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Qaisar v Customs and Excise  UKVAT V18098 (22 April 2003)
VALUE ADDED TAX Penalty Evasion of tax Conduct involving dishonestys.60, VATA amounts assessed on a "named officer" under s.61, VATA Preliminary Issue as to admissibility of documentary evidence provided to the Commissioners by the Insolvency Service Attorney General's Reference (No. 7 of 2000) considered held that material so obtained which had an existence independent of the will of the Appellant admissible held that a statement made by the Appellant to the Insolvency Service under compulsion and certain correspondence with the Insolvency Service not admissible On the facts dishonesty found in relation to some but not all of the issues raised Appeal allowed in part Penalties confirmed in reduced amounts
LONDON TRIBUNAL CENTRE
MOHAMMED SIDDIQUE QAISAR Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: MR JOHN WALTERS, QC (Chairman)
MR PRAFUL DAVDA, FCA
MR RAY BATTERSBY
Sitting in public in London on 12, 13 and 14 February 2003
The Appellant appeared in person, assisted by Mr Mohammod Yunus
Ms Shaheen Rahman, of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2003
- Mr. Qaisar appeals in accordance with section 61(5) Value Added Tax Act 1994 ("VATA") against a decision of the Commissioners to assess amounts due by way of penalty to which two companies were respectively liable under section 60 VATA and notify the same to him under section 76 VATA and pursuant to section 61(3) VATA. The Tribunal's jurisdiction to hear the appeal is contained in section 83 (o) VATA.
- The Commissioners allege that the two companies, K-Pack Packaging Limited ("KPP") and K-Pack Distribution Limited ("KPD"), have engaged in dishonest conduct for the purpose of evading VAT, giving rise to liability on each company to a penalty under section 60 VAT.
- They further allege that the conduct giving rise to those penalties was attributable to the dishonesty of Mr. Qaisar, who was at the material time a director or managing officer of each of the two companies (a "named officer" for the purposes of section 61 VATA).
- By section 61(5) VATA, Mr. Qaisar, as the "named officer" referred to in section 61(1), may (and does) contend in this appeal that the conduct of the companies concerned was not, in whole or in part, attributable to his dishonesty. Thus his stated grounds of appeal are: "I have not evaded VAT through dishonesty. I have not been dishonest."
- The Tribunal heard the oral evidence of Mr. Rob Eldridge, an Officer of Customs and Excise, Mr. Qaisar and Mr. Nisar Hussain.
- Mr. Hussain (and a Mr. Tariq Masood) had each signed witness statements under rule 21 of the VAT Tribunals Rules 1986 ("the Tribunals Rules"). However, at the start of the oral proceedings, Mr. Qaisar objected to the witness statements of Mr. Hussain and Mr. Masood, it appearing possible at that time that Mr. Hussain (but not Mr. Masood) might attend to give evidence in person. Although this objection was out of time (see: rule 21(4) of the Tribunals Rules) and was opposed by Ms. Rahman, we allowed it by exercise of our power under rule 19(5) of the Tribunals Rules. Ms. Rahman, in opposing Mr. Qaisar's application, had stated that the evidence in the two witness statements was not crucial to her case. In the event, as we have said, Mr. Hussain gave evidence before us.
The Commissioners' case
- The Commissioners' case was as follows:
- KPP (which has been wound up and re-instated for the purposes of these proceedings) carried on the business of the production of paper bags. KPD carried on the business of the distribution of paper bags.
- Civil evasion penalties in the sums of £35,261 and £1,925 respectively, in each case subject to 10% mitigation pursuant to section 70(1) VATA, have been imposed on KPP and KPD respectively, and apportioned as to the whole of the penalties, to Mr. Qaisar under section 61(2) VATA.
- In the case of KPP, the alleged irregularities concerned three matters.
- The first matter was a purchase of plant and machinery by KPP from PPB Converters (UK) Ltd ("PPB") a company by which Mr. Qaisar had formerly been employed. KPP had attempted to claim input tax credit in relation to this purchase based on a purchase price of over £100,000, whereas the true consideration was only £27,500. We refer to this matter as "the PPB Issue".
- The second matter was the omission from the VAT returns of KPP of an invoice raised in respect of a sale of machinery to State Securities plc under a sale and leaseback arrangement. We refer to this matter as "the State Securities Issue".
- The third matter subdivided into two parts. First, there was the omission from the VAT returns of KPP of a number of invoices raised in respect of sales to a company trading under the name of City Bags. Secondly, there was the claim of relief for input tax in the VAT returns of KPP in respect of a number of invoices issued by City Bags for stock and machinery, which the Commissioners alleged recorded fictitious transactions. We refer to this matter as "the KPP City Bags Issue".
- So far as KPD is concerned, that company claimed input tax relief in respect of supplies of machinery to it by City Bags, which the Commissioners allege did not take place. We refer to this matter as "the KPD City Bags Issue".
Preliminary issue the admissibility of documentary evidence provided to the Commissioners by the Insolvency Service
Mr. Eldridge exhibits to his Witness Statement various documents provided to him by the Insolvency Service. They include:
(i) a copy of an agreement dated 1st November 1994 between PPB and KPP, and signed by Mr. Qaisar on behalf of KPP whereby, amongst other things, PPB agrees to sell to KPP equipment and machinery as set out in the attached schedule for the sum of £27,500;
(ii) a statement made by Mr. Qaisar to the Insolvency Service in the insolvency of PPB, pursuant to an obligation imposed by section 235 of the Insolvency Act 1986 and dated 14th June 1995;
(iii) a receipt dated 4th November 1994 and apparently signed by Mr. Mir on behalf of PPB acknowledging £10,000 received from KPP, part payment of £27,500;
(iv) a similar receipt dated 22nd November 1994 acknowledging £7,500 received from KPP, part payment of £27,500;
(v) a similar receipt dated 6th December 1994 acknowledging £10,000 received from KPP, "final payment" of £27,500;
(vi) a letter dated 26th May 1995 signed by Mr. Qaisar and sent to the Insolvency Service making reference to a previous telephone conversation and containing information about a purchase of plant and machinery.
- Ms. Rahman sought to rely on all these documents.
- The Tribunal, however, raised a point as to whether any of them should be excluded because their inclusion would infringe Mr. Qaisar's right to a fair hearing by an independent and impartial tribunal under article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 ("the Convention"), or the presumption of innocence under article 6(2).
- Ms. Rahman accepted that article 6 was engaged because these proceedings related to the determination of a criminal charge against Mr. Qaisar for Convention purposes (Han and another v Customs and Excise Commissioners  EWCA Civ 1040).
- The Tribunal had in mind the decision of the European Court of Human Rights in Saunders v United Kingdom (1996) 23 EHRR 313, and Ms. Rahman helpfully brought to our attention the decision of the Court of Appeal in Attorney General's Reference (No. 7 of 2000)  EWCA Crim 888, in which the ambit of the Saunders decision received consideration.
- We note the distinction made in the Attorney General's Reference case (and derived from the distinction made in paragraphs 68 and 69 of the Court's judgment in Saunders) between statements made under coercion in defiance of the will of the accused and other material obtained through the use of compulsory powers which has an existence independent of the will of the suspect (for example documents acquired pursuant to a warrant).
- Admitting into evidence material so obtained which has an existence independent of the will of the suspect will not normally infringe article 6 (see: Attorney General's Reference (No. 7 of 2000) at paragraph ). On this basis we will admit items (i), (iii), (iv) and (v) (listed in paragraph 15 above).
- With regard to item (ii), which is a statement made by Mr. Qaisar pursuant to an obligation imposed by section 235 of the Insolvency Act 1986 and dated 14th June 1995, we note that section 235 imposes an obligation to give information as may be reasonably required, subject to liability in default to a fine and, for continued contravention, to a daily default fine (section 235(5) Insolvency Act 1986).
- The Tribunal has considered whether, despite the compulsion of section 235(5) Insolvency Act 1986, admission of item (ii) would not compromise a fair trial, and would be justified in the light of the general interest of the community in combating evasion of VAT. The degree of compulsion is the crucial factor. We consider that Mr. Qaisar, in making his statement to the Insolvency Service cannot be assumed to have had any freedom of informed choice as to whether or not to remain silent. Therefore we will not admit item (ii) into evidence.
- Item (vi) listed in paragraph 15 above is perhaps in a different category. It is a letter written to the Insolvency Service some 19 days before the statement in item (ii) was taken. There is no reference to section 235 of the Insolvency Act or to any other specific compulsion, only a reference to a previous telephone conversation about which we were told nothing. Nevertheless, the Tribunal considers that it would be dangerous to assume that the letter was not written under a degree of compulsion, having regard to the "reserve powers" of the Insolvency Service under section 235 of the Insolvency Act and we therefore, perhaps in an abundance of caution, will not admit item (vi) into evidence either.
- The exclusion of items (ii) and (vi) in our judgment requires us to exclude any other evidence (whether interview evidence or oral evidence given at the Tribunal) given by reference to either of those items. We turn to consider the evidence with these preliminary decisions in mind.
- As indicated above, Mr. Eldridge, Mr. Qaisar and Mr. Hussain gave oral evidence before us. Mr. Qaisar had been interviewed on three occasions by Mr. Eldridge, on 22nd August 1997, 10th June 1998 and 6th January 1999. Detailed notes of the interviews, and agreed summaries of them were included in the documentary evidence before the Tribunal.
The PPB Issue
- On the PPB Issue, Mr. Qaisar said at the interview on 22nd August 1997 that he purchased 5 or 6 machines from PPB for over £80,000 in total, the purchase being financed out of the proceeds of sale of land he owned in Pakistan, and an inheritance received on the death of his father.
- On the same issue Mr. Qaisar said at the interview on 10th June 1998 that he purchased the machines for over £100,000 from Mr. Mir (the former director of PPB).
- Ms. Rahman put to Mr. Qaisar that the agreement at item (i) listed in paragraph 15 recorded the true transaction for the purchase of machines from PPB by KPL
- That agreement is a formal document bearing the seal of PPB and the signatures of Mr. Shahid Mir (signing for PPB) and Mr. Qaisar (signing for KPP). Each signature is witnessed (by a different individual). The wording of the agreement is formal, as follows:
"THIS AGREEMENT NOW WITNESSES AS FOLLOWS:-
P.P.B. CONVERTERS hereby agree to sell equipment and machinery as set out in the schedule attached hereto for the sum of £27,500. K PACK will purchase unit 31 at the current market value price. P.P.B. CONVERTERS hereby agrees to allow K PACK PACKAGING LTD to occupy and start business in the premises known as UNIT 31, TRAFALGAR BUSINESS CENTRE, 77/89 RIVER ROAD, BARKING, ESSEX IG11 0JU until completion of the purchase has taken place.
ALL PREVIOUS AGREEMENTS IF ANY ARE NULL AND VOID"
- The schedule to this agreement in the form before us, being the form supplied to the Commissioners by the Insolvency Service (our copy bears an indication of its having been faxed by the Insolvency Service as part of the provision by them to the Commissioners of documentary evidence relative to the PPB Issue), contains a list of 18 specified categories of items under the heading "EQUIPMENT AND MACHINERY SOLD TO K PACK PACKAGING LTD". The list is signed by Mr. Mir as Managing Director of PPB.
- A witness statement with exhibits was received from Mr. Philip Wynne Houghton, an Officer of Customs & Excise. Mr. Houghton had obtained documents from State Securities plc relative to transactions entered into by them with KPP. These transactions related to a sale and leaseback of machinery by KPP. The relevant lease agreement (exhibited by Mr. Houghton) is dated 15th May 1995.
- The equipment leased (itemised on a schedule signed by Mr. Qaisar) includes (but is not identical to) items appearing on the schedule to the agreement provided by the Insolvency Service. The invoice on the sale issued to State Securities plc shows an agreed sale price of £35,000 plus VAT (total £41,125).
- A memorandum internal to State Securities plc notes that "Mr. Qaisar purchased machinery outright for £133k cash". Supporting this observation there are three invoices on formal PPB stationery, apparently VAT invoices numbered 0432, 0433 and 0434. These invoices are made out to KPP and dated 1st October 1994. They show, between them, sales of machinery and equipment for a price of £113,525 plus VAT of £19,866.07, total £133,391.87. There is also a receipt on PPB paper, dated 1st October 1994, for £133,391.87 described as "full consideration of machinery supplied per our invoice numbers 0432, 0433 and 0434". The receipt includes a signature, apparently that of Mr. Shahid Mir, director of PPB. However the signature is in the form "S. Mir", whereas the other signatures of Mr. Mir which we have seen (including in particular the signature on the witnessed agreement referred to at paragraph 30 above) have all been in the form "Shahid Mir", and the two hands do not appear to us to be obviously the same.
- The items appearing in the schedule to the agreement provided by the Insolvency Service appear to be reproduced on invoices 0432 and 0434 (mostly on invoice 0432). Invoices 0432 to 0434 also show the sale of items not apparently included in the schedule referred to, most significantly, "stock", a "sheeter", "2 clinking presses" and a "Nissan Urvan (vehicle)".
- There is also in evidence a "Visit Valuation" of machinery made by Sampson Southampton Ltd for State Securities plc, and dated 20th April 1995. This valuation was carried out in connection with the sale and leaseback transaction. The items listed on the valuation, which are the same items as those included in the schedule to the resulting lease (mentioned in paragraph 33 above) and therefore are not identical to the items appearing on the schedule to the agreement provided by the Insolvency Service, are valued by Sampson Southampton Ltd at a total forced sale valuation of £35,000 (the eventual net of VAT sale price by KPP to State Securities plc see: paragraph 33 above) and a total (not forced) retail sale valuation of £63,750 (before VAT). Sampson Southampton Ltd added the following comment on their valuation: "Machines well presented. Mr. Qaisar has good clean factory. The only problem is that as the Cobden m/cs are fairly old there are no serial numbers this is not a problem value-wise. It should be noted that Paper Bag machinery would take longer to sell than conventional machinery."
- Finally, there is in the documentary invoice an effectively illegible copy of the invoice on formal PPB stationery, apparently VAT invoice numbered 0432, with an agreed transcription. This invoice was produced by KPP to support the input tax claim actually made. In fact the input tax claim was disallowed because the Commissioners decided that the supplies of equipment were part of the transfer of a business as a going concern see further below at paragraphs 85 et seq. This invoice appears to show the items appearing in the schedule to the agreement provided by the Insolvency Service (including the "two colour printer") and also other items of stock not apparently included in the schedule referred to, including the "sheeter", the "2 clinking presses" and the "Nissan Urvan (vehicle)". The total price shown on this invoice is £144,175 plus VAT (total £169,405.60).
- So far as the plant and equipment purchased from PPB is concerned, therefore, there is a dispute as to the extent of it, and as to the price paid for it. It may have been confined to the items shown on the schedule provided by the Insolvency Service, or it may have included those items together with other items. The documentary evidence suggests that the items shown on that schedule may have been purchased for £27,500 (as the agreement provided by the Insolvency Service shows) or for two different, significantly higher, amounts as shown by the three invoices 0432, 0433 and 0444, on the one hand, and the invoice numbered 0432 used to support the input tax claim, on the other hand. The totality of items may have been purchased for £27,500 (as per the agreement provided by the Insolvency Service) or £113,525 plus VAT of £19,866.07, total £133,391.87 (as the three invoices show) or £144,175 plus VAT (total £169,405.60) as the invoice used to support the input tax claim showed. There is external evidence in the form of the valuation by Sampson Southampton Ltd that a similar but not identical collection of equipment had a forced-sale value some 5 months after the purchase from PPB of £35,000 (net of VAT) and a retail not forced-sale value of £63,750 (net of VAT).
- Mr. Qaisar's evidence on this aspect of the case was that when he first started negotiating with Mr. Mir he agreed a price of about £144,000 (as per the invoice provided to the Commissioners). However on the afternoon of the same day he reconsidered that agreement and returned to Mr. Mir offering to pay less. Mr. Mir then agreed to take £113,000 plus VAT. Invoices were issued accordingly, and these invoices were shown to State Securities plc as part of the negotiation for the sale and leaseback transaction. The original invoice (showing £144,175 plus VAT) had been sent to Customs as a result of an error made by a Zimbabwean clerk working for KPP at the time. This was a mistake: the invoice showing £113,525 plus VAT should have been submitted instead. The figure of £113,000 plus VAT was supported by the valuation by Sampson Southampton Limited, particularly bearing in mind that he had bought fixed equipment from PPB, and the valuation had assumed that the equipment would be sold unfixed this would lessen the value because a purchaser would have to incur expense on fixing the equipment. Mr. Qaisar explained the sale agreement with PPB for the sum of £27,500, and the receipts, provided by the Insolvency Service as relating to different machines which he bought at the same time as the transaction for £113,000 plus VAT. He maintained that the schedule to the sale agreement as it appears in the evidence before the Tribunal was wrong, and that the additional £27,500 had been paid for two machines. This explanation appears from the notes of the interview on 10th June 1998. Mr. Qaisar said that the two additional machines had been sold on to foreigners, an African and a Greek. He had no documentary evidence of these sales.
- Ms. Rahman invited us to find from this evidence that the plant and machinery sold by PPB to KPP consisted of the scheduled items and that the sale price was £27,500. As to the amount of the sale price, she relied further on the receipts at items (iii), (iv) and (v) listed in paragraph 15 above (all of them on PPB headed paper and signed by Mr. Mir as Managing Director of PPB), as showing that the sale price of £27,500 had been agreed and discharged in three instalments as set out in the receipts.
The State Securities Issue
- As indicated above, this issue is the omission from the VAT returns of KPP of an invoice raised in respect of a sale of machinery to State Securities plc under a sale and leaseback arrangement. The invoice numbered 1065 (on KPP's headed paper and dated 3rd May 1995) was part of the documentation obtained by Officer Houghton and put in evidence as explained at paragraph 32 above. It is signed by Mr. Qaisar and shows VAT charged of £6,125. An invoice bearing the same number, 1065, dated 8th May 1995, to a customer called "PCS" for a total of £662.50 plus VAT was also put in evidence. This second invoice was on an invoice form, unlike the first invoice, which was typed on a plain piece of KPP's headed paper.
- At the interview on 10th June 1998, Mr. Qaisar was asked to explain the two invoices with the same number. He could not then give an explanation. In evidence he said that there had been an error in failing to account for the output tax due in respect of the invoice to State Securities. He denied dishonesty. He knew that State Securities would claim back the VAT and that he was supposed to account for the VAT to Customs. The confusion had been caused by the different stationery used. When the clerk came to fill in KPP's VAT returns, Mr. Qaisar said that she must have missed the invoice issued to State Securities and taken account only of the invoices issued on the pre-printed invoice forms. The number 1065 must have been used twice because when the next invoice was issued the earlier invoice issued to State Securities must have been forgotten. Mr. Qaisar acknowledged that he should have put a copy of the typed invoice issued to State Securities into the "VAT box" but he did not. When Ms. Rahman put it to him that he had deliberately not declared the VAT due on the invoice issued to State Securities, he denied this and said that the omission was a result of an error on his clerk's part. He said he did not notice the effect which failure to account for VAT of £6,125 had on his cash flow he was at that time receiving repayments of VAT from Customs on KPP's quarterly accounting.
The KPP City Bags Issue
- As explained above, this issue is subdivided into two parts. First, the Commissioners allege that a number of invoices raised in respect of sales to a company trading under the name of City Bags were omitted from the VAT returns of KPP. Secondly, the Commissioners allege that claims for relief for input tax were made in the VAT returns of KPP in respect of a number of invoices issued by City Bags for stock and machinery, which recorded fictitious transactions. We take these two parts in turn.
44. Alleged under-declaration of output tax. The Tribunal was shown five invoices (recorded in the Hearing Bundle as pages 58A to 58E inclusive) which were handwritten invoices on the printed invoice-forms of KPP, in each case showing the customer as City Bags. The invoices carried various dates between in early 1995. They show sales of £27,926.50 in total (exclusive of VAT). Total VAT of £4887.11 is charged on the invoices. The invoices do not, however, bear any VAT registration number.
- Mr. Eldridge told the Tribunal that these invoices were found by Customs officers in the records of City Bags (and obtained from the liquidator of City Bags) and that City Bags had claimed input tax relief in respect of them. The corresponding output tax had, however, not been accounted for in the returns of KPP.
- In interview (on 6th January 1999) Mr. Qaisar said that he did not issue these invoices and did not accept that KPP had issued them, that he did not know how City Bags came to have these invoices and that he would not have sold the level of goods indicated to City Bags.
- In evidence, Mr. Qaisar pointed to the lack of any VAT registration number on the invoices. The Tribunal was shown another invoice made out by KPP to City Bags on a similar form (page 58F in the Hearing Bundle) where a VAT registration number had been inserted by hand. The VAT shown on this invoice had been accounted for to Customs and Excise by KPP. Emphasising the lack of any VAT registration number on the invoices in dispute, Mr. Qaisar said: "Everyone knows in business that without a VAT number the invoice has no value whatsoever it's just a piece of paper". On this basis he disputed City Bags' entitlement to claim the VAT shown on the invoices in dispute as input tax. However his case was not that he had supplied goods without charging VAT, it was that he had not supplied the goods apparently recorded in the disputed invoices at all.
- As noted above, Mr. Nisar Hussain gave evidence in the appeal. He was one of the proprietors of City Bags. He accepted that City Bags had been a customer of KPP and had bought paper bags from KPP. He said that City Bags had bought from KPP "a couple of times" later changed to "maybe 3 or 4 times". He did not remember any of the invoices (pages 58A to 58E, or page 58F in the Hearing Bundle). He doubted that City Bags had purchased the volume of goods recorded in the disputed invoices. He did remember Mr. Qaisar making several deliveries with his van. His evidence was vague, but the Tribunal understood him as accepting that the invoice at page 58F could have accounted for all the purchases made by City Bags from KPP. The invoice recorded a sizeable quantity of goods, which would have required several deliveries in Mr. Qaisar's van.
- Alleged claims for input tax relief in respect of fictitious purchases. The Tribunal was shown four invoices (recorded in the Hearing Bundle as pages 57A to 57D inclusive), which were handwritten invoices on the printed invoice-forms of City Bags, in each case showing the customer as KPP. The invoices carried dates approximately a month apart in early 1995. The first three (57A to 57C) are consecutively numbered (151 to 153). The fourth is numbered 173. The four invoices show sales of £27,133.50 in total (exclusive of VAT). Total VAT of £4,748.35 is charged on the invoices. The invoices bear a printed VAT registration number. The invoices at pages 57A to 57D were mainly in respect of plastic bags and a point made by the Commissioners was that, as a manufacturer of paper bags, it was not credible that KPP would purchase plastic bags in such quantities. Customs' schedule, which gave the workings for the penalties charged, showed, in addition to the invoices at pages 57A to 57D, five invoices which they had not seen, but in relation to which KPP had claimed an input tax deduction. There was no evidence as to the numbers of these invoices. They were dated roughly two weeks apart, except for the last one, which was dated three months later. The dates of these five invoices cover the period 14th June to 31st December 1995.
- Mr. Qaisar said in evidence that he could see "nothing odd" in the consecutive numbering of the City bags invoices (at pages 57A to 57C). He repeated that he "gave them money for my goods and they gave me invoices". It was none of his business that the invoices were consecutively numbered. He denied taking blank invoice forms from City Bags.
- Mr. Hussain's evidence was that the invoices at pages 57A to 57D were "all made up". He pointed out that it was an unusual feature that none of the invoices had been signed.
The KPD City Bags Issue
- On the KPD City Bags Issue, Mr. Qaisar said at the interview on 22nd August 1997 that KPD had purchased several machines from City Bags for a total of around £30,000. The purchased had been financed from a £10,000 loan, a £10,000 contribution from his sister-in-law and a £10,000 contribution from a Mr. Ali.
- The relevant invoice is on the same form as the invoices at pages 57A to 57D in the Hearing Bundle, and is recorded as page 57E in the Hearing Bundle. This invoice is dated 11th June 1996 and is numbered 189. It is typed and shows a sale of machinery (similar to the machinery we have considered above in relation to the transaction with PPB) by City Bags to KPD. The value of the sale shown on this invoice is £11,000 plus VAT of £1,925.00.
- As regards the invoice for machinery at page 57E, the Commissioners contended that not only was it incredible that KPP would purchase machinery from City Bags (styled on its invoice forms as "importers & exporters and wholesalers of polythene & paper bags, catering disposables, etc.") but also that City Bags had ceased trading well before the date shown on the invoice, 11th June 1996. We were shown a Missing Trader Action Sheet produced by the Uxbridge LVO (local VAT office) dated 1st December 1995, recording a visit to City Bags' premises on 22nd November 1995, where the officer concerned, M. Roberts (who did not give evidence before us) found the premises "all shut up" and that a neighbour had said that City Bags had left the premises a month previously (i.e. about October 1995). Mr. Eldridge told the Tribunal that he had made his own investigations with the landlord of City Bags' premises and had been told that City Bags had left the premises in the middle of 1995. City Bags had entered into a walking possession agreement with the Commissioners (which was signed by Tariq Masood on behalf of City Bags). It was produced. It is dated 15th March 1995.
- Mr. Qaisar said at the interview on 22nd August 1997 that he had dealt with someone called Ajaz at City Bags, that he had purchased machinery from City Bags and that it had been delivered by them. At the interview on 10th June 1998 he recalled the name Nisar as being a person he dealt with at City Bags, and he specifically denied obtaining blank City Bags invoices. In evidence in the appeal he said he had confused the names of Ajaz and Nisar.
- When Mr. Hussain was asked about the invoice at page 57E he denied that it was genuine and said that he "didn't have any machinery to sell". He said he did not have a typewriter in the office.
Findings of Fact
- The Commissioners alleged that Mr. Qaisar had been dishonest in relation to VAT. Mr. Qaisar vehemently denied that he had been dishonest in relation to VAT. The Tribunal was impressed by the seriousness with which he took the allegation.
- The Commissioners accept that it is for them to prove that Mr. Qaisar has been dishonest in relation to VAT (section 60(7) VATA). The applicable standard of proof is the civil standard proof on a balance of probabilities but in view of the gravity of the allegations against Mr. Qaisar and having regard to the seriousness with which he himself views them, the Tribunal will not be satisfied with anything less than a high degree of probability. See: Dyson J on this point in Akbar (t/a Mumtaz Paan House) v Commissioners of Customs and Excise  STC 237, at 251.
- It will be seen that there is a conflict of evidence on each of the four issues identified. We review each issue in turn to make our findings of fact.
The PPB Issue
- The Tribunal is impressed by the formality of the agreement dated 1st November 1994 between PPB and KPP, which we have recorded at item (i) in paragraph 15 above and set out at paragraph 30. The signatures on that agreement are witnessed. We consider therefore that a sale of equipment and machinery by PBB to KPP for a consideration of £27,500 is a safe starting point in our inquiry. This is reinforced by the receipts at items (iii), (v) and (v) listed in paragraph 15, showing discharge of the purchase price of £27,500.
- If, as Mr. Qaisar contended, this had been evidence of an additional transaction in machinery (a further two machines purchased after the bulk had been purchased for a larger sum), we should have expected to be shown another, equally formal, sale and purchase agreement with a larger purchase price. Instead, we have been shown alternative invoices.
- In his oral evidence, Mr. Qaisar disclaimed any reliance on the invoices originally submitted to Customs supporting a sale price of £144,175 plus VAT, arguing instead that the right figure was disclosed by the invoice for £113,525 plus VAT which had been shown to State Securities plc. He also argued that the fact that the invoice for £144,175 plus VAT had not been shown to State Securities plc demonstrated the reliability of the invoice for £113,525 plus VAT, on the basis that if he had been dishonest with the invoices he would have shown the larger one to State Securities plc.
- The lower invoice price of £113,525 plus VAT was, of course, considerably higher than the retail sale valuation of £63,750 (before VAT) provided by Sampson Southampton Ltd. Although we must make allowances for the fact that the machinery purchased and the machinery valued were not identical, and that the machinery purchased was fixed and the valuation was discounted by the value of the fixing, and that the valuation was carried out about 5 months after the purchase, we nevertheless consider that it is possible that State Securities plc were not shown the invoice recording a sale price of £144,175 plus VAT, because they might not have believed it. We therefore do not accept that the existence of the higher invoice makes the lower invoice more credible.
- We regard it as highly improbable that the schedule to the agreement dated 1st November 1994 as it appears in the evidence before the Tribunal was wrong (as Mr. Qaisar submitted). That schedule was obtained from the Insolvency Service, who had it in connection with the insolvency of PPB. No explanation for any mistake on their part has been suggested.
- The lack of any corroboration to support Mr. Qaisar's evidence that he had sold on the additional two machines which he had purchased from PPB for £27,500 to an African and a Greek persuades us that Mr. Qaisar has no credible answer to the Commissioners' case that the agreement dated 1st November 1994 was not an agreement for the purchase of additional machinery, but was instead the genuine agreement for the purchase of equipment and machinery in relation to which KPP attempted to obtain input tax relief. We do not accept Mr. Qaisar's account of his agreement of a price of £113,525 plus VAT with Mr. Mir.
- We find that the equipment and machinery purchased by KPP from PPB was purchased for £27,500. This was a very keen price (as can be seen by comparing it with the valuation by Sampson Southampton Ltd.), but we regard it as credible, given that Mr. Mir was planning to go abroad imminently and Mr. Qaisar (a person he knew) offered him a quick sale.
- We also find that Mr. Qaisar dishonestly represented to the Commissioners that the equipment and machinery had been purchased by KPP for a higher price.
The State Securities Issue
- The use of the number 1065 for the invoice raised by KPP to State Securities, and its use again five days later for an invoice raised to PCS was accepted by Mr. Qaisar to have been a mistake on his part. It was certainly careless, possibly reckless, but even if it was reckless, it was not on that account, and without more, dishonest (see: per Carnwath J in Stuttard and another (t/a de Wynns Coffee House) v Commissioners of Customs and Excise  STC 342).
- Mr. Qaisar knew that State Securities would claim back the VAT on the invoice as input tax. There was no elaborate concealment of the mistake.
- The Commissioners have not shown to the necessary high degree of probability that the invoice raised to State Securities was dishonestly omitted from the VAT returns of KPP. We find that this omission was not due to any dishonesty on Mr. Qaisar's part.
The KPP City Bags Issue
- Alleged under-declaration of output tax. Having considered Mr. Qaisar's and Mr. Hussain's evidence we are not satisfied that the Commissioners have shown to the necessary high degree of probability that the disputed invoices at pages 58A to 58E in the Hearing Bundle represented actual sales by KPP to City Bags. It appears to the Tribunal that the totality of the sales by KPP to City Bags were probably represented by the single invoice (at page 58F in the Hearing Bundle) on which VAT was accounted to the Commissioners.
- We therefore find that Mr. Qaisar did not dishonestly (or at all) do or omit to do anything to procure KPP to under-declare output tax as the Commissioners allege.
- Alleged claims for input tax relief in respect of fictitious purchases. Unlike Mr. Qaisar, the Tribunal regards it as extremely odd that the first four invoices from City Bags spaced approximately a month apart should carry consecutive numbers. No credible case was made out for KPP (a manufacturer, mainly or entirely of paper bags) purchasing plastic bags from City Bags. We accept Mr. Hussain's evidence that these invoices were "all made up". We find that there is a high probability that the second five invoices, which we have not seen, also recorded fictitious transactions because we accept Mr. Hussain's evidence that City Bags never sold to KPP, and the invoices concerned bore dates referring to times when it is probable that City Bags had ceased trading.
- We find that Mr. Qaisar's conduct in permitting (by doing or omitting to do any act) input tax relief to be claimed by KPP in respect of these fictitious purchases was dishonest.
The KPD City Bags Issue
- The Tribunal notes that the invoice at page 57E in the Hearing Bundle bears a date (11th June 1996) some time (possibly a year) after City Bags ceased trading, or at any rate ceased accounting to the Commissioners for VAT. This fact and the fact that City Bags is an unlikely supplier of machinery to KPD, persuades us that the transaction recorded by the invoice is fictitious. We accept Mr. Hussain's evidence on this point that City Bags "didn't have any machinery to sell".
- We find that Mr. Qaisar's conduct in permitting (by doing or omitting to do any act) input tax relief to be claimed by KPD in respect of this invoice was dishonest.
- In the light of our findings of fact we proceed to examine the penalty charged.
- The penalty to which the Commissioners consider that KPP has rendered itself liable under section 60(1) VATA is £35,261. Under section 70(1) VATA, the Commissioners have power to reduce the penalty, and they have done so, by a factor of 10% (to take account of the co-operation given by KPP effectively Mr. Qaisar in the investigation). Thus the net penalty in relation to KPP is £31,734. This subdivides between the issues the tribunal has considered, as follows:
The PPB Issue. Net penalty £ 13,166
The State Securities Issue 5,512
The KPP City Bags Issue
of output tax 4,398
Alleged claims for input
tax relief (fictitious purchases) 8,658
Total £ 31,734
It should be noted that the penalty of £8,658 in respect of alleged claims for input tax relief on fictitious purchases from City Bags includes, besides the four invoices mentioned at paragraph 49 above (£4,748.35 in total, against which the 10% reduction should be set), the further five invoices also mentioned in paragraph 49, where input tax was claimed but where the invoice has not been seen by the Customs or by the Tribunal. These five invoices account for £4,871.33, subject to the 10% reduction, giving a net figure of £4,384.20.
- The whole of the penalty charged was the subject of a notice served on KPP and on Mr. Qaisar under section 61 VATA, so as to make it recoverable from Mr. Qaisar.
- No point was taken in the appeal as to the quantum of the penalty, or the amount of it attributable to any of the specific issues. In particular, the penalty in relation to the PPB Issue was the subject of a calculation made by Customs, and Mr. Qaisar did not suggest that the calculation was wrong or unreasonable.
- As we have found that Mr. Qaisar was dishonest in relation to the PPB Issue, and the KPP City Bags Issue so far as it related to claims for input tax relief on fictitious purchases, we confirm in principle a penalty in the amount of £21,824. As we have found that Mr. Qaisar was not dishonest in relation to the State Securities Issue or the KPP City Bags Issue so far as it related to alleged under-declaration of output tax, we allow the appeal in respect of a penalty in the amount of £9,910.
- The penalty to which the Commissioners consider that KPD has rendered itself liable under section 60(1) VATA is £1,925. Under section 70(1) VATA, the Commissioners have power to reduce the penalty, and they have done so, by a factor of 10% (to take account of the co-operation given by KPD effectively Mr. Qaisar in the investigation). Thus the net penalty in relation to KPD is £1,732. The whole of this penalty was the subject of a notice served on KPD and on Mr. Qaisar under section 61 VATA, so as to make it recoverable from Mr. Qaisar. The penalty relates entirely to the KPD City Bags Issue in relation to which we have found that Mr. Qaisar was dishonest. Therefore we confirm in principle a penalty in the amount of £1,732.
Mitigation of the penalties under section 70 VATA
- As stated above, the Commissioners have reduced the penalties charged by a factor of 10% in the exercise of their powers under section 70 VATA. The Tribunal has jurisdiction to review this reduction, and may confirm it, increase it, or cancel the whole or any part of it (section 70(1) and (2) VATA).
- The Tribunal will not alter the 10% reduction made to take account of (effectively) Mr. Qaisar's co-operation.
- One matter which was raised at the hearing and to which we should make reference was as follows. The penalty in relation to the PPB Issue recognised the amount (£14,629.26) by which the claim for input tax made by KPP exceeded the amount which would have been claimed if the claim had taken into account what the Tribunal has found to have been the true purchase price of the equipment and machinery, namely £27,500.
- In the event, no input tax relief was allowed in respect of KPP's purchase of equipment and machinery, because Customs took the view that the supply was a transfer by PPB to KPP of its business as a going concern (see: article 5, VAT (Special Provisions) Order 1995 SI 1995/1268) and so was disqualified for input tax relief.
- This fact does not invalidate the penalty under section 60, because a penalty arises under that section where a person does or omits to do anything, dishonestly, "for the purpose of evading VAT", and that phrase is defined as including a reference to obtaining a VAT credit in circumstances where the person concerned is not entitled to it (section 60(2)).
- It appeared in the course of the hearing when the evidence about the circumstances of the KPP's acquisition of equipment and machinery from PPB were considered, that it was (or might be) doubtful that Customs' decision that the supply was a transfer of a business as a going concern was correct.
- Mr. Qaisar said in evidence that he had considered appealing against that decision but had been put off doing so by the costs involved.
- If Customs' decision was incorrect, the consequence is (on the basis of our finding as to the true consideration paid for the equipment and machinery) that KPP was denied an input tax recovery of £4,095 (7/47 of £27,500) rather than the sum of £20,000 which Mr. Qaisar complained of losing.
- We should also note that in the calculation of the penalty assessed in relation to the PPB Issue, Customs have properly given credit for the amount of £4,095 which KPP could honestly have claimed by way of input tax credit, KPP taking the view that the supply was not a transfer by PPB of its business as a going concern.
- The Tribunal in this appeal is not in a position to make any findings as to whether or not the supply was a transfer by PPB of its business as a going concern. Therefore we have concluded that it is not a relevant matter for us to have regard to in exercising our jurisdiction to adjust the penalty under section 70, VATA.
- In the result we allow the appeal as to £9,910 of the penalty in respect of KPP, reducing that penalty from £31,734 to £21,824. We confirm the penalty in that amount. We confirm the penalty in respect of KPD in the amount of £1,732.
- Ms. Rahman, on behalf of the Commissioners, asked for an order for costs in the event of the Commissioners being successful. In the light of our decision we direct pursuant to rule 29(1)(b) of the Tribunals Rules that Mr. Qaisar shall pay to the Commissioners 70% of their costs of the appeal, to be taxed if not agreed. The parties have liberty to apply in relation to costs.
JOHN WALTERS QC
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