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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Conde Nast Publications Ltd v Customs and Excise [2004] UKVAT V18869 (07 December 2004)
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Cite as: [2004] UKVAT V18869
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Conde Nast Publications Ltd v Customs and Excise [2004] UKVAT V18869 (07 December 2004)
    18869
    Value added tax – input tax – time limits – whether appellant able to claim unclaimed input tax incurred more than three years previously despite regulation 29(1A) of the Value Added Tax Regulations 1995

    LONDON TRIBUNAL CENTRE

    CONDE NAST PUBLICATIONS LTD Appellant

    - and -

    THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

    Tribunal: Dr David Williams (Chairman)

    Mr Praful Davda

    Sitting in public in London on 15 and 16 September 2004

    Jonathan Peacock QC for the Appellant

    Christopher Vajda QC and Miss Valentina Sloane for the Respondents

    © CROWN COPYRIGHT 2004

     
    DECISION
  1. The appellant company (CNP) is appealing against a decision of the respondents, the Customs and Excise Commissioners, made by letter dated 31 October 2003. That letter contained a refusal to refund previously unrefunded input tax claimed late. The input tax was related solely to staff entertainment expenditure incurred by CNP since April 1973 and claimed by CNP for the first time by a letter dated 27 June 2003. The terms of the decision are:

    2. "… as the claim as submitted for CNP relates to input tax underclaimed, then it does not fall within the scope of s 80 Value Added Tax Act 1994 and so the M&S Business Briefs cannot apply – the claim is capped under normal rules relating to Regn 29(1A)."

    Or, in other words, the claim was too late. Notice of appeal was given on 28 November 2003.

  2. The claim related to three periods:

    3. 1 April 2000 to 31 March 2003. This is not under appeal in this appeal.
    5 December 1996 to 31 December 1999. This has been subject to a decision refusing the claim. Mr Peacock for CNP did not seek to challenge that refusal before the tribunal because of authority binding on the tribunal but reserved the right of his client to raise the matter at any later stage in the appeal.
    1 April 1973 to 4 December 1999. This is the subject of the appeal heard by the tribunal.

    Both parties agreed that the tribunal is not concerned with specific details about or amounts of input tax that could be reclaimed during any of the years in that period. This appeal therefore deals only with the issue of principle whether there should now be a payment by the respondents in respect of a claim made in the circumstances of this case for repayment of input tax where a timely claim for repayment was not made. However, the tribunal records a little difficulty in dealing with the issue in principle without any evidence at all about specific items that might be subject to claim during the period now under appeal. The only evidence of relevant expenditure was for other periods.

  3. The tribunal had before it agreed documentation from the parties, and heard sworn evidence from Mr Bruce Michael, currently chief accountant at CNP. The tribunal accepted Mr Michael's evidence as a conscientious attempt truthfully to answer the questions put to him, while noting both that he was unable to give direct evidence on some of the questions of fact critical to a full view of the matter under appeal and that he did not attempt to step beyond his own knowledge. The tribunal preferred Mr Michael's evidence to inconsistent statements in the documentation.

    4. The timetable of events
  4. CNP is a member of a group of companies that are together a registered taxable person for value added tax purposes since the first introduction of VAT. The tribunal was told that there had previously been no dispute between CNP and the respondents about VAT. For most of the time CNP was a payment trader but there were periods some years ago when it was briefly a repayment trader.

  5. In order to put the events of the appeal into proper context, the tribunal accepts the following chronology of events and changes in the law:

    6. March 1994 Customs announces its approach to crediting input tax for staff entertainment expenses in VAT Notes 1/ 1994

    18 July 1996 Paymaster General announces 3 year "cap" on claims under section 80 Value Added Tax Act 1994, to be effective from that date. Date on which amendment of section 80 by Finance Act 1997, section 47(1) to that effect deemed to come into force.

