“The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged. On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.”
“(1). Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section- “(a) no VAT shall be charged on the supply; but (b) it shall in all other respects be treated as a taxable supply; and accordingly the rate at which VAT is treated as charged on the supply shall be nil. (2). A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified. …” “80. Recovery of overpaid VAT “(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him. (2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose. (3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant. …. (4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim. … [(5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.” [repealed bysection 47(1) of the Finance Act 1997 and substituted along with the former sub-section (4) by the present sub-section (4) reducing the limitation period from six to three years.]] (6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases. (7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them. ”
“29(1) Subject to paragraph.. (1A) … below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable. (1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.” “35. Where a taxable person has made an error- a) In accounting for VAT, or b) In any return made by him, Then, unless he corrects that error in accordance with regulation 34 [Correction of errors], he shall correct it in such manner and within such time as the Commissioners may require.”
“In the circumstances in which a Member State has failed to implement properly in its domestic legislation art 11.A of …[the Sixth Directive], is it compatible with the principle of the effectiveness of the rights that a taxable person derives from art 11.A, or with the principle of the protection of legitimate expectations, to enforce legislation which removes with retrospective effect a right under national law to reclaim sums paid, by way of VAT, more than three years before the claim is made?”
“32. According to settled case law on art. 234 EC the court considers itself bound by the preliminary questions referred to it and does not depart from the substantive framework of those questions. None the less, the view of the matter taken in the judgments of the High Court and the Court of Appeal prior to the order for reference prompt me to make a preliminary observation. …” “33. Two issues of principle arise here. The first is the question as to when a directive may be deemed to have been correctly implemented, and the second is whether individuals may continue to rely on rights conferred on them by a directive after the directive has been implemented in national legislation.” “41. … the Becker judgment … concerned a case in which the member state concerned had failed to implement a directive within the prescribed period and the question arising was whether in such a case individuals could rely on the directive. With that situation in mind the court laid down the two conditions and the individual there had to rely on the directly effective obligation. It cannot be inferred therefrom, as the United Kingdom courts are plainly inferring, that if a member state has adopted the requisite measures but then goes on to apply them in a manner inconsistent with the directive, an individual may no longer derive any rights from the directive. In that case as well the directive cannot be said to have been properly implemented.”
“49. It is … established … that under the court’s settled case law M & S is entitled to repayment of VAT paid in breach of provisions of Community law. ….the right to repayment of amounts charged by a member state in breach of the rules of Community law is the consequence and complement of the rights conferred on individuals by the Community provisions prohibiting charges having an effect equivalent to customs duties and the application of national charges in a discriminatory fashion as interpreted by the Court … The member state is therefore as a matter of principle required to repay charges levied in breach of Community law. …” “51. … A deliberate distinction is drawn, in the court’s case law, between the right, or claim, to repayment of amounts paid to national authorities in breach of Community law and the national provisions giving effect to that right or claim. Those provisions may apply to the procedure to be followed, designation of the authority charged with repayment, the period within which the claims must be made and verification thereof.” ”69. … The view that individuals acquire a right to repayment of unduly paid amounts only after they have satisfied the applicable national requirements governing the making of a claim and that therefore the principle of the protection of legitimate expectations should in such a case be regarded merely as a ‘national’ legal principle cannot be reconciled with the court’s case law …”
“36. … national legislation curtailing the period within which recovery may be sought of sums charged in breach of Community law is, subject to certain conditions, compatible with community law. … the time set for its application must be sufficient to ensure that the right to repayment is effective. … 37. … that condition is not satisfied by national legislation such as that at issue in the main proceedings which reduces from six to three years the period within which repayment may be sought of VAT wrongly paid, by providing that the new time limit is to apply immediately to all claims made after the date of enactment of that legislation … 38. Whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, it is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging the claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right.” [see also para. 46 for the same point based on the principle of legitimate expectations] “40. Accordingly, legislation such as that at issue in the main proceedings, the retroactive effect of which deprives individuals of any possibility of exercising a right which they previously enjoyed with regard to repayment of VAT collected in breach of provisions of the Sixth Directive with direct effect must be held to be incompatible with the principle of effectiveness.” ”44. … the court has consistently held that the principle of the protection of legitimate expectations forms part of the Community legal order and must be observed by the member states when they exercise the powers conferred on them by community directives. …” “45. The court has held, in particular, that a legislative amendment retroactively depriving a taxable person of a right to deduction he has derived from the Sixth Directive is incompatible with the principle of the protection of legitimate expectations. …” “46. Likewise, in a situation such as that in the main proceedings, the principle of the protection of legitimate expectations applies so as to preclude a national legislative amendment which retroactively deprives a taxable person of the right enjoyed prior to the amendment to obtain repayment of taxes collected in breach of provisions of the Sixth Directive with direct effect.”
“had provided for a transitional regime at the time when the three-year limit was introduced, it would not have been applied in such a selective manner. Customs will not, therefore, restrict payment of claims only to those who would benefit from a strict interpretation of the ECJ’s judgment in Marks & Spencer.”
“…. (1) Where in respect of any particular transaction there is in force at the relevant time an exemption with refund of tax, there is no ‘rate applicable to a taxable transaction’. The relevant transaction is not, in the terms of the Sixth Directive, taxable. (2) Marks and Spencer cannot rely upon art 12(1) because that provision does not define the content of any right that Marks and Spencer has under Community law. Article 12(1) defines no right to any particular rate of tax because the fixing of the rate is entirely within the discretion of the United Kingdom under art. 28(2)(a). In so far as it is legitimate to describe zero as being the rate applicable to the sale of teacakes that rate is not attributable to Community legislation but rather to United Kingdom legislation which is consistent with our obligations under the EC Treaty.”
“5. … the reasoning of the Court of Appeal, as regards the teacakes and late vouchers claims, runs counter to the wording of Article 249 (ex 189) EC. … There is only one difference between the early vouchers claim and the other two claims: as regards the early vouchers claim, the national legislation itself contravened the directive, whereas with respect to the other two claims that legislation was unimpeachable in itself but was misapplied. Yet the end result in the two instances was precisely the same: the Directive was breached. Indeed, if the view accepted by the Court of Appeal were correct, then a Member State could escape the consequences of a Directive simply by implementing it correctly and then proceeding to misapply it. …” “7 .. it would be appropriate, in view of these exceptional circumstances, for the Court to frame its reply to the preliminary question posed in slightly broader terms … [to] enable the Court to rule on the legality of a retrospective measure such as that in issue in the main proceedings, as regards all of M & S’s claims, and not merely the early vouchers claim.”
“Where a Member State has received overpayments as a result of its failure properly to implement and/or apply any provision of the Sixth Directive … having direct effect such as Article 11A.2 [what the taxable amount includes], it may not retrospectively shorten the limitation period laid down for the recovery of those sums.”
“According to art 28(2)(a) of the Sixth Directive, the maintenance of reduced rates of VAT lower than the minimum rate laid down in art 12(3)(a) of that directive must be consistent with Community legislation. It follows that the introduction and maintenance of a rate of 2.1% for reimbursable medicinal products, whereas the supply of non-reimbursable medicinal products is subject to a rate of 5.5%, are permissible only in so far as they are consistent with the principle of fiscal neutrality inherent in the common system of VAT and in compliance with which the member states are required to transpose the Sixth Directive.”
“In my judgment, while the general principles of Community law can be relied upon in protection of enforceable Community rights which exist independently of them, in general at least, they cannot be relied upon to create an enforceable Community right, which did not exist prior to the infringement of the general principle upon which reliance is based. So far as the teacakes and later vouchers claims are concerned, Marks and Spencer, because they cannot fulfil the Becker conditions and because they cannot rely on any right given to them by the Treaty or regulations made thereunder, lack any basis upon which to found a complaint that there has been an infringement of the general principles of Community law.”
“The preceding provisions of this section apply to an amount paid before, as well as to an amount paid after, the day on which this section comes into force, except where the Commissioners’ have received a claim for repayment of the amount before that day.”
“The Commissioners shall only be liable to repay an amount under this section on a claim made being made for the purpose.”
“20…. entitlement to the repayment of charges levied by a Member State in breach of Community law is a consequence of, and an adjunct to, the right conferred on individuals by the Community provisions prohibiting such charges. The Member State is therefore in principle required to repay charges levied in breach of Community law. 21. There is, however, an exception to that principle. ,… the protection of the rights so guaranteed by the Community legal order does not require repayment of taxes, charges and duties levied in breach of Community law where it is established that the person required to pay such charges has actually passed them on to other persons. 22. In such circumstances, the burden of the charge levied but not due has been borne not by the trader, but by the purchaser to whom the cost has been passed on. Therefore, to repay the trader the amount of the charge already received from the purchaser would be tantamount to paying him twice over, which may be described as unjust enrichment, whilst in no way remedying the consequences for the purchaser of the illegality of the charge.”
“80(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.”
“16 In order to justify the national provision at issue …the United Kingdom Government argues that, far from suffering discrimination under the United Kingdom tax rules, non-resident companies which are in Commerzbank’s situation enjoy privileged treatment. They are exempt from tax normally payable by resident companies. In those circumstances, there is no discrimination with respect to repayment supplement: resident companies and non-resident companies are treated differently because, for the purposes of corporation tax, they are in different situations. 17. That argument cannot be upheld. 18. A national provision such as the one in question entails unequal treatment. Where a non-resident company is deprived of the right to repayment supplement on overpaid tax to which resident companies are always entitled, it is placed at a disadvantage by comparison with the latter. 19. The fact that the exemption from tax which gave rise to the refund was available only to non-resident companies cannot justify a rule of a general nature withholding the benefit. That rule is therefore discriminatory.”
“… is intimately bound up with the principle of non-discrimination … Fiscal neutrality requires equal treatment for those different economic activities in order to avoid distortion of the more general VAT system caused by the drawing of unimportant unjustified distinctions.”
“2. The taxable person shall effect the deduction by subtracting from the total amount of value added tax due for a given tax period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen and can be exercised under the provisions of paragraph 1 [which, identifies what a taxable person must do in order to exercise the right of deduction] … 3. Member States shall determine the conditions and procedures whereby a taxable person may be authorised to make a deduction which he has not made in accordance with the provisions of paragraphs 1 and 2. … 4.Where for a given tax period the amount of authorised deductions exceeds the amount of tax due, the Member States may either make a refund or carry the excess forward to the following period according to conditions which they shall determine.”
“The provisional proportion for a year shall be that calculated on the basis of the preceding year’s transactions. … Deductions made on the basis of such provisional proportion shall be adjusted when the final proportion is fixed during the next year.”
“1. The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular: “(a) where that deduction was higher or lower than that to which the taxable person was entitled; ….”
“(2) Subject to the provisions of this section, he [i.e. a taxable person] is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.” “(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations; …”
“29(1) Subject to the paragraphs (1A) … below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable. [my emphasis] 29(1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.”
