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United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18598

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Singh v Customs and Excise [2004] UK V18598 (05 May 2004)

VAT — compulsory registration of partnership — whether evidence of partnership sufficient — yes — registration correct

VAT — assessment — off-licence — records found recording takings greater than VAT declarations — whether records reliable — yes — whether binding compromise reached between appellant's representative and respondents — no — whether assessment to best judgment — yes —whether assessment correct — yes

VAT — penalties — dishonest evasion — whether evasion established — yes — whether dishonesty established — yes —mitigation

MANCHESTER TRIBUNAL CENTRE

BIKRAM SINGH Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Colin Bishopp (Chairman)

Mr J T B Strangward

Mr C B H Gill

Sitting in public in Manchester on 1 October 2003, 19 & 20 January 2004

Razan Hussain, accountant, for the Appellant

Jonathan Cannan of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The appellant, Bikram Singh, trades as the proprietor of an off-licence business in Bradford using the name "Listerhill Wine Rack". The Commissioners believe that at the relevant time he did so in partnership with his brother, Tarlok Singh Sandhu. We shall refer to them as Mr Singh and Mr Sandhu respectively. The business was established on 31 July 1995. Mr Singh alone applied (in September 1995) for VAT registration from that date but in March 1996 the Commissioners compulsorily amended the registration, to a partnership between the two brothers, and backdated the amendment to 31 July 1995. The Commissioners have also made an assessment of allegedly under-declared tax of £60,698 for the period from 31 July 1995 to 31 May 2000 inclusive, and have imposed a penalty on the brothers for the alleged dishonest evasion of that tax. They have reduced the maximum penalty of 100% of the tax evaded by 10% to give credit for cooperation; the aggregate of the penalties imposed for each individual period included within the overall total is £54,628.20.

Each of those decisions is now challenged before the tribunal. For reasons which did not become clear, only Mr Singh has appealed but the inevitable consequence if his appeal, or any part of it, succeeds is that his brother must escape the corresponding liability imposed on him despite his own failure to appeal. Mr Singh denies that he was trading in partnership with his brother but does not do so merely in order to procure a correction in the registration (which has, in fact, now been amended to record him as a sole trader). His argument is that the error in the registration invalidates the assessment and the imposition of the penalty. He also contends that the assessment was not made to the Commissioners' best judgment and maintains that it is in any event excessive. He denies dishonesty, but argues that if it should nevertheless be found that he was dishonest, the Commissioners have allowed insufficient mitigation of the penalty. Lastly, it is contended that by making the assessment and imposing the penalty the Commissioners are seeking to resile from a binding compromise.

The hearing of the appeal was unfortunately spread over a long period. We began on 1 October 2003, already some years after the relevant events. The estimate that the hearing would occupy one day turned out to be very optimistic and we resumed for two further days, but not until January 2004. Even then the two days were insufficient and we agreed to accept the parties' closing submissions subsequently, in writing, although we consider that course a poor substitute for oral submissions. While we are grateful to the parties and their representatives for dealing with matters in that way in order that the appeal should be concluded, the history of the hearing does demonstrate the importance of correctly estimating the time required.

The appellant was represented by his accountant, Razan Hussain, and the Commissioners by Jonathan Cannan of counsel. We heard evidence from Christopher Donkin, the assessing officer; from Martin Mummery, Christine Marshall and Neil Priestman, also Customs officers; and, in each case through an interpreter, from Mr Singh and Mr Sandhu. The latter's evidence was, largely, corroborative of that already given by his brother, although from time to time he told us he was unable to answer the question put to him. We shall mention his evidence only when it was not consistent with what his brother said, or otherwise merits comment. Mr Hussain also gave some brief evidence. We had the unchallenged statements of two further Customs officers, Michael Carpenter and Amanda Jones, though they deal only with formal matters and we shall not need to mention them again. We were provided with a bundle of documents, and have considered the written submissions we have mentioned.

The events with which we are concerned began with a routine control visit to the offices of the appellant's accountant (then as now Mr Hussain) followed by a visit to the trading premises, at that time at 14 Legrams Lane, Bradford, on 22 January 1996. That visit, undertaken by Mrs Marshall, was made because the appellant's first VAT return claimed a repayment and, as is customary, the Commissioners wished to check its accuracy. Mrs Marshall told us that – eight years after it had taken place – she had no real recollection of the visit, but a copy of her contemporaneous report was available. It indicates that Mrs Marshall, while examining the records produced to her, found some invoices among them which were addressed to Mr Sandhu. She has recorded that fact in her report and has added the words "Mr Singh advises that the business is a partnership with his brother". When he came to give his evidence, Mr Singh did not deny that he had mentioned a partnership with his brother, but he told us that the partnership to which he referred related to a different venture and not to this business. It is by no means apparent to us from Mrs Marshall's note or from the evidence we heard why Mr Singh should mention, in this context, a partnership with his brother in respect of another business, nor why, if he had done so, Mrs Marshall should have misunderstood him and noted the fact as one relevant to this business.

On the strength of what she had understood (that is, that Mr Singh was referring to Listerhill Wine Rack), Mrs Marshall took steps to have the appellant's registration, then in his name alone, changed in order to reflect a partnership between the brothers. In February and again in March 1996 an officer in the Commissioners' registration section wrote to "Listerhill Wine Rack" to invite the completion of an application for amendment. In the absence of a reply an amendment was effected compulsorily in March 1996, backdated to the original registration date of 31 July 1995, and at the same time a new registration number was allocated. Mr Singh's evidence was that he received neither of the requests nor the notification that his original registration had been amended (if he had, he said, they would have been given to Mr Hussain), and that he did not notice that the VAT returns which he received thereafter bore a different number from that which he had first been given. We observe that most of the Commissioners' communications are addressed to "Listerhill Wine Rack", and they would not, therefore, draw attention to the fact that the business was regarded by the Commissioners as a partnership. Had he realised at the time that the change had been made, Mr Singh said, he would have challenged the Commissioners' actions then. Quite when he became aware that the registration was of a partnership did not emerge, though it seems probable it was in the summer of 2000. Mr Hussain began to correspond with the Commissioners on the subject in March 2001 and, having been unable to persuade them to amend the registration (though they have since done so), he lodged an appeal in September 2001. That appeal, as we have recorded, was among those before us; the respondents took no issue on the fact that it was made out of time.

