HIGH COURT OF LESOTHO
OSMAN - APPLICANT
REVENUE AUTHORITY - 1st RESPONDENT
(LESOTHO) LIMITED - 2nd RESPONDENT
BANK LESOTHO LTD - 3rd RESPONDENT
by the Honourable Mr. Justice W.C.M. Maqutu on the 28th September
case, on the 19th August 2005, applicant brought an urgent
application ex parte against first respondent (hereinafter referred
to as LRA) and 2nd and 3rd respondents (hereinafter referred to
collectively as the banks). LRA had seized applicant's money in
banks Mofolo J granted the following order:-
HEARD MR MPAKA Counsel for applicant AND HAVING READ papers filed to
hereby ordered as follows:-
rule nisi be issued returnable on the 23rd day of AUGUST, 2005, at
9.30 am calling upon respondents to show cause if any
following prayers shall not be
normal rules as pertain to forms service and notice periods as
prescribed in the rules of this Honourable Court shall not
dispensed with, regard being had as to the urgency of this matter;
and third respondents shall not be interdicted forthwith from paying
or causing to pay to first respondent from applicant's
amounts as reflected in first respondent's letter of the 16th
August, 2005 except by due process of the law pending
the event that by the time this application is moved second and
third respondents have already paid applicant's money to first
respondent, first respondent shall not be ordered to return or cause
to be returned the received amounts into applicant's accounts;
and third respondents shall not be ordered to allow or cause to
allow applicant to
his accounts held with them pending finalization hereof;
shall not be ordered to pay costs of this application, jointly and
severally the one paying, the others to be absolved;
shall not be granted such further and alternative relief.
respondent's letter purporting to freeze applicant's accounts held
with second and third respondents be declared irregular
and as such
of no force and effect in law;
respondent be interdicted from further interfering or causing to
interfere with applicant's bank accounts in any manner
except by due process of the law;
pay costs of this application jointly and severally, the one paying
the others to be absolved.
be granted such further and / or alternative relief.
prayers 1 (a) and (b) supra operate with Immediate effect as an
Interim Court Order.
It is one
of the great complaints against interim orders that are granted
without hearing the other side that they are often prejudicial
party who was not been heard.
Williams in Income Tax in South Africa Law and Practice page 1 says
"To levy tax is to confiscate the taxpayers' property. The
imposition of tax thus infringes a fundamental liberty and it is
surprising that taxes generate controversy."
Mathaba's argument if I understood it is that in the Republic of
South Africa the South African Revenue Authority can summarily
garnishee the taxpayers' bank accounts. He has referred me to the
cases of Hindry v Nedcor Bank & Others 1999 (2) SA 757 and
Contract Services (Pty) Ltd & Ors v SARS & Others 1999 (3) SA
1133 at 1144-45. He therefore submits that "the mechanism
found to be reasonable and necessary in an open and democratic
Mr. Mathaba is oversimplifying what was happening because Brett AJ at
page 1145 of Contract Services & Others v SARS
"I am accordingly of the view that the decision to issue notices
in terms of s 47 of the VAT Act constituted an administrative
decision affecting the rights of the
freely to conduct their bank account held at the third respondent and
to receive payment from their debtors. For these
reasons I consider
the decision to issue the notices in terms of s 47 capable of being
reviewed and set aside."
orders are normal methods of recovering debts like maintenance direct
from employers of judgement debtors. They are methods
of execution of
judgements. They do not in any way interfere with the rule of law and
the principles of natural justice such as
audi alteram partem. In
Metcash Trading Ltd v Commissioner SARS 2001 (1) SA 1109 Kriegler J
said collection of VAT is a continuous
process. An objection from a
taxpayer to an assessment obliges or compels the Commissioner to
reconsider the assessment. This reconsideration
could even be
enforced by an independent tribunal. All these are administrative
matters. The principle of "pay now and argue
according to Kriegler J is a discretionary power. See Metcash Trading
Ltd v Commissioner SARS at page 1142 B:-
"The rule is not absolute but subject to suspension in
circumstances which the Commissioner considers appropriate .... the
existence of this discretionary power therefore reduces the effect of
the principle 'pay now and argue later' in an appropriate
this power ought not to be abused; because where powers are abused
the courts are bound to intervene. I do not accept that
servants can violate people's rights at will. If the powers are used
reasonably and in keeping with the spirit of the Constitution
human rights contained therein courts will not interfere. There is no
right on the part of officials to trample on the
rights of taxpayers.
mistake Mr. Mathaba makes is to miss the point of statutory
interpretation. Section 15 of the Interpretation Act 1977 provides.
"Every enactment shall be deemed remedial, and shall be given
such fair, large and liberal construction and interpretation
ensures its objects."
That does not mean rights of people under the Constitution and their
rights under the common law can be overridden. The court will
their utmost to reconcile the legitimate objects of the legislation
with individual rights, fairness and justice. Abuse of power
unbridled power cannot be reconciled with democracy.
This approach is built into the power of a state to tax subjects
which is protected by Section 17 (a) (i) of the Constitution which
permits the exercise of such power in a manner "that is
necessary in a democratic state."
Mr. Mpaka for applicant begins his argument by quoting the remarks of
Ackermann J in the Constitutional Court in the
case of First National
Bank of SA v Commissioner SARS 2002 (4) SA 768 at page 787 paragraph
"In doing so it is first necessary to emphasise that even fiscal
statutory provisions, no matter how indispensable they may
be for the
economic well-being of the country -a legitimate governmental
objective of indisputed priority - are not immune to the
of the constitution and must conform to its normative standards."
at paragraph 3 of his founding affidavit has said "the nature of
the dispute involved M268,405.49. This is not correct
according to LRA's letter dated 16th August 2004, marked "BO3",
applicant's VAT liability is Ml,010,126.51 to
which was added a
penalty of 200% making a total of M3,030,379.34. By April 2005 LRA
had revised applicant's tax liability tax
upward including penalties
and income tax. See LRA's letter "BO6" dated 7th April
letters "BO2", "BO3" and "BO6" LRA
states it has the power to negotiate the tax liability downwards.
They add these tax liabilities are payable and may be recovered
notwithstanding any objection applicant might make. This power
recover tax despite any objection made flows from Section 37 (3) of
the VAT Act No.9 of 2001.
argument it emerged that there is now a Revenue Appeals Tribunal
which would begin functioning on the 1st September 2005.
in eliciting this information stemmed from the fact that LRA had been
given the power to seize people's property at
will even if their
objections had not been dealt with. This Revenue Appeal Tribunal was
to operate 11 days before the seizure of
applicant's property that
led to this application. The Revenue Appeals Act NO.2 of 2005
established a Revenue Appeals Tribunal
which ought to have existed
long ago in terms of the Sales Tax Act 1995 and the Value Added Tax
Act N0.9 of 2001.
impression I got was that when actions of LRA were about to be
subject to scrutiny in exactly 14 days before LRA decided to
itself to applicant's property. The impression that it was avoiding
scrutiny is hard to avoid. Did LRA act in good faith in
way it did? Mr. Mathaba was unable to satisfy me after I had seen the
legislation and the Government Notices.
that in this case of applicant, LRA acted fairly. It has up to now
never exercise its draconian powers arbitrarily. All
authorities the world over are clothed with these powers. However,
Mr. Mathaba was unable to refer me to any country where
authority exercised its drastic powers just as the Revenue Appeals
Tribunal was about to start work.
powers to seize documents of people who are suspected of
appropriating Value Added Tax and to make a reasonable assessment is
not questioned in these proceedings. What worries me is the avoidance
of independent scrutiny, when it has become possible and
imminent. 1 am alive to the fact that revenue must be speedily
of law has to be maintained, that is this court's constitutional
duty. In so doing the court must ensure that the truth
concealed and the revenue authority is not cheated of tax from the
taxpayer through indefinite delays and filibustering.
