plant" to include a warehouse.
Before powers of forfeiture of contraband goods are exercised, it must according to the statute be a fact that they are as (claimed) in this case being "warehoused" or "otherwise dealt with contrary to the provision of this act." The issue that I will visit later is whether applicant can simply make a bare statement that duties have not been paid without proving or showing the possessor of the goods, grounds and reasons for saying so. In other words applicant can refuse to show and discuss with second respondent or Silverside Textiles (Pty) Ltd evidence on which applicant relied for his ruling.
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Contrary to what Mr. Kemp argued there is no specific procedure in the Act for the exercise by the Director of the discretion to seize the material and the goods that are liable to forfeiture. The Director can seize goods that are liable to forfeiture, or which he has "reasonable cause to believe are liable to forfeiture under this Act." In other words the goods should as a fact be liable to seizure or alternatively if there are reasonable grounds to believe they are liable to seizure. There has to be evidence and facts that guide his decision.
Section 90 provides that courts of competent can be approached for the release of the goods and materials that are liable to forfeiture if within one month of the date of seizure the possessor or owner of the goods asserts his rights of possession over the goods. If that is not done the goods shall "be condemned and forfeited."
Section 94 gives the Director the discretion may require that unpaid duty be paid as a condition of release of the goods plus charges incurred in connection with the detention of goods. This discretion in my view must be exercised fairly impartially and justly and must be conditioned by the circumstances of every case. In this case the party liable to paid duties if it diverted rebated goods to the domestic Lesotho market was Lekim Textile Industries (Pty) Ltd. If ascertained duties had not been paid by Lekim Textile (Pty) Ltd in the absence of special circumstances there were no reasons not to demand them from Silverside Textiles (Pty) Ltd. Applicant's counsel conceded this point.
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REFUSAL OF APPLICANT TO HAVE INVENTORY MADE
Applicant before proceeding further in the matter (in terms of Section 109) when he suspected that duties had not been paid was entitled to place an embargo of the goods in the warehouse of Silverside Textile (Pty) Ltd to enable investigations to begin. Implied in the placing of an embargo is the need to take an inventory of the contents of the warehouse so as to identify specific goods on which duty has not been paid. In other words after a definite, clear and open investigation, only then could applicant seize the goods which in time should be liable to forfeiture.
As the primary object of the investigation and the Act as a whole is to get duties to be paid, the value of the duty to be paid should have been known or ascertainable. This in my view is dependent on the inventory that would enable applicant to focus on specific goods.
There is vagueness and complete lack of specificity about the goods seized. Applicant still has to go and take an inventory and direct seizure against identifiable goods - should duties not be paid. Applicant cannot make rulings without facts on what he has not identified. It is not the subject alone who has to set forth clearly and explicitly what he claims against the State in terms of Section 97. Applicant is under the same obligation to set out clearly and explicitly what he seized from the subject.
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RECONCILING THE CUSTOMS AND EXERCISE ACT 1982 WITH THE CONSTITUTION
As already stated too much is expected from the State. Consequently Bagehot in The English Constitution at page 309 commenting on the United States of America's System of Taxation in 1872 said:
"Everywhere the opinion was expressed that taxation in all possible forms should immediately, and to a large extent be made
effective and imperative; and congress spurred up, and rightfully relying on public sentiment to sustain their action, at last took up the matter resolutely and in earnest, and devised and inaugurated a system of internal and direct taxation, which for its universality and peculiarities has probably no parallel in everything which has heretofore been recorded in civil history, or is likely to be experienced hereafter. The one necessity of the situation is revenue, and to obtain it speedily and in large amounts through taxation the only principle recognized -if it can be called a principle - ... wherever you find an article, a product, a trade, a profession, or a source of income, tax it! And so an edict went forth to this effect, and the people cheerfully submitted".
Bagehot could not belief what he saw, he thought it could not happen in Britain. Today all over the world people have to live with more and more taxes for their modern states and economies to run. These taxes are being imposed in democratic countries in which arbitrariness and failure to observe human rights is not the norm. Arbitrariness is in fact forbidden. To protect the democratic system and to make taxes not to be odious, and more and more taxes to be imposed, the powers of taxation have to be exercised fairly and reasonably - and not be abused.
