United Kingdom VAT & Duties Tribunals Decisions

Miah (t/a Village Tandoori) v Revenue And Customs [2005] UKVAT V19084 (24 May 2005)

19084

VAT PENALTIES — evasion — Indian takeaway — rewriting of "meal bills" — conflict of evidence between trader and former employee as to fraud — evidence of former employee preferred — best judgment and penalty assessments upheld — mitigation of penalty increased to 20 per cent to reflect cooperation by trader in permitting cashing up exercise on which assessments based — otherwise appeal dismissed

VAT — HUMAN RIGHTS — right to fair trial — admissibility of evidence of employee — relevance of absence of caution — other human rights arguments considered — human rights of the Appellant found to have been properly protected

MANCHESTER TRIBUNAL CENTRE

DULA MIAH trading as VILLAGE TANDOORI Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Michael Johnson (Chairman)

John Davison

Roland Presho

Sitting in public in North Shields, Tyne and Wear on 4 – 7 October 2004, in Manchester on 30 November 2004 and in North Shields on 21 and 22 March 2005

Peter Smallwood, VAT consultant, appeared for the Appellant on 4 – 7 October 2004, Vincent Curley, advocate, appeared for him on 30 November 2004, and Andrew Young, counsel, appeared for him on 21 and 22 March 2005

James Puzey, counsel instructed by the Acting Solicitor for HM Revenue and Customs, appeared for the Respondents throughout

© CROWN COPYRIGHT 2005

DECISION

The assessments under appeal

1. The tribunal has before it appeals against two assessments ("the best judgment assessments") made under section 73(1) of the Value Added Tax Act 1994 ("VATA") and one assessment ("the penalty assessment") made under section 76(1) of VATA. They all relate to the Appellant's take-away business at 10 Ann Street, Hebburn, Tyne and Wear, carried on under the name "Village Tandoori".
2. The best judgment assessments were made because it appeared to the Commissioners of Customs and Excise, as they then were, that the Appellant had not accounted for all the value added tax due in respect of his business. The penalty assessment was made because it appeared that he had dishonestly evaded that tax. Before the tribunal the Appellant has challenged both the alleged tax evasion and the basis of the best judgment assessments.
3. The dates, amounts and periods of the best judgment assessments are as follows–

10 July 2001 for £16,232.00, plus interest of £2,251.48, covering the periods 1 October 1998 to 31 December 1998, 1 January 1999 to 31 March 1999, 1 April 1999 to 30 June 1999, 1 July 1999 to 30 September 1999, 1 October 1999 to 31 December 1999, 1 January 2000 to 31 March 2000, 1 April 2000 to 30 June 2000 and 1 July 2000 to 30 September 2000;

10 July 2001 for £1,190.00, plus interest of £40.21, covering the period 1 October 2000 to 31 December 2000.

4. These assessments were amended assessments, the amounts originally assessed being £19,761.00, plus interest of £2,075.08, and £1,375.00, plus interest of £8.64 respectively.
5. The penalty assessment was made on a date in July 2001 – the precise date being unclear – at the rate of 90 per cent of the total of the best judgment assessments, that is to say in the amount of £15,679.00 (rounded down).
6. A further, distinct, assessment for £26,843.00, plus interest of £5,648.05, made against the Appellant under section 73(1) of VATA on 26 February 2001, and covering the periods 1 September 1995 to 30 June 1998 and 1 July 1998 to 30 September 1998, was withdrawn in 2000. The tribunal is accordingly not concerned with that assessment.

Foundation of the assessments under appeal

7. The best judgment assessments were founded upon observations made of the Appellant's business by officers of HM Customs and Excise ("Customs"). Customs engaged in two kinds of scrutiny, viz firstly, days on which they perused the "meal bills" for sales transacted at the Appellant's premises, comparing these with the details of test purchases of meals made by officers of Customs on those days; and secondly, days on which officers of Customs observed the cashing-up procedures at the close of trade.
8. Perusal of "meal bills" and test purchases took place on Friday, 19 November 1999; Saturday, 27 November 1999; Thursday, 9 December 1999; and Saturday, 11 March 2000. On two of those days, ie 27 November 1999 and 9 December 1999, Customs also carried out covert observations of the Appellant's premises to count the number of sales. Customs thus felt able to gauge the correctness of the declared takings of the Appellant's business. They noted that not only were the declared "meal bills" not always correct, but that on the two days of covert observations, it appeared that there was a suppression rate of 140 per cent between transactions observed and those declared.
9. On two further days, ie Friday, 25 February 2000 and Tuesday, 13 June 2000, officers of Customs were present when the Appellant cashed up. With the figures thus obtained for takings, Customs possessed a yardstick to compare with the declared takings of the business on other occasions. Such comparison yielded alleged average suppression rates in respect of takings on Fridays of 158.27 per cent and in respect of takings on Tuesdays of 36.03 per cent.
10. In consequence, and having interviewed the Appellant on several occasions without obtaining a satisfactory explanation of the apparent suppression, Customs decided to make the best judgment assessments based on suppression rates of 158.27 per cent for the Appellant's trading periods from 1 October 1998 to 31 December 1999 and 36.03 per cent from 1 January 2000 to 31 December 2000. In other words, they confined themselves to the apparent suppression rates extracted from the cashing-up figures obtained as mentioned.
11. Customs first visited the Appellant on 4 November 1999. Between then and the first of the cashing-up occasions attended by Customs, on 25 February 2000, there was a rise in the Appellant's declared weekly takings. Moreover on 28 November 2000, Customs obtained a witness statement from Miss Anissa Abdullah Hasan, a former employee of the Appellant. She has since married and has become Mrs Hussain, which is how we shall refer to her in this decision. Mrs Hussain alleged in November 2000 that the Appellant had instructed her to write spurious "meal bills" to match given figures for takings for the business on particular days of trading, the figures being supplied to her by the Appellant.
12. The question of the liability of the Appellant to a civil evasion penalty arose. Section 60(1) of VATA provides that in any case where for the purpose of evading VAT, a person does any act or omits to take any action, and his conduct involves dishonesty, he is to be liable to a penalty. The starting point for the amount of such penalties is the amount of the VAT evaded, but that amount is open to reduction pursuant to section 70 of VATA.
13. In view of the matters mentioned in paragraphs 7 to 11 above, and the lack of any reasonable explanation as to those matters from the Appellant, either in interview or subsequently, Customs decided to make the penalty assessment in addition to the best judgment assessments, based on dishonest evasion of tax. They allowed a 10 per cent reduction in the penalty under section 70 of VATA for cooperation on the part of the Appellant.

