19200

Assessment; restaurant; suppression of takings; quantum of assessment; evidence of observations on one Wednesday and one Saturday; no suppression on Wednesday found; significant suppression on Saturday found; whether inference of suppression over whole period of trading could be drawn from one night’s observations; no; whether inference of suppression on Saturdays could be drawn; yes; assessment to be reduced in accordance with Findings of the Tribunal; Value Added Tax 1994 section 73(1).

EDINBURGH TRIBUNAL CENTRE

	S K SOULIMAN & N HANNA
	T/A BYZANTIUM RESTAURANT	Appellants

	- and -

	HM REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  J Gordon Reid, QC., F.C.I.Arb.,
					 (Members):	  Mrs Charlotte Barbour, CA., ATII
							  I R Welch, CA., JP

Sitting in Edinburgh on Tuesday 3 and Wednesday 4 May and Tuesday 28 June 2005

for the Appellants		Mr Richard Yewdall

for the Respondents	Mrs Joanna Clark, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2005.

DECISION

Introduction
1.	This is an appeal against an amended Notice of Assessment, dated 11/8/04 in the sum of £36,866 and relates to the period between 1/3/01 and 31/3/03.  The appeal relates only to quantum, best judgment, not being in issue.  The Appellants were represented by Richard Yewdall, director of Tax and Legal Services Ltd, Wolverley, Worcestershire.  He led the evidence of one of the partners of the Appellants, Dr S K Souliman, and Lorna Strachan, the social partner of Dr Souliman’s business partner, N Hanna.  The Respondents (“Customs”) were represented by Joanna Clark, Solicitor, Shepherd & Wedderburn, Solicitors, Edinburgh.  She led the evidence of Douglas Wilkie, Grant Malloch and Janet Abeysundera (formerly Cain), Customs officers, all of whom had produced written witness statements to which objection was taken under the Tribunal’s Rules.  Witness statements of two other Customs officers, Andrew Wright and Alison Barclay, to which no objection was taken, were also lodged.  At the end of the day, Mrs Clark did not rely on the statements of Wright or Barclay.  A joint agreed bundle of documents was produced by the parties.  A short joint Statement of Facts was also lodged agreeing the authenticity, transmission and receipt of the correspondence produced, the accuracy of notes of the interview or meeting on 14/10/03 (see paragraph 22 below and B/19).  The Hearing took place at Edinburgh on 3rd and 4th May, and 28th June 2005 when we heard submissions; written submissions were also produced by both parties.

Facts
2.	The Appellants are a partnership which carries on a restaurant business at 13 Hawkhill, Dundee, which is near but not within the city centre.  The partners are Dr S K Souliman and N Hanna.  They trade as The Byzantium Restaurant.  The restaurant opened in about the Spring of 2001.  The restaurant specialises in a blend of Mediterranean, Italian and Middle Eastern cuisine.  It has become popular, receiving a favourable review in Scotland on Sunday [B/23].  The date of the review is unknown.  Customers normally book in advance.

3.	Dr Souliman has full-time employment at Ninewells Hospital, where he is a deputy head of department within the Radiotherapy Department there.  He holds a BSc in Physics, a Master of Science degree in Medical Physics, and a PHd in Medical Physics.  Mr Hanna also has other business interests in art, cuisine and other areas.  Neither takes part in the day to day running or management of the restaurant business.  They visit the restaurant at weekends.  During those visits, they generally help out.  This could involve greeting customers, working in the kitchen or cashing up at the end of the evening if they or either of them was still on the premises.  They do not regard themselves as having formal duties, although one or other of them usually performed the cash banking on Mondays.  The business is run by their manager Ernesto Lori who has been employed by the Appellants since the restaurant opened.  He was and is responsible for all aspects of the restaurant.  What happened when he went on holiday was not the subject of evidence.

4.	The restaurant is open to customers between about 5.30pm and 10pm during Tuesday to Friday, and from about 5.30pm to 10.30pm on Saturdays and Sundays.  It is thus not open at lunchtime.  The restaurant is closed on Mondays.  The number of staff employed at the restaurant on a regular basis either during the week or at the weekend was not the subject of evidence.  Wages are paid partly in cash and partly by cheque.

5.	The restaurant has a seating capacity of about 60 made up of about 18 tables, which could be amalgamated or separated as occasion required.  It also has a small bar area.  It does not provide a carry-out or take-away facility.  There is only one entrance to the restaurant although there is a fire exit at the rear.  That single entrance is used by customers, staff and those delivering goods.  There is a car park across the road opposite the entrance to the restaurant.

6.	Customers generally book in advance.  An A4 diary was produced for the year 2003 to show various entries.  The entries in the diary were generally, scrappy, and difficult to read.  Overall, very little could be deduced from the bookings diary.

7.	The restaurant has a modern till system.  It records inter alia, the detail of each meal ordered, the time of order and the time of payment; it provides a Z reading i.e. the total takings recorded each day.  The till also has the facility to void or cancel a transaction or entry so that it is not included in the daily total.  The Appellants accept payment by cash, cheque or credit card.  Total credit card payments are recorded electronically by a system known as Streamline.  This system does not include payments by American Express which have to be added to the Streamline total to ascertain the total credit card payments for any particular day.  A record of each individual credit card transaction is also available.  Tips are generally given in cash.  The Appellants discourage tips being added to credit card payments.

8.	The Appellants’ cashing up system is rudimentary.  It appears to have involved completion of Till Reconciliation Sheets.  These pro forma sheets have rows for each day of the week (Monday was always blank).  There are five columns for Bank Card Sales, Daily Cash and Cheque sales, total sales, Z reading, and Difference.  On some forms the column headed Daily Cash and Cheque Sales was changed to Cash.  For the period between 11/3/03 and 23/3/03 the style of form changed; the columns were headed Z reading, cash, credit card, cheque, total and balance.  The balance or difference columns were seldom completed.  These sheets which were mainly prepared by the manager, Mr Lori, were not always complete and had numerous scorings out.  They were generally scrappy.  We were not satisfied, for example, that they always showed a true record of cash takings.

9.	The Appellants’ VAT returns are prepared by their accountants, Han & Co, Dundee.  The Till Reconciliation Sheets and other documents, which included bills, credit card slips, till roll readings and a note of any cash payments to suppliers, are passed to the accountants on a weekly basis.  

Suppliers delivered at various times during the week and at weekends, including the evenings.  Deliveries have to be made through the front entrance.  Sometimes deliveries are relatively small, containing specialist ingredients.

10.	The Appellants are of Iraqi descent.  There is an Iraqi community in Dundee.  How big it is was not established.  The Appellants have numerous friends from that community who occasionally visit the restaurant from time to time at weekends, not necessarily to have a meal but purely for social purposes.  On such occasions a complimentary beverage might be provided.  The approximate time spent by any such social visitors in the restaurant on such occasions was not established.  We mention this as it has some bearing on the number of diners, the takings and the extent of any suppression.

11.	The preceding paragraphs describe the nature and operation of the restaurant business throughout the period to which the disputed Assessment relates.

12.	Customs carried out observations at the restaurant during the evening of Wednesday 30th October 2002, and during the evening of Saturday 15th March 2003.  Officers Wilkie and Malloch, and Abeysundera (formerly Cain) and Wright took part on both occasions.

13.	On 30th October 2002, officers Abeysundera and Wright observed the premises between about 5.14pm and 6pm.  At about 6.05pm that day, officers Abeysundera and Wright entered the restaurant and ordered, and consumed a meal each, which was paid for in cash.  When they entered the premises, there were no other customers present.  The meal was recorded in a computerised till slip and the cash placed in the till.  They left the restaurant at about 7.56pm.  They resumed observations between about 8.10pm and 10.10pm.  Officers Wilkie and Malloch observed the restaurant between about 6pm and 8.10pm, and again between 10.10pm and about 11.35pm.  In the interim, they entered the restaurant together at about 8.15pm and ordered, and consumed a meal each, which was paid for in cash.  The meal was recorded in a computerised till slip and the cash placed in the till.  They left the restaurant about 9.52pm.  

14.	The observations of the officers revealed that 36 persons entered the restaurant.  Their observations did not disclose the number dining at any particular time.  The till roll receipts for that day disclosed 28 persons having been served with a meal.  The test purchases were accounted for in a subsequent examination of the Appellants’ books and records.  There were probably only 28 meals purchased in the course of that evening’s trade at the restaurant.  There was no under-declaration or suppression of takings received on Wednesday 30th October 2002.  Dr Souliman was not present at the restaurant on that evening.