It seems to me
the intention of the legislature was not to deny an objector to a tax
assessment a hearing. Even one who is alleged
to have stolen Value
Added Tax from the State cannot be condemned unheard. Other suspected
thieves are given a hearing; I do not
see why suspected tax thieves
should not be given a hearing like others suspected of criminal
conduct. It is significant that making
a false VAT return is a
Criminal Offence in terms of Section 70 of the Value Added Tax Act
"BO7" is a letter written by T.T. Lenka & Associates
dated 24th May 2005 to the LRA with a heading Appeal
Against both VAT
and Income Tax for 2003-2004. Its first paragraph states:-
"Pursuant to the Provisions of VAT ACT 2001 and in particular
Section 33(1) of the same Act which refers to an "Appeal
Tribunal", I humbly submit that my client's case be treated in
accordance with this."
asked Mr. Mathaba why appeal was not processed, he told me this
letter was procedurally wrong. I pointed out that an appeal
of the Act has no prescribed technicalities. Then Mr. Mathaba said
the tribunal did not exist at the time. I was not happy
dragging this matter merely because there was not yet any tribunal.
It did not make me comfortable to discover that
when the tribunal had
been established and was to start work within 14 days LRA pounced on
the applicant to execute its own judgement
in which it was the sole
hard to accept what Mr. Mathaba says to the effect that between 2001
and 2005, there was no grievance ventilation machinery,
Parliament had provided for it. Section 31 and 34 of the Value Added
Tax Act of 2001 state in no uncertain terms that
there is already "an
Administrative Tribunal for Tax Appeals" established under
Section 203 of the Income Tax, Act 1993.
Mr. Mathaba in argument said
it did not exist until September 2005. I simply cannot accept this
submission, perhaps he is mistaken.
be (if Mr. Mathaba is right) that the Ministry of Finance found it
unnecessary to have the Administrative
for Tax Appeals from 1993 up to September 2005 because of provisions
in tax laws such as Section 37(3) of the Value Added
Tax Act 2001?"
Section 37(3) provides:-
"Where an objection to, or notice of appeal against, an
assessment has been filed, the value added tax payable under the
assessment is due and payable, and may be recovered, notwithstanding
that objection or appeal."
I do not
think that was the intention of Parliament. That the Administrative
Tribunal for Tax Appeals should not exist. The Commissioner
should do as he pleases. Parliament expected to be obeyed. Parliament
also expected people to have the ventilation of grievances
to be in place to protect private property in terms of the
constitution, and to avoid creating discontentment caused
of a ventilation of grievances.
taxation in Britain in the seventeenth century, led to civil war in
which Charles I was beheaded. In the eighteenth century
colonies fought a civil war over taxation with Britain which led to
the establishment of the United States of America.
This was because
in the name of government public servants could seize people's
property using State powers of taxation. The owners
of property had
no administrative remedies and could not resort to the courts.
case of Commissioner SARS v Hawker Aviation Services &
Partnership 2005 (5) SA 283 Patel J did not take kindly to assessment
which included penalties. To Patel J this was unconstitutional
because that amounts to some one other than a court of law exercising
a judicial function. In that case VAT was involved and similar
sections of the law were involved. The issue before me is not the
imposition of the additional tax of 200%. It is the arbitrary use of
powers under Section 41 of Value Added Tax Act 2001. Nevertheless
above case shows how public servants can sometimes abuse draconian
powers if left to themselves.
v Commissioner SARS 2002 (3) SA 94 the problem was still that the
South African Value Added Tax Act 1991 gave the Commissioner
powers that he seemed to be under no obligation to give the taxpayer
time to pay - he could just turn the assessment into
which could be instantly executed. The court had to interprete the
Act to mean the Commissioner had to give the taxpayer
to pay. It was this arbitrary use of power that led the court in
Commissioner SARS v Hawker Aviation Services &
(5) SA 283 remarking that it is unconstitutional for any one other
than a court of law exercising a judicial function.
The South African
courts had had no quarrel with those powers because they assumed they
would be used reasonably in line with the
democratic culture. See the
remarks of Kriegler J in Metcash Trading Ltd v
SARS at page 1142 B. If this expectation does not materialize the
courts have to act.
taken aback that LRA at paragraph 1 and 2 of its affidavit said the
application was premature. The reason for this was that
could only come before this court after it had been before a
none-existent Revenue Appeals Tribunal. A tribunal that
did not exist
on the 16th August 2005. This tribunal ought to have been in
existence at the inception of the Act in 2001. What
was even worse
was that applicant had appealed on or about 27th April 2005 to a
none-existent tribunal. Fortunately LRA did not
pursue this line of
argument before me, it abandoned it.
it appears from what LRA alleges applicant had been under-declaring
its sales and Value Added Tax. LRA acting on a tip-off
applicant's documents and constructed a Value Added Tax assessment
which later included income tax.
provided the court with some samples of what it considered to be
applicant's cheating. This is not the whole story. Applicant
a general denial which left this court unhappy. Obviously this matter
has to be ventilated and the truth ascertained.
I cannot determine
the merits of the Value Added Tax and Income Tax assessment. I also
noted the hide and seek delaying tactics
of applicant who was
the assessment on one breath and offering to settle the assessed tax
in roughly 200 years as more fully appears in LRA's
letter TK 8 dated
22nd June 2005. This the court cannot ignore.
puzzles me is why the process of dealing with applicant's objection
was lengthened indefinitely. Could it be because there
Administrative Tribunal for Tax Appeals? If so, why did LRA act so
precipitately to seize applicant's money when the establishment
the long overdue Administrative Tribunal for Tax Appeals became
imminent? I am also unable to understand why LRA did not act
of Section 38 of the Value Added Tax Act 2001 which provides:-
Added Tax as a Debt Due to the Lesotho Government
38. (1) Value added tax due and payable under this Act is a debt due
to the Government of Lesotho and is payable to the Commissioner
the person liable for the tax as determined under the Act.
Commissioner, the Director of Customs and Excise, and the Director
of Postal Services may make such arrangements as they consider
appropriate to facilitate the collection of value added tax on the
import of goods.
person fails to pay value added tax when it is due and payable, the
Commissioner may institute an action in a court of competent
jurisdiction for the recovery of the value added tax and where the
Commissioner institutes an action under this section, judgement
shall be delivered within sixty days from the date of institution of
action referred to in subsection (3) may be instituted in the
Subordinate Court having jurisdiction over the person,
any provision of the Subordinate Court Order, 1988
to the contrary.
Commissioner may take any action as is reasonably necessary to
ensure the collection and recovery of value added tax.
person against whom an action is brought under Subsection (3) may
only challenge the correctness of the amount due under an
in accordance with Part II of Chapter VIII or under a deemed
assessment in accordance with section 29."
All this puzzles me, if the process was incomplete, why did LRA
lengthen it indefinitely.
grounds have been given by LRA for avoiding the courts. Section 41
(8) shows clearly that the powers LRA has under Section 41
(1) do not
displace the expected proceedings under Section 38. The money in the
banks is not goods that are contemplated within
Section 41 (1) in
this particular case, although there are circumstances in which money
in the bank can be goods. What LRA was
doing was avoiding available
administrative remedies that should have been there - and also
enforcing payment of VAT through the
courts as provided by law. LRA
cannot be allowed to subvert the very rule of law that is provided
for the Value Added Tax Act 2001.
Commissioner SARS v Hawker Aviation Services Partnership (supra) at
pages 293 to 294 the court was not impressed with the delay
Commissioner South African Revenue Service in completing the
preliminary steps that would entitle him to assess the VAT
Consequently Patel J said of the court:-
"Its fundamental purpose is to check the over-zealous and
sweeping misuse of power by the public administrator in a democratic
State. The Revenue Service indeed plays a vital role in the public
interest of collecting revenue, because the economic well-being
the nation is a legitimate imperative to attain developmental goals
to improve the quality of life of all
citizens. In pursuit of this objective the Revenue Service is
required to act in a highly principled way."
LRA has to complete the process of assessment quickly and get
whatever disputes exist to the now existent Administrative
for Tax Appeals for final settlement. This court is not supposed to
determine the merits of this tax dispute. All it has
to do is to
ensure that due process of law takes place. This includes both
administrative and judicial processes. In the pursuit
objectives the Courts have to ensure that the LRA operates in a
highly principled way in a modern democratic State that
being turned into.
therefore confirm the rule nisi with costs as prayed.
Applicant : Mr. Mpaka
Respondent : Mr. Mathaba
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