18974
ASSESSMENT — suppression of takings — Commissioners calculation of the percentage rate of suppression —  was this correct — yes — assessment upheld

CIVIL EVASION PENALTY — dishonest suppression admitted — amount of mitigation — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	LIAQAT ALI t/a VAKAS BALTI	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Lady Mitting (Chairman)
						 J T Brian Strangward 
						 Robert Grice	

Sitting in public in Birmingham on 10 May 2004, 11 May 2004, 1 September 2004, 17 and 18 January 2005

Mr L A Khan appeared for the Appellant 

Mr J Puzey, of counsel, instructed by the Solicitor’s Office for HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	Mr Liaqat Ali carries on business as the sole proprietor of an Indian restaurant, catering for both eat-in and takeaway meals and known as “Vakas Balti.” 
He appeals against:
(i)	An assessment to tax dated 27 April 1999 in the sum of £25,788 plus interest and covering the period 1 August 1997 to 31 December 1998.
(ii)	An assessment to tax dated 18 May 1999 in the sum of £6,971.95 and covering the period 1 August 1996 to 31 July 1997.
(iii)	A civil evasion penalty, raised under Section 60 (1) VAT Act 1994 in the sum of £36,062 and covering the period 1 August 1996 to 31 December 1998.
2.	Having originally raised the second assessment as above, the Commissioners sought to increase it by amendment to £14,284.47, still covering the same period.  However, as the upward increase was invalidly assessed, the amendment was withdrawn leaving the original assessment for the period of £6,971.95 extant.  However, as the Commissioners contend that the amount of tax actually evaded in this period was £14,284.47, the civil evasion penalty was assessed on that basis and remained un-amended.  
3.	We heard oral evidence from the Appellant and on behalf of the Commissioners from Mrs Pauline Drew, Mr Robert Barlow, Mr Joseph Baines and Mr Robert Townsend.

The evidence
4.	On 2 July 1997, Mr Barlow visited the restaurant to establish the VAT registration status of Mr Ali.  He arrived at approximately 21.45 and noted that the restaurant was very busy with approximately 95% of the tables occupied.  He asked Mr Ali how long he had been trading to which the reply was initially 2-3 months.  Mr Barlow did not know when trading had commenced but he did know that it was not that recently and he asked Mr Ali to consider his answer.  He told Mr Ali that he would be carrying out further checks with the landlord of the premises.  Mr Ali then said that he had in fact been in business for 1-2 years.  Mr Ali told Mr Barlow that his turnover was between £30,000 and £35,000 but increased this estimate to £40,000 to £45,000 when Mr Barlow asked about takeaways. The business was open 7 days a week from 5.00 pm to 12.00 pm and, before the opening of the upstairs area, had 68 covers.  This visit was left on the basis that Mr Ali would speak to his accountant with a view to applying for registration.
5.	Following that visit Mrs Drew visited the premises at approximately 18.15 on 1 August 1997.  Being local, Mrs Drew was acquainted with the restaurant.  She described it as lying on a busy main road in an area famous for its curries.  Although there were double yellow lines outside the premises, she did see some cars parked around the back and there was a free public car park across the road.  The purpose of Mrs Drew’s visit was to check whether or not Mr Ali had applied for registration and to issue invigilation sheets to establish the level of trading.  Mr Ali told her that he was trading below the threshold but he wished to register in any event to recover the VAT spent on construction costs.  Mrs Drew saw briefly over the restaurant and noted that the upstairs was an unused storeroom.  Mrs Drew was there approximately half an hour and she observed two tables of two occupied.  The visit ended with Mr Ali agreeing to complete invigilation sheets for the entire month of August.  
6.	On 4 August 1997, Mrs Drew received a phone call from Mr Ali’s then accountant, Mr Raja.  He advised Mrs Drew that Mr Ali was applying for registration and would not therefore need to complete the invigilation sheets.  Mrs Drew asked if the invigilation could in any event continue.  At 20.30 hours that evening, Mrs Drew called at the restaurant and spoke to Mr Ali just to confirm that he was completing the sheets.  On that visit she noted 22 people dining at 9 tables.
7.	On 13 August, Mrs Drew again visited at 20.30 hours.  The invigilation sheets were not available and she left after 10 minutes.  She noted 18 people dining at 9 tables and one takeaway.  She visited again on 14 August to check the invigilation sheets.  She noted 31 diners at 10 tables and again left after about 10 minutes.
8.	During August various Officers made test purchases to test the integrity of the self-invigilation record.  On 1 August 1997, Officers Cox and Wadeley dined at the restaurant.  They were there from 20.25 to 21.45 and noted 23 parties, 70 diners in total excluding themselves.  Their meal totalled £15.70 for which they paid cash and they saw one other bill for £19.35.  They noted three order pads in use. 
9.	On 21 August 1997, Officer Powell dined at the restaurant with her husband. They were there from 21.15 to 23.00.  They noted 37 other people dining.  Their bill totalled £13.75, which they paid by cheque.  The waiter asked Mrs Powell to leave the name of the payee on the cheque blank.  When the Commissioners later recovered the cheque, it was found to have been made payable to “Ajaz”, one of Mr Ali’s sons and it had been paid into a Halifax Building Society account, not Mr Ali’s sole business account with Barclays Bank.
10.	On 22 August 1997 Officer Sadler purchased a takeaway meal.  He entered at 21.40 leaving at 21.52.  He paid £7.30 in cash and he noted three occupied tables with parties of three, four and five.