15.	Subsequent analysis of the Appellants’ records discloses that on 30/10/02 the total recorded takings amounted to £550.20, made up of 28 covers of which 14 were paid for in cash (£262.55), 2 by Visa (£41.35), 4 by Switch (£78.55) and 8 by American Express (£167.75).  No till reconciliation sheet covering that day has been produced.

16.	In or about the middle of February 2003, Lorna Strachan, an occupational therapist, and the social partner of Mr Hanna, sent out a number of invitations to friends and family to celebrate her birthday at the Byzantium Restaurant on Saturday 15th March 2003.  Her birthday was 5th March.  She hosted a table of about twelve persons from about 8.30pm on 15th March 2003 (although the invitation prepared by Ms Strachan [B/30] stated 8pm) until late in the evening.  Mr Hanna, who was working in the restaurant that evening, joined the party from time to time making the total number thirteen.  No charge was made by the Appellants for the food or drinks consumed by this group.  She and Mr Hanna were among the last to leave the restaurant that night.  Dr Souliman was present at the restaurant but left earlier in the evening.

17.	On the same evening, Saturday 15th March 2003, officers Wilkie and Malloch observed the premises between 4.45pm and 7pm.  At 7.02pm they entered the restaurant and ordered, consumed and paid £43.85 in cash for a test purchase meal which was not recorded in the evening’s takings.  They left the restaurant at about 8.16pm.  Officers Abeysundera and Wright observed the premises between 7pm and 9pm.  They entered the premises at about 9.03pm and ordered, consumed and paid £48 in cash for a test purchase meal which was recorded in the takings for that evening.  They left the restaurant at about 10.57pm.  Messrs Wilkie and Malloch observed the premises between about 9pm and 11.10pm.

18.	The observations of the officers revealed that 98 persons entered the restaurant that evening.  The precise number of staff on duty that night has not been established but it is likely to have been in the order of about ten.  The till roll receipts for that day disclosed 48 persons having been served with a meal.  One of the test purchases was not accounted for in a subsequent examination of the Appellants’ books and records.  The restaurant was full for a substantial part of the evening.  There were probably about 70 meals purchased in the course of that evening’s trade at the restaurant.  There was therefore significant under-declaration or suppression of takings received on Saturday 15th March 2003.  The takings from about 22 meals were suppressed.  The average price of a meal on Saturdays was about £24.60 (calculated in accordance with Schedule 8 in B/21/9).

19.	None of the officers noted that a birthday party was taking place within the restaurant that evening.  There was however, no birthday cake at the table or party balloons or the like.  

20.	Subsequent analysis of the Appellants’ records discloses that on 15/3/03 the total recorded takings amounted to £1,226.35 made up of 48 covers of which were paid partly by cash (£193.95), and Credit Card (£1032.60 [£939.86 per the Streamline record and £92.75 by American Express - the discrepancy of 1p can be ignored]), there were no recorded payments by cheque.  These sums are set forth in the Till Reconciliation Sheet for the period 11/3/03-16/3/03 [B/21/22].  There was a further credit card payment of £112 which was not included in these figures.  This may have been because payment was not authorised by the credit card company at the time.  It was, subsequently, processed and duly accounted for as declared takings for VAT purposes on or about 28/3/03 [B21/24 and B/27].

21.	B/20 constitutes the contemporary records of officers Wilkie, Malloch, Abeysundera and Wright.  While, on each occasion, none of the officers made notes when within the restaurant, they all wrote up their notes later that night on 30/10/02 and 15/3/03.  These notes do not identify the precise times of persons entering or leaving the restaurant.  Nor do the notes attempt to correlate all the persons entering with those leaving.  There was no attempt, by the officers, to take a note of the number of customers dining within the restaurant, whilst they were present (apart from officer Abeysundera on 30 October 2002).

