ASSESSMENT Appropriate rate of VAT Assessment on basis that Appellant had dishonestly sold gas-oil (VAT at 5 per cent) as diesel road fuel (VAT at 17½ per cent ) Contaminated diesel found in Appellant's storage tanks Diesel contaminated with laundered red gas-oil Whether evidence proved that Appellant had knowingly sold gas-oil as road fuel Appeal allowed
PENALTH Dishonest evasion of VAT Burden and standard of proof Whether, on the evidence, the Appellant had knowingly and dishonestly sold gas-oil as diesel road fuel No Appeal allowed
LONDON TRIBUNAL CENTRE
HARDEV SINGH JOHAL Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: ANGUS NICOL (Chairman)
SHEILA WONG CHONG, FRICS
Sitting in public in London on 10, 11 and 12 April 2006
Richard Barlow, counsel, instructed by Hassan Khan & Co, solicitors, for the Appellant
Christopher Mellor, counsel, instructed by the Acting Solicitor for Her Majesty's Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2006
(1) The assessment to VAT under section 73 of the VAT Act 1994, issued on 24 October 2001, in the sum of £14,206 plus interest, being VAT due on sales of gas-oil based on the average selling price of DERV;
(2) The civil penalty under section 60(1) of the VAT Act 1994 in respect of the dishonest failure to account for the full amount of VAT on the sales.
"73.-(1) Where a person has failed to make any returns required under this Act ... or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him."
Section 60 provides for a penalty for dishonest evasion:
"60.-(1) In any case where
(a) for the purpose of evading VAT, a person does any act or omits to take any action, and
(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct."
"Call out to Bluebell Hill, lack of power called out to vehicle checked for lack of power checked celect side no fault found with the engine followed back to the work shop checked all pipe work removed and replaced filter as required carried out road test re-piped fuel system into a can but used the fuel from the tank still no good. Vehicle run with fresh fuel all O/K suspect poor fuel system."
Mr Hake's statement then said that he examined the fuel removed from the vehicle and "I noted that whilst it looked like normal DERV fuel it did have a very unusual smell to it."
Diesel deliveries between 1 March 1999 and 28 April 2000
Bunkered diesel fuel 1,598,500 litres
Purchased diesel 811,933 litres
Total delivery 2,410,433 litres
Diesel metered through pumps, from pump readings at start and end of audit:
Total through 5 pumps 2,301,758 litres
Declared diesel sales:
Total declared sales 2,299,376 litres
Mr McEachen noted that between 18 March and 23 March 2000 the pump readings were all changed and appeared to have been rewound. That, he said, had the effect that the amount of diesel which passed through the pumps was increased by 157,859 litres, to a new total of 2,459,617 litres. That amount, he said, was 49,184 litres more than the fuel that had been delivered to the site.
Pump readings shewed gas oil metered out 139,962 litres
Pump 10 also appeared to have been rewound by 27,130 litres
Excess purchase therefore 127,961 litres
Declared sales of gas oil 167,138 litres
Therefore gas oil delivered and not accounted for: 127,915 litres
"Called out to vehicle checked for lack of power checked Celect [sic] side no fault found with the engine followed back to the workshop checked all pipework removed and replaced filter as required carried out road test repiped fuel system into a can but used the fuel from the tank still no good. Vehicle run with fresh fuel all OK suspect poor fuel system."
Mr Inkersole said that he had not noticed the discrepancy. We note also that another invoice from Mr Hake, in respect of a job on 3 April 2000 on the same vehicle, said, "Called out to Strood, lack of power and surging." On that occasion it seemed to have been treated as an electrical fault, and a new cooler unit was supplied.
The Appellant's evidence
"Inkersole: ...It was our view initially that gas oil may well have been, er, mixed in some way with other products or delivered through your diesel pumps and that that had not been properly declared. I'm led to believe that that isn't the case but you did something else with that gas oil product.
H Johal: We sold it.
S Johal: We sold it as gas oil, yes.
Inkersole: You sold it as gas oil?
S Johal: Yes.
Inkersole: And who did you sell this gas oil to?
H Johal: Er, customers.
S Johal: Through the pump.
Inkersole: So you are saying to me that er, somewhere in the region of 160,000 litres of gas oil, which I think is the volume we'd identified, has been sold to customers for a qualifying use....
S Johal: Yes.
Inkersole: ... as gas oil,
S Johal: As gas oil, yes.
Inkersole: and that therefore er, its been sold as a rebated product and no additional gas oil is, er, sorry no additional duty is due from that sale
S Johal: That is correct."
Then Mr Inkersole said that he did not accept that explanation. He continued: "As far as I can see there is no logical financial benefit for you to have sold that gas oil off record unless it was being used for road fuel oil, which is not a qualifying use as you will be aware." He then expressed the view that the Appellant had sold that gas-oil to customers knowing that it was to be used as road fuel and not for a qualifying use. That was denied.
The Commissioners' contentions
The Appellant's contentions
RELEASED: 13 October 2006