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Section of the Constitution of Lesotho has recognized the freedom from arbitrary seizure of property as one of the fundamental human rights. In respect of taxation the Section 17 (4) (a) Constitution allows the taking of an individual's property:
"To the extent that the law in question makes provision that is necessary in a practical sense in "a democratic society for he taking of possession of any property, interest or right -(i) in satisfaction of any tax, duty, rate, or other impost;"
Section 156 (1) of the Constitution enjoins the courts, government and all organs of the state to recognize and apply all pre-existing laws such as the Customs and Excise Act 1982 as if made in pursuance of this constitution. But these laws "shall be construed with such modifications, adaptations, qualifications and exceptions as may be necessary to bring them into conformity with the Constitution.
Courts have always avoided interfering with rulings of administrative authorities (duly empowered by statute - unless "they are so unreasonable as to justify the inference that there had been no real exercise of judgment...") see Innes CJ's remarks on page 102 of Crown Mines Ltd v Commissioner For Inland Revenue 1922 AD 91. In that case the tenor of the judgment was to the effect that the Secretary For Inland Revenue might deny a tax refund at his discretion and courts would not interfere unless he was grossly unreasonable. Such thinking was acceptable in those days.
However Cloete J in Stroud Reley & Co Ltd v Secretary For Inland Revenue 1974 (4) SA 534 at pages 539 to 540 said:
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"It seems to me that in dealing with the matter of this nature the respondent is required firstly to enquire into the facts. If after such an enquiry he is satisfied that the amount paid is in excess of the amount chargeable under the Income Tax Act, he is bound under the Income Tax Act, as a matter of duty, to authorize a refund to the tax payer ... In the later respect he says no discretion, in the matter in spite of the use of the word "may" in the Section which authorizes him to make a refund."
It seems to me that Section 88 of the Customs and Excise Act 1982 is part of a scheme and cannot be read in isolation from other
Sections. Read collectively they are fair and reasonable and require the Director of Customs to enquire into the facts before making a ruling. For applicant to have embargoed a warehouse and its contents, followed by a refusal to have an inventory taken of the contents of the warehouse was unreasonable because he was duty bound to do so. To rule that he has seized goods he could not specify was irregular.
Sachs J in declaring a regulation that gave officials powers that could be greater than what the Act provides in Commissioner of Customs and Excise v Cure & Deeley Ltd [1962] I QB 340 at 369 said "secondly, it renders the subject liable to pay such tax as the Commissioners believe to be due, whereas the charging sections impose a liability to pay such tax as in law is due." At page 370 Sachs J found it unacceptable for courts to be bound "upon the ipse dixit of the competent authority, inevitably be bound to hold that a denial of justice to the subject was something that could properly be termed necessary."
Section 17 of the Constitution protects property from arbitrary seizure. In Section 17 (4) (a) (i) of the Constitution it is permissible for the law in question to make "provision that is necessary in a practical
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sense in a democratic society for the taking into possession or acquisition of any property, interest or right - (1) in satisfaction of any tax, duty or rate ..." This provision in the Constitution captures the essence of the spirit and the manner in which drastic powers of bringing the necessary revenue through - taxes and duties are to be exercised.
Consequently Mr. Kemp for respondent was right to quote (as summing up the manner applicant should have proceeded) the following passage in Deacon v Controller of Customs and Excise 1999 (2) SA 905 at 918 EF:
"In this matter it would not have been difficult for respondent to afford the applicant the opportunity to be heard. This was clearly not the common situation where, for example the applicant had knowingly been a party to the evasion of payment of Customs duty. Here applicant was an innocent party. His situation called for a proper investigation by the respondent and full ventilation on by the parties of all the relevant facts before the respondent took the decision to seize the motor vehicle. I gain the distinct impression that the respondent took the view that once it was confirmed that duty was payable in terms of the Act, he was entitled to invoke the provisions of Sub Section 87 and without the need to have regard to the provisions of Section 33 of the Constitution." - per Horn AJ.
While the South African Constitution to which Horn AJ referred to in the abovementioned passage from Deacon v Controller of Customs and Excise may not be identical - I believe it is based upon the same sentiments as Section 17 of the Constitution of Lesotho. The affidavits and the correspondence in this case show clearly that applicant refused too meet Silverside Textiles (Pty) Ltd at a round table conference so that he could satisfy that company that real possible
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offender (who allegedly did not pay duty) Lekim Textile Industries (Pty) Ltd had in fact not paid duties.
Not only did Silverside at page 3 of applicant's "LRA 6" suggest a round table conference, the company was asking for
negotiations on the whole issue since its invoices that the company sent to applicant claimed duties had been paid. Applicant never put its cards on the table by showing how it came to the conclusion that Lekim Textile Industries (Pty) Ltd had in fact from applicant's record never paid the duties in question. Applicant refused to have an inventory taken when second respondent invited applicant to join second respondent in taking an inventory.
