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Aleagha & Anor (t/a Pizza Carino) v Customs & Excise [2003] UKVAT V18293 (19 August 2003)

VALUE ADDED TAX — Fast food takeaway — assessments for two shops based partly on records provided by appellants and partly on assumptions made by Customs — assessments for third shop based solely on increased declaration of takings by appellants — no issue on best judgment — all assessments reduced to nil — appeal allowed

CIVIL EVASION PENALTY — penalty falls with tax assessments — appeal allowed

MANCHESTER TRIBUNAL CENTRE

MR HOSSAIN ALEAGHA AND MR JACK MIRZIZAD

T/A PIZZA CARINO Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr J D Demack(Chairman)

Mr A E Brown FCA

Mr J P Denny

Sitting in public in Manchester on the 3, 4 and 5 March and 23 and 24 April 2003

Mr Richard Barlow of counsel instructed by AVC Leeds for the Appellants

Mr Nigel Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

DECISION

Introduction

This is an appeal by Mr Hossain Aleagha and Mr Jack Mirzizad, trading as Pizza Carino, against:

1) assessments to tax of £91455 (plus interest) for the period between 20 December 1986 and 30 June 1998 inclusive (the assessment period) notified on 9 April 1999; and

2) a civil evasion penalty assessment of £91441 for the assessment period notified on 17 June 2000, which penalty was mitigated by 5 per cent to £86869 for the appellants' co-operation in determining their true liability to tax. (The co-operation consisted in their attending a single interview).

The appellants appealed against the tax assessments because "the assessment has not been made by way of best judgment and is excessive", and against the penalty assessment because "suppression is denied".

Parol evidence was given by:

Messrs G A Lumb, Q Lewis, S Gill, J Kinghorn, M D Mummery, T A Simmons, Mrs J Wood, Miss L C Bower and Ms J Hardwick, all of whom are Customs' officers;

Messrs S B and N G Tranmer, former suppliers of burgers to the appellants;

Mr Abdullah Patel, bookkeeper for the appellants; and the two appellants themselves.

That evidence was supplemented by witness statements of Customs officers Messrs J Ingle and A G Clough, and Mesdames H T Walsh and S Illingworth, to which no objection had been raised, and a bundle of copy documents from each party. We labelled the appellants' bundle, P1, and the Commissioners, C1.

The facts

We find the following facts to have been established.

Messrs Aleagha and Mirzizad carry on the business of a fast food takeaway in partnership under the style of Pizza Carino. They sell pizzas, burgers, French fries, garlic bread, etc. Throughout the assessment period they traded from premises at 8A Old Bank Road, Mirfield, West Yorkshire. From 1991 or 1992 they also traded from 39 High Street, Heckmondwike. And for about 10 months from the end of 1997 they also traded from Seymour Arcade, 29 Towngate, Ossett. (The Appellants continue to trade from Mirfield. They sold the Heckmondwike business about 2 years ago, and closed the Ossett shop in October 1998). For 18 months to 2 years whilst hoping to obtain planning permission to extend the fast food shop at Mirfield the appellants also ran an adjoining card shop but as their planning application was unsuccessful they sold the card shop. The appellants explained, and we accept, that they closed the Ossett shop because it proved less profitable than they anticipated, the car parking facilities available being inconvenient for customers.

Each shop was open daily from 5 pm to midnight, except that on Fridays and Saturdays Heckmondwike closed at 12.30 a.m. And from an unknown date not long after its opening, Ossett opened at 4.30 p.m. The shops took orders by telephone and operated a delivery service, that service being free at Ossett from a date in the spring of 1998 for orders above a specified value.

Each shop had an electronic till programmed so that every single item on the menu appeared on its key pad. A cash customer would place his order on entering the shop. The cashier would key it into the till causing the till to open. Two copies of the till receipt would be produced, one for the kitchen as an instruction to the chef, and the other for the customer if he wished to take it. The customer would then pay for the food ordered, and receive change as appropriate. Payment could be made in cash or by cheque, but not by credit card. Telephone orders would be keyed into the till in the same way as cash customers' orders. Some telephone orders were initially noted on pieces of paper before keying in. The cashier's copy of the till receipt for telephone orders would be endorsed with the customer's name and be retained by the cashier. On the customer calling to collect and pay for a telephone order, the cashier would take his money and open the till by pressing the "no sale" key. If an order were to be delivered, the delivery man might have a cash float to enable him to give change as necessary, in which case he would account for his takings at the end of the evening. The takings would then be entered in the till by the cashier using the "no sale" key. Alternatively, the delivery man might take change for a £20 note on delivering individual orders, in which case his obtaining of change and accounting for the money for the order would generate two "no sale" keyings into the till. The till receipt for each order to be delivered indicated that it was a delivery.

