Commissioner for the South African Revenue Service v Badenhorst t/a SA Global Trading and/or Global Trading and Others, Commissioner of the South African Revenue Service v Vermaak and Others (51232/2013, 56971/2013) [2015] ZAGPPHC 1085 (13 October 2015)

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

Case number: 51232/2013

56971/2013

Date: 13 October 2015

Reportable

Not of interest to other judges

In the matter between:

THE COMMISSIONER FOR THE SOUTH AFRICAN

REVENUE SERVICE APPLICANT

And

PETRUS JOHANNES UYS BADENHORST t/a SA GLOBAL

TRADING and/or GLOBAL TRADING FIRST

RESPONDENT

JACQUES SASSIN SECOND

RESPONDENT

TROJIN FEEDS (PTY) LTD THIRD

RESPONDENT

MINISTER OF FINANCE FOURTH

RESPONDENT

AND

THE COMMISSIONER OF THE SOUTH AFRICAN

REVENUE SERVICE APPLICANT

HERMANUS JOACHIM BOTHA VERMAAK FIRST

RESPONDENT

HANLIE JANSE VAN RENSBURG SECOND RESPONDENT

PIERRE CILLIERS

THIRD RESPONDENT

THE TRUSTEES FOR THE TIME BEING OF THE

PJU BADENHORST TRUST (IT2247/13), being

MR PJU BADENHORST Senior

MR PJU BADENHORST Junior FOURTH

RESPONDENT

THE TRUSTEES FOR THE TIME BEING OF THE SJ TR

ANSPORT TRUST (IT2248/13), being

MR PJY BADENHORST Junior

MR S JANSE VAN RENSBURG

HANLIE JANSE VAN RENSBURG FIFTH RESPONDENT

GLOBAL TRUST (IT1049/2012), being

MR J SASSIN

MR JA DELGADO as nominee of Iprotect Trustees (Pty) Ltd SIXTH RESPONDENT

THE TRUSTEES FOR THE TIME BEING OF THE

FIRST TRUST (IT 2761/2009) SEVENTH RESPONDENT

THIRD TRUST (IT 2180/2008), being FRANCOISE JANE SASSIN;

JACQUES SASSIN AND JOSE ALBERTO DELGADO EIGHTH

RESPONDENT

HOME TRUST, being FJ SASSIN; J SASSIN and

G E SASSIN NINTH

RESPONDENT

DUAL TRUST TENTH

RESPONDENT

SECOND TRUST

ELEVENTH RESPONDENT

JUDGMENT

PRETORIUS J ,

[1] This court granted a provisional preservation order against the first, second and third respondents in terms of section 163 of the Tax Administration Act, 28 of 2011 ("the TA Act") on 23 August 2013 ("the first matter"). The order against the first respondent had been confirmed as the first respondent did not oppose the confirmation of the provisional order.

[2] A further provisional order was granted on the same date in case number 56971/2013, against, inter alia, certain trusts created by the second respondent, Mr Sassin. These trusts received funds through the third respondent. The South African Revenue Service ("SARS") lays claim to these funds. As these orders relate to one another the court will deal with both applications simultaneously, as agreed by the parties. All these orders were granted with immediate effect. The stipulated return date was extended on a number of occasions. The present hearing is to confirm the provisional orders, or to discharge the orders. A curator bonis, Mr Cloete Murray, was appointed in terms of the orders in whom the right, title and interest in all the assets of the respondents in both applications would vest. In case number 56971/2013 the matter pertaining to the first to fifth respondents was resolved on an unopposed basis. The sixth to eleventh respondents opposed the application to confirm the provisional order.

[3] According to the provisional court orders no one may deal with any assets held in the name of or owned, or whereof Mr Sassin, the second respondent, has a right of possession or control, including any right to control assets of the third respondent or the entities in case number 56971/2013. The assets which vest in the second respondent will immediately vest in the curator bonis. It was further ordered to disclose under oath as to the whereabouts and particulars of all his assets and liabilities, including assets held indirectly by him. He further had to disclose all particulars of all transfers of assets to other persons during such periods of time as the curator bonis may stipulate. The curator bonis may release to the second respondent such assets as may from time to time appear to the curator bonis not to be required for the purposes of preserving sufficient assets of second respondent in respect of the tax obligations of the first respondent.

BACKGROUND:

[4] This matter is related to the provisional preservation order granted under case number 56971/2013 ("the second matter") against the trust created by Mr Sassin, which trusts received funds to which SARS lays claim. Mr Badenhorst, the first respondent, a trader in animal feeds, embezzled a vast amount of money in the period September 2012 to end of July 2013 from the VAT system. The second respondent, Mr Sassin, was one of the directors of Benietha Veevoere (Pty) Ltd and a minority shareholder in Benietha. Benietha Veevoere (Pty) Ltd was also a trader in animal feeds.

[5] Mr Sassin was requested by Mr Badenhorst to let Benietha enter into a series of artificial transactions with SA Global which resulted in SARS paying vast amounts of VAT to Benietha, of which a portion was used to pay SA Global.

[6] Mr Badenhorst was the holder of a VAT 103 certificate, which entitles the holder, under certain circumstances, to purchase animal feed at zero VAT rate. This certificate enabled Mr Badenhorst, trading as SA Global Trading to purchase huge quantities of animal feed from Benietha at a zero VAT rate. Benietha paid 14% VAT on all its purchases of animal feed. This 14% VAT levied from SARS was reclaimed on a bi-monthly basis. The same quantities of animal feed was resold by SA Global to Benietha at a discount, but at a 14% VAT rate.

[7] As the discount was less than 14% there were significant amounts due by Benietha to SA Global as the VAT levied on the purchaser by Benietha from SA Global. Benietha claimed the VAT at 14% from SARS based on the VAT invoices issued by SA Global to Benietha.

[8] Benietha subsequently paid SA Global only upon receipt of the VAT from SARS, being the difference between the 14% VAT and the discount granted by SA Global on the purchases.

[9] SA Global did not submit VAT returns to SARS and did not pay over the VAT collected by it from purchasers, of which Benietha was the largest. On 31 July 2013 SARS issued a VAT assessment to SA Global in an amount of R117 191 371.15 for the May 2013 VAT period due to VAT collected by SA Global but not paid over to SARS. The Sassin respondents did not dispute the allegation by SARS that the probable total amount of VAT liability of SA Global could be as much as R885 989 918.78.

[10] It is further common cause that the VAT certificate of SA Global could not be used to purchase goods at a zero VAT rate if the intention had been to trade with such goods, as this zero VAT rating may only be utilized to purchase goods as an end user. In this case it would be a person who buys feed to feed the animals. This was patently not the case in the present application.

[11] It is common cause that Mr BadenhorsUSA Global paid R65 million from the funds received from Benietha to Trojin Feeds, being a company of which Mr Sassin is the sole shareholder and director. Mr Badenhorst bought the food from Benietha to resell it to Benietha at a discount and therefor he abused the VAT 103 certificate of SA Global.

[12] Mr Sassin admitted receiving R65 million from Trojin Feeds but submitted that this payment was due to an agreement between Trojin Feeds and SA Global. It is alleged that Trojin Feeds transferred the money by alleged loans to the relative trusts of Mr Sassin, the respondents in case number 56971/2013.

[13] In this way Mr Sassin received in excess of R65 million from Mr Badenhorst. These facts were admitted by Mr Sassin. The amount of R65 million was paid to Mr Sassin using Trojin Feeds as the receiver of the money. This was done so that the majority shareholders and directors of Benietha would not know that Mr Sassin had received such rewards. This was similarly not disclosed to SARS.

[14] A portion of the R65 million was repaid by Mr Sassin to Mr Badenhorst in August 2013, to enable Mr Badenhorst to repay SARS. Mr Badenhorst is insolvent and not able to refund SARS fully. Mr Sassin denies liability as he is of the view that he is not liable for payment due to the fact that he is not the taxpayer involved in the matter.

[15] SARS' submission is that Mr Sassin was a joint wrongdoer and that he knowingly took part in a fraud of SARS, who received part of the proceeds of the VAT fraud as reward. Therefore, according to SARS, Mr Sassin and Trojin Feeds should be held liable for repayment of the balance of the R65 million as the money was paid from the VAT that Benietha had received as repayment.

OPPOSITION:

[16] The second and third respondents' opposition is firstly based on the interpretation of section 163 of the TA Act. According to the second and third respondents the provisions of section 163 do not apply to them as they are not taxpayers who owe a tax debt or may owe a tax debt, as they are not taxpayers or other parties as mentioned in section 163(1). According to counsel for the second and third respondents, SARS is not attempting to collect tax from the second and third respondents, but damages resulting from the fraudulent scheme.

[17] According to the respondents there is no tax due by the respondents and therefor the jurisdictional prerequisite necessary for the court to grant the final order, has not been met. The reason for this, according to the respondents, is that there is neither a claim nor proof that SARS considers the second and third respondents as taxpayers who owes a tax debt.

[18] The respondents contend that section 163 of the TA Act does not empower SARS to obtain a preservation order against a party that is not a taxpayer or party as envisaged in sections 179 to 183.

[19] Furthermore the respondents contend that SARS had other remedies at its disposal which it could implement and that the use of section 163 of the TA Act is an abuse of powers.

COUNTERCLAIMS:

[20] The first conditional counterclaim is on the ground of conditional unconstitutionality. The respondents submit that reference to "other person" in section 163 of the Act grants SARS extensive powers to attach assets well beyond the confines of a Mareva injunction and thereby broadening the common law in an unconstitutional manner. The respondents' further objection is that such an interpretation would be a transgression of section 25 of the Constitution and would be inconsistent with the rule of law and the principle of legality. The respondents abandoned their complaint against the appointment of the curator bonis and his authority. The court will thus not deal with the second conditional counterclaim.

[21] The fourth respondent, the Minister of Finance, supports the applicant as he is involved as the Minister responsible for the

administration of the Tax Act. Should the respondents' defence to SARS' application fail, the court has to adjudicate the objection of constitutional import.

[22] The court then has to deal with the two main contentions of the respondents in the first counterclaim:

i) That section 39(1) of the Constitution requires section 163 of the Tax Act to be read restrictively, and on this restrictive reading of section 163, the preservation order should not have been granted.

ii) That, if the respondents interpretation is rejected, section 163 of the Tax Act is invalid, as it permits "arbitrary and

unjustifiable infringement of the fundamental property rights of the affected respondents".

[23] The fourth respondent requests the court to reject both these propositions.

[24] It is important to note that Mr Sassin filed his opposing affidavit on 1 November 2013. During December 2013 he testified at an inquiry in terms of section 50 of the TA Act. He made significant admissions during his testimony which he had failed to do in his opposing affidavit and which is in stark contrast to the averments in his affidavit.

TAX DEBT:

[25] The respondents argue that SARS is not collecting tax debt from a taxpayer and therefore cannot use the provisions of section 163(1) of the TA Act. The applicant stated in the founding affidavit:

"It appears that the first respondent has dissipated huge amounts to the other respondents instead of paying it over to SARS. SARS has reason to believe that no value was given by the second and third respondents for the amounts received by them from first respondent."

[26] It can be said that the first respondent had collected huge amounts of VAT, which should have been paid over to SARS, but which the first respondent had dissipated to second and third respondents, and therefore the purpose of the present application is to collect tax, which is owing by Mr Badenhorst. The second respondent was instrumental in the scheme and did not disclose his actions to Mr and Mrs van der Westhuizen, the other directors of Benietha. The only inference the court can draw from this was that Mr Sassin was at all times part of the scheme and that he did not want his fellow directors to be aware of this illegal scheme defraud SARS.

[27] It is clear from the wording of the provisions of section 163(1):

"A senior SARS official may authorise an ex parte application to the High Court for an order for the preservation of any assets of a taxpayer or other person prohibiting any person, subject to the conditions and exceptions as may be specified in the preservation order, from dealing in any manner with the assets to which the order relates." (Court's emphasis)

[28] The section refers that the order can be obtained against "the assets of a taxpayer or other person". The language in the section further provides that "any person" is prohibited from dealing with the assets to which the order relates.

[29] Section 163(3) further sets out that:

"A preservation order may be made if required to secure the collection of the tax referred to in subsection (1). .."

[30] If the court finds that there is a tax debt which requires an order to secure the collection of tax in question, the court has a discretion to confirm the preservation order.

[31] It is in the public interest that tax debts should be collected swiftly. In SCARS v Krok 2014(3) SA 453 (GP) at para 7 it was held that the applicant has to prove its case on a prima facie basis for the preservation of the assets to "secure" tax collection.

[32] Section 163(8) provides:

"The court making a preservation order may also make such further order in respect of the discovery of any facts including facts relating to any asset over which the taxpayer or other person may have effective control and the location of the assets as the court may consider necessary or expedient with a view to achieving the objects of the preservation order." (Court's emphasis)

It is thus quite clear that this relates to "any asset over which the taxpayer or other person may have effective control". This confirms the position of SARS that section 163(1) does not only relate to a taxpayer. Section 163(9) provides that:

"The court which made preservation order may on application by a person affected by that order vary or rescind the order..."

[33] It does not refer to a taxpayer, but to a person affected, thus once more confirming that section 163(1) does not limit the scope of this section to a taxpayer, but to "any person".

[34] In Metcash Trading Ltd v Commissioner, South African Revenue Service & Another 2001(1) SA 1109 (CC) at para 60 it was held by Kriegler J:

"First, the public interest in obtaining full and speedy settlement of tax debts in the overall context of the Act is significant. In their affidavits the Commissioner and the Minister mentioned a number of public policy considerations in favour of a general system whereby taxpayers are granted no leeway to defer payment of their taxes. These are in any event well-known and self-evident. Ensuring prompt payment by vendors of amounts assessed to be due by them is clearly an imporlant public purpose."

I fully agree with this principle, even more so where SARS has been defrauded.

[35] The applicant argues that section 163 of the TA Act deviates from the common law requirements in that SARS need not demonstrate that there is no other satisfactory alternative remedy, nor that the balance of convenience favours the applicant. This deviation is necessary due to the reasons mentioned in Metcash Trading ( supra).

[36] The respondents referred the court to Commissioner for the South African Revenue Service v Van Der Merwe: In Re: Ex parte Commissioner for the South African Revenue Service [2014) JOL 31647 (WCC) where the court held:

"The basis on which a preservation order, in terms of Section 163(3), may be made is "if required to secure the collection of tax"

The court went on to state as follows:

"Whilst the grant of a preservation order may be considered harsh, there are compelling reasons within the context of your constitutional democracy why steps which assist the fiscus securing the collection of tax are required, which include court orders to preserve assets so as to secure the collection of tax."

The court further stated that:

"It follows therefore that for a court to determine whether a preservation order is required to secure the collection of tax in terms of section 163(3), it does not need to be shown that the grant of the order is required as a matter of necessity, or to prevent dissipation of the assets. Rather, in making the assessment as to whether to grant the order or not, the Court must be appraised of the available facts in order to arrive at a conclusion, reasonably formed on the material for it, as to whether a preservation order is required or not to secure the collection of tax. These facts must not amount to a statement of the applicant's opinion, but must illustrate an appropriate connection between the evidence available and the nature and purpose of the order sought." (Court's emphasis)

[37] The respondents themselves set out in the heads of argument, "is that there must be either an amount of tax due and payable or reasonably expected to be due and payable by the taxpayer or other person whom is holding the assets."(Court's emphasis)

[38] It is clear from all the evidence before the court that it is the "other person" who is holding the assets and "any

person" being prohibited from dealing with the assets. Section 163(1) clearly relates to "prohibiting any person ...from dealing in any manner with the assets ...". It is clearly not only confined to the taxpayer. In this instance it is Mr Sassin and his entities that are holding the assets.

[39] It is so that the respondents set out in their opposing affidavit:

"...with immediate effect to transfer any remaining funds, other than the R24 million odd already transferred, emanating from the transaction SARS complains about, to an interest-bearing attorneys trust account, to be dealt with in accordance with the law based on the outcome of SARS' complaint."

This submission cannot be reconciled to the submission that SARS can invoke the "pay now argue later" rule. The question then arises why do the respondents not transfer the outstanding amount of R41 million to SARS?

[40] This confirms that SARS is afforded a preferential position in the collecting of taxes in the public interest.

[41] It must have been clear, from the start, to Mr Sassin that Mr Badenhorst bought the goods from Benietha to resell it to Benietha

and thereby abused the VAT 103 certificate. Mr Sassin had been aware of the scheme. He admitted it during the enquiry in December 2013. He had agreed with Mr Badenhorst to hide income in the price of rice, which would be artificially increased as rice allows a zero VAT rate. According to him he did not file VAT returns and did not disclose this income. Mr Sassin had known throughout that Mr Badenhorst was not purchasing feed for animals as an end user, but with the purpose of reselling it to Benietha. This was conveyed by SARS on 4 July 2013 in a letter to Benietha. SARS proposed adjustments of R94 866 019.75 to the May 2013 VAT return submitted by Benietha to SARS.

[42] SARS set out in the letter:

"If the farmers [i.e. SA Global] to whom the taxpayer [i.e. Benietha] is selling these goods are themselves trading in those goods, i.e. acquiring them for resale and not for their own farming purposes, then the taxpayer cannot zero rate the supplies (sales) of such goods by it to such recipient farmers."

[43] Benietha responded and agreed with this basis, but stated that there was no obligation on Benietha to verify whether SA Global was an end user who was using the feed for farming purposes.

[44] Mr Sassin further admitted:

''The whole thing was I didn't want Ben to know that I was getting something on the side, because if he found out, I just thought that it would get very messy, and he would stop it from happening." (P328 of Transcript of testimony by J Sassin)

"Adv Van Der Merwe You took R65 million from SA Global, ...

Mr Sassin Yes.

Adv Van Der Merwe ...and it all originated from VAT.

Mr Sassin Yes. That money from ... it you sum it up like that, yes." (P346 of Transcript of testimony by J Sassin)

"Adv Van Der Merwe Now I put it to you that you knew very well that SA Global could never, ever, utilise that quantities, those quantities of goods for animal feed. You knew it as a fact, not so?

Mr Sassin To answer that question - yes, but I was not aware that you were allowed to supply the product and buy it back." (P357 of Transcript of testimony by J Sassin)

[45] At the inquiry Mr Sassin's evidence was that he was not aware that the VAT 103 certificate could not be applied in such an instance. At no stage did Mr Sassin inform SARS of the manner he was dealing with Mr Badenhorst and/or SA Global. He actively refrained from telling his co-directors in Benietha of the scheme. The only inference this court can draw is that he was aware at all times that Mr Badenhorst was defrauding SARS and that he was instrumental in the fraud with moneyoriginating from VAT payments. Mr Badenhorst could not have done it without Mr Sassin's assistance.

[46] SARS accepted, in my view correctly, the proposition by Benietha that there was no duty on Benietha to ascertain whether SA Global was an end user of feed. The result was that the VAT refunds claimed was paid out to Benietha on 29 July 2013 in the amounts of R65 576 630.25 and R106 757 834.00 respectively for May and June

2013.

[47] Both the other directors of Benietha, Mr and Mrs van der Westhuizen, had been unaware of the arrangement between SA Global and Mr Sassin as admitted at the inquiry by Mr Sassin. On 29 July 2013 R25 million was transferred from Mr Badenhorst's account to that of Trojin Feeds, of which Mr Sassin was the only member. This was admitted by Mr Sassin. A value-added tax assessment was issued to Global Trading by SARS in the amount of R117 191 371.15. It was set out by SARS that the aggregate liability of Mr Badenhorst would be R885 989 918.78.

[48] A huge portion of the proceeds of the fraud by Mr Badenhorst was paid to Mr Sassin in the amount of R65 million. The only amount recovered from Mr Sassin was an amount of R24 164 999.00, which leaves a balance of approximately R41 million that has not been recovered by SARS from Mr Sassin or Trojin Feeds. Mr Badenhorst do not have sufficient funds and/or assets to satisfy his tax debt. Mr Badenhorst's insolvent position increased dramatically when paying Mr Sassin and Trojin Feeds the amount of R65 million, thereby depriving SARS further in their collection of tax.

[49] I find that Mr Sassin was aware at all times of the scheme to enable Mr Badenhorst to defraud SARS by not paying VAT and that is the reason that he was paid R65 million by Mr Badenhorst. According to Mr Sassin, Trojin Feeds received the R65 million and made loans to the trusts created by Mr Sassin. It is clear that Mr Sassin had dissipated money to the sixth and eleventh respondents which should have been refunded to SARS. It is furthermore clear that Mr Sassin agreed that "fees" due to him would be hidden in the inflated price of rice that would be sold to Mr Badenhorst by Trojin Feeds.

[50] I find that having regard to all the affidavits and the transcript of the inquiry that SARS has made out a prima facie case as Mr Sassin's evidence under oath at the inquiry and his evidence in his affidavit differs to such an extent that he is an

unreliable witness. In any event, he had conceded at the inquiry that he had received money in the amount of R65million from S A Global and he had known at the time that it had all originated from illegal VAT repayments.

[51] I find it so unlikely that Mr Sassin would have returned R24 million to Mr Badenhorst to pay his taxes, without having taken part in the scheme to defraud SARS, that it is improbable. His reason for doing so is improbable; he argues that SARS had threatened him, but if he had done nothing wrong, there was no reason to return R24 million to Mr Badenhorst to pay SARS. The only conclusion I can draw from these actions is that he was fully aware that the R65 million paid to him, was part of the VAT that should have been paid to SARS by Mr Badenhorst.

SECTION 163 OF THE TA ACT:

[52] SARS conceded that Mr Sassin cannot be regarded as a taxpayer in his own right in respect of the taxes involved in this matter. According to the respondents, SARS cannot obtain a preservation order in these circumstances.

[53] It is important to note that section 163 refers to "any person". The respondents contend that the term "other patty" can only refer to either one of the third parties referred to in section 179 to 183 of the TA Act. It is stated by the respondents in the heads of argument:

"...it is clear that SARS is not attempting to collect any tax from Mr Sassin or his nominees/entities, but is in fact attempting to collect payments on the basis of a purporled fraudulent scheme and damages that flow therefrom."

[54] The conclusion the respondents reach is that the applicant had to seek an interdict in these circumstances to prevent dissipation of the assets.

[55] There is very little doubt that Mr Badenhorst owes huge amounts of tax in the form of VAT. These amounts had to be paid to SARS but was dissipated by, inter alia, paying R65 million from the VAT repayments to the second and third respondents. The purpose of the application for preservation of the second and third respondents' assets is clearly to collect tax from them in respect of Mr Badenhorst's insolvent estate due to his owing SARS more than R800 million.

[56] The section makes it clear that section 163 refers to "any person''. Irrespective of whom received the VAT pay outs, being Benietha or Mr Badenhorst, this money is owed to SARS due to the fraudulent action of Mr Badenhorst, assisted by Mr Sassin.Therefor thae money paid to Mr Sassi originated from the VAT owed by Mr Badenhorst, as admitted by Mr Sassin at the inquiry.

[57] Section 190(5) of the TA Act provides:

"If SARS pays to a person by way of a refund any amount which is not properly payable to the person under a tax Act, the amount is regarded as tax that is payable by the person to SARS from the date on which it is paid to the person." (Court's emphasis)

[58] Even if VAT had been paid out incorrectly by SARS, it still remains the collection of tax. The only manner SARS can recover some of this tax owed by the insolvent, Mr Badenhorst, is to claim it from the persons and entities to which it had been paid, which is Mr Sassin and Trojin Feeds and the relevant respondents to which it had been dissipated.

[59] The fact is that Mr Sassin paid over R24 million to Mr Badenhorst to enable Mr Badenhorst to repay SARS, which Mr Badenhorst evidently did.

[60] Section 163 must be interpreted by reading the section and attaching the ordinary meaning of the words as set out in the section. The section refers to "any other person" and not to a "third party" as the respondents wish the court to find. SARS argues that there is no reason why the provisions of section 163 cannot be used in such an instance as in the present application. Both Mr Sassin and Trojin Feeds, as well as the trusts to which the money had been paid, were aware of the fact that the money had been received due to an illegal scheme, by defrauding SARS. Mr Sassin admitted that he was not entitled to the money and even repaid a portion of the money to Mr Badenhorst to repay SARS. The amount tax owed by Mr Badenhorst would be reduced by the amount paid by Mr Sassin to Mr Badenhorst and subsequently to SARS.

[61] In Voet 7.5.3 and Ganes translation, Volume 2, page 827 the following was stated:

"Base gains can be claimed by a person having interest, or failing such by the state - it is nevertheless not right that base gains of this kind should therefore stay with the received. If they can be claimed from heirs, though the heirs are void of offence, surely we should all the more say that they ought to be arrested from the very receivers who are guilty of baseness. We read that on this ground an action for return of things given is vouchsafed to a third party who had an interest in there having been no giving on the base cause - say for instance to an owner from whose runaway or thievish slave you had taken money not to point him out. Or if no third party comes to light with an interest that there should have been no giving arising out of the base cause, it would be fair that what was given should be taken away from the receivers as being unworthy persons and appropriated to the treasury, lest otherwise they should be enriched by their own crime."

(Court's emphasis)

[62] The recovery of the taxes owed by Mr Badenhorst will indirectly be recovered from Mr Sassin and the entities into which the R65 million was paid after Trojin Feeds had received the money.

[63] It is common cause that Mr Sassin and Trojin Feeds are not included in the scope of section 179 - 184. According to the applicant section 163 provides for an interim preservation order until the tax collection can take place in the present circumstances.

[64] It is significant that Mr Sassin declared in his opposing affidavit that "I have no knowledge of the affairs of Badenhorst". This is in total contrast to the application by Trojin Feeds in terms of the voluntary disclosure programme where it is admitted that the third respondent had not complied with its obligations in terms of tax laws. It is further in toatal contrast to Mr Sassin's evidence at the inquiry. It was admitted that at least R7 million had to be paid to SARS when this application was launched. It is remarkable that this disclosure to SARS was made two months before the opposing affidavit was filed and both versions cannot be correct.

[65] At the outset the court had indicated that the respondents could have anticipated the return date, but failed to do so. This provisional order had been operational since 23 August 2013, and the respondents had not challenged it until now, two years after it had been granted.

[66] Having regard to all the arguments, affidavits and authorities, I come to the conclusion that the applicants have at least proved on a prima facie basis that the preservation orders in both cases should be confirmed.

[67] However, if I am wrong in this finding I will now deal with the conditional unconstitutionality claimed by the respondents.

CONDITIONAL UNCONSTITUTIONALITY:

[68] The conditional counter-application is set out as:

"I am advised that where possible, it is necessary to interpret specific statutory provisions in a manner that is consistent with the Constitution. If possible, an unconstitutional reading of the statue must be avoided.

In the present case, in the event of this Court were to find that on a proper interpretation of the [Tax] Act, section 163 allows for the Court to issue a preservation order:

In respect of a person other than a 'taxpayer' as defined, or a person other than those specifically provided for in the [Tax Act] (as set out above);

Not only in respect of the person allegedly liable for tax but also any third party, however tenuously connected to the person allegedly

liable for tax (in the circumstances described above);

Over all assets of the third party even if it has not been demonstrated that these assets are the proceeds of the taxpayer's failure to pay tax due and owing;

Even in respect of further unnamed or unspecified entities or persons in which the third party may directly or indirectly have a controlling interest;

Without demonstrating that the preservation order is required to secure collection of outstanding tax due and owing, on a balance of probabilities:

Then and to that extent the relevant provisions of section 163...permit an arbitrary and unjustifiable infringement of the fundamental property rights of the affected respondents. In these circumstances, the relevant provisions of section 163...would be inconsistent with the Constitution (in particular section 25); and the respondents give notice that they will in that eventuality seek the necessary

declaration of constitutional invalidity."

[69] The respondents rely on the Van Der Merwe decision (supra) for the contention that when statutory provisions are introduced to alter a longstanding common law principle, in this instance the

Mareva injunction, the interpretation and amendment by the statute must be in a precise and limited manner. The respondents rely on the Van Der Merwe judgment where the court held at paragraph 39:

"...a statute must be construed in such a manner that it will alter the common law no more than is necessary (Reek NO v Registrateur van Aktes, Transvaal 1969(1) SA 589 (T) at 594H - 595A) and in cases of uncertainty or ambiguity, a fiscal statute is to be interpreted contra fiscum (Estate Reynolds v CIR 1937 AD 57 at 70)."

[70] It has already been found by this court that "other party" and "any person" in section 163do not refer exclusively to sections 179 to 183 of the TA Act. The respondents argue that such a finding would be unconstitutional and a breach of the rule of law as SARS would have powers extending to instances beyond those provided for in sections 179 to 183.

[71] Section 25 of the Constitution, Act 105 of 1996, provides:

"(1) No one may be deprived of property except in terms of law of general application, and no Jaw may permit arbitrary deprivation of property."

[72] According to counsel for the respondents such a broad interpretation of section 163 of the TA Act would lead to SARS arbitrarily depriving persons or entities of their properties in instances where no tax was due.

[73] I fully agree that the provisions of the Constitution are paramount when dealing with the interpretation of the provisions of statutes. In Masetlha v President of the Republic of South Africa and Another 2008(1) SA 566 (CC) Ngcobo J set out the rule of law principle at paragraph 173:

"The rule of Jaw principle requires that the actions of all those who exercise public power must comply with the Jaw, including the Constitution. It is central to the conception of our constitutional order that those who exercise public power, including the President, are constrained by the principle that they may exercise only those powers and perform only those functions which are conferred upon them by law. Their sole claim to the exercise or lawful authority rests in the powers allocated to them under the law. The common law principle of ultra vires is not under pin by the constitutional doctrine of legality which is an aspect of the rule of Jaw."

[74] The court was referred to the matter of Woodlands Dairy (Pty) Ltd and Another v Competition Commission 2010(6) SA 108 (SCA) at para 112:

"The Act unnecessarily, reminds us that it must be interpreted in a manner that is consistent with the Constitution and which gives effect to the purposes set out in Section 2 of the Constitution. Importantly, in the context of this case is that the Constitution is based on the rule of law, affirms the democratic values of dignity and freedom, and guarantees the right to privacy, a fair trial and just administrative action." (Court's emphasis)

[75] However, I find the present application distinguishable, as in this present instance the court is dealing with respondents who had admitted, both by their actions and words, that they had received R65 million from Mr Badenhorst, due to defrauding SARS and causing VAT repayments which were not due.

[76] It is so that a preservation order is an invasion into the property rights of the respondents. In passing I must add that they did not deem it so important as to expedite the proceedings and to anticipate the return date.

[77] Section 39(2) of the Constitution provides:

"(2) When interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights."

[78] The court has to ascertain the intention of the Legislature when interpreting the wording of section 163(1) of the TA Act. This is done as set out in Bastian Financial Services (Pty) Ltd V General Hendrik Schoeman Primary School 2008 (5) SA 1 (SCA) at para 16:

"One seeks to achieve this, in the first instance, by giving the words of the provision under consideration the ordinary grammatical meaning which their context dictates, unless to do so would lead to an absurdity so glaring that the [Legislature] could not have contemplated it." (Court's emphasis)

[79] The respondents require the court to read into section 163(1) the words "third party" where the section refers to "other party" and "any person". I must agree that if the ordinary meaning is attached to these words, it means any other party, apart from the taxpayer, who had partaken or benefitted, that had led to the preservation order in the first place. If other persons were to be excluded the section's wording would have been "asset of the taxpayer" and would not have included "other person". Clearly the "other person" is not and cannot be the taxpayer. The wording of section 163(3), (8) and (9) as set out previously sustains this interpretation.

[80] There is no ambiguity in the wording of this section. In Commissioner, South African Revenue Service v Multichoice Africa (Pty) Ltd and Another [2011] ZASCA 41 at para 19 the contra fiscum rule is dealt with:

"In Venter v R Innes CJ held that a court may depart from the ordinary meaning of the plain words of a statute where to give effect thereto 'would lead to absurdity so glaring that it could never have been contemplated by the legislature'. In a separate, concurring judgment Solomon J held that departure from the ordinary meaning of plain words in a statute is warranted if the result of a literal interpretation would be 'something which is repugnant to the intention of the legislature'. The contra fiscum rule only finds application where there is some doubt as to the true meaning of an ambiguous enactment." (Court's emphasis)

[81] The intention of the provisions of section 163(1) is clear and unambiguous and therefor I find the contra fiscum rule does not and cannot apply.

[82] In the present instance the constitutional validity of section 163(1) is attacked. The fourth respondent submitted that due to the fact that this challenge was not properly pleaded, it cannot succeed.

[83] These principles have been set out in Swissborough Diamond Mines (Pty) Ltd and Others v Government of the Republic of South Africa and Others 1999(2) SA 279 T at 323 F - 324 C and confirmed in MEC for Health v 3P Consulting (Pty) Ltd 2012(2) SA 542 (SCA) at para 28:

"While it is so that a party in motion proceedings may advance

legal arguments in support of the relief or defence claimed by it even where such arguments are not specifically raised in the papers,

provided that all relevant facts are before the court, this will not be allowed if it causes prejudice to the other party."

[84] The Constitutional Court explained that these principles became even more important where the constitutional validity of a statute is attacked, in Shaik v Minister of Justice and Constitutional Development 2004(3) SA 599 (CC) at paras 23 and 24:

"It is constitutionally a serious matter for any Court to declare a statutory enactment of Parliament - or for that matter of any legislature - invalid, because it constitutes a serious invasion, albeit a constitutionally sanctioned one, by one arm of the State into the sphere of another. Moreover, an order by this Court that a statutory provision is constitutionally invalid does not operate between the litigating parties only, but is generally binding on all persons and organs of State.

The minds of litigants (and in particular practitioners) in the High Courts are focused on the need for specificity by the provisions of Uniform Rule 16A(1).19 The purpose of the Rule is to bring to the attention of persons (who may be affected by or have a legitimate interest in the case) the particularity of the constitutional challenge, in order that they may take steps to protect their interests." (Court's emphasis)

[85] It was further decided by the Constitutional Court in Ferreira V Levin No And Others; Vryenhoek And Others V Powell No And Others 1996 (1) SA 984 (CC) at para 26 read with para 158:

"[26] The answer to the first question is that the enquiry is an objective one. A statute is either valid or 'of no force and effect to the extent of the inconsistency'. The subjective positions in which parties to a dispute may find themselves cannot have a bearing on the status of the provisions of a statute under attack. The Constitutional Court, or any other competent Court for that matter, ought not to restrict its enquiry to the position of one of the parties to a dispute in order to determine the validity of a law. The consequence of such a (subjective) approach would be to recognise the validity of a statute in respect of one litigant, only to deny it to another. Besides resulting in a denial of equal protection of the law, considerations of legal certainty, being a central consideration in a constitutional state, militate against the adoption of the subjective approach.

[86] It is thus clear that the court should not apply a subjective approach in a matter such as these present applications. The

Constitutional Court once more confirmed these principles in S v Bhulwana, S v Gwadiso 1996(1) SA 388 (CC).

[87] In S v Julies 1996(4) SA 313 (CC) Kriegler J confirmed the prior finding of the Constitutional Court by stating in para 4:

"Wat die aangewese bevel betref, is die redenasie in S v Bhulwana; S v Gwadiso en S v Mhlungu and Others ewe seer hier van toepassing. Geregtigheid vereis dat reg geskied aan diegene wat met welslae ongrondwetlikheid aanvoer, maar is traag om net hulle vir beskerming uit te sander. Terselfdertyd sou dit die regspleging ontwrig as daar nie 'n sinvolle perk aan die trefwydte van 'n ongeldigheidsverklaring gestel sou word nie."

It is clear that the Constitutional Court generally refuses individual relief for the reasons set out in Ferreira and Levin (supra). In this instance I can find no reason to deviate from the Constitutional Court's principles and to apply a subjective approach.

[88] It is conceded by the respondents that the Constitution does not permit arbitrary and unjustifiable infringements of property rights. It is clear that the respondents want the court to read into the words of section 163(1) "third" party" and for the court to decide that these provisions only relate to instances set out in sections 179 to 183. The respondents do not set out the evidence which proves that the effect of section 163 is arbitrary and unjustifiable. cannot find that the respondents have proved on a balance of probabilities that the provisions of section 163(1) infringe arbitrarily and unjustifiably on the fundamental property rights of the affected respondents.

[89] In the present instance the applicant has set out all the facts to provide sufficient reason for the deprivation of the second and third respondents' assets in the first application and the sixth to eleventh respondents in the second application. In Mobile Telephone Networks (Pty) Ltd v SMI Trading CC 2012(6) SA 638 (SCA) at para 35 the court set out that:

"For the reasons set out above, I accordingly conclude that the invocation of the power vested in MTN by s 22 would constitute administrative action. That being so, it attracts the fundamental rights that are vested in an affected landowner to administrative action that is lawful, reasonable and procedurally fair. That, in turn, has two effects: first, on the macro-level, because s 22 can only validly be exercised in accordance with administrative-justice rights, it insulates the ECA against constitutional invalidity by serving as a hedge against arbitrary deprivation; and secondly, when a particular deprivation is challenged, the requirements of administrative justice determine whether it was, on the micro-level, arbitrary or not." (Court's emphasis)

[90] In First National Bank Of SA Ltd TIA Wesbank v Commissioner, South African Revenue Service And Another; First National Bank Of SA Ltd TIA Wesbank v Minister Of Finance [2002] ZACC 5; 2002 (4) SA 768 (CC) at para 100 the Constitutional Court dealt with arbitrary deprivation:

"Having regard to what has gone before, it is concluded that a deprivation of property is 'arbitrary' as meant by s 25 when the 'law' referred to in s 25(1) does not provide sufficient reason for the particular deprivation in question or is procedurally unfair. Sufficient reason is to be established as follows:

(a) It is to be determined by evaluating the relationship between means employed, namely the deprivation in question and ends sought to be achieved, namely the purpose of the law in question.

(b) A complexity of relationships has to be considered.

(c) In evaluating the deprivation in question, regard must be had to the relationship between the purpose for the deprivation and the person whose property is affected.

"(h) Whether there is sufficient reason to warrant the deprivation is a matter to be decided on all the relevant facts of each particular case, always bearing in mind that the enquiry is concerned with 'arbitrary' in relation to the deprivation of property under s 25. 'Arbitrary' deprivation as applied to s 114 of the Act." (Court's emphasis)

[91] I find in the present circumstances having regard to all the facts, that SARS, through a senior official, had reasonable grounds to authorize an ex parte application to this court. There was no arbitrary deprivation of property, but cogent reasons existed as the second respondent had admitted during the inquiry that he had received the R65 million from Global, knowing that it had originated from VAT in an illegal scheme.

[92] There is no application for this court to vary the order due to undue hardship to the second and third respondents. They have, in fact, lived with this order for 2 years, without anticipating any of the orders. It is clear that SARS cannot arbitrarily deprive a person or entity of its assets, but it can only be done by obtaining a court order and in the present instance a rule nisi where a provisional order was granted. The oversight of the court in this instance is essential and safeguards third parties and entities from arbitrary deprivation of assets. The court granting the provisional preservation orders had to consider all the facts before granting such an order.

[93] Once again the Metcash case (supra) is important in the present instance where the court held at paras 60 and 61:

[94] "In considering justification it is important to remember that the limitation under s 40(5) is limited in its scope, temporary and subject to judicial review. There are three additional features. First, the public interest in obtaining full and speedy settlement of tax debts in the overall context of the Act is significant. In their affidavits the Commissioner and the Minister mentioned a number of public policy considerations in favour of a general system whereby taxpayers are granted no leeway to defer payment of their taxes. These are in any event well-known and self-evident."

[95] Due to these findings, after considering the arguments, applying the principles as set out in the authorities and facts in this counter­ application I find that section 163(1) of the TA Act is within the boundaries of section 25(1) of the Constitution and the counterclaim should be dismissed.

[96] I am not dealing with a remedy in the event of constitutional invalidity as I do not find the provisions

of section 163 of the TA Act unconstitutional.

[97] The following order is made: IT IS ORDERED:

1. That the provisional order granted against the second and third respondents on 23 August 2013 by Deputy Judge President Ledwaba be and is hereby confirmed.

2. That the second and third respondents pay the costs of the application, including the cost of two counsel.

3. That the provisional order against the sixth to the eleventh respondents on 23 August 2013 by Deputy Judge President Ledwaba be and is hereby confirmed.

4. That the sixth to eleventh respondents pay the costs of the application, including the cost of two counsel.

5. That the conditional counterclaims are dismissed with costs, including cost of two counsel.

______________________

Judge C Pretorius

Case number

: 51232/2013 & 56971/2013

Matter heard on

: 4 September 2015

For the Applicant :

Adv JL Van der Merwe SC

Adv LG Kilmartin

Instructed by :

Ledwaba Mazwai Attorneys

For the Second and Third

Respondents' :

Adv MM Rip SC

Instructed by :

Cuzen Randeree Attorneys

For the Fourth Respondent : Adv G Marcus SC

M Stubbs

Instructed by :

State Attorney

Date of Judgment :

13 October 2015