There were no further events of significance until the respondents made an unannounced visit to the trading premises of Listerhill Wine Rack, which had by then moved to 20 Legrams Lane, Bradford, on 14 June 2000. The officers who attended were Mr Donkin, Mr Mummery and a Mr McAllister, from the last of whom we had no evidence. The purpose of the visit was two-fold: to discover whether any tobacco products or alcoholic drinks which had not borne United Kingdom excise duty were being sold; and to determine whether the takings of the business had been correctly declared. Mr Singh was at the premises when the officers arrived. He was, as the respondents accept, entirely cooperative, and he allowed an unobstructed search of the premises. No illicit products were found, and that aspect of the Commissioners' enquiries has, we understood, proceeded no further although, as will emerge, suspicions remain.

Mr Donkin's evidence was that he asked Mr Singh a number of questions about the business. He was, in particular, anxious to establish the manner in which it was run and in which the records were kept. He formed the view that Mr Singh's command of English (in which the entire conversation was conducted) was good enough to enable him to understand what Mr Donkin was saying, and to reply without difficulty. Mr Singh's daughter (who, it was accepted, is fluent in English) arrived at the premises while Mr Donkin was present, although after the discussions had begun, and could have assisted her father as he answered questions, if assistance was required. Mr Donkin's evidence was that the daughter was not called upon to assist; Mr Singh said that she had called in to the shop to bring him some food while on her way to college, and he could not ask her to stay.

Mr Hussain was to argue that the conversation on this occasion was unfair to Mr Singh. Mr Donkin should, he said, have taken an interpreter with him and - a penalty ultimately having been imposed - his failure to do so meant that Mr Singh's rights under article 6 of the Human Rights Convention had been infringed. That argument depends upon our accepting that Mr Singh's command of English is poor to the extent that he could not properly understand what Mr Donkin was saying, or make himself understood.

We have mentioned that both Mr Singh and his brother gave their evidence through an interpreter. Each spoke a few words, during the hearing, in English and we could judge, from their facial expressions and other reactions, that they understood some at least of what was said by others as the hearing proceeded. It was noticeable too that when he came to give evidence Mr Sandhu began to answer questions put to him (in English) before they had been translated for him by the interpreter.

We learnt from Mr Singh's evidence that he was born on the Indian sub-continent, into a Punjabi speaking family. We have no information about his education. He has lived in England since 1977, has worked in factories and has kept, or worked in, shops. He had been trading at this shop from 31 July 1995, that is for almost five years before Mr Donkin's visit. Mr Singh told us that his spoken English was a little better than his brother's. It was apparent that both he and his brother could read English and that Mr Singh at least could write in English, although he said he could not write a letter. We observe that those examples of Mr Singh's handwriting which we had were all in English.

We are willing to accept that Mr Singh might have encountered some difficulty in following the hearing, and the quite technical language employed at it by those accustomed to its daily use, without some assistance from an interpreter. We are not, however, willing to accept that a man who had shown himself capable of running a shop, in England, for five years (after many years of residence) was unable to understand the more colloquial language which, we are satisfied, Mr Donkin used during the course of his visit, nor that he was unable to express his answers adequately. Mr Donkin told us that he took care to ensure that Mr Singh understood him - for example by repeating his questions - and we are satisfied that he succeeded in doing so. It is conspicuous that Mr Singh did not complain at the time that he was unable to understand Mr Donkin and we observe too that Mr Singh evidently did not feel the need for a companion fluent in English when he attended a meeting with Mr Donkin in July 2000 (we shall deal with the meeting shortly). That fact, too, suggests that Mr Singh felt some confidence in his ability to understand and speak English. We do not accept that Mr Singh refrained from seeking his daughter's help because she was in a hurry. We are satisfied that he did not do so because he did not need her help. We have concluded that the discussion was fair and that any weakness in Mr Singh's command of English did not prejudice him.

It follows that we do not accept that there could have been any real need for an interpreter at the visit in June 2000. We do not, therefore, propose to deal with the argument that article 6 imposes an obligation to provide one save to express some doubt whether it does at any time before a charge has been formulated, or at least decided upon, which was not the case at the time of the visit. We return, then, to the discussion which took place on that occasion.

One of the questions Mr Donkin asked, he said, was directed to the ownership of the business; this was the Commissioners' standard procedure. Mr Singh said he was a partner, although he does not seem to have indicated at that stage who the other partner or partners might be. As we have mentioned, the business was then registered as a partnership and Mr Singh's reply to Mr Donkin's question merely confirmed what Mr Donkin already believed to be the case. The purpose of the question, as Mr Donkin explained it, was not so much to establish the ownership of the business as to ensure that he was speaking to someone in authority. We accept that evidence, but we also recognise that, just as Mr Donkin was not seeking to establish the ownership of the business, so Mr Singh's, probably quite casual, reply cannot be taken as unequivocal evidence of that ownership.

During the course of his search of the premises, Mr Donkin discovered a number of accounting records: among them were three notebooks, sold under the trade name "Black n' Red", and various other documents, many of them single sheets of paper including what appeared to be records of purchases and other outgoings, and weekly takings figures. The pages of one of the Black n' Red notebooks had mostly been torn out, and Mr Donkin did not discover for what purpose, if indeed any, it had been used. In the others, the pages were ruled into columns, apparently showing daily takings on the extreme left of each page, with, as Mr Donkin deduced, details of purchases – itemising both value and purpose – in the centre, with a daily total of expenses on the right. Although Mr Singh agreed that the entries in the centre and on the right were as Mr Donkin thought, he did not confirm that the left-hand figures represented takings.

