19597
ASSESSMENT – Suppression of takings in restaurant – Test purchases and observations by Customs – Sales found not to have been recorded – Purchase invoices not recorded – No explanation offered by Appellant – Calculation of suppression rate revised and reduced twice – Whether assessment to Commissioners’ best judgment – Yes – VATA 1994 s73(1)

PENALTY – Dishonest conduct – Whether in the circumstances revealed by evidence, Appellant’s conduct dishonest – Yes – VATA 1994 s 60(1)

LONDON TRIBUNAL CENTRE

	RAMIZ UDDIN T/A DIWAN-E-AM RESTAURANT	           Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE 	             Respondents

				Tribunal:	ANGUS NICOL (Chairman)
						J G ROBINSON FHCIMA, FCFA

Sitting in public in London on 8 and  9 March 2005

The Appellant did not appear and was not represented

Caroline Neenan, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This appeal came on for hearing on 8 March 2005.  On that occasion the Appellant himself was not present, but he was represented by Mr Habib Rahman.  Mr Rahman told us that he had had no contact with his client for some time.  He had, he said, last spoken to Mrs Uddin approximately three months earlier, and she had told him that her husband had gone back to Bangladesh and was suffering from severe depression.  Mr Rahman had asked Mrs Uddin to ask her husband to contact him from Bangladesh, but there had been no response.  Mr Rahman said that he had learnt later that the whole family had gone to Bangladesh.  He had no instructions from his client, nor had he been able to prepare to conduct the appeal on the Appellant’s behalf.  He was able to say that the Appellant had ceased trading on 20 June 2004 and had tried unsuccessfully to sell the business.  He was not sure whether Mr Uddin had eventually sold it or had simply walked out.  He felt that the best he could do for his client was to apply again for the appeal to be stood over,  Miss Caroline Neenan, for the Commissioners, opposed that application, and said that the Commissioners’ case should go on; it was the responsibility of the Appellant to instruct a representative to prosecute the appeal.  The Commissioners were ready to present their case.  Mr Rahman replied that it was possible that the Appellant might be suffering from a genuine medical condition, though he had no evidence. 

2.	Since this was not the first time the case had been stood over, for similar reasons, we took the view that the hearing should continue in accordance with the provisions of rule 26(2) of the Value Added Tax Tribunals Rules 1986 in the absence of the Appellant.  Under rule 26(3), the Appellant would have fourteen days after the release of the Tribunal’s decision to apply to have it set aside and the appeal reinstated.

3.	The appeal is against an assessment to VAT in the amended sum of £49,996 in respect of the periods 10/96 to 4/01, notified to the Appellant on 22 June 2001, and a penalty under section 60(1) of the Value Added Tax Act 1994 in respect of dishonest conduct, in the sum of £50,224, notified to the Appellant on 15 July 2002, which was reduced to £44,996 in January 2003.  The relevant statutory provisions are sections 73(1) and 60(1) of the Value Added Tax Act 1994 which are as follows:

“73	Failure to make returns etc
(1)	Where a person has failed to make any returns required under this Act … or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.

60.	VAT evasion: conduct involving dishonesty
(1)	In any case where-
(a)	for the purpose of evading VAT, a person does an act or omits to take any action, and
(b)	his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),

he shall be liable … to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded by his conduct.

70.	Mitigation of penalties under sections 60, 63, 64 and 67
(1)	Where a person is liable to a penalty under section 60 … the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper.” 

4.	In his notice of appeal, the Appellant said, as to the assessment:

“The assessment is estimated and excessive.  No underdeclaration took place, the officers did not take into account the difficult circumstances under which Indian Restaurants make their livings.  Customers go away without paying, expect free drinks, there is wastage in both food and drinks.  They relied on their observations only without comparing the findings with any other method.  Nor [did] they discuss their findings with the trader.  Their letter of 14th June 2001 followed by the assessment on 22nd June 2001 was without giving the trader a chance to explain required by Human Rights legislation.  We contend that the officers did not exercise their best judgment and the assessment be set aside.”

In a second notice of appeal dealing with the penalty under section 60(1), the Appellant said:

“The assessment which forms the basis of this penalty assessment was estimated and excessive.  The taxpayer categorically refuses [sic] any dishonest conduct on his part.  He did not evade any tax and therefore he is not liable to any penalty.”

The facts

5.	The facts set out in the statement of case were as follows.  The Appellant carried on business in an Indian restaurant under the name of Diwan-E-Am in Croydon, and had been registered for VAT with effect from 20 November 1995. On 4 November 1999 officers of Customs and Excise visited the restaurant and made test purchases.  A further visit took place on 9 November, on which occasion the Appellant’s records were examined and removed.  From the test purchases and records the Commissioners formed the view that the Appellant’s VAT returns had underdeclared the amount of tax due.

6.	The day-to-day accounting in the restaurant was carried out by means of duplicate meal slips.  One copy went to the kitchen and the other remained in the restaurant.  At the end of each day the kitchen copy was destroyed and the restaurant copies were totalled and bundled together, and the amount of the total takings was written on the back of each bundle. That figure was then checked against the total of cash, cheques and credit card receipts.  The total was then recorded in a loose-leaf book, and passed, together with purchase invoices, to the Appellant’s accountant who prepared the VAT returns.  The returns were signed by the Appellant.

7.	Further test purchases and observations were carried out on three days in February 2000 and one on 24 June 2000.  A further visit was made on 25 June 2000, and the Appellant’s records were removed again.  An analysis of the records by comparison with the observations and test purchases revealed that a number of the test purchase receipts were missing from the records, and a number of observed meals sold to customers were also absent from the records.  A meal purchased by a Customs officer in his private capacity in September 1996 was also found to be missing from the records.  The Commissioners concluded that the level of the Appellant’s takings was being suppressed.  On 12 November 2000 officers attended the restaurant and witnessed the takings for the day being counted.  The amount was £457.20, which was the highest Sunday night takings figure within a period of 14 weeks, and shewed an increase of 108 per cent on the average takings for all nights over the same period.  The Appellant’s records were again removed for further analysis.  The further analysis revealed that a number of meal slips had not been declared, and also that the Appellant was apparently employing staff who were not included in the record of employees with the Inland Revenue.  Following that, the Commissioners issued the Appellant with information sheet 04/00 (the Commissioners’ policy on negotiated settlement of VAT arrears) and Notice 730.  The Appellant was invited to attend for interview; on a number of occasions he cancelled appointments for interview, and the interview did not take place until 23 April 2001.

8.	There were two interviews.  At the first, on 23 April 2001, the Appellant denied underdeclaring his output tax and also denied any dishonesty.  He said that he had discovered a member of staff stealing some of the takings, and had dismissed him.  That, he said, had not been reported to the police.  He also said that at times when he was out of the country another member of staff handled recruitment, so that he did not have complete control over staff recruitment.

9.	The second interview took place on 2 May 2001.  On that occasion the Appellant was asked about the missing meal slips, and was unable to give any explanation, nor as to why the observed takings were significantly higher than the declared takings.  He said that he could not understand how there were purchase invoices which had not been declared.  When the matter of staff not declared to the Inland Revenue was mentioned, the Appellant said that sometimes his brother helped in the kitchen for no wage.  After the interview the Appellant was invited to provide any further relevant information.  He failed to do so, and was informed in a letter of 31 May 2001 that an assessment of arrears of tax would be raised.  He was advised of the assessment calculation on 14 June and the assessment was raised on 22 June 2001. A review of the calculations was carried out, and an amended assessment notified to the Appellant in January 2002.  A further review, following receipt from the Appellant of four returns, for the periods 7/00 to 4/01, led to a reduction in the assessment, and another amended assessment was notified to the Appellant in February 2002, in the sum of £49,996.

10.	The Commissioners considered that a penalty under section 60(1) of the Value Added Tax Act 1994 should be imposed on the ground of the Appellant’s dishonesty.  The penalty assessed was in the sum of £44,996, giving credit for a 10 per cent reduction to reflect the limited co-operation given by the Appellant. As evidence of dishonesty, the Commissioners relied upon the fact that meal receipts were missing from the records, that internal observations of the level of business compared with declared takings suggested that the suppression was consistent and deliberate; that meal slips were found in the restaurant on one occasion which were not shewn in the books; that purchase invoices were excluded from the records; and that when the takings were counted in the presence of officers they were more than double the usual average declared takings. The Appellant had also failed to give any credible account of the discrepancies.

Defence

11.	The Appellant, through his accountants, Habib Rahman & Co, put in a defence. In that defence he denied that the VAT returns were incorrect and put the Commissioners to strict proof of that allegation. It was denied that the Appellant wrote up the total in the till as the takings of the day as against the bill totals, as was said to be alleged in paragraph 4; however, there was no allegation that that was so in paragraph 4 of the statement of case.  The Commissioners are put to strict proof of the test purchases. As to paragraph 7 of the statement of case, dealing with the cashing up on Sunday 12 November 2000, the Appellant said that the takings could not have been so high on a Sunday night unless there had been some local function which brought additional custom into the restaurant.  It was denied that there were order slips which had not been declared, and also that staff were employed who had not been declared to the Inland Revenue. The Appellant denied dishonesty. He explained that his business was a sole proprietorship, and as was usual with such businesses members of his family helped him as and when necessary. He denied that staff were employed without the knowledge of the Inland Revenue. He put the Commissioners to strict proof of undeclared purchase invoices. Finally, he contended that the 10 per cent mitigation of the penalty was too low.

Evidence

12.	Evidence was given at the hearing by the officers concerned. The first was Robin Walker. He made a witness statement, which he confirmed on oath. He had visited the Appellant’s premises on 9 November 1999 and had spoken to the Appellant. He made notes while there. He produced six purchase invoices from I & M Wines. Of these, three were headed “Diwan-E-Am” and had been signed by the Appellant. The other three were headed “1 Cash Account” and each bore a signature similar to one or another of those on the first three. None of the latter three appeared in the record of business purchase invoices. He noted the declared bills for 22 September 1996, when another officer, Martin Corbett, had made a test purchase incurring a cost of £55.40, and found that there was no such receipt recorded in the Appellant’s books for that date.  He also compared the recorded restaurant bills for 4 and 5 November 1999 with details given to him by other officers who had made test purchases on those dates.  There were three, one of which was recorded and the other two not. The other officers had observed and noted that on 4 November, 48 customers were sold meals, but only 25 of these were declared.

13.	The next officer, Patrick Limpkin, also submitted a witness statement as part of his evidence.  He said that he had examined the business records of the Appellant that had been taken from the restaurant, including seven bundles of sales invoices shewing daily takings for seven dates in February, April, June, and September 2000.  He said that on 12 November 2000 he had visited the restaurant with another officer, Mr Hurrell, and asked the Appellant to produce all sales bills and associated documents for that date, as well as all other business records held at the restaurant.  Mr Limpkin listed the documents.  He produced 26 invoices and kitchen copies of bills, and credit card slips and other business documents.  He also found three tear-off bill receipts, dated 11 February, 13 April and 30 September 2000, none of which, on comparison, appeared in the Appellant’s records. The officers then asked the Appellant to cash up, and Mr Limpkin made notes of the details.  The total value of all bills was £457.20, of which card payments were £243.60 and cheques £213.60.  The cash amounted to £269.90, which included a £50 float.  Mr Limpkin issued the Appellant with a copy (in Bengali) of Notice 730, and invited him to attend an interview.  He later wrote to the Appellant on six occasions between November 2000 and April 2001 to arrange an interview.  He stated also that he had contacted the Inland Revenue, asking for details of the Appellant’s employer’s annual returns, which the Inland Revenue provided for the years from 6 April 1995 to 5 April 2000.  Eventually two interviews took place, through a Bengali interpreter, on 23 April and 2 May 2001, of which Mr Limpkin produced transcripts. (We deal with the interviews in paragraphs 24 to 54 below.)

14.	After the interviews, Mr Limpkin said that he allowed the Appellant a period to consider what had been discussed during the interviews, and to produce any further information.  To this there was no response, and Mr Limpkin informed him by a letter of 31 May 2001 that he would report the matter to the Commissioners with a view to an assessment being raised.  Mr Limpkin wrote to the Appellant on a number of occasions informing him of the assessments and of the amendments to the assessments.  Copies of all the correspondence were produced.

15.	Comparison of the restaurant bills and records taken from the restaurant with the observations and test purchases made by the officers shewed that on 4 November 1999 two of the three test meals were not declared, nor were 19 other meals sold, which had been observed by the officers, declared.  Two take-away meals were not declared.  On that date the full day’s trading was observed.  Further observations were carried out on 10, 11 and 26 February and 24 June 2000,.  On three of those dates part of the evening’s business was observed, and on 26 February 2000, the whole evening’s business was observed. Test purchases were also made on those dates.  None of the test purchases was recorded by the Appellant on any of those dates.  Between the three partly observed evenings 49 sales were found to have been suppressed, and on the fully observed evening 36 sales were not recorded.  It was also observed that  some take-away sales had not been recorded.  

16.	On the basis of the observations and comparison with the Appellant’s records, Mr Walker calculated a suppression rate of 44.82 per cent.  This was based upon an average cost per head of the meals sold, which varied on each of the five days between £10.93 and £12.30, applied to the number of unrecorded sales.  The total undeclared takings for those days were found to be £1,480.46.  From the VAT returns, the declared takings per week from 1/97 to 10/99 were calculated to be £2,193.  Applying the suppression rate calculated, and allowing 8 per cent as input tax in respect of unrecorded drink purchases, Mr Walker calculated that £3,167 of VAT had been withheld each quarter, or £60,173 over the whole period under investigation.  Later, some errors having been noticed, the suppression rate was amended to 42.23 per cent, giving arrears of VAT of £54,226

17.	Mr Rahman, of Habib Rahman & Co, wrote to the review officer, Mr Goble, on 26 September 2002.  He gives a little background information, which does not carry the matter any further, save that he mentions that the Appellant is illiterate and speaks no English, nor had he any business or managerial capabilities.  That may or may not be so; but these are matters of which the Appellant could have given evidence had he chosen to attend the hearing.  Mr Rahman also carried out an exercise for the purpose of discovering whether there was anything wrong with the business.  He enclosed his workings.  The workings begin with a comparison in tabular form of the takings in respect of food and drinks, for both restaurant and take-away meals, for the months of May, June and July 2000.  From this it is calculated that the proportion of drinks to meals is 32.83 per cent, and the proportion of take-away sales is 27.824 per cent of the whole.  There then follow five pages of close and detailed analysis of drinks purchases with a calculation giving a weighted mark-up of 99.14 per cent.  From this, Mr Rahman arrived at a total of drinks purchased between 1 May 2000 and 30 April 2001 of £10,238.62, and applied the mark-up in the following way:

	Drinks purchased			£10,238.62

Add weighted mark-up  99.14 per cent:  £10,238.62 x WMU + 1   =    £20,389.01
						      1.99

Ratio drinks to bills 32.828% calculated on restaurant bills = 	72.176%	£62,108.61
	Takeaway sales 27.824% of total sales	27.824%	£23,943.00
	Restaurant bills						£62,108.61
PROJECTED SALES THEREFORE IS						£86,051.61

VAT on projected sales   17.5% of £86,051.61			£15,059.03

Tax declared 01-05-00 to 30-04-01					£15,346.39

Tax underpaid (overpaid)						  (£287.36)

18.	There appears to have been no response to the letter of 26 September 2002 and the accompanying calculation.  Certainly, we were shewn none, nor were we shewn the letter of 21 August 2002 to which Mr Rahman’s letter was a reply.  Since there was no evidence from the Appellant, we will give proper consideration to Mr Rahman’s calculation in reaching our decision.  What was not clear, and we had no means of elucidating the matter, was whether Mr Rahman had taken the sales figures from the Appellant’s records, or whether he had taken into account the discrepancies which the Customs officers had found.

19.	As to mitigation of the section 60 penalty, Mr Limpkin said that at first he considered that 5 per cent mitigation was all that the Appellant had earned by attending two interviews, but he later increased it by another 5 per cent on account of his having assisted with the cashing-up exercise. He had also acknowledged that he had been in the United Kingdom on the date of one of the observations, in April 2000.  Otherwise there was no means of knowing whether he had been in the country on any of those four dates.

20.	The I & M Wines invoices had been produced by Mr Walker, who found them on his visit on 9 November 1999, when he met the Appellant.  Three were on account number 175, and three others on bills headed “1 Cash Account”.  Amongst the exhibits produced to the Tribunal there were also several invoices headed “Cash Account 2”.  Mr Walker also looked in the records for the amount of a test purchase made on 22 September 1996 by Mr Corbett, in the sum of £55.40, and found that it had not been recorded.  Mr Martin Corbett gave evidence that he had, on 22 September 1996, with three other officers made a test purchase costing £55.40, and another, with Mr Rintoul, on 11 February 2001 at a cost of £42.25.  On that occasion he also observed and noted the other customers who came and went during the time they were there.

21.	Another officer, Mr Paul Davison, visited the Diwan-E-Am on 4 November 1999 with Mr Jackson.  They began by keeping external observation, from 5.58 p.m. until 7.04 p.m., noting who went in and came out.  He noticed sixteen others eating in the restaurant while he was there.  The two officers made a test purchase costing £33.45, for which they paid cash.  They left at 9.12 p.m., at which time two other officers, Messrs Ewen and Porter, entered.  Mr David Porter said that he made a record, while seated at a table, of the other customers already there and who came in later.  The two officers’ bill came to £28.25, and was paid in cash.  He also noted the staff whom he saw, who were three in number and also a male in a white apron coming in from the kitchen.  He also noted, but did not identify, another male person with short cropped balding hair who entered from the kitchen.  They left at 11.08, and then kept external observation again until 11.55 p.m., during which time he saw a further ten people enter the restaurant.

22.	Mr Paul Owers said that he and another officer visited the restaurant on 10 February 2000 and made a test purchase.  He noticed three people working in the restaurant, and nine customers were present when he arrived at 7.35 p.m.  Another seven customers came in and purchased meals while he was there.  He also noticed two take-away meals being ordered. They left about 9.15.  Mr Owers made another visit on 26 February at about 8.45, and a third on 24 June 2000.  On each of those occasions he made a test purchase, for which payment was made in cash, and noted that 46 customers had meals on 26 February and 30 on 24 June bought meals.  He also noticed that a number of take-away meals were ordered, and some apparently being delivered. Mr Neil Rintoul and another officer also made test purchases on 26 February, being on the premises when Mr Owers arrived.  .

23.	Mr Keith Hurrell visited the restaurant at lunch-time, 12.20, on 4 November 1999 with another officer and made a test purchase.  They were the only customers between then and when they left at 2.10 p.m.  He also noted that a take-away meal was ordered on the telephone, but that was neither collected nor delivered while they were there.  Mr Hurrell was also present at and took part in the interviews with the Appellant.

The interviews

24.	Both interviews were long, the first being just over four hours and the second three and a quarter.  The length was extended, no doubt, by the fact of having to carry out the interview through an interpreter.  It was also repetitive, and there were places where it appeared that the officers and the Appellant were at cross purposes.  Early in the first interview the interpreter admitted that he was “not all that fluent in Bengali”, and it was clear in other places that his English was imperfect.  There were, therefore, parts in which it was not particularly easy to understand from the transcripts exactly what was being said, by either the officers or the Appellant.  We deal with the interviews in some detail, because the answers tend to go to the issue of dishonesty, and because of  the absence of evidence from the Appellant

25.	The beginning of the first interview was taken up by Mr Limpkin explaining to the Appellant what was meant by dishonesty, that is, taking deliberate steps to suppress his takings and not doing so by accident or mistake.  It was also explained to him that a new procedure was being initiated, under which he could obtain up to 80 per cent mitigation of the civil penalty if he made a full and detailed disclosure of his dishonest conduct and a schedule of the amount of VAT underdeclared, with a view to a negotiated settlement of the arrears of tax.  The contents of Notice 730 were also explained to the Appellant, in Bengali, by the interpreter.  This procedure involved putting four questions to the Appellant.  The first was, “Have any transactions been omitted from or incorrectly recorded in the books and records of Diwan-E-Am?”  The Appellant answered, “No.”  The second question was, “Are the books and records you are required to keep by HM Customs and Excise for Diwan-E-Am of Croydon ... correct and complete to the best of your knowledge and belief?”  The Appellant’s answer was “Yes.”  The third question was, “Are all the VAT returns of Diwan-E-Am ... correct and complete to the best of your knowledge and belief?”  The answer was, “Yes.”  The fourth and last question was, “Were you aware that any of the VAT returns were incorrect or incomplete at the time that they were submitted?” The Appellant answered, “No.  I am sorry that I did not know that they were incorrect.”

26.	The questions and answers were then repeated by Mr Limpkin, and the interpreter endeavoured to translate it all to the Appellant; it was not put to him question by question and answer by answer so that the interpreter could translate each one by one.  He expressed uncertainty whether the Appellant had fully understood.  The Appellant, through the interpreter added, “I haven’t done something off of my own record.  In my absence if somebody had done something or witnessed something for which I am not aware of it, you know.”  Mr Limpkin asked him, “So he is not aware of any actions on his own part which have resulted in an underdeclaration of VAT?”  The Appellant answered, “No.”  It was then explained to him that as a result of his giving those answers the negotiated settlement procedure came to an end, but that the Notice 730 procedure still applied.

27.	The Appellant agreed that he was sole proprietor of the restaurant, and that he carried on restaurant and take-away business, including delivery of take-away food.  Asked what the usual procedure was for taking orders in the restaurant, he said that a waiter took down the order on a bill form, one copy of which went to the kitchen and the other kept in the restaurant.  The table number and number of customers at the table were written on the top copy.  The word “out” was written at the top of take-away bills, with the addition of “Del” if it was to be delivered.  Then when the bill was paid, it was kept impaled on a spike.  Payment was accepted by cash, cheque, and credit card.

28.	When cashing up, the Appellant said, he tallied the total amount received with the amounts of cash, cheques, and credit card slips.  He identified a bundle of bills of 22 March 2000 as having his handwriting giving the totals on the back of the bundle. At the end of a day he would receive a bundle of bills together with the cash, the cheques, and the credit card slips.  He said that he rarely carried out the task of checking the bills with the receipts, it was normally the member of his staff who was in charge on that day.  He said that he did not have time to total the bills himself.  He did not normally check that the total was correct, he trusted his staff to get it right.  The Appellant said that he worked as chef in the kitchen, and only dealt with the paperwork if the rest of the staff were absent.  He said that he did not check the kitchen copies of the bills until after Customs officers had told him that he should.  

29.	The Appellant said that the daily totals were recorded and kept in an A4 ring-binder.  The record was not necessarily in the Appellant’s handwriting, in fact he said that the occasions when it was his writing would be few and far between because he often travelled back home to India, leaving his staff to run the restaurant.  The file would be passed to the accountant, who would compile the VAT return from it.   He did not send the actual bills to the accountant.  He followed the procedure used by his predecessor in the business, without knowing whether it was correct or not.  He said that he understood that if the figures in the record, whether or not written by himself, were incorrectly recorded, the VAT return would be incorrect.  Until he had been instructed by Customs to check the figures he had never done so.  He said that he was not an educated person, and worked as a chef.  

30.	When asked whether he had had any problems with staff stealing from the business, the Appellant said that he had had one employee in twenty years who was found to be dishonest, and he was dismissed that day.  The total of bills did not equate to the cash, cheques and credit card payments, and that had happened on two occasions with the same employee, who was found to be dishonest.  It had never happened since.  The theft had not been reported to the police.  He was unaware of any theft of stock; the business was, he said, run on trust and he did not check the stock to find out if anything was missing.  Occasionally a customer would pay less than was shewn in the bill.

31.	The Appellant said that the tear-off slips at the foot of the bills were receipts to be retained, if they wished, by the customers.  Usually a customer would ask for the receipt and it would be handed over.  If the customers did not want to take the receipts they were put in the bin at the end of the evening.

32.	The banking of the takings was done by the Appellant if he was present, if not by his manager, or rather by whoever had been in charge of the till that night.  The Appellant said that in his absence one of his relatives, Mr Hussain, would come and help out with banking the money.

33.	When in the country, the Appellant said, he employed the staff.  When he was absent, whoever was in charge would employ staff as necessary.  He said that if he was out of the country he had to rely on someone else to do it, and had to trust his judgment.  He said that he had been in the United Kingdom for most of 1995 and ever since then, but he had been back to India six or seven times, for three, four, or six month at a time.

34.	The Appellant was asked how he took his wages.  He said that did not take any wages but drew money when he needed it.  If cash was available in the till he took it from there, if not, which might happen if a lot of bills were paid in cash, he would draw cash from the business account at the bank.  He also drew cash from the bank to pay wages.  He would use the money drawn for personal expenses.  Any extra money coming in would go into his personal account.  He had, he said, two accounts, a business account and a personal account.  He had no other account over which he had control.  He no longer had a bank account in Bangladesh.  When he was in the country, the Appellant said, he paid the staff wages, usually at the close of business on Sunday.  But if he was short of money on a Sunday he would pay the wages on the Monday.  Wages were paid in cash; the Appellant kept a note of who worked what hours, and in his absence whoever was in charge would do so.

35.	Most of the bulk buying for the restaurant was paid for by cheque; small items might be paid for in cash.  Whoever, among the staff, found himself short of supplies would do the ordering. “Sometimes a supplier would come and ask whether they needed supplies, and sometimes he would telephone to them,” the Appellant said.  One of the suppliers was I & M Wines.  Their bills were normally paid by cheque a month in arrear.  A member of the staff would write out the cheque and the Appellant would sign it.  The member of staff who had made the order would check the delivery; but if he was not in the restaurant when delivery was made, whoever received it would check with the invoice that it had all been delivered.  The Appellant said that if he was working in the kitchen he would place an order; if he was abroad whoever was working in the kitchen would place the order and check the delivery when it came.

36.	The Appellant said that he was in Bangladesh from the beginning of November 1999 until 1 April 2001.  In 1998 he had gone to Bangladesh twice, in the summer and in the winter, for three or four months each time.  His passport, he said, would shew that.  He would be happy to produce his passport.  When he was abroad, he said, his wife, who worked for Kent County Council, would look after the house and family on her own wages.  The house had been bought by himself and two brothers on a mortgage, of which his share of payments was £300 a month, which was paid by direct debit.  That was paid out of a separate account, a mortgage account, which was held jointly by himself and his two brothers.  His brother, he said, worked as a chef in a restaurant in Penge.  It was he who banked the money from the Appellant’s restaurant when the Appellant was absent.  Sometimes he would come and lend a hand, when he had a day off.

37.	The Appellant was shewn a cheque for £1,071.70 which had apparently been written in settlement of an invoice for £314, and asked to explain.  The cheque, he said, was to cover not just that invoice but others as well.  It was a balance figure.

38.	When the Appellant was abroad he normally left a number of signed blank cheques in his wife’s custody, and she would issue them when required on being shewn the invoice to be settled.

39.	The Appellant said that the restaurant was open seven days a week, unless there was some kind of crisis or a shortage of staff, when it might have to be closed.  It was open for business in the evenings only.  Staff would be present in the afternoon, preparing for opening in the evening.  There were normally three working in the restaurant, apart from the Appellant himself.  The other chef was Mr Islam, who had worked for the Appellant since six months after he arrived.  He normally worked 25 hours a week, occasionally more.  For 25 hours he would be paid £91 in cash, for 30 hours he is paid £106.  He only employed kitchen porters when the restaurant was busy, otherwise members of the family helped. Then the following question was asked: “You are open seven, days a week from six in the evening ’til twelve at night.  Six hours times twelve, 72 hours.  You have a waiter for thirty.  Who does the other thirty hours?” The sense of that question was not entirely clear, and to put it into another language may have been no easy task.  However, the mistakes were not corrected.  The Appellant said that there was a lunch break, during which time staff were not paid.  He said that there was only one waiter working in the restaurant full time, for thirty hours.  Again the officers insisted that there were 72 working hours in the week, not including lunch time.  It was not made clear whether the restaurant was open from six to midnight or six to eleven.  The Appellant, through the interpreter, said that they were open five hours a day, which for seven days was twenty-five hours [sic].  Then it was established that seven days at six hours a day was 42 hours, and with the addition of three hours at lunch time on Saturdays and Sundays, a total of 50 [sic] hours.  Then the Appellant said that on Fridays and Saturdays there would be two waiters.

40.	Delivery of take-away sales was normally done by taxi, the Appellant said.  If he could not get a taxi in time, he would do it himself.  The taxis were paid £3.50 or £4 per delivery, in cash.  The cash came either from surpluses or from the tips.  Tips were kept in the till; if he took some of that money to pay a taxi he left a note in the till to that effect.  Occasionally small grocery purchases were made with cash from the till, again with a note being left in the till. That would result in a shortfall in the cash at the end of the day, but there would be notes accounting for that shortfall.

41.	The Appellant was then informed that officers had carried out observations and test purchases, and it had been found that some of the officers bills had not been declared.  The Appellant was asked if he could give an explanation for that, and it was put to him that those missing bills had been thrown away, and that the amounts had not been recorded.  The officers had also examined the Appellant’s payroll, and found that there were not enough staff declared as working.  The interview was terminated at that point, without any answer being given by the Appellant.  However, at the beginning of the transcript, it is stated that the interview ended at 15.30; however, the tape came to an end at 15.10, and if the interview continued after that, no more of it was transcribed.

42.	The second interview took place on 2 May 2001, and lasted from 11.39 until 14.55 (which agreed with the times given in the transcript).  After the introductory procedures, and a repetition of the explanation of the Notice 730 procedure, the Appellant was reminded that he had been asked to produce his bank statements relating to his mortgage account, and “the second account that we discussed” (it was not made clear to which account that referred).  The Appellant said, in any event, that he had not brought the bank statements with him and had not realised that he was supposed to do so.

43.	Returning to the account with I & M Wines, the officers shewed an invoice, numbered 4456 relating to an account numbered 175.  The Appellant agreed that that was his account with I & M Wines.  He agreed again that when he was abroad someone else would come in and place what orders might be necessary.  That invoice bore a signature, which the Appellant said was that of his younger brother, Tofisal, who had placed the order and had taken delivery of the goods, which were for the restaurant.  The invoice was dated 22 September 1999.  The Appellant said that he could not confirm that he was in this country at that time without checking in his passport.  He was reminded that he had been asked to bring his passport to the interview, and said that he had not realised that he was to bring it, but he could produce it at any time.  He was then asked, “What about 1998?”  This was clearly understood as asking whether he was abroad at any time in that year.  He answered that most probably he was out of the country, and had gone home twice a year; it was quite possible that he had been back home in 1998, but he could not remember when in that year.  He said that in 1999 he had gone in December, returning on 1 April 2000.

44.	There followed some discussion relating to a particular invoice issued by I & M Wines, during which Mr Chowdhury, the Appellant’s accountant, intervened to say that the interpreter was not translating correctly.  Mr Chowdhury said that the proper translation of what the Appellant had said was that the supplier would send a periodical statement, from which the Appellant could see which invoices had been paid and how much remained outstanding.  The Appellant would then decide which invoice or invoices he would pay.  He would normally pay the oldest first.  The question originally asked was, did the Appellant check the details of the invoices against the payments that have been made?  It took eight pages of transcript to achieve an answer, which was “Yes”.

45.	The officers then returned to the last questions asked at the end of the previous interview (see paragraph 36 above).  Mr Limpkin referred to a bundle of restaurant bills dated 10 February 2000, the back of which shewed total takings of £250.65.  The writing on the back, the Appellant said, was that of one of the waiters.  He pointed out that he had been in Bangladesh in February 2000.  Mr Limpkin referred to a binder containing hand-written details of the takings month by month.  The Appellant said that the takings and the dates for February 2000 had all been written by the same person.  He agreed that after 1 April 2000 the writing in the record would be his own.  That record shewed a figure of £250.65 for 10 February.  Mr Limpkin asked the Appellant if he could find a bill for £43.90 (one of the test purchase bills) in the bundle, and the Appellant said that it was not there.  He agreed that if the bill was not there the amount would not have been recorded in the takings record and therefore would not be included by the accountant in the VAT calculation.  The Appellant was also asked for an explanation of why the bills for four other customers were excluded, and he said that he could think of no reason why it should be so.  It was put to him that he had instructed his staff to destroy the bills, and he said that he had never done so.  Mr Limpkin pointed out that the result was that about £200 was not recorded for that date, and asked whether the Appellant would not have noticed that.  The Appellant said that he had noticed no discrepancies, and that he was given the account of the takings and accepted it as being correct.  He agreed that it was quite possible that someone had stolen about £200 from the business during his absence.  He said that if he was not in the country he had no control over what went on, but if he had been present he would have noticed such a discrepancy.

46.	Similar questions were asked about the evening of 11 February (when the Appellant said he was still abroad). On that evening, Mr Limpkin said, a test purchase bill for £42.25 had not been recorded and the bills of 22 other customers had also been omitted from the takings record.  Mr Limpkin calculated that that would amount roughly to £400. The recorded takings had been £648, and Mr Limpkin asked whether the Appellant ever took £1,000 in an evening. He said that he never had. The Appellant was shewn a bill issued on 11 February for £40, corrected from £42.25, and suggested that the higher figure had been paid in cash, and the bill then altered to £40 to coincide with a credit card payment, and the £42.25 cash pocketed by someone and not recorded.  The Appellant said that it must have been done by someone with access to the credit card machine.  He said that he was dumbfounded.  

47.	At this point in the interview Mr Limpkin repeated the basis upon which mitigation of the civil penalty depended upon the Appellant giving information relating to underdeclared takings, and the earlier he did so the greater the mitigation that would be allowed.  The Appellant said that he had nothing to add, and repeated that he was dumbfounded.

48.	The Appellant was asked about the staff employed when he was away.  The Inland Revenue list of his registered employees for national insurance purposes gave five names, and they were shewn as part-time staff.  The Appellant said that if one could not get full-time staff it was necessary to have someone working in the afternoon and someone in the evening.  The Appellant was asked whether he would consider that someone working from six until eleven or midnight was a full-time employee.  His answer was, “It would not be done by one person because he has got his day off.”  Asked who the other person would be, he said that he was not there, and “Whether Mr R Islam or the one who has worked part-time, or else my brother may have to give a hand for the subsequent days by taking the day off.  I have no idea.”  It was suggested that he was saying that when he left the country he had given no instructions for the finding of another chef.  He replied that going home to see his father who was ill was more important. 

49.	The Appellant said that he had never paid any wages to his brother.  He may have given them a hand when temporarily in trouble or in the event of the Appellant being absent, but he never worked in the restaurant on a full-time basis.  He was shewn a plaque which had been found among the Appellant’s records which shewed that Tofisal Hussein, the Appellant’s brother, had been designated runner up to the “Croydon Curry Chef of the Year” in 1996.  The Appellant said that he had gone in for that competition while he was working elsewhere, and gave the Appellant a hand sometimes.  He had never worked full time for the Appellant.  Mr Limpkin pointed out to the Appellant that there were paying-in slips which shewed that Tofisal Hussein had deposited money into the bank for the Appellant’s business, between 1997 and 2000; he mentioned six specific dates between November 1997 and January 1996 which, he said, were by and large Mondays and Fridays.  In fact four of them were Mondays and the other two Tuesdays.  That pattern, he said, continued through 1999; he did not say how often nor on which days, except that he mentioned 30 December 1999 (a Thursday) and 4 January 2000 (a Tuesday).  Mr Limpkin mentioned a further  three dates in 1998, one in 1999 and one in 2000, giving the day of the week in each case (except that for 22 September 1999 he said that it was a Wednesday when in fact it was a Tuesday).  Those dates were, he said, just examples.  He then said, “So your brother has been present, on the premises, virtually every day of the week.”  (He did not explain how he had come to that conclusion.)   Mr Limpkin asked why he did not appear on the wages record.  The Appellant said, “As I told you before ... he used to come and work in my restaurant during his time off.  In the event of some sort of problem, he even takes off - time off - special time off from his workplace to work every two days in case one of my staff is absent.”  He agreed that he worked at the restaurant on a “drop everything” basis with his employer, and does so without being paid by the Appellant.  Mr Limpkin then said that he believed that takings were being under-recorded and that that money was being used in part to pay off-record wages; the wages record shewed that when the Appellant was out of the United Kingdom there was no increase in staff levels to cover for a chef.  He said that what the Appellant was saying was not credible.  He put a number of names and the wages that the Appellant said that he paid to him, and said that he did not accept those figures.  The Appellant said that he had nothing further to add.

50.	The interview then returned to the matter of missing bills.  The Appellant was asked if he could account for missing and unrecorded bills on 26 February 2000, a Saturday, on which date officers monitored the restaurant for the entire evening.  On that evening test purchase bills were missing from the record, as were those of 34 other customers.  Mr Limpkin estimated that about £510 was unaccounted for, the declared takings having been £487.85. The Appellant could offer no explanation. The next date was 24 June 2000, also a Saturday, by which time the Appellant said he had returned from Bangladesh. The takings record shewed a total of £420.35, which agreed with the total on the back of the bundle of bills. The writing on the back was not his, the Appellant said. A test purchase bill could not be found, and a further 19 bills were missing, an estimate of £285 unaccounted for. Again, the Appellant could offer no explanation.  It was suggested to the Appellant that he had been in the restaurant on that day, and he did not demur.  It was pointed out to him that not only the restaurant bills were missing, but the kitchen copies must have been as well, and the Appellant, as chef, must have known how many meals he cooked.  The Appellant made no reply.

51.	Other dates, in November 1999 and September 1996 on which similar suppressions took place, were put to the Appellant, in answer to which he said nothing.  Mr Limpkin referred to 12 November 2000, a Sunday, the date on which the officers were present during cashing-up, on which the takings recorded, in the presence of the officers, were £457.20.  Mr Limpkin stated that he had summarised the period from August to November 2000, and the average takings recorded had been between £200 and £250, and pointed out to the Appellant that on this day, when the cashing-up was supervised, the takings were double the average.  The Appellant said, “No, I have nothing to say.  Whatever I get it I just show it to you.”  He was then asked what steps he intended to take to discover the true state of affairs, and he said that he would follow the instructions which the officers had given him.

52.	The Appellant was asked to explain why the amount of a bill for £64.25, the tear-off receipt from which was found in the restaurant, dated 11 February 2000, had not been included in the takings record.  He said that he could not give an answer.  Other tear-off receipt slips were shewn to the appellant, dated 30 September and 13 April 2000 and some undated ones, some of which must have related to dates after the officers had uplifted the Appellant’s books.  Again, the Appellant said that he had nothing to say.

53.	Asked again about his dealings with I & M Wines, the Appellant said that he had an account with that firm, and was allowed credit.  He said that he had only one account, and all purchases made from I & M Wines were for the purposes of the business.  He did not buy for his own personal use, nor for onward sale to customers.  The signature on an invoice dated 22 September 1999 was that of his brother.  Another signature, on an invoice dated 15 April 1998 was that of one of the waiters, though the Appellant could not give his name.  Another, dated 12 February 1998 and numbered 63364, was also signed by his brother, Mr Hussein. It did not shew the account number 175, nor the name of the restaurant.  The Appellant was asked to which account it related.  His answer was that if he had insufficient funds to pay by cheque he paid “from the cash account”.  He acknowledged that the invoice did not shew the name of the restaurant nor the account number.  There were two other similar purchase invoices, dated 26 February 1998 and 15 April 1998, all signed by the Appellant’s brother.  Mr Limpkin asked for an explanation why all three had been excluded from the Appellant’s declared purchases.  The Appellant replied that he did not understand what had happened, that he had not come across an invoice like those before, and knew nothing about the cash account.  He agreed with Mr Limpkin when he suggested to him that whenever there was anything wrong with the records the Appellant was out of the country, and when he was in the country and there was something wrong with the records he know nothing about it. He knew nothing about his staff signing for deliveries on a cash account about which he knew nothing.

54.	Finally, the Appellant said that he would be happy to produce his passport and his bank statements.  In fact, he never produced either.  There was, therefore, no confirmation of the dates between which the Appellant was in Bangladesh, nor of the payments into either of his bank accounts.

The Commissioners’ contentions

55.	Miss Caroline Neenan, who appeared for the Commissioners, submitted a skeleton argument, which was very helpful on the matters of the Commissioners’ best judgment and of dishonesty; there were, of course, no submissions by or on behalf of the Appellant, except for Mr Rahman’s calculations and his submissions as to the assessment and the quantum thereof (see paragraph 17 above).

56.	Miss Neenan contended that the Commissioners had not acted in an arbitrary way in raising the assessment, which was the outcome of careful observation which was contemporaneously noted, and comparison of the Appellant’s trading with his records and with his VAT returns.  She contended that Mr Rahman’s calculations were of no assistance, and that no weight should be given to them.  They were based entirely on the Appellant’s declared sales and purchases, and amounted to a projection of sales as opposed to a historical record based upon accounting records.  Suppressed sales and purchases were omitted.  No attempt had been made by the Appellant to provide an alternative calculation taking the underdeclarations into account.  In paragraph 29 of her skeleton argument, Miss Neenan set out the facts and matters upon which the Commissioners relied, and upon which they based their decision to raise the assessment.  These were the failure to declare purchases made by the officers and other customers on a number of dates; the amendment of a bill to match a credit card payment; observations compared with declared takings suggested that the level of suppression was consistent; the takings for Sunday 12 November 2000 being 108 per cent higher than the average takings for all days in the previous 14 weeks; the finding of three tear-off slips, dated 11 February, 13 April and 30 September 2000 from bills which were not recorded; the exclusion of purchase invoices from declared purchase records, and the unexplained second account with I & M Wines; the difference between the staff employed and the number of staff declared to the Inland Revenue, and the evidence shewing that his brother, Tofisal Hussein, had been employed by him, although this was denied by the Appellant; the Appellant’s failure to give any explanation of the suppression found by the officers.

57.	In calculating the degree of suppression no account was taken of the Customs officers’ meals.  An average cost of a meal was calculated from the bills and the declared takings, and that average was applied to the number of customers observed on each day, so as to arrive at the expected takings for that day.  This calculation was carried out on a number of occasions, as more information was collected, and was reduced from the initial calculation of 44.82 per cent to the final level of 42.23 per cent.  An allowance of 8 per cent was made to allow for input tax in respect of suppressed purchases.  Take-away sales were assumed to have been suppressed at the same rate as restaurant sales.

58.	As to the matter of dishonesty, Miss Neenan relied upon the Appellant’s conduct during the investigation, the evidence of suppression, and the fact that there was no alternative explanation for the situation that the officers found.  Miss Neenan contended that the evidence shewed that the Appellant knowingly pursued a dishonest course of conduct.  She referred to Stuttard (t/a Wynns Coffee House) v Customs and Excise Commissioners [2000] STC 342, in which Carnwath J discussed the definition of dishonesty and said that it was necessary that the taxpayer should be shewn to have known “that according to the ordinary standards of reasonable and honest people what he was doing would be regarded as dishonest” (Ghandi Tandoori Restaurant v Customs and Excise Commissioners [1989] VATTR 39, 47.  “Dishonesty,” Carnwath J said, at page 348, “is an ordinary English word, and in most cases it is a straightforward jury question whether there has been dishonesty.”  Miss Neenan contended that the allegation that staff had been stealing money or stock was disingenuous.  If there had been stealing, the Appellant would have taken proper steps, such as informing the police; on his own account he did not do so.  The inference was that it was the Appellant who was suppressing sales.

59.	As to the degree of mitigation allowed, Miss Neenan contended that the Appellant had given only limited assistance to the officers, and that consequently 10 per cent mitigation was an adequate reflection of it.

Conclusions

60.	The principal issues which we have to decide in this appeal are, first, whether the assessment was made to the Commissioners’ best judgment, and, secondly, whether the Appellant acted dishonestly.

(1) - Best judgment

61.	In Rahman v Customs and Excise Commissioners [1998] STC 826 at 835, Carnwath J, as he then was, said,

“. . . the Tribunal should not treat an assessment as invalid merely because it disagrees as to how the judgment should have been exercised.  A much stronger finding is required; for example that the assessment has been reached ‘dishonestly or vindictively or capriciously’ or is a ‘spurious estimate or guess in which all elements of judgement are missing’; or is ‘wholly unreasonable’.  In substance these tests are indistinguishable from the familiar Wednesbury principles (see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223).  Short of such a finding, there is no justification for setting aside the assessment.”
 
The Court of Appeal, in Rahman [2003] STC 150, also considered the well known case of Van Boeckel v Customs and Excise Commissioners [1981] STC 290.  In that case Woolf J said, at page 292:

“. . . Therefore it is important to come to a conclusion as to what are the obligations placed on the Commissioners in order properly to come to a view as to the amount of tax due to the best of their judgment.  As to this, the very word ‘judgment’ makes it clear that the Commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them.  Clearly they must perform that function honestly and bona fide.  It would be a misuse of that power if the Commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which could possibly be payable, and then leave it to the taxpayer to seek, on appeal, to reduce the assessment.

Secondly, clearly there must be some material before the Commissioners on which they can base their judgment.  If there is no material at all it would be impossible to form a judgment as to what tax is due.

Thirdly, it should be recognised ... that the Commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due.  In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the Commissioners to obtain that information without carrying out exhaustive investigations.  In my view, the use of the words 'best of their judgment’ does not envisage the burden being placed on the Commissioners of carrying out exhaustive investigations.  What the words ‘best of their judgment’ envisage, in my view, is that the Commissioners will fairly consider all material placed before them and, on that material, come to a decision which is reasonable and not arbitrary as to the amount of tax which is due.  As long as there is some material on which the Commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them.”

62.	We look, therefore, at the evidence to see what basis there was for the Commissioners’ decision.  The evidence establishes clearly in our view that on the occasions when the Customs officers carried out observations and test purchases significant numbers of purchases, by the officers and by other customers, were not recorded in the Appellant’s books.  That evidence is reinforced by the evidence of the supervised cashing-up on 12 November 2000.  On that occasion, a Sunday, the takings counted under the eyes of the officers were the highest Sunday takings within a period of 14 weeks, and were 108 per cent higher than the average takings for every night during that period.  Further, the missing purchase invoices, and the fact of there having been two, if not three, different accounts with I & M Wines, two of which remain unexplained, tend to lead to the inference that purchases were also being suppressed.  The Appellant was given every opportunity to explain the discrepancies that were revealed, in each of two long interviews.  In those interviews he was assisted by the presence of his accountant, who also spoke Bengali.  His presence and ability to intervene when the Appellant’s answers as relayed by the official interpreter did not seem to be what was meant were, in our view, an important element in the interviews.  Because of the interpreter’s admitted want of fluency in Bengali, and his weakness in English which was apparent on the transcript, we read the transcripts with considerable care. The safeguard provided by Mr Chowdhury having been present, we consider that the transcripts of the interviews give, on the whole, a fair and comprehensible report of those interviews.  However, we considered it unfortunate that such long interviews, on a matter of great importance to the Appellant and to the Commissioners, should have been carried out with an interpreter of such linguistic imperfections.

63.	The Appellant in fact gave no explanation at all for any of the discrepancies.  The nearest approach was to say that he had been absent, out of the country, when some, but not all, of the suppressions of restaurant bills took place.  He was asked, quite clearly, to produce his passport to shew when he had been out of the country, and he failed to do so.  He was asked again to do so, in the second interview, and failed again.  It is possible that his passport would have shewn that the Appellant was, indeed, out of the country when the observations and test purchases were carried out.  But no such confirmation was ever provided.  In any event, on his own statements in interview, that he was absent from November 1999 to the beginning of April 2000, that would not have covered all the observation and test purchase dates. He was also asked to provide statements from his bank to shew what had been paid into his two accounts.  He failed to do so.  Again, his bank statements might have provided useful information that could have assisted the Appellant himself.

64.	There was also the matter of the difference between the list of employees declared to the Inland Revenue and those referred to by the Appellant.  One of these was his brother, who, he said, worked for him occasionally for nothing.  This was not accepted by the Commissioners.  However, experience in this Tribunal has shewn us that it is not improbable that a member of a restaurateur’s or a shopkeeper's family might work for no payment.  There is not enough evidence in this case to shew what the reality of the situation was regarding employees.  The observing officers mentioned between two and four waiting in the restaurant, and there was mention of a person in an apron who came out of the kitchen.  None of these was identified, nor was it made clear whether they were the same employees on each occasion.  We do not give great weight to this aspect of the evidence, and it was only one element in the whole structure of evidence that was before the Commissioners.

65.	The officers clearly understood that the evidence which they uncovered disclosed a systematic suppression of the takings of the restaurant, by means of failing to record a substantial number of bills representing receipts, most usually cash receipts, by suppressing a number of purchase invoices so as to depress the apparent amount of stock purchased, and by understating the number of employees.  With the qualification regarding employees that we mention in paragraph 64 above, in our judgment the evidence leads to that inference.  The amount of the suppression, calculated from the evidence, of some 42 per cent of takings, is such that it could not have occurred by any imaginable accident, nor has it been suggested by the Appellant that that was the case.  He has given no explanation of any kind.  It is evident, therefore, that there was ample material upon which the Commissioners could base their judgment.  It is also evident that the officers concerned in the case carried out not one but three careful calculations of the degree of suppression, and of the amount of tax remaining unpaid as a result.  In our judgment, therefore,  it would be quite unrealistic to say that the Commissioners’ had assessed the amount of tax due otherwise than to the best of their judgment on the facts before them.  Had the Appellant wished to shew that the suppression of takings had not been going on for so long as the Commissioners alleged, he could at any time have said so and made some attempt, backed up by his records, to shew that that was the case.  He was given every opportunity to admit what had happened, and told that such admissions could help to reduce the burden of the civil penalty under section 60.  It was explained to him that this was not a criminal matter.  He made no response to that invitation.

66.	We bear in mind that the Appellant’s grounds of appeal pleaded that the assessment was estimated and excessive.  The assessment was certainly estimated.  The Commissioners could do nothing else, since the co-operation for which they asked, in order to help them reach as true an assessment as was possible, was not forthcoming.  If there were matters which the Appellant could have brought before the Commissioners which would have had the result of reducing the amount of the assessment, it was always open to him to have done so, and remains open to him to do so.  But he did no such thing, and the calculations were carried out without that assistance.  As we have remarked above, the calculations were carried out with care, and the assessment reduced twice. The Appellant also complained that the Commissioners did not take into account “the difficult circumstances under which Indian restaurants make their livings.  Customers go away without paying, expect free drinks, there is wastage in both food and drinks.”  Yet the Appellant made no mention of this in either interview, nor did he attend to give evidence of any such circumstances.  Again, experience in this Tribunal has taught us that many restaurants, Indian and otherwise, are faced with similar circumstances; but the Commissioners are not obliged to guess at the effect, in monetary terms, in the absence of any evidence.

67.	The grounds of appeal go on to complain that the assessment was made “without giving the trader a chance to explain required by Human Rights legislation.”  The complaint was no more specific than that.  We reject it, in view of the fact that, as the interviews shew, the Appellant was given many opportunities to make full explanations, and declined to do so.

68.	Turning to the Appellant’s defence (see paragraph 11 above), in that pleading he put the Commissioners to strict proof of certain things, and we now consider whether they have achieved such proof.  On the evidence called before us, we find that the Commissioners have established that all the test purchases took place, and that those test purchase bills which did not find their way into the Appellant’s records were suppressed.  We are also satisfied that the sales to ordinary customers observed by the officers took place, and that those sales which were not found within the records had taken place and had not been recorded.  We find that the tear-off receipt slips that were found on the premises represented sales that had also not been recorded.  We find also that for some reason that was not explained by the Appellant he operated one credit account and one cash account with I & M Wines, and that a number of the invoices failed to find their way into the records of the business.  We also find that the total takings for Sunday 12 November 2000 did amount to £457.20, and that that figure was 108 per cent above the average for the 14 weeks up to that date.  We are not satisfied, for the reasons given above, that the Appellant suppressed details of his employees, and we consider that it is not unlikely that he was assisted by family members from time to time, and that there was some inexactitude about the list of employees registered with the Inland Revenue.  That list appeared to have more names on it than the description by observing offices suggested there should be.  Nor are we satisfied, on the evidence that we have seen and heard, that the Appellant was out of the country from November 1999 to April 2000.  As to the matter of thefts of money from the restaurant, what the Appellant said in the interview about this was so unspecific and minimal that it was not reasonably possible to make any finding of fact about it.

(2) - Dishonesty

69.	The Commissioners having alleged dishonesty on the part of the Appellant, it is for them to prove that dishonesty.  The standard of proof is the civil standard of proof, that is, on the balance of probabilities.  However, dishonesty is a serious accusation, and a high degree of probability is required: see Khawaja v Secretary of State for the Home Department [1983] 1 All E R 765, HL, per Lord Bridge of Harwich, applied in Ghandi Tandoori Restaurant v Customs and Excise Commissioners [1989] VATTR 39.   In Khawaja, Lord Scarman, having reviewed the authorities on the question whether the criminal or the civil standard of proof should be applied in proceedings which were not criminal, said,

“My Lords, I would adopt as appropriate to cases of restraint put by the executive on the liberty of the individual the civil standard flexibility applied in the way set forth in the cases cited … It is not necessary to import into the civil proceedings of judicial review the formula devised by judges for the guidance of juries in criminal cases … The flexibility of the civil standard of proof suffices to ensure that the court will require the high degree of probability which is appropriate to what is at stake.”

Lord Bridge, more specifically as to dishonesty, said,

“These” [i.e. the authorities cited by Lord Scarman] “had led me to the conclusion that the civil standard of proof by a preponderance of probability will suffice, always provided that, in view of the gravity of the charge of fraud which has to be made out and of the consequences which will follow if it is, the court should not be satisfied with anything less than probability of a high degree.”

In applying that decision in Ghandi, Judge Medd QC said,

“Though that case was a case of judicial review it is clear from Lord Scarman’s speech that he considered the principle to be applicable to all sorts of civil proceedings and we can see no reason why that standard should not apply in case such as this.  Because the issue of dishonesty by the taxpayer arises and because the consequences of a finding of dishonesty give rise to potentially severe penalties, we consider that we should not be satisfied with anything less than a high degree of probability.”

70.	The Commissioners relied, in support of the allegation of dishonesty, upon the matters set out in their statement of case, and as summarised by Miss Neenan: see paragraphs 10 and 58 above.  They rely also on the Appellant’s conduct during the investigation and his failure to offer any explanation for the unrecorded takings as demonstrating that his conduct was dishonest and that he intended to evade payment of VAT.  Miss Neenan referred to Stuttard (supra).  In that case, at page 347, Carnwath J set out the Tribunal’s conclusion in full, and said later, at page 348j, that that conclusion was not open to challenge and disclosed no error of law.  The Tribunal in that case had also referred to Ghandi (supra) and to First Indian Cavalry Club Ltd v Customs and Excise Commissioners [1998] STC 293, in which the Tribunal had said that the term “dishonesty” was to be understood in the same sense as in R v Ghosh [1982] QB 1053, and the person concerned, in the present case, the Appellant, must have known “that according to the ordinary standards of reasonable and honest people, what he was doing would be regarded as dishonest”.  The Tribunal added:

“In the majority of cases brought under [section 60] the course of conduct adopted by the taxpayer will be such that the necessary mental element of dishonesty can be readily inferred.”

Carnwath J added:

“In most of these cases the sort of analysis of the term ‘dishonesty’ that one finds in Ghosh is unnecessary.  Dishonesty is an ordinary English word, and in most cases it is a straightforward jury question whether there has been dishonesty.”

72.	With the foregoing passages in mind, we look again at the evidence.  We bear in mind also that the Appellant had been trading for at least five years, and, however inexperienced he was at first he must have learnt the ways of running the business, and may be taken to have learnt the necessity for making proper VAT returns.  He had an accountant who compiled the tax returns for him, from the figures which the Appellant supplied.  In interview, he had not suggested otherwise.  The observations led to the inference that the suppressions were going on constantly.  The Appellant suggested that if anything was being done wrongly it was when he was not there and he knew nothing of it.  But that does not chime with the cashing-up on 12 November 2000, when he was undoubtedly present and had no explanation to offer for the unusually high apparent takings.  As we have already said, we do not accept without the evidence that the Appellant could have provided that he was out of the country at any particular time, but even if we did, suppression was shewn by the evidence to have gone on when he was present.  We do not accept, therefore, his statement in interview that he had no knowledge of anything that was wrong being done.  His failure to provide any explanation, to produce his passport, and to produce his bank documents further suggest that he wished to conceal his activities.  We are satisfied on the evidence, on the balance of probabilities and with the necessarily high degree of probability, that the Appellant was aware of what was going on in the business of which he was sole proprietor.  If he was aware of what was going on, and since it was his own business he must or ought to have known, it seems to us that the only possible inference is that, in knowingly acting so as to suppress his takings so that a reduced liability to tax was declared in his tax returns, he was acting dishonestly.

73.	For the above reasons, therefore, we find that the Appellant acted dishonestly, and was therefore liable to a penalty under section 60(1) of the Value Added Tax Act 1994.

Mitigation of penalty

74.	The Commissioners allowed mitigation of 10 per cent on account of the limited degree of co-operation by the Appellant.  In his second notice of appeal, against the section 60 penalty, the Appellant categorically denied any dishonesty or evasion of tax.  He attended two interviews.  Before that, he had cashed up the business under supervision, and had received visits on which his records were examined.  It appeared to us that his co-operation was minimal, and that he was fortunate to have been given as much as 10 per cent mitigation of the penalty.  However, we will not disturb that figure.

75.	The appeal against the assessment and that against the section 60 penalty are therefore both dismissed.  The Commissioners stated that they did not intend to ask for costs, and accordingly we give no direction as to costs.

ANGUS NICOL
CHAIRMAN

RELEASED: 26 May 2006

LON/02/675
££Uddin (t/a Diwan-e-am Restaurant) v  Revenue & Customs [2006] UKVAT V19597 (26 May 2006)