ASSESSMENT — restaurant — underdeclared takings — were the assessments excessive — subject to a very minor amendment, no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	TABRIQ HUSSAIN t/a PARADISE INTERNATIONAL	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Mr N Townsend (Member)

						

Sitting in public in Birmingham on 22 March 2004

Mr P Taylor, VAT consultant, for the Appellant 
Mr James Puzey of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

	© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal by Mr Tabriq Hussain against assessments to tax raised by the Commissioners covering the period 04/99 to 07/00 with a final assessment for the period 1 August 2000 to 16 September 2000, the cessation of trading.  The assessment had originally been in the sum of £43,664 (plus interest) but on representations by Mr Taylor was later reduced to £40,071 (plus interest).
2.	Mr Hussain did not attend the hearing as his employer had refused him leave of absence from work.  Mr Taylor put in a witness statement which he had taken from Mr Hussain but as this was only served on the Commissioners on the morning of the hearing, and was in any event objected to by Mr Puzey, we excluded it from evidence.  Mr Taylor made no request for an adjournment and the case proceeded with no oral evidence given on behalf of the Appellant.  On behalf of the Commissioners, we heard oral evidence from Miss S Hirons, Mr B Bartley and Mrs H Howes.
3.	Mr Taylor conceded that there had been an underdeclaration of takings and that the Commissioners’ assessment had been raised to best judgment.  His contention was that the assessment was excessive as the Commissioners had had insufficient evidence upon which to base their calculation and that evidence which they did have had been misinterpreted or misapplied.
The Facts
4.	The Appellant had taken over the restaurant business, “Paradise International”, as a going concern on 1 March 1999.  The business had previously been registered from 1 August 1996 under the sole proprietorship of Mr Sabir Hussain.  He transferred it as a going concern on 28 June 1998 to a Mr Basharat Hussain.  On 30 November 1998 Mr B Hussain transferred the business as a going concern to Mr Wasim Ali Khan and it was he who transferred it to the Appellant on 28 February 1999.  The previous owners had all been registered for VAT and no returns had been filed by either Mr B Hussain or Mr Khan.  The business premises were owned throughout by Mr Sabir Hussain and the subsequent proprietors of the business rented the premises from him.
5.	The Commissioners had carried out observations of the premises on Friday 29 January 1999 and Wednesday 17 February 1999.  As both these dates fell prior to the Appellant taking over the business, the results of those observations were not relevant or taken into account by the Commissioners in raising their assessment.
6.	On 4 May 1999 Miss Hirons visited the business premises, the purpose of her visit being to ascertain the correct legal entity of the business, to see how it ran and to look at the system of record keeping.  Miss Hirons saw two gentlemen on this visit, one of whom introduced himself as Mr Tabriq Hussain, the Appellant, and the other who introduced himself as Mr Zafar Khan, identifying himself as the manager.  Miss Hirons completed a questionnaire to which the majority of the answers were given by Mr Hussain but which was signed by Mr Khan.  The business records were not available and Miss Hirons therefore returned on 15 June 1999 to collect them.  On this occasion Miss Hirons met the same gentleman who had introduced himself previously as Mr Tabriq Hussain and Mr Hussain’s accountant, Mr Sohal Khan.  Miss Hirons uplifted the records which consisted of a box full of meal tickets and a Simplex D account book.
7.	It later transpired that in fact the gentleman who had represented himself to be the Appellant was in fact not Mr Tabriq Hussain but Mr Tariq Hussain, the Appellant’s brother.  For the avoidance of confusion, we will refer to Mr Tabriq Hussain as “the Appellant” and Mr Tariq Hussain as “Mr Hussain”.
8.	The Commissioners carried out two relevant observations on Friday 11 June 1999 and Saturday 11 September 1999.
9.	After the observation of 11 September, Mr Bartley identified himself to Mr Hussain and explained that he was not happy with the declared takings of the business.  It was then that Mr Hussain stated that he was not the owner but that the owner had attended earlier that evening, looked in the till and may have taken some cash out with him.  Mr Hussain further volunteered that the owner frequently took his girlfriend clubbing and may have used some of the takings to pay for this and also that he, Mr Hussain, allowed the waiters to keep the cash taken from the last round of table settings as a perk.
10.	A further interview took place on 4 October 1999 attended by Mr Hussain, his accountant, Mr Sohal Khan, and a couple of officers from the Commissioners.  During the course of this interview, Mr Hussain contradicted answers given to Mr Bartley on 11 September.  He stated that no one had in fact removed anything from the business on that evening.  He denied that he had ever said that he had allowed the waiters to keep the cash from the last set of meals.  He confirmed that he had lied in representing himself as the proprietor of the business.  He was asked whether he was related to Mr Sabir Hussain whom he initially described as his bank manager or more like an uncle.  He later confirmed that he was in fact Mr Sabir Hussain’s son and he was therefore the brother of the Appellant.
