Subject to certain exceptions, section 44 (11) (a) of the Customs and Excise Act No.91 of 1964 (“the Customs Act”) provides that there shall be no liability for any underpayment of customs duties after a period of two years from the date of acceptance of a bill of entry where such underpayment was discovered as a result of, during the course of, or following upon, an inspection and that underpayment occurred on a date earlier than two years prior to the date on which such inspection commenced. There shall, however, be no limitation on the period of liability where the underpayment occurred as a result of fraud, misrepresentation; non-disclosure of any material facts or any false declaration for purposes of the Customs Act (proviso to section 44(11)(a) read with section 44(11)(c)).

Essentially, what the section seeks to convey is that SARS can generally hold an importer (amongst others) liable for duties for a period of two (2) years, either from the date of a bill of entry or the commencement of an audit. The general period of liability may be extended further than the two-year period in cases of fraud, misrepresentation, non-disclosure of material facts or a false declaration.

Section 44(11)(a) prescription period in the Customs Act has historically been known to be a bit of a nuance. With the seemingly wide powers granted to SARS officials, taxpayers have always been uncertain as to any time bar arguments to defend their position, even more so with the lack of clarity from both a law and policy perspective.

However, the court has provided some much-needed guidance in the NCP Alcohols (Pty) Ltd v Commissioner for the South African Revenue Service (SARS) (D7515/2020) [2023] ZAKZNDBNHC (July 17, 2023)) and subsequently in the Woods Warehousing (Pty) Ltd v Commissioner for the South African Revenue Services and Others (2022/026798) [2025].

In the Woods judgement the applicant challenged the Commissioner’s claim for duty in respect of a letter of demand dated 27 September 2021. On these set of facts, the goods were first imported on 13 August and 9 October 2019. SARS’ investigation commenced on 18 May 2021. The applicant argued that the two-year period lapsed on 12 August 2021 and 8 October 2021, respectively. The court held that liability had not ceased as the investigation in this case commenced prior to the expiration of the two-year period.

Practical effect of the Woods judgment

The practical effect of the Woods judgment is that SARS may issue a letter of demand after the general two-year liability period has expired, provided that SARS’ audit, inspection or investigation commenced, within that two-year period.

When does a SARS audit commence?

An audit is generally regarded as having commenced when SARS issues an audit notification to the taxpayer setting out the period and scope of the audit.

Does a potential prescription argument exist?

Where SARS has not commenced its investigation before the expiration of the general two-year period, a taxpayer may have a defensible prescription argument against any intended customs duty and VAT liability that SARS seeks to impose.

Practical takeaway

When a taxpayer receives a letter of demand from SARS, the dates should be reviewed carefully before accepting liability. In particular, taxpayers should consider:

• the date on which the relevant bill of entry was accepted;
• the date on which SARS’ inspection, audit or investigation commenced; and
• the period and scope covered by any audit notification or letter of demand.

These factors may assist a taxpayer in determining whether a prescription argument is available, whether SARS is entitled to pursue the alleged liability, and how best to defend a matter against SARS.