ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Warren J and Judge Hellier
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE FLOYD
MRS JUSTICE THEIS DBE
| THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS
|- and -
|GMAC (UK) PLC
Roderick Cordara QC and Amanda Brown (instructed by KPMG LLP) for the Respondent
Hearing dates: 28 and 29 June 2016
Crown Copyright ©
Lord Justice Floyd:
The legislative framework
The EU legislation
"(a) in respect of supplies of goods and services …, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;"
"In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the member states.
However, in the case of total or partial non-payment, member states may derogate from this rule."
"23. … it must be held that these provisions give the Member States a margin of discretion, inter alia, as to the formalities to be complied with by taxable persons vis-à-vis the tax authorities of those States in order to ensure that, where the price is reduced after the supply has taken place, the taxable amount is reduced accordingly."
"The power to derogate, which is strictly limited to [the case of total or partial non-payment], is based on the notion that in certain circumstances and because of the legal situation prevailing in the member state concerned, non-payment of consideration may be difficult to establish or may only be temporary. It follows that the exercise of that power must be justified if the measures taken by the member states for its implementation are not to undermine the objective of fiscal harmonisation pursued by the Sixth Directive."
Finance Act 1978: the old scheme
"12 – (1). Where –
(a) a person has supplied goods or services for a consideration in money and has accounted for and paid tax on that supply; and
(b) the person liable to pay any outstanding amount of the consideration has become insolvent,
then, subject to subsection (2) and to regulations under subsection (3) below, the first-mentioned person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of tax chargeable by reference to the outstanding amount.
(2) A person shall not be entitled to a refund under this section unless –
(a) he has proved in the insolvency and the amount for which he has proved is the outstanding amount of the consideration less the amount of his claim;
(b) the value of the supply does not exceed its open market value; and
(c) in the case of a supply of goods, the property in the goods has passed to the person to whom they were supplied.
(3) Regulations under this section may –
(a) require a claim to be made at such time and in such form and manner as may be specified by or under the regulations …
(4) For the purposes of this section –
(a) an individual becomes insolvent if –
(i) In England, Wales, Northern Ireland or the Isle of Man, he is adjudged bankrupt or the court makes an order for the administration in bankruptcy of his estate; or …
(b) a company becomes insolvent if, in the United Kingdom or the Isle of Man, it is the subject of a creditors' voluntary winding up or the court makes an order for its winding up and the circumstances are such that it is unable to pay its debts; …
(5) In section 40(1) of the Finance Act 1972 (appeal to VAT tribunal [now the FTT]) after paragraph (k) there shall be inserted –
"(l) a claim for a refund under section 12 of the Finance Act 1978.'
(6) This section applies where the person liable to pay the outstanding amount of the consideration becomes insolvent after 1st October 1978."
"24. Recovery of overpaid VAT
(1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amounts to him.
(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose. …
(4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies.
(5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases.
(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them.
(8) The preceding provisions of this section apply to an amount paid before, as well as to an amount paid after, the day on which this section comes into force, except where the Commissioners have received a claim for repayment of the amount before that day.
(9) The following paragraph shall be inserted at the end of section 40(1) of [VATA 1983] (appeals) –
"(s) a claim for the repayment of an amount under section 24 of the Finance Act 1989 (recovery of overpaid tax)." …"
Finance Act 1990: the new scheme
"11. (1) Subsection (2) below applies where –
(a) on or after 1st April 1989 a person has supplied goods or services for a consideration in money and has accounted for and paid tax on the supply,
(b) the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and
(c) a period of two years (beginning with the date of the supply) has elapsed.
(2) Subject to the following provisions of this section and to regulations made under it the person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of tax chargeable by reference to the outstanding amount.
