The Supreme Court of Appeal (SCA) has delivered another blow to the South African Revenue Service (SARS), curtailing its search-and-seizure powers.
The court warned that SARS’s extensive statutory powers are not without limits and remain subject to the principles of legality, judicial oversight, and constitutional safeguards.
The blow came as the SCA dismissed SARS’ appeal against an earlier High Court order setting aside a search-and-seizure warrant. It follows a separate legal blow for the taxman at the SCA in May.
In this case, the warrant had been obtained by SARS on an ex parte basis (one-sided) and executed against a licensed gold refinery and the residences of its director and an employee.
SARS had investigated the company regarding its VAT affairs, believing it was dealing in Krugerrand gold coins rather than second-hand gold—which has VAT consequences.
According to Tax Consulting SA, SARS’ concern was that the company may have incorrectly claimed input VAT of approximately R13.9 million.
“To advance its investigation, SARS obtained a search and seizure warrant under section 60 of the Tax Administration Act (TAA),” it noted.
However, the purpose stated in SARS’ own founding affidavit was narrow.
SARS sought access to the original raw data relating to photographs, WhatsApp messages, emails, and other electronic communications to verify certain information.
In contrast, the warrant granted went far wider than this stated purpose.
The tax experts noted that this was the core issue: the warrant was overbroad and failed to balance SARS’ investigative interests with taxpayers’ constitutional right to privacy under section 14 of the Constitution.
“Section 60(1) of the TAA permits a judge or magistrate to issue a warrant, only if satisfied that there are reasonable grounds,” Tax Consulting said.
These grounds include a belief that a person failed to comply with an obligation under a tax Act, or committed a tax offence, and that relevant material or evidence will likely be found on the premises.
The court explained that a warrant is overbroad in cases where it authorises acts beyond what the statute permits, or where it fails to define the scope of the search with sufficient particularity.
“SARS ultimately conceded that the warrant was overbroad, which the SCA accepted,” the tax experts said.
“Importantly, the Court confirmed that an overbroad warrant is unlawful. This clarification was fatal for SARS.”
SARS had asked for a warrant to verify specific raw electronic data, but the warrant authorised a broader search and seizure operation.
SARS loses out
SARS argued that the High Court should not have set the warrant aside entirely, but should instead have narrowed or severed the overbroad portions.
However, the SCA also rejected this, as SARS had initially defended the warrant in its entirety and only sought a limited variation after the company being investigated had already argued its case.
The court found that SARS had not made out a proper case for amending the warrant after execution.
Tax Consulting noted that another key issue was whether SARS could still use the seized material because of an earlier consent order between the parties.
“The SCA held that SARS relied too heavily on that order, and found that the consent order was interim and linked to the pending reconsideration application,” it said.
“Once the warrant was found unlawful, the seized material could not be used by SARS.”
The fact that SARS had already seen or possessed the documents did not assist it. SARS would not be permitted to use the documents obtained under the unlawful warrant, the experts said.
Tax Consulting said the SCA judgement has significant implications for both SARS and taxpayers, as it confirms that the revenue service’s powers are not unlimited.
For taxpayers, it shows that there are remedies to take on the taxman when it steps out of bounds. And for SARS, it’s a warning that it must always act carefully and within reason.
“For SARS, the judgment is a warning that warrants must be carefully drafted, factually justified, and proportionate,” the experts said.
“SARS must stand or fall by the case it makes in its founding papers, and a warrant cannot be broader than the purpose relied upon to obtain it.”