11.	An analysis of the invigilation sheets showed that for the first two days, Friday 1 August and Saturday 2 August, bills recorded were 34 and 28 respectively in the total sums of £447.05 and £340.45.  For the remainder of the month and the first 4 days of September the highest number of bills recorded were two of 21, on other evenings going as low as four and five on the 1 and 2 September.  Apart from £406.95 being recorded on Saturday 30 August, no other takings exceeded £258 and several were well below £100.  None of the test purchases on any of the evenings appeared to the Commissioners to have been declared.  On the majority of evenings only one takeaway was recorded and there were only two recorded deliveries, both on 1 August.
12.	The invigilation sheets also revealed that although 23 parties had been observed plus themselves between 20.25 and 21.45 on 1 August, only 29 eating in bills were recorded plus 3 takeaways and 2 deliveries, all evening.  Again, on 4 August 9 tables had been observed at 20.30 but only 11 bills recorded all evening.  On 13 August 9 tables had been observed but all evening only 11 tables were declared with two of them being occupied twice.  The takeaway observed had not been declared.  On 14 August 10 tables had been observed but only 15 bills were recorded, four tables being recorded as having been occupied twice.  On 21 August when 39 people had been seen dining between 21.15 and 23.00, only seven bills were recorded (estimated number of diners 20).  On Friday 22 August only one dining party was recorded after 21.45.
13.	Mr Ali’s application for registration was dated 4 August 1997.  It was completed, we were told, by his accountant although signed by Mr Ali.  In the form Mr Ali stated that he had made his first supply on 20 December 1994, had exceeded the limit on 1 August 1996, estimated his taxable supplies over the next 12 months at £62,000 and sought registration from 1 August 1997.  The Commissioners therefore registered him initially from 1 August 1997, later amended to 1 August 1996.  We were told by Mr Khan that the form had been incorrectly completed by Mr Raja and it should have stated that the limit was exceeded on 1 August 1997.
14.	Mrs Drew’s next visit to the premises was on 4 March 1998 when she made a routine control visit.  She immediately ascertained that, despite her having asked him to on her first visit, Mr Ali had not retained the meal bills.  She uplifted the bookings diary and purchase invoices and she returned again at 20.45 that evening to return the diary.  She noticed that there were about 25 cars in the car park and the restaurant was completely full with some customers waiting and others being turned away.  Mr Ali told Mrs Drew that he was so busy because of a “two for the price of one” offer being run in the Sun newspaper for which Mrs Drew noted about 10-12 vouchers.  The diary had contained an entry relating to “upstairs”.  Mrs Drew’s visit report recites that Mr Ali told Mrs Drew that he did not know what this meant because he could not read and as this had previously been an unused storeroom in August 1997, Mrs Drew asked to see upstairs, which Mr Ali reluctantly, we were told, allowed.  This had now been fitted out with 10 tables (40 covers) all laid for use.  Mr Ali apparently expressed surprise at this and still maintained that it was unused.  Some of the entries in the diary had been crossed through and Mrs Drew asked Mr Ali and his son, Mr Ajaz Ali, what the crossings signified.  Mr Ajaz Ali told her that they were of no significance; the entries, whether crossed out or not, related to fulfilled bookings and only the odd one or two may not turn up.  Mrs Drew also asked about an entry for Mothering Sunday (22 March 1998) which indicated a booking for 80 for lunch.  Mr Ali maintained that the restaurant was not open on Sunday lunchtimes and added that his sons sometimes put joke entries in the diary to frighten each other.  It had been Mrs Drew’s intention to carry out an observation on 22 March to see whether the booking was kept but this was not in fact carried out. Mrs Drew carried out an analysis of the diary entries for January and February 1998 and cross referred to the DGT record.  Applying an agreed figure of £5.18 per head to the number of diners booked in, she calculated 15 nights where expected sales exceeded the DGT, on a number of occasions quite considerably.  On top of bookings there would also have been unbooked diners, deliveries and takeaways.  Mr Ali told Mrs Drew his float was £75.
15.	Amongst the purchase records uplifted were those relating to containers and order pads.  Mrs Drew did not analyse the container records as this business was predominantly an eat-in restaurant, but she did analyse the order pads.  She had established from Mr Ajaz Ali that although the pads were ordered from different suppliers, they were identical in form.  They were the usual small size order pads, each containing 50 duplicate orders.  Between 7 September 1997 and 21 December 1997, 150 pads were purchased, equating to 7,500 orders.  The purchases were made in eight separate batches at reasonably regular intervals although rather more frequently during December.  A further 100 pads were purchased on 4 January 1998.
16.	The five week invigilation had declared 425 bills at a total cost of £5,625.43.  This would produce an average order value of £13.23.  Dividing the declared sales for the period 1 August 1997 to 31 December 1997 by the average order price of £13.23, Mrs Drew calculated that 1,711 orders would have been taken.  This equated to only 34 pads as against the 150 purchased, a suppression rate of 77%.
17.	Mrs Drew did accept in cross-examination that her calculation assumed that every single pad and every single sheet of every pad was used and she also further accepted that there could in fact be some wastage by being spoilt or used as jotting paper, although there was no evidence of such.  Mrs Drew stressed during her evidence that she had to make her calculations from the invigilation sheets because the meal bills had not been kept; it was therefore impossible for her to use actual figures.
18.	Mrs Drew was also asked in cross-examination whether her calculations had taken into account the “two for the price of one” vouchers which she had observed.  Mrs Drew pointed out that this would have been irrelevant, as the offer was in March 1998 and her calculation was based on 12/97.
