20264
VAT — Indian restaurant — assessments to tax allegedly undeclared — whether assessments to best judgment — yes — whether quantum should be reduced — on facts — yes —appeal allowed in part
Abuse of process estoppel — whether HMRC estopped from pursuing case of dishonesty having only assessed for negligence in related income tax proceedings against director personally — no — whether estopped from presenting case in way that amounted to collateral challenge to decision and findings of General Commissioners in income tax proceedings — no — whether estopped from adducing evidence of observations not used in proceedings before General Commissioners — no
Human rights — whether delay in proceedings constituted infringement of human rights — on facts no 
Civil evasion penalty — penalty mitigated by 5 per cent for Appellant’s co-operation in determination of true liability to tax — yes — whether HMRC established to high standard of probability that appellant dishonestly evaded tax in failing to declare true value of takings — yes — mitigated penalty as reduced in line with tax assessment confirmed — appeal substantially dismissed

MANCHESTER TRIBUNAL CENTRE
 	
					SAHIB RESTAURANT LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:  (Chairman) David Demack 
	Arthur Brown FCA, CTA
	Alban Holden 
					
Sitting in public in Manchester on 11 – 15 September 2006, 15-18 January 2007, 25 – 27 April 2007 and 22 May 2007

Tim Wheeler, litigation friend for the Appellant 
 
Nigel Poole of counsel instructed by the General Counsel and Solicitor to Her Majesty’s Commissioners for Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal by Sahib Restaurant Limited (“Sahib”), a company carrying on the business of an eponymous Indian restaurant and takeaway in central Sheffield, against a notice of assessments to VAT and against an assessment to a civil evasion penalty.  When the appeal came before us, the assessments to tax, originally notified on 30 November 2000, had been reduced in two stages to £55,775, and the penalty assessment, originally of 19 February 2001, stood at £52,986, the latter sum representing 95 per cent of the tax then assessed.  Sahib was awarded 5 per cent mitigation in the full penalty assessment of 100 per cent of the tax allegedly evaded for its co-operation in the determination of its true liability to tax.
2.	Before dealing with the pleadings, we should explain that the Sahib is a very large restaurant on two floors, opens seven days a week, and at all relevant times had two identical Nokia TK5100 electronic tills, one on each floor.  Only the records of the ground floor till were put before us.  However, in evidence Mr Tahir Iqbal Khawaja, the controlling director and major shareholder in Sahib, did not deny that the upstairs till was sometimes used.  Yet no bills produced by it appeared in Sahib’s records produced to us.  In their absence, whilst accepting that the upstairs till was sometimes used for training purposes, by inference, we find that bills were issued from it and were suppressed.
3.	In the amended statement of case dated 8 August 2001, the Commissioners for Customs and Excise (“Customs”), one of the predecessors of Her Majesty’s Commissioners for Revenue and Customs (“the Commissioners”), set out the grounds upon which they made their decision to assess Sahib to tax as follows:
“3.	An officer of Customs and Excise visited the Appellant [Sahib] at the [restaurant] premises on 17 February 1999 and inspected the Appellant’s records, accounts and cash registers.  From information obtained by the Commissioners it appeared to them that the Appellant’s cash registers had memories capable of storing transaction details but that the memories had been deliberately erased.  No explanation was offered by the Appellant[’s director, Mr T Khawaja], other than his lack of knowledge of cash register functions.
4.	Following the said visit the Commissioners [Customs]  carried out test purchases at the premises on 19 March, 13 May, 8 October and 18 December 1999 and 5 June 2000.
5.	During the test purchases carried out on 18 December 1999 the Commissioners intended to carry out a cashing up exercise at the premises.  On arrival at the premises it was found that the Appellant had already carried out a cashing up exercise for that evening’s takings.  The Z-readings from the downstairs till, taken by Mr Khawaja after cashing up as requested, showed sales of £2,251.74.  The Appellant’s director, Mr Tahir Iqbal Khawaja, signed the said Z-reading which was retained by the Commissioners.  Mr Khawaja stated that the upstairs till at the premises had not been used that evening.  However, it appeared to the Commissioners that the Appellant must have taken a Z-reading earlier that evening, given that the takings figure was much lower than expected, in the light of the numbers of customers observed.
6.	On 20 June 2000 Mr Khawaja was interviewed by the Commissioners and by an officer of the Inland Revenue and stated as follows:
(1)	His co-director Mr Din had no day-to-day involvement in the running of the company;
(2)	He had run one or two other restaurants since 1998 and the Sahib restaurant, managed by the Appellant company, since 1986; 
(3)	He had been trained as a chef and worked in the kitchen when necessary;
(4)	He had a general overview of the whole business; 
(5)	Cashing up did not always take place at the end of an evening’s business (sometimes the next morning), usually by him, but, in his absence, by any member of staff who was available;
(6)	He did the banking; 
(7)	In response to being questioned as to procedures in place to prevent staff stealing from the company: “I hope they don’t do it”.
(8)	It was always Mr Khawaja who signed VAT returns and he was 100 % happy with declarations made;
(9)	Despite his knowledge of the business and his training as a chef, that it was impossible to estimate the weight of chicken in a main course meal;
(10)	Despite his knowledge and training as above, that he could not say what proportion of a chicken was, on average, thrown away: “I’ve never weighed it.  That’s one thing I don’t know”.
From information obtained by the Commissioners it appeared to them that the returns rendered by the Appellant were incomplete or incorrect in that a high value of output tax had been undeclared and that the Appellant’s director Mr Khawaja was not assisting them in their enquiries.
7.	Mr Khawaja had further opportunities to assist the Commissioners:-
(1)	On 13 July 2000, the date agreed on 20 June (when the Commissioners intended to re-interview Mr Khawaja), when, on arrival at the meeting, he refused to be interviewed, but offered to prepare a schedule of arrears as a basis for settlement, a further meeting to take place in the week commencing 21 August; 
(2)	By 8 August, when the Commissioners telephoned the Appellant’s accountant to arrange the further meeting, to be informed that Mr Khawaja had reconsidered his position and would not be providing any offer of settlement or attending any further meetings.”
4.	(We observe that Sahib was on notice that the revenue authorities were dissatisfied with its records and returns at least as early as 2 December 1997, a letter concerning the records being sent to it on that date.)
5.	By section 60 of the Value Added Tax Act 1994, under which the penalty assessment was made, it is for the Commissioners to prove dishonest evasion of tax on the part of Sahib.  The allegations they make in that behalf, as contained in the statement of case, are as follows:
	“11.	The Appellant has failed to declare the true value of the takings of the business.  The Commissioners rely on paragraphs 3 to 7 above and on the following:-
(1)	the procedure used by the Appellant at the premises is to ring a customer order into the till, thereby generating a ticket, and to produce a bill for a customer from the till by inputting that customer’s table number into the till to produce order details from the till menu;
(2)	the Appellant retains only a proportion of the meal bills produced by the till; 
(3)	the Appellant has erased the till memories allowing details of transactions to be stored;
(4)	on each of the occasions on which test purchases were carried out the Appellant failed to retain and declare all of the meal bills relating to the test purchases made; 
(5)	when carrying out the exercise of dividing (a) the total takings declared by the Appellant, less the totals shown on the bills retained, on each of the occasions on which test purchases were made by (b) the number of customers observed less the number of customers indicated by the bills retained, it was noted that an unrealistically low price per customer was produced when compared to the average cost of meals on bills retained by the Appellant and by reference to the menu prices.
12.	In respect of their assessment under section 60 of the Act, the Commissioners rely as above and, in particular, on matters set out at paragraph 6, with reference to 
•	Mr Khawaja being the sole active director and thus aware of all matters known to the Appellant’s managers: 6(1), (4) and (8) refer; 
•	Mr Khawaja’s failure as a director to maintain proper cashing procedures: 6 (5) to (7) refer; 
•	Mr Khawaja’s experience as a restaurant manager and training as a chef and his replies to questions on straightforward catering matters: 6(2), (3), (9) and (10) refer; 
•	Mr Khawaja being the person always signing the Appellant’s VAT returns; 
amply demonstrate the dishonesty of the Appellant’s management represented by Mr Khawaja.”
6.	In its Notice of Appeal against the tax assessments, given on 20 December 2000, Sahib claimed that “The Commissioners have not used best judgment”; and in its Notice against the penalty assessment, given on 3 May 2001, it claimed that the civil penalty was:
	(a)	“unlawful as determined in the case of Han and Yau [and others v Commissioners of Customs and Excise [2001] STC [1188]]; and
	(b)	“based on a tax assessment which was not made to best judgment”; or, alternatively, “based on a tax assessment which was excessive”.
7.	The Defence should have been served by 7 May 2001, but was in fact served on 23 October 2002.  In it Sahib contended that the Commissioners had failed to prove to the requisite standard: (1) that Sahib had acted dishonestly for the purpose of evading VAT; (ii) that Sahib had suppressed sales; and (iii) that the level of sales alleged to have been suppressed was £56,746 (the amount at which the tax assessments stood at the time).
8.	Sahib was represented by Mr Tim Wheeler, and the Commissioners by Mr Nigel Poole of counsel.  They presented us with seven bundles of copy documents, and we took oral evidence on oath from the following witnesses:
John Alan Walsh, Pauline Susan Walsh (formerly Robinson), Joanne Needham (formerly Ridyard), Russell Dominic Broomhead, Lynne Gill (formerly Ashmore), Andrew Marshall, Cosma Williams, William Alan Stone, Patricia Shaw, Christopher Ball, Lynn Bradley, Kathryn Stephenson, David Charles Bell, Anthony Michael David Galvin, Domhuart Padroig Lavery, Margaret Ann Bingham, Paul Gayler, Shelagh Frances Riley, Stephen Douglas Harrison, Alison Jane Tart, John Henry Freeman, Teresa Ann Claxton, Shirley Anne McLune, Paul Hetherington, Gavin Stephen Needham, Deborah Jane Hardwick, Michael Thomas Billinger, and Allan McClelland, all of whom are, or were in 1999 and 2000, officers of one or other of the predecessor revenue authorities of the Commissioners; 
Michael Charles Warin, an engineer in the cash register business called by the Commissioners; 
	Gary Stanisland, an engineer in the cash register business called by Sahib; 
Kaiser Matlub, a partner in the firm of Khawaja & Son, suppliers of meat and chicken to Sahib; 
	Mr Khawaja, the controlling director and major shareholder in Sahib; 
(We should make plain that Mr Khawaja is not related to the partners in Khawaja & Son, and has no personal connection with that firm).
9.	On the basis of that evidence, we make the findings of fact set out in paragraphs 1 and 2 above and those which follow.  
10.	We should also explain that the operation which led to the making of the assessments under appeal was among the first carried out jointly in 1999 and 2000 by the Inland Revenue (“the Revenue”) and Customs.  (The two revenue departments merged on 18 April 2005).  The operation consisted of the Commissioners’ officers named above taking part in internal observations and “test eats” i.e. the consumption of meals, at the Sahib restaurant.  Customs considered the operation to reveal that Sahib had underdeclared its liability in tax in periods 10/97 to 07/00, and raised the tax assessments under appeal to deal with its underdeclarations.  (The assessment for period 10/97 was later withdrawn, the Commissioners accepting that it was made out of time).  
11.	The Revenue considered the operation to have indicated that Mr Khawaja had not declared income he had received from Sahib.  They therefore assessed him personally inter alia to “omitted remuneration” in each of the tax years 1992/93 to 1995/96, and in the three following years, i.e. up to and including 1998/99, when self-assessment had come into operation, they amended his self-assessment tax returns to include remuneration from Sahib, allegedly omitted.  Mr Khawaja appealed the assessments and amendments to his self-assessment returns to the General Commissioners for the Division of Don.  After a three day hearing ending on 27 June 2001, the General Commissioners found inter alia that Mr Khawaja had underdeclared his remuneration from Sahib, including benefits in kind, in the sum of £41,000 in 1994/95.  Of that sum, £13,250 (rounded down to £13,000) or 31.7 per cent, represented concealed benefits.  The General Commissioners calculated the value of meals sold by Sahib by reference to the invoiced amount of its meat and chicken purchases, taking into account the evidence of wastage submitted by the parties.  Marking the figure of £41,000 for 1994/95 down by £10,000 per annum in the previous years of assessment, and up by an additional £10,000 per annum in each of the following years, the General Commissioners found that, in relation to 1998/99, Mr Khawaja failed to declare remuneration and concealed benefits from Sahib of £71,000 on which he was liable to income tax.  Mr Khawaja appealed the General Commissioners’ decision to the High Court (Khawaja v Etty [2004] STC 669) where on 27 November 2003 Lawrence Collins J (as he then was) held that they had erred by failing to take account of certain rental income and mortgage repayments in arriving at the base figure of £41,000 for 1994/95.  Consequently, in partially allowing the appeal, he reduced the General Commissioners’ determination of Mr Khawaja’s income by £5,000 in each of the years assessed.  Thus for 1998/99 the learned judge reduced the base figure to £66,000.  Mr Khawaja sought leave to appeal to the Court of Appeal, but on 7 April 2004 Neuberger LJ (as he then was) refused it.  
12.	At one point during the hearing, Mr Wheeler invited us to ignore the judgment in Khawaja v Etty on the basis that Lawrence Collins J had found the General Commissioners’ decision to be “wholly flawed”.  We are unable to accept the invitation as it does not represent the outcome of that case.
13.	On 17 November 2004 the Inland Revenue also assessed Mr Khawaja to penalties under section 95(1)(a) of the Taxes Management Act 1970 for negligently submitting incorrect tax returns in the fiscal years 1993/94 to 1998/99 inclusive in a total of £41,332.  Again he appealed them.  Following a three day hearing, on 30 November 2005 the General Commissioners expressed themselves “satisfied beyond reasonable doubt that there was negligent submission of incorrect returns for the years mentioned above in respect of property income but applying the same standard of proof we find that HM Revenue and Customs have failed to prove beyond reasonable doubt that there were understated profits”.  They reduced the penalties as a result, confining them to property income.  Both parties expressed their dissatisfaction with the decision and required them to state a case for the opinion of the High Court.  To date the General Commissioners have not stated a case.
14.	Before the General Commissioners, in the appeal against the tax assessments, only officers McClelland, Williams, Harrison and Marshall gave evidence, but, significantly in our opinion, not on oath; and the documentary evidence said to be submitted consisted of: the observation reports of the various officers of the Commissioners involved in the observations / test eats, analysis of Sahib’s till receipts for the days of observation; analysis of Sahib’s bills on those days, the officers’ written reports for the days of observation, and the Revenue’s analysis of selected meal bills.  The General Commissioners found inter alia that Mr Khawaja was the controlling director of Sahib; that the books and records kept by Sahib were “subject to discrepancies and that the annual accounts lodged for the company were subject to inaccuracies”; that the raw meat purchased by Sahib in the year to 31 October 1996 was: whole chickens 8661 lbs, chicken breasts 11,973 lbs; and other meat 4,586 lbs “at a minimum”; that the average amount of meat in meals served by the restaurant was approximately 10 ounces and the average price of a meal was approximately £10.  The various findings in relation to chicken and other meat were said to form part of a “business economics exercise” carried out by the Revenue.  That exercise involved first taking the amount of raw meat and chicken allegedly purchased by Sahib, and allowing wastage figures of 50 per cent on whole chickens, 40 per cent on chicken breasts and 10 per cent on lamb / mutton.  (For the purpose of these proceedings, Mr Poole accepted the correctness of those wastage figures.)  Then, accepting the basis of 10 ounces of meat per meal and an average price of £10 per meal, the General Commissioners found that sales totalled £250,240; and, after taking out the VAT element, they concluded that the sales figure of £184,938 in Sahib’s accounts for 1994 underdeclared to the true sales figure by £28,032.  To that underdeclaration, the General Commissioners added £13,250 concealed benefits, giving a total underdeclaration of income by Mr Khawaja of £41,282.  They rounded that sum down to £41,000 – thus arriving at the sum assessed, as referred to in paragraph 11 above.
15.	For the purposes of the present appeal, Mr Wheeler invited us to rely on the results of the business economics exercise rather than on the results of the observations and test eats, the latter being the basis of the VAT assessments under appeal.  After the most careful consideration, we decline his invitation.  We do so for three reasons:
(a)	Sahib produced to us a Customs receipt for sales records uplifted from Khawaja & Sons.  It showed there to be significant omissions from the records, and thus, in our judgment, they were unreliable.  For the record, the relevant parts of the receipt read as follows:
“Invoice books dated:	11/1/99; 6/3/00; 21/2/00; 7/2/00
Dates covered	Missing dates	
15.10.98 – 29.10.98		
15.8.98 – 5.12.98		
7.12.98 – 4.1.99		
	5.1.99 – 24.1.99	
25.1.99 – 1.3.99		
	2.3.99 – 7.3.99	
8.3.99 – 6.4.99		
	7.4.99 – 11.4.99	
12.4.99 – 10.5.99		
	11.5.99 – 16.5.99	
17.5.99 – 31.5.99		
31.5.99 – 14.6.99		
	15.6.99 – 20.6.99	
21.6.99 – 5.7.99		
	6.7.99 – 11.7.99	
12.7.99 – 27.7.99		
26.7.99 – 2.8.99		
	3.8.99 – 8.8.99	
9.8.99 – 23.8.99		
	24.8.99 – 29.8.99	
30.8.99 – 2.11.99		
25.10.99 – 8.11.99		
	9.11.99 – 14.11.99	
15.11.99 – 29.11.99		
	30.1.99 – 5.12.99	
6.12.99 – 20.12.99		
	21.12.99 – 26.12.99	
27.12.99 – 11.1.00		
	12.1.00 – 16.1.00	
17.1.00 – 31.1.00		
	1.2.00 – 9.4.00	
10.4.00 – 25.4.00		
	26.4.00 – 14.5.00	
15.5.00 – 30.5.00”		

(b)	Such meat purchase records from Khawaja & Sons as Sahib produced to us were also incomplete and were all dated with the Monday of the week in which the sales were said to have been made.  Again we find them to be unreliable.  Further, the documentary evidence and the oral evidence of Mr Khawaja that Sahib purchased meat and chicken only from Khawaja & Sons do not satisfy us as representing the complete picture of purchases.
(c)	During the course of his evidence, Mr Khawaja produced a written statement, which, with Mr Poole’s consent, we agreed to admit.  It contained details of the business economics exercise accepted by the General Commissioners as being the most accurate record and fairest way of establishing Sahib’s true takings.  The statement clearly showed the average amount of meat in meals served by the restaurant to be seven ounces, and not the 10 ounces claimed by Mr Khawaja.  It also showed meat and chicken dishes to represent 70 per cent of Sahib’s sales, and the average value of each such dish to be £10.  No evidence whatsoever was adduced to support that average value, and the only evidence before us that meat and chicken dishes represented 70 per cent of Sahib’s sales was an oral claim in that behalf by Mr Khawaja said to be based on his 30 years’ experience as a restaurateur.   As his claim was unsupported by any other evidence, we are not prepared to accept it.  Further, the written statement contained balancing figures based on Sahib’s unaudited accounts, the correctness of which we doubt, they reflecting the figures contained in its VAT returns.
16.	Our initial reading of the papers, including the case stated and the judgment in Khawaja v Etty, and our, admittedly limited, experience of electronic tills, revealed inconsistencies of fact and led us to question whether the few Z readings and till receipts for the days of observation before us could provide an audit trail indicating, at least in part, whether Sahib had underdeclared its takings.  We enquired whether the parties agreed, and were informed by Mr Wheeler that the records produced by the tills in the restaurant did not provide an audit trail, and, in any event, the tills had been programmed specifically for Sahib in accordance with Mr Khawaja’s instructions.  At that stage we had no evidence of the contents of that programme.  We therefore asked for a demonstration of one of the tills in question.  Neither original till was available, but the Commissioners were able to demonstrate the use of a till similar in all respects to that used by Sahib, a Nokia 2300, except that it operated with two till rolls, whereas Sahib’s own Nokia TK 5100s operated with only one.
17.	From the demonstration and the oral evidence of Mr Khawaja and Mr Stanisland, we find that Sahib’s Nokia TK 5100 tills at the relevant time did not provide an audit trail; that each transaction entered into a till was allocated an individual number which, depending on the type of entry, was or was not printed on a document produced by the till, and that bills produced were timed when actually produced and not, as Sahib claimed, when a table was “opened” on a till.  For the last mentioned finding, we also rely on the oral evidence of the observing officers as confirmed by a number of bills retained by Sahib.  We further find that production of a bill for Sahib’s own records merely required a single, second depression of the same till key as was used to produce the customer’s own copy of the bill immediately following the first depression: it was thus the very simplest of operations, and capable of providing a complete record of all sales literally “at the touch of a button”.  We reject a claim by Mr Khawaja that the production and retention of copy bills would have imposed on Sahib’s staff an unnecessary additional administrative burden which could not be justified, particularly when the restaurant was busy.  With the exception of our findings that bills were timed when actually produced, and that a second bill could easily be produced, we accept that our remaining findings relate to the standard till programme and may have been altered in Sahib’s own tills on Mr Khawaja’s instructions.
18.	We also find that the programme in Sahib’s ground floor till was altered at some time between 8 October 1999 and 18 December 1999.  It allocated a transaction number to every transaction entered prior to and including the earlier date, but did not do so at least from the later date onwards.  The only reason for such an alteration would have been to ensure that anyone carrying out checks on the till records would have been unable to ascertain how many transactions had taken place.  We infer and find that the alteration was made specifically for that purpose.    
19.	We should also note that Sahib’s own records of daily gross takings of the restaurant always exceeded the value of copy bills retained.
20.	The business economics exercise in our judgment being totally discredited, we decline Mr Wheeler’s invitation to adopt it as being “the most accurate method and the fairest way for establishing the true / a more correct total of sales made by the restaurant”.  Indeed, we proceed on the basis that the test was fatally flawed.  But, in passing, we observe that, had we relied on the results of the exercise to determine the takings underdeclared by Sahib, even ignoring the benefits in kind assessed on Mr Khawaja, it would have been implicit, and we should have found, that Sahib suppressed takings of some £45,000 in the year to 31 October 1999.
21.	Before proceeding to a consideration of the observation evidence, there is one further matter we must mention.  Mr Khawaja claimed in evidence that the Commissioners’ count of diners was flawed as including numerous persons who visited the restaurant, not to dine, but to use the lavatory, to make telephone calls, or who were e.g. taxi drivers calling to collect their customers.  He also claimed that other visitors did not partake of meals, many shared meals or had one small course, and yet others simply purchased and consumed drinks.  We reject his evidence in that behalf finding on the balance of probabilities that no such persons were included in the Commissioners’ officers’ counts.  Furthermore, since no evidence was adduced as to the type of liquor licence held by Sahib, we proceed on the basis that it was a restaurant licence so that it would have been illegal, and thus most unlikely, for Sahib to have served alcoholic drinks to anyone other than diners.  
22.	Having dealt with Sahib’s records generally, we then turn to the Commissioners’ operation which led to the making of the VAT assessments under appeal.  As is recorded in paragraph 3 of the statement of case (see paragraph 2 above), on 17 February 1999 a Customs’ officer visited the Sahib Restaurant and inspected Sahib’s records.  From till print-outs produced on that day, we find that the till was programmed and had a memory capable of storing transaction details, but all recorded details, with the exception of gross sales in an indeterminate period, had been erased.  We find the erasure to have been deliberate.  
23.	On five separate evenings, Revenue officers, operating in pairs, visited the Sahib Restaurant and partook of meals.  Those involved in the operation were almost all officers of considerable experience in restaurant observations and test eats.  Their pre-planned entrances were timed to ensure that officers were present throughout the main part of each evening.  Each pair entering was instructed to count themselves as two customers and to continue counting those entering and taking seats to dine until the following pair of officers entered and were seated, whereupon the following pair would continue the count.  On each pair being presented with the bill for their meals, they paid in cash and left the paid bill.  The nights of observation were as follows:
	Friday, 19 March 1999
	Thursday, 13 May 1999
	Friday, 8 October 1999 
	Saturday, 18 December 1999 
	Monday, 5 June 2000

