England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE PELLING)

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th September 2008

Lord Justice Lloyd:

1. This is a renewed application for permission to appeal by Sahib Restaurant Limited in an appeal ultimately against an assessment for the purposes of Value Added Tax. The decision of the VAT and Duties Tribunal on 20 July 2007 was adverse to the taxpayer, following a long hearing at which Mr Wheeler, a director of the appellant, represented the taxpayer as he has before me today. The taxpayer appealed to the High Court and the appeal was dismissed by HHJ Pelling, sitting as a judge of the High Court, in a judgment given on 9 April 2008. Before him Mr Hirst of counsel appeared for the taxpayer. Mr Hirst settled the grounds of appeal and a skeleton argument on the appeal, setting out certain grounds on which it is contended permission to appeal should be granted. It is a second appeal and accordingly it is subject to the additional constraints under the Access to Justice Act. The appeal must either raise an important point of principle or practice or there must be some other compelling reason for the Court of Appeal to hear it. I considered the matter on paper on 28 July, and I have had the benefit of Mr Wheeler's oral submissions this morning to demonstrate why I was wrong to refuse permission at that stage.
2. There is in my judgment only one point, or perhaps I should say a pair of points, which could conceivably be described as raising an important point of principle or practice. Those are the first two of the seven grounds of appeal. The third is a complaint about the level of mitigation of penalty allowed. It is said that there was a misunderstanding by the VAT and Duties Tribunal and an inconsistency with the approach of the General Commissioners to penalties for income tax purposes. Fourth, it is said that the standard of proof applied was wrong and that it was only the civil standard of proof. It was plainly right to apply the civil standard of proof in these civil proceedings. The fifth ground concerns what was necessary in order to establish dishonesty. The sixth ground contends that the decision of dishonesty that had been made out was Wednesbury unreasonable, i.e. not one to which any reasonable tribunal could come -- see Edwards v Bairstow -- and the seventh was a complaint about the approach to the evidence. I confess myself surprised that Mr Hirst felt able to put forward any of those five points as amounting to important points of principle or practice. Plainly they do not.
3. The first two points, however, raise a point of some general interest and they arise in these circumstances. I am told that there was a joint investigation by, at that time, the Inland Revenue and the Commissioners of Customs and Excise, who have since then been merged under the label Commissioners for Her Majesty's Revenue and Customs; and the joint investigation was not only joint as between the two tax authorities but joint as to two taxpayers, namely Sahib Restaurant Limited and its sole owner Mr Khawaja. The Revenue investigation led to an assessment of Mr Khawaja's income tax liability in a certain amount which was appealed to the General Commissioners. The Customs and Excise investigation led to an assessment of the company to Value Added Tax, which was appealed to the VAT and Duties Tribunal. Mr Wheeler contends, as Mr Hirst contended before HHJ Pelling, that in each case the same issue arose: namely, what was the correct level of turnover and profit for the business? That was plainly directly at stake so far as Value Added Tax is concerned, and he contends that it was also in effect the same issue for Income Tax purposes because of imputing income to Mr Khawaja. In each case the contention of the relevant tax authority was that turnover had been suppressed.
4. What is said is that although in 2001 the General Commissioners came to the conclusion that income had been suppressed for a particular period, they did not accept the basis of quantifying that suppressed revenue put forward on behalf of the revenue, but decided that the appropriate amount was somewhat less. The Value Added Tax proceedings were, of course, an appeal by the taxpayer against an assessment to Value Added Tax, leaving aside one quarter for which an assessment was raised but later abandoned on the basis that it was out of time. Four out of the seven quarters for which the VAT assessment was raised coincided with the period of account to which the income tax assessment related. What is said is that the Customs and Excise approach was different from that which had been approved by the General Commissioners and, subject to a modification on a particular issue, had been upheld on appeal by Lawrence Collins J in the Chancery Division. Essentially, the gist of the appeal would be that it is not open to the one tax authority to seek to quantify the suppressed turnover on a different basis from that which was held to be correct by the General Commissioners in the earlier proceedings.
5. The matter was put to the VAT and Duties Tribunal. They rejected the contention. It was put to HHJ Pelling and he rejected the contention. It seems to me to be a point that can be said to be of some general importance because no doubt in many cases where there is a business which has been incorporated but which is essentially run by and owned by one person there may very well be parallel or overlapping investigations and assessments to both Income Tax and Value Added Tax, and indeed other taxes or liabilities may arise from it including National Insurance Contributions. In principle, one would hope to see that each of these investigations, to the extent that the issue arising is identical, come to the same conclusion as to the correct figure for the same period; and Mr Wheeler's argument is that it is simply unacceptable, the Revenue's approach having been rejected by the general commissioners in favour of a figure which was less onerous to the taxpayer, that despite that the Customs and Excise can seek to go back on that in the VAT proceedings and argue for a higher liability for the same period based on a higher turnover -- and therefore a higher suppressed turnover -- for VAT purposes. It is said that this is inconsistent with the law as a matter of res judicata, issue estoppel or abuse of process. The judge dealt with the matter at paragraph 17 onwards, and he first noted that it has been accepted before the VAT tribunal that res judicata did not apply. He said that that was a correct concession. He referred to the fact that both the VAT and Duties Tribunal and the General Commissioners have statutory jurisdiction under different provisions. The parties before the tribunals were different, albeit that since then the Revenue and the Customs have been united as HMRC, and accepting that Mr Khawaja has a relationship, so to speak, with Sahib Restaurant as its owner, so that on both sides the proceedings before the two tribunals were between different parties.
6. That is actually, in one sense, an insuperable obstacle for Mr Wheeler, but he seeks to argue that Sahib Restaurant and Mr Khawaja were privies as they might well for certain purposes be regarded; compare, for example, the relationship between Mr Johnson (of Johnson v Gore-Wood & Co (A Firm) [2002] 2 AC 1) and his wholly owned company Westway Homes, which gave rise to the finding -- admittedly only by the Court of Appeal (and held by the House of Lords to be wrong) -- that Mr Johnson was bound by an estoppel in relation to the conduct of Westway Homes Limited. But how the Inland Revenue Commissioners in 2001, and the Customs and Excise Commissioners in 2005 or so, could be held to be the same party or privies is very far from apparent.
7. Even if that obstacle were overcome there is a more serious difficulty, which is that while accepting that the liability to Income Tax and the liability to Value Added Tax on the two different tax payers depend upon the view taken of the turnover (in one case turnover and in the other case profit) of the relevant business, the fact is that the statutory provisions for the two taxes are different, and not only are the statutory provisions different in relation to the liability but they are different in relation to assessment and enforcement. In particular before the VAT and Duties Tribunal, the question there arose as to an assessment made to the commissioners' best judgment, a concept that is very familiar in the world of Value Added Tax. At paragraph 25 the judge referred to the conclusion that he had already expressed, that the findings of the General Commissioners of Income Tax did not give rise to an estoppel between the relevant authority and the relevant taxpayer for any year other than that which was directly at issue. That is a proposition which is supported by the Privy Council decision of Caffoor v Commissioner of Income Tax of Columbo [1961] AC 584.
8. He went on to say that, if that is so, it is difficult to see how an attempt by the Customs and Excise Commissioners to assess Value Added Tax against a different but related taxpayer for a different tax for substantially different periods could amount to a collateral attack on the decision of the General Commissioners. It seems to me that he is plainly right in this respect. The different tax authorities and the different tax tribunals are concerned with different legislation, both as regards liability and as regards quantification, assessment and enforcement; and it seems to me, as it did when I considered the matter at first, that although it is clearly an important point -- and, as I say, certainly desirable that different assessments to different taxes for the same period based on essentially the same turnover should proceed on a consistent basis -- I see no prospect of it being held on appeal that a different approach by the two authorities, or the two tribunals, are inconsistent with the principles of res judicata, issue estoppel or abuse of process. Accordingly, I remain of the view, despite Mr Wheeler's well-formulated submissions today, that, although the point is of importance, it is not fit for the grant of permission to appeal because there would be no substantial prospect of success on such an appeal. I therefore dismiss the application for permission to appeal.

Order: Application refused