    September 1996 Customs publishes Paymaster Generals' announcement in VAT Notes 3/ 1996

    4 December 1996 Resolution of this date under the Provisional Collection of Taxes Act 1968 gave provisional authority to amendment to section 80 Value Added Tax Act 1994; also the date on which the retrospective transitional period applying to late claims under section 80 Value Added Tax Act 1994 ended.
    19 March 1997 Royal assent given to Finance Act 1997, section 47 of which amended section 80 to apply the three year "cap".
    25 March 1997 SI 1997 No 1086 made, amending regulation 29 of the VAT Regulations 1995 to insert regulation 29(1A), applying a three year "cap" on claims under regulation 29.
    26 March 1997 SI 1997 No 1086 laid.
    27 March 1997 Customs publish Business Brief 9/97 detailing the changes to regulation 29
    31 March 1997 Original period for notification of retrospective claims made under section 80 ended, under terms of Business Brief 22/2002.
    1 May 1997 SI 1997 No 1086 in effect.
    30 June 1997 Extended period for notification of retrospective claims made under section 80 ended, under terms of Business Brief 27/2002.
    10 October 2001 High Court decision in University of Sussex decided that repayment claims for input tax properly made under regulation 29 not section 80.
    22 February 2002 Customs publish Business Brief 4/02 accepting, subject to the ongoing appeal, the High Court decision in Sussex and inviting renewals of claims outstanding on 18 July 1996 or made before 1 May 1997.
    11 July 2002 European Court of Justice rules implementation of amendment to section 80 without transitional period invalid in Marks and Spencer 1.
    5 August 2002 Customs' Business Brief 22/2002 sets out retrospective three month transitional period for section 80 late claims and invites late claims in response to Marks and Spencer 1.
    September 2002 Customs further publish the details from BB 22/2002 in VAT Notes 3/2002
    24 September 2002 European Court of Justice rules that length of transition period under consideration in that case should be six months not three in Grundig Italiana.
    8 October 2002 Customs' Business Brief 27/2002 extends the transitional periods for late claims under section 80 from 3 months to six months in response to Grundig Italiano.
    December 2002 Customs further publish the details from BB 27/2002 in VAT Notes 4/2002.
    31 March 2003 End of period under Business Brief 22/ 2002 for retrospective late claims under section 80 transitional period.
    27 June 2003 Claim made for CNP, the subject of this appeal.
    30 June 2003 End of period under Business Brief 27/2002 for retrospective claims under section 80 transitional period.
    30 July 2003 Reply by Customs to CNP claim of 27 June 2003 asserting that the legal basis for CNP's claim is section 80.
    21 October 2003 Court of Appeal confirm in University of Sussex and Marks and Spencer 2 the decision of the High Court of 10 October 2001 that claims for repayment of input tax are properly made under regulation 29 and not section 80.
    31 October 2003 Further reply by Customs to CNP claim, refusing CNP's claim for the period 1 April 1973 to 4 December 1996 under regulation 29, the basis of this appeal.
    The treatment of staff entertainment expense input tax by CNP
  6. VAT returns are made routinely by CNP's own staff to the respondents on a quarterly basis. Current amounts covered are about £250,000 a quarter. Mr Michael has for some time been the officer responsible for the team that prepares the returns. He has worked continuously for CNP since November 1985, and was previously employed by CNP between September 1972 and May 1981. He heads an internal team of management accountants that deals with VAT on invoices and with the returns. The returns are usually prepared on his authority and subject to the guidance he gives his team. If there are issues of difficulty he can call upon outside expertise. Normally he discusses the issues with his superior, CNP's financial controller and finance director, before making his own decision about action to be taken. During the period from 1996 CNP's auditors and tax advisers were Price Waterhouse and then Ernst and Young. Mr Michael did not consult them routinely on VAT but only on specific issues. The only help offered by them to him on this issue is recorded in these facts. Deloittes, who made the current appeal on behalf of CNP, were not advisers to CNP save on this one issue and did not raise it with CNP until the approach that gave rise to this claim.

  7. The tribunal assumes for the purposes of this decision that throughout the period from 1973 to 1999 CNP incurred input tax on the bills it incurred on staff entertainment expenditure of a kind that could give rise to an input tax claim. As noted above, it was given no evidence by reference to specific examples of expenditure that this was so. Nor was it given any specific evidence as to CNP policy on incurring staff entertainment expenditure at any relevant time during that period. It was told that entertainment expenditure was posted to the accounts under various codes, so assumes that such policy existed. Until June 2003, CNP made no attempt to reclaim any such input tax, or any part of it, from the respondents. Mr Michael told the tribunal, and it is accepted, that for a long time he had been under the impression that input tax on staff entertainment could not be reclaimed. He thought he had probably been told that in the 1970s or 1980s.

  8. He accepted that he received VAT Notes No 1 1994. This contained guidance under the heading "Staff parties and other entertainment – input tax". The guidance was that the full treatment of VAT on staff entertainment was set out in leaflet 700/55, but that the respondents had a rule of thumb by which 50 per cent of the input tax was allowable. This was subject to consideration in individual cases. Mr Michael considered this to be somewhat problematic as it left the issue as something of a grey area. He did not change his approach to reclaiming input tax on staff entertainment expenditure, or guidance to his staff, as a result of this notice. Nor was the matter discussed or explored with the respondents or CNP's advisers.

  9. Mr Michael also accepted that he received VAT Notes No 3 1996. This gave guidance about reclaiming input tax under the heading "3 year cap on repayments of VAT and other indirect taxes". This summarised the government announcement on 18 July 1996 of the cap. He did not consider that he had any outstanding claims at the time, so he took no specific action as a result of that notice.

  10. He also received the Price Waterhouse VAT Newsflash "Staff entertainment – the end of Scrooge?" in or about September 1997 (the precise time is not clear). This informed readers of the outcome of two tribunal cases rejecting the respondents' guidance in VAT Notes No 1 1994 as too restrictive, and against which the respondents had not appealed. The newsflash advised:

    11. "If you have followed Customs' guidance in the past on staff entertainment, you may now be able to make a claim back input VAT from the last three years. You can also claim for events where the guests have paid to attend."

    Mr Michael confirmed that he had taken no specific action in connection with this information. He could not recall discussing it at the time with his superior. Nor could he recall receiving any other similar note about staff entertainment expenditure. He did not know of the tribunal cases and only read some of the information a few weeks ago. No claim was made to, or enquiry of, the respondents, and no issue raised with the company's retained advisers.

  11. Mr Michael also accepted that he had received VAT Notes No 3/2002 of September 2002. This gave details of a recent judgment of the European Court of Justice dealing with the introduction of the three year cap on claims for input tax introduced on 18 July 1996 and notifying taxable persons of a retrospective period for the (re)submission of claims for those who made a claim before 31 March 1997 or had discovered that there was a previous overpayment but did not make a claim by that date. He did not take any specific action in connection with this information.

  12. Mr Michael explained that he was aware that there were sums of unclaimed input tax from staff entertainment expenditure. After discussion with his superior, he formed the view that any recoverable sums would be modest and not material to CNP. By "material" he would mean £20,000 to £30,000 in today's figures.

  13. His decision would have taken into account the management time that would have been involved in identifying the reclaimable sums together with the sums that might be recovered. He had taken that view by looking at the possible recoverable VAT year by year or over a three year period rather than in total. There were other more pressing priorities on his own, and his team's, time. He had not undertaken any exercise to determine whether such reclaims would be cost effective, nor given any instructions to his staff on it. Generally the items were low in value. Identification might have been difficult in some cases. Entertainment costs were posted by his staff under a number of internal codes. In reply to a specific question about one item of staff entertainment expenditure of which details were before the tribunal and where the input tax on the bill of £3,302.25 was £491.71, he commented that such items were not "high on the radar screen" at that time and that his staff had been given no guidance by him on such items. There was no conscious decision not to claim the input tax, and no policy to claim the larger amounts while ignoring the smaller amounts. And, again, there was no agreement or discussion with the respondents or the advisers.

