Judgments - Marks and Spencer plc (Appellants) v Her Majesty's Commissioners of Customs and Excise (Respondents)
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HOUSE OF LORDS SESSION 2008-09 [2009] UKHL 8 on appeal from: [2003] EWCA Civ 1448
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE Marks and Spencer plc (Appellants) v Her Majesty's Commissioners of Customs and Excise (Respondents) Appellate Committee Lord Hoffmann Lord Scott of Foscote Lord Walker of Gestingthorpe Counsel Appellants: David Milne QC Andrew Hitchmough Denis Waelbroeck (Instructed by Forbes Hall) Respondents: Paul Lasok QC Peter Mantle (Instructed by Her Majesty's Revenue and Customs) Hearing dates : 13 and 14 JUNE 2005 ON WEDNESDAY 4 FEBRUARY 2009 HOUSE OF LORDS OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE Marks and Spencer plc (Appellants) v Her Majesty's Commissioners of Customs and Excise (Respondents) [2009] UKHL 8 LORD HOFFMANN My Lords,
LORD SCOTT OF FOSCOTE My Lords,
Lord Walker of Gestingthorpe My Lords, The background to the second reference under Article 234
(1) that M&S's challenge to section 80 (4) (as infringing EU law) failed, as regards the teacakes claim, because the Becker conditions were not satisfied (Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53) and general principles of Community law could not be relied on in the absence of a directly enforceable right; (2) M&S's challenge to section 80 (4) failed, as regards the late vouchers claim, for similar reasons, since the Commissioners' failure to apply the amended statute correctly was not equivalent to incorrect transposition; and (3) M&S's challenge to section 80 (4), as regards the early vouchers, should be referred to the Court of Justice. Schiemann LJ (with whom the other members of the Court agreed) stated ([2000] STC 16, 39): "Marks and Spencer have an alternative submission which I shall consider in the next part of this judgment to the effect that the retrospective legislation is unlawfully discriminatory. I am not, for reasons which I shall shortly explain, persuaded that Marks and Spencer are entitled to judgment on that basis. It follows that a decision on whether it is compatible with Community law to enforce legislation which removes with retrospective effect a right under national law to reclaim VAT, which right has existed unexercised for more than three years, is in my judgment necessary to enable this Court to give judgment on the early vouchers claim. I would therefore be minded to refer this question to the Court of Justice." The argument which he went on to dismiss was to the effect that there was unlawful discrimination between payment traders and repayment traders.
"As the Advocate-General has noted in para 40 of his opinion, it would be inconsistent with the Community legal order for individuals to be able to rely on a Directive where it has been implemented incorrectly but not to be able to do so where the national authorities apply the national measures implementing the Directive in a manner incompatible with it." The Court answered the referred question in general terms which did not distinguish between the two categories of voucher.
"The order for reference does not mention the claim for repayment of VAT erroneously paid in respect of teacakes. None the less, a similar problem arises in the case of the teacakes. In that connection, too, the question arises as to whether individuals have rights under Community law where a Directive has in itself been correctly transposed into national law but that law is applied in a manner clearly inconsistent with the scope of the Directive." There had been no submissions about exemption with refund of input tax (zero-rating) and the Court of Justice did not comment on this point.
"As a matter of logic, and in the light of the Court of Justice's reasoning in Ideal Tourisme a member state's breach of its own domestic law maintained consistently with, but not as a requirement of Community law, is not a breach of a Community law requirement to charge only a rate fixed by law within the meaning of arts 10 (1) (a) (b) and 12 (1). In addition, a zero-rate is a United Kingdom antonym; it is no rate at all within the meaning of the words in art 12 (1), 'the rate . . . in force at the time of the chargeable event'." Auld LJ continued that (if he was wrong on that point) M&S's claim failed on other grounds, and he summarised his views as follows (para 105): "(2) As to the teacakes claim, I would rule that, for want of satisfaction of the second Becker condition on which, in any event, we cannot go behind the first Court of Appeal's ruling, there is no directly enforceable Community law right to which the Court of Justice's reasoning in the reference can apply so as to render the retrospective curtailment of the right to claim repayment incompatible with Community law. (3) If, contrary to the first Court of Appeal's ruling and my view, Marks & Spencer were able to establish a directly enforceable Community law claim to zero-rating of its teacakes, I would hold that we would be entitled to re-open the issue in the light of that part of the Court of Justice's reasoning on the reference that identified the existence of a right to repayment of overpaid tax independently of its exercise by way of a claim. But I would also hold that: (a) though the defence of unjust enrichment could operate in a discriminatory way as between payment and repayment traders where the overpayment resulted from, inter alia, failure to zero-rate outputs, its incompatibility with Community law would lie in its non-application to repayment traders, not in its application to payment traders; and (b) in any event, the claim would be barred under the new time limit because it was made well outside an adequate period after its introduction."