Scope of the dispute

14. The notice of appeal against the penalty assessment asserted that the burden of proof as to tax evasion and dishonesty on the part of the Appellant rested upon Customs, as provided by section 60(7) of VATA. The notice made reference to the decision of the Court of Appeal in Han (GK) & Yau (D)(Trading as "Murdishaw Supper Bar") [2001] STC 1188, in which the court held that civil penalties made pursuant to section 60(1) of VATA give rise to criminal charges within the meaning of article 6(1) of the European Convention on Human Rights and Fundamental Freedoms ("the Convention"). The correctness of those assertions is accepted by Customs.
15. The notice then alleged that the standard of proof to be discharged by Customs was the criminal standard whereby the tribunal should be satisfied beyond reasonable doubt. We were informed by Mr Smallwood, who represented the Appellant at the hearing in October 2004, that this allegation was abandoned in favour of the allegation that the correct standard was proof to a high degree of probability, as adopted by the tribunal in Gandhi Tandoori Restaurant v Customs and Excise Commissioners [1989] VATTR 39. Again, Customs accept the correctness of this.
16. The notice next alleged that Customs had not disclosed all the material relevant to their investigation of the Appellant, thus denying him a fair trial as provided by article 6 of the Convention. Mr Smallwood told the tribunal that since the appeal was begun the material referred to had been disclosed, so that this point was no longer a live one. This is however a matter to which we shall need to return, as mentioned below.
17. The notice next alleged that the interviews which took place between Customs and the Appellant should be inadmissible, because the Appellant was not advised of his right to remain silent. Mr Smallwood informed us that this allegation too had been abandoned, but it is also a matter to which we shall need to return, as mentioned below.
18. Finally the notice alleged that Customs could not fulfil the burden of proof upon them and that the penalty assessment should be discharged. Alternatively the penalty should be reduced by more than the 10 per cent Customs had allowed. These issues have remained live ones before the tribunal.
19. In relation to the best judgment assessments, the Appellant contended that he had not underdeclared the tax due from him and that the best judgment assessments were misconceived. He challenged the observations made by Customs and the conclusions that were properly to be drawn from them. These are also live issues for the tribunal to decide.

The hearing in October 2004

20. The presentation of Customs' case necessitated more than the four days allowed in October 2004 for the hearing of the appeal. At that time, Customs called eleven of their officers to give evidence, who were cross-examined by Mr Smallwood on the Appellant's behalf. Those witnesses were –

Mr Alan Musgrave, who was on duty on 19 November 1999 and 11 March 2000;

Mr Mark Usher, on duty on 27 November 1999 and 25 February 2000;

Mr Neil Terry, on duty on 27 November 1999;

Mr Robert Martin, on duty on 19 and 27 November 1999, 9 December 1999 and 25 February 2000;

Mr Brian Bonham, on duty on 9 December 1999 and 25 February 2000;

Mrs Yvette Hay, on duty on 9 December 1999 and 25 February 2000;

Mrs Linda Turner, on duty on 13 June 2000;

Mr John Terrell, on duty on 19 and 27 November 1999, 9 December 1999, 25 February 2000 and 11 March 2000;

Mr George Robert Wade, who visited the Appellant on 4 November 1999, was on duty on 27 November 1999, 9 December 1999, 25 February 2000 and 13 June 2000, who on each occasion interviewed the Appellant with Mr Liddle, and who was the assessing officer in respect of the smaller of the best judgment assessments;

Mr George David ("Dan") Liddle, who was on duty on 13 June 2000, interviewed the Appellant on each occasion with Mr Wade and was the assessing officer in respect of the greater of the best judgment assessments, and recommended the penalty assessment; and

Mr Graeme Liddell, who was on duty on 27 November 1999.

