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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Hassan (t/a Dry Cleaners) v Customs and Excise [2004] UKVAT V18800 (15 October 2004) URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18800.html Cite as: [2004] UKVAT V18800

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18800

ASSESSMENT – Best judgment – Failure to render returns after compulsory registration – Admission of suppression of takings over limited period – Whether Commissioners considered all material before them – Whether officer acted dishonestly – No – Whether assessment to best judgment – Yes – Consideration of quantum – VATA 1994, s.73

PENALTY – Dishonest evasion – Admission of suppression of takings over limited period – Penalty imposed on basis of dishonest evasion over whole 8-year period of assessment – Whether burden of proof discharged – VATA 1994, s.60

LONDON TRIBUNAL CENTRE

FUAT HASSAN T/A PARADE DRY CLEANERS Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: ANGUS NICOL (Chairman)

KENNETH MANTERFIELD FCA

SHAHNAR SADEQUE MPh, MSc

Sitting in public in London on 25 and 26 November 2003, 26, 27 and 28 April and 26 May 2004

Leslie Curtis for the Appellant

Miss Nicola Shaw, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004


 


DECISION

1. This is an appeal against three assessments to value added tax and a civil penalty under section 60(1) of the Value Added Tax Act 1994. The first assessment was in respect of the period from 1 May 1989 to 30 September 1997 in the sum (reduced) of £65,452. The second, in respect of the period to 31 December 1997, was in the sum, also reduced, of £2,241, and the last was in respect of the next following period, to 31 March 1998, in the reduced sum of £2,043. The penalty under section 60 was in the sum of £65,462, in respect of the period from 1 May 1989 to 31 march 1998. That was reduced, mitigating circumstances having been taken into consideration, to £34,873.
2. The Appellant appealed against the assessments on the ground that they were not made to the Commissioners' best judgment. As to the penalty, in his notice of appeal the Appellant said,

"Mr Fuat Hassan believe that he has not acted dishonestly, and at no time he tried to evade Value Added Tax. We are in the opinion that information used by the HM Customs and Excise do not represent a true picture of the business, and should not be applied to broad base of ten years period."

PRELIMINARY POINT

3. The first two days of the hearing, on 25 and 26 November 2003, were taken up with a preliminary point relating to human rights. We heard evidence and submissions from both parties, and gave an oral decision at the end of the second day. Mr Leslie Curtis, a friend of the Appellant who represented him very ably throughout the appeal, made the following submissions, contending that there had been four violations of the Appellant's human rights. We reproduce these verbatim from a statement of human rights violations submitted on behalf of the Appellant.

"Violation No 1

(1) Prior to the taped interview, as used in HM Customs and Excise Statement of Case, Mr F Hassan, the Appellant was not informed of his basic legal rights by the interviewing officers Mr N. Rintoul and Mr S. Robbins. It should have been made abundantly clear to the Appellant, Mr F. Hassan, that the taped interview would be used as evidence against him, and would also form part of evidence for presentation to the Commissioners. This did not happen.

. . .

Violation No 2

(2) HM Customs and Excise officers further compounded Violation No 1 by not asking the Appellant, prior to the interview, if he in fact can read and write English. Both the officers, Mr N. Rintoul and Mr S. Robbins, assumed that he could. Not fact. No translator offered or provided at any time. The Appellant, Mr Fuat Hassan, basic and fundamental understanding of the English language became abundantly clear when Mr Rintoul Customs and Excise officer asked Mr F Hassan on tape 'Would you please read Notice 671." After a long delay approx. 4 to 5 minutes, Mr Rintoul then asked Mr Hassan the following question, 'Do you understand Notice 671?" Mr F Hassan reply, 'Not really.'

Violation No 3

Taped incompetence by Mr N Rintoul of these private and confidential tapes. The Appellant was promised a copy of these tapes by Mr N Rintoul. This never happened, and HM Customs and Excise presented their statement of case to the Commissioners using these tapes as part of their case evidence. Mr N Rintoul HM Customs and Excise officer assumed once again, incorrectly that the Appellant had received copy of interview tapes. No check done.

Following hearing of the tapes by the Appellant's representative, Mr Leslie Curtis, he wrote immediately to Mr N Rintoul HM Customs and Excise officer (reference letter dated 29th January 2001) informing Mr N Rintoul that the private confidential tapes went to Mr Hassan the Appellant was in fact copies of another private confidential interview held between Mr N Rintoul and another HM Customs and Excise client. These incorrectly sent tapes raised very serious human rights issues, and many serious questions to be answered.

. . .

Violation No 4

Reference original meeting between Mr S Robbins.

a. HM Customs and Excise officer and Mr F Hassan the Appellant prior to this meeting or during the interview, Mr S. Robbins did not ask the Appellant Mr F Hassan if he could read or write English.

b. Mr S. Robbins Customs and Excise officer cohersed [sic] Mr F. Hassan the Appellant to sign a document in his black book, and later used as statement of case in their submissions to HM Customs and Excise Commissioners, even though the Appellant was unable to read the hand written statement or understand the facts within.

c. It became apparent at the taped interview, that the facts presented from this black book was incorrect, and the Appellant was adamant that facts have been misrepresented from his original statements. These facts are now part of HM Customs and Excise statements of case, against the Appellant."

4. We heard evidence from the Appellant himself, and from Mr Rintoul and Mr Robbins. We also heard evidence from Mr Martin Corbett, another Customs officer who visited the Appellant's premises in May 1997. The evidence of the Appellant and of the officers is rehearsed in some detail later in this decision. We summarise briefly here the principal points taken by the Appellant in this preliminary point.
5. The two officers, Messrs Rintoul and Robbins, visited the Appellant's premises on 16 May 1997. They uplifted certain documents, and both spoke to the Appellant. Notes were taken during this conversation, at the end of which the Appellant was asked to sign the notes. There was a dispute as to whether the Appellant had, or could have, read the notes, and as to whether he had agreed to what was set out in them. The Appellant said that he thought he was signing a receipt for the documents which the officers were taking away with them. He also said that his spoken English was good, but that he could not read or write it very well. He said that he had not understood what it was that he was asked to sign. He did not read the notes. As to the interview, the Appellant said that he had never refused to attend an interview, though his then accountant had advised him not to go. When he did attend, he said that he did not know until arriving for the interview that it would be taped. He said that he would not have objected to its being taped anyway, though he could not remember whether he was given the opportunity to object. The officers had not offered the services of an interpreter. During the interview there was an issue as to what the Appellant had said during the visit as to his normal weekly takings. He was told that he would receive a copy of the tapes. When eventually he did, they were tapes of an interview with another person (who also bore the name Hassan), after which, at another meeting, he was given the correct tapes.
6. Mr Rintoul said that he had probably assumed that the Appellant could speak English. He could not say whether or not the Appellant said that he could not read or write English, but he had not said that he did not understand the interviews. At that time there was no requirement to caution people where it was alleged that they had dishonestly evaded VAT: that did not come in until about 2001. He agreed that there had been a serious mistake in sending the wrong tapes: this was a matter which he had delegated to another officer who had failed to check that the tapes were the right ones. He agreed that that was not fair to the Appellant.
7. Mr Robbins said that the notes taken at the interview were read back to the Appellant, particularly that part which dealt with his weekly takings. Mr Robbins said that he "would have asked" (not that he did ask) the Appellant if he wanted the notes read back. The Appellant had appeared to understand English very well. Mr Robbins said that the Appellant had been busy with customers at the time of the visit; when asked if he was happy to sign the notes, Mr Robbins considered that he wasn't very happy because he was so busy. Mr Robbins assumed that he could read and write English; the Appellant had not said that he could not.
8. Mr Corbett, who also took part in the visit, said that he "would have signed" the notes to signify that he was satisfied that they were accurate. He could not now remember what was said. He had visited a lot of traders who had not much understanding of English, and "would have" satisfied themselves that the Appellant understood. They "would have" read the notes to him, and possibly the preceding pages as well. He could not remember specifically whether the notes were read to the Appellant, but it would be normal practice.
9. Miss Shaw, for the Commissioners, contended that there was no infringement of the Appellant's human rights. If any part of the Convention on Human Rights was engaged, it would be Article 6, which dealt with the right to a fair trial. Notice 730 (we suppose that references to "Notice 671" should be to Notice 730) had been sent to the Appellant in advance, and had been explained to him by Mr Rintoul. The Appellant had said that he had understood it after that explanation. It was clear to him that this was not a criminal matter, and was being dealt with throughout as a civil matter. There was, therefore, no need for any caution. The Appellant had not been forced to attend any interview, and had done so voluntarily, and had answered questions voluntarily. At the interview the Appellant had been at no disadvantage not having an interpreter. The only dispute relating to the notes made during the visit was the matter of whether he had said that his average takings were £1,200 a week. The Appellant could not have thought that he was signing for documents which the officers were taking away. He was not coerced into signing anything. There was no requirement that a trader should be told beforehand that an interview would be taped, and in any case the Appellant had said that he did not object.
10. Mr Curtis relied upon his statement of violations. He also referred to section 3(2)(a) of the Human Rights Act 1998. There had, he contended, been a number of basic and serious errors. He mentioned also that paragraph 24.6 of the statement of case was disputed. That paragraph stated:

"The Appellant has failed to keep adequate business records. The Commissioners contend that the Appellant has deliberately failed to keep an audit trail in order to hamper any investigation or interrogation of his records."

On the contrary, Mr Curtis contended, the Appellant has provided accounts going back to 1984. If he was to be asked to sign something, the whole of it should have been read to him, not just selected parts. Mr Curtis also contended that the Appellant should have been informed of his right to silence, and that the interview was to be taped and the tapes used at the Tribunal hearing.

11. Article 6 of the Convention on Human Rights provides as follows, so far as is relevant to this preliminary point:

"1. In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law....

. . .

. . ."

No other Article appears to us to have any bearing upon this matter.

12. The present appeal does not involve any criminal charge. The three assessments are obviously not criminal matters. The penalty is specifically designated a civil penalty, although it is invoked by dishonest conduct. But no criminal charge is involved, nor any criminal conviction. It is entirely a civil matter. In this appeal the Tribunal will be determining issues relating to the Appellant's civil rights and obligations. He is, therefore, entitled to have a fair hearing, in public, by an independent and impartial tribunal. We did not understand it to be contended for the Appellant that this Tribunal was anything other than independent and impartial, nor that the hearing was not taking place within a reasonable time. We therefore consider whether the violations of which the Appellant has complained are such that he will be denied a fair hearing. We cannot see that they are.
13. As to the first violation, there was no obligation on the officers to inform the Appellant that the interview would be taped. It is not the case that the tapes would be used as evidence "against the Appellant": the contents of the tape, and the transcript of the interview will be evidence in the appeal, whether favourable to the Appellant or otherwise. There is no infringement of Article 6 in that failure so to inform the Appellant. As to the second violation relied upon by the Appellant, the evidence was that he speaks English well, and when he gave evidence it was clear to us that he does. We do not forget that he said that he considered that after all the years he has lived in the United Kingdom his ability to speak Turkish might now be impaired. He said that he could read English, but occasionally gets stuck on a particular word. When Notice 730 was read and explained to him, he said that he understood it. Again, no infringement of Article 6 has been shewn to have taken place here. The third violation, the matter of the wrong tapes having been sent to the Appellant, was indeed a serious matter, and a grave error on the part of the Commissioners. However, it can have no effect upon the fairness of the trial of this appeal. The fourth violation, as expressed in the Appellant's statement of violations, was really a summary of numbers 1 and 2, and also contained submissions as to the evidence. That evidence will be evidence before this Tribunal, upon which we would, in any event, have to decide the matter. Again, no infringement of Article 6 has been shewn to have taken place.
14. Accordingly, we find that there has been no infringement of the Appellant's human rights in connexion with this appeal.

THE APPEAL

15. The assessments arose out of the fact that the Appellant had failed to register his business. He was compulsorily registered with effect from 1 May 1989. A series of test purchases had been carried out between 7 March and 12 April 1997, which, in the view of the Commissioners, indicated that the level of turnover would carry the Appellant over the VAT threshold. That resulted in an unannounced visit by Messrs Robbins and Corbett on 16 May 1997, when the Appellant was interviewed about his business. In interview the Appellant said that he had not always recorded his true takings. There is an issue as to what he said that his true takings were. Further test purchases were carried out and the Commissioners produced a schedule of arrears. The penalty was based on the arrears so calculated, and reduced by 50 per cent on account of the Appellant's co-operation.

The evidence

16. Mr Robbins carried out five test purchases during March and April 1997, and completed "Dry Cleaning Sighting Sheets" in respect of them. The first was on 7 March 1997, when Mr Robins left a pair of trousers to be cleaned, receiving a lilac coloured ticket numbered 2833. The garment was collected by him on 10 March 1997. He paid £3 in cash, and noticed that the next ticket was numbered 3026, also lilac coloured. The next item (unspecified) that he took in was on 14 March, when he received the lilac coloured ticket 3026. On collection on 21 March the next ticket was numbered 3207. He paid £3.50 on that occasion. He left another item (again unspecified), which he collected on 4 April, paying £3. The next ticket was numbered 3546, still in the lilac series. The last test purchase was on that same day, and the garment was collected on 11 April. The next ticket number was observed to be 3738, once again lilac.
17. On 16 May 1997, Mr Robbins, with Mr Corbett, paid a visit to the Appellant's premises. Notes were taken by Mr Robbins. These notes are more like an aide memoire rather than contemporaneous notes of a conversation. However, Mr Corbett, in his oral evidence, said that the notes were a record of what was actually said, and that he had signed them as such. The exact meaning of some of the things noted is not always entirely clear to someone who was not present at the time. The first few lines of the notes refer to the Appellant himself and the business:

"Fuat Hassan - sole proprietor

13 years

End of 1983

Freehold.

1986-87 lease £56-57,000.

Flat:

14 Oak Avenue

Shirley (mortgage)

Rented flat above: £500 per month."

The note then sets out the Appellant's opening hours, and mentions that two months before the Appellant had employed one part-timer at £15 a day. It then mentions a mortgage of £96,000, or £800 a month, and lists the appellant's suppliers. The note then continues:

"No other shops - no other businesses.

Best weeks £1,000

Average £700 - 750

Worst week £600"

The note goes on to deal with the Appellant's price list, and mentions also that he disposes of unclaimed items possibly after six months. The name and address of Khaliq & Co, the Appellant's then accountants, are mentioned. The note then continues:

"No takings for 2 weeks from 26/4/97.

The takings noted in my Black n Red A4 lined book are full and complete and I confirm they are my true takings for the shop at 824 Wickham Road, Shirley."

That is followed by the Appellant's signature and the date, 16-5-97. The note continues after that signature:

"Mr Hassan stated that he was actually taking in the region of £1,200 from January 1997/December 1996. Prior to £850 - £900 per week. Mr Hassan stated he had tried to keep below the VAT registering limit putting a lower figure in his books. He stated he could not afford to pay the VAT.

The above is a true and accurate statement of what was said Mr Hassan thought the VAT level was £700 - 750 per week and that is why he put a lower figure in his takings book."

That is also followed by the Appellant's signature and the date. Mr Robbins then noted that he left the premises at 1.28, and he and Mr Corbett signed below that.

18. Mr Robbins said that he had noted the first of the two above paragraphs and read it back to the Appellant, who then signed it. The officers then told the Appellant that they had looked at the business, and considered that the takings were greater than the Appellant had recorded. They gave further information as to why they thought so. Then, Mr Robbins said, the Appellant said that his takings were £1,200, as recorded in the second of the above paragraphs. That was also read back to the Appellant. When cross-examined by Mr Curtis, Mr Robbins said that he had given the Appellant the opportunity of reading the two paragraphs. The Appellant had said that he was not too good reading, and asked Mr Robbins to read it to him. This Mr Robbins had done, he said, not once but twice. The Appellant had agreed with what Mr Robbins had written.
19. Mr Robbins also said that there was a stock-take of all uncollected garments contained in an A4 notebook. A preliminary calculation was carried out during the visit. It is headed "Current Book", and shews the following:

"651.70 to 4565

Ticket No 4501

Ticket No 4642 1243.20 ./. 140 ticket = £8.88

(2 tickets no price)

3.97 2833 to 4633

180 tickets per week (over 10 weeks)

£1598"

20. Later Mr Robbins produced a "Ticket Schedule". That set out the numbers of the tickets serially from 4501 to 4642, with the price against each. There were in fact three recorded as having no price. The total price was £1,244, which, over 140 tickets, did indeed give an average of £8.88 per ticket. We observe in passing, first, that there were 142 tickets, of which 62 appear in the uncollected list. Those 62 have a total value of £451.20: it did not appear that these had been excluded from the calculation. Their exclusion would give a significantly higher average price per ticket, but would probably also give a distorted average, since some of those garments might yet be claimed and paid for. However, the failure to collect so many garments by their owners, and therefore also the failure to pay for the work done, would certainly affect the takings. The average is only the means of making a calculation when data are scarce or non-existent; the important thing so far as VAT is concerned is the turn-over.
21. Mr Robbins said that the Appellant's first signature was only for that short paragraph, not for the complete document down to there. During the interview, Mr Robbins appeared to have forgotten whether the Appellant signed under that paragraph, and had to be prompted by Mr Rintoul. The second signature was for the second paragraph. He had not signed for the whole entry. Mr Corbett, in his oral evidence, said, on the contrary, that the first signature was for the whole document down to that point. A receipt for the documents uplifted was given to the Appellant at the end of the visit. They had also uplifted the Appellant's bank statements, which they later passed to Mr Khaliq; these were not of great importance, he said, since bank statements would not shew the turn-over of the business.
22. Mr Robbins agreed with Mr Curtis that the Appellant had said that his takings had been £1,200 a week from some time in December 1996 and January 1997, not for 52 weeks a year for ten years. However, in a letter dated 9 September 1998 to the CTM Partnership (a partner in which, Mr Munir, was the Appellant's accountant, succeeding Mr Khaliq), Mr Rintoul stated "Mr Hassan signed Mr Robbins' notebook confirming that the true figures were entered on a black and red A4 notebook and that the true takings were in the region of £1,200 a week." (See also paragraph 33 below.) Mr Robbins said that he did not know that Mr Rintoul had said that, but would not have queried it. He also added that he did not believe that the figure of £1,200 a week was used in making the assessment. He said, inconsistently with what he had said before (see above in this paragraph) that his note was meant to convey that the Appellant was starting to take £1,200 a week from January 1997/December 1996 onwards, and that that was what the Appellant had said. It was not made clear why, if that was what Mr Robbins meant his note to say, he had not written that, nor why Mr Corbett, who signed the note as a record of what was actually said, did not correct it. Mr Robbins said also that he was noting only what the Appellant told him.
23. Mr Robbins said that the officers took bank statements and audited accounts from the Appellant. They also took a till roll, the takings book, ticket books, invoices and receipts, and further ticket books and purchase invoices on their visit on 17 November 1997. A complete list of documents taken was given to the Appellant. In fact no such list has ever come to light. A receipt for the documents was given at the end of the visit, which the Appellant was not asked to sign. Mr Robbins could not remember if the Appellant had looked for, and produced, further documents from a cupboard under the stairs. He did not remember having looked at the bank statements, which were passed to Mr Khaliq because he said that he required them.
24. In answer to a question from the Tribunal, Mr Robbins said that a lot of records which should have been kept had not been. Asked what records, he said that he would have expected there to have been a complete audit roll and purchase invoices. None of the invoices was from the suppliers. There was no back-up to the daily gross takings, and no audit trail.
25. Mr Martin Corbett had made a statement dated 2 August 2001, in which he said that he had accompanied Mr Robbins on the visit of 16 may 1997; he also accompanied Mr Robbins on the later visit on 17 November 1997, when he had taken contemporaneous notes. He said, in his oral evidence, that the notes made by Mr Robbins at the time of the first visit were a record of what was actually said, and his signature was to confirm that. He was present throughout the visit, he said. The receipt for the documents uplifted was handed to the Appellant just before the officers left, and was quite separate from the signing by the Appellant of the notes. The first signature, he said, referred to the previous 67 lines of the notebook, and the second to the part from two lines below the first signature to the end. In cross-examination, he contradicted this by saying that the first signature referred only to the five or six lines above it. He could think of no reason why the Appellant should not have known what he was signing, and he was satisfied that he had understood what he was signing. The Appellant had said that his weekly takings were £1,200, and he would have expected them to be higher than that. The majority of dry cleaning businesses would be over the VAT threshold, though they varied according to the area.. The Appellant had been aware what the registration figure was.
26. Mr Corbett said that the Appellant had produced his records from different parts of the shop; they were not kept in as orderly a manner as Mr Corbett would have liked to see. He said that the Appellant ought to have retained all the tickets. The documents were taken up by the officers as they went along, and the receipt completed and signed by him at the very end. He himself had taken no notes during the visit.
27. Asked about the notes, which he had signed, he said that he did not know what "rented flat above - £500/mth" meant. He thought that it referred to the flat above the business. He said that he was unaware of any difficulty over the matter of the "£1,200 a week" issue. He had heard the Appellant say that his earnings were in the region of £1,200 a week, beginning about December 1996 or January 1997. He understood that that was a weekly figure.
28. Mr Corbett produced a barely legible copy of the receipt for the documents. It lists the following documents and papers:

"8 dry cleaner's ticket books

1 A4 black n red hard backed takings book

1 till audit roll

1 envelope containing 'X' readings

1 A4 size envelope containing miscellaneous utility bills and bank statements

Annual accounts for 1989, 1990, 1991, 1992, 1993 & 1996

Documentation relating to 14 Oak Avenue, Shirley

Bank statements for a/c no. 20690651 19-27-29-33-36-43

Bank statements for a/c no. 70455377 19-30

Ticket slips said to relate to items collected from the morning of Thursday 15th May 1997 to approximately 11.0 a.m. On Friday 16th May 1997

2 C & L copy redemption forms"

In the first mention of bank statements, they were not identified. The second and third were identified by account number and page numbers. The Appellant could not, Mr Corbett said, have known what was in the envelope of bank statements.

