England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION REVENUE LIST

		Royal Courts of Justice Strand, London. WC2A 2LL
		10th October 2001

MR. JUSTICE NEUBERGER:

INTRODUCTION

1. This is an appeal brought by the University of Sussex ("the University") against a decision of the VAT and Duties Tribunal ("the Tribunal") which was released on 26th May 2000. The Tribunal dismissed an appeal brought by the University against a decision of the Commissioners of Customs and Exercise ("the Commissioners''). The Commissioners had rejected a claim ("the Claim") brought by the University for input tax. The input tax in question was tax which could have been claimed, but was not claimed by the University by way of credit against its output tax during the whole of the period since value added tax ("VAT") was First introduced in the United Kingdom. The Tribunal upheld that decision to the extent that the University's claim related to any period arising more than three years before that claim was made.
2. In this judgment, unless the contrary is stated, the following expressions have the following meanings. References to sections are to sections of the Value Added Tax Act 1994 ("the 1994 Act"). "The First Directive" is the First Council Directive of 1lth April 1967 (OJL71. 14.4.1967, P1301), and "the Sixth Directive" is the Sixth Council Directive of 17th May 1977 (77/388/EEC). References to Articles arc to Articles of the Sixth Directive, except that references to Article 87 are to that Article of the EC Treaty. Any reference to "the Regulations'" is to the Value Added Tax Regulations 1995 (SI 1995/2158), and any reference to a Regulation is to a Regulation therein. The Amendment Regulations are the VAT (Amendment) Regulations 1997 (S.I. 1997 1086) The ECJ is the European Court of Justice.
3. The issues raised by this appeal may be summarised as follows, namely:

1. Is the University's claim within section 80 or Regulation 29?

2. If the Claim is within Regulation 29:

(a) Was it rightly rejected by the Commissioners?

(b) If so, was the rejection contrary to Community Law?

3. If the Claim is within section 80:

(a) Is, or was the manner of introduction of, section 80(4) contrary to Community Law?

(b) Does the consequential difference in time limits for late claims for input tax between so-called "payment traders" and "repayment traders" amount to unlawful State aid?

THE FACTS

4. The University was incorporated under Royal Charter granted in 1961, and it became registered for VAT on 1st April 1973. It principally makes supplies of education, which are exempt for VAT purposes, but it also makes taxable supplies. On 25th November 1996, the University's accountants lodged the Claim, which was for repayment of input tax which had been previously unclaimed over the period 1st April 1973 to 31st July 1996. The Commissioners rejected the Claim in whole or in part on a number of grounds. The only ground relevant for present purposes was that, insofar as the Claim was for input tax for periods arising before 1st May 1993, it was in respect of periods which fall foul of a three year limitation period or "cap" prescribed by section 80(4).
5. It appears that, during the period between 1973 and 1996, the University took a conscious decision not to deduct certain amounts of input tax in its VAT returns, in respect of the periods for which such deductions fell to be made. That decision was taken, according to the Tribunal in an earlier decision released on 29th July 1999, for "what might fairly be described as political reasons".
6. As I have mentioned, on 25th November 1996, the University then submitted the Claim which related to input tax in respect of supplies made during each of the accounting periods from 1st August 1973 to 31st July 1996. The Claim is thus effectively based on the fact that, in each of the accounting periods during those 23 years, the University had understated in its VAT returns the amount of input tax which it could then have claimed.
7. The University accepts that its failure to claim input tax for that 23 year period was deliberate, but contends that it was positively encouraged by the Government to take that course. While it seems to me that there is real force in that contention, it is unnecessary to consider it further. As will be clear from the brief summary of the issues raised on this appeal, there is, at least before me, no argument in this connection raised by the University based on legitimate expectation or any similar principle.
8. The Tribunal upheld the view of the Commissioners, that the University's claim, in so far as it sought repayment of input tax which could have been claimed in respect of any period more than three years before 25th November 1996, was barred by the provisions of section 80(4). In holding that the Claim fell within section 80. the Tribunal followed a decision of another English Tribunal, BICC plc -v- Commissioners of Customs and Excise [1998] V&DR 224. and refused to follow a decision of a Scottish Tribunal, Royal Bank of Scotland Group plc -v- Commissioners of Customs and Excise [1999] V&DR 122.

9. The first issue raised on this appeal has been described by Mr Roderick Cordara QC, who appears with Mr Paul Key for the University, as "a short, but important, point". The other issues are also potentially significant. All the issues raise points of some difficulty, as is well illustrated by the fact that the arguments adopted by each of the parties changed somewhat, not only from those advanced before the Tribunal, but also from those initially raised during the instant hearing.

9. I propose to start by considering the relevant legal framework, by which I mean the provisions in point in the relevant EC Directives, the 1994 Act, and subordinate legislation as well as the contents of the Commissioners' publications. I shall then turn to consider each of the points at issue, at least insofar as it is appropriate to do so.

THE LEGAL FRAMEWORK

The First Directive

10. Article 2 of the First Directive is in these terms:

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

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

The Sixth Directive

11. Article 1 requires Member States of the European Community to "modify their present value added tax systems" in accordance with the Directive so as to be in force by 1st January 1978. Article 2 requires "the supply of goods or services effected for consideration" to be "subject to" VAT.
12. Articles 10.1 and 10.2 are in these terms:

1. (a) ''Chargeable event" shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.

(b) The tax becomes "chargeable" when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay. notwithstanding that the time of payment may be deferred.

2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. Deliveries of goods... and supplies of servicer which give rise to successive statements of account or payments shall be regarded as being completed at the time when the periods to which such statements of account or payments pertain expire."

13. Article 11A.1(a) is concerned with the "taxable amount... within the territory' of the country" and provides, in effect, that it is to be as follows:

"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;"

14. Article 17 is headed "Origin and scope of the right to deduct". Articles 17.1 and 17.2 are in these terms:

"1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory... in respect of goods or services supplied or to be supplied to him by another taxable person....

...."

15. Article 18 is concerned with "Rules governing the exercise of the right to deduct" and it is necessary to set out most of it. It is in these terms:

"1. To exercise bis right of deduction, a taxable person must

(a) in respect of deductions pursuant to Article 17(2)(a), hold an invoice drawn up in accordance with Article 22(3)......

2. The taxable person shall effect the deduction by subtracting from the total amount of value added tax due for a given tax period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen and can be exercised under the provisions of paragraph 1.

3. Member States shall determine the conditions and procedures whereby a taxable person may be authorised to make a deduction which be has not made in accordance with the provisions of paragraphs 1 and 2.

3A, Member States may authorise a taxable person who does not hold an invoice in accordance with Article 22(3) to make the deduction referred to in Article 17(2)(d); they shall determine the conditions and arrangements for applying this provision.

4. Where for a given lax period the amount of authorised deductions exceeds the amount of tax due, the Member States may either make a refund or carry the excess forward to the following period according to conditions which they shall determine.

However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant."

16. Article 20.1 is concerned with "Adjustments of deductions" and its first two paragraphs provide as follows:

"The initial deductions shall be adjusted according to the procedures laid down by the Member States, in particular:

(a) where that deduction was higher or lower than that to which the liable person was entitled;

(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where purchases are cancelled or price reductions are obtained...''