21. The evidence of Mr Wade and Mr Liddle included descriptions of conversations with Mrs Hussain which resulted in the preparation and signature by her at their instigation of a witness statement containing particulars of forgery involving herself and the Appellant, subsequently put to the Appellant by Customs in interview.
22. On 7 October 2004, we adjourned the hearing to 30 November 2004 for lack of time. Before the tribunal rose, Mr Puzey, appearing for Customs, informed us that Customs had been unsuccessful in securing the attendance of Mrs Hussain to give evidence, but would probably still wish to call her to give evidence at the resumption of the hearing if they could. Customs expressly reserved all their rights, whether or not it proved to be possible to call Mrs Hussain at that time. Significantly, those rights included the possibility of a criminal prosecution.
23. At that stage, Mrs Hussain's witness statement dated 28 November 2000 was not in evidence, having regard to rule 21(4) of the Value Added Tax Tribunals Rules 1986 (as amended) – we were prepared to treat Mr Smallwood's expressed objection to the contents of the statement to be such as should preclude the use of the statement without Mrs Hussain making herself available for cross-examination on its contents. We had in mind human rights considerations, referred to below. Moreover paragraph 12 of the Appellant's Defence dated 10 September 2004 states as follows:

"The Respondents appear to rely, in part, on evidence of a former employee of the Appellant [Mrs Hussain]. [Mrs Hussain], according to her own statement, is guilty of acts of dishonesty, thus there can be no reliance on this evidence".

24. Without having seen Mrs Hussain's statement, it appeared to us that, having regard to article 6(3)(d) of the Convention, the Appellant had a right to examine her – that is to say, to ask her questions face to face – if her evidence was to form any part at all of Customs' case against him. It was clear to the tribunal that her evidence was integral to the case of dishonest tax evasion that Customs alleged. The attendance of Mrs Hussain therefore appeared to us to be crucial.
25. We further noted the contents of article 6(3)(c) of the Convention, whereunder the Appellant had a right to defend himself " … in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require". At that stage, the Appellant was not in receipt of legal assistance, Mr Smallwood informing us that the Appellant had not been able to afford a lawyer. As appears below, the Appellant had consulted solicitors, but they had not been retained for the purposes of the appeal itself.
26. It seemed to us that the interests of justice required, in this case, that the Appellant should if possible receive legal advice and assistance. Mrs Hussain's witness statement, which had apparently been generated without safeguarding her rights, had been put to the Appellant by Customs in interview, again without safeguarding his rights. Neither of them had been cautioned and both had been questioned without an adviser present, even though it seemed to us that it must have been clear to Customs that Mrs Hussain was in effect admitting to a criminal enterprise in which she and the Appellant had been involved.
27. We decided therefore that it was incumbent upon us to be proactive by expressing our concerns that the requirements of the Convention should be met in this case. We publicly expressed our concerns immediately prior to the adjournment on 7 October 2004. So that there should be a record, we set out those concerns in the schedule to the adjournment direction we made on that date.

The hearing on 30 November 2004

28. Mrs Hussain was found and a witness summons was issued at the instance of Customs for her to attend the adjourned hearing. Mrs Hussain made application to the tribunal by letter dated 25 November 2004 for the summons to be set aside. In her letter she gave reasons why the summons should be set aside, but indicated that she did not intend to attend tribunal to support her application.
29. At the hearing on 30 November 2004 the tribunal refused the application to set aside. Directions were given for the hearing to resume on 21 March 2005 when Mrs Hussain was required to attend.
30. Public funding was sought and obtained on behalf of the Appellant which meant that, for the first time, the Appellant would be legally represented, as mentioned in article 6(3)(c) of the Convention. It is legal and not other professional representation to which the Convention entitles an appellant.
31. That is not to say that Mr Smallwood, who first represented the Appellant, and Mr Curley, who represented the Appellant on 30 November 2004, did not do an excellent job on his behalf – they did. Mr Smallwood was responsible inter alia for correctly and properly drawing to the attention of the tribunal at the outset the human rights to which the Appellant was entitled. Mr Curley was responsible for making the moves necessary for the Appellant to be in receipt of public funding for the resumed hearing, and for briefing Andrew Young of counsel to represent him thereat. We record the gratitude of the tribunal to both Mr Smallwood and Mr Curley for their important roles in these proceedings.

The hearing on 21 and 22 March 2005

32. To her credit, Mrs Hussain attended tribunal on 21 March 2005 and gave a good account of herself in oral evidence for Customs. She was cross-examined by Andrew Young, who was by then representing the Appellant. Customs then closed their case, and the Appellant gave evidence as one of two witnesses for his case. He was cross-examined by Mr Puzey. He concluded his evidence on 22 March 2005, when he was re-examined by Mr Young.
33. Mr Puzey and Mr Young respectively made extensive submissions on that day, Mr Puzey with regard both to the human rights aspects of the appeal and as to the merits, and Mr Young confining himself largely to human rights. We were conscious that we were in danger of allowing the Appellant's representatives insufficient time to conclude their submissions by the end of the afternoon. We therefore directed that further written submissions might be served at the Manchester Tribunal Centre, according to a time-scale we laid down, by Mr Smallwood (who was present throughout the hearing) on behalf of the Appellant, and by Mr Puzey in reply.