24.	Following a visit to the restaurant, each pair of officers recorded their findings in a notebook.  Generally, one officer completed and signed the notebook entry, and the other countersigned it.  Almost all the notebook entries were made and countersigned within minutes of the maker and cosignatory leaving the restaurant.  Mr Wheeler challenged the contents of the notebooks as unlikely to be a true and complete record of events, most of the officers not having made a contemporaneous record of their observations and actions.  He further maintained that their recollections were unlikely to be accurate so that their notes should be treated with great caution.  The officers’ evidence having been tested in cross-examination, and been supported in a number of cases by officers’ bills retained by Sahib, subject to the exceptions mentioned in the immediately next following paragraph, we find the officers’ notebooks truly to reflect their observations.  
25.	Some two years after the test eats and observations were carried out, each officer involved in observations prepared and signed a witness statement setting out his or her recollection of events.  Before us those witness statements, in some cases as supplemented orally, constituted the evidence in chief of each witness.  Mr Wheeler invited us to reject all the statements as having been prepared solely on the basis of the contents of the notebooks of the officers concerned, long after their memories of events of the evenings in question had faded.  Consequently, in dealing with the officers’ evidence we have taken the greatest care.  We record that we found all the officers honest, but some were more competent and conscientious than others.  We reject some or all of the evidence of four of the less conscientious.  Miss Tart simply reported what her meal consisted of: she made no note of how many diners she saw or counted, or of any other relevant information.  Consequently, we ignore her evidence.   Mrs McLune proved to be a very poor witness indeed, and we disregard her evidence.  Mr Needham also proved a poor witness, and we pay little heed to him.  We also ignore in part the evidence of Mr McClelland, the assessing officer who collated the information gathered by the observing officers.  Mr McClelland admitted having destroyed his notebook(s) of events relating to Sahib and the observations some two years ago following his being told by Mr Hetherington that Customs would have to settle Sahib’s VAT appeal on the same basis as the Revenue’s proceedings had been determined.  Mr McClelland’s action in that behalf was foolish in the extreme, as we believe he acknowledged.  Further, his evidence of observations he made from his car parked outside the restaurant was less than positive, and we also disregard it.
26.	In reaching our conclusions on the observation evidence, we have taken account of very detailed and most helpful submissions made by Mr Wheeler and certain concessions made by Mr Poole.  Based on all the evidence we conclude that Sahib did underdeclare its liability to VAT, but in our judgment must be taken to have done so to a lesser extent than the Commissioners’ analysis of the observations indicated.  Assuming we hold the tax assessments to have been made to best judgment and all the observations to be included in the calculations, we consider the tax assessed should be reduced on the following basis:
Date	Declared Sales	Sales Estimated by Customs*	Sales as Estimated by Tribunal	
Friday, 19 March, 1999	£933.99	£1,659.90	£1,388.56	
Thursday, 13 May, 1999	£577.18	£904.80	£777.20	
Friday, 8 October 1999	£1,217.13	£1,926.80	£1,644.93	
Saturday, 18 December 1999	£2,229.27	£3,037.87	£2,625.61	
Monday, 5 June 2000	£463.00	£713.22	£721.84	
 	£5,421.17	£8,242.59	£7,158.14	

*Sales as originally estimated giving rise to second amended tax assessment of £55,775 (65.77 per cent declaration). 
27.	Applying the same methodology as Customs to the sales we have estimated on the days of observations, we reduce the tax assessments to £34,344.  We do so finding that Sahib declared 75.73 per cent of its takings on those days. 
28.	Our reasons for the reductions now follow.  The Commissioners’ analysis for 19 March 1999 took the following form:
	“19 March 1999

Table	Time	Value	Covers	Comments	
1	01:49	£11.15	1		
2	01:10	£7.05	1		
5	01:08	£28.60	2		
3	00:46	£44.95	3		
4	00:44	£17.20	2		
2	00:43	£19.40	2		
55	00:40	£33.70	3		
25	00:01	£26.20	2		
6	23:46	£14.60	2		
20	23:44	£49.55	5		
18	23:43	£40.25	4		
19	23:42	£23.65	2		
24	23:36	£34.40	4		
7	23:16	£18.30	2		
25	23:02	£19.50	2		
3	23:05	£3.90	2		
23	23:00	£20.25	2		
22	22:39	£30.30	2		
8	22:35	£51.25	5		
24	22:34	£18.20	2		
100	21:43	£28.00	2		
3	21:39	£24.10	2		
31	21:38			£8.55 10% discount, takeaway	
30	21:37			£10.48 10% discount, takeaway	
20	21:29	£75.30	5		
25	21:28	£14.85	2		
6	20:47	£17.65	2		
3	20:47	£30.45	2		
100	20:12			£18.81 10% discount, takeaway	
4	19:23	£26.15		Test purchase	
2	19:19	£15.45	2		
Totals		£744.35	67		

Average value of sale per cover 				= 	  £11.11	
(Total divided by number of covers) 

Total Sales declared 					= 	£933.99

Value of missing bills					=	£151.80 
(Total sales declared less total of till receipts inc. takeaways)

Total customers seen					= 	146 
(Actual number of diners counted by C&E Officers)

Estimated gross takings @ £11.11 per person		=	£1,622.06
(£11.11 x 146)

Plus takeaway sales					=	£1,659.90
(£1,622.02 + £18.81 + £10.48 + £8.55)

Percentage suppressed (£1,659.90 - £933.99/1659.90) 	=	43.73%

Value suppressed					=	£725.91

Percentage declared					=	56.27%”
29.	We consider the takings estimated by the Commissioners for 19 March 1999 should be reduced by £159.03 for the following reasons.  Two groups of officers’ bills were included in the Commissioners’ estimate: they were the bills timed at 19:23 and 23:42 for £26.15 and £23.65 respectively.  The officers were not genuine customers of Sahib, so that, as submitted by Mr Wheeler, their bills should be excluded from the estimated takings.  Mr Wheeler maintained that bills for £33.70 (00:40), £44.95 (00:46) and £28.60 (01:08) interpreted by the Commissioners as for 3, 3 and 2 covers were for 4, 4 and 3 covers respectively.  We agree.  Thus the total number of covers should be 68 rather than 67.  The average value of sale per cover is reduced to £10.21, and the value of the missing bills is increased to £201.60.  The Commissioners’ officers reported having counted 146 diners: Mr Wheeler submitted that the correct number should be 113.  He first invited us to ignore two persons said by officers Marshall and Ashmore to have joined existing diners.  In the absence of evidence for doing so, we do not consider it appropriate.  He further maintained that the record of officers Walsh and Robinson included the two officers who followed them in making observations.  His submission in that behalf was not based on evidence, and we therefore reject it.  Thus we find that the officers counted 142 diners of whom six were officers, resulting in the true number of diners being 136.  Mr Wheeler also claimed that the evidence of officers Williams and Broomhead was “suspect” and should therefore be ignored in its entirety.  We disagree.  Applying the same methodology as the Commissioners, we conclude that Sahib’s takings on 19 March 1999 totalled £1,388.56, and the percentage thereof declared was 67.26.
30.	Using the same methodology as for 19 March 1999, the corresponding total of sales calculated by the Commissioners for 13 May 1999 was £904.80.   In relation to the analysis for that day, Mr Wheeler maintained that the correct number of customers observed was 65, rather than the 78 the Commissioners’ officers claimed to have seen, but agreed the average sale value per cover used by the Commissioners of £11.60.  Officers Stone and Shaw were the first pair to visit the Sahib restaurant that day.  They identified a number of parties and counted 48 customers.  Mr Wheeler submitted that they would have counted both themselves and the following pair in that figure, so that it should be reduced to 46.  As the officers’ evidence as to the counting was not challenged in cross-examination, we are unwilling to accept that the following pair were included in the Stone/Shaw count.  Mr Wheeler also maintained that there must be “considerable doubt” about the inclusion of one person reported to have joined a party of five.  Again, we have no evidence to dispute that of the officers, and in its absence, we accept their evidence.  Excluding officers Stone and Shaw from the count, we proceed on the basis that those officers observed 48 customers.  The second group of officers, Marshall and Ashmore, indicated that they observed 20 diners.  We agree with Mr Wheeler’s contention that, as second group officers, they would have counted the third group of officers in their total, so that their observations indicated but 18 diners.  Officers Harrison and Ball comprised the third group.  They counted six diners, but recorded eight.  Again, we agree with Mr Wheeler’s claim that the number should be reduced to six (assuming the officers counted themselves), giving a total number of diners for the evening of 66.  Multiplying that number by the agreed average value of a sale, and adding £11.60 for one takeaway sale observed, we arrive at total takings for the evening of £777.20.
31.	We now summarise the results of the analysis of 13 May 1999:
	Average value of sales per cover:	£  11.60
	Total sales declared:			£577.18
	Value of missing bills			£229.18 
	Total diners observed:			66

	Estimated total takings @ £11.60 =	£765.60
	  plus one takeaway @ £11.60 =	£777.20

	Percentage suppressed:			25.73 per cent 
	Value suppressed:			£200.02

32.	Dealing next with the observations of 8 October 1999, when the Commissioners’ officers noted 162 diners and the analysis showed an average per cover of £11.40, Mr Wheeler maintained that, in addition to the removal of one officers’ bill for £27.70 timed at 21:06 (with which we agree), the Commissioners’ interpretation of bills required correction as follows:
Table No	Time	Total	Suggested corrections	
3	01:48	£18.35	2 covers should read 3	
65	00:23	£69.55	8 covers should read 9	
61	00:13	£143.00	8 covers should read 11	

33.	Having examined the copy bills in question, we find that the covers for the first two bills listed should remain as interpreted by the Commissioners, but that the third should be interpreted as relating to nine covers.  Thus we consider that the number of covers should be increased from 77 to 79, and that the average value of sale per cover should consequently be increased from £10.65 to £11.19.  
34.	We then turn to Mr Wheeler’s next claim: that the total of 162 covers used by the Commissioners should be reduced either to 147 or to 32.  In relation to the evidence of the first pair of officers, Ridyard and Needham, Mr Wheeler observed that, acting on instructions, they would have counted themselves and the next following group of officers in their total of six diners, whereas the Commissioners’ evidence indicated that there were eight diners.   He submitted, and we agree, that the number should be reduced to six.  We also accept his submission that the second group, Hardwick, Bradley and Silcock, would have counted the two officers who followed them into the restaurant, so that their count should be reduced from 19 to 17 diners.  Similarly, the next following group of officers would have counted the officers who followed them, reducing their count of diners to 18, including two takeaways.  The fourth group, Williams and Broom, counted 117 diners, but had to abandon an attempt to group them by table.  Mr Wheeler submitted that their “count was so suspect that it should be discounted in its entirety”.  We accept the officers’ evidence, and thus reject Mr Wheeler’s submission.  We find the total number of sales on 8 October 1999 to be 152, including six takeaways.   We accept that the figure of £10 per takeaway is not taken from any records for that day, but, in the absence of any takeaway sales recorded by Sahib, we consider it an appropriate figure to use, being less than that used for the purpose on the two earlier dates of observation.
35.	The analysis for 8 October 1999 then becomes:
	Average value of sales per cover:	£    11.19
	Total sales declared:			£1217.73
	Value of missing bills			£  325.21 
	Total diners observed:			147

	Estimated total takings @ £11.19 =	£1644.93

	Percentage suppressed:			25.97 per cent 
	Value suppressed:			£  427.20
36.	In relation to 18 December 1999, when the Commissioners’ analysis proceeded on the basis of 227 diners observed by their officers and an average value per cover of £10.93, Mr Wheeler first submitted, and we accept, that the bills retained by Sahib included those for two groups of officers, one for £26.80 timed at 20:55 and another for £27.45 timed at 20:07.  Consequently, those two bills must be deducted from the total takings, and the figure for covers reduced from 76 to 72.  He next maintained that the Commissioners had incorrectly interpreted bills for £82.80 (02:46), £59.20 (02:14) and £40 (20:09) as relating to six, four and three covers respectively, whereas they related to seven, five and four covers.  We do agree with Mr Wheeler’s interpretation of the second bill but not the other two, thus increasing the total covers to 73, and increasing the average value of sale per cover from £10.35 to £10.63.  
37.	Mr Wheeler further contended that the total number of true customers counted by the Commissioners’ officers, 271, should be reduced either to 247 or to 147.  As in relation to the earlier days of observation, Mr Wheeler quite correctly observed that the officers involved had counted both themselves and the group following them in the diners they observed.
38.	The first visiting group of officers, Lavery and Bingham, would have counted themselves and the following group, Ridyard and Needham.  Thus, their count of 28 would have included 4 officers.  Officers Ridyard and Needham would have counted the following group of Bell and Galvin in their count of 85.  Similarly, Bell and Galvin would have included the following group of Williams and Hardwick in their count of 23.  Additionally, as the last visiting group, officers William and Hardwick should have counted no officers, but Miss Hardwick’s witness statement specifically refers to “120 plus ourselves”, so that we find that the officers were double counted.  Our findings reflect all Mr Wheeler’s submissions.  
39.	He also submitted that officers Williams and Hardwick’s count of 120 diners was “so suspect that it should be discounted in its entirety”, that suspicion deriving from the fact that of the total numbers counted officer Williams recorded only 20 being seated.  Having considered the officers’ evidence, we accept their figure of 120 diners.  
40.	As we mentioned earlier, we propose to ignore the evidence of Mr McClelland, as to observations he made from his car parked outside the restaurant.  That evidence indicated that 14 diners entered the restaurant after the last group of officers left.   
41.	On the basis of our analysis of the evidence of events on 18 December 1999, we conclude that 247 diners were observed and, at an average value per cover of £10.63, we estimate the total takings for that day to have been £2,625.61.
42.	Our analysis for 18 December 1999 is as follows:
	Average value of sales per cover:	£  10.63
	Total sales declared:			£2229.27
	Value of missing bills			£1428.49
	Total diners observed:			247

	Estimated total takings @ £10.63 =	£2625.61

	Percentage suppressed:			15.10 per cent 
	Value suppressed:			£396.34
43.	As mentioned at paragraph 5 of the statement of case (see paragraph 3 of our decision), following the observations and test eats carried out on 18 December 1999, Customs intended officers to attend Sahib’s cashing-up exercise at the end of the evening’s trading.  The evidence adduced in relation thereto was conflicting: the Commissioners’ witnesses maintained that the exercise and the taking of a Z reading had been done when they identified themselves; Mr Khawaja claimed that they attended the cashing-up and the production of a Z-reading.  We consider it unnecessary to resolve the conflict for we find that the Z-reading taken at 4.53 am on 19 December 1999 from the downstairs till and numbered 229 showed takings of £2251.74, and was uplifted by the officers.  Analysis of the takings in the till did not fully accord with that figure, but assuming we accept, as we do, that credit card takings were treated as cash, they differed but little from the Z-reading.  
44.	The Commissioners considered their observations to show that a Z-reading had been taken earlier in the evening, for the takings shown by the Z-reading were lower than they expected.  Late in the hearing, Mr Khawaja produced the immediately preceding Z-reading, number 228.  It showed that reading was taken at 4.50 am on 18 December 1999.  
45.	Further investigation of Sahib’s taking of Z-readings on the downstairs till showed, and we find, that between 17 February 1999 and 19 March 1999, 49 such readings were taken.  Mr Khawaja was unable to offer any explanation for their frequency and its absence, we conclude that the taking of a Z-reading more than once daily was unnecessary for genuine commercial purposes.
46.	In relation to the observations and test eats carried out on 5 June 2000, Mr Wheeler submitted that two officers’ bills should be removed from the Commissioners’ analysis, one timed at 19:57 for £21.30 and the other at 23:38 for £27.80.  We agree, so that the results for the evening should read:
	Covers:					14
	Average value of sales per cover:	£  12.89
	Total sales declared:			£463.00
	Value of missing bills			£282.55
	Total diners observed:			56

	Estimated daily gross takings 
	at an agreed average value of £12.89 = £721.84

	Percentage suppressed:			36 per cent 
	Value suppressed:			£258.84
47.	As mentioned at paragraph 6 of the statement of case (again, see paragraph 3 of our decision), Mr Khawaja was interviewed by officers of the Commissioners on 20 June 2000.  The interview was conducted under the terms of Customs Notice 730, i.e. Mr Khawaja was invited to co-operate in the determination of Sahib’s true liability to VAT, told that he need not co-operate with Customs, was free to leave if he chose, and that any penalty that might be imposed on Sahib could be mitigated depending on the degree of co-operation he afforded.  We need not rehearse the essential matters which emerged from the interview: they are recorded at paragraph 6 of the statement of case, and are summarised in sub paragraphs (1) to (10) thereof, as set out in paragraph 3 of our decision.  
48.	The interview of Mr Khawaja was not completed on 20 June 2000, and it was agreed that it should be resumed on 13 July 2000.  But on the latter date, Mr Khawaja refused to be further interviewed.  Paragraph 7(1) of the statement of case (yet again, see paragraph 3 of our decision) records that he offered to prepare a schedule of arrears based on a basis of settlement and to attend a further meeting on 21 August 2000.  In evidence to us, Mr Khawaja denied having ever made such an offer, and strenuously maintained that Sahib had accounted for all VAT for which it was liable.  We consider it unnecessary to make any finding as to the preparation of a schedule of arrears, but do find that Sahib did not account for its true liability to VAT.  
49.	On 8 August 2000, the Commissioners telephoned Sahib’s then accountant hopefully to arrange a further meeting, but were informed that Mr Khawaja had reconsidered his position, would not be attending any further meetings, and would not be putting forward any proposals in settlement of tax which the Commissioners claimed to be due.  That completes our findings of fact.
50.	Having already dealt with quantum in all its aspects, we next turn to deal with Mr Wheeler’s claim that the tax assessments were not made to the Commissioners’ best judgment, as required by section 73 (1)(a) of the Value Added Tax Act 1994.  
51.	At paragraph 29 of his judgment in Rahman (t/a Khayam Restaurant) v Commissioners of Customs and Excise (No.2) [2003] STC 150, Chadwick LJ opined:
“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 use of the 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 that 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, particularly bearing in mind the primary obligation, to which I have made reference, of the taxpayer to make a return himself, 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 one which is reasonable and not arbitrary as to the amount of tax which is due.”
52.	Mr Wheeler maintained that Mr McClelland, as the Commissioners’ assessing officer, “accepted the totality of the observation evidence without any critical evaluation of it which should reasonably have resulted in adjustments to his calculations.  He blindly accepted that evidence without exercising a value judgment on it”.  For best judgment purposes, he submitted that the Commissioners should have adopted the approach favoured by the General Commissioners, i.e. the results of the business economics exercise.  
53.	At paragraph 36 of his judgment in Rahman (No 2) Chadwick LJ added:
“But the fact that a different methodology would, or might, have led to a different—even to a more accurate—result does not compel the conclusion that the methodology that was adopted was so obviously flawed that it could and should have had no place in an exercise in best judgment. I am not persuaded that the tribunal was asked to find, as a fact, that the commissioners' methodology was incapable of leading to a fair assessment; or to find, as a fact, that the commissioners and their officers must have appreciated that.”
In reliance on that passage, Mr Wheeler invited us to find as facts: (1) that Customs’ methodology was incapable of leading to a fair assessment of tax, and (2) that Customs and their officers must have appreciated that.
54.	In response, Mr Poole maintained that Mr Wheeler was urging us to accept that in not adopting the business economics exercise Customs had made the same error as had the Revenue.   He pointed out that had Customs adopted the result of that exercise, it would also have led to Sahib being assessed to underdeclared tax.  He submitted that Mr McClelland had exercised best judgment in using the results of the observations.  He further contended that the business economics exercise was totally flawed: there was no reliable evidence of chicken purchases; there was clear evidence that cooked meat dishes contained seven ounces of meat and not 10 ounces as Mr Khawaja claimed: and there was no evidence whatsoever to support Mr Khawaja’s contention that the average value of a meat dish was £10.  Any amendment that might have been necessary had the business economics exercise been used by Customs would at best have been marginal, and in any event was not a matter of best judgment.
55.	We earlier indicated why we rejected the business economics exercise as a reliable way of calculating the tax allegedly underdeclared by Sahib, and need not repeat our reasons for doing so.  We consider Customs, in the form of Mr McClelland, rightly to have rejected it also.
56.	With the exception of Mr McClelland’s evidence as to the 14 persons he allegedly observed after the last group of officers had left the restaurant on 18 December 1999, which we reject solely on account of its staleness and as being uncorroborated by any contemporaneous documents, the remaining alterations we have made to the analysis leading to the assessments of tax are merely mathematical or a matter of the subjective interpretation of bills:  they do not represent any failure by Mr McClelland critically to evaluate the information before him.  In removing officers from the number of diners, we are merely being as fair to Sahib as possible.   In our opinion, Mr McClelland did exercise a value judgment when considering the evidence.  But were the assessments made to the best of the Commissioners judgment?  Carnwath LJ opined in paragraph 10 of his judgment in Customs and Exercise Commissioners v Pegasus Birds [2004] STC 1509:
“… the word ‘best’ … is a recognition that the result may necessarily involve an element of guesswork.  It seems simply ‘to the best of (their) judgment on the information available’.”  
Applying that opinion in the present context, we conclude that the assessments were made to best judgment.  In so holding, we consider Mr McClelland to have been right both to reject the results of the business economics exercise as the best evidence of any underdeclared takings, and to have relied on the observation evidence.  
57.	In reaching our decision both in relation to best judgment and quantum, we have placed no reliance on the General Commissioners’ finding that Mr Khawaja received underdeclared emoluments and benefits in kind from Sahib.  (We agree with a submission of Mr Wheeler that the findings of fact made by the General Commissioners are not admissible in evidence to prove a fact in issue or relevant to the issues in the present appeal.)
58.	Whilst accepting that the doctrine of res judicata had no application in the instant case, since the original parties differed from those in Khawaja v Etty  and a different tax was involved so that there could be no issue estoppel arising from the decisions in the Revenue proceedings, Mr Wheeler next submitted that there were what he termed “abuse of process estoppels” not qualifying as res judicata which Sahib was entitled to pray in aid, namely:
(a)	In relation to the appeal against section 60 penalty, Mr Wheeler submitted that the Commissioners were estopped from pursuing a case of dishonesty given the fact that in the penalty proceedings before the General Commissioners in which the Commissioners were also the respondents (or, alternatively, the successors in title to the respondents) the proceedings were brought only on the basis of an allegation of negligence, although dishonesty could have been alleged.
(b)	In relation to the appeal generally, Mr Wheeler submitted that the Commissioners were estopped from presenting their case in a way that amounted to a collateral challenge to the decision and findings of the General Commissioners: 
(i)	That the most accurate and fairest way of establishing the true / a more correct total of sales made by Sahib was by taking the known amount of raw meat purchased and computing the sales that could be derived therefrom; and 
(ii)	That the accuracy of the results of the observations carried out by the Commissioners’ officers was not very persuasive evidence.
(c)	Also in relation to the appeal generally, Mr Wheeler submitted that the Commissioners were estopped from adducing evidence relating to the covert observations of 5 June 2000, no evidence thereof having been presented to the General Commissioners in June 2001.  Within those proceedings the Revenue, as predecessors in title to the Commissioners, chose to adduce evidence of the observations undertaken by their officers, but unacceptably omitted therefrom evidence relating to the observations of 5 June 2000.  His submission was based on the decision of the Privy Council in Yat Tung Investment Co Ltd v Dao Heng Dank Ltd [1975] AC 581 where at page 590 it was explained:
	“There is a wider sense in which the doctrine [of issue estoppel] may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings”.
59.	Mr Wheeler contended that the omission of evidence relating to the observations of 5 June 2000 constituted a matter which could, and therefore should, have been litigated before the General Commissioners; its omission therefore became an abuse of process.
60.	In Secretary of State for Trade & Industry v Bairstow [2002] EWCA Civ 321 at paragraph 38 of his judgment, the Vice-Chancellor derived the following propositions from the existing case law on abuse of process estoppel: 
“(a)	A collateral attack on an earlier decision of a court of competent Jurisdiction may be but is not necessarily an abuse of the process of the Court;
(b)	…
(c)	If the earlier decision is that of a court exercising a civil jurisdiction then it is binding on the parties to that action and their privies in any later civil proceedings; 
(d)	If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of process to challenge the factual findings and conclusions of the Judge in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.”  
61.	Mr Wheeler submitted that, applying those principles to the instant case – where it was accepted that the parties were not the same as those in the earlier Revenue proceedings (albeit that the Commissioners were the successors in title to the Revenue and were the respondents in the earlier appeal) – raised two questions:
(i)	was it manifestly unfair to Sahib that the same issues should be relitigated? 
(j)	would permitting such relitigation bring the administration into disrepute?
62.	In relation to the first question, Mr Wheeler maintained that it was manifestly unfair to Sahib to have to relitigate the decision of the General Commissioners that the most accurate and fairest way of establishing the true / a more correct total of sales was by use of the business economics exercise, and that the accuracy of the figures put forward by Customs following the covert observations at the restaurant was “not very persuasive”: the tax levied in consequence of the earlier litigation was substantial, and had been paid in full with interest.  It was manifestly unfair to Sahib for tax to be assessed on it on one basis in one set of proceedings, and for it to be assessed on another basis in other proceedings, the accuracy of which had already been found to be “not very persuasive” in the first proceedings.  And for the same reasons, he contended that permitting such relitigation would bring the administration of justice into disrepute.  Thus, in Mr Wheeler’s further submission, on both counts abuse of process estoppel prevented the Commissioners from mounting a collateral challenge to the General Commissioners’ decision by reference to what he described as the “already discredited observations”; and the same must be true of the Commissioners’ attempt to bolster their case in the penalty proceedings by reference to those observations.
63.	Further, Mr Wheeler contended that the Commissioners must, by abandoning allegations of dishonesty in the Revenue proceedings in favour of a case based on negligence, be estopped as abuse of process from pursuing a case of dishonesty in the section 60 penalty proceedings: res judicata applied, and the Commissioners were “shut out” from raising in the instant proceedings an issue which they could and should have raised in the earlier proceedings.  If Sahib were to face a case of dishonesty at all out of  one set of factual circumstances, that case should have been put forward in the other proceedings.  The present approach was abusive: the Commissioners could not pick and choose the nature of the allegations they chose to make against Sahib at different times where those allegations arose from the same facts and matters.  Similarly in the case of the observations of 5 June 2000: if the Commissioners ever intended to rely on them, they should have put them in the Revenue proceedings.
64.	In summary, Mr Wheeler submitted:
(i)	that the appeal against the section 60 penalty should be allowed as dishonesty was an essential ingredient of that penalty; 
(ii)	that evidence of the observations of 5 June 2000 should be disregarded, and the tax assessments amended accordingly; and 
(iii)	that the discredited observation evidence should be disregarded both in relation to the appeal against the tax assessments and the penalty assessment, and the tribunal should adopt the results of the business economics exercise test as “the most accurate method and fairest way for establishing the true / most correct total for sales made by the restaurant”. 
65.	Mr Poole responded to Mr Wheeler’s submissions on the res judicata / issue estoppel question by first observing that they proceeded on the basis that dishonesty had already been decided, or the Commissioners were prevented by their previous conduct from making the allegation.  He contended that neither of those conditions applied in the instant case, for:
(a)	here different parties were involved (although by 2005 the revenue departments had merged): the tribunal was dealing with separate actions by different bodies;
(b)	the evidence adduced before the General Commissioners differed significantly from that adduced before the tribunal; 
(c)	a different tax was involved, and there was nothing before the tribunal to show that Mr Khawaja had been told that there would be no VAT penalty proceedings.
66.	Mr Poole accepted that the tribunal was not bound by the General Commissioners findings of fact, although it would be in the interests of the Commissioners to say that it was so bound: but, he submitted, it could have regard to the evidence given to the General Commissioners, and to their determination.  
67.	Further, on the authority of the speech of Lord Bingham of Cornhill in Johnson (AP) v Gore Wood & Co [2001] 2 WLR 72, Mr Poole maintained that the Commissioners were not estopped from bringing the present proceedings.  At pages 89 and 90 of his speech in the House of Lords in that case, Lord Bingham said:
“It may very well be, as has been convincingly argued (Watt, “The Danger and Deceit of the Rule in Henderson v. Henderson: A new approach to successive civil actions arising from the same factual matter,” 19 Civil Justice Quarterly, (July 2000), page 287), that what is now taken to be the rule in Henderson v Henderson, has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in early [sic] proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”
68.	Dealing with the submissions of Mr Wheeler set out at paragraph 57 of our decision seriatim, in relation to the section 60 penalty we first observe that Sahib was assessed to the penalty on 19 February 2001 – long before the Revenue assessed Mr Khawaja personally to the penalties for negligently preparing his income tax returns.  It is not for us to seek to determine why each revenue authority chose to assess the penalties on a different basis.  Further, we are dealing with a different taxpayer from the General Commissioners, and with the statutory provisions concerning a totally different tax.  Additionally, the evidence adduced before us differed significantly from that presented to the General Commissioners.  It would appear that only four officers concerned in the observations at the restaurant appeared before the General Commissioners, whereas we not only heard from all 28 officers concerned but had their evidence tested in cross-examination.  In contrast, on the basis of the documentary evidence put before us, we reject the business economics exercise adopted by the General Commissioners for the reasons earlier stated (see paragraph 15 above).  For all those reasons, we hold that the Commissioners are not estopped from pursuing a case of dishonesty against Sahib.
69.	We do not accept that the Commissioners are pursuing what amounts to a collateral challenge to the decision and findings of the General Commissioners in inviting us to rely on the results and observations of the restaurant.  As mentioned in the last preceding paragraph, we reject the business economics exercise as being a fair basis of establishing the sales made by Sahib.  
70.	All we need say of Mr Wheeler’s claim that the Commissioners are estopped from adducing evidence of the observations of 5 June 2000 is that Sahib was well aware that such observations had taken place before the General Commissioners’ hearing for they were referred to in the original statement of case dated 27 March 2001.  Why the results of those observations were not presented to the General Commissioners we do not know, and do not consider it necessary to enquire into.  Their absence from those proceedings does not, in our judgment, amount to an abuse of process in the present proceedings.  
71.	Although Mr Wheeler indicated at the outset that he was making an application for the appeal to be allowed on the basis that Sahib’s rights under article 6 of the European Convention on Human Rights had been infringed as the appeal had not been heard within a reasonable time, we indicated that we were not prepared to deal with that application separately from the hearing of the main appeal.  We did so because we were not prepared to risk the hearing being further delayed in the event of our refusing the application.  To assist the reader, we include a schedule to our decision of a chronology of the tribunal proceedings.
72.	At the time the application was made, we enquired of Mr Wheeler whether he was aware of the tribunal decision in Karl Morris and others v The Commissioners (2005) Decision No. E894.  On his informing us that he was not, we arranged for him to be supplied with a copy thereof.  (We also ensured that he was provided with copies of all the remaining case law relevant to the appeal which he did not have).  
73.	The first question to arise in relation to the article 6 application is: when did time start to run for the purposes of article 6?  At paragraph 85 of the Morris decision, Mr Wallace, the learned chairman, having recorded that counsel for the Commissioners submitted that time runs from the imposition of the penalty rather than the giving of Notice 730, held that “the situation of the [taxpayer] has been substantially altered” on the giving of Notice 730, see Eckle v Germany (1982) 5 EHHR1 at [73], so that the giving of the notice started time running.  We agree, so that in the instant case we hold that time started to run on 20 June 2000.
74.	We then turn to deal with the question of the delays which have occurred in relation to Sahib’s appeal, and to consider to what extent, if any, they were attributable to Customs and to the Commissioners.  As we mentioned in paragraph 1 of our decision, the tax assessments under appeal were first notified on 30 November 2000, and the penalty assessment on 19 February 2001.  Mr Khawaja’s appeal against the income tax assessments was heard by the General Commissioners on 25, 26 and 27 June 2001.  Following the dismissal of it, on 13 July 2001 Mr Khawaja’s then accountants required the General Commissioners to state a case for the opinion of the High Court.  They did so on 11 March 2002.  The appeal came before Lawrence Collins J on 27 November 2003, and, on its being substantially dismissed, Mr Khawaja sought to appeal to the Court of Appeal.  His application in that behalf was refused by Neuberger LJ on 7 April 2004.  (We pause there to observe that all Category 1 (i.e. appeals involving civil evasion penalties) before these tribunals were stoodover the outcome of the decision of the Court of Appeal in the Han and Yan case.  That case, decided on 3 July 2001, determined that Category 1 appeals were criminal for human rights purposes, so that appellants were entitled, where appropriate, to the services of an interpreter and to legal assistance.  Consequently, even ignoring the Revenue proceedings, Sahib’s appeal to the tribunal would not have come on for hearing before July 2001).
75.	On 17 November 2004, Mr Khawaja was assessed to penalties by the Revenue on the basis  of his having negligently submitted a number of income tax returns.  His appeal was heard on 30 November 2005, when the penalties imposed were substantially reduced.  Mr Khawaja again required the General Commissioners to state a case for the opinion of the High Court; and so did the Commissioners.  That requirement has not yet been acted upon.
76.	In our judgment, it would have been inappropriate for Sahib’s appeal against the VAT and VAT penalty assessments to proceed to a hearing while Mr Khawaja’s appeal against the income tax assessments was proceeding first to the General Commissioners and then to the High Court for, had he succeeded before either, the likelihood, indeed distinct probability, is that Customs would have withdrawn the assessments before us.  Thus, while the appeals in the Revenue proceedings did not directly involve Sahib, their outcome in favour of Mr Khawaja would almost certainly have resulted in there being no necessity for it to continue with the present appeal.  Consequently, in our judgment, there can be no blame on either party for this appeal not having proceeded to a hearing before Neuberger LJ’s decision of 7 April 2004.  
77.	We next turn to consider what happened after that date.  On 23 April 2004 Sahib applied to the tribunal for an extension of time to that date in which to serve its list of documents, the tribunal having directed on 23 February 2004 that it serve its list by 22 March 2004.  As is standard practice within these tribunals, on 15 July 2004 a letter in form Trib 19 was sent to both parties inviting them within 21 days to indicate dates inconvenient for a hearing within the following three months, and to estimate the length of hearing.  Sahib’s then representative, Mr Philip Rayner, ignored the request for a time estimate, and simply asked for the hearing of the appeal to be postponed, while the Commissioners’ estimated that one day would be sufficient to dispose of it.  (We can only presume that that estimate was based on their believing that as a result of the Revenue proceedings, Sahib would accept liability for some of the tax assessed, and would merely be seeking to have the assessments reduced).  
78.	The Tribunal acted upon the Commissioners’ estimate, and the appeal was listed for one day - 8 February 2005.  On 30 December 2004, Mr Rayner (by then assisting Mr Nigel Gibbon, a solicitor specialising in indirect tax matters) applied for the hearing to be postponed, one day being insufficient to deal with it.  As a result, the listing on 8 February 2005 was changed to a pre-hearing review, at which the tribunal directed that the appeal be listed for a five day hearing.  The Commissioners then served a further nine witness statements, to all of which Sahib objected.  On 12 April 2005, Sahib applied for further and better particulars of the Commissioners’ case.  That application was dealt with at a subsequent pre-hearing review.
79.	Two more pre-hearing reviews followed which were designed to ensure that the substantive hearing took place as soon as possible.  (Not surprisingly, with over 30 witnesses to be called, listing proved something of a problem).  Sahib withdrew its instructions to Mr Rayner / Mr Gibbon in May 2006, further delaying the case.  The five day substantive hearing finally began on 11 September 2006.  The time estimate proved hopelessly inaccurate and the case was adjourned part-heard, to 15 January 2007.  Following a further three day hearing, the appeal was still incomplete and was again adjourned part-heard on this occasion to 25 April 2007.  The further three days allocated once more proved inadequate and one more day was allowed.  On 16 May 2007, the hearing was completed. 
80.	We should add that once the hearing was commenced every effort was made to ensure that it was completed as soon as possible, other listings being changed to accommodate the parties to this appeal. 
81.	Apart from the Commissioners initially hopelessly underestimating the likely length of the hearing, which was perhaps understandable, we do not consider they in any way contributed to the delay in Sahib’s appeal coming on for hearing.  
82.	We then turn to deal with the consequences if we should conclude that Sahib’s right to a hearing within a reasonable time has been violated.  Mr Wheeler contended that we should allow the appeal.  But in Attorney-General’s Reference [2004] 2 AC 72, Lord Bingham pointed out at [23] that “the Strasbourg jurisprudence gives no support to the contention that there should be no hearing of a criminal charge once a reasonable time has passed”.  Later, in the same paragraph, he said, “The sole matter to be taken into consideration is thus the prejudice possibly entailed …”.  And in [24] having explained that the remedy for a breach of the right to a hearing will depend on the nature of the breach and all the circumstances, he continued:
“It will not be appropriate to stay or dismiss the proceedings unless (a) there can no longer be a fair hearing or (b) it would otherwise be unfair to try the defendant. The public interest in the final determination of criminal charges requires that such a charge should not be stayed or dismissed if any lesser remedy will be just and proportionate in all the circumstances. The prosecutor and the court do not act incompatibly with the defendant's Convention right in continuing to prosecute or entertain proceedings after a breach is established in a case where neither conditions (a) or (b) is met, since the breach consists in the delay which has accrued and not in the prospective hearing.”
83.	In Morris, Mr Wallace considered that Lord Bingham’s observations applied to penalty appeals before these tribunals.  He accepted that the public interest was not as great as where prosecution for a crime was concerned, but observed that it was involved in deterring dishonest evasion of tax or duty.  He considered that it would only be appropriate to allow an appeal by reason of delay if it were no longer possible for there to be a fair hearing, or it would otherwise be unfair to pursue the matter.  We agree with his decision.
84.	Mr Wallace went on to consider the effect of rules 18 and 19 of the VAT Tribunals Rules 1986, noting that rule 18(2) gave the tribunal power to dismiss an appeal for want of prosecution in the case of inordinate or inexcusable delay on the part of an appellant, but did not give such a power where the Commissioners were guilty of delay.  He further noted that rule 19(3), designed to give directions “to ensure the speedy and just determination of the appeal”, did not appear to “have been intended by Parliament to include a power to dismiss or allow an appeal”.
85.	Mr Wallace continued: 
	“99.	That however does not conclude the matter because of section 3 of the Human Rights Act.
	100.	In Ghaidan v Godin-Mendoza [2004] 2 AC 557 Lord Nicholls at [32] said that section 3 is, ‘apt to require a court to read in words which change the meaning of the enacted legislation, so as to make it Convention-compliant.’  In the next paragraph he went on to say that this must not have the effect of adopting ‘a meaning inconsistent with a fundamental feature of the legislation.’
101.	In my judgment the reading in of words enabling the Tribunal to allow an appeal where there has been such a delay as to deprive an Appellant of his right under Article 6.1 to a fair trial cannot be regarded as inconsistent with a fundamental feature of the legislation. The whole purpose of Rule 19(3) is speed and justice. Such a reading of Rule 19(3) would also accord with the principle of effectiveness in Community law, see per Peter Gibson LJ in Re Claimants under Loss Relief GLO [2004] STC 1054 at [25] ...
102.	Although in my judgment Rule 19(3) must therefore be read so as to enable the Tribunal to allow an appeal where the rights of an appellant under Article 6.1 have been violated, the use of such power will only be appropriate where because of the delay no lesser remedy is available so as to ensure a fair hearing.
103.	The basic point is that the mere violation of the rights of the Applicants of their right under Article 6.1 to a hearing within a reasonable time does not give rise to a right to have the appeals allowed. Allowing the appeals is only appropriate if a fair hearing is no longer possible.
104.	A decision to allow the appeals is exceptional and will depend on substantial prejudice being established which cannot otherwise be remedied. This will depend on the facts of the particular case.”
86.	The circumstances of the instant case are very unusual, indeed they may be unique, in that the tribunal proceedings were delayed by the Revenue proceedings and the progress of the Han and Yan case to the Court of Appeal.  As we indicated earlier (see paragraph 81 above), we consider no blame to attach to Customs or the Commissioners for any delay arising from the progress of the appeal by Mr Khawaja against the income tax assessments.  But as to the Revenue penalty proceedings, that is a different matter: we know of no reason why the penalty assessment could not have been made much earlier, so that any appeal against it could have been dealt with contemporaneously with that against the tax assessments.  However, we do not consider that to be of assistance to Sahib in the present context.
87.	But, taking account of all the factors that resulted in this appeal taking as long as it did to proceed to hearing, we are satisfied that there were no unreasonable delays for which the authorities were responsible.  Consequently, we reject Mr Wheeler’s application for the appeal to be allowed on the basis that Sahib’s rights under article 6 of the European Convention on Human Rights were infringed.
88.	Finally, we turn to consider the parties submissions on the civil evasion penalty.  The statutory provisions relevant thereto are to be found in sections 60 and 70 of Value Added Tax Act.  Subsections (1) and (7) of section 60 provide as follows:
	“(1)	In any case where—
(a)	for the purpose of evading VAT, a person does any 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, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.
	(7)	On an appeal against an assessment to a penalty under this section, the burden of proof and to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners.”
89.	And subsections (1) and (2) of section 70 provide as follows:
“(1)	Where a person is liable to a penalty under section 60, 63, 64 [, 64 or 69A] [or under paragraph 10 of Schedule 11A], the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper.
(2)	In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty, may cancel the whole or any part of the reduction made by the Commissioners.” 
90.	Although the standard of proof in evasion penalty proceedings is the civil standard, namely the balance of probabilities, since the assessment involves the grave charge of dishonesty, the tribunal should not be satisfied with anything less than a high degree of probability (see the judgment of Dyson J in Akbar v Commissioners of Customs and Excise [2000] STC 237 at page 251) - one confirmed as virtually indistinguishable from the criminal standard of beyond reasonable doubt by Lord Steyn at paragraph 37 of his speech in R (McCann) v Crown Court at Manchester [2003] 1 AC 787.
91.	The two elements of the penalty, evasion and dishonesty, were the subject of consideration by the Court of Appeal in R v Dealy [1995] STC 217 where McCowan LJ cited, implicitly with approval, the following direction on law of His Honour Judge Crabtree to the jury:
“Well, what does ‘evasion’ mean? Evasion is an English word that means to get out of something. If you evade something, you get out of its way, you dodge it …  
What is dishonesty in English Law? It is a common English word and it carries its ordinary English meaning.  You [the Jury] must decide for yourselves, first of all, whether ordinary, right-thinking people would describe what Mr. Dealy did as dishonest. If the answer is “No, ordinary, sensible people would not regard what he did as being dishonest” then he is not guilty. However, if you decide that ordinary, reasonable people would see his conduct as dishonest, you must then go on to decide what he thought about it. If you come to the conclusion that Mr. Dealy might have thought, quite honestly, that he had a perfect right to do as he did, and that no-one would regard it as dishonest, then he is not guilty. If he was convinced, throughout, that he was doing the right thing, and that other people would agree with him, that is not dishonesty.”
92.	In his submissions, Mr Wheeler dealt with the Commissioners’ case on dishonesty by reference to the amended statement of case.  Of the allegation contained in paragraph 3, that Mr Khawaja had never offered an explanation for the erasure from the till memory of transaction details, he maintained that the Commissioners had never asked for such explanation, so that Mr Khawaja could hardly be blamed for not offering it.  Mr Wheeler maintained that the allegation was in any event disproved by the evidence of Mr Stanisland.  In effect, Mr Wheeler invited us to accept that each time a Z-reading was taken, the till memory was cleared.  We do not accept that that was so in the case of the standard till programme - one designed to store financial records, and to reproduce them if and when required.  We earlier found that Sahib’s downstairs till programme was altered specifically to prevent checks being carried out on the number of transactions entered.  Mr Wheeler also noted that no mention of the erasure of till records was made in the interview of Mr Khawaja in June 2000.  As that interview was incomplete, we do not find the omission surprising.  We are quite satisfied that all the matters referred to in this paragraph are covered by the allegation of dishonesty at paragraph 11 of the amended statement of case and in particular that at 11(3) namely that Sahib “has erased the till memories allowing details of transactions to be stored”.  In our judgment, the Commissioners have proved this part of the dishonesty allegation to the required standard.
93.	Mr Wheeler next dealt with the cashing up and taking of a Z-reading for the evening of 18 December 1999.  We earlier referred to the conflict of evidence as to the taking of the Z-reading, and, having dealt with it, need not repeat it.  We accept that no Z-reading was taken earlier in the trading day on the downstairs till, as alleged by the Commissioners.  But that is not to say that we accept that there was no suppression of takings: as we earlier found, Sahib suppressed all bills issued by the upstairs till.  Again, that constitutes dishonesty, and falls within the Commissioners’ pleaded claim that Sahib failed to declare the true value of its takings.  
94.	Mr Wheeler accepted the claim by the Commissioners at paragraph 11(2) of the statement of case that Sahib retained only a proportion of the meal bills produced by the tills, but submitted that that was irrelevant since, as claimed by Mr Khawaja in evidence, they did not form part of Sahib’s prime records and, once paid, were of no importance to it.  If a customer left a meal bill behind Sahib would retain it, but only if it were not damaged or defaced, and it was picked up by waiting staff.  Mr Wheeler maintained that it was irrelevant that some bills had not been retained as the Z-reading would include each bill payment in any event.  It was no part of the Commissioners’ pleaded case that Sahib had not retained Z-readings: nor was it part of their case that the tills were capable of producing a second print but Sahib did not use the facility.  There was no evidence of Sahib bypassing its tills, so that all sales were recorded on its Z-readings.
95.	We do not accept that all Sahib’s sales were recorded on the Z-readings produced on the tills.  All the evidence points to Sahib’s tills having been re-programmed in such a way as to prevent anyone being able to check on the number of transactions entered into them, and their content.  All the transactions recorded on the downstairs till may (we use the word advisedly) have been included in the Z-readings, but those recorded on the upstairs till were suppressed.  We consider that yet further evidence of dishonesty on the part of Sahib.
96.	Mr Wheeler maintained that the Commissioners’ case on dishonesty was essentially then reduced to their claims that: 
(a)	Sahib retained only a proportion of its meal bills or till slips; 
(b)	On each occasion test eats were carried out Sahib failed to retain and declare all the meal bills relating thereto; and 
(c)	An unrealistically low price for a meal was produced by dividing Sahib’s declared takings by the number of customers observed by the Commissioners’ officers.
97.	Mr Wheeler contended that there was no evidence of, nor was it part of the Commissioners’ pleaded case, (i) that somehow the tills had been by-passed; (ii) Z-readings had not been retained, and (iii) that the tills were all capable of producing a second copy of till slips.  Mr Wheeler maintained that all cash passed through the tills and all transactions were recorded on the till Z-readings.
98.	We could accept that the till slips were not a prime record were there other documentary evidence of the number and content of the transactions Sahib carried out.  The Z-readings produced do not represent such evidence, they provide little more than a total of the transactions entered into since the taking of the last preceding reading and the average value of a transaction.
99.	As we indicated earlier, it would have been a simple matter for Sahib to have produced and retained a copy of each customer’s bill; and we would have expected the bills to have been part of Sahib’s primary records.  If it did not regard the bills as records, why would it have bothered to retain some of them?  If its claim that the Z-readings included each and every sale, in our judgment it would have retained none of the till slips.  Once more, we consider the Commissioners to have proved to the requisite high standard that Sahib’s failure to retain all its meal bills, and its declaration of figures showing an unrealistically low price for meals constituted dishonesty.  
100.	The Commissioners’ pleaded basic case on dishonesty is that Sahib failed to declare the true value of its sales.  That they did not know how sales were being suppressed, so that they merely recorded in support the factual matters of which they had knowledge, does not, in our judgment, affect that case.  We hold that Sahib dishonestly suppressed the value of its sales, and failed to declare its true takings.
101.	That leaves the question of mitigation of the penalty.  Notice 730 in the form in force in 2000 provided for a reduction of up to 10 per cent of the penalty for attending interviews and producing records and information as required by Customs.  As we mentioned earlier, Customs regarded Sahib’s co-operation as minimal and mitigated the penalty by only five per cent.  In our judgment, they were correct to do so, and we therefore determine that the penalty should be reduced to 95 per cent of the tax we have determined as due.
102.	To the extent we have reduced both the tax and penalty assessed, we allow the appeal.  For completeness, we record that the tax assessments are reduced to £34,344 and the penalty assessment to £32,627.
103.	As is usual in cases such as this, Mr Poole made application for the Commissioners’ costs in the event of our dismissing, or substantially dismissing, the appeal.  Sahib having succeeded to a very limited extent, we direct that it pay three-quarters of the Commissioners’ costs of and incidental to and consequent upon the appeal calculated on the standard basis, such costs to be determined by a Tax Judge in default of agreement between the parties.  
104.	There is one final matter with which we must deal.  In evidence Mr Khawaja made allegations of misconduct and bad faith by various officers involved in events at the Sahib restaurant, and in his closing submissions Mr Wheeler alleged that some documents that had been uplifted by the officers had “gone missing”.  Had we been aware that such allegations were likely to be made, we should have directed that they be particularised in writing: as it was, they emerged far too late in the hearing to enable us effectively to deal with them.  We do, however, record that nothing in the evidence given to us indicated any misconduct or bad faith on the part of any of the officers involved in events.  And as to Mr Wheeler’s allegation that some documents had “gone missing”, we merely observe that all the defects in and omissions from records of which we were aware were obviously those of Sahib and no-one else. 

DAVID DEMACK
CHAIRMAN
Release Date: 20 July 2007

MAN/00/1096

THE SCHEDULE
 
2 December 1997	Revenue Letter	
24 August 1998	Revenue Meeting	
4 December 1998	Revenue Letter*	
26 January 1999	Revenue Meeting	
9 February 1999	Letter to Revenue*	
10 February 1999	Revenue Meeting	
17 February 1999	VAT Attendance at Sahib* (Warin’s Evidence)	
March 1999	Start of 5 VAT observations	
2 March 1999	Revenue & VAT Meeting at Sahib (Till Demo)	
19 March 1999	VAT OBSV 1	
7 April 1999	Revenue Letter*	
13 May 1999	VAT OBSV 2	
21 May 1999	Letter to Revenue	
26 July 1999	Revenue Letter (Cullen)	
22 September 1999	Letter to Revenue	
8 October 1999	VAT OBSV 3	
21 October 1999	Revenue Letter (Scott)	
18 December 1999	VAT OBSV 4	
22 January 2000	Revenue Chicken Test (Scott X exam)	
3 February 2000	Tel Note (ist Mention re Meat wastage etc)	
5 June 2000	VAT OBSV 5	
20 June 2000	Taped Revenue and VAT interview (incomplete discuses Revenue’s wastage figures)	
21 June 2000	Interview under Notice 730 	
30 June 2000	END VAT observations	
13 July 2000	Revenue & VAT Meeting (discusses Q’s faxed Wastage Figures)	
20 July 2000	Revenue Letter*	
26 July 2000	Letter to Revenue	
11 August 2000	VAT Letter	
25 August 2000	Revenue Letter	
5 October 2000	Witness Statement M C Warin	
10 October 2000	Revenue Letter	
20 December 2000	Notice of Appeal (tax)
	
18 January 2001	Revenue Meeting (Renshaw Thomas) (Scott states Chicken test done before Customs observations available.  Indicates how Joint Investigation came about – VAT tell Cullen Jan 1999. 10/02/99 IR and VAT agree joint case working.  Sept 99 Scott meets VAT officers.  VAT observations satisfied VAT returns incorrect – calculations carried out on different basis but showed almost exactly same result).	
23 April 2001	Notice of Hearing	
2 May 2001	Revenue Fax (Chicken test)	
2 May 2001	Renshaw Thomas letter to Revenue*	
3 May 2001	Notice of Appeal (penalty)	
7 May 2001	Revenue Letter (partial deletion query)	
27 March 2001	Statement of case	
18 May 2001	PTR (JCM) – appeals consolidated, amended SOC (consolidated appeal), s/o pending Hau & Yau	
30 May 2001	Witness Statement Warin	
June 2001	General Grounds hearing	
25 – 27 June 2001	General Commissioners Hearings	
19 July 2001	Amended SOC	
August 2001	Further amendment?	
16 August 2001	Clerk to General Commissioners Letter	
17 September 2001	CE witness statement served (21)	
15 October 2001	Revenue Letter*	
18 October 2001	Revenue Letter*	
6 November 2001	Revenue Letter	
27 November 2001	PTR (CPB) – re-serve SOC by 4 December 2001, Defence by 31 January 2002	
12 December 2001	Self Assessment Statement of Account 	
14 January 2002	Clerk to General Commissioners Letter*	
8 February 2002	Letter to Clerk to General Commissioners 	
21 February 2002	All witness statements objected to 	
11 March 2002	Case Stated	
3 April 2002	PTR (CPB) – defence to be served 25/5/02
- PTR adjourned to date not before 1/7/02
- appellants application for F&BP withdrawn	
11 June 2002	CE application to dismiss – defence not served	
24 October 2002	Defence (N Gibbon)	
5 November 2002	PTR (JDD) – CE to provide dates on which till receipts in list of documents uplifted	
8 January 2003	Direction following PTR 5 November 2002 not complied with – Rayner applies for date till receipts uplifted	
9 April 2003	Letter to Revenue	
25 June 2003	PTR (CPB) – CE to provide details of calculations of sums assessed	
3 September 2003	Application for appeal to be allowed	
25 September 2003	PTR (CPB) – appellant’s LOD by 31/10/03
- CE to supply calculations by 21/10/03	
13 November 2003	CE application – for appellant’s LOD and case to be listed	
27 November 2003	Judgment Appeal Hearing High Court	
28 November 2003	Revenue Letter	
January 2004	Amended assessments	
5 January 2004	Revenue Meeting (TK raises VAT investing of KHWJ & Sons)	
8 January 2004	Revenue Letter	
23 February 2004	Application hearing – appellant’s LOD by 22/3/04	
2 March 2004	Revenue Letter	
26 March 2004	Report of Peter Ferner	
23 April 2004	Appellants application for EOT to serve LOD to 23/4/04	
15 July 2004	Trib19 – CE reply “1 day”: Rayner asks for postponement of listings	
2 September 2004	Appellant’s application for F&BP	
(8 February 2005	Hearing Listed)	
30 December 2004	Application for hearing to be postponed	
8 February 2005	PTR – case to be listed – 5 days, Manchester	
9 March 2005	CE serve 9 witness statements	
29 March 2005	Objection to all 9 witness statements	
12 April 2005	Appellant’s application for F&BP	
13 May 2005	PTR (JDD)	
15 July 2005	PTR (JDD)	
27 April 2005	PTR (JCM) appeal to be listed for 5 days	
2 May 2006	Notice from Gibbon – no longer acting	
14 July 2006	PTR – Customs to review evidence on 30 August with Cheadle Review Team, adjourned to 11 September 2006	
11, 12, 13, 14 Sep 2006	Hearing – adjourned to 15 January 2007	
15, 16, 17 January 2007	Adjourned part-heard	
25, 26, 27 April 2007	Adjourned part-heard	
16 May 2007	1 day hearing listed