Pegasus Birds Ltd v Commissioners of Customs and Excise (No 2)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 January 2000 |
| Date | 19 January 2000 |
| Court | Value Added Tax Tribunal |
Henry and Aldous LJJ and Scott-Baker J.
Court of Appeal (Civil Division).
Value added tax - Best of judgment assessment - Time-limit for assessment one year from facts coming to the knowledge of Customs - Whether officer's opinion was required to be subjective or objective - Whether taxpayer could challenge Customs' failure to make an earlier assessment - Whether Customs entitled to delay making assessment until amount could be estimated -Value Added Tax Act 1994Value Added Tax Act 1994, s. 73(6)(b).
This was an appeal from a decision of Dyson J ([1999] BVC 56) dismissing an appeal by the taxpayer ("Pegasus") against a decision of the VAT and duties tribunal that Customs were entitled to delay making an assessment to the best of their judgment until evidence indicating the amount to be assessed came to their knowledge, even if before an amount could be ascertained they had evidence showing that there was an unquantified liability.
The business of Pegasus was retailing exotic birds. It had a close relationship with another company, E & J, whose business was similar. Pegasus was controlled by Mr Hammond and E & J was controlled by a Mr Foster.
In about 1993 Customs started to investigate the affairs of the two companies. Customs raided the premises of Pegasus on 24 May 1995. As a result of the investigation criminal proceedings were brought against Mr Hammond and Mr Foster who eventually, in October 1996, pleaded guilty to evasion of VAT.
Between April 1996 and early 1997 Customs attempted to calculate the amount of VAT that had been evaded. The absence of records made that a difficult task. They estimated the number of birds and the prices paid, but a figure for mark-up was not established. Customs' accountants had variously suggested between 100 and 400 per cent. On 30 January 1997, however, at a meeting with Mr Foster's accountant, Customs agreed that a mark-up of 150 per cent would be appropriate for E & J. The meeting did not directly affect Pegasus, but in view of the similarities of the two companies' business, Customs inferred a mark-up of 150 per cent for Pegasus.
Pegasus appealed against "best of judgment" assessments made under the Value Added Tax Act 1994, Value Added Tax Act 1994 section 73 subsec-or-para (1)s. 73(1) on 16 April 1997 on the ground that the assessments were not made within one year of facts coming to the knowledge of Customs to justify the making of an assessment, as required by Value Added Tax Act 1994 section 73 subsec-or-para (6)s. 73(6)(b). The tribunal decided as a preliminary issue that the assessments were made in time.
Pegasus contended that, more than a year before the date of the assessments, on 16 April 1997, or shortly after 24 May 1995 when Customs raided Pegasus's premises, they had sufficient material to base an assessment. Value Added Tax Act 1994 section 73 subsec-or-para (6)Section 73(6)(b) should be construed so that the time limit of one year ran from the date when evidence of facts, sufficient in the opinion of Customs acting reasonably to justify making the assessments, had come to their knowledge. In other words, the test to be applied in deciding when, objectively and in fact, sufficient evidence came to Customs' knowledge.
Alternatively, Pegasus contended that, if the test were subjective, Customs must have formed an opinion that there was sufficient material on which to make an assessment more than one year before the assessment was made.
Held, dismissing the appeal:
1. An officer's opinion as to what evidence would justify an assessment required judgment and was in that sense subjective. The acceptance by Customs on 30 January 1997 of a mark-up of 150 per cent was the last piece of the puzzle to fall into place and assessments were made on 16 April 1997, less than one year after the crucial piece of evidence came to their knowledge. Before that they had no basis on which to determine the amount to be assessed.
2. Assuming that the test for ascertaining the time from which one year was to run was subjective, a successful challenge to Customs' decision had to show that the decision was wholly unreasonable or perverse. The evidence as to a 150 per cent mark-up was crucial and it had been reasonable for Customs to accept the accountant's evidence at the meeting on 30 January 1997. It was highly material and it could not be said to be unreasonable for Customs to have relied on it.
The following cases were referred to in the judgment:
C & E Commrs v Post Office VAT[1995] BVC 292
Classicmoor Ltd VATNo. 13,336; [1996] BVC 2352
Cumbrae Properties (1963) Ltd v C & E Commrs VAT(1981) 1 BVC 438
Heyfordian Travel Ltd VAT(1979) VATTR 139; (1979) 1 BVC 1107
Rahman (t/a Khayam Restaurant) v C & E CommrsVAT[1998] BVC 323
David Ewart and James Henderson (instructed by Amery Parkes) for Pegasus.
Alison Foster and Eamonn McNicholas (instructed by the Solicitor for Customs and Excise) for the Crown
Aldous LJ: On 16 April 1997 Customs of Customs and Excise made an assessment of VAT due from Pegasus Birds Ltd in the sum of £658,388 because of their failure to make the required returns. Pegasus appealed against those assessments. They contended, amongst other things, that the assessments had not been made within the time stipulated by Value Added Tax Act 1994 section 73 subsec-or-para (6)s. 73(6) of the Value Added Tax Act 1994. That issue was determined against Pegasus by a VAT tribunal. Pegasus appealed. Their appeal was dismissed by Dyson J on 27 November 1998 ([1999] BVC 56). With leave of this court, Pegasus appealed against the decision of the judge.
The facts were set out by the judge at pp. 58-60, and as both parties accepted that part of his judgment as accurate, I adopt it in full:
Pegasus is a retailer of exotic birds. The company has at all material times been controlled by Mr Hammond. It has a close business relationship with E & J Birds and Things ("E & J"), another company which engaged in trading in exotic birds. E & J has at all material times been controlled by Mr Foster.
In about 1993, Customs started to investigate the affairs of the two companies. Surveillance operations were mounted. Visits were made to trade fairs, auctions and the premises of Pegasus, and the homes of Mr Hammond and Mr Foster were kept under surveillance. On 24 May 1995, the premises of Pegasus and its accountants were raided by Customs, and documents were removed. In October 1995 and February 1996, Customs interviewed a number of Dutch and Belgian suppliers to Pegasus and E...
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