19043

VAT ASSESSMENT – whether to best judgment 
CIVIL EVASION PENALTY – s.60 VAT Act 1994

LONDON TRIBUNAL CENTRE

	MOHAMMED ALAL UDDIN and ABDUL BARI	Appellants
trading as Ringmer Tandoori Restaurant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Peter H Lawson (Chairman)
					 	Mr J G Robinson

Sitting in public in London on 13th, 14th, 15th, 16th April 2004 and 8th February 2005

Eamon McNicholas, Counsel,  for the Appellant

Jeremy Hyam, Counsel, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	This is an appeal by Mohammed Alal Uddin and Abdul Bari, trading as Ringmer Tandoori Restaurant against, first, an assessment to VAT in the sum of £49,402 plus interest notified to the Appellants on 11 March 1998 for the periods 1 October 1991 to 31 December 1997 and, secondly, a Civil Evasion penalty in the sum of £44,459 imposed pursuant to section 60(1) of the Value Added Tax Act 1994 for the period 1 October 1991 to 31 December 1997 and notified to the Appellants on 27 March 1998.
2.	The following facts are taken from the Commissioners’ Statement of Case.
3.	The Appellants traded in partnership from Ringmer Tandoori Restaurant, 72 Springett Avenue, Ringmer, Lewes, East Sussex BN8 5QX where they operated a licensed Indian restaurant and takeaway.  The Appellants were registered for VAT with effect from 1 November 1990.  On 19 February 1994 the Commissioners were notified that a third partner had been introduced into the partnership, Mr Suba Miah.  Mr Miah left the partnership on 30 September 1994.  Mr Miah was notified of the assessment and penalty imposed upon the partnership.
4.	We were provided with photographs of the Ringmer Tandoori, both inside and outside.
5.	On various dates between 5 February 1997 and 18 July 1997, officers of the Commissioners carried out covert observations on the restaurant and also carried out test purchases at the restaurant.
6.	On 29 October 1997 a Customs Officer visited the restaurant and uplifted the Appellants’ records for examination.  A comparison between the recorded takings and the notes of observations and test purchases indicated that there appeared to have been some suppression of takings.
7.	On 17 December 1997, Mr Uddin was interviewed by certain Customs officers.  He explained that customers’ orders for meals were noted on a bill and, once paid, the bills were kept in daily bundles.  Approximately once a week, the daily bills were totalled and the daily gross takings figure noted on the relevant bills and cash sheet.  Each quarter the business records were collected by the Appellants’ accountant who calculated the VAT due on sales and purchases.  The VAT return was then completed and returned to Mr Uddin for signature.
8.	After some correspondence between the parties, the disputed Assessment was raised on 10 March 1998 and the disputed Penalty was imposed on 27 March 1998.
9.	The Appellants contend that the Assessment is not to best judgment.  They contend that the Assessment is estimated and excessive because the Commissioners have not, they say, based their assessments in any way on the books and records.
10.	The Appellants also contended that the Commissioners did not take into account adequately the amount of co-operation given by the Appellants.  They had not exercised best judgment.
11.	Although they had not expressly so stated, the Commissioners have assumed that the Appellants also dispute dishonesty.
12.	The Commissioners contended that the Assessment was raised to best judgment and they relied on the following facts.
13.	In February 1997, certain officers conducted external observations of the restaurant and recorded a number of persons seen entering it.  In total 9 sets of customers were seen leaving after having purchased takeaways and 2 customers ate in the restaurant.  Further, an officer purchased a takeaway meal to the value of £7.80 and observed the purchase of another takeaway meal which totalled £22.90.  Subsequent examination of the business records for that day showed that 5 takeaway meals had not been declared and the officer’s test purchase had not been declared in the records either.
14.	On 8 February 1997 officers carried out a test purchase of a takeaway meal in the value of £48.80 and observed the purchase of 2 other takeaway meals which totalled £15.45 and approximately £42 respectively.  A subsequent examination of the business records for that day showed that the officers’ test purchase had not been declared and neither had the takeaway meal worth £15.45.
15.	On 13 February 1997 officers undertook further observations of the restaurant.  They observed 6 sets of customers leaving the restaurant after having purchased a takeaway, and 19 customers eating in the restaurant.  Further, officers purchased a meal in the restaurant to the value of £27.20.  Subsequent examination of the business records for that day showed that the 4 takeaway meals had not been declared and 6 restaurant meals had not been declared.
16.	On 15 April 1997 officers undertook further observations of the restaurant and observed 3 sets of customers leaving with takeaways and 8 customers eating in the restaurant.  The officers purchased a meal in the restaurant worth £26.15.  Subsequent examination of the business records for that day showed that all the takeaway meals had been declared but that the officers’ meal had not been declared.
17.	On 18 July 1997 officers undertook further observations of the restaurant and observed 28 sets of customers leaving with takeaways and 54 customers eating in the restaurant.  The officers purchased a meal in the restaurant worth £34.10.  Subsequent examination of the business records for that day showed that 13 takeaway meals had not been declared and 30 restaurant meals had not been declared.  Further, the officers’ meal had not been declared.
18.	The discrepancies in the officers’ observations and the Appellants’ records were put to Mr Uddin in interview on 17 December 1997.  Mr Uddin denied that any evasion had taken place but was unable to explain the discrepancies, beyond a suggestion that staff might be stealing.
19.	In the absence of any evidence from the Appellants, the Assessment was calculated on the basis of evidence obtained by the officers in the following manner.  For each month of the observations and test purchase exercises took place, all declared bills were used to calculate an average restaurant meal value and an average takeaway meal value for each month.  These values were applied to the suppressed meals noted during the observations to obtain an estimated true takings figure and suppression rate for each night’s exercise.  The four suppression rates were then used to calculate an average suppression rate of 38.7%.  A comparison of the declared outputs and input figures was conducted and this gave no indication of when suppression might have commenced.  However, after an initial large increase in sales, the restaurant’s declared turnover dropped dramatically after the 9/91 period.  Therefore, the estimated suppression rate was applied to the output tax declared by the business since the period 12/91 to estimate the amount of VAT suppressed.  The credibility of the assessment was tested to examine whether the restaurant could turn over the level of business required to support the calculated under-declaration and it was found that it could.  Details of the observations and analyses were contained in a schedule attached to the Statement of Case.  Details of the calculations were provided to the Appellants by letters dated 13 January and 10 March 1998.  The facts and matters upon which the Commissioners relied to show dishonesty were:
(i)	The facts and matters set out in the preceding paragraph, and
(ii)	The Appellants are partners and responsible for the VAT affairs of the restaurant.
20.	Mr Uddin signs most of the VAT returns, totals the daily bills, and enters the sales transactions in the cash book from which the accountant prepares the VAT return.  Mr Uddin has provided no explanation for the discrepancies observed by the Commissioners in their VAT affairs and has produced no evidence which indicates that the Assessment is not to best judgment.
21.	The Commissioners contended that the only reasonable inference to be drawn from these circumstances was that VAT had been evaded, and evaded dishonestly by the Appellants.
22.	The Commissioners also contended that the amount of mitigation provided was reasonable and in accordance with their policy published in Notice 730.
23.	The grounds of appeal were as follows:
 “ The Assessment is estimated and excessive.  They have not based this judgment in any way on books and records of the company.  Calculations given were estimated average costs of meals taking no regard for what might be the true cost of a meal. Taking into account the typical circumstances of running an Indian restaurant, wastages are inherent in drinks and good cooked food.

