Hoothi Cash & Carry Ltd v Customs & Excise [2003] UKVAT V18424 (26 November 2003)

ASSESSMENT – for separate periods apportioned on a rateable basis -- whether global assessment – no – assessment made on evidence of facts within one year withdrawn and new assessment issued within the year but without further facts – in time – pre-printed invoices unaccounted for – whether assessment to best judgment – yes – whether should be reduced – no 

LONDON TRIBUNAL CENTRE

	HOTHI CASH AND CARRY LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					MOHAMMAD M HOSSAIN FCA FCIB

Sitting in public in London on 10 November 2003

Colin Peters, Mainprice & Company, for the Appellant

Andrew O’Connor, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	Hothi Cash and Carry Limited appeals against an assessment for £9,614 for the period 1 June 1999 to 31 March 2001 notified on 6 September 2002.  The Appellant was represented by Mr Colin Peters, and the Commissioners by Mr Andrew O’Connor.
2.	We heard evidence from Mr H Vithlani, the Appellant’s internal accountant, Miss A Hewlett of the Commissioners’ computer audit office, and the two officers concerned with the case, Mr S Rasmussen and A Reid.
3.	Following a visit made by officers on 27 March 2001 Miss Hewlett carried out a computer audit and visited the Appellants on 24 May 2001, 17 July 2001 and 7 August 2001 together with officers on the first two occasions.  As a result of her report, an assessment for £114,356 was made and is not now in dispute.  This difference arose because of differences between the VAT returns and the data on the computer which we understand was due to retrospective posting of invoices after the period for which the VAT return had been made.  
4.	Miss Hewlett’s report also found a lack of control over retro invoices and debit notes raised for promotional sales, advertising allowances and supplier discounts.  Her report states that these were hand written; not always dated; not used sequentially, not always accounted for (they are not entered if the supplier issues a credit note or if the supplier refuses the discount); they are only entered on payment and then back-dated to the date of issue, leading to the differences in the VAT returns; and there was no trace of a high proportion of the pre-printed numbered forms.  The computer record showed that there were 773 missing debit note numbers, of which 94 were found on her visits; and 190 missing retro invoice forms, of which 47 were found.  Of the 141 forms that were found 31 (22 per cent) were cancelled or unused.  The same percentage was applied to the 822 missing forms, which leaves 641 transactions unaccounted for.  An average invoice value was calculated and applied to this total resulting in tax due of £79,573.86 of input and output transactions are taken together, or £83,889.36 if they are calculated separately.  As a result, an assessment for £83,880 was issued on 14 November 2001.  This applies the missing items evenly over the whole periods assessed.  In January 2002 some more forms were found by the Appellant, increasing the total found from 141 to 164 and reducing the missing ones from 822 to 799, as a result of which the assessment was reduced to £80,977.68.
5.	Mr Vithlani’s evidence was that the Appellant’s business is that of a wholesale cash and carry.  Its turnover in the last year was about £44m.  Its principal suppliers are household names in the drinks trade.  Purchases are often made on terms that the Appellant receives a retrospective discount if purchases exceed a certain figure.  Evidence of the terms are found in the file.  Such discounts are paid by cheque or bank transfer.  It also buys in cash from smaller suppliers, some of which the Commissioners say are missing traders.  The amounts involved are in tens of thousands of pounds comprising about ten transactions in a year.  Retrospective discounts did not arise on these cash transactions.  Sales to customers are often in cash.  We deal below with the extent to which we accept this evidence.  
6.	It was subsequently proved that on a change of printers certain numbered invoices had never been printed.  Eliminating these resulted in a replacement assessment for £14,014.62 on 19 June 2002.  Finally, a replacement assessment for £9,617.23 was issued which is the assessment under appeal.  This is based on the same method but applied to 410 missing forms.  Of the forms found 78.48 per cent were unused or cancelled.  Applying the same percentage to the 410 missing forms results in 88 being unaccounted for.  By that time, one of the original 9 periods was out of time for assessment; for comparison with the previous assessments, this assessment would have been for £10,928.72 of all the periods had been in time.  The £9,617.23 is then split rateably between the periods 08/99 to 03/01 so that the figure is the same for all periods (and rateably the same for one of the periods which is a one-month period).
Time limits
7.	At the start of the hearing Mr O’Connor for the Commissioners conceded that the first period assessed, 08/99 was out of time.  The assessment was made on form VAT 641 on 28 August 2002 which is within the 3-year time limit but was notified on 6 September 2002 outside the time limit.  According to Business Brief 5/2001 the Commissioners apply the notification date to all assessments made after 1 March 2001.
8.	Mr Peters for the Appellant contended that the assessment was a global assessment and that since part was out of time the whole assessment failed.  The assessment was split into equal proportions for each period which was not an estimate of the tax due for each period.  The figure was the same for each period (and rateably the same for a one-month period).  It was effectively a global assessment although purporting to be separate assessments for each period.
9.	Mr O’Connor contended that factually it was an assessment for separate periods.  The test was a factual one.  As Millett LJ said in Customs and Excise Comrs v Le Rififi [1995] STC 103, 110h:
“The next question is whether each of the forms constituted notice of a single assessment or of several assessments.  This is easily answered by an examination of the form….The obvious inference from the layout of the form is that each of the ten lines represents a separate assessment, so that if only one line is filled in there is one assessment, and of several lines are filled in there are several.”
Balcombe LJ makes a similar statement at p.107j to 108a.  That case was decided on assessments on form VAT 191.  However, in Customs and Excise Comrs v Post Office [1995] STC 749 Potts J applied the same reasoning to form VAT 655, which is the form used for the assessment under appeal.
10.	Although this may in the present circumstances mean that form is more important than substance it is clear from these cases that the form is the governing factor.  Here the assessment is broken into separate periods, although on an equal basis because by definition there is no evidence of when missing invoices were issued.  We hold that the assessment under appeal is a series of separate assessments and accordingly, apart from the 08/99 period conceded by the Commissioners is in time.
Evidence of facts
11.	Mr Peters took a second time limit point based on section 73(6) of the VAT Act 1994:
“An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following—
(a)	2 years after the end of the prescribed accounting period; or
(b)	one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge….”
He contended that the new evidence of facts from the printers justified the making of the assessment on 19 June 2002.  But no new facts came to their knowledge after that date to justify the making of the assessment under appeal on 6 September 2002.
12.	Mr O’Connor contended that section 73 envisages that an assessment may be withdrawn, see the reference in subsection (9) that “the assessment has subsequently been withdrawn or reduced.”  Here on withdrawal of the 19 June 2002 assessment it ceased to exist.  Looking at the 6 September 2002 assessment one applied section 73(6) and asked whether evidence of facts sufficient in the opinion of the Commissioners to justify the making of that assessment had come to the knowledge of the Commissioners within one year before.  The answer was yes; the evidence from the printers.
13.	We agree with Mr O’Connor for the same reasons and hold that the assessment was in time within section 73(6).
Best judgment and quantum of the assessment
14.	Mr Peters contended that there was no basis for the assessment.  The retrospective discounts arise from exceeding purchase targets from main suppliers who pay by cheque oR bank transfer with the result that the cash is all in the records.  Any missing pre-printed forms must have been destroyed.  The Commissioners have no direct evidence that anything is wrong in relation to the missing invoices.  He drew an analogy with T Y McGurk Sports Limited v Customs and Excise Comrs (2002) VAT Decision No.17,599 in which the Tribunal found that an assessment was not to best judgment when there was no evidence that the allocation between zero-rated and standard-rated sales was wrong.
15.	Mr O’Connor contended that the assessment was made to best judgment in the light of all the evidence.  It is in the nature of estimated assessments that there is no direct evidence of anything wrong.  The McGurk case was entirely different; here there is evidence of 410 missing pre-printed forms.
16.	So far as best judgment is concerned, the test in the light of Rahman  v Customs and Excise Comrs (No.2) [2003] STC 150 is a high one that the assessment is made capriciously, or was wholly unreasonable.  Here the assessment was made on a proper statistical basis in the light of the Appellant’s records.  We were particularly impressed by the thoroughness of Miss Hewlett’s report made following her three visits and the analysis of the Appellant’s computer system.  We hold that the assessment is made to best judgment.
17.	The quantum is more difficult.  Mr Peters’ point that retrospective discounts arise from large suppliers and must have been paid by cheque or bank transfer and must appear in the records is a strong one.  However, it depends on the accuracy of the accounting records.  There are cash purchases from smaller suppliers and many cash sales.  While we accept Mr Vithlani’s evidence in general, there was no documentary evidence that retrospective discounts never arose on cash purchases and we are unable to accept this in the light of the deficiencies in the accounting records.  In a two year period VAT of £114,356 was agreed to be understated because of retrospective postings, and we are dealing with 410 unaccounted for pre-printed numbered invoices, which is a large number for which there is no evidence at all of what might have happened to them.  Miss Hewlett’s report identified deficiencies in the controls for the issue and posting of invoices or the retrospective discounts.  This does not give us confidence in the accounting records and accordingly we are not prepared to rely on the records to say that all the cash is accounted for with the result that the 410 forms must have been destroyed.  
18.	Accordingly we dismiss the appeal.

J F AVERY JONES

CHAIRMAN

LON/02/808