England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/12/2004

Mr Justice Lindsay :

1. The Commissioners of Customs & Excise ("the Customs") were very tardy in acknowledging that they had to repay sums in respect of VAT to Elite Mobile plc ("Elite") but they have repaid Elite the principal amount owing and have offered interest at what they assert are the appropriate rates, namely the rates prescribed under section 78 of the Value Added Tax Act 1994 ("section 78" and "the VATA"). Elite, represented by Mrs Hamilton, dissatisfied with the rates of interest offered, began Judicial Review proceedings and Elite now claims interest at 8%, a higher rate than those prescribed under section 78. That claim is chiefly made under either or both of section 35A of the Supreme Court Act 1981 and Community Law. The Customs, represented by Mr McKay, adhere to their view that the rates applicable under section 78 are the appropriate rates.

Counsel told me that there is widespread dissatisfaction amongst VAT taxpayers as to the section 78 rates and that several cases wait on the outcome of this one. Large sums are often in issue. That makes it especially inappropriate for the matter to have come before me listed as "For Mention" but Counsel pressed me to decide the matters raised on the argument that emerged. I shall first set out something of the background.

2. By the 30^th March 2004 Elite had become entitled to two credits for input tax, one for £462,343.21 (for the period 1^st-28^th February 2003) and the other for £4,793,016.30 (1^st-31^st March 2003). Together they amount to £5,255,359.50p. On the 30^th March 2004 the Customs indicated they would not give effect to those credits by payment to Elite but rather by setting them off against a liability (as asserted by the Customs) of Elite to the Customs for £12,397,152 for VAT. That set-off was claimed by the Customs to be appropriate even though Elite had already appealed to the VAT Tribunal against the £12.3m assessment and even though the Customs had agreed that it need not be paid.
3. Dissatisfied with the decision of the 30^th March 2004 Elite on the 29^th June 2004 lodged a Claim Form for permission to apply for Judicial Review. The relief then claimed was as follows:-

(1) A Quashing Order quashing the Commissioners of Customs & Excise's decision of the 30^th March 2004 to exercise a purported right of set-off pursuant to section 81 (3) VATA 1994.

(2) A Mandatory Order directing the Commissioners of Customs & Excise to repay to the Claimant the £5,255,359 withheld under the decision of 30^th March 2004.

(3) Such further relief as the Court may consider appropriate.

(4) An order that the Commissioners pay Elite's costs of and incidental to the application.

The Claim Form was accompanied by a detailed "Statement of Facts and Grounds for Application" of some 55 paragraphs settled by Mrs Hamilton. The description of the relief claimed in that Statement included a Mandatory Order for the repayment of £5,255,390 and "Such further relief as the Court may consider appropriate" but the argument there set out did not include any alleged entitlement to interest on the £5.255m.

4. Mrs Hamilton's arguments carried the day without the need for a ruling on Elite's application and on the 14^th July 2004 the Customs wrote to Elite's Solicitors to inform them that the £5.255m would be repaid in full "…. together with section 78 interest thereon". That, of course, is a reference to section 78 of the VATA to which I shall later refer in more detail. The Customs added "I trust that you will now withdraw the above application". On the 20^th July 2004 the Customs' Acknowledgment of Service asked that the application for permission to apply for Judicial Review should be dismissed on the ground that the decision sought to be reviewed had been withdrawn.
5. On the 23^rd July 2004 the £5.255m was repaid by the Customs to Elite. On the 26^th July Elite's Solicitors asked that the Customs should pay a repayment supplement of 5% under section 79 VATA and interest under section 35A of the Supreme Court Act 1981. The parties fell out over interest; the Customs offered interest at the section 78 rate but not otherwise. Whilst interest under section 78 remained offered, it seems (I do not have the correspondence on the issue) Elite made it known that it was dissatisfied with the rate available under section 78, declined to accept the section 78 interest and pressed for more. Elite claimed interest under section 35A Supreme Court Act 1981 ("section 35A"). On the 27^th September 2004 the Customs wrote to Elite's Solicitors saying:-

"In the absence of an order of the Court to pay interest under section 35A SCA, no obligation exists, or can exist, for the Commissioners to make a payment of interest outside the terms of section 78 VATA. For the Commissioners to make a payment of interest in the terms you suggest would be ultra vires and unlawful."

6. I accept Mr McKay's argument that the Customs do not have a discretion to pay a higher rate of interest than as is prescribed in whatever legislative provisions are applicable but that, of course, of itself, is not an argument that prohibits a higher rate of interest being payable than the rates prescribed under section 78 as there may be provisions as to rates of interest that are applicable other than those in section 78.
7. The Customs also refused to pay a section 79 repayment supplement. On the 25^th October 2004 Elite appealed that last refusal to the VAT Tribunal. It has not yet been heard. The Customs have asked for an extension of the time and the hearing is unlikely to be before February 2005.
8. When Elite's application for permission to seek Judicial Review returned to Court on the 24^th November 2004 it had been listed for disposal but instead leave was then given to Elite to file and serve fresh grounds. The matter was before the Court for only 6 minutes. Permission to apply for Judicial Review was not given.
9. On the 24^th November or shortly thereafter fresh grounds settled by Mrs Hamilton were served. They are headed "Grounds for the Claimant's Application for Interest". They do not ask for permission to apply for Judicial Review but seem to assume that it had been or would be given. They ask for interest at 8% on the £5.255m, splitting it into two namely as to £462,343.21 from 24^th April 2003-23^rd July 2004 and, as to £4,793,016.30 from 9^th May 2003-23^rd July 2004. Mrs Hamilton tells me that interest on that aggregate at that rate and for those periods totals £508,338.27.
10. On the 2^nd December the Customs, in response to those fresh grounds, lodged their "Grounds for contesting the Applicant's Application". They invited the Court to dismiss Elite's claim.
11. On the 6^th December 2004 the matter came before me and although permission to apply for Judicial Review had not been granted, Mrs Hamilton pressed me, if I was prepared to do so, to go into the substance of the application. Mr McKay, too, regarded that as convenient. The convenient course was thus that I should rule upon the substantive application and only then turn to determining the application for permission.
12. Mrs Hamilton puts Elite's claim to interest in two or three ways; firstly under section 35A and, secondly, further or alternatively, under Community Law. With less emphasis there is a claim under Schedule 11 VATA. However, none of the claims can be understood without one first looking at sections 78 and 79 VATA. The relevant provisions of section 78 are as follows:-

"78 Interest in certain cases of official error

(1) Where, due to an error on the part of the Commissioners, a person has –

(a) ……

(b) ……

(c) ……

or

(d) suffered delay in receiving payment of an amount due to him from them in connection with VAT

then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period, but subject to the following provisions of this section.

(1A) …….

(2) Nothing in subsection (1) above requires the Commissioners to pay interest –

(a) on any amount which falls to be increased by a supplement under section 79; or

(b) where an amount is increased under that section, on so much of the increased amount as represents the supplement.

(3) Interest under this section shall be payable at the rate applicable under section 197 of the Finance Act 1996."

The period during which interest is payable under section 78 is prescribed in section 78 (4)-(9). Although, for reasons I shall come on to, Mrs Hamilton argues that interest under section 78 is inappropriate to this case, I have not understood there to be any dispute as to the period over which it would be payable if, contrary to her submissions, it were appropriate that it be paid.

13. It is to be noted that the liability under section 78 (1) will yield to some other provision for interest if that other creates a liability to pay interest (at whatever rate) for the same period and on the same amount.
14. There is no dispute as to the rates of interest payable under section 78. Confusingly, it is not at the rates (8% and 6%) suggested in the Note to section 78 in the Orange Tax Handbook 2004-2005 – but, I am told, at 3% to the 5^th September 2003, 2% from the 6^th September 2003 and 3% from 6^th December 2003 onwards. I shall explain below how those rates are arrived at.
15. It will be remembered that Elite's claims include not only one here for interest but also, before the Tribunal, for a repayment supplement under section 79. The relevant parts of section 79 provide as follows:-

"79 Repayment supplement in respect of certain delayed payments or refunds

(1) In any case where –

(a) a person is entitled to a VAT credit, or

(b) a body which is registered and to which section 33 applies is entitled to a refund under that section, or

(c) a body which is registered and to which section 33A applies is entitled to a refund under that section,

and the conditions mention in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater.

(2) The said conditions are –

(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and

(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and

(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent of that payment or refund of £250, whichever is the greater.

(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of –

(a) the day after the last day of the prescribed accounting period to which the return of claim relates, and

(b) the date of the receipt by the Commissioners of the return or claim.

(3) Regulations may provide that, in computing the period of 30 days referred to in subsection (2A) above, there shall be left out of account periods determined in accordance with the regulations and referable to –

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim,

(b) the correction by the Commissioners of any errors or omissions in that return or claim, and

(c) in the case of a payment, the following matters, namely –

(i) any such continuing failure to submit returns as is referred to in section 25 (5), and

(ii) compliance with any such condition as is referred to in paragraph 4 (1) of Schedule 11.

(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which –

(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and

(b) ends with the date on which the Commissioners –

(i) satisfy themselves that they have received a complete answer to the inquiry, or

(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,

but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or some other person."

16. Elite's claim to interest asserts entitlement to it under section 35A which provides as follows:

"Power of High Court to award interest on debts and damages

35A (1) Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and –

(a) in the case of any sum paid before judgment, the date of the payment; and

(b) in the case of the sum for which judgment is given, the date of the judgment.

(2) In relation to a judgment given for damages for personal injuries or death which exceed £200 subsection (1) shall have effect –

(a) with the substitution of "shall be included" for "may be included"; and

(b) with the addition of "unless the court is satisfied that there are special reasons to the contrary" after "given," where first occurring.

(3) Subject to rules of court, where –

(a) there are proceedings (whenever instituted) before the High Court for the recovery of a debt; and

(b) the defendant pays the whole debt to the plaintiff (otherwise than in pursuance of a judgment in the proceedings),

the defendant shall be liable to pay the plaintiff simple interest at such rate as the court thinks fit or as rules of court may provide on all or any part of the debt for all or any part of the period between the date when the cause of action arose and the date of the payment.

(4) Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs.

(5) Without prejudice to the generality of section 84, rules of court may provide for a rate of interest by reference to the rate specified in section 17 of the Judgments Act 1838 as that section has effect from time to time or by reference to a rate for which any other enactment provides.

(6) Interest under this section may be calculated at different rates in respect of different periods."

In respect of any particular period, interest under section 35A defers to any other then-current obligation to pay interest – section 35A (4).

17. To complete the citation of statutory and other legislative provisions that are needed, I must refer to Part 54 CPR as amended by the Civil Procedure (Amendment No. 5) Rules 2003 with effect from, at latest, 1^st May 2004. The CPR as so amended provides as follows:-

" Judicial Review

Scope and Interpretation

54.1 – (1) This Section of this Part contains rules about judicial review.

(2) In this Section –

(a) a "claim for judicial review" means a claim to review the lawfulness of –

(i) an enactment; or

(ii) a decision, action or failure to act in relation to the exercise of a public function,

(b) ………..

(c) ………..

(d) ………..

(e) "the judicial review procedure" means Part 8 procedure as modified by this Section;

54.2 ………

When This Section May Be Used

54.3 – (1) The judicial review procedure may be used in a claim for judicial review where the claimant is seeking –

(a) a declaration; or

(b) an injunction

……………..

(2) A claim for judicial review may include a claim for damages, restitution or the recovery of a sum due but may not seek such a remedy alone

(Section 31 (4) of the Supreme Court Act 198 sets out the circumstances in which the court may award damages, restitution or the recovery of a sum due on a claim for judicial review)."

18. Section 31 (4) of the 1981 Act provides:-

On an application for judicial review the High Court may award damages to the applicant if –

(a) he has joined with his application a claim for damages arising from any matter to which the application relates; and

(b) the court is satisfied that if the claim had been in an action begun by the applicant at the time of making his application, he would have been awarded damages.

19. Although section 31 (4) has not been correspondingly amended, presumably after the word "damages" in it one can, in effect at least, add "restitution or the recovery of a sum due" in each case.
20. Mrs Hamilton argues, by reference to Secretary of State for Trade and Industry –v- Frid [2004] UKHL 24 paragraph 8, that the Customs' liability to repay the principal sums to which I have referred amounts to there being a debt due to Elite. I accept that is so.
21. Against that legislative background, Elite's argument as to interest emerges as follows:-

(i) The original judicial review proceedings were for the recovery of a debt but the debt was paid by the defendant before any judgment in those original proceedings. Thus section 35A applies.

(ii) Subject to section 35A (4), interest may be ordered in favour of Elite under section 35A (3). Unlike the case under 35A (1), interest under 35A (3) is mandatory ("…. shall be liable to pay ….").

(iii) The rate of interest, however, is, under 35A (3), at the discretion of the Court but

(iv) on authority it is convenient to use the rate or rates for the time being available as judgment interest – see Pinnock –v- Wilkins unreported CA 23^rd January 1990 per Nicholls L.J..

(v) Since April 1^st 1993 interest on judgments has been payable at 8% - see the Table to be found at p. 998 Vol 1 of the 2004 White Book. It is by claiming that the section 35A (3) rate should be the same as the judgment rate that Mrs Hamilton arrives at her claim for 8%.

(vi) There is no other provision than section 35A under which interest runs (consider 35A (4)) as section 78 interest would not be appropriate because, under section 78 (2), the principal sums on which interest is claimed are amounts which fall to be increased by a supplement under section 79.

(vii) Although the VAT Tribunal has not yet ruled on the question of whether a supplement is to be ordered under section 79 (1), the Customs, says Mrs Hamilton, cannot usefully resist that such a supplement will become payable. Both Counsel agree that it is not for me to attempt to examine whether a repayment supplement will be ordered under section 79. Where there is dispute on that subject, as here, then the question is one that falls within the jurisdiction of the Tribunal. Mrs Hamilton argues that a repayment supplement will undoubtedly be ordered but Mr McKay, pointing to the many facts that may be required to be looked into on that subject, resists that. On the very limited facts before me I am not prepared to assume that a repayment supplement will emerge.

(viii) Accordingly, runs Elite's argument, nothing bars a claim for interest at 8% under section 35A but, if, contrary to Elite's submissions, any such bar on the claim as so far described does appear then

(ix) Elite has a claim to interest under European Community law – see in particular Garage Molenheide BVBA –v- Belgium [1998] STC 126 as explained in The Queen (oao UK Tradecorp Ltd) –v- Commissioners of Customs & Excise [2004] EWHC 2515 (Admin) per Lightman J. It would be reasonable that it should be paid at 8%.

(x) Failing that, Elite has a claim (again at 8%) under Schedule 11 of the VATA.

22. Looking at some of those requirements in turn and leaving aside section 35A's reference to damages, section 35A (1) contemplates proceedings for a recovery of a debt and there being a judgment in those proceedings to which there may be added ("……. there may be included ……") an award of interest. The section in effect distinguishes between proceedings and judgment for principal and a claim for interest. The interest is, under 35A (1) to be on all or part of the amount of principal awarded (" on all …. or part of the debt ….. in respect of which judgment is given …..") and the period over which it is to be paid again predicates there being a judgment as to principal. I cannot see that section 35A (1) applies as the case now stands before me; the Customs avoided its applicability by paying the principal sum due in full. There cannot now be a judgment for any sum by way of principal. No principal sum can now be said to have been paid before judgment as there as is and will be no judgment as to principal. Section 35A (1), although it was the provision at first pressed by Mrs Hamilton, is thus inapplicable.
23. However, I see no reason why her fall-back, section 35A (3) should not apply. There could be an argument that section 35A (3), by its reference at (a) ("there are proceedings …… before the High Court") requires the proceedings for principal money still to be current but section 35A (3) (b) contemplates the whole of the principal money as having been paid so that, as it seems to me, it is no requirement of section 35A (3) that the proceedings are still current as to principal money. In other words, it suffices if the still-current proceedings are or include proceedings for interest.
24. On that footing, given that the original judicial review application included a claim for "further relief as the court may consider appropriate", that such an expression was competent to include a claim for interest and given also that Elite's fresh grounds are exclusively as to interest, in my judgment 35A (3) is applicable on the argument so far unless section 35A has to yield, under section 35A (4) , to some other provision for interest.
25. I shall come back to whether section 35A does so yield but under 35A (3) whilst the payment of interest is, as I have mentioned, mandatory ("shall be liable to pay …") the rate needs to be fixed by the Court. There can be no obligation as to interest until the Court orders it, but stages (i) to (iii) in Elite's claim as in paragraph 21 above can be accepted. I leave aside stages (iv) and (v) for the moment so one then comes to stage (vi) and to section 78 VATA.
26. Mrs Hamilton asserts that section 78 is inapplicable as it provides for interest only where there is "error on the part of the Commissioners"; here, she says, there was no error but rather there was abuse of power on the Customs' part. The VATA does not define "error" but I would not be inclined to give it a restricted meaning. I can see that if, for example, the Customs deliberately set about adopting what they knew to be an incorrect view of their legal obligations as to repayment or deliberately procured delay in making it then the word "error" would be inapposite but I have no evidence of any such kind and no reason, in my judgment, to regard the case as other than as one of "error".
27. Thus, at first blush, I see the Customs to be liable for interest under the concluding lines of section 78 (1) VATA. The obligation there is mandatory; "they shall pay interest ….". If that is right then, of course, section 35A (4) precludes there being interest payable under section 35A, which has to yield. How, then, does Mrs Hamilton seek to escape from interest being payable under section 78 (1)? She relies on section 78 (2) (a).
28. I confess to finding section 78 (2) (a) a little puzzling. Under section 79 (1) it is the whole credit or refund which "shall be increased by the addition of a supplement equal to 5%". It would thus seem that for the purposes of section 78 (2) (a) it is the whole credit or refund – here £5.255m - which "falls to be increased by a supplement". It is not required that the whole credit or refund has been increased or has fallen or shall have fallen to be increased by a supplement but rather that the requirement to pay interest under section 78 (1) is undone as to "the amount which falls to be increased". I read that, on the facts of this case, as meaning that if and so long as a supplement could (if the other conditions of section 79 are not plainly not met) be ordered in respect of the whole £5.255m, then the whole £5.255m is an amount which, for the purposes of section 78 (2) "falls to be increased by a supplement" and thus is outside any requirement on the Customs to pay interest upon it under section 78 (1).
29. Once the position under section 79 is resolved at the Tribunal then either there will have been no supplement, in which case section 78 (2) does not preclude interest under section 78 (1) or there has been a supplement and section 78 interest is precluded but no longer on the whole amount but only on the amount of the supplement – section 78 (2) (b), What I find puzzling on this construction is the leap from there being no interest under section78 (1) on the whole amount before the section 79 position is resolved to there being no interest on the supplement itself once that is resolved. However, whilst I remain puzzled, there may have been policy reasons to require such a provision. At all events, if this construction is correct, then for the moment, because the Tribunal has before it but has not yet ruled upon whether or not there should be a supplement under section 79, then, seeing the whole £5.255m as being a sum "which falls to be increased by a supplement" I see that whole sum as falling within section 78 (2) (a) and hence being such that there is for the time being no liability on the Customs to pay interest thereon under section 78 (1).
30. If that is right then there is, as yet, no "period during which, for whatever reason, interest on the debt already runs" within section 35A (4). In turn there is no reason why the Customs should not be made liable to pay Elite "simple interest at such rate as the court thinks fit" under section 35A (3). But what should that rate be? In Pinnock supra Nicholls L.J. said, at p. 37 of the transcript with which I was provided, that:-

"For my part I see much force in the view that today, when a court is considering what is an appropriate rate of interest under section 35A for a period from the accrual of the cause of action up to the date of judgment, a convenient starting point will often be the rate payable on judgment debts from time to time over that period."

