1st Indian Cavalry Club Ltd and Another v Commissioners of Customs and Excise
| Jurisdiction | Scotland |
| Judgment Date | 18 November 1997 |
| Docket Number | No 12 |
| Date | 18 November 1997 |
| Court | Court of Session (Inner House - First Division) |
EXTRA DIVISION
Statute—Statutory interpretation—Revenue—Value added tax—Civil penalties—Whether standard of proof beyond reasonable doubt or on balance of probabilities—Whether civil penalties quasi criminal in character—Value Added Tax 1994 (cap 23), secs 60 and 61
Sections 60 and 61 of the Value Added Tax Act 1994 deal with the imposition of a civil penalty in respect of assessments to value added tax. A company and its director appealed to the value added tax tribunal in respect of ascertaining the correct methods of assessment of under-declared VAT on meals served in a restaurant operated by them during a specific period. The Commissioners of Customs and Excise had assessed the undeclared VAT and had imposed civil penalties upon the company and the director under secs 60 and 61 of the 1994 Act. The company and director appealed to the Court of Session on the basis that the tribunal had found that in ascertaining whether to impose a civil penalty the standard of proof was that of balance of probabilities and not of beyond reasonable doubt. The tribunal found that had the standard been the latter the civil penalties would not have been imposed. The company went into voluntary liquidation and their appeal was refused. The director continued with his appeal.
Held (1) that the question was one of statutory construction to be looked at both intrinsically and in the context of the history of the relevant legislation so that it was both relevant and legitimate to look at the historical context dealing with value added tax; (2) that such an examination made it clear that what had been introduced by the Finance Act 1985 (the precursor to the 1994 Act) had been a new regime, additional to the separate existing provisions for the collection of back tax and the criminal provisions in relation to dishonesty and evasion; (3) that the words “civil penalty” did not constitute criminal or quasi-criminal proceedings requiring proof before reasonable doubt; and (4) that proof had to be on balance of probabilities; and appeal refused.
Observed that it was legitimate for the court to look behind the legislation to ascertain the mischief which it was designed to address and, with the 1985 legislation, as compared with the existing law, introducing a new regime, it was competent to look at the parliamentary proceedings and the report of the Keith Committee on the matter.
1st Indian Cavalry Club Limited and Shahidul Alam Chowdhuryappealed against a decision of the VAT and Duties Tribunal dated and communicated to them on 18 November 1996 in respect of the assessment to civil penalties imposed by HM Commissioners of Customs and Excise dealing with undeclared VAT on meals served in a restaurant during a specified period. The decisions on the issues relating to assessment were accepted by the appellants. The tribunal refused appeals by the appellants in respect of the imposition of civil penalties under secs 60 and 61 of the Value Added Tax Act 1994. The company went into voluntary liquidation and subsequently their appeal was refused. The appeal proceeded in respect of the second-named appellant.
Cases referred to:
Barratt Scotland Ltd v Keith 1994 SLT 1343
Brown v BrownSC 1972 SC 123
Eutectic Welding Alloys Co Ltd v Whitting 1969 SLT (Notes) 79
Gatoil v Artwright Boston InsuranceSC 1985 SC (HL) 1
Ghandi Tandoori Restaurant v Commissioners of Customs and Excise 1989 VATTR 39
Gribben v Gribben 1976 SLT 266
Hendry v Clan Line SteamersSC 1949 SC 320
Inland Revenue v RuffleSC 1979 SC 371
Khawaja v Secretary of State for the Home DepartmentUNK[1983] All ER 765
Lamb v Lord AdvocateSC 1976 SC 110
McKenzie v HM AdvocateSC 1959 JC 32
Miller v Minister of Pensions 1947 TLR 474
Morrow v Neil 1975 SLT (Sh Ct) 65
Mullan v Anderson 1993 SLT 835
Pepper v HartELR [1993] AC 593
Short's Trustee v Keeper of RegistersSC 1994 SC 121
Wood (Norman) & Sons [1994] DVC 523
Textbook referred to:
Dickson on Evidence, i, 37
The cause called before an Extra Division, comprising Lord McCluskey, Lord Johnston and Lord Hamilton for a hearing on the summar roll.
At advising, on 4 November 1997—
LORD McCLUSKEY—The appellants before the tribunal were respectively, first, a body corporate which owned a restaurant business, and, second, a person who at the material time was a director or managing officer of the body corporate. In those appeal proceedings, the tribunal inter alia had to decide issues as to the correct methods of assessment of undeclared VAT on meals served in the restaurant during a specified period. Their decisions on the issues relating to assessment are not challenged in this appeal. The tribunal also refused appeals by both appellants in respect of civil penalties assessed by the commissioners on the appellants under secs 60 and 61 of the Value Added Tax Act 1994. The appeal to this court is now maintained by the second appellant only. The first appellants went into voluntary liquidation in March 1997 and their appeal was refused in April 1997.
Only one issue is raised in this appeal. The tribunal had to determineinter alia whether or not the conduct which resulted in VAT evasion within the meaning of sec 60 of that Act was conduct which involved dishonesty. That requirement arose from the application of sec 60(1)(b) of the Act. It was not in dispute that the burden of proof of dishonesty in an appeal against an assessment to a penalty under sec 60 lay upon the commissioners: sec 60(7). However, the issue which the tribunal had to determine was whether the standard of proof which the commissioners had to discharge in the appeal was the standard of proof which the commissioners had to discharge in the appeal was the standard applicable in civil proceedings or the higher standard required in a criminal prosecution. In their decision, the tribunal summarised the submissions of parties on this issue and concluded after an examination of the statutory provisions that, at least in Scotland, the commissioners had to establish the appellants' liability to penalties by proving upon a balance of probabilities that the necessary conditions specified in sec 60 were satisfied. The tribunal stated: “Applying that standard in the light of the matters above quoted we found without difficulty that there had been dishonesty and that a penalty was appropriate. We state however that had it been appropriate to apply the standard of proof beyond reasonable doubt we would have felt ourselves unable to hold on that standard that the conduct of the appellants necessarily involved their dishonesty.” The only ground of appeal for the present appellant is as follows: “The tribunal erred in law in holding that the appellant's liability to a penalty under sec 61 of the Value Added Tax Act 1994 fell to be determined on a balance of probabilities. The tribunal erred in law in failing to hold that the appropriate standard was proof beyond reasonable doubt. Had the tribunal applied the standard of proof beyond reasonable doubt they would have been unable to hold that the conduct of the appellants necessarily involved their dishonesty. Accordingly no penalty ought to have been imposed.”
The issue before this court was therefore a simple issue of the standard of proof which the commissioners had to meet in an appeal to which sec 60(7) applied. It was not suggested that the provisions of sec 61(5) had any bearing on the issue in this appeal or upon the second appellant's right to pursue the appeal.
In support of his ground of appeal, counsel for the second appellant pointed out that the 1994 Act was a consolidation measure. Section 60 was derived from sec 13 of the Finance Act 1985, as amended by later Acts, with the exception of subsec (7) which derived from sec 27(1) of the Finance Act 1985. Section 61 re-enacted provisions taken from sec 14 of the Finance Act 1986. He drew attention to the wording of secs 60 and 61 and to the other provisions of Part IV, notably sec 72 which deals with offences which can render the taxpayer liable on conviction to certain penalties in respect of conduct specified in that section. Although it was not in dispute that the provisions in secs 60 and 61 followed the publication of a report (Cmnd 8822, 1983) by a Committee on Enforcement Powers of The Revenue Departments chaired by Lord Keith of Kinkel, he submitted that the provisions in Part IV of the 1994 Act, and notably secs 60 and 61, did not in fact expressly provide that the standard of proof was to be the standard appropriate in civil proceedings. Counsel was not aware of any ruling by a court as to the standard of proof applicable under the provisions enacted in 1985 and 1986. However he drew attention to Ghandi Tandoori Restaurant v Commissioners of Customs and Excise where the tribunal in London held that the standard of proof required establishing an act or omission and conduct involving dishonesty on the part of the taxpayer under sec 13 of the Finance Act 1985 was the civil standard of proof “requiring a high degree of probability”. He did not suggest that such language would be appropriate to describe the standard of proof in Scottish proceedings. That was a case in which there was no contradictor and the tribunal did not appear to give weight to the most important consideration, the nature of the proceedings. He drew attention to other English cases in which opinions had been expressed as to a burden of proof that appeared to lie somewhere between the balance of probabilities and proof beyond reasonable doubt: in this regard reference was made to Miller v Minister of Pensions and Khawaja v Secretary of State for the Home Department, perLord Scarman at p 784. In the tribunal decision in Norman Wood & Sons the tribunal had applied the ordinary civil standard of proof to a case under sec 13(1) of the Finance Act 1985. In so doing they referred to Mullan v...
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