Among the loose sheets were several divided into columns and rows, each column representing a day of the week and each row a whole week. A figure appeared in each box created by the divisions into rows and columns, which Mr Donkin took to be the takings for each day. There was a total at the end of each row, representing the weekly takings. Mr Donkin later ascertained that the figures shown on these sheets could be reconciled to the VAT declarations. They were consistently lower than the figures recorded in the notebooks for the same periods, where a correspondence of dates between the two sets of figures could be found. That was not always possible, because the records were not complete. The figures in the notebook were, however, reflected in further sheets of paper discovered by Mr Donkin. These too were divided into columns. On the left was a list of dates, identifying weeks, followed by sums of money. On this side of the page was a heading, "sale". At the foot of the page, beneath the columns of dates and figures, appeared (in the example of which a copy was in the bundle of documents) the following:

"23 week Total sale 83781

16% profit on 83781 = 13404.95"

The right hand side of these sheets was headed "expense" and contained a list of items and amounts expended, though not identified to the dates on which payments were made. Some appeared to represent purchases of stock, while others were overheads, such as utility bills. Within the list on the sheet produced to us was an entry reading "23 week B.S. pay – 5750.00"

While Mr Singh was willing to confirm to Mr Donkin that the details set out on the right hand side of the sheets did indeed represent expenses, he was again unable or unwilling to tell him what the figures on the left represented. Mr Donkin took them and the corresponding figures in the notebooks to be the true takings of the business. In due course he based an assessment upon the assumption that this was so, and that the takings had been understated by the difference between those figures and the amounts declared in the VAT returns. Mr Singh's evidence before us was that the figures did not represent sales, but the income in each week of his extended family. He was, he said, the oldest of that extended family, and it was his responsibility to take care of the family's resources. It was for that reason he kept a record.

On 13 July 2000 Mr Singh was interviewed by Mr Donkin and Mr Priestman at the Commissioners' office in Bradford. As we have already mentioned, he was unaccompanied. By this time dishonest evasion was suspected and Mr Singh was given a copy of the Commissioners' Notice 730, explaining their policy in such cases. The notice is presaged by section 60(4) of the Value Added Tax Act 1994. It invites cooperation in exchange for an intimation that criminal proceedings will not be instituted, and explains that the maximum penalty may be mitigated if the trader cooperates with Customs in various ways. The interview was tape-recorded but the tapes have been lost, and no transcript had been prepared. That is most unfortunate, but we accept Mr Priestman's evidence that the loss of the tapes was accidental. We had what was described as a "record of salient points", prepared by Mr Priestman, but it is a selective account and, in the absence of the tapes, which made it impossible for Mr Hussain to verify its accuracy, it was agreed we should leave it out of account. We are satisfied from the evidence we heard (and for the same reasons as before) that Mr Singh understood what was said to him at this meeting, and was able to reply effectively to the officers' questions.

The evidence we heard from Mr Donkin and Mr Priestman was that Mr Singh acknowledged at the meeting that he was in business at Listerhill Wine Rack in partnership with his brother, and that he said that one of the Black n' Red notebooks found by Mr Donkin was used to record the takings. That book covered the period from 1 May 2000 on; it was on that date that the business had moved from 14 to 20 Legrams Lane (although in his evidence Mr Singh was much less certain of the date of the move, which he eventually placed in 1998 or 1999). The book therefore covered only the few weeks between 1 May and Mr Donkin's visit on 14 June 2000 and, in fact, not all of those weeks. The book whose pages had been torn out was not explained; the third, he said, had been left behind by the previous occupier of the premises, which had then been a restaurant. Mr Singh was unable to explain, either at the interview or during the course of the hearing, why the first entry in that notebook was dated 31 July 1995 (the date on which Listerhill Wine Rack was established). The last entry in it was dated 2 August 1998; Mr Donkin did not discover a similar record for the period not covered by the two books although some of the single sheets we have mentioned do relate to that period. At the conclusion of the interview Mr Singh asked for some time in order to consider his records and provide a full explanation.

A further meeting took place on 4 September 2000; on this occasion Mr Singh was accompanied by Mr Hussain, while Mr Priestman was alone. No recording of the discussion was made, and we had no contemporaneous note from either Mr Priestman or Mr Hussain. It appears that no further "Notice 730" explanation was given to Mr Singh. It was common ground that some under-declaration of takings was conceded by Mr Singh, or by Mr Hussain on his behalf, and that it was agreed that, following the meeting, Mr Hussain would make some calculations of the true sales and purchases in order that an estimate of the under-declared tax could be made. There was, however, considerable disagreement between Mr Hussain and Mr Priestman about precisely what was agreed, and how far the agreement went.

The appellant's case is that there was an agreement between Mr Hussain and Mr Priestman that the matter would be resolved in this way: that is, Mr Priestman would accept Mr Hussain's calculations, which were to proceed from the assumption that the Black n' Red book contained reliable figures. There is certainly some support for that proposition in Mr Donkin's decision to base his assessment on those figures; he, too, regarded them as the most likely of those available to be reliable, at least in relation to sales made at the shop.

Mr Priestman denied in his evidence that any such agreement had been reached. He was, he said, anxious to make progress in determining the amount of tax which had been under-declared, and was aware that Mr Donkin was intending to make an assessment. Any more reliable information he could obtain would be of assistance to Mr Donkin and also to Mr Priestman himself. He had by this stage decided that he should recommend the imposition of a penalty, and he needed to be able to determine the value of the tax evaded for that purpose. He accepted that some reliance could be placed on the sales figures recorded in the Black n' Red books, but he did not consider that the purchase figures they contained were reliable nor that the books represented the whole picture since the difference between the disclosed sales and the recorded purchases was too small; the business could not have survived, he thought, on such small margins. He felt that if the recorded purchases were accurate, there must be unrecorded sales – perhaps by wholesale to other traders (and he was aware that Mr Singh had an interest in another liquor business); and he was anxious too to establish the source of some of the purchases which, he suspected, were not legitimate despite the fact that no illicit supplies had been found at the visit in June. He would have been willing, he said, to allow some input tax credit in the computation of the penalty even in the absence of tax invoices, but he required some evidence, such as the identity of the suppliers, which would justify his making such an allowance. The records in the books, alone, were not sufficient. He was willing to treat the books as the starting point, but no more.

Mr Hussain wrote to Mr Priestman on 2 October 2000, referring to "our agreement to resolve the issue". He set out his calculation of the aggregate sales and purchases recorded in the first Black n' Red book, from 31 July 1995 to 1 August 1998, at £593,312 and £589,222 respectively, but indicated that he recognised that the difference between the two of only £4,090 was unrealistically low. He then suggested that purchases should be estimated by taking the recorded sales figures and assuming that they included a profit of 15%. Proceeding from that suggestion, and after a making an allowance for closing stock (there was no opening stock as the calculation dated from the commencement of trading), he arrived at a VAT liability of £4,919. His letter concluded with the sentence: "This is [a] without prejudice offer to conclude the matter".

Mr Priestman replied on 5 October, implicitly rejecting Mr Hussain's offer. His letter indicates that he had been making a further and more detailed examination of the appellant's records himself, and he mentioned that he strongly suspected that some at least of the purchases were of goods which had not borne UK duty. Mr Hussain responded, identifying the sources of some purchases as three shops which had ceased trading and whose stock the appellant had, he said, bought, and refuting the contention that any of the goods sold by the appellant had been illegally imported. Mr Priestman again rejected that explanation and sent an analysis he had prepared of the purchases he had been able to identify from the appellant's records. He invited Mr Hussain's further comments. Mr Hussain provided copies of a few invoices, but the correspondence on this topic did not otherwise continue.

While we are willing to accept that Mr Hussain left the meeting on 4 September 2000 believing that Mr Priestman would be prepared to consider his calculations and with the hope, even a confident hope, that the matter would soon be resolved by that means, we are quite sure Mr Priestman did not indicate that he would accept, almost without question, whatever Mr Hussain produced. It is not surprising that he invited Mr Hussain to put forward figures for his consideration. That is part of the policy which the Commissioners' Notice 730 sets out to explain, and the putting forward of proposals, at least if they are supported by evidence, is one of the forms of cooperation which, as the Notice indicates, the Commissioners encourage by the offer that such cooperation will be rewarded by mitigation of the penalty. The taxpayer has, or ought to have, proper records, and ought to be capable of interpreting them in a way the Commissioners might not be able to do. Mr Priestman, by contrast, was aware that he did not have access to complete records. Common sense alone dictates that Mr Hussain, on Mr Singh's behalf, should be given the opportunity to identify the scale of the under-declaration which had by now been conceded.

However, it would, in our view, be quite remarkable if Mr Priestman had indicated that he would unconditionally accept the accuracy of Mr Hussain's proposals. It was plain – as Mr Hussain's own letter shows he accepted himself – that the entries in the notebook were not entirely reliable; it defies belief that Mr Priestman would agree in advance of seeing it to accept a calculation based on such material, particularly so when Mr Donkin rather than he was to be the assessing officer. Moreover, Mr Hussain's use of the term "without prejudice offer", and the terms of his and Mr Priestman's subsequent letters, are not consistent with the existence of a binding compromise such as Mr Hussain argued had been reached. We accordingly reject the contention that the making of the assessment and the imposition of the penalty offend any such compromise.

The Commissioners' belief that the appellant and his brother were trading in partnership was based only partly on what he said (or is recorded to have said) to Mrs Marshall and at his interview in June 2000. They had in addition a bank statement dated February 2000 identifying the account holder as "Mr B Singh and Mr T S Sandhu trading as Listerhill Wine Rack", a Royal Mail retailer card issued to "Tarlok Singh Sandhu, Listerhill Wine Rack", an invoice for an insurance premium, dated in July 1999, addressed to "Mr T Sandhu Singh, Wine Rack" at the address of the business, a copy of the justices' off-licence for the period from 11 February 1998 to 4 April 2001 in Mr Sandhu's name, and a copy of a letter from the owners of the trading premises at 14 Legrams Lane addressed to Mr Sandhu in July 1996, authorising the erection of a new fascia sign. All these factors, Mr Cannan argued, pointed to the conclusion that Mr Sandhu was an active participant in the business. Partnership amounted to no more than the relationship between two or more persons carrying on a business in common with a view to profit: see section 1 of the Partnership Act 1890. All of the evidence, he said, pointed to the conclusion that that was the position in this case. And even if, despite all the appearances, Mr Sandhu was not in fact a partner, the Commissioners had quite reasonably registered him and his brother as partners.

Mr Hussain contended, first, that what Mr Singh was recorded to have said could not be relied upon. He referred again to his poor English and, he suggested, he did not understand the concept of partnership as it is prescribed by English law, which did not reflect Mr Singh's cultural background. Mrs Marshall's evidence was effectively limited to the contents of her visit report and, he argued, it could not now be said with any certainty what she had asked, and what reply she received. Mr Donkin's enquiry was directed to ensuring that he was speaking to a person in a position of responsibility, and not to ascertaining the ownership of the business, and what Mr Singh may have said could not be relied upon as evidence that a partnership existed. As we have already indicated, we see some force in that latter point. Mr Hussain pointed out that, after some persuasion by him, the Commissioners did in fact accept that Mr Singh was a sole trader (even if only from March 2001); there was no change in his circumstances and their doing so, he said, amounted to an admission that they were wrong to have registered the business as a partnership.

We heard evidence from Mr Singh and Mr Sandhu about the incidental material available to the respondents. Mr Sandhu's apparent involvement in the business, they said, was not an indication that he was a partner, but was merely a matter of convenience. Mr Sandhu, we were told, merely helped out in the business from time to time. He had employment elsewhere and had limited time at his disposal. Occasionally he would go to the cash and carry warehouse to make purchases and, Mr Singh said, it was for this reason the bank had been asked to accept him as a cheque signatory; the bank had mistakenly described him as an account holder, rather than as merely a cheque signatory. The Royal Mail card had been obtained by Mr Sandhu who held one in his capacity of partner in another business, Nabwood Mini Market in Bingley. Rather than make a fresh application for a Royal Mail card (which allowed the holder to obtain postage stamps at a discount for onward sale at face value) it was decided that it would be simpler for Mr Sandhu to arrange to transfer his existing card. Similarly Mr Sandhu held the justices' licence for Nabwood Mini Market (which also sold liquor) and the simpler course was to apply in his name for the licence required by Listerhill Wine Rack; that avoided the need for Mr Singh to take a written test, which Mr Sandhu did not need to do as he had already held a licence. Mr Sandhu had become the tenant of the original trading premises because Mr Singh had a County Court judgment recorded against him and it was thought that no landlord would be willing to grant him a lease. Since Mr Sandhu was the tenant of the premises, even if only as a nominee, it seemed appropriate that he should deal with the insurance.