“(1) Every taxable person shall keep and maintain, in accordance with this regulation, an account to be known as the VAT account. (2) The VAT account shall be divided into separate parts relating to the prescribed accounting periods of the taxable person and each such part shall be further divided into 2 portions to be known as ‘the VAT payable portion’ and ‘the VAT allowable portion. (3) The VAT payable portion for each prescribed accounting period shall comprise – (a) a total of the output tax due from the taxable person for that period, … The VAT allowable portion for each prescribed period shall comprise – (a) a total of the input tax allowable to the taxable person for that period by virtue of section 26 of the Act, …”
“…. Thus, in the case of a payment trader, the effect of a valid late claim for a deduction of input tax is to reduce the VAT otherwise payable, or to give rise to a claim for a refund or a credit, on that later occasion, and not to operate as an overpayment claim in relation to the earlier occasion.” 149. Neuberger J. then went on, in paragraphs 68 to 73, to reach the same conclusion by reference to the 1994 Act and the 1995 Regulations, both of which he found, when read with the Sixth Directive in this context, consistent with, though not necessarily dictated by, the Directive. This is how he put it in paragraph 69 of his judgment: “Although the provisions of the 1994 Act may be neutral on this issue if read on their own, when read together with the Sixth Directive and Regulation 29, I believe that the overall effect is in accordance with Mr. Cordara’s submission. … Regulation 29(1) repeats the point that the primary course for a taxpayer wishing to claim input tax is to raise his claim in the return in respect of the period in which it was incurred. However, albeit in very general terms, it leaves open the possibility of the input tax being claimed later. Again, this seems to me to be consistent with the notion that a late claim permitted pursuant to the Commissioners’ allowance or direction under Regulation 29(1) is not a correction to the earlier relevant return, in the sense that it results in a retrospective overpayment of VAT. Rather, it is a permitted or directed claim, albeit a late claim, for a set off, payment, or credit in respect of the input tax in question. To put the point slightly differently, a late claim for input tax is a self-contained claim which stands or falls on its own merits, and does not bear on the original VAT return in which it should primarily have been included, or any payment of VAT made pursuant thereto.” 150. In my view, Neuberger J’s overall analysis of the relevant Community and domestic legislation is correct. Its effect is not to require tax neutrality for each registered trader within a single accounting period. That may be the primary objective of the 1994 Act and the 1995 Regulations, but their clear provision, consistently with the Sixth Directive, is to identify from a registered trader’s return for each accounting period the tax payable by, or to be credited to, him by reference to declared outputs and his claimed inputs. If he pays more tax than he need because he has under-claimed input tax, he has not overpaid tax for that period; the amount paid is simply the result of a mechanism which sets off against what is due from him what he claims is properly due to him. If and when he seeks to remedy that under-claim in a subsequent accounting period, the 1994 Act and the 1995 Regulations, consistently with the discretion given by the Sixth Directive to Member States in the matter, makes provision for him to exercise his right to that money by claiming to deduct it from his output tax due in future accounting periods. 151. In the face of that statutory scheme, Mr. Lasok’s resort to the argument that the legislation should be construed on the basis that its normal function is to set input tax against output tax in the same accounting period that they both became chargeable is no basis for ignoring the principle or the mechanics of it, namely that the net amount “due” to the Commissioners or credited to the taxpayer in any period depends on whether and, if so, how much he properly claims for input tax for that period or any previous period. Nor, as Mr. Cordara has illustrated by reference to the commercial realities for which the tax collection scheme must and does provide, is it apposite to characterise immediate deduction of input tax as the “normal” manner of working of the scheme. 152. Accordingly, I agree with Neuberger J’s conclusions that the University’s claim is not a claim for overpaid tax under section 80, but is a claim for deduction of input tax under regulation 29(1), albeit made late. It follows that it is not subject to the new three year retrospective time limit in section 80(4), which took effect in July 1996. Nor is the claim, which was made in November 1996, affected by the new retrospective three-year limitation period in regulation 29(1A), which took effect in May 1997. As I have indicated, there are, however, issues whether the claim was validly made under regulation 29 and, if so, whether the Commissioners were bound to accept it. 2) The Commissioners’ failure to consider the exercise of their discretion under regulation 29(1) 153. This issue concerns the nature of the entitlement in both United Kingdom domestic and Community law to make “late” claims for input tax. As to the former, the answer is largely driven by the reasoning in the previous section of this judgment as to the nature of the right to claim input tax, and, as to the latter, by the answer in the next section of this judgment to the University’s alternative argument based on accrued directly enforceable Community law rights. In short, the starting point is that a claim for repayment of input tax, however it is procedurally presented in domestic law, is the exercise of a directly enforceable Community law right. The Commissioners challenge Neuberger J’s entitlement to rule, as he did, that the Commissioners should have accepted the claim under regulation 29. This is what he said, in paragraphs 77 – 79 of his judgment: “77. … it appears to me that, in the literature that they made available to the public up to and including November 1996, when the Claim was made, the Commissioners stated that they were effectively prepared to entertain any application based on payments based on inaccurate returns. There was no indication that a claim would be rejected or treated differently because it was occasioned by an understatement of input tax as opposed to an overstatement of output tax. There was no suggestion that a claim would be rejected because it was due to a decision to under-declare input tax, rather than a mistaken under-declaration of input tax. There was nothing to suggest that a claim based on an understatement of input tax would be rejected because it related to a period more than three years before the claim could or even should be made. “78. On the contrary, it appears to me that the literature indicated that the Commissioners were prepared to treat all claims, whether based on overstated output tax or understated input tax, whether relatively recent or relatively old, whether accidental or intentional, on the same basis. … It can also be said with some force that that would have been entirely consistent with the spirit of the VAT legislation as embodied in the Sixth Directive, namely that the VAT system should work entirely neutrally, and that any overpayment or underpayments would be effectively ironed out. … ” “79. It seems to me that, at least without specifically so deciding, and having good reason so deciding, the Commissioners cannot impose limitations on late claims. So far as I can see, the Commissioners have not purported to reject the Claim on the ground that they have exercised a discretion to do so under Regulation 29, whether because it was made too late or because it was in the wrong form. Further, no reason or justification for such departure from the terms of their publications has been advanced on their behalf. This conclusion is also consistent with the Commissioners’ attitude to the Claim, at least as I understand it. They have throughout rested their case for rejecting the Claim on the statutory time limit in section 80(4), and not on any time limit or other restriction imposed by them under Regulation 29.” 154. Mr. Lasok, in his submissions to this Court, agreed that the Commissioners had treated the claim as one under section 80, and had not considered it under their powers in regulation 29(1). However, he submitted that, if they had rejected the University’s claim on the wrong basis, they should have an opportunity to consider and decide on it in the exercise of their discretion under that regulation. It followed, he submitted, that Neuberger J. had no jurisdiction to rule as he did, in paragraphs 76 to 81 of his judgment, that they should have accepted the claim under regulation 29(1). In the result, he said that the best that the University could have achieved from this litigation was that the Commissioners could be required to consider the matter again, this time in the exercise of the discretion given to them by regulation 29(1). As I have mentioned, the Commissioners have now, as an extra-statutory concession, accepted the University’s claim in its entirety under regulation 29. Their concern in resisting the appeal is, Mr. Lasok explained, to get the law right, since the effect of Neuberger J’s decision, if allowed to stand, is to remove their discretion under regulation 29((1) to deal with claims on an individual basis. 155. Alternatively, he submitted that the Judge was wrong to express himself as he did in paragraphs 77 and 78 of his judgment, suggesting that the Commissioners had fettered their discretion under regulation 29(1) by the issue of publications up to November 1996 indicating their willingness to entertain claims for payments based on inaccurate returns. He maintained that the Commissioners did not and could not have fettered their discretion under regulation 29(1) in that way; they were simply indications of the Commissioners’ position, not an indicator of what they would decide in the circumstance of every case, in particular, where, as here, there had been knowing and undisclosed failures to deduct for many years. 156. Mr. Cordara’s answer to these contentions of Mr. Lasok was short and simple and flowed from his analysis of the VAT scheme, namely that a claim for input tax whenever made is for a directly enforceable Community law right to a credit either in the form of a deduction or repayment according to the taxpayer’s trading circumstances at the time the claim is made. It is a right that a Member State can require to be claimed in a particular manner, for example, as to provision of adequate proof or at a particular time, including the imposition of a time limit; see e.g. section 25(6) and regulation 29(1) and (1A). But the discretion given to the Commissioners by those provisions should be narrowly circumscribed so as not to render that right ineffective. The implication of his submissions was that in the circumstances of this claim the Commissioners could not, consistently with Community law, have exercised their discretion in any other way than they now have done. Conclusions 157. As Neuberger J. clearly considered, there are strong arguments for allowing the whole of the University’s claim for previously unclaimed input tax – certainly for going back well beyond the three-year period which has since become applicable to regulation 29 claims. However, it is difficult to put aside the fact that the scheme of our domestic law is for input tax to be claimed for the period in respect of which it became chargeable subject to a discretion given to the Commissioners by regulation 29(1) to “allow” claims to be made in later accounting periods than that in which it became chargeable (as distinct from correction of erroneous returns). 158. In normal circumstances the Commissioners, having properly identified the claim as falling within regulation 29 should, either generally or specially, consider whether they wish to exercise that discretion and, if so, in what circumstances and in respect of what period not statutorily capped. The fact that a late input claim is, for the reasons I have given, the exercise of a domestic and Community law right to repayment does not, it seems to me, override as a matter of Community law, that undoubted discretion. But the discretion is a narrow one, clearly given in the interests of good administration as well as fairness to the taxpayer. It seems to me that it should be exercised reasonably in the circumstances with both those considerations in mind. Where the “lateness” of the claim is a factor, that would best be served by securing a broad parity with the proper operation of the limitation period, if any, applicable at the material time to claims under regulation 29(1) – here there was no time limit applicable to the University’s claim. As Neuberger J. observed, at paragraph 82 of his judgment, there could be a real argument that the very wide and unspecific discretion given to the Commissioners under regulation 29(1) and/or the manner of the Commissioners’ initial decision-making in this case did not satisfy the requirements of Article 18.3. For reasons that parallel those in paragraphs 175 and 176 of the next section of this judgment, on the issue of accrued rights and direct enforceability, I am of the view that section 25(2) and/or regulation 29(1), to the extent that they could be read or misapplied so as to render ineffective the right to deduct in Article 17 or going beyond the administrative and procedural provisions by a Member State for its exercise envisaged by Article 18.3, would contravene the Directive. But for the fact - as I believe - there is currently a reference before the European Court that may touch on this issue, I would have considered the matter acte claire. In any event, as, in my view, this is not a section 80 claim and, as Mr. Lasok has informed the Court, the Commissioners, if now considering the claim under regulation 29(1), would exercise their discretion in favour of it, the matter is now academic, at least so far as these proceedings are concerned. There is no basis upon which the Court could properly disturb the order of Neuberger J. in this respect and a reference would not, therefore, be justified. I should add that Mr. Lasok has informed the Court that the Commissioners, as a matter of principle, maintain their stance that they cannot in any way fetter their discretion under that provision. 159. That is sufficient to dispose of the appeal in the University’s favour. But, as the alternative – section 80 - basis for the University’s claim was fully argued by counsel and concerns the reach of the European Court’s judgement on the Marks & Spencer reference, it may be helpful for me to express my view on the matter. 3) Accrued rights and direct enforceability – the effect of the European Court’s judgment in the Marks & Spencer reference 160. The third main issue is, as I have already indicated, a Community law point. It would arise only if this Court were to reverse the decision of Neuberger J. on the output/input issue and hold that the University’s claim is governed by section 80, thus engaging the time limit for which the new section 80(4) provides. The issue is whether, regardless of the basis of the University’s claim (i.e. under section 80 or Regulation 29 or both) in respect of its formerly unclaimed input tax, it had accrued and directly enforceable Community law rights to previously unclaimed input tax under Articles 17-20 of the Sixth Directive that could not be curtailed by the retrospective introduction in the new section 80(4) of the three-year time limit without adequate transitional arrangements. A search by counsel of the European Court of Justice’s web-site and of Simon’s Tax Cases shortly before the conclusion of argument on the appeal did not disclose any authority holding that such a claim is directly enforceable. 161. Neuberger J. held, at paragraphs 51 - 54 of his judgment: 1) that Article 17.1 of the Sixth Directive does not confer an enduring and irremovable right exercisable as of right at any time; 2) but, at paragraphs 55 and 56, that Article 18.3 imposed on the United Kingdom “an obligation to “determine” procedures whereby late claims for, or claims for under-claimed input tax may be made” and that such procedures may include time limits provided that they are reasonable and do not render “the apparent right” to make late claims nugatory; 3), that the United Kingdom had complied with that obligation, both as to payment and repayment traders; and 4) at paragraph 83 of his judgment, that if he had concluded that the claim was for recovery of overpaid VAT under section 80, he would have referred to the European Court the question whether the retrospective introduction of the three-year time bar in section 80(4), without any transitional provisions, was lawful under Community law. Submissions 162. The University claims that it had vested rights under Community law before18th July 1996 , relying on Articles 17 and 18 of the Sixth VAT Directive. On that basis it complains of the absence of a transitional period mitigating the effect of the retrospective introduction of the three year limitation period and that the classification of its claim (whether under regulation 29 and/or under section 80) is immaterial because it would be wrong under European law to permit the Commissioners to rely on that new limitation period. It maintains that the judgment of the European Court on the Marks & Spencer reference means that it had a directly effective right to make late claims for input tax even if its claim to repayment falls under section 80. The Commissioners’ case is that the European Court’s judgment in the Marks & Spencer reference sheds no light on the classification of the University’s claim under United Kingdom legislation or as to whether it is based on a directly effective right under the Sixth Directive. Accordingly, they maintain that if, in accordance with their primary case, it is a section 80 claim, it does not qualify for any longer than the new three-year limitation period because it is not based on such or any directly effective Community law right. 163. Mr. Lasok submitted that the European Court’s judgment expressly benefits only those with directly enforceable Community law rights, but does not assist the University in its claim to have such rights. He submitted that the European Court’s judgment is not capable of giving the University any more than it can look for under the Business Brief, still less any support for an entitlement equivalent to its Regulation 29 claim. He maintained that the provision in the Sixth Directive relevant to the University’s claim is Article 18(3) (see paragraph 112 above), is not unconditional and sufficiently precise to give rise to a directly enforceable right. In particular, he argued that, whilst it may have imposed an unconditional obligation on Member States, it was insufficiently precise as to who could make a claim and in what circumstances; see Joined Cases C-6/90 and C-9/90, Francovich & Ors. v. Italy[1991] ECR I-5347 , ECJ, para 12. 164. Mr. Lasok added that, even if the University relied on Article 20, which provides for adjustment of deductions (see paragraph 114 above), it still could not opt for the regulation 29 limitation regime because section 80(7) cuts it out. Accordingly, he submitted, the Commissioners have not misapplied the domestic law provisions correctly implementing the Directive. He said that, even if Neuberger J. was correct in holding that Article 18.3 imposed an obligation of Member States to “determine” procedures for late claims to deduct input tax, it did not confer any directly enforceable right to make such claims or to have them satisfied because the obligation did not satisfy either limb of the second Becker condition. He maintained that it is not unconditional, because it requires further action to be taken by a Member State to give it effect, and it is not sufficiently precise because it does not specify the circumstances in which a late deduction may be made or the circumstances in which a deduction shall, as distinct from “may”, be authorised. 