At page 39 he added:-

"Of course, whatever rate a Judge may choose as a convenient starting point he will consider all the circumstances of the case when making his decision."

The same must apply to a judge choosing the rate of interest.

31. Those circumstances must include that upon the obtaining of a ruling under section 79 in the New Year, either no supplement will have become due or a supplement of 5% on £5.255m will be ordered. If no supplement is ordered then section 78 (2) (a) will no longer have effect and section 78 (2) (b) will apply to a zero sum. It would then, with hindsight, appear that under section 78 (2) (a) no sum, after all, fell to be increased and that, with hindsight, interest under section 78 (1) could have been paid by the Customs all along if only the future had been correctly foreseen. If interest had in the meantime been ordered at a rate higher than the section 78 rate then there would, at least arguably, have to be some repayment to or some adjustment in favour of the Customs.
32. Equally, if a supplement at the stipulated proportion of 5% on the whole £5.255m comes to be ordered under section 79, it would then be only that additional £262,769.50 that would be outside the sum on which, under section 78 (1) interest had to be paid by the Customs. Again, had interest been paid at a higher rate than the section 78 rate in the meantime, there would at least arguably need to be some refund or adjustment.
33. I have not been taken to any legislative rules or provisions as to refunds in any such case nor to any provisions for security for the refund that would at least arguably become due to the Customs nor to any provisions meeting the possible case that the recipient of the interest had ceased to be a payor of VAT. Had it been foreseen by the legislature that interest might become payable under section 35A at rates higher than the section 78 rate one might reasonably have expected to find some such provisions. The absence of such provisions (at any as drawn to my attention) coupled with the undesirability of double claims, first for the payment of interest and then for the repayment of excessive interest, point towards a view that the rate that should be ordered, if Mrs Hamilton's argument is right, over the relatively short period until the position under section 79 is established, should be the rate applicable under section 78. But even if that approach is unjustified, it is to be remembered that the judgment rate is no more than a convenient starting point in fixing a rate under section 35A. As for other factors to be taken into account, I accept Mrs Hamilton's argument that the provisions in the VATA and, in particular, in section 78 of the VATA are not an all embracing code as to the payment of interest, a code which precludes any other provisions on the subject. I agree with her that the words "If and to the extent that they would not be liable to do so apart from this section" in section 78 (1) point to there being no such exclusive code. But that, as it seems to me, is far from saying that regard need not be had, where rates of interest are being discussed, to the rates which Parliament has prescribed under section 78.
34. There is nothing, in my judgment, that precludes a court, when fixing a rate of interest under the discretion conferred by section 35A (3), from having in mind that Parliament has in some instances – i.e. under section 78 - prescribed rates of interest as to repayment of VAT. One cannot jump from the proposition that Parliament has prescribed certain rates for cases falling within section 78 to the conclusion that those rates were outlawed for cases outside section 78.
35. No evidence was led by Elite as to the section 78 rules being unusually inappropriate or as to the judgment rate of 8% being especially appropriate on the facts of this case. The discretion to fix a rate of interest that is conferred on the Court by section 35A (3) is unfettered save only to the extent that the discretion is to be judicially exercised. Nothing I say here, therefore, can or is intended to bind other Judges in other cases but assuming, for the reasons which I have given, that section 35A does apply on the facts before me, and leaving aside the form of order to give effect to this conclusion, I see it as both convenient and just to fix the appropriate rate or rates as those which would have been from time to time applicable under section 78.
36. Lest the argument so far should have provided Elite with either no interest or interest at a rate which it takes to be unacceptably low, Elite, basing itself on Molenheide [1998] STC 126 above, argues for another route to interest, one other than either section 35A or section 78. In Molenheide the European Court of Justice looked at the provisions for repayment of VAT under Belgian domestic law. Those provisions were heavily weighted in favour of the State: interest was not payable at all unless the repayment due to the taxpayer had not been made by the State by the 31^st March in the year following that in which the refund had been identified and interest, if it ran, did not run, it seems, until then. Interest was only to be payable by the State if the principal sum to be repaid was at least BF 10,000 and if other formal requirements as to due completion of subsequent returns were made good. The ECJ questioned whether such limitations on the payment of interest were proportionate. The Advocate-General in that case had said at paragraph 53:-

"In all preventive retention cases, the VAT administration must undertake in the event of the taxable person being ultimately successful in the main action concerning the retention, to pay interest on the sum retained from the moment when, in accordance with the normal deduction rules applied in that Member State in the implementation of the Sixth Directive, the sum would have been paid to that taxable person."

As to the impact of Molenheide I respectfully adopt the conclusion arrived at by Lightman J. in The Queen o.a.o.UK Tradecorp Ltd –v- Commissioners of Customs & Excise, unreported, 10^th November 2004, Case No. CO/322/2004. After citing paragraphs 62-64 of the ECJ's judgment in Molenheide Lightman J., at his paragraph 40, continued:-

"It is not entirely clear to me whether the European Court was intending to lay [down] the same broad proposition as was advanced by the Advocate-General or whether its observations were intended to be limited to the feature of Belgian law which it found to be objectionable, namely that the general right to interest under Belgian law was limited in the way that it was. I incline to the former which brings the judgment in line with the Opinion of the Advocate-General."

37. Neither Molenheide nor Tradecorp was required to deal with rates of interest but the same broad requirement of justice to the taxpayer and proportionality that informs both the Opinion of the Attorney-General and the judgment of the ECJ in Molenheide suggest that if, but only if, the relevant domestic provisions provide either no rate of interest or an unfairly low rate will Community law step in and provide both an obligation and a rate. In practical terms, as it seems to me, there can only be a Community law obligation and rate if the domestic provisions are so materially out of step with current commercial rates that they can only be characterised as unjust.
38. Are the section 78 rates so out of step? The rates are laid down first by reference to section 197 of the Finance Act 1996 which in turn refers one to regulations. The applicable regulations are the Air Passenger Duty and other Indirect Taxes (Interest) Rate Regulations 1998. The rate to be applicable under section 78 is derived from regulation 5 (2) and (3). It is to be 1% less per annum than the rate found by averaging the base lending rates of the six large Clearing Banks named in regulation 2 (2). Mr McKay urges that such a rate is not so materially out of step with current commercial rates as to be unjust and that, in consequence, there is no need for Community law to provide a rate and hence that it does not do so. I agree. In the circumstances I do not see Community law as providing either an obligation to pay interest or an obligation to pay interest at some particular rate that can be said to create a liability to pay "apart from" section 78 – see section 78 (1)
39. I reject any argument that the broad provision in paragraph 1 (1) of Schedule 11 of the VATA confers on the Customs an obligation to pay interest. The paragraph provides that VAT shall be under the care and management of the Commissioners. It makes no mention of interest. By contrast, the VATA makes specific provisions as to when interest is to be payable, the periods over which it is to be paid and the rates at which it is to be paid. The only reasonable conclusion is that where the legislature intends that interest should be paid it so expressly provides or at least mentions the subject of interest. In consequence, broad obligations such as those described in Schedule 11 paragraph 1 (1) should not, in the absence of a compelling context, be taken to include specific powers of a kind such that, where Parliament intends them, it specifically so provides. There is no such compelling context in paragraph 1 (1) of Schedule 11.
40. For the above reasons I reject Elite's claim to interest at 8%.
41. As for the periods over which interest is payable, as I have mentioned, I have not understood there to be any contest as to this and (again subject to questions as to the form of Order) the interest is to be from the 23^rd April 2003 to 23^rd July 2004 on the smaller principal sum and from the 9^th May 2003 to the 23^rd July 2004 on the larger.
42. In the premises, I give permission to apply for Judicial Review. I shall hear Counsel as to the form of Order but my provisional view is that the appropriate form would be one by which declarations are made as to the sums on which, the periods over which and the rates at which interest is payable by the Customs to Elite. In the event, the rates are those which, all along, were offered by the Customs to Elite.