We reject the substance of Mr Hussain's argument, and do not accept the evidence given by the appellant and his brother. We are not persuaded that Mr Singh was ignorant, as Mr Hussain claimed, of the concept of partnership. It is difficult, if not impossible, to reconcile the assertion with Mr Sandhu's evidence that his brother offered him a partnership in Listerhill Wine Rack but he declined the offer, because he did not want the responsibility and did not think the offer was attractive (evidence which is also difficult to reconcile with Mr Singh's further evidence that all the family income was pooled in which case Mr Sandhu's being, or not being, a partner would be a matter of little consequence).

Mr Singh was able to give evidence to us about the arrangements between the family members who together owned and ran Nabwood Mini Market, although his and his brother's evidence changed considerably as the hearing proceeded. At first we were told that the partners in that business were the appellant, Mr Sandhu and their sister, Mrs Prakash Kaur. Later, the appellant said that the partners were his wife, Mr Sandhu's wife and Mrs Kaur (evidence which seemed, incidentally, inconsistent with Mr Sandhu's holding the licence and the Royal Mail card by reason of his being – as was first said – a partner in that business). We were left with the clear impression that the earlier evidence was more likely to be correct, since it is consistent also with a letter Mr Hussain wrote to the Inland Revenue on 1 November 2001, in which he indicated (though not very clearly) that Mr Singh, Mr Sandhu and Mrs Kaur were the partners in Nabwood Mini Market. There was, at the least, no hint that Mr Singh's and Mr Sandhu's wives had been partners; and this letter, we mention in passing, suggests that Nabwood had been sold before Listerhill was established. Certainly we detected from Mr Singh's and Mr Sandhu's evidence about Nabwood Mini Market, too, no difficulty in their understanding the concept of a partnership; on the contrary, it seemed to us, not least from the changes in their evidence about the identity of the Nabwood partners, that both brothers knew very well what partnership entailed.

We were provided with a document apparently showing the division of the assets of a business between Mr Singh, Mr Sandhu and Mrs Kaur. The document consists mainly of typescript, but at the top, in what he agreed was his handwriting, the appellant had written "Listerhill Wine Rack. B. Singh". In evidence he said that this document related to Nabwood Mini Market, and to some other family money. Even if that were true, the document and the information it contains demonstrate some experience of, and familiarity with, the relationship of partners. The document deals with the division of capital and profits, and the sharing of liabilities, between Mr Singh, Mr Sandhu and Mrs Kaur. Mr Singh was unable, or unwilling, to tell us who had prepared it, but it was obviously not professionally produced.

We do not, however, accept that Mr Singh's account of the document is true, not merely because there is no evident reason why he should write "Listerhill Wine Rack" on a document relating to another business (and the appellant offered no explanation of his having done so) but because he had also added, in handwriting, the comment that the figure shown on the document for net stock represents the stock on 17 February 1997, before which date, on his own evidence, the Nabwood business had been sold (he told us that it was sold about a year after he set up business at Listerhill). In addition, the profit figures shown relate to a period beginning on 31 July 1995, the date in which Listerhill Wine Rack was established. Mr Singh's explanation is, moreover, inconsistent with the later evidence that the partners in Nabwood Mini Market were Mr Singh's and Mr Sandhu's wives, and Mrs Kaur; and it is also inconsistent with the terms of Mr Hussain's letter of 1 November 2001 to the Inland Revenue, which we have already mentioned, in which he explained that the document related to loans made by Mrs Kaur and Mr Sandhu to Mr Singh, for the purpose of enabling him to establish Listerhill Wine Rack, an explanation which is itself impossible to reconcile with the sharing of profits between the siblings. Later in his evidence, Mr Singh conceded that some of the figures shown on the document did, in fact, relate to Listerhill Wine Rack, but he maintained that other sources of family money were also included, although it did not emerge, from his confused evidence, what these other sources were.

In our view this document is consistent with there having been a partnership between the appellant, his brother and his sister, but is rather less consistent with the existence, at least between 31 July 1995 and 17 February 1997, of a partnership between Mr Singh and Mr Sandhu alone. However, the document is not, by itself, convincing evidence of such a partnership at Listerhill Wine Rack, though it does point firmly in that direction. We bear in mind that neither party invited us to conclude that there were three partners at any time, nor even broached the possibility, and that there is no other evidence at all that Mrs Kaur might have been a partner. In those circumstances we treat this document as neutral on the partnership issue, though we do take account of Mr Singh's evasive and changing evidence about it. We reject, so far as it is of any relevance, his contention that the document relates to Nabwood Mini Market as well as his contention that the figures set out in it include other family income.

We found the evidence the appellant and his brother gave about the latter's holding the tenancy and the Royal Mail card quite implausible. Had it been contended from the outset that Mr Sandhu had taken on the tenancy because his brother was subject to a County Court judgment we might well have accepted the explanation. However, this was not the explanation put forward in the defence served on the appellant's behalf during the course of the appeal; there, it was stated, in relation to the letter from the landlord to Mr Sandhu authorising the erection of a fascia board, which had suggested to the respondents that he was the tenant (the tenancy agreement has not been produced), that "the fault lies with the landlord addressing reply to wrong person". Mr Hussain suggested that this discrepancy was accounted for by a lapse of recollection. We are unable to accept that anyone would forget that he had asked his brother to stand as his nominee in taking the tenancy of business premises, a matter of some importance, but then recall the fact and the reason for it, not when instructing his representative to serve his defence, in examination in chief or cross-examination (in both of which the identity of the tenant was explored), but only when re-examined, as was the case here. In examination in chief, moreover, the explanation given by the appellant was not that the landlord had made a mistake, but that his brother had taken the tenancy because he had been the tenant of the premises from which Nabwood Mini Market had traded; he also said that his brother needed to be the tenant of the premises if he was to be able to obtain the justices' licence. We add in passing that, while we can see that there might be substance in the second of those points, we see none at all in the first. By Mr Singh's own account, Nabwood Mini Market was sold in 1996, about a year after he had established Listerhill Wine Rack. If his brother was the tenant of the Nabwood premises – and especially so if he was a mere nominee there too – it seems to us unlikely that he would be willing to accept the responsibility of another lease, even if as a nominee.

In cross-examination Mr Singh denied that he had instructed Mr Hussain (who prepared the defence) that the landlord had made a mistake. Mr Hussain must, he said, have jumped to that conclusion. He offered no other explanation of the letter, and he did not mention the County Court judgment. Mr Cannan suggested that during the overnight adjournment which came in the course of Mr Singh's cross-examination, and despite having been warned not to do so, he had discussed this part of his evidence with his brother and they had concocted the explanation of the judgment. That may or may not be right. We suspect it is, but in any event we are satisfied from the manner in which it emerged that the explanation finally given is untrue.

The suggestion that it was simpler for Mr Sandhu to arrange the transfer of the Royal Mail card from one business to another than for Mr Singh to obtain a new card, if taken alone, would not point to the existence of a partnership and, even taken with the remaining evidence, the fact that Mr Sandhu held the card seems to us to be of comparatively little weight. Nevertheless, we do prefer the view that it is consistent with the existence of a partnership rather than with a simple matter of convenience, as Mr Hussain maintained, since the evidence did not suggest to us that there was any economy of effort, or any other gain, from adopting the course of transferring the card rather than obtaining another. Nor did we have any explanation of what was done during the period of about a year when both of the businesses – at Nabwood and Listerhill – were trading.

The contention that it was a mistake on the bank's part which led to Mr Sandhu's being shown as an account holder might be plausible, if taken at face value and by itself. It would have been more credible had some evidence in confirmation from the bank been produced since, in our experience (and for obvious reason), banks take great care to ensure that they have correctly identified those for whom they open accounts. Even on this point Mr Singh's evidence was inconsistent; at one point he maintained that the bank had made a mistake, then contended that he had wanted to enable his brother to sign cheques but, not knowing that he could be a mere signatory, had asked the bank to include him as a partner. We find the latter explanation quite implausible since it would have been simplicity itself to ask. We observe also that, among the small number of invoices provided by Mr Hussain, relating to purchases from cash and carry outlets, some identify the means of payment as cash (the others are silent on that point). The amounts are all well over a hundred pounds. That fact does not seem to us to be consistent with the contention that cheques were used with frequency and that Mr Sandhu had been made a cheque signatory for convenience, and no more.

It is noteworthy that on this issue Mr Sandhu's evidence differed conspicuously from his brother's. He said they had specifically told the bank that he was not a partner; and that when the business was established, and the bank account opened, he did not go to the cash and carry. Even when he began doing so, he took cash. He accepted that his going to the cash and carry had, therefore, no bearing on his needing the authority to sign cheques, as his brother had asserted was the sole reason for his being mentioned, even if mistakenly, as account holder.

We are quite satisfied that the explanations we heard about the bank account are untrue. In our view the existence of a bank account identifying the account holder as partners is compelling evidence that there was such a partnership.

We have already mentioned that in 2000, shortly before Mr Donkin's visit, the business had moved from 14 Legrams Lane (the tenanted property) to 20 Legrams Lane which, we were told, was purchased by Mr Singh and Mr Sandhu together with the assistance of a mortgage from the bank. It is conspicuous that no documentation relating to that mortgage was produced – particularly so since, if the bank had made an error in the identity of the account holder, it would almost certainly have been noticed when the mortgage was taken out and could easily have been corrected at that time. Indeed, the bank would, we think, have insisted on a correction. It was, again, conspicuous that no cogent explanation was offered of Mr Sandhu's having become part-owner of the premises. Mr Singh conceded that the mortgage payments were made out of the business account, as the one set of annual accounts produced to us confirms. This fact too seems to us to support the conclusion that there was a trading partnership between the brothers. There was no evidence available to us which was consistent with Mr Singh's assertion that there was a separate property-owning partnership between himself and his brother of which he, at Listerhill Wine Rack, was the tenant.

Had there been any consistency in the evidence about Mr Sandhu's being the licensee the explanation Mr Singh gave might have had some plausibility. However, the explanation given is rendered incapable of belief by the changes in the evidence not only about the identity of the partners in Nabwood Mini Market but also in what Mr Singh told us about the identity of the licensee. At first, he said that his brother was the licensee, in his capacity as a partner at Nabwood. When he changed his evidence about the identity of the partners, he also told us that Mr Sandhu's wife was the licensee, but that his name was "mentioned" on the licence; we strongly suspect he has no better idea of what that means than we do. He then said that the licensees may have been Mr Sandhu and his wife jointly. If it were genuinely the reason for his taking the licence that Mr Sandhu already had one (and, as in the case of Royal Mail card, there is an unaccounted period of overlap) we are quite sure that Mr Singh would have a clear recollection of the arrangements at Nabwood.

We do recognise that there is one piece of evidence which may be inconsistent with the existence of a partnership, namely the takings sheet which we have mentioned on which appeared the entry "23 weeks BS pay 5750.00" There is no corresponding entry for any payment to Mr Sandhu. There is an entry for 18 weeks' pay to a person whose name is indecipherable, but as the amount is only £450 (or £25 per week, compared to the £250 per week received by the appellant) and the length of the period differs we doubt if this entry refers to Mr Sandhu. The point was not explored in evidence or in submissions. It could be that there is an entry for Mr Sandhu's drawings on another sheet, which we have not seen; we obviously do not know.

The appellant also produced a copy of his accounts for the twelve months ending 31 August 2000, which show him as a sole proprietor (even though he is described in them as a partner, a fact which Mr Hussain told us was due to a quirk of his own software) but as these accounts were, obviously enough, produced after Mr Donkin's visit, and almost certainly after the interview in September 2000, we attach little significance to them. What we consider to be of greater significance is the absence of any earlier accounts, which, it seems, Mr Singh has even now failed to produce despite requests that he should do so. They might well have supported his case that there was no partnership; their absence suggests the contrary.

