Tharmalingham  (t/a MK Food & Wine) v Customs and Excise [2005] UKVAT V18932 (28 January 2005)

18932

Assessment – Whether Appellant commenced trading in December or January – Whether assessment to best judgment – Appeal dismissed

LONDON TRIBUNAL CENTRE

	YOGARAJAH THARMALINGHAM	Appellant
T/A M K FOOD & WINE

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	   MISS J C GORT  (Chairman)
						   MRS E MACLEOD

Sitting in public in London on 6 December 2004

Miss S Ayub of counsel, for the Appellant 

Mr J Holl of the Solicitors Office of HM Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	This is an appeal against a notice of assessment for value added tax dated 17 September 2003 in the sum of £13,483 for the period 01/10/02 to 30/06/03 made under the provisions of section 73(1) of the Value Added Tax Act 1994.

The Legislation

2.	The assessment was raised under the provisions of section 73(1) of the Value Added Tax Act 1994 (the 1994 Act).  Section 73(1) provides:

73(1)	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.

3.	Section 83 of the 1994 Act provides that an appeal shall lie to a tribunal with respect to:

(p)	An assessment – 

(i)	under section 73(1) …

or the amount of such assessment.

The issues

4.	The Appellant disputed that he was trading during the period 01/10/02 to 31/12/02.  He claimed that the Respondents had not assessed the tax due to the best of their judgment and the amount assessed was too high in respect of all the periods.  The issues for the Tribunal were:

(1)	Whether Customs and Excise assessed the amount of tax due to the best of their judgment under section 73(1); and

(2)	Whether the assessment should be reduced under section 83(p).

The evidence

5.	The Appellant himself gave oral evidence and the assessing officer, Mr J M C Cordwell, a VAT assurance officer based in Stratford, London gave evidence on behalf of the Respondents. 

6.	A bundle of documents was produced on behalf of Customs and Excise which contained inter alia copies of documents seized from the Appellant’s premises and correspondence between the parties.

The facts

7.	From the evidence before us we find the following facts.

8.	The Appellant was registered for value added tax with effect from 09/08/02.  he had registered on the advice of his accountant and the address given was that of MK Food and Wine in Ilford in Essex which was given both as the Appellant’s address and as the principal place of business.  His estimate of the value of his taxable supplies in the next twelve months was £82,000.

9.	The business was an off-licence and grocery store trading as “ M K Food and Wine” and was transferred as a going concern from the previous owner Mr K Chandramohan.

10.	The Appellant contended that he did not commence trading from that address until 8 January 2003.  Mr Chandramohan notified the Commissioners on Form VAT 7 that the transfer took effect from 19 December 2002.  The date on which the Appellant commenced trading was an issue for the Tribunal.

11.	On 7 May 2003 two officers of the Commissioners, Mr Cordwell and a Mr Gray visited the Appellant’s premises as part of a local exercise involving off-licences.  As at that date the Appellant had only submitted one VAT return for the period 03/03 which had been received by the Respondents on 1 May 2003.  This was a repayment return in the sum of £50.01.  Mr Chandramohan had submitted a return which he had signed on 27 February 2003 for the period 1 November 2002 to 19 December 2002.  He had also submitted returns in respect of M K Food and Wine for the periods 07/02 and 10/02.  There was no dispute between the parties that the Appellant was not trading prior to 19 December 2002.

12.	During the visit on 7 May 2003 Mr Cordwell uplifted a ‘Z’ reading which was taken on that day.  Three books were uplifted from the premises : a W H Smith’s exercise book (the WHS book), one refill pad and a third book.  The WHS book recorded sums of money on a daily basis commencing on 20 December 2002.  Each day was divided into two columns with headings ‘outgoing’ and ‘incoming’.  There were also references to ‘bank’ with sums of money underneath.  The final date in the book was 12 February 2003.  

13.	In addition to documents relating to the business the officers were not satisfied that a quantity of excise goods, beer, wine and spirits had been obtained from legitimate, duty paid, sources and, as the Appellant could not produce satisfactory evidence of tax payment, the goods were seized and a seizure information notice and seizure of excise goods warning letter were issued to the Appellant. 

14.	The officers were accompanied by a licensing officer of the Metropolitan Police at the time of the visit.  No counterfeit brands were found.  In addition to the receipts for goods purchased in France and on the ferry, there was also found a document relating to car rental in the name of Hayurathan Vaithiyanathan.  This showed the car went out 4 May 2003 and was due back on 5 May 2003.  There was a receipt for goods purchased on a P&O ferry on 5 May 2003 in the sum of £103.42 and goods purchased in Calais in the sum of Є344.20 paid by bank card.  There were further receipts for 5 May, one for beer purchased in Calais in the sum of £35.28 and the other again from the P&O ferry on 5 May for various spirits in the total sum of £123.42 paid for by an American Express card.  

15.	The Appellant was not at the shop when the officers arrived, but his brother was and he informed the officers that he himself was the licensee of the premises.  The till had been acquired with the shop.  The officers were also told that phone cards were kept in a separate box and there was a separate box for money received in respect of the phone cards.  Documents relating to three different bank accounts were found.  One was in respect of a Lloyds account which was solely used for business.  The other accounts were used for personal matters.  There was also an old paying-in book which was not seized by the officers, which related to a different account.

16.	At some point the Appellant himself came in and was spoken to by Mr Cordwell.  He told Mr Cordwell that some of the goods had come from a man in a van and he had no receipts in respect of those goods.  Although it was not noted on the form completed by Mr Cordwell at the time of his visit, it was Mr Cordwell’s evidence, and we accept that evidence, that the Appellant told him that the goods on the invoices from France related to goods which he had purchased from the man in the van.  We do not accept the Appellant’s evidence to us, but not at any time told to the officers, that he himself had travelled over to France on 5 May and had purchased the various goods on the receipts himself for a party he was giving for his wife’s birthday and all those goods were at his home and were not in the shop at the time of the officers’ visit.

17.	Mr Cordwell subsequently wrote to the Appellant requesting all the records from the start of the business. There had been no till roll or “Z” readings available at the time of the visit and he had been told by the Appellant that he was not keeping them.  The Appellant sent various bank statements for the three different accounts, but did not send all the relevant statements.  The Appellant subsequently wrote stating that he had already sent the takings record and purchase invoices, but had no Z readings as he had only been keeping a manual record of takings since the officers’ visit. He had not been able to send all the bank statements, but had requested copies of the missing ones from the bank.  No purchase invoices were produced and the Appellant was asked to provide them on or before 9 June 2003.

18.	Mr Cordwell arranged a meeting with the Appellant on 7 July 2003.  Notes were made in the course of that meeting and the three books taken from the shop at the time of the officers’ visit were shown to the Appellant who said he did not know about the books and that his brother did everything in the shop.  His brother took the Z readings and ran the business.  The trader went to the Cash and Carry, but the brother did the book work, although it was also said that the brother could not write in English. At this time the Appellant told the officer that the takings were between £3,000 and £4,000 in a week, whereas in his evidence to us he said that the takings were £5,000 per week.  At the outset of the interview the Appellant told Mr Cordwell that he had taken over the shop on 8 January 2003.  The officer subsequently told the Appellant that he did not believe he was declaring his true takings. Although the Appellant had said he knew nothing about the books which had been found in his shop, and he confirmed this in his evidence to the Tribunal, nonetheless at the close of the interview he had asked the officer if he could take out the last page of the loose leaf  book which contained telephone numbers which he needed.  

19.	Following the meeting on 7 July, Mr Cordwell wrote to the Appellant on 8 July 2003 setting out his findings from the three books taken from the premises, the fact that the WHS notebook starts from 20 December 2002 which coincided with the fact that the previous owner stated that he had stopped trading on 19 December 2002 and an analysis of the Z readings taken on 7 May 2003.  Mr Cordwell concluded that the business was enjoying an average weekly turnover of approximately £5,500 and that the Appellant had been trading since 20 December 2002.  He asked the Appellant for proof that he did not start trading on that date and his comments regarding the expected weekly turnover of £5,500.  

20.	The Appellant did not reply to that letter and on 28 August 2003 Mr Cordwell wrote stating that he would be raising an assessment in the sum of £13,434.15.  This was based on information taken from the WHS notebook, the amount declared on the Appellant’s VAT return for the period 03/03, which showed 85% as standard rated sale, and making an allowance of that same percentage for the period 12/02, but making no allowance in the period 12/02 for input tax as Mr Cordwell believed the sales related to goods purchased with the business.  The Appellant’s own taking sheets for the period 03/03 showed takings of £43,462.97 which was more than had been declared on his VAT return for the same period.  He had therefore used this figure when applying the suppression rate.  

21.	The assessment was then issued on 17 September 2003.  On 22 September 2003 the Appellant wrote to Mr Cordwell informing him that he had been in prison from 10 July 2003 until 8 September 2003 and this was why he was unable to produce the information and documents required in time.  In that letter he also stated:

“With regard to your suppression rate calculation you have indicated that WHS notebook shows £11,931.37 and my takings sheet show £7,932.69.  This is due to the fact that we have recorded all the sales in the book and shop sales and phone card sales.  But we do not enter phone card sales in the till.  This is the difference in the figures and not due to suppression of sales figures.

Also you have mentioned that the WHS book indicated sales figures from 20 December 2002 to 07th January 2003.  I did mention at the time that I am using the same book as my previous owner and I have carried on from old owners sales record book.  I enclose herewith a letter from my solicitors to confirm that the completion took place on 8 January 2003.  How could I takeover and do sales from 20 December 2002.”

A letter from S. Satha & Co, solicitors, was enclosed with that letter confirming that the Appellant had bought the premises on 7 January 2003.

22.	In his evidence to the Tribunal the Appellant stated that he had tried to contact the former owner by going to the address in Birmingham which he had.  He had not found him there and nobody knew him.  He had not written to the man, and he had no telephone number.  He had not, however, attempted to contact him at the Luton address which was, together with a telephone number, shown on documents provided by the Respondents to the Appellant prior to the hearing of the appeal.

23.	Further correspondence ensued between the parties in which Mr Cordwell stated that he did not accept the Appellant’s argument as to the phone cards, nor that he only started trading on 8 January 2003.  A review was carried out of his assessment and the assessment was upheld by the review officer.  

The Respondents’ case

24.	The Tribunal was referred to the tribunal decision in the case of Curry Inn Restaurant Decision No. 15742  paragraph 42 where it was stated:

“From the decision in Van Boeckel we derived three principles.  First, there must be some material before the Commissioners on which they can base their judgment.  Secondly, the Commissioners are not required to do the work of the taxpayer in order to form a conclusion as to the amount of tax due.  Thirdly, 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.  From the decision in Rahman we derived three more principles.  Fourthly, the Tribunal should not treat an assessment as invalid mainly 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’.  Fifthly, if the assessment is shown to have been wholly unreasonable or not bona fide there would be sufficient grounds for setting it aside but that kind of case is likely to be extremely rare.  Finally, in the normal case it should be assumed that Customs and Excise have made an honest and genuine attempt to reach a fair assessment; the debate before the tribunal should be concentrated on seeing whether the amount of the assessment should be sustained in the light of the material then available.”

25.	The Commissioners relied on the strong circumstantial evidence as to when the Appellant first started trading, and the fact that it was not necessary for the Appellant to have purchased the premises prior to starting trading from them.  

26.	Mr Holl pointed to the inconsistency between the Appellant’s records from 8 January with those shown in the WHS book for which there was no explanation from the Appellant.  

27.	It was further the case that the Appellant had registered for value added tax in August 2002 and had plenty of time to acquaint himself with the requirements of value added tax.  He had not kept proper records, which was a necessary part of the VAT regime.  

28.	The bank statement produced which started around December 2002 pointed to the fact that the business was taken over as a going concern.  Furthermore the Appellant had had all the documentary evidence in the case for a considerable time prior to the hearing of the appeal and could have approached the previous owner or provided other evidence that he did not start trading until 8 January 2003.  This had not been done and the assessment had been raised to best judgment.  It would however be possible, on the production of the appropriate records, for the Commissioners to revisit the period 06/03.  

The Appellant’s case

29.	It was submitted that the tribunal decision in the case of the Curry Inn Restaurant was not a precedent which bound this Tribunal.  Whilst it was accepted by Miss Ayub that there was no question that the Respondents had acted vindictively, nonetheless they had not taken everything into account.