Findings of fact

34. The Appellant formerly operated the business trading as "Village Tandoori" in partnership with a Mr Nur Ullah. In March 1998, they made late application for registration for VAT with effect from 1 September 1995. The application was made on their behalf by Thoburn & Chapman, chartered accountants of North Shields. The partnership had not maintained adequate records for the production of accounts. Their accountants were reduced to requesting Customs to accept estimated figures retrospectively.
35. On 16 June 1999, the Appellant made application in form VAT 1 to be registered for VAT as sole proprietor of the "Village Tandoori". That form stated that the partnership had been dissolved with effect from 30 November 1998. The first period included in the greater of the best judgment assessments before us commenced on 1 October 1998.
36. On 4 November 1999, Mr Wade visited the Appellant to see how he was running his business and what records he was keeping. At that visit, Mr Wade told the Appellant that he must retain copies of all "meal bills", assemble them in daily batches, and write the figure for daily gross takings on the back of the last bill for the day. Following his visit, Mr Wade wrote to the Appellant on 15 November 1999 confirming what he had told him.
37. "Meal bills" are chits, numbered in sequence, on which details of take-away meals have been written. The money shown on such bills should, if the set of bills is complete, correspond with the takings of the business in a particular period.
38. Customs very quickly decided that the Appellant's business should be investigated. Customs began by having its officers make test purchases from the business on 19 November 1999. None of those purchases was declared by the Appellant for VAT.
39. Test purchases were next made on 27 November 1999. Those purchases were declared, but one was recorded as a delivery order – which it was not – and another was recorded on a bill which appeared to have been altered. Observations made of the premises on that day appeared to show that twice as many transactions were processed over the counter than were declared by the Appellant.
40. On 9 December 1999, further test purchases were made, none of which was declared. Customs' officers formed the view that more trade was being transacted than the bills showed. Observations made on that day indicated that four times as many transactions as were declared by the Appellant were taking place over the counter.
41. On the other hand, when test purchases were made on 11 March 2000, the Appellant did declare them all, and he declared all other transactions that Customs overheard.
42. The level of the Appellant's trade, as measured from his declared takings, appeared to increase substantially in early 2000, compared with declared levels prior to November 1999. The takings of the business during the first year of the Appellant's sole proprietorship – from November 1998 until November 1999 – are greatly exceeded by the declared level of takings in 2000.
43. Following the dissolution of the partnership, the Appellant's former partner at the "Village Tandoori" opened up rival premises located between two and three miles away. It was urged upon us that the poor takings of the Appellant in 1999 compared with those in 2000 must have been attributable to competition. However we find ourselves lacking the evidence necessary to make such a finding. On the contrary, it is in our view inherently unlikely that takings at the "Village Tandoori" would be depressed for so long, and then suddenly recover just when Customs began taking an interest. We find that the suggestion of competition affecting the 1999 takings is implausible and we reject it.
44. The same is true of what the Appellant told the tribunal about distributing menus for the purpose of allegedly boosting his trade. We are unable to find that such activity had any marked effect on the level of his takings, especially seeing that the menus in question had allegedly been in his possession for approximately a year. The Appellant displayed a notable lack of urgency in distributing them during that period, alleging that he had delayed in so doing by reason of staff training. We find this explanation to be highly improbable and we reject it.
45. The ascertained takings on Friday, 25 February 2000, which was the first day on which officers of Customs scrutinized the cashing up at the close of trade, were well over the average declared takings for the Fridays between 14 November 1999 and 20 February 2000. Based upon that scrutiny, Customs calculated a suppression rate of 158.27 per cent.
46. When Customs scrutinized the cashing up of the business on Tuesday, 13 June 2000, the only other occasion on which they did this, a much lower suppression rate was found. The comparison that was made was with the average declared takings for the Tuesdays between 21 February and 5 June 2000. Based upon that scrutiny, Customs calculated a suppression rate of 36.03 per cent.
47. The cashing up exercises depended upon the cooperation of the Appellant. That is a matter that should be taken into consideration in his favour.
48. Meanwhile, Mr Wade was corresponding with Mr David Lawson Harrison of Business Services, Whickham, an accountant who represented the Appellant from about October 1999 onwards. Mr Wade and Mr Liddle conducted interviews with the Appellant, initially on 14 June 2000, and more substantially on 20 and 28 June 2000 and 18 December 2000. Those interviews enabled Customs to put to the Appellant their findings about the conduct of his business. The Appellant attended those interviews on his own without Mr Harrison or any other representative.
49. In February 2001, Mr Wade issued an assessment in respect of the former partnership for periods prior to 1 October 1998 and explained the basis of this to the Appellant. That is the assessment which has since been withdrawn. Also in February 2001, Mr Wade issued an assessment in respect of the sole proprietorship. As amended, this is the larger of the best judgment assessments which now concern the tribunal. That was followed, in March 2001, by the making of the smaller of the best judgment assessments which, as amended, is also now before us.
50. In March 2001, the Appellant consulted Patterson, Glenton & Stracey, solicitors of South Shields. Customs supplied that firm with copies of the records of the interviews that had taken place with the Appellant. The solicitors consulted Jennings Johnson, chartered accountants of Sunderland, on the Appellant's behalf.
51. In a letter from Jennings Johnson to Customs dated 27 April 2001, it was claimed that, as mentioned by the Appellant when interviewed by Customs, his staff had rewritten "meal bills" to produce discrepancies, and that Mrs Hussain, when dismissed, had falsely claimed that the Appellant told her to rewrite bills. The allegation of the Appellant is and was that Mrs Hussain was vindictive towards the Appellant by reason of her dismissal, and that she had demanded money from him on condition of telling Customs what he might want them to hear.
52. These are matters which we find to have been mentioned by the Appellant when he was interviewed as mentioned above. We find that, whilst the Appellant was not cautioned, Customs' Notice 730 was read and explained to him, and that he appreciated that he had a choice, ie to cooperate with Customs, or not to cooperate. He decided to cooperate to the extent of mentioning those relevant matters, but he did not mention any others. The matters mentioned are accordingly those which, in our judgment, might have a bearing upon the issues that we have to decide.
53. No other ground was put forward by Jennings Johnson for recalculating the best judgment assessments, other than to say that the size of the assessments was excessive for a small take-away, and that the higher than usual takings on 25 February 2000 may have been due to a local member of the community appearing on the television programme "Catchphrase". We lack the evidence to make a finding in that regard.
54. Of their own volition, Customs amended the best judgment assessments to lesser amounts. In the original, unamended, assessments, Customs had used throughout all periods an expected weekly gross takings figure of £2,416.99 to calculate the alleged shortfall. In June 2001, they decided that a different approach was fairer to the Appellant. In consequence, the best judgment assessments before the tribunal are based exclusively on the comparisons referred to in paragraphs 45 and 46 above, but so that the suppression figure of 158.27 per cent mentioned above has been used for periods 12/98 to 12/99 only, and the suppression figure of 36.03 per cent for periods 03/00 to 12/00. The amendments were made because the increase in declared takings that we have noted in the year 2000 indicated a lower level of suppression than had previously evidently been present.
55. Customs have relied upon the other evidence of suppression obtained by them to fortify their decision to assess on the basis selected. Customs also place reliance on the interviews that Mr Wade and Mr Liddle had with the Appellant, which did not result, either at the time or subsequently, with the Appellant putting forward any other matter of relevance besides those already mentioned.
56. The Appellant was not prepared to agree the June 2001 amendments to the amounts assessed. He consulted Mr Smallwood, and the appeals to the tribunal were initiated.
57. The Appellant's other witness besides himself has been his accountant Mr Harrison. He gave evidence to the tribunal on the final day of the hearing. We find that Mr Harrison had no day-to-day knowledge of the Appellant's trading affairs. He would visit the Appellant once a quarter, and receive such papers as he might be given by the Appellant. Mr Harrison identified that the Appellant's expenditure appeared to be outstripping his takings. For that reason he wrote to Customs on 17 February 2000 stating that it was necessary to increase the Appellant's sales figures by an estimated £5,000 for the year ending 5 April 1999. We find that Mr Harrison was doing his best from the information provided to him to present his client's affairs in a favourable light.
58. During what has been a lengthy appeal hearing, no fresh ground for attacking the best judgment assessments has emerged. The thrust of the case made for the Appellant has been that he has not been treated fairly. Yet the Appellant has not been able to show that it was unreasonable for Customs to come to the conclusion that not all his takings were declared. Indeed certain underdeclarations are admitted. The Appellant's only answer of substance to the principle of the best judgment assessments has been that Customs have failed to take account of how the conduct of his staff has impacted upon his takings.
59. As we mention below, it was correct and proper for the Appellant to have insisted upon cross-examining Mrs Hussain if the evidence contained in her witness statement was to be used against him. In the event, however, we find that no benefit to the Appellant was derived therefrom.
60. We were impressed by the willingness of Mrs Hussain to assist the tribunal as a witness. Even though she clearly would have preferred not to have had to attend, her attitude was cooperative. She gave her evidence in an articulate and helpful way.
61. We find that Mrs Hussain was employed by the Appellant at the "Village Tandoori". She admitted that, commencing in about October 1999, she rewrote "meal bills", but she told the tribunal that she did that without fully understanding the reasons for doing so. She prudently carried out the instructions which the Appellant gave her, as she would have done in the case of any employer. She is a young woman who at the time was aged about 20, and she believed it to be right to do as she was told. Furthermore, she said, she was not dismissed; she left of her own free will, on good terms with the Appellant. She did not associate her departure with the arrival of Customs on the scene. She was due to leave anyway to take up another job. So far as she was concerned, she was not facilitating any fraud.
62. Counsel for the Appellant put to Mrs Hussain that she was vindictive towards the Appellant and had attempted to have him pay her money to tell Customs whatever he wished. It was suggested to her that her witness statement was concocted out of spite when he refused to oblige. That was indeed the evidence that the Appellant gave when he in turn was asked about his dealings with Mrs Hussain. He alleged that he sacked her because money was missing from the till – that he had caught her stealing. So she bore him a grudge and sent round her boyfriend, who is now her husband, and four friends who uttered threats to kill him. However he did not report the threats to the police.
63. The Appellant was not an attractive witness. He had no adequate answer when it was put to him by counsel for Customs that he was offering lamb dishes on the menu of the "Village Tandoori" and yet providing a different meat when such dishes were ordered. We find that he was cheating his customers in this regard. We are prepared to accept that lamb is not a popular dish, but to offer a customer anything other than lamb when lamb has been ordered is not the action of a genuine trader.
64. We are thus called upon to decide between the evidence of Mrs Hussain and that of the Appellant. In doing so, we observe that whereas Mrs Hussain was confident and assured when she denied the assertions made against her, the Appellant was uneasy, uncomfortable and unconvincing in giving the tribunal his version of events. We have had little difficulty in concluding that he was not telling the truth.
65. By contrast, we found Mrs Hussain to be an impressive witness. Although the chairman informed Mrs Hussain during the course of her evidence that she was under no obligation to incriminate herself, in our judgment she never required that admonition and the precaution was irrelevant. Having regard to the evidence she gave to the tribunal, we cannot believe that she would ever have been in danger of prosecution, as we had previously wondered.
66. We therefore prefer the evidence of Mrs Hussain to that of the Appellant.
67. It follows that not only do we conclude that this tribunal has been deliberately misled by the Appellant, who has attempted to besmirch the character of a young woman who was no more than his willing employee, but his only defence of substance to the discrepancies in the "meal bills" has been demonstrated to be without foundation. Indeed, it is clear to the tribunal that the Appellant did arrange for "meal bills" to be rewritten, and the tribunal is left to answer the question why he did so.
68. It is also clear to us that reliance cannot be placed upon the Appellant's assertions that other members of his staff may have stolen from him or acted with regard to "meal bills" in such a way as to result in the misrepresentation of his takings. Such allegations, general and unparticularized as they have been, are not in our judgment a factor in this case. We think that the Appellant knew full well what the takings were in his business, and that there is no genuine explanation for the discrepancies noted by Customs, other than the obvious one, namely that suppression has taken place.
69. It is right to say that we were not impressed by all the evidence given by the eleven officers of Customs heard by the tribunal in October 2004. We were assured that proper notes had been taken of observations made by officers of Customs, but it appeared to us that some of the observations were not adequately annotated, and that the officers in question were over-dependent upon their personal recollections. However we are satisfied that the evidence given by the officers was diligently obtained, that it was accurate, and that it is sufficiently reliable for the tribunal to conclude that we can accept the evidence in support of the conclusion that suppression on a large scale was present.
70. Taken in the round, the evidence does lead us unequivocally to the conclusion that active suppression was in progress throughout the periods of the best judgment assessments. Customs have proved that the suppression was deliberate on the part of the Appellant and have demonstrated the matters mentioned in section 60(1)(a) and (b) of VATA to the requisite high standard. At the adjournment in October 2004, we of course maintained an open mind; however having had the opportunity in March 2005 of comparing the evidence of Mrs Hussain, in particular, with that of the Appellant himself, and after weighing all the evidence before us, we have come to the decision set out in paragraphs 94 and following, for the reasons there expressed.