In evidence, Mr Lumb, the Commissioners' assessing officer, accepted that the practice of using the "no sale" key described above was by no means peculiar to the appellants and their business. He also accepted that use of the "no sale" key was necessary on any occasion the appellants wished to open the till, notwithstanding no true sale transaction was being dealt with. He further accepted that the evidence of "no sale" entries on the till could rise to a level of 50 per cent at times. We treat those acceptances as facts.

We were not told what stimulated Customs' interest in the appellants, but between 2 March 1998 and 8 March 1998 officers visited the Mirfield and Heckmondwike shops, making a series of "first and last" purchases. To count the number of transactions recorded on the tills each day a purchase was made shortly after each shop opened and another just before it closed. The purchasing officer obtained a numbered till receipt for his or her transaction. By that means Customs were able to count the number of "transactions" carried out during each period of trading. Such "transactions" included "no sales" keyed into the tills. We find that nothing observed by the officers between 2 March 1998 and 8 March 1998 indicated that the appellants were suppressing takings.

Based on what he described as the Commissioners' general experience of fast food establishments, Mr Lumb then applied a figure of £5 to the estimated number of sale transactions to produce an approximate takings figure. That exercise indicated to him that the appellants might be underdeclaring their liability to VAT. Consequently, he recommended that there be further investigation of their affairs.

On Saturday 10 October 1998, Customs officers attended all three of the appellants' shops as they were about to close.

Officers Simmons and Lewis attended Heckmondwike, where Mr Aleagha was working. A Z reading was taken in their presence in the sum of £709.30. The officers noted that cash and cheques in the till totalled £676.10, including a float of £120. We find that the difference between the £709.30 and £676.10 was accounted for by delivery drivers' floats. (In evidence, Mr Lumb relied on the fact that he had been told by Mr Simmons that the cash and cheques counted had totalled less than the Z reading to indicate the suppression of takings by the appellants. We are satisfied that Mr Simmons confused the evening's takings with the takings plus the floats so that, including the deliverymen's floats, we find the cash counted matched the Z reading). The officers were unable to obtain a till audit roll. Officers Kinghorn and Hardwick visited Ossett. They obtained a till audit roll for the whole of the week then ending and a Z reading for the day. The cash and cheques for the day matched the Z reading. Officers Lumb and Gill went to Mirfield where Mr Mirzizad was working. They obtained a till audit roll for the 6 days then ending and the Z reading for 10 October. Cash and cheques matched the Z reading. We observe that in no instance did the cash and cheques counted exceed the till reading, which we would have expected had there been suppression of takings. We find that the officers' activities on 10 October 1998 revealed no evidence of suppression of takings. (Indeed, as the procession of Customs' witnesses as to events on 10 October lengthened it merely served to strengthen the appellants' case.)

In the October 1998 period for which the Commissioners obtained till rolls and Z readings, those documents revealed that at Ossett "no sales" varied between 27.7 per cent and 50 per cent of total transactions (being generally nearer the higher figure) C1 pp 59-61A, and that at Heckmondwike and Mirfield "no sales" were consistently around 28 or 29 per cent, but never reached 30 per cent, C1 pp 62-79. We also find that Mr Aleagha and Mr Mirzizad relied on employees to operate the Ossett shop, they themselves working at the other two shops.

In evidence the appellants explained what happened to their takings and Z readings at the end of each evening. They said, and we accept, that the net takings from each till, net that is after the deduction of the wages of casual staff and moneys required, e.g. to buy locally food items needed in the shop, and the Z reading for the day were put into a paper bag. On the outside of the bag were written the gross takings and all deductions. Periodically details of the takings were transferred to a notebook in which the entries were made in Persian, the appellants' native language. Then, at the end of each VAT quarter, the entries in the notebook were transferred to three diaries - one for each shop - the diary entries being made in English. The Z readings were then destroyed. The diaries and the appellants' purchase invoices were given to their bookkeeper, Mr Patel, at the end of each quarter. Over a period of 2 or 3 days, he sorted the invoices by date and supplier, totalled them, and add-listed the takings. Mr Patel's work was then taken to the appellants' chartered accountants, Messrs George Barker & Co, where their records were completed and their VAT returns prepared by Mr Waide, the sole proprietor of the firm.

