VAT – APPEALS – Other – Failure to comply with direction for disclosure – Trib Rules r 19(4), 20(3) – No proper excuse – Pressure of work in Customs’ Solicitors’ Office – Appeal involving evasion penalties – Stale evidence – Appeal allowed

VAT – APPEALS – Submission that no case to answer – Powers of Tribunal
LONDON TRIBUNAL CENTRE

	TURAN CILFAOGLU	
YUSUF KARAKUS
DISS CATERING LTD                          Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	THEODORE WALLACE  (Chairman)
						K C MANTERFIELD FCA
					 	R S SURI JP

Sitting in public in London on 27 June, 14 and 28 October 2003

Marion Lonsdale, counsel, instructed by Emir & Co, solicitors, for the Appellants

Zoe Taylor, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	This decision sets out the reasons for our decision to allow the appeals under Rule 19(4) of the Tribunals Rules 1986 by reason of the failure by the Commissioners to comply with the direction of the Tribunal under Rule 20(3) for the disclosure of documents.

2.	It also records our reasons for a direction concerning the jurisdiction of the Tribunal on a submission of no case to answer.

3.	The appeals were received on 4 July 2001 against assessments on the company to £41,345 VAT for the period 1 January 1996 to 31 July 1999 and against evasion penalties of £18,601 imposed on Mr Cilfaoglu, a director, and Mr Karakus, the company secretary.  The notice of assessment was dated 19 June 2001.

4.	The assessments followed observations in October 1997, a control visit in January 1998 and invigilation on Saturday and Sunday 27 and 28 November 1999.  The individual Appellants were interviewed on 10 April 2000.  The assessments were based on a suppression rate of 43.11 per cent calculated on the basis of Saturday and Sunday takings in November 1999. 

5.	In their Defence received on 27 March 2002, the Appellants contended that the assessments were not made until June 2001 and that this was more than one year after evidence of sufficient facts coming to the knowledge of the Commissioners; they contended that the latest evidence of facts was obtained on 10 April 2000 and that only the last accounting period was in time.

6.	In their Reply served on 1 August 2002, the Commissioners contended that the assessments were made on 26 January 2001, the date when the assessing officer, Mr MacLoughlin, sent an e-mail to another officer which included the following 

“Please find attached workings and assessment for Diss Catering Ltd.  As yet the assessment has not been issued as it now goes in with the LFU Report.”

They also contended in their Reply that the last evidence of facts was on 11 September 2001 when the time for response to a letter of 9 August inviting any explanations expired.

7.	The Statement of Case followed six extensions of time and a direction by the Tribunal.

8.	In a witness statement served in January 2002 Mr MacLoughlin stated that he completed Form 641 to raise the assessment on 18 May 2001.

9.	In a letter dated 9 January 2003 the Appellants asked to be supplied with two missing pages from the attachments to the e-mail which had been given to them and for copies of all internal documents relevant to the assessment including the LFU Report referred to in the e-mail.

10.	A hearing for directions was listed before Dr Avery Jones on 17 March 2003 at which both counsel before us appeared.  At this hearing the Appellants specifically asked for Form 641 to be disclosed.  Dr Avery Jones gave an oral direction for disclosure under Rule 20(3) within 28 days and a written direction was released on 18 March which included a direction,

“that within 28 days of the date hereof the Respondent disclose to the Appellants all documentation in its possession concerning the time of raising and notifying of the assessments.”

This undoubtedly included Form 641.

11.	On 7 May 2003 the Commissioners disclosed to the Appellants copies of two internal faxes dated 13 and 14 May 2002.  The letter stated that that was “all the documentation in the possession of the Commissioners concerning the time of raising and notifying the assessments.”  This assertion was clearly incorrect, since the Form VAT 641 was not included.  Furthermore it was over 3 weeks late.

12.	At that point the Tribunal was not aware of the non-compliance and the matter was listed for a preliminary hearing on 27 June 2003.  The Tribunal included two members since the no case issue was to be considered.  At that hearing Miss Lonsdale applied for the appeal to be allowed by reason of the failure of the Commissioners to comply with the disclosure direction.  Miss Taylor did not have advance notice of this application for the appeal to be allowed.

13.	We directed disclosure by 18 July 2003 to be verified by Affidavit and we deferred consideration of Miss Lonsdale’s application at Miss Taylor’s request.  The Tribunal then considered the “no case” issue to which we return later.

14.	On 16 July 2003 an affidavit by Mr MacLoughlin was served producing copies of VAT Form 641, an internal request for advice dated 9 May 2002 and Form VAT 885, an undated Offence Report.

15.	At the further hearing in October, Mr MacLoughlin told us that the original Form 641 could not be produced since it had been destroyed after being scanned onto a computer.  We observe that the destruction of original documents has the potential to cause substantial difficulties in the event of an appeal, although this did not form part of our reasons.  We also observe that the list exhibited by Mr MacLoughlin should have stated that the Form 641 was a copy.

16.	The VAT 641 was signed by Mr MacLoughlin as assessing officer, and by his senior C M Parryman as check officer, both on 18 May 2001.  Mr Parryman also signed as counter-signatory to inhibit the misdeclaration penalty with the reason “Civil Evasion Penalty to be applied.”  It carried an office stamp also on 18 May.  Towards the top of the document there was an endorsement and a stamp which had been scored out and another stamp in a box “Document 13 June 2001 Keyed.”  13 June 2001 was the date from which interest was calculated on the Notice of Assessment. Miss Lonsdale pointed out that default interest under section 74(3) is confined to three years from the date of assessment.

17.	Mr MacLoughlin told us that he had been away from the Local Fraud Unit being attached to an excise team from 10 July 2000 to 17 April 2001.  No one else had been in charge of the matter during his absence and he just had to fit it in.  It appears that he analysed material which he had received before the interview several months later around July 2000 and wrote to the Appellant’s accountants in August without receiving a response.  He said that in January 2001 he made the assessment and sent the e-mail and attachments to Louise Baker. He kept no other record whatsoever of making the assessment.  At first he could not say when he had prepared the LFU Report between January and June, but later in evidence he accepted that it could not have been before 15 May 2001 because attached to that report was a document faxed to him on that day.

18.	Miss Lonsdale in applying for the appeal to be allowed relied on the facts that the documents produced on 7 May 2003 were late with no explanation, that no directly relevant documents were provided on 7 May, that the Form 641 was not disclosed on 7 May or at the June hearing and was only produced when the affidavit was directed by the Tribunal; she said that the LFU Report was relevant because the extended time limit assessments under section 77(4) required conduct falling within section 60(1) in the absence of a conviction and that the extended time limit assessments went with the evasion penalty.  She said that the Appellant had been prejudiced.  She complained that only on 28 October 2003 had she learned that the Commissioners held further material uplifted from the Appellants which they had not listed.

19.	Miss Taylor said that the reason for the late compliance on 7 May was simply that the matter had not been dealt with due to the volume of work in the Solicitors’ Office.  The omission of VAT 641 was an oversight.  The Commissioners apologised for these matters.  She accepted that there had been no application for more time or any other communication with the Tribunal.  She accepted that Form VAT 641 was relevant and should have been disclosed.

20.	She said that the Commissioners had taken the view that the LFU Report was not relevant to the making and notifying of the assessment; that had been a reasonable opinion. She did not accept that an extended time limit assessment was dependent on an evasion penalty.

21.	She said that the main issue for the Tribunal was whether the Appellant had been prejudiced by the late disclosure. They knew from Mr MacLoughlin’s earlier statement that the VAT 641 was dated 18 May 2001.  There was no prejudice through the late compliance : the Appellants had the document in good time for the October hearing. She said that apart from the VAT 641 there had been full disclosure.  She said that there were sanctions alternative to allowing the appeal including a costs award; she said that half a day’s costs on the standard basis would be reasonable.

22.	She said that the decision of the Court of Session in Customs and Excise Commissioners v Young [1993] STC 394 should be distinguished since that involved failure to serve the Statement of Case which was the primary pleading.

Conclusions as to Non-Compliance

23.	We concluded that the non-compliance in this case was serious.  Not only was the letter of 7 May 2003 in response to the direction of Dr Avery Jones three weeks late but it omitted the VAT 641 which had been specifically requested before Dr Avery Jones although his direction went wider.

24.	That document was undoubtedly relevant to the time limit issue in view of the decision of the High Court in Cheesman v Customs and Excise Commissioners [2000] STC 1119.  The fact of the check and counter-signature were not known until a copy was produced in July.

25.	Miss Taylor submitted that the Appellants had not been prejudiced by the late production, however that argument would apply in almost every case of late compliance with a direction. If it had not been produced at all, there clearly would have been prejudice. The fact is that a case which was already very stale was further delayed.  Some of the observation evidence goes back six years. On any view there was a serious delay in making and notifying the assessments. Although there was some delay in the Defence, the Statement of Case and Reply involved much longer delays.

26.	The only excuse advanced for the failure to comply with the Direction was the volume of work in the Solicitors’ office.  We note that this application and the disclosure issue have themselves added to that work.  The inability of the Solicitor’s office to cope with the volume of work is a matter for the Commissioners themselves.  The fact that insufficient resources are available to cope with the volume of work is no excuse for non-compliance, particularly in a case involving criminal charges within Article 6.1 of the Human Rights Convention.  If the Commissioners fail to devote sufficient resources to the conduct of an appeal they must bear the consequences.

27.	Miss Taylor said everything that could be said for the Commissioners.  Nevertheless we unanimously concluded that the appeal should be allowed.  In reaching that conclusion we took account of the decision in Young already cited and the more recent decision of Lloyd J in Customs and Excise Commissioners v Neways International (UK) Ltd [2003] STC 795.

28.	We directed that the Appellants were entitled to their costs on the standard basis to be taxed under Rule 29(1)(b) if not agreed within 3 months.

No case submission

29.	At the directions hearing on 27 June Miss Lonsdale submitted that the Tribunal has power to consider a submission that there is no case to answer similar to the powers in Part 3.4 of the Civil Procedure Rules (“CPR”) to strike out a Statement of Case and in Part 24 to give summary judgments.  She said that such a submission could be made to the Tribunal on the basis of the pleadings and in this case of the witness statements from the Respondents which were directed by the Tribunal in October 2001; she said that the Tribunal could also consider correspondence between the parties.  She relied on the fact that the proceedings involved criminal charges within Article 6 of the Human Rights Convention.  She said that the Commissioners had failed to comply with Rule 7(1)(aa) as to particulars in the Statement of Case and submitted that, if not waived under Rule 19(5), the defect was fatal.

30.	Miss Taylor said that the provisions of Part 3.4 and Part 24 of the CPR are wholly different and do not appear in the Tribunals Rules.  Rule 18 is quite different being concerned with jurisdiction.  She said that there is no express power to determine an appeal on the basis suggested before hearing any evidence and no inherent power to do so.

31.	We concluded that we were not satisfied that there was power under Rule 19 or otherwise to entertain a no case submission before the hearing or before any evidence. In the absence of directions, there would have been no need for witness statements to be served.  The position is therefore clearly different from that under the Civil Procedure Rules.  We accept the fact that these are criminal proceedings for Human Rights purposes.  We did not need to come to any final conclusion as to our powers to hear an early submission of no case, since we concluded that the present case is not a case where it would be appropriate to entertain such a submission given the grounds which Miss Lonsdale was putting forward, namely failure to refer to section 61 in the Statement of Case and failure to give the “full particulars of alleged dishonesty” required by Rule 7(1)(aa).

32.	Rule 19(5) gives power to waive a breach of the rules, in contrast to Rule 19(4) which enables the Tribunal to dismiss or allow an appeal for non-compliance with a direction. Rule 9 gives power to direct further particulars : Miss Lonsdale did not ask for such particulars. We do not consider that the Tribunal has power to allow an appeal by reason of a breach of the rules unless a direction has been given.    

33.	On October 2001 the Tribunal directed that the Respondents serve statements by all witnesses.  It is implicit in such a direction that the statements give proper detail of all matters of substance to be covered by the witnesses.

34.	We did however conclude that the Tribunal has power to consider a submission of no case at the conclusion of the evidence for the Respondents, as in any other civil proceedings.  We also concluded that the Tribunal was not obliged to put the Appellants to election as to whether they were going to call evidence before hearing such application.  That is a matter for the discretion of the Tribunal at the time when the application is made. Clearly the Tribunal must exercise caution before allowing such a submission without election, see Miller v Cawley [2002] EWCA Civ 1100 and paragraph 32.1.6 of the White Book.  The fact that the proceedings engage Article 6.2 of the Convention is however a relevant factor.  It may well be that the reason for making the submission of no case is also relevant.  A submission on a narrow ground may be different from one that goes to the evidence as a whole.

THEODORE WALLACE
CHAIRMAN

RELEASED:

LON/01/730-732