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Dyer v. Customs And Excise [2005] ScotCS CSIH_11 (28 January 2005)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Osborne

Lord Johnston

Sir David Edward, Q.C.

[2005CSIH11]

XA83/03

OPINION OF THE COURT

delivered by LORD OSBORNE

APPEAL TO THE COURT OF SESSION

under The Tribunals and Inquiries Act 1992, section 11 and Schedule 1(II)(63)

THOMAS DYER

Appellant;

against

A decision of the Edinburgh VAT and Duties Tribunal, dated 28 May 2003 and intimated to the appellant on the same date

and

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents:

_______

Act: D.J.T. Logan; Campbell Smith W.S.

Alt: A.R.W. Young; Shepherd & Wedderburn

28 January 2005

The background circumstances
[1] The appellant was registered for the purpose of Value Added Tax (VAT) with effect from 16 March 1993, on his own application and upon the basis that he wished to be, but was not required to be, registered from that date. At that time his main business activity was that of racehorse trainer. His VAT registration number was 607 6702 42. Subsequently, at some unspecified date, the appellant also commenced business as an insolvency practitioner at various addresses in and around Dundee, including premises at 10 Douglas Street, Dundee. However, by letter, dated 30 August 1996, the appellant intimated to the respondents that he had ceased trading and requested a form for de-registration for VAT purposes, as appears from production 1/3.1. By letter, also dated 30 August 1996, production 1/10, the respondents wrote to the appellant in inter alia the following terms:

"Your VAT Registration is cancelled with effect from 1 September 1996. In order to finalise your VAT affairs you now need to send in a final VAT Return".

Prior to these events, on or about 21 May 1996, the appellant had been visited by one of the respondents' officers for a routine check on his VAT returns. Following an inspection of the appellant's accounts, the officer raised a query concerning his VAT treatment of certain interim payments received in relation to insolvency work. The appellant contested the view that there were any irregularities in such matters and, after his de-registration described above, maintained that the Value Added Tax Act 1994 (hereinafter referred to as "the 1994 Act"), Schedule 11, paragraph 7 did not apply to him, as an unregistered person.

[2] By letter, dated 22 October 1996, production 1/3.2. the respondents wrote to the appellant requesting him to arrange an appointment

" ... to undertake the following:

(i) to clarify the outstanding points raised by Mrs. Grieve on the occasion

of her visit to your premises at Wallace Craigie House on 21 May 1996, namely the VAT treatment of interim payments for insolvency work made by the SCA;

(ii) to address the matter of the outstanding VAT return for the period 1

June 1996 to 31 August 1996 and the VAT debt for this registration which stands at £7,488.00 at 21 October 1996; and

(iii) to ensure that de-registration of this VAT registration has been

correctly effected at 1 September 1996 and all outstanding matters have been dealt with."

The appellant declined to arrange an appointment as requested and also did not provide documents requested by the respondents. Following a period of protracted correspondence between the parties, the respondents imposed penalties upon the appellant under section 69 of the 1994 Act. The appellant appealed against these penalties, but his appeals were dismissed by the VAT and Duties Tribunal (referred to herein as "the Tribunal") on 17 November 1999.

[3] By letter dated 8 December 1999, production 1/3.3, the respondents wrote to the appellant repeating their request for him to arrange an appointment to enable one of their officers to examine his business records and to resolve the matters raised in the letter of 22 October 1996. The respondents also made numerous attempts by telephone and fax to contact the appellant, but these were all unsuccessful.

[4] On 14 February 2000, the respondents wrote to the appellant informing him that they had reason to believe that he was continuing to trade. That letter is production 1/3.4. In that letter, the respondents wrote:

"However, on 23 September 1997, you forwarded a letter to our Greenock office dated 16 May 1997 issued by the Caledonian Blind Company and naming you as their finance adviser at that date. I understand too, that in the course of a recent VAT inspection of another business by my colleague, Mr. Wood, you advised him that you continue to act as a financial adviser. As you have denied me access to the records of the business and declined my requests for a meeting, I am forced to act on the information available to me. Consequently, I will take steps to reinstate the VAT registration of Thomas Dyer as the above indicates that trading did not cease as you advised in your letter dated 30 August 1996 referred to above. You will shortly receive correspondence in this respect. ... ".

[5] The appellant replied by letter dated 21 February 2000, production 1/3.5, in which he stated inter alia:

"You state that there is evidence that I am trading, but have not once

produced evidence of any economical (sic) activity.

You will be receiving a statement from Mr. Tosh of Caledonian Blind Company, who will confirm that as the company had no assets, it was looking for a creditor to put the company into liquidation and that I did send out six or seven letters for him to help him out of his predicament. No fee was paid. ...

I am employed by Paratus (No. 403) Limited as a financial adviser for the renovation of The Egyptian Halls in Union Street, Glasgow, but if I am not mistaken the employment of an advisor is outwith the scope of the VAT legislation. I trust this information will clarify my position."

A letter, dated 22 February 2000, production 1/3.6 was then sent to the respondents by Mr. Tosh confirming the position described by the appellant and confirming, in particular, that the appellant had not received any fee for his services.

[6] Thereafter the respondents, by letter dated 7 March 2000, production 1/10, wrote to the appellant in these terms:

"VAT REGISTRATION NUMBER 607 6702 42

RE: DEREGISTRATION ACTION: VAT 134

On receiving a request to de-register the above VAT registration number, action was started to cancel the number and a final VAT return issued.

Subsequently, your request has been withdrawn but as the appropriate form to stop VAT returns has been input (sic) on computer, a long 'period' return may be issued by Southend instead of the normal quarterly returns. All VAT should be account for on this long period. ... ".

The appellant replied to that letter by letter, dated 9 March 2000, also part of production 1/10, in which he stated:

"I have not withdrawn my request and have received confirmation from your Department that de-registration is complete. I should be grateful if you would clarify the position."

The respondents, by letter dated 17 March 2000, production 1/3.7, wrote to the appellant as follows:

"I have received a copy of the letter issued to you on 13 March 2000 by my colleague Mrs. Smillie. The VAT registration number 607 6702 42 in respect of Thomas Dyer has been reinstated as per the reasons outlined in my letter to you dated 14 February 2000 (a copy of which I enclose). ... ".

Following this purported decision by the respondents to reinstate the appellant's VAT registration under number 607 6702 42, the appellant lodged an appeal with the Tribunal, reference number EDN/00/0091, and the parties entered into protracted correspondence. On 22 May 2001, the respondents wrote to the appellant in the following terms:

"APPEAL REFERENCE EDN/00/0091

I refer to the appeal lodged with the VAT and Duties Tribunal in Edinburgh under the above reference.

While the appeal has been sisted due to your ill health, the Commissioners have taken the opportunity to further review the decision under appeal. I am now writing to advise you that our position has altered and it is now accepted that your registration under number 607 6702 42 should not have been reinstated. Action will shortly be taken to cancel your existing registration under this number.

In the circumstances you are therefore entitled to seek a direction from the Tribunal that the above appeal be allowed, together with an order for costs of and incidental to the appeal.

A copy of this letter has been sent to the Tribunal, and I would welcome your proposals with regard to the future conduct of this appeal.

However, it remains the Commissioners view that you continued to trade after 30 August 1996 and that you were liable to be registered with effect from a date thereafter. You will be notified of the Commissioners' decision in this regard shortly."

That letter is production 1/3.15.

[7] On 4 June 2001, the respondents wrote to the appellant in the following terms:

"I refer to the letter issued to you by my colleague Mrs. Calder on 22 May 2001. In said letter Mrs. Calder advised that it remains the Commissioners' view that you continued to trade after 30 August 1996 and were liable to be registered with effect from a date thereafter. I would now advise you that registration is required with effect from 1 October 1996 per the Value Added Tax Act 1994, Schedule 1 para. 1(4)(b) i.e. the Commissioners had not been given all the information needed in order to determine whether to cancel your registration. As the turnover of business in the 12 months ending 31 August 1996 exceeded the threshold for registering for VAT then in force, registration is required as above with effect from 1 October 1996.

As I have still not been provided access to the records of the business, I do not know whether a liability to be registered is ongoing. I would therefore be obliged if you could provide me the opportunity to determine this. Please advise as to what would be the most convenient to yourself in affording me access to the records of the business. ... ".

That letter is production 1/3.16. The appellant did not reply to that letter but, on 28 June 2001 the respondents wrote again to him in the following terms:

"I refer to my letter to you dated 4 June 2001. In said letter I requested that you contact me in order to arrange access for me to the records of your business so that I might determine whether a liability to be registered for VAT is ongoing. I also advised that as the turnover of the business in the 12 months ending 31 August 1996 exceeded the threshold for VAT registration then in force, registration for VAT was required from 1 October 1996. As I have received no response to my letter I am forwarding your papers to our Registration Section with a request to effect registration for VAT with effect from 1 October 1996. You will receive correspondence from them in this respect in due course."

That letter is production 1/2. The appellant replied to the respondents, by letter dated 21 August 2001, production 1/3.17. In that letter he stated:

"I refer to your letter dated 28 June 2001. I have still not heard from your Registration Section, given your request to effect registration for VAT with effect from 1 October 1996. As you will appreciate, I am anxious to preserve my right to an appeal should your department continue down this road."

On 29 August 2001 the respondents wrote to the appellant in the following terms:

"MR. THOMAS DYER - VAT REGISTRATION NUMBER 774 7579 68

I refer to your letter to me dated 21 August 2001. I have contacted our Registration Section who advised that notification of your new registration number, as noted above, was issued on 6 July 2001. However a duplicate notification was issued on 24 August 2001 as your letter indicated that you had not received this. Should you not receive this notification within the next few days please do not hesitate to contact the above office."

That letter is production 1/3.18.

[8] Following upon the foregoing correspondence, the appellant appealed against the respondents' decision to register him for the purposes of VAT under VAT registration number 774 7579 68, with effect from 1 October 1996. The appeal was heard by the Tribunal on 7 April and 8 May 2003. The appeal was refused. The appellant has now appealed to this court under section 11 of the Tribunals and Inquiries Act 1992, being dissatisfied in point of law with that decision. Three grounds of appeal were originally stated on behalf of the appellant. At the outset of the hearing before us, it was indicated that only ground 1 of the original grounds of appeal would be supported, but certain revised grounds of appeal were tendered. It was intended to support those grounds. Ground 1 of the original grounds of appeal is in the following terms:

"1. The Tribunal erred in law by holding that the respondents were entitled to compulsorily register the appellant for the purposes of Value Added Tax with effect from 1 October 1996 under VAT registration number 774 7579 68."

The revised grounds of appeal are in the following terms:

"1. The Tribunal erred in allowing the respondents to assess the appellant's liability for registration by reference to supplies provided under VAT registration number 607 6702 42. In particular the Tribunal failed to apply the provisions of Schedule 1, paragraph 1(4) of the Value Added Taxes Act 1994. There was no material before the Tribunal to establish that the appellant had not supplied all of the information needed or requested in respect of his de-registration. Such evidence as was available suggested that the Commissioners were fully satisfied before de-registration was allowed.

2. That in the absence of supplies made under VAT registration number 607 6702 42 there was insufficient evidence that the appellant had made chargeable supplies exceeding £47,000 in the year to 31 August 1996.

3. That in any event the Tribunal failed to give consideration as to whether or not the Commissioners had exercised best judgment in determining whether the taxable supplies of the appellant were likely to exceed £45,000 in the 12 months from 1 October 1996. Had such consideration been given to the evidence available to the Commissioners, and in particular the tax return for 1998/99 production 6 for the respondents, it would have been obvious that registration was not required in terms of Schedule 1 paragraph 1(3) and paragraph 3 of the 1994 Act.

4. That in determining the turnover of the business was likely to be £341,000 in the 12 months from 1 October 1996 the Commissioners acted capriciously and spuriously. The Tribunal erred in failing to determine that this showed that best judgment had not been exercised in determining the liability of the appellant for registration. Had such best judgment been exercised the Tribunal should have found on the available evidence that registration of the appellant for VAT was an improper use of the respondent's powers and allowed the appeal."

We should record that the decision of the Tribunal, dated 28 May 2003, against which this appeal is taken is, of course, appended to the original grounds of appeal.

Submissions of the appellant
[9] Counsel for the appellant commenced his submissions by drawing our attention to the provisions of Schedule 1 to the 1994 Act, which dealt with registration in respect of taxable supplies. In particular he referred to paragraph 1(1), which was concerned with liability to be registered. He submitted that it applied to a person who was not registered; accordingly, if a person was already registered, it could not apply to them. He also referred to paragraphs 5 and 13 of the Schedule. Thereafter, he drew our attention to the correspondence pertinent to the issues now arising, which we have already quoted. He also narrated the history of the appellant's registration under registration number 607 6702 42, which we have also narrated. He then came to explain the background to the present appeal, which arose out of an attempt by the respondents to re-register the appellant under a registration number 774 7579 68. He submitted that that purported re-registration was incompetent, since, in the circumstances, the appellant had not been "liable to be registered" under paragraph 1(1) of Schedule 1 to the 1994 Act at the material time. Having regard to the provisions of paragraphs 1 and 5 of Schedule 1 to the 1994 Act, it was submitted that a new registration of the appellant could take effect, at the earliest, only from 1 November 1996. In the present case, the respondents had purported to effect a new registration to take effect from 1 October 1996. That was a step which could not be taken under the relevant legislation. In connection with this submission, counsel for the appellant relied upon Henderson and Another (trading as Tony's Fish and Chip Shop) v. Customs and Excise Commissioners [2001] S.T.C. 47, in particular the observations of Park J. at page 55. The respondents could not argue that there could be a competent registration from 1 October 1996, because they could not rely upon the provisions of paragraph 1 of Schedule 1 at any time when the appellant had been registered under the former registration 607 6702 42. Perhaps, on the view they later took, the respondents ought not to have de-registered the appellant when they did, but that did not justify a new and incompetent registration. Counsel for the appellant submitted that, if it were accepted that the registration 774 7579 68 was incompetent, the appellant's appeal had to succeed, since an inept registration was a nullity. There was no way in which that registration could be modified so as to be a registration taking effect from 1 November 1996.

[10] Looking more closely at the terms of the respondents' letter of 28 June 2001, production 1/2, it was plain that the decision of the respondents to register the appellant of new was also inept for the reason that the respondents purported to rely on the turnover of the business in the 12 months ending 31 August 1996, a period during which the appellant was registered under the previous registration, but had not shown that they could avoid the consequences of paragraph 1(4) of Schedule 1.

[11] Counsel for the appellant went on to examine the Tribunal's findings in fact in detail, pointing out certain demonstrable errors in them. The pattern which emerged from the factual background was that the respondents were attempting to retrieve the consequences of an ill-judged de-registration. Counsel for the appellant then submitted that there had been no evidence before the Tribunal of any trading following upon the de-registration of the original registration 607 6702 42, other than the involvement with Caledonian Blind Company, which had been explained. In this connection reference was made to grounds of appeal 2 and 3. The document production 1/9, described as the appellant's application for compulsory registration, had not in fact been completed by him; however, in the answer to question 14 therein, and also in certain passages in the Tribunal's decision, there were references to the value of taxable supplies over a period of 12 months from 27 June 2001 being £341,000. It was submitted that that figure was without any foundation and irrational. Counsel submitted that this figure had simply been plucked out of the air and was not supported by any explanation. The narrative relating to this figure in the decision of the Tribunal at page 16 had no comprehensible basis. That figure could not be based on any rational judgment. There was no question of the respondents having made their best judgment in arriving at that figure. In paragraph 12 of the Tribunal's findings in fact reference was made to material obtained by the respondents from the appellant's income tax returns for the years ended 5 April 1998 and 5 April 1999. In respect of the first of these, business income had been stated at £183,801, relating to an accounting period from 1 May 1996 to 1 April 1997. The respondents had made no effort to relate that figure to any period which was relevant for the purposes of the new purported registration. Further the respondents had failed to demonstrate how they had applied the provisions of paragraph 1(3) of Schedule 1 in the circumstances of this case. The Tribunal should have quashed the respondents' decision on this basis, but had not done so. The fact was that there had been no evidence of turnover in any period relevant for the purposes of the purported new registration. Material from the appellant's tax returns had been produced to him for the first time at the hearing before the Tribunal, but he had been asked no questions as to the origin and significance of the turnover disclosed in the tax returns. There were certain further problems in the decision of the Tribunal. At pages 17 and 18, it was not clear what reasoning the Tribunal had adopted. There were no findings in fact relating to the subject-matter of that part of the decision. Furthermore, it was difficult to know what was to be made of the material in paragraph 15 of the findings in fact; that seemed to show an acceptance of the appellant's evidence relating to his discontinuance of trading.

[12] Counsel for the appellant submitted that it was for the respondents to have explained and justified their decision to register the appellant of new. They had failed to do that. The Tribunal appeared to have regarded it as a matter for the appellant to show why he should not be registered, as opposed to the respondents showing why he should be, in the manner in which they purported to do that.

[13] In conclusion, counsel for the appellant formulated his submissions in this way. The Tribunal had erred in law in taking the month of August 1996 into account as the "relevant month" within the meaning of paragraph 5(3) of Schedule 1. As a consequence, they had misdirected themselves in law in upholding the purported new registration running from 1 October 1996. Furthermore, the respondents had failed to specify and the Tribunal had failed to find as a fact what information the appellant had not provided to the respondents before they decided on his de-registration on 30 August 1996. The provisions of paragraph 13(1) of Schedule 1 to the 1994 Act meant that the court ought to take it that the respondents had been satisfied, as at the date of de-registration, that the appellant was not liable to be registered. The post-de-registration developments were not relevant for the purposes of paragraph 1(4) of Schedule 1, since the respondents required to be satisfied in the manner indicated before they granted de-registration. Properly construed, the provisions of paragraph 1(4) of Schedule 1 applied in such a way that the turnover under registration 7607 6702 42 had to be disregarded. There was no evidence before the Tribunal, if the turnover under that previous registration were disregarded, indicating a turnover of £47,000 in the previous year. Furthermore, the respondents had not addressed the terms of paragraph 1(3) of Schedule 1 in any bona fide attempt to assess that turnover. Thus the Tribunal should have found, even if the respondent had continued to trade after de-registration, that there was no basis for assuming that the turnover exceeded £45,000 in the next 12 months. In all the circumstances the appeal ought to be allowed. The decision of the Tribunal ought to be quashed and the registration 774 7579 68 should also be quashed.

[14] When the hearing resumed after an adjournment, counsel for the appellant clarified and elaborated his position in certain respects. First, as regards the matter of the remedy appropriate in the event of the appeal succeeding, while it was recognised that a remit to the Tribunal would be competent, the court was not asked to follow that course. It was not considered by either party that it would serve a useful purpose. Secondly, the expression "best judgment" had been used in the submissions made on behalf of the appellant. However, it was recognised that that concept did not have a direct part to play in the resolution of the issues in this case. The expression had been the subject of discussion in Henderson and Another (trading as Tony's Fish and Chip Shop) v. Customs and Excise Commissioners, supra, but the context of its consideration there was in relation to an assessment made to tax. That was wholly appropriate, since section 73(1) of the 1994 Act contained the expression, which was used in relation to the making of assessments. In the circumstances of the present case, the court had to consider the provisions of paragraph 1(1) of Schedule 1 to the 1994 Act, which, in sub-paragraph (b), used the expression "reasonable grounds for believing ... ". Thirdly, the document, entitled Application for Registration, employed by the respondents in purporting to effect the registration 774 7579 68, contained a question 14 in the answer to which the respondents had quoted the figure of £341,000. The origin of that figure remained unknown. It was plain that question 14 in that document, relating to "the value of taxable supplies you think you will make in the next 12 months" was devised having regard to paragraph 1(3) of Schedule 1 to the 1994 Act. That paragraph was conceived in favour of a trader, who might be potentially liable to be registered under paragraph 1(1), but who would be able to avoid registration, should he so wish, by invoking the provisions of paragraph 1(3). In regard to the figure of £341,000 appearing in that particular document, counsel for the appellant agreed that it appeared that the Tribunal had not relied upon it. Although the figure was mentioned in their narrative of the arguments made to them, it was not the subject of any finding in fact. However, the essential point was that the Tribunal had not explained in their decision how they had come to conclude that it was appropriate that the fresh registration was justified.

[15] In answer to certain questions by the court, counsel for the appellant agreed that the appellant had been registered under registration 607 6702 42 until a date which he contended was 31 August 1996. It followed from the existence of that registration that the appellant was liable to account for tax on supplies made by him up to that date. That liability survived, despite the fact of de-registration as from that date. On a related matter, it was a matter of agreement that the legislation contained no provision for retrospective cancellation of a de-registration. The question which the court had to consider was whether, as at 1 September 1996, there was a liability to be registered. Whether, in relation to that question supplies made at a time when the previous registration was in force could be considered depended upon the operation of paragraph 1(4) of Schedule 1. As regards that, sub-paragraph (a) was satisfied, since the de-registration had been effected under paragraph 13(1) of Schedule 1. As regards sub-paragraph (b), in the circumstances it ought to be inferred as a matter of necessity from the events which had occurred that the respondents had been satisfied concerning the matter specified there. If that were correct, it followed that, in considering the issue of justification for the fresh registration, supplies made while the previous registration was in force had to be disregarded.

Submissions for the respondents
[16] Counsel for the respondents moved the court to refuse the appeal. He said that his submissions would fall into three chapters: (1) the issue of competency of the registration 774 7579 68, having regard to the date of its commencement, 1 October 1996; (2) the matters raised in relation to paragraph 1(4)(b) of Schedule 1 to the 1994 Act; and (3) the matters raised relating to paragraph 1(3) of that Schedule.

[17] Dealing in detail with the first chapter of his submissions, counsel said that the argument against the respondents was that they had got "a month ahead of themselves" in relation to the registration 774 7579 68. The argument was based on the view that freedom from registration began on 1 September 1996. The respondents' reply to that argument was to the effect that it was not one which was open on the findings of the Tribunal. In this connection, the Tribunal had found, on page 2 of their decision, that "the appellant was registered for VAT with effect from 16 March 1993 to 30 August 1996 under registration number 607 6702 42". Furthermore, in finding in fact 1 on page 3 of the decision, the Tribunal referred to "his de-registration on 30 August 1996". It was recognised, however, that the date with effect from which de-registration took effect was a matter of some confusion, having regard to the letter, dated 30 August 1996, production 1/10.1, in which the respondents wrote "Your VAT Registration is cancelled with effect from 1 September 1996." However, counsel said that the contents of that letter were not definitive. It was clear from paragraph 15 of the Tribunal's decision that they had been alive to the importance of this matter.

[18] On the assumption that that particular submission was wrong and that it had to be accepted that the original registration ran to 31 August 1996, then it had to be agreed that a fresh registration could not commence prior to 1 November 1996 although the respondents had sought to order that the registration 774 7579 68 was to run with effect from 1 October 1996. However, on that basis, it was submitted that the error in the date of commencement of the fresh registration did not mean that what had occurred was fundamentally flawed. In connection with that contention reliance was placed upon Gray (trading as William Gray & Son) v. Customs and Excise Commissioners [2000] STC 880. That case had been concerned with two businesses in the building industry, one carried on by a company, the other by an individual. The appeal concerned late registration and also the issue of registration at all. It had been agreed that a registration imposed from 2 July 1996 ought to have been with effect from 1 September 1996, but the parties had been at issue as to the effect of that error. The appellant had submitted that the error was fundamental and that the Tribunal's decision should be set aside, a contention which the respondents had resisted. The court had accepted the respondents' submission as appeared from paragraph 17 of the judgment. It appeared that the court thought that the error could be declared by it and then be the subject of administrative correction. There would be no practical effect prejudicial to the trader from such a course of action. In response to a point raised by the court, however, counsel for the respondents in the present case accepted that there might be some practical effect, in respect that the trader might find from such a correction as was there contemplated that input tax incurred in connection with the establishment of a business might not give rise to a relevant claim in the event of the date of registration being postponed. Counsel for the respondents also accepted that the legislation, and, in particular, paragraph 5 of Schedule 1 to the 1994 Act contained very precise provisions relating to the date of commencement of registration.

[19] Counsel for the respondents then turned to his second chapter of submissions, related to grounds of appeal 1 and 2. It was necessary for paragraph 1(1)(a) and paragraph 1(4) to be read in association. There was no dispute that, if it was proper to look at taxable supplies made under the original registration, the threshold provided by paragraph 1(1)(a) had been crossed, as appeared from what was stated in the Tribunal's decision at page 17. There was a reference there to sales for VAT purposes in the quarter ending on 31 May 1996 being £49,357. That figure plainly related to the "year then ending" for the purposes in question. Looking at the terms of paragraph 1(4), there was no dispute regarding the fact that sub-paragraph (a) was satisfied. What was in issue was whether sub-paragraph (b) was also satisfied. It was accepted that the Tribunal had dealt with that matter only obliquely. The proper approach to the matter was to recognise that the appellant had obtained de-registration in 1996 upon the basis of a statement by him that he "had ceased" trading. The matter was dealt with by the Tribunal in finding in fact 12 at page 8 of their decision by reference to the income tax returns mentioned there. No indication of a cessation of trading at the relevant time had been indicated in them. It appeared that the Tribunal, while not finding positively that the appellant had misled the respondents, doubted that he had indeed ceased trading at the time when he had asserted that he had. However, it was accepted that certain difficulties were created by the limited nature of the Tribunal's findings. It was submitted for the respondents that, in 2001, when the matter of the fresh registration was raised, the respondents had been entitled to look back and ask themselves whether they had been given all the information that they had needed to determine whether to cancel the original registration. The Tribunal's observations at pages 17 and 18 of their decision showed that they had not been given that information. It was not accepted by the respondents that they had attempted to reverse the onus resting upon them, as argued for the appellant.

[20] Counsel for the appellant had argued for what might be described as a deemed satisfaction in relation to paragraph 1(4)(b) of Schedule 1; that whole approach was erroneous when one looked at, first, the matter of timing and, second, the subject-matter in relation to which there had to be satisfaction. In 1996, the appellant's de-registration had been processed immediately upon his statement that he had ceased trading, under paragraph 13 of Schedule 1. However, it had to be recognised that what was involved in paragraph 1(4)(b) was different; it related to an issue arising in connection with re-registration. A feature of the situation was that the respondents would, under paragraph 1(4)(b) "need" information which might show that the statement that they had received as to cessation of trading was not correct. However, it might be that it was a matter for the respondents to show what they considered that they lacked in that regard. There was no doubt that a person who genuinely ceased trading and subsequently recommenced trading would enjoy the benefit of paragraph 1(4). However, in the present case, it was the income tax returns made by the appellant which had shown that there was a continuing business. This was the position of the respondents, as stated in their letter to the appellant, dated 4 June 2001, production 1/3.16. Although this letter did not expressly refer to the requirements of paragraph 1(1)(a) of Schedule 1, it could properly be inferred that that, in association with paragraph 1(4), was involved. In that connection the respondents had relied heavily on the income tax returns. Summarising his position, counsel for the respondents said that when they had looked at the issue of re-registration in 2001, they had asked themselves whether they had been satisfied in terms of paragraph 1(4)(b) of Schedule 1 and had concluded that they had not had sufficient information for that purpose. They had been entitled to take that view in the light of the information in the income tax returns. In all the circumstances they had acted appropriately.

[21] Counsel for the respondents then went on to elaborate his third chapter of submissions. The argument against the respondents had related in part to the figure of £341,000 of expected taxable supplies. It was submitted that the appellant's criticism in this regard was misconceived, since it took no account of relevant case law. Hindsight was not to be used in relation to paragraph 1(3) of the Schedule. The figure of £341,000 was not an arbitrary one, since it had come from previous trading returns. In that connection reference was made to the Tribunal's decision at page 16, although it was accepted that what was narrated there was an argument rather than a finding in fact. In connection with this submission reference was made to production 1/9, the application for the fresh registration. In that document the figure of £341,000 had been stated as the projected value of taxable supplies; however, it was recognised that there was a level of unreality about that particular document, since it had not been completed by the appellant, but by an official of the respondents. It was also accepted that, in general, paragraph 1(3) of Schedule 1 was a provision conceived for the benefit of a trader, who might, prima facie, appear to be liable for registration under paragraph 1(1), but be able to show that the basis of that apparent liability was an uncharacteristic upward fluctuation in his turnover. In connection with these submissions reliance was again placed on Gray (trading as William Gray & Son) v. Customs and Excise Commissioners, supra, at page 885 to 887. It was evident from the observations in that case that, in applying the provisions of paragraph 1(3) of Schedule 1, in relation to a late registration, the same approach had to be followed as would have been followed if the registration was not late. However, it did appear that the paragraph had been drafted without contemplation of the possibility of late registrations, such as occurred here. Some of what was said in the case cited was difficult to understand.

Decision

(1) The statutory provisions
[22] In connection with the issues raised before us, it is necessary to note certain statutory provisions having a direct bearing upon the matter. Schedule 1 of the 1994 Act deals in general with registration in respect of taxable supplies. Paragraph 1, provides inter alia:

"1(1) Subject to sub-paragraph (3) to (7) below, a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule -

(a) at the end of any month, if the value of his taxable supplies in the

period of one year then ending has exceeded £47,000; or

(b) at any time, if there are reasonable grounds for believing that the value

of his taxable supplies in the period of 30 days then beginning will exceed £47,000.

...

(3) A person does not become liable to be registered by virtue of sub-paragraph (1)(a) or (2)(a) above if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time at which, apart from this sub-paragraph, he would become liable to be registered will not exceed £45,000.

(4) In determining the value of a person's supplies for the purposes of sub-paragraph (1)(a) or (2)(a) above, supplies made at a time when he was previously registered under this Act shall be disregarded if -

(a) his registration was cancelled otherwise than under paragraph 13(3)

below, paragraph 6(2) of Schedule 2 or paragraph 6(3) of Schedule 3, and

(b) the Commissioners are satisfied that before his registration was

cancelled he had given them all the information they needed in order to determine whether to cancel the registration.

...

5(1) A person who becomes liable to be registered by virtue of paragraph 1(1)(a) above shall notify the Commissioners of the liability within 30 days of the end of the relevant month.

(2) The Commissioners shall register any such person (whether or not he so notifies them) with effect from the end of the month following the relevant month or from such earlier date as may be agreed between them and him.

(3) In this paragraph 'the relevant month', in relation to a person who becomes liable to be registered by virtue of paragraph 1(1)(a) above, means the month at the end of which he becomes liable to be so registered.

...

13(1) Subject to sub-paragraph (4) below, where a registered person satisfies the Commissioners that he is not liable to be registered under this Schedule, they shall, if he so requests, cancel his registration with effect from the day on which the request is made or from such later date as may be agreed between them and him.

(2) Subject to sub-paragraph (5) below, where the Commissioners are satisfied that a registered person has ceased to be registerable, they may cancel his registration with effect from the day on which he so ceased or from such later date as may be agreed between them and him.

...

(4) The Commissioners shall not under sub-paragraph (1) above cancel a person's registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement to be registered under this Act.

(5) The Commissioners shall not under sub-paragraph (2) above cancel a person's registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement, or entitled, to be registered under this Act.

(6) In determining for the purposes of sub-paragraph (4) or (5) above whether a person would be subject to a requirement, or entitled, to be registered at any time, so much of any provision of this Act as prevents a person from becoming liable or entitled to be registered when he is already registered or when he is so liable under any other provision shall be disregarded. ... ".

(2) The facts and conclusions
[23] In connection with the appellant's first submission, it is vital to establish the circumstances of the appellant's de-registration from registration number 607 6702 42. At page 2 of the Tribunal's decision it is stated, although not as a formal finding in fact, that

"The appellant was registered for VAT with effect from 16 March 1993 till 30 August 1996 under registration number 607 6702 42. The appellant was de-registered, pursuant to his written request dated 30 August 1996 in which the appellant notified the respondents that he had ceased trading."

Further, the Tribunal finds in finding in fact 1:

"On or about 21 May 1996 the appellant was visited by one of the Respondents' Officers for a routine check on his VAT returns. Following an inspection of the appellant's accounts, the officer raised a query concerning the appellant's VAT treatment of interim payments received in relation to insolvency work. The appellant contested the view that there were any irregularities in such matters and, after his de-registration on 30 August 1996, maintained that the VAT Act 1994 ('the Act'), Schedule 11 (paragraph 7) did not apply to him, an unregistered person."

This finding is not directly concerned with the precise date of de-registration, and it is only as part of a narrative of other matters that that date is referred to as 30 August 1996. Against this background, strictly speaking, there is no finding in fact directly establishing that de-registration took place on that date. During the course of the discussion before us it was accepted that there existed relevant correspondence relating to the matter. The first item of that correspondence is the letter from the appellant to the respondents, dated 30 August 1996, production 1/3.1, quoted above in paragraph [1]. The response to that and, it must be said, the only response to that from the respondents is the letter, also dated 30 August 1996, production 1/10 in which it is clearly stated: "Your VAT Registration is cancelled with effect from 1 September 1996". In these circumstances and against a background of somewhat unsatisfactory findings in fact, we consider that the only appropriate course for us is to proceed upon the basis of that contemporaneous statement made by the respondents. Thus, we proceed upon the basis that the appellant was registered under the original registration until the end of August 1996, being midnight on 31 August. Accordingly, he was a person who had been the maker of taxable supplies and had been registered under the 1994 Act until that time

[24] It follows from that state of affairs that the provisions of paragraph 1(1) of Schedule 1 could not begin to apply to the appellant so as to create a prima facie liability for registration until, at the earliest, the commencement of September 1996, since it was only from 1 September 1996 that the appellant was "not registered under this Act," to use the words of paragraph 1(1) of Schedule 1. In this case, it was not suggested that paragraph 1(1)(b) had a part to play in this aspect of the case; accordingly attention had to be focused upon sub-paragraph (a), so the basis of any re-registration had to be the value of the appellant's taxable supplies in the period of one year ending at the end of September 1996. For the purposes of consideration of the present issue, however, it is not necessary to examine whether the appellant's taxable supplies had in fact exceeded the threshold provided in that sub-paragraph.

[25] Turning now to consider paragraph 5 of Schedule 1, we are not concerned with notification by the appellant himself, in terms of paragraph 5(1), since the re-registration purported to be made by the respondents was made upon their initiative, albeit that strangely they made use of the application form, production 1/9, which was plainly designed to be used in connection with a registration on the application of a trader. As we have already observed, the use of that form had certain somewhat bizarre consequences, but we do not require to be concerned with them here. In any event, in terms of paragraph 5(2) the respondents would have a duty to register a person who becomes liable to be registered by virtue of paragraph 1(1)(a) "with effect from the end of the month following the relevant month or from such earlier date as may be agreed between them and him". In this case there is no question of any date being agreed between the parties. " ... The relevant month" is, of course, defined in paragraph 5(3) as meaning the month at the end of which a person becomes liable to be registered by virtue of paragraph 1(1)(a) of the Schedule. If the "relevant month" is taken to be September 1996, as we consider it must be, then it follows that, in the absence of agreement, a fresh registration could take effect only from the end of the month following the relevant month. In this case that means that a fresh registration could not take effect earlier than from 1 November 1996. However, what the respondents purported to do was effect a compulsory registration of the appellant with effect from 1 October 1996, as appears from the decision of the Tribunal, at page 2, and the relevant correspondence.

[26] In our opinion, therefore, the respondents' attempt to effect a fresh registration of the appellant under the registration number 774 7579 68 with effect from that date was incompetent and involved an error of law on their part. To the extent that the Tribunal have declined to find that an error of law of that kind has occurred, it follows that the decision of the Tribunal is also flawed in that respect.

[27] It was argued to us on behalf of the respondents that, assuming that we came to the view which we have just expressed, that would not result in the registration in question being fatally flawed. The court, it was argued, could simply declare the position which they found and indicate that the earliest date with effect from which the fresh registration could run would have been 1 November 1996. The consequences of the error could then be corrected administratively. In this connection reliance was placed upon the case of Gray (trading as William Gray & Son) v. Customs and Excise Commissioners, supra; in particular, on what was said by Ferris J. in paragraph 17 of his judgment at page 885. All that was said there about a situation comparable with that which we find has occurred here was that counsel for the Commissioners had submitted that the error in the date of the registration was something, "in respect of which there can only be one answer and that I should give effect to it by my order on this appeal". Ferris J. agreed with that submission. We have to say, with respect, that we have great difficulty in understanding exactly what is being said at that part of that judgment. While it is indicated that "there can only be one answer" it is not indicated what that answer is said to be. It appears, however, from paragraph 39 of the judgment, that Gray was a test case, and the point may not have been thought to be sufficiently important to deal with it in detail.

[28] If and in so far as Ferris J. is to be taken as holding that the error involved in the date of registration was unimportant, that is a view with which we cannot agree. It is evident from the provisions of paragraph 5 of Schedule 1 to the 1994 Act that Parliament has gone to considerable pains to establish a system of registration which involves a precise chronology. In view of the various consequences of registration for the purposes of VAT, we consider that it must be supposed that it is of importance that that chronology should be strictly adhered to. If it is not, plainly that will have significant consequences so far as the trader is concerned. It is for these reasons that we consider that, where the respondents have purported to make a registration, such as the fresh registration here, which involves the error of law we have described, that registration cannot be seen as valid.

[30] What we have already said is sufficient for the disposal of this appeal. However, we consider that it is appropriate to say something concerning certain of the other arguments which were addressed to us. We were addressed in detail as to the adequacy of the factual basis for the respondents' decision to register the appellant afresh under the registration number 774 7579 68. We have come to think that there is very considerable force in the appellant's arguments in this regard. One of the difficulties arising in connection with this aspect of the case is that the respondents themselves never made clear upon what particular factual basis they made their decision to re-register the appellant. Liability to be registered, of course, is regulated by paragraph 1(1) and (4) of Schedule 1. The best indication of the basis upon which the respondents proceeded, it may be, can be seen from the letter of 4 June 2001, production 1/3.16, quoted above in paragraph [7], in which the respondents appear to rely upon the level of taxable supplies of the appellant's business in the 12 months ending 31 August 1996. However, the level of those supplies, on which the respondents appear to have founded, is not stated. In addition, the respondents, in that letter, appear to found upon the inapplicability of paragraph 1(4)(b) to the circumstances of the case, although, once again, it is not made clear why that should be so and, in particular, what precise information the respondents considered that they needed in order to determine whether to cancel the previous registration which they had not been given. Furthermore, examination of the decision of the Tribunal, including their findings in fact, does not reveal answers to these questions. Where the basis for the respondents' decision to re-register the appellant was in issue before the Tribunal, we consider that it is unfortunate that the precise basis for that decision was not apparently explored and was not made the subject of specific findings in fact.

[31] Arguments were also advanced to us concerning the application of paragraph 1(4)(b) to the circumstances of this case in the light of the fact that the respondents had cancelled the appellant's original registration upon the basis that, in terms of paragraph 13(4) of Schedule 1 they were satisfied at the material time that that was not a time when the appellant would be subject to a requirement to be registered under the Act. We would wish to reserve our opinion on the issues raised by those submissions. We are not, however, persuaded that the issues raised by the terms of paragraph 1(4)(b) are as closely related to those arising under paragraph 13(4) as counsel for the appellant contended.