“(1) The right to deduct shall arise at the time when the deductible tax becomes chargeable. (2) In so far as the goods and services are used for the purpose of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person. . . .” (a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person. . . .”
“The principle of effectiveness 34. It should be recalled at the outset that in the absence of Community rules on the repayment of national charges wrongly levied it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness) (see, inter alia, Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) (Case C-228/96 )[2000] 1 WLR 126 , 148 para 18, and the judgments in Dilexport SrI v Amminisrrazione delle Finanze dello Stato [1999] ECRI-579, para 25, and Metallgesellschaft Ltd v IRC[2001] STC 452 ,[2001] Ch 620 , para 85). 35. As regards the latter principle, the court has held that in the interests of legal certainty, which protects both the taxpayer and the administration, it is compatible with Community law to lay down reasonable time limits for bringing proceedings (see Aprile SrI (in liquidation) v Amministrazione delle Finanze dello Stato (No 2)[2000] 1 WLR 126 , para 19, and the case law cited therein). Such time limits are not liable to render virtually impossible or excessively difficult the exercise of the rights conferred by Community law. In that context, a national limitation period of three years which runs from the date of the contested payment appears to be reasonable (see, in particular, Aprile, para 19, and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, para 26). 36. Moreover, it is clear from the judgments in Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2)[2000] 1 WLR 126 , para 28 and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, paras 41-42 that 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. First, it must not be intended specifically to limit the consequences of a judgment of the court to the effect that national legislation concerning a specific tax is incompatible with Community law. Secondly, the time set for its application must be sufficient to ensure that the right to repayment is effective. In that connection, the court has held that legislation which is not in fact retrospective in scope complies with that condition. 37. It is plain, however, that 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 and to claims made between that date and an earlier date, being that of the entry into force of the legislation, as well as to claims for repayment made before the date of entry into force which are still pending on that date. 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 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. 39. In that connection it should be noted that member states are required as a matter of principle to repay taxes collected in breach of Community law (see Société Comateb v Directeur Général des Douanes et Droits lndirects and related references (Joined cases C-192/95 to C-218/95)[1997] STC 1006 ) [1997] ECRI-165, para 20) and Dilexport SrI v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, para 23), and whilst the court has acknowledged that, by way of exception to that principle, fixing a reasonable period for claiming repayment is compatible with Community law, that is in the interests of legal certainty, as was noted in para 35 hereof. However, in order to serve their purpose of ensuring legal certainty limitation periods must be fixed in advance (see ACF Chemiefarma NV v EC Commission (Case 41/69) [1970] ECR 661, para 19). 40. Accordingly, legislation such as that 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. 41. That applies notwithstanding the argument of the United Kingdom government to the effect that the enactment of the legislation at issue in the main proceedings was motivated by the legitimate purpose of striking a due balance between the individual and the collective interest and of enabling the state to plan income and expenditure without the disruption caused by major unforeseen liabilities. 42. Whilst such a purpose may serve to justify fixing reasonable limitation periods for bringing claims, as was noted in para 35, it cannot permit them to be so applied that rights conferred on individuals by Community law are no longer safeguarded. The principle of the protection of legitimate expectations 43. The United Kingdom government maintains that the principle of protection of legitimate expectations is not relevant in a dispute such as that in the main proceedings. It submits that determination of the procedural rules governing claims for the recovery of overpayments of VAT is entirely a matter of domestic law, subject only to observance of the Community law principles of equivalence and effectiveness. If the principle of the protection of legitimate expectations were applicable in the dispute in the main proceedings, the only expectation would be that individuals are entitled to have their claims dealt with in accordance with the procedural rules of national laws, which happened in the present case. 44. In that connection, 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 (see, to that effect, Hauptzollant Hamburg-Jonas v Krüken (Case 316/86) [1988] ECR 2213, para 22, Alois Lageder SpA v Administrazione delle Finanza dello Stato (Joined cases C-31/91 to C-444/91 [1993] ECR 1-1761, para 33, Belgocodes SA v Belgium (Case C-381/97 [2000] STC 351 , [1998] ECR 1-8153, para 26, and Grundstückgemeinschaft Schoβstraβe GbR v Finanzamt Paderborn (Case C-396/98 ) [2000] ECR 1-4279, para 44). 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 (see Grundstückgemeinschaft Schoβstraβe GbR v Finanzamt Paderborn [2000] ECR 1-4279, para 47). 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 that amendment to obtain repayment of taxes collected in breach of provisions of the Sixth Directive with direct effect.”
“38. The first possible approach is that the new national time limit can be relied on by the member state once a reasonable time has passed since its introduction; and this is so regardless of whether the taxpayer knew that he had, or believed that he might have, a Community law right which he could enforce notwithstanding the failure to provide for a proper transitional period. On that approach, it may be that a longer period should be allowed for enforcement of the directly enforceable right than the minimum period which could have been expressly provided. In the present case, and assuming that a six-month transitional period for the purposes of reg 29 would have been appropriate, the time limit for making a claim would have expired six months after either 26 March or1 May 1997 , long before the claim was in fact made by CNP on27 June 2003 . Even allowing a longer period for enforcing Community law rights, a reasonable period would have expired long before that date. 39. The second possible approach is that the principle of effectiveness requires that a taxpayer should be entitled to enforce his Community law right until the time has been reached when he could first have been expected to assert that right; and that he could not be expected to do so as long as that right had no been established and was subject to challenge in the ECJ by the member state concerned. He should, therefore, have a reasonable time in which to assert his Community law right once that right had been established or, at least, once the generality of taxpayers and advisers appreciated that such a right might subsist. 40. As I have already indicated, the reaction of the commissioners to [the decision of the Court of Justice in the Marks & Spencer case] was to introduce, by way of Business Brief 22/02 dated5 August 2002 , a retrospective transitional period, initially of 90 days but, following Grundig, extended to six months. The six-month period was not introduced until long after the six-month transitional period had expired. In order to be or real benefit to traders, they had to be given, as it is put in the Business Brief, time ‘to allow taxpayers to make the claims that they ought to have been able to make at the time’. This seems to adopt something along the lines of the second approach. 41. In this context, it is to be remembered that the commissioners were, at that time, still contending that taxpayers had no directly enforceable Community law right in relation to the shortening of the s 80 period; it was not until [the decision of the Court of Justice in the Marks & Spencer case] at the earliest that the generality of taxpayers should have known that such a right subsisted and arguably not until [the decision of the Court of Appeal in the Marks & Spencer case and the University of Sussex case] when the issue was first explicitly dealt with by an English court. Accordingly, it would not have been open, on the second approach, to the commissioners to contend, in August 2002, that a reasonable period for asserting Community law rights had passed since the introduction of the new time limits by theFinance Act 1997 and to contend that it was therefore, by August 2002, already too late for claims to be made. The Business Brief seems to me to be a reflection of this second approach, although whether the commissioners were over-generous in allowing claims to be made as late as31 March 2003 (extended after Grundig in 30 June) is perhaps debateable. 42. That is not to say, even on the second approach, that it was only once a transitional period had been adopted by UK law-either by statute or, as in the case of s 80, by a practice announced by the commissioners-that time could start to run against taxpayers. For instance, if nothing had been done by the commissioners to implement the judgments of the ECJ and the Court of Appeal in [the Marks & Spencer case and the University of Sussex case], taxpayers would nonetheless have known of their Community law rights (possibly after [the Marks and Spencer case] and certainly after [the University of Sussex case]) so that, after a reasonable period, the new time limit for making claims under s 80. would have applied: by failing to assert their directly enforceable Community law rights in good time, taxpayers would have lost the right to invoke the principle of effectiveness to defeat the clear provisions of the domestic statutory provisions. However, so long as the direct effect of Community law remained unclear and while the commissioners themselves were asserting that taxpayers were bound by the terms of s 80, it cannot be said under the second approach that the theoretical right to challenge the commissioners by asserting the right (ie the direct effect of Community law) which the commissioners denied existed is sufficient to satisfy the principle of effectiveness. 43. The position in relation to reg 29 is similar but not precisely identical. The position is similar in that it was a breach of Community law not to provide a transitional period for making claims when reg 29 (1A) was introduced. Accordingly, it was, again, not until the decision in [the Marks & Spencer case] at the earliest that taxpayers should have known that they might have a Community law right which they should enforce within a reasonable time. The position is different in that the commissioners were asserting, until the decision in [the University of Sussex case], that reg 29 did not apply at all and that claims should be made under s 80. CNP, in the present case, made its claim just within the period permitted for s 80 claims; if the commissioners had been correct in their contentions that s 80 applies, then CNP'sclaim would have been in time. The commissioners submit, albeit as a secondary submission, that the Business Briefs do not apply to late reg 29 claims; and that there would be no breach of Community law in refusing a claim made as late as CNP's actual claim in a reg 29 case, adding that any complaint about declining to apply the same approach as was adopted in relation to the s 80 transitional period is a matter of domestic law and that there is no jurisdiction for the tribunal to deal with such a complaint on a statutory appeal.”
“As regards the United Kingdom government’s argument that the practice adopted by the tax authorities guarantees the existence of an obligatory link that to deduct VAT in the use of the fuel by the employee for the employer’s taxed operations, it must be borne in mind that it is settled law that the incompatibility of national legislation with community provisions can be finally remedied only by means of national provisions of a binding nature which have the same legal force as those which must be amended.”
“It appears to the tribunal that in the light of the instructions given by the Court of Justice in [the Marks and Spencer case and the Grundig case] that an adequate transitional period is an essential element in such legislation and it must be determined by the legislators and appear in the legislation. It is not for a tribunal, and perhaps not even for a court, to speculate about what an adequate transitional period would have been.”
“36. Given that the detailed rules governing the recovery of national taxes levied though not due are a matter for the national legislature, the question whether such rules may apply retroactively is equally a question of national law, provided that any such retroactive application does not contravene the principle of effectiveness. 37. In that regard, 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, this 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 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 (Case C-62/00 Marks & Spencer [2002] ECR 1-6325, paragraph 38). 38. Thus, the transitional period must be sufficient to allow taxpayers who initially thought that the old period for bringing proceedings was available to them a reasonable period of time to assert their right of recovery in the event that, under the new rules, they would already be out of time. In any event, they must not be compelled to prepare their action with the haste imposed by an obligation to act in circumstances of urgency unrelated to the time-limit on which they could initially count. 39. A transitional period of 90 days prior to the retroactive application of a period of three years for initiating proceedings in place of a ten- or five-year period is clearly insufficient. If an initial period of five years is taken as a reference, 90 days leaves taxpayers whose rights accrued approximately three years earlier in a position of having to act within three months when they had thought that almost another two years were still available. 40. Where a period of ten or five years for initiating proceedings is reduced to three years, the minimum transitional period required to ensure that rights conferred by Community law can be effectively exercised and that normally diligent taxpayers can familiarise themselves with the new regime and prepare and commence proceedings in circumstances which do not compromise their chances of success can be reasonably assessed at six months. 41. However, the fact that the national court has found that a transitional period fixed by its national legislature such as that in issue in the main proceedings is insufficient does not necessarily mean that the new period for initiating proceedings cannot be applied retroactively at all. The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary in order to ensure observance of that principle. It must, therefore, be permissible to apply the new period for initiating proceedings to actions brought after expiry of an adequate transitional period, assessed at six months in a case such as the present, even where those actions concern the recovery of sums paid before the entry into force of the legislation laying down the new period. 42. The answer to the national court must therefore be that Community law precludes the retroactive application of a time-limit that is shorter and, as the case may be, more restrictive for the claimant than the period for initiating proceedings that was previously applicable to claims for the recovery of national taxes contrary to Community law where no adequate transitional period is provided during which claims relating to sums paid before the entry into force of the legislation introducing the new time-limit may still be brought within the old period. Where a limitation period of five years is replaced by a time-limit of three years, a transitional period of 90 days must be regarded as insufficient and six months must be regarded as the minimum period required to ensure that the exercise of rights of recovery is not rendered excessively difficult.”
“Member States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community’s tasks.”
“44. It is necessary to state what section 3(1), and in particular the word "possible", does not mean. First, section 3(1) applies even if there is no ambiguity in the language in the sense of it being capable of bearing two possible meanings. The word "possible" in section 3(1) is used in a different and much stronger sense. Secondly, section 3(1) imposes a stronger and more radical obligation than to adopt a purposive interpretation in the light of the ECHR. Thirdly, the draftsman of the Act had before him the model of the New Zealand Bill of Rights Act which imposes a requirement that the interpretation to be adopted must be reasonable. Parliament specifically rejected the legislative model of requiring a reasonable interpretation. 45. Instead the draftsman had resort to the analogy of the obligation under the EEC Treaty on national courts, as far as possible, to interpret national legislation in the light of the wording and purpose of directives.”
"It follows that, in applying national law, whether the provisions in questions were adopted before or after the directive, the national court called upon to interpret it is required to do so, as far as possible, in light of the wording and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply with the third paragraph of Article 189 of the Treaty"
“48. The second and third decisions of the House are Pickstone v Freemans plc[1989] AC 66 and Litster v Forth Dry Dock & Engineering Co Ltd[1990] 1 AC 546 which involve the interpretative obligation under EEC law. …….Litster concerned regulations intended to implement an EC Directive, the purpose of which was to protect the workers in an undertaking when its ownership was transferred. However, the regulations only protected those who were employed "immediately before" the transfer. Having enquired into the purpose of the Directive, the House of Lords interpreted the Regulations by reading in additional words to protect workers not only if they were employed "immediately before" the time of transfer, but also when they would have been so employed if they had not been unfairly dismissed by reason of the transfer: see Lord Keith of Kinkel, at 554. In both cases the House eschewed linguistic arguments in favour of a broad approach. Picksone and Litster involved national legislation which implemented EC Directives. Marleasing extended the scope of the interpretative obligation to unimplemented Directives. Pickstone and Litster reinforce the approach to section 3(1) which prevailed in the House in the rape shield case. 49. A study of the case law listed in the Appendix to this judgment reveals that there has sometimes been a tendency to approach the interpretative task under section 3(1) in too literal and technical a way. In practice there has been too much emphasis on linguistic features. If the core remedial purpose of section 3(1) is not to be undermined a broader approach is required. That is, of course, not to gainsay the obvious proposition that inherent in the use of the word "possible" in section 3(1) is the idea that there is a Rubicon which courts may not cross. If it is not possible, within the meaning of section 3, to read or give effect to legislation in a way which is compatible with Convention rights, the only alternative is to exercise, where appropriate, the power to make a declaration of incompatibility. Usually, such cases should not be too difficult to identify. …. 50. Having had the opportunity to reconsider the matter in some depth, I am not disposed to try to formulate precise rules about where section 3 may not be used. Like the proverbial elephant such a case ought generally to be easily identifiable.”