Georgiou and Another (t/a Marios Chippery) v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 23 February 1996 |
| Date | 23 February 1996 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Evans, Saville and Morritt L JJ.
Marion Lonsdale (instructed by Salusbury's, Leicester) for the taxpayers.
Richard Barlow (instructed by Solicitors for Customs & Excise) appeared for Customs.
The following cases were referred to in the judgment:
C & E Commrs v Bassimeh VAT[1995] BVC 373
C & E Commrs v John Dee Ltd VAT[1995] BVC 361
Edwards (HMIT) v Bairstow ELR[1956] AC 14
Koca v C & E Commrs VAT[1996] BVC 35
Schlumberger Inland Services Inc v C & E Commrs VAT(1986) 2 BVC 200,276
Seto v C & E Commrs VAT(1980) 1 BVC 363
Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378
Value added tax - Penalty - Assessment - Take-away food shop - Takings underdeclared - Investigation by Customs - Underdeclaration admitted - "Best of judgment" assessment - Notice of assessment relating to several periods but referring to single penalty - Whether, exercising proper function, tribunal was entitled to find that assessment was made to Customs' "best of judgment" - Whether penalty notice valid - Whether amount of penalty excessive - Value Added Tax Act 1983, Sch. 7, para. 4(1) - Finance Act 1985, s. 21(2) (Value Added Tax Act 1994 section 73 subsec-or-para (1) section 76 subsec-or-para (3)Value Added Tax Act 1994, ss. 73(1), 76(3) respectively).
This was an appeal by the taxpayers to the Court of Appeal from a decision of the High Court ([1996] BVC 84) which held as preliminary issues of law that the VAT tribunal as the fact-finder on the issue of best judgment had not misdirected itself and that, even if the tribunal had failed to give proper reasons for its decision, the taxpayers had not established that the decision had been reached by an erroneous process of legal reasoning.
The taxpayers ran a fish and chip shop, which sold hot food subject to VAT. In 1989 the shop attracted the attention of Customs. In August 1989 the taxpayers acquired a new till. Before that date the trading records had been rudimentary. In October 1989 Customs observed the shop for a number of days and recorded details of the number of packets leaving the premises. In January 1990 Customs made a visit to the shop and took till rolls recording four days takings. There was a clear discrepancy between what had been declared and what was recorded in the till rolls. The taxpayers admitted that they had underdeclared the amount of takings.
Assessments were then made, based on the till rolls, under the Value Added Tax Act 1983, Sch. 7, para. 4(1) in respect of the underdeclared takings for 16 prescribed accounting periods from November 1985 to October 1989. A penalty notice, dated 14 December 1990, relating to the 16 periods but referring to a single penalty of 95 per cent of the tax due was issued by Customs to the taxpayers for the underdeclaration. It was agreed that the observations produced no reliable basis for assessment.
The taxpayers appealed to a tribunal. The appeal was dismissed by the tribunal on the grounds that they were satisfied that the assessments had been made to the best of Customs's judgment and that the assessment had not been based on the observations. However, the taxpayers were successful to the extent that the penalty was reduced from 95 per cent to 75 per cent. The taxpayers' appeal to the High Court was dismissed.
Held, dismissing the appeal:
1. The tribunal had found as a finding of fact that Customs had exercised its best judgment and were entitled to rely on the till recordings which were unaffected by the results of the observation. The tribunal had properly taken account of all the evidence and information that was before it and there were no grounds on which its conclusions could be faulted. Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378 considered.
2. Although Customs had only issued one penalty for the entire period it could be inferred that either it had made separate assessments of the penalty due for each period or that it had not done so because it would have been otiose. Taking the notice of assessment together with the penalty notice, it was clear to which period and periods the penalty related and that there had been sufficient assessment of the amount of the penalty in each of those periods therefore Customs had discharged their duty under Finance Act 1985, s. 21(2) of the Act.
3. The reduction of 25 per cent from the penalty was sufficient. The taxpayers had been unable to cooperate with Customs because sufficient and proper records had not been kept. That was different to the situation where a person was unable to cooperate with Customs due to a cause which was not the person's own fault.
