Naraidu v The State

Mr Naraidu, a tax practitioner, was charged together with two other accused (Serghony's Shoes Fashion CC (SSF) and Mr Mbom, SSF's sole member) with three counts of fraud and three alternative charges under the Value-Added Tax Act 89 of 1991 (VAT Act) read with s 269(9) of the Tax Administration Act 28 of 2011 (TAA). The charges alleged that the accused unlawfully and with intent to defraud misrepresented to SARS that SSF had incurred expenses and was entitled to VAT refunds of R2,748,037.51, knowing this to be false. Fictitious invoices were submitted to SARS to support the claim. Mr Naraidu sent emails to SARS on behalf of SSF in October, November and December 2013 following up on the VAT refund claim. Mr Naraidu testified that he was working as a financial adviser for Liberty Life when he met a person (described as a 'white guy', not Mr Mbom) in October 2013 who sought assistance to pursue a VAT refund claim. Mr Naraidu claimed he had no knowledge the claim was fraudulent and was assisting in hopes of selling the person a Liberty policy. The Regional Court convicted Mr Naraidu and Mr Mbom on fraud charges. Mr Mbom fled before sentencing. Mr Naraidu was sentenced to six years imprisonment without option of a fine. The High Court dismissed Mr Naraidu's appeal, finding he was aware the documents were false.

• Whether the State proved beyond reasonable doubt that Mr Naraidu had knowledge that the VAT refund claim was fraudulent and the supporting documents were fictitious
• Whether the State proved beyond reasonable doubt that Mr Naraidu had the intent to defraud SARS
• Whether the emails sent by Mr Naraidu to SARS were sufficient to establish his knowledge of and participation in the fraud
• The validity of the statutory charges under s 59(1) of the VAT Act and s 269(6) of the TAA given that s 59 was repealed by s 271 of the TAA

The appeal was upheld. The conviction of Mr Naraidu and sentence imposed upon him by the Regional Court, Gauteng under case no 41/337/14 was set aside. Mr Naraidu was acquitted of all charges brought against him.

For a conviction of fraud (including VAT fraud), the State must prove beyond reasonable doubt that the accused had actual knowledge that the claim was fraudulent and the supporting documents were false. The mere submission or resubmission of documents to SARS, even by a professional tax practitioner, is insufficient to establish knowledge that those documents are fictitious or that the claim is fraudulent. Reckless conduct in processing a claim without proper verification does not amount to the intent required for fraud. There must be proof beyond reasonable doubt that the accused knew the claim to be fraudulent at the time of making representations to SARS. The absence of such proof means the conviction cannot stand.

The Court observed that there was a great deal that was unsatisfactory about Mr Naraidu's evidence, including how he came to be retained, his willingness to engage SARS on behalf of a client he knew little about, taking instructions without proper mandate, and pursuing a claim in ignorance of its basis. This suggested a reckless disregard for his duties as a tax practitioner. However, the Court noted this reckless conduct was not the charge he faced. The Court also commented on the complexity and doubtfulness of the validity of the statutory charges, noting that s 59 of the VAT Act was repealed by s 271 of the TAA, which commenced on 1 October 2012, before the alleged offences in 2013-2014. The Court observed it was doubtful these statutory charges were valid in law, though as these matters were not argued, it did not decide the point definitively, simply noting that in any event the statutory charges also required proof of intent which had not been established.

This case is significant in South African criminal and tax law for clarifying the evidentiary burden required to prove intent to defraud in VAT fraud cases, particularly where the accused is a professional intermediary (tax practitioner) rather than the principal perpetrator. It establishes that mere involvement in processing or submitting fraudulent claims, even in a reckless manner, is insufficient for a fraud conviction without proof beyond reasonable doubt that the accused knew the claims were false. The case also touches on the complexities of prosecuting statutory offences under repealed legislation, specifically the transitional provisions in the Tax Administration Act 28 of 2011. The judgment emphasizes the importance of distinguishing between reckless conduct and criminal intent, protecting professionals from conviction where they may have been negligent or reckless but lacked the mens rea necessary for fraud.