United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19881

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Dawaat Indian Cuisine Wahid Ahmed & Co v Revenue & Customs [2006] UKVAT V19881 (14 November 2006)

19881

ASSESSMENT – Whether to best judgment – No evidence adduced on behalf of the Appellant – Appeal dismissed

MISDECLARATION PENALTY – No argument or evidence adduced as to why should be set aside – Appeal dismissed

LONDON TRIBUNAL CENTRE

DAWAAT INDIAN CUISINE WAHID AHMED & CO Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MISS D M WILSON

Sitting in public in London on 9 October 2006

No appearance by or on behalf of the Appellant

Miss S Rahman of counsel, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

This is an appeal against an assessment to tax in the sum of £50,268, and against a misdeclaration penalty in the sum of £6,211. Amended assessments were issued in respect of the original assessment, and the amount was reduced to £37,120. The misdeclaration penalty was reduced to the sum of £4,694, and the reduction was notified to the Appellant by a letter dated 29 September 2004. The total sum appealed against is £41,904. At the hearing of the appeal Miss Rahman informed the Tribunal that the Commissioners would not be seeking interest.

There was no appearance by or on behalf of the Appellant. The Appellant had previously been represented by Kevin D Andrews, a VAT Consultant, and he had sent a letter to the Tribunal dated 6 October 2006 in which he stated that there was "every likelihood that the Appellant will be unrepresented at the hearing for commercial reasons". The hearing had originally been set down for three days in April, when it had been adjourned at the request of Mr Andrews because of damage which had been suffered to his office. A letter in almost identical terms to that sent to the Tribunal on 6 October had been received a week prior to the April hearing, and it was only subsequent to the despatch of the letter on that occasion that the adjournment request was made. In the circumstances it was decided to proceed with the hearing under the provision of section 26(2) of the Value Added Tax Tribunal Rules 1986.

The background to this case is that the Appellant is a restaurant which at the relevant time run by Mr Mohammed Belal Uddin. It is located in Brick Lane, London E1. On 22 May 2002 the Commissioners received the Appellant's first VAT return which was a claim for repayment in respect of the period from 14 January 2002 to 31 March 2002. It was in the sum of £24,048.24. A visit was carried out by Mr O'Connell, an officer of HM Customs and Excise, to verify the repayment return. In the course of this visit Mr O'Connell examined the output tax figures and was concerned that the level of takings did not represent an amount he considered likely, given the size and location of the restaurant. He therefore initiated two days of test purchases to be carried out at the Appellant's premises.

Test purchases were carried out on Friday 29 November 2002 and Tuesday 18 February 2003. On 1 May 2003 Mr O'Connell arranged a date to inspect further the Appellant's records to verify the observations made on the test purchases. The Appellant was asked to provide his VAT records for various periods culminating on 31 March 2003.

By a letter dated 30 April 2003 the Appellant informed the Commissioners that it had ceased trading on 27 April 2003 and requested deregistration for VAT and submitted a final VAT return. Mr Uddin himself contacted the Commissioners and informed them that the business had been sold and any further enquiries were to be referred to his accountant.

There were subsequent telephone calls and correspondence with the Appellant's accountant who was informed that the Appellant's records, including meal bills were still required. These were never in fact produced and the only documentation ever seen by the Commissioners were the takings sheets which had been seen when an unannounced visit was made to the Appellant's premises on 8 May 2003. A decision was taken to assess the Appellant based on the officer's observations and the takings sheets seen.

Further to the issuing of the assessment in August 2003, Mr Andrews contacted Mr O'Connell on behalf of the Appellant and took issue with the way the average meal price had been calculated on the basis solely of the test purchases. Mr Andrews was informed that the average meal price was calculated, in the absence of any verifiable records, on the basis of the covers seen and the declared takings sheets seen. On 18 March 2004 Mr O'Connell returned to the Appellant's premises and established that the business had not changed in any material way since it had been sold by Mr Uddin. He cashed up the days takings and established that 45 covers used the restaurant, and the average meal price was £14.67. The assessment had been calculated on the basis of an average meal price of £17.26. As a consequence Mr O'Connell reduced the amount of VAT assessed to £37,886. He subsequently became aware of an "administrative error", the nature of which was not explained to the Tribunal, and the assessment was further amended to £37,210.

Following the reduction of the assessment, the Commissioners wrote a lengthy letter on 29 September 2004 to Mr Andrews in which they set out over five close-typed pages a reconsideration of the officer's assessment. Mr Andrews replied by a letter dated 30 September 2004 and stated as follows:

"The assessment is based upon the observed covers and the calculated average price of a meal. The average price has been adjusted in my client's favour, thank you. It was very clear that the original assessment would have been overstated by virtue of the methodology used.

The only other factor would seem to be the observed covers. By letter dated 29 October 2003 I requested copies of the observation log from which the number of covers was ascertained. To date these have not been provided, can this now be corrected and thus allow the opportunity of a more meaningful appeal. Details of the meal consumed by the test parties remains of interest in respect of the fact that they are not used directly in the current calculations."

There was subsequent correspondence, in the course of which Mr Andrews repeatedly asked to see the observation logs. Ultimately these were provided to him on 13 December 2004. Mr Andrews took issue with two aspects:

"Firstly the average price, which was based on the officers' meals, and secondly the fact that a simple head count was used, rather than a count of only those seen entering and taking a meal after the officer had sat down. He suggested that there was an exaggerated customer count which led to an unrealistic average".

On behalf of the Appellant Mr Andrews, in his letter of 6 October 2006, had reproduced part of a letter dated 9 March 2006 which had been sent to the Commissioners. In that letter he had submitted inter alia that the observations carried out on 29 November 2002 had to be disregarded as unsafe because one of the officers had recorded that he had seen "20ish grouped around existing table structure – mainly pairs". It was submitted that this appeared to be an estimated headcount of total occupancy rather than an accurate count of those seen entering after the start of the officer's watch, and thus would generate double counting. Mr Andrews also noted that the officers carrying out the test purchases had purchased drink. He repeated this allegation in respect of the test purchases of 18 February 2003, and again suggested that there had been double counting.

In the grounds of appeal it was stated: "Basis of assessment unsafe. Testing procedures not followed. Guesswork utilised and further to this guesswork and assumption sanctioned as acceptable practice. This is new policy which give no protection to the taxpayer".

On behalf of the Commissioners we heard evidence from Mr O'Connell that there was no double counting because the officers' instructions, which had been carried out, were to count the number of people seen entering the restaurant, rather than counting those people in the restaurant. It was the Commissioners' case that the assessment had been made to best judgment.

With regard to misdeclaration penalties, which had been issued under section 63(1)(a) of the VAT Act 1994, Miss Rahman submitted that the 30% test of the gross amount of tax set out in section 63(2) of the Act had been applied, and notified to the Appellant. No reasonable excuse had been put forward on the Appellant's behalf.

Reasons for decision

No evidence was put before us to show that the Commissioners had not used best judgment in arriving at this assessment. The evidence showed that the officer had been prepared to take account of representations put forward on the Appellant's behalf by Mr Andrews and had consequently reduced the assessment. We consider that the officer had fairly analysed the results of the test purchases which had been carried out, and that those test purchases had been carried out in a proper manner, albeit we regard it as unsatisfactory that an officer should have referred to counting "20-ish" people. However we do not regard this, nor any of the points raised by Mr Andrews in his letters of September 2004, and December as giving sufficient grounds for overturning the assessment.

With regard to the misdeclaration penalty, in the absence of any evidence or argument to the contrary this follows the event, given that in four of the tax periods between 03/02 and 03/03 the VAT which would have been lost if the inaccuracy had not been discovered exceeds 30% of the relevant amount for those periods. The amount of the misdeclaration penalty was properly reduced subsequent upon the reduction of the initial assessment.

In all the circumstances this appeal is dismissed. The Respondents are awarded their costs of and relating to this appeal.

MISS J C GORT

CHAIRMAN

RELEASED: 14 November 2006

LON/05/282