Khan (trading as Greyhound Dry Cleaners) v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lord Justice Lloyd,Lord Justice Buxton,Lord Justice Waller,Lady Justice Hallett,Lord Justice Lawrence Collins |
| Judgment Date | 14 February 2007 |
| Neutral Citation | [2005] EWCA Civ 965,[2007] EWCA Civ 89,[2006] EWCA Civ 89 |
| Docket Number | Case No: C3/2005/1015,Case No: C3/2006/1025 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 February 2007 |
[2006] EWCA Civ 89
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Mr Justice Hart
Chancery Division
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Buxton
Lord Justice Carnwath and
Lord Justice Lloyd
Case No: C3/2005/1015
Andrew Young (instructed by Vincent Curley & Co) for the Appellant
Christopher Vajda QC and Nicola Shaw (instructed by HM Customs & Excise) for the Respondent
Background
1. From 1991, Mr Khan owned and operated a dry cleaning business at 5 Greyhound Road, London W6 8NH, trading under the name "Greyhound Dry Cleaners". The present dispute relates to 1997 and 1998, at a time when the threshold for VAT registration was £49,000. Mr Khan was not registered. Information obtained by Customs, followed by an investigation, led them to the view that his taxable supplies were above the threshold, and that he should therefore have been registered.
2. On 10 th December 1998, with his accountant Mr Arifeen, he was interviewed by Customs officers. This was followed by a letter dated 16 th December 1998, which gave the officers reasons for thinking there had been an evasion of VAT. Following further exchanges, on 23 rd March 1999 a notice of compulsory registration was issued, with effect from 1 st July 1997. There followed in June 1999 a notice of assessment to a penalty under section 60 of the 1994 Act. The amount of VAT evaded for the period 1 st July 1997 to 31 st December 1998 was assessed as £17,012, from which 25% was deducted on account of "disclosure and co-operation", resulting in an assessed penalty of £12,759. On 23 rd August 1999 Mr Arifeen gave notice of appeal on Mr Khan's behalf expressed to be against the penalty and assessment, on the ground that he "disputed that he had crossed the VAT threshold".
3. Customs' letter of 23 rd March 1999 had included a schedule of arrears "based on available information", which, it was said, should be included in Mr Khan's first VAT return. This was not done. On 14 th October 1999 a "best of judgment" assessment to VAT for the period from 1 st July 1997 to 30 th April 1999 was issued in the amount of £20,793. (I understand that this was calculated on the same basis as the penalty assessment, the increase from £17,012 being attributable to the longer period.) The tribunal in due course proceeded on the basis that it had before it three appeals: in respect of the compulsory registration, the VAT assessment and the penalty (see tribunal decision para 1) . Statements in accordance with the rules were exchanged in early 2000.
4. There then followed a delay of over two years before the appeals were heard. The delay resulted, at least initially, from the need to await the resolution of a question as to the status of the penalty proceedings for the purpose of the European Convention on Human Rights ("the Convention") . In a decision issued on 19 th December 2000, the President of the Tribunal (Stephen Oliver QC) decided that civil penalty proceedings were to be regarded as "criminal" for the purpose of Article 6 of the Convention. In July 2001, this decision was upheld by the Court of Appeal. It is reported as Customs and Excise Commissioners v. Han & Yau [2001] 4 ALL ER 687; [2001] EWCA Civ 1040 (" Han") .
5. The hearing of Mr Khan's appeal took place on 18th and 19th December 2002. Customs were represented by counsel (Miss Shaw) . Mr Khan was represented by Mr Arifeen. The tribunal gave its decision on 10th February 2003. It upheld the registration, and confirmed the assessment to VAT and the penalty, but in reduced amounts. Mr Khan appealed to the High Court by notice of appeal lodged in his own name in April 2003. In January 2004, he obtained the services of Counsel, Mr Young, instructed under the Bar Council's direct access scheme by Mr Curley, a specialist in VAT and Duties appeals, and funded by legal aid. The appeal was heard by Hart J in April 2005, and was dismissed. Mr Khan now appeals to this court with permission given by Waller LJ.
The statutory provisions
6. The relevant statutory provisions are in the Value Added Tax Act 1994 ("the 1994 Act") .
Registration and Assessment
7. General provisions for "administration, collection and enforcement" are set out in Schedule 11 and regulations made under it. Obligations relating to the keeping of records and making of returns are imposed on "taxable persons". A person is a taxable person "while he is, or is required to be, registered under this Act" (s 3(1) ) . Schedule 1 deals with registration. A person who makes taxable supplies becomes liable to be registered at the end of any month, if the value of his supplies in the preceding year exceeds the threshold figure. A person who becomes liable to be registered is required to notify Customs within a defined period; but Customs have a duty to register such a person whether or not so notified (Sch 1 para 5) .
8. If a person fails to make a VAT return as required under the 1994 Act, Customs may assess the amount due "to the best of their judgment" and notify it to him (s 73(1) ) . Subject to the right of appeal, the amount so assessed and notified is –
"… deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced." (s 73(9) )
Civil penalties
9. Hart J summarised the background of the civil penalty regime:
"The genesis of the code is to be found in the 1983 Keith Report. That had reported on the desirability of introducing into the VAT enforcement regime a civil penalty system akin to that available to the Inland Revenue in respect of other taxes. Attention was drawn inter alia to the difficulties and expense of obtaining proof of VAT offences to a criminal standard. It also gave support to the desirability of encouraging the co-operation of the taxpayer in the investigative process." (para 43)
In Han, Potter LJ observed that the civil penalty regime provided –
"… a just balance between the legitimate interests of the Commissioners in improving the collection of tax in relation to which widespread evasion was prevalent and the interests of the taxpayer in avoiding the travails of a criminal prosecution and the stigma of a criminal offence of dishonesty in cases of deliberate evasion." ( [2001] STC 1188 para. [74]) .
We were told that the regime is regarded by Customs as a cost effective use of resources for investigating all but the most serious cases of VAT evasion; and that in the five years to March 2004, approximately 2,500 civil evasion penalties were issued, compared with approximately 380 criminal prosecutions.
10. Provision for civil penalties is made by section 60 of the 1994 Act, headed "VAT evasion: conduct involving dishonesty". Subsection (1) provides:
"(1) 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 (7) provides that on an appeal against an assessment to a penalty –
"… the burden of proof as to the matters specified in subsection (1) (a) and (b) above shall lie upon the Commissioners."
Reference has also been made in argument to subsection (4) . This provides (in summary) that, in any subsequent criminal or recovery proceedings, statements are not rendered inadmissible by the fact that they may have been encouraged by offers of the possibility of more lenient treatment under the civil penalties regime. The amount of the penalty may be reduced in limited circumstances by Customs or the tribunal (s 70) .
11. Section 76(1) provides that where a person is liable to a penalty under section 60, Customs may assess the amount due and notify it to him. An assessment to a penalty may be combined in the same document as an assessment to tax under section 73( 1) (s 76(5) ) .
Appeals
12. Section 83 provides for appeals to the tribunal in respect of a large list of decisions or actions by Customs. Relevant for present purposes are: (a) (appeal against registration) ; (n) (appeal against liability to a penalty under section 60) ; (p) (appeal against an assessment under s 73(1) or the amount of such an assessment) ; and (q) (the amount of any penalty specified in an assessment under section 76) .
13. The procedure on appeals is governed by the Value Added Tax Tribunals Rules 1986. Special provisions apply to an "evasion penalty appeal" (rule 7) . Unless otherwise directed by the tribunal, Customs are required to serve a "Statement of Case", including the matters on which they rely for the ascertainment of the tax allegedly evaded, and full particulars of the alleged dishonesty. In response, the appellant is required to serve a "defence thereto", setting out "the facts and matters on which he relies for his defence". There are also provisions for the exchange of witness statements (rule 8) .
14. Section 84(5) gives the tribunal power to reduce (but not increase) the amount of the assessed tax. Section 84(6) provides that section 83(q) is not to be taken as conferring a power to vary the amount assessed by way of penalty –
"… except in so far as it is necessary to reduce it to the amount which is appropriate under section [60]".
Notice 730
15. Notice 730, entitled "Civil...
To continue reading
Request your trial
-
The Commissioners for HM Revenue and Customs v Parul Keshavlal Malde
...but extracted slightly different principles from them. He placed reliance in particular upon Khan (t/a Greyhound Cleaners) v HMRC [2006] EWCA Civ 89, [2006] STC 1167 ( Khan) as well as upon Awards Drinks at [28] to [40] which approved Khan on this 54 HMRC accepts that where a statute chang......
-
Strategic Branding Ltd
...2 QB 786, 802). The third parties in this instance are HMRC and the Tribunal. [76] In Khan (t/a Greyhound Dry Cleaners) v R & C Commrs [2006] BVC 336 the Court of Appeal considered how to approach a question of dishonesty when it is the civil standard of proof that is applicable, at [79], r......
-
Sintra Global Inc. and Another
...Ltd v R & C Commrs [2021] BVC 17 at [13] (citing Carnwath LJ, as he then was, at [69] in Khan (t/a Greyhound Cleaners) v R & C Commrs [2006] BVC 336), is that it is for the taxpayer to establish the correct amount of tax due and that this burden of proof does not change merely because alleg......
-
HM Revenue and Customs v Khawaja
...Report in assuming that that standard applied in income tax cases. 24 The Keith Report reappeared in Khan v HM Revenue and Customs [2006] EWCA Civ 89. Yet again, that was a VAT case and penalties for fraudulent evasion were again in issue. The issues in the case were described by Carnwath L......