22.	By undated letter [B/5] sent in or about May 2003, Mr Wilkie, the assessing officer, requested that various books and records of the Appellants including their Balance Sheets and Profit and Loss Accounts be made available for inspection.  He visited the Appellants’ premises on 25th June 2003.  He met Dr Souliman and uplifted various business records.  He did not, at that stage, mention any concern about under-declaration of takings.  By letter dated 16/9/03 [B/6] Mr Wilkie informed the Appellants that there were grounds to believe that there were irregularities in their affairs and invited them to attend a meeting to discuss these matters.  Although requested to do so by letter dated 29/9/03 from Han & Co. [B/7], Customs declined, in accordance with their policy (as set forth in their VAT Information Set 01/01 [B/6]) to reveal the queries they had in relation to the Appellants’ VAT records.  Customs regarded the meeting as the Appellants’ opportunity to disclose any irregularities.  A meeting duly took place on 14/10/03.  At that meeting, in the presence of officers Wilkie and Barclay, the Appellants claimed no knowledge of any irregularities.  The fruits of Customs’ investigations were revealed in detail in a letter dated 17/11/03 to the Appellants [B/9].  Accompanying that letter were ten schedules setting out Customs’ findings and their calculation of arrears of VAT.  These calculations set forth suppressed sales of £305,842.44 and consequent estimated arrears of VAT of £45,551.00.  Further correspondence ensued.  A Notice of Assessment [B/3] for the period between 1/3/01 to 31/3/03 was issued in March 2004 in the sum of £45,547.00 plus interest.  No dishonest penalty charge was imposed.

23.	The Assessment was reconsidered by a senior Customs Official, Fiona Calder, who is a member of the Appeals and Reconsideration Team.  Following discussion with the Appellants’ representative (by that stage Tax and Legal Services Ltd), Mrs Calder instructed that the figures be recalculated so as to exclude the test purchases.  This was done and the alleged suppressed sales reduced to £247,548.83 and the estimated arrears of VAT reduced to £36,868.97 [B/15].  A Notice of Amendment of Assessment in that latter sum was issued in August 2004 [B4].  Thereafter further correspondence ensued between Customs and the Appellants’ representatives.

24.	The Appellants’ annual accounts [B/33 & 34] disclose annual turnover and demonstrate gross profit percentage for the year ended (i) 30/9/01 to be £232,791 and 61%, (ii) 30/9/2 to be £213,787 and 56.3%, and (iii) 30/9/03 £209,473 and 63.6%.  The normal range of gross profit percentage for such a business is 45-60% in relation to drinks, and 50-65% in relation to food.

25.	If the Appellants had suppressed takings as contended for by Customs the gross profit percentage for the year ended 30/9/02 would have been 72.7%; and for the year ended 30/9/03, it would have been 70.24%.  Customs did not investigate the question of suppression of purchases and there is no evidence to suggest that there has been any such suppression of purchases.  They did not examine the annual accounts prior to issuing the above Assessments.

Discussion of the evidence
26.	The main areas of dispute were the adequacy of Customs’ observations and the inferences, if any, that could be drawn therefrom.  Mr Yewdall spent a great deal of time cross examining the witnesses for Customs on their observations on 30/10/02 and 15/3/03, and the contents of their contemporaneous notes.  Essentially, what was in dispute was the accuracy of the observations and the conclusion as to the number of meals purchased.  The methodology adopted by Customs and which is clearly set forth in Schedules in B/21/1-12 was not in dispute.  It is necessary only to give a brief summary of that methodology.  From the Appellants’ Till Reconciliation Sheets and other records made available, the average takings on a Friday night, a Saturday night and the weekly average have been calculated for the period between 24/11/02 and 30/3/03 (£1,066.73, £1,368.28 and £4,236.39 - Schedule 7); the average price per meal in March 2003 has been calculated to be £21.38 (Schedule 8).  The average for Saturdays is £24.60.  An estimate, based on observations, of what the takings should have been on Wednesday 30th October 2002 and Saturday 15th March 2003 is then made using the average price per meal ie £21.38 (£684.16 and £1,966.96 - Schedule 9).  These figures are compared with the declared takings on those dates (£550.20 and £1,226.35) to establish, as a percentage, the extent of the estimated rate of suppression (approximately 24% and 60%); the ratio of Friday and Saturday night takings to takings over the rest of the week is then calculated from the declared takings in Schedule 7 (approximately 57% and 43%); these are applied to the estimated rates of suppression to provide a weighted suppression rate of 45.06%.  This is then applied to the declared outputs over the period of assessment to produce total suppressed sales of £247,548.83 and thus under-declared VAT of £36,868.97 (Schedules 10 and 11).  Critical to these calculations is the number of persons dining on the two nights during which observations and test purchases were made.  The sensitivity of those numbers can be seen from the fact that by excluding the test purchases (eight covers), the extent of estimated suppressed sales is reduced by £58,256.71 and under-declared VAT by £8,661.  

