CIV/ APN/218/2007
IN THE HIGH COURT OF LESOTHO
In the matter between:
SEBOPEHO MOHAPI APPLICANT
and
LESOTHO REVENUE AUTHORITY RESPONDENT
JUDGMENT
Delivered by the Honourable Madam Justice N. Majara on the 29th November 2007
This is an opposed application wherein Applicant approached this Court by way of notice of motion seeking an order in the following terms:-
Dispensing with the rules or modes and periods of service on the grounds of urgency.
That a rule nisi be issued calling upon the Respondent to show cause (if any) on the 6th August 2007 why the following order shall not be made absolute.
Staying sale of the Applicant's property attached and removed by the Respondent as per its distress order of the 13th November 2006 pending finalization hereof.
Reviewing and setting aside the Distress Order of the 13th November 2006.
Ordering that prayer 1 and 2 (a) should operate with immediate effect as an interim relief.
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Ordering the Respondent to pay costs of this application.
Granting the Applicant such further and or alternative relief as the Court may deem fit.
Facts which precipitated this application are to the effect that applicant is the sole trader of businesses in Maseru, Mafeteng, Mohale's Hoek and Quthing although there is a dispute concerning the Mafeteng business to which I will come back later on in this judgment. At any rate, suffice it to say that it is common cause that all these businesses were registered with respondent for VAT collection by applicant's former bookkeeper as belonging to applicant.
Sometime in the year 2004, respondent's officers conducted a check on all the above mentioned businesses and confiscated her books of accounts. They subsequently made a tax assessment on the basis of the information contained in the books and that obtained from their informer, a former employee of applicant. Since applicant had raised some queries with regard to the amounts, both parties then entered into negotiations in March 2005 for payment of the assessed amount and for the release of applicant's books. However, due to applicant's failure to pay the amount, respondent issued a distress order in June 2005, pursuant to which all the businesses were closed down. Applicant then approached the Ombudsman after whose intervention the distress order was suspended, applicant's books of accounts were returned to her and the shops were reopened.
Subsequently, both parties met and entered into further negotiations on the basis of which they reached an agreement that applicant should only pay the amount of M207 907 .72 with respondent waiving his prerogative of charging penalties all of which were far in excess of the principal assessed amount. Applicant then starting making payments
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subject to this agreement albeit, in much lesser amounts than those agreed by the parties. Meantime both parties continued to communicate through a series of letters which have been attached to the pleadings.
Applicant further through a letter dated 24th May 2006 requested a revision of the terms of payment on account of her inability to pay due to various problems she alleged she was having with her banks, suppliers, staff, school fees, personal needs and having to pay the outstanding amount to respondent. Unfortunately, though attached, this letter has not been translated for the benefit of the Court. Eventually, when it became clear that applicant was unable to pay the agreed amount, on 13th November 2006 respondent issued another distress order on the basis of which applicant's property was attached. All these facts are common cause.
It is with regard to this distress order that applicant has approached this Court for relief in the terms aforementioned. During her submissions on behalf of applicant, Mrs. Tau-Thabane raised three issues for determination by this Court. These are:-
Whether it is proper for respondent to collect tax due from Mejakho (Pty) Ltd from applicant personally.
Whether it is proper for a distress order to collect tax already paid.
Whether the Commissioner General applied his mind to the matter before issuing the distress order.
With regard to the first issue, Counsel for applicant argued that when applicant's former bookkeeper provided respondent with the licenses for the businesses, it was clear from the information that one of them was a company, yet all were given the same registration number. It was her submission that this was a mistake on the part of respondent as the registering authority and that it should not be visited on applicant.
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She added that the argument raised by respondent that the said company belongs to applicant personally and that she was using its license because it is a defunct company is not supported by any evidence. Further that their allegations to the effect that applicant's personal business and Mejakho (Pty) Ltd use the same bank account and that she bought stocks for all of the businesses together, the company included, are refuted by applicant in her replying affidavit.
