Resolving customs and excise disputes with SARS - ancillary dispute resolution mechanisms [part 3 of 4 part series]

​​​​​​​​​​​​​​​There are various mechanisms to resolve disputes with SARS' Customs and Excise divisions. In this article, we consider the uses and value of certain ancillary mechanisms.

In the previous two instalments of this series (part 1) and (part 2), we considered the primary internal (pre-litigation) dispute resolution mechanisms in the Customs and Excise Act, 1964 (the Act), namely the internal administrative appeal and the alternative dispute resolution (ADR) procedure. In this instalment, we briefly consider the following ancillary mechanisms: the request for reasons, the suspension application, and settlement by way of compromise.

In terms of section 77B of the Act, any person who is aggrieved by a SARS "decision" (defined to include any determinations or administrative acts; amendments or withdrawals of decisions; and even any refusal to take a decision) may submit an internal administrative appeal. Such a "decision" may take various forms, for example a claim by SARS in a letter of demand that imported goods were undervalued and that a shortfall in duties or levies must be paid. Unfortunately, the grounds for SARS' decisions are not always made clear. Section 77D therefore enshrines the aggrieved person's right to request reasons for the relevant SARS "decision", and that provision must be read with the applicable rule to the Act. Rule 77H.02 deals with the practicalities of submitting a formal request for reasons to SARS, including the identifying details and supporting documents that must accompany the request. The request for reasons must reflect, among other aspects, the particulars of SARS' decision for which reasons are requested, "in sufficient detail to enable SARS to identify the decision". SARS must then acknowledge receipt of the request and provide the requested reasons within 45 business days (rule 77H.02(4)).

In practice, the request for reasons can be a useful ancillary remedy. In a best-case scenario, SARS provides comprehensive reasons for the relevant decision. This can help the aggrieved person to decide whether to pursue the dispute or to capitulate. If the person decides to pursue the dispute, SARS' detailed reasons can help to crystallise the issues and assist both parties to formulate their positions. The worst-case scenario is that SARS does not respond to the request for reasons, a serious administrative failure that can be taken on review. Between these two poles is a scenario where SARS does provide reasons, but those are unsatisfactory (e.g. insufficiently detailed, incomplete, or vague). The aggrieved person must then evaluate whether the reasons provided are helpful in pursuing the dispute.

Another ancillary remedy that may be available to an aggrieved person, depending on the circumstances, is a suspension application. Section 77G establishes, firstly, that an amount demanded by SARS in terms of the Act must be paid and that SARS has a right to receive and recover it. The same section moderates this principle, however, by granting SARS a wide discretion to suspend the person's obligation to pay and SARS' right to receive the amount demanded, pending the finalisation of any Chapter XA procedure (the internal administrative appeal, ADR, or settlement), or pending a court decision. This section must be read with the applicable rule to the Act, rule 77H.03, which governs the practicalities of submitting a suspension application (including the identifying details and supporting documents that must accompany it).

Rule 77H.03(7) stipulates various factors that SARS must take into consideration when deciding a suspension application, including the amount of the disputed payment, the applicant's compliance history and the risk of dissipation of assets. Even if a suspension of payment is granted, rule 77H.03(8) lists a variety of circumstances that may result in it being withdrawn. These include: if the person's actions compromise the eventual recovery of the disputed payment; if the person abuses the appeal proceedings; or if SARS later becomes convinced that the application should not have been granted. The latter list is widely drafted and gives SARS various possible grounds to motivate the withdrawal of an approved suspension application. Successful applicants should be fully aware of these potential circumstances and ensure that they do not fall foul of any of them.

The final ancillary remedy considered for present purposes is the settlement procedure, provided for in Part C of Chapter XA of the Act. In this context, section 77J states that settlement means to resolve a dispute by compromising any disputed liability, with neither SARS nor the person concerned accepting the other's interpretation of the facts or the applicable law. This part of the Act (sections 77J to 77P) deals with a scenario where SARS considers the applicable circumstances, on application by the person concerned, and decides whether to settle the dispute by agreeing to a compromise. The effect of a compromise will necessarily be that SARS forgoes some, most or even all of an amount demanded in terms of the Act, despite it being SARS' duty to assess and collect all amounts properly chargeable and payable under the Act (section 77K). Part C does not specify the terms on which a disputed liability must be compromised, but it does list various circumstances when settlement would be inappropriate (section 77L) and circumstances when settlement would be appropriate (section 77M). In either case, SARS must evaluate all relevant circumstances and exercise its discretion to decide whether it is appropriate to settle a particular dispute by agreeing to a compromise, and if so, the terms on which it will be done.

Section 77L lists various circumstances where it will be inappropriate and not to the best advantage of the state to settle a dispute. These include instances where the relevant actions of the person concerned constitute intentional tax evasion or fraud, or where settlement would be contrary to the law or a clearly established SARS practice on the matter. Section 77M, in contrast, lists various circumstances when it will be to the best advantage of the state to settle a dispute, on a basis that is fair and equitable to both parties. These include instances where settlement would be in the interest of good management of the system, overall fairness, and the best use of SARS' resources. In an application for settlement, the person concerned should ideally show that there are no circumstances present that would make it inappropriate for SARS to settle the dispute, and that as many as possible of the listed circumstances are present that would make settlement appropriate and to the best advantage of the state.

Section 77O deals with the procedure for settlement. It requires that the person concerned disclose all relevant facts to SARS in settlement discussions, and states that any settlement is conditional upon full disclosure of all material facts known to the person at the time of settlement. This section further determines that all settled disputes must be evidenced by a written agreement between the parties, which must include details of how each particular issue was settled; the relevant undertakings by the parties; the treatment of the issue in future years; the withdrawal of appeals; and arrangements for payment of the amounts ultimately agreed upon. The written agreement represents the final agreed position between the parties and will be in full and final settlement of all the specified aspects of the dispute in question.

Finally, sections 77O and 77P impose certain obligations on SARS. Firstly, if a dispute is ultimately not settled, despite the submission of a valid compromise application, SARS must explain to the person concerned their further rights to institute judicial proceedings. (This latter remedy – i.e. litigation against SARS in respect of disputes arising in terms of the Act – will be covered in the final instalment of this series). Secondly, SARS must keep a register of settlements, fully documenting the process in terms of which each dispute was settled, and it must provide an annual summary to the Auditor-General and the Minister of Finance. In doing so, SARS must adhere to the relevant secrecy provisions with regard to the information of the person concerned. Thirdly, SARS must adhere to the terms of the settlement agreement, unless it emerges that material facts were not disclosed or that there was fraud or misrepresentation of the facts. Should the person concerned fail to adhere to any agreed payment arrangement, SARS may recover any outstanding amounts in full.

A successful settlement application, culminating in a compromise agreement between SARS and the person concerned, can be a cost-effective dispute resolution remedy, provided SARS can be persuaded that the circumstances of the matter justify such an outcome.


For more information, read the other parts of Resolving customs and excise disputes with SARS series below:

Part 1 - Resolving customs and excise disputes with SARS - internal administrative appeal [part 1 of 4 part series]
Part 2 - Resolving customs and excise disputes with SARS - alternative dispute resolution [part 2 of 4 part series]


These materials are provided for general information purposes only and do not constitute legal or other professional advice. While every effort is made to update the information regularly and to offer the most current, correct and accurate information, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect, inaccurate or dated. We accept no responsibility for any loss or damage, whether direct, indirect or consequential, which may arise from access to or reliance on the information contained herein.

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