The prevalence with which one encounters reverse onus provisions in South African legislation has somewhat diminished in recent years with the advent of the Constitutional regime and in particular the enshrined right to be presumed innocent. However, reverse onus provisions are still found in the various tax statutes, the most prevalent of these being sections 82 and 102(4) of the Income Tax Act 58 of 1962 (“Income Tax Act”) and the Customs and Excise Act 91 of 1964 (“Customs Act”) respectively. Many a taxpayer will attest to the fact that the South African Revenue Service (“SARS”) is never shy to apply such provisions. Despite its frequent application by SARS the scope of these provisions has never really been defined until recently.
In the case of AMI Forwarding (Pty) Ltd v Government of the Republic of South Africa (Department of Customs & Excise) & another  JOL 25382 (SCA), the Supreme Court of Appeal (“SCA”) was faced with the question of whether the reverse onus provision contained in section 102(4) of the Customs Act extended to an allegation of fraud made by SARS.
Briefly the facts of the case are as set out below. AMI was a subsidiary of a Belgian company and conducted business as a clearing and forwarding agent in relation to goods imported and exported to and from South Africa. During October 2000 SARS issued a letter of demand to AMI in the amount of R 331,352.84 in relation to three bills of entry which it claimed were falsely acquitted. In particular, SARS claimed that the stamps on the bills of entry did not conform with the stamps that were currently used by border officials. Interestingly enough SARS did not attribute fraudulent conduct on the part of AMI, nor did they provide any evidence as to who could have perpetrated the fraud.
Nevertheless, SARS argued that due to the provisions of section 102(4) of the Customs Act it was AMI that bore the onus of proving that the stamps were genuine, notwithstanding the fact that SARS had raised fraud as a defence.
Section 102(4) provides:
If in any prosecution under this Act or in any dispute in which the State, the Minister or the Commissioner or any officer is a party, the question arises whether the proper duty has been paid or whether any goods or plant have been lawfully used, imported, exported, manufactured, removed or otherwise dealt with or in, or whether any books, accounts, documents, forms or invoices required by rule to be completed and kept, exist or have been duly completed and kept or have been furnished to any officer, it shall be presumed that such duty has not been paid or that such goods or plant have not been lawfully used, imported, exported, manufactured, removed or otherwise dealt with or in, or that such books, accounts, documents, forms or invoices do not exist or have not been duly completed and kept or have not been so furnished, as the case may be, unless the contrary is proved.
The SCA rejected SARS contention and upheld the long established principle that the party who alleges and pleads fraud must prove it. The court went on to state that the assumption of liability created by section 102(4) did not shift the onus of proving the existence of fraud from SARS onto the taxpayer.
Therefore, the court found that since AMI had proved that it had removed the goods in bond or in transit as required by the Customs Act, the onus created by section 102(4) had been discharged. Once AMI had achieved this, it was up to SARS, as the party alleging fraud, to provide evidence that the bills of entry
had been falsified. Because SARS was unable to provide such evidence it could not claim duties in respect of those bills of entry.
Section 82 of the Income Tax Act, which is similar to section 102(4) of the Customs Act, places the burden of proof on the taxpayer to show that an amount should not form part of his taxable income. Given the similarity of the provisions and their effect on the taxpayer there does not seem to be any reason why the principle laid down in AMI should not be applicable to section 82. Therefore, where the taxpayer has discharged the burden of proving that an amount should not form part of his taxable income and SARS raises the issue of fraud it is SARS which bears the onus of proving it notwithstanding the provisions of section 82.
Furthermore, the judgment also ensures that the provisions of section 79(1) of the Income Tax Act are not circumvented by SARS. Section 79 gives SARS a three year window period within which to raise additional assessments against a taxpayer. However the window period is not applicable where the Commissioner is satisfied that non-assessment was as a result fraud, misrepresentation or material non-disclosure. If the court accepted SARS contention and extend the burden of proof on the taxpayer to include allegations of fraud, SARS would have been able to sidestep the three period by claiming fraud but requiring the taxpayer to disprove it.
The judgment handed down in AMI Forwarding provides some welcome relief from the reverse onus provisions contained in the Customs and Income Tax Acts. More importantly, however, the judgment establishes an important precedent that the reverse onus provision should not be afforded an open ended interpretation and there are limitations to its application.