Stephen You Seto v Commissioners of Customs and Excise
| Jurisdiction | Scotland |
| Judgment Date | 09 October 1980 |
| Date | 09 October 1980 |
| Court | Court of Session |
Court of Session.
Mr. G. W. Penrose Q. C. and Mr. C. N. McEachran (instructed by Messrs. Laird & Wilson Terris & Co.) for the taxpayer.
Mr. J. G. Milligan Q. C. and Mr. J. M. Pinkerton (instructed by Messrs. Shepherd & Wedderburn) for the Crown.
Before: Lord Emslie Lord President.
Value added tax - Whether assessment by Commissioners made "to the best of their judgment" - Assessment made by Commissioners on simple average mark-up - Whether such method proper - section 31 subsec-or-para (1)Finance Act 1972, sec. 31(1) (now schedule 7 subsec-or-para 4Sch. 7, para. 4(1)).
This was an appeal by Stephen You Seto ("the taxpayer") against a decision of the Edinburgh Value Added Tax Tribunal which had dismissed an appeal by him from an assessment made by the Commissioners on the grounds that the assessment had been made to the best of the judgment of the Commissioners.
The taxpayer owned and operated two restaurants. The Customs visited one of the restaurants and analysed the VAT returns which the taxpayer had submitted. As a result of such analysis an investigation was ordered and the Commissioners concluded that the taxpayer had understated the value of the meals which he sold in his restaurants. Accordingly they made an assessment. In making the assessment the Commissioners established that the takings from drink alone amounted to 12% of the total value of all sales of drink and meals and assessed the true value of sales basing their calculations on an average unweighted mark up of 130% on a selection of 13 of the most popular drinks sold in the restaurant. The taxpayer appealed contending that the assessment had not been made to the best of the Commissioners' judgment since an average unweighted mark-up was not a proper method of establishing his true liability. At the hearing of the appeal the Commissioners produced evidence to support the assessment by adopting another method of calculation which produced an average weighted mark-up of 138.42%. The Tribunal dismissed the taxpayer's appeal and the taxpayer appealed to the Court of Session.
Held, dismissing the taxpayer's appeal:
The Tribunal was entitled to decide as a matter of fact whether the average mark-up and figure of 130% used by the Commissioners was a reasonable method of arriving at the sum assessed. In reaching their decision it could not be said, as a matter of law, that the Tribunal had misdirected itself.
Lord Emslie Lord President: The appellant is, and has been since the introduction of Value Added Tax (VAT), the owner and operator of two Chinese Restaurants, each named the Honeyflower. One is in Edinburgh and the other is in Bathgate. In each of the prescribed accounting periods from that ending on 31 July 1973 to that ending on 31 October 1977 (18 in all) he submitted statutory returns to the C. & E. Commrs. On 6 October 1976 an officer of the Commissioners made a routine visit to the appellant's Edinburgh restaurant. It was then discovered that, except for the week of that visit and the previous week, no primary evidence of sales made, i.e. meal slips, could be produced. This led the visiting officer to analyse the appellant's VAT returns and to consider the gross profit percentage said to have been earned by the restaurant. Having formed the strong impression that the alleged gross profit percentage was much too low for the type of business concerned, and having satisfied himself on two later visits that meal slips were now, apparently, being kept, the officer concerned thought it right to instruct an investigation, by the Commissioners' Investigation Unit, of the business carried on by the appellant at both his restaurants. The investigation which thereafter took place included interviews with the appellant, the ordering of test meals by various members of the Investigation Unit, and the execution of search warrants. It disclosed that in some instances meal slips for meals ordered and paid for were missing, and...
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