Marks & Spencer Plc v Commissioners of Customs and Excise (No 5); Sussex University v Commissioners of Customs and Excise

JurisdictionEngland & Wales
JudgeLord Justice Auld,Lord Justice Chadwick,Mr Justice Newman
Judgment Date04 February 2009
Neutral Citation[2003] EWCA Civ 1448
Docket NumberCase No: C3/1999/0066, C3/1999/0067 & C3/2001 2427
CourtCourt of Appeal (Civil Division)
Date04 February 2009
Marks & Spencer Plc
Commissioners of Customs & Excise
University of Sussex
Commissioners of Customs & Excise

[2003] EWCA Civ 1448


Lord Justice Auld

Lord Justice Chadwick


Mr. Justice Newman

Case No: C3/1999/0066, C3/1999/0067 & C3/2001 2427





Mr. Justice Moses & Mr. Justice Neuberger

Royal Courts of Justice


London, WC2A 2LL

Mr. David Milne QC & Mr. Denis Waelbroeck for the Appellant in Marks & Spencer Plc

Mr. Paul Lasok QC & Mr. Peter Mantle for the Appellant in University of Sussex and the Respondent in Marks & Spencer Plc

Mr. Roderick Cordara QC & Mr. Paul Key for the Respondent in University of Sussex

Lord Justice Auld

General Introduction To Both Appeals


These two appeals, in which the Commissioners of Customs & Excise ("the Commissioners") are respectively Respondents and Appellants, are concerned with: 1) the direct enforceability in this country of European Community law rights of Value Added Tax ("VAT") taxpayers to repayment of sums to which they claim to be entitled in respect of past VAT accounting periods; and 2) with the effect on the taxpayers' claims, exercising such rights, of retrospective time limits introduced by the United Kingdom Government in 1996 and 1997.


In both appeals, in relation to the 1996 retrospective limit which was introduced without transitional arrangements, there are issues whether United Kingdom taxpayers have a directly enforceable Community law right to payment of the claimed sums and, if so, outside the new limit. Those common issues turn on two main questions. The first is as to the width to be given to a decision of the European Court of Justice on a reference by the Court of Appeal in the appeal of Marks & Spencer PLC ("Marks & Spencer"), of which this is a resumed hearing, on the first of the two ( Becker v. Finanzamt Munster-Innenstadt Becker [1982] ECR 53) conditions: namely that a right conferred by a Community directive may be directly enforceable in a Member State if that State has not implemented it. The second common question is whether the right claimed by the taxpayers in the two appeals to overcome the retrospective time limit in question satisfies the second Becker condition that the provisions of the directive upon which reliance is placed should be "unconditional and sufficiently precise".


The appeals raise other issues that are not common to both. In the first appeal, in which Marks & Spencer is the appellant, the claim is in respect of output tax that the Commissioners have wrongly charged it in respect of its supply of certain goods. In addition to whether Marks & Spencer has a directly enforceable Community law right not to have its right to repayment curtailed by a retrospective reduction of an earlier time limit, there are questions as to the Commissioners' entitlement to rely on a new statutory defence of unjust enrichment to decline to make full return of any overpaid tax that might otherwise be recoverable. In the case of the second appeal, in which the University of Sussex is the Respondent, the University's claim is for past unclaimed input tax for setting-off against later output tax. The main question, which is one of United Kingdom domestic law, is as to the nature of the right to deduct input tax, so as, in the first alternative, to be unaffected by either of the new time limits, and in the second alternative to engage the first of them. The second question only arises if the claim falls within the second alternative, namely, whether the claim is for a directly enforceable Community law right and, if so, whether, in the light of the European Court's reasoning in the Marks & Spencer reference, it is compatible with Community law to subject it to the new time limit.