19.	On 16 March 1998, Mrs Drew uplifted a number of carrier bags containing purchase invoices, bank statements, meal bills for the period 4 March to 15 March 1998, assorted “two for one” vouchers, the DGT book and the annual accounts.  From the DGT book, Mrs Drew established that the business should in fact have been registered from 1 February 1996 as the then registration limit was exceeded in December 1995.  Little could be ascertained from the purchase invoices as there were considerable gaps where none were available.  Mrs Drew also noted that on the front of the accounts, the accountant had made the following endorsement:
  “Some purchase invoices are missing due to refurb and decoration at Vakas Balti.  We have adjusted the purchases according to sales figures.”
20.	From the meal bills Mrs Drew calculated that the average spend per person was £5.18 which she felt was realistic for a business of this nature.  Mrs Drew was also able to establish from the DGT record that the figures declared on the VAT returns matched the takings declared in the DGT book and further that the takings declared in the DGT book for August 1997 matched the figures contained on the invigilation sheets.
21.	Another exercise carried out by Mrs Drew was to schedule all the switch and credit card transactions from 1 – 14 August and 29 August to 25 September 1997.  Mr Townsend was later to add to this schedule by comparing each daily total with the corresponding declared daily gross taking.  He considered that, in what would be a predominantly cash business, the percentage of credit card transactions was abnormally high. On 9 September and 10 September, card transactions exceeded the DGT and on 18 September came within a few pence of it.
22.	Mrs Drew’s next visit to the premises was with Mr Barlow at approximately 23.55 on 15 May 1998.  Their visit was unannounced, the purpose being to verify the level of activity and to review and oversee the cashing up procedures.  Mr Barlow noticed five separate order pads on the counter by the side of the till.  These pads were obviously all in use and Mr Barlow actually saw waiters either writing in or referring to two or three of them.  After Mr Barlow returned from inspecting the kitchen a few minutes later, he noticed that there was only one pad on the counter. It was ascertained the upstairs room had been in use.  Once they had entered the restaurant, Mr Barlow, accompanied by Mr Ali, went into the kitchen where he secured a set of meal orders from a spike.  Mr Ali confirmed to Mr Barlow that those orders were all for meals prepared that evening.  There were two or three other order slips still in use as these related to meals being prepared.  On emerging from the kitchen, Mr Barlow returned to the till area which involved a walk from the back through to the front.  Mr Barlow told us, and this is also recorded in his witness statement taken from his notes, he saw a waiter leaning over the counter attempting to remove a bundle of notes from the till.  Mr Barlow did not at the time know who the waiter was but when he later met Mr Ajaz Ali he formed the view that it was he whom he had seen.  Mr Barlow asked the waiter to leave the money in the till which he then did.  Mr Barlow was cross-examined at some length on this incident during the course of which he admitted that he did not know exactly where the other waiter had come from but that they had converged by the till.  While Mr Barlow had been in the kitchen, Mrs Drew had taken possession of the meal bills which she found on the spike next to the till and sat herself in a small seating area and proceeded to total them.  She told us that she was quite unaware of the incident observed by Mr Barlow and had not heard him ask the waiter to return the money to the till.  This was not surprising, she told us, as her view of the till was obscured by a pillar; the restaurant was noisy and she was working on her lap so would be bent down and concentrating on what she was doing.  There was some disagreement between Mrs Drew and Mr Barlow over exactly where she was sitting.  Mr Barlow placed her on a chair directly behind the pillar which would thus stand squarely between her and the till whereas Mrs Drew’s recollection was that she was to the side of the seating area but her view of the till would still be obscured by the corner of the pillar.  In addition to the bills on the spike, Mrs Drew and Mr Barlow found other bills located on the counter or under the till.  Mrs Drew totalled the value of all the bills at £912.15.  Of these £554.75 were off the spike and £357.40, the loose ones.
23.	At approximately 1.30 am, the Officers observed the cashing up procedure which was carried out by Mr Ajaz Ali.  The cashing up procedure revealed cash in the till of £1,030, three cheques totalling £65.65 and eight credit/debit card slips totalling £246.45.  Taking into account the float, said now to be £150, total takings for the evening were therefore £1,192.10.  The Officers had noted that one of the three cheques had the name of the payee left blank.  Also one of the card transactions for £123.85 had no matching bill. 
24.	Later analysis of the bills and the kitchen orders which should have more or less matched as they were duplicates revealed discrepancies.  Very few orders were found for delivery bills but Mrs Drew believed this would be explained by the fact that the order usually went out with the delivery.  For every eat in order she would, however, have expected there to have been the matching carbon copy bill.  There was just one bill with no matching order but 19 orders with no corresponding bill.  The total value of bills recovered was £912.50 but the value of those for which a corresponding order was found was £662.60.  The bills appeared to have come from 3 different order pads and as they were pre-numbered, Mrs Drew was able to identify any missing numbers.  There were a few odd ones missing but in the main the missing numbers were in batches, for example, orders 31 to 47 of one pad, numbers 17 to 23 and 27 to 47 of another pad and 15 to 24 and 26 to 47 on another pad. In part the orders with no bills may fill one or two of the gaps.  Mrs Drew told us that she asked Mr Ali on several occasions if the takings in the till related just to that evening and on each occasion he confirmed that that was so.  This is also recorded in the contemporaneous visit report.  Mrs Drew had calculated from the DGT book that the average Friday night declared take  from August 1997 to March 1998 was £233.80 and from a comparison of the two sets of figures, Mrs Drew calculated a suppression rate of 80%.
