19606
ASSESSMENT – The Appellants repeatedly failed to provide documents requested by the Commissioners to verify their returns – Protective assessment issued – Whether to best judgment – S.73(1) of VAT Act 1994 considered

PROCEDURE – Non-appearance by the Appellants themselves – Respondents’ case heard in their absence – Time allowed for Appellants to produce further documentation – None produced – Appeal dismissed

LONDON TRIBUNAL CENTRE

	KANANI & KANANI	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MISS J C GORT (Chairman)
						MRS R WATTS-DAVIES MHCIMA, FCIPD

Sitting in public in London on 12 January 2006

Mr Martyn Gulliver, VAT Consultant, for the Appellant 

Mr Philip Webb of the Solicitor’s Office, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal against an assessment for value added tax dated 24 February 2003 in the sum of £342,191.93.  

2.	On 10 January 2006 the Tribunal received an application by fax sent on behalf of the Appellant seeking a postponement of the hearing.  The reasons given for the application were: i) for time to be allowed to the assessing officer to review purchase invoices held by Mr Gulliver on behalf of the Appellant, and ii) Mr Kanani was suffering from poor health and had taken a “once in a lifetime opportunity” as a devout Muslim to travel to Mecca for Haj.  In the fax it was stated that HM Revenue and Customs had no objection to the request; a letter from Mr Shams Kanani dated 8 January 2006 accompanied this fax.  In it he states that he is “rather upset” that such short notice has been given to the Tribunal.  Mr Gulliver on behalf of Mr Kanani, believed Mr Kanani’s presence at the appeal was essential.

3.	Because the date of this hearing had been fixed by agreement between the parties, both of whom had given the Tribunal a list of dates to avoid, and it had been known to the Appellants since mid-October 2005 that this was the appointed date (the notice of hearing being sent out on 11 October 2005), it was decided not to vacate the hearing date of 12 January 2006.  

4.	At the hearing Mr Gulliver referred to the matters raised in Mr Kanani’s letter, and also to the fact that it was a last minute decision for him to attend.  In addition he stated that Mr Kanani had all the records of the business out in Dubai, where he was now living, and Mr Gulliver needed to see those papers in order to present the case properly and to show the papers to the Commissioners.  

5.	In the circumstances, and in particular because of the circumstances surrounding the making of this assessment which arose out of the Appellants’ failure to meet the assessing officer or to provide him with the necessary documentation, as set out below, it was decided to hear the Respondents’ case but to allow the Appellant time to produce the various documents which were sought by the Commissioners.  Following the hearing of the Respondents’ case the following direction was made:

1.	… UNLESS by 23 February 2006 the Appellant has notified the Tribunal that he has made available to the Commissioners of Her Majesty’s Revenue & Customs all the further documentation specified by Mr Rajput, namely the Purchases Day Book Analysis, the VAT Account and the Annual Financial Accounts, for the years 2000, 2001 and 2002, we will proceed to determine this appeal on the basis of the evidence so far seen and heard by us.

2.	In the event that such documentation is forthcoming, then upon either party giving notice to the Tribunal that it wishes the hearing to be re-opened it is to be set down for further hearing on the first open date thereafter and the decision will be reserved until after such hearing.

3.	In the event that the documentation is served but no further hearing is required the Tribunal is to be so notified by 9 March 2006 and the appeal will be determined on the basis of the existing evidence.

6.	Because no further documentation was forthcoming, nor was notice given by either party that it wished the hearing to be re-opened, we now proceed to determine this appeal on the basis of the documents before us and the case presented by the Respondents in the absence of Mr Kenani, but in the presence of the Appellants’ representative on 12 January 2006.

Legislation

The VAT Act 1994 provides at S.73(1):

	“Where a person has failed to make any returns under the Act (or under any 	provision repealed by this Act) or to keep the documents or to afford the 	facilities necessary to verify such returns or where it appears to the 	Commissioners that such returns are incomplete or incorrect, they may assess 	the amount of VAT due from him to the best of their judgment and notify it to 	him.”

