Marks & Spencer Plc v Commissioners of Customs and Excise (No 5) (Referral to ECJ)
| Jurisdiction | England & Wales |
| Judge | LORD WALKER OF GESTINGTHORPE,LORD STEYN,LORD NICHOLLS OF BIRKENHEAD,LORD SCOTT OF FOSCOTE,LORD HOFFMANN |
| Judgment Date | 28 July 2005 |
| Neutral Citation | [2005] UKHL 53 |
| Date | 28 July 2005 |
| Court | House of Lords |
[2005] UKHL 53
HOUSE OF LORDS
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Walker of Gestingthorpe. For the reasons they give I agree your Lordships' House should refer questions to the Court of Justice of the European Communities on the points mentioned by Lord Walker of Gestingthorpe. Given the tortuous history of this matter I reach this conclusion with reluctance, but in the circumstances this outcome is inescapable.
My Lords,
I have read the opinions of my noble and learned friends, Lord Hoffmann and Lord Walker of Gestingthorpe. I am in full agreement with their opinions. For the reasons which Lord Hoffmann and Lord Walker so carefully explained I too regard it as inevitable that the House should refer questions to the European Court of Justice on the points mentioned.
My Lords,
The supply of food is in general zero-rated for VAT: see section 30 and Schedule 8, Part II, Group 1, item 1 of the Value Added Tax Act 1994. But there are exceptions. One exception is confectionery: see item 2 of the Excepted Items. But there is an exception to that exception: cakes or biscuits are in general also zero-rated. There is however an exception to that exception to the exception, namely biscuits wholly or partly covered with chocolate. They are standard-rated.
For many years, starting with the introduction of VAT in 1973, the Commissioners of Customs and Excise took the view that Marks & Spencer teacakes, which are covered with chocolate, were biscuits and therefore standard-rated. Marks & Spencer accounted for VAT on that basis. But in September 1994 they admitted they had been wrong. They were actually cakes and should have been zero-rated. Marks & Spencer claimed repayment of all the VAT for which they had wrongly accounted over the years, totalling £3.5 million.
Section 80 of the 1994 Act gives a limited right to repayment:
"(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
(2) The Commissioners shall only be liable to pay an amount under this section on a claim being made for the purpose.
(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant."
The Commissioners invoked the defence under subsection (3). They said that Marks & Spencer had passed on 90% of the VAT to their customers. After hearing expert evidence about the market for teacakes, the VAT Tribunal accepted this submission and held that Marks & Spencer were entitled to only 10% of their claim. Marks & Spencer no longer dispute that as a matter of domestic law this finding was correct. Instead, they claim that they have a right to repayment not only under section 80 but also as a matter of community law and that it would be contrary to principles of community law for that right to be restricted by the defence of unjust enrichment.
The main question in this appeal is therefore whether Marks & Spencer have a right to repayment under Community law. There is no doubt that if a Member State charges VAT in breach of the rules of community law, a community right to repayment will be implied: see BP Supergas Anonimos Etairia Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece ( Case C-62/93) [1995] STC 805. Whether such a right would, in the circumstances of this case, be incompatible with the unjust enrichment defence is a matter in dispute. But what seems clear is that for such a right to arise in the first place, the charge to VAT must have been in breach of the rules of community law.
Does community law give Marks & Spencer a right to be zero-rated on the sale of teacakes? Article 12(3) of the Sixth Directive lays down the general rule that VAT must be charged at the standard rate. But, by way of exception, Article 28(2)(a) says that Member States "may" maintain "exemptions with refund of the tax paid at the preceding stage" (that is to say, zero-rating) which were in force in 1991. This continues an exception which has existed since VAT was first introduced.
The United Kingdom has chosen, as a matter of domestic law, to exercise this power. But does that mean that Marks & Spencer has a community right to be zero-rated? I should have thought not. Community law imposes no duty upon the United Kingdom to refrain from charging the standard rate of VAT on tea cakes. Marks & Spencer say that although there is no duty to legislate for a zero rate, article 12.1 of the Directive says that "the rate applicable to taxable transactions shall be that in force at the time of the chargeable event". If, therefore, the rate in force at the time the tea cakes were sold was zero, there was a community right to be charged that rate and no more.
I do not accept this submission. Article 12.1 is concerned with timing, not with the rate which may be charged. In any case, article 12.1 can have no application to transactions on which no tax is imposed, whether they are exempt in the narrower UK sense or zero-rated, that is to say, exempt with refund of tax previously paid.
This view appears to me to be supported by the reasoning of the Court of Justice in Idéal Tourisme SA v Belgian State ( Case C-36/99) [2001] STC 1386. Ideal Tourisme complained that the services they provided to coach passengers were charged VAT at 6% while competing air transport was exempt. They said that such discrimination was in breach of the community principle of equal treatment. The Belgian government said that they had a right to exempt air travel under article 28(3)(b) of the Directive but no such right in respect of coach travel. The Court said, in paragraph 38 of its judgment:
"As the Belgian State stated at the hearing, the harmonisation envisaged has not yet been achieved, insofar as the Sixth Directive, by virtue of art 28(3)(b), unreservedly authorises the member states to retain certain provisions of their national legislation predating the Sixth Directive which would, without that authorisation, be incompatible with that directive. Consequently, insofar as a member state retains such provisions, it does not transpose the Sixth Directive and thus does not infringe either that directive or the general community principles which member states must…comply with when implementing community legislation."
Similarly, as it seems to me, the United Kingdom, by zero-rating cakes, was not transposing the Sixth Directive and its failure to apply that "rate" to Marks & Spencer teacakes was therefore not a breach of the Directive or any other principle of community law.
If that is correct, then the claim by Marks & Spencer to avoid the unjust enrichment defence must fail at the first hurdle. Speaking for myself, I think that it is correct. But we have been shown two contrary opinions which must be entitled to respect. The first is in the submissions of the Commission on a reference at an earlier stage of these proceedings which was concerned with the recovery of VAT on gift vouchers. There was no doubt that, in the light of the decision of the Court of Justice in Argos Distributors Ltd v Commissioners of Customs and Excise ( Case C-288/94) [1996] STC 1359, VAT on the vouchers had been charged on a basis inconsistent with Community law. The reference raised no question about whether the same could be said about teacakes. Nevertheless, the Commission, in its Written Observations, said:
"There is only one difference between the early vouchers claim and the [late vouchers and teacakes] claims; as regards the early vouchers claim, the national legislation itself contravened the Directive, whereas with respect to the other two claims that legislation was unimpeachable in itself but was misapplied. Yet the end result in the two instances was precisely the same: the Directive was breached…"
Likewise, the Advocate General (Geelhoed) said at para 44:
"It is manifestly clear from the documents before the court that, in regard to both teacakes and gift vouchers after August 1992, the commissioners applied national tax legislation in a manner inconsistent with the directive."
There is no explanation of why the treatment of tea cakes was inconsistent with the directive. Nevertheless, in the light of these two observations, I find it impossible to say that the view which I would otherwise have formed is acte clair. I therefore agree with my noble and learned friend Lord Walker of Gestingthorpe that there should be a reference to the European Court and I concur in the order which he proposes.
My Lords,
Having had the advantage of reading in advance the opinion prepared by my noble and learned friend Lord Walker of Gestingthorpe I am in admiring agreement with his analysis of the issues raised by this appeal and agree with his conclusion that there should be the reference to the European Court of Justice on the points he has identified.
Introduction
My Lords,
The appellant Marks & Spencer Plc ("M & S") is a very well-known high-street retailer. Its turnover comes mostly from the sale of clothing, but it also sells a limited range of foodstuffs, including ready-made meals and other own-brand products. Its own-brand products have for many years included chocolate-covered marshmallow teacakes, manufactured by the McVities division of United Biscuits. No other retailer sells identical teacakes. Another manufacturer, Thomas Tunnock Ltd, did, in the 1990s, make comparable teacakes which were sold both under the Tunnock brand name and (as an...
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