ASSESSMENT — Pizza shop — whether misdeclaration as to balance of standard-rated and zero-rated sales — whether assessment of Respondents made to best judgment — VATA 1994 Section 73

MANCHESTER TRIBUNAL CENTRE

 
 	
		Appellant
	MR BAHRAM TELEFONI

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Mr J H Fryer-Spedding (Chairman)
						Mr R Presho (Member)	

Sitting in public in Newcastle-upon-Tyne on the 24 January 2001 and 24 March 2003

The Appellant appeared in person on 24 January 2001

 Mr R Toone of counsel instructed by the Solicitor for HM Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2003

DECISION

1.	On the first day of the hearing the Appellant appeared in person and gave evidence.  Also on that day, Mr L N Terry and Mr M D Usher gave evidence on behalf of the Respondents.  We adjourned the hearing because the Appellant said that he wished to call three witnesses, statements from whom he had produced, but these witnesses were not present.  Mr Toone, for the Respondents, said that the Respondents could not agree to these witness statements being put in without the witnesses attending.  He also indicated that if the witnesses were to attend on another day, then the Respondents would wish to call Mr D G Roberts to rebut the evidence of those three witnesses of the Appellant.  We agreed to an adjournment  to a date to be fixed to enable this further evidence to be adduced. 

2.	A date in January 2002 was fixed for the adjourned hearing.  Unfortunately, however, this had to be cancelled because of illness in the Chairman’s family.  The hearing subsequently continued on 24 March 2003.  We enquired at that stage why it had taken so long to fix the second day of the hearing but nobody present in court was able to explain this.  Mr Telefoni did not appear on 24 March 2003 nor did any of his witnesses.  We resolved to proceed under the provision of Rule 26(2) of the Value Added Tax Tribunal Rules 1986.  On that day, Mr D G Roberts was called on behalf of the Respondents and gave his evidence.

3.	This appeal is made against an assessment to Value Added Tax of £29,105 together with interest of £3,249.04, issued on 21 April 1999.  The appeal was also made against a misdeclarational penalty of £3,767, notice of which was issued on 7 July 1999. By a notice of appeal dated 6 October 1999 the Appellant appealed against both assessments.  By an amended assessment issued on 16 May 2000 the assessment of tax was reduced to £28,865 and the penalty was subsequently reduced to £3,391.

5.	The Appellant registered for the purposes of Value Added Tax with effect from 1 June 1992 and subsequently carried on business as a hot food takeaway shop from premises at 40, The Precinct, Wesley Court, Blaydon, Tyne-and-Wear.

6.	In autumn 1998 Mr Usher and other officers of the Respondents noted that the Appellant’s business had shown approximately 25% of its sales to be zero-rated.  Their previous experiences indicated that this was greatly in excess of the level of zero-rated sales that they would have expected from this type of establishment.  Subsequently, after June 1998 the zero-rated sales dropped to about 7%.  The Appellant said that this was because he stopped selling cold pizzas.  He said this was because he had had one or two complaints about the quality of the cold pizzas.  He thought people who had asked for cold pizzas would probably buy hot pizza’s instead.  He denied that the change was due to his accountants Messrs A K B Ashby, who had been involved in another similar case, advising him to examine his standard and zero-rated split.

7.	In July and August 1998 the Blaydon shopping precinct was refurbished but this does not appear to have affected the Appellants takings.  On 17 September Mr Roberts visited the Appellants premises.  He was unable to obtain a copy of the menu, but he noted that the menu board showed the only zero-rated items as certain side salads selling for 90p and deserts ranging from 80p to £1.10 in price.

8.	On 23 October 1998 Mr Terry visited the offices of Messrs A K B Ashby  & Co and collected the Appellant’s business records.  He noted that no meal bills or delivery books had been retained.  He prepared a schedule of stock purchases for VAT periods 04/98 and 07/98.  He could find no reason why the zero-rated sales had dropped from about 25% to about 7%, when there had been no fluctuation in the purchasing patterns.  On 6 October 1998 Mr Roberts had again visited the Appellant’s premises.  He ordered a pizza costing £4.50.  This was not written on a meal slip but was rung into the till.  He could see on the back wall of the shop a notice that read “Any sandwiches in pita bread with salad two toppings”, and below it another sign saying “Only £1.50”.  The signs had been placed to cover up all but 2 top desserts and additional menu poster.  He had not seen these signs on his previous visits to the shop.  Mr Roberts had seen menus, on occasions having either checked them from the shops or having had them pushed through his door.  Mr Roberts had used the Appellant’s shop from February 1993 until October 1998.  He lived about 200 yards away from it.  He used the shop about 3 or 4 times a month during that period.  If ordering a pizza, he would be in the shop between 10 and 15 minutes or between 4 and 5 minutes for a kebab.  He never saw a cold or frozen pizza being offered for sale.  Mr Roberts knew the business reasonably well.  He said that there were not features to indicate a high zero-rated business.  He never saw desserts being sold.  On one occasion he had seen a man and a woman ordering a pita bread and salad and cheese. 

9.	On Monday 30 November 1998 Mr Usher and his colleague Mr B Bonham visited the Appellant’s premises.  Mr Usher explained to the appellant the concerns which the Respondents had in relation to the Appellant’s zero-rated sales and informed the Appellant that they wished to remain on the premises to observe the trade in order to evaluate the accuracy of the Appellant’s VAT declarations.  The Appellant agreed to this course and advised his staff accordingly.  Mr Bonham recorded the time and detail of all the sales made during the course of the evening.  The Appellant himself was not on the premises for a large part of the evening.  Three members of the staff including the Appellant’s son conducted the business.  The takings were £215.35. Zero-rated sales were £9.40, being 4.36% of total sales. 

10.	On 3 December 1998 Mr Usher and Mr Bonham again returned to the Appellant’s premises to carry out his second evening of trade monitoring.  When they arrived at 5 pm the Appellant was not present but his son was in the shop together with another member of the staff.  The son telephoned his mother to ask his father to telephone the shop when the Appellant returned home.  The Appellant’s son informed Mr Usher that his mother had said that Mr Usher and Mr Bonham could not stay on the premises until they consulted the Appellant.  Accordingly Mr Usher and Mr Bonham waited outside until 5:32 pm when the Appellant’s son came out of the shop and said that his father was on the telephone.  Mr Usher informed the Appellant that he wished to monitor the trade again in order to get a more representative idea of the trading pattern.  The Appellant stated that he did not want the officers on the premises since the staff had been “uncomfortable with their presence on the Monday night”.  Mr Usher said that the staff had shown no sign of this on the Monday night and had been friendly and relaxed.  Mr Usher then informed the Appellant that of he would not allow the officers to stay on the premises they would have to proceed on the basis of the evidence taken on the previous visit which would necessarily be in the Appellant’s best interest.  The Appellant was adamant that they should not remain on the premises.  The Appellant said that had taken this line because he was tired and he had said the officers could come again when he was working.

11.	On 29 January 1999 Mr Terry wrote to the Appellant to inform him that an assessment would be raised on the basis of the Appellant’s zero-rated sales being 4.63% and upon the footing that total sales over the period of this assessment, 1 February 1996 to 31 January 1999, had been suppressed by 49%.

12.	By a letter dated 12 February 1998, the Appellant wrote to Mr Terry to inform him that the sales figures were high on 30 November 1998 because the precinct had been modernised and because customers on that night were attending a karaoke pub night.

13.	On 23 March 1999 the Appellant deregistered and sold the business.  

14.	By a letter dated 12 April 1999, Mr Usher informed the Appellant that he had examined the records of two other local businesses and that the Blaydon precinct refurbishment did not appear to have affected their position.  As regards the karaoke night, Mr Terry said that he had examined Mr Usher’s note book which recorded the time and value of every sale made on 30 November 1998 and that it showed that over the counter sales from 9 pm onwards amounted to only £15.85.  He also said that the notebook showed that the Appellant’s delivery driver had taken an incoming telephone call on that evening and that the delivery driver had said “Just ticking over, a normal Monday”.

15.	Following the above negotiation, the assessment was made on the basis of the sales for the sales for the assessment period being 95% standard-rated.  

16.	We formed the view that the officers of the Respondent’s in this case gave cogent and reliable evidence.  The evidence of Mr Roberts, given on the second day of the hearing, was not, of course, challenged.  We accept it in its entirety, noting the close acquaintance of Mr Roberts with the Appellant’s business.  On the other hand, we found that the Appellant was evasive in giving his evidence.  He appeared to find it difficult to concentrate upon the particular questions being put to him.

17.	Section 73(1) of the Value Added Tax Act 1994 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.”
The Appellant provided scant evidence in support of his claim for 25% zero-rating.  His reasons for alleging that the sales on the night of invigilation were exceptional were not credible.  We took the view that the Appellant avoided a second invigilation without good reason.  We consider that the Respondents have properly assessed the amount of VAT due from the Appellant to the best of their judgment.  Similarly we consider that the misdeclaration penalty should be maintained.  Accordingly, the appeal is dismissed.

J H FRYER-SPEDDING
CHAIRMAN
RELEASE DATE: