Georgiou and Another (t/a Marios Chippery) v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 April 1994 |
| Date | 28 April 1994 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred in the decision:
Argosy Co Ltd v IR Commrs WLR[1971] 1 WLR 514
Barber VAT(MAN/91/541) No. 7727; [1992] BVC 883
Commissioner of Income-Tax, United and Central Provinces v Badrida Ramrai Shop, Akola, Owner Laxminarayan Badrida Shrawagi of Akola(1937) 64 LR Ind App 102
Gandhi Tandoori Restaurant VAT(LON/88/369) No. 3303; (1989) 4 BVC 535
Grunwick Processing Laboratories Ltd v C & E Commrs VAT(1986) 2 BVC 200,240
Halil VAT(LON/91/295) No. 9590; [1993] BVC 772
Moti Mahal Indian Restaurant VAT(LON/90/1806) and (LON/91/1390) No. 9375; [1993] BVC 718
Seto v C & E Commrs VAT(1980) 1 BVC 363
Sitar Tandoori Restaurant v C & E Commrs VAT[1993] BVC 173
Tynewydd Labour Working Men's Club & Institute Ltd v C & E Commrs VAT(1979) 1 BVC 282
Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378
Assessment - Whether made to best of commissioners' judgment - Whose judgment - Reduction of assessment - Whether reduction had to be made to best of commissioners' judgment - Value Added Tax Act 1983, Sch. 7, para. 4(1), (2), (6) and (9).Civil penalty - Dishonest evasion of tax - What constituted co-operation - Finance Act 1985, s. 13(1) and (4).Penalty - Failure to comply with directions of tribunal - Whether penalty to be awarded - Value Added Tax Act 1983, Sch. 8, para. 10.
The issues were: (1) whether the assessment was made to the commissioners' best judgment; (2) whether the subsequent review of their judgment was required to be carried out to the best of their judgment and was so carried out; (3) whether the amount of the assessment was excessive and should be reduced; (4) whether the penalty ought to be reduced to the full extent permissible because of the appellants' co-operation; and (5) whether a penalty should be awarded against the commissioners for failure to comply with a direction of the tribunal.
The appellants, husband and wife, carried on a business in partnership selling hot food for consumption both on and off the premises. An officer visited the premises on 23 May 1989 and upon examination of the takings concluded that there had been suppression of the takings and of the purchases from 1985 onwards. Thereafter, an investigation of the business was undertaken, which included covert observation.
On 21 May 1990 an assessment for tax of £61,902 was raised which on 20 December 1990 was reduced to £56,444. On 14 December 1990 a civil penalty in the sum of £53,621 was imposed, this including an allowance of five per cent for co-operation. In the absence of proper documentary material the assessment for tax was based on the grand till ("GT") memory and the observations were used only in support of the primary method. In interview, the appellants admitted suppression of the takings.
Representations were made by two firms of accountants engaged in series by the appellants in order to obtain a modification of the assessments but the commissioners took the view that no such modification was appropriate.
After an appeal had been lodged with the tribunal and the commissioners had served their list of documents the appellants sought and obtained two directions of the tribunal that supplementary lists of documents in their custody be served, along with accompanying affidavits sworn by the officer in the case. Dissatisfied with the response, they applied for a direction of a tribunal that a further supplementary affidavit be made. This application was heard on the day of the commencement of the hearing. It then became apparent that not all the documents had been listed.
The appellants contended that the assessment for tax in its original form had not been made to the best of the commissioners' judgment and was consequently void and with it the review. Alternatively, that the review of the assessment was required to be carried out to the best of the commissioners' judgment and had not been so carried out, so that the review and the original assessment were void. Finally, they contended that the assessment should be further reduced and that a greater allowance ought to have been made for co-operation by the appellants.
Held, allowing the taxpayers' appeal in part:
1. It was for the appellants to show that the assessment had not been made to the best of the commissioners' judgment and not for the commissioners to show that it had been so made. In this case the assessment in its original form had been so made, this being the judgment of the officer in overall control of the case whose judgment in such cases was in issue. In the absence of better documentary evidence the use of the GT figure was reasonable.