(3) In subsection (2) above "the outstanding amount" means –
(a) if at the time of the claim the person has received no payment by way of the consideration written off in his accounts as a bad debt, an amount equal to the amount of the consideration so written off;
(b) If at that time he has received a payment or payments by way of the consideration so written off, an amount by which the payment (or the aggregate of the payments) is exceeded by the amount of the consideration so written off. …
(4) A person shall not be entitled to a refund under subsection (2) above unless—
(a) the value of the supply is equal to or less than its open market value, and
(b) in the case of a supply of goods, the property in the goods has passed to the person to whom they were supplied or to a person deriving title from, through or under that person.
(5) Regulations under this section may—
(a) require a claim to be made at such time and in such form and manner as may be specified by or under the regulations;
(b) require a claim to be evidenced and quantified by reference to such records and other documents as may be so specified;
(c) require the claimant to keep, for such period and in such form and manner as may be so specified, those records and documents and a record of such information relating to the claim and to subsequent payments by way of consideration as may be so specified;
(d) require the repayment of a refund allowed under this section where any requirement of the regulations is not complied with;
(e) require the repayment of the whole or, as the case may be, an appropriate part of a refund allowed under this section where the claimant subsequently receives any payment (or further payment) by way of the consideration written off in his accounts as a bad debt;
(f) include such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section;
(g) make different provision for different circumstances.
(6) The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules for ascertaining—
(a) whether, when and to what extent consideration is to be taken to have been written off in accounts as a bad debt
(b) whether a payment is to be taken as received by way of consideration for a particular supply;
(c) whether, and to what extent, a payment is to be taken as received by way of consideration written off in accounts as a bad debt.
(7) The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules dealing with particular cases, such as those involving part payment or mutual debts; and in particular such rules may vary the way in which the following amounts are to be calculated—
(a) the outstanding amount mentioned in subsection (2) above, and
(b) the amount of any repayment where a refund has been allowed under this section.
(8) No claim for a refund may be made under subsection (2) above in relation to a supply as regards which a refund is claimed, whether before or after the passing of this Act, under section 22 of the [1983 c. 55.] Value Added Tax Act 1983 (existing provision for refund in cases of bad debts).
(9) Section 22 of that Act shall not apply in relation to any supply made after the day on which this Act is passed.
(10) Sections 4 and 5 of that Act shall apply for determining the time when a supply is to be treated as taking place for the purposes of construing this section.
(11) That Act shall be amended as follows—
(a) in section 39(1A)(b) after the word "above" there shall be inserted the words "or section 11 of the Finance Act 1990";
(b) in section 40(1)(f) after the words "section 22 above" there shall be inserted the words "or section 11 of the Finance Act 1990".
(12) In section 13(2) of the [1985 c. 54.] Finance Act 1985, the word "and" at the end of paragraph (b) shall be omitted and after paragraph (c) there shall be inserted the words "and
(d) a refund under section 11 of the Finance Act 1990,"."
"Claims for refunds of VAT relating to supplies made before 27th July 1990 may continue to be made in accordance with section 22 of [VATA 1983] notwithstanding the repeal of that section by the Finance Act 1990."
The ending of the old scheme
"Other changes to the bad debt relief scheme are designed to help businesses and clarify the law. These will be effective from the time the Finance Bill receives the Royal Assent. …"
GMAC's claim to bad debt relief
"In our opinion, there is no time limit that currently precludes the making of Bad Debt Relief claims in respect of supplies made between the first introduction of a Bad Debt Relief regime from 2 October 1978 to 1 May 1997. The claim therefore falls outside section 80 ("Credit for, or repayment of, overstated or overpaid VAT") because, in principle, it does not relate to an overpayment of VAT (that is, a payment by way of VAT that was not VAT due to the Commissioners at the time)."
"The Department does not accept that the property condition was ultra vires. Article 11C allows member states to set their own conditions in application of article 11C. The property condition was a valid condition of the kind that member states are entitled to set."
The grounds of appeal
Ground 1: Does section 39(5) bar GMAC's claim for supplies which took place before 1 April 1989?
