Local Authorities Mutual Investment TrustvCommissioners of Customs and Excise

JurisdictionUK Non-devolved
Judgment Date21 November 2003
Date21 November 2003
CourtValue Added Tax Tribunal

[2003] EWHC 2766 (Ch).

Chancery Division.

Lawrence Collins J.

Local Authorities Mutual Investment Trust
and
Customs and Excise Commissioners

David Southern (instructed by Reynolds Porter Chamberlain) for the taxpayer.

Paul Lasok QC and Owain Thomas (instructed by the Solicitor of Customs and Excise)

for the Crown.

The following cases were referred to in the judgment:

Amministrazione delle Finanze dello Stato v Denkavit Italiana Srl(Case 61/79) [1980] ECR 1205

Aprile Srl v Amministrazione delle Finanze dello Stato (Case C-228/96) [1998] ECR I-7141

Bessin et Salson v Administration des douanes et droits indirects(Case 386/87) [1989] ECR 3551

BP Supergas Anonimos Etairia Geniki Emporiki-Viomichaniki kai Antiprossopeion v Hellenic Republic VAT(Case C-62/93) [1995] BVC 385; [1995] ECR I-1883

Comet BV v Produktschap voor Siergewassen (Case 45/76) [1976] ECR 2043

CR Smith Glaziers (Dunfermline) Ltd v C & E CommrsUNKVAT[2003] UKHL 7; [2003] BVC 249

Dangeville (SA) v France (Application No. 36677/97)

Dilexport Srl v Amministrazione delle Finanze dello Stato (Case C-343/96) [1999] ECR I-579

EC Commission v France (Case 50/87) [1988] ECR 4797

EC Commission v Germany VAT(Case C-427/98) [2003] BVC 205; [2002] ECR I-8315

Edilizia Industriale Siderurgica Srl (Edis) v Ministero delle Finanze (Case C-231/96) [1998] ECR I-4951

Emmott v Minister for Social Welfare and A-G (Case C-208/90) [1991] ECR I-4269

Express Dairy Foods Ltd v Intervention Board for Agricultural Produce (Case 130/79) [1980] ECR 1887

Garage Molenheide BVBA v Belgian State VAT(Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96) [1998] BVC 106; [1997] ECR I-7281

General Motors Acceptance Corp (UK) plc VAT[2003] BVC 2358

Imperial Chemical Industries plc v Colmer (HMIT)TAXWLR[1999] BTC 440; [1999] 1 WLR 2035

Johnson v Chief Adjudication Officer (Case C-410/92) [1994] ECR I-5483

Magorrian v Eastern Health and Social Services Board (Case C-246/96) [1997] ECR I-7153

Marks & Spencer plc v C & E Commrs UNKVATVAT[2003] EWCA Civ 1448; [2004] BVC 151; (Case C-62/00) [2002] BVC 622; [2002] ECR I-6325

Ministero delle Finanze v IN CO GE '90 Srl (Joined Cases C-10/97 to C-22/97) [1998] ECR I-6307

Palmisani v Institutio Nationale della Previdenza Social (INPS)(Case C-261/95) [1997] ECR I-4025

Rewe-Zentralfinanz GmbH v Landwirtschaftskammer für Saarland(Case 33/76) [1976] ECR 1989

Rompelman v Minister van Financiën VAT(Case 268/83) (1985) 2 BVC 200,157; [1985] ECR 655

Roquette Frères SA v Direction des Services Fiscaux du Pas-de-Calais (Case C-88/99) [2000] ECR I-10465

Société Générale des Grandes Sources d'Eaux Minérales Françaises (SGS) v Bundesamt für Finanzen VAT(Case C-361/96) [1999] BVC 3; [1998] ECR I-3495

Steenhorst-Neerings v Bestuur van de Bedrijfsvereniging voor Detailhandel, Ambachten en Huisvrouwen (Case C-338/91) [1993] ECR I-5475

Stubbings v UK HRC(1996) 23 EHRR 213

University of Sussex v C & E Commrs UNKVATVAT[2003] EWCA Civ 1448; [2004] BVC 151 (CA); [2002] BVC 297 (ChD)

Van Duyn v Home Office (Case 41/74) [1974] ECR 1337

Value added tax - Input tax - Recovery - Three year cap - Taxpayer claimed to recover input tax paid in error - Claim refused as statute-barred - Whether restriction on recovery of input tax contrary to Community law and human rights -SI 1995/2518 regulation 29 subsec-or-para 1 regulation 29 subsec-or-para 1AValue Added Tax Regulations 1995 (SI 1995/2518), regs. 29(1), (1A)

This was an appeal by the taxpayer against a decision of the VAT Tribunal (No. 18,006; [2003] BVC 4084) that its claim to recover input tax was statute-barred, on the ground that reg. 29(1), (1A) of the Value Added Tax Regulations 1995, which introduced the restriction on the right to recover, was not contrary to Community law or the Human Rights Act 1998.

The taxpayer acted as trustee for charities and public authority pension funds, including the Local Authorities' Property Fund ("LAPF"). The assets of LAPF comprised commercial properties. For some of these properties the taxpayer, as landlord, had opted to charge VAT on the rents. Accordingly, the taxpayer accounted for VAT on the rents of the opted properties and recovered input VAT on the costs incurred in making the taxable supply of the land. In June 2001, the taxpayer changed its method of accounting for VAT. It had previously accounted for VAT on an invoice basis (whereby it issued an invoice for rent and service charges on its taxable properties including VAT and accounted to Customs for that VAT in the quarter in which the invoice was issued even though the invoice might be paid only later). Under the new basis, the taxpayer issued a VAT invoice only when it received payment of the rent and service charge. As a result of the change, the taxpayer had to reconcile previous payments of VAT so as to ensure that there was no double counting and were no omissions. In the course of that exercise, the taxpayer discovered that it had failed to claim credit in its VAT returns for a number of items of input tax for the periods February 1998 to May 2001. The errors were discovered after June 2001 and necessitated an extensive accounting review which was only completed in November 2001. The review resulted in calculations which showed (for the periods 02/98, 05/98, and 08/98) output tax of £8,750 and input tax of £153,058.33, with a net balance of £144,308.33. The taxpayer submitted a voluntary declaration to correct the errors in November 2001. Customs allowed a claim to recover input tax for later periods but refused the claim for the 1998 periods on the grounds that the claim was out of time under reg. 29(1A) of the Value Added Tax Regulations 1995, being made more than three years and one month after the end of the accounting period in which the expenditure giving rise to the input tax was incurred. The tribunal dismissed the taxpayer's appeal against that decision.

The taxpayer appealed to the High Court arguing that reg. 29 did not correctly implement art. 17 and 18 of the sixth directive because there was no power in art. 18(3) for the introduction of reg. 29(1) or (1A); that national legislation might impose special limitation periods for restricted categories of cases but that there were no special circumstances in this case; that the time limits imposed by reg. 29 were unreasonable, i.e. disproportionate, in terms of Community law; and that the right to recover input tax was a "possession" within art. 1 of the First Protocol to the European Convention on Human Rights peaceful enjoyment of which was protected as a convention right within s. 1(1). Regulation 29(1A) infringed the exercise of that right in a manner which was not necessary to secure the general interest or payment of taxes.

Held, dismissing the taxpayer's appeal:

1. In the absence of Community rules, it was for the domestic legal system of each member state to determine the procedural conditions governing actions intended to ensure the protection of directly effective rights, including the imposition of time limits. Under the principles of equivalence and effectiveness, the conditions and time-limits could not be less favourable than those relating to similar actions of a domestic nature, and they could not make it impossible in practice to exercise the rights which the national courts were obliged to protect. Any measures taken by member states also had to satisfy the principle of proportionality, in that they "must employ means which, whilst enabling them effectively to attain the objective pursued by their domestic laws, are the least detrimental to the objectives and the principles laid down by the relevant Community legislation". If the measures went further than necessary in order to attain their objective, they would undermine the principles of the common system of VAT and in particular the rules governing deductions which constituted an essential component of that system.

2. By art. 18(3) member states were to determine "the conditions and procedures" whereby a taxable person might be authorised to make a deduction which he had not made in accordance with those provisions. Under art. 18(3) the UK was under an obligation to determine procedures whereby late claims for input tax might be made and those procedures could include time limits and other restrictions, provided that they were reasonable and did not involve rendering the apparent right to make a late claim nugatory. The expression "conditions and procedures" could include time-limits and reg. 29(1A) was authorised by art. 18(3) of the sixth directive.

3. Even if art. 18(3) did not authorise the imposition of time limits the effect would not be that Community law prohibited time limits, but that it said nothing about them. In that case it would be for member states to lay down time limits conforming with theprinciples of equivalence and effectiveness. There was no basis for limiting the power of national legislation to impose limitation periods to special circumstances, such as cases where it was necessary to prevent serious disturbance as regards the past.

4. The validity of reg. 29(1A) was not affected by the criticism that reg. 29(1) did not properly implement art. 18(1) and (2). Even if a taxable person could challenge the application of reg. 29(1) on the basis of the direct effect of art. 18, the consequence would not be that reg. 29(1) was invalid, but that the UK could not, in those circumstances, rely on it. Even if reg. 29(1) could be declared inapplicable in an appropriate case, it could not affect the validity and application of reg. 29(1A) in the present case. A national rule which was incompatible with directly effective Community law was not invalid, but the national court must, where it might otherwise apply, disapply the rule.

5. If reg. 29(1A) was in principle authorised, either under art. 18(3) or under the general power of the member states to lay down procedural conditions for the application of European law, it was not subject to challenge under...

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