United Kingdom VAT & Duties Tribunals (Excise) Decisions

Clyde Coin Ltd v Customs & Excise [2003] UKVAT(Excise) E00427 (12 June 2003)

Amusement Machine Licence Duty; Betting and Gaming Duties Act 1981 Schedule 4A paragraphs 2 and 4; calculation of duty; erroneous calculation; validity of assessments; whether made to best judgement.

EDINBURGH TRIBUNAL CENTRE

CLYDE COIN LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: (Chairman) J Gordon Reid, QC., F.C.I.Arb.,

(Member) Miss Karen Bruce Lockhart, WS

Sitting in Edinburgh on Wednesday 21 May 2003

for the Appellant Mr William Black

for the Respondents Mr Andrew Scott, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2003.


 

DECISION

This is an appeal under the Betting and Gaming Duties Act 1981 following a departmental review by the Respondents ("Customs") of a decision to assess the Appellants, in two notices of assessment, in the sum of £6,645 and £680 in respect of amusement machine licence duty ("AMDL") under the Betting and Gaming Duties Act 1981. Mr William Black, the managing director of the Appellants appeared on their behalf and gave evidence. Mr Andrew Scott, solicitor, Shepherd & Wedderburn WS appeared on behalf of Customs. He led the evidence of Craig Clark, who was a senior Customs review officer of regional business services. Both parties produced documents, the authenticity of which, and, where appropriate, their transmission and receipt, were not in dispute. A Hearing took place on 21^st May 2003.

Legal Framework

Subject to certain exemptions which are not material for present purposes, no amusement machine may be provided for play on any premises unless it or the premises are licensed (1981 Act section 21). Excise duty is charged on amusement machine licences (section 23). Schedule 4 specifies the procedure for inter alia the application and issue of licences. If an amusement machine is provided for play but does not appear to be licensed, Customs may serve a default notice (Schedule 4A para 2) on a responsible person in relation to the relevant premises or the machine. The owner of the machine and the occupier of the premises in question are such responsible persons (Schedule 4a para 7). If during the period of alleged default there is no licence in force, Customs may issue a default licence (Schedule 4A para 3). They may also assess to the best of their judgement the amount which would have been payable as AMLD if the default licence had been an amusement licence granted under Schedule 4 (Schedule 4A para 4(2)). Once a notice of assessment is served that amount is deemed to be the amount charged and payable by the responsible person under section 22 (Schedule 4A para 5). Section 22 is the charging provision which imposes the duty of excise on amusement machine licences. Further provisions deal with the calculation of the amounts of duty due in various circumstances. By paragraph 6 of Schedule 4, section 14 of the Finance Act 1994 (which provides for internal review of various statutory decision) applies to a decision that a default notice should be issued, the liability of a responsible person and the quantification of that liability in an assessment. Section 16 of the 1994 Act provides for appeal to this Tribunal against such reviewed decision. The decision is not, however, a decision as to an ancillary matter within section 16(8) because the decision does not fall within Schedule 5 to the 1994 Act. Although some decisions under the 1981 Act are specified in Schedule 5, decisions under paragraph 6 of Schedule 4A are not among those specified. The powers of the Tribunal in such an appeal are set out in Section 16(5) of the 1994 Act. These include the power to quash, or vary any decision and power to substitute our own decision for any decision quashed on appeal.

Facts

The Appellants are suppliers of amusement machines in Scotland, mainly in the Central Belt. They have been in business for many years. They buy in amusement machines and hire them out to a variety of customers including publicans. Their standard form of contract with their customers usually provides that the customer is responsible for the payment of the duty in respect of the machines. However, for almost half of the 250 gaming machines hired out by the Appellants, they pay the licence duty and pass on the cost to their customers. Over the years, the Appellants have always co-operated with Customs and have not hitherto received default notices.

In the course of a visit to the Appellant's premises on 15/5/02, the Appellants provided Customs officer Craig Johnstone with a full list of their customers to whom amusement machines had been hired out. A further visit took place on 19/6/02. Enquiries subsequently revealed that there were several premises which were not licensed in respect of amusement machines supplied by the Appellants. Statutory default notices were served on the Appellants on 3 and 11 July 2002 in respect of six amusement machines in respect of which there was no amusement licence. These notices were followed up by the issue of statutory default licences on 29 July 2002 and 14 August 2002. Two Notices of Assessments were also issued. Thereafter, the Appellants, on 16 September 2002, requested a formal departmental review. The review was carried out by Craig Clark. The result of his review is contained in his letter dated 8 November 2002. In that letter, Mr Clark set out the factual background, and the legal framework. He then considered whether the Appellants were a responsible person within Schedule 4A, concluded that they were and that the default notices and default licenses were properly issued. There is no dispute about any of these matters. He then examined the assessments. The first assessment, dated 29/7/02 concerned Category C amusement machines. There are statutory categories for different types of machine such as pinball machines and machines which pay out smaller or larger prizes; the duty payable varies with the category. For each of the five machines to which the first assessment related, Mr Clark concluded that Mr Johnstone had used the wrong rates of duty. The assessment specified total duty of £6,645. The correct amount was £6,975. The second assessment, dated 14/8/02, also concerned a Category C amusement machine. Mr Johnstone assessed the duty payable at £680. Mr Clark again concluded that the wrong rate of duty had again been applied and that the correct amount payable was £775. The total shortfall was £425 and a further assessment in that sum was issued with the review letter. Again, there is no dispute about these calculations. Thus, although the first two assessments were calculated upon an erroneous basis they were not amended; instead a supplementary assessment was issued.