Even after taking the contrary evidence, such as it is, into account, we are entirely satisfied that there was a partnership between Mr Singh and Mr Sandhu and that the Commissioners were correct to register them as partners. It will be apparent from what has gone before that we have concluded that their evidence on this point (and, indeed, generally) is unreliable and to be rejected. We have little doubt that – whether in order to form the basis of Mr Hussain's argument that the assessment and the penalty, and their respective notifications, are invalid or for some other reason – Mr Singh's and Mr Sandhu's evidence was designed to conceal the truth of their working relationship.

In reaching that conclusion we have not forgotten the document we have mentioned which suggests that Mrs Kaur was also a partner. That document is, however, equivocal and if the appellant is to be believed it does not relate to this business (although, as we have indicated, we do not accept that his evidence on the point is truthful). The document was not available to the respondents when the partnership was registered in 1996. We have concluded too that even if there was not in fact (or as a matter of law) a partnership between Mr Singh and Mr Sandhu, or alternatively there was a partnership between the two brothers and Mrs Kaur, the Commissioners reasonably took the view that the business was carried on in partnership between Mr Singh and Mr Sandhu. It was not until March 2001, after the assessment had been notified, but before notice of the imposition of the penalty had been sent, that it was contended that the registration of a partnership was incorrect. We have considerable doubts about Mr Singh's evidence that he did not receive the Commissioners' communications about the amendment of the registration but even if he did not realise until June or July 2000 that his registration had been amended, there was no immediate protest.

Mr Hussain's argument was that if there was no partnership the assessment was invalid and the penalty had been incorrectly imposed. He did not, however, develop the point at all in his written submissions. Mr Cannan argued that if the Commissioners were mistaken, they had nevertheless acted in good faith, and any technical defect in the assessment could be cured by amendment of the registration in accordance with regulation 5(2) of the Value Added Tax Regulations 1995 (SI 1995/2518). Since we find as a fact that there was a partnership we do not need to deal with this issue, and we decline to do so.

As we have mentioned, Mr Donkin's assumption, on which basis the assessment was calculated, was that the figures entered in the Black n' Red notebooks accurately recorded the takings of the shop. He had some doubts whether, in fact, they covered all the sales made by Mr Singh and his brother, since he considered that the purchases he could identify justified greater sales (he suspected that some of the purchased goods had been sold, not through the shop, but wholesale to other traders). He nevertheless confined himself to the recorded sales. The only explanation Mr Singh offered in respect of those figures was that we have mentioned, that they represented the entire income of his extended family.

We have no hesitation in rejecting that explanation. It is quite inconsistent with the heading "Sale" which appears at the top of the column, and with the words "23 weeks total sale" and "16% profit" which appear at its foot. Mr Singh accepted that he applied, in general, a 16% margin at the shop (that is, the selling price was in general 16% greater then the purchase price) but he could not satisfactorily explain why he had applied a similar margin to what he described as his family income. He said it represented the difference between income and expenditure. That seems quite improbable when the expenditure figures are set out in the right hand columns. Moreover, the manner in which the calculation is set out shows that the profit figure is arrived at by taking 16% of the sales; it is not a percentage derived from comparing income and expenditure. If there were any truth in Mr Singh's explanation, there would be no entry, on the expenditure side, for his own income; his explanation was that it represented the amount he would have to pay someone else to work in the shop in his place. That might be correct, in the sense that there is equivalence, but we find it quite implausible that, in what we were told by Mr Singh was a list of actual expenditure, he thought it appropriate to include a notional expense. We are satisfied that the figure represents Mr Singh's actual drawings, and not a notional amount. In our view Mr Donkin too was right to reject Mr Singh's explanation; we are satisfied that his conclusion that these figures accurately represent the takings of the shop was reasonable.

Another feature of the case is that Mr Singh was unable, or unwilling, to produce much evidence of his, or the partnership's, purchases. It was clear to us, as the hearing proceeded, that the Commissioners remain suspicious that much of the stock came from illicit sources, but no evidence to that effect was adduced and we leave the possibility out of account. Some purchase invoices were produced by Mr Hussain, as we have mentioned. The respondents, with some justification, point out that none of them identifies the appellant as the purchaser. A further batch of what are claimed to be receipts from Bradford Wholesalers Limited was provided. They are neither invoices nor receipts, but - according to the printing on them - are remittance advices.

Mr Singh's evidence was that he was well acquainted with the owners of Bradford Wholesalers Limited, who allowed him to take goods on credit. When he was able to pay, he wrote the dates and the amount he was paying, identifying the VAT separately, on one of a supply of remittance advices with which the company had provided him, and gave it to Bradford Wholesalers with his payment. When it was put to him that some of the remittance advices post-dated Bradford Wholesalers' entry into liquidation and their ceasing to trade, he said that the payments were made on the dates recorded on the remittance advices, even though the goods had been supplied while the company was still trading. He accepted that no VAT invoices had been supplied by Bradford Wholesalers, and was quite vague about whether any input tax credit had been claimed in respect of the amounts he said had been paid to them.

We reject that explanation. It seems to us quite inconsistent with any possible plausible practice of an honest businessman. It was also unexplained why Mr Donkin found the remittance advices among the appellant's records; if the explanation were true they would have been handed to Bradford Wholesalers.

Other purchases, Mr Singh said, had been made by a group of traders including himself, and then shared between the traders according to the payments they respectively made. Only the trader within the group who actually made the purchase obtained a VAT invoice, he said, which was why he could not produce any invoices for some of the purchases recorded in the notebook.

We are willing to accept the possibility that a group of traders might agree to make a bulk purchase, collectively, in order to earn a discount, and then to share out the goods between them. We suppose too that the supplier might be willing to provide only one VAT invoice. If that were so, the obvious course would be for the group to prepare a memorandum of their respective sales, dividing the cost and the VAT between them, and for each member of the group to have a copy for production to the Commissioners as evidence of his input tax entitlement. It might even be thought that, if the group of traders instead took it in turns to obtain a VAT invoice and to claim all of the input tax credit, over time there would be a fair apportionment between them. In this case neither course was, it seems, adopted. The puzzling feature is that the appellant did not produce any evidence at all to support his contentions. Not only did we have no VAT invoices, but he produced no evidence that payments had in fact been made in this manner and no evidence about the goods he had bought in concert with others. This was a topic raised at the discussions in 2000; despite indicating then that he would produce some evidence to support his case, Mr Singh has still failed to do so.

We have mentioned that Mr Singh admitted ownership of one of the two Black n' Red books, which appeared to relate to the period from 1 to 28 May 2000, but he contended that the other, apparently relating to the period from 31 July 1995 to 2 August 1998, was not his. (We disregard the third book, whose pages had been torn out.) We reject what he said on that issue. It would be a coincidence, though perhaps no more, if the owners of a business carried on at premises (20 Legrams Lane) which he took over happened to use the same stationery for keeping their takings records as he had himself been using, though the coincidence is less believable when one takes into account that the book was a general purpose notebook, rather than one designed for keeping accounts. That the first entry in the previous owner's notebook is dated 31 July 1995, when Mr Singh and his brother began to trade a few doors away, might (just) also be a coincidence. However, it is in our view too much to believe that both coincidences have occurred. In addition we observe that, if Mr Singh's evidence is truthful, the owners of the business previously carried on at 20 Legrams Lane neglected to take with them their accounting records and Mr Singh, instead of handing the book to his predecessor, or discarding it if that was not possible, not only preserved it but also made notes about his own business in it – he recorded his (original) VAT number and some other details on the rear inside cover. We are satisfied that this is no more than a further instance of Mr Singh's untruthfulness and that Mr Donkin was right to conclude that the book was his.

We are, therefore, satisfied that Mr Donkin was justified in adopting the takings recorded in the Black n' Red notebooks as a true record or, at least, the best available, and in using them, extrapolated over periods for which he had no records, as the basis of his calculation of the output tax for which the appellant should account. We can find no fault in his making no further allowance for input tax, in the absence of VAT invoices and, indeed, of any proper evidence that the goods sold by the appellant had been bought legitimately. The appellant's failure, even now, to produce VAT invoices or acceptable secondary evidence inevitably gives rise to the suspicion, to put it no higher, that it is not, and never has been, available. Moreover, as Mr Donkin himself said, the purchases claimed to have been made were of a quantity to suggest that some sales were not recorded in the Black n' Red books; thus if he had allowed some input tax credit by reference to the recorded purchases (despite the absence of supporting evidence) he would have been driven to make a corresponding increase in the output tax for which he assessed. We have concluded that Mr Donkin's approach satisfies the requirements of section 73(1) of the Value Added Tax Act 1994 in that it represents a proper application of the Commissioners' judgment.

Mr Hussain did not attack the detail of Mr Donkin's calculations. His challenge to the assessment itself was twofold: that it was contrary to the agreement which he maintained he had reached with Mr Priestman (an argument we have already rejected) and that Mr Donkin's assumption that the notebooks were a reliable basis for an assessment was questionable, an argument with which we have also already dealt. We merely add that Mr Hussain had himself based his without prejudice offer on the notebooks, and that nothing else which might be regarded with any confidence as a true record has been produced. We are, accordingly, satisfied that there is no material before us on which we could adjust the amount assessed.

Section 60(1) of the 1994 Act provides that

"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 …

he shall be liable … to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct."

Mr Hussain accepted, during the course of the discussion with Mr Priestman in September 2000, that VAT had been under-declared. It has not since been suggested that the concession was incorrectly made. No reason – such as mistake or ignorance – has been advanced in order to explain the under-declaration. The only substantive challenge put forward is that the imposition of a penalty is contrary to the agreement said to have been recorded at that meeting, a challenge which we have rejected. (Even if Mr Hussain were correct in thinking that agreement had been reached about the tax itself, his own evidence did not support the proposition that any agreement between him and Mr Priestman extended to any possible penalty.) It does not seem to us possible, on the evidence we heard, to argue that there is any honest explanation for the under-declaration, the more so when the conduct of the appellant and his brother throughout has been designed, as we are entirely satisfied it has been, to conceal the truth. We are in no doubt that the under-declaration was made knowingly and with an intent to evade the payment of the correct amount of tax. Accordingly the conditions for the imposition of a penalty are satisfied. Again, we do not propose to deal with the agreement that (if there was no partnership) the imposition and notification of the penalty were technically incorrect.

Mr Hussain argued that insufficient mitigation of the penalty had been offered by the respondents. They allowed 10% of the penalty, for Mr Singh's providing records – essentially those obtained by Mr Donkin at his visit – and for his attending the interview with Mr Priestman. We are not ourselves convinced that either merits much reduction of the penalty. Mr Singh had, in reality, little choice but to allow Mr Donkin to take the records, although we recognise that he was not obstructive. It does not seem to us that his attendance at the interviews really counts for much, although some credit should be given for the acceptance, through Mr Hussain, that the Black n' Red books contained a true record of takings; that conclusion must nevertheless be tempered by Mr Donkin's doubt, which we share, that the books record all of the appellant's sales, rather than only those made at the shop. In every other respect, in our view, Mr Singh has done his best to conceal the truth. He has shown no remorse, and has made no real attempt to identify the correct amount of tax. Although we do not think it appropriate to cancel any part of the mitigation, we see no grounds on which we could properly increase it.

We should mention that we were at one point a little concerned about Mr Sandhu's position. He was not present at Mr Donkin's visit, and did not attend either of the meetings with Mr Priestman (we do not know whether he was invited). Had he been at either meeting, it is possible that he might have assisted Mr Donkin or Mr Priestman in a way his brother did not, although this was not an argument advanced by Mr Hussain. We think, however, it is unlikely he would have done so. His evidence before us, though at times in conflict with it, was designed to corroborate that of his brother, and, as we have concluded, to conceal the truth. There seems to us to be no reason to suppose that he would have conducted himself differently before, even given the opportunity, and Mr Hussain did not suggest that we should in any way differentiate between the two brothers. We see, therefore, no need to treat Mr Sandhu differently from Mr Singh.

The appeals are, therefore, dismissed. As is usual in cases of this kind, Mr Cannan sought a direction for costs in the Commissioners' favour, and we make that direction. If the costs cannot be agreed either party may apply to have them assessed by a chairman sitting alone.

COLIN BISHOPP

CHAIRMAN

Release date: 5 May 2004

MAN/01/0904

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