Is interest owed on incorrectly calculated penalties?

© Alexandr Gordeev – 123RF.com

Briefly, BMW (applicant) is a vendor for purposes of Value-added Tax (VAT). The respondent, SARS, had made a finding that the applicant did not pay certain amounts of VAT due in respect of the October 2011 to February 2012 VAT periods.

As a result, SARS levied penalties and interest in respect of the amounts not paid.

However, on the facts, it appeared that BMW had made payment as required, but for some unknown reason SARS had not correctly allocated the amount paid.

BMW presented proof of payment to SARS, but SARS still insisted that the penalties and interest should be paid. BMW paid the amounts under protest, and proceeded to bring an application in the High Court.

SARS did not at first indicate any intention to oppose the application, and eventually consented to an order setting aside the finding of non-payment and that the penalties and interest be remitted. SARS also consented to costs on an attorney-client scale, and costs of senior counsel.

However, the matter did come to be heard, and SARS was represented by counsel who sought only to oppose a limited issue: whether BMW should be entitled to interest in respect of the amounts that it had paid under protest and which should now be remitted.

Based on the decision in Shuttleworth v South African Reserve Bank 2015 (1) SA 586 (SCA), the court held that the applicant was entitled to interest.

In the Shuttleworth case the court confirmed that amounts paid under protest can be recovered under the condictio indebiti, together with interest.

The court also cited s187, s188 and s190 of the Tax Administration Act, No 28 of 2011, which provides for interest to run on refundable amounts.

Accordingly, the court granted an order to the effect that SARS must pay interest a tempore morae on the amounts paid by BMW under protest.