Mrs. Tau-Thabane further added that while applicant does not deny that she was managing Mejakho and would sometimes buy stock in bulk and distribute it among all four, she supplied evidence that Mejakho has its own account number and bought its own stocks and it would reimburse her and vice versa. She thus also submitted on behalf of applicant that even if she was a subscriber to the memorandum of Mejakho, that does not make her personally liable for its tax liability because it is a company with a legal persona different from its subscriber, can sue or be sued in its own name, has duties and obligations in its own name and acquires property in its own name.
Counsel for applicant also made the submission that since the information concerning the businesses is clear from the records with regard to which sales emanated from Mejakho, then there is no excuse for respondent as the registering authority to impose Mejakho's tax liability on applicant personally. She added that even the Deputy Commissioner General of respondent by his letter dated 10th August 2006 "MSM 10" acknowledged that they had made a mistake in including Mejakho's documents although respondent did not review the amount.
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Furthermore, that even in terms of section 44 (1) of the VAT Act, the law is clear how respondent can recover tax from a third party and that respondent has not acted in accordance with these provisions. Mrs. Tau Thabane also made the submission that this Court has the inherent power to intervene by way of review where injustice or hardship is bound to be committed and that in this case, it is clear that the distress order will cause great injustice and hardship to applicant.
Coming to the issue of the distress order, Mrs. Tau-Thabane stated that before respondent can proceed by way of distress in terms of the provisions of Section 42 of the Act, he must first of all establish the 'person liable' and the tax liability or the tax due and that in casu, the distress order of June 2005 was issued despite negotiations that were proceeding.
She added that applicant pointed out to respondent that some omissions that had been made in the assessment and also objected to the inclusion of Mejakho therein yet she continued to pay being aware that objections do no suspend an obligation to pay tax. That in light of the fact that the figure was being disputed, it was not clear what the tax liability was for which the distress order was issued. She submitted that the distress order was irregular if it was made in the amount of M207 907 .72 even after applicant had made payments and for the reason that the amount for Mejakho was included in the calculation of tax liability of applicant personally.
Counsel for respondent made the further submission that the Act does not make it mandatory for the Commissioner General to issue out a distress order every time he/she wants to recover tax. In addition, that the discretion given to him with regard to issuing such an order should be exercised in such a manner that it results in fairness and not
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injustice because it is provided for by statute. Furthermore, that since the Commissioner General exercises quasi-judicial powers he has to do so judicially.
It was Counsel's further submission that applicant showed bona fides by continuing to pay even though she was querying the assessment and that this Court should intervene in order to avoid causing her injustice and hardship as evinced by the problems her business ran into after the first distress order in that, the bank retracted its promise to advance her a loan and that despite this fact, she had paid the amount of M6, 000.00 in the month of May alone. Further, that she also made an offer regarding how she would pay which offer was rejected for the reason that it amounted to a small percentage.
In response and in his verbal and written submissions, Mr. Mathaba Counsel for respondent argued that while they are not disputing the existence of the Mafeteng branch, they deny that it is a separate entity and submit that it is part of applicant's businesses. He added that applicant in any event never raised an objection as provided for by the law to the assessment which includes the Mafeteng branch and that instead, she accepted and acknowledged liability per amongst others, annexures "MM 18" and "MM 19" respectively.
Further, that when the businesses were registered for VAT by her accountant, the details on the form were those of applicant and that the trading license and account numbers are the same in respect of all the four (4) branches as contained in the documents. That, the only thing that applicant's accountant did, was to submit the license of the company which was otherwise treated as applicant's branch and not as Mejakho (Pty) Ltd. He argued that if it was meant to be registered
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separately, its own account number could have been provided at the time of registration.
It was Counsel's further submission that nowhere in her papers does applicant state that the registration was meant to be separate for Mejakho and the other 3 branches and that if she intended registering this branch separately, she would not have given her accountant the company's license. In addition, that respondent has no knowledge of the private arrangements between applicant and Mejakho if any, and that all along the four (4) branches were assessed together without any complaint at all. He added that the issue regarding the inclusion of Mejakho was only raised belatedly after applicant had signed several document with respondent whereby she was agreeing to the assessed amount with regard to all four branches.
Further that, even when the first distress order was issued, applicant never approached respondent regarding the closure of the Mafeteng Branch, not to mention that in her papers in this application, she is making reference to the agreed revised figure which includes the Mafeteng Branch as it appears on page 128 of the record. Furthermore that, instead of raising any objection as it is provided for by the law, applicant made commitments on different occasions to the officers of the respondent to settle the assessment, all of which she failed to honour. That over and above this, the suspension of the first distress order was a result of her having made a commitment to pay which she also did not honour but instead, kept on asking for extensions.
Mr. Mathaba added that while the initial assessment was done on the basis of information that was available to respondent, the latter gave applicant and her accountant audience in this regard, subsequent to which applicant provided all the relevant information that was not
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available during the initial assessment as a result of which a revised assessment was made and was agreed to by the parties as it appears at p62 and 63 of the record and at ppl23-126. That as a result of applicant's repeated failures to honour the assessment which was revised time and time again including revision of the agreed payment plan, respondent eventually issued the distress order in question in these proceedings.
Mr. Mathaba also submitted on behalf of respondent that there is only one issue for determination by this Court i.e. whether respondent was justified in law to issue the distress order against applicant as a result of which her movable property was removed from her possession while the dispute with regard to the tax debt was still pending. He added that it is clear from the provisions of the law, vide section 37 of the Act, that a tax debt is due and payable on a date specified in the notice of assessment.
Counsel for respondent made the contention that by her assertions that respondent is acting unjustly and abusing its powers by issuing the distress order, applicant has raised the merits of the assessment as she is challenging the figures in the assessment and the inclusion of the Mafeteng Branch which she is alleging is a separate business entity from her. Mr. Mathaba made the submission that this Court does not at this stage have jurisdiction to enquire into the merits of the assessment for the reason that its common law jurisdiction is curtailed by both the VAT ACT 2001 and the Revenue Appeals Tribunal Act 2005 for the reason that any issues relating to the assessment can only come before this Court by way of appeal from the Revenue Appeals Tribunal.
Further, that the Tax Court is a statutory body specifically constituted in terms of the Act as a specialized tribunal with powers of revision and investigation and that the merits of the assessment are irrelevant to the
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question whether or respondent exercised its powers correctly in invoking the collection procedure. That, Section 42 of the Act is a recovery section which has merely codified the trite tax law principle of "pay now, argue later" and that once the jurisdictional element is present, namely that VAT is due and payable, the amount payable under the assessment may be recovered notwithstanding the objection and appeal, and the respondent is entitled (at its discretion) to invoke the collection procedure.
To this end, Mr. Mathaba went on to show that the distinction drawn by the South African Courts between the words "due" and "is payable" as used under the section does not apply in this matter because of the way their provision is drafted. He added that in this jurisdiction, the philosophy of 'pay now, argue later' is not suspended even by the lodging of an objection which he submitted applicant has not even lodged in accordance with the law as also evinced by her failure to produce a copy of the objection because none was filed and that, within the prescribed period, namely, within thirty (30) days of service of the assessment. Counsel for respondent went on to show that collection of a tax liability under the Act is not affected by the adjudication of the merits of an assessment, either internally by the Authority on objection or on appeal to the Revenue Appeals Tribunal.
It was his further submission that even if applicant had lodged an objection in terms of the law and had subsequently appealed the objection decision, it is only that appeal which would be dealing with the issues relating to assessment that would be the subject of the scrutiny of the Tribunal which determines the merits of the appeal. That in addition, the Commissioner General has the discretion whether or not, to collect tax liabilities pending the finalization of the objection or an appeal
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and that his decision to collect tax debt pending the finalization of the objection and/or appeal would fall to the scrutiny of the Tribunal.