2. There was no requirement that the reduction or confirmation of an assessment had to be made to the best of the commissioners' judgment since this would entail reconsidering every aspect of the assessment however trivial or isolated the points raised. In the instant case the review was made to the officer's best judgment. In considering the issue of "best judgment" a failure to exercise proper judgment ought to be distinguished from other errors such as arithmetical mistakes, unless they produced an amount of tax due which was so unreasonable that it could not have been right.
3. On a consideration of all the evidence and the submissions the assessment was to be further reduced to £29,964 on account of insufficient allowance given for extraneous amounts included in the GT figure, errors in the use of the till and price increases.
4. For the purposes of Finance Act 1985, s. 13(4) co-operation by the appellants with the commissioners was in the investigation of liability to tax and not in a persons' liability for a penalty. The mere admission that the dishonest evasion of tax had taken place in itself only amounted to minimal co-operation. Full particulars of transactions had to be provided and inability to do so through dishonesty, inefficiency or ignorance did not amount to co-operation, even if a taxpayer was doing his best in the circumstances. In this case the allowance made for co-operation was increased from five per cent to 25 per cent.
5. No direction was to be made on the appellants' application regarding the failure of the officer to list all the documents in the commissioners' possession. This was understandable in view of the scale of the investigation and the heavy burden imposed by the directions on the earlier applications. The tribunal, further, refused to impose a penalty on the commissioners who had taken the, admittedly incorrect, view that some documents were unimportant and need not be included in the affidavits.
[The tribunal set out the facts summarised above and continued as follows.]
We pause there to make the following observations.
1. Assessments under [Value Added Tax Act 1983, Sch. 7] para. 4(1) or (6) are to be made to the best of the commissioners' judgment, whereas that expression is not used in relation to assessments under para. 4(2).
2. If an assessment which is to be made to the best of the commissioners' judgment is not so made, the view taken by these tribunals is that the assessment fails in its entirety. The correctness of that view was not disputed before us. Most tribunals have taken the view, which we share, that such an assessment is a nullity and void ab initio; one example is Barber VAT(MAN/91/541) No. 7727; [1992] BVC 883. Some tribunals also direct that such an assessment is, or is to be, discharged, which, we suppose, is strictly illogical, since if an assessment is a nullity there is nothing to discharge; we regard such a direction however as made for good measure and (pace the purists) we see no great harm in it.
3. It was not disputed that in the instant case the commissioners were entitled to assess under para. 4(1) and that they purported to do so.
4. Assessments under para. 4(5) are commonly called "additional assessments" and sometimes "further assessments".
5. These tribunals have consistently held that para. 4(9) impliedly authorises the commissioners to reduce an assessment. In the recent case of Sitar Tandoori Restaurant v C & E Commrs VAT[1993] BVC 173 Henry J held that assessments might be reduced under para. 4(9).
The other statute to which we must refer is the Finance Act1985.
Section 13:
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13(1) In any case where,-
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(a) for the purpose of evading tax, a person does any act or omits to take any action, and
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(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
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he shall be liable, subject to subsections (4) and (7) below, to a penalty equal to the amount of tax evaded or, as the case may be, sought to be evaded, by his conduct.
Subsection (7) does not affect this case.
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13(3) The reference in subsection (1) above to the amount of tax evaded or sought to be evaded by a person's conduct shall be construed,-
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(a) in relation to tax itself or a payment under section 14(5) of the principal Act, as a reference to the aggregate of the amount (if any) falsely claimed by way of credit for input tax and the amount (if any) by which output tax was falsely understated;
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…
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13(4) If a person liable to a penalty under this section has co-operated with the Commissioners in the investigation of his true liability for tax …, the Commissioners or, on appeal, a value added tax tribunal may reduce the penalty to an amount which is not less than half what it would have been apart from this subsection; and in determining the extent of any reduction under this subsection, the Commissioners or tribunal shall have regard to the extent of the co-operation which the person concerned has given to the Commissioners in their investigation.
Section 21:
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21(1) Where any person is liable-
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(a) to a penalty under any of sections 13 to 17 above, or
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the Commissioners may … assess the amount due by way of penalty … and notify it to him accordingly; and the fact that any conduct giving rise...
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