11.	Mr Bartley was the assessing officer.  When he made his assessment he had before him the notebooks from the officers who had carried out the two relevant observations and the relevant business records and VAT returns.  The assessment was issued on 10 May 2001, having been notified to the Appellant a couple of months previously.  From the information before him Mr Bartley was able to calculate that on the evening of Friday 11 June 1999, 175 diners had been observed taking a meal inside the restaurant but the number of meals declared was only 87.  Ten takeaways had been observed, but only seven declared.  For the evening of Saturday 11 September, 318 diners had been observed of which 171 meals were declared.  Mr Bartley then calculated an average meal cost by dividing the total declared takings for each of the evenings by the number of declared meals.  He arrived at an average meal cost of £9.60 for 11 June and £9.38 for 11 September.  The average takeaway was £17.44 on 11 June and £16.83 on 11 September.  Mr Bartley thereby was able to calculate the suppressed takings and, set against the declared takings, he arrived at a suppression rate of 83.9%.  He applied the suppression rate to each of the VAT periods from the outset to the cessation of trading to reach his assessed figure.
12.	It fell to Mrs Howes to consider subsequent representations made by Mr Taylor.  Mrs Howes accepted that some of the parties observed on the two evenings had included children who may not have eaten a full meal.  She also accepted that, given the physical layout of the restaurant, it was possible that some people had gone in not to eat but this would not have been apparent to the observing officers.  She also accepted that two officers’ meals had been duplicated in the 11 September observation.  As a result of the representations, Mrs Howes reduced the number of suppressed meals by 7.5 for 11 June and by 8.5 for 11 September.  The amended calculation produced a reduced suppression rate of 77% which she again applied to all periods to reach the amount of the reduced amended assessment.
13.	In his oral evidence and under cross-examination, Mr Bartley explained why he felt it appropriate to project the suppression forward to the cessation of trading.  This was because the returns subsequently submitted by the Appellant did not show any real increase in sales which he would have expected there to have been if the Appellant had in fact ceased his suppression.  He also made the point that the Appellant would have been aware in June 1999 of the Commissioners’ interest, but it was clear from the September observation that there was still a substantial degree of suppression.  Mr Bartley produced to the tribunal a further calculation in which he compared the declared takings for each VAT period, excluding the period 01/00 as because it included Christmas and New Year the takings would be unrepresentative and disproportionately high.  Mr Bartley calculated that the figures returned revealed a reduction in daily gross takings from £603.33 for the three periods to October 1999 down to £509.92 for the periods April 00 and July 00.
14.	Both Mr Bartley and Mrs Howes were questioned about the inclusion of the officers’ meals in the calculation.  Mr Bartley contended that officers’ meals should only be excluded when a restaurant was not busy and the presence of the officers would thereby have a distorting effect.  He maintained that there were people waiting for tables and if the officers had not been eating someone else would have been.  Mr Bartley did, however, accept in cross-examination that, as far as he was aware, although the restaurant was busy no one had been turned away for lack of space.  
Submissions
15.	Mr Taylor’s attack on the assessment was fourfold.  First, the Commissioners should not have included the officers’ meals in their calculation. 
16.	Secondly, the Commissioners had carried out only two observations, both of which were at a weekend.  There was, therefore, no evidence upon which they could assume that any suppression had taken place during the week.  This could only be proved by a midweek observation which had never taken place.  His argument was that takings were substantially greater on Fridays and Saturdays than during the week, thus giving a very much greater opportunity for removal of cash and suppression.  Mr Taylor referred us to three tribunal cases in support of this contention.  First in the case of Lai Fong Tam and Kwok Hung Tam v Customs & Excise Commissioners (15217), the tribunal had concluded that, where an assessment was raised for a period of 3½ years on the basis of one single observation, there was insufficient material before the Commissioners and the assessment was found not to have been raised to best judgment (we should make the point that this case pre-dated Rahman.  In Koon Yeung Tsang v Customs & Excise Commissioners (17627) Mr Bartley himself had been the assessing officer and told the tribunal that it would be usual to observe over 3 days’ trading.  In Gopal Dangol v Customs & Excise Commissioners (15507) at paragraph 43 the Chairman commented that, in that particular case, more bills might have been omitted on busy nights such as Fridays than on quiet nights and further that diners might order more expensive meals at weekends than during the week.
17.	Mr Taylor’s third challenge was that the Commissioners were wrong to project the suppression forward beyond the second observation, as they had no evidence to suggest that the takings were not by this time being fully declared.  Mr Taylor’s contention was that it was not until September 1999 that the Appellant realised how serious the investigation into his affairs was but that, having realised this, he then took all steps to ensure that takings were fully declared.
18.	Fourthly, the Commissioners had arrived at an artificially high meal value by calculating it on the basis of all declared sales.  Mr Taylor’s submission was that it was far easier to suppress meals paid for by cash than meals paid for by credit card.  The Commissioners’ calculation would lead to a higher average meal price because it was more biased towards credit card sales.  Mr Taylor put in a calculation which he himself had made by analysing meal bills from 30 January 2000 to 27 February 2000.  From these he calculated that the average price of a meal paid for in cash was £9.15 and when paid for by card was £11.20.  The purpose of the calculation was not to put in actual figures to the tribunal because the Appellant could not recall whether or not these figures reflected a price increase since the observation dates.  The purpose of the calculation was to show the difference between the cost of a cash meal and a credit card meal.  Mr Puzey’s answer to this was that the calculation was unsafe because no one could say what bills Mr Taylor had been given.
19.	It was Mr Puzey’s submission that the assessment was sound.  The Commissioners had been perfectly correct in projecting the assessment forward.  The use of two nights’ observation was perfectly adequate and, in support of this Mr Puzey referred us to paragraph 24 of Koon Yeung Tsang in which the Chairman commented that, whilst it might be preferable to have more than one day’s observation, it was always possible to argue that any day was atypical.  Further, in paragraph 33, the Chairman said that, whilst a one-day observation was not necessarily insufficient, what mattered was whether the recorded observations fairly and accurately represented the trade and whether the use of those observations could be said to lead confidently to a fair and reasonable result.
Conclusions
20.	With regard to the officers’ meals, we believe that these should be excluded.  We accept that, because of the number of diners, the officers’ meals would not have a greatly distorting effect but there clearly would have been some effect, however small, and we believe that this effect should be countered by their exclusion.  Whilst accepting that the restaurant was busy, there is no evidence to support Mr Bartley’s contention that had the officers not eaten those meals somebody else would have.  There was no evidence that anybody was turned away because the officers were there.  
21.	Looking at the average meal price, we reject Mr Taylor’s submission that this should be recalculated on the basis of cash sales only.  Mr Bartley made the point that the meal value was based on the best available evidence.  He went on to say that, if the Appellant had produced the suppressed meal bills and had demonstrated that they were largely cash sales then this would have been different, but there was no such evidence.  Without any evidence, we see no reason why we should accept an unsubstantiated contention that the suppression would probably have been from cash sales rather than credit card sales.  Equally, we have to accept Mr Puzey’s submission that Mr Taylor’s own calculation shows the average price of a cash meal at over £9 and no evidence was produced to show that this figure would have been unrepresentative at the time of the observations.
22.	We also reject Mr Taylor’s contention that it was insufficient to base an assessment on only two days’ observation.  Two separate nights were taken, some three months apart, and on both occasions there was clear and indisputable evidence of a substantial degree of suppression.  Mr Taylor argued that, as the observations took place at a weekend, the assessment should assume that suppression only took place at weekends.  However, the Appellant produced no evidence whatsoever to show that the suppression was limited to weekends.  No reason was given as to why it should have been.  Mr Taylor argued that, where the takings were higher the opportunity for suppression would be greater.  We do not accept this.  The level of trade may vary but this does not support the contention that the rate of suppression would vary.
23.	Finally, there is Mr Taylor’s submission that the assessment should be limited to the periods up to the second observation.  Again, the Appellant produced no evidence as to why it should be.  Mr Taylor submitted on behalf of his client that he would not have allowed any suppression to continue after he had become aware of the Commissioners’ interest but the Appellant did not himself produce that evidence and there was no evidence on his behalf put to us to substantiate any such contention.  The Appellant would certainly have been aware by the time of Miss Hirons’ visit on 15 June that the Commissioners were taking a very active interest in the business and that it was certainly something other than purely routine, yet in September, in the second observation, there is indisputable evidence that the suppression was continuing at a very high level.  The takings declared on all the VAT returns are remarkably level and give no indication whatsoever that what had been a suppression of over 75% had been reversed.  Mr Taylor told us that the Appellant would have taken a more active part in the business after September and the suppression would not have taken place had he been there but, again, there was no evidence in support of this.  Mr Hussain told Mr Bartley that the waiters used to keep the cash from the last round of table settings as a perk.  Again, no evidence was produced to show that this practice ceased.
24.	In the absence of oral evidence from the Appellant or on his behalf, and for all the reasons given above, we have to reject the majority of the submissions made on the Appellant’s behalf by Mr Taylor.  We find that, on the basis of the two nights’ observations and the records put before the Commissioners, they had ample evidence upon which to base their assessment.  We further find that they used that evidence properly in their calculation of the assessment.  With the very minor exception of the exclusion of the officers’ meals, we uphold the assessment and dismiss the appeal.  We leave it to the Commissioners to make the minor adjustment necessary to the assessment.
25.	Mr Puzey made no application for costs and we make no order.
LADY MITTING
CHAIRMAN
Release date:
MAN/01/0391