17. Article 22 imposes obligations on "persons liable for payment". They include, in Article 22.2, an obligation to keep "accounts in sufficient detail for [VAT] to be applied and inspected by the tax authority" and "a register of the goods he has dispatched or transported". Article 22.3 requires every taxable person to "issue an invoice or [similar] document... in respect of goods or services which he has supplied'' and "in respect of any payment to account made to him before any supplies". Article 22.4 is in these terms:

"(a) Every taxable person shall submit a return by a deadline to be determined by Member States. That deadline may not be more than two months later than the end of each tax period. The tax period shall be fixed by each Member State at one month, two months or a quarter. Member States may, however, set different periods provided that they do not exceed one year.

(b) The return shall set out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, where appropriate. and in so far as it seems necessary Cot the establishment of the basis of assessment, the total value of the transactions relative to such tax and deductions and the value of any exempt transactions."

18. Article 22.5 provides:

"Every taxable person shall pay the net amount of the value added tax when submitting the regular return. Member States may, however, set a different date for the payment of that amount or may demand an interim payment."

The 1994 Act

19. Section 24(1) defines "input tax" as meaning, "in relation to a taxable person", inter alia. "'VAT on the supply to him of any goods or services". Section 25(2) defines "output tax" as meaning "VAT on supplies which he makes...". Section 24(6) specifically provides for the making of Regulations to deal with certain matters, including cases where the goods: or services are supplied between entities in different Member States.
20. Section 25 is concerned with "Payment by reference to accounting periods and credit for input tax against output tax". I should set out most of sub-sections (1) to (6):

"(1) A taxable person shall-

(a) in respect of supplies made by him, and

(b) in respect of the acquisition by him from other Member States of any goods,

account for and pay VAT by reference to such periods (in this Act referred to as "prescribed accounting periods") at such time and in such manner as may be determined by or under regulations, and regulations may make different provision for different circumstances.

(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.

(3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may he, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a "VAT credit".

(4) The whole or any part of the credit may, subject to and in accordance with regulations, be held over to be credited in and for a subsequent period......

(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations...."

21. Section 26 deals with "Input tax allowable under section 25", and it is in these terms, so far as relevant:

"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.

(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business-

(a) taxable supplies.....

(3) The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above...

(4) Regulations under subsection (3) above may make different provision for different circumstances....."

22. Section 80 is headed "Recovery of overpaid VAT". New subsections have been added by the Finance Act 1997, but they are not relevant to these proceedings. Subsections (1) to (4) and (6) and (7) are in point, and they provide (as amended by the Finance Act 1997) as follows:

"(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 repay 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.

(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.

(6) A claim under this section shall be made in such form and manner and shad 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 VAT by virtue of the fact that it was not VAT due to them."

The time limit or "cap" in section 80(4) was introduced with retrospective effect from 18th July 1996 - see section 47 of the Finance Act 1992.

23. Section 96(1) defines "VAT" for the purpose of the 1994 Act as "value added tax charged in accordance with this Act....".

The Regulations

24. Regulation 25 is concerned with "Making of returns", and paragraph (1) is in these terms:

"Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter or in the case of a person who is registered, every period of 3 months ending on the dates notified cither in the certificate of registration issued to him or otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in Schedule 1 to these Regulations showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete..."

25. Paragraph (5) of Regulation 25 is in these terms:

"The Commissioners may allow VAT chargeable in any period to be treated as being chargeable in such later period as they may specify."

26. Regulation 29 deals with "Claims for input tax", and paragraphs (1) and (1A) provide as follows:

''(1) Subject to paragraphs (1A) and (2) below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable.

(1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made."

Regulation 29(1A) was inserted by the Amendment Regulations with prospective effect from 1st May 1997.

27. Regulation 29(2) sets out the documentation which a person claiming a deduction under Regulation 29(1) should provide to the Commissioners. It also contains a proviso whereby the Commissioners can direct, either generally or specifically, that other documentary evidence will suffice.
28. Regulation 34 is concerned with "Correction of errors" and, according to paragraph (1), it "applies where a taxable person has made a return..- which overstated or understated his liability to VAT..."'. Regulations 34(1A) and (1B), added by the Amendment Regulations, provide as follows;

"(1A) Subject to paragraph (1B) below, any overstatement or understatement in a return where-

(a) a period of 3 years has elapsed since the end of the prescribed accounting period for which the return was made; and

(b) the taxable person has not (in relation to that overstatement or understatement) corrected his VAT account in accordance with this regulation before the end of the prescribed accounting period during which that period of 3 years has elapsed,

shall he disregarded for the purposes of this regulation; and in paragraphs (2) to (6) of this regulation "overstatement", "understatement" and related expressions shall be construed accordingly.

(1B) Paragraph (1A) above does not apply where-

(a) the overstatement or understatement is discovered in a prescribed accounting period which begins before 1st May 1997; and

(b) the return for that prescribed accounting period has not been made, and was not required to have been made, before that date."

29. Regulation 34(2)(a) defines "under-declarations of liability" as the aggregate of the amount for which input tax was over-stated and which output tax was under-stated in a return. Regulation 34(2)(b) contains a concomitant definition of "over-declarations of liability".
30. Regulations 34(3) to (6) are essentially concerned with the machinery, but paragraph (3) specifically empowers a taxable person to "correct his VAT account in accordance with this regulation'' where he discovers an over-declaration or under-declaration which "does not exceed £2,000". Regulation 34(7) provides:

"Where the conditions referred to in paragraph (3) do not apply the VAT account may not be corrected by virtue of this regulation."

31. Regulation 35 provides:

"Where a taxable person has made an error-

(a) in accounting for VAT, or

(b) in any return made by him,

then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require."

32. Regulation 37 is concerned with "Claims for recovery of overpaid VAT', and it sets out in succinct terms the formalities required for any claim made under Section 80.
33. Regulation 39 deals with "Calculation of returns", and it provides that "the amounts to be entered on [a] return shall be determined in accordance with this regulation". The regulation goes on to require a person who makes a return to make appropriate entries in the boxes on the return with the respective legends "VAT in this period on sales and other outputs" and "VAT reclaimed in this period on purchases and other inputs". Regulation 40 is directed to "VAT to be accounted for and returns and payment of VAT", and Regulation 40(1)(a) is in these terms:

"Any person making a return shall in respect of the period to which the return relates account in that return for... all his output tax..."

The Commissioners' publications

34. From time to time the Commissioners issue booklets with various forms of guidance and assistance to members of the public. The VAT Guide is such a publication, and it is revised periodically. In the 1st January 1984 edition, Part 63 is concerned with "Adjusting errors'", and it deals with "Errors in tax invoices" and ""Other errors". Under the latter heading, there is this:

"(b) Other errors. Any other errors affecting lax due from you or repayable to you, which are discovered after you have sent in your return for the lax period in which they occurred, should be recorded separately as under-declarations or over-declarations of tax in previous periods. You should carry the totals to your VAT account for adjustment in your next return."

35. The March 1996 edition of the VAT Guide in paragraph 8.10 deals with "Correcting errors you find made on previous VAT returns", and it provides as follows:

"There are two ways of correcting errors you find on previous VAT returns. You can -

• adjust your VAT account and include the net value of the errors in your current VAT return - but remember that you can only use this method if the net value of the errors you have discovered is £2,000 or less; or

• inform the VAT business advice centre for your area in writing of the errors.

You will not be charged a misdeclaration penalty if you disclose errors before Customs and Excise begin an enquiry. You may, however, be charged interest in certain circumstances. You will find more about misdeclaration penalty and interest in section 12. Before you decide which method of correcting errors to use you should read Leaflet No 700/45 "How to correct errors you find on your VAT returns"."

36. The December 1993 edition of another of the Commissioners' publications, "Value Added Tax - How to correct errors you find on you VAT returns", runs to seven pages and contains no reference to any time limits. Paragraph 11 states that if "the net result of all the errors you are disclosing is an amount payable to you" then "the amount will be credited to your account and set off against any outstanding balance due to Customs and Excise". It goes on to say that, if a sum is nonetheless due after this exercise, "the remainder will be repaid either by payment order or by bank giro."

ISSUE 1: SECTION SO OR REGULATION 29?

Introductory

37. The Commissioners' case is follows. On each occasion that the University made a return between 1973 and 1996, it was a net payer of VAT: this was because the output tax recorded on its returns exceeded the input tax. Accordingly, the University's present claim amounts to an application for repayment of some of the VAT which it paid pursuant to the returns over those 23 years. Thus, the claim falls within section 80(1) on the basis that the University "paid an amount to the Commissioners by way of VAT which was not VAT due to them", and it is now relying on the last part of the sub-section which provides that, in such an event, the Commissioners "shall be liable to pay the amount [of the overpayment] to him". On that basis, runs the Commissioners' argument, the three year cap in section 80(4) applies, and the Commissioners are not obliged- indeed they are not entitled- to repay any amount paid by the University "more than three years before the making of the claim". Furthermore, say the Commissioners, section 80(7) makes it clear that section 80 is the only "gateway" through which the University could mount its claim for repayment.
38. The University contends that section St) is only concerned with overpayments of output tax. and not with under-claimed input tax, and that it is with under-claimed input tax with which the present proceedings are concerned. Accordingly, it says that, rather than being made pursuant to section 80, the Claim is made pursuant to Regulation 29, and although a limitation period was introduced in Regulation 29(1A) by the Amendment Regulations in 1997. there was no such cap at the time that the Claim was made.
39. Although the expressions have no statutory or other legislative basis, the concepts of "payment trader" and "repayment trader" are reasonably familiar in the field of VAT law. A payment trader is a taxpayer whose output tax exceeds his input lax in his return, and who therefore has to account to the Commissioners for VAT. A repayment trader's input lax exceeds his output tax in his return, and he therefore is entitled to a credit or a payment from the Commissioners.
40. The effect of the Commissioners' case is that a payment trader who makes a late claim is within section 80, whether his claim results from his having recorded in his original return too high a figure for his output tax or too low a figure for his input tax. The University's case in relation to a payment trader, who makes a late claim is that his claim falls within section 80 only to the extent that his original overpayment was attributable to too high a figure being entered for his output tax. To the extent that his claim is based on too low a figure having been recorded for his input lax, the University's contention is that his claim is governed by Regulation 29.
41. The issue does not appear to me to be straightforward. There is obvious force in the Commissioners' simple point that, whether caused by too high a figure for output tax or too low a figure for input tax, a consequential payment by a tax payer to the Commissioners is ''an amount... by way of VAT which was not VAT due...". In other words, where a payment trader pays a sum to the Commissioners, that sum is arrived at by taking into account both his output tax and his input tax for the relevant period, and the net figure is the VAT he pays, and in so far as that figure is too high, he is entitled to reclaim it, pursuant to, and subject to the provisions of, section 80.
42. So far as repayment traders are concerned, it is common ground that they cannot fall within section 80; that is because by definition, they will not have "paid the Commissioners... VAT". The 1994 Act does not appear specifically to consider repayment traders who have under-claimed input tax. Sections 25(2) and 26(1) provide that a taxpayer is liable to take into account input tax in his return for the period during which the supplies were actually provided: see in particular the bracketed words in section 26(1). The 1994 Act contains no provision equivalent to section 80 so far as repayment traders are concerned. However, section 25(1) - echoed in the opening words of section 25(2) - indicates that it is contemplated that regulations will or may be introduced to deal with cases where inputs are not claimed for the relevant period in accordance with section 26(1).
43. When one turns to the Regulations, it seems to me, indeed it appears to be common ground, that Regulation 29 does enable a repayment trader, who has understated his input tax, to make a late claim for under-claimed input tax, albeit in terms which are pretty unspecific, particularly when contrasted with section 80. Regulation 29(1) appears to make it clear that the input tax should in principle be claimed in the return relating to the period in which the relevant goods or services were provided. However, the words "save as the Commissioners may otherwise allow" indicate that this does not represent an absolute requirement. That point appears to me to be supported by the provisions of section 25(1) and Regulation 25(5), and indeed by Article 18.3. Accordingly, at least until Regulation 29(1A) was introduced, the Commissioners enjoyed a relatively unfettered discretion as to whether, and if so how. to accommodate a repayment trader whose original return understated the input tax, and who subsequently claimed a credit or payment in respect of that input tax.
44. In my judgment, it can be said with some force that the apparent dispute as to whether section 80 or Regulation 29 applies in the present case, is based on a false assumption, in that there is no intrinsic reason why both provisions should not apply. Section 80, in its original form, accorded payment traders a right to recover overpaid VAT, but gave the Commissioners the right to prescribe the manner in which such a claim was made - see sub-section (6). Regulation 29 contains provisions dealing with claims for input tax. In so far as its provisions mirror, or at least are not inconsistent with, the provisions of the 1994 Act, they are plainly unexceptionable. Indeed, in so far as Regulation 29 sets out the procedural requirements for a claim - e.g. in paragraph (2) - it can be said to be presaged by section 80 (and also by sections 25 and 26). However, subject to considering the effect of the Directives, the terms of the Regulations cannot be inconsistent with the provisions of the 1994 Act. Thus, if the University's present claim falls within section 80(1), then it may well be that it could also fall within Regulation 29. but, in the event, nothing in Regulation 29 could, as it were, save it from the effect of section 80(4), in light of the provisions of subsection (7).
45. In these circumstances, as I see it, one comes back to the question of whether an overpayment to the Commissioners by a payment trader, which overpayment was due to the fact that the trader understated his input tax in his return, is ''an amount" which was "paid... to the Commissioners by way of VAT which was not VAT due to them". In other words, the issue is not so much whether the Claim is within section 80 or Regulation 29, but whether it is within section 80. If it is within section 80, then, contrary to Mr. Cordara's contention, the decision of the Tribunal was, in my view, correct. Even if the Claim could be brought within some other provision, e.g. Regulation 29, the clear words of section 80(7) would preclude the University from pursuing its claim by any route other than pursuant to section 80, and section 80(4) would represent an insurmountable hurdle.
46. The University's contention is that its claim is for input tax which it had not previously claimed in its returns, and that therefore the Claim does not fall within section 80. Mr Cordara argues mat this contention is supported by three points. First, it is illogical that what would have been a claim for input lax, had it been made timeously, is converted, simply by being claimed late, into a claim for overpaid VAT. Secondly, he relies on an apparent inconsistency, if the Commissioners are correct, in so far as an under-declaration of input tax is concerned: claims made by payment traders would fall within section SO, whereas claims made by repayment traders would fall within Regulation 29. Thirdly, he draws attention, by reference to four examples, to the practical differences which would result, on the Commissioners' interpretation, from the distinctions in treatment under the VAT regime to different types of traders.
47. In my judgment, each of these three points has force, but, even taken together, they are not overwhelming, and are certainly not decisive. So far as the first point is concerned, in the field of VAT the function of a taxpayer such as the University, at least where it is not the final consumer of a good or service, is to act effectively as a tax collector for the Commissioners. Hence the credits for input tax and the debits for output tax. In this. connection, I would refer to the classic statement in Elida Gibbs Ltd -v- Commissioners of Customs and Excise [1996] ECR I-5339 at paragraphs 19 and 22, in the judgment of the ECJ. The payment of tax by a supplier en route to the ultimate consumer of the good or service is effectively on account of the value he adds to the good or service (assuming, contrary to Oscar Wilde's observation, that added price is equivalent to added value). The purpose of the return made by such a taxpayer can therefore be said to be to determine how much tax he collects on behalf of. and therefore pay over to, the Commissioners. Accordingly, the conclusion that what he pays over is treated as VAT for the purposes of section 80 is not particularly surprising. Quite apart from this, the notion that something changes its character depending on whether it is claimed in accordance with the primary contemplation of the legislation concerned, or whether it is subsequently sought to be claimed, is not particularly surprising, let alone absurd.
48. As to the second point raised oh behalf of the University, it seems to me that the provisions of sections 25, 26, and 80 together with Regulation 29 can produce somewhat odd results in any event. Thus, it is not immediately clear why there should be different provisions, one in the 1994 Act and the other in the Regulations, subject to different principles, each relating to late claims. Secondly, the drafting of the relevant provisions is, on any view, not very happy. Thirdly, it is not uninstructive to consider the position of a repayment trader who overstates his output tax in his return, and wishes to claim, on the basis that the payment or credit accorded by the Commissioners pursuant to his return was too low. Because he is a repayment trader, and therefore will not have made a payment to the Commissioners, it seems to me that his claim could not fall within section 80. However, he would not appear to fall within Regulation 29 either, because he would not. as a matter of ordinary language, be "claiming deduction of input tax" within Regulation 29(1) - see also sections 24(1), 25(2) and 26(1). If that is correct, it suggests that there may be no reliable correlation between payment traders and repayment traders in so far as the recovery of overpayments or underpayments is concerned.
49. I turn to the University's third point. The fact that the financial consequences will vary in different circumstances, if the Commissioners' construction is correct, was not challenged. However, as the above discussion has, I believe, already demonstrated, there are inconsistencies in this area of VAT law in any event. I would accept that it is normally desirable to arrive at a result which achieves consistency of financial consequences irrespective of the status of the taxpayer or the method of payment (insofar as this is possible). However, that cannot be a determinative feature when construing a particular statutory provision, particularly in this area of VAT law.

An enduring right to claim input tax?

50. It is contended on behalf of the University that the Commissioners' case is inconsistent with Article 17.1, in that the right to deduct input tax is, in effect, an enduring right which cannot be taken away by domestic law. I do not accept that Article 17.1 gives a right to deduct input tax, but that right is specifically stated to arise "at the time when the deductible tax becomes chargeable". It seems to me fairly clear that the Sixth Directive envisages the right to deduct input tax as arising primarily in respect of the period in which the relevant supply occurs. That right is plainly respected in sections 25 and 26, and indeed in Regulation 29(1) itself. The fact that there may be limitations imposed on a taxpayer who seeks to invoke the right late does not appear to me to cut across the provisions of Article 17.
51. Further. I consider that the bald contention that a claim, such as that of the University currently under consideration here, could be made as of right at any time in any circumstances, is inconsistent with Article 183. This Article refers not merely to "procedures". but also to "conditions" which Member States are required or empowered to determine "whereby a taxable person may be authorised to make a deduction" which he has not made in accordance with Article 18.2. In my judgment, the reference to "conditions" in Article 18 calls into question the very wide proposition advanced on behalf of the University that domestic legislation cannot prevent a late claim for input tax, however late it may be. If a Member State can impose a "condition" on late claim procedures, that must, in my view, include time limits.
52. The University relies on the proposition "that all taxpayers should be entirely relieved of the burden of all input tax which they would otherwise suffer". There is no doubt that that is the general purpose and thrust of the Sixth Directive, indeed of the 1994 Act, so far as the deduction of input tax is concerned. That proposition is supported by a number of decisions of the ECJ: see for instance Rompelman -v- Minister Van Financien [1985] ECR 655 at paragraph 19, European Commission -v- France [1988] ECR 4797 at paragraph 15 and the BP Supergas case [1995] STC 805 at paragraph 18. However, all those cases were concerned with the primary right of a taxpayer in relation to input tax, namely to claim credit for, or repayment of, input tax in respect of the period of supply. They were not concerned with a late claim for input tax, which was not claimed when it should have been. I would accept that the general proposition, embodied in the cases to which I have just referred, may properly infect the attitude of the court when considering a claim such as the present. However, I think that it goes too far, indeed that it is wrong, to say that any cutting down of the right to make a late claim for input tax is contrary to the terms and thrust of the Sixth Directive, or indeed the First Directive.
53. Accordingly, I reject the University's case that the Sixth Directive gives it an unfettered right to make a late claim for input tax. As this conclusion is based in part on the provisions of Article 18.3, it is convenient to deal with the question of whether that Article imposes an obligation on the United Kingdom, and what that obligation is. The Commissioners contend that Article 18.3 imposes no obligation, merely that it bestows a discretion, on Member States. Although the point may be of academic interest only in the present case, it was fully argued, and my conclusion may be of some relevance on the first issue.

55. Mr Paul Lasok QC, who appears for the Commissioners with Mr Peter Mantle, contends that, although the word "shall" in Article 18.3 might appear to be mandatory, the Article in fact imposes no obligation on Member States, because of the word "may". In my judgment, that is not right. The word "shall" (unless used to indicate pure futurity) is normally mandatory, as a matter of ordinary language. The inclusion of the word "may" in Article 18.3 in no way derogates from the mandatory nature of the word "shall" in that Article. Indeed, the contrast serves to emphasise the difference between the mandatory and the discretionary. I consider that the words "may be authorised" in Article 18.3 effectively relate back to "the conditions and procedures". In other words, "a taxable person" can only make a deduction in accordance with Article 18.3, if he complies with the conditions and procedures which the Member State is required to determine. Accordingly, the United Kingdom is under an obligation to "determine" procedures whereby late claims for, or claims for under-claimed, input tax may be made. It is accepted by the University that those procedures can include time limits and other restrictions, provided that they are reasonable and do not involve rendering the apparent right to make a late claim nugatory. I agree.

54. I turn to the question whether the United Kingdom has complied with its obligation under Article 18.3. In this connection, it is common ground that there is a procedure by which the University can make a claim in the present case; according to the Commissioners it is only pursuant to section 80, whereas, according to the University, it is pursuant to Regulation 29, or, on its alternative case, the University says that section 80 could be another route. On a literal reading, it could be said that a repayment trader cannot avail himself of Regulation 29, because it is solely concerned with "deduction" of input tax, which does not include a payment or credit. However, the provisions of Article 18.4 and sections 25(3) and (4) appear to me to envisage that the deduction of input tax from output tax could result in a negative figure - i.e. payment or credit to the taxpayer. Accordingly, I think that Regulation 29(1) represents the gateway through which a repayment trader who has understated his input tax can obtain a payment. I did not understand Mr. Lasok to argue otherwise.