Ground 2: Is GMAC's EU law based claim no longer live, because it has not exercised its EU law right within a reasonable time?
Ground 3: Is the Property Condition inconsistent with EU law?
Ground 4: Is the Insolvency Condition inconsistent with EU law?
Grounds 3 and 4: Are the property and/or insolvency conditions inconsistent with EU law?
"14. In order to answer that question, it should be borne in mind that Article 11A(1)(a) of the Sixth Directive provides, with a view to harmonizing the taxable amount, that within the territory of the country the amount chargeable in respect of supplies of goods is everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party.
15. That provision embodies one of the fundamental principles of the Sixth Directive, according to which the basis of assessment is the consideration actually received (Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise  ECR 6365, paragraph 16) and the corollary of which is that the tax authorities may not in any circumstances charge an amount of VAT exceeding the tax paid by the taxable person (Case C-317/94 Gibbs v Commissioners of Customs and Excise  ECR I-5339, paragraph 24).
16. In accordance with that principle, the first subparagraph of Article 11C(1) of the Sixth Directive defines the cases in which the Member States are required to ensure that the taxable amount is reduced accordingly, under conditions which are to be determined by the Member States themselves. That provision therefore requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person.
17. Nevertheless, the second subparagraph of Article 11C(1) of the Sixth Directive permits the Member States to derogate from the abovementioned rule in the case of total or partial non-payment.
18. The power to derogate, which is strictly limited to the latter situation, is based on the notion that in certain circumstances and because of the legal situation prevailing in the Member State concerned, non-payment of consideration may be difficult to establish or may only be temporary. It follows that the exercise of that power must be justified if the measures taken by the Member States for its implementation are not to undermine the objective of fiscal harmonization pursued by the Sixth Directive."
"35. The principle of proportionality requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (see, to that effect, Case C-331/88 Fedesa and Others  ECR I-4023, paragraph 13, and Jippes and Others, paragraph 81).
36. Finally, as regards judicial review of compliance with that principle, bearing in mind the wide discretionary power enjoyed by the Community legislature in matters concerning the common agricultural policy, the legality of a measure adopted in that sphere can be affected only if the measure is manifestly inappropriate in terms of the objective which the competent institution is seeking to pursue (see Fedesa and Others, paragraph 14, and Jippes and Others, paragraph 82). Thus, the criterion to be applied is not whether the measure adopted by the legislature was the only one or the best one possible but whether it was manifestly inappropriate (Jippes and Others, paragraph 83)."
"… is the taxable person entitled, in the absence of national legislation, to reduce the taxable amount, on the basis of the principles of tax neutrality and proportionality, and in the light of Article 90(1) of the VAT Directive, where it receives no consideration on completion of a transaction?"
"… whether the provisions of Article 90 of the [Principal VAT Directive] require that the national provisions which transpose them expressly list all of the situations conferring entitlement, according to paragraph 1 of that article, to a reduction in the taxable amount for VAT."
"… The provisions of Article 90 of the [Principal VAT Directive] must be interpreted as not precluding a national provision which does not provide for the reduction of the taxable amount for VAT in the case of non-payment of the price if the derogation provided for in Article 90(2) is applied. However, that provision must then mention all the other situations in which, under Article 90(1), after a transaction has been concluded, part or all of the consideration has not been received by the taxable person, which is a matter for the national court to ascertain."
"… Article 90(2) permits Member States to derogate from the above-mentioned rule in the case of total or partial non-payment of the transaction price. Hence taxable persons cannot rely, under Article 90(1) of the VAT Directive, on a right to a reduction of the taxable amount for VAT in the case of non-payment of the price if the member state concerned intended to apply the derogation provided for in Article 90(2) of that directive." (emphasis supplied)
"… if the total or partial non-payment of the purchase price occurs without there being cancellation or refusal of the contract, the purchaser remains liable for the agreed price and the seller, even though no longer proprietor of the goods, in principle continues to have the right to receive payment, which he can rely on in court. Since it cannot be excluded, however, that such a debt will become definitively irrecoverable, the European Union legislature intended to leave it to each member tate to determine whether the situation of non-payment of the purchase price, which, of itself, unlike cancellation or refusal of the contract, does not restore the parties to the original situation, leads to entitlement to have the taxable amount reduced accordingly under conditions it determines, or whether such a reduction is not allowed in that situation."