What applicant is doing and is asking this court to reinforce is the denial of information to the second respondent and Silverside
Textiles (Pty) Ltd (in liquidation). Sack J in Commissioners of Customs and Excise v Cure and Deeley Ltd (supra) at page 356 said such conduct "enables the Commissioners to take into account evidence obtained under conditions of secrecy upon the footing that is not disclosed to the subject; it enables the Commissioners so to announce their determination as not to reveal what is wrong in the return; it enables them to withhold from the tax payer information even as to what are the goods or transactions upon which the tax is determined to be due."
In a practical sense in a democracy when property is lawfully taken by the authorities there must be openness, transparency, reasonableness, and fairness. - See Ridge v Baldwin [1964] AC 604. In this case applicant does not seem to be aware, that evidence of breach of the provisions of the Act or grounds for suspecting that there is a breach of the provisions of the Act is a pre condition of imposing an embargo
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or detaining the goods that are ultimately liable to forfeiture. There are (in fairness and in law) no grounds for withholding evidence or grounds for doing so to the subject. It is the disclosure of these grounds that triggers an onus or an obligation on the subject to prove that the facts that prima facie show a breach of the Act or the suspicion of failure to comply with Act are wrong or baseless.
. While the procedures outlined in the Sections 89, 90 and 91 of the Customs and Excise Act 1982 are important and should be followed,
what is important are the reasons for these procedures. Selkowitz J in Ideal Fastners Corporation CC v Minister of Finance [1996] 1 All SA 373 at page 377 where he said:
"Statutory provisions which require notice of proposed legal proceedings to be given to public bodies or specific officials in their representative capacity, ... are intended to ensure sufficient time is given to the body or representative to make the necessary enquiries, to take the necessary decisions, to seek the necessary evidence, and to consider policy matters because actions of large departments ... are performed by a large diversified staff, often by a myriad of people throughout the country."
It not applicant alone who should have an opportunity to prepare - the subject must equally be given information so that the subject can act reasonably. What disturbs me is that from the imposing of embargo and the implied seizure of the goods on 28th November 2003 per "LRA 5" and the notice that was given by Silverside Textiles (Pty) Ltd that the seizure was being contested - per "LRA 6", nothing was done to gather evidence and to check the facts to enable appropriate policy decisions to be taken. An exchange of information that might have led to the admission of guilt or liability in terms of Section 91 of the Act was refused. No steps had been taken through an inventory to
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determine the exact goods that were being seized. No facts were placed before this court that showed that the investigations that followed an embargo ever took place. What this court has is a bare allegation of applicant that it took place.
Mr. Mosae for applicant has conceded that the ruling of the applicant of the 10th December 2003 that is contained in "LRA 7" that the unspecified goods currently housed in the warehouse have been forfeited was premature and void. But this is not the end of the matter this is the basis of the interdict and the declaration sought against the respondent. If applicant withdrew the application, then that would be end of the matter - but applicant still insists on the broad all inclusive interdict.
I could not understand why applicant continued to insist that the warehouse was a plant inspite of the fact that it was not included
in the Act. Plant was clearly defined in Section 2 (1) of the Act as including "vessels, utensils, appliances and fitting." Yet Mr. Mosae persisted in maintaining that the warehouse was forfeited. The rights of third parties were not considered and the fact that they could only be included in the forfeiture if they were in pari delicto with both Silverside Textiles (Pty) Ltd and Lekim Textiles (Pty) Ltd Section 88 (1) refers to the forfeiture of "goods ... warehoused" and not the warehouse itself.
I have already said the powers that applicant has in respect of custom duties must be interpreted and reconciled with the Constitution.
They can only be applied in terms of Section 17 (4) (a) (1) "to the extent that the law in question makes provision that is necessary in a practical sense in a democratic society." Consequently I noted what
Mr. Kemp said when he referred to Magid J's remarks who said in
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Minister of Finance & others v EBN Trading (Pty) Ltd 1998 (2) SA 319at329B-F:
"It seems to me to accord better with the human rights culture of the new South Africa ... that in cases involving wrongful
imprisonment or the wrongful detention of goods that it should no longer be necessary for plaintiff to establish consciousness on the wrongdoer of the wrongful character of his Act. Certainly I can see no compelling reason to differentiate between the wrongful detention of a person or his property."
Of even greater importance in exercising power, is to keep in mind in terms of Lesotho Constitution - in a practical sense the democratic nature of our society. Consequently, while keeping the importance revenue collection powers of applicant and the extraordinary powers conferred, I can only quote Magid J's in Minister of Finance & others v EBN Trading (Pty) Ltd supra at page 329F "Having such extraordinary powers there is no reason at all why he should not use particular care in using them." What in the past seemed to be a discretion when dealing with the rights of property under the Act, is now a duty under the Constitution.
THE SPIRIT OF THE REVENUE COLLECTION LAWS
It seems to me that applicant has missed the spirit behind the tax and revenue collection statute. They have to be understood along with their history and the Constitution of Lesotho. They are meant (in terms of Section 17 (4) (a)) to collect revenue in a firm, fair and urgent manner in so far as necessary and practical with a democratic state. Arbitrariness, oppressiveness and unjustness are not the essence of tax collection in a democratic State.
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It was to protect the people against these very arbitrary and unfair practices that the House of Commons came into being and eventually
became in effect the main chamber of the British Parliament. Courts of justice have to see that these drastic power that Parliament
gives to revenue authorities are exercised in the manner that the House of Commons assumed power in order to protect and promote - the interests of the people and without arbitrariness or abuse.
For the benefit of the people as a whole, for the running and the maintenance of the State on which the security and general welfare
of the State, the Long Title of the Customs and Excise Act 1982 provides for the levying of customs sales duties, and surcharges. As Mr. Mosae has correctly observed the correct amount of duty should be levied. For this principle he refers to the case of First National Bank & Another v Commissioner South African Revenue Service & Another 2002 (4) SA 768. Mr. Kemp for second and third respondents did not challenge these powers. What is in issue is the use to which the powers are used which frustrate the ascertainment of duty (if any) due to which applicant is entitled.
The detention and ultimate forfeiture of goods is only legitimate if it promotes the collection of duties and revenues. The powers are so drastic and extensive that "the custom debtor need only be in possession and control of the premises, not of the thing itself; in fact, she could be unaware of the presence of the thing on the premises in question." Vide First National Bank ofSA & Another v Commissioner South African Revenue Service & Another (supra) at page 748 C.
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What creates problems is that applicant does not wish for the goods in the warehouse to be ascertained through an inventory. Furthermore
applicant is not expeditiously ascertaining duty payable. That cannot be the intention of the legislature. Ackermann J in the
Constitutional Court of South African correctly observed about Section 25 of their Constitution (which is not dissimilar to Section
17 (4) (a) (1) of the Constitution of Lesotho)":
"The purpose of Section 25 has to be seen both as protecting existing private property rights as well as serving the public
interest, ... and also striking a proportionate balance." - First National Bank of SA & another v Commissioner South African
Revenue Service & Another at page 794 C.
It becomes questionable whether there is no arbitrariness where what is necessary and reasonable in a democratic society within Section 17 (4) (a) (i) of the Constitution is ignored and when unnecessary delays that despoil the subject occur after power is exercised. Arbitrariness was defined by Holmes JA in Johannesburg Liquor Licensing Bord v Kuhn 1963 (3) SA 666 at page 671 C as follows:
"Arbitrariness connotes caprice, or the exercise of the will instead of reason or principle, without consideration of the merits."
The President of the Court of Appeal Mr. Justice Mahomed in AG & Another v Swissborough Diamond Mines (Pty) Ltd & 5 Others 1991 -96 LLR 27 at page 31 said:
"Respect for the rule of law is crucial for a defensible and durable civilization. Whatsoever be the parameters of any meaningful
debate on the meaning of the rule of law... law must be rational and just; and ultimately that
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civilization itself is imperiled when these fundamental values are not defended by the rulers of any country .... All these premises
appear fundamentally to be invaded by the Revocation Order. It invades to protection of property without any compensation and without any reason to support such invasion."
What was in issue in the above case of AG & Another V Swissborough Diamond Mines (Pty) Ltd was the use of powers of legislation which the legislature of the day was using with impunity and arbitrariness. The issue was not whether the power to legislate
existed - but rather the manner and use to which the power was put. Mr. Mosae referred me to the USA case of Mr. Keson Corporation
Division of Alcoholic Beverages & Another 496 45 18 (1990 where the Court said about revenue collection powers:
"To protect government's exceedingly strong interest in financial stability in this context, we have long held that a State
may employ various financial sanctions and summary remedies, such as distress sales, in order to encourage tax payers to make timely
payments prior to the resolution of any dispute over the validity of the tax assessment."
I think the USA case for Lesotho is being used out of context. All the powers inducements and even potential threats in tax collection must be applied in such a way as may be necessary in a democratic state to collect taxes and revenues for the State in a rational and just manner. The intention of the legislature is not to intimidate, oppress and create
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grievances in the public but "to encourage tax-payers to make timely payments."
If we look at the long title of the Act, the purpose of this scheme of legislation is to ensure collection of duties, forfeiture of the goods is only a by product of the process of collection - especially where innocent third parties are involved. Surcharges and penalties for delays in payment of duties assist in their collection and deters would be evaders. "We are here concerned with statutory provisions in Customs and Excise legislation that deprive an owner of property for some one else's debt." First National Bank & Another v Commissioner South African Revenue Service & Another (supra) at page 801.
It seems to me that the Customs and Excise Act 1982 read as a whole and applied with constant reference to Section 17 (4) (a) (i) of the Constitution represents the rights of the subject. The problem in this case is that applicant ignored the Constitution and the parameters it sets in the application of this law. The necessary reasonableness in a democratic society that the Constitution has in mind in the application of the law is the reconciliation of the rights of an individual with those of society at large. This is done by trying to "establish a fair balance between the public interest served and he property interests affect. .Per Ackermann J in First National Bank & Another v Commissioner South African Revenue Service & Another (supra) at page 806 E referring to Article 1 of the First Protocol of the European Human Rights Convention.
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Lesotho has no problem with existing laws, it need not individually weigh them so long as they are capable of being reconciled with the Constitution. The revenue collecting authorities have to apply them as modified by the Constitution. Section 156 of the Constitution clearly states that they remain the laws of Lesotho in so far as they do not conflict with the Constitution. The Customs and Excise Act 1982 is easily reconcilable with the Constitution of Lesotho. Its provisions had to be harmonized with the Constitution. Consequently they cannot be read in isolation.
There is no problem with the embargo. This interdicts the removal of goods from the warehouse. As a step towards ascertaining duties, the embargo cannot be faulted. It should have been followed by the taking of the inventory so that it could be possible to know the goods that are liable to be seized and whether all contents of the warehouse were liable for duty.
It is only after an open and transparent investigation in which an exchange of information between applicant, Silverside Textiles (Pty) Ltd and second respondent has occurred that seizure can be considered. In the case before me applicant is using the provisions
of the Act to frustrate its own investigations and to deny the company and second respondent information. The embargo should not deny second respondent access to the goods and information that establishes that the goods are liable for duty and how much it should be.
The problem that applicant created is that of losing sight of the objective of the Act and making the means to an end - the end
itself. Revenue collection is the purpose and the end for which powers under
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the Act were conferred. In the case before me applicant concentrated on the powers conferred - completely ignoring the rights of the subject which go together with the exercise of these powers. In the end the identity of the goods that are liable to duty and the circumstances and the reasons why duties were levied were kept hidden to the subject. The duties payable could not be determined for over three months. Applicant was leisurely exercising power for power's sake - not for the urgent purpose for which it was conferred.
CONCLUSION AND COURT ORDER:
Second respondent has been appointed as liquidator by this court to gather the assets and liabilities of Silverside Textiles (Pty) Ltd. He has brought a counter - application in which he asks "that applicant be directed to restore possession of the warehouse / and its contents." Since second respondent shows he has never been in possession of the warehouse and its contents, I can see no reason for the application as framed by second respondent. What second respondent through out wanted was to have access to the warehouse and to take an inventory with the applicant.
Applicant's right, interest and entitlement which Mr. Kemp concedes is payment of duty. Applicant has conceded through its counsel Mr. Mosae that in terms of the Act, applicant must have duty paid on rebated goods in terms of the Act now that they are for the internal Lesotho market in the Common Customs Area. Both parties agree that once duties are assessed and paid, second respondent is entitled to the rebated goods. It seems applicant vision was clouded by the dust of conflict - and should have from the beginning co-operated with
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second respondent to ascertain the unpaid duty so that it could be assessed and paid.
Consequently
IT IS ORDERED:
That applicant's application be and is hereby dismissed with costs.
Second respondent and applicant are directed to jointly take an inventory of the goods in the warehouse to enable the goods (if any) that are subject to payment of duty to be ascertained.
The embargo should be lifted by applicant when custom duties that might be found due have been assessed and paid on the rebated
goods that Silverside Textiles (Pry) Ltd bought from Lekim Textiles Industries (Pry) Ltd.
W.C.M. MAQUTU
JUDGE OF THE HIGH COURT
For Applicant : Mr. Mosae
For 2nd and the 4th Respondents: Mr. Kemp and Mr. Mpaka
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