The Royal Bank decision [1999] V&DR 122

55. It is argued on behalf of the University that it can choose to frame its claim, in effect, cither under Regulation 29 or under section 80, and that the two are not mutually exclusive. As already indicated, it appears to me that, as a matter of ordinary language, if the claim (however framed) could fall within section 80(1), then the combined effect of sub-sections (4) and (7) mean that it is simply not open to the University to make a claim for payment or repayment outside section 80, or, therefore to avoid the limitation period laid down by section 80(4). In effect, section 80(7) provides that, if section 80(1) would provide a gateway for making the claim, then the fact that there may be another gateway, which might not otherwise face the difficulty of a time limit, will not assist the taxpayer.

58- Thus, in my judgment, as was recognised by the Tribunal in Royal Bank [1999] V&DR 122, a taxpayer who wishes to avoid the consequences of the cap or time limit in section 80(4), has to establish that his claim is not within section 80(1)- In Royal Bank [1999] V&DR 122, the Tribunal, differing from the English Tribunal in BICC [1998] V&DR 229. decided that, particularly in light of the definition of VAT in section 96, a claim such as that of the University in the present case is not for VAT which has been overpaid: see at [19991 V&DR 129E to 130A, especially at 129I to 130A, where the Tribunal said this:

"What is paid over to the Commissioners might well be tax, but it is not VAT as defined. This has nothing to do with the provision in section 80 which deals with someone having paid to the Commissioners a sum by way of VAT charged in accordance with the Act which was not VAT charged in accordance with the Act due to the Commissions. Section 80 gives statutory force to the right to demand repayment of sums paid by way of VAT which was not due because some goods or services had been improperly made the subject of tax by the supplier thereof. The statute was intended, purposely construed, to allow for the repayment of monies collected in error from customers and then passed on to the Commissioners."

56. Mr Cordara contends that the effect of this reasoning is that '"if no input tax claim is made, the output tax is VAT due to the Crown" and that "section 80 is not engaged in any way in relation to a subsequent claim for such input tax". Both the University and the Commissioners in (heir respective cases on this issue sought assistance from the terms of the First Directive and, even more, of the Sixth Directive. The terms of these Directives must be taken into account when construing the 1994 Act, they may sometimes justify it being construed differently from how one might construe it in their absence. (Indeed, in some circumstances, the provisions of the Directives must be accorded direct effect by domestic Courts, notwithstanding the terms of the 1994 Act). Thus, the terms of Articles 17 and 18 were very much in mind when considering the effect of Regulation 29(1).
57. That brings me back to what seems to me to be the real point between the parties on the first issue, which is whether the University's claim in the present case is within section 80(1). On this point, I read the reasoning of the Tribunal which decided Royal Bank of Scotland [1999] V&DR 122 rather differently from Mr Cordara. As I understand it the Tribunal concluded that, where a payment trader under-declared his input tax, he made a consequential overpayment to the Commissioners, but that overpayment was not "by way of VAT".
58. In my judgment, if that understanding is correct, then, while the view expressed by the Tribunal in Royal Bank of Scotland [1999] V&DR 122 obviously deserves respect, it is over-sophisticated, and I do not agree with it. First, if any overpayment made in circumstances such as those of that case, and indeed of this case, is an overpayment of tax, and it is hard to see what tax it is, if it is not VAT. It is no good saying that it is an overpayment of "output tax", because, as is clear from section 24(2), that is a species of VAT. It is fair to say that the Tribunal in Royal Bank of Scotland [1999] V&DR 122 did not say that the overpayment was a payment of tax, but it is hard to characterise it as an overpayment of anything else. It is true that section 80(1) does not use the word "overpayment", but "an amount... by way of VAT which was not VAT due to [the Commissioners]". However, I find it difficult to give section 80(1) any sensible meaning unless one effectively equates "an amount... by way of VAT", as being a reference to an amount paid and accepted purportedly as VAT due to the Commissioners. If section 80(1) does not apply to a payment which, in the event, was not due as VAT at all, then it would appear that section 80 has virtually no application. This is because, effectively by definition, in any case where a claim for repayment is made, it would be on the basis that the money should not in fact have been paid. Thus, on the reasoning of the Tribunal, it is not immediately obvious why section 80 should apply even to a case where a payment trader has overstated his total outputs or his total output tax for the relevant period. In either such case, he will have paid too much, and, if the analysis of the Tribunal in Royal Bank of Scotland [1999] V&DR 122 is correct, the overpayment would not have been "by way of VAT".
59. Quite apart from this, as the Tribunal in Royal Bank of Scotland [1999] V&DR 122 appears to have recognised, its construction imposed an implied limitation on section 80(1). It is, I think, well established that the court is no more ready, indeed probably even less ready, to imply terms into a statute than into a commercial contract, and a term can only be implied into a commercial contract if it is necessary for business efficacy. I do not think it right to imply the limitation which appealed to the Tribunal into section 80(1). It does not seem to me necessary to do so, and, if one docs so, one would be driven to the conclusion that the section was very limited indeed in its effect or application.

Has there been an overpayment?

60. Ultimately, the most attractive way, at least to my mind, in which the University puts its case, is that there was, in fact, no overpayment during the 23 years in question. This is based on the contention that the right to deduct input tax in respect of any period only arises when the taxpayer exercises his right to deduct. (Indeed, that is Mr Cordara's analysis of the Tribunal's reasoning in Royal Bank of Scotland [1999] V&DR 122). This contention does not depend upon the argument that the University had an unqualified right to claim input tax at any time. It merely involves saying that, if a taxpayer makes a late, but valid, claim for input tax, which should primarily have been entered in an earlier return, then the claim takes effect in accordance with its terms, and that payment of VAT in accordance with the earlier return involved no overpayment. In other words, although the taxpayer could have paid less VAT pursuant to the earlier return if he had claimed all his input tax. that fact does not render any of the VAT so paid "VAT [not] due to the Commissioners".
61. This argument relies on the reference in Articles 17.1 and 18.1 to the "right" of deduction or to deduct, and on the contention, to quote from Mr Cordara's skeleton argument, that 'there is no obligation on taxpayers to deduct input tax" at all, let alone at any particular time. On this basis, the University had the right to deduct or claim input tax at the time it chose (subject to any valid limitations which the Directives, the legislature, or the Commissioners may have imposed), and the time it did so was when it made the Claim on 25th November 1996. This argument derives some support from the way in which Article 17.1 is expressed. It merely identifies the moment when the right to deduct first arises: it says nothing about the effect of not deducting on the first possible occasion, and certainly does not suggest that the right to deduct is only against output tax which accrues on that occasion.
62. The terms of Articles 18.2 and 18.3 appear to mc to be more consistent than not with Mr. Cordara's argument. If a payment trader exercises the right to deduct input tax when he can first exercise it, then it serves to reduce the VAT payable for the period in question -see Article 18.2. The natural inference is that, if the right is not then exercised, then no reduction is available in his favour in respect of that period. Therefore, non-exercise of the right would not result in the conclusion that the sum paid to the Commissioners included money "which was not ... due to them". Article 18.3 indicates that a late deduction will reduce the amount of VAT due to the Commissioners (or as giving rise to a refund from the Commissioners under Article 18.4) on that later occasion. Thus, in the case of a payment trader, the effect of a valid late claim for a deduction of input tax is to reduce the VAT otherwise payable, or to give rise to a claim for a refund or a credit, on that later occasion, and not to operate as an overpayment claim in relation to the earlier occasion.
63. A little support for the University's point may perhaps also be found by contrasting Article 18 with Article 20. It is only the latter Article which is concerned with "adjustments", a word which suggests corrections or retrospective claims. The contrast with "the right to deduct" in Article 18 generally, and the wording of Article 18.4 more specifically, highlights the point that the rights accorded by Article 18 involve deducting input tax in respect of the period when it is claimed, rather than retrospectively in respect of an earlier period.
64. This argument thus involves contending that the failure to claim input tax during the 23 years did not result in overpayments of VAT during those years, but that all the VAT paid in accordance with the returns over those 23 years was properly due. On this basis, therefore, so far as the Sixth Directive is concerned, what the University is doing on the Claim is making late (indeed, some very late) claims for input tax, in so far as the same is permitted. In that connection, Article 18.2 makes it clear that the input tax should primarily have been claimed (by deduction from output tax) in the return covering the period in which the relevant supplies were made. However, it is equally clear from Article 1S.3 that it is open to (indeed, in my view, compulsory for) Member States to allow for a late claim for input tax in some specified circumstances.
65. This argument raised on behalf of the University appears to me to be correct, or at least not called into question, when one turns to the 1994 Act. The combined effect of sections 24 to 26 would seem to be that the amount of VAT payable by a taxpayer who is a payment trader, is to be calculated by reference to the output tax and input lax recorded on his return. It is clear from section 26(1) that the taxpayer's primary right is to claim input tax in respect of supplies for the period to which the return relates, but there is nothing which suggests that, if he underclaims input tax, the net amount which he pays is to be treated as VAT which is not due. On the contrary, by using the word "entitled", section 25(2), while giving the taxpayer the right to deduct input tax, does not suggest that he is under an obligation to do so. Consistently with the requirements of Article 18.3, the closing part of section 25(1) appears to envisage regulations which will provide for an indulgence for a taxpayer who fails to record or claim input tax at the time when he primarily should have recorded or claimed it. In my judgment, read on their own. sections 24 to 26 are, at best from the Commissioners' point of view, neutral on the issue I am considering. However, it should be mentioned that section 25(4) provides that, where the declared input tax exceeds the declared output lax, the difference can be credited to the taxpayer at a subsequent period. This at least makes it hard to argue that it is somehow unlikely that the legislature would have envisaged a belated claim for input tax being, for instance, set off against subsequent, timeously claimed, output tax.
66. Although the provisions of the 1994 Act may be neutral on this issue if read on their own, when read together with the Sixth Directive and Regulation 29, I believe that the overall effect is in accordance with Mr. Cordara's submission. I have already considered the Sixth Directive in this connection. Regulation 29(1) repeats the point that the primary course for a taxpayer wishing to claim input lax is to raise his claim in the return in respect of the period in which it was incurred. However, albeit in very general terms, it leaves open the possibility of the input tax being claimed later. Again, that seems to me to be consistent with the notion that a late claim permitted pursuant to the Commissioners' allowance or direction under Regulation 29(1) is not a correction to the earlier relevant return, in the sense that it results in a retrospective overpayment of VAT. Rather, it is a permitted or directed claim, albeit a late claim, for a set off. payment, or credit in respect of the input tax in question. To put the point slightly differently, a late claim for input tax is a self-contained claim which stands or falls on its own merits, and docs not bear on the original VAT return in which it should primarily have been included, or any payment of VAT made pursuant thereto.
67. Regulation 34, which is concerned with "Correction of errors" might appear at first sight to point to the opposite conclusion. First, it treats an under-declaration of input tax as an "error". Secondly, it does not seem to distinguish between overpayments due to under-declared input tax and overpayments due to over-declared output tax. As to the first point, the fact that an under-declaration of input tax is an "error" does not mean that the subsequent "correction" cannot operate as a self-contained and valid, if late, claim. That is supported by the fact that Regulation 34 applies where a repayment trader has under-declared his input tax, where, on the case of the Commissioners as well as that of the University, Regulation 29 applies, and section 80 does not apply. So far as the second point is concerned, it is clear from the terms of section BO and of Regulation 29 that there are two different regimes, both of which are comprehended within Regulation 34. Accordingly, given that the issue between the parties is whether a late claim for input tax by a payment trader is, like a late claim for input tax by a repayment trader, governed by Regulation 29, and not by section 80, I do not believe that the provisions of Regulation 34 are of assistance.
68. I have already made reference to three factors cited by Mr. Cordara to support the University's case, and in particular the difference in treatment between payment traders and repayment traders so far as late claims for input tax are concerned, if the Commissioners are correct. As mentioned, these factors appear to me to provide some assistance, albeit nothing like decisive assistance, for the University's argument, and therefore for the conclusion I have reached. I believe that my conclusion is also supported by considering the position of a taxpayer whose return results in his making a payment of VAT, but whose subsequent claim for input tax exceeds the amount he originally paid by way of VAT. On the University's case, the whole of the subsequent claim falls within Regulation 29, which presents no problems. On the Commissioners' case, part of the subsequent claim (an amount equal to the VAT originally paid) is within section 80, and the balance is within Regulation 29, a somewhat surprising result. However, this is not an absurd result, and the point is essentially a practical one, and I do not think that it is of central significance.
69. At first sight my conclusion on this first issue may seem to cut across the view that a taxpayer (at least other than the ultimate consumer) is, in effect, a tax collector for the Commissioners, as mentioned earlier. It may be said that a taxpayer should only account to the Commissioners for the tax for which he is intended to be liable in respect of the relevant period, and, accordingly, a failure to allow for some input tax results in an overpayment of VAT falling within section 80(1). In my judgment, that argument merely involves a slight reformulation of the Commissioners' case on the first issue: to put it more trenchantly, it begs the question. If a taxpayer does not claim the input tax when he first can do so, then, if the University's argument is correct, he is not entitled to claim it as a credit against his output tax, and therefore his failure to claim it does not result in an overpayment. To the extent that he can claim it later, it can be set off against any later liability for output tax.

Conclusion

70. In these circumstances. I am of the view that, on this basis, the University's argument is correct. I do not accept that the effect of Articles 17 and 18 is that the University is or was entirely free to claim input tax whenever it wanted, so that any domestic limitation period would be invalid. It also seems to me that the University's primary right was to claim input tax in the returns for the periods in respect of which the supplies concerned were respectively actually made. However, I do not consider that its failure to do so results, on an analysis of the way in which the relevant legislation is worded, in money, whether one characterises it as VAT or anything else, having been overpaid by the University to the Commissioners. Accordingly, I do not consider that the Claim falls within section 80. and it therefore follows that the provisions of section 80(4) cannot be relied on by the Commissioners. Further, if that is right, the provisions of Regulation 29 apply.
71. At first sight, it may seem a little surprising that a taxpayer can decide when he wants to raise a claim for input tax. However, unlike domestic taxes (with the possible exception of ACT and Corporation Tax), VAT involves taxpayers having inputs as well as outputs. Therefore, the fact that my conclusion may seem somewhat counter-intuitive to an English lawyer, should not cause concern. Anyway, the Commissioners do not suffer it the input tax is claimed late: on the contrary, they obtain the equivalent of an interest-free loan. Further, as Regulation 29(1A) recognises. Article 18.3 permits the domestic: legislature to impose a time limit on late claims for input tax. The risk, the University took by not claiming the input tax at once was that terms of any indulgence to make late claims accorded by the United Kingdom - pursuant to its obligations under Article 18(3) -might defeat any late claim by the University.
72. I have considered whether to refer a question or questions to the ECJ in relation to the first issue, on the basis that it is not straightforward. Although my conclusion is based to a significant extent on the terms of the Sixth Directive, it appears to me that the issue is essentially one of domestic law, namely the interpretation of the 1994 Act and the Regulations. After all, there is no doubt that, as a matter of EC law, section 80(1) could have been framed so as to have the effect contended for by the Commissioners.

ISSUE 2(a): WAS THE CLAIM VALIDLY REJECTED UNDER REG. 29?

73. In my judgment, the Claim is therefore within Regulation 29, because it is a claim for deduction of input tax, albeit made late. The Commissioners contend that, in these circumstances, the Claim must nonetheless fail, essentially for two reasons. First, Regulation 29(1) and, indeed, Regulation 35 give the Commissioners a very wide and apparently untrammelled discretion as to whether, and if so when, to admit late claims for input tax, and they have decided to exercise that discretion to refuse the Claim. Secondly, the University's claim was not made in the form in which it should have been made. The University contends that neither of these points is good. (If the first of these points is good, then the University would argue that the provisions of Regulation 29(1) do not comply with the requirements of the Sixth Directive - the point discussed in the next section of this judgment).
74. I do not accept either of these arguments. So far as the first argument is concerned, it appears to me that, in the literature that they made available to the public up to and including November 1996, when the Claim was made, the Commissioners stated that they were effectively prepared to entertain any application based on payments based on inaccurate returns. There was no indication that a claim would be rejected or treated differently because it was occasioned by an understatement of input tax as opposed to an overstatement of output tax. There was no suggestion that a claim would be rejected because it was due to a decision to under-declare input tax, rather than a mistaken under-declaration of input tax. There was nothing to suggest that a claim based on an understatement of input tax would be rejected because it related to a period more than three years before the claim could or even should have been made.
75. On the contrary, it appears to me that the literature indicated that the Commissioners were prepared to treat all claims, whether based on overstated output tax or understated input tax, whether relatively recent or relatively old, whether accidental or intentional, on the same basis. The publications from which I have quoted, especially the 1996 VAT Guide, suggest that any claims or liabilities in respect of, or arising from, errors in returns will effectively be allowed. It can also be said with some force that that would have been entirely consistent with the spirit of the VAT legislation as embodied in the Sixth Directive, namely that the VAT system should work entirely neutrally, and that any overpayment or underpayments would be effectively ironed out. As to the second point, there is no suggestion in the Commissioners' publications that any late claim for underpaid input tax should be in any particular form. In these circumstances, I consider that the Commissioners have indicated to the public that there is no limitation imposed by the Commissioners on late claims from taxpayers. Of course, this does not mean that time limits or other restrictions on late claims imposed by Directives, the 1994 Act, or the Regulations can be over-ridden.
76. It seems to mc that, at least without specifically so deciding, and having good reason for so deciding, the Commissioners cannot impose limitations on late claims. So far as I can see the Commissioners have not purported to reject the Claim on the ground that they have exercised a discretion to do so under Regulation 29, whether because it was made too late or because it was in the wrong form. Further, no reason or justification for such a departure from the terms of their publications has been advanced on their behalf. This conclusion is also consistent with the Commissioners' attitude to the Claim, at least as I understand it. They have throughout rested their case for rejecting the Claim on the statutory time limit in section 80(4), and not on any time limit or other restriction imposed by them under Regulation 29.
77. It could be said that the reference to "errors" and "mis-declarations" in the Commissioners¹ publications should not be read as applying to late claims for input tax in light of the conclusion I have reached on the first issue, and my reasons therefore. In my opinion, it seems to me that this point is effectively met by the argument I have already considered in relation to Regulation 34. That Regulation appears to treat an under-declaration of input tax by a repayment trader as an "error" which can be "corrected" effectively pursuant to Regulation 29. It must therefore follow that, if a late claim for input tax by a payment trader falls within Regulation 29, it can also be described as the correction of an error. Quite apart from this, it appears to me that the Commissioners' publications should not be read in an over-technical way, or by detailed reference to the precise wording and working of the 1994 Act. That would he unrealistic and unfair: the publications are meant to be read by practical business people, and should be interpreted on that basis. On that approach, a failure to make a claim for input tax, which should in principle be claimed at once, seems to me to be an error or mis-declaration. It is hard to see why an accidental failure to raise such a claim is not within those words, and there is nothing to suggest that a different result should obtain if the failure is intentional.
78. Accordingly, I conclude that the Claim was validly made under Regulation 29, and that it should have been accepted as valid by the Commissioners. Although this renders it unnecessary to deal with the remaining issues, I shall discuss them, although I think that I can reach a conclusion on only one of those matters at this stage.

ISSUE 2(b): REG. 29 AND COMMUNITY LAW

79. If I had concluded that the Claim fell within Regulation 29 (as I have), but that (contrary to my view) the provisions of Regulation 29(1) entitled the Commissioners to reject the Claim, I would have been minded to refer an issue to the ECJ. In my judgment, there would have been a real argument to the effect that the very wide and unspecific discretion given to the Commissioners under Regulation 29(1) and/or the manner of the exercise of that discretion in this case did not satisfy the requirement:; of Article 18.3. in the event, however, it appears to me that that is a purely academic argument in the present case.

ISSUE 3(a): THE RETROSPECTIV1TY OF S. 80 AND COMMUNITY LAW

80. Any question relating to section 80 is hypothetical because I have concluded that the University's claim is within Regulation 29(1), and not within section 80. However, had I decided that the Claim was within section 80, then I would have thought it right to refer to the ECJ the question of whether the retrospective introduction of the time limit in section 80(4), without any transitional provisions, was lawful under Community law.

ISSUE 3(b): UNLAWFUL STATE AID

81. Unlike the two issues just referred to, it appears to me that this issue could properly have been determined, and I would have decided it in favour of the Commissioners. If I had concluded that the present case was governed by section SO, then there would have been a period (between the date on which section 80(4) came into force and the date upon which Regulation 29(1A) came into force) during which payment traders and repayment traders would have been treated differently, so far as claims for under-declared input tax were concerned. A payment trader would have been subject to the section 80(4) three year cap, whereas a repayment trader would not. The argument on behalf of the University, in those circumstances, would have been that this differential involved unlawful state aid. in that it would have distinguished between two types of entity in the same line of business. namely those who happened to be payment traders and those who happened to be repayment traders. I should explain briefly how and why I would have determined that issue, not least because this matter may well go further. In the case of Issues 2(b) and 3(a) it was inappropriate to include reasoning, because I would not have been prepared to reach a conclusion without the assistance of the ECJ, and I would have welcomed assistance from Counsel on the formulation of the terms of the reference to the ECJ.
82. Article 87(1) - formerly Article 92(1) - of the EC Treaty effectively outlaws (subject to certain exceptions not germane to this issue):

"Any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings".

83. In my judgment, if a late claim for input lax is subject to a strict three year time limit for payment traders, but is not subject to any specific time limit for repayment traders, that would be capable of representing a differential between competing entities in the same line of trade. It also appears to me that this differential could represent state aid to repayment traders as against payment traders, which could give the former some sort of competitive edge. That view is based on the guidance given by the Court of Appeal in R -v- Customs and Excise Commissioners ex p Lunn Poly Limited [1999] STC 350, see especially per Lord Woolf MR at [1999] STC 360B to 364H.
84. In my view, however, this aspect of the University's case suffers from two fatal flaws. First, as the Tribunal found, there was simply no evidence to show that the indirect state aid resulting from this differential either distorted or threatened to distort competition, or that it affected trade between Member States. Secondly, and quite apart from this, it seems to me that the jurisprudence of the ECJ establishes that, even if its argument was sound in principle, the University could not raise it to impeach the time limit in section 80(4) so far as its instant claim is concerned.
85. As to the first point, Lord Woolf MR said in Lunn Poly at [1999] STC 360B that, when a breach of Article 87 of the EC Treaty is raised:

"Ultimately the court has to ask itself the global question whether the matters complained of constitute:

(i) an aid,

(ii) granted by a Member State or through state resources in any form whatsoever which

(iii) distorts or threatens to distort competition and

(iv) which affects trade between Member States."

(This was a view with which Schiemann and Clarke LJJ agreed - see at [1999] STC 364H and 371H-J). In other words a breach of Article 87 involves four components.

86. In the present case, the Tribunal found that there was no evidence to show that either the third or the fourth of the components identified by Lord Woolf had been satisfied it is true that, so far as the third component is concerned, evidence of a threat of distortion is sufficient. However, it seems to me that, if it is to succeed on this issue, the University has to contend that, whenever the first two components are satisfied, either the court should infer that the third and fourth components are satisfied, or that the onus is on the party contending that those components are not satisfied.
87. In my judgment, where the first and second components have been established, the position in relation to the burden of proof on the third and fourth components will depend upon the facts of each particular case. In the present instance, one is concerned with the possible distortion of competition which may affect trade between Member States, for a limited period. That period may be divided into two parts, namely (i) the period between the introduction of section 80(4) in its present form, and the introduction of Regulation 29(1A) and (ii) a further period to allow for the fact that there were no transitional provisions in relation to the former provision, but there were in relation to the latter provision. It seems to me that, to put it at its lowest, the Tribunal was entitled to take the view that, in the absence of any evidence whatever as to the effect on different Universities, it was not satisfied that the third and fourth components were engaged, ever bearing in mind that the third component merely requires a threat to competition. In this connection, there was no evidence before the Tribunal as to the number of Universities which were or might be repayment traders, and there was not even an attempt to establish the extent to which the differential could affect competition between Universities or otherwise, let alone trade between Member States.
88. In Italy -v- the Commission (19th October 2000), BAILII: [2000] EUECJ C-105/99, the ECJ rejected the Commission's conclusion that certain aid provided by the Italian Government infringed Article 87. The ECJ noted, in paragraph 69 of its judgment, that the Commission "did not... provide the least information concerning competition between the Sardinian shipping companies and those established in Member States other than Italy". This appears to have been a ground for dismissing the contention that there was unlawful state aid in that case. Although that decision concerned a determination by the Commission, I consider that it provides support for the view that, in order to make out a case under Article 87, there must at least normally, be some positive evidence of distortion or of a threat of distortion of competition, and indeed evidence of an effect on trade between member states. However, I would accept that in some cases it will be self-evident that it is more likely than not that there is distortion (or a threat of distortion) and/or effect on trade so that the onus shifts to the person denying infringement of Article 87. In this instance, no reason which convinces me has been advanced as to why this is such a case.
89. Quite apart from this, I think that Mr Lasok is right in his contention that, over and above the third and fourth components identified by Lord Woolf, the University would have to show that the state aid in the present case infringed its rights: see Ministero Delle Finanze -v- IN. CO. GE. [1998] ECR I-6307 at paragraph 21 of the judgment of the ECJ. There was no evidence to support such a contention, other than the invitation to the Tribunal, repeated before me, to infer that the University suffered a competitive disadvantage as a result of the differential accorded to payment traders and repayment traders during the relevant period. I do not see any ground for drawing such an inference in this case.
90. Accordingly, on this first ground, I consider that, putting it at its lowest, the Tribunal was entitled to reach the conclusion that the University had failed to make out its ease on the third and fourth components of its case based on unlawful state aid. Accordingly, this court cannot interfere with that conclusion: see Edwards -v- Bairstow [1956] AC 14.
91. I turn to the second ground upon which, as I see it, the University must fail on this issue. It arises from the decision of the ECJ in Idéale Tourisme SA -v- Belgium [2000] ECR I-6049. In that case Idéale Tourisme operated a business of "international passenger transport by coach" and was seeking to resist payment of VAT, and to recover VAT it had paid, because companies operating international passenger transport by air were accorded a more favourable regime by the Belgian tax legislation. Two questions were raised for the ECJ, the second of which was:

"Can a VAT regime which favours a given sector of economic activity such as the one in issue in the present case constitute state aid...."? (see paragraph 18 of the judgment).

92. In paragraphs 28 and 29 of its judgment, the ECJ said this:

"The main proceedings are not concerned with that point, but with whether certain transactions carried out by Idéale Tourisme are subject to VAT or not. ... The second question should therefore not be answered."

93. In paragraph 26 of his opinion, the Advocate-General gave a slightly fuller explanation for this conclusion:

"We think that it is not useful to respond to the second question: in effect, by its action, Idéale Tourisme is aiming at obtaining the repayment of amounts paid by way of VAT and not at ordering the Belgian fiscal administration to stop granting aid in the form of exemptions of VAT to air transport companies, or at ordering the air transport companies to repay the exchequer the aids in dispute..., in which case the formulation of that question would have been justified and the response of the court useful for the resolution of the litigation."

94. Application of that reasoning to the present case appears to me to establish that the University's argument based on Article 87 cannot be raised in order to justify its claim for repayment of tax, as an entity against whom the unlawful discrimination is said to have worked. The complaint is one of unlawful state aid, and the appropriate remedy to seek is for an order that the state aid is no longer continued and, possibly, for an order that the beneficiary of the aid pays it back. In other words, the proper remedy to seek is an order requiring payment back of the aid, rather than, as it were, compounding the unlawfulness by seeking to extend the aid to one specific payment trader. The argument that this would be difficult to achieve is, in my view, irrelevant. First, it does not impinge on the principle; secondly, the argument appears to have been equally applicable in Ideal Tourisme itself.

CONCLUSIONS

95. In these circumstances, my conclusions are as follows:

1. The University's claim in November 1996 for input tax was made pursuant to Regulation 29, rather than pursuant to section 80;

2. Despite the wide wording of Regulation 29 so far as late claims are concerned, the Claim should have been accepted by the Commissioners;

3. If the Claim had been within section 80 as well as, or instead of. Regulation 29, then it would have been effectively invalid because of section 80(4);

4. If the Claim was within Regulation 29 but the Commissioners were entitled to reject it, or if the claim fell within section 80 and it was effectively barred by section 80(4). I would have thought it right to refer issues to the ECJ;

5. If the Claim had been barred by section 80(4), I would have rejected the University's case based on unlawful state aid.

96. Accordingly, it follows that, the University's appeal is allowed.