The facts

7.	Mr Shams Kanani and Mrs Rosmina Kanani (Mr Kanani’s wife) (trading as Hornes Ladies’ Outerwear) carried on business as importers and manufacturers of ladies’ fashion garments.  

8.	An assurance officer of Customs & Excise, Mr S Rajput, attempted to undertake a routine assurance visit to the Appellants at their principal place of business, and to this end telephoned on 13 September 2002 to make an appointment.  He was given an appointment for 26 September 2002.  He visited on that date, but nobody was there.  On 30 September 2002 a Mr Ed Jakeway, a tax consultant acting on behalf of Mr & Mrs Kanani contacted Mr Rajput and a visit was arranged for 14 October 2002.

9.	On 10 October 2002 Mr Jakeway wrote to Mr Rajput advising him that neither Mr nor Mrs Kanani would be available on 14 October for the planned visit.  He stated that the premises at 15 Ramsgate Street from which the business had operated were at that time closed down and the business was being developed abroad.  The business had been transferred to Dubai, and the records the Commissioners wished to see were not available. He concluded by stating: “If you can provide me with a list of the records you need to see I can arrange for these to be delivered to your office.”

10.	The Commissioners replied to this letter by stating that they would visit on 23 October 2002.  In that letter Mr Rajput reminded the Appellants about Schedule 11 paragraph 7(2) of the VAT Act 1994 which states:

“Every person who is concerned (in whatever capacity) in the supply of goods or services in the course or furtherance of a business or to whom such a supply is made, every person who is concerned (in whatever capacity) in the acquisition of goods from another Member State and every person who is concerned (in whatever capacity) in the importation of goods from a place outside the Member State in the course or furtherance of a business shall — 

(a)	furnish to the commissioners, within such time and in such form that they may reasonably require, such information relating to the goods or services or to the supply, acquisition or importation as the commissioners may reasonably specify; and
(b)	upon demand made by an authorised person, produce or cause to be produced for inspection by that person —

(i)	at the principal place of business of the person upon whom the demand is made or at such other place as the authorised person may reasonably require, and
(ii)	at such time as the authorised person may reasonably require,

any documents relating to the goods or services or to the supply, acquisition or importation.”

Mr Rajput also reminded the Appellants that any person failing to comply with such a requirement to produce may be liable to a civil penalty under section 69 of the VAT Act 1994 and he requested the production of the records at the principal place of business on 23 October 2002 at 10.30 hours.  He further said that he was willing to attend the factory, which was at a different address.  He specified the records that he required.  

11.	On or about 21 October 2002 Mr Rajput received a telephone call from Mr Jakeway saying that none of the partners would be available.  Mr Jakeway was told that Mr Rajput would see the Appellants’ manager, Hasan, and asked Mr Jakeway to inform Hasan accordingly.  When he visited the factory on 23 October Hasan had not been informed of the intended visit.  No records were said to be held and Hasan told Mr Rajput that Mr Kanani held all the records.  

12.	Further correspondence followed and there were plans for further visits.  It is right to say that the Commissioners cancelled a visit that was planned for 2 December and they re-arranged the visit for 6 January 2003.

13.	Mr Rajput had, on 11 October, placed a repayment inhibit on the Appellants’ returns, although it was not in fact a repayment business at the time.  On 10 January 2003 a Notice of Demand to Produce Documents (made under Schedule 11 of the Value Added Tax Act) was issued to Mr & Mrs Kanani.  By this notice the Appellants were informed that if they failed to comply with the Notice they would be liable to a penalty under section 69 of the VAT Act 1994 for each day up to a maximum of a hundred days on which the failure to produce the documents continued.  Mr & Mrs Kanani did not respond to this Demand, and on 24 February 2003 they were notified that an assessment in the sum of £342,191.93 would be issued.  In addition on 17 March 2003 Mr & Mrs Kanani were notified that a penalty assessment in the sum of £236,970 would be raised.  

14.	Following the issuing of these assessments, the Appellants changed their representative and Mr Martyn Gulliver, the new representative, arranged a meeting with Mr Rajput of Customs & Excise.  The purchase invoices, and a copy analysis from the Purchase Day Book were examined.  

15.	At the hearing of the appeal the Tribunal heard evidence from Mr Rajput.  He described the assessment raised in February 2003 as a ‘protective’ assessment which would be withdrawn if the relevant records were produced.  The assessment had been made by checking with the Database which showed the imports made by the Appellants, the duty paid and the input VAT.  Mr Rajput was unable to establish if any other purchases had been made because he had no access at any time to the Appellants’ premises.  He had examined the figures produced by Martyn Gulliver on behalf of the Appellant, but he had found a discrepancy between Mr Gulliver’s analysis and the figures declared on the VAT return.  Mr Rajput had needed information as to how the return was made up, because the Appellant had overclaimed input tax and underdeclared acquisition tax.  No explanation for the return was ever given, and he was unable to agree Mr Gulliver’s figures.

16.	The Commissioners’ case was that steps had had to be taken to protect the revenue from any loss resulting from the Appellants’ failure to furnish its books and records which would be required to verify VAT returns for the period from 1 February 2000 to 31 October 2002.  It was submitted that the assessment had been made to best judgment, the officer having made allowances both for acquisition tax and VAT reclaimed against imports. The Tribunal was referred to the cases of Van Boeckel v Customs and Excise Commissioners [1981] STC 290 and Rahman (trading as Khayam Restaurant) [1998] STC 826.

17.	It was further submitted by Mr Webb that the officer had not acted in a dishonest, vindictive or capricious manner; nor had he made a spurious estimate or guess in which any element of judgment was missing. He had disallowed input tax for which the Appellants had claimed credit but for which they provided no verification, and the assessment could not be regarded as “wholly unreasonable”: the assessment was raised solely as a result of the Appellants’ failure to provide records.  The officer had been prepared to examine a sample of invoices and their supporting listing; however, when he did so, the figures shown on the summary page of the invoice listing did not agreed with the figures declared on the relevant VAT return.  The officer had every right to believe that his decision to assess in the way he did was vindicated, and that the only remedy for the Appellants in this case was to allow the Revenue to examine the records and verify the audit trail from the primary records via the VAT account to the VAT returns.  This had never been possible.

Reasons for Decision

18.	Although the amount of the assessment is very large indeed, we were impressed by Mr Rajput’s diligence and his approach to this case.  He had returned again and again to the two premises occupied, or formerly occupied, by the Appellants, and on each occasion had been unable to inspect any of the relevant documents.  When subsequently he had been contacted by Mr Gulliver he had arranged a meeting with him and had been prepared to examine the figures produced.  Unfortunately for the Appellants those figures did not agree with the figures on the returns for the relevant periods.  Mr Gulliver had not been acting as the Appellants’ accountant at the time the returns were made and no blame can be laid at his door.  

19.	There is an obligation on a taxpayer to retain all necessary documents to support his VAT returns, and to supply these documents to the Commissioners when required. The Appellants have failed to provide all the necessary documentation, and failed to appear at the Tribunal for the hearing of their appeal. They were granted time following the date of the hearing to produce the documents in order that any adjustment might be made. The Commissioners were at all times willing to adjust the assessment had they received the necessary documentation. None was ever forthcoming.  

20.	We find that in this case the Commissioners have made an honest and genuine attempt to reach a fair assessment, the assessment was made to best judgment, and, in the absence of any further material, we have no option but to dismiss this appeal.  

21.	No order for costs.

MISS J C GORT
CHAIRMAN

RELEASED: 2 June 2006

LON/04/244