The question of whether SARS can condone noncompliance was recently entertained by the Supreme Court of Appeal (SCA).  In a recent landmark judgement, the Supreme Court of Appeal (SCA) on 04 April 2025 ruled against SARS in the case of JT International Manufacturing South Africa (Pty) Ltd versus CSARS in which it was held that the Commissioner does have discretion to condone non-compliance.

The judgement appears to steer away from an intransigent approach to compliance where there is no prejudice to the fiscus and when in the interest of justice to do so. The facts and decisions of the SCA are addressed below.

Background

JT International Manufacturing South Africa (Pty) Ltd (“JTI”) is registered with SARS as an importer and a rebate user. JTI is also the licensee of a customs and excise manufacturing warehouse.

During January 2011 to July 2011, JTI imported twelve (12) consignments of tobacco (“the goods”) into the Republic. At the time of importation, the goods were entered under rebate item 460.24 and only ordinary customs duties and VAT were paid over to SARS. 

With rebate item 460.24 making provision for excise duty payable to be fully rebated provided certain conditions inclusive of Rule 19A.09(c) of the Customs & Excise Act 91 of 1964 (“the Act”) are met.

Following the clearance, the goods moved directly from the port to JTI’s manufacturing warehouse with no acquittal documents ( i.e. ZRW’s) being submitted to SARS for processing.

Rule 19A.09(c) provides that “the liability for duty in terms of Section A of Part 2 of Schedule No. 1 cleared in terms of the provisions of rebate item 460.24 by a licensed manufacturer or a licensed supplier (SOS warehouse licensed for denaturing of spirits) on form SAD 500 (GR) or (XGR) shall cease upon entering the goods into a licensed warehouse for locally manufactured goods on a form SAD 500 (ZRW) within 30 days from the entry on a form SAD 500.”.

SARS then conducted a post clearance audit in 2012 during which it was discovered that JTI did not submit the relevant ZRW’s to SARS within the stipulated period as required by legislation. SARS was of the view that as a result thereof, JTI did not qualify for the rebate as JTI failed to comply with rule 19A.09(c) and proceeded to issue a letter of demand to JTI setting out a monetary liability of R60 945 051.34.

JTI then requested the Commissioner to exercise its discretion in terms of section 75(10)(a) of the Act to retrospectively exempt JTI from the requirements to file the ZRW documents. Such request was rejected by the Commissioner on the grounds that section 75(10)(a) did not find application.

The dispute proceeded to the Customs and Excise National Appeals Committee, who held that “based on the committee’s interpretation of s 75(10), there is no legal basis for SARS to exercise its discretion in condoning non-compliance after importation, and the schedule must therefore stand. Your appeal is therefore disallowed.”.

The High Court dismissed the application in favor of SARS and held in summary that the exemption power granted to the Commissioner under section 75(10)(a) only applies where the goods have been duly entered at the time of importation under a rebate of duty and the importer and/or manufacturer later decides to use the goods differently.

JTI appealed to the SCA.

SCA’s Key Findings

The main issue before the SCA revolved around the interpretation of section 75(10)(a) of the Act read with rebate item 460.24 and the requirement of Rule 19A.09(c) and whether the Commissioner was correct to determine that he does not have the power to condone non-compliance with the said rule.

The SCA, in determining the matter, found that on a proper reading of section 75(10)(a), the Commissioner does have the discretion to exempt non-compliance with the provisions of Rule 19A.09(c).  

Additionally, the Commissioner is not restricted to granting exemptions only where the intended use of the imported goods has changed after importation.

But whilst the Commissioner has a discretion under section 75(10)(a) to exempt non-compliance, that does not mean that the Commissioner is compelled to grant such exemption. The Commissioner must simply exercise his discretion either in favour or against, granting exemption.

What does the judgement essentially mean to both SARS and taxpayers

It must be emphasized that rebates are special privileges afforded to taxpayers. This means that as a general rule taxpayers utilizing a rebate item are required to comply with the elements of the rebate item provisions.   However, where a discretion is afforded to the Commissioner, he should exercise such a discretion either in favour or against, granting the exemption, should not all the criteria of a rebate item be met.  SARS cannot argue that no such discretion is available.

Conclusion

This judgement supports the general principles underlying taxpayers rights as SARS is not at liberty to assign its own interpretation to provisions relating to discretionary powers afforded to the Commissioner. The principle of fairness and just administrative action must prevail and should SARS fail to exercise discretion in circumstances where the facts support such condonation, it can be attacked through litigation.