Fleming (t/a Bodycraft) v HM Revenue and Customs; Conde Nast Publications Ltd v Same

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lady Justice Hallett,Lord Justice Ward,Lord Justice Chadwick,Lady Justice Smith
Judgment Date11 July 2006
Neutral Citation[2006] EWCA Civ 976,[2006] EWCA Civ 70
Docket NumberCase No: C3/2005/0518,Case No: C3/2005/1360
CourtCourt of Appeal (Civil Division)
Date11 July 2006

[2006] EWCA Civ 70

IN THE SUPREME COURT OF JUDICAT

COURT OF APPEAL (CIVIL DIVISI

ON APPEAL FROM the High Court of Justice

Chancery Division

Evans-Lombe J

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Ward

Lady Justice Arden and

Lady Justice Hallett

Case No: C3/2005/0518

Between:
Fleming (Trading as Bodycraft)
Appellant
and
Hm Revenue & Customs
Respondent

Mr David Southern (instructed by Messrs Hepburns) for the Appellant

Miss Alison Foster QC & Mr Adam Robb (instructed by HM Revenue & Customs) for the Respondent

Mr Jonathan Peacock QC on behalf of the Condé Nast Publications Ltd (intervening with the permission of the court) (instructed by Deloitte & Touche)

Lady Justice Arden
1

This is an appeal against the order dated 25 February 2005 of Evans-Lombe J [2005] STC 707 dismissing Mr Fleming's appeal against the decision of the Value Added Tax and Duties Tribunal. This decision affirmed the refusal of the Commissioners of Customs & Excise ("Customs & Excise") to make a repayment of input tax to Mr Fleming which he sought to recover outside the statutory three year time limit for such claims. There was no time limit when the claim arose. The three year limit was imposed by a regulation without any transitional provision and as his claim was outside this period the provision on its face prevented him from making his claim thereafter. Had the claim been subject purely to domestic law, the regulation may not have barred his claim (see, for example, the advice of the Privy Council in Yew Bon Tew v Kenderaan Bas Mara [1983] AC 553, 561–563) . But Mr Fleming's claim arises under Community law. As explained below, Community law resolves these problems in a different way. It requires there to be an adequate transitional period. But in what manner and by reference to what events is such a period to be fixed if it was not in the regulation? These are some of the important issues said to arise on this appeal.

The background

2

In 1989 and 1990 Mr Fleming, the sole proprietor of a business engaged in the purchase and servicing of quality cars, purchased thirteen Aston Martin motor cars for the purpose of his business. He duly reclaimed the input tax on ten of the thirteen cars, and Customs & Excise paid his claim. However, he did not receive VAT invoices at the time of purchasing the remaining three cars. He needed those invoices to make a claim to recover input tax on purchase of the three remaining three cars. In the event, it was not until 23 October 2000 that Mr Fleming made a claim for repayment of VAT paid on these three cars and his claim was refused.

3

Customs & Excise relied on a three year time limit for making repayment claims introduced by amendment to regulation 29 of the Value Added Tax Regulations 1995 (SI 1995/2518) ("the 1995 regulations") with effect from 1 May 1997. However, the tribunal held that Customs & Excise could not rely on this three year time limit because Mr Fleming had an accrued right to deduct input tax under Community law. This could not be taken away by legislation which had retrospective effect. The tribunal, nonetheless, dismissed Mr Fleming's appeal on the ground that if the matter had been sent back to the Commissioners of Customs & Excise they would inevitably have rejected the claim in exercise of their discretion under article 18(3) of the Sixth EC VAT Directive (77/388/EEC) ("the Sixth Directive") , which the tribunal was not prepared to find would have been unreasonable. Neither Mr Fleming nor Customs & Excise sought to uphold that part of the tribunal's decision before the judge. Accordingly, before the judge, Customs & Excise were the effective appellants seeking to overturn the tribunal's decision that they could not rely on the three year time limit in regulation 29 (as amended) .

Legal and regulatory background

4

As I have said, Mr Fleming's right of deduction arises under Community law. Article 17 of the Sixth Directive provides as follows:

"(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… ."

5

Art 18 deals with the exercise of the right of deduction:

"(1) To exercise his right of deduction a taxable person must:

(a) in respect of deductions pursuant to Article 17(2) (a) , hold an invoice drawn up in accordance with Article 22(3) …

(2) The taxable person shall effect the deduction by subtracting from the total amount of 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…

(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) ."

6

The Value Added Tax Act 1994 (" VATA 1994") was enacted in large part to implement the Sixth Directive. VATA 1994 gives powers to the Commissioners of Customs & Excise to make regulations for certain purposes, and, in pursuance of those powers, the Commissioners made the 1995 regulations. These regulations have been amended from time to time. The material regulation is regulation 29, which, as amended by the Value Added Tax (Amendment) Regulations 1997 (SI 1997/1086) ("the 1997 regulations") , provides for a time limit of three years for making claims hereunder:

"29(1) [Subject to paragraphs (1A) and (2) 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 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.]

(2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of –

(a) a supply from another taxable person, hold the document which is required to be provided under regulation 13. .. .

provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other … evidence of the charge to VAT as the Commissioners may direct …"

7

The words in square brackets were inserted into regulation 29 by the 1997 regulations. It is common ground on this appeal that regulation 29(1A) governs all claims for the deduction or repayment of input tax. The document referred to in regulation 29(2) (a) is a VAT invoice. Prior, however, to the decision of this court in the conjoined appeals of Marks and Spencer plc v Commissioners of Customs & Excise and University of Sussex v Customs & Excise Commissioners [2004] STC 1, ("the University of Sussex case") , Customs & Excise took the view that claims (as in this case) for the repayment of input tax fell within section 80 of VATA 1994, rather than regulation 29: see business brief 4/02, issued on 22 February 2002. It is not, however, necessary to summarise or set out section 80 save to state that it provides for taxpayers to claim overpaid VAT subject to an express time limit of three years, previously six years (and in some cases six years from the date of the discovery of the mistake) . This change was made on 4 December 1996 with effect from 18 July 1996 by a resolution of Parliament passed under the Provisional Collection of Taxes Act 1968. The date 4 December 1996 is significant when it comes to understanding the business briefs referred to in para 10 below.

8

In 1999, this court referred a question to the Court of Justice in Luxembourg for a preliminary ruling ( Marks & Spencer plc v Customs & Excise [2000] STC 16 (Stuart-Smith, Ward and Schiemann LJJ) , and this resulted in the landmark decision on 11 July 2002 of the Court of Justice in Marks and Spencer plc v Commissioners of Customs & Excise [2003] QB 866. Among other issues, the Court of Justice considered whether it was compatible with the Community law principles of effectiveness of rights and of the protection of legitimate expectations for rights conferred by a directive to be removed by national legislation having retrospective effect. The Court of Justice held that the right conferred by a directive to recover sums collected in breach of Community law could be barred by national legislation imposing a time limit. That would not be incompatible with the principle of effectiveness. However, the limitation period had to be reasonable, and, consistently with the principle of legal certainty, fixed in advance. It followed that, where a new shorter limitation period was introduced, there had to be an adequate transitional period. The relevant passage from the judgment of the Court of Justice is the following:

"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,...

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