The Tribunals' decisions on grounds 3 and 4
"As to the Property Condition, we do not understand what the justification for this is said to be nor how it is any more or less difficult to say that a debt is a bad debt depending on whether property has passed or not. Even if the principle of proportionality has no part to play, and even if there is no issue of breach of the principles of fiscal neutrality or non-discrimination, we do not consider that there can be one policy in relation to cases where property has passed and another policy in cases where property has not passed, given that both policies must derive from the same requirement to justify the derogation. Further, given the basis for the power to derogate stated in  of the judgment in Goldsmiths, such a derogation would not satisfy the principle of proportionality. Accordingly assuming that this is a matter for the national court, we consider that the property condition was not authorised by the power to derogate."
"Unless another creditor instituted bankruptcy proceedings, the insolvency requirement involved GMAC taking action which it regarded as uncommercial. It is a statement of the obvious that the institution of bankruptcy proceedings could frequently involve incurring costs exceeding the debt recovered, particularly if there was difficulty in tracing the defaulter. It is also a statement of the obvious that if the insolvency requirement was a substantial obstacle for a large company such as GMAC recovering debts which could often be substantial, it was an even greater obstacle for a small trader such as a shopkeeper or a builder."
The judgment in BT CA on ground 4
"71. … I have no doubt that the Upper Tribunal were correct that the insolvency condition was disproportionate, unreasonable and unjustified and so infringed BT's directly effective EU law rights. I did not, with respect, find Mr Lasok's sledgehammer and nutcracker analogies helpful. Nor, even if they were apposite, did the Upper Tribunal have to identify the nutcracker. The problem with the insolvency condition in the Old Scheme was that the Scheme was identifying a bad debt by reference to the status of the debtor rather than by reference to a test under which the debt could reasonably be regarded as bad.
72. That no doubt provided a simple, if crude, test for the identification of a bad debt. Its manifest defect was, however, that it had the practical effect of excluding from the relief provisions small debts which were bad, and to which the reach of article 11C(1) was obviously intended to extend, simply because the debtor was not insolvent within the meaning of the legislation. The Old Scheme had the direct, and predictable, effect of depriving many classes of creditor of the bad debt relief entitlement that article 11C(1) intended them to enjoy. In the case of small debts owed by individuals, it would not be open to the creditor to satisfy the insolvency condition at all even though, by any objective standards, the debt was obviously bad. In the case of small debts owed by companies, it might in theory have been open to the creditor to obtain a winding up, but in practice only at a cost (perhaps irrecoverable) likely to be in excess of any ultimate tax refund so that, as a matter of practical politics, it would be a reasonable commercial decision for the creditor not to incur it. The insolvency condition may have been convenient from the administrative viewpoint of HMRC. Since, however, it illegitimately deprived a wide class of creditors of their rights under article 11C(1), it was unlawful."
"The second paragraph of course allows for a limited power of derogation from the refund rights conferred by the first paragraph, but only in the cases of total or partial non-payment. Goldsmiths case shows that the power is narrowly circumscribed. It is not to be used to undermine the objective of fiscal harmonisation that is pursued by the Directive. It can be used in the two circumstances referred to in the first sentence of  in the Court of Justice's judgment, although quite what the former circumstance might cover is not clear to me. It can perhaps, within limits strictly necessary for such an aim, also be used for preventing tax evasion and avoidance (see Goldsmiths case, at ). It cannot, in my view, be used in a way that is intended to deprive, or objectively has the effect of depriving, a taxpayer or a class of taxpayers of his or their right under the first paragraph to a refund to which he or they are objectively entitled."