The penalty assessed did not take into account accurately the amount of co-operation given.  We are of the opinion that the officers did not exercise their best judgment.”
24.	The Appellants provided further particulars of their grounds of appeal by Notice of Application dated 29 November 2000, as follows:- “The disputed decisions of the Commissioners are as follows:
(a)	An assessment of VAT in the sum of £49,402 raised on 11 March 1998 for periods 00 to 31 December 1997;
(b)	A Civil Evasion penalty in the sum of £44,459 notified to the Appellants on 27 March 1998 in the form of a schedule referring to periods 12/97 (6 ¼ years).
25.	The grounds of appeal were as follows:
(i)	The assessment that is referred to above is defective in that it does not show the start and end date of a section of the assessment rendering the entire assessment void.
(ii)	The Appellants do the business of an Indian Restaurant where the main object is to sell curry.  Sale of drinks is incidental to its main business forming anything between 20% to 25% of its total sales.
(iii)	The Appellants give away occasional drinks to promote business.
(iv)	The employees of the restaurant are of Indian origin who are firstly well known for their hospitality and secondly in order to augment their meagre wages of £80 to £100 per week sometimes give away free drinks to get good tips from the customers.
(v)	Members of staff (of Indian origin) are not well experienced in serving drinks.  Because of inexperience they waste perhaps more than what is considered to be average wastage.
(vi)	The Commissioners visited this trader on 2 March 1993 when they concluded that “traders estimation of figures proved credible ... was able to verify that bills obtained from colleagues had been entered and accounted for satisfactorily”.
(vii)	In other visits on 10 November 1994 and 15 March 1995 the officers write “the sales figure on the annual accounts in line with declared outputs ... I/T reclaimed in line with S.R. purchases and expenses.  Achieved m/up according to accounts 105.64 appears credible”.
(viii)	We believe that this time over the officers did not exercise their best judgement in this matter and observations that they relied on do not appear to be credible.
(ix)	We further believe as the whole concept of Value Added Tax is based on documentation, any calculations based on observation and tests meal purchased should be supported by sales slips that the Appellant will invariably supply to customers, if requested.  In this matter the officers did not produce any evidence (sales slips) to the Appellant to back up their claim of non-inclusion of their purchases in Appellants takings.
(x)	The Appellants therefore contend that the assessment asking them to pay without properly mentioning the period covered by the assessment and when the assessment is based on arbitrary claim on non-inclusion of bills is unrealistic, unreasonable and against natural justice.
(xi)	Calculations that we submitted to Customs and Excise are based on facts and should be accepted.
(xii)	In view of an appeal before the Tribunal (Han and Yau) which questions whether Article 6 of the European Convention on Human Rights applies to some penalty appeals we are not putting forward our defence to penalty section of the appeal.
26.	The Appellants’ Defence dated 29 November 2000 was partly as follows:

“The Commissioners visited this trader on 2 March 1993 when they concluded that the “traders’ estimation of figures proved credible” and they were able to verify that bills obtained from colleagues had been entered and accounted for satisfactorily.

In other visits on 10 November 1994 and 15 March 1995, the officers stated that “the sales figure on the annual accounts is in line with declared outputs”.  I/T reclaimed is in line with SR purchases and expenses.  Achieved mark-up according to the accounts appears credible.

We believe the officers did not exercise their best judgment in this matter and that the observations they relied on do not appear to be credible.

We further believe that as the whole concept of VAT is based on documentation, any calculations based on observations and test meals purchased should be supported by sales slips that the Appellant would invariably supply to customers, if requested.  In this matter the officers did not produce any evidence (sales slips) to the Appellants to back up their claim of non-inclusion of their purchases in the Appellants’ takings.

The Appellants therefore contend that the Assessment asking them to pay without properly mentioning the period covered by the assessment and when the assessment is based on arbitrary claims of non-inclusion of bills is unrealistic, unreasonable and against natural justice.

Calculations submitted to the Commissioners are based on facts and should be accepted.

In view of the appeal before the Tribunal in  Han and Yau which questions whether Article 6 of the European Convention on Human Rights applies to some penalty appeals we are not putting forward our defence to the penalty section of the appeal.”
27.	In response to a direction by the Tribunal released on 18 April 2001, the Commissioners provided the following further and better particulars of paragraphs 1 and 3 of the Commissioners’ Statement of Case:

“1.  The Appellants, Mohammed Uddin and Abdul Bari registered as a partnership operating a licensed Indian restaurant and takeaway for VAT purposes with effect from 1 November 1990.

2.  On or about 19 February 1994 the Appellants notified the Commissioners that Mr Suba Maih had joined the partnership.

3.  On or about 6 December 1994 Mr Uddin, the first Appellant, wrote to the Commissioners to inform them that Mr Suba Miah had left the partnership with effect from 30 September 1994, but further stated that the business was then carried on by the two remaining partners, Mr Uddin and Mr Abdul Bari.

4.  The period of assessment was from 1 October 1991 to 30 September 1997, a period of six years.  Mr Miah was a partner of the business when VAT returns for the periods 03/94, 06/94, and 09/94 were rendered.  The liability for each member of the partnership during their tenure as partners was joint and several in respect of the liabilities of the business.
28.	Mr Miah's involvement in the business preceded the investigation into the Appellants’ wrongdoing and he was not interviewed as part of the investigations.  He was, however, notified both of the assessment to tax and the assessment to a penalty.
29.	For the avoidance of doubt, the Commissioners made clear that the notices of assessment for the whole period from 1 October 1991 to 30 September 1997 included the 6 ½ month period when Mr Miah was a partner.  The Commissioners did not make separate assessments for each phase of the partnership, but made an overall assessment which covered each VAT quarter for the business’s trading activity between 1 October 1991 and 30 September 1997.  The Appellants, as partners of the business throughout, were jointly and severally liable for liabilities of the business for the whole of this period.
30.	The Commissioners further clarified the first period assessment, which was notified by letter dated 10 March 1998, the breakdown of the periods of the assessment from the period 12/91 to 12/97 and set out against each period the tax amount liable to a penalty.  In each period there was a reduction of 10% for co-operation and the total penalty (rounded down) came to £44,459.
31.	Witness Statements were made by six Customs Officers, namely Mr Nicholas John West, Mr Mark Webb, Mr Phillip John Mortell, Mr Clifford Charles Reed, Mr Graham John Thew, and Mr John Naylor Sourbuts.  All these officers had separately visited the Ringmer Tandoori Restaurant and the most significant visit was, perhaps, that of Mr Mark Webb on 17 December 1997.
32.	Mr Webb gave Mr Uddin a Civil Warning and Mr Uddin stated that he understood the Warning.  Mr Uddin gave his full name and date of birth, and his home address in London E1.  Mr Uddin confirmed that he was a partner in the business of the Ringmer Tandoori and stated that he had no other business interests.  Mr Uddin stated that he was a waiter at the premises, although he occasionally cooked.  He worked six days a week but had a different day off each week.  He said that his partner, Bari, generally worked on Friday and Saturday as Bari’s two sons worked in the business, one fulltime (5 days) and one part-time (Friday and Saturday).  He stated that he also employed a fulltime cook and a fulltime waiter.  Mr Webb asked Mr Uddin to explain the bookkeeping procedures.  He explained that the bills were collected at the end of the day and kept in daily bundles.  About once a week he adds up the bills and records the daily gross takings on the top of the bills.  He then transfers the daily gross takings onto a weekly cash report sheet.  At the end of each quarter the sheets are passed to the accountant to total the weekly takings.  The firm’s accountant is Mr Hadji Nicolaou who stated that his firm calculates and completes the VAT figures from the weekly sheets.
33.	Mr Uddin stated that whichever waiter receives payment for a meal puts the money into the drawer.  There is no reconciliation between the bill totals and the amount in the till.  Several order pads are in use at any one time and are filled in and totalled by the waiting staff.  Mr Uddin stated that all sales, no matter how small, are recorded on order bills.  The bills from the end of one day might be recorded in the next day’s takings.
34.	Mr Webb showed Mr Uddin micro film copies of VAT returns for the business for the periods 09/91 to 09/97.  Mr Uddin confirmed that all the returns related to his business.  The signature on the returns was his, apart from the 03/93 return which was a poor reproduction, and the 06/97 return which was signed by Mr Bari.
35.	At 14.31 hours on 17 December 1997 Mr Webb formally served Mr Uddin with VAT Notice 730.  The interview was suspended in order for Mr Uddin to read the Notice.  The interview was recommenced at 14.40 hours.  Mr Uddin stated that he understood the Notice.  Mr Webb explained the Notice in depth and did not continue until Mr Uddin again confirmed that he understood the Notice.  Mr Webb asked Mr Uddin whether the figures on the VAT returns were a true declaration of the output tax of the business, the VAT due on sales, and Mr Uddin said “as far as I know, it’s right”.
36.	Mr Webb presented Mr Uddin with the bill pads for 5 February 1997.  From the pads Mr Uddin identified that takings for that day had been £83.95 which represents all the sales of that day.  He also identified his handwriting was on all of the bills.  4 takeaway meals had been sold that day and Mr Webb stated that Customs officers had observed the premises during the opening hours and had recorded that 9 separate takeaways had been sold that day.  Mr Webb showed Mr Uddin a summary of the log completed by the officers observing the premises.  Mr Uddin stated that he would have to make enquiries about the discrepancy as he could not explain it.  Mr Webb pointed out that Mr Uddin had been present that day, and Mr Uddin stated that he might have left before closing time. 
37.	Mr Webb reminded Mr Uddin of VAT Notice 730 and asked if meals had deliberately been left out of the business records.  Mr Uddin denied this.
38.	Mr Webb stated that an Officer entered the premises that night and purchased a takeaway meal, and witnessed a telephone order being made.  Mr Webb presented Mr Uddin with a summary of the purchased and observed meals.  Mr Webb stated that the observed meal had been declared, but the meal purchased by the Officer was not declared.  Mr Uddin stated he had to make enquiries.  Mr Hadjinicolaou asked if they had been declared on the next day’s trading.  Mr Webb replied that he did not think so.

Mr Uddin denied suppressing sales.
39.	Mr Webb presented Mr Uddin with the bills for 08/02/97, and a copy of the cash report sheet for that week.  He identified that the takings for the day were £460.75, and stated that this represented all the sales for that day.  Mr Uddin identified his staff’s handwriting on the bills.
40.	Mr Webb stated that two Officers entered the premises that night and purchased a takeaway meal, and observed two other meals being purchased.  Mr Webb presented Mr Uddin with a summary of the purchased and observed meals.  Mr Webb stated that the meal purchased by the Officers, and one of the observed meals, did not appear to have been declared.  Mr Uddin could not find bills for the two meals but could not explain the discrepancy.  He stated that he would have to make enquiries.  He denied suppressing sales.  He stated that could not be suppressing, as in previous years he nearly lost the business.
41.	Mr Webb presented Mr Uddin with the bills for 13/02.97, and a copy of the cash report sheet for that week.  Mr Uddin identified his and a member of staff’s handwriting on the bills.  Mr Uddin identified that the takings for that day were £221.20 and stated that at the time he totalled the bills, this represented all the sales for that day.
42.	Mr Uddin identified that 2 takeaway meals had been sold that day.  Mr Webb stated that Officers of HMCE had observed the premises during the opening hours, and had recorded that 6 separate takeaways had been sold that day.  Mr Webb showed Mr Uddin a summary of the log completed by the Officers observing the premises.  Mr Uddin could not explain the discrepancy, and stated he had to make enquiries.  He stated that he declared what bills he received from his waiters and said that he could not know what happened before he received the bills.  Mr Webb pointed out that the discrepancy occurred whilst Mr Uddin was present, and that 4 takeaways out of 6 had not been recorded.  Mr Uddin stated that he may have left early.  Mr Uddin repeated that he would make enquiries.
43.	Mr Webb stated that Officers also observed that 19 people entered the restaurant for meals but only 13 covers are declared..  Mr Uddin suggested that, for example, if two people entered, only one of them might eat, and said that this happened frequently.  Mr Webb stated that he did not believe that this happened.  Mr Uddin stated that this sometimes happened if children were involved.  Mr Webb stated that two children entered the restaurant with adults that night.
44.	Mr Webb stated that two Officers purchased a restaurant meal from the premises that night which had been declared.
45.	Mr Webb presented Mr Uddin with the bills for 15/04/97, and a copy of the cash report sheet for that week.  Mr Uddin identified his and staff’s handwriting on the bills.  Mr Uddin identified that the takings for the day were £136.20 and stated that at the time he totalled the bills, this represented all the sales for that day.
46.	Mr Uddin identified that 3 takeaway meals had been sold that day.  Mr Webb stated that Officers of HMCE had observed the premises during the opening hours, and had recorded that 3 separate takeaways had been sold that day.  Mr Webb showed Mr Uddin a summary of the log completed by the Officers observing the premises.
47.	Mr Webb stated that the Officers observed that eight people ate at the restaurant that night, two of whom were Officers.  Mr Webb presented Mr Uddin with a summary of the purchased and observed meals.  He stated that the meal paid for by the Officers did not appear to have been declared.  Mr Uddin could not find a bill for the meal and could not explain the discrepancy.  Mr Webb pointed out that Mr Uddin was present that day, and stated that one table’s meal out of three had been suppressed.  Mr Uddin stated that he did not take notice of how many customers he had.  Mr Uddin denied that the sales of the business had been deliberately suppressed.
48.	Mr Webb presented Mr Uddin with the bills for 18/07/97, and a copy of the cash report sheet for that week.  Mr Uddin stated that on that day he had only been there for a couple of hours.  He identified staff’s handwriting on all the bills, and identified that the takings for the day were £548.75.  Mr Uddin did not know why this would not be all the day’s takings.
49.	Mr Uddin identified that 15 takeaway meals had been sold that day.  Mr Webb stated that he and another Officer of HMCE had observed the premises during the opening hours, and had recorded that 28 separate takeaways had been sold that day.  Mr Webb showed Mr Uddin a summary of the log completed by the Officers observing the premises.  Mr Webb stated that Officers had observed 54 covers at the restaurant that night, but only 24 had been declared.  Mr Webb stated that he and the other Officer had purchased a restaurant meal totalling £34.10 that night, which also did not appear to have been declared.  Mr Uddin stated he would have to discuss the matter with Mr Bari, as he had not been present for most of the day.
50.	Mr Webb stated that on all five days that exercises had been carried out, meals had not been declared.  Mr Webb pointed out that Mr Uddin was present on all but one of the days that meals had not been declared, and asked:

Mr Webb: “Have the takings of the restaurant been deliberately under-declared so as to evade VAT?”

Mr Uddin:  “No”

Mr Webb:  “Can you think of any explanation, at the moment, as to what’s caused this?”

Mr Uddin:  “No, not in my mind, not unless I make enquiries and give the shout on everybody.”
51.	Mr Uddin stated that if he discovered the reason, he would inform the VAT office immediately.  Mr Webb pointed out that he believed the evidence showed that a VAT evasion had taken place, and that little co-operation had been offered so far.  Mr Uddin suggested that one of his staff was responsible for the discrepancy, but could offer no explanation.
52.	Mr Webb pointed out that on the 05/02/97, when Mr Uddin was present, half the bills were missing.  Mr Webb stated that Mr Uddin must have been aware of this, and stated that a VAT evasion must have taken place.
53.	Mr Webb reiterated his concerns over the apparent under-declarations, and asked Mr Uddin if VAT had been deliberately suppressed.  Mr Uddin denied this.  Mr Webb stated that he believed the evidence showed that an evasion of VAT had taken place.  Mr Uddin stated that he would make enquiries as to what had happened, and added that anything that had happened to the bills had occurred before Mr Uddin received them.
54.	Mr Hadjinicolaou, the Appellant’s accountant, asked if any other observations had taken place.  Mr Webb stated that summaries of all observations had been provided.
55.	Mr Webb provided Mr Hadjinicolaou with initial calculations as to the potential VAT arrears.  Mr Webb again asked Mr Uddin if meals had been suppressed.  Mr Uddin stated that they had not.
56.	Mr Uddin stated that he would investigate the discrepancies and provide an explanation.  Mr Webb stated that he believed that a deliberate evasion of VAT had taken place.  Mr Hadjinicolaou stated that the business had gone through a difficult time which had been caused by a competitor.
57.	Mr Webb wrote on 13 January 1998 to Mr Uddin and Mr Bari about the meeting which had been held with Mr Uddin on 17 December 1997.  At that meeting he had requested an explanation of the discrepancies discussed at the meeting of 9 January 1998.  He went on to say that as he had not received an explanation, he had been forced to look at the matter further.  He stated that from the evidence gathered during the observations of the Tandoori premises and the information obtained during his interview with Mr Uddin, he believed there was sufficient evidence to show, on a high balance of probabilities, that an evasion of VAT had taken place.  He then carried out certain preliminary calculations based on the information currently held.
58.	On Wednesday 5 February 1997, 9 takeaway meals were observed and 2 restaurant customers, but only 4 takeaway meals were declared.  The estimated average cost of the takeaway meals was £16.06 and the estimated cost of the restaurant meals was £12.72.  The value of takeaway meals suppressed was £80.30 thus, the total takings suppressed by £80.30 but the takings declared were £83.95, making the total true takings £164.25.
59.	A similar exercise carried out on Thursday 13 February 1997 showed £140.56 till takings suppressed and takings declared of £221.20, making the true takings £361.76.  A similar calculation was made for Tuesday 15 April 1997 where the till takings suppressed were £26.15 as against £136.20 takings declared.  Another exercise was carried out on Friday 18 July 1997 where the takings declared were £548.75 but the true takings were £1,118.82.  Taking all these figures together, the suppression rate was calculated at 45.21%.
60.	Mr Webb then applied this percentage to all the quarterly periods from December 1990 to June 1997 which resulted in total arrears of £66,780.28.
61.	The Tribunal hearing, which took place on 4 days in April 2004, was followed by an inordinate delay and the Tribunal did not re-convene until 8 February 2005.
62.	It was agreed by the parties that the delays were not of the Appellants’ making and that the Appellants should have any costs which were attributable to the delay.
63.	Mr McNicholas stressed that the delay was not of the Appellant’s making and severely prejudices the Appellants.  For example, Mr McNicholas said, the cross-examination of the observation officers, showed that a number had no recollection or note of which way they were facing in the restaurant, so undermining their evidence, and that they had not themselves checked whether their meal bills were in the Appellants’ records, a significant flaw in the Commissioners’ case as there is no record of what items they claim to have uplifted and only selected meal bills had been included by them in a bundle so that it has not been possible to check the claims of missing meal bills at the Tribunal hearing.  Similarly, Mr McNicholas said, a number of control visit reports have been included in the bundle by the Commissioners which, from cross examination of Mr Webb, the assessing officer, played no part in his assessment process.  Thus, Mr McNicholas submitted that it is right and proper for the Tribunal to give the Appellants a significant benefit of the doubt with regard to the evidence, and to weigh it against the Commissioners’.
64.	Due to the delay, Mr McNicholas continued, much of the benefit of the Appellants’ cross-examination of Customs witnesses has been lost.  A key point, however, relates to the global assessment for the period shown as “00/00” on the assessment, the period lost in time of “the big bang period” as it were.  This is significant, Mr McNicholas said, as the assessing officer Mr Webb, gave evidence in cross examination about this on 14 April 2004.  His evidence was that this was what was called a “bulk” period, a single period for 1 October 1991 to 31 December 1994.  The reason for this was related to the Customs’ computer.  Thus, the actual assessment made by Mr Webb had a global period to the end of 1994 and then quarterly periods thereafter.  His letter of 10 March 1998, Mr McNicholas said, was very clearly not an assessment, by quarters, but a letter of intent to assess later as its paragraph 5 clearly shows: “... which will be assessed”.  This is significant, Mr McNicholas continued, as it is trite law that an assessment and its subsequent notification are a separate matter, but whilst a flawed notification can be set right later, an assessment once made has legal effect.  Thus, Mr McNicholas continued, the global assessment for 1991 – 1994 is not legally made into separate quarterly assessments by later correspondence; it does not change its nature.
65.	As to the 00/00 assessment, Mr McNicholas pointed out that Messrs Uddin and Bari trading as the Ringmer Tandoori Restaurant are, for VAT purposes, a separate legal person from Messrs Uddin, Bari and Miah trading as such.  Mr Miah was a partner for several months in 1994 which, due to the notification requirements of Section 45 of the VAT Act 1994, means that the “Miah partnership” was the only one registered for all four periods in 1994, a point which was well known to the assessing officer.
66.	The law on global assessments is well known, the key point in this case being that a global assessment is a single assessment.  The Court of Appeal decision in the case of Bjellica [1995] STC 329 at 338D is authority for an assessment being a unity which cannot be severed or split into parts; if it covers even a day for which the trader was not required to be registered, then it is void.  The case of Glassborrow [1974] STC 142 at 146D is authority for the proposition that A and B in partnership, for VAT purposes, are separate persons from A, B and C.  Thus, the Miah partnership was a different person for VAT purposes from the Uddin and Bari partnership.
67.	Therefore, Mr McNicholas continued, the “00/00” single global assessment covering 1991 to 1994 on Uddin and Bari on the authority of Bjellica is void or fails as it includes 1994 when the separate Uddin and Bari partnership was not in existence and hence not required to render VAT returns.
68.	Consequently, Mr McNicholas submitted, the tax assessments are void and the penalty assessment likewise, not only for 1994 but for earlier periods also as there is no tax due to penalise.  Mr Hyam’s response to this was simply that the Appellants, as partners of the business throughout, are jointly and severally liable for the liabilities of the business for the whole of the period.  The computer generated assessment document which was despatched on 10th or 11th March 1998, containing a 00/00 entry in the first box was, on the evidence of Mr Webb, a computer generated error; the machine in question apparently will not accept earlier figures.  That computer generated document, read alongside the notification of assessment and enclosures sent on 10 March 1998 cannot, Mr Hyam submitted, and we agree, be said to have invalidated the assessment or confused the Appellants.  It is plain that a quarter by quarter breakdown of the assessment had been carried out and notified to the Appellants.
69.	Mr McNicholas submitted that quarterly assessments for periods 03/95 to 12/97 were flawed as omitting legally significant matters going to best judgement.  The 1995 onward assessments, he said, have significant matters omitted such as to undermine the still valid best judgement test in Van Boeckel [1980] STC 290 at 292J that Customs are required to take account of all the material before them.
70.	Mr Hyam responded that these arguments are misconceived because:
(i)	the assessment was properly notified by letter dated 10 March 1998 and the enclosures which, together with the computer generated document dated 11 March, formed the full notification of the assessments, and
(ii)	there was no confusion over the calculation of the assessment or that it was a quarter by quarter analysis.
71.	In House v CEC [1994] STC May J held that the following constituted the minimum requirements which must be contained in a notification:
(i)	Name of taxpayer
(ii)	The amount of tax due
(iii)	The reason for the assessment
(iv)	The period of time to which it relates.
72.	My Hyam said, and we agree, that these were satisfactorily complied with in the present case.
73.	In a partnership case, Mr Hyam submitted, an assessment is validly notified to a partner, if it is notified by either:
(i)	an assessment addressed to the partnership in the name of the firm and sent by post to the partnership’s last or usual place of business (s.45(3) of the VAT Act); or
(ii)	notice may be given to a partner who habitually acts in the partnership business; and the notice concerns any matter relating to partnership affairs; or
(iii)	a copy of the assessment being sent by post to each of the partners, or persons regarded as partners, at their last or usual addresses.
74.	Furthermore, Mr Hyam submitted, if there is a notice addressed to the partnership name in which registration was effected and there is proper service on the partnership in accordance with the Act, that is to be treated as valid service on the partnership (i.e. the current partners) and on any former partners to which sub-section 45(3) apply.
75.	In the present case, Mr Hyam continued, the notification of the assessment consisted in the letter of 10 March 1998 (in particular, paragraph (5) and enclosure 10, together with the computer printout and computer generated “notice of assessment”).
76.	The notification letter was addressed to Mr Rahman, the accountant, agent and representative of the Appellants.  The computer generated “notice of assessment” form was addressed to Messrs Uddin and Bari, trading as the Ringmer Tandoori Restaurant.  The registration number 550 5754 43 on both documents signifies that it is the partnership which is being assessed.  Thus, Mr Hyam continued, a valid s.45(3) notification of assessment was effected on the partnership on 10th and 11th March 1998 and the assessment is valid.  We agree.
