Khan (trading as Greyhound Dry Cleaners) v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR. JUSTICE HART |
| Judgment Date | 19 April 2005 |
| Neutral Citation | [2005] EWHC 653 (Ch) |
| Docket Number | Case No: CH/2003/0236 |
| Court | Chancery Division |
| Date | 19 April 2005 |
[2005] EWHC 653 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Hart
Case No: CH/2003/0236
Mr Andrew Young (instructed by Vincent Curley & Co.) for the Appellant.
Miss Nicola Shaw (instructed by The Solicitor for HM Customs & Excise) for the Respondents.
Hearing dates: 6 th & 7 th April 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Hart
This is an appeal against a decision of the VAT and Duties Tribunal (Mr Huggins, Mr Grice and Mr Kippest) dated 10 th February 2003 following a hearing on 18 th and 19 th December 2002. The proceedings before the Tribunal consisted of an appeal by the appellant against a decision by the Commissioners to register him compulsorily to VAT with effect from 1 st July 1997 giving rise to an assessment of £20,793. The appellant challenged that assessment and further challenged a further assessment to a civil evasion penalty notified by letter dated 1 st June 1999 for a total amount of £17,012 which had been mitigated by the Commissioners by 25% to £12,759.
The background to the matter was that the appellant had owned and operated a dry cleaning business at 5 Greyhound Road, London W6 8NH of which he was the sole proprietor trading under the name of Greyhound Dry Cleaners. He had commenced his trade in 1992. He was not registered for VAT, and was not in the year 1997–1998 liable so to register unless his turnover was over £49,000. As a result of an investigation by Customs officers in 1998, Customs came to the conclusion that there was a likelihood that he was liable to register for VAT and had been deliberately suppressing sales. On 10 th December 1998 he attended for interview under the Notice 730 procedure to which I refer in more detail below. He was accompanied at that interview by Mr Arifeen, his accountant. Following that interview, Customs wrote to Mr Arifeen setting out the reasons why they believed that there had been an evasion of VAT and Mr Arifeen in response sought to give explanations as to why the points made by Customs did not support the conclusions which they had reached. The upshot was that in March 1999, Customs issued the appellant with a notice of compulsory registration for VAT effective as from 1 st July 1997. No VAT Return was submitted by the appellant for the period 04/99, and on 26 th August 1999 Customs wrote to the appellant setting out the calculations supporting Customs' best judgement assessment of the VAT due in respect of the period from 1 st July 1997 to 30 th April 1999 in the sum of £20,793. On 1 st June 1999 a notice of assessment under section 76 of the 1994 Act to a penalty under section 60 of the 1994 Act was issued which calculated the amount liable to penalty in respect of the period 1 st July 1997 to 31 st December 1998 as £17,012 and gave a mitigation of 25% to reflect the level of cooperation, producing a penalty of £12,759.
The appellant appealed to the Tribunal by a notice dated 23 rd August 1999. Pursuant to the provisions of Rule 7 of the Value Added Tax Tribunals Rules 1986 Customs served a statement of case dated 26 th January 2000. Rule 7(b) required the appellant within 42 days of the date of notification of the statement of case to serve "a defence thereto setting out the matters and facts on which he relies for his defence". On 5 th May 2000 Mr Arifeen submitted such a document albeit intituling it as a "Statement of Case", to which was annexed the material on which he subsequently relied at the hearing. The appeal was then heard over two days on 18 th and 19 th December 2002.
The case for the Customs (which was conducted by Miss Shaw of Counsel instructed by the Solicitors for the Customs) was based upon two pillars. The first pillar related to the number of tickets issued per annum by the appellant in respect of items delivered for cleaning. It was common ground that the tickets used came from books each of which contained 500 tickets numbered sequentially. The second pillar consisted of the average price per ticket in the relevant period. The suspicions of Customs had first been aroused as a result of a visit incognito by Customs officers in March and April 1998 in which they had delivered and collected items of clothing for dry cleaning. Analysis of the numbers of the tickets provided and the cost of cleaning the various pieces of clothing had suggested to the officers that it was likely that the appellant was liable to register for VAT. The subsequent investigations had turned up only two used ticket books. Analysis of these showed that, in one case, the average ticket price was £8.23 and the other (supplied at a later stage in the investigation) showed an average price of £7.17. So far as the number of ticket books used per annum were concerned, the principal evidence relied on by Customs consisted of two books recording lost tickets. These were books kept in respect of customers who had lost their tickets. Such customers were asked to sign in the lost ticket book a record of the date, the item or items cleaned and the ticket number. Based on an analysis of the dates and numbers in the lost ticket books Customs asserted that in the period from 26 th November 1996 to 20 th October 1998 at least 47 ticket books (and possibly as many as 60) had been used. In addition to that evidence Customs relied on the fact that the appellant had in the period 5 th February 1997 to 11 th February 1998 ordered and received 57 books and had not ordered any further books until January 1999 by which time he had run out of books. This was broadly supportive of the figure of 47 books used in the early period of 26 th November 1996 to 20 th October 1998. Customs' calculations were therefore based on an average ticket price of £7.70 (i.e. the average of £8.23 and £7.17) and the usage of 47 books during the period 26 th November 1996 to 20 th October 1998. This equated to a monthly turnover of £7,932.92. It was on this basis that the best judgement assessment and the civil penalty assessment had been made.
The appellant had at no stage accepted that the figure of 47 ticket books revealed by the analysis of the lost ticket books was correct. On initial inquiry in October 1998 he had informed Customs officers that he used approximately one book per month. He had maintained that position at the interview on 10 th December 1998, saying on that occasion that a book lasted on average 4 weeks. In the subsequent correspondence between Customs and Mr Arifeen, Mr Arifeen asserted that on Mr Khan's analysis of the lost ticket books approximately 35 to 36 books had been used in the relevant period as opposed to the 47 books alleged by Customs. Customs had responded to that by pointing out that if the weekly takings were, as asserted by the appellant, approximately £850 then on the usage of ticket books then relied on by Mr Khan each book should total around £2,367, whereas the two books in fact showed an average of £3,851.55. No explanation of this apparent discrepancy was given to Customs or to the Tribunal.
Mr Arifeen conducted the appeal before the Tribunal on behalf of the appellant. He did not call the appellant to give evidence nor did he give evidence himself. He did however tender a series of ticket books (17 in number) covering the 12 months from 1 st January 1999 which showed an average ticket price £5.99 and a total turnover of £50,954.90. He is recorded by the Tribunal as in addition having made the following points:
"47. Mr Arifeen on behalf of the Appellant pointed out that his client was not aware until the interview on 10 December 1998 of the importance of the ticket books. He subsequently provided an analysis of 17 such books which indicated an average price per ticket of £5.99. These books related to the year 1999.
48. The Officers of Customs and Excise had first relied upon the analysis of one ticket book which they had collected initially on 22 October 1998. They reached the conclusion that during the period 26 November 1996 to 20 October 1998 (some 23 months) between 47 to 60 ticket books may have been used. They relied upon this by checking the sequential numbering of the tickets in the lost ticket book. Mr Khan believed that those books were not used sequentially in the order of numbers and some of the tickets in the book were very old.
49. At the interview on 10 December 1998 the atmosphere and the behaviour of the Officers were found by Mr Khan to be intimidating.
50. After the interview, another ticket book had been obtained from Mr Khan which showed an average item price of £7.17. Based on the two prices of £8.13 (ascertained from the first investigation) and £7.17, an average ticket price of £7.70 had been derived for the calculation of the assessment and for requisition purposes. Mr Khan maintained that it was misleading to estimate the average ticket price based on only two books.
51. Officer Waldron in her report prepared on 23 November 1998 had allowed an arbitrary figure of 5% of turnover for uncollected garments which should have been taken into account; likewise no provision was made for 'bounced' cheques nor monies returned to unsatisfied customers.
52. It was submitted that Customs and Excise had not used best judgement in making the assessment as an inadequate method was used to derive the average ticket price and the calculation of the number of ticket books used in the assessment period (47) was excessive and not in accordance with the annual gross turnover figure in Mr Khan's accounts for the year ending 30 November 1997."
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