Farnocchia and Another v Commissioners of Customs and Excise
| Jurisdiction | Scotland |
| Judgment Date | 05 May 1994 |
| Date | 05 May 1994 |
| Court | Court of Session (Inner House - First Division) |
Court of Session (Inner House).
Lord President Hope, Lord Morison and Lord Cullen.
DRL Francis (instructed by Gray Muirhead WS) for the taxpayers.
James R Campbell (instructed by Shepherd & Wedderburn WS) for the Crown.
The following cases were referred to in the opinion:
Albyn Properties Ltd v Knox SC1977 SC 108
Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378
Value added tax - Assessment to "best of judgment" - Alleged underdeclaration between 1985 and 1990 - Whether Customs had made assessment to the best of their judgment - schedule 7 subsec-or-para 4Value Added Tax Act 1983, Sch. 7, para. 4(1).
This was an appeal by the taxpayers against a decision of the VAT tribunal ([1993] BVC 1579) confirming estimated VAT assessments covering periods between 1985 and 1990.
Early in 1991 an officer of Customs visited the taxpayers' restaurant. He concluded that there had been an underdeclaration of VAT over a period from 1 July 1985 to 30 June 1990 and made an assessment of £135,149. The assessment was based on an analysis of sales slips for the three months preceding the officer's visit. He calculated the ratio of sales of food to sales of drink at 3.23:1. He then worked out quantities of drinks in order to reach a weighted mark-up on sales over the same period by reference to prices on the current menu and applied the resulting figure to the whole of the five-year period.
The taxpayers' appeal to the VAT tribunal was heard on 5 February 1992. Evidence was given for the taxpayers seeking to show that the assessment failed to allow for free drinks provided for customers and staff and wastage. The tribunal concluded that the evidence should be looked into further and adjourned the hearing which was not resumed until 24 March 1993.
In the meantime Customs had reduced the assessment to £24,465.81. They accepted the taxpayers' explanations to some extent and accepted that, among other miscalculations, the investigating officer had mistaken two-litre bottles of wine for three-litre bottles when he arrived at the amount of drink sold.
At the resumed hearing the only outstanding matters were whether a food to drink ratio of 3.23:1 was justified and whether, as a matter of law, it was legitimate to apply that ratio calculated from three months' sales slips and one day's menu, to the whole five-year period of the assessment.
At the resumed hearing the tribunal refused a motion to recall the taxpayer's accountant to give further evidence and, rejecting the submission that three months' slips could not be applied to the five-year period, upheld the revised assessment.
On appeal to the court the taxpayers relied on the argument that the tribunal had failed to give proper reasons for its decision. The issues to be decided, the facts relating to the issues and what test had been applied were not clear, so it was impossible to say what the tribunal's reasons were for deciding that the assessment had been made to the best of the officer's judgment within the schedule 7 subsec-or-para 4Value Added Tax Act 1983, Sch. 7, para. 4(1). Nor was it possible to say whether the tribunal had acted fairly in refusing to recall the accountant to give further evidence. It was submitted that the case should be remitted to the tribunal to state the facts which it had found proved and the reasons for the decision.
Held, refusing the taxpayers' appeal:
1. Although the tribunal's decision left much to be desired, that was at least in part due to failure by the taxpayers to provide information. Customs did not have to make exhaustive enquiries and investigate every detail in order to make a best of judgment assessment. The obligation was on the taxpayers to furnish true and complete returns. The process of self-assessment was based on information kept by and available to the taxpayer and where the taxpayer failed in that obligation Customs might make an assessment to the best of their judgment of the tax due for the relevant period. But it was an exercise of judgment, not a complete reinvestigation and the ratio of food sales to drink sales was justified: Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378 at p. 380 per Woolf J followed.
2. The longer the period to be covered by the assessment the more unreasonable it might be for Customs to have to investigate all the facts over the entire period. It was open to Customs to select a shorter period than that which was to be covered by the assessment in order to arrive at an appropriate figure for the food to drink ratio on which the assessment was based.
3. The case would not be remitted to the tribunal. The tribunal's decision not to allow the taxpayers' accountant to be recalled to give further evidence was not unfair. The reason for making the request appeared to have no relation to calculations arising out of the revised assessment. The only points at issue at the resumed hearing were points of principle in relation to the revised assessment, as to which all the relevant facts were already before the tribunal.
The taxpayers appealed against a decision of the Edinburgh VAT tribunal released on 6 April 1993 (chairman Mr RA Bennett CBE QC). The grounds of the appeal were that the tribunal had erred in law in holding: that the revised assessment was made to the best of Customs' judgment; that the tribunal had not attained procedural fairness between the parties by refusing the taxpayers' motion for their witness to be recalled to give evidence in relation to the revised assessment; and that the tribunal had failed to give adequate reasons for its decision.
This is an appeal under section 11 subsec-or-para...
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