27.	We now summarise our views on the evidence to explain the critical factual findings made in paragraphs 14 and 18.  It is not our function to narrate the detail of the evidence and we have not done so.

General
28.	We found Dr Souliman to be credible and generally reliable in his evidence although he tended to be rather vague.  It is plain that he regarded the business as partly an investment and partly, almost as a hobby, to enjoy good cuisine in congenial surroundings.  We consider that he was genuinely taken aback when he eventually discovered the nature and extent of the suppression being alleged.  We are satisfied that he took little part in the running of the business and had, himself little regular opportunity to participate in acts of suppression.  We acknowledge, of course, that it would not affect the outcome of this appeal if the suppression were entirely at the hand of one or more members of staff unknown to either of the partners.  What is important is the fact of suppression and its extent.

29.	We regard Lorna Strachan as a credible and reliable witness.  We would find it surprising if she made up the evidence about her birthday party and falsely produced written invitations [B/30] to support her story.  It was not put to her that her evidence was fabricated.  We accept it.  What is perhaps more surprising is that none of the officers observed or could recollect having observed, a party of 12 or 13 in the course of the evening of 15th March 2003.  Their contemporary notes disclose no record of such a group having dined at the restaurant on that evening.  Mrs Clark criticised this chapter of evidence as it was revealed very late in the day and was just too “convenient”.  We agree that it is unfortunate that this material did not come to light sooner.  We suspect that this occurred because the Appellants appeared to have had several different representatives (their accountants, Han & Co, and a firm of solicitors inexperienced in VAT tribunal work) who may not have investigated matters in detail.

30.	While we accept that all the Customs witnesses gave evidence honestly to the best of their recollection, we have reservations about the accuracy and reliability of some aspects of their observations.  We discuss this further below.

Wednesday 30th October 2002
31.	Customs’ evidence was that 36 persons entered the restaurant and were assumed to have dined.  28 covers are recorded in the Appellants’ records.  Part of those observations included two persons who entered the restaurant at about 5.15pm.  The restaurant did not open until 5.30, and we consider, on balance, that these two individuals fall to be excluded.  When officers Abeysundera and Wright entered the restaurant at about 6.05pm, there were no diners present.  It is unlikely that a meal would have been ordered, consumed and paid for in such a short time even if the restaurant opened a little early.  We reject Mrs Clark’s submission to the contrary.  While the precise number of staff on duty that night is unknown, it must have been at least four or five; at the very least it must have been three.  Customs’ calculations do not appear to take account of this.  The officers also record and include in their calculations three persons entering the restaurant after 10pm.  As the restaurant was supposed to close at 10pm, last orders must have been at 10pm or earlier.  We therefore consider it unlikely that those three individuals dined at the restaurant that night.  The total of 36 falls to be reduced by eight (2+3+3) to 28, which accords with the Appellants’ records and declared takings.  

32.	Even if there were a discrepancy of one or two, we would not be prepared to infer suppression on that date or conclude that suppression was occurring on every weekday throughout the period of assessment.  Moreover, the test purchases that evening were duly accounted for in the Appellants’ records.  We are therefore satisfied that there was no suppression of takings in relation to that evening’s business at the restaurant.

33.	This conclusion means that Customs’ calculations cannot stand as they have used the alleged suppression on Wednesday 30th October 2002 to infer that suppression took place each and every day (except Fridays and Saturdays); and they have also used the alleged suppression on that date to calculate the weighted suppression rate of 45.06% which they have applied across the board over the whole period of the Assessment.

