Marks & Spencer Plc v Commissioners of Customs and Excise (No 5); Sussex University v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | Lord Walker of Gestingthorpe,LORD SCOTT OF FOSCOTE,LORD HOFFMANN |
| Judgment Date | 04 February 2009 |
| Neutral Citation | [2009] UKHL 8 |
| Date | 04 February 2009 |
| Court | House of Lords |
HOUSE OF LORDS
Appellate Committee
Lord Hoffmann
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Appellants:
David Milne QC
Andrew Hitchmough
Denis Waelbroeck
(Instructed by Forbes Hall)
Respondents:
Paul Lasok QC
Peter Mantle
(Instructed by Her Majesty's Revenue and Customs)
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. I am in agreement with his conclusion that the House can now dispose of the appeal in accordance with paragraph 23 of his opinion.
My Lords,
I have had the advantage of reading the opinion prepared by my noble and learned friend Lord Walker of Gestingthorpe dealing with the implications and consequences of the manner in which the Court of Justice of the European Communities dealt with the five questions referred to that Court by the House's order of 12 July 2006. I am in agreement with the conclusion reached by my noble and learned friend that the House can now dispose of the long drawn out appeal, that was heard by the House as long ago as July 2005, by making the order he suggests in paragraph 23 of his opinion.
The background to the second reference under Article 234
My Lords,
On 28 July 2005 this House, having earlier heard two days of oral argument, decided ( [2005] STC 1254) to make a reference to the Court of Justice of the European Communities under Article 234 of the Treaty. It was not until 12 July 2006 that the terms of the reference (posing five questions: [2008] STC 1408, 1430-1431) were agreed between the parties and embodied in an order. Advocate General Kokott gave her opinion on 13 December 2007 and the Third Chamber of the Court of Justice gave judgment on 10 April 2008. The matter has now come back to the House in an uncontested form.
The House decided to make the reference with acknowledged reluctance, since there had been a previous reference in the same proceedings ( Case C-62/00[2003] QB 866; [2002] STC 1036) and in July 2005 this complex litigation had already been on foot for more than ten years. I attempted to summarise the tangled course of the litigation in my speech proposing the second reference ( [2005] STC 1254, paras 27-50) and it is unnecessary to repeat it at length. Here I shall try to make my survey as brief as is consistent with explaining the significance of the five questions posed by the second reference.
Marks & Spencer Plc ("M&S") had two basic claims against the Customs and Excise Commissioners (as they then were: "the Commissioners"). One was that chocolate-covered teacakes (which M&S sold in large numbers) were between 1973 and 1994 incorrectly treated by the Commissioners as subject to standard-rate value added tax ("VAT") as chocolate-covered cakes instead of being zero-rated as chocolate-covered biscuits. In 1995 M&S claimed a repayment of £3.5m. The Commissioners admitted 10% of this claim but resisted 90%, relying on the "passing-on" defence in section 80 (3) of the Value Added Tax Act 1994. Their case was that 90% of the improperly charged tax had been passed on by M&S to its customers, so that M&S would be unjustly enriched by repayment in full.
Here two technical footnotes are called for. One is that zero-rating is correctly referred to in EU law as "exemption with refund of input tax" and it is, in EU legal theory, a transitional concession to the needs and wishes of particular member states. It operates principally (though not, as will appear, exclusively) under national legislation. Lord Hoffmann discussed this point in his speech on the second reference, [2005] STC 1254, paras 5-13).
The other technical point to be noted is that M&S was for almost all the relevant period a "payment trader" (mainly because a large part of its turnover consists of adults' clothing which is not zero-rated) whereas another retailer which made large sales of comparable teacakes, Tesco Plc, was a "repayment trader" (because most of its turnover consists of zero-rated foodstuffs). This point was more fully explained in my speech on the second reference, paras 15-17.
M&S had a quite separate claim against the Commissioners for repayment of VAT in connection with gift vouchers sold at a discount to their face value. The correct VAT treatment of such vouchers was in some doubt until the decision of the Court of Justice in the Argos case, Argos Distributors Ltd v Customs and Excise Commissioners ( Case C-288/94) [1997] QB 499; [1996] STC 1359. This was despite an amendment made in 1992 to section 10(3) of the Value Added Tax Act 1983, which was intended to correct an error in transposing the Sixth Directive into national law. M&S claimed repayment of £2.8m, part of it in respect of vouchers issued before the amendment correcting the error in transposition ("early vouchers") and the rest in respect of vouchers issued after the amendment ("late vouchers"). During the period while the early vouchers were being issued the national legislature had failed to transpose the Sixth Directive correctly; during the later period the national legislation had been corrected but the Commissioners continued to apply the law incorrectly (the amendment had in fact been made to meet a rather different point).
The final complication is that both of M&S's claims were threatened with being reduced by retrospective legislation. The Finance Act 1997 introduced a new section 80 (4) of the Value Added Tax Act 1994 imposing a retrospective three-year limit on repayment claims (the teacakes claim, it will be recalled, went back to 1973). In the view of the Commissioners this reduced the teacakes claim (already limited to 10%) from £350,000 to about £88,000, and the vouchers claim from £2.8m to £1.9m.
In due course both claims came before the Court of Appeal on an appeal by M&S from Moses J ( [1999] STC 205). The Court of Appeal (Stuart-Smith, Ward and Schiemann LJJ) held, so far as now material ( [2000] STC 16):
(1) that M&S's challenge to section 80 (4) (as infringing EU law) failed, as regards the teacakes claim, because the Becker conditions were not satisfied ( Becker v Finanzamt Münster-Innenstadt ( Case 8/81) [1982] ECR 53) and general principles of Community law could not be relied on in the absence of a directly enforceable right;
(2) M&S's challenge to section 80 (4) failed, as regards the late vouchers claim, for similar reasons, since the Commissioners' failure to apply the amended statute correctly was not equivalent to incorrect transposition; and
(3) M&S's challenge to section 80 (4), as regards the early vouchers, should be referred to the Court of Justice. Schiemann LJ (with whom the other members of the Court agreed) stated ( [2000] STC 16, 39):
"Marks and Spencer have an alternative submission which I shall consider in the next part of this judgment to the effect that the retrospective legislation is unlawfully discriminatory. I am not, for reasons which I shall shortly explain, persuaded that Marks and Spencer are entitled to judgment on that basis. It follows that a decision on whether it is compatible with Community law to enforce legislation which removes with retrospective effect a right under national law to reclaim VAT, which right has existed unexercised for more than three years, is in my judgment necessary to enable this Court to give judgment on the early vouchers claim. I would therefore be minded to refer this question to the Court of Justice."
The argument which he went on to dismiss was to the effect that there was unlawful discrimination between payment traders and repayment traders.
The Court of Justice was not happy with the terms of the first reference ( [2003] QB 866; [2002] STC 1036). Both Advocate-General Geelhoed and the Court of Justice rejected the distinction, accepted by the Court of Appeal, between the early vouchers claim and the late vouchers claim. The Court stated (para 28):
"As the Advocate-General has noted in para 40 of his opinion, it would be inconsistent with the Community legal order for individuals to be able to rely on a Directive where it has been implemented incorrectly but not to be able to do so where the national authorities apply the national measures implementing the Directive in a manner incompatible with it."
The Court answered the referred question in general terms which did not distinguish between the two categories of voucher.
The Advocate-General also cast doubt on the Court of Appeal's conclusion about the teacakes claim ( [2003] QB 866, 873-874; [2002] STC 1036, 1044, para 30):
"The order for reference does not mention the claim for repayment of VAT erroneously paid in respect of teacakes. None the less, a similar problem arises in the case of the teacakes. In that connection, too, the question arises as to whether individuals have rights under Community law where a Directive has in itself been correctly transposed into national law but that law is applied in a manner clearly inconsistent with the scope of the Directive."
There had been no submissions about exemption with refund of input tax (zero-rating) and the Court of Justice did not...
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