Watkins v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Michael Moriarty
• Judgment Date: 19 April 2016
• Neutral Citation: [2016] IEHC 246
• Docket Number: [2014 No. 385 R.]
• Court: High Court
• Date: 19 April 2016

[2016] IEHC 246

THE HIGH COURT

Michael Moriarty

[2014 No. 385 R.]

BETWEEN

FRANK WATKINS

APPLICANT

AND

THE REVENUE COMMISSIONERS

RESPONDENT

Revenue – Practice & Procedures – S.941 (2) of the Taxes Consolidation Act 1997 – Case stated – Assessment of taxes – Questions of law

Facts: The present application pertained to a case stated under s. 941 (2) of the Taxes Consolidation Act 1997 by the Circuit Court Judge in relation to his final determination wherein the learned Judge made an assessment for value added tax for relevant periods. The questions raised by the learned Judge for review of the High Court were (a) whether the Circuit Court Judge was mandated to state a case despite his belief that he did not make any determination on the point of law; (b) whether the learned Circuit Court Judge made an error of law in holding that the burden of proof to prove that the respondent's assessments were incorrect, lay on the applicant under s. 934 (3) of the said Act of 1997; (c) whether the learned Circuit Court Judge made an error of law in holding that the price difference in question were in operation at material times and that the applicant provided off-sales from his licensed premises and quantum; (d) whether the learned Circuit Court Judge made an error of law in holding that the applicant was not entitled to claim reduction from tax assessment as he failed to discharge the burden of proof; and (e) whether the learned Circuit Court Judge made incorrect findings of law that there should be two percent increase in mark-up from year to year.

Mr. Justice Michael Moriarty answered all the questions in negative. The Court found that there was no infirmity in the determination made by the Circuit Court Judge and his findings were just, cogent and appropriate. The Court held that since the learned Judge had stated a case to the High Court, the question raised under (a) became moot and thus, it was not required to be considered. The Court observed that under s. 934(3) of the Act of 1997, the applicant must present sufficient evidence to discharge the burden of proof that relevant assessment was incorrect. The Court held that findings of the primary facts by a judge should not be disturbed unless there was no evidence to support them. The Court opined that if the conclusions reached by a judge were not based on a mistaken view of the law, they should not be set aside unless the inferences drawn were the ones that no reasonable judge could draw. The Court held that there was ample evidence before the Circuit Court Judge when he made the findings of facts in relation to price differential and off-license sales. The Court noted that despite that fact the there were no facts upon which the findings of the Circuit Court Judge on appropriate percentage of mark-up assessment was based, the Court would not venture to ascertain learned Judge's fact findings by examining transcripts as it was not the function of the High Court.

JUDGMENT of Mr. Justice Michael Moriarty delivered on the 19 ^th day of April, 2016

Introduction

1 This application is a case stated by His Honour Judge Michael White (as he then was) pursuant to s. 941(2) of the Taxes Consolidation Act 1997 (‘the Act of 1997’).

2 On 1 ^st June, 2010, 30 ^th July, 2010, 1 ^st April, 2011, 12 ^th January, 2012, 27 ^th September, 2012, 19 ^th November, 2012, and 21 ^st January, 2013, an appeal was heard by the judge from a determination by an Appeal Commissioner on 9 ^th July, 2009. Judge White delivered a draft determination on behalf of the appellant and the respondent on 19 ^th November, 2012, and 21 ^st January, 2013. The honourable judge delivered his final determination on 21 ^st January, 2013 wherein he determined the assessments for value added tax for the periods 1 ^st January, 2003-31 ^st December, 2003, 1 ^st January, 2004-31 ^st December, 2004, 1 ^st January, 2005-31 ^st December, 2005, 1 ^st January, 2006-31 ^st December, 2006, 1 ^stJanuary, 2007-31 ^st December, 2007 and 1 ^st January, 2008-31 ^st April, 2008 and the profits assessable for income tax for the years 2003, 2004, 2005 and 2006.

3 The issue before the Circuit Court was the quantum of the turnover and profits earned by the appellant in the course of his public house trade operated at his licensed premises known as ‘The Fighting Cocks,’ Townsend St., Birr, Co. Offaly. Arising from oral and written evidence, together with written and oral submissions on behalf of the parties, the judge found the following facts to be proved or admitted:

‘The Appellant has traded as a licensed vintner at premises situate at Townsend Street, Birr, Co. Offaly since 1998. The licensed premises was originally an old type front bar and small lounge. In 2004, substantial refurbishment was carried out to the premises including the installation of a new sound system and facilities for music performances in the lounge.

In or about February, 2006, the Respondents audited a local drinks wholesaling company, G.R. Robinsons Limited of Belmont Co. Offaly. This audit established that inter alia, the drinks wholesalers facilitated undeclared cash sales to a number of its customers of which the Appellant was one. Arising from this the Respondents initially wrote to the Appellant offering an opportunity to make an unprompted disclosure and thereafter, the Respondent undertook an audit of the Appellant's business commencing on 12 ^th September 2007. On that date a detailed interview was conducted at the Appellant's premises. Present were the Appellant, his then accountant, Michael Kinsella together with Mr. Slattery and Mr. Adrian Dorr of the Revenue Commissioners.

The Appellant's accounting records were appalling and he himself acknowledged that they were deficient and did not comply with his statutory obligations to keep full and true records. He was unable to produce (sic) historical till rolls for each till in the premises, and was not in a position to produce till roll receipts on 12 ^th September, 2007. He did not carry out a daily or weekly summary of the till rolls. There was no cash book logging cash payments, setting out the date, the amount, and the recipient. His bank statements, cheque stubs, purchase invoices and miscellaneous documentation were available.

In August 2009, the Appellant changed accountant from Mr. Kinsella of Byrne Casey & Associates to Mr. Dolan of Dolan Smith Ltd. who thereafter endeavoured to reconstruct appropriate books of account and to present those to the Respondents.’

4 The matters in dispute at the appeal hearing were inter alia:

‘a. That the mark up on the purchases for sale at the premises set by the Respondents of 124% before the Appeal Commissioner and 126.59% before this Court were arbitrary and not in accordance with industry norm or the Appellant's accounts. In particular it was contended on behalf of the Appellant that the Respondent's calculations did not take account of the following:-

i. That prior to September 2007 the Appellant charged 10c less for drinks in the front bar compared with the back lounge;

ii. That off-license sales were made on an unstructured basis and sold at discounted prices;

b. That the percentage increase on the mark up from year to year initially at 5% and subsequently at 3% was arbitrary and not justified.’

5 The judge set out the following evidence and his conclusions pertaining to the specific findings that are at issue in this case:

‘a. The Issue of a Price Difference between the Applicant's Bar and Lounge

The Appellant's evidence on this issue comprised his own direct evidence together with that of his son Noel Watkins. Both were rigorously cross-examined on the issue largely to the effect that when interviewed during the audit the Appellant's documented reply was that there was no such price difference and further, this contention was not raised before the Appeal Commissioner hearing and only lately emerged at the Circuit Court appeal. Revenue evidence in effect stood over the memorandum of interview as a fair and reasonable account of the Appellant's audit interview and the reliability of same. There was no such independent evidence corroborative of such practice (till notes etc.) and it was impossible on the evidence to quantify what might have been sold at a reduced price if the practice in fact existed. In the circumstances, considering the totality of evidence on this issue, I determined that the Appellant had not discharged the onus of proving this pricing structure entitling him to an adjustment on the basis of same.

b. Off Sales

The Appellant's evidence on this issue comprised his own direct evidence together with that of his son Noel Watkins, David Manion and Thomas Conneely. The issue was challenged in cross-examination largely to the effect that when interviewed during the audit the Appellant's documented reply (on 2 occasions) was that there were no off-licence sales and further, this contention was not raised before the Appeal Commissioner hearing and only lately emerged at the Circuit Court appeal. I noted an apparent contradiction between the evidence of Noel Watkins (he stated there was a button on the till for “open sales”) with Mr. Mulrooney's evidence (which simply stated that employees could not deal with off-licence sales but had to refer to Noel Watkins). There was no documentary evidence to verify the fact or quantum of off-licence sales. In that Revenue in the audit assigned a blanket 50% mark-up to can sales (wherever consumed), against a general mark-up of 112%, having regard to the totality of the evidence, I concluded that no further allowance for off-licence sales should be allowed.

c. Year on Year Increase in Mark-Up

Mark up and the variation thereof year on year was strenuously contested between the parties. The Respondent's evidence on mark up as adopted in the Assessments was to the...