Ali (trading as Vakas Balti) v HM Revenue and Customs

J U D G M E N T

This is an application for permission to appeal from an order made on 26 January 2006 by Hart J on an appeal by the applicant from a decision of the VAT and Duties Tribunal released on 8 March 2005. It is therefore an application to which CPR 52.13(2) applies. Permission cannot be given by this court unless satisfied that a second appeal would raise some important point of principle or practice or that there is some other compelling reason why this court should entertain a second appeal.

The tribunal treated as before it appeals from Notices of Assessment to Value Added Tax dated respectively 27 April 1999 and 18 May 1999 for the periods 1 August 1997 to 31 December 1998 and 1 August 1996 to 31 July 1997 and a Notice of Assessment to a Civil Penalty raised under section 60(1) of the Value Added Tax Act 1994 covering the whole period 1 August 1996 to 31 December 1998.

Section 60(1) VATA 1994 is in these terms:

"In any case where —

(a) for the purpose of evading VAT, a person does any act or omits to take any action, and

(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct."

Subsection (6) provides that:

"Where, by reason of conduct falling within subsection (1) above, a person is convicted of an offence […] that conduct shall not also give rise to liability to a penalty under this section."

So there is protection against double jeopardy.

The assessments were raised in respect of the business of restaurant and takeaway carried on by the taxable person, Mr Liquat Ali trading as Vakas Balti at and from premises at Halesowen in the West Midlands. The tribunal upheld the assessments in the amounts in which they were made; noting that it was accepted that the assessments had been made to the Commissioners' best judgment so that the only question before it was whether the assessments had been excessive. It recorded also that it had been accepted on behalf of the taxable person that there had been dishonesty for the purposes of evading VAT sufficient to bring the case within section 60(1) of the Act. It upheld the amount of the penalty that had been assessed under that section on the basis that it was equal to the full amount of the tax evaded or sought to be evaded and that there was no reason to reduce the penalty on the grounds of mitigation.

The taxable person appealed to the High Court. At paragraph 4 of his judgment, the judge identified five issues which, as he said, might arise before a tribunal in a case of this nature. But – having regard to the acceptance on behalf of Mr Ali (who was represented before the tribunal by an accountant, Mr Khan) that the assessments were made to the best judgment of the Commissioners and that there had been dishonest evasion of tax – those five issues reduced to three. First, were the assessments in the correct sum; second, what was the amount of the VAT evaded or sought to be evaded by the dishonest conduct; and third, what mitigation, if any, of the civil penalty was appropriate.

The judge summarised the grounds of the appeal before him under three heads. First, unfairness in the proceedings before the tribunal; second, failure of the tribunal to understand the true nature of its role; and third, a number of technical arguments in relation to the second assessment and the civil penalty notice.

The judge rejected the allegations of unfairness before the tribunal for the reasons which he set out at paragraphs 8 to 20 of his judgment. He set out those reasons under eight heads, corresponding to the criticisms which had been made by counsel for the taxable person. The procedural shortcoming on which, as the judge understood the position, counsel principally relied was a failure to disclose external observations which had been made by the Customs and Excise officers on 15 May 1998, and which are referred to in paragraph 10 of the Statement of Case. He rejected the submission that the failure to disclose was part of a deliberate policy of suppression on the part of the Customs with a view to misleading the tribunal. He observed that both of the officers who made whatever observations were made had given evidence before the tribunal and that neither was asked about the observations. He went on to point out that the suggestion that there was any deliberate policy of suppressing a document was belied by the fact that the pleading itself referred to the observations. I mentioned those points because it indicates the basis upon which the matter was being advanced before the judge and his reaction to it.

The judge rejected also the submission that the tribunal had failed to understand its true role. After referring to a number of decisions, both in the High Court and in this Court, in which the role of the tribunal on an appeal against an assessment has been discussed, he said this, at paragraph 23 of his judgment:

"The suggestion that the Tribunal was unaware of the distinction between its supervisory and original roles seems to me to be unsustainable for two reasons. First, it plainly had in mind the distinction when, at an adjourned hearing of the appeal on 15 ^th September 2004, it drew to the attention of the appellant the recent decision in Pegasus Birds, inviting him to consider whether he wished to make 'amendments to his pleaded case in so far as it relates to best judgment.'"

He held that the tribunal's reference to Pegasus Birds could not be reconciled with the suggestion that it did not understand the fundamental message of that authority, which the judge then set out. And at paragraph 24 the judge said this:

"… the appellant's representative at the Tribunal hearing made it clear that the assessments were not being challenged on best judgment grounds."

The tribunal recorded that both at paragraph 44 and at paragraph 48 of its decision. The judge set out those passages and went on to say this:

"It seems to me impossible to say that the Tribunal did not understand that the issue before it was the issue of quantum."

The judge rejected the criticism that the tribunal, in assessing the evidence before it, reached a conclusion that no reasonable tribunal could have reached. He addressed that point at paragraph 26 of his judgment. He said this:

"This involved [counsel] in making detailed submissions on the effect of the evidence. For the most part those appeared to me to be no more than a re-casting, by reference to new schedules prepared by her on a variety of different assumptions, of points of a kind which the appellant's representative had made on his behalf at the Tribunal."

But he referred to one issue which counsel had identified and which, she had argued, revealed a logical flaw at the heart of the tribunal's reasoning. He was not persuaded that that flaw should lead to a conclusion that the tribunal was not entitled to reach the result which it did reach.

After considering what he described as the technical arguments, the judge reduced the amount of the civil penalty under section 60(1) VATA 1994. He did so because he was not satisfied that the civil penalty could be assessed in an amount without there having first been a determination of Value Added Tax due in that amount in accordance with the statutory machinery. So the civil penalty was to be reduced by a sum representing the difference between the amount actually assessed by the second assessment and an amount which the Commissioners had sought to assess by an amended assessment.

In relation to that point, the Commissioners sought permission to appeal. That application came before me on the papers on 22 June 2006. I granted permission to appeal. I did so for this reason:

"I am satisfied that the issue raised by this appeal, namely whether it is a necessary precondition for the issue of a civil penalty assessment under Section 60(1) and 76 of the Value Added Tax 1994 that a valid tax assessment be in existence for the amount of the VAT evaded is of sufficient general importance and not covered by existing authority to justify consideration by the Court of Appeal on a second appeal."

There is, I assume, a pending appeal by the Commissioners from paragraph 1 of the judge's order of the 26 January 2006, by which he reduced the civil penalty.

By his appellant's notice filed on 14 March 2006 – that is to say some five weeks out of time – the applicant seeks to challenge paragraphs 2 and 3 of the judge's order.Paragraph 2 had dismissed the appeal, save insofar as the civil penalty was reduced under paragraph 1.Paragraph 3 required the appellant to pay the Commissioners 75% of their costs. The challenge is put on three grounds. First, the judge's failure to distinguish between the tribunal's role in relation to best judgment and its original role in relation to quantum; second, the judge's failure to appreciate the essential requirements which the tribunal had failed to undertake in relation to its assessment of quantum; and third, the judge's failure to appreciate that what...