29. Mr Corbett's notes of the visit of 17 November 1997 record, amongst other things:

"Mr Hassan advised that his takings had fallen since the opening of Belmont Dry Cleaners, although prior to that they had increased following a red route being introduced.

Mr Hassan was instructed regarding the recording of Daily Gross Takings. He agreed to keep all tickets as they were brought in for collection/payment and to use the 'shop' tickets were [sic] had been lost."

30. Mr Corbett made a second statement (necessitated, he said, by an oversight) on 20 November 1997, exhibiting notes which he had made of a telephone conversation with Mr Curtis, and notes of a meeting between himself, the Appellant and Mr Curtis on 21 February 2001. The notes of the telephone conversation dealt largely with making arrangements for the meeting, and Mr Curtis saying that he wished to ask certain questions and to present the Appellant's side of the matter to the Commissioners. He also mentioned the delivery of the wrong set of interview tapes. He did say that the Appellant "had admitted to him that he had evaded VAT but that that was for a much shorter period than that believed by C&E, and that the threshold had not been exceeded when C&E thought." He mentioned also that the Appellant had sold his business for far less than it was worth, owing to family and health problems.
31. The notes of the meeting ranged over the exchange of the incorrect for the correct tapes, and the desirability of settling the matter of the VAT. The Appellant had said that he was having difficulties with Mr Munir, who had advised him not to be interviewed, rather than the Appellant himself refusing. The Appellant mentioned that his brother had acted as guarantor when he had to borrow from the bank. He also said that he now understood how to keep his records, and that his takings were below the VAT threshold
32. Mr Neil Rintoul made a statement on 20 November 2003, producing a number of documents and a transcript of the taped interview, correspondence, and two schedules of arrears. On 19 August 1998, Mr Rintoul wrote to Mr Munir suggesting that it would be in the Appellant's best interests to come for an interview. Evidently Mr Munir told Mr Rintoul that the Appellant did not wish to be interviewed, and on 2 September 1998 Mr Rintoul wrote to the Appellant, mentioning this, and explaining the penalty regime, including the possible mitigation of the penalty by way of co-operation. He repeated that the Appellant would be well advised to attend for interview.
33. On 9 September 1998, Mr Rintoul wrote to Mr Munir, following a telephone conversation on 25 August, telling him that he had written to the Appellant detailing his concerns. The letter continued:

"...I have also advised him to discuss these matters with you. In the meantime I have prepared a schedule of arrears based on information held, test purchases carried out and the initial interview conducted with Mr Hassan by Officers Steve Robbins and Martin Corbett on the 16 May 1997. During this interview Mr Hassan stated that he knew what the registration limit was and that he withdrew money from the business to ensure, for bookkeeping purposes, that the business appeared to be trading below the limit. Mr Hassan signed Mr Robbins' notebook confirming that the true figures were entered on a black and red A4 notebook and that the true takings were in the region of £1,200 a week

I also have in my possession annual accounts from year ending 5 April 1987 which shows that your client was over the threshold limit....

From your letter dated 8 June 1998 you have failed to provide evidence to support why you believe your client should have been deregistered from the 6 April 1991 to 15 November 1997. As you are probably aware, Mr Hassan has destroyed most of his records. As there is a lack of business records, calculations have to be based on those gathered by Officers when conducting their investigations, information gathered from other revenue sources and by the trader's own admissions."

The letter enclosed a schedule of arrears from 6 April 1986 to 31 March 1998, and once again recommended that the Appellant should be interviewed.

34. This schedule of arrears (to which we will refer as "the first Schedule") began by stating, as a datum, that the tickets from number 4501 to number 4642, which the schedule says is 140 tickets (it is actually 142 tickets) had an average value of £8.88. That average value is then used to calculate what the takings should have been each week over a number of periods, based upon the number of tickets used. A further average is calculated, since the range of ticket use over these periods extends between 140 and 180, giving an average of 160, according to the Commissioners. That schedule shewed that for the three assessment periods, 9/97 (from 1 May 1989 to 30 September 1997), 12/97 and 3/98 the total VAT due was £74,051, allowing for 15 per cent for input tax, and 5 per cent every three years for price alterations. The schedule included a footnote that although on 31 July 1997 the Appellant was compulsorily registered with effect from 1 May 1989, accounts supplied by the Inland Revenue suggested that the effective date should have been at least some time in 1987.
35. A second schedule was drawn up based upon an average ticket price of £7.89 and an average ticket use of 161 a week. An allowance of 10 per cent was made for input tax, and a further allowance of 5 per cent every three years for price increases and non-collection. The result was a total of arrears between 1 May 1989 and 30 September 1997 of £69,746. The business was on 31 July 1997 compulsorily registered for VAT with an effective date of registration of 1 May 1989. Mr Rintoul said that he did not know when that schedule had been drawn up. In the first schedule he had allowed 15 per cent for input tax, but had reduced this to 10 per cent on the advice of the Cash Team, though he had thought that 15 per cent was reasonable. There were not necessarily price increases every year, so the 5 per cent allowance was given every three years; in fact the Appellant had said that he had only increased prices once, in 1997. The usual allowance for non-collection was 2 per cent. In the circumstances, he considered that a 5 per cent allowance every three years was fair to deal with both increases and non-collection.
36. A letter of 10 November 1998 answered one from the CTM Partnership dated 28 October 1998. The latter was marked "without prejudice", we were told, and was therefore not produced. The parties were, however, content for the response to be shewn to us. Mr Munir had evidently contended that the Appellant had already been fully interviewed, and Mr Rintoul answered that that had been on the unannounced visit on 16 May 1997. The letter continued:

"Although Mr Hassan did inform the officers that he was indeed suppressing his takings, he has not been fully interviewed or questioned as to why this occurred nor has he taken up the opportunity to be interviewed having been given Notice 730. I therefore do not agree that a full disclosure has taken place.

. . .

With regards to the whereabouts of the records, whether they have been lost or destroyed is a further matter that Mr Hassan needs to be questioned on under the civil penalty notice. You ask why Mr Hassan would destroy his records is a matter that also would be covered by an interview. As you may know accountants when provided with business records from clients take the information on trust, a set of annual accounts only provides a snapshot of the business over a specific time period based on information provided. Previous annual accounts from Mr Hassan have proven in the past to be unreliable.

The department used the previous annual accounts purely as a basis to register Mr Hassan. These accounts even ignoring the suppression issue indicate that the business should have been registered from at the latest May 1989. If the suppression is taken into account then the business should clearly be registered from 1987. The business if registered from that date would have been trading prior to registration since October 1984.

Since there is no factual documentation on the business other than that uplifted by my colleagues and that gained through carrying out a series of purchases, this is the only fair way of identifying a trading pattern. It is standard practice to do this if there is no other way of determining the business turnover. By identifying the turnover in this way figures can be pro ratad [sic] for the other periods building in any allowances."

The letter mentions that the average ticket use and value are apparent from the schedule. Mr Rintoul said that he did not agree that the period covered would affect the average ticket value. He said also that the Appellant had not provided any indication that garments remained uncollected, and he would therefore give no allowance for that, since the average ticket price would reflect cancelled tickets. He considered that he had treated the Appellant more than fairly; he was still willing to listen to any proposals that the Appellant might wish to make.

37. A further letter, dated 10 December 1998, from Mr Rintoul dealt with another without prejudice letter from Mr Munir, which, reading between the lines of Mr Rintoul's letter, appears to have contained a calculation of VAT liability. Mr Rintoul's response to that was that it did not cover the full registration period. Mr Munir also raised the matter of uncollected garments, and suggested a 10 per cent allowance for that; Mr Rintoul asked for particulars of how that figure was reached, and over what period.

The interview

38. An interview of the Appellant, which was recorded on tape, took place on 3 March 1999. The interviewing officer was Mr Rintoul. Also present were Mr Robbins and Mr Munir. The Appellant said that he was the sole proprietor of the business, and did all the work. Sometimes he employed staff, sometimes not. Currently he was not cashing up at all, though he had done previously. When he had done so he had recorded the amount of money in the till at the end of a day in a book. He took a Z reading at the end of a week. But he explained that the takings and the Z reading did not agree because he and his wife used the till as a calculating machine, for adding up cheques and the amount of money to be banked. The result was that the amounts of the cheques were entered twice.
39. He was given Notice 730, or had previously been given it, and was asked if he understood it. He said that he did not know if he understood it all. Mr Rintoul then explained it to him. There was reference to a discussion that had taken place before the tape recording was started relating to the test purchases carried out, and how they were used to calculate the number of tickets used in a week and the average ticket value. Mr Rintoul said that that was not an accurate estimate but was a guideline, and it was on the basis of that guideline that the visit took place.
40. The interview dwelt upon the passages which the Appellant was said to have signed as being a "true and accurate statement of what was said" during the visit. The following exchange took place:

"RINTOUL: ... It was taken on the notebook and it was dated the 16th May what has actually been - I'll read it out to you - 'The takings noted in my black and red A4 line book are a full and complete and confirm they are my true takings for the shop at 824 Wickham Road, Shirley' and you've actually signed that.

. . .

As you can see that is your signature isn't it?

HASSAN: Yes.

RINTOUL: Yes it is, right. It also goes on to say eh 'Mr Hassan stated that he was actually taking in the region of £1200 per week from January 1977 [sic] December 1966 [sic]. Prior to that -

MUNIR: Pardon, can you -

RINTOUL: It says here 'Mr Hassan stated that he was actually taking in the region of £1200 starting from roughly December 96 January 97, prior to that you were making between £800 and £900 per week.'

MUNIR: Except -

RINTOUL: Let me finish please. 'Mr Hassan stated that he tried to keep over [sic] the VAT registration limit putting a lower figure in his books, he stated that he could not afford to pay the VAT' and then there's a statement from yourself it says the above is a true and accurate statement of what was said. Mr Hassan thought the VAT limit was £750 per week and that is why he put a lower figure in his takings book and again you've signed it and it's the same signature. Do you agree with that?

HASSAN: No.

RINTOUL: Well why did you sign that?

. . .

HASSAN: Okay, I did say to Mr Robbins, even when I signed it, I told him that I was well behind with my work, I never read all that, I'm gonna sign it and I asked him what it was and he said it was some of the things that was taken from my premises.

. . .

HASSAN: He gave it to me to read it and sign it and I said to Mr Robbins I haven't got time to read it, I said can you just tell me quickly.

MUNIR: Can we ask the question to Mr Robbins if that is the true content of what was said?

ROBBINS: No we would normally on these occasions, we would ask Mr Hassan to read the statement. If he says he can't read the statement um to put his name to then we would advise him not to sign it, because he doesn't know what's included in it, if he does agree to it or if he doesn't, if he has problems reading it because some of our handwriting isn't very good we would actually read it out to him and on this occasion it was read out to him and I asked him does he want it read out to him again, we have to make it perfectly clear that he understands what he's signing. I wouldn't sign anything that I didn't understand, and he said yeah he was happy with that and he signed it and that's his signature there...."

41. There was then a discussion about whether the Appellant had been alone in the shop and trying to do his work during the visit, or whether, as the officers maintained, there were two other people in the shop, hiding somewhere at the back. Mr Munir then said that it was important to clear the point about the signatures up because

"MUNIR: ...it seems quite odd to me and it's worth for it to go on record, that somebody would make a comment about um half a page above the thing saying that the takings [words missing] are full and complete and literally the next sentence he would go on to say that his takings were in the region of £1200 it is contradicting isn't it.

ROBBINS: Can I answer that then. First of all we would ask him to sign that saying that these were the correct figures based on the information that we had taken up which was the takings book. Now if he said those were the correct figures at that time we would ask him to state that they were the correct figures and sign our notebook saying that yes no problem these were the correct figures these are my true - this is a true and accurate record of my takings. So I wrote that down for him. Then he - I can't remember did he sign it?

RINTOUL: Yes he did, yeah.

ROBBINS: Right, he signed it and then we talked some more about what we had done, the test purchases that we had carried out, the amount of tickets issued every week and how that didn't really agree by a considerable percentage with the takings in his book then at that stage, I mean going back two years again which is a long time I've been to many dry cleaners since, going back to that we would, we presumably said then um are you sure these are your correct takings -

HASSAN: I said yes.

ROBBINS: And you said no well they're not in fact my correct takings -

HASSAN: Not first -

ROBBINS: Yeah first of all you said yes they were then you said well no they're not um since the red route was here what you actually felt the red route has increased your trade for some reason, then we asked well what are your correct takings and that's what we've written down.

HASSAN: And it's not just the red route did I say I said there was another dry cleaners that closed and since and could I just ask you you pointed out to me that that week I'd done 14 something, you worked out something £1400 -

ROBBINS: £1400.

HASSAN: And you asked me how much a week I do and I said to you my busiest week is about £1200, my busiest weeks.

ROBBINS: Yeah.

HASSAN: And you quoted down here 1200 as if I do it every week.

ROBBINS: Prior to January 97/December 96 prior to £800/£900 Mr Hassan said he had tried to keep below the VAT registration limit putting a lower figure in his books. He stated he could not afford to pay the VAT and then it goes the above is a true and accurate statement of what was said. Mr Hassan thought the VAT limit was 700/750 per week and that is why he put a lower figure in his takings book."

We have quoted this at length because it was, perhaps, the most important part of the interview, and because it appeared to us to be important to consider exactly what was said by each person concerned, so far as was possible.

42. Later in the interview, the Appellant said that the day after the visit, 17 May, was Cup Final day, a day upon which nobody ever brings in any cleaning, and therefore the day before that day in each year was always extra busy. The Appellant was asked whether he had ever been investigated or interviewed by the Inland Revenue, and he said that he had been interviewed by them, and could not remember in which year. It was suggested to him that it had been 1986. It was suggested to the Appellant by Mr Rintoul that the Inland Revenue were saying that his drawings were suppressed for the year 1984-85 and the two following years. However, no evidence of this was adduced. The Appellant did say that the Inland Revenue had advised him to get a proper accountant.
43. During the interview, the Appellant explained, and admitted, that he had suppressed his takings at one point. He explained that in 1986 he had bought a house, because there had been until then five of them living in the very small flat above the business, with only two bedrooms. He said that his wife insisted that he buy a house because of this, and he bought 14 Oak Avenue, Shirley. That had five bedrooms, and the price was £132,000, and he had put down a £40,000 deposit. He got the money for that partly from his brother and also from his father-in-law, his wife, and savings put by for his sons. He had worked out that if he let the flat over the business he could manage it, but he was not able to let the flat, and was having difficulty meeting the payments for the mortgage and overdraft. He was not able to let the flat for a rent until the end of 1996. He admitted that it was not honest to suppress his takings. He said, "Well it's not honest, it's not, but you know there was no - what could I do I would have been - close the shop or you know I don't know what I'd lose the house and I was desperate." He had had no proper intention of doing it, but when his plans did not go as he had expected, he did. He said that he had had no money to do up the flat, and had eventually let it for no rent, on the basis that the tenants did up the flat themselves. Mr Munir explained on the Appellant's behalf that there had been no suppression earlier than January 1997. Mr Robbins pointed out that earlier records had not been produced, but when they were he would look at them. Mr Rintoul said that he believed that suppression had taken place a lot earlier than the Appellant had admitted, and that he had evidence that the accounts for the earlier years were not correct (though no such evidence was produced), and that he had not seen any particulars of how Mr Munir had arrived at his figures. He asked for evidence relating to the financing of the house purchase, and he needed to see the records of the business. It was put to the Appellant that he was "still" re-using tickets. The Appellant's reaction to that question appeared, on the transcript, to be one of incomprehension. It was explained by Mr Robbins that that meant taking a used ticket and writing the number of a new customer on the back and using the ticket again for the new transaction. The Appellant said that he had never done that. No evidence of any such activity was produced, although Mr Robbins accused the Appellant directly of doing so. Mr Munir pointed out that what the Appellant was doing wrong was that he was not putting the pennies down. The Appellant said that if a customer had, say, a bill for £21.50 he would accept £20, as a kind of small discount, though it would appear as £21.50 in the book.
44. Mr Robbins asked the Appellant to provide an explanation, with reasons, as to why the turnover had increased from £700 a week to £1,200. Mr Munir said that the average was £1,032. Mr Robbins said that he did not accept that the reason was the coming of the red route or the closing down of another dry cleaner. He also pointed out that the Commissioners had what they considered to be the correct takings figures for a two to three month period, and they had the Appellant's figures for that period, and that there was a big difference between the two. He said that the Commissioners had not relied upon the accounts, but upon what they had found out themselves, and had found no reason for reducing the figures that they had found. They therefore relied upon a suppression percentage. It was therefore up to the Appellant to produce the records to prove the Commissioners were wrong, or to give some other explanation in the absence of the records.
45. Finally, the Appellant explained that when the red route was instituted, and there was a 20-minute parking bay near his shop, he got busier and put his prices up. That was in 1997. Another dry cleaner had opened since then, who was charging 99p for a shirt when the Appellant was charging £3, and that had affected his business. Mr Robbins suggested that that should all be put down in a letter and sent to him.
46. Sometime thereafter Mr Munir ceased to act for the Appellant. A letter from his new accountants, Ekrem & Co, dated 27 October 2000, was received by Mr Rintoul. Mr Ekrem said that various tests had been carried out on the data used by Customs to calculate the assessment, with the following results:

"In your assessment, you have used various ticket books to extract your information. In our opinion, the data you have used is [sic] too narrow to be basis for a ten-year period. In order to compensate for any shortfall of the narrow range of data used, we have conducted the same exercise. However, in our exercise we have examined a broader range of data, using all the ticket books from 15/12/97 to 17/01/00.

The average tickets used from the period of 15/12/97 to 13/12/98 were 144 per week, whilst this increased to 145 in the following year.

(See page 1 of Working Sheets)

In order to justify any price change in the ten-year period we have used Retail Price Index from May 1989 to January 1998, which has increased by 39% for the period

(See page 2 of Working Sheets)

Our client always maintained that a business cannot be static, and the volume of trading will change from year to year. We are aware that this kind of fluctuation within the volume of trading is not very easy to ascertain. Nevertheless, in our opinion, gas consumption gives a fair indication of the fluctuation in this kind of business. Accordingly, we have conducted an exercise on the gas usage using statements provided by Midland Sales Ltd.

(See pages 3, 4, 5 of Working Sheets and statement from Midland Sales Ltd)

Upon recalculation of the assessment with the aid of this new data, we have arrived to £37,322.65 as Total VAT Due."

(See page 6 of Working Sheets)

47. That letter was accompanied by the analysis of the ticket books and the application of the retail price index to the takings over the ten-year period, all of which resulted in a figure of VAT due of £47,819.41 between May 1989 and March 1998. The gas consumption was calculated from actual readings of the meters, and covered the years from 1 November 1994 to 31 October 1998. This calculation shewed a daily consumption in the first year of 6.95 units; in the second year of 7.18 units, an increase of 3.26 per cent; of 9.14 units in the third year, an increase of 27.3 per cent; and of 9.27 units in the last of those years, an increase of 1.42 per cent. The gas meter readings are confirmed by account reconciliations by Midlands Sales Ltd, apparently the suppliers.
48. The final calculation by Mr Ekrem allowed a reduction of 2.5 per cent for non-collection, used his calculation of the average number of tickets per week and therefore the average price per ticket, and deducted sums representing input tax, which appear to be a little over 15 per cent. The final figure of VAT due was £37,322.65.
49. Mr Rintoul replied on 2 November 2000, saying that Mr Ekrem's letter was the first significant correspondence that he had received in the matter. However, he pointed out that Mr Ekrem had not dealt with the matter of dishonest evasion. He also mentioned that the assessment period ended at 31 March 1998, and that therefore the ticket books after that date were outside the scope of the investigation. He had not dealt with Mr Ekrem's letter himself, he had only acknowledged it. No real explanation had been given by the Appellant for the arrears. Mr Rintoul denied that, as suggested by Mr Ekrem, he had not used his best judgment, nor had he acted dishonestly.
50. The penalty had been reduced by 50 per cent. Of this, 25 per cent was for the initial admission of dishonesty, which was only in respect of one year; 15 per cent was for further admissions, though they were not full admissions; and the remaining 10 per cent was for general co-operation and production of records.
51. Mr Curtis cross-examined Mr Rintoul. He referred to Mr Rintoul's letter of 9 September 1998, to Mr Munir, in which he said, referring to Mr Robbins's notes of interview,

"...During this interview Mr Hassan stated that he knew what the registration limit was and that he withdrew money from the business to ensure, for bookkeeping purposes, that the business appeared to be trading below the limit. Mr Hassan signed Mr Robbins's notebook confirming that the true figures were entered on a black and red A4 notebook and that the true takings were in the region of £1,200 a week."

We pause there to mention the fact that Mr Robbins's notebook does not mention that the Appellant said that he had been withdrawing money from the business. Mr Curtis elicited from Mr Rintoul that he considered that Mr Robbins's note was badly written and was not specific. He also said that he had not thought of mentioning in the letter that the Appellant had also said, and signed to having said, that he took about £1,000 in his best weeks. He said that the figure of £1,200 a week had not been used in making his calculations. Mr Rintoul agreed that there was a considerable difference between what had been said in the interview (see paragraph 40 above) and what the Appellant had said to Mr Robbins and what had been said in the letter of 9 September 1998 about the £1,200 takings.

52. Mr Rintoul said that he had some accounts (not audited accounts) going back to 1989 which shewed that the Appellant's turnover was over the VAT threshold, though he considered that the figures in the accounts should have been higher. He accepted that the Appellant had tried to produce such records as he had. He did not accept the gas consumption as an indicator of the progress of the business; these were largely estimated readings, and did not shew actual consumption. For the analysis, he used the tickets used, over about six months. He then said that the period could have been 12 weeks. He did not use the bank statements for his analysis, since bank statements did not necessarily shew the turnover. He had seen only about 12 ticket books, and had seen no daily takings book. He had been unaware that Mr Munir had done an analysis. Mr Ekrem's analysis was basically the same as that of the Commissioners.
53. Mr Halit Ekrem was the first witness for the Appellant. He said that he had been acting as accountant for the Appellant for some four or five years, and that of his 365 clients twenty were dry cleaners. He had been told that the Appellant was being investigated by Customs and asked to go through the assessment. He said that he had discovered that they had only used a few tickets, giving them very narrow data to go on. He said that he had suggested that if they examined more tickets they would get a more accurate assessment. He said that he had received 31 ticket books from the Appellant, and had taken an average in exactly the same way as Mr Rintoul. He had explained that in his letter of 27 October 2000 (paragraph 45 above). He had used the retail price index to compensate for price increases, being then unaware that the Appellant had increased his prices only once; he would have used the actual prices had he known them. He said that no business is ever static, since people and shops change. Dry cleaning businesses used gas to operate their machinery. Electricity was used only for ironing and lighting. Gas was the main item of consumption: if the business increased, the consumption of gas went up. The table of gas meter readings included actual readings as well as estimated ones. He was aware that Christmas time was very busy, and that January was usually less so.
54. The Appellant spoke first about the visit on 16 May 1997, which took place at about 10.00 a.m. He said that he had his machines on, and that he was in the back room pressing. The officers asked for his records, takings figures, and receipts. At that time, the Appellant said, he was "spotting", which involves checking garments for bad stains and for things left in pockets. The visit continued for more than two hours. The officers asked for takings figures and bank statements. He said that he shewed them all that he had. The officers started going through drawers where he kept papers. The Appellant went back to where he was working. His wife, he said, was in the front of the shop serving customers. She complained that Mr Corbett had accused her of hiding money from the till, and she was annoyed by that. The officers told the Appellant and his wife that they were not using the till properly, since they were using it as a calculator.
55. The Appellant said that Mr Robbins came into the pressing room, and asked how much the takings were. The Appellant told him that the takings were noted in the book. Mr Robbins said, "Are those the true takings," and the Appellant said that they were. He was referred to Mr Robbins's notes, and said that he found them very difficult to read. He agreed that he had said that in his best weeks he took about £1,000. He admitted that at the end of 1996 the takings recorded were not correct; he had kept on putting in the same takings as before, but he knew that they were really higher. Later he said that he had been taking between £800 and £900.
56. Then, the Appellant said, after about a couple of hours, Mr Robbins came and said that he wanted the Appellant to sign some papers that he was holding in his hand. The Appellant said that he was very behind-hand with his work, and asked Mr Robbins to tell him what the papers were. Mr Robbins replied that they were to do with items that the officers were taking away. He said that he had never said that he had taken £1,200 a week from January 1997 or December 1996. The notes were not read to him, and he could not read them. He was quite sure that Mr Robbins had read no part of them to him. He said that even if he had been able to read the notes he might still have signed them because he was so busy and upset. He then remembered that he had an old brief case in a cabinet in a cupboard under the stairs which the officers had not found. He got it out and gave it to them. When the officers left, Mr Robbins gave him a receipt, he thought, though he could not really remember, but he thought he remembered having signed a receipt. They accused him of having destroyed records, and he said that he had never done so.
57. The Appellant said that he lived at 14 Oak Avenue. He said that he had not told the officers that he had an apartment above his flat, nor that he was renting it out for £500 a week. He did say that he had a flat over the business, but that was not let, because it was not ready. The Appellant admitted that from October 1996 to May 1997 he had not recorded all his sales. He had done this because of the difficulties he was having over his house purchase. That was before he had found a tenant for the flat over the business, who occupied rent free for some months in return for doing the flat up. He had never underrecorded his takings before or since that period. He used the money to help pay the mortgage.
58. In 1997 he put his prices up. The road outside the shop was made into a red route, and there was a parking space in the red route, for cars to park for up to twenty minutes, right outside the shop. As a result, his takings went up. His previous price increase had been perhaps three years before. He said that when he started the business he considered he was doing well if he took £250 a week. He considered the assessment to be "a bit rough", and said that he had not taken out anything like as much as the Commissioners said. One person on his own could not do the level of business which Customs alleged. He said that he had sold the business for £55,000 in August 2000, a price which was well below the market expectation, and in order to achieve a quick sale had agreed to accept £15,000 down and the balance at £600 a month. He said that even the business being run by the purchaser, who had put the prices up again, was not making £1,200 a week. He had not worked since then. He put in a statement of his financial position which stated that his income was £1,886 a month gross, from rent from a business and from the flat, and repayments from mortgage.
59. In cross-examination, when referred to Mr Robbins's notes, in particular the passage above his first signature, he agreed that he had said that entries in his black and red book were correct. When he signed that paragraph, he said, he was signing for the documents that the officers were taking away, and he had not read it. He said that sometimes he could read English words and not know what they mean. He could not read Mr Robbins's writing. He did not, therefore, try to read it. Next day was going to be Cup Final day, and it was a very busy day for him because nobody wants to go out on Cup Final day. When he signed, he said, there were more than six lines that he was asked to sign. The page was completed all the way down, and he was asked to sign "here and here". He said that he had asked what he was signing, and was told that it was for the documents that they were taking away. He said that all the entries in the black and red book were correct until he got into trouble, in October 1996. During that period he had been taking about £150 a week out of the business to pay the mortgage. He had borrowed to buy his house. The money borrowed did not go through his bank account, but was paid straight to the solicitors. He had given his bank statements to the officers, and they had not been returned. A bundle of papers had been given to Mr Munir by Mr Khaliq, but he did not know what, and did not know if they included bank statements.
60. He agreed that he had mentioned the figure of £1,200, but had said that that was his best week and would have been at Christmas time. He agreed that the takings for the week 23 December to 30 December 1995 had been about £1,400, as had been those for 21 December to 28 December 1996. Those were particularly good weeks, and were over the Christmas period. His customers were the same local customers all the time, there was little or no passing trade. So if one week was very busy the next would probably be quiet. Generally the busiest day of the week was Saturday. But the Friday of the visit was particularly busy because of the Cup Final the next day, when no-one would want to leave their television. He agreed that he had tried to stay under the VAT limit, though he was not sure what that was: he thought it was between £700 and £750. Mr Corbett had said that the Appellant had been using 260 tickets a week, that would be 26 books in 52 weeks. But he had not, he had used 26 books in 69 weeks, which would be 188 a week.
61. Profit and loss accounts of the business were produced. For the year to April 1988, sales had been £22,259, and for the following year £24,868 which was over the VAT threshold of £23,600. He had never done £59,000, or even £50,000, of business in a year. His accountant had not told him that he ought to register for VAT. He said that he had had to borrow to equip the shop. Had he known about registering for VAT he would have done so in order to claim the input tax on the equipment.
62. The Appellant confirmed that his dry cleaning and steam pressing machines were all run on gas, and that electricity was used only for lighting and some pressing. He said that he had had some gas bills, but not extending back to 1993 or 1994. He also said that if you put one pair of trousers, for example, into the machine it would use exactly the same amount of gas as if there were five pairs. He used usually to put between 23 and 25 lb of garments into the machine. The officers had not been interested in the amount of chemicals used in the business, and had said that they would not know if the Appellant was not using the machines empty. He said that the till was normally turned off, so that no-one could press a button and open it. The ticket book was also normally kept closed.
63. The Appellant said that he had never re-used tickets. Occasionally someone brought in six or seven items, and might come in to collect one item; he then would cross of the item and put a new price on the remaining items. That might entail writing on the back, but it was the same ticket with the same number. He did not see how a ticket could be re-used, since it would have the wrong name on it and a spike hole through it, and no number.

The law

64. The statute law relevant to this appeal is all contained in the Value Added Tax Act 1994. Section 73(1) of that Act provides:

"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 VAT due from him to the best of their judgment and notify it to him."

Section 60 deals with conduct involving dishonesty, and provides as follows:

"(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 ...

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.

. . .

(7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners."

Section 70 allows for mitigation of a penalty under section 60 (and other sections):

"(1) Where a person is liable to a penalty under section 60 ... the Commissioners or, on an appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper.

(2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty, may cancel the whole or any part of the reduction made by the Commissioners.

(3) None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section.

(4) Those matters are—

(a) the insufficiency of the funds available to any person for paying any VAT due or paying the amount of the penalty;

(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT;

(c) the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith."

The Commissioners' contentions

65. Miss Nicola Shaw, who appeared for the Commissioners, provided a useful skeleton argument. The factual matters upon which she relied began with the visit on 16 May 1997, when, she contended, the Appellant initially stated that his takings were £1,000 in a good week, £700 to £750 in an average week, and £600 in a bad week, and that the takings recorded in his black and red book were full and complete. He then stated, the contention continued, that he was actually taking in the region of £1,200 a week from December 1996/January 1997, prior to which he had been taking £800 to £900, and had entered lower figures in the cash book in order to keep below the VAT registration level, since he could not afford to pay it. He said that he thought that the threshold was between £700 and £750 a week. Miss Shaw mentioned that records which included ticket books and accounts were uplifted by the officers. She did not mention bank statements. From the visit on 17 November 1997 two further facts emerged: that the Appellant's takings had gone down since the opening of the Belmont dry cleaners nearby, and that his business had increased as a result of the introduction of the red route. Further records, including more ticket books were uplifted. The accounts shewed, Miss Shaw said, that the Appellant's sales for the year to 5 April 1989 had been £24,666.40. The registration threshold on 1 May 1989, the date from which the Appellant was compulsorily registered, Miss Shaw said, was £23,600. That established the Appellant's liability to be registered.
66. Arising out of the interview on 3 March 1999, the Commissioners relied in particular on the following. The Appellant was responsible for the cashing up and banking, being sole proprietor. He said that he had read and understood Notice 730, and then said that he was not sure that he had understood it; it was then explained by Mr Rintoul, when the Appellant said that he did understand. The Appellant said that he had signed Mr Robbins's notebook without reading it and had been told by Mr Robbins that it was the receipt for records which had been taken. But Mr Robbins said that he had read the notebook to the Appellant, who had then said that he was content to sign it. The Appellant said that he had said that his takings were £1,200 in his busiest weeks. The Appellant had admitted suppressing takings, explaining that he was in financial difficulties having bought a house and had to pay a large mortgage. The Appellant said that his takings had decreased since the opening of the Belmont dry cleaners, and that in 1997 he had become busier as a result of the red route being introduced, and had put his prices up.
67. The initial assessment totalling £74,051 had been based upon an average ticket price of £8.88 and an average use of 160 tickets a week. That assessment was amended to £60,736 following a local reconsideration on revision of the average ticket price and average ticket use. The average ticket price was calculated at £7.89 and an average ticket use of 161 per week. The arrears were calculated on the basis of the following weekly takings:

January to March 1998

April to December 1997 £7.89 x 161 = £1,260.29

January to March 1997

January to December 1996

January to December 1995 £7.49 x 161 = £1,205.89

January to December

1994, 1993, 1992 £7.11 x 161 = £1,144.71

6 April to December 1991

January to 5 April 1991

January to December 1990 £6,75 x 161 = £1,086.75

May to December 1989 £6.41 x 161 = £1,032.01

That calculation incorporates a reduction in respect of each period before April 1997 to cover price alterations and non-collection. The Appellant was also allowed an input tax credit of 10 per cent, which is the allowance usually given to dry cleaning businesses. The penalty under section 60 was levied on the whole amount of the tax arrears, but was mitigated by 50 per cent to reflect the level of co-operation given by him.

68. Miss Shaw referred to Van Boeckel v Customs and Excise Commissioners [1981] STC 290 and Rahman v Customs and Excise Commissioners (No 2) [1998] STC 826 and [2003] STC 150 with respect to the matter of best judgment, which was in issue, it being contended for the Appellant that the assessment was not made to best judgment and that the Commissioners had acted dishonestly. Miss Shaw contended that the Commissioners must make a value judgment on the material before them, and there must be some material upon which that judgment is based. The judgment must be made bona fide, and not dishonestly, vindictively or capriciously. They must consider all the material before them, and must not reach a decision which is arbitrary or unreasonable; although an element of guesswork may be necessary, it must be honestly made on the available material, and not be a spurious guess from which all elements of judgment are absent. The Commissioners are not required to do the work of the taxpayer, nor to make an exhaustive investigation. The Tribunal should only find that an assessment is not made to the Commissioners' best judgment if it finds that they have acted dishonestly, vindictively or capriciously, or that it is a spurious estimate or guess. The Tribunal's primary function will be to exercise its own judgment on the material before it and assess whether the quantum of the assessment is correct. It is for the Appellant to establish that the Commissioners have not exercised their best judgment.
69. Miss Shaw also referred us to the judgment of Lord Lane CJ in R v Ghosh [1982] 2 All E R 689 at page 696 as to what constitutes dishonesty, and its application by the Tribunal in Ghandi Tandoori Restaurant v Customs and Excise Commissioners [1989] VATTR 39. She reminded us that the standard of proof for the purposes of section 60 is the balance of probabilities (First Indian Cavalry Club Ltd v Customs and Excise Commissioners [1998] STC 293), though a high degree of probability is necessary: see Ghandi at page 46, applying Khawaja v Secretary of State for the Home Department [1983] 1 All E R 765).
70. Dealing with the evidence, Miss Shaw pointed out that the Appellant's accounts for the year to 5 April 1989 shewed a turnover of £24,666.40, the threshold for registration then being £23,600; at that date, therefore, the Appellant was liable to be registered. Miss Shaw said that the Commissioners were not satisfied that the Appellant had ever been trading below the registration level, and did not accept that his accounts shewed the true extent of his turnover. Their schedule of arrears shewed that he was trading at a level greatly in excess of the registration threshold at all times.
71. Consequently, the Commissioners contended that the Appellant was liable to be registered as from 1 May 1989, and was required to make returns for all periods from that date onwards. Having not done so, the Commissioners were entitled to raise assessments under section 73. Those assessments were made to the best of the Commissioners judgment. Although not required to undertake an exhaustive investigation, the Commissioners did carry out a substantial investigation of the Appellant's business. They had regard to all the information gathered in the course of their investigation. The analysis of the tickets enabled them to establish an average ticket price and an average weekly use of tickets. That exercise shewed that the Appellant was trading above the registration threshold and also in excess of his declared takings. The Commissioners gave as much of the benefit of the doubt to the Appellant as they could, and amended the average ticket use and price to allow for further information, and allowed a 5 per cent reduction each year for price increases and non-collection, notwithstanding that the price increase in 1997 was the first for three years and that there had been no increase since then.
72. Miss Shaw stated that the Appellant had produced no records apart from those uplifted by the officers, and in particular had failed to produce any bank statements or other documents which might support his contention that his takings were as low as he had recorded. He produced no records to support his alternative calculation, and the Appellant's method of calculation was not more accurate or in any way preferable to that of the Commissioners. The ticket analysis put forward by him analysed tickets from a period outside that of the assessment and was, therefore, less reliable in terms of the period to which the analysis referred and of accuracy. Miss Shaw said that this should be treated with caution also because the tickets after the assessment period could have been manipulated. The suggested allowance of 2.5 per cent for non-collection was without explanation. The Commissioners did not accept that the analysis by reference to the gas consumption was valid. Mr Ekrem had said that the gas consumption shewed the level of business being done because it reflected the number of garments being put into the dry cleaning machine; that was not what the Appellant himself had said.
73. It was the Commissioners' contention that the failure to register was deliberate and done with the intention of evading VAT. He was aware of the registration limits, and that he would appear to be taking less than the limit if his takings were between £700 and £750 a week. He admitted to suppressing takings between October 1996 and May 1997; the Commissioners contended that in the absence of any other explanation he was deliberately suppressing his takings for the whole of the period of the assessment. Such suppression would be regarded by ordinary people as being dishonest, and the Appellant had acknowledged that that conduct was dishonest. In all the circumstances, the assessment was made to the best of the Commissioners' judgment and was fair; the penalty was incurred by the dishonest conduct of the Appellant, and the 50 per cent mitigation reflected the degree of co-operation.

The Appellant's contentions

74. Mr Curtis, on behalf of the Appellant, also produced a skeleton argument. He dealt first with the two visits. He pointed out that on the first visit, on 16 May 1997, the officers had taken substantial documentation provided by the Appellant, including audited accounts from 1987 to 1996, 110 bank statements, cash takings books, sales dockets, till rolls, invoices, and gas receipts. There was also an interview on that date, recorded at the time by Mr Robbins. Those were the notes which were signed by the Appellant. Mr Curtis contended that the evidence shewed that those notes were not read to the Appellant, and that he was not content to sign them. The notes contained answers by the Appellant, that he might take £1,000 in a good week, £700 to £750 in an average week, and £600 in a poor week. The reference to £1,200 in a week had been a reference to his best ever weeks, between December 1996 and January 1997. The Appellant had stated that he thought that the VAT registration threshold was between £700 and £750, not that he knew that that was what it was. During the interview on 3 March 1999, Mr Robbins could not remember whether the Appellant had signed the notes at all. Mr Curtis also contended that the contents of Mr Robbins's notebook had been presented incorrectly and misleading information was used from that report.
75. Mr Curtis specifically contended that the officers misrepresented the facts and lied about the signed notes. The lies were, that the Appellant signed Mr Robbins's notebook confirming that the true figures were entered in a black and red notebook, and that the true takings were in the region of £1,200 a week. The assessment was in part based upon those incorrect facts, and did not represent a true picture of the Appellant's business nor of the statement that he made. In doing so, Mr Rintoul acted dishonestly.
76. The Appellant's challenge to the assessment was calculated on the same formula as that of the Commissioners, but was based on much wider data: 31 docket books comprising 15,000 tickets, over a period of 107 weeks, from 15 December 1997 to January 2000. The Commissioners contend that the Appellant "has failed to keep adequate business records" and that he "has deliberately failed to keep an audit trail in order to hamper any investigation or interrogation of his records" (statement of case, paragraph 24.6). That paragraph was disputed.
77. Mr Curtis referred to that part of the interview which dealt with the visit of 16 May 1997, and pointed out that there were contradictions and misrepresentations by the officers relating to that part of the notes which had been signed by the Appellant. The officers were aware of the misrepresentations, and when the Appellant protested that he had said that he had taken £1,200 in his best ever week, and that Mr Robbins had noted it down as if that was the figure for each week, Mr Robbins had answered "Yeah", and changed the subject. Mr Curtis also referred to the delivery to the Appellant of the wrong interview tapes.
78. Mr Curtis criticised the calculation of the assessment in a number of ways. First, he said that the bank statements, which the Commissioners did not use, spanned more than eight years and reflected money paid in and drawn out which would have contributed useful information in making the assessment. The bank statements were never returned to the Appellant, and no copies were taken; as a result the Appellant was unable to use them to support his case. The Appellant stated that he had not destroyed his records. He referred to a visit by Customs officers in 1994, at which time the officers who visited took the view that there was nothing wrong, from their point of view, with the Appellant's business. Mr Rintoul said that probably the file relating to that visit was destroyed, since no action was taken. It was the Appellant's case that that file might have established that at that date there was, indeed, nothing to criticise about the business from the VAT point of view. It is also inconsistent with the Commissioners' contention that the Appellant was suppressing his takings from at least 1989 onwards. Mr Curtis suggested that Messrs Robbins and Rintoul confirmed during the interview that the Appellant's affairs had been in order at the time of the 1994 visit: however, the transcript does not suggest that they said that.
79. Mr Curtis contended that certain matters urged by the Commissioners were matters of surmise only, which were not supported by evidence. These were, first, that the Appellant had ever traded at a level below the registration threshold, and, secondly, that the Appellant was trading at a level far higher than the threshold at all times during the period of the assessment.
80. In support of his contentions, Mr Curtis referred first to Van Boeckel (supra) at page 292, where Woolf J, as he then was, defined "best judgment". The Commissioners' actions in the present case, he contended, do not amount to assessing to the best of their judgment. He referred also to Rahman (t/a Khayam Restaurant) v Customs and Excise Commissioners [1998] STC 826, 834, where Carnwath J reviewed some authorities (including Van Boeckel) on what constitutes best judgment. He contended that the Commissioners did not use all the material that was before them and had not made a value judgment. The receipt for the documents uplifted shewed that a great many documents were taken by the Commissioners, but they did not consider them all. They did consider sales dockets, but only very few. They ignored the bank statements. They appeared not to have considered the purchase invoices. Mr Rintoul said that the bank statements were of little use in a cash business, but if they had just looked at them it would have given them a picture of the takings paid in and would have enabled them to arrive at an average. The gas bills would have told them that the business was not static, and the purchase invoices would have shewed the increases and decreases in the business. But they had used only the sales dockets, and a very limited number of them: 140 out of 8,000 that they had taken. Since their average usage was 161, what they actually based the assessment on was, according to their own calculation, less than one average week's use of dockets.
81. In his letter of 9 September 1998, as Mr Curtis pointed out, Mr Rintoul stated as fact that "Mr Hassan stated that he knew what the registration limit was and that he withdrew money from the business to ensure, for book-keeping purposes, that the business appeared to be trading below the limit. Mr Hassan signed Mr Robbins's notebook confirming that the true figures were entered on a black and red A4 notebook and that the true takings were in the region of £1,200 per week." That misquoted what the Appellant had said, Mr Curtis contended, and Mr Robbins's notes. That illustrated that the assessment had not been made to best judgment; Mr Rintoul knew that the Appellant did not make an average turnover of £1,200 a week.
82. The Appellant denied that he acted dishonestly, except during that eight-month period from October 1996 to May 1997. It was out of character for him to do so, and he only did so because of the privations and overcrowding suffered by his family. Thereafter, from 1998 to 2002 his taking were below the registration limit.

Conclusions

83. We start by looking at the issue as to whether the Commissioners used their best judgment in making the assessment complained of. If we find that they did not, that is an end of the matter and the whole assessment fails. If we find that they did, then we should go on to consider whether the quantum of the assessment is correct.
84. Looked at from the Commissioners' point of view, here was a business which, according to its accounts, was trading over the VAT registration threshold, but which was not registered. That alone was enough to warrant investigation. Test purchases followed, which provided the Commissioners with certain incontrovertible data, albeit not very much in the way of data: just the number of tickets used in that very limited period. There then followed the first visit, during which the two officers obtained further information and quite a large number of documents. The information included that which was given to them orally by the Appellant, and about which there is a dispute. They considered 142 tickets, and calculated an average price per ticket and an average number of tickets used per week. During the visit of 3 March 1997, the Appellant had said that he had tried to keep his takings below the registration threshold by putting a lower figure in his books, because he could not afford to pay the VAT. That last by itself would have been enough to justify investigating with a view to making an assessment, and that is what ensued. There was also an admission of dishonesty by the Appellant, which is enough to justify the imposition of a penalty under section 60.
85. There is, however, more to the making of an assessment under section 73 and levying a penalty under section 60 than simply establishing that circumstances exist which justify doing so. It is after that point has been reached, in the present case at least, that the actions of the Commissioners require to be scrutinised.
86. It is to be noted that the Commissioners' case, as set out in the statement of case, is:

"24.6 The Appellant has failed to keep adequate business records. The Commissioners contend that the Appellant has deliberately failed to keep an audit trail in order to hamper any investigation or interrogation of his records."

In evidence it was also suggested that the Appellant had deliberately destroyed the audit trail. However, it does not appear to us that either of those accusations is entirely accurate. It is true that there were no till rolls and no Z readings. However, here was a large number of ticket books, 31 in all we were told, and there were 110 bank statements. It would have been possible, as it appears to us, to follow some kind of audit trail from the tickets to the bank statements, even bearing in mind the Commissioners' reservations as to the usefulness of the bank statements,. But in fact they did no such thing; they ignored the bank statements, and used only a very small sample of the tickets. They delivered the bank statements to Mr Khaliq, instead of giving them back to the Appellant, with the result (which we accept that they could not have foreseen) that those bank statements were available neither to themselves nor to the Appellant.

87. It is also the case that the Commissioners contend that the Appellant's turnover, for the whole of the assessment period, was something over £1,000 a week. He has admitted to suppression of his takings dishonestly for a period of some 31 weeks, and has protested all along that he never made any such weekly takings as the Commissioners allege. And yet, according to the statement of case:

"25.1 The Commissioners were justified in giving a 25% reduction from a possible 40 % for an early and truthful explanation as to why the arrears arose and the true extent of them. Although there was an initial admission of arrears this admission only amounted to a single year period.

2 The Commissioners were justified in giving a 15% reduction out of a possible 40% for co-operation in substantiating the true amount of arrears. Although an initial offer was made the Appellant has failed to accept that he should have been registered continuously from 1989 to 1997, failed to provide figures to support his claim that he traded below the threshold and failed to keep adequate business records for this period.

3 The Commissioners were justified in giving a full 10% reduction for attending interviews and providing information required."

Yet, if their case be right, the Appellant has not only not given a truthful explanation as to why the arrears arose or their extent, but has maintained to the contrary all along. He has never, according to the Commissioners, substantiated the true amount of the arrears; he has provided little information and has withheld a significant amount. It is difficult to understand how the Commissioners could have come to allow such an amount of mitigation if that were so.

88. There are further inconsistencies and errors. Miss Shaw, in her skeleton argument, which was not corrected, stated that the Appellant had provided no bank statements to the officers. It was, indeed, the officers' evidence, supported by their receipt, that he had given them 110 bank statements, and that they had not only ignored them but had failed to return them to the Appellant.
89. We come now to consider the matter of Mr Robbins's notes and the signing of them by the Appellant. In the first place, it appears to us that the notes are incomplete and somewhat ambiguous. The officers have said that the Appellant signed them as being a true and accurate account of what was said. But a little examination shews that they are not an account of what was said at all. They are a list of items, lacking any explanation of what they are. The officers themselves were not unanimous as to what exactly it was that the Appellant had signed: Mr Corbett said that he had signed to authenticate all that had gone before his signature, Mr Robbins said that his first signature referred only to the six lines above it. There is nothing in the notes to say which of those two is correct. The second part, the next eleven lines, which are followed by the words "The above is a true and accurate statement of what was said [though there is no indication as to whether that refers to the whole of the foregoing note or only the last six lines] Mr Hassan thought the VAT limit was £700-750 per week and that is why he put a lower figure in his takings book", are clearly not a statement of what was said. Are we to believe that suddenly, out of the blue, having signed the page already, the Appellant said "I am actually taking in the region of £1,200 from January 1997/December 1996 prior to £800-900 per week...." in those words, and in sharp contradiction to what he had just said? Was nothing said by either officer? We find that difficult to believe. It is also the case that the notes contain no reference to their having been read to the Appellant, let alone read twice to him, nor does the statement of either officer refer to the notes having been so read. In a further contradiction, the Appellant apparently said, almost in the same breath, that he had tried to keep below the VAT registration limit, which he thought to be £700 to £750 (not £800 to £900; not £1,000 in a good week etc). In our view, therefore, and bearing in mind the Appellant's own evidence, we consider that those notes and the circumstances surrounding them should be looked at with considerable caution.
90. That view is reinforced by consideration of those parts of the interview of 3 March 1999 which dealt with it. We refer to the passages cited in paragraphs 40 and 41 above. Those exchanges are revealing. They shew, first, that Mr Munir, no doubt on instructions, was astute to take the point which has been the Appellant's case all along, that he had never said, or intended to say, that he normally took £1,200 a week. Secondly, it emerges that a great deal more was said at that time in the visit than has been recorded, and that in consequence the two passages which the Appellant signed are out of context. Thirdly, it does appear that Mr Robbins is endeavouring in the interview to patch over some cracks in the evidence, by saying that the officers "would" do this or that, not that they actually did so. Fourthly, the answer by Mr Robbins to the point put to him by Mr Munir is more than ambiguous. It appears that first the Appellant "would have been" (not "was") asked to sign that certain figures were correct. Then he would be asked to state that they were the correct figures, and apparently sign again, and then that that was a true and accurate record, not of what was said, but of his takings. Then, after that, Mr Robbins wrote that down. It is not at all clear just what did happen. But if he could not remember whether the Appellant had signed the notes, it is not impossible that his recollection of other parts may have been impaired. The next two paragraphs spoken by Mr Robbins include much that he said was talked about, yet which has not been noted at all. Clearly it contained answers by the Appellant, and they have not been recorded either. Then, when the Appellant pointed out, and stressed, that he took £1,200 only in his busiest weeks, Mr Robbins appears to agree that he had said that, although it was not recorded either. After that, Mr Robbins steered the interview in another direction. Miss Shaw said that the only point of difference between what the officers said and what the Appellant said was one of accuracy. With all the above matters in mind, we cannot agree with that. The difference is one of substance, and in our view the Appellant's account of what was said is to be preferred.
91. That brings us to a consideration of the credibility of the Appellant in general. We heard him give evidence and under cross-examination for some time, and were well able to observe his demeanour and his attitude to his predicament. He admitted, apologetically, that he had suppressed his takings, during the period when he was in financial difficulties between October 1996 and May 1997. His account of his business and affairs did not vary. We came to the conclusion that, having faced the admission of dishonesty, he was endeavouring to give as accurate and true an account as was possible after the passage of time.
92. We now have to consider whether the fact that the Appellant has given a true account of matters, in the light of the passages from the interview quoted above, shews whether the assessments were or were not made to the best of the Commissioners' judgment.
93. We start with the decision of Woolf J in Van Boeckel (supra) at page 292f, where he said:

"...the very use of the word 'judgment' makes it clear that the Commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them. Clearly they must perform that function honestly and bona fide. It would be a misuse of that power if the Commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which could possibly be payable, and then to leave it to the taxpayer to seek, on appeal, to reduce that assessment."

And later on the same page,

"In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the Commissioners of carrying out exhaustive investigations. What the words 'best of their judgment' envisage, in my view, is that the Commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the Commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them."

Woolf J also cited a passage from the decision of the Privy Council in Argosy Co Ltd v Inland Revenue Commissioner [1971] 1 WLR 514, 516:

"Again the Commissioner may have to make some guess of the extent [of the tax understated]. Such estimates or guesses may still be to the best of the Commissioner's judgment - a phrase which their Lordships think simply means to the best of his judgment on the information available to him. The contrast is not between a guess and a more sophisticated estimate. It is between, on the one hand, an estimate or a guess honestly made on such materials as are available to the Commissioner, and on the other hand some spurious estimate or guess in which all elements of judgment are missing."

94. In Rahman (supra), Carnwath J referred at length to the judgment of Woolf J in Van Boeckel, and to some other authorities as well, including Commissioners of Income Tax, United and Central Provinces v Badidras Ramrai Shop (1937) 64 L R Ind App 102, 114. From them he derived the following:

"I have referred to the judgment [in Van Boeckel] in some detail, because there are dangers in taking Woolf J's analysis of the concept of 'best judgment' out of context. The passages I have italicised show that the Tribunal should not treat an assessment as invalid merely because it disagrees as to how the judgment should have been exercised. A much stronger finding is required; for example, that the assessment has been reached 'dishonestly or vindictively or capriciously'; or is a 'spurious estimate or guess in which all elements of judgment are missing'; or is 'wholly unreasonable'. In substance those tests are indistinguishable from the familiar Wednesbury principles (see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.) Short of such a finding, there is no justification for setting aside the assessment."

In Wednesbury, Lord Greene MR said, at page 229,

"A person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to matters which he is bound to consider. He must exclude from consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may be said, and often is said, to be acting unreasonably."

95. Carnwath J went on to consider the "two-stage approach" to best judgment assessments, and said, at page 836:

"Once the grounds for making an assessment are established, then the tribunal's primary function is to examine the amount. Since the assessment is the starting point for that exercise, the tribunal will need to consider whether the judgment made by the Commissioners was sound or not. If it is shown to have been wholly unreasonable or not bona fide, there would be sufficient grounds for setting the assessment aside, because it would not be fair for the taxable person to be required to answer a case which had been formulated in that way. However, that kind of case is likely to be extremely rare. In the normal case, it should be assumed that the Commissioners have made an honest and genuine attempt to reach a fair assessment. The debate before the tribunal should be concentrated upon seeing whether the amount of the assessment should be sustained in the light of the material then available."