25.	Mr Ali was later to contend that of the monies in the till, £700 had been placed there by him to pay a supplier and indeed a witness statement was put in by Dairyland Fine Foods confirming that their ledger sheet, a copy of which was attached, revealed a payment of £700 to their delivery driver on Monday 18 May 1998.  We also saw a copy of an account from Dairyland Fine Foods dated 18 May on which the van driver had noted “paid £700”.  However Mrs Drew and Mr Barlow were adamant that at no time on the evening did either Mr Ali or his son make any reference to having put £700 into the till and the Officers were led to believe at all times that the monies in the till were made up of that night’s takings.
26.	Mrs Drew, believing that there had been a fraudulent suppression, passed on her findings and figures to Mr Townsend in the Fraud Unit.  
27.	On 20 May 1998, Mr Joseph Baines interviewed Mr Ali at the business premises in the presence of Mrs Drew and Mr Ali’s then accountant Mr A H Raja.  Mr Ali described his cashing up procedures.  Cashing up would be carried out by one of Mr Ali’s sons.  They would empty the till, leaving in only the float; gather up all the bills, cheques and credit card slips; put them all in a bag and the bag would be given to Mr Ali to take home.  Mr Ali would later add up the takings and record the figure in a daily gross takings book.  No attempt would be made either at the point of cashing up or later to reconcile takings with bills.  There was only one business bank account and customers paying by cheque would be told to make their cheques payable to Vakas.  Suppliers would be paid in cash or if Mr Ali did not have enough cash, by cheque.
28.	Mr Baines put it to Mr Ali that Mrs Drew had calculated his average declared Friday takings to be £233.00, whereas on 15 May,  £1,200  had been found in the till.  Mr Ali said that £700 had not been part of that night’s takings but had been brought in that morning to pay a supplier, Dairyland.  Mr Ali had however missed him and the money remained in the till.  He was paid the following Monday.  It was pointed out to Mr Ali that if the £700 were left out of account, the night’s takings would be considerably less than the sum total of the bills.  Mr Ali responded that some of the bills may have been left over from the previous night, despite having told Mr Barlow and Mrs Drew that they were that night’s bills only and agreeing that he had said that all the bills had been bagged up and taken home each evening.  
29.	Mr Townsend visited the premises and carried out an observation on Wednesday 10 March 1999. He entered the premises at 18:55 hours leaving at 20:10 and sitting outside until 20 – 35.  He saw 38 people dining in and two takeaways. He also noted a further two takeaway bills.  On Tuesday 23 March, he carried out a further observation from the car park, arriving at 1750 hours and leaving at 2230.  He observed eight parties comprising 18 people entering to dine in, eight individual takeaways and activity such that it could only be attributable to deliveries.
30.	The following day, Mr Townsend visited the premises and interviewed Mr Ali.  He was told the previous night’s takings had been £156.70. He was handed eight table bills and two takeaway bills, all of which totalled £156.70.  He handed over no delivery bills.  Mr Ali did not know how many takeaways he had cooked the previous night but agreed that it was more than the two declared by the bills.  
31.	Mr Townsend, being fully satisfied that there had been a suppression, on the basis of Mrs Drew’s schedule and calculations then came to raise the assessment although it was issued in Mrs Drew’s name as Mr Townsend, being in the fraud unit, was not designated to raise assessments in his own name.
32.	Mr Townsend was satisfied that the 1 August 1996 was the correct registration date. No return had been filed for the first long period to 31 July 1997.  Mr Ali had declared gross takings for the period of £49,098.40 and Mr Townsend raised an assessment based on this, Mr Ali’s own figures, in the sum of £6,971.95, input tax of £340.57 being allowed. 
33.	For the periods 10/97, 12/97 and 3/98, Mr Townsend applied to Mr Ali’s returned figures a suppression rate of 70 per cent.  This was a rounded down figure based on the 80 per cent arrived at by Mrs Drew on her 15 May calculation and verified by the “pad” calculation of 77 per cent suppression.  Throughout 1996 and 1997, declared takings had remained reasonably constant but there was a marked increase by 3/98 and a further increase in 6/98 giving an increase in declared takings over this period of approximately 33 per cent.  Mr Townsend thought that this reflected a more honest declaration and a lower rate of suppression and he therefore reduced the rate of suppression for 6/98, 9/98 and 12/98 to 50 per cent.  He was certain that suppression was still occurring following his March 99 observation when there was a clear failure to declare deliveries and all but two takeaways.
34.	Mr Townsend then reconsidered the first long period.  He was of the view that suppression had taken place though at the lesser rate of 50 per cent and he sought to revise upwards his earlier assessment of this period to £14,284.47.  He should in fact have withdrawn the earlier assessment and re-issued in the full sum but he, incorrectly, sought to merely amend the original assessment.  As upward amendments were not permitted, his amended assessment had to be withdrawn, leaving only the original assessment of £6,971.95 extant.  However for the purposes of the penalty, the Commissioners contended that the total tax evaded during the first year was the full total of £14,284.47.
35.	Mr Townsend also considered that the suppression had been knowing and dishonest and that a civil evasion penalty was justified.  Mr Ali had been told at the outset to keep his bills and better records but he persistently failed to do so.  As Mr Ali was the chef, he must have known how many meals per evening he cooked and he equally must have known that those being declared were considerably less than those he had cooked. On the question of mitigation, Mr Townsend considered that the only mitigation earned by Mr Ali had been ten per cent for attending the interviews and producing those records which he did have.    At no time had he admitted what he had done and gave no help in substantiating the true amount of the arrears.
36.	In cross examination Mr Khan put to Mr Townsend a calculation which he (Mr Khan) had carried out.  Applying the alleged rates of suppression, Mr Khan had calculated that gross sales from 1 August 1997 to 31 December 1998 would have had to have totalled £173,168.68, giving an alleged suppression of £339.55 per day and an alleged daily take of £579.51, a figure which Mr Khan maintained would be unachievable in the business and moreover would need a customer base far in excess of that observed on the Commissioners’ observations.  Mr Townsend pointed out that on no night had there been an entire evenings observation and the calculation was not based on observations but on a meal bills/takings basis.  Mr Khan suggested that the takings on the night of 15 May were distorted by the presence of a large party which should have been excluded from the calculation.   Mr Townsend replied that that could not be done because it had formed part of the night’s takings.  Mr Khan had also calculated that if every single sheet of each of the 70 order pads purchased in December had been used, there would have been 3,500 orders giving gross takings for the month of £46,305.   Mr Townsend pointed out that this calculation was not borne out and was not an assumption which the Commissioners had made.  Mr Townsend had relied on Mrs Drew’s calculation which was based on actual purchases.  The problem which the Commissioners had, as Mr Townsend explained, was that there had been no reliable figures from Mr Ali who did not even take the opportunity offered to him to complete the invigilation sheets accurately. 
37.	After the assessments had been raised Mr Ali instructed Mr Khan who entered into correspondence with the Commissioners.  By letter dated 9 December 1999, Mr Khan put an alternative calculation of the suppression to them.  This was based on sales and certain purchases for the periods 6/99 and 9/99.  Working from the records of two suppliers, Pacific Seafood Midland and Dairyland (Finefoods), Mr Khan calculated in respect of each supplier for each quarter the ratio of purchases from that supplier to gross sales.  Working from invoices from the suppliers back to 1 August 1996 the calculated ratio was applied retrospectively to establish what Mr Khan said was the actual level of sales.  Ten per cent was then claimed in respect of zero-rated sales.  The “actual” level of sales calculated by Mr Khan was then compared with the declared sales and VAT calculated on the shortfall.  By this method, Mr Khan calculated that additional output tax was due of £8021.13, of which said sum an offer was made to the Commissioners.  For a number of reasons Mr Baines rejected the calculation as flawed and rejected the offer.  The calculation was based on only two supplies, both being minority commodities and excluded the major items of rice and chicken.  The calculation assumed a constant relationship between the selected commodities and takings and also assumed supplies of the commodities were obtained only from the two named supplies and not from elsewhere.  No account was taken of purchasing for stock.  The calculation also assumed that the declared gross sales for 6/99 and 9/99 were correct for which there was no verification and there was clear evidence that in March 1999 suppression had still been continuing.  Most importantly, applying the ratio back quarter by quarter, it gave in respect of sea food for the four quarters 3/98 to 12/98 and in respect of dairy products for the three quarters 6/98 to 12/98 an original overdeclaration of sales and Mr Baines could see no reason why Mr Ali should have overdeclared his sales for VAT purposes.  Finally there was no justification which Mr Baines could see for any zero-rating.  
38.	Further correspondence took place and a revised and much reduced offer of settlement was made by letter dated 4 December 2002.  This offer arose out of a settlement  which Mr Ali had reached with the Inland Revenue. The Inland Revenue had accepted the following figures for additional and previously undeclared sales.
	Year ending 31 March 1997 - £9093
Year ending 31 March 1998 - £4808
	Year ending 31 March 1999-  £2455  
Additional output tax due on these figures totalled £1,892.09 for which sum an amended offer was made and rejected.      
39.	Mr Ali’s evidence in chief was brief, focusing on specific allegations.  He denied telling Mr Barlow that he had only traded for a few months or that his takings had been £35,000.  The bill for £19.35, which the observing Officers had noted on 1 August 1997 was probably not in its final form and may well have been changed if, for example, the customers had ordered coffee.  Officer Powell’s cheque, which had been left blank and then paid into his son’s account, had happened whilst Mr Ali was in Pakistan and Ajaz had, with good intention, sought to save his father the bank charges incurred by processing it through the business account.  The entry on the invigilation sheet of £447 for Friday 1 August would not have been representative but must have been inflated by a large party.  It should be mentioned here that the invigilation sheet for that day records 34 bills but none higher than £28.35 and none that could be attributable to an unusually large party.  Mr Ali could not recall why he had purchased so many order pads but it would probably have been because there was a sale on at cash and carry and they would have gone into stock.  He also said that on one of her early visits, Mrs Drew had carried out a stock take lasting several hours, at which she would have seen the stock of pads.  He explained the £700 payment to Dairyland.  He was also asked in evidence in chief about the diary entries and he told us that if an entry was crossed through, this meant that the booking was kept.  If it was not crossed through, the customer would not have turned up.  This, maintained Mr Ali, could well explain the discrepancy between diary entries and declared takings.  Mrs Drew had assumed all bookings were kept.  An example was given of 20 January.  There were four bookings in all for a total of 24 people.  None of the entries were crossed through and this probably meant that none of the bookings were kept, thus negating Mrs Drew’s assumption that anticipated sales for that evening had exceeded the DGT.  He also told us that he faced competition from some 20 or 30 restaurants around him, some of which were licensed, whereas he did not sell alcohol and it was not unknown for a customer to leave when he realised this.  When Mr Ali began trading in 1994, to attract custom, he offered bargain meals, eg 2 for the price of 1 or a balti, nan and rice for £1.99.  His lifestyle, he told us, was not extravagant, he did not own his own house but lived in a council house with his wife and four children.  The children were all aged in their twenties and three of them worked in the business without pay. 
40.	Mr Khan had introduced Mr Ali’s case on the premise that dishonest suppression was admitted but the amount of the assessment was grossly excessive.  Against this background, Mr Puzey’s first question to Mr Ali in cross examination was to ask when he had started suppressing his takings.  Mr Ali replied variously that sales had been correctly recorded; he had never knowingly suppressed takings; it had just happened; he did not know where or how it began and finally that he had thought that what he made was his to do with as he liked.  
41.	Mr Ali was asked about the observation of 1 August 1997 when during an observation of 1 hour 35 minutes, 26 parties were observed dining in, whereas only 29 dining in bills were declared for the whole evening.  Mr Ali thought that this was because the majority of business was done during that period.  A similar explanation was offered in relation to each of the other observations.  He could offer no reason why the Officers’ meal bills had not been declared.  
42.	In relation to the diary, Mr Ali was asked why he and Ajaz had told Mrs Drew that entries being crossed out did not signify either attendance or cancellation, but different members of staff worked differently.  Mr Ali replied that Mrs Drew had imagined this reply and in fact the diary was meaningless, it was played about with and kept only for the date.  The majority of the entries probably didn’t refer to actual customers at all.
43.	In relation to the order pads, he had no explanation as to why he would buy in batches and accepted that even if Mrs Drew had asked about stock, he would not in fact have had any record or have been able to tell her how many pads there were in stock.  He initially said that he had told Mrs Drew on the night of the 15 May about the £700 in the till, although he later accepted that he might not have done but had intended to do.  He could not remember.  He could give no explanation why, on 15 May, there were a number of orders without a corresponding bill.  He did not accept that a member of staff had tried to remove money from the till during the course of the evening.  Finally, in answer to a question from the tribunal about the number of challenges which Mr Ali had made to the Commissioners’ evidence, Mr Ali agreed that he was in fact saying that the Officers had made it up. 

Submissions
44.	Mr Khan, on behalf of his client, accepted that there had been dishonest suppression but not to the degree alleged by the Commissioners.  Mr Khan expressly did not seek to contend the assessment had not been raised to best judgment but that it was grossly excessive.  He made the following points in support of his argument:
(i)	Where Mr Townsend had noted a 30 per cent increase in declared takings in mid 1998, he should have reduced the alleged suppression rate by 30 per cent and not only 20 per cent.
(ii)	Trade was lost because the premises were not licensed; the Commissioners had not differentiated between adult and child diners and not everyone observed going in would have gone in to eat.  They could easily have gone in just for company.
(iii)	The periods of observation were unrepresentative in themselves, most being between 8.50 pm and 9.50 pm, the busiest time of the evening and there was a total of only 12 hours 42 minutes observed on which a 29 month assessment had been based.  Mr Khan relied on the case of G A Harrison v Commissioners of Customs and Excise 1125 where the tribunal found the Commissioners had not acted to best judgment in raising an assessment for a four year period on the basis of two days observations.  
(iv)	The alleged rate of suppression produced an unobtainable level of takings, especially given the varying levels of trade on different days of the week.  Mr Khan asserted that 70% of the sales were taken on Fridays and Saturdays and the business would therefore have to take £1,419 on each of these evenings to achieve the level alleged by the Commissioners.  Given the agreed meal price of £5.18, 273 customers would have to be served, far in excess of the numbers observed on the Friday observation on 1 August 1997.  Mr Khan put further calculations based on the Commissioners figures, all of which he maintained produced an unachievable level of trade.
(v)	Any calculation based on order pads was flawed because it took no account of stock.  Mrs Drew did not do a proper stock take and took no account of closing stock of which there must have been a high level.  Also no account was taken of wastage.
(vi)	The contention by Mr Barlow that on 15 May there was an attempt to take money from the till was untrue.  It did not happen.  Had it happened, Mrs Drew would or should have noted it and she did not.
(vii)	In their calculation of the takings on 15 May, the Commissioners had wrongly ignored the fact that contained in the till was £700 which had not been taken that evening.  They had also incorrectly taken the loose bills as representing that evening’s takings, whereas these bills belonged to the previous day.  The bills for 15 May were on the spike and totalled £554.75.  There was to be added in the bill for £123.85 for which the credit card slip had been found but for which, for some inexplicable reason, the bill was not there.  This would give a total of £678.60 and as the bills found in the kitchen totalled £662, there was a very close reconciliation.  
(viii)	The Inland Revenue investigation had been considerably more thorough than the Commissioners’ investigation and had included an analysis of Mr Ali’s standard of living, for which he had completed declarations of his assets.  The Inland Revenue had accepted there had been a suppression of less than £20,000 against the Commissioners’ calculation in excess of £200,000.  The Commissioners further had carried out no investigation into and could give no explanation of where the suppressed takings were supposed to have gone.  Mr Khan relied on the case of D J Pugh v Commissioners of Customs and Excise 16173 where the tribunal had listed as one of several reasons for believing the assessment to be excessive that the Inland Revenue had come to a settlement on a very much lower level of undeclared takings.
(ix)	The car parking facility was not available until 1998 and the upstairs flat had not been converted into use until March 1998.
45.	Mr Puzey replied in detail to these submissions.  It was his contention that there had been a suppression of takings and that the Commissioners’ calculation of the amount of the suppression was reasonable and correct.  He further contended that the suppression had been deliberate and dishonest.

Conclusions
The Registration Date
46.	Throughout the hearing, Mr Khan had made reference to the registration date.  As set out in paragraph 13, we were told that Mr Raja had incorrectly stated that the threshold had been passed in August 1996; it should have been August 1997.  However, we were referred by Mr Puzey to an Accumulated Sales Analysis which, although prepared by the Commissioners, had been accepted with amendment by Mr Khan and in its accepted amended form, this analysis clearly showed the then threshold having been exceeded in May 1996.  The registration date was not referred to thereafter by Mr Khan and was not addressed in his closing submissions.  We accept that Mr Ali was properly registered with effect from 1 August 1996.

The Assessment
47.	Mr Khan accepted on behalf of the Appellant that there had been a suppression of sales.  It was quite unclear from Mr Ali’s evidence whether he also accepted it and for the avoidance of doubt, we find unhesitatingly that there had been an under-declaration of takings.  There is abundant evidence of suppression and in particular we note the following:
(a)	The inconsistent evidence relating to the diary and the quite unbelievable statement from Mr Ali in cross examination that the diary entries in fact meant nothing and probably did not relate to actual bookings at all.  We believe that the entries did relate to bookings taken.  We also accept that what Mrs Drew was told at the outset was probably correct and that whether an entry was crossed through or not did not really signify as different members of staff had different practices.  Following on from this is the fact that on a number of occasions, the anticipated sales from diary bookings exceeded the declared daily takings – taking no account of takeaways, deliveries and diners who had not booked (paragraph 14)
(b)	The very high proportion of credit and debit card sales in what must be a predominantly cash business (paragraph 21)
(c)	On occasion, credit and debit card sales exceeded the daily gross takings (paragraph 21)
(d)	The invigilation sheets were quite clearly not accurately or fully completed (paragraph 11)
(e)	The comparison of declared takings against results of the observations (paragraph 12)
(f)	The non declaration of the Officers’ meals (paragraph 11)
(g)	Mr Townsend’s observation of eight takeaways on 24 March 1999 whereas only two were declared (paragraphs 29 and 30)
(h)	Our findings in relation to the bills and the takings on 15 May 1998, as set out below  
(i)	Mrs Powell’s blank cheque (paragraph 9)
(j)	The order pad analysis (paragraphs 15 and 16)
48.	Given the evidence of suppression, the Commissioners were clearly entitled to raise an assessment.  Mr Khan accepted the assessment was raised to best judgment and his challenge to it was focused on the quantum – both as to the level of suppression assumed by the Commissioners and the period over which the Commissioners assumed the suppression had been taking place.  
49.	The level of suppression was calculated from a straight comparison between the average figure for declared Friday takings from August 1997 to March 1998 (£233.80) against the contents of the till, less float, on Friday 15 May 1998 (£1,192.10).  There was no challenge to the Friday average but a serious challenge to the 15 May figure.  The correctness of this figure depends upon whether it represented solely that night’s takings.  On the night itself, Mr Ali assured Mrs Drew and Mr Barlow that it did and it was not until the interview of five days later that for the first time, Mr Ali said it included £700 brought in to pay the Dairyland bill.  That Dairyland was paid £700 on Monday 18 May, we fully accept but we do not believe that the monies in the till on the Friday night included £700 brought in to pay the bill.  We believe that the monies in the till, less the float, represented only that night’s takings.  Apart from Mr Ali’s initial assurance that this was the case, our belief that this was so was strengthened by two additional factors.  First, there is Mr Barlow’s evidence that he saw Mr Ajaz Ali attempt to remove a bundle of notes from the till.  Mr Ali Senior denies this happened but he was in the kitchen and could not possibly have any idea of whether it did or not.  It was on the first day of the hearing, on 10 May 2004, that Mr Barlow gave his evidence and named Mr Ajaz Ali and yet Mr Ajaz Ali was never called on any of the subsequent days to give evidence so we never heard what he might have said on this.  We see no reason to doubt Mr Barlow’s evidence.  Mr Khan said it could not have happened because it would have been noticed by Mrs Drew but her view of the till was partially obscured and she was, in any event, concentrating on totalling the meal bills – head bent down in a noisy environment.  We would have been surprised if indeed she had noticed.
50.	Secondly, the value of the bills found by the Officers totalled £912.15.  If £700 was deducted from the till monies, the evening’s takings would be considerably less than the total of the bills.  Mr Khan submitted that the bills were not in fact all for that evening and those that were not on the spike related to the previous evening.  We reject this suggestion.  First, the Officers were led to believe on the night that all bills / orders related to that night.  Secondly, repeatedly in interview, Mr Ali said that at the end of each night, takings and bills were bagged and given to him and he took them home.  There was no explanation as to why the procedure would or should have been different on the previous evening.  
51.	We are quite satisfied that the monies in the till, less the float, represented only that evening’s takings.  This makes the Commissioners’ calculation a perfectly proper and correct one.  Mr Khan argued that the evening was unusual in that there was a large party in the upstairs room (the credit card slip for which no bill could be found for £123.85) and that this amount should not therefore be included in the comparison.  We do not accept this.  First, if there had not been a party booking upstairs, presumably there would have been individual diners to make up the amount.  Secondly, we note from the diary entries that largish parties were not that unusual.  We would also point out that even if this figure was deducted from the £1,192, leaving takings of £1,068.25, there would still be a suppression rate of 78.11 per cent and as Mr Townsend reduced the rate to 70 per cent, effectively it would make no difference.
