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Resolving customs and excise disputes with SARS - alternative dispute resolution

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Resolving customs and excise disputes with SARS - alternative dispute resolution

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20th September 2021

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There are various mechanisms to resolve disputes with SARS' Customs and Excise divisions. In this article, we consider the alternative dispute resolution procedure.

In the previous instalment of this series, we considered the internal administrative appeal as the main dispute resolution mechanism in the Customs and Excise Act, 1964 (the Act).  In this instalment, we consider the alternative dispute resolution (ADR) procedure.

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ADR is a formal procedure provided for in terms of Chapter XA of the Act, read with the rules for section 77I.  Unlike the internal administrative appeal, SARS has a discretion to decide whether or not a matter is appropriate for ADR.  A potential applicant should carefully consider, in consultation with a customs and excise legal expert, whether to spend the necessary time and money to apply for ADR at all.

A person who is aggrieved by a SARS "decision" (defined in section 77A to include any determinations or administrative acts; amendments or withdrawals of decisions; and any refusal to take a decision) in terms of the Act may submit an internal administrative appeal.  If dissatisfied with the outcome of the appeal, the aggrieved person may apply for the matter to be dealt with in terms of the ADR procedure.  This requires a formal ADR application to be made to SARS within 30 days of being notified of the outcome of the appeal.  SARS must, within 20 days of receiving the ADR application, inform the applicant whether the matter is appropriate for ADR and may be resolved by way of the procedures contemplated in the rules for section 77I.  (Note that all references to "days" have a similar meaning to the ordinary concept of business days, but there is an excluded period between mid-December of one year and mid-January of the next year, as in the definition of "day" in section 77A of the Act.)

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The aggrieved person above is not obliged to submit an internal administrative appeal, however, and may directly institute judicial proceedings against SARS, subject to the prescribed time frames (we will consider this mechanism in the final instalment of this series).  If the aggrieved person appealed, but their appeal was disallowed, they may also institute judicial proceedings against SARS.  In either case, SARS may notify them that the dispute is appropriate for ADR within 10 days of receiving the relevant litigation notice.  After that, the aggrieved person must advise SARS within 10 days whether they agree to proceeding with ADR.

Whether an unsuccessful appellant applies for ADR, or a prospective litigant agrees with SARS to first proceed with ADR, the relevant aggrieved person must submit an ADR application to SARS under cover of form DA 52 (available on SARS' website).  This is not only required by law, but is administratively important, because the reverse side of the DA 52 form contains the terms governing the ADR procedure. Signing that form indicates the ADR applicant's acceptance of those terms, so it is important to take careful note of them.  Those terms are also set out in Schedule A to Rule 77I.  They cover aspects such as the distinction between ADR following the disallowance of an internal administrative appeal and ADR as an alternative to judicial proceedings; the obligations, objective and authority of the SARS facilitator appointed to manage the ADR process; and the rules for the ADR meeting.

It is crucial to ensure that the ADR application is properly drafted and completed, including a supporting schedule setting out the detailed grounds for applying for ADR.  These grounds should include the relevant background facts, an overview of the applicable statutory provisions or case law, and the applicant's motivation why ADR is appropriate.  The ADR application should also be supported by the relevant background documentation, including the SARS "decision" at issue (e.g., the appeal committee's written disallowance of the appeal) and the most pertinent correspondence with SARS on the dispute.  Given these complexities, it is advisable for an aggrieved person in a customs and excise dispute to brief a legal expert timeously to: (a) advise them whether SARS is likely to deem the dispute to be appropriate for ADR; and (b) if there is a reasonable prospect that SARS will deem it appropriate, to prepare the ADR application and submit it to SARS.  If SARS agrees to proceed with ADR, the legal expert should also be briefed to represent the successful applicant at the ADR meeting.  There they will have the opportunity to make oral submissions to the ADR facilitator and respond to any questions.

The SARS-appointed facilitator is in charge of proceedings at the ADR meeting.  The aggrieved person must be personally present and may be accompanied by their chosen representatives (who should include their appointed customs and excise legal expert).  The aggrieved person and the SARS representatives may, if the facilitator agrees, lead or bring witnesses to the ADR meeting.  At the conclusion of the meeting, the facilitator must record all issues that were resolved through the ADR process; any issue on which agreement or settlement could not be reached; and any other point they consider necessary.  The facilitator must deliver a report to the aggrieved person and the SARS representative within 10 days after completion of the ADR process.  The facilitator may also, if requested at the start of the ADR process, make a recommendation at the conclusion of proceedings, if no agreement or settlement is reached between the parties.

From an evidentiary perspective, it is noteworthy that all representations made in the course of the ADR meeting are without prejudice.  Any representation made or document tendered in the course of the proceedings may not be tendered in any subsequent proceedings as evidence by any other party, subject to limited exceptions. Also, no person may subpoena any person involved in the ADR process to compel disclosure of any representation made or document tendered in the course of the proceedings (subject to the same limited exceptions) or subpoena the facilitator of the ADR proceedings to compel them to disclose any such representation made or document tendered.

The ADR procedure may have various outcomes.

The first is that the dispute is resolved by agreement (Rule 77I.18), where SARS or the aggrieved person accepts, wholly or partly, the other party's interpretation of the facts or the law applicable to the facts, or both.  This is the best possible outcome, as it delivers some level of satisfaction to both parties and finalises the dispute.

The second is where the parties are, despite all reasonable efforts, unable to resolve the dispute by agreement, yet SARS is of the opinion that the circumstances comply with the requirements for settlement in section 77M of the Act (Rule 77I.19).  This presupposes that the aggrieved person has formally applied to SARS for the dispute to be resolved by compromising the disputed liability.  (This mechanism is known as a settlement application, and it will be dealt with in the next instalment of this series).  In that case, the parties will attempt to settle the matter in accordance with the provisions of Part C of Chapter XA of the Act (sections 77J to 77P).

The third possible outcome is that no agreement or settlement is reached, or the ADR proceedings are terminated by the SARS facilitator on the basis of any of the specific grounds listed in paragraph 7(g) of Schedule A to Rule 77I.  (Those grounds include the failure by any person to attend the ADR meeting or that the facilitator is of the opinion that the dispute cannot be resolved).  If this third outcome arises, SARS must inform the aggrieved person of their further rights regarding the institution of judicial proceedings within 10 days of the conclusion or termination of the ADR proceedings.

In closing, it is crucial to note that any agreement or settlement reached through the ADR process has no binding effect on any other matters relating to that aggrieved person that are not actually covered by the agreement or settlement, or any other person (Rule 77I. 22).  So, although it has no precedent-setting effect, ADR is still a less costly and time-consuming dispute resolution mechanism than litigation against SARS.  An aggrieved person should carefully consider, in consultation with a customs and excise legal expert, whether to apply for ADR after an unsuccessful appeal or as an alternative to litigation.  If there is a reasonable likelihood that SARS will deem the matter to be appropriate for ADR (based on prior experience of SARS' stance in similar matters), it might well be worth pursuing it.

Written By Rudi Katzke, Partner at Webber Wentzel

 

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