Although section 103 of the Customs and Excise Act 91 of 1964 (“the Act”) is not a new provision, the reliance of the South African Revenue Service ("SARS") on the provision has become increasingly prominent. In SARS’ quest to leave no stone unturned in revenue collections, many individuals in managerial positions have raised eyebrows at the inclusion of section 103 of the Act in letters of demand. One may ask what this means and when SARS can legally invoke and rely upon section 103. 

According to section 103 of the Act: “For the purposes of this Act any reference to a person shall be deemed to include a reference to a company, close corporation, co-operative society, firm, partnership, statutory body or club, and in the event of a contravention of or non-compliance with this Act or the incurring of any liability under this Act by any company, close corporation, co-operative society, firm, partnership, statutory body or club any person having the management of any premises or business in or in connection with which the contravention or non-compliance took place or the liability was incurred may be charged with the relevant offence and shall be liable to any penalties provided therefor and shall be liable in respect of any liability so incurred.”

On a proper interpretation of section 103 of the Act, in accordance with section 39(2) of the Constitution of the Republic of South Africa (“Constitution”), liability for the customs (or excise) debt of a juristic person is not imposed, without more, on any person having the management of the business of the juristic person in connection with which the liability was incurred. In addition, such person can only be held liable to the extent that the person’s negligence or fraud resulted in the incurring of the debt by the juristic person, or to the extent that a sufficiently close connection exists between the conduct of the person sought to be held liable and the incurring of said customs debt by the juristic person.

Section 103 of the Act clearly imposes a discretion on the Commissioner. Such a discretion must be exercised reasonably, based on the relevant facts, and not in bad faith and/or arbitrarily or capriciously. Such procedural fairness must be tested against the provisions of section 6 of The Promotion of Administrative Justice Act (“PAJA”).  

Strict liability, without any basis on materially relevant facts, can be argued to be unconstitutional and it can be presumed that the legislature did not intend to exclude culpability. Section 103 of the Act does not contain clear and convincing indications to the contrary.

In the judgment of Du Toit v Kommissaris van de Suid Afrikaanse Inkomstediens en Andere 62 SATC 156 it was stated in interpreting the phrase that “any person having the management”, the question is a factual one which has to be answered in light of all the facts of the relevant matter. It also has to be accepted that more than one person can have control over a business and that even a lesser measure of control still amounts to control. The court pointed out that the legislator did not have the mere right of control or management in mind in section 103, but rather de facto control. The mere right to management will not be sufficient to bring a person within the ambit of section 103 of the Act.

Moreover, the imposition of civil liability upon a person having the management for the debt of a juristic person without that person’s dereliction of duty, negligence or fraud having resulted in the incurring by the juristic person of the said debt or in the absence of another sufficiently close connection between the conduct of the person sought to be held liable and the incurring by the juristic person of the said debt, exposes said person to the material risk of a deprivation of property which would be arbitrary in the circumstances, as intended in section 25 (1) of the Constitution.

In interpreting section 103 of the Act, the intention by the legislature should be brought into line as is contained in section 180 of the Tax Administration Act, 28 of 2011 (“the TAA”), which provides that: - 
“A person is personally liable for any outstanding debt of the taxpayer to the extent that the person’s negligence or fraud resulted in the failure to pay tax if –
(a) the person controls or is regularly involved in the management of the overall financial affairs of the taxpayer; and
(b) a senior SARS official is satisfied that the person is or was negligent or fraudulent in respect of the payment of the tax debts of the taxpayer.”

It is significant that the Act came into operation during 1964, some 30 years before the advent of the Constitution. As opposed thereto, the TAA came into operation in 2011. Undoubtedly, the legislature was aware of the relevant provisions of the Constitution. Moreover, both pieces of legislation are administered by the Commissioner and ought to be applied consistently.

This is also evident if consideration is given to similar provisions in the Customs Control and Duty Acts of 2014. In this regard section 698 of the Customs Control Act of 2014 makes specific reference to the direct result of such a person’s negligence or mismanagement of the entity’s affairs. Although not yet law, these provisions clearly do not allow for a no-fault scenario and are aligned with the Constitution. Section 103 of the Act was enacted prior to the Constitution becoming law.

Section 103 of the Act is indeed a mechanism for SARS to widen the collection's net. However, the invoking of the provision must be based on materially relevant facts and circumstances. Furthermore, the Commissioner’s discretion in relying upon Section 103 of the Act must be objectively applied and it must be established that the person intended to be held liable, did indeed have control or management of the business operations at the relevant time. This is a factual test and perhaps the reliance on section 103 of the Act will eventually be reviewed by the Constitutional Court.