Marks & Spencer Plc v Commissioners of Customs and Excise (No 1, No 3 and Case C-62/00)

JurisdictionEngland & Wales
Judgment Date21 December 1998
Date21 December 1998
CourtQueen's Bench Division

Queen's Bench Division (Crown Office List).

Moses J.

Marks & Spencer plc
and
Customs and Excise Commissioners

David Vaughan QC, D Waelbroek, of the Brussels Bar, and Jemima Stratford (instructed by Dibb Lupton Alsop) for Marks & Spencer.

Paul Lasok QC, Jonathan Peacock and Peter mantle (instructed by the Solicitor for Customs and Excise) for the Crown.

The following cases were referred to in the judgment:

ACF Chemiefarma NV v EC Commission (Case 41/69) [1970] ECR 661

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

Amministrazione delle Finanze dello Stato v SpA San Giorgio(Case 199/82) [1983] ECR 3595

Argos Distributors Ltd v C & E Commrs VAT(Case C-288/94) [1997] BVC 64; [1996] ECR I-5311

Barra v Belgian State (Case 309/85) [1988] ECR 355

Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53

Belgocodex SA v Belgium (Case C-381/97) 3 December 1998 (not yet reported)

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

C & E Commrs v McMaster Stores (Scotland) LtdVAT[1995] BVC 406

Collins v Imtrat Handelsgesellschaft mbH (Joined Cases C-92/92 and C-326/92) [1993] ECR I-5145

Computeach International Ltd VAT[1995] BVC 931; [1994] VATTR 239

Defrenne v SA Belge de Navigation Aérienne (Sabena) (Defrenne II) (Case 43/75) [1976] ECR 455

Deville v Administration des Impôts (Case 240/87) [1988] ECR 3513; [1990] 2 CEC 689

EC Commission v Italy (Case 104/86) [1988] ECR 1799

EC Commission v Spain (Case C-35/90) [1991] ECR I-5073

EC Commission v United Kingdom VAT(Case 416/85) (1988) 3 BVC 378; [1988] ECR 3127

EDIS-Edilizia Industriale Siderurgica Srl (formerly EDIS SpA) v Ministero delle Finanze (Case C-231/96) 15 September 1998 (not yet reported)

Fantask A/S v Industrieministeriet (Erhvervministeriet) (Case C-188/95) [1997] ECR I-6783; [1998] CEC 359

Felicitas Rickmers-Linie KG & Co v Finanzamt für Verkehrsteuern, Hamburg (Case 270/81) [1982] ECR 2771

Francovich v Italy (Joined Cases C-6/90 and C-9/90) [1991] ECR I-5357; [1993] 1 CEC 604

Hans Just I/S v Danish Ministry for Fiscal Affairs (Case 68/79) [1980] ECR 501

Kampelmann v Landschaftsverband Westfalen-Lippe (Cases C-253/96 to C-258/96) [1997] ECR I-6907

Les Fils de Jules Bianco SA v Directeur Général des Douanes et Droits Indirects (Joined Cases 331, 376 and 378/85) [1988] ECR 1099; [1989] 2 CEC 507

Ministero delle Finanze v IN.CO.GE. 90 Srl (Joined Cases C-10/97 to C-22/97) 22 October 1998 (not yet reported)

National & Provincial Building Society v United KingdomTAX[1997] BTC 624

National Provincial Building Society VAT[1996] BVC 2783; [1996] V & DR 153

Palmisani v Instituto Nazionale delle Previdenza Sociale (INPS)(Case C-261/95) [1997] ECR I-4025

Pressos Compania Naviera SA v Belgium HRC(1995) 21 EHRR 301

R v C & E Commrs, ex parte Kay & Co LtdVAT[1997] BVC 128

R v C & E Commrs, ex parte Lunn Poly UNK[1998] 2 CMLR 560

R v Intervention Board for Agricultural Produce, ex parte First City Trading Ltd (Case C-263/97) 29 September 1998 (not yet reported)

R v IR Commrs, ex parte Woolwich Equitable Building SocietyTAX[1990] BTC 490

R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock(Case C-2/92) [1994] ECR I-955

R v Ministry of Agriculture, Fisheries and Food, ex parte First City Trading Ltd [1997] EuLR 195

Société Comateb v Directeur Général des Douanes et Droits Indirects (Joined Cases C-192/95 to C-218/95) [1997] ECR I-165; [1997] CEC 923

Stran Greek Refineries and Stratis Andreadis v Greece HRC(1994) 19 EHRR 293

Woolwich Building Society v IR Commrs TAX[1992] BTC 470

Zim Properties Ltd v Procter (HMIT) TAX[1985] BTC 42

Value added tax - Recovery of overpaid tax - Right to repayment - Standard rate wrongly paid on teacakes from 1973 to 1994 - VAT paid on face value of discounted vouchers from 1991 - Whether right to repayment was a right enforceable under European Community law or under domestic law - Whether claim for repayment was a "possession" guaranteed by the European Convention on Human Rights - Whether repayment would result in "unjust enrichment" of the taxpayer - Whether refusal of repayment was discrimination in favour of other traders - Whether repayment limited to three years from time of overpayment - Value Added Tax Act 1994 section 19 subsec-or-para (3)Value Added Tax Act 1983, s. 10(3); Value Added Tax Act 1994 section 80 subsec-or-para (3)Value Added Tax Act 1994, s. 80(3);Finance Act 1997 section 47Finance Act 1997, s. 47; sixth VAT directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 11(A)(1) article 12(2)art. 11(A), 12(2).

These were appeals against three decisions of the VAT tribunal dismissing appeals by the taxpayer ("M & S") against assessments for VAT refusing full repayment of tax overpaid on sales of teacakes and discounted vouchers. Those decisions were:

  1. (i) a decision, released on 30 January 1997 ((LON/95/2510) No. 14,692;[1997] BVC 2243), that repayment of VAT overpaid in respect of teacakes would unjustly enrich M & S within theValue Added Tax Act 1994 section 80 subsec-or-para (3)Value Added Tax Act 1994, s. 80(3) ("the unjust enrichment decision");

  2. (ii) a decision, released on 22 December 1997 ((LON/97/581) No. 15,302;[1998] BVC 2096), declining jurisdiction save as to the extent that M & S enforceable rights under European Community law ("the jurisdiction decision"), which has since become academic; and

  3. (iii) a decision, released on 22 April 1998 ((LON/97/581) No. 15,476;[1998] BVC 2209), that M & S had no enforceable Community rights save in respect of the period 1991 to 31 July 1992, but that during that period those rights had not been infringed ("the three-year cap decision").

M & S also made an application for judicial review to deal with matters not covered by the tribunal's decisions.

The unjust enrichment decision concerned the teacakes and the three-year cap decision concerned both teacakes and vouchers.

Teacakes

From 1973, M & S accounted for VAT on teacakes at the standard rate. In September 1994, Customs acknowledged that the teacakes should have been zero-rated. On 10 March 1995, M & S claimed repayment, pursuant to the Value Added Tax Act 1994 section 80Value Added Tax Act 1994, s. 80, of all the VAT for which it had accounted between 1973 and 1994 (some £3.5m). M & S sought to identify a breach of a right conferred on it by Community provisions in reliance on the direct effect of the sixth directive or by the application of Community law because a zero rate was within the ambit of Community law.

Customs relied on the "unjust enrichment" defence to a repayment claim under Value Added Tax Act 1994 section 80 subsec-or-para (1)s. 80(1) provided by Value Added Tax Act 1994 section 80 subsec-or-para (3)s. 80(3) of the 1994 Act. The tribunal had found that M & S had passed on the burden of VAT erroneously accounted for on the sales of teacakes to their customers save as to ten per cent and had suffered no damage by loss of sales or reduced profits as a result of the overpayments. It therefore concluded that to repay more than ten per cent of the overpayments of VAT would unjustly enrich M & S and that the defence to repayment provided by Value Added Tax Act 1994 section 80 subsec-or-para (3)s. 80(3) was thus established. M & S challenged the decision on the grounds that it disclosed an error of law and that the true and only reasonable conclusion was contrary to the findings of the tribunal.

Vouchers

From 1991, M & S had charged VAT on the full face value of gift vouchers sold at a discount rather than on the amount actually received. On 30 October 1996, M & S made a claim for repayment of some £2.6m following a decision of the European Court of Justice inArgos Distributors Ltd v C & E Commrs (Case C-288/94). On 24 October 1996, that eu-directive 77/388 article 11(A)(1)art. 11(A) of the sixth VAT directive required the subjective value to form the basis of the charge.

Notwithstanding the provisions for determining the taxable amount of a supply in the Value Added Tax Act 1994 section 19 subsec-or-para (3)Value Added Tax Act 1983, s. 10(3) (as substituted by the Finance (No. 2) Act 1992 with effect from 1 August 1992), and the decision of the European Court, Customs persisted in collecting VAT on the incorrect basis that VAT was chargeable on the face value of the vouchers sold by M & S. Before 1 August 1992, the UK had failed properly to implement eu-directive 77/388 article 11(A)(1)art. 11(A)(1) of the sixth directive. Thus, it was accepted that eu-directive 77/388 article 11(A)(1)art. 11(A)(1) was directly effective, up to that date, to determine the taxable amount to be applied to the vouchers. Customs contended that once Value Added Tax Act 1994 section 19 subsec-or-para (3)s. 10(3) of the 1983 Act was substituted, M & S could no longer rely on the direct effect of eu-directive 77/388 article 11(A)(1)art. 11(A)(1) because, even if the section had been wrongly applied, it was nevertheless properly implemented in UK law. Therefore, the continued erroneous application became a breach of a domestic provision. M & S maintained that while the substituted section implemented eu-directive 77/388 article 11(A)(1)art. 11(A)(1), it was not properly implemented by Customs in this case so that the article continued to be directly effective.

The three-year cap

On 18 July 1996, the government had announced its intention to introduce a three-year limit for retrospective refund claims to come into effect from that date. On 3 December 1996, Parliament made a resolution pursuant to the Provisional Collection of Taxes Act 1968 that the three-year cap should be imposed with effect from 18 July 1996, and legislation imposing the cap was enacted on 19 March 1997. Accordingly, Customs applied the cap to the relevant part of the teacakes claim and the vouchers claim.

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