Countering SARS' delays in customs and excise internal appeals September 2017

By NINA KEYSER AND RUDI KATZKE, Published in Tax

It is no secret that the Customs and Excise Act (91 of 1964) (Customs Act) is in its twilight years. It is due to be replaced by a pair of laws assented to in July 2014, the Customs Duty Act (30 of 2014) and the Customs Control Act (31 of 2014) – their commencement dates are yet to be proclaimed. Until then, the Customs Act persists.

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One enduring (if not endearing) feature of the Customs Act is its reputation as a complex and cryptic creature. Its provisions are not always clear and it is less than user-friendly. SARS seems to agree. Their web page devoted to information on the new Acts states: "In 2003, SARS Customs began to re-write the South African Customs legislation in order to: ... establish a sound, clear and logical legislative framework that would enhance and 'speak to' the many other legislative instruments that rely for their implementation on customs control."

This article first considers the remedies currently available to an aggrieved person under the Customs Act to resolve a customs or excise dispute stemming from a decision taken by SARS Customs. We then focus on the available litigious steps to compel SARS to abide by the dispute resolution timeframes prescribed under the Customs Act. Finally, we consider the impact that the Customs Control Act will have on these aspects when it takes effect.

Internal administrative appeals under the Customs Act

Consider a scenario where SARS decides an importer is not entitled to a rebate of customs duty on the importation of a specified product into South Africa, and claims unpaid customs duty from the importer. Such a decision could be based on various reasons, for example failure to satisfy the requirements of a rebate item by not retaining all necessary supporting documents. The importer (the aggrieved person) might have grounds to dispute such a decision, for example that it did in fact satisfy all documentary requirements, or that SARS' decision contains a factual or legal error.

Whatever the grounds may be, in terms of Part A of Chapter XA of the Customs Act (sections 77A to 77HA), the aggrieved person can submit an internal administrative appeal against SARS' decision. If the appeal is accepted as valid in principle, SARS will refer it to their appropriate internal appeal committee for further consideration. If the commit tee upholds the appeal in favour of the aggrieved person, that is usually the end of the matter.

But, if the internal appeal committee dismisses the appeal, an alternative dispute resolution process is the last possible internal remedy for the aggrieved person. This remedy is only available if the aggrieved person applies for the matter to be subject to ADR, and if SARS agrees to it. Should SARS refuse to enter into ADR, the aggrieved person's internal remedies are exhausted and the courts should be approached for relief.

The rules issued under s120 of the Customs Act, specifically Rule 77H, impose various timeframes on both the aggrieved person and on
SARS for purposes of the internal administrative appeal and ADR processes. The main timeframes pertaining to such appeals are: (a) if the
aggrieved person requests written reasons from SARS for the decision, the reasons must generally be provided within 60 days; (b) if the
aggrieved person wishes to submit an appeal, it must do so within 30 days after the date of SARS' decision or after receiving further reasons; (c) SARS must inform the appellant within 60 days after receipt whether the appeal is considered to be valid and complete and, if not, how it must be amended or amplified; and (d) SARS must consider and either allow or disallow, in whole or in part, the appeal and must notify the appellant of the decision in writing, either within 60 days of receiving any additional requested information, or within 90 days after receipt of the appeal. Most of these timeframes allow for limited extensions, in specified cases. If SARS requires more time to consider the appeal due to its complexity, the principle involved, the amount in question or other appropriate circumstances, it may inform the appellant that the appeal will be decided within a longer period, constituting either an additional 60 days (if further information was requested by SARS) or 90 days in other cases.

What is the remedy if SARS does not abide by the stipulated timeframes?

Occasionally SARS does not adhere to the prescribed timeframes for deciding the appeal, as emphasised above – even though the wording of Rule 77H.06 is peremptory. Such a delay invariably frustrates the appellant and can result in economic hardship, for instance if SARS' decision involves a material amount of duty or if the appellant's goods are being detained. Such frustrations and difficulties are greatly exacerbated by the fact that the Customs Act provides no mechanism to compel SARS to decide the appeal within the stipulated timeframes. So, if the appellant does not wish to or cannot await the appeal decision indefinitely beyond the stipulated deadlines, the only option is to seek a legal remedy outside of the Customs Act. The available mechanism to do so is an application to the high court under the Promotion of Administrative Justice Act (3 of 2000) (PAJA).

As the name indicates, PAJA is concerned with administrative justice. It is not a tax statute but it does provide a framework for judicial review of decisions taken by organs of state, including SARS. Before an application for judicial review can be brought under PAJA, however, certain requirements must be satisfied. These include that there must have been an administrative action (such as a decision taken or even the failure to take a decision) by an organ of state exercising a public function in terms of any legislation, which adversely affects the rights of any person and which has a direct, external legal effect. The aggrieved person must further have exhausted all available internal remedies provided for in any other applicable law to resolve the issue. If all relevant requirements of PAJA are satisfied, one can apply for judicial review of the administrative action in terms of s6(1) of PAJA. A court or tribunal has the power to judicially review the administrative action on various grounds, including if it comprises a failure to take a decision (s6(2)(g)). Thus, the aggrieved person may institute proceedings in a court or tribunal for the judicial review of the administrator's failure in a case where:

(a) the administrator (SARS) has a duty to take a decision;
(b) a law (the Customs Act) prescribes a period within which the administrator must take the decision;
(c) the administrate or has failed to take the decision before that period expires; and
(d) all internal remedies have been exhausted.

In such a case the ground for judicial review is that the administrator has a duty to take the decision in question, notwithstanding the expiration of the period prescribed by the relevant statute (s6(3)(b)).

There are some additional factors to consider in a case involving an administrator's failure to take a decision. In such an instance, it would typically not be advisable to request the high court to make the decision on behalf of the administrator, unless the decision sought is a mere formality (such as a request for extension of time). Where an administrator is required to consider a given set of facts (the grounds of appeal) and to apply the provisions of a statute (the Customs Act) to those facts in order to reach a decision, the court will likely refuse to make the decision in place of the administrator. A more likely outcome in such a case is for the court to grant an order in terms of s8(2)(a) of PAJA, in terms of which the administrator (SARS) is directed to take the decision within a specified timeframe. In terms of PAJA (s8(2)(d)), the court can also make a costs order in favour of the aggrieved person.

In contrast, where an administrator has already taken a decision that adversely affects the rights of a person, and which has a direct, external legal effect, but the aggrieved person has exhausted her internal remedies under the applicable statute to overturn that decision, the remedy is slightly broader. Under PAJA an application can be made to the high court for judicial review of that decision but if appropriate the court can be specifically requested to set aside the administrator's decision and replace it with the desired decision. The court will then have the benefit of reviewing the administrator's rationale in the form of the record of decision, which the administrator must provide to the aggrieved person under Rule 53 of the Uniform Rules of Court. The so-called "Rule 53 record" should show the administrator's internal deliberations and reasons for reaching the decision, such as minutes of meetings and memoranda, which can help to show whether the administrator acted reasonably and procedurally fairly in reaching the decision. In the absence of a decision by the administrator, there will be no Rule 53 record to consider. This is another reason why the court will likely decline to make the decision in place of the administractor, if the latter failed to do so.

Anotherimportant consideration in this context pertains to s96 of the Customs Act.That section holds that no legal proceedings may be instituted by litigant for anything done in pursuance of the Customs Act unless notice is given to the state or to SARS at least one month in advance.

The notice must set forth clearly and explicitly the intended cause of action (for example that SARS neglected its statutory duty to decide the internal administrative appeal under the Customs Act within the stipulated timeframe). This is done by completing form DA 96 and attaching a letter which describes the cause of action in as much detail as possible, along with all necessary supporting documents and related details. SARS may reduce this one month notice period on good cause shown or extend it by agreement with the litigant. Commercial expediency or internal time pressures on the side of the litigant will likely not be considered to be good cause for reducing the standard one month notice period. If SARS refuses to reduce or extend the period, the high court may do so on application if the interest of justice so requires.

The impact of the Customs Control Act (31 of 2014) (CCA)

Unless its relevant provisions are redrafted before the commencement date, the CCA will provide a mechanism to alleviate the difficulty described in this article. Part 3 of Chapter 37 of the CCA provides for "administrative appeals by persons aggrieved by decisions of customs officers or SARS officials, including decisions taken by customs officers or SARS officials on behalf of the Commissioner". The timeframe within which the aggrieved person must file the administrative appeal is specified in s841(2) of the CCA. In most cases the timeframe would be 30 working days from the date the appellant became aware of the decision taken by SARS, and this may be extended by no more than 15 calendar days.

Section 842(1) of the CCA in turn specifies the timeframe within which SARS must decide the administrative appeal. The new timeframe is 60 calendar days from the date of electronic submission or receipt of the appeal by the SARS office in question; or, if the appeal was initially incomplete, within 60 calendar days from the date on which the complete appeal was electronically submitted or received by the SARS office. SARS may extend either 60-day period by no more than 30 calendar days, under s842(2) of the CCA.

These provisions of the CCA are slightly simpler, but otherwise similar to the current timeframe requirements stipulated for internal administrative appeals under the Customs Act. In addition, s896 of the CCA contains a similar provision to the current s96 of the Customs Act, as already mentioned. Section 896 requires notice to be served on SARS at least 30 calendar days before any judicial proceedings arising from the enforcement or implementation of the CCA and its related statutes are instituted against SARS. While s896 also allows for that period to be shortened by SARS or the high court, no extension is allowed.

However, Part 3 of Chapter 37 of the CCA contains a new provision that departs dramatically from the current internal administrative appeal provisions in Chapter XA of the Customs Act. That provision is found in s842(3), and it reads: "An appeal must be regarded as having been upheld if the appeal is not decided within the period mentioned in subsection (1) or as extended in terms of subsection (2)."

The new provision will, we submit, have a positive, two-fold effect. First, it will put SARS under significant pressure to finalise administrative appeals within the timeframes stipulated by legislation. Currently, the absence of any similar provision in Chapter XA of the Customs Act or the Rules means that SARS is under no such pressure. The only existing option for an aggrieved person in such a situation is to resort to costly high court litigation under PAJA to compel SARS to take the decision, as already noted. Unless a material amount of duty is involved or SARS' delay has other serious consequences, many appellants will simply be resigned to accept SARS' delays, without even receiving an explanation. This is exacerbated by the requirement of s96 of the Customs Act, in terms of which the appellant must first give SARS one month's notice before a PAJA application can be brought to compel SARS to take a decision. Consequently SARS effectively receives yet a further "grace period" within which to decide the appeal, even beyond the stipulated timeframes, and still avoid the PAJA application. This untenable position will fortunately be rectified by s842(3) of the CCA.

Second, if SARS fails to decide the administrative appeal within the stipulated timeframes, s842(3) states that the administrative appeal will be regarded as having been upheld. This means that an automatic remedy is built into the provision itself (unlike the current regime), namely a deemed decision in favour of the appellant. In such a case it would be advisable for the appellant first to place on record (through written correspondence to SARS) that the relief sought in the administrative appeal must, as a result of the deemed decision, follow without further delay. This could include, for instance, the refund of customs or excise duty paid or the release of goods detained by SARS. Should SARS fail to give urgent effect to the deemed decision under s842(3), the appellant can bring an urgent application to the high court for an order compelling SARS to grant the relief sought in the administrative appeal (as discussed, subject to the advance notice of 30 calendar days under s896). Section 842(3) will thus address the issue identified, in terms of which SARS could effectively ignore the timeframes to decide an internal administrative appeal under Chapter XA without a mechanism under the Customs Act to force it to comply. From that perspective at least, it is to be hoped that the CCA will become effective without much further delay, and that s842(3) will be retained in its current form.

In closing it seems appropriate to comment briefly on the rollout status of the new customs acts, as well as the latest round of draft tax law amendments. During July and August 2017 SARS, as part of its "New Customs Acts Programme" (NCAP), is presenting informative workshops on certain practical aspects of the new customs legislation. At the NCAP workshop in Cape Town on 13 July, the SARS presenters advised that it is not currently possible to estimate the likely effective date of the new acts. But the attendees were informed that one aspect under consideration was to align the new dispute resolution rules under the CCA with the well-established dispute resolution rules under the Tax Administration Act (28 of 2011). Such a development would be welcomed.

Lastly, the Draft Tax Administration Laws Amendment Bill (2017) was released for public comment on 19 July. It contains various proposed amendments to the Customs Act, the Customs Duty Act and the CCA but no changes to chapter 37 of the CCA (which contains s841 and s842). It thus appears that currently National Treasury intends to retain the new mechanism in s842(3), as discussed. This is encouraging, given the positive impact that the provision will likely have on the rights of appellants, and its potential to reduce the number of costly high court applications against SARS.

Keyser is a Partner and Katzke a Senior Associate with Webber Wentzel.

The authors wish to thank Adv Marilena Maddison for her valuable input on the article.