Saturday 15th March 2003
34.	Customs’ observations revealed 98 customers.  The Appellants’ records disclosed 48 paying customers.  Mr Yewdall’s cross examination revealed that, in relation to the 98 observed customers, 2 did not dine, 1 ate only stovies at or in the vicinity of the bar area; 12 formed Lorna Strachan’s party and were therefore non-paying; 3 are likely to have been suppliers, and at least six were likely to have been staff.  On one view of the evidence, a staff of nine or ten could be justified.  Mr Yewdall also argued that the four test purchases, which the amended Assessment excludes, should also be discounted.  We accept this analysis of the evidence.  The total of 98 therefore falls to be reduced by 28 (2+1+12+3+6+4) to 70.  

35.	This leaves the takings of 22 (70-48) customers unaccounted for.  Mr Yewdall suggested that some allowance should be made for friends coming in for coffee.  We reject that argument.  We have already allowed for three non-diners.  There was no acceptable evidence to suggest that a greater allowance should be made.  The Appellants have failed to account for this significant discrepancy, the onus being on them to do so.  We have therefore found there to have been significant suppression on Saturday 15th March 2003.  We do not require to make any finding as to precisely who was responsible for the suppression.  We note that, perhaps unusually in this type of case, no penalty for dishonesty has been levied under section 60 of the 1994 Act against the Appellants.  We also observe that in the course of his evidence Dr Souliman stated that on a number of occasions Mr Lori had been warned about accounting errors.  Equally surprisingly, Mr Lori did not give evidence.

36.	Given the extent of the suppression, we consider it reasonable and proper to infer that, at least on Saturday nights throughout the period of assessment, there has been suppression to a similar extent.  In the light of the fact that this assessment now stands or falls on the basis of observations of and test purchases on one particular day’s trading, we are of the view that it would be wrong to infer that there has been suppression on any other day of trading during the period of assessment.  This is particularly so as it has been positively established that there was no suppression at all on Wednesday 30th October 2002; it is just as reasonable to infer on the basis of that evidence that suppression has not taken place on Tuesdays, Wednesdays, Thursdays, Fridays and Sundays.

37.	The consequence of the foregoing is that the amended Assessment is excessive.  As the general methodology of Customs, and its application over the whole period of assessment was not challenged, the basis of assessment should be that there was suppression of each Saturday’s takings over the period of assessment (about 110 weeks).  The figures in paragraph 18 above and the average price of a meal on Saturdays, namely £24.60 (calculated in accordance with Schedule 8 in B/21/9) should be used to (i) compare the assessed takings with the declared takings of £1,226.35, (ii) calculate the suppression rate, and (iii) calculate the suppressed takings and the under-declared VAT.

Other Matters
38.	Mr Yewdall sought to draw analogies from JHK Fu Decision No 11718 7/12/03 MAN/90/579 & MAN/91/331 (Chairman JD Demack- who is particularly experienced in this area of VAT law).  This was a restaurant suppression case.  The business was observed on six separate occasions.  Suppression was admitted at interview, and subsequently explained to be restricted to cash taken at random.  The evidence disclosed that Customs’ observations failed to note what time people arrived, what time they departed, or how long they stayed at the restaurant; there were no test purchases in that case.  The Tribunal rejected the observations as ineffectual and rejected the recorded observations as proof of the numbers of diners seen entering the restaurant.  Other flaws in Customs’ calculations were noted; the tribunal was not prepared to extrapolate figures for one weekend over 195 weeks.  The appeal was allowed and the assessment discharged.  We have no reason to doubt the soundness of the Decision and note the criticism of evidence adduced by Customs.  However, although it illustrates the need for care, accuracy and detail in the making and recording of observations relating to a trader’s business, it provides no binding ratio which must be applied to this case in favour of the Appellants.

39.	In this area of VAT law, each case must be considered on the evidence presented to the Tribunal.  What may be sufficient in one case for one reason or another may not be sufficient in another case.  Here, we are quite satisfied that suppression has taken place and given the lack of control exerted by the owners, and the inadequate record keeping, we are equally satisfied that, on Saturdays at least, it has taken place over a prolonged period.

40.	We should also record that if Customs’ estimates were correct, the business would show a gross profit percentage significantly higher than the norm.  From the evidence, we doubt whether the business is run so efficiently, particularly where the two partners make a minimal contribution to the running of the business, which can, from general experience, be contrasted with many restaurants which are family owned and operated.

41.	Mrs Clark, in an able presentation, made many points, some of which we have dealt with and some of which no longer arise in the light of our assessment of the evidence.

42.	She criticised Dr Souliman’s evidence about the birthday party as being too vague.  The restaurant diary [B/5], we agree, was of no assistance because of the scrappy nature of the entries.  However, as we accept Lorna Strachan’s evidence, this does not matter.  She also criticised Dr Souliman’s evidence about suppliers delivering on Saturday evenings as simply being not credible.  We consider it depends upon what one envisages as a delivery.  We agree that large quantities of meat and vegetables would be absurd.  However, it is not unreasonable to envisage specialist ingredients being delivered in small quantities at various times of day.  We are inclined to accept Dr Souliman on this point.  In the light of the fact that we accept that there was significant suppression on Saturdays, the acceptance or rejection of the evidence about deliveries on a Saturday evening will make little difference to the outcome of this appeal, particularly as we have been conservative in our allowance for staff numbers.

43.	Mrs Clark invited us to reject the evidence about visits by friends and family as an explanation for a substantial part of the discrepancy between the number of persons observed entering the restaurant on Saturday 15th March 2003 and the number of meals declared.  In large, measure we have accepted Mrs Clark’s criticism.  No business could survive with such a high proportion of complimentary meals.

44.	Mrs Clark also criticised the cashing up and accounting procedures.  These criticisms are largely well founded.  The missing test purchase is indicative of suppression and Dr Souliman’s evidence did not convince us otherwise.  She also pointed out and we agree that the fact that, on 15th March 2003, when all tables were occupied at some point in the evening, each table number should appear on at least one meal slip.  The fact that this was not the case was indicative of suppression.  However, this does not dilute the criticisms of the accuracy of the officer’s observations on 15th March or negate the Appellants’ evidence as to the numbers which properly fall to be treated as diners.

45.	Mrs Clark suggested that the till reconciliation sheets showed that cash takings were proportionately lower at weekends than during the week; this was said to indicate heavier suppression at the weekend.  We doubt whether these sheets are sufficiently accurate to enable such a conclusion to be drawn.  As we have held that there has been no suppression during the week, the issue does not arise.

46.	In relation to the annual accounts, which Customs initially sought but did not pursue, Mrs Clark suggested that where sales are suppressed it is common for purchases also to be suppressed and so the accounts will not be accurate.  We heard no evidence about suppression of purchases and are not prepared to make a finding to that effect.  Experience tells us that, when Customs consider that there has been suppression of purchases, they usually investigate the matter and may lead evidence about it.

47.	We heard some evidence about competition from other restaurants  We agree with Mrs Clark that it was too vague and general to make anything of it.

48.	Mrs Clark submitted that an amendment to the grounds of appeal, denying suppression affected credibility.  We do not agree.  The Appellants’ position all along has been that they had no knowledge of any suppression.  They initially had representatives who may not have expressed the Appellants’ position as accurately as they might have done.  This is essentially a pleading point which seldom carries much weight.  We do not attach weight to it here.

49.	Mrs Clark also sought to refute Mr Yewdall’s criticisms of the officers’ observations highlighted in cross examination.  While it is true that some lines of cross did not take him anywhere, we cannot accept that it would not have been reasonable for the officers to note the exact times of entry to and departure from the restaurant, with some attempt to correlate the timing of individual arrivals and departures; this could have been achieved if one officer was on observation duty throughout the evening; the difficulty of correlation arose because the two pairs of officers swapped roles during the evenings in question.  Moreover, it would have been relatively easy in our view, given the layout of this restaurant, as described in evidence and as depicted in B/32 to count persons actually dining and to make some brief notes while inside the restaurant.  The cross examination, which impressed us, demonstrated inherent difficulties with the type of observations carried out, and among other things, highlighted details which could have been but were not recorded.

Result
50.	We find that the Assessment is excessive.  In accordance with Tribunal practice, we direct parties to confer with a view to agreeing an amended figure based upon our Decision and in particular paragraphs 14, 18, 36 and 37.

51.	We shall continue proceedings for a period of 28 days to enable parties to reach agreement on figures, and expenses.  Failing agreement, a further hearing will be fixed in order to determine the appropriate figure and to deal with any question on expenses.

J GORDON REID, QC., F.C.I.Arb.,

CHAIRMAN

RELEASE:  2 AUGUST 2005

EDN/04/83