IN THE HIGH COURT OF LESOTHO
In the matter between:-
PATRICK TSENOLI APPLICANT
LESOTHO REVENUE AUTHORITY 1ST RESPONDENT
ATTORNEY GENERAL 2ND RESPONDENT
MASTER OF THE HIGH COURT 3RD RESPONDENT
CORAM : Hon. Madam Justice N. Majara
Hon. Madam Justice M. Mahase
Hon. Madam Justice L. Chaka-Makhooane
DATE OF HEARING : 14th March 2011
DATE OF JUDGMENT : 20th April 2011
Section 41 of the VAT Act – whether interpretation thereof is in conflict with Constitutional provision that guarantees freedom from arbitrary seizure of property – provision necessary in a practical sense in a democratic society in terms of Section 17(4)(a)(1) – interpretation of section not in conflict with the Constitution – application dismissed.
The applicant approached this Court for a Declaratory Order whose terms are stated as follows:-
“1. It is declared that:
(a)to the extent that section 41 of the Value- Added Tax Act, 2001 and section 38 of the Sales Tax Act, 1995, permit the seizure of property in the possession of a person who has innocently purchased such property, such sections are in conflict with section 22 of the Constitution of Lesotho and unconstitutional;
(b)such sections are to be interpreted to avoid such unconstitutionality.”
Section 38 of the Sales Tax Act is the predecessor to Section 41 of the VAT Act. Save that the latter provision replaced the words, ‘sales tax’ with ‘value added tax’ wherever same appear it is otherwise a carbon copy of the former. Subsection (1) thereof reads as follows:-
“The Commissioner may seize any goods in respect of which the Commissioner has reasonable grounds to believe that value added tax that is, or will become, due and payable in respect of the supply or import of those goods has not been, or will not be paid.”
The subsequent sub-sections thereof make provision for the Commissioner to deal with such property unless the owner or person found in possession thereof pays such tax. For convenience, reference will only be made on the provision of the latter Act, i.e. the 2001 VAT Act (the Act) in this judgment.
This application is as already stated above, for a declarator on how the provision should be interpreted in the light of Section 17 (1) of the Constitution of Lesotho 1993. The constitutional section guarantees freedom from arbitrary seizure of property with exceptions that are provided for in its subsequent sub-sections.
The factual background to this application which is by and large common cause is that, a company namely, Lekim Textiles (Pty) Ltd imported certain textile fabric into Lesotho on which it should have,inter alia, paid tax under the Act. Lekim did not pay the tax on the imported fabric and some of it was made into garments. Lekim also sold and delivered 66 400 kilograms to another company to wit, Silverside, 50 000 of which had been made into garments whereas 16 000 was still in rolls. It is not disputed that Silverside, presently a company in liquidation was an innocent purchaser of the fabric.
The goods were subsequently seized by the 1st respondent which claims the right to sell the goods for the VAT which Lekim failed to pay and Silverside opposed this claim which precipitated the bringing of an action in the High Court by the 1st respondent under case No. CIV/T/254/2005 against the liquidator of Silverside in which it requested the Court to make a declarator regarding Silverside’s liability to pay the taxes on the fabric and the consequent liability to seizure of the fabric in its possession.
The main issue in that case was whether Section 41 of the VAT should be interpreted so as to render liable to seizure and confiscation of goods found in the possession of an innocent purchaser;
(a) on which the taxes have not been paid by the person from whom the goods were innocently purchased;
(b) that have been manufactured from goods on which the taxes have not been paid.
However, the issue that has been raised in this application namely, whether the section(s) in terms of which the 1st respondent acted against Silverside, fall foul of Section 17 of the Constitution, was not raised in CIV/T//254/2005. The Court dismissed the 1st respondent’s case and the latter appealed the decision. The Court of Appeal declined to consider the constitutionality of the sections on the ground that the issue had not been properly addressed by the Court a quo hence the present application.
Placing reliance on the decision in the case of First National Bank, South Africa Ltd t/a Wesbank v Minister of Finance 2002 (4) SA 768 (CC) at pp. 777 G-H, 789D-E AND 822, in which the Constitutional Court of South Africa found that Section 114 of the Customs and Excise Act, No.91 of 1994 offends against the Constitutional provision on the protection against arbitrary seizure of property, it is the case of the applicant that this Court should similarly find that Section 41 of the Act offends against Section 17 of the Constitution of Lesotho.
Secondly that the imposition of liability on innocent owners of goods, such as Silverside, cannot be justified in terms of the provisions of section 17 (4)(a)(i) and the onus of establishing that the limitation in the section is necessary lies with the first respondent in the light of the Court of Appeal’s decision in the case of Seeiso v Minister of Home Affairs and Ors LAC 1990-1994 665 at 681G.
In his written heads of argument, Mr. Suhr who appeared on behalf of the applicant pointed out that the applicant does not seek an order declaring that section 41 is wholly unconstitutional but merely an order that it is to be interpreted in a manner that makes its implementation consistent with the Constitution.
That Section 156(1) of the Constitution provides for existing legislation to be construed so as to bring it into conformity with the Constitution, but does not make express provision for such construction in the case of subsequent legislation such as the Sales Tax Act and the VAT Act both which are subsequent to the Constitution. Mr. Suhr added that such interpretation is inherent in any constitutional state where the constitution is sovereign and not the Legislature account also being had to section 2 of the Constitution.
Counsel for the applicant made the concession that the general object of the VAT Act is the collection of VAT and that one of the means by which the VAT Act seeks to advance that object is by attaching liability for unpaid VAT to goods, rather than any person, in terms of Section 41 together with a mechanism for extra-judicial seizure and sale of such goods.
Further that on the 1st respondent’s own version, the liability is independent of the fault of the possessor of the goods and regardless of whether the possessor is innocent or not. It was Counsel’s submission that by its reliance on the limitation provision in Section 17(4)(a)(i) of the Constitution, the 1st respondent tacitly concedes that Section 41 offends against the protection provided by Section 17(1) of the Constitution and that this concession is properly made because the protective wording of Section 17 is to be given a generous interpretation.
Mr. Suhr furtherstated that in seeking to justify the impugned provisions, the 1st respondent has not provided any objective data or statistics in support of its contentions and that this has left the Court in the dark in that regard such as what percentage of VAT is collected by the mechanism of Section 41 of the VAT Act. Further that given that the predecessor section came into effect in 1996, a significant time for the gathering of such data has passed and the 1st respondent should be in a position to indicate in fact how important that provision is to it and society in general. That ditto, with respect to the vehicle-seizure and sale provisions found in Section 41(2) of the VAT Act in whose terms innocent conveyors of goods on which VAT has not been paid should be liable to have their vehicle confiscated and sold to pay the VAT.
Counsel for the applicantalsomade the submission that those difficulties can be avoided if the draconian provisions of Section 41 are read to apply only to persons who are liable to pay VAT under the VAT Act and that per the decision in Sekoati & Ors v President of the Court Martial & Ors LAC (1995-1999) 812, 820G, the Court should prefer an interpretation of a statute that saves it from falling foul of the Constitution.
On the respondents’ behalf, Mr. HP Viljoen SC stated thatwith respect to the applicant’s first submission, what is essential is the wording of the relevant sections of the respective constitutions of the two countries. Counsel for the respondents submitted that the Lesotho constitutional provision bears no resemblance to any part of the South African one albeit, it is preceded by two sub-sections the second one which prohibits, as does the South African provision, compulsorily taking possession of property.
He added that comparison of the relevant provisions in the two constitutions entirely undermines the reliance placed by the applicant on the finding in the First National Bank Case (supra) for the reason that in the absence of a provision similar to that in section 17(4)(a)(i) of the Lesotho Constitution, there is no fault to find with the said judgment but added that the judgment has no relevance in casu as section 17(4)(a)(i) must of necessity feature.
With regard to the contention that the 1st respondent has not brought any proof for justification of the application of the constitutional provision in question, Mr. Viljoen SC made the submission that same is provided in abundance in averments contained in the answering affidavit deposed to by Thabo Letjama, the Commissioner General of the 1st respondent, he being the principal officer thereof.
Further that in this regard, what the deponent was emphasizing in his averments was that it is not the party in whose hands the goods are found from that it is sought to collect the VAT owing, but from the goods themselves and that while it is not denied that in CIV/T/254/2005 it is not the purchaser namely, Silverside who floundered, the very purpose of the legislation is to free the LRA from the (mostly impossible) burden of proving who it was that should have paid VAT in the first instance and to provide for its recovery from the value of the goods on which VAT has not been paid.
Counsel for the respondents added that the Commissioner’s assertions at paragraph 7.2.9 of his answering affidavit are decisive on the determination whether the constitutional provision should be upheld. He disputed the contentions that were made by the applicant namely, that suggesting that a purchaser of goods is always able to protect himself from the consequences of the legislation is not a practicable commercial solution because the 1st respondent does not suggest how that could be done.
It was Mr. Viljoen SC’s submission that requiring proof whether VAT has been paid, particularly in the case of very substantial purchases is simple, to wit, a receipt of the payment of VAT from the Receiver of Revenue and that as such, innocent purchasers are well-protected down the line. Further that the Commissioner’s averments cannot be faulted in stating that very substantial amounts of money would elude the revenue net to the detriment of lawful tax-payers if the provisions are in effect set aside to the extent sought by the applicant.
Counsel for the respondent added that for the reason that he is the chief accounting officer of the 1st respondent, the categorization of the Commissioner’s averments which he made on oath as unacceptable if not supported by objective statistics does not provide a good ground for rejecting same, including his averment that he is unable to provide statistics of cases where the 1st respondent has had to resort to seizing goods of ‘innocent’ purchasers.
Concluding his submissions, Mr. Viljoen SC stated that the relief sought reflects the dilemma which the applicant faces in articulating what this court should do as reflected in his second prayer i.e. (b) in the Notice of Motion which is effectively for an order that Section 41 should be interpreted in a manner that makes its implementation consistent with the constitution.
In this regard, he submitted that all legislation must be interpreted to avoid unconstitutionality. That when dealing with property found in the possession of a person who has innocently purchased it, if regard is had to the wide meaning of the word ‘innocent’, it would be difficult to know how to implement such an order wherefore he prayed that this application should be dismissed with costs.
I now proceed to consider the question whether Section 41 of the Act as interpreted and applied by the 1st respondent offends against arbitrary seizure and/or deprivation of property which is guaranteed under Section 17 of the 1993 Lesotho Constitution.
I have already stated that the submission made on behalf of the applicant is that the South African Constitutional Court found similar provisions namely, of Section 114 of the Customs and Excise Act No. 91 of 1994 to offend against arbitrary deprivation of property in the South African Constitution in terms of its decision in the First National Bank Case (supra).
Section 25 of the 1996 Constitution of South of Africa reads thus in relevant parts:-
“(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application –
(a) for a public purpose or in the public interest”
Section 114 of the Act under whose powers the Commissioner of SARS had detained inter alia, the appellant’s motor vehicle to obtain security for amongst others, outstanding customs duty in lieu of forfeiture arising out of an alleged fabric smuggling network, provides as follows in relevant parts:-
“(1)(a)(i) The correct amount of duty for which any person is liable in respect of any goods imported into or exported from the Republic or any good manufactured in the Republic shall from the date on which liability from such duty commences; and
(ii) any interest payable under this Act and any fine, penalty or forfeiture incurred under this Act shall, from the time when it should have been paid, constitute a debt to the State by the person concerned, and any goods in a customs and excise warehouse or in the custody of the Commissioner… and belonging to that person, … may be detained in accordance with the provisions of ss (2) and shall be subject to a lien until such debt is paid.”
