The Commissioners For Her Majesty's Revenue And Customs V. A Decision Of The Vat And Duties Tribunal (the Raj Restaurant And Others)

JurisdictionScotland
JudgeLord Reed,Lord Drummond Young,Lord Nimmo Smith
Judgment Date30 December 2008
Neutral Citation[2008] CSIH 68
Published date30 December 2008
CourtCourt of Session
Date30 December 2008
Docket NumberXA68/07

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Nimmo Smith Lord Reed Lord Drummond Young [2008] CSIH 68

XA68/07

OPINION OF THE COURT

delivered by LORD REED

in

APPEAL

by

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Appellants;

against

A DECISION OF THE V.A.T. AND DUTIES TRIBUNAL

(THE RAJ RESTAURANT AND OTHERS)

Respondents:

_______

For the appellants: Artis; Shepherd & Wedderburn, LLP

For the respondents: Ghosh; Beveridge & Kellas

30 December 2008

Introduction

[1] This appeal against a decision of the VAT and Duties Tribunal concerns the validity of a VAT assessment and of a related penalty assessment. The Tribunal held that the assessments were not referable to any prescribed accounting period or periods and were therefore invalid. The Commissioners appeal against the decision.

The factual circumstances

[2] From 18 September 1995 onwards a succession of companies were registered for VAT purposes as carrying on the business of the Raj Restaurant in Edinburgh. Goa 1510 Limited was so registered between 18 September 1995 and 31 March 1998; The Spice Aroma Limited between 1 April 1998 and 7 January 2001; and On The Shore Limited from 8 January 2001 onwards. In 2002 the Commissioners came to the view that those companies were mere shams, and that the business was in reality being conducted by four members of the Miah family in partnership. That partnership, and the individual partners, are the respondents to this appeal.

[3] By letter dated 28 June 2002 the Commissioners informed the respondents that they had commenced action to register the respondents for VAT with effect from 18 September 1995. The Commissioners also stated that they had evidence that sales at the premises had been understated. Any VAT paid by the companies would be deemed to have been met by the new registration, but the Commissioners would transfer to the new registration any outstanding liabilities of the various companies and assess the new registration for any VAT calculated as underdeclared. The matter of any penalty would also be dealt with.

[4] By notice dated 1 July 2002 the Commissioners notified the respondents that they had been registered for VAT with effect from 18 September 1995.

[5] By letter dated 22 July 2002 the Commissioners repeated that all liabilities of the entities previously registered for VAT, including unpaid tax and penalties, would be transferred to the new registration. In relation to such liabilities, the Commissioners maintained that the true level of sales of the business was not reflected in its records. The letter continued:

"Please refer to the enclosed schedules and notes in relation to the amounts deemed due by the new registration ...

...

Please note that the Commissioners, in exercise of their powers, require that VAT Returns be rendered on a monthly basis. The enclosed schedule covers the period 18 September 1995 - 31 May 2002. You will be required to account for the amounts due for June and July 2002 on your first VAT Return."

The schedule or schedules referred to are not before us, and no reliance is placed upon them for the purposes of this appeal.

[6] By letter dated 10 September 2002 the Commissioners wrote to the respondents in the following terms:

"As intimated in my previous letter, all liabilities of the entries previously registered for VAT will be transferred to the new registration. These include

· Amounts declared but unpaid by previous entities

· Further amounts which the Commissioners consider are properly due following enquiries made.

Since you have failed to render a VAT return for period 07/02 (18th September 1995 to 31st July 2002) an assessment to VAT has been made under s 73, VAT Act 1994.

The assessment encompasses

· Declarations made by the businesses of GOA 1501 Ltd, Spice Aroma Ltd and On The Shore Ltd.

· Amounts which the Commissioners have previously made assessments for in respect of the businesses referred to.

· Amounts which the Commissioners consider are due as a result of underdeclared sales at the premises.

The assessment, which covers the period 18th September 1995 to 31st July 2002, in the sum of £400,217.16 is enclosed

...

Please refer to Schedules 1 and 2 (enclosed) which detail the method of calculation.

...

Please note that the Commissioners, in exercise of their powers, require that VAT returns be rendered on a monthly basis."

Two schedules were enclosed with the letter, but no separate assessment.

[7] Schedule 1 bore to be a calculation of the VAT due by Goa 1510 Ltd, The Spice Aroma Ltd and On The Shore Ltd. In the case of Goa 1510 Ltd, the VAT due was calculated for that company's first prescribed accounting period, ending on 31 December 1995, and for the subsequent quarterly periods up to and including the period ending on 31 December 1997. There was in addition a further figure which was not attributed to any quarterly period but was, we were informed by counsel for the Commissioners, a calculation of further VAT liabilities of that company. The resultant total for Goa 1510 Ltd was £174,372.67. In the case of The Spice Aroma Ltd the VAT due was calculated for that company's first prescribed accounting period, ending on 30 June 1998, and for the subsequent quarterly periods up to and including the period ending on 31 December 2000. There was in addition a further figure, as in the case of Goa 1510 Ltd. The resultant figure for The Spice Aroma Ltd was £153,371.46. In the case of On The Shore Ltd, the VAT due was calculated for that company's first prescribed accounting period, ending on 31 March 2001, and for the subsequent monthly periods up to and including the period ending on 31 May 2002. The resultant figure for On The Shore Ltd was £65,333.04. Schedule 1 also stated that the average net tax calculated as being due by On The Shore Ltd in respect of the months from February to May 2002 inclusive would be applied to the respondents for the months of June and July 2002. Schedule 2 carried forward from Schedule 1 the amounts calculated as being due by Goa 1510 Ltd, The Spice Aroma Ltd and On The Shore Ltd, together with the amount of £7,140.00 calculated as being due by the respondents for June and July 2002. The aggregate amount totalled £400,217.16.

[8] By letter dated 20 December 2002 the Commissioners notified the respondents that it had been reported

"that you have failed to account for the full amount of Value Added Tax which was due on the period from 18 September 1995 to 31 May 2002".

This, it was said, had resulted from "the deliberate suppression of cash sales from your business leading to an under declaration of tax on your VAT returns". The respondents were in consequence liable to a penalty under section 60(1) of the Value Added Tax Act 1994

"for an evasion, through dishonesty, of Value Added Tax in the sum of £203,223 ... for the period from 18 September 1995 to 31 May 2002".

After making a reduction under section 70(1) of the 1994 Act, to reflect the degree of co-operation received, the Commissioners had decided to make a penalty assessment in the sum of £40,632.

[9] A table contained in the letter explained how the penalty assessment had been calculated. The first line in the table set out the VAT registration number of Goa 1510 Ltd, the first prescribed accounting period of that company, a figure beneath the heading "Tax amount liable to penalty (ie max. penalty)", a percentage reduction for co-operation, and a figure beneath the heading "Penalty". The following lines set out the corresponding figures for the subsequent quarterly periods of Goa 1510 Ltd, with a final line in respect of that company setting out figures which were not attributed to any specific quarterly period. The figures under the heading "Tax amount liable to penalty" corresponded to figures stated for the same period (or, in the case of the last figure, a figure stated for the corresponding calculation of further liabilities) in Schedule 1 to the letter dated 10 September 2002. The next line in the table set out the VAT registration number of The Spice Aroma Ltd, and dealt in a similar way with figures relating to that company's first accounting period. The following lines set out the corresponding figures for that company's subsequent quarterly periods up to and including the period ending on 30 June 1999. The next line in the table set out the VAT registration number of One The Shore Ltd, but the period was stated as the quarter ending on 30 September 1999 (On the Shore Ltd not being registered for VAT until 8 January 2001, as explained above), and the figure for tax corresponded to that attributed to The Spice Aroma Ltd in relation to that period in Schedule 1 to the earlier letter. The next line in the table dealt with a period ending on 30 June 2000 - there was no line relating to the quarters ending on 31 December 1999 and 31 March 2000 - and again gave the registration number of On The Shore Ltd, although the figure for tax corresponded to a figure attributed to The Spice Aroma Ltd in relation to that period in the earlier Schedule. The next line in the table dealt with a period ending on 31 March 2001 - there was no line relating to the periods ending on 30 June 2000, 30 September 2000 and 31 December 2000 - and again gave the registration number of On The Shore Ltd. The figure for tax corresponded to a figure attributed to that company's first accounting period in the earlier Schedule. The remaining lines set out the corresponding figures for that company's subsequent monthly periods up to and including the period ending on 31 May 2002.

[10] The respondents appealed against their registration for VAT, as notified on 1 July 2002; against the VAT assessment notified on 10 September 2002; and against the penalty assessment notified on 20 December 2002. The appeal against registration was refused by the Tribunal on 21 February 2006. The respondents did not appeal against that decision. The appeals against the VAT...

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3 cases
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    • Upper Tribunal (Tax and Chancery Chamber)
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    ...Mr Hay referred to the Inner House case of The Commissioners for Her Majesty’s Revenue and Customs v The Raj Restaurant and others [2009] STC 729 and, in particular, to paragraphs 26 and 27 of the Opinion of the Court delivered by Lord Reed. There it had been emphasised that an assessment h......
  • Queenspice Limited v The Commissioners for HM Revenue and Customs
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 16 March 2011
    ...Mr Hay referred to the Inner House case of The Commissioners for Her Majesty’s Revenue and Customs v The Raj Restaurant and others [2009] STC 729 and, in particular, to paragraphs 26 and 27 of the Opinion of the Court delivered by Lord Reed. There it had been emphasised that an assessment h......

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