Forfeiture is a draconian provision that the customs division of the South African Revenue Service (“SARS”) is now almost always imposing as a penalty where SARS deems goods to have been irregularly dealt with, i.e. where SARS deems goods to have been dealt with contrary to the provisions of the Customs and Excise Act 91 of 1964 as amended (“the Act”) [1].  

Historically, the Customs Code of Instruction Manual of SARS, published in November 2002, stipulated that forfeiture must only be demanded in circumstances when there is evidence of intentional fraudulent conduct. In other words, it rightly contended that forfeiture was reserved for instances of serious misconduct.

This was supported by the discretion allowed to SARS by the word “may” in section 88(2)(a) of the Act that enables SARS discretion to demand once times the value of goods irregularly dealt with if they cannot readily be found. SARS thus does not have to demand forfeiture in circumstances where it is inappropriate to do so.

SARS, however, withdrew the 2002 Code, and the more recent penal guidelines simply provide that any goods irregularly dealt with are liable to forfeiture and allowing officers to use the forfeiture provisions with carte blanche. The officers appear to only fixate on section 87 of the Act, and don’t consider other relevant provisions (i.e. sections 88(2) and 93(2)).

Forfeiture has devastating consequences for the person against whom it is applied, and once demanded, it is regarded as a debt due to the State with serious consequences. Given the financial impact forfeiture has on an entity, it is imperative that SARS apply forfeiture correctly and in the appropriate circumstances, like where serious offences have been committed as provided for in section 80 (i.e., Serious offences and their punishment) of the Act.

Forfeiture should not be imposed where simple administrative errors have been made, or less serious offences have been committed (e.g. section 79).

SARS is, however, increasingly imposing forfeiture for just about any contravention of the Act, and leaving taxpayers to argue for mitigation through SARS' internal remedy processes, namely internal administrative appeal and alternative dispute resolution.

SARS, with respect, also misconstrues when and how section 93 is to apply. Section 93(2) of the Act provides that the “Commissioner may, on good cause shown mitigate or remit any penalty incurred under this Act on such conditions as the Commissioner may determine”.

The court in the case of Deacon v Controller of Customs and Excise[2] (“Deacon”), which has also been approved by the court in the more recent case of Mediterranean Shipping Company (Pty) Ltd v Commissioner for the South African Revenue Service[3] (“MSC”), took the view that the seizure and forfeiture provisions in sections 87 and 88 are not to be separated from the mitigation and remission provisions in section 93. The courts recognised that throughout the process, an aggrieved party has the right to just administrative action and the rules of natural justice.

There is abundant authority that SARS’ powers remain subject to the provisions of the Constitution, 1996 (“the Constitution”). Section 33(1) of the Constitution provides that “everyone has the right to administrative action that is lawful, reasonable and procedurally fair.” Section 33 is further entrenched through the provisions of fair administrative action as set out in the Promotion of Administrative Justice Act, 2001 (“PAJA”).

Thus, before a decision is taken on forfeiture, SARS must allow the taxpayer an opportunity to make representations regarding the allegations made by SARS. This includes the right to request reasons and then to make submissions to SARS, which must be properly considered by SARS before a decision is made.

As explained by the Constitutional Court in Janse van Rensburg NO v Minister of Trade[4] at para 24, in a modern state where administrative functionaries are granted more and more power, the safeguards imposed by the observance of procedural fairness ensure that the functionary has an open mind and complete picture of the facts leading to measured decisions that are both fair and regular.

An informed approach allows SARS to exercise the discretion afforded it in section 88(2)(a) by the words “may impose forfeiture” and section 93(2), which provides for mitigation if “good cause” is shown.

Where taxpayers respond to notices of intent, including the possibility of forfeiture amounts, such representations are largely ignored, and letters of demand are issued without due consideration of the merits of forfeiture being imposed. Case officers then leave the taxpayer to raise arguments during the internal administrative appeal process and abdicate responsibility on the issue of forfeiture to the relevant appeal committee.

Effectively, by doing so, SARS is ignoring and/or refusing to exercise the discretion it has, as explained above.

The approach that SARS is taking is respectfully unfair and unreasonable. The aforesaid provisions (sections 87, 88 & 93, as well as the penal provisions) must be read together and officers at every level in the administrative process must apply their minds to the prevailing circumstances, nature of the contravention, question of whether any prejudice has been suffered by SARS or the fiscus, as well as the submissions made by taxpayers to avoid unjust consequences.

Unfortunately, not all taxpayers have the knowledge or means to defend their rights. It is thus incumbent on SARS to ensure that it correctly applies the Act to avoid unjust consequences. The correct approach to forfeiture should be as follows:

• If there was a contravention of the Act or goods were dealt with irregularly, the goods forming the subject of the transgression will be liable to forfeiture.
• The use of the word “may” in section 88(2) of the Act indicates that SARS has a discretion on whether to raise forfeiture, based on whether there is “good cause” for forfeiture to be “mitigated” or “remitted” as provided for in section 93.
• Thus, based on the circumstances, SARS can choose not to raise forfeiture, but if the circumstances do warrant forfeiture, SARS can impose an amount between 0% and 100% of the customs value of the goods in question.

This process aligns with previous actions of SARS and SARS policies on forfeiture. So, if you are faced with a similar issue involving forfeiture, Shepstone & Wylie is uniquely positioned to assist in reducing or remitting the forfeiture in full.