United Kingdom VAT & Duties Tribunals Decisions

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Sumer Palace Ltd v Customs and Excise [2004] UKVAT V18618 (27 May 2004)

VAT — Chinese Restaurant and takeaway — assessments to tax —accepted that assessments made to best judgment but challenge as to quantum — on basis of evidence assessments reduced as directed — appeal allowed in part.

MANCHESTER TRIBUNAL CENTRE

SUMMER PALACE LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr J D Demack (Chairman)

Mr P Whitehead

Sitting in public in Manchester on 22 March 2004

Mr R J Yewdall tax consultant for the Appellant

Mr N Smith of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

DECISION

This is an appeal by Summer Palace Ltd (Summer Palace) against assessments to tax of £34483 notified on 17 May 1999. The assessments covered the period between 1 February 1996 and 31 January 1999 and were made by the Commissioners of Customs and Excise to recover output tax allegedly undeclared.

In its amended grounds of appeal, Summer Palace challenged the quantum of the assessments and maintained that to the best of its directors' knowledge all the VAT returns signed by them had been correct. Before us, Mr R J Yewdall, representing Summer Palace, accepted that there had been underdeclarations of tax, but maintained that they had been due to staff thefts and had been on a much lower scale than the assessments indicated. He confirmed that the appeal was to proceed on quantum only.

We were presented with a joint bundle of copy documents and took parol evidence from the following persons: Miss Jane Catherine Dawson, Mrs Fiona Staniard, Mrs Heather Margaret Wray, Messrs Edward John McCormack, John Hulme, Paul Raddison McCann, David James Hough, Paul Nixon, Philip Simon Hill and Graham William Cooper, all of whom are Customs officers, the last named also being the assessing officer; and Mr Yin Lin Lee and Mrs Luk Lin Lee, the directors and shareholders in Summer Palace.

We were also handed the interview statements of five other witnesses for Summer Palace to which no objection had been raised. They were Alan Brough, Bob Evans, Neal Whinton, David Sharples and Simon Howarth. Mr Howarth is the bookkeeper for Summer Palace and his records were referred to by Mr Cooper as being "meticulous". His evidence in that behalf was and considerably assisted us in reaching our conclusion. From the whole of the evidence, we make the findings of fact which follow. Unusually, we are able whilst making those findings to deal with the amendments we consider necessary to Mr Cooper's calculation of the tax assessed on Summer Palace to conclude the appeal.

Summer Palace trades as a Chinese restaurant and takeaway from premises in Hazel Grove, Stockport. The company registered for VAT in 1985, and its registration remains extant.

Summer Palace was selected for a general check on its trading in 1997. On 28 February of that year a number of Customs officers took test meals. All were declared.

It was selected for more checks in 1998. Further test purchases were carried out on 11 June. The bill for one party of Customs officers who dined there was subsequently found to be missing. On the basis of the evidence collected by the officers involved in test purchases and observations on that day, Mr Cooper concluded that the bills of 7 parties of 2 diners had been suppressed. We found the observation evidence, and particularly that of Mr McCormack, unsatisfactory; no contemporaneous notes were made by the officers concerned. Further, one officer noted that one party of two persons who sat down, that being the trigger to count them as diners, left before eating. Mr Cooper accepted that that party should have been excluded from his calculation. He also accepted that he had "estimated" the number and constitution of suppressed parties. Having considered the evidence and considered his work in detail, we reduce the number of parties of 2 whose bills were suppressed to 5.

A second series of test purchases was made on 25 November 1998 consisting of both restaurant meals and takeaways. All the purchases were declared. The officers involved made a contemporaneous note of diners in the form of noting their number on a table plan. It showed 6 parties of 2. Yet in his tax calculation Mr Cooper chose to use information subsequently included in a Questionnaire prepared by the same officers following completion of their observations showing 8 parties of 2. We are not satisfied of the correctness of the information shown on the Questionnaire. We therefore reduce to 6 the parties of 2 to be included in calculating the number of missing bills for that day.

On 27 November 1998, the third day of test purchases and observations, the officers involved made contemporaneous rough notes on a single sheet of paper. The notes cannot easily be interpreted. Mr Cooper concluded from them that 3 parties of 7 persons dined. Our examination of the note leads us to believe that it shows that only 2 parties of 7 were observed. So, we consider the number of parties of 7 should be reduced to 2 in calculating the bills missing on that day.

On 18 January 1999, the fourth day of test purchases, no diners bills were suppressed but three takeaway bills were. As Mr Cooper made his calculation on that basis, the day requires no further consideration.

The final day of test purchases was 30 January 1999, a Saturday. The restaurant was extremely busy, and there is no doubt that the observing officers had great difficulty in counting the number of those present. Their difficulty was added to by the existence of a high internal glass partition, and a wall containing a fish tank which effectively prevented officers seated in one area of the restaurant from observing its entrance and other parts. Only 21 takeaway customers were noted, yet Summer Palace declared 24. Mr McCann was one visiting officer that day. He admitted not keeping a contemporaneous note of events, but relying on memory. When details are so important, reliance on memory alone to cover events occurring over a period of an hour is unacceptable. Mr Cooper concluded that 15 covers were suppressed. We doubt that that conclusion was correct, and on the basis of all the evidence available of events on that day we have decided to reduce the number of covers suppressed to 10. Further, because of the difficulties experienced by the officers, Mr Cooper determined to ignore the declared takeaway sales in his calculation of suppression. That is selective use of evidential material, and operates considerably to the detriment of the appellants. The evidence available indicates that the appellants declared all takeaway sales on that day and we therefore include the takeaway figures in our amended calculation.

At the conclusion of the hearing, we indicated how we had decided that the tax assessed on Summer Palace should be reduced and we directed the Commissioners to recalculate the tax assessed.

Our direction requires a number of amendments to the table of calculation of suppression rates to be found at p. 71 of the bundle of copy documents. In its original form the table provides:

	Eat In			Takeaway
Date	Declared	Estimated	Difference	Declared	Estimated	Difference
11/06/98	1511.50	1774.70	263.20	129.00	129.00	0.00
25/11/98	940.25	977.85	37.60	80.20	164.96	84.76
27/11/98	1660.15	1942.15	282.00	202.30	202.30	0.00
18/01/99	960.65	960.65	0.00	22.70	86.27	63.57
30/01/99	3042.65	3377.30	334.65	-	-	-

	8115.20	9032.65	917.45	434.20	582.53	148.33
Suppression rate 10.16%	25.46%	25.46%	25.46%	25.46%	25.46%	25.46%
As amended, the table provides:	As amended, the table provides:	As amended, the table provides:	As amended, the table provides:	As amended, the table provides:	As amended, the table provides:	As amended, the table provides:
	Eat In			Takeaway
Date	Declared	Estimated	Difference	Declared	Estimated	Difference
11/06/98	1511.50	1699.50	188.00	129.00	129.00	0.00
25/11/98	940.25	940.25	0.00	80.20	164.96	84.76
27/11/98	1660.55	1810.55	150.00	202.30	202.30	0.00
18/01/99	960.65	960.65	0.00	22.70	86.27	63.57
30/01/99	3042.65	3265.75	223.10	648.05	648.05	0.00
	8115.20	8676.70	561.50	1082.25	1230.58	148.33
Suppression rate 6.47%	12.05%	12.05%	12.05%	12.05%	12.05%	12.05%

We further directed that in each case the suppression rate be rounded down to the nearest whole number, and on that basis determined the appeal. To that limited extent we allow the appeal

We make no direction as to costs.

DAVID DEMACK

CHAIRMAN

Release Date;

MAN/00/366

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