"(1) Did M&S, under art 28 of the Sixth Directive (both before and after its amendment in 1992) have a directly enforceable right not to be required to account for the tax on its teacakes otherwise than in accordance with the zero-rating provisions properly applicable under UK national law? (2) Even if art 28 did not give M&S a directly enforceable right of that type, was the United Kingdom (in giving effect to its discretion under that article) required by the principle of fiscal neutrality to avoid discrimination between different types of traders, so as to give M&S a directly enforceable right to complain of the discrimination? (3) If so, does EC law require or permit the remedy granted by the national court to depend on proof of financial loss, and on the absence of unjust enrichment?" The questions on the second reference
"1. Where, under art 28(2)(a) of the Sixth . . . directive (both before and after its amendment in 1992 by Directive 92/77), a member state has maintained in its domestic VAT legislation an exemption with refund of input tax in respect of certain specified supplies, does a trader making such supplies have a directly enforceable Community-law right to be taxed at a zero rate? 2. If the answer to Question 1 is in the negative, where, under art 28(2)(a) of the Sixth . . . Directive (both before and after its amendment in 1992 by Directive 92/77), a member state has maintained in its domestic VAT legislation an exemption with refund of input tax in respect of certain specified supplies but has mistakenly interpreted its domestic legislation with the consequence that certain supplies benefiting from exemption with refund of input tax under its domestic legislation have been subject to tax at the standard rate, do the general principles of Community law, including fiscal neutrality, apply so as to give a trader who made such supplies a right to recover the sums mistakenly charged in respect of them? 3. If the answer to Question 1 or Question 2 is in the affirmative, do the Community-law principles of equal treatment and fiscal neutrality in principle apply with the result that they would be infringed if the trader in question is not repaid the entire amount mistakenly charged on the supplies made by him in circumstances where: (i) the trader would be unjustly enriched by repayment to him of the entire amount; (ii) domestic legislation provides that overpaid tax cannot be repaid to the extent that repayment would lead to unjust enrichment of the trader; but (iii) domestic legislation makes no provision similar to that referred to in (ii) in the case of claims by "repayment traders"? (A "repayment trader" is a taxable person who, in a given prescribed accounting period, makes no payment of VAT to the competent national authorities but receives a payment from them because, in that period, the amount of VAT that he is entitled to deduct exceeds the amount of VAT due in respect of supplies made by him.) 4. Is the answer to Question 3 affected by whether or not there is evidence that the difference of treatment between traders making claims for the repayment of overpaid output tax and traders making claims for additional amounts by way of input tax deduction (resulting from the over-declaration of output tax) has, or has not, caused any financial loss or disadvantage to the former and, if so, how? 5. If, in the situation described in Question 3, the Community-law principles of equal treatment and fiscal neutrality apply and would otherwise be infringed, does Community law require or permit a court to remedy the difference of treatment by upholding a trader's claim to a repayment of overpaid tax in such a way as to enrich him unjustly or require or permit a court to grant some other remedy (and, if so, which)?" The answers given by the Court of Justice
"It must be noted at the outset that the actual wording of art 28 (2) (a) of the Sixth Directive, in the version resulting from Directive 92/77, states that the national legislation which may be maintained must be 'in accordance with Community law' and satisfy the conditions stated in the last indent of art 17 of Directive 67/228. Although the addition relating to being 'in accordance with Community law' was made only in 1992, such a requirement, which forms an integral part of the proper functioning and the uniform interpretation of the common system of VAT, applies to the whole of the period of erroneous taxation at issue in the main proceedings. As the Court has had occasion to point out, the maintenance of exemptions or of reduced rates of VAT lower than the minimum rate laid down by the Sixth Directive is permissible only in so far as it complies with, inter alia, the principle of fiscal neutrality inherent in that system (see, to that effect, Gregg v Customs & Excise Commissioners (Case-216/97) [1999] STC 934, [1999] ECR I-4947, para 19, and EC Commission v France (Republic of Finland intervening) (Case-481/98) [2001] STC 919, [2001] ECR I-3369, para 21)."
"The answer to the third question must therefore be that, although the principles of equal treatment and fiscal neutrality apply in principle to a case such as that in the main proceedings, an infringement of those principles is not constituted merely by the fact that a refusal to make repayment was based on the unjust enrichment of the taxable person concerned. By contrast, the principle of fiscal neutrality precludes the prohibition of unjust enrichment from being applied only to taxable persons such as 'payment traders' and not to taxable persons such as 'repayment traders', insofar as those taxable persons have marketed similar goods. It will be for the national court to determine whether that is the position in the present case." The Commissioners accept that the prohibition applies in this case (Tesco Plc being a repayment trader which sold chocolate-covered teacakes) and the Commissioners have now satisfied the whole of the disputed claim in respect of teacakes.
"The national court must, in principle, order the repayment in its entirety of the VAT payable to the trader who has suffered discrimination, in order to provide compensation for the infringement of the general principle of equal treatment, unless there are other ways of remedying that infringement under national law." The Commissioners do not seek to persuade the House that there is in this case any alternative method of remedying the infringement of the principle of equal treatment. Conclusion
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