It was further submitted on behalf of respondent that Section 37 of the Act provides that the obligation to pay and the right to receive and recover any tax, additional penalty or interest chargeable under the VAT Act, is not suspended by any appeal pending the decision of a Court of law, unless the Commissioner General so directs.
Furthermore, that applicant lays no foundation for concluding that respondent is acting 'unjustly and abusing its powers' especially because, so Mr. Mathaba contended, the latter has not acted arbitrarily since it has all along been reasonable in its dealings with applicant and showed its willingness to work with her when it went to extra lengths by inter alia, assisting applicant to secure a loan from her bank so that she could start paying her tax debt. In addition, that respondent gave applicant countless opportunities to pay the tax debt and advised her that recovery provisions would be resorted to if she did not pay the debt. That over and above this, it also gave her the opportunity to address it why the collection procedure should not be invoked against her as she was failing to pay as contained in Annexures 'MM 25' at p 134-135, 'MM 27' at p 141-143 and '13' at p 43-46 of the record.
Counsel for respondent made the further submission that respondent's exercise of its discretion was long overdue regard being had to the fact that this was not a case of honest mistakes that can be committed by a tax payer on the tax returns, but is one wherein applicant had devised a scheme to defraud respondent and yet prior to the exercise of its discretion, respondent afforded applicant fair administrative action.
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Lastly, Mr. Mathaba submitted that applicant can not be allowed to challenge the action taken by respondent in November 2006 after a period of almost eight months which is an inordinate delay on her part which she has not even bothered to explain. He prayed that this application be dismissed with costs at Attorney and Client scale.
I now proceed to deal with the issue of jurisdiction first, as I find it both logical and convenient to do so.
The VAT Act of 2001 contains numerous provisions that deal with inter alia, returns, assessments, objections and appeals. The provisions of Section 27 of the Act mandate a vendor to file a VAT tax return for each tax period with the Commissioner within twenty days after the end of each period. Section 28 in turn empowers the Commissioner to make an assessment payable by a person who fails to file a return as required by section 27 where the Commissioner is not satisfied with the return filed or has reasonable grounds to believe that a person will become liable to pay per the law but is unlikely to pay the amount. The section also provides for circumstances under which an assessment can be made by the Commissioner at any time. The said assessment should then be served on the person assessed.
Part II of the Act deals specifically with objections and appeals starting from the Commissioner, the Appeals Tribunal, the High Court and the Court of Appeal respectively. In this regard, section 32 provides in parts and in so far as is relevant in casu as follows:-
"A person who is dissatisfied with an assessment may file an objection to the assessment with the Commissioner within thirty days after the service of the notice of assessment
An objection shall be in writing and specify in detail the grounds upon which it is made.
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After considering the objection, the Commissioner may allow the objection in whole or in part and amend the assessment accordingly,
or disallow the objection.
The Commissioner shall serve the person objecting with notice in writing of the objection decision.
If the Commissioner has not made an objection decision within sixty days of the objection being filed, the Commissioner is deemed to have made a decision to disallow the objection and to have served the person objecting with notice of the decision on the sixtieth day."
The matter does not end at this stage. In the event that a tax payer is dissatisfied with the outcome under the above quoted provisions,
he/she is enabled to appeal this decision to the Revenue Appeals Tribunal which in terms of Section 3 (2) (c) of the Revenue Appeals
Tribunal Act of 2005 has the power to:-
"hear all appeals under the VAT Act 2001, in particular in respect of assessments of income or fringe benefits tax, decisions,
rulings and determinations of the Commissioner General;"
I have already shown that in casu, it is common cause that the Commissioner made the assessment in respect of the four businesses inclusive of Mejakho (Pty) Ltd and this, on the basis of information he received from the former accountant of applicant that she had been under declaring her taxes with respect to all four of them and clearly from her papers before this Court applicant is challenging this assessment. However, I am of the view that based on the facts placed before this Court, although it cannot be denied that she did raise queries with the respondent during several of their meetings, she never formerly filed an objection in terms of the law.
From the wording of the provisions of the above quoted sections, I am of the view that the intention of the legislature was to provide all tax paying
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persons with local remedies through which they can challenge and/or query assessments before approaching the ordinary Courts. That is, filing an objection with the Commissioner within the specified period. In the event that he/she is dissatisfied with the decision of the Commissioner, then he/she may file an appeal with the Appeals Tribunal which in turn will hear and determine the assessment,
decision, ruling or determination of the Commissioner whatever the case may be.
In my view since the powers of the Revenue Appeal Tribunal include scrutinizing and in terms of section 10 of the Act, affirming,
reducing, increasing or varying the assessment, nothing stopped applicant in the present case from following this procedure, on the basis of the same grounds in respect of which she approached this Court.
In other words, it is my opinion that section 3 of the Act is wide enough to cover any ground including the one that applicant has raised in casu, i.e. that Mejakho has been wrongfully included in the assessment because it is a company for whose tax she cannot be held personally liable. The fact that she failed to file an objection but instead entered into negotiations and eventually agreed to pay gave rise to the Commissioner issuing the distress order against her.
For these reasons, I do not accept the submission made by Mrs. Tau-Thabane on behalf of applicant that the decision in Traco Marketing (Pty) Ltd and Another v Minister of Finance & Another 1998 (4) SA
74 at 77 is applicable herein. This is because therein, before it was taken to the High Court, the matter had traversed the local remedies as specified by the applicable law of South Africa so that by the time it reached that stage, the court had the jurisdiction to hear the application for rescission of a judgment that had been granted by default against applicant. In other words, applicant in that case had as a first step
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formally objected to the assessment made by the Commissioner on which after being overruled, it subsequently appealed to the Special Court and only took the matter before the High Court thereafter.
Further, I am of the view that that case is distinguishable from the present one for the reason that although the Court therein stated that it had inherent jurisdiction to grant relief pendete lite to avoid injustice and hardship, it also added that it could not grant an order which would have the effect of nullifying the terms of the statute. Likewise, I am of the view that insofar as the VAT Act and the Revenue Appeals Tribunal Act provide, this Court cannot at this stage nullify the distress order of the Commissioner which he is legally empowered to issue since the assessed VAT was already due and payable under section 37 (1) of the VAT Act. In this regard, see the remarks of His Lordship Grosskopf JA in the case of Lesotho Revenue Authority & 2 Others v Olympic Off Sales C of A No 13/2006 pl5.
I therefore accept the submission made on behalf of respondent that at this stage, the common law jurisdiction of the High Court is curtailed by both the VAT Act 2001 and the Revenue Appeals Tribunal Act 2005 so that any issues relating to assessments under the tax law can only come before it by way of appeal from the Revenue Appeal Tribunal. Indeed, applicant herein has failed to exhaust these remedies before approaching this Court for the relief claimed.
In other words, all the issues that applicant has raised, to wit, that the business in Mafeteng does not belong to her personally, that she has been paying some amount towards the settlement of the assessed amount etc, constitute the merits for which she should have filed an objection in terms of the above quoted provisions so that they could be properly determined in accordance with the procedure and by the
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structures that have been provided for under the section. In my view, to find otherwise would have the effect of rendering redundant, the local remedies and/or structures that have been put in place specifically for this purpose.
I also accept the contention by respondent that the proper position of Lesotho's tax law as it stands, is that it has retained the common law position of 'pay now, argue later'. This principle does not differentiate between grounds for objection. It is all encompassing
so that it leaves the arguing of any contested matters in the hands of the structures that have been put in place at the end of which, if still dissatisfied, a person can then approach the ordinary Courts either by way of appeal or review.
Therefore, as I have already shown, even the argument by applicant i.e. that Mejakho (Pty) Ltd is a company in its own right and a separate entity from her, even if she may be its subscriber, for which she should not be made personally liable for its taxes, would be properly placed before those structures for their determination and in the event that applicant is dissatisfied, then she could take the matter further before this Court.
