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Cite as: [2005] UKVAT V19390

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Mohammed Alam v Revenue and Customs [2005] UKVAT V19390 (14 December 2005)

    ASSESSMENT whether to best judgment invoices revealing quantity of children's clothing as a proportion of turnover best judgment not in dispute insufficient evidence to upset liability assessment to best judgment case dismissed


    MOHAMMED ALAM Appellant

    - and -



    Tribunal: David Porter (Chairman)

    Marilyn Crompton

    Sitting in public in Manchester on 9 November 2005

    Philip Rayner for the Appellant

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


  1. Mohammed Alam (the Appellant) appeals against an assessment under section 73 of the Value Added Tax Act 1994 in the sum of 2335 and a misdeclaration penalty of 345 for the periods 01.12.02 to 28.02.03 and 01.03.03 to 31.05.03.
  2. Philip Rayner appeared for the Appellant and Jonathan Cannan appeared for the Commissioners and provided a bundle of documents for the tribunal
  3. The Commissioners had by a notice dated 8 November 2004 applied for the hearing to be postponed. By a letter dated 25 October 2005 (within the terms of the decision of Carnwarth LJ in Pegasus Birds Ltd V HM Customs and Excise [2004} EWCA Civ 1015) Philip Rayner alleged that Nathan Lunn, the assessing officer, had not acted properly in arriving at his assessment. Jonathan Cannan said that Nathan Lunn was unable to attend the hearing because his mother had been diagnosed with cancer and he was on compassionate leave. It would not therefore be possible to answer Philip Rayner's allegations without Nathan Lunn's evidence. Jonathan Cannan also said that there is a further assessment in the sum of 7000 arising from alleged export sales by the Appellant, which could usefully be heard at the same time. Philip Rayner confirmed that the Appellant's mother was ill in Parkistan and as the Appellant needed to be with her Mr Rayner would not object to the adjournment.
  4. The Chairman and Member retired and on their return the Chairman refused the application for an adjournment. He stated that the only matter in issue was whether any of the items in the invoices, the subject of the assessments, were children's clothing and should therefore be zero rated. The onus of proof in that regard lies with the Appellant, who is able to give evidence of the facts as he understands them. In the circumstances the Tribunal were not prepared to hear evidence to "Best Judgment" since the evidence relating to the children's clothing would resolve the matter in question. There was therefore no need for Nathan Lunn to attend and Philip Rayner was asked to present the case.
  5. We find the following facts. The Appellant, who gives evidence under oath having affirmed, manufactures a range of children and ladies clothing under the trading name of "Odyssey". His factory, at the time of the assessments, was located at Unit 3, Jermyn Street Rochdale, OL12 0DP. He supplies the market traders in the area, who collect the goods from his factory having, selected them from the range of clothing available at the time of their visit. The Appellant carries a reasonably large stock of clothing from which they can choose. If there is insufficient stock for the trader to take away when he attends, then the Appellant would produce further stock specifically for that trader. On some occasions he would also manufacture a specific line for a customer, but this was not a regular occurrence.
  6. When the trader collects the goods he is supplied with an invoice by Asfar, one of the Appellant's staff, who does not have a good command of the English language. There was produced to the Tribunal a series of those invoices. Some of them had marked on them the letter "K" for kids and "L" for ladies and the majority of the invoices had no VAT added to them. The Appellant explained that this was because most of them were for children's clothing. His employee, Asfar, would know what the items were because they were clearly marked up on the hangers. He suggested that even where the letter "K" appeared only against one item if there was no VAT added to the invoice then that entire invoice would relate to children's clothing. There was an inconsistency in his account when he carried on to explain that when the letter "L" appeared against any items it related to that item alone and none of the others on the invoice. We are satisfied from the Appellant's evidence that there was no way of knowing which of the items were children's clothing and which were adult's clothing merely by examining the invoices. We are also satisfied that the Appellant's book keeping was far from compliant with even the most rudimentary requirements under the legislation and regulations.
  7. Philip Rayner produced a letter dated 15th September 2004 from the Commissioners to Zohm Ltd (another customer identified as "Basic" on the Appellant's invoices). The letter identified a turnover of 116,826 for zero rated clothing which had been supplied to Zohm Ltd by several suppliers of whom the Appellant was one. He suggested that, as Zohm Ltd was a substantial customer of the Appellant, all the Appellant's invoices for the same period made out to Zohm Ltd must have been included in that sum of 116,826 and must therefore also have been zero rated. We cannot accept that explanation, as there is no evidence to show that all of the invoices produced to the Tribunal were included in that figure. Some may have been but without the evidence we cannot decide which.
  8. Philip Rayner referred us to the case of Amjid Rafiq and Asif Rafiq v The Commissioners of Customs and Excise, who traded as "Moniques" and are also substantial customers of the Appellant. The case appeared to revolve around the application of mark ups between children's clothing and standard rate clothing. We are unable to understand the relevance of the reference to this appeal.
  9. Philip Rayner produced to the tribunal a copy of form 465(a) dated 28/9/01 being details of the notes taken by the officer who attended at the Appellant's premises on that date for an inspection. The note indicates that the officer was of the opinion that 80% of the garments manufactured by the Appellant were children's clothing. The Appellant also confirmed at the hearing that during the period of the assessments 80 % to 90% of his production was in children's clothing. Whilst we accept that 80% of the Appellant's production at the time of the assessment related to children's clothing. We cannot accept that the invoices before us necessarily related to children's clothing as they could relate to adult clothing.
  10. Jonathan Cannan did not call any witnesses but submitted that the regulations relating to the zero rating of young children's clothing and footwear require amongst other matters, that the Appellant include an adequate description of the goods on his invoice for it to be possible to identify the items either as adult or children's clothing. The items should also be identified on any labelling, packaging, and promotional material. The onus is on the Appellant to keep appropriate records, which he had not done. Jonathan Cannan accepted that 80% of the Appellant goods during the period were children's clothing. That fact did not however exonerate the Appellant as he had to clearly show that these invoices related to children's clothing. The reference to Zohm Ltd was irrelevant as it is impossible to say that the invoices, the subject of this appeal, were included in any of the amounts set out in the letter of 4 September 2004. The evidence given by the Appellant did not discharge his obligation to show that the invoices used in the assessments related to children's clothing. In the circumstances the appeal should be dismissed and the assessment confirmed.
  11. Philip Rayner submitted that there was no advantage for the Appellant to treat the items as zero rated or standard rated. If the items are standard rated then the buyers would pass on the liability to their customers and if zero rated no VAT would be payable. The Appellant kept sufficient records and had established that the majority of the items should be zero rated as children's clothing. The officer who had inspected the goods had conceded that 80% of his production was for children and it was reasonable to accept that the majority of the items on the invoices were also for children. The appeal should be allowed and the assessment amended accordingly
  12. We have considered the facts and have decided that the assessment must be to best judgment. The Appellant has, as required by us at the start of the appeal, failed to discharge the onus upon him to show that all or any of the items (other than those marked with a K) were children's clothing. The evidence given by the Appellant was very unsatisfactory. He had not called his member of staff Asfar; neither had he called the proprietors of Zohm Ltd or Moniques to substantiate his evidence. The invoices, as prepared by Asfar, do not reveal whether they relate to adult or children's clothing. The Appellant has no effective systems in place and insufficient record keeping for that to be ascertained. We therefore dismiss the appeal and confirm the assessment.
  13. The Commissioners have not asked for any costs so none are awarded.
    Release Date: 14 December 2005

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