Evans LJ: This is an appeal from Sir Louis Blom-Cooper QC, sitting as a deputy judge in the Queen's Bench Division. The judgment is reported at [1996] BVC 84. He heard an appeal from a decision of the VAT tribunal dated 28 April 1994 (see (MAN/90/1115) No. 12,141; [1995] BVC 961. He listened patiently to eight days of submissions, mostly from counsel for the appellants, which went in considerable detail into the facts of the case. The underlying evidence was heard by the tribunal at a hearing which lasted no fewer than 49 working days between March and July 1993. Eventually the judge ruled on one question of law which he treated as a preliminary issue. He found it unnecessary to make findings or to rule on any of what were essentially issues of fact. He dismissed the appeal and the taxpayers now appeal to us.
In the course of our hearing counsel helpfully have agreed that we should determine all the issues raised by the original 51 page notice of appeal to the High Court. The appellants (a husband and wife) have kept a fish and chip shop in Leicester for many years since at least 1976, trading as Marios Chippery. In 1989 the shop attracted the attention of Customs regarding possible underpayment of VAT. It was suspected that there was an underdeclaration of the takings of the business. Enquiries were also made into the supplies obtained by the business from various suppliers. In August 1989 the shop was refurbished. In December of that year another shop opened nearby and became a competitor to the business. Before the refurbishment the trading records were rudimentary. They were limited to those documents which had been given by the appellants to their accountant and forwarded to Customs in the form of the appropriate declarations for VAT.
As part of the refurbishment a new and sophisticated electronic till was installed. It was used from 5 September 1989. During October 1989 certain observations were kept on the premises and were recorded by Customs. On 18 January 1990 there was a formal visit unannounced by Customs who interviewed Mr Georgiou, the first appellant. On that occasion till rolls covering four days of business were taken by the investigating officers. Queries were raised about the till and a representative, Mr Mills of the suppliers Midland Cash Register Ltd ("MCR"), was consulted. On January 26 Customs again visited the shop and this time they took what are called till memory readings. There were three; two were identical in the region of £106,000 and one was a mere £70 or so more. Those readings covered the period since 5 September 1989 in the course of which the declarations for VAT had totalled slightly in excess of £49,000. There was therefore an immediate discrepancy between the total figure shown on the till memory readings, slightly in excess of £106,000, and the £49,000 which had been declared.
The appellants consulted their accountants who in turn consulted a VAT adviser, a Mr Trotman. There was a meeting on 6 February where they were represented by Mr Trotman. Customs, at Mr Trotman's request, agreed that they would not bring criminal proceedings. Admissions were made on behalf of the appellants to the effect that they had knowingly made underdeclarations since about 1985. The relevant period for present purposes was then established as running from the first quarter of 1986 to the quarter which is known as 10-89.
On 21 May an assessment was prepared by Mr AE Smith showing that a sum was due by way of tax amounting to £61,902 for the whole of that period.
The appellants then changed their accountants and consulted the firm of Tsolakis & Co. On 15 June, Mr Tsolakis asked for the case to be reconsidered and Customs agreed. He provided a lengthy letter called the "History of Business" which admitted underdeclaring the takings and a figure which showed a total sum due by way of tax on the undeclared takings as £8,754. The letter written on 20 July 1990 can be described as straightforward and moderate. The underdeclarations which were admitted were said to have increased from relatively small sums to figures which included references to £100 per day taken from the till and up to, say, 20 per cent of the total takings for the later periods in question.
Thereafter another Customs officer, Mr SN Smith, went through the papers again. On November 20 he produced a revised assessment showing tax due of £56,444. We can treat that as a separate assessment, although Mr Barlow has indicated to us that in law it might not be correct to treat it as such, it being a revision of the original assessment. The difference does not seem to be relevant in the present case and therefore, without prejudice to that submission, I will call it a second or revised assessment.
On December 14 there was a further notice to the appellants indicating that they were to be penalised for the underdeclaration of tax, assessing the penalty as 95 per cent of the tax due, i.e. a total sum of £53,621. On that basis issue was joined, the broad issue being that the appellants say that the assessments are invalid or of no effect. They say, alternatively, that the amounts of the assessments are too high. The appeal was duly lodged. The Customs' statement of case is dated 1991. There is then a letter which we have seen dated 22 January 1992 which...
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