HMRC's submissions on grounds 3 and 4
"Without prejudice to the provisions in force relating to the time-barring of a customs debt and non-recovery of such a debt in the event of the legally established insolvency of the debtor, a customs debt shall be extinguished:"
Discussion ground 3 and 4
Ground 1: Does section 39(5) bar GMAC's claim for supplies which took place before 1 April 1989?
"53 It is clear from the Court's settled case-law that any economic operator on whose part the national authorities have promoted reasonable expectations may rely on the principle of the protection of legitimate expectations. However, where a prudent and circumspect economic operator could have foreseen that the adoption of a measure is likely to affect his interests, he cannot plead that principle if the measure is adopted. Furthermore, economic operators are not justified in having a legitimate expectation that an existing situation which is capable of being altered by the national authorities in the exercise of their discretionary power will be maintained (see, to that effect, in particular, Joined Cases C-37/02 and C-38/02 Di Lenardo and Dilexport  ECR I-6911, paragraph 70 and the case-law cited, and Case C-310/04 Spain v Council  ECR I-7285, paragraph 81).
54 As regards the expectation which a taxable person might have as to the application of a tax advantage, the Court has already held that when a directive on fiscal matters gives wide powers to the Member States, a legislative amendment adopted under the directive cannot be considered to be unforeseeable (Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep  ECR I-5337, paragraph 66). …
57 However, it is for the national court to determine whether a prudent and circumspect economic operator could have foreseen the possibility of such a withdrawal in a context such as that of the main proceedings. As the case concerns a scheme laid down under national legislation, the procedures for dissemination of information normally used by the Member State which adopted it and the circumstances of the case must be taken into account when the national court makes an overall and specific assessment of the question whether the legitimate expectations of the economic operators covered by those rules were duly respected in the specific case (see, to that effect, 'Goed Wonen', paragraph 45)…
67. It must therefore be concluded that it is by taking account of all the foregoing factors, and all other circumstances relevant to the case before it, that the national court must consider, in the context of an overall assessment in the specific case, whether the applicant in the main proceedings, as a prudent and circumspect operator, had sufficient information to permit it to expect that the tax exemption scheme at issue in the main proceedings could be withdrawn before the date initially laid down for its expiry.
"Consequently, the adoption of national measures correctly implementing a directive does not exhaust the effects of the directive. member states remain bound actually to ensure full application of the directive even after the adoption of those measures. Individuals are therefore entitled to rely before national courts, against the State, on the provisions of a directive which appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise whenever the full application of the directive is not in fact secured, that is to say, not only where the directive has not been implemented or has been implemented incorrectly, but also where the national measures correctly implementing the directive are not being applied in such a way as to achieve the result sought by it."
"is subject to the condition … that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging the claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right."
"It appears to me that the following relevant propositions can be derived from well-established principles of Community law and, more specifically, from the reasoning of the European Court of Justice ("the ECJ") in Marks & Spencer Plc v Commissioners of Customs and Excise (Case C-62/00)  ECR I-6325 (known as Marks & Spencer II") and Grundig Italiana SpA v Ministero delle Finanze (Case C-255/00)  ECR I-8003 (known as "Grundig II"):
a) It is open to the legislature of a Member State to impose a time limit within which a claim for input tax must be bought: Marks & Spencer II para 35;
b) It is further open to the legislature to introduce a new time limit, or to shorten an existing time limit, within which such a claim must be brought, even where the right to claim has already arisen (an "accrued right") when the new time limit (a "retrospective time limit") is introduced: Marks & Spencer II paras 37 and 38;
c) Any such time limits must, however, be "fixed in advance" if they are to "serve their purpose of legal certainty": Marks & Spencer II para 39;
d) Where a retrospective time limit is introduced, the legislation must include transitional provisions to accord those with accrued rights a reasonable time within which to make their claims before the new retrospective time limit applies: Marks & Spencer II para 38 and Grundig II para 38;
e) In so far as the legislature introduces a retrospective time limit without a reasonable transitional provision (as in Grundig II) or without any transitional provision (as in Marks & Spencer II), the national courts cannot enforce the retrospective time limit in relation to accrued right, at least for a reasonable period; otherwise, there would be a breach of Community law: see Autologic plc v Inland Revenue Commissioners  1 AC 118 paras 16 to 17;
f) The adequacy of the period accorded by the transitional provision ("the transitional period") is to be determined by reference, inter alia, to the principles of effectiveness and legitimate expectation: Marks & Spencer II paras 34 and 46, and Grundig II para 40; in particular, it must not be so short as to render it "practically impossible or excessively difficult" for a person with an accrued right to make a claim: Marks & Spencer II para 34, and Grundig II para 33;
g) It is primarily a matter for the national courts to decide whether the length of any transitional period is adequate, although the ECJ will give a view if the transitional period is "clearly" so short as to be inconsistent with Community law: Grundig II paras 39 and 40;
h) The absence of a transitional period of adequate length is not, however, automatically fatal to the enforcement of the retrospective time limit: Grundig II para 41;
i) Where there is no adequate transitional period, it is for the national court to fashion the remedy necessary to avoid an infringement of Community law: Marks & Spencer II para 34, Grundig II paras 33, 36, 40, and 41, Autologic paras 16 and 17, and the ECJ's decision in Metallgesellschaft Ltd and ors v Commissioners of Inland Revenue (Joined Cases C-397/98 and C-410/98)  ECR I-1727, at para 85;
j) That remedy would, at least normally, be to disapply (perhaps only for a period) the operation of, the retrospective application of the new time limit to claims based on accrued rights: Marks & Spencer II paras 34 to 41, and Grundig II paras 38 to 40 and especially (with regard to temporary disapplication) para 41.
The Tribunals' decisions on ground 1
The decision in BT CA on ground 1
"The question whether the provisions of the first paragraph are directly effective is most easily answered by reference to circumstances in which the Member State has not implemented article 11C(1) at all. In my judgment, essentially for the reasons submitted by Mr Cordara, the answer is that they are directly effective. The Marks and Spencer case shows that the taxpayer's rights under article 11A(1)(a) are directly effective and Goldsmiths case shows that article 11C(1) is directly linked to the achieving of the policy objective in article 11A(1)(a). Since, as I consider, the purpose of the conditions referred to in the first paragraph of article 11C(1) is to deal with matters of form rather than substance, it cannot be that the absence in place of any such conditions can prevent a taxpayer from asserting directly in the national courts the clear entitlement that the first paragraph confers upon him. He will of course have to prove his case, and it would be open to the tax authorities to argue that he has not done so, or that his case is one that cannot be regarded as falling within the intendment of article 11C(1). But I would hold that the taxpayer has a directly effective right under that article."
"I do not understand how such unawareness can be a relevant consideration. EU law has been flowing up our estuaries since 1972 and BT had every opportunity to obtain the most expert advice as to its rights. I therefore fail to understand how BT can now say that the eventual demise by the Finance Act 1997 of a bad debt scheme that had included provisions that, so it claims and I would hold, infringed its directly enforceable EU rights was a change in the law that also infringed its directly enforceable EU rights. It did not. BT had literally had almost decades in which to enforce its rights, but did nothing towards doing so. The suggestion that the four-month warning of the impending change in the law was too short a warning for BT, or those in a like position, is one with which I also disagree. BT could in fact have sought to enforce its directly enforceable EU rights during that period, although in the event it still did nothing towards doing so for a further 12 years. It is in my view counter-intuitive that BT should now be entitled to bring such a stale claim. The Upper Tribunal's further suggestion that the four-month warning was insufficient to enable traders to seek the opportunity, should they wish to, of satisfying the domestic insolvency condition may be correct as a matter of fact. But the more relevant question is, I consider, whether the enactment of section 39(5) is one that infringed BT's directly enforceable EU rights to claim bad debt VAT relief in respect of its supplies made prior to 31 March 1989. In my judgment, it did not."
HMRC's submissions on ground 1
GMAC's submissions on ground 1
"21. If T [the taxpayer] fails to implement Regulation 38, that is not an end of T's claim to credit or repayment of £200. The result of failing to implement regulation 38 is that, in the case where the amount otherwise due exceeds £200, T has paid too much VAT in the prescribed period just mentioned. It is accepted by both HMRC and Iveco that section 80 is applicable. In other words, the reduction in VAT which T could have achieved by using regulation 38 remains VAT which was not due to HMRC so that T can make a claim under section 80 to recover it. We consider that that is a correct and purposive approach to the legislation."
Discussion ground 1
Ground 2: Does GMAC have a live EU law based claim or has it ceased to exist because it has not exercised the right within a reasonable time?
"There is an obligation to act within a reasonable time in all cases where, in the absence of any statutory rule, the principles of legal certainty or protection of legitimate expectation preclude Community institutions and natural persons from acting without any time-limits, thereby threatening, inter-alia, to undermine the stability of legal positions already acquired. In actions for damages liable to result in a financial burden on the Community, the obligation to submit a claim for compensation within a reasonable time derives also from a need to safeguard the public offers which is specifically given expression, as regards actions for non—contractual liability, in the five-year limitation period laid down by Article 46 of the Statute of the Court."
"… There is an obligation to within a reasonable time in all cases except those where the legislature has expressly excluded or expressly laid down a specific time limit. The basis for setting a reasonable time limit, in the absence of any statutory rule, is the principle of legal certainty, which precludes institutions and natural persons acting without any time limits thereby threatening to undermine the stability of legal positions already acquired."
"… compliance with the reasonable time requirement in the conduct of administrative procedures constitutes a general principle of EU law whose observance the Courts of the EU ensure and which is laid down as a component of the right to sound administration by Article 41 (1) of the Charter of Fundamental Rights of the European Union."
"… by analogy with the situation applicable to the exercise of the right to deduct, the possibility of making an application for the refund of excess VAT without any temporal limit would be contrary to the principle of legal certainty, which requires the tax position of the taxable person, having regard to his rights and obligations vis-à-vis the tax authority, not to be open to challenge indefinitely (Joined Cases C-95/07 and C-96/07 Ecotrade  ECR I-3457, paragraph 44)."
The UT's decision on ground 2
The decision in BT CA on ground 2
"HMRC now argues, however, that any such claims must in fact have been subject to undefined limitation periods, of necessarily uncertain length; and that such a consequence is required by reference to EU law principles that claims must be brought within a reasonable time. The error in that proposition is that whilst BT would be directly enforcing its EU law rights, it would be doing so under the umbrella of domestic machinery that subjected it to no such limits; and the application or otherwise of limitation periods to the bringing of claims is a matter for the domestic law of the member state where the claim is brought. HMRC can, in my view, point to nothing in such domestic law that can justify its assertion that the direct enforcement by BT of its EU law rights under the provisions of sections 12 and 22 (as appropriately moulded) would have been subject to the condition that such claims must be brought within a reasonable time. In particular, if the domestic legislation had properly implemented article 11C(1) but had expressly provided that refund claims could be brought without limit of time, that might have been unusual, but would not have been unlawful (compare the observations of Lord Scott of Foscote in Fleming's case, at  UKHL 2;  1 WLR 195, at ). I can see no reason why the implied unlimited time for the bringing of BT's directly effective claims under the section 22 machinery is not equally lawful."
HMRC's submissions on ground 2
GMAC's submissions on ground 2
Discussion ground 2
Mrs Justice Theis:
Lady Justice Arden: