City of Tshwane Metropolitan Municipality v Cable (Pty) Ltd (34431/2005) [2008] ZAGPHC 11 (18 January 2008)

THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

CASE NR: 34431/2005

NOT REPORTABLE DATE: 18/1/2008

In the matter between:

THE CITY OF TSHWANE METROPOLITAN

MUNICIPALITY Plaintiff

and

CABLE CITY (PTY) LTD Defendant

JUDGMENT

FABRICIUS: AJ

According to a document discovered by plaintiff, defendant submitted a so-called RSC 6 declaration containing information relevant to its activities on 23 August 2004. Amongst others it stated its income tax reference numbers, its company number, details as to annual remuneration paid to employees, and “gross annual leviable amount from sales or services rendered”. It also stated that it commenced business in the City of Tshwane Metropolitan municipal area on 1 May 1999.

On 12 November 2004 plaintiff confirmed defendant’s registration as a “levy payer”. It also mentioned that the payment of levies was based on a self assessment system in that it was therefore the responsibility of the defendant to declare the amount payable to the Council according to the payment cycle. Accordingly it had to complete a RSC 4 assessment form in accordance with the relevant payment cycle in return such with payment before the 20th of the ensuing month. Defendant’s account had been coded for payment on a monthly basis and interest would be charged on all late and short payments in accordance with the provisions of section 12(10) of the Regional Services Councils Act, 109 of 1985 (hereinafter “the Act”). It was stated that the current rate of interest was 10.5% per annum.

Defendant did not furnish plaintiff with any returns for the period 1 May 1999 to date, did not provide plaintiff with any further information except that indicated on the RSC 6 form, and did not make any payments.

On 18 March 2005 plaintiff sent a request for payment to defendant and so again on 20 April 2005. In this letter it is indicated that the outstanding balance not paid was R241 660.22 and that the plaintiff would take legal steps to recover such amount. It stated that this amount included “estimated levies regarding those months for which no returns have been received. The estimated assessment is in compliance with paragraphs (b), sub-section (1) of the above-mentioned act read together with sub-section (1A) of the said section 12 of the Act and is enforceable subject to the levy payer’s rights to object an appeal. This notice has been issued in accordance with paragraph 11(3) of the above-mentioned provisions. Details of the estimated assessments are herewith closed.” The so-called “details” referred to a monthly “services levy” and an “establishment levy” for the period May 1999 to February 2005. It was indicted to be “only a notice of estimated assessment”, the total due, including interest being as per the amount stated in the covering letter. Plaintiff’s letter of 18 March indicated with reference to section 12(9) of the Act that should a levy payer fail to pay a levy, he would be guilty of an offence and subject to a fine or imprisonment. No payment was forthcoming and on 27 October 2005 plaintiff issued summons for the mentioned amount which included interest calculated from 20 April 2005 at a rate of 15.5% “in respect of levies levied by the plaintiff”.

In the light of the document (exhibit “A”) presented to me at the hearing of the action it is not necessary to deal with defendant’s plea. Both parties requested information for purposes of preparation for trial in terms of rule 37(4) of the Uniform Rules of Court and, having been asked by defendant how plaintiff had calculated the relevant amount, the following was stated:

“The information requested is irrelevant. Defendant is referred to section 12 of the Regional Services Council Act, Act 109 of 1985. In any event, the assessment is made with regard to, inter alia, the figure supplied by defendant when registering as an enterprise, the inflation rate applicable to that part of the industry in which the defendant is doing business, the growth figures in business of similar enterprises in the area of jurisdiction of the plaintiff, etc.”

It was also stated that plaintiff was not obliged to give reasons for how it had calculated or estimated the relevant levies. Defendant in its answer to plaintiff’s request for particulars for trial, amongst others, stated that the estimations upon which plaintiff relied for its cause of action were arbitrary, lawfully invalid and unenforceable. It indicated that at the trial of the action it would rely on the unreported decision of the Eastern Cape Division of the High Court delivered on 5 June 1995 by Jones J, in the matter of Algoa Regional Services v Buchner.

When the trial commenced I mentioned to the parties that in the light of my analysis of the pleadings they ought to consider presenting me with an agreed statement of facts, and that legal argument would seem to suffice without the hearing or any oral evidence. The parties kindly agreed with my suggestion and presented me with a document titled “FACTS PRESENTED BY THE PLAINTIFF WHICH ARE NOT CONTESTED BY THE DEFENDANT” (this is exhibit “A”).

Plaintiff is the City of Tshwane Metropolitan Municipality, a local municipality with full legal capacity duly established in terms of the Local Government Municipal Structures Act, Act 117 of 1998, read with Notice R6770 published in the Gauteng Extraordinary Provincial Gazette No 141 of 1 October 2000, and is the successor-in-law of the disestablished Greater Pretoria Metropolitan Council, with place of business in respect of its legal services division situated at 13th Floor, Saambou Building, 227 Andries Street, Pretoria.

Plaintiff is entitled to, in terms of section 93(6) of the Municipal Structures Act, Act 17 of 1998, read with section 12(1) of the Regional Services Councils Act, Act 109 of 1985 (hereinafter referred to as “the Act”), levy and claim a regional services levy and a regional establishment levy (levies).

In terms of section 12(10) of the Act, plaintiff is further entitled to charge interest at the rate of 10.5% per annum on all arrear amounts owing in respect of levies.

Defendant is Cable City (Pty) Ltd, a duly registered company incorporated in terms of the Company Laws of the Republic of South Africa and trading as such at 172 Edison Crescent, Unit 3, Edison Bell Park, Hennopspark, Pretoria.

Defendant is an employer and is carrying on a enterprise within the area of jurisdiction of the plaintiff and is therefore liable towards plaintiff for the payment of levies to plaintiff.

Defendant submitted a RSC 6 declaration containing its information to plaintiff on 23 August 2004 – pages 1 and 2 of the bundle.

Plaintiff confirmed defendant’s registration on 12 November 2004 by letter – page 18 of the bundle.

Defendant has at all times carried on an enterprise and been an employer as defined in the Act as from 1 May 1999 to 30 June 2006.

Defendant is duly registered as a levy payer under the provisions of paragraph 10 of the regulations issued in terms of the Act, and is liable to pay the levies lawfully levied by the plaintiff in terms of the provisions of section 12(1A) of the Act.

At all times material hereto the defendant has carried on business within the region for which the plaintiff was established.

Defendant has not furnished the plaintiff with any returns for the period 1 May 1999 to date as required in paragraph 9(3) and (4) of Government Notice R309, as amended.

Defendant has not submitted to the plaintiff any information relating to his enterprise except for the information contained in the RSC 6 form, dated 23 August 2004 – page 1 of the bundle.

Plaintiff has not been authorized by the defendant to have access to any books, accounts and records, or other documentation relating to defendant’s enterprise.

Plaintiff has not been instructed by the Commissioner of the South African Revenue Services (SARS) to make any assessment in terms of the provisions of Government Notice R302, as amended.

Pursuant to the defendant’s failure to furnish the aforesaid returns, plaintiff has estimated the amount of levies, which, in plaintiff’s estimation. The defendant is liable to pay in respect of the said period as provided for in paragraph 11(1) of Government Notice R40, published in Government Gazette dated 17 February 1987, as amended.

Plaintiff has on 4 July 2005 faxed pages 30(a), (b) and (c) to defendant. Plaintiff is of the view that this is a valid assessment in terms of the said estimate as provided for in paragraph 11(1) of the said notice. Defendant denies that the documents constitute a valid assessment.

Defendant has not paid any amounts to the plaintiff.

SARS has not made an estimate or assessment in respect of defendant’s liability in respect of the aforesaid levies.

Plaintiff has not been instructed by SARS to issue an assessment for any unpaid levies by defendant as provided for in paragraph 11(2) as read with paragraph 13(4) of Government Notice R304 of 17 February 1987, as amended.

Save for the above, the dispute remain as set out in the pleadings, supplemented by the further particulars and notices in terms of rule 37(4).

Before dealing with the parties’ submissions on the facts I need to point out the following:

In the context of paragraph 7.2 thereof it must be remembered that the Small Business Tax Amnesty and Amendment of Taxation Laws Amendment Act, 9 of 2006, (which came into operation on 25 July 2006), deleted section 93(6) of the Municipal Structures Act by way of section 59(1). Section 59(2) of that amendment Act provided that despite such deletion any regional establishment levy or regional services levy for which liability arose in terms of the applicable legislation before or on 30 June 2006, may be collected by a municipal council in accordance with the provisions of those acts (Act 109 of 1985, Act 84 of 1990).

However, in terms of section 95(3) of the Amendment Act the liability for any regional establishment levy or regional services levy referred to in sub-section (2) in respect of which a summons for the collection thereof has not been issued before or on 30 June 2008, lapsed on that date. Section 59(4) provides that sub-sections (1) and (2) were deemed to have come into operation on 1 July 2006. I have mentioned that the summons herein was issued on 27 October 2005 and therefore, in these proceedings, no issue in the context of the Amendment Act, 9 of 2006, has arisen.

The faxes referred to in paragraph 7.16 are the letters that I have mentioned in paragraph 4 of this judgment.

As already stated, defendant relied heavily on the judgment of Jones J in the Algoa Regional Services-case (case number 1150/94) which was unfortunately not reported. Not surprisingly plaintiff’s counsel contended that the judgment was either wrong, or could be distinguished on the facts. In the present case, as I have mentioned, defendant was a duly registered levy payer under regulation 10 under the regulations published in terms of the Act under Government Notice R340 on 17 February 1987 (as mended by Government Notice R783 of 21 April 1989).

The defendant did not furnish the plaintiff with any returns thereafter as required by paragraphs 9(3) and 9(4). Defendant also did not supply plaintiff with any further information apart from that contained in the registration form.

As a result of defendant’s failure to furnish the mentioned returns plaintiff then estimated the amount of the levies as stated in paragraph 7.15 of the agreed facts. It is furthermore important to note that the Commissioner of the South African Revenue Services has not been involved in any manner whatsoever as envisaged by regulations 11, 13, 14 and 15 of the relevant regulations.

In the Algoa Regional Services-decision the parties presented a stated case to the learned judge which has much in common with the facts agreed to by the parties herein. The defendant in that matter was also a registered levy payer and failed to furnish that plaintiff with returns for a certain period, and also failed to provide any information relating to his enterprise. Pursuant thereto the plaintiff estimated the amount of the levies, made an assessment and provided no reasons for such, but merely based its estimation on defendant’s financial details and figures supplied to it at an earlier stage. Defendant contended as a result that sections 12(1)(b) and 12(1A) empowered the Minister of Finance by way of a Government Notice to authorize the Commissioner of Inland Revenue to estimate the defendant’s liability and to instruct the plaintiff to make an assessment, based on the estimate of the Commissioner of Inland Revenue, of the said levy. It was contended that the Minister of Finance is not empowered by notice to authorize the plaintiff (the Council) to estimate the liability of the defendant.

Paragraph 11.1 of the notice (I have referred to this loosely speaking as the regulation) is ultra vires the empowering statute to the extent that it purports to authorize the plaintiff to estimate the defendant’s liability, and is accordingly unenforceable in law. Paragraph 11(4) of the notice purports to enforce the estimate made by the plaintiff and to deprive the defendant of any opportunity of testing the accuracy of the plaintiff’s estimate before a court of law. Where the defendant has not supplied any information to the plaintiff and has not authorized the plaintiff to have access to any documentation relating to the defendant’s enterprise, and where the plaintiff has not given any reasons for the said estimate, the said estimate and the jurisdiction of the court is so unreasonable as to render paragraphs 11(1) and 11(4) ultra vires and of no force and effect. The said paragraphs purport to permit the plaintiff to make an arbitrary assesses of the defendant’s liability and to enforce same by ousting the jurisdiction of the courts to enquire into the true liability of the defendant. The effect of the provisions are to relieve the plaintiff from the requirement of proving the liability of the defendant and to deprive the defendant of the opportunity of testing the validity of the plaintiff’s estimate and assessment. Defendant in that case also contended that the extent of the defendant’s liability was a justiceable dispute as envisaged by section 22 of the Constitution, and that the said notice was in conflict with section 8(1) of the Constitution. Under those circumstances it was submitted that paragraphs 11(1) and 11(4) of the notice (the regulation) are unconstitutional and fall to be struck down. It is clear on those facts (as in the present case) that plaintiff did not have information upon which it could calculate the amount of the defendant’s liability for levies in the ordinary way. It therefore applied paragraph 11(1). It estimated the amount of the levy using information supplied by the defendant in previous returns and then made its assessment on the strength of the estimate. The point of the stated case was to consider whether or not this was a properly authorized procedure, and whether or not the imposition of the levies on the strength of it was valid.

In considering the question posed to the court it considered the proper interpretation of section 12 of the enabling statute (the Act) which gave rise to notice R340 and notice R783. The question was whether that section authorized the Minister of Finance to issue a notice which permitted a Regional Services Council to determine the amount of the levy simply by estimating it? If not, the relevant provision in the Government Notice was invalid and the plaintiff’s assessment of the defendant’s levy made in terms of it was of no force or effect. In that context reference was made to Komani v Bantu Affairs Administration Board Peninsula Area 1980 (4) SA 448 (AD).

Section 12(1) and 12(1A) provide as follows:

“1(a) Subject to the provisions of section 4(1), a council shall levy and claim from-

every employer who employs or is deemed to employ employees within its region, and each person carrying on or deemed to be carrying on an enterprise within its region as referred to in paragraph (b) of the definition of ‘regional services levy’, a regional services levy;

every person carrying on or deemed to be carrying on an enterprise within its region, a regional establishment levy.

the Minster of Finance of Local Government Affairs, after consultation with the Council for the Co-ordination of Local Government Affairs, established by section 2 of the Promotion of Local Government Affairs Act, 1983 (Act 91 of 1983), and by notice in the Gazette, determine the manner in which the regional services levy and the regional establishment levy shall be calculated and paid.”

“(1A) The Minster of Finance may in any notice contemplated in subsection (1)(b)-

(a) determine circumstances in which an employee shall be deemed to be employed within a region;

(b) determine circumstances in which a person shall be deemed to be carrying on an enterprise within a region;

(c) determine how an amount upon which the regional establishment levy is payable shall be calculated;

(d) exempt any employer or person from the regional services levy or the regional establishment levy in relation to any enterprise;

(dA) authorize the Commissioner for Inland Revenue-

to take such steps as the Commissioner may deem necessary to ensure that any levy payable under this Act is paid;

to conduct audits of the affairs of any person who is or may be liable for the payment of any such levy;

to require any person to produce for examination any books, records or accounts or any other document which in the opinion of

the said Commissioner are or may be necessary to determine the liability of such person or any other person for the payment of any such levy;

to determine or estimate the liability of any person for any such levy and to direct a council to make an assessment of such levy; and

to furnish a council with a ruling or directive on the interpretation of any provision of this Act or any such notice relating to the determination of the liability of any person for the payment of any such levy, which ruling or directive the council shall be obliged to apply;

(dB) authorize a council to administer, subject to any ruling or directive furnished by the said Commissioner under the provisions of paragraph (dA)(v), any provision of this Act or of any such notice in so far as it relates to the determination of the liability of any person for or the payment or recovery of any such levy;

(dC) authorize a council, upon written application by an employer or person and subject to such conditions as the council may determine, to permit that employer or person to pay the total amount of the regional services levy and regional establishment levy for which he is liable within a period of 20 days after the end of every period of a year or such shorter period as the council may determine;

(dD) provide for an appeal against any decision of a council or the said Commissioner to the special court referred to in section 83 of the Income Tax Act, 1962 (Act 58 of 1962), and for an appeal against any decision of the said court;

(e) make such other provision as he deems necessary to enable a council to impose and claim any such levy.”

In the context thereof Jones J held that those provisions empowered the Minister to authorize a Council to do a number of things. They do however not specifically empower him to authorize a Council “to estimate the amount of any levy” as provided for I paragraph 11(1) of the Notice. Section 12(1A)(e) did also not grant the Minister the power contended for. The said section only enabled him to make such other provision as he deemed necessary to enable the Council to impose and claim any levy. Although the wording is very wide on the face of it, it related solely to authority, firstly, for things which are essential to enable a council to assess what the levy is so that it can be imposed, and secondly, for things which are essential to enable it to be claimed. It had to be read with the remainder of section 12(1A), including sub-section 12(1A)(c), which gave the Minister the competence to set out in this notice “how an amount upon which the regional establishment levy is payable ‘shall be calculated’”, which was the very reverse of permitting a mere estimate or guess. This point was reinforced by the structure and the content of section 12(1) and 12(1A) when read as a whole. Its intention was plain. It was to impose levies on persons who employ a workforce or carry on an enterprise within the region (see the definition of “employer” and “enterprise” in the Act). Those levies were not to be determined arbitrarily. On the contrary, sub-section 12(1)(b) required the Minister to issue a notice which determines “the manner in which a regional services levy and regional establishment levy shall be calculated and paid”. For this reason the notice uses the method of requiring the term to be completed by the levy payers. Levies are raised on the strength of information contained in the returns. The section also however contemplates the possibility of a levy being incapable of precise calculation by a council because, for example, there is not or insufficient or even false information placed before it, and hence it would have no proper information upon which to make a calculation. It is significant that in such an event the section does not allow the Minister to authorize a council to have access to the books and records of the enterprise. This was patently a deliberate omission, one which was justified for good and sufficient reasons. That kind of information ought not to be made freely available to a local authority whose members are frequently members of the community. The documents might be of a highly sensitive and, privileged or confidential nature. They should not be distributed indiscriminately so that they might fall into the hands of trade competitors or other persons interested for a number of reasons.

The Act recognised this fact and provided that instead of allowing Council access to such information, it specifically empowered the Minister to authorize the Commissioner of Inland Revenue to use his powers to put him in a position to calculate the amount of the levy. His directions relating to such a levy were then binding upon the Council. The Commissioner’s powers are of course exercised subject to the secrecy provisions of the relevant tax legislation. They were designed to enable the Commissioner to make a well-founded assessment of the levy payer’s liability. Further, sub-section 12(1A) explicitly envisaged that the Commissioner may have to resort to an estimate in he is not able to make a calculation despite the use of his powers. It was of significance that the Act contains no similar reference to an estimate by a Council. It is the Commissioner and not the Council who has the expertise to make an informed estimate where the circumstances would justify it.

It would be wrong to impute to the legislature an unexpressed intention to allow estimates by a Council where the legislation lays no basis upon which the estimate is to be made. A Council which does not have the information necessary to make a proper calculation of the amount upon which to impose a levy, and which is not given the power to obtain this information, can do not better than to make an arbitrary assessment. This could never have been intended by the legislature and the only sensible course in that event was to invoke the intervention of the Commissioner, which was specifically provided for.

Jones J concluded thereto that provision in section 12 of the intervention of the Commissioner and the use of his powers was totally inconsistent with an intention to allow the amount upon which the levy was imposed, and hence the amount of the levy itself to be estimated by a Council. He accordingly held that the Minister acted ultra vires the empowering statute when he included paragraph 11(1) of the R340 notice. It followed that a levy imposed I terms of that provision in the notice was unenforceable.

I respectfully agree with the learned judge’s reasoning and conclusion save to add the following:

In Fedsure Life Assurance Ltd & Others v Greater Johannesburg Transitional Metropolitan Council & Others [1998] ZACC 11; 1998 (4) SA 753 (CC) it was held that “it seems central to the concept of our constitutional order that the legislature and executive in every sphere are constrained by the principle that they may exercise no power and perform no function beyond that conferred upon them by law …”.

In Pharmaceutical Manufacturers Association of SA & Another: In re ex parte President of the Republic of South Africa & Others [2000] ZACC 1; 2000 (2) SA 674 (CC) it was held that what would have been ultra vires under the common law by reason of a functionary exceeding his statutory power, is invalid under the Constitution according to the doctrine legality.

In my view it is in that context that the reference to “ultra vires the empowering statute” must be understood.

See also: Affordable Medicines Trust v Minister of Health 2006 (3) SA 247 (CC) at 272 (G), par 50

In the present case, and even if I am wrong in agreeing with Jones J, the plaintiff’s estimate is based on such arbitrary foundations that would cause them to collapse at the first touch of a rational interpretative purpose of interpretation of the relevant legislation: On its own version it has considered factors which on the face of it have absolutely nothing to do with the enterprise of the defendant. I have mentioned these in paragraph ­­5 above. It is completely arbitrary, unrelated to any facts to either the knowledge of the plaintiff or the defendant and furthermore plaintiff has adopted the view that it is not even obliged to give reasons. On these facts alone, plaintiff’s claim in my view should not succeed.

I have not lost sight of the provisions of sections 156(5) and 229(1)(b) of the Constitution, Act 108 of 1996, but those sections do not give the plaintiff the power, however interpreted in the context of the Regional Services Council’s Act and the regulations, to adopt the approach that it did herein, and to make arbitrary assessments unrelated to determinable facts relating to a specific enterprise and then even refusing to give reasons for such.

A number of other contentions relating to the interpretation of the Act and the notice were put before me, mainly relating to what the position would be if a person liable to pay a levy did not register. The question does not arise herein, and neither did it on the facts of the Algoa-case. It therefore need not be decided on the present facts. I am however of the view that upon a proper interpretation of all the relevant legislation and the Constitution, that the Regional Services Council ought in such a case involve the Commissioner for Inland Revenue an his considerable powers that the Act makes specific and detailed provision for.

The rule of law and the exercise of public power does not countenance arbitrary conduct of the present nature, especially not in fiscal matters, where the alleged obligation to pay cannot be tested/ controlled/verified with any reasonable certainty at all and where the empowering statue has provided the fiscus with substantial powers to determine and enforce the duty to pay and the amount of such payment.

See: Pharmaceutical decision supra at par 20.

Accordingly plaintiff’s claim is dismissed with costs.

DATED at PRETORIA on this 18th day of DECEMBER 2007.

__________________________________HJ FABRICIUS ACTING JUDGE OF THE HIGH COURT OF SOUTH AFRICA TRANSVAAL PROVINCIAL DIVISION

COUNSEL FOR PLAINTIFF: ADV M SNYMAN ATTORNEYS FOR PLAINTIFF: HUGO & NGWENYA ATTORNEYS

COUNSEL FOR DEFENDANT: ADV Y COERTZEN DEFENDANT’S ATTORNEYS: VILJOEN ATTORNEYS PRETORIA

DATE OF HEARING: 14 NOVEMBER 2007

DATE OF JUDGMENT: 18/1/2008