The Appellants' VAT returns were signed by Mr Waide as authorised signatory. He also completed blank signed cheques provided by the appellants to cover their VAT liability.

As Mr Lumb was aware that the appellants rendered VAT returns on a calendar quarterly basis, one of his concerns on 10 October 1998 was to establish the whereabouts of records that would form the basis of their 09/98 return. His enquiries of Mr Mirzizad indicated to him that the records were with the appellants' "accountant". (Strictly speaking, that reply was incorrect, and we deal with this aspect of the evidence in the next following paragraph). Consequently, early on the morning of Monday, 12 October 1998, Mr Lumb telephoned Mr Waide to ensure that he did have the records. Mr Waide said he had them up to 30 June 1998. Mr Lumb thereupon went to Mr Aleagha's home, where the two met. Mr Aleagha confirmed that he had that morning delivered the records to Mr Waide, having collected them the previous day from Mr Patel. Mr Lumb then went to Mr Waide's office and collected them. He had them in his possession by mid morning.

As we have said, Mr Mirzizad told Mr Lumb that the books were with the accountant. He said they had been taken there 3 or 4 days earlier. But what he meant by that reply was that the books were with Mr Patel for him to carry out preliminary work before they were taken to Mr Waide. We are satisfied that Mr Mirzizad either made a simple mistake in replying to Mr Lumb or, perhaps due to language problems, misunderstood his question and gave an incorrect answer. But whichever was the case, in our judgment, there was nothing sinister in the incorrect reply. We are also satisfied that the work carried out by Mr Patel was on records completed by the appellants before 10 October 1998.

However, Mr Lumb assumed that Mr Mirzizad had deliberately misled him, and that his purpose in doing so was to enable incorrect records to be prepared, or be completed, on which the appellants' 09/98 VAT return was to be, and was in fact, based. We find that Mr Lumb was not justified in making that assumption.

The appellants' VAT returns for the periods 09/97 to 09/98 contained the following declarations (C1 pp 83A, 83C and 85):

Period	Sales at Mirfield and Heckmondwike	Sales at Ossett	Total Sales
09/97	63440	-	63440
12/97	64850	6361	71211
03/98	57422	8372	65794
06/98	59659	7085	66744
09/98	71710	16131	87841

We find that, although there was an increase of 127 per cent in the declared takings at Ossett in period 09/98 when compared with period 06/98, the increase at Mirfield and Heckmondwike for the same period was of the order of 20 per cent. We also observe that, despite the declared turnover at Ossett in period 09/98 being more than double that in period 06/98, it was less than one quarter of the aggregate of that at Mirfield and Heckmondwike in the later period, i.e. even in the later period the Ossett turnover was less than half the turnover of either Mirfield or Heckmondwike, assuming (as we believe to have been the case) that the takings of those two shops were roughly equal.

Mr Lumb, having concluded that the appellants had underdeclared their liability to tax, then proceeded to calculate the tax subsequently assessed on them.

The method of calculation he adopted for the Mirfield and Heckmondwike shops involved a comparison between an estimate of the value of sales made between 2 and 8 March 1998 inclusive and the sales recorded for those dates. As the method required the estimation of several factors, to indicate just how many we propose to mark each step at which he made an estimate or assumption with an asterisk (*), coupled with its number.

It will be recalled that Customs officers attempted to note the first and last purchases at Mirfield and Heckmondwike on each of the days in question in March. But that did not reveal the number of sales or their value. To obtain number and value Mr Lumb took the following steps.

Firstly, in recognition of the fact that the appellants recorded a large number of "no sale" transactions on their till rolls, he had to estimate (*1) the total number of sales at Mirfield between Monday, 5 October 1998, and Saturday, 10 October 1998, starting by noting the "no sale" transactions. Mr Lumb's estimate is to be found at C1 pp 62-65.

In the absence of a till roll for Sunday 4 October, he assumed (*2) that the sales on that day would have been an average of the figures for the remaining 6 days of that week. He estimated (*3) the number of "no sale" transactions at Heckmondwike on the basis of the till roll for Saturday, 10 October, and projected the figure produced using the Mirfield figures for the other six days, including the already estimated Sunday figure (C1 p. 81), assuming (*4) daily variations that mirrored exactly those at Heckmondwike.

We find that in his calculations Mr Lumb did not arrive at an estimate of the "actual transactions", as he claimed (see C1 p. 62 et seq), for he ignored all non-transactional entries recorded as "no sales" (*5).

Secondly, to estimate the average value of each transaction at Mirfield, Mr Lumb used the till rolls for Monday to Saturday (C1 pp 62-65), and calculated the figure (*2 repeated) for the Sunday as an average of the other six days of the week (C1 p, 73). He estimated (*6) the transaction values for Heckmondwike for Sunday to Friday using a combination of the Heckmondwike Saturday till roll and the Mirfield figures for Monday to Sunday (including the projected Sunday figure) to arrive, by use of percentages, at daily average transaction values (C1 p.80).

Thirdly, Mr Lumb assumed (*7) that the daily October figures could be applied to the numbers of transactions counted in March to arrive at projected totals for the March takings (see C1 pp 66-72 for Mirfield and C1 pp 74-79 for Heckmondwike). He further assumed (*8) that the differences between the amounts declared for those days and the amounts projected represented under-recordings of sales.

Mr Lumb thus concluded (see C1 p. 83 – Summary of sales projection from test purchase information) that, in relation to Mirfield and Heckmondwike, the true sales figure for the period between 2 March and 8 March 1998 inclusive was £6,325.78, as opposed to a declared figure of £4,708.10 – a suppression rate of 25.5 per cent. And, to quote from his schedule at (C1 p. 83A), "As constant trading pattern between declared sales and purchases, suppression rate applied to retrospective periods "i.e. from the appellants' commencement of trading in 1987 (*9).

The fundamental underlying assumption Mr Lumb made (*10) was that the appellants systematically suppressed sales at a steady rate, so that evidence relating to the Mirfield or Heckmondwike shop could be applied to the other (*11), and that one period could be compared with another (*12). (We note that he did not think that to be the case at Ossett, although he gave no reason for not making the same assumption as to its operation.)

As we have said, two of the witnesses for the Commissioners were the Tranmer brothers. Their firm supplied frozen burgers to the appellants. (The firm has now closed down). They were the only suppliers whose records were compared by Customs with those of the appellants, and it is common ground that the following Tranmer invoices were omitted from the appellants' records:

Period	Date	Invoice No	Amount
12/93	23.10.93	6170	87.00
3/94	4.1.74	7681	87.00
6/94	1.4.94	9429	156.60
9/94	2.7.95	11272	87.00
	9.10.95	18765	52.20
	4.11.95	19193	121.80
	20.11.95	19413	52.20
	26.11.95	19504	87.00
	16.12.95	19809	121.80
12/95	30.12.95	19985	208.80
	5.2.96	20449	52.20
	10.2.96	20539	87.00
	19.2.96	20651	52.20
	16.3.96	21018	87.00
	18.3.96	21037	52.20
3/96	30.3.96	21178	69.60
6/96	29.5.96	21839	139.20
9/96	20.7.96	22465	174.00
12/96	21.12.96	24263	226.20
	15.3.97	25190	87.00
	12.4.97	25492	104.40
	5.4.97	25397	87.00
	3.5.97	25730	87.00
	24.5.97	25963	87.00
6/97	21.6.97	26279	87.00
	5.7.97	26445	121.80
	26.7.97	26671	87.00
9/97	23.8.97	26988	121.80
	16.10.97	27552	87.00
	24.10.97	27652	139.20
	22.11.97	27945	139.20
	6.12.97	28103	156.60
	17.12.97	28195	104.40
12/97	27.12.97	28304	104.40
	31.1.98	28641	104.40
3/98	21.2.98	28832	104.40
	15.4.98	29322	104.40
6/98	23.5.98	29698	104.40

We observe that there were long periods when there were no omissions, e.g. from 9/94 to 12/95, and particularly note that the last Tranmer invoice omitted is dated 23 May 1998 i.e. over 4 months before the appellants became aware of Customs' interest in them. We regard that as significant.

(Customs originally maintained that a further 7 invoices were missing, but they were later found either to have been recorded or to have been the subject of errors on the part of someone other than the appellants, e.g. misnumbering by Tranmer).

Tranmers held a key to the appellants' Mirfield shop to which they made deliveries when it was closed. Their driver left the invoices for his deliveries with the burgers. The appellants claimed that that arrangement produced occasional mistakes. On one occasion an invoice for another of Tranmers' customers had been left with them and on other occasions their own staff had failed to give them invoices, and on yet others they claimed not to have received invoices. Those delivery arrangements were unique so far as the appellants were concerned, and we are satisfied that the appellants' claim that there were some mistakes is justified.

It is common ground that the missing Tranmer invoices represented approximately 0.6 per cent by value of the appellants' purchase invoices for the whole of the various accounting periods they covered. We were not supplied with the Tranmer records for the whole of the period covered by the missing invoices. But for those periods which were covered we find that the appellants paid the missing invoices.

Mr Lumb scheduled the appellants' purchases from Tranmer in periods 12/96 to 9/98 (including those for which the invoices were missing) at C1. p88 as follows:

"Period	Amount
12/96	1757.30
3/97	1444.20
6/97	1809.60
9/97	1705.20
12/97	2314.20
3/98	1501.20
6/98	1687.80
9/98	1774.80"

From that analysis, he concluded (again C1 p88):

"1. No apparent increase of burger purchases in period 9/98 to support traders' claim that both purchases and sales increased in period 9/98 as a result of a sales promotion (menu drop).

2. Unrecorded burger purchases appear to have ceased after period 6/98 which supports our consideration that trader included more purchases and sales in period 9/98 records, provided after visit of 10.10.98."

We do not accept his conclusions as fact.

In evidence, Mr Lumb admitted, and we find, that Customs had made no attempt to check purchases from other suppliers. Thus the only evidence of missing purchase invoices adduced by the Commissioners related to purchases from Tranmer.

Mr Lumb also claimed in evidence that, because the level of burger purchases by the appellants had not increased, but had remained constant to period 9/98, it was reasonable to assume that the appellants' purchases and sales had not increased by the amounts they claimed, i.e. as indicated by their VAT returns.

However, in an analysis of the appellants' purchases carried out by his colleague, Mr Lewis, to be found at C1 pp. 90-100, the following information emerges:

Supplier	3/98	6/98	9/98
Howarth	1134	1137	1520
T&L	1286	1620	2652
ICS	5152	6787	7566
Valerios	7194	7301	7530
Makro	1213	1265	1573
Ice Pak	764	694	889
Tranmer	1322*	1479**	1775
Woods	390	450	480
Cash	558	662	1080
Misc & Supermarket	806	824	1043
Sainsbury	- 19819	- 22219	93 26201

*add unrecorded purchases of £208.80

** add unrecorded purchases of £104.40

In reliance on Mr Lewis's analysis and of necessity the rejection of Mr Lumb's claim that there was no discernible increase in purchases, we find that the appellants' purchases increased by some 30 per cent from period 3/98 to 9/98. That the increase in burger purchases was much smaller – some 5.15 per cent – we consider irrelevant. It may well be accounted for, at least in part, by sales of kebabs having replaced those of burgers (see para 49 infra).

We also observe that, with the exception of the "Cash" and "Misc & Supermarket" items (which formed but a very small part of the whole) , the purchases were made from identified traders who almost certainly kept full records.

Based on the tax assessed in relation to Mirfield and Heckmondwike, the appellants' under-declared sales, expressed as a percentage of declared sales for the individual days of the week 2 March 1998 to 8 March 1998, ranged from 11 per cent at Heckmondwike on 8 March to 103 per cent at Heckmondwike on 3 March 1998. Further, they also gave rise to an over-declaration on 2 March at Heckmondwike.

In relation to Ossett, Mr Lumb assumed that the appellants' declared sales in period 09/98 could be compared with those declared in period 03/98. His reasons for so assuming and his calculation of the percentage rate of suppression are to be found at Cl p. 83C as follows:

" — Ossett sales in period 9/98 (records produced for this period after visit of 10/10/98) = £16,131.10

Consider more sales have been declared due to our known interest and not increase in custom

Therefore as no test purchase information held for Ossett arrears assessed based on increase in sales declarations

Previous highest declared sales for Ossett is in period 3/98 (£8372.50)

Therefore suppression rate [Diagram or picture not reproduced in HTML version - see original .rtf file to view diagram or picture] x 100 = 48%"

We shall deal with his reasons in our conclusion.

The appellants had menus printed for the Mirfield shop in May 1998. They also had menus printed for Ossett in October, November and December 1997. They were invoiced by North Account Book Manufacturing Co for 5000 menus for Ossett on 20 October 1997 (P1.p.9), and for a further 9250 on 7 November 1997 (P1. p.11), and for yet another 10,000 on 12 December 1997 (P1 p.13)

On 15 May 1998 the appellants were invoiced for 20,000 menus by Print Express (C1 p.16). Mr Gill maintained they were for Ossett, whilst the appellants both maintained they were for Mirfield and Heckmondwike. And on 12 June 1998 they were invoiced for 25,000 menus by Print Express (C1 p. 15). Mr Gill believed them to relate to Heckmondwike and Mirfield, whilst the appellants maintained they were for Ossett.

But whichever party be correct in relation to supplies of the menus referred to in the last preceding paragraph, we find the minimum number of menus printed for Ossett totalled 44250. We also find that at least some of the Ossett menus included items not on the menu of the other two shops, kebabs being the most important of them.

The appellants adduced evidence showing that a very large number of the Ossett menus were distributed by hand and that the Ossett area in which they made deliveries initially was extended in the hope of increasing sales. Both claimed that it was necessary to keep only a small number of menus in their shops. We accept their evidence as fact.

They also claimed that at the outset of trading at Ossett their terms of delivery were less favourable than those of competing fast food outlets, so that they changed to free delivery. As no evidence of competitors' practices was adduced, we are unable to make a finding of fact as to their competitors' practices, but we should perhaps say that, viewed against all the information before us, the appellants' claim would appear to have foundation.

In September 1998 the appellants installed a new telephone system at each of their shops. It included a facility to disclose the number of a person making an incoming call, and a memory for frequently used numbers. The appellants claimed, and we accept, that previously frequently used numbers were recorded on pieces of paper kept in till drawers, so that it was necessary to use the "no sale" key to obtain them, thus increasing the need for use of that key.

In interview on 13 November 1998 (C1 pp.104-169), Mr Aleagha responded to certain questions put to him and Mr Mirzizad by Mr Gill in the presence of Mr Lumb about their bookkeeping and record system. That system, which we earlier described (see para 15 supra), was not one to be recommended for it failed to ensure that the necessary records were kept for the required period (see para 6.3 Schedule 11 to the Value Added Tax Act 1994). We find from the exchanges recorded that Customs were aware of the system adopted and used by the appellants, and that they either expressed satisfaction with it or accepted it notwithstanding their dissatisfaction. (Although it is not easy to discover precisely what Mr Aleagha was at times saying in interview, he claimed that a Mr Richardson, a Customs officer who made a control visit to the appellants some time previously, was told that they kept Z readings for only 6 weeks and then destroyed them. He also claimed that Mr Richardson subsequently informed the appellants that Customs were content to allow them to continue that practice. We particularly record that the appellants' evidence in interview about Mr Richardson's visits, as confirmed at the hearing, was not challenged by the Commissioners. In the absence of any challenge, we accept the claims as fact).

And although by the date of the interview the Commissioners were aware that the appellants maintained that their books and records were with Mr Patel on 10 October 1998, Mr Gill (and for that matter Mr Lumb) chose not to raise any questions of them in interview as to Mr Patel's part in events. The appellants answered various questions put to them in a way that might have indicated a reluctance either to identify Mr Patel or to indicate the nature of his work for them. Yet no effort was made by the interviewing officers to challenge their claims.

For completeness we add that, in interview, Mr Aleagha and Mr Mirzizad said that they were aware that they must declare all sales and purchases on their VAT returns, and that it was an offence knowingly to submit incorrect VAT declarations.

The Law

The law in point in relation to the tax assessments is to be found in s. 73(1) and s. 77 of the Value Added Tax Act 1994. The relevant parts of the former subsection read as follows:

". . . [W]here it appears to the Commissioners that .. . returns [required under this Act] 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."

And those parts of s. 77 which we must consider are the following

"(1) Subject to the following provisions of this section, an assessment under section 73 . . . shall not be made —

(a) more than 3 years after the end of the prescribed accounting period . . . concerned

(4) Subject to subsection (5) below, if VAT has been lost —

(a) as a result of conduct falling within section 60(1) . . ., or

(b) . . .

an assessment may be made as if, in section (1) above, each reference to 3 years were a reference to 20 years

(Subsection (5) is irrelevant in the present context.)

As to the penalty assessment we must deal with sections 60 and 70 of the 1994 Act to the following extent:

"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 . . . to a penalty equal to the amount of VAT evaded or, as the case may be, sough to be evaded, by his conduct.

(7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall be upon the Commissioners

70(1) Where a person is liable to a penalty under section 60 . . ., the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper

(2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on appeal relating to the penalty, may cancel the whole or any party of the reduction made to the Commissioners ."

Submissions and Conclusion