England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL

		Royal Courts of Justice Strand. London. WC2A 2LL
		10th June 2005

MR JUSTICE WARREN

Introduction

1. This is an appeal by Conde Nast Publications Ltd ("CNP") against a decision of the VAT and Duties Tribunal ("the Tribunal") dated 7 December 2004 by which the Tribunal dismissed CNP's appeal against a decision of the Commissioners of Customs and Excise ("the Commissioners") contained in a letter dated 31 October 2003 by which the Commissioners refused to pay to CNP part of the sums claimed by it in a voluntary disclosure claim dated 27 June 2003.
2. That claim relates to amounts of input VAT in respect of expenditure on staff entertainment, which CNP failed to deduct when accounting for VAT in past periods. Although the claim, insofar as it is relevant to this appeal, related to the periods from 1 April 1973 to 30 April 1997 and from 1 May 1997 to 31 December 1999, CNP does not advance any arguments before me in relation to the second of those periods.

Statutory provisions and case law

3. I refer at this stage to some statutory provisions and mention a number of decisions, both domestic and in the European Court of Justice ("the ECJ").
4. Claims for overpayment of output tax and under-deduction of input tax are dealt with by section 80 Value Added Tax Act 1995 ("section 80") and Regulation 29 Value Added Tax Regulations 1995 ("Regulation 29").
5. Section 80 makes provision for repayment by the Commissioners of overpaid tax on a claim being made to them. It is a defence, in whole or in part, to such a claim that repayment of an amount would unjustly enrich the claimant. As originally enacted, section 80 provided, by subsection (4), that no amount could be claimed after the expiry of 6 years from the date on which it was paid except where subsection (5) applied. That latter subsection applied where an amount had been paid by reason of a mistake, in which event a claim could be made at any time within' 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
6. On 18 July 1996, the Government announced that the time limit for recovering overpaid tax would be shortened to 3 years, thus both reducing the 6 year limit and removing the special provisions in relation to mistake altogether. The relevant amendment to subsection (4) was effected by Finance Act 1997 which was enacted on 19 March 1997 and under which the 3 year time limit was deemed to come into force on 18 July 1996; however, prior to the 1997 Act, the change in the time limit had been approved under the Provisional Collection of Taxes Act 1968 on 4 December 1996. No provision was made for a transitional period during which a taxpayer could make a claim in respect of his accrued rights.
7. Regulation 29 makes provision for claims for input tax. Ordinarily, a taxpayer should claim, under Regulation 29(1), input tax as a deduction on the return for the accounting period to which it relates. However, Regulation 29(1) also contains wording which giving the Commissioners discretion to depart from that requirement the exercise of which, as originally drafted, was not subject to a time limit.
8. On 25 March 1997, the Government announced a change in the time limits appropriate to Regulation 29 claims. A new Regulation 29(1 A) was inserted with effect from 1 May 1997, some 5 weeks or so after the announcement: this precluded the Commissioners from allowing a claim for deduction of input tax made more than 3 years after the due date for the return in relation to the relevant period. Again, no transitional provisions were included.
9. On 11 July 2002, Case C-62/00 Marks and Spencer plc v Customs and Excise Commissioners [2002] STC 1036 ("M&SI") was decided by the ECJ. It is clear from that decision that Member States may (i) impose time limits on the right of recovery of overpaid tax (in which context, a 3 year limit is acceptable) and (ii) curtail an existing time limit or introduce one where none existed previously. In relation to (ii), the case also established that, giving effect to Community law, transitional provisions must be introduced in order to comply with the principle of effectiveness (ie the national rules must not render virtually impossible or excessively difficult the exercise of Community law rights) and to reflect the protection of legitimate expectations. The ECJ did not, in M&SI, rule on the duration or manner of operation of such a transitional period.
10. Following the decision, Customs and Excise announced the introduction, without legislation, of retrospective transitional relief. This was contained in a Business Brief dated 5 August 2002. The purpose of the transitional provision was, according to the Business Brief, "to allow taxpayers to make the claims that they ought to have been able to make at the time".
11. The transitional regime was to apply from 4 December 1996 to 31 March 1997 ie from the date the change was enacted until the expiry of a period which the Commissioners must have considered was sufficient adequately to give effect to the taxpayers' Community law rights. Customs invited claims in the four circumstances mentioned in the Business Brief. I do not need to go into those circumstances save to note that transitional relief would not apply if the overpayment of tax was not discovered before 31 March 1997, the end of the transitional period: this would reflect the position had the amending legislation included, as it should have done; a transitional' period during which claims could be made in relation to subsisting rights to recover overpaid tax.
12. Taxpayers were given until 31 March 2003 to submit claims. Having previously failed to introduce (whether by way of legislation or administrative practice) transitional provisions, a reasonable time was introduced in which taxpayers could make claims: the period from 5 August 2002 to 31 March 2003 which was adopted was no doubt considered reasonable by the Commissioners and was, neatly, an anniversary of the end of the transitional period. Notwithstanding that approach, the Commissioners' argument in the present case is that such a transitional provision does not need, retrospectively, to be afforded to a taxpayer who cannot show that he would have made a claim even if a proper transitional provision had been included in the first place.
13. The Business Brief did not contain, and nor does any other material at or about the time to which I have been referred contain, a further requirement that a taxpayer, in order to make a claim, must be able to show that, had the transitional provisions been properly included, he would in fact have made a claim.
14. On 24 September 2002, Case C-255/00 Grundig ltaliana SpA v Ministero della Finanze [2003] All ER (EC) 176 ("Grundig") was decided by the ECJ. This case concerned an Italian consumption tax rather than VAT. Italian legislation had included a general 5-year limitation period for reclaiming sums of tax (not restricted to this consumption tax) paid but not due. Legislation was introduced shortening that period to 3 years subject, however, to a 90-day transitional period during which taxpayers could make claims without being affected by this new provision. Although detailed matters of limitation are usually left to be dealt with at a national level, the ECJ ruled that 90 days was insufficient and that a 6 month period was the minimum required to ensure that Community law rights could be effectively exercised. Grundig is not, it should be noted, a decision either way on the question whether 6 months is a sufficient transitional period in the case of the reduction of the, effectively, unlimited time for making a claim under Regulation 29 or indeed of the original time limits for making a claim section 80.
15. Following that decision, Customs and Excise issued a further Business Brief on 8 October 2002 extending the transitional period by 3 months to 30 June 1997. The period within which· claims for repayment of overpaid tax could be made was also extended by 3 months to 30 June 2003.