96. The application of those principles to the present case is not an easy matter. On the one hand, there are the facts, first, that according to his accounts, in 1994 the Appellant was trading at a level in excess of the registration threshold. Secondly, there is his admittedly dishonest act of suppressing his takings between October 1996 and May 1997. Thirdly, there is the fact that there is a shortage of information to shew exactly what the Appellant's turnover was in each of the years covered by the assessment. Those three facts lead us to the conclusion that an investigation and assessment were justified. An investigation was undertaken, and it was carried out, and the arrears calculated, in a manner which is customary. There appears to be no doubt that they did a lot of work on the case. As against that, there is the fact that the officers carrying out the investigation looked at only a microcosm of the tickets which they had in their possession, and ignored the bank statements. We bear in mind that the Commissioners are not obliged to undertake exhaustive investigations, since that is really for the taxpayer, who should be familiar with the running of his own business, to do in the first place.
97. We therefore have to ask ourselves, whether the Commissioners have acted dishonestly or vindictively or capriciously in reaching the assessment; whether that assessment is a spurious estimate or guess in which all elements of judgment are missing; or whether it is wholly unreasonable in the Wednesbury sense. Mr Curtis has contended that Mr Rintoul acted dishonestly, in allowing what the Appellant said was an erroneous account of the interview at the first visit to be taken as fact. He also contended that the Commissioners had not considered a large body of evidence which was put before them. He contended that the assessment was, therefore, not made to the best of the Commissioners' judgment. Is this, we have to consider, that rare case in which the assessment should be set aside because it was wholly unreasonable or not bona fide?
98. We do not see anything vindictive or capricious about the raising of the assessment, nor, in view of the work done on the case, can it in our view be said that it was a spurious estimate or guess from which all elements of judgment were missing. Was it reached dishonestly? The dishonesty complained of lay in the maintaining of the allegation that the Appellant had admitted that his weekly takings were in the region of £1,200. However, it was the Commissioners' evidence that the figure of £1,200 was not the basis of the assessment. Reading the calculations, it is clear that that is correct; it appears that at the most the figure of £1,200 merely confirmed the view of the Commissioners that the Appellant was taking a great deal more than he had declared, and in fact their figures do work out at something over £1,000 a week. We do not consider, therefore, that the assessment was reached dishonestly. We do take the view that the notes at the visit on 16 May 1997 were made carelessly and incompletely, with the result that they did not contain a true account of that interview (see our observations in paragraphs 86 and 87 above). That situation was not improved by an inexact attempt to recall in the interview, over two years later, what had actually been said.
99. We next ask, was the assessment unreasonable in the Wednesbury sense? The reason given for not considering the bank statements was that in a cash business bank statements shew only what has been paid in, and not what has been received, which may be a very different sum. It is very easy to disguise takings by not paying them into the bank. Although we agree that consideration of the bank statements over a considerable period might have presented a more composite picture of the business, and comparison between the tickets issued (all of them, not just a few) and the bank statements might have shewn that the bank statements gave a truer picture than the Commissioners suspected, it has to be remembered that the Commissioners were confronted by a business apparently trading above the registration threshold which had not registered, and in circumstances in which traders do not always stick to the truth. In the events which occurred, for some unknown reason the Commissioners returned the bank statements to Mr Khaliq instead of to the Appellant who had handed them over in the first place. In the result, they were lost for ever, and the Appellant was unable to make use of them to support his own case. That, in our view, was careless, but no worse. We therefore consider that while there was a reason for the Commissioners not considering the bank statements, a little further thought would have suggested to them that, since they were in possession of them, those statements might have been useful evidence on the matter of quantum. One wonders why they thought it necessary to take them in the first place if they were not going to use them? We were concerned about these points, and those referred to in paragraph 84 above. In other circumstances, it may be that the failure to consider the bank statements, the failure to consider all the tickets but 142 of them, and the failure to consider whether those parts of the material before them might have aided the Commissioners in exercising their judgment, would have given us reason to form the view that the assessments were not made to the best of their judgment. However, there is no escape from the facts that, first, according to the Appellant's own accounts, he was trading with a turnover greater than the registration threshold without having applied for registration. Secondly, he admitted that he had dishonestly suppressed his takings for a period of time. In view of those facts, it appears to us that the Commissioners could do no other than register him compulsorily and raise the consequent assessments. What matters thereafter was the quantum of the assessments, and, dependent upon the correct calculation of the Appellant's takings, the effective date from which he should have been registered. In our view, the Commissioners did not act unreasonably, in the Wednesbury sense, in deciding to raise the assessments, but their failure to consider the vast majority of the tickets and any of the bank statements, in conjunction, led them astray on the matter of quantum. Those matters, in our judgment, are related to quantum and not to best judgment, since it was the quantum which the Commissioner failed properly to calculate.
100. Following the principles set out in Van Boeckel and Rahman, referred to above, we have come to the conclusion that the assessment in principle was made to the Commissioners' best judgment. In the face of an admission of dishonesty and the accounts, it would be difficult to see how the Commissioners could have done other than raise an assessment.

Quantum

101. As is often the case, arriving at a correct quantum of tax due is no easy matter. In this case data are scarce for the periods when they are necessary. Nevertheless, there are certain datum points which may stand as keystones. The first is, that we accept the Appellant's evidence that he dishonestly suppressed his takings from October 1996 to May 1997. Since he was unable to be more specific, we take that to mean from 1 October 1996 to 31 May 1997. The second is that the Appellant's accounts for the year to 5 April 1989 shewed that he was trading by a small margin in excess of the VAT registration threshold. The third is that the Appellant was registered with effect from 1 May 1989. The fourth is that the Appellant's accounts for the years to 5 April 1998, 1999, and 2000 shewed that in those three years he was trading at a level below the VAT threshold and below the deregistration levels. It is the Commissioners' contention that those accounts may be inaccurate, and we understand that they imply, fraudulently inaccurate. But they have provided no evidence (and the onus is upon them to do so) in support of such an allegation. In the assessment there is a certain degree of argument on the lines of "Because A, therefore B", without the evidential link between them; the link is that the Commissioners did not believe what the Appellant said, and considered that from a date earlier than the effective date of registration he was concealing takings and destroying any audit trail so that it would be the more difficult to establish the true state of affairs. We have already commented upon the inconsistency between that view and the level of mitigation of the penalty which the Commissioners allowed him. The Commissioners' reasoning seems to have been, that because the Appellant has behaved dishonestly at one time, then on the balance of probabilities he was behaving dishonestly at all material times. We do not accept that. Without any evidential link it is a non sequitur. It is not impossible that if he was behaving dishonestly at one period he was all the time, but that does not amount, in our view, to establishing it on the balance of probabilities, with the high degree of probability suggested in Ghandi (supra).
102. The Appellant's evidence was that the figures set out in his red and black book were correct, at least until October 1996. We accept that he was endeavouring to keep his takings below the registration threshold. There is nothing wrong in so doing, if all that the trader is doing is maintaining a lower level of trade so that the takings flowing from it remain below the threshold. It is another matter if the trade is generating takings over the threshold and the takings are being falsified. Much was made of the claim by the Appellant to be aware of the weekly level which would amount to the threshold, of between £700 and £750. Multiply those figures by 52, and the bracket is between £36,400 and £39,000, which was considerably lower than the threshold in 1996-97 (£48,000), when, it is said, he knew what the threshold was. It is clear that he did not know; perhaps he had been told at some time, perhaps in 1992, and had taken it as a fact ever since. We do not know.
103. Mr Ekrem carried out extensive calculations, based upon ticket use and price, in a manner similar to that of the Commissioners. The difference was that he used a much broader base of tickets. From that he calculated expected turnover for the years to 5 April 1990 to 1998. For 1990 and 1991, the calculated takings were above the registration threshold, and it is clear that the Appellant should have registered in at least 1990, if not earlier. The calculated turnover thereafter is in all years under the registration threshold and in all years except 1998 also below the deregistration level.
104. There were differences between Mr Ekrem's workings and those of the Commissioners. Mr Ekrem included the retail price index, to compensate for price changes (he was unaware at the time of making the calculations that the Appellant had increased his prices only in 1997 and some three years before that). He also calculated the fluctuations of the business by reference to the consumption of gas. Otherwise, he said, he used the same method as had the Commissioners. The Commissioners criticised Mr Ekrem's calculation because it was in part based on sales which took place after the assessment period and because the tickets could have been manipulated. There was no evidence which suggested any such manipulation. The fact that some of the sales took place after the assessment period does not seem to us to be of great importance since the period in which they took place was continuous with the assessment period, and shews the trend of the business. We did not think that the gas consumption was of great assistance, in particular because the Appellant himself said in evidence that although it might be some indication, the same amount of gas was used in the dry cleaning machine with only one pair of trousers in it as would be used if there were several pairs. We also took the view that the introduction of the retail price index may have caused a distortion, in view of the actual price increases of which there was evidence. That said, we considered that there was much to commend Mr Ekrem's calculations. We found it difficult to believe that a calculation based upon a very narrow base (142 tickets: less than one week's usage of tickets, according to the Commissioners' average calculation) in 1997 would realistically establish that the Appellant's trade in 1990 was at double the level that the ticket analysis shewed, and at about the same level thereafter. We have to add, that the difficulties in achieving as true a quantum as would be desirable are in a substantial part of the Appellant's own making.
105. The conclusion to which we come, therefore, is that the Appellant should have been registered no later than 1 May 1989, and could not have been deregistered before 1992. Having been compulsorily registered in 1997, he could not be deregistered until some time after that, when it was established that he was trading below the deregistration level. He was therefore obliged to make returns for and account for tax until he was deregistered. But we consider that the level of trading shewn by Mr Ekrem's calculations appears to be as near right as can be achieved, omitting the gas consumption element and the retail price index, but allowing for the price increase in 1997. The assessment should therefore, in our judgment, be amended to reflect such a calculation, and to confine the penalty under section 60 to the suppressions taking place between 1 October 1996 and 31 May 1997.
106. Accordingly, this appeal is dismissed, save for the amendment of the amount of the assessment in accordance with the above paragraphs, to which extent only it is allowed.
107. The Commissioners gave notice in the statement of case that they would be asking for their costs of the appeal. Although the appeal is in principle dismissed, the likelihood is that the Appellant will have achieved a significant reduction in the amount of the tax he has to pay, and in the amount of the penalty. In the light of our findings, we consider that the mitigation allowed by the Commissioners is reasonable, and we would not seek to disturb that. In the circumstances, it was well worth the Appellant's continuing to prosecute the appeal. We consider that justice will be done by our making no order as to costs. However, if either party wishes to be heard as to costs, we give liberty to the parties to apply to the Tribunal. Any such application should be made not later than 42 days after the date of release of this decision.

ANGUS NICOL

CHAIRMAN

RELEASED: 15 October 2004

LON/00/239