United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20239

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Giash Uddin & Monnan Miah v Revenue & Customs [2007] UKVAT V20239 (05 July 2007)

20239

VALUE ADDED TAX — restaurant — alleged suppression of takings — observations by HMRC officers — whether conclusions made from observations reasonable — yes — no evidence to undermine assessments — appeal dismissed.

PENALTY — dishonest evasion — whether dishonesty established — no other explanation of conduct offered — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

GIASH UDDIN & MONNAN MIAH Appellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Colin Bishopp (Chairman)

Rayna Dean FCA

Alban Holden

Sitting in public in Manchester on 2 July 2007

The Appellants did not appear and were not represented

James Puzey, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. This is an appeal by Giash Uddin and Monnan Miah, who traded in partnership as restaurateurs under the name Taste of Bengal from premises in Wigan, against a series of assessments to tax of £56,885, issued as long ago as 18 November 1999, and against two penalty assessments originally issued on 8 November 1999 but reissued, after the correction of an insignificant error, on 24 February 2000. We will explain the fact that there are two penalties shortly; for the present we need only record that the first is for £23,636 and the second for £21,862.
2. When the appeal was called on for hearing, the Appellants were neither present nor represented. James Puzey of counsel, who appeared for the Respondent Commissioners, asked us to hear the appeal in their absence, in accordance with rule 26(2) of Value Added Tax Tribunal Rules 1986 (SI/1986/590) as amended, and we agreed that it was appropriate that we should do so. The appeal had been listed to be heard as long ago as February 2007 – that is, almost five months prior to the hearing date – after the Appellants' advisers, Alam & Company, who are accountants, had been asked to notify the tribunal of any dates on which a hearing would be inconvenient. In their reply, they indicated that any date in July 2007 would be convenient and the hearing was accordingly fixed for that month. Only two days after the notice of the hearing had been sent out, Alam & Company asked that the date be changed because, for an unspecified reason, they would prefer the hearing to be in the middle rather than at the beginning of the month. That application was refused. On 28 June, two working days before the date fixed for the hearing, Alam & Company sent a fax to the tribunal contending that they had only then received the Commissioners' bundle of documents, had no prior warning of the date fixed for the hearing, and were unable to take instructions from their client – they did not specify which of the two Appellants was meant – who would in any event be unable to attend the tribunal because of an unspecified illness. It was plainly quite untrue that Alam & Company had not previously had notice of the date of the hearing and, since no further information, let alone medical evidence, had been provided as the President's Practice Direction relating to postponement applications requires, that second application for a postponement was refused, by the present chairman. Telephone calls made by the tribunal staff on the morning of the hearing indicated that the principal of Alam & Company, Mr Nurul Alam, did not himself intend to appear at the hearing.
3. The appeal had been brought well out of time, in January 2006. In round terms, it was six years late. Nevertheless, and no doubt because penalties for allegedly dishonest evasion of tax had been imposed, an extension of time had been granted by the tribunal. It is incumbent upon any appellant to this tribunal to pursue his appeal with diligence; yet it seemed to us that the Appellants' conduct was designed merely to put off the day on which they might be required to pay the tax and the penalties. We concluded that there was no good reason for any further delay and that we should proceed to hear the appeal.
4. We had an explanation of the background to the case from Mr Puzey, and heard evidence from the assessing officer, Ian Gardner, on whose recommendation the penalties had also been imposed.
5. It was apparent from the documentation produced to us that the restaurant was a new business when, in 1992, Mr Uddin alone applied for VAT registration. A routine control visit took place in 1993 at which it transpired that Mr Uddin was in fact in partnership with his fellow Appellant, Mr Miah, and with another man, Abdul Aziz. The VAT registration was corrected with retrospective effect. It transpired later that Mr Aziz left the partnership in, apparently, January 1996 and the registration was again amended at that time.
