The SA Revenue Service (SARS) this week accused Gupta holding company Oakbay Investments of lying about its banking affairs when it demanded – and controversially received – an unprecedented third-party VAT refund of R70 million last year.
This unusual payment was necessitated because the Guptas said they had no bank accounts in South Africa, though they did not disclose that they had an account at the local branch of the Indian state-owned Bank of Baroda.
According to SARS, it had no idea that the Gupta family’s companies had accounts at the Bank of Baroda at the time. It also seemingly took almost a year, after the Baroda accounts became public knowledge through a series of court cases, for the taxman to latch on to this.
The move seems calculated to show that, after commissioner Tom Moyane was suspended last month, SARS’ remaining leaders are no friends of the family.
In a letter directed to Oakbay CEO Ronica Ragavan this week, of which City Press has a copy, SARS legal specialist Erick Smith accuses Ragavan of falsely claiming in April last year that Oakbay had no bank accounts left in the country.
It was on that basis that SARS agreed to pay the group’s VAT refunds, cumulatively just short of R70 million, to a third party nominated by Oakbay – a practice that was banned in 2012 to prevent fraud.
Ragavan could not be reached by phone and did not respond to messages requesting comment on Friday.
Smith wrote: “It has ... reliably come to the attention of SARS that, at the time you escalated your request for the VAT refund to be paid a third party bank account on the basis of the Oakbay Group’s bank accounts being closed, you, in fact, had a bank account open with the Bank of Baroda.”
Baroda only demanded that the Guptas take their business elsewhere months later, in July. However, it started asking the Gupta companies to pay back loans in October 2016.
“SARS was comfortable that it had acted in accordance with the constitutional principle of legality on the facts as represented by yourselves,” reads Smith’s letter.
He demanded that Ragavan “confirm whether the Oakbay Group or any of its subsidiary companies had a bank account open with the Bank of Baroda or any other bank in the period April to June 2017” by the end of business on Tuesday.
SARS legal chief Refiloe Mokoena this week told City Press that SARS knew nothing about the Oakbay group’s Baroda bank account when it was adjudicating the VAT refund request.
The controversial payment is one of several scandals at SARS during Moyane’s term as commissioner.
The VAT refund was paid to Oakbay’s nominated “pay agent” Terbium Financial Services in June after Oakbay wrote to Moyane on May 22 to ask for this usually unlawful arrangement to take place.
This payment, however, followed intense disagreements inside SARS’ legal department that were recently revealed in a Daily Maverick exposé.
Senior SARS lawyers said the payment to Terbium would be illegal, but they were ultimately overruled by Mokoena, who had only been appointed at SARS on May 1 – 21 days before Oakbay asked Moyane to arrange the refund.
‘IT WAS LEGAL’
Mokoena said that, because of the facts available to her at the time, she had been vindicated in her unprecedented decision to pay the nearly R70 million to a third party.
“At the time I made the decision, I was faced with different views. But, as the overall leader, I had to make a call. I interpreted the law in the best manner I could at the time. I was convinced I had not misdirected myself and had interpreted the law correctly,” said Mokoena.
She said she was “fortified” in her decision by a subsequent judgment by the Pretoria High Court.
The judgment in question is the first of many in the Gupta companies’ legal battles with the Bank of Baroda.
In a judgment handed down on September 21, Judge Hans Fabricius noted that “it was also possible for the applicants [Oakbay] to simply instruct the debtors to make payment directly to the pay agents”.
Fabricius took this as evidence that the Gupta companies could function without the accounts they had lost.
Mokoena pointed this sentence out to City Press, saying it also supported her decision to allow the payment of a VAT refund to the pay agent.
“SARS is a debtor and we are fortified by this,” said Mokoena.
‘IT’S THEIR MONEY’
The Oakbay payment is the only third-party VAT refund SARS has done since 2012.
“It was quite an unusual factual situation,” Smith told City Press.
“It is not our money, we are obliged to pay the taxpayer, but now we cannot. They said four banks closed their accounts and they had no prospects of opening new accounts. We were not even aware of the existence of Baroda. We expect taxpayers to be honest and transparent. The communication from Oakbay was that they had no bank accounts.
“Had we known, we would certainly not have pushed ourselves into this third-party situation. Had we known, we would not have been forced into a section 72 situation. We would not be sitting here,” said Smith.
“We have no evidence of illegality. We cannot control what the taxpayer does in the outside world. I understand where the perception comes from, but there was no evidence of illegality,” he added.
Mokoena had used section 72 of the Value-Added Tax Act to make the payment. The act allows for “arrangements and directions to overcome difficulties, anomalies or incongruities”.
“We would welcome any form of litigation. We must be held accountable. If we are found to be wanting on this one, it is in the national interest that we are taken to court,” said Mokoena.
She added that the Oakbay group may very well have taken SARS to court to pay over the money, and SARS may have received a “very harsh judgment that we were being unreasonable”.* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.