With regard to the submission that in issuing the distress order, the Commissioner acted unfairly, it is my opinion that applicant has failed to place evidence before this Court in support thereof. It is common cause that not only did respondent afford applicant numerous opportunities to pay the assessment and waive its right to penalize her, but the facts reveal that it also advised her more than once that if she failed to pay the debt, recovery provisions would be taken against her. This is evidenced by inter alia annexure 'MM25' being a letter dated 21 June 2006 which she wrote to respondent in acknowledgment not only of her tax debt, but of the respondent's assistance to her in her dealings with her banks. The
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said letter reads in parts and insofar as is relevant to this point as follows:-
"I wish to start by thanking you for your kind understanding of the problems I am experiencing to settle my assessed value added tax liabilities. I particularly want to thank you personally for the constructive manner in which you have offered to assist me to reach a settlement with my banks with regard to the financing of my business and thereby avoid the otherwise inevitable closure of those businesses.
I am further full (sic) aware and mindful that, notwithstanding the outcome of my meetings with the banks, as assisted by the Authority,
the Authority reserves its right, and indeed has a statutory duty, to exercise its recovery powers under the relevant statute against me and my businesses." (my emphasis)
Within this scenario, I find it difficult to accept that the Commissioner acted unfairly. Rather, I am of the view that he did everything in his power to be as lenient as possible with applicant starting with his waiving the penalties, suspending the first distress order, as well as giving her several hearings and warnings. Thus in Bilal's case (supra) wherein the appellant had contended that the Commissioner had acted arbitrarily against him in invoking the powers as granted to him by the law the Court of Appeal held that appellant should have placed facts before it to establish the alleged arbitrariness on the part of the Commissioner.
In casu, this is especially the case in light of the fact that subsequent to negotiations held on divers occasions between the parties, applicant eventually signed an agreement admitting the tax liability. It is therefore my opinion that contents of the above quoted annexure and indeed of other communication attached to these proceedings belie the suggestion that the Commissioner acted unjustly and unfairly in resorting to the recovery procedure against applicant in terms of the law.
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With respect to the effect of such an agreement between the parties, authority is legion that it is binding on the parties and one cannot subsequently approach the Court seeking redress. In this regard, the locus classicus is the case of Kereke ea Evangeli Lesotho v Rev. Lekhanya LAC 2000-2004 855 at 858 quoted to this Court, wherein the Court of Appeal stated that 'wherever a dispute is settled by agreement it is an end and for that reason there can be no recourse to the courts.' Likewise, I do not think that it would be proper to allow applicant herein after entering into negotiations with respondent, coming to an agreement with it and also acknowledging
that the Commissioner has powers to resort to recovery measures in the event of her defaulting, to turn around and seek recourse before this Court. In my opinion, the minute she agreed to the assessment and to the recovery measures per contents of a letter authored by her was the end of any challenge to the assessment. The situation is made worse by the fact that she instituted these proceedings after almost eight months since the distress order was issued against her and has not explained the reasons for her delay.
Lastly, the argument that at the time the distress order was issued applicant was paying does not in my view take her case any further. My reasons are that it is common cause that despite several commitments on her part, she failed to pay the amount which was due and payable in terms of the assessment, not to mention that in her papers in this application, she has failed to take this Court into her confidence by specifically stating how much she actually paid vis-a-vis the assessment save to aver that she was paying. Furthermore, it is common cause that even the value of her attached property falls far below the assessment. I therefore do not think that under these circumstances this Court should lightly interfere with the decision of the Commissioner.
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It is for these reasons that I find that applicant has failed to make out her case for the relief sought and accordingly dismiss her application and discharge the rule nisi with costs.
N. MAJARA
JUDGE
For applicant : Mrs. M. Tau-thabane
For respondent : Mr. Mathaba
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