19360
	ASSESSMENTS UNDER S.73 VATA — wholesale jeweller — underdeclarations for 12 accounting periods — discrepancies in business and financial information supplied — no attendance at hearing by or for Appellant — appeal dismissed — costs awarded to Respondents  

MANCHESTER TRIBUNAL CENTRE

 
 	
	VANEESH RALLI	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Elsie Gilliland (Chairman)
						Peter Whitehead
						Susan Stott FCA ATII

Sitting in public in Manchester on 7 October 2005 

No attendance by or on behalf of the Appellant 

Jonathan Cannan, of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The appeal heard by the tribunal was that of Vaneesh Ralli (the Appellant) against assessments raised by the Respondents (the Commissioners) on 22 October 2003 pursuant to section 73 of the Value Added Tax Act 1994.  These were in respect of VAT arrears for the 12 accounting periods from 1 June 2000 to 31 May 2003 in the sum of £215338.00 plus interest.  The Appellant had been registered for VAT purposes since 1 May 1999 and was deregistered on 1 September 2004. 
2.	The Appellant did not appear in person or by representation at the hearing and at the request of Jonathan Cannan Counsel for the Commissioners the tribunal determined to proceed under Rule 26 (2) of the Value Added Tax Tribunals Rules 1986 as amended.
3.	In the absence of the Appellant, Counsel assisted the tribunal by setting out the history of the assessments.  These related to the business of the Appellant as a wholesale jeweller.  The premises from which the Appellant traded appeared to be retail premises though at the time of visits made by officers of the Commissioners they were closed for refurbishment.  In the VAT application form the business was stated to be the buying and selling of Asian jewellery but it was suggested on one of the visits that the retail trade had not commenced.  It was in view of the uncertainty surrounding a retail operation that the Commissioners decided to assess the wholesale trade only. 
4.	Counsel outlined the contact made by the officers with the Appellant.  The visiting and assessing officer, Michael John Everett, gave first hand evidence of this.  There were problems in making contact and indeed Mr. Everett had never at any time met the Appellant.  An initial visit on 7 August 2003 was unannounced but no one was available.  On 13 October 2003 Mr. Everett and a colleague met a Mr Ralli senior, said to be the Appellant’s father, at the premises and collected some purchase invoices for three periods.  At a subsequent unannounced visit on 18 August 2003 there was no indication of trade.
5.	Mr Cannan told the tribunal and the officer confirmed that from other sources Mr. Everett had obtained details of importations into the UK made by the Appellant and of purchases from the sales records of a local Preston supplier, CB Jewellers.  With a continuing lack of contact and information on 19 September 2003 the officer sent to the Appellant a prior notification of VAT assessment.  A preliminary calculation for each of the 12 periods showed an underdeclaration. The officer used  the total net imports and the net purchases from CB Jewellers with the expected mark-up of 51% for wholesale jewellery trade class 51473.   This provided a figure for total expected net sales from which expected VAT was ascertained.  Although business records were called for none were produced for inspection and accordingly on 22 October 2003 a notice of assessment in the sum of £215338.00 plus interest and later a misdeclaration penalty were issued.
6.	We were informed that it was not until nearly five months later, on 12 October 2004, that contact was made on behalf of the Appellant through Sayed & Co., a firm of accountants in Manchester, appealing the assessment as “estimated and excessive and not in accordance with information provided…”.   During this intervening period the matter had been referred to the Management Unit of the Commissioners and thence in March 2004 to the Bankruptcy and Winding-up Section.  The accountants’ letter was treated as a request for a reconsideration and dealt with by an appeals officer.  The relevant business records had still not been produced and the assessment was upheld.  This generated the first substantive response on 12 May 2004 with material being provided by the accountants using imported gold and jewellery figures purchase and sales and stock records and gross margins on sales as the basis of calculations to support declared sales.  Business records were supplied. 
7.	There did not appear to be full explanations for all the figures in the schedules produced by the accountants.  Further, Mr. Everett was aware only of purchases from CB Jewellers. Without information the officer could not take others into account.  There was also provision included for imported goods returned as faulty (£150,696) and a reference to goods stolen (£88,000) and reported to the police.  There were inconsistencies in the closing stock figures and a gross margin on sales of 4%-8% was not satisfactorily evidenced and on the face of it was low.  Gold was shown in an exhibit as resold at £221,940 but noted elsewhere in the papers as an addition to sales at no profit.  Mr Everett on examining the paperwork found a number of discrepancies which he set out in an undated detailed letter to Sayed & Co. in July 2004.  There was an undeclared sales invoice to MI Jewellers for assorted jewellery (VAT £16,210.42); the local purchases from CB Jewellers were lower than in the Commissioners’ list; the incident record of the police showed an allegation in August 2000 of £30,000 (not £88,000) stolen from Bhupinder Ralli’s car outside a restaurant and noted as undetected; the special accounting scheme for two gold transactions did not appear to have been properly applied; the calculations showed net sales in excess of declared sales which would result in a further decrease in the Appellant’s mark-up/ profit margin.
8.	Further correspondence ensued but the Commissioners were still not satisfied that the Appellant’s VAT declarations were correct.  The appeal before the tribunal was forwarded on 25 September 2004, duly signed by the Appellant, and the grounds set out in it were that:
(a)	“the amount of the assessment was estimated and without examination of business records” and 
(b)	“on submission of records to the VAT officer for reconsideration of the assessment, the letter of 6th August 04 attached, instead of accepting the records and withdrawing the assessment, further 5 points were raised without delivering the records back to us for re-examination and answer. Please see attached sheets from Agents also.”
9.	 The Commissioners confirmed that those records were returned to the accountants on 10 August 2004.  Replies to the five points raised by Mr Everett were set out in a letter from the accountants dated 22 June 2005.  The first of those queries had arisen on an input claim by other jewellers.  The response, however, appeared to the Commissioners as having confused two different supplies of stock, one of which had been subject to a robbery and replaced. The explanation was not considered credible.  On the second point the officer could no longer recollect the source of his information but as Mr Cannan submitted there was no clear explanation from the accountants for the discrepancy in the figures.  Mr Everett referred to the difficulties in reconciling two sets of trading records which were not on a like to like basis. Thirdly in connection with the sum of £88,000 inserted in respect of the theft the Commissioners were told that that related to another incident reported by Mr Valli senior of a theft of gold jewellery for which for a reason not explained there was no insurance cover with no additional evidence produced to substantiate this.  On the fourth point the Commissioners found the records wholly unreliable on the two invoices.  Finally, it was the view of the officer that to establish the position claimed in the paperwork the Appellant would have had to have had significant export sales substantial overheads or a large holding of stock none of which was apparently the case.  The Appellant had throughout the period received a net VAT repayment of £91,250 on the basis of his own declarations and no explanation had been given as to how  this arose.  A further letter was sent to the accountants by the Commissioners on 13 July 2005 from the local compliance officer who had considered the matter stating that there was no evidence on which the officer’s assessment could be reduced or withdrawn.
10.	The evidence before the tribunal shows a consistent unwillingness on the part of the Appellant to sustain regular contact with the Commissioners and respond to their enquiries with relevant information from his accounts.  Accordingly the approach of the officer has been to look at the known purchases and apply to them a reasonable mark-up.  We are satisfied that this methodology was a proper basis for the calculation of the Appellant’s VAT liability.  Mr Everett was entitled to inspect the complete business records of the Appellant together with all sales and purchase invoices.  It could be the case that there were further domestic purchases and thus that there could be an understatement of overall purchases.  In those circumstances the advantage is to the Appellant.  There was a belated response from the accountants on the issues raised by Mr Everett in his letter of July 2004.  The replies did not cause the officer to change his mind on the assessments nor the compliance officer to vary them.  We accept this view as reasonable.  These were unsubstantiated statements which did not constitute fresh evidence.  We have noted the inconsistencies referred to us in the evidence before us.  These have been identified from an analysis of the calculations produced by the Appellant’s accountants.  On the face of it those schedules are inaccurate and incomplete and cannot be relied on.
11.	In the course of the evidence given by the officer, a minor miscalculation was identified arising in respect of a contra entry, which if taken from a purchase figure would effect a reduction in the VAT calculation.  This will be corrected.  It is minimal only and does not affect our decision.  We are satisfied that best judgment was exercised in the raising of the assessments both as to the approach of the officer where every opportunity was given to the Appellant and his advisers to deal with outstanding points and in the calculation of the figures.  It is the responsibility of a taxpayer to meet his liability for payment of tax due from him.
12.	The appeal is dismissed.
13.	As there was no attendance by or representation of the Appellant at the hearing before the tribunal Counsel for the Commissioners requested that costs be awarded to the Commissioners in the sum of £1,500.  The Commissioners are entitled to costs and accordingly we direct that the Appellant shall pay to the Commissioners costs of £1,500.

1.	

ELSIE GILLILAND
CHAIRMAN
Release Date: 22 November 2005
MAN/04/0553