Sars cited for bullying tactics

A high court judge took the tax authorities to task for the strategies used in investigating and pursuing alleged conspirators in Vat fraud

Most taxpayers are a little fearful of the extensive powers enjoyed by the SA Revenue Service (Sars). So there’s something strangely fascinating when a court rules that the tax authorities have gone too far. It’s rather like watching a teacher take down the playground bully. Judge Rishi Seegobin, sitting in the high court, Durban, presided over this particular Sars application.

He characterised the case as “extraordinary” and in at least two respects it was. It concerns “grand scale” Vat fraud: Petrus Badenhorst, trading as SA Global Trading, owes Sars more than R800m, though he’s insolvent and Sars has no hope of getting anything out of him.

A second “extraordinary” feature was how Sars chose to conduct its battle against Badenhorst’s alleged co-conspirators. Instead of laying criminal charges against them, Sars first asked the high court in Pretoria to sanction an in camera inquiry normally used to make recalcitrant taxpayers answer questions so their tax liability can be determined. In this case, however, Badenhorst’s alleged coconspirator Jacques Sassin was told up front that he was being investigated for fraud.

Even though Sars was conducting what amounted to a pretrial criminal investigation into tax fraud, Sassin was not told he had the right to silence but was compelled to answer. And, at the end of the inquiry, based on Sassin’s own evidence, Sars came to court in Durban and applied for Sassin to be declared a “co-wrongdoer” with Badenhorst, liable for R370m.

Badenhorst’s fraud was predicated on a Vat 103 certificate, used to obtain animal feed at a zero Vat rate, though he was not allowed to use the certificate for trading. Sassin, meanwhile, working with a company called Benietha, bought and sold animal feed products, sometimes doing business with Badenhorst’s SA Global.

In 2012 the two dealers made increasingly complex buying and selling arrangements between themselves. And after April 2013 their nominal “trade” reached such levels that neither company could have handled the volumes if physical delivery were ever to have taken place.

Investigations by Sars led to the inquiry that Sars claims showed a strong case against Sassin. After Sassin challenged the Sars strategy, the judge agreed it was not appropriate for Sars to use motion court proceedings — where matters are decided on papers and argument — to resolve fraud allegations. Sassin had to be allowed to give evidence himself and cross-examine witnesses. In addition, Sars had not been able to prove the authenticity of the evidence from its secret inquiry, and refused to give Sassin a full transcript or see the documents referred to in the inquiry.

The judge commented: “The position adopted by Sars is that a finding of fraud must be made against Sassin based on the socalled ‘evidence’ gathered by it, without affording Sassin an opportunity to cross-examine his accusers and/or to give oral evidence to clear his name. No court . . . should be prepared to make such a finding on paper.”

Sars’s strategy was wrong and unfair, and the way it tried to introduce evidence from the inquiry was “improper and an abuse of the court process”.

Sars had an important function of collecting taxes, but in this case it tried to achieve its aims “in an unfair, unconstitutional and prejudicial manner”. Courts should not “sanction any conduct (by Sars) which falls foul of the constitution and the bill of rights.” The dispute has been referred to trial, with costs awarded against Sars.

Will that trial ever take place? Or will Sars settle on the basis, already offered by Sassin, that he repay the remaining available funds from Badenhorst’s scheme? Who knows? But either way, given the court’s disapproval of Sars’s behaviour, the tax authorities will presumably not try this particular sleight of hand in the future.