16. No similar transitional provisions were announced or implemented ill relation to Regulation 29, which remains the position to this day.
17. At this stage, I mention that it had been the view of the Commissioners, and one which was applied in practice, that late claims to deduction of input tax were to be made under section 80 and not under Regulation 29. Neuberger J held this to be wrong in University of Sussex v Customs and Excise Commissioners [2001] STC 1495, his decision being given on 10 October 2001. Customs and Excise did not accept his decision on that issue; but it was upheld by the Court of Appeal on 21 October 2003: see the judgment in the combined appeals in Marks and Spencer plc v Customs and Excise Commissioners and University of Sussex v Customs and Excise Commissioners [2004] STC 1 ("M&SII/Sussex"). However, by a Business Brief dated 22 February 2002, Customs and 'Excise put Neuberger 1's decision into effect. It advised taxpayers that they might wish to consider lodging claims for repayment under Regulation 29 of amounts previously claimed under section 80. If taxpayers had made a late claim for input tax which was (i) still unsettled on 18 July 1996 or (ii) made between 18 July 1996 and 30 April 1997 and capped under section 80(4), they were invited to write to their local VAT office. The Commissioners would make payment only if the taxpayer undertook to make repayment if the Court of Appeal overturned Neuberger 1's decision.
18. The Tribunal was asked to determine CNP's appeals as matters of principle. The detail of the input tax which CNP seeks to recover was not determined. There was, however, a considerable amount of evidence before the Tribunal which was directed at what CNP would have done if appropriate transitional provisions had been included in the amending legislation .. The Tribunal found, as a matter of fact, that CNP would not have made a claim in relation to the period 1 April 1973 to 30 April 1997 even if there had been provision for a taxpayer to make a claim within a reasonable transitional period.
19. CNP did not make a claim under Regulation 29 (or indeed under section 80 at any time when it was believed generally that section 80 governed late claims to deduct input tax) until the Claim Letter (27 June 2003), just within the period applicable to section 80 claims under the second Business Brief, and 18 months after the decision of Neuberger J (although before the Court of Appeal decision) in University of Sussex.
20. The parties approach the case from radically different perspectives.
21. Mr Peacock, for CNP, has two main submissions which I summarise:
22. First, consistent with the decision in M&SI, transitional provisions should have been included in relation to Regulation 29 just as they should have been included in relation to section 80. The absence of an adequate transitional period renders the amendment made by Regulation 29(1A) unlawful since the amendment then constitutes an unacceptable fetter on CNP's right to recover input tax. Regulation 29(1A) in its current form is in breach of Community law and provides no legitimate basis on which the Commissioners can refuse repayment.
23. Secondly, Mr Peacock looked at how a transitional provision might have operated had it been properly included in the changes to Regulation 29. He adopts the same approach as was in fact adopted in relation to section 80, reaching the conclusion that CNP would have been entitled to repayment had such a transitional period been in place. He says that a 6 month period from 1 May 1997 at least would have been allowed as a transitional period taking us to 1 November 1997 in cases where the trader was aware of the error before that date (and, I would add, where the input tax related to a period before 1 May 1997, just as the over-payment, in section 80 cases, had to be made before 4 December 1996). On the basis that a transitional period should have been announced and applied retrospectively once the decision in M&SII/Sussex was known in October 2003, taxpayers should have had until around 1 May 2004 to make their claim. Prior to M&SII/Sussex, taxpayers were being told - even after the decision of Neuberger J - that their claim in relation to late deduction of input tax fell within section 80; accordingly, it was only in October 2003 at the earliest that they should have realised that they had Community law rights which had not been preserved on the implementation of Regulation 29(1A) so that they should, after that time, have been given a reasonable period within which to notify Customs and Excise of their claims.
24. Although Mt Peacock maintained his first principled submission, it seemed to me that, taken to it~ logical conclusion, it leads to the result that, since no transitional provision has, even to this day, been adopted (whether by statute or by practice) in relation to Regulation 29, it would still be open to a taxpayer who had not yet made a claim now to make one in relation periods prior to 1 May 1997. Mr Peacock, recognising that such a result would be extreme, accepted that it would now be too late to make a. claim. It seems to me that, to reach that conclusion, he would either have to abandon his first submission in favour of his second, or to qualify his first submission along the following lines: following the decisions in M&SI and Grundig, it would - at least after allowing a time for those decisions to be digested by taxpayers and their advisers - have been recognised that Regulation 29(1 A) should have included a transitional period of at least 6 months and that claims should be made within a reasonable period after those decisions; and that, by analogy with the Business Briefs, taxpayers should have had at least until 31 June 2003 to make their claims (which CNP did do - just).
25. Mr Vajda, for the Commissioners, starts at the other end. Whilst not expressly conceding that a transitional period should have been provided for by Regulation 29(1 A), he proceeds on the basis Community law does; indeed, so require. He says that, on the facts as found by the Tribunal, CNP would not, in fact, have made a claim even if appropriate transitional provisions had been in place. One needs to put a slight gloss on that since the Commissioners would not, during a transitional period running for, say, 6 months from either the announcement or introduction of Regulation 29( lA), in fact have accepted a claim under Regulation 29, maintaining that section 80 applied: so one perhaps needs to say that CNP would not have made a claim during the section 80 transitional period had the amendments to section 80 included one. Accordingly, he submits, CNP's Community law rights have not been prejudiced by the absence of a transitional period: the absence of a transitional period does not of itself entitle CNP to succeed and the 3 year time limit has not prevented the effective exercise of its Community law rights or breached of CNP's legitimate expectations. He rejects Mr Peacock's contention that, in the absence of contemporaneous transitional period, any illegality in the introduction of the 3-year time limit can only be cured by a retrospective transitional period. This is the Commissioners' principal submission.
26. In the context of that submission, he points out that the failure to include a transitional provision in the legislation providing the new time limit does not result in the striking-out of the offending part of the legislation: the time limit remains but subject to being overridden by Community law where appropriate. In Local Authorities Mutual Investment Trust v Customs and Excise Commissioners [2004] STC 246, Lawrence Collins J was faced with a head-on challenge to the validity of Regulation 29(1 A). He said this at paragraph 67:

"The validity of reg 29(1A) is not, in my judgment, affected by the criticism directed at reg 29 to the effect that reg 29( I) does not properly implement art 18(1) and (2). Even if a taxable person could challenge the application of reg 29(1) on the basis of the direct effect of art 18, the consequence would not be that reg 29(1) was invalid, but that the United Kingdom could not, in those circumstances, rely on it. Even if (which it is plainly not necessary to decide on this appeal) reg 29(1) could be declared inapplicable in an appropriate case, it cannot effect the validity and application of reg 29(lA) in the present case. A national rule which is incompatible with directly effective Community law is not invalid, but the national court must, where it might otherwise apply, disapply the rule: see, eg Ministero delle Finanze v IN CO GE '90 Srl (Joined cases C-10/97 and C-22/97) [1998] ECR 1-6307, para 21; Imperial Chemical Industries plc v Colmer (Inspector of Taxes) [1999] STC 1089, [1999] 1 WLR 2035; Marks and Spencer plc v Customs and Excise Comrs [2004] STC 1, para 173."

27. Further, Mr Vajda submits that there is no ground for overturning the Tribunal's finding of fact on the limited basis available to me as a judge hearing an appeal on matters of law.

28. I turn, now, in more detail to M&SI, Grundig and M&SII/Sussex.

28. The facts of M&SI are quite complex: I do not need to rehearse them save to note that there could, on the facts, be no scope for the argument, deployed in the present case, that a claim for repayment of tax would not have been made even if appropriate transitional provisions had been included. The ECJ has this to say about the principle of effectiveness:

"The principle of effectiveness

34. It should be recalled at the outset that in the absence of Community rules on the repayment of national charges wrongly levied it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness) (see, inter alia, Aprile Sal (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) (Case C-228/96) [2000] 1 WLR 126, para 18, and the judgments in Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579,

para 25, and Metallgesellschaft Ltd v IRC [2001] STC 452, [2001] Ch 620, para 85).

35. As regards the latter principle, the court has held that in the interests of legal certainty, which protects both the taxpayer and the administration, it is compatible with Community law to lay down reasonable time limits for bringing proceedings (see Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) [2000] 1 WLR 126, para 19, and the case law cited therein). Such time limits are not liable to render virtually impossible or excessively difficult the exercise of the rights conferred by Community law. In that context, a national limitation period of three years which runs from the date of the contested payment appears to be reasonable (see, in particular, Aprile, para 19, and Dilexport Srl v Amministrazione delle Finanze dello Stato

[1999] ECR 1-579, para 26).

36. Moreover, it is clear from the judgments in Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) [2000] 1 WLR 126, para 28 and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, paras 41-42 that national legislation curtailing the period within which recovery may be sought of sums charged in breach of Community law is, subject to certain conditions, compatible with Community law. First, it must not be intended specifically to limit the consequences of a judgment of the court to the effect that national legislation concerning a specific tax is incompatible with Community law. Secondly, the time set for its application must be sufficient to ensure that the right to repayment is effective. In that connection, the court has held that legislation which is not in fact retrospective in scope complies with that condition.

37. It is plain, however, that that condition is not satisfied by national legislation such as that at issue in the main proceedings which reduces from six to three years the period within which repayment may be sought of VAT wrongly paid, by providing that the new time limit is to apply immediately to all claims made after the date of enactment of that legislation and to claims made between that date and an earlier date, being that of the entry into force of the legislation, as well as to claims for repayment made before the date of entry into force which are still pending on that date.

38. Whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, it is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging the claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right.

39. In that connection it should be noted that member states are required as a matter of principle to repay taxes collected in breach of Community law (see Societe Comateb v Directeur General des Douanes et Droits Indirects and related references (Joined cases C-192/95 to C-218/95) [1997] STC 1006, [1997] ECR 1-165, para 20, and Dilexport Srl v Amministrazione delle Finanze dello Stat<;> [1999] ECR 1-579, para 23), and whilst the court has acknowledged that, by way of exception to that principle, fixing a reasonable period for claiming repayment is compatible with Community law, that is in the interests of legal certainty, as was noted in para 35 hereof. However, in order to serve their purpose of ensuring legal certainty limitation periods must be fixed in advance (see ACF Chemiefarma NV v EC Commission (Case 41/69) [1970] ECR 661, para 19).

40. Accordingly, legislation such as that at issue in the main proceedings, the retroactive effect of which deprives individuals of any possibility of exercising a right which they previously enjoyed with regard to repayment of V A T collected in breach of provisions of the Sixth Directive with direct effect must be held to be incompatible with the principle of effectiveness.

41. That applies notwithstanding the argument of the United Kingdom government to the effect that the enactment of the legislation at issue in the main proceedings was motivated by the legitimate purpose of striking a due balance between the individual and the collective interest and of enabling the state to plan income and expenditure without the disruption caused by major unforeseen liabilities.

42. Whilst such a purpose may serve to justify fixing reasonable limitation periods for bringing claims, as was noted in para 35, it cannot permit them to be so applied that rights conferred on individuals by Community law are no longer safeguarded. "

29. The facts in Grundig are slightly complex: it is necessary to understand some essential features in order to attempt to understand what the ECJ is saying in its judgment:

a. Consumption tax was levied from 1 January 1983 to 31 January 1992.

b. In 1998, the particular application of that tax to Grundig was ruled by the ECJ to be incompatible with Community law.

c. Until the end of 1990, there was a 5-year time limit for the recovery of tax paid but not due.

d. That period was reduced to 3 years by a law of 29 December 1990 entering into force on 27 January 1991. It provided for the new time limit to enter into force 90 days later ie on 27 April 1991.

e. As a matter of Italian domestic law, the new time limit did not apply to an action brought before 27 April 1991, but did apply to an action commenced after that date even if such action related to payment made prior thereto.

f. Grundig commenced its claim on 22 July 1993. It had applied to the court to continue its proceedings once the ECJ decision mentioned in b. above was given.

g. The Italian court had, by the time the matter came before the ECJ, ruled that the 5 year limitation period applied as a minimum in any event but the Ministry of Finance was arguing that the new 3 year period applied so that Grundig could not reclaim for any period earlier than 22 July 1990.

30. The question referred to the ECJ was, essentially, whether the 90-day transitional period was adequate. The answer given was that it was not and that 6 months was the reasonable period which should have been adopted. It is not immediately apparent why this issue was of significance on the facts. A 6 month period would still have meant that Grundig's claim was made well after (some 2 years) that period had expired, so that, if the Italian courts were to substitute 6 months for 90 days, Grundig's claim would remain subject to the 3 year period. However, if it were the case that the Italian courts were to decide that the invalidity of the 90 days period rendered the shortening of the time-limit altogether ineffective so far as concerns payments made prior to 27 April 1991 (unless and until effective transitional provisions were brought into effect as a matter of national law) then Grundig would be subject only to the old 5 year period. Whatever the Italian court decides (or has already decided) is, of course, a matter of its domestic law, determined in the course of working out the implications of Community law as laid down by the ECJ in the Grundig judgment. As the ECJ has said many times, it is for the national -legal systems of Member States to lay down the rules and procedures for protecting Community law rights so that the approach of the Italian court would not necessarily be of any assistance to me even if I knew the result.

32. I need now to set out some paragraphs from the judgment in Grundig.

"35. Nor does the principle of effectiveness present an absolute bar to the retroactive application of a new period for initiating proceedings that is shorter and, as the case may be, more restrictive for the taxpayer than the period previously applicable, and that is so where such application concerns actions for the recovery of internal taxes contrary to Community law which have not yet been commenced by the time the new period comes into force and which relate to sums paid whilst the old period was applicable.

36.Given that the detailed rules governing the recovery of national taxes levied, though not due are a matter for the national legislature, the question whether such rules may apply retroactively is equally a question of national law, provided that any such retroactive application does not contravene the principle of effectiveness.

37. In that regard, whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, this is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right (see Marks & Spencer plc v Customs and Excise Comrs Case C-62/00 [2002] STC 1036 at 1058-1059, [2002] ECR 1-6325 (para 38».

38. Thus, the transitional period must be sufficient to allow taxpayers who initially thought that the old period for bringing proceedings was available to them a reasonable period of time to assert their right of recovery in the event that, under the new rules, they would already be out of time. In any event, they must not be compelled to prepare their action with the haste imposed by an obligation to act in circumstances of urgency unrelated to the time limit on which they could initially count.

39. A transitional period of 90 days prior to the retroactive application of a period of three years for initiating proceedings in place of a ten- or five-year period is clearly insufficient. If an initial period of five years is taken as a reference, 90 days leaves taxpayers whose rights accrued approximately three years earlier in a position of having to act within three months when they had thought that almost another two years were still available.

40. Where a period of ten or five years for initiating proceedings is reduced to three years, the minimum transitional period required to ensure that rights conferred by Community law can be effectively exercised and that normally diligent taxpayers can familiarise themselves with the new regime and prepare and commence proceedings in circumstances which do not compromise their chances of success can be reasonably assessed at six months .

41. However, the fact that the national court has found that a transitional period fixed by its national legislature such as that in issue in the main proceedings is insufficient does not necessarily mean that the new period for initiating proceedings cannot be applied retroactively at all. The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary in order to ensure observance of that principle. It must, therefore, be permissible to apply the new period for initiating proceedings to actions brought after expiry of an adequate transitional period, assessed at six months in a case such as the present, even where those actions concern the recovery of sums paid before the entry into force of the legislation laying down the new period.

31. Although the Commissioners have not conceded that the reasoning in M&SI applies to Regulation 29, I think that I should decide the point. CNP is entitled to know its position as a matter of law rather than have its liability governed by an assumption which the Commissioners are willing to make for the purposes of this appeal.
32. In M&SII/Sussex Auld LJ considered the consequence of the absence of a transitional time limit in relation to section 80. Although what he said is, strictly, obiter, he considered in some detail the judgment of the ECJ in M&SI, reaching the following conclusion at paragraph 173:

"In my view, regardless of the basis of our domestic law (i.e. section 80 or regulation 29) for the university's claim in respect of its formerly unclaimed input tax, it had accrued rights under articles 17-20 of the Sixth Directive before the retrospective introduction of the three-year cap (for section 80 claims in July 1996 or for regulation 29(1) claims in May 1997). I consider that these provisions are unconditional and sufficiently precise to give rise to a directly effective Community right"

35. Then, at paragraph 175, he said this:

"The existence of an element of discretion in a member state as to how a right is to be exercised cannot, in my view, sensibly deprive it of direct effect. There is a clear distinction between the existence of a Community law right and the discretion given to a member state as to the manner of its exercise ... "

33. I respectfully agree with everything which Auld LJ had to say on this aspect; in my judgment, it is clear that the failure to include an appropriate transitional period, when introducing Regulation 29(1 A), during which a trader could make a claim under Regulation 29 in relation to periods prior to the new time-limited period, was a breach of Community law giving the trader directly enforceable rights.
34. M&SII/Sussex does not tell us what the appropriate transitional period would have been in relation to section 80. Grundig, in relation to a different tax, indicates that a 6-month period is sufficient where the previous time limit was 5 or 10 years. But neither case deals clearly with how matters are to be dealt with after the expiry of what would have been a reasonable transitional period had one been properly introduced. As to that there are at least two possible approaches.
35. The first possible approach is that the new national time limit can be relied on by the Member State once a reasonable time has passed since its introduction; and this is so regardless of whether the taxpayer knew that he had, or believed that he might have, a Community law right which he could enforce notwithstanding the failure to provide for a proper transitional period. On that approach, it may be that a longer period should be allowed for enforcement of the directly enforceable right than the minimum period which could have been expressly provided. In the present case, and assuming that a 6 month transitional period for the purposes of Regulation 29 would have been appropriate, the time limit for making a claim would have expired 6 months after either 26 March or 1 May 1997, long before the claim was in fact made by CNP on 27 June 2003. Even allowing a longer period for enforcing Community law rights, a reasonable period would have expired long before that date.
36. The second possible approach is that the principle of effectiveness requires that a taxpayer should be entitled to enforce his Community law right until the time has been reached when he could first have been expected to assert that right; and that he could not be expected to do so as long as that right had not been established and was subject to challenge in the ECJ by the Member State concerned. He should, therefore, have a reasonable time in which to assert his Community law right once that right had been established or, at least, once the generality of taxpayers and advisers appreciated that such a right might subsist.
37. As I have already indicated, the reaction of the Commissioners to M&SI was to introduce, by way. of Business Brief dated 5 August 2002, a retrospective transitional period, initially of 90 days but, following Grundig, extended to 6 months. The 6 month period was not introduced until long after the 6-month transitional period had expired. In order to be of real benefit to traders, they had to be given, as it is put in the Business Brief, time "to allow taxpayers to make the claims that they ought to have been able to make at the time". This seems to adopt something along the lines of the second approach.
38. In this context, it is to be remembered that the Commissioners were, at that time, still contending that taxpayers had no directly enforceable Community law right in relation to the shortening of the section 80 period; it was not until M&SI at the earliest that the generality of taxpayers should have known that such a right subsisted and arguably not until M&SII/Sussex when the issue was first explicitly dealt with by an English court. Accordingly; it would not have been open, on the second approach, to the commissioners to contend, in August 2002, that a reasonable period for asserting Community law rights had passed since the introduction of the new time limits by Finance Act 1997 and to contend that it was therefore, by August 2002, already too late for claims to be made. The Business Brief seems to me to be a reflection of this second approach, although whether the Commissioners were over-generous in allowing claims to be made as late as 31 March 2003 (extended after Grundig to 30 June) is perhaps debateable.
39. That is not to say, even on the second approach, that it was only once a transitional period had been adopted by UK law - either by statute or, as in the case of section 80, by a practice announced by the Commissioners - that time could start to run against taxpayers. For instance, if nothing had been done by the Commissioners to implement the judgments of the ECJ and the Court of Appeal in M&SI and M&SII/Sussex, taxpayers would nonetheless have known of their Community law rights (possibly after M&SI and certainly after M&SII/Sussex) so that, after a reasonable period, the new time limit for making claims under section 80 would have applied: by failing to assert their directly enforceable Community law rights in good time, taxpayers would have lost the right to invoke the principle of effectiveness to defeat the clear provisions of the domestic statutory provisions. However, so long as the direct effect of Community law remained unclear and while the Commissioners themselves were asserting that taxpayers were bound by the terms of section 80, it cannot be said under the second approach that the theoretical right to challenge the Commissioners by asserting the right (ie the direct effect of Community law) which the Commissioners denied existed is sufficient to satisfy the principle of effectiveness.
40. The position in relation to Regulation 29 is similar but not precisely identical. The position is similar in that it was a breach of Community law not to provide a transitional period for making claims when Regulation 29(1 A) was introduced. Accordingly, it was, again, not until the decision in M&SI at the earliest that taxpayers should have know that they might have a Community law right which they should enforce within a reasonable time. The position is different in that the Commissioners were asserting, until the decision in M&SII/Sussex, that Regulation 29 did not apply at all and that claims should be made under section 80. CNP, in the present case, made its claim just within the period permitted for section 80 claims; if the Commissioners had been correct in their contentions that section 80 applies, then CNP's claim would have been in time. The Commissioners submit; albeit as a secondary submission, that the Business Briefs do not apply to late Regulation 29 claims; and that there would be no breach of Community law in refusing a claim made as late as CNP's actual claim in a Regulation 29 case, adding that any complaint about declining to apply the same approach as was adopted in relation to the section 80 transitional period is a matter of domestic law and that there is no jurisdiction for the Tribunal to deal with such a complaint on a statutory appeal.
41. All of this is, of course, subject to the Commissioners' principal submission mentioned in [25] above.
42. At this stage, I turn to consider the decision of Evans-Lombe J earlier this year in Fleming (t/a Bodycraft) v Customs and Excise Commissioners [2005] STC 707 which, like the case before me, considered the effect of the absence of any transitional provisions in relation to Regulation 29(1A). The case concerned the refusal of the Commissioners to repay to the Appellant input tax on three Aston Martin motorcars out of a batch of thirteen such cars purchased by the Appellant in 1989 and 1990 upon which he had paid VAT as an input. In 1993, the Appellant made voluntary disclosure claiming repayment of input tax on ten of the thirteen cars, a claim which was eventually paid by the Commissioners in 1994. On 23 October 2000, the Appellant made a claim for repayment of input tax on the remaining three cars. The Commissioners refused the claim for the sole reason that there was a failure to comply with Regulation 29(1A).
43. In his judgment, Evans-Lombe J, after considering M&SI and M&SII/Sussex, sets out paragraph 41. of the ECJ judgment in Grundig and then says this in relation to it, at paragraphs 24 and 25:

"24. The court was considering a case where, what was in issue, was the sufficiency of transitional provisions. It seems to me, however, that the principles? highlighted in that passage from the judgment, are equally applicable where the relevant time limit imposed by the national legislature is not, as in the case of regulation 29(IA) accompanied by any such transitional provisions. The effect of what the court is saying in this case is that, even in the case of individuals whose claims have accrued before the time limits were imposed and who may therefore be in a position to require the national courts to disapply the time limits to their claims, if brought within a reasonable time after the imposition of the limits, their privileged position by comparison with those whose rights only accrued after the imposition of the time limits does not continue indefinitely thereafter. If they allow too long a period to go by before making a claim the national court may properly conclude that the principle of finality or legal certainty requires it to refuse to disapply the limitation provisions.

"25. In the present case the Appellant's claim for repayment of input tax in relation to the three cars in question has been capable of being made by him since 1990 and he only put it forward three years and five months after the coming into force of regulation 29(1 A) of which he must be taken to have notice. For these reasons it seems to me that the Tribunal's second conclusion was wrong and the. Commissioners were justified in refusing the Appellant's claim for repayment. In the result, however, the appeal must be dismissed.""

44. Mr Peacock does not disagree with what Evans Lombe J says in paragraph 24, although I understand him to say in effect that the "reasonable time" referred to should be read as referring to the time when the ordinarily diligent taxpayer should have realised that he might have a Community law right; on the facts of the present case, that would not be until the decisions in M&SI and M&SII/Sussex.
45. Mr Peacock does, however, criticise paragraph 25. He says that Evans Lombe J does not explain - there is simply no reasoning - how he gets from what is said in paragraph 24 to the conclusion in paragraph 25. I do not think that that is a fair reading of paragraphs 24 and 25 taken together. It seems to me that what the Judge is saying is this:

a. The time for bringing a claim relying on the old time limit is a reasonable period from the coming into force of Regulation 29(1A).

b. Paragraph 41 of the judgment in Grundig lays down 6 months as the reasonable time in relation to the facts of that case.

c. Whatever might have been the shortest transitional period which could have been applied in Regulation 29(1 A) cases, it was clearly less than 3 years and 5 months (the actual time between the coming into force of Regulation 29(1A) and Mr Fleming's claim).

d. Accordingly, and in accordance with paragraph 41, it was too late for Mr Fleming to make his claim.

46. In effect, Evans Lombe J adopts the first approach which I have set out briefly in [39]ff above and in doing so adopts a particular reading of paragraph 41 of the judgment in Grundig. Mr Peacock would say that the judge failed to address the fact that taxpayers in the position of Mr Fleming and CNP did not know, at least until the decision M&SI, that they had a Community law right to enforce. But that was also the case in Grundig itself, where the breach of Community law by Italy in imposing the consumption tax was not established until 1998.
47. Essential parts of Evan Lombe J's decision are (i) that, once a reasonable time has passed since the coming into force of Regulation 29(1A), the Court should apply the 3 year time limit for bringing claims and (ii) that 3 years and 5 months is more than a reasonable time. It is implicit in the second of those that the reasonable time is not postponed during the period of uncertainty about the extent (if any) of taxpayers' Community law rights (or, indeed, during the period when the Commissioners were asserting that section 80, rather than Regulation 29 applied, a matter of purely domestic law). Unless I consider that Evans Lombe was clearly wrong, I should follow his decision. I certainly do not consider that he is clearly wrong and, indeed, he may be right.
48. Mr Peacock says that I should not feel bound to follow the decision of Evans Lombe J. He says that the absence of reasoning in paragraph 25 of the judgment leaves entirely unexplained why the Judge reached the conclusion he did. It might, he says, be for the reasons which I have just set out; or it might be because he was attracted by what the Commissioners now put as their principal argument (see [25] above) in the appeal before me. Since we do not know the reasons for the decision, I should not, Mr Peacock submits, consider myself bound to follow the decision. There is, however, no hint of that argument in Evans Lombe J's decision nor, so far as I can see, in that of the Tribunal. It seems to me clear that he viewed the matter as quite straightforward considering (a) that, following the decision in Grundig, proper effect would be given to Community law provided that a reasonable period was allowed for bringing claims, the new national time limit applying to claims brought after that period and (b) that 3 years and 5 months was in excess of the period which had to be allowed.
49. Having said that, I see a great deal of force in the arguments in favour of the second approach considered in paragraphs [39]ff above. The ECJ might, I can readily accept, take the view that the principle of effectiveness is breached so long as the very Community right in issue is subject to challenge by the Member State concerned, recognising that a taxpayer who needs to assert a disputed Community right is in a far worse position than a taxpayer who can rely on a clear domestic law right (which should have been included in the legislation) and that his rights have thereby been rendered, if not virtually impossible, then excessively difficult to exercise.
50. However, even if that is correct, it does not, I think, avail CNP. Following M&SI and Grundig, taxpayers should have realised, especially in the light of the Business Briefs, that the failure to implement a transitional period in Regulation 29, as much as in section 80, was or might very well have been a breach of Community law. It was as a result of a misinterpretation of domestic law, by the Commissioners and many taxpayers alike, not of Community law, that section 80, rather than Regulation 29, was thought to apply to repayment of input tax. So far as Community law is concerned, all that was required was the inclusion of a valid transitional period. If such a period had, in fact, been included, it would, even if longer than 6 months, no doubt have expired by the time of Neuberger 1's decision in University of Sussex. It could not, in my judgment, have been asserted, after the expiry of such an express transitional period, that there had been a breach of Community law if subsequently, on discovering that Regulation 29 and not section 80 applied, the Commissioners sought to rely on the new time limit. The taxpayer's remedy, if any, would have to be found exclusively by reference to domestic law.
51. In the absence of a transitional period in the legislation, the most that a taxpayer could expect, even under the second approach, would be a reasonable time within which to make a claim under Regulation 29. I see no reason why, as a matter of Community law, the taxpayer should be entitled to see replicated the scheme which the Commissioners, in the Business Briefs, adopted in relation to section 80. The sole question is, I consider, the duration of the reasonable period from, at latest 5 August 2002 (when the Community law requirement that there should be a transitional period was first recognised by the Commissioners in the first Business Brief), during which a Regulation 29 claim (not subject to the new time limit) could be made. In my judgment, CNP's claim, made in late June 2003, was made after the expiry of a period which would have been reasonable.
52. That is enough to dispose of this appeal. But since it has been fully argued, I should say something about the principal submission made by the Commissioners: this is the argument that the taxpayer must be able to show that he would have made a claim if transitional provisions had in fact been introduced. It found favour with the Tribunal in Anglia Regional Co-Operative Society Ltd v Customs and Excise Commissioners [2005] UKVAT V18991 (24 March 2005). If it is correct, it would be another reason for dismissing this appeal.
53. It must be remembered that in M&SI the ECJ was addressing itself to what should have been included in the legislation when first enacted; it was not addressing the manner in which the breach of Community law which it identified (the failure to include a transition provision) should be corrected. It was not therefore concerned with the actual treatment of actual taxpayers in the context of correcting a breach of Community law (in failing to include any, or any adequate, transitional provision). It simply did not have in mind the Commissioners' ,argument.
54. As to Grundig, whilst paragraph 35 recognises the possibility of retroactive application of a new period, that is subject to the safeguards specified in paragraph 37. Transitional arrangements should be included in the new legislation allowing "an adequate period .... for lodging claims for repayment which persons were entitled to submit under the original legislation" [my emphasis], Such transitional provisions are necessary where the immediate application of the shorter period "would have the effect of retroactively depriving some individuals of their right to repayment" [my emphasis again]. Reference is made to M&SI; it is not easy to read the ECJ in paragraph 37 as saying anything different or more extensive than it had said in M&SI itself. Similarly, in paragraph 38, it is said that a reasonable period must be given to taxpayers "to assert their right of recovery" when they would already be out of time under the new rules. There is, as with M&SI, nothing in those paragraphs which hints at the argument which the Commissioners now deploy which requires a taxpayer to prove he would have taken advantage of a transitional provision. The language is that of protecting rights and entitlements, not of protecting only rights which would have been enforced.
55. In contrast, paragraph 39 refers to taxpayers with accrued rights having to act within 3 months "when they had thought that almost another two years were still available". And in paragraph 40, it is said that a minimum transitional period of 6 months is needed so that "normally diligent taxpayers can familiarise themselves with the new regime and prepare and commence proceedings ... ". These passages lend some support to the view that the ECJ is concerned to protect only those persons who might have wanted to make a claim.
56. As to paragraph 41, whilst it is significant in relation to the issues I have already addressed when looking at the Fleming case, it does not have anything to say about the argument now under consideration. It simply says, unhelpfully, that the principle of effectiveness requires that retroactive application should not go beyond what is necessary in order to ensure observance of that principle.
57. The real question, then, is whether a requirement that the taxpayer should need to prove that he would have made a claim if proper transitional provisions had been included is compatible with the principle of effectiveness. I remind myself of the principle which in short is that national rules must not render virtually impossible or excessively difficult the exercise of Community Law rights.
58. In my judgment, it is not possible to impose this requirement on taxpayers. The principle of effectiveness is designed to protect a person's rights. As a matter of Community law, taxpayers in the position of CNP had, prior to the introduction of Regulation 29(1A), a right to reclaim input tax. That right has been curtailed. The jurisprudence of the ECJ tells us that such rights must be protected for a transitional period. I can detect nothing in the language used in the judgments of the ECJ which describes the purpose of the protection as to put the taxpayer in the same position which he would have been in if the transitional provision had been included. The language is that of protecting rights: if those rights are not properly protected during a transitional period by national laws, then Community law disapplies the national law to the extent necessary to preserve those rights.
59. If it is correct that the second approach discussed in [39]ff above is correct (and it is only if it is correct that the question now under consideration arises - if the first approach is correct, the claim has, in fact, to be made within the reasonable period and no question arises about what the taxpayer might have done since ,We will know what he in fact has done), then the Community law right which the taxpayer had during the transitional period is not to be taken away from him for a reasonable period after he could first reasonably be expected to have asserted it. The fact that he did not have the opportunity to exercise it during the transitional period is entirely the fault of the Member State in failing to comply with its Community law obligations. It would, against that background, make it excessively difficult, in my judgment, for him to exercise his Community law right if it were the rule that a taxpayer had to prove something which might, in its nature, be very difficult to prove, namely that he would have exercised his right had a transitional period been included.
60. This is not to say that, if it is shown that a taxpayer could not have made a claim in the transitional period, that he should be allowed to make it later. If he could not have made it, his Community law rights are not infringed by the absence of a transitional period. This would be so where, for instance, the taxpayer did not know of his pre-existing right under the original legislation and is reflected in the first condition in the first Business Brief applying the transitional provisions only where (in cases where no claim was made before 30 June 1997) the taxpayer can show that he had discovered the error before 30 June 1997.
61. That makes it unnecessary to consider Mr Peacock's submission that the Tribunal erred so seriously in its findings of fact that CNP would not have made a claim even if a transitional period had been included as would entitle me interfere with their findings or remit the matter to them for further findings.
62. Accordingly, I agree, albeit for different reasons, with the Tribunal's conclusion that the Commissioners were correct to reject CNP's claim for repayment of input tax. I therefore dismiss CNP's appeal.