77.	Mr Hyam referred to the Appellants’ apparent reliance on Bjellica  v CEC [1995] STC 329 and Glassborrow v CEC [1974] STC 142.  They do not, Mr Hyam said, assist the Appellants.  In the first case, Bjellica, s.45 of the Act did not assist because it was not a partnership case and, therefore, not affected by s.45.   The issue was whether an assessment for late registration made against an individual failed if the Appellant had only failed to make returns in respect of part of the period assessed.  In the present case, the Commissioners did not seek to sever the assessment.  On the contrary, the Commissioners’ case was that the assessment was properly notified on the partnership and that such notification was effective on all the partners, past and present, under s.45(3).
78.	In Glassborrow, May J held that “in my judgment s.45 is permissive and procedural only and once a firm’s name has been registered the effect of the registration is as though the names of all the individuals trading under that name from time to time were recorded.”
79.	Section 45(2) – (4) VATA 1994 made fundamental changes to the substantive law relating to the manner in which assessments may be made on partnerships.  In this respect Glassborrow, as was made clear in the case of Bengal Brasserie [1991] VAT TR210 is no longer good law in this respect.
80.	Therefore, Mr Hyam continued, the Commissioners contended that:
(i)	the assessment was validly notified on the partnership;
(ii)	by s.45(4) any notice, whether of assessment or otherwise which is addressed to a partnership by the name in which it is registered by virtue of sub-section 1 and is served in accordance with the Act, is to be treated for the purposes of the Act as served on the partnership and accordingly, where sub-section 45(3) applies, as served also on the former partners;
(iii)	s.45(4) is specifically stated to be without prejudice to s.16 of the Partnership Act 1890 (notice to acting partner to be notice to the firm); in other words, and insofar as notice was not properly served on the firm, notice to an acting partner in the firm should be treated as notice to the firm.
(iv)	there is no procedural, or other reason, why the assessment should not be upheld in full.
81.	The notice of appeal did not expressly deny dishonesty but rather questioned the “best judgement” of the assessment under s.73.  Dishonesty was denied in the course of evidence, but there is no realistic basis for disbelieving the evidence of the officers who visited and made contemporaneous notes of their visits and observations.  Cross examination of these witnesses did not diminish the weight of their evidence at all.
82.	On the basis of the observations made by Mr West, Mr Webb and others, and their oral evidence, there could be no real doubt but that the level of trade was suppressed by the business.  No explanation for the large disparity between the observed meals and the declared meals has been given.  The Commissioners say that the only explanation is dishonesty by the Appellant partnership, in particular Mr Uddin, who had hands-on control of the business.
83.	As was noted in opening, at a meeting held on 22 May 2000, the Appellants through their accountant put forward alternative figures based on a mark-up analysis giving an overall suppression figure for the year 1997 of £657.73.  Those figures were rejected by the Commissioners, not least because the amount of observed suppression by the Commissioners over 4 days, £812.48 exceeded the figure for the whole year suggested by the Appellants’ accountants.  In the course of the hearing, reliance on this mark-up exercise was abandoned by the Appellants.
84.	For the reasons set out in their Statement of Case (as clarified by the Further and Better Particulars) the Commissioners contended that their assessment was to best judgement and the dishonesty penalty properly imposed pursuant to sections 60(1) and 76 of the VATA 1994.
85.	Mr Hyam referred separately to Mr Uddin, who gave evidence.  In short, Mr Uddin made an unimpressive witness, lacking in credibility, who sought to explain the large discrepancies between the observed numbers of customers and those declared, by either blaming members of staff or miscalculation by the officers (although there was nothing to support this) or, that the officers’ account of the number of customers was an exaggeration.  In particular it was notable how he repeatedly insisted that the restaurant was never full in all its years of trading, a fact directly contradicted by Mr Webb’s note to the effect that the restaurant was turning customers away on the Friday night of observations.
86.	In fact, as the evidence demonstrated, Mr Uddin had a hands-on day-to-day control of the business and it was his handwriting on many of the bills.  The evidence put forward by him fell well short of providing any, or any adequate, explanation for the discrepancy in meals declared in the business records, and those in fact observed by the officers.  As the person responsible for the management of the business, the collection of bills and declaration of takings, the only credible explanation for the discrepancy in takings was organised dishonest suppression by the partnership.
87.	The standard of proof of dishonesty is the balance of probabilities – see First Indian Cavalry Club [1998] STC 293.
88.	The Commissioners contended that the Appellant had been dishonest for the reasons set out in the Witness Statements and the Statement of Case, in particular paragraph 9.  An explanation of the serious discrepancies revealed by the test purchases and observations had been promised but had not been forthcoming.  Mr Uddin himself completed the bills and the daily takings book on 5 February 1997, 13 February and 15 April (in each case with other waiters).  On 18 July 1997, although not present for the majority of the day, Mr Uddin identified the handwriting as that of staff.
89.	The test of dishonesty bears the meaning that was given to it where it appears in the Theft Act 1968 by the Court of Appeal (see R Dhosh[1982] 2All ER 689 per Lord Lane LJ: “It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest even if he asserts or genuinely believes that he is morally justified in acting as he did”.
90.	In the present case, Mr Hyam continued, no “moral justification”, let alone proper explanation, has been given for the level of suppression or the non-payment of VAT as and when it was due.  To persist in a course of conduct which they knew or must have known was considered to be dishonest by the standard of ordinary people is clearly evidence of dishonesty.  We respectfully agree.
91.	The deliberate suppression of takings, Mr Hyam continued, is probative of dishonesty.
92.	The Commissioners relied, Mr Hyam continued, upon:
(i)	the facts and matters set out in paragraph 9 of the Statement of Case
(ii)	the Appellants’ position in the business, i.e. partners who are responsible for the VAT affairs of the business.  Mr Uddin signs the majority of the VAT returns, totals the daily bills, completes a large number of the bills themselves, and enters the sales transactions in the cash book from which the accountant prepares the VAT returns.  In the case of the 5 February observation, it was Mr Uddin who signed all the receipts.
(iii)	no explanation has been given for the discrepancies. 
(iv)	no evidence produced by the Appellants demonstrates that the figures relied upon by the Commissioners for the purpose of the assessment are not to best judgement.  Such evidence as has been produced, e.g. the mark-up exercise, is unreliable, and simply incredible when set against the observed discrepancies and suppression.  Indeed the Appellants seemed to abandon any reliance on the mark-up exercise in the course of the hearing.
93.	The system operated by the Appellants was reckless, Mr Hyam continued; for example there were no numbered bills and the system seemed designed to facilitate suppression.  Although recklessness is not itself equivalent to dishonesty, it may well be evidence of dishonesty.  See Stuttard v C&E [2000] STC 342.
94.	For the above reasons, Mr Hyam contended for the Commissioners that the Appellants’ appeal against the assessment and Civil Evasion penalty should be dismissed.  The assessment was made to best judgement, he said, it was properly notified and the penalty was properly imposed.  
95.	In reply, Mr McNicholas said that the partnership name is just shorthand, a collective noun, for different groups of people.  The Glassborrow case [1974] STC 142 shows that it is “persons” who should be registered for VAT and not the business or businesses which they might carry on.  The case of Yarl Wines, where it was held that individuals were not liable for tax and penalties before they became partners, was distinguishable.
96.	As a matter of fact, Mr McNicholas said, what did Mr Webb assess?  The figures were calculated quarterly.  The calculation is a necessary step but it is not the making of an assessment itself.  Mr Webb said it was a bulk or global assessment but there was no contemporary explanation, and Mr Webb made a bulk assessment in fact.           
97.	Our Conclusions:
(i)	The assessment was valid and was validly notified to the partnership.
(ii)	Mr McNicholas referred to the omission in the assessment of the inputs necessary to produce the extra outputs which the Commissioners claim to be due, the most important one being input VAT on drink.  We find that there is no evidence to suggest that the extra outputs would have been produced by the sole purchase of drinks; therefore we cannot consider the related inputs.
(iii)	There was also a fifth observation undertaken on Saturday 8 February 1997 which was omitted from the Customs suppression calculations because there were no lengthy observations and there was only one test purchase, which took a few minutes.  Mr McNicholas also said that 5 February should be taken into account at a nil figure or included in the suppression weighting calculations. This day was not supported by Officer Thew’s evidence and Mr McNicholas submitted that it is not satisfactory or just in a penalty case for Customs to lead incomplete evidence to the traders’ detriment and, therefore, in fairness this day should be excluded.  We disagree because we consider that Mr Thew’s witness statement was evidence on which we can rely as it was supported by Mr West at the Tribunal hearing.
(iv)	Further, Mr McNicholas pointed out that Customs have left in their calculations a number and value of the Officers’ test meals which would artificially inflate the several years in which the test days are extrapolated.  He suggested a broad brush approach, being an under-estimate rather than an over-estimate by reducing the suppression rate from 38.7% to 36.77%.  This is an allowance of 5%.
(v)	Next, Mr McNicholas stated that dishonesty is denied and the Customs case is at its best significantly flawed and no safe basis for a penalty.  Having regard to the rate of suppression, which was 38.70%, we cannot accept Mr McNicholas’s suggestion that there was no dishonesty and that the Customs case was at its best “significantly flawed” and no safe basis for a penalty.  Our view and decision is that there was a clear basis for finding dishonesty in this case, and that the penalty imposed was fully justified.
98.	Mr McNicholas asked that, insofar as any assessments, tax or penalties, were vacated or reduced then the Appellants should be awarded a percentage of their costs.
99.	We award the Appellants their costs in full of, and occasioned by, the vacated hearing in November 2004 but no further costs.
100.	Subject only to the above direction as to the November 2004 costs the appeal is dismissed.

PETER H LAWSON
CHAIRMAN

RELEASED: 11 April 2005

LON/98/0624