6. The tax assessments with which we are concerned cover the entire period from 1 January 1993 to 31 December 1998. The notification was addressed to "Mr Giash Uddin and Mr Monnan Miah, Taste of Bengal" at the trading address of the premises. Two separate penalties were imposed: the first covered the period from 1 January 1993 to 31 December 1995, when Mr Aziz was a partner, and the relevant notice was addressed to all three of the partners, with the trading name added. The second penalty related to the period from 1 January 1996 to 31 December 1998, and was addressed to Mr Uddin and Mr Miah, alone although the name of the partnership was added, as in the other cases. Although the correctness of the notifications has not been challenged by the Appellants, but we nevertheless think it appropriate to record that we agree with Mr Puzey that the Commissioners have adopted the right approach, and that the notifications are as they should be. We should add that Mr Aziz has not sought to appeal the imposition on him of a penalty, and has taken no part at all in the appeal.
7. Mr Gardner's assessments assume that, throughout the relevant period, the Appellants and, in the earlier period, Mr Aziz with them, suppressed the true takings of the restaurant and, consistently, declared only 57.32% of their true takings. That conclusion was based upon the results of observations carried out by teams of officers, including Mr Gardner, who attended the restaurant, in pairs, in order to buy meals on five dates – Thursday 9 January 1997, Friday 21 March 1997, Wednesday 25 June 1997, Tuesday 14 October 1997 and Friday 20 February 1998. The officers synchronised their visits to the restaurant sequentially so that, between them, they were able to observe the trade for the entire evening and to count the number of customers who attended the restaurant in order to eat, or to purchase takeaway meals. Later, the restaurant's records were taken up by Mr Gardner; those records included the restaurant's copies of the meal bills. The meal bills, in two part form, had been used to record the customers' orders and, at the conclusion of the meal, were also used as the bill, the top copy being retained by the customer and the duplicate by the restaurant. Importantly, the number of diners was recorded on the meal bills. The meal bills could be reconciled to the recorded daily gross takings and to the VAT returns but, save in respect of 14 October 1997, there were fewer meal bills within the records than the number of customers dining or purchasing takeaway meals the officers had observed.
8. Mr Gardner interviewed Mr Uddin on two occasions, 9 December 1998 and 11 March 1999. We were provided with transcripts of the interviews. On the first occasion Mr Miah was also present, though he took no part in the discussion, which concluded when Mr Uddin asked that he be given the opportunity of consulting Mr Alam. On the second occasion, Mr Miah was not present but Mr Alam was, though he took very little part in the discussion. At the beginning of each interview, Mr Uddin was shown the Commissioners' Notice 730, which invites the trader's co-operation in return for a virtual, although not absolute, guarantee that he will not be prosecuted, and a potential reduction, depending on the degree of co-operation given, in the amount of any financial penalty which might be imposed. The Notice is sanctioned by section 60(4) of the Value Added Tax Act 1994, to which section we shall return.
9. At the first interview, Mr Uddin maintained that all of the takings of the restaurant had been correctly declared but at the second he made some concessions, admitting that there had been some suppression of takings on Saturdays, and for a limited period only, starting in 1996 or 1997. Mr Gardner was not satisfied that Mr Uddin's claims were truthful, because the results of the observations revealed that there had been a suppression of some sales on four of the five evenings on which those observations had been undertaken, none of which was a Saturday. He had already produced a calculation, period by period, of the tax which, he believed, had been underdeclared and he handed a copy of it to Mr Uddin and Mr Miah at the interview, asking them to respond by means of a calculation of their own, by the end of April 1999. No such response was received and Mr Gardner proceeded to raise the tax assessments now under appeal, which are based exactly upon the calculations handed over at the interview.
10. Mr Gardner explained that he had begun by attempting to calculate the average value of meals eaten in the restaurant and meals taken away and of the true takings for each evening of observations, calculated by the simple expedient of multiplying the number of customers seen by the, separately calculated, average price of what they had purchased. He found, however, that a simpler calculation, based on a comparison of the numbers of customers seen and those represented on the meal bills, led to a rather lower suppression rate and he decided to adopt that calculation instead. In doing so, he included 14 October 1997 when no, or negligible, suppression had been detected. He assumed that there had been uniform suppression over the whole period since the restaurant had opened because, he told us, there was no evidence to the contrary; he could place no reliance on Mr Uddin's claim that suppression had begun only in 1996 or 1997, because his claim that suppression had taken place only on Saturdays was demonstrably false, and there was nothing in the pattern of the declared takings, such as a conspicuous drop at a particular time, which might support the contention that there had been no suppression in the earlier period. On the contrary, as we could see for ourselves from the list of them provided to us, the fluctuations in the declared takings from one quarter to the next were quite modest.
11. In his second interview, Mr Uddin also admitted that the suppression which he had conceded was dishonest. In that, we think, he was merely bowing to the inevitable since no other explanation is plausible and, indeed, none has since been offered. Mr Gardner decided that the imposition of a financial penalty was appropriate, and made that recommendation to a superior officer, whose decision it was that the penalty should indeed be imposed. In his recommendation, Mr Gardner also suggested that the maximum penalty, 100% of the tax evaded, should be mitigated by 20%, to reflect Mr Uddin's having handed over the trading records, and his attending two interviews but, he thought, nothing further should be offered since Mr Uddin's admissions were very limited and he had made no real attempt to assist the Commissioners in establishing the true amount of tax. That recommendation, too, is reflected in the penalties actually imposed.
12. In their Notice of Appeal, the Appellants contend that "the assessment is estimated, excessive and not in accordance with the business books and records and the quarterly returns already submitted". Nothing is said in the Notice of Appeal about the penalties, but the appeal was nevertheless treated as one against both assessment and penalties. In their defence, the Appellants assert that all the tax due has been declared and paid – in other words they have gone back on the admissions made by Mr Uddin in his second interview – and that the penalty assessments are inappropriate, because no tax has been evaded. The quality of the evidence on which Mr Gardner relied is criticised, but no evidence was put forward with the defence, or subsequently, to support the veracity of the VAT returns submitted by the partnership during the relevant period, nor in any other way to cast doubt on Mr Gardner's conclusions.
13. In our view the evidence and information available to Mr Gardner when he made his calculations was compelling. Although there was no concealment of the number of customers on one occasion, quite possibly for the reason which Mr Uddin himself advanced at his second interview, that one could suppress only when the takings were sufficiently high, there was significant suppression of numbers on all of the other occasions. Mr Gardner's calculations take into account the absence of suppression of numbers on 14 October 1997 and his approach is, in our view, fair and a proper exercise of his judgment, as required by section 73(1) of the 1994 Act, in accordance with which the assessments were made. We are satisfied too that his conclusion that there had been suppression at a uniform rate over the entire period of trading was reasonable. There is no evidence before us which might lead us to the view that too much tax has been assessed, or that the period assessed is too long. The Appellants have not discharged the burden on them of satisfying us that the assessments are in some way erroneous, and the appeal against the assessment must, therefore, fail.
14. The penalties were imposed in accordance with section 60 of the 1994 Act which, by subsection (1), renders a person liable to the imposition of such a penalty if, for the purpose of evading VAT, he does or omits to do anything, and his conduct involves dishonesty. As we have already indicated, it is difficult to see how the persistent underdeclaration of takings, over a prolonged period, can be attributable to anything other than dishonesty. Mr Uddin admitted dishonesty at his second interview, and no other explanation of his conduct has been advanced. It may well be that Mr Uddin alone made the decision to suppress the takings but his partners cannot escape liability on that ground; it is an elementary principle of English law that each partner is liable for the acts and omissions, in connection with the running of the business, of any other partner. The appeals against the penalties must, therefore, also be dismissed. We add that there is nothing before us to suggest that the mitigation allowed by the Commissioners was inappropriate, and we shall not adjust it.
15. In accordance with the Commissioners' practice of seeking directions in their favour in respect of costs in cases where a penalty has been imposed under section 60 of the 1994 Act, and indeed when Appellants fail to attend the hearing of their appeals, Mr Puzey made such an application to us. We think it is an entirely proper one and we direct that the Appellants shall pay the Commissioners' costs which, if not agreed, are to be assessed by a tribunal chairman sitting alone.
16. We should add that there was evidence in the documents produced to us that, in 1999, Mr Uddin was adjudged bankrupt, on the petition of what was then the Inland Revenue. We do not know whether the Commissioners have proved in his bankruptcy, but if they have not, it may well be impossible for them now to recover any of the tax and penalties from him. That, however, is not a matter within our jurisdiction.

COLIN BISHOPP

CHAIRMAN
Release Date: 5 July 2007

MAN/06/0024