In dealing with the question of whether or not the provision in question was inconsistent with the Constitution of South Africa, Ackermann J stated as follows at page 777, paragraph G – H in his introductory remarks of the judgment:-
“Section 114 is concerned with the collection of debts (customs debts) due to the State by the debtor (customs debtor) under the Act. For the purposes of this case and at the risk of oversimplification it is helpful to emphasize two features of the provisions of s 114 at this stage. The first is that, in order to collect the debt owed, they allow the Commissioner to sell goods without the need for a prior judgment or other authorization by a Court. The second is that, in order to satisfy the debt owed, the Commissioner may sell goods even where the goods do not belong to the customs debtor but to some third party.”(emphasis provided)
The Court held inter alia as stated in the head-note at p 773 paragraphs E – G that:-
“the end sought to be achieved in the instant matter by the deprivation was to exact payment of a customs debt. This was a legitimate and important legislative purpose. Section 114 of the Act, however, cast the net far too wide. The means it used sanctioned the total deprivation of a person’s property under circumstances where (a) such person had no connection with the transaction giving rise to the customs debt; (b) such property had no connection with the customs debt; and (c) such person had not transacted with or placed the customs debtor in possession of the property under circumstances that could have induced the Commissioner to act to his detriment in relation to the incurring of the customs debt. In the absence of any relevant nexus, no sufficient reasons existed for s 114 to deprive persons other than the customs debtor of their goods.” (emphasis mine)
Coming back to the present application the submission that was made on behalf of the 1st respondent is that the provisions that the Constitutional Court was dealing with in the FNB case are not similar to the ones in the Constitution of Lesotho and that as such, the submission that this Court should follow the judgment of the Constitutional Court ignores entirely the provisions of Section 17 of the Lesotho Constitution.
Section 17 provides as follows in its first subsection:-
“No property, movable or immovable, shall be taken possession of compulsorily, and no interest in or right over any such property shall be compulsorily acquired, except ….”
In turn, the subsection in terms of whose application and interpretation the present applicant has approached this Court for relief namely, sub-section (4)(a)(i) of S.17 reads thus:-
“Nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of subsection (1) or (2) –
to the extent that the law in question makes provision that is necessary in a practical sense in a democratic society for the taking of possession or acquisition of any property or right –
in satisfaction of any tax, duty rate, or other impost;”(my emphasis)
The applicant’s case is that the imposition of liability for VAT on innocent owners of goods by subjecting their goods to extra-judicial seizure and sale cannot properly be described as being necessary in a practical sense in a democratic society especially when account is taken of the fact that the 1st respondent has not provided any objective data or statistics in support of its contentions in this regard.
That the constitutional provisions in question of the two countries are not similar is in my view a fact that cannot be disputed. However, assuming that this factor notwithstanding, argument can be made that their object is more or less the same should this Court follow the Constitutional Court’s decision in the FNB case?
It is my view that the answer thereof lies in the wording of the said provisions. In my opinion, Ackerman J’s remarks that the South African Constitutional provision does cast the net very wide in that it covers property that belongs to third parties are quite crucial in seeking to draw parallels between the provisions in question. It is my opinion that those remarks beg the question whether ‘innocent’ purchasers fall within the meaning of third parties as referred to by the Court in the South African case.
The passage from the Court’s judgment provides an answer to this question when in Ackermann’s words it stated:-
“…the means it used sanctioned the total deprivation of a person’s property under circumstances where (a) such person had no connection with the transaction giving rise to the customs debt; (b) such property had no connection with the customs debt; and (c) such person had not transacted with or placed the customs debtor in possession of the property under circumstances that could have induced the Commissioner to Act to his detriment in relation to the incurring of the customs debt. In the absence of any relevant nexus, no sufficient reasons existed for s 114 to deprive persons other than the customs debtor of their goods.” (emphasis provided)
In my opinion, when it made the above remarks, the Court sought to prevent a situation where the Commissioner would invoke the provision to deprive third parties of their property which, all the three factors taken into consideration, has no connection with or nothing to do with the customs debt at all but for the fact that it was found in the possession of the customs debtor. For this reason, I respectfully agree with the Court’s sentiments in this regard as finding otherwise, would have meant that where the Commissioner found the customs debtor in possession of any property, belonging to anyone and which had absolutely nothing to do with the customs debt even in the remotest sense, the fact of the possession alone would entitle him to seize and or detain same. That would definitely constitute arbitrary deprivation of a third party’s property.
