Rahman v Commissioners of Customs and Excise

On an appeal against a VAT assessment made to the commissioners’ best judgment, the tribunal must distinguish between the validity of the assessment and its amount. The assessment should be rejected for failure to satisfy the best judgment requirement only where the commissioners acted dishonestly, arbitrarily, capriciously, or wholly unreasonably, or made a mistake inconsistent with an honest and genuine attempt to reach a reasoned assessment. A substantial reduction at the quantum stage does not, by itself, invalidate the assessment. The tribunal must determine for itself the correct amount of tax due, and an appeal to the court lies only on a point of law.

The taxpayer challenged VAT assessments relating to two restaurant businesses. A first tribunal dismissed the appeal, but the High Court remitted the matter after finding that one tribunal member had not participated in determining quantum. On remission, a differently constituted tribunal upheld the assessment’s validity under the best judgment requirement but reduced the amount to reflect calculation errors. The High Court dismissed a further appeal, holding that the tribunal had applied the correct legal test and had reached conclusions open to it. The central issues before the Court of Appeal were whether the tribunal had applied the correct approach to best judgment and whether it had properly determined the amount of VAT due.

1. Appeal dismissed. The assessment was validly made under section 73(1) of the Value Added Tax Act 1994, although the amount was reduced to reflect accepted errors.
2. The best judgment requirement requires an honest and bona fide value judgment based on material before the commissioners. The commissioners need not carry out exhaustive investigations or adopt the most sophisticated methodology. The assessment must, however, have a reasonable evidential basis and must not be arbitrary.
3. A tribunal’s finding that the assessment was materially too high does not automatically establish failure to exercise best judgment. The tribunal must examine the explanation for the difference. A mistake is consistent with best judgment where it arose from an honest and genuine attempt to make a reasoned assessment; it invalidates the assessment only where it is of a kind that no officer exercising best judgment could have made.
4. The tribunal properly treated the officers’ calculation as a less sophisticated, rough and ready method adopted under time constraints. The errors resulted from double-counting and incorrect recording of purchases, and had an innocent explanation. The tribunal was entitled to conclude that the assessment nevertheless satisfied the best judgment test.
5. At the quantum stage, the tribunal must apply its own judgment to the material before it and determine the correct amount of tax. The court’s jurisdiction under section 11 of the Tribunals and Inquiries Act 1992 is limited to questions of law, so the court could not interfere with findings of fact or evaluative conclusions properly open to the tribunal.
6. Tribunals should generally concentrate on the amount properly due. It may be unnecessary to investigate the best judgment issue where the correct amount is close to the assessment. Where the difference is substantial, the tribunal may investigate the reason for it and may either discharge the assessment or direct the correct amount under section 84(5) of the 1994 Act.

• Court of Appeal (Civil Division) — [2002] EWCA Civ 1881: appeal dismissed.
• High Court, Chancery Division — [2002] STC 73: appeal dismissed and the tribunal’s decision upheld.
• VAT and Duties Tribunal — the remitted appeal was allowed only to reduce the VAT assessment to reflect calculation errors.
• Earlier High Court appeal — [1998] STC 826: the first tribunal decision was set aside and the matter remitted to a differently constituted tribunal.