  14. Mr Michael did not initiate the current claim. Nor did he make the decision to make the claim. Nor did he do any work on the claim. He understood that the matter had been raised by an approach by Deloittes to his then superior, who was not now with CNP. He had attended a meeting for information purposes and had been copied in on the voluntary disclosure letter. He had only been directly involved after his superior left at a later date. With regard to the statement in that letter about "the lack of detailed business records", he confirmed that records were held by CNP for six years and that those records would, he anticipated, include the relevant information for a claim for those years. He was not aware than any check had been made on those records and he was not sure how Deloittes had obtained the details in the claim letter.

  15. Mr Michael had not received any of the Deloittes newsletters or bulletins referred to in the voluntary disclosure letter, nor so far as he could recall any other information or advice beyond that noted above. He was asked specifically about the contention in the claim letter that "it is inconceivable that a major trader such as CNP would not have at least put in a protective claim had it and other traders been allowed a transitional period" in the period to 30 June 1997. He expressed the view that there would have been a claim. When asked by Mr Vajda why he said that, given that he had made no claim before there was a cap, he replied that he would have hoped that the same thing would have happened as in 2003, that advisers would have advised a claim. When the question was repeated, he commented that it was difficult to know what CNP would have done. He accepted that the current claim was made on the initiative of Deloittes and he said that he understood that Deloittes would take a percentage of any input tax repayment made.

  16. The documents before the tribunal included a statement that the input tax reclaim for the period 1 April 1973 to 4 December 1996 was £115,682.35. The tribunal makes no finding about that sum as the parties agreed it was not before the tribunal. Further, as noted above, the tribunal has not seen any details of or about specific staff entertainment expenditure in that period. The only details it saw were those in Appendix 2 to the letter from Deloittes to the respondents written after 23 April 2003. This set out an undated list of invoices for the claim period 1 April 2000 to 31 March 2003. It was from this that the item of £3,302.25 was drawn. The tribunal observes that there were a total of 60 items in this list, but that only 23 separate reference numbers were involved as some of the items appeared to be related to each other in groups. No evidence was given to explain this. On either analysis, that amounted at most to 20 items or groups of items of relevant expenditure a year out of what the tribunal was told were some 40,000 invoices in total. The tribunal also notes that of the £1,349.88 input VAT in total from those invoices, one (as noted) had input VAT approaching £500, and only 4 other invoices had individual totals of input tax of over £50. Together, those five invoices explained £729 of the total £1350 input VAT for the three years.

  17. In the absence of other evidence about the pattern of input VAT in the period under dispute, the tribunal takes that information into account in making its findings of fact for the purposes of this appeal. Indeed, the tribunal records that it has seen no direct evidence that CNP incurred any specific items of unrecovered input VAT on staff entertainment in the period under appeal. It has however taken from the agreement of the parties about amounts, and the general evidence of Mr Michael, the conclusion that there is substance to the issue put before it. The tribunal's conclusion is that had the pattern of 2000-2003 - a very few large bills and a small number of occasions each of which gave rise to a small number of small bills - been repeated over the previous years, most of the input tax could have been claimed by a selective repayment claim each year involving perhaps fewer than a dozen items, and that Mr Michael's view that management time on identifying these items from bills generally would not have been justified was entirely understandable. Nor is his decision that the issue was not "on the radar", or one that justified seeking help from advisers, a decision that the tribunal finds at all inexplicable or unreasonable.

  18. In the letter of claim of 27 June 2003, Deloittes comments on whether CNP is entitled to make a late claim for repayment under the terms of Customs Business Brief 220/02 of August 2002. Where no actual claim had been made before 31 March 1997 (which is the case here), the test set by that Business Brief is:

    19. "they made no claim but can demonstrate that they discovered the error before 31 March 1997".

    This was extended by Business Brief 27/02 of October 2002 to a period ending on 30 June 1997. The Deloittes letter records of CNP that:

    "prior to the end of the retrospective transitional period 30 June 1997 it was aware of overpayments of VAT relating to under recovered VAT on staff entertainment."

    The tribunal finds that this is so. The letter continues:

    "We have detailed below full information to support the fact that [CNP] was aware of the claim."

    The tribunal is not clear what was meant by "the claim" in this sentence, as there was no claim at that time of which CNP could be aware, nor is there any evidence that CNP was considering any claim at that time. But the letter supports this by a series of propositions. In summary, the tribunal findings on the points raised in the letter are as follows.

  19. CNP received VAT Notes 1/1994. It did not receive any Deloitte and Touche publications at that time, nor was it aware of the tribunal decisions referred to. The tribunal finds on the evidence set out above that following the VAT Notes CNP took the view that it might have eligibility to make claims for input tax recovery but that the matter was not free from doubt.

  20. Deloittes then state that, as a result of the materials sent out by the major accounting firms in 1996 about the three-year cap:

    21. "… it is inconceivable that a major trader such as [CNP] would not have at least put in a protective VAT claim had it and other traders been allowed a transitional period in which to do so at the time."

    The tribunal cannot agree with that proposition. It finds that – as it now turns out, wrongly – all those involved with CNP VAT liability were thinking in terms of claims under section 80 rather than Regulation 29 at the relevant times. It finds that CNP was aware of under recovery of input tax on this form of expenditure at the relevant time from at least receipt of the VAT Notes in 1994. It finds that the only relevant information of which CNP was aware before the Price Waterhouse notice of September 1997 was in the VAT Notes sent out by the respondents. It finds that at no time did the individual responsible for making VAT claims and returns for CNP – Mr Michael – take any initiative to make any claim, nor make any enquiry save those to his immediate superior, related to this issue. Further, the approach taken by Mr Michael on that issue was one for which a clear justification has been identified, that justification being entirely reasonable in the particular circumstances of CNP. It further finds that, as a matter of considered management policy, CNP had taken no steps to see if it could recover the under recovered tax at any time before 2003. Nor did the tribunal see any evidence that CNP had put in any other protective claim in connection with VAT at any time. While the tribunal finds that CNP did not consider the possibility of putting in a "global" claim for all past years until 2003, CNP did consider the question whether to claim before there was a time limit, and rejected the opportunity to do so. It also rejected the opportunity to do so for a three year period after the time limit came in. It did not react, until the current claim, to notification by the respondents or from any other source of transitional periods.

  21. The Deloittes letter contends that, nonetheless, it is "inconceivable" that CNP would not have put in an uncapped claim if given a transitional period in which to do so in 1997. The tribunal is unable to agree that this was "inconceivable". When the current claim was made it was by the initiative of a third party talking to Mr Michael's superior on terms that did not involve Mr Michael in any decision making, staff time, or specific expenditure prior to the claim being made by the third party. The only basis for concluding that a failure to claim by CNP was "inconceivable" would be that it was clear on the evidence beyond all doubt that such a third party would make such an approach to Mr Michael or his superior. The tribunal is unable to make that finding. Even using the standard of the balance of probabilities, the tribunal is unable to conclude otherwise than that a claim may have been made, and would probably have been made if there had been such an approach as was in fact made by Deloittes some years later. There is no evidence that advice would have been sought, or would have come in any other form than it did come, from CNP's retained advisers. The tribunal has no evidential basis on which to consider whether such an approach by an outsider would have been probable.

  22. While the tribunal makes these findings in response to the issues put before it by the parties, it does so bