Koca v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 10 November 1995 |
| Date | 10 November 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Latham J.
Marion Lonsdale (instructed by S Ali & Co) for the taxpayers.
Hugh Davies (instructed by the Solicitor for Customs and Excise) for the Crown.
The following case was referred to in the judgment:
Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378
Value added tax - "Best of judgment" assessment - Whether tribunal was entitled to find on the evidence that an assessment was made to the best of Customs' judgment - Value Added Tax Act 1983, Sch. 7, para. 4(1) (Value Added Tax Act 1994Value Added Tax Act 1994, s. 73(1)).
This was an appeal by the taxpayers claiming that a tribunal had misunderstood evidence relating to their take-away food business and had inadequately addressed the question whether Customs had made an assessment to the best of their judgment within the Value Added Tax Act 1983, Sch. 7, para. 4(1); (LON/94/786) No. 13,049; [1996] BVC 4061.
The taxpayers were registered for VAT in July 1987 and trading commenced at the latest between February and April 1988, which was the period for which they made their first VAT return.
In November 1993 Customs officers first visited the business. They formed the view that there had been significant under-declaration of VAT and decided to carry out a "mark-up" exercise. Customs eventually based an assessment on a calculation of takings extrapolated from the available records for the 15 months to 31 July 1993, compared with the declared takings. A "best of judgment" assessment under the Value Added Tax Act 1983, Sch. 7, para. 4(1)(a) was based on that percentage discrepancy applied to all the periods from and including April 1988.
The dispute before the tribunal had concerned various matters, including the date when the taxpayers started to sell pizzas and the number of pizzas sold. The tribunal held that the assessment was made to the best of Customs' judgment and that the sale of pizzas had no significant effect on profit margins.
The taxpayers contended that the assessment was invalid because Customs' method of calculation was flawed. However, even if the method was justified, the assessment should be reduced to take account of the fact that pizzas had not been sold before March 1992, when a pizza oven had been purchased.
Held, allowing the trader's appeal:
The tribunal failed to deal properly with the evidence regarding the sale of pizzas. Consequently, the case would be remitted to a differently constituted tribunal for rehearing, to consider whether Customs should have applied the figures ascertained over 15 months to the whole period in question.
Latham J: This an appeal against a decision of a VAT tribunal released on 8 February 1995. The tribunal dismissed an appeal by the taxpayers against assessments for tax and interest for the periods ending April 1988 until October 1993. The first assessment was raised on 11 February 1994 in the sum of £40,824.36 including interest, but was eventually adjusted to the sum of £23,758 including interest on 8 June 1994.
This assessment was raised pursuant to the powers of Customs contained in para. 4(1) of Sch. 7 to the Value Added Tax Act 1983, nowValue Added Tax Act 1994 section 73 subsec-or-para (1)s. 73(1) of the Value Added Tax Act 1994. This reads as follows:
Where a person has failed to make any returns required under this Act or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect they may assess the amount of tax due from him to the best of their judgment and notify it to him.
The taxpayers carry on business selling take-away food under the trading name of "Sevenoaks Kebab Grill". Application for registration of the business for VAT purposes was made by the taxpayers on 30 July 1987; and trading commenced at the latest in the period between February and April 1988, which was the period for which the taxpayers made their first return.
The business was first visited by officers of Customs on 11 November 1993. As a result of that visit, discrepancies became apparent, suggesting that there had been significant under-declarations of VAT. As a result the officers decided to carry out what is described as a "mark-up" exercise. They returned to interview the taxpayers on 15 December 1993. They were shown a blue day book containing figures for purchases and sales from which the VAT returns were produced. This book could not be confirmed by reference to the till records as, apparently, the old till had been dropped since their previous visit and replaced, so that there were no till records from which to confirm the sales recorded in the book. A record of the results of the visit and investigation of the records taken at the two visits headed "schedule of assessment" was sent to the taxpayers under cover of a letter of 11 February 1994, together with the assessment itself in the sum of £40,824.36. The "schedule of assessment" set out the basis of the assessment as being a calculation of takings extrapolated from the records for the 15-month period to 31 July 1993 compared with the declared takings, showing expected VAT as £14,383.65 as against declared VAT of £7,094.34. The percentage discrepancy was then applied to all the periods from and including April 1988. The schedule contained the following statement:
Points confirmed by trader:
- Stock levels tend to be fairly constant. - Current prices have been in use for over a year (trader unable to remember date of change). - Own use stated to be £30.00 per week (cost). This figure was also used by the accountant when compiling the last 4 years worth of annual accounts. - Trader stated wastage to be minimal.
The basis upon which the expected VAT had been calculated was an analysis of the purchase invoices in relation to the raw materials used for the business, save for pizzas, as to which the calculation was based upon the number of boxes purchased for containing the cooked pizzas.
The calculation for the 15-month period was considered an appropriate basis for assessing under-declaration for the whole of the taxpayers trading as there was no...
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