The VAT System


The United Kingdom, on becoming a Member State of the European Community ("EC") in 1972, introduced VAT by the Finance Act 1972, with effect from 1 st April 1973. It did so in compliance with the VAT model set out in the First EC VAT Directive (Directive 67/227), as further explained in the Second VAT Directive (Directive 67/228). Since 1 st January 1978 the Sixth VAT Directive (Directive 77/388) has governed in some detail the VAT systems to be established and maintained in all Member States. United Kingdom VAT primary legislation has now been consolidated in the Value Added Tax Act 1994 ("the 1994 Act"), and its main subsidiary legislation is contained in the Value Added Tax Regulations 1995 ("the 1995 Regulations").


The issues raised in each of these appeals concern in large part the relationship between Community law and our domestic law in the operation of the VAT system as a whole and in particular respects. In the case of the Marks & Spencer appeal, the focus is on chargeability and rates of and exemptions from the tax, which are dealt with in Articles 10 to 13 and 28 of the Sixth Directive, sections 30 and 80 of the 1994 Act and regulation 35 of the 1995 Regulations. And in the University of Sussex appeal the focus is on deductions (input tax) and accountability for payment of tax, which are dealt with in Articles 17 to 22 of the Sixth Directive, sections 25 and 26 of the 1994 Act and regulations 25, 29, 32, 34, 35 and 39 of the 1995 Regulations.


As I have also indicated, a common issue is the entitlement of the two taxpayers to overcome statutory retrospective limitation periods of three years introduced in 1996 and 1997 in respect of their claims against the Commissioners. In the Marks & Spencer appeal the relevant statutory provision is section 80 of the 1994 Act, which provides for recovery of overpaid VAT. In the University of Sussex appeal, there are two possibilities, which the Commissioners, but not the University, regard as mutually exclusive, namely section 80 and regulation 29 of the 1995 Regulations.


Before turning to the facts and to the law on which the issues raised in each of the appeals turn, I should summarise briefly the VAT scheme as a matter of Community and United Kingdom domestic law.


European Community legislation in the form of the VAT Directives defines the principle of VAT and sets out detailed harmonising rules for much of its basic aspects. One fundamental principle of the system is that VAT is chargeable on each transaction in the production and distribution process after deduction of the VAT directly borne by the various cost components; see (Case C – 16/00, Cibo Participations SA v. Directeur Regional des Impots du Nord-Pas-de-Calais, [2002] STC 460. Put another way, the system involves a deduction of input tax at each stage in the chain of transactions of the production and distribution process leading to the final consumer. Article 2 of the First VAT Directive puts this fundamental principle at the forefront of its description of the system. It states:

"The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components."


That definition has been developed in some detail in succeeding VAT Directives, most notably the Sixth Directive. Its essential feature is that for each supplier in the chain, the effect of paying the tax (the input tax) and charging the tax (the output tax) should be neutral, leaving the ultimate consumer at the end of chain as the effective payer of the tax (subject to certain transitional arrangements permitting Member States to exempt or to charge different rates of tax for certain supplies). Depending on the nature of a taxpayer's business and/or on his pattern of trading, the value of his taxable outputs in any accounting period may be greater or less than the value of his inputs. If the former, he accounts for and pays tax to the Commissioners for that period, in respect of which he is termed "a payment trader"; if the latter, he is entitled to claim the excess of his input tax over his output tax for that period, in respect of which he is termed "a repayment trader".


Directives must be implemented and applied by Member States by the date specified in them for the purpose. In the case of each directive, the Member State's relevant domestic measure, usually in the form of legislation, if fully and properly implementing the directive and if properly applied for that purpose, governs the rights and duties of persons and bodies within each Member State. The function of the directive is then a source of guidance for the drafting and later construction of the domestic implementing measures. Wherever possible, the domestic measures should be construed in such a way as to be compatible with the provisions of the directive; see Case C-106/89, Marleasing SA v. La Comercial Internacional de Alimentacion SA [1990] ECR 1891; and Webb v. Emo Air Cargo Ltd. [1993] 1 WLR 49, HL, at 59F-60D. As I have indicated, the 1994 Act and the 1995 Regulations are the current measures implementing the Sixth Directive in this country.


If a domestic measure does not fully or properly implement the directive, or if it does so, but the Member State misapplies or fails to apply its provisions may have direct...

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