Bearing this in mind, I turn to consider the provisions of Section 41(1) of the VAT Act of Lesotho which provides as follows:-
“The Commissioner may seize any goods in respect of which the Commissioner has reasonable grounds to believe that value added tax that is, or will become, due and payable in respect of the supply or import of those goods has not been, or will not be paid.” (emphasis mine)
Mindful of the Commissioner’s averments in the present case namely, that the aim of the above legislative provision is ‘to target goods on which it is suspected that VAT remains unpaid,’ it is my opinion that the situation that the South African Constitutional Court sought to avoid and/or prevent can and must be distinguished from what the Court has to deal with in the present application. In this section, it is my view that the operative words are where the tax is due in respect of the said goods.
The Commissioner also stated as follows at paragraph 7.2.5 and 7.2.6 of his answering affidavit:-
“The experience of LRA in matters such as this is that, where the owners or possessors of goods in respect of which it is suspected that VAT has not been paid cannot provide proof of such payment they simply shift the blame to those from whom they purchased (or allegedly purchased) such goods.
The further experience of LRA is that it is, in the vast majority of cases, impossible to recover the unpaid taxes from such alleged sellers or importers. Sometimes they cannot be traced at all. And in the majority of cases where they are traceable, the VAT is not recoverable just as this very case illustrates where Silverside (sic)made this huge sale and was then liquidated.”
Whilst it is true that the 1st respondent has not provided the Court with any statistical data to back the above averments, it is my view that when considered objectively his statements cannot simply be disregarded by this Court for the very reason that it is not illogical and unreasonable to believe and accept that it would be almost impossible to trace and/or recover taxes from sellers and/or buyers who have disappeared or been liquidated such as happened in Lekim’s case.
It is my further opinion that the position under the South African legislation could not be sanctioned by the Court because, it could also have created a situation where the customs debtor would do nothing about satisfying his debt where a third party’s property that was found in his possession was detained in satisfaction thereof whereas in the case of Lesotho, the owner of the property that has been seized for purposes of satisfying tax will want to pay the tax due or risk losing his property.
The Lesotho provision empowers the Commissioner to seize goods in respect of which he has reasonable grounds to believe that VAT is, or will become due and payable whereas the South African provision further makes provision in paragraph (b) for the State to have priority over the claims of all persons upon anything, subject to a lien contemplated in paragraph (a). In other words, the Commissioner’s powers in terms of the Lesotho provision are limited to seizure of goods in terms of which the debt is due. As I have already stated, the South African provision was simply so broad that it sought to also extend to property of third parties that had nothing to do with the debt as opposed to our section which is limited to goods on which VAT is owed irrespective of in whose possession they are.
This in turn brings me to the second question for determination namely, whether the imposition of liability on innocent owners of goods by subjecting their goods to extra-judicial seizure and sale can properly be described as being necessary in a practical sense in a democratic society.
In his submissions with respect to this issue, Mr. Suhr stated that by its reliance on the limitation provision in Section 17(a)(i), the 1st respondent tacitly concedes that Section 41 of the Act offends against the protection provided by Section 17(1) of the Constitution, namely the section that protects against arbitrary seizure of property.
The limitation provision is a sub-section of the very same section that the 1st respondent is said to be tacitly conceding Section 41 to offend against. Under these circumstances, I have a great difficulty appreciating this submission because the first subsection is general in nature and is followed by exceptions and limitations that are contained in the following subsections. In other words, if I understand Mr. Suhr’s submission properly, the limitation section itself offends against the first sub-section.
The problem I have with this reasoning is that it seems to suggest that once a general rule is provided, there can be no exceptions/limitations thereof otherwise those very limitations offend against the general rule. In other words, once a general rule is put in place, that should be it and there shouldn’t be any exceptions and limitations to it. This in turn poses the question whether such a situation is reasonable, tenable and/or practical in any jurisdiction.
It is my view that the answer must be in the negative especially when we are dealing with a right or freedom that is not absolute such as the right to life in most jurisdictions. Otherwise, there are bound to be exceptions and limitations to general rules depending on the circumstances necessitating same. By way of illustration Section 6 of the Lesotho Constitution guarantees the right to personal liberty save where same is sanctioned by the law such as upon reasonable suspicion that a person has committed a crime or in execution of sentence or order of Court, to mention but one.
It therefore cannot be correct to find that this limitation offends against the right sought to be protected as it is necessary and crucial in order to balance the rights of all citizens. In my view, to accept that kind of argument would result in an absurdity in that no general rule would ever be without exceptions/limitations without the latter being found to offend the general rule. Surely the law cannot be found to intend such a potentially drastic eventuality.
By the same analogy, for the reason that freedom from arbitrary seizure of property is not absolute, I cannot accept Mr. Suhr’s submission in this regard as correct. Thus, by its very wording, subsection (4)(a)(i) negates that kind of submission for it stipulates that nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of subsection (1) or (2) in satisfaction of any tax, duty, rate, etc. For this reason, the only onus that the 1st respondent should be called upon to discharge is to justify that the imposition of liability for VAT in terms of Section 41 is necessary in a practical sense in a democratic society.
This in turn leads me to the second point that was made on behalf of the applicant, to wit, that in seeking to justify the impugned provisions by describing as necessary in a practical sense in a democratic society the extra-judicial seizure and sale of goods of innocent owners, the 1st respondent has not provided any data or statistics to support its contentions. Further that the Court is left in the dark even as to a simple statistic such as what percentage of VAT is collected by the mechanism of Section 41 of the VAT Act. To this end, Mr. Suhr submitted that the difficulty in justifying the extra-judicial seizure can be avoided if the draconian provisions of Section 41 of the Act are read to apply only to persons who are liable to pay VAT under the VAT Act.
In response to this contention, Mr. Viljoen submitted that the proof that the circumstances here in issue justify application of Section 17(4)(a)(i) is provided in abundance in the answering affidavit deposed to by Thabo Letjama, the Commissioner General as the principal officer of the LRA.
The deponent stated as follows in relevant parts in paragraph 7 of his answering affidavit:-
“VAT is one of the main sources of revenue of Lesotho. But its avoidance is common and extremely difficult to control.
The aim of the legislative provision here in issue is to target goods on which it is suspected that VAT remains unpaid, whether in the hands of the owner or simply the possessor of such goods.
If it cannot be established by such person that VAT has been paid, the consequences provided by section 41 follow.
The experience of the LRA in matters such as this is that, where the owners or possessors of goods in respect of which it is suspected that VAT has not been paid cannot provide proof of such payment they simply shift the blame to those from whom they purchased (or allegedly purchased) such goods.
The further experience of the LRA is that it is, in the vast majority of cases, impossible to recover the unpaid tax from such alleged sellers or importers. Sometimes they cannot be traced at all. And in the majority of cases where they are traceable, the VAT is not recoverable just as this very case illustrates – where Silverside made this huge sale and was then liquidated.
The expense of such investigation and the unlikely prospect of recovering a reasonable proportion of the tax lost, makes the procedure wholly uneconomical and one which LRA cannot in practice follow.”
It is with respect to the above assertions that Mr. Suhr made the contention that no proof has been given to substantiate them in reaction to which Mr. Viljoen stated that it does not provide a good ground for rejecting the Commissioner’s full explanation on oath – including his averment in the first sentence of the above quoted averments.
To support this submission, reliance was placed on the decision in the case of Seeiso v Minister of Home Affairs and Others LAC (1990-94) 665 by the applicant. In that case, the Minister of Home Affairs had issued a directive prohibiting the holding of a meeting of chiefs and their subjects whose objective was to discuss the Monarchy and had sought to invoke the provisions of Sections 6 and 8 of the Chieftainship Act N0. 22 of 1968 read with Section 15 (2)(a) of the Lesotho Constitution viz, the limitation provision to freedom of peaceful assembly guaranteed under Section 15(1).
