Fleming (t/a Bodycraft) v HM Revenue and Customs; Conde Nast Publications Ltd v Same
| Jurisdiction | England & Wales |
| Judge | Mr Justice Warren |
| Judgment Date | 10 June 2005 |
| Neutral Citation | [2005] EWHC 1167 (Ch) |
| Docket Number | Case No: CH/2005/APP/0053 |
| Court | Chancery Division |
| Date | 10 June 2005 |
[2005] EWHC 1167 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL
Royal Courts of Justice
Strand, London WC2A 2LL
The Honourable Mr Justice Warren
Case No: CH/2005/APP/0053
Jonathan Peacock QC (instructed by Deloitte & Touche) for the appellant
Christopher Vajda QC and Valentina Sloane (instructed by The Solicitor for The
Commissioners of Customs & Excise) for the respondent
Hearing dates: 18 & 20 May 2005
Handdown Judgment: 10 June 2005
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Warren
Introduction
This is an appeal by Condé Nast Publications Ltd ("CNP") against a decision of the VAT and Duties Tribunal ("the tribunal") dated 7 December 2004 by which the tribunal dismissed CNP's appeal against a decision of the Commissioners of Customs and Excise ("the Commissioners") contained in a letter dated 31 October 2003 by which the Commissioners refused to pay to CNP part of the sums claimed by it in a voluntary disclosure claim dated 27 June 2003.
That claim relates to amounts of input VAT in respect of expenditure on staff entertainment, which CNP failed to deduct when accounting for VAT in past periods. Although the claim, insofar as it is relevant to this appeal, related to the periods from 1 April 1973 to 30 April 1997 and from 1 May 1997 to 31 December 1999, CNP does not advance any arguments before me in relation to the second of those periods.
Statutory provisions and case law
I refer at this stage to some statutory provisions and mention a number of decisions, both domestic and in the European Court of Justice ("the ECJ").
Claims for overpayment of output tax and under-deduction of input tax are dealt with by section 80 Value Added Tax Act 1995 ("section 80") and regulation 29 Value Added Tax Regulations 1995 ("regulation 29").
Section 80 makes provision for repayment by the Commissioners of overpaid tax on a claim being made to them. It is a defence, in whole or in part, to such a claim that repayment of an amount would unjustly enrich the claimant. As originally enacted, section 80 provided, by sub-section (4), that no amount could be claimed after the expiry of 6 years from the date on which it was paid except where sub-section (5) applied. That latter subsection applied where an amount had been paid by reason of a mistake, in which event a claim could be made at any time within 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
On 18 July 1996, the Government announced that the time limit for recovering overpaid tax would be shortened to three years, thus both reducing the six-year limit and removing the special provisions in relation to mistake altogether. The relevant amendment to sub-section (4) was effected by Finance Act 1997 which was enacted on 19 March 1997 and under which the 3 year time limit was deemed to come into force on 18 July 1996; however, prior to the 1997 Act, the change in the time limit had been approved under the Provisional Collection of Taxes Act 1968 on 4 December 1996. No provision was made for a transitional period during which a taxpayer could make a claim in respect of his accrued rights.
Regulation 29 makes provision for claims for input tax. Ordinarily, a taxpayer should claim, under regulation 29(1), input tax as a deduction on the return for the accounting period to which it relates. However, regulation 29(1) also contains wording which giving the Commissioners discretion to depart from that requirement the exercise of which, as originally drafted, was not subject to a time limit.
On 25 March 1997, the Government announced a change in the time limits appropriate to regulation 29 claims. A new regulation 29(1A) was inserted with effect from 1 May 1997, some five weeks or so after the announcement: this precluded the Commissioners from allowing a claim for deduction of input tax made more than three years after the due date for the return in relation to the relevant period. Again, no transitional provisions were included.
On 11 July 2002, Case C–62/00 Marks and Spencer plc v Customs and Excise Commissioners [2002] STC 1036 (" M&S1") was decided by the ECJ. It is clear from that decision that Member States may (i) impose time limits on the right of recovery of overpaid tax (in which context, a three-year limit is acceptable) and (ii) curtail an existing time limit or introduce one where none existed previously. In relation to (ii), the case also established that, giving effect to Community law, transitional provisions must be introduced in order to comply with the principle of effectiveness (ie the national rules must not render virtually impossible or excessively difficult the exercise of Community law rights) and to reflect the protection of legitimate expectations. The ECJ did not, in M&SI, rule on the duration or manner of operation of such a transitional period.
Following the decision, Customs & Excise announced the introduction, without legislation, of retrospective transitional relief. This was contained in a Business Brief dated 5 August 2002. The purpose of the transitional provision was, according to the Business Brief, "to allow taxpayers to make the claims that they ought to have been able to make at the time".
The transitional regime was to apply from 4 December 1996 to 31 March 1997, ie from the date the change was enacted until the expiry of a period which the Commissioners must have considered was sufficient adequately to give effect to the taxpayers' Community law rights. Customs invited claims in the four circumstances mentioned in the Business Brief. I do not need to go into those circumstances save to note that transitional relief would not apply if the overpayment of tax was not discovered before 31 March 1997, the end of the transitional period: this would reflect the position had the amending legislation included, as it should have done, a transitional period during which claims could be made in relation to subsisting rights to recover overpaid tax.
Taxpayers were given until 31 March 2003 to submit claims. Having previously failed to introduce (whether by way of legislation or administrative practice) transitional provisions, a reasonable time was introduced in which taxpayers could make claims: the period from 5 August 2002 to 31 March 2003 which was adopted was no doubt considered reasonable by the Commissioners and was, neatly, an anniversary of the end of the transitional period. Notwithstanding that approach, the Commissioners' argument in the present case is that such a transitional provision does not need, retrospectively, to be afforded to a taxpayer who cannot show that he would have made a claim even if a proper transitional provision had been included in the first place.
The Business Brief did not contain, and nor does any other material at or about the time to which I have been referred contain, a further requirement that a taxpayer, in order to make a claim, must be able to show that, had the transitional provisions been properly included, he would in fact have made a claim.
On 24 September 2002, Case C–255/00 Grundig Italiana SpA v Ministero della Finanze [2003] All ER (EC) 176 (" Grundig") was decided by the ECJ. This case concerned an Italian consumption tax rather than VAT. Italian legislation had included a general five-year limitation period for reclaiming sums of tax (not restricted to this consumption tax) paid but not due. Legislation was introduced shortening that period to three years subject, however, to a 90-day transitional period during which taxpayers could make claims without being affected by this new provision. Although detailed matters of limitation are usually left to be dealt with at a national level, the ECJ ruled that 90 days was insufficient and that a six-month period was the minimum required to ensure that Community law rights could be effectively exercised. Grundig is not, it should be noted, a decision either way on the question whether 6 months is a sufficient transitional period in the case of the reduction of the, effectively, unlimited time for making a claim under regulation 29 or indeed of the original time limits for making a claim section 80.
Following that decision, Customs and Excise issued a further Business Brief on 8 October 2002 extending the transitional period by three months to 30 June 1997. The period within which claims for repayment of overpaid tax could be made was also extended by three months to 30 June 2003.
No similar transitional provisions were announced or implemented in relation to regulation 29, which remains the position to this day.
At this stage, I mention that it had been the view of the Commissioners, and one which was applied in practice, that late claims to deduction of input tax were to be made under section 80 and not under regulation 29. Neuberger J held this to be wrong in University of Sussex v Customs and Excise Commissioners [2001] STC 1495, his decision being given on 10 October 2001. Customs and Excise did not accept his decision on that issue; but it was upheld by the Court of Appeal on 21 October 2003: see the judgment in the combined appeals in Marks and Spencer plc v Customs and Excise Commissioners and University of Sussex v Customs and Excise Commissioners [2004] STC 1 (" M&SII/Sussex"). However, by a Business Brief dated 22 February 2002, Customs and Excise put Neuberger J's decision into effect. It advised taxpayers that they might wish to consider lodging claims for repayment under regulation 29 of amounts...
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