Finally, on the facts, we record that Mr Clark was not aware of a supplier ever having been served with a statutory default notice.

Submissions

Mr Scott, on behalf of Customs, submitted that the correct statutory procedures had been followed, that the Appellants were a responsible person within the meaning of Schedule 4A and were therefore liable. The assessments had been made to best judgement as that phrase had been interpreted by the courts in cases such as Rahman v CC&E 1998 STC 826 and Van Boeckel v CC&E 1981 STC 290. The Appellant had failed to demonstrate that the assessments had not been to best judgement.

Mr Black's main complaint for the Appellants was that they had been unfairly treated. His company had always co-operated with Customs and had never before received a default notice or licence. Customs were known to have poor records in the nineties and these were only brought up to date with the co-operation of suppliers such as the Appellants. For many of the Appellants' customers, the Appellants deal with the licensing and duty and pass on the cost. However, the Appellants cannot compel their customers to allow them to do so. The Appellants have no way of knowing whether a customer who makes his own arrangements has a licence and is paying the duty or whether he has simply stopped paying the duty. Customs will not provide them with that information. The Appellants had given Customs all the information they needed to chase up the operators; the Appellants were not expecting to be served with assessments and this was the first time they had been served with assessments for an operator's defaults. Customs were dealing with the operators (hirers of the machines) in question to recover the arrears.

Decision

Subject to one point, the appeal has no merit whatsoever. We do, nevertheless have considerable sympathy for the Appellants, who appeared to be carrying on their business responsibly and maintaining proper records.

We have been troubled by the fact that the first two assessments are plainly wrong, being based upon an erroneous statutory calculation. That error is a basic misconstruction of the statutory provisions by which the rate of duty is calculated. It is explained in Mr Clark's review letter. In summary, where the responsible person is in default he is charged with duty applicable on the due date; the due date is the date specified in a default notice (see Schedule 4A para 2(4)). This is the date by which an amusement licence has to be produced to Customs and is a preliminary to charging the duty which should have already been paid. The two Assessments dated 29/7/02 and 14/8/02 calculated the duty payable by reference to earlier dates. We invited Mr Scott to address us on the validity of the first two notices of assessment and on the question whether these assessments could be made to best judgement if they proceeded upon a misinterpretation of the statutory provisions for calculating the amount payable. He submitted that the three assessments in total constituted Customs' best judgement.

Once the period for which duty is payable is established, then the calculation of the duty is a matter of applying the correct statutory rates for the period or periods in question. If Customs do not apply the correct statutory rate, then it seems to us that the assessment must be wholly unreasonable. An assessment will be treated as invalid if it is wholly unreasonable (Rahman v CC&E 1998 STC 826 at 835c-d, quoted with apparent approval by the Court of Appeal in the same case in their judgement dated 10/12/02).

In the present appeal, the situation is different from the more usual best judgement case where, in making their assessment, Customs carry out their calculations on the basis of limited information, which is sometimes amplified by an appellant at a Tribunal hearing; there, the assessment made by Customs on limited information, though perhaps excessive, may not be said to be unreasonable, and normally the Tribunal will make its own assessment based on the more detailed information before it.

In our view, the first two assessments are calculated on the basis of a misinterpretation of the law which lies at the heart of the assessment. The wrong statutory rate has been used to calculate the amount assessed. By doing so, albeit inadvertently, Customs' assessments must be regarded as wholly unreasonable and therefore cannot be to best judgement. An assessment which proceeds upon a material error of law cannot have been made to best judgement. The first two assessments are therefore invalid. The third assessment relies upon the first two assessments because it is a calculation of the shortfall contained in those assessments. If those assessments are invalid, the third assessment can have no validity at all as it is not an assessment for a particular period or periods at specified statutory rates; it merely supplements two invalid assessments and cannot stand on its own. Had a fresh notice been made and issued for the correct total amount, there could have been no complaint. However, that has not been done.

Result

In these circumstances, the Tribunal must hold that the three notices of assessment were not made to best judgement and are therefore invalid. In exercise of our powers under section 16(5) of the 1994 Act, we quash the three notices of assessment. It will be for Customs to decide whether they wish to issue fresh assessments. We allow parties twenty eight days to make any representations they think fit on the question of expenses.

J GORDON REID, QC., F.C.I.Arb.,

CHAIRMAN

RELEASE: 12 JUNE 2003

EDN/02/8022