The Court of Appeal held inter alia that the Minister could not rely on the Chieftainship provision as authority for banning the appellant’s meeting because Section 8 was for the exercise of governmental control over chiefs and the exercise of their duties and was not a provision for the protection of public order and safety. That even if debating the issue of the Monarchy by the chiefs was prohibited by Section 6 of the Act, the remedy of the Minister would not be to make a blanket ban of the proposed meeting, but to take appropriate disciplinary measures which might be justified by such conduct. Further that the Minister had failed to prove allegations of threats to the public order and safety which he relied upon in banning the meeting.
Thus, in the Seeiso case (supra) the issue for determination was not the constitutionality or otherwise of the laws the Minister sought to invoke to justify his actions but rather, whether he could rely upon the provisions of the Chieftainship Act as authority for banning the proposed meeting. This is the first point of departure in that case and the present one.
The second point is that in the present case, the limitation section makes specific reference to inter alia, satisfaction of any tax which the case that precipitated the launching of this application is about. The question of proof of allegations of threats to public order and safety in the Seeiso case was brought about by the fact that in his opposing affidavit the Minister stated that based on information from a variety of sources he had come to the conclusion that in the interests of national security, the proposed meeting should not take place. It is therefore my view that in that regard, it was not clear what the information relied upon was which in turn raised the question of the veracity of the alleged information as given by those unstated sources.
In casu,the Commissioner states under oath that the experience of the LRA is that owners of possessors of goods in respect of which it is suspected that VAT has not been paid shift the blame to those from whom they purchase (or alleged purchased) such goods and that in most cases it is impossible to recover the unpaid tax from such alleged sellers or importers who at times cannot be traced at all.
As Mr. Viljoen correctly pointed out, the Commissioner is the principal officer of the 1st respondent and is privy to this information. I therefore accept his submission that this Court cannot simply disregard his evidence which he gave on oath for the reason that there are no statistical figures to illustrate the actual amount the 1st respondent loses or has lost. In my opinion, it is sufficient that the Commissioner has stated that the 1st respondent is unable to recover such tax especially because the veracity of his averments in this respect was not placed in issue.
In addition, I accept the contention that the very case of Silverside does constitute proof of the Commissioner’s allegations which is sufficient in my view. Further, it must be borne in mind that nowhere does the constitutional limitation provision require that the targeted tax should be of a certain amount and/or value. It simply stipulates that the limitation applies in satisfaction of tax so that, nothing turns on the suggestion by the applicant that instances where the 1st respondent has to resort to seizing goods of innocent purchasers are likely to be infrequent and insignificant to the collection of revenue.
Further, in terms of the contents of annexure “SC1” the amounts concerned in the Silverside case only, are quite substantial because the total of the calculated tax that was owing is in excess of M700, 000.00. That in my view is not an insignificant figure by any standards. For these reasons, it is my view that the facts that obtained in the Seeiso case (supra) must be distinguished from the ones in casu. At any rate, I have already stated that there is no reason to reject the Commissioner’s evidence on oath to the effect that such cases are not exceptional.
I now turn to deal with the question of liability for VAT on innocent owners or purchasers of goods and whether subjecting their goods to extra-judicial seizure and sale can properly be described as being necessary in a practical sense in a democratic society.
To this end the applicant made the following assertions at paragraph 25(b) and (c) of his founding affidavit:-
“the LRA could relatively easily concentrate its efforts in extracting the taxes from the persons who owe them rather than aiming for the soft target of the innocent and bona fide purchaser who does not owe the taxes;
in extracting such taxes from the persons who owe them the LRA is assisted by radical legal machinery, such as the provisions of the two sections and the distress proceedings provided for in section 42 of the VAT Act.”
The Commissioner responded thereto as follows in relevant parts:-
“I respectfully point out also that the reference to purchasers of such goods as “innocent” is misleading, where it is put forward as a foregone conclusion. I accept that such purchasers must be taken to be innocent, but point out that there would be no difficulty for a purchaser to establish, when purchasing the goods in question, whether VAT or Sales Tax had been paid by the seller. (The fact that the seller has not done so, might very well be factored into the purchase price.)
It is denied that the First Respondent is aiming for the “soft target” of “innocent” and bona fide purchasers who do not owe the taxes. The First Respondent is targeting the goods on which tax should have been paid not the possessor.”
On this point, Mr. Viljoen made the submission that the emphasis made by the Commissioner is that, it is not the party in whose hands the goods are found from whom it is sought to collect the tax owing, but from the goods themselves. That the very purpose of the legislation is to free the LRA from the (mostly impossible) burden of proving who it was that should have paid VAT in the first instance and to provide for its recovery from the value of the goods on which VAT has not been paid (in possession of whoever they are).
At paragraph 4 (d) and (4) of his replying affidavit, the applicant stated as follows in reaction to the Commissioner’s averments:-
“the LRA broadly suggests that a purchaser of goods is always able to protect himself from the consequences of the legislation by establishing whether or not VAT has been paid by the seller;
this is not a practicable solution and I note that the LRA does not suggest how this could be achieved or that silverside should have done so in the present matter;”
For the reason that it has not been denied that VAT is one of the main sources of revenue of Lesotho, and that its avoidance, (I might say, evasion, though the legal meaning of the two terms is not issue), is common and extremely difficult to control, it is my view that to place an extra burden on the LRA to limit the recovery of any unpaid taxes to sellers or importers would be a tall order indeed and I am persuaded to accept that the aim of the legislative provision in issue is to target the goods and not the sellers/importers or the buyers. Indeed as my brother Peete J correctly stated in his judgment in CIV/T/254/05, the sentiments which I am in respectful agreement with, ‘the rationale behind the Lesotho fiscal law is to tax imported goods and those that are exported for sale beyond the borders of the South African Customs Union’. (emphasis provided)
Bearing this in mind, it is my view that the interpretation accorded to the legislative provision by the 1st respondent is indeed necessary in a practical sense in a democratic society. I am also persuaded to accept the contention, that before buying imported goods, purchasers can and should verify whether VAT has been paid for them and that as Mr. Viljoen stated in his oral submissions, this only requires asking for proof in the form of a receipt.
It should also be remembered that it is a trite principle of law that ignorantia juris non excusat.
With respect to prayer 2 in the notice of motion, I do agree that all legislation must be interpreted to avoid unconstitutionality. Indeed if this Court were to find that it is unconstitutional to apply the relevant provisions of the Act in question to property found in possession of a person who has innocently purchased it, this would create a situation where premising the interpretation of the provision on the facts in issue in a particular case would result in a practical and jurisprudential nightmare. There would never be any certainty with respect to what is the acceptable interpretation. Further, the very purpose of the limitation would be defeated in that all that a person found in possession of goods in respect of which VAT is owed would be to simply allege that he is only an innocent purchaser, thus leaving the LRA with the insurmountable burden of proving the negative i.e. that the purchaser/possessor is not innocent.
Thus while I am mindful of and in respectful agreement with the Court’s sentiments in the decision in Sekoati & Ors v President of the Court Martial & Ors LAC (1995-99) 812 at 820G, it is my opinion that according to the legislative provision in question this interpretation is not austere when all is considered. I might also borrow the Court’s remarks at p 822E of the same case, namely that in interpreting constitutional provisions, the Court should not ignore the language used by the law giver ‘in favor of a general resort to ‘values’ so as to avoid divination’ rather than interpretation thereof.
It is for all the foregoing reasons that I find that the legislative provision(s), herein in issue as interpreted and applied by the 1st respondent, are not in conflict with the Constitution of Lesotho and is thus not unconstitutional and
I accordingly dismiss the application with costs.
I agree: M. MAHASE
I agree: L. CHAKA-MAKHOOANE
For Applicant : Mr. Suhr (with Mr. Mpaka)
For Respondents : Mr. Viljoen SC