30.	The Appellant had corresponded with the Commissioners and had attended their offices and answered their questions.  He had provided documents and bank accounts.  He had been candid, although it was accepted he had not kept the records as he should.  He had remedied that position when he had been told to keep records.  

31.	The Appellant’s evidence was clear that he only took over the running of the business from 8 January 2003, having obtained the keys on 7 January 2003.  It would be very unusual for him to have been let into the premises until he had paid for them.  The bank statement showed a money transfer on 24 December 2002 which was the loan used for the purchase.  

32.	The Appellant had no knowledge of the books which were taken from the premises.  The fact that he was aware there were telephone numbers in one particular book was not evidence that the book belonged to him.  There was no direct evidence that the Appellant started in business prior to 8 January 2003.  

33.	It would not have been unusual for the previous owners to try to increase the value of the sales prior to selling the property in order to increase the value of the property.  The Appellant had tried to locate the previous owner by travelling to Birmingham.  If he had in fact been minded to suppress the takings, why were the books left where they could be seen?  Why would he create his own takings sheets which contradicted those records? 

34.	It was suggested that it was implausible that the officer would remember everything that had been said at those particular premises given how busy he was.  There was nothing to undermine the Appellant’s assertion that he himself had obtained the goods bought on the ferry.   It was inconceivable that he would keep those goods on the premises in case they fell into the hands of the officers.  

35.	It was submitted that the assessment should be reduced by one-third of the amount.

Reasons for decision

36.	Whilst Miss Ayub is correct in that the decision of the tribunal in the case of Curry Inn Restaurant is not binding on us, the two authorities cited by the chairman in that case, Van Boeckel v Customs and Excise Commissioners [1981] STC 290 and M H Rahman (trading as Khayam Restaurant) v Customs and Excise Commissioners [1998] STC 937 are binding on us, and we accept the analysis of those cases by the tribunal in the Curry Inn Restaurant case.

37.	It was properly accepted by Miss Ayub that there was no suggestion that the Respondents had acted vindictively in this case.  We find that there is no evidence that they acted either dishonestly or capriciously either. The Commissioners were perfectly entitled to base their judgment upon the material which they had. On the balance of probabilities we find that there was trading from M K Food & Wine between 19 December 2002 and 8 January 2003.  That trading was not carried on by the previous owner but was carried on under the auspices of the Appellant.  Whether he himself was present and trading is not a matter we have to decide.  His brother was said to have the day-to-day running of the shop in any event.  We did not hear from this brother who perhaps could have thrown light upon the presence of the books which apparently recorded takings from the shop in that period and subsequently.  We consider it quite reasonable for the Commissioners to have made a judgment on the material available to the effect that trading was carrying on and that there had been suppression of takings by the Appellant subsequently. 

38.	With regard to the amount of the assessment, given that we accept that the business was trading as from 19 December 2002, and that we accept that the WHS book records takings from the store, the only evidence before us which might allow us to reduce the assessment is the Appellant’s oral evidence, however, we did not find him to be a reliable witness. It would have been possible for him to have made far more extensive enquiries of the previous owner of the business than he did. We do not accept his account of  purchasing a large quantity of alcohol for his wife’s birthday, this alcohol being kept at his home.  This was not the account given to the officer at the time of the visit, when he had said that the amounts shown on the invoices were purchased from a man who had come in a van.  Different accounts were given by the Appellant in correspondence and in his evidence as to his knowledge of the WHS book.  We do not accept his evidence with regard to the amount of takings from the sale of phone cards which was not given at the time of visit.  The amount of takings given in evidence by the Appellant as being £5,000 per week is different from the amount he had earlier stated of £3-4,000 per week, and is nearer to that of £5,500 per week which the Commissioners had used in their assessment.  We find that the Commissioners took all relevant matters into account when making their assessment, and find no basis for reducing that amount.

39.	In all the circumstances we did not find the Appellant to be a reliable witness and we uphold the assessment.

40.	This appeal is dismissed.  No order for costs.

MISS J C GORT
CHAIRMAN

RELEASED: 28 January 2005

LON/03/1200