165. Finally, Mr. Lasok commented that the only possible basis for the University’s contrary submission is seemingly that the United Kingdom’s failure to provide any transitional arrangements contravened the Sixth Directive. But he said that it is settled law that the Directive says nothing about claims for refund of overpaid VAT. He referred, in particular, toCase C-62/93 BP Supergas v. Greek State[1995] STC 805 , a case concerning Greek legislation providing for no deduction of input tax on petroleum products, and which the Advocate General, at paragraph 31 of his Opinion, and the Court, paragraphs 37-42 of its judgment, treated as an overpayment case. The Court said, atpara. 38: “The Sixth Directive does not contain any provisions applicable to claims for refund of VAT unduly paid by taxable persons.” 166. Mr. Cordara’s response to Mr. Lasok’s submission was that, even if the University’s claim could be regarded as one for recovery of overpaid VAT under section 80 and not for deduction of input tax under Regulation 29(1), the three-year retrospective time limit provided by section 80(4) could not deprive it of its vested and directly enforceable right in Community law to payment of all its under-claimed input tax, without adequate transitional arrangements. If they were section 80 claims the effect of the judgment of the European Court in the Marks & Spencer case was that they had a directly enforceable right to the repayment of all overpaid tax. 167. Mr. Cordara developed this submission that the right to deduct input tax was a directly enforceable Community law right under two alternative strands: first, that it satisfied both limbs of the second Becker condition; and second, that it was an entitlement within the scope of Community law and derived from its general principles, an argument similar to that advanced by Mr. Milne to the first Court of Appeal in the Marks & Spencer appeal, and rejected by it, in respect of its claim to zero-rating of its teacakes (see paragraphs 71-72 above). In advancing these arguments, Mr. Cordara, adopted the argument of Mr. Milne on the implications of the European Court’s judgment on the reference insofar as it could be related to the University’s case and suggested that the origin of the University’s claims in Articles 17 and 18 was an important additional factor in support of its entitlement to payment of them. 168. As to the second Becker condition, Mr. Cordara submitted that the underlying Community law right from which this input – deduction – claim is derived is to be found in Articles 17 and 18 of the Sixth Directive, both of which, in particular Article 18.3 providing for late deduction and Article 20.1 for adjustments of deductions (implemented in sections 25(2) and (6) and 26 of the 1994 Act), are of direct effect. He relied on a number of authorities in which the European Court has held that the right to deduct in Articles 17.1 and 17.2 is of such effect, including BP Supergas, at para. 36; and the Opinions of the Advocate General in Case C – 10/92, Balocchi v. Ministero delel Finnanze[1997] STC 640 , and in Joined Cases – C-286/94, C-340/95 and C-401/95, Molenheide BVBA & Ors. v. Belgium [1998] STC, paras. 47 and 48, that the obligation provided by Article 18.3 on Member States to make provision for late claims, albeit subject to conditions and procedures to be determined by them, is also of direct effect. He drew, in particular, on the following words of the Court at Molenheide, at paragraph. 47 of its judgment: “Accordingly, whilst it is legitimate for the measures adopted by the member states to seek to preserve the rights of the treasury as effectively as possible, they must not go further than is necessary for that purpose. They may not therefore be used in such a way that they would have the effect of systematically undermining the right to deduct VAT, which is a fundamental principle of the common system of VAT established by the relevant Community legislation.” 169. Mr. Cordara acknowledged that there has been no European Court judgment directly on the obligation on Member States to determine the conditions and procedures by which a deduction may be authorised in Article 18.3 or as to adjustments of deductions in Article 20.1. However, he drew attention to three late input claim-related cases in which the European Court applied all the usual statements of principle as to fiscal neutrality etc. of the tax, in which there was no suggestion that the Community law right to deduct input tax was lost once the accounting period in which it had arisen had passed; see BP Supergas; SFIv. Belgium;Case C-400/98 , Finanzamt Goslar v. Breitsohl[2001] STC 355 , ECJ, paras. 34-41; and Commissioners of Customs & Excise v. Croydon Hotel[1996] STC 1105 , CA, in which it was held that the exercise of the right to claim rather than the bare right of repayment is the commencement date for limitation periods. A contrary construction would, he submitted, put the United Kingdom in multiple breach of its Community obligations under the Directive. 170. This argument led Mr. Cordara into his second and alternative submission under this heading, namely that, whether or not the Sixth Directive, in Articles 17 to 20, gives a directly enforceable right to late deduction of input tax, such right can still be found by reference to the "over-arching” test of compliance with the objectives of Community legislation within the scope of which the national rules fall, namely proportionality, legal certainty, non-arbitrariness, non-retrospectivity and non-discrimination. There must, he said, be a system for late claims that conforms with Community law principles which gives effect to the rights of United Kingdom traders to correct errors in earlier claims, and one which applies to all traders whether payment or repayment traders. He cited by way of example:Case C-361/96 , Grandes Sources v. Bundezamt fur Finanzen[1998] STC 981 , ECJ, paras. 34- 36; and prayed in aid the following observation of the European Court inCase C-267/99 , Adam v. Administration de l’enregistrement et des domaines (ECJ unreported,11th October 2001 ), which concerned the rate of VAT charged to the liberal professions, at para. 36: “Member States must respect the principle of fiscal neutrality. That principle precludes in particular treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes …” 171. Mr. Cordara submitted that, on any view, the University’s claims originated as rights to claim input tax that had become claimable some time in the past and, as such, fell within the express scope of Articles 17 and 18. Even if, as the Commissioners contended and Neuberger J. had rejected, those claims became recoverable only by means of an output tax claim, that is a matter of procedure rather than substance. He illustrated the substantive nature of the University’s claim by drawing attention to the Commissioners’ acceptance of several late input tax claims of the University in accounting periods for which, for transient and random reasons, it was, temporarily, a repayment trader. It could not be seriously argued, he submitted, that the nature of the University’s right to overpaid tax changed according to whether its pattern of trading in a particular accounting period turned it from a payment to a repayment trader or vice-versa. 172. Accordingly, Mr. Cordara submitted that, whatever the precise legal classification of the claim, the United Kingdom’s failure to mitigate the retrospective impact of the new limitation periods breached general principles of Community law. It followed he said, that, regardless of the stance taken by the Commissioners in their Business Brief issued in August 2002 shortly after the European Court’s judgment in the Marks & Spencer reference, the effect of that judgment is that it is immaterial whether the claims are under section 80 or regulation 29(1), since if they are the former they are caught by that judgment, and if the latter the claim is within time. Conclusions 173. In my view, regardless of the basis of our domestic law (i.e. section 80 or regulation 29) for the University’s claim in respect of its formerly unclaimed input tax, it had accrued rights under Articles 17 – 20 of the Sixth Directive before the retrospective introduction of the 3 year cap (for section 80 claims in July 1996 or for regulation 29(1) claims in May 1997). The result is that the claim, if it fell within section 80, would engage the three-year time limit in the new section 80(4), but would benefit from the reasoning of the European Court in the Marks & Spencer reference, so as, in the absence of adequate transitional arrangements, to make it incompatible with Community law for the Commissioners to rely on the new limit. See also by way of example, in other contexts: Joined Cases C-10/97 – C-22/97, Ministero delle Finanze v. IN. CO. GE (ECJ, unreported22 October 1998 ), paras. 18-21; and Imperial Chemical Industries plc v. Colmer (Inspector of Taxes)[1999] STC 1089 , HL, per Lord Nolan (with whom the other Law Lords agreed) at pp.1094j-1095c. I consider that those provisions are unconditional and sufficiently precise to give rise to a directly effective Community law right. I do not derive that from the European Court’s ruling on the Marks & Spencer reference since it is for quite separate consideration whether the provisions in Article 17 and 18 as to the right and exercise of the right to make late deductions of input tax are caught by the Court’s answer to its re-formulated question as to “repayment … of sums paid by way of VAT, such as those” in Article 11A(1) concerned with the taxable amount. Whilst the subject matter of the reference was a section 80 claim for monies paid by way of VAT “which was not due” and the subject of this claim, in my view, is in effect for an adjustment of VAT which at the time it was paid was “due”, the substance of the claim is the same, repayment of tax which, given the provision for late claims for input tax, was when “such” a claim was made, “not due”
“35 All of the plaintiffs submit that the discretion afforded to Member States by the first subparagraph of Article 18(4) of the Sixth Directive does not permit them to prescribe substantive conditions for the exercise of the right to a refund. I think that Member States are merely permitted under the first sentence of Article 18(4) to establish the necessary procedures or detailed arrangements concerning such refunds. Indeed, even the fact that a ‘multiplicity of alternatives’ may be available for the purpose of implementing an obligation imposed by a directive does not prevent it from having direct effect, ‘once its content can be determined sufficiently precisely on the basis of the provisions of the directive alone’. Consequently, I am satisfied that the obligation imposed by Article 18(4) is clear, precise and unconditional and capable of direct effect.” “37 I do not think that the direct effect of Article 18(4) of the Sixth Directive, taken on its own, is sufficient to establish the incompatibility of the impugned Belgian measures. The plaintiffs rightly submit that the foundation of the right to ‘authorized deductions’, within the meaning of Article 18(4), is contained in Articles 17 and 18(1) to (3) and that, ‘in the absence of any provision empowering Member States to limit the right of deduction granted to taxable person’, the taxpayer must be permitted to exercise that right ‘immediately in respect of all the taxes charged on transaction relating to inputs’. Member States are, therefore, only authorized to limit the right of deduction ‘where they may rely on one of the derogations provided for in the Sixth Directive’. In case of an excess of authorized deductions over tax due, the neutrality of the Community VAT system means that the taxable person has the right to a refund. However, Member States are not precluded from adopting precautionary measures designed to ensure the veracity of the apparent excess of deductions arising from the information contained in the underlying declaration made by the taxable person. A system of control designed to verify ‘authorized’ deductions within the meaning of Article 18(4) before making payment is not a repudiation of the taxable person’s right to deduct.” 176. Any other approach would amount to an improper discrimination between groups of taxpayers undertaking similar economic activities, all of whom have a directly effective right under Article 17 to deduct input tax. 177. For the sake of completeness, I should mention the provision in Articles 20 and 22 (see paragraphs 114 and 115 above) for “Adjustments of deductions”, which Neuberger J. contrasted with Article 18 in paragraph 66 of his judgment. Article 20, as he pointed out, is concerned with corrections or retrospective claims: “… The contrast with the ‘right to deduct’ in Article 18 generally, and the wording of Article 18.4 more specifically, highlights the point that the rights accorded by Article 18 involve deducting input tax in respect of the period when it is claimed, rather than retrospectively in respect of an earlier period.”
“allowing an adequate period after the enactment of the legislation for lodging the claims for repayment which persons were entitled to submit under the original legislation.” 182. Mr. Cordara challenged the Commissioners’ entitlement to take what he described as an unpleaded point, identified by them in correspondence only two or three months before this resumed hearing of the appeal, that if the claim is a section 80 claim, the best the University can achieve is a reversion to the former six-year time bar. He maintained that hitherto in this lengthy litigation the Commissioners have never suggested any other time-bar than the new three-year period introduced in July 1996. However, he said that, if the University had to meet this point, it had a simple answer to it, namely that the manner in which the new three-year time limit had been introduced had the effect of abolishing the old six-year time limit in July 1996 before the University made its claim in November 1996. He took the Court to the wording ofsection 47(2) of the Finance Act 1997 (see paragraph 18 above), which, he said, deemed the repeal of the old time limit to have taken place on18th July 1996 . 183. He submitted that the effect of that provision was to abolish the six-year time bar retrospectively and that, therefore, the only time limit on the statute book when the University made its claim in November 1996 was the three-year time limit, which could not apply to the claim because of the reasoning of the European Court on the Marks & Spencer reference. 184. Although this point was not specifically pleaded by the Commissioners in their notice of appeal - or indeed argued by either side before now - we have allowed it to be fully argued. I can see no need to accede to Mr. Cordara’s insistence that the already considerable costs of this largely academic appeal should be augmented by requiring the Commissioners to amend their notice of appeal to plead it. To the extent that it is a new point, it is prompted by the University’s reliance on the European Court’s judgment on the Marks & Spencer reference. Conclusion 185. If, contrary to my view, the University’s claim falls to be dealt with under section 80, I would reject Mr. Cordara’s argument that the repeal of the six-year cap as from18th July 1996 , and before its claim in November 1996, created a statutory vacuum – that is, no time bar governing that claim. As Mr. Lasok observed in argument, the ruling of the European Court in the Marks & Spencer reference affects only those with directly enforceable Community law rights, it does not sweep away the whole statutory regime (including the former section 80(5)), which allowed for an extension of the then six-year time limit where the overpayment had been made as a result of a mistake only discovered more than six years after the over payment). The University’s exercise of the right to claim back input tax by claiming it in November 1996 was not a creation of the right post July 1996; it was a claim in respect of a pre-existing right which, when it was made was still subject to the old regime, but later deemed by section 47(1) and (2) of the 1997 Act, to have been replaced by the time it was made by the new regime. See e.g. IN CO. GE, at paras 18-21; and ICI v. Colmer, per Lord Nolan at 1094j-1095b. Paragraphs 36 and 46 in the European Court’s judgment modifying the retrospective effect of the new three-year time bar may not have any direct bearing on whether, as a matter of domestic law, the replacement of the old time limit with the new one left a time limit vacuum as to rights to repayment preceding the replacement. But the University’s reliance on the European Court’s judgment to give it a directly enforceable Community law transitional right to protection from sudden change from the old to the new more rigorous regime does not sit well with its argument. Unlawful state aid Submissions 186. Mr. Paul Key, junior counsel for the University, submitted as a further alternative if and in the event of the University’s claim being governed by section 80, that there would have been a period of some ten months between July 1996, when section 80(4) came into force, and May 1997, when regulation 29(1A) came into force (and a further period to cover the transitional application of section 80(4) resulting from the European Court’s judgment on the Marks Spencer reference),during which payment and repayment traders would been treated differently as to claims for input tax. Such differential would favour repayment traders and would, he maintained, constitute unlawful state aid affecting inter-state trade, contrary to Articles 92 and 93 of the EC Treaty (now Articles 87 and 88 respectively). Article 92, into which I have inserted numbers to highlight its four constituents, provides that: “…. [1] any aid [2] granted by a Member State or through State resources in any form whatsoever [3] which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, [4] in so far as it affects trade between Member States, be incompatible with the common market.”
“… having regard to the subject-matter of the dispute submitted to the national court, I believe that there is no need to reply to the … question. Thus, Ideal Tourisme’s action is aimed at obtaining the reimbursement of the VAT paid and not at having the Belgian tax authorities ordered to stop granting aid to the airlines in the form of exemptions from VAT or having the airline companies thus advantaged repay to the tax authorities the aid at issue granted in breach of Article 93(3) of the EC Treaty …, in which case the raising of this question would be justified and the Court’s reply relevant to the resolution of the dispute in the main proceedings. …” .. 191. In his submissions to this Court, Mr. Key sought to challenge the Tribunal’s findings against the University on the facts and the propriety of the Judge in upholding of them in reliance on the rule in Edwards v. Bairstow[1956] AC 14 , HL. He maintained that it was possible to infer from the statutory differences between the repayment regimes for payment and repayment traders, a presumption in favour of the taxpayer as to establishment of the third and fourth constituents, distortion of competition and consequent effect on trade between Member States. In so submitting, he referred the Court to the following authorities: Case 730/79, Philip Morris Holland BV v. Commission [1980] ECR 2671; Case 234/84, Belgium v. Commission [1986] ECR 2263; Case 305/89, Italy v. Commission[1991] ECR I- 1603 ; and Joined Cases C-278/92, 279/92 and C-280/92, Spain v. Commission [1994] ECR I –4103. However, none of them is an authority for the proposition that the third and fourth constituents of Article 92 are in effect otiose, so that all that is required is proof of the first two constituents, namely the grant of aid by a Member State. Of course, the grant of aid, depending on its nature, its recipients and the circumstances in which it is granted to them and not to others, may make it a short step to concluding that in a particular case it is a threatened or actual distortion of trade and thereby likely to affect trade between Member States. But it is a matter for decision in each case whether the third and fourth constituents have been made out. 192. None of the arguments or authorities relied on by Mr. Key has unseated the approach of Neuberger J. First, the question whether the third and fourth constituents of Article 92 were established was a question of mixed fact and law. However, I agree with the Judge that, even if the University had evidence that it was or would be the victim of discrimination by reason of the state aid relied on, it could not rely on these provisions in support of its claim for repayment of tax. The appropriate remedy, if it could be established on the facts – or even by means of a presumption, as urged by Mr. Key - would be to seek discontinuance of the state aid and, possibly, for an order that the beneficiaries of the aid pay it back, rather than, as Neuberger J. pointed out, “compounding the unlawfulness be seeking to extend the aid to one specific payment trader”