52.	The 80 per cent suppression rate is also borne out by the order pad calculation.  We would not have been happy with an assessment calculated solely on the basis of order pads, because there are imponderables such as wastage and stock – although to what extent, no-one can have the slightest idea given the complete absence of records or reliable evidence on either factor.  However, as a corroborative check, it is useful, which is all the Commissioners intended it to be.
53.	The only alternative method of calculation suggested by Mr Khan was that based on the fish and diary food purchases.  We reject the legitimacy of this calculation for all the reasons given by Mr Baines as outlined in paragraph 37.
54.	We find a suppression rate of 70 per cent is quite acceptable, especially when reduced to 50 per cent at the beginning and end of the period.  
55.	Mr Khan submitted that the observations totalling only 12 hours 42 minutes were insufficient to form the basis of a 30 month assessment.  He also criticised the times of the observations saying that they were only at peak times.  We reject this criticism.  Observations and / or visits took place on all days of the week except a Saturday or Sunday.  They took place in July and August 1997 and March 1999 – a reasonable spread throughout the year and the years.  Between them, they also spanned almost the entire opening hours of the restaurant.  Mr Townsend arrived at 17.50 on 23 March 1999 and Mrs Powell did not leave until 23:00 on 21 August 1997.  Given the clear evidence of Mr Townsend that suppression was still taking place in March 1999, there can be no possible objection to an assessment to 31 December 1998.  There is also clear evidence of suppression in August 1997 and no reason was given as to why it should have suddenly commenced when the Commissioners showed an interest in the business.  We are quite satisfied with the length of the period assessed and we also believe Mr Townsend has been very fair in his reduction of the rate to 50 per cent at the beginning and end of the period.
56.	We do not believe that we are in any way bound or can really be influenced to any extent by the settlement with the Inland Revenue.
57.	We have no idea what investigations they carried out, whether they carried out observations and if so when and with what result.  We do not know what they were told and were given no idea as to why or on what grounds settlement was negotiated.  In Pugh (paragraph 44), the tribunal expressly found the Inland Revenue settlement to be “not a fact of direct relevance to … best judgment” and only of “limited help” in deciding the issue of quantum.  There is no evidence that the tribunal’s amended figures were in any way based upon the Inland Revenue settlement.
58.	On the question of lifestyle, we accept Mr Puzey’s contention that it is not incumbent upon the Commissioners to trace where any suppressed takings went. 
59.	Mr Khan further argued that the applied suppression rate led to an absurdly high and an unachievable level of takings.  The example he gave was to assert that the Friday and Saturday take amounted to 70 per cent of weekly takings and this would require takings of £1,400 each Friday and Saturday evening.  This calculation, however, is based on a flawed assumption.  Mrs Drew, in her analysis of the DGT (i.e. Mr Ali’s own figures) from 1 August 1997 to 1 March 1998 calculated that Friday and Saturday accounted for 49.7 per cent of weekly sales.  Mr Kahn based his calculation on a required average daily takings figure of £579.  If one applies 49.7 per cent instead of 70 per cent, Friday and Saturday would each need to take £1006 and we know from the 15 May 1998 that the business was perfectly capable of taking £1100 on a Friday night.  We also note that in fact Mr Khan has calculated the daily take of £579 over 510 days as opposed to the correct 518 days but the effect of this error is minimal.
60.	The assessment includes only, for the first long period, from 1 August 1996 to 31 July 1997, the amount declared by Mr Ali.  Mr Townsend tried and failed on a technicality to raise a further assessment to reflect a 50 per cent suppression.  As we have already said, we accept the suppression did go back to 1 August 1996 and that a 50 per cent rate would have been quite fair.  This finding is relevant to the civil evasion penalty.  
61.	We uphold the amount of the assessment as raised and, in so far as the assessment is concerned, the appeal is dismissed.

The Penalty
62.	Mr Khan accepted that Mr Ali had acted dishonestly but in view of Mr Ali’s rather inconsistent evidence and for the avoidance of doubt, we should make it clear that we also believe that the suppression amounted to a dishonest evasion, within the context of Ghosh.  Mr Puzey contended that the amount of tax evaded should, for the period 1 August 1996 to 31 July 1997, be taken to be the full amount of £14,284 even though of that only £6,971 was effectively assessed.  Certainly section 60 VAT Act 1994 does not stipulate that there has to be an assessment of tax but that a trader is liable to a penalty equal to the amount of tax evaded.  We have already found that there was a suppression or evasion of that amount in that period and we accept the penalty should reflect this.  Indeed we should stress that Mr Kahn did not seek to argue to the contrary.
63.	Mr Khan submitted that a greater degree of mitigation should have been allowed and pointed to Mr Ali’s co-operation in interview and the offer of settlement which had subsequently been made.  We have to say that Mr Khan’s argument was somewhat undermined by Mr Ali’s evidence to the tribunal and we accept that the ten per cent mitigation allowed by Mr Townsend is all that has been merited.  Right up to the day of the hearing, Mr Ali was denying suppression and it cannot possibly be argued that Mr Ali co-operated with Mr Townsend before the penalty was raised in trying to establish the true amount of the arrears.
64.	We uphold the penalty as assessed and uphold the amount of mitigation given.  In respect of the penalty therefore, the appeal also is dismissed.

Summary
65.	The appeal is therefore dismissed in its entirety.  Mr Puzey made an application for costs which we grant and order that the Appellant should pay the Commissioners’ reasonable costs to be assessed by a chairman sitting alone if not capable of agreement.

LADY MITTING
CHAIRMAN
Release Date: 8 March 2005

MAN/00/0543