Submissions of counsel for Customs

71. Mr Puzey, who has represented Customs throughout the hearing of these appeals with great ability and courtesy, firstly submitted that the Appellant's human rights had been respected and protected throughout the proceedings. He submitted that the findings of fact that we were called upon to make were not affected by the consideration that article 6 of the Convention applied in such a way as to make the appeal against the penalty assessment a criminal charge, having regard to the domestic distinction between civil and criminal proceedings. He submitted that the interviews, if they threw up anything which operated to prejudice the Appellant's case, which they did not, were conducted in a manner which sufficiently respected the Appellant's right to silence.
72. Mr Puzey invited the tribunal to accept that the Notice 730 procedure was appropriate and had been correctly and properly followed. He also asked us to take note of the advice that had been available to the Appellant at each stage of the matter.
73. Mr Puzey's submissions with regard to the admissibility of evidence relating to Mrs Hussain were overtaken by the attendance of Mrs Hussain at the hearing to give her evidence in person and to be cross-examined about it. He invited us to prefer her evidence to that of the Appellant, as we have done.
74. Finally, Mr Puzey took us through the evidence underlying the best judgment assessments, submitting that these had been constructed on a sound basis, and that they were not "pieces of guesswork". He submitted that there was clear proof of suppression, such as to justify the penalty assessment. He submitted that the level of mitigation of 10 per cent given by Customs properly reflected the degree of cooperation present in this case.

Submissions of the representatives of the Appellant

75. With extensive reference to authorities, Mr Young assisted the tribunal, in both written and oral submissions, as to our obligations to ensure a fair hearing; to procure legal assistance for the Appellant as appropriate; to respect the Appellant's right to silence; and to consider the conduct of Customs prior to and during interviews with the Appellant, with particular regard to the administration of a caution. He also addressed us on the principle of equivalence; the effect of the failure to caution; material non-disclosure; Mrs Hussain's witness statement; the potential consequences of a finding of criminality on the part of the Appellant; the burden of proof; and the subject of delay.
76. We deal with Mr Young's human rights submissions in the next section of this decision.
77. In his written submissions, Mr Smallwood has analysed the evidence at length. He has drawn our attention, in a comprehensive way, to alleged deficiencies in the evidence of Mrs Hussain. But of course he understandably starts from the standpoint that his client is to be believed.
78. Having heard Mrs Hussain's evidence, we drew no conclusions until we had heard from the Appellant in evidence. Having compared his evidence with what we had already heard from her, we found ourselves preferring her evidence to his. We are prepared to accept that any deficiencies in her evidence are attributable to the passage of time and to forgetfulness. By the time that she gave her evidence, more than five years had passed since the events described.
79. Our key findings are that Mrs Hussain did make up false "meal bills" on the instructions of the Appellant, but that she was not responsible for the fraud. The full scope of the fraud will have been within the knowledge of the Appellant alone. The tribunal could not be expected to understand such details from Mrs Hussain's evidence.
80. Mr Smallwood in his submissions understandably does not seek to enlarge upon how the fraud might have been perpetrated, because his position is, of course, that there was no fraud. But he has not helped his client's case by submitting not only that admitted underdeclarations of tax were attributable to the actions of the Appellant's staff, but also that Mrs Hussain personally may well have been a thief. According to the Appellant, she was a thief, but we have found that she was not. And we have found nothing proved in relation to the staff.
81. We deal in the next but one section of this decision with how the dishonesty of the Appellant impacts on the history of his sole trading.

The human rights dimension

82. Mr Young represented the Appellant in the most responsible and comprehensive way, which is what we have come to expect from him. His submissions, under the headings mentioned in paragraph 75 above, were erudite and have helped us greatly. He presented us with three large bundles of authorities in the field of human rights, not all of which we have in the end found it necessary to consider.
83. We explain above that what we have been concerned to ensure is that the Appellant should have a fair trial. As appears from our direction of 7 October 2004, we took the view then that Customs might well be asking us to decide these appeals in their favour on the basis of hearsay evidence derived from Mrs Hussain about which she had not been cross-examined. Support for the proposition that to do so might have been unfair to the Appellant can be derived from the decision of the European Court of Human Rights ("ECHR") in Unterpetinger v Austria (1986) 13 EHRR 175.
84. We were also concerned that it might be unfair to the Appellant for us to admit evidence obtained in interview with him based upon the contents of a previous interview with Mrs Hussain and incorporated in a witness statement given by her, seeing that neither of them had the benefit of legal advice at the times the statement was generated and used respectively. As we mention above, the statement appears to evidence a criminal enterprise. Another decision of the ECHR, namely Schenk v Switzerland (1988) 13 EHCR 242 at [46]–[48], is suggestive that to allow in such evidence might be unfair.
85. However everything depends upon the circumstances of the particular case. In our judgment the potential difficulties mentioned have evaporated. Mrs Hussain has in the event attended tribunal, been cross-examined by counsel, and has nonetheless proved so persuasive that the acceptance of her evidence in preference to that of the Appellant has given rise to no unfairness. Moreover the Appellant's case put forward in interview when confronted by Mrs Hussain's statement has not altered in substance, yet having heard Mrs Hussain, we are satisfied that the Appellant spoke falsely. The Appellant has accordingly not been prejudiced and nothing has turned upon any lack of legal advice or representation.
86. We consider that we have managed to ensure that legal representation was obtained for the Appellant in time for this hearing to have resulted in being "article 6 compliant". What the human rights position might have been, had our direction of 7 October 2004 not been made, we are fortunately not called upon to consider. Similarly, we have, we feel, managed to achieve equality of arms and compliance with the principle of equivalence in this instance. The matter of burden of proof as to the quantum of the best judgment assessments is dealt with in the next section of this decision.
87. The Appellant's right to silence must coexist with the margin of appreciation of contracting states' requirements to secure the payment of taxes, so long as this is exercised reasonably. This appears from decisions of the ECHR on article 1 of the first protocol to the Convention such as Gasus Dosier-und Fordertechnik v Netherlands (1995) 20 EHRR 403 at [59]. Notice 730, and measures like it, reasonably exist as inducements to cooperation on the part of the taxpayer. It is implicit in the use of a procedure such as this that the taxpayer need not cooperate; but a "carrot" is offered to him if he does. Frequently in cases that these tribunals have to consider, there has been some, but not much, cooperation, so that there is not much call to exercise the power under section 70 of VATA.
88. It is clear that the Appellant was cooperating with Customs, after a fashion, by mentioning in interview the factors on which he relied in support of his case. We do not doubt that he would have mentioned other factors if he had regarded them to be of importance. We conclude that his human rights were not infringed by his not having been told of his right to silence.
89. The failure to caution is of relevance if criminal proceedings are contemplated against the individual. In our judgment, the failure has ceased to be relevant in this case now that it has become plain that no prosecution, for conspiracy or otherwise, is likely to be pursued. Our decision and the findings of fact that we have made are what make that unlikely. In the unlikely scenario of prosecution ensuing, the lack of a caution would become relevant. That is of course a further reason for not embarking upon a prosecution.
90. With regard to the matter of material non-disclosure by Customs, we are satisfied that such disclosure as has been made by Customs has resulted in the Appellant's advisers and the tribunal having sight of the documentation necessary to result in a fair trial.
91. In opening these appeals, Mr Smallwood told us that he was not pursuing material non-disclosure, which we can well understand in the light of the previous decision given by Mr Colin Bishopp in these self-same appeals that was publicly released on 27 November 2002. In ruling upon an application for disclosure in these appeals heard by him on 17 October 2002, Mr Bishopp considered in some detail the documents and classes of documents appropriate to be disclosed under rule 20(3) of the Value Added Tax Tribunals Rules 1986 (as amended). Mr Bishopp ruled in the Appellant's favour with regard to the disclosure of one document, but not with regard to others. We consider ourselves bound by that ruling, with which we anyway respectfully agree. It is true that, at that hearing, the Appellant was represented by Mr Smallwood rather than by a lawyer, but we cannot see that, on that occasion, the interests of justice called for legal representation.
92. Mr Young submitted that the Appellant had been prejudiced by the delay experienced in the appeals coming to hearing, and in particular by the non-availability to him of legal advice and representation until after the hearing in October 2004. However, as we say in paragraph 86 above, we are of the view that legal representation was obtained for him in time and that the delays to which Mr Young referred are not indicative of a failure to have due regard to the Appellant's human rights.
93. In summary, the Appellant's human rights have in our judgment been properly protected throughout these appeals.

Decision with reasons

94. Once it has been shown that the Appellant has lied with regard to a matter so central to his case as the "meal bills" written by Mrs Hussain, it follows that the tribunal will be disinclined to accept without more that his tax returns were complete. Because fabrication of "meal bills" has been denied throughout, no reasonable explanation for rewriting the bills has been put forward by the Appellant. We cannot think of a plausible reason for rewriting the bills other than deliberate suppression, and that is what we conclude was going on.
95. Fabrication of "meal bills" has been proved on one occasion; why, then, should it not have occurred on many occasions? If, as we have found, one can identify a sudden uplift in declared takings for which there is no plausible explanation other than by way of reaction to the interest in the business expressed by Customs, this goes to show that there existed a settled practice of fabrication previously.
96. Because we identify no distinctive period of trading that escapes the above analysis, Customs were in our view right to regard suppression as having been present throughout the periods with which we are concerned. As we observed in paragraph 54 above, the assessments under appeal were amended to take account of the lower level of suppression apparent in 2000. The principle adopted by Customs which underlies the best judgment assessments, namely that the Appellant had been deliberately understating his takings, is on the face of it applicable throughout, although the suppression was on a lower scale in 2000 than in 1999.
97. Furthermore, if we conclude that the reason for the understatement at the time relevant to the involvement of Mrs Hussain was fraud, as we do, and that period appears to differ in no respects from the others with which we are concerned, it follows that it is highly probable that those periods are also tainted by fraud, so that the penalty is justified in relation to all of the periods. In principle, therefore, and subject to quantum, the penalty assessment should extend throughout.
98. It is submitted on behalf of the Appellant that the evidence does not justify the assessments under appeal or their quantum, but we disagree. Where a pattern of fraud appears to be the explanation underlying underdeclarations, some of which are admitted, Customs are entitled to be sceptical, and we should be too: see Pegasus Birds Ltd v Customs and Excise Commissioners (No 2) [2004] STC 1509. We reject Mr Smallwood's submission that the evidence is not strong enough to support the best judgment assessments, for the reasons we have given above.
99. We also reject Mr Young's submission that the burden is upon Customs to prove quantum. The correct approach for the tribunal to adopt is to look at the admissible evidence and see whether it was reasonable for Customs to conclude that the particular methodology employed by them was the appropriate one to adopt, and, if so, whether it was correctly operated to quantify the tax assessed. If the tribunal is so satisfied, the assessments under appeal must stand.
100. Having regard to the view taken by us of the evidence, and our findings of fact, we hold that the best judgment assessments were properly made on the basis on which they were made. Although the first period assessed included two months during which the partnership between the Appellant and Mr Ullah was trading, the Appellant took responsibility for the completion of the VAT return and payment of the tax due for that period, being as much liable in respect thereof as was Mr Ullah; the Appellant was, moreover, able to suppress takings in relation to that period as easily as any other. Accordingly he was properly assessed in respect of the whole of that period.
101. As regards quantum, we conclude that the best judgment assessments were based on material properly selected for the calculation made by Customs, resulting in amounts assessed which are justifiable, having regard to the uplift after November 1999 in the declared amounts of tax said to be due. As we see it, Customs had correct regard to the material available to them and their conclusions are not invalidated by anything to which they should have had regard.
102. Dishonest evasion having been proved, the penalty assessment was also in order both in principle and as to quantum, based as it was on the amounts of the best judgment assessments.
103. Nevertheless in our view insufficient account has been taken in the Appellant's favour of the degree of cooperation afforded by him in permitting the cashing up exercise upon which all the assessments under appeal have been founded. In addition to the 10 per cent mitigation afforded in respect of his cooperation at interview, it seems to us that a further 10 per cent reduction is appropriate to reflect that separate cooperation.
104. These appeals are therefore allowed to the extent that the penalty assessment is reduced to a figure of 80 per cent of the tax assessed. Otherwise these appeals are dismissed.

Costs

105. We direct that the appeals may be restored within two months of the release of this decision solely for the purpose of argument as to costs, if costs cannot be agreed. Without having heard argument, we are provisionally of the view that costs should be payable by the Appellant to Customs, seeing that we have upheld in their entirety the best judgment assessments, in principle and in amount, and also the penalty assessment, in principle and in amount, subject only to an increased level of mitigation.
106. Therefore, and subject to the right of either party to restore the appeals for argument as to costs within the time directed, we decide that, cost protection apart, and subject to assessment, there should be an order for the Appellant to pay Customs' costs. We so order with regard to the costs incurred in the period during which the Appellant was not publicly funded, and in relation to the period since his public funding commenced, we make a costs order against him under section 11(1) of the Access to Justice Act 1999 for an unspecified amount. We lack the information to decide the reasonable amount for him to pay under that sub-section.
107. We refer the costs of Customs to the district judge for detailed assessment on the standard basis. We direct that the publicly funded costs of the Appellant payable out of the community legal service fund are to be assessed in the usual way.

MICHAEL JOHNSON

CHAIRMAN
Release Date: 24 May 2005

MAN/01/0675