The Supreme Court of Appeal (“SCA”) has ruled in favour of customs clearing agent, QI Logistics (Pty) Ltd (“QI”), setting aside decisions by the Commissioner for the South African Revenue Service (“SARS”) to hold QI liable for more than R35 million linked to fuel shipments transported from Mozambique to Zimbabwe and Botswana.

The court found that SARS failed to demonstrate that it had properly considered evidence submitted by QI and did not provide adequate reasons for its decisions, rendering the process procedurally irrational.

Background

QI operates as a licensed clearing agent under the Customs & Excise Act 91 of 1964 (“the Act”).  In 2020, QI launched a review application after SARS demanded payment of just over R35 million.

The dispute arose from fuel consignments imported from Mozambique during 2018 and moved in transit to Zimbabwe and Botswana. QI, as clearing agent, simply cleared the goods for transit through South Africa. They did not otherwise control over or interest in the goods.

SARS alleged that QI did not provide sufficient proof that the fuel had been exported and sought to hold QI liable for duties, levies, VAT and forfeiture amounts in lieu of the goods.

QI had received the so-called acquittal documents, which it presented to SARS as proof of export. SARS, however, subsequently disputed the veracity of such acquittals and deemed the goods to be diverted.

High Court decision

In August 2024, the Gauteng High Court dismissed QI’s application, holding that under the Act, liability depended on whether the clearing agent could satisfy statutory requirements proving that goods were duly exported.  The High Court concluded that QI failed to establish compliance with those requirements and upheld the demand by SARS: Customs for all taxes, as well as forfeiture in lieu of the goods.

Focus of the appeal

QI’s appeal to the SCA focused on whether SARS’ decision-making process was lawful and rational.  QI argued that SARS failed to properly engage with extensive evidence submitted in response to notices of intention and failed to provide reasons for the demand; and consequently, that QI had not been given an opportunity to make representations before SARS exercised its discretion to demand an amount in lieu of forfeiture.

Procedural irrationality

The SCA found that SARS’ letter of demand contained only brief assertions that certain entries were not endorsed for arrival and exit at border posts. It did not explain why the substantial documentary evidence submitted by QI was rejected or regarded as insufficient.

According to the judgment, there was no contemporaneous record showing that SARS had properly evaluated the acquittal documents supplied by QI, which included detailed representations and multiple files of supporting evidence.

The court emphasised that a reviewing court must determine whether there was a rational connection between the information before the decision-maker and the decision reached.

The court said that “both the process by which the decision is made and the decision itself must be rational. An irrational step in that process may therefore taint the ultimate decision and render it reviewable.”

The court said that where there is procedural irrationality, one does not get to the merits of the decision.

Failure to provide reasons criticised

A significant factor in the court’s decision was SARS’s failure to provide reasons as required in terms of section 5 of the Promotion of Administrative Justice Act.  QI requested clarification on why its export documents were inadequate and on what basis the forfeiture-related demand had been imposed. SARS did not respond. A failure to respond is prima facie procedurally unfair. The court held that “a failure to provided reasons can ordinarily not be remedied by an ex post facto rationalisation in litigation”.

The SCA held that the absence of reasons strengthened the inference that the Commissioner had failed to properly engage with relevant evidence and had not adequately exercised the discretion granted under the Act.

Separate forfeiture decision also invalid

The court drew a distinction between liability for customs duties and the separate decision to demand an amount in lieu of forfeiture under section 88(2) of the Act.

While liability for duties may arise automatically if statutory requirements are met, the forfeiture provision grants SARS a discretionary power. The SCA found no evidence that SARS considered relevant factors, invited representations from QI, or independently assessed whether a forfeiture-related demand was appropriate.

As a result, the forfeiture decision was also found to be procedurally irrational and unlawful.

Outcome

The SCA set aside the demand on review, with costs, and referred the matter back to SARS.

The judgment reinforces the principle that administrative decisions must be lawful, reasonable and procedurally fair. A decision maker must allow the opportunity for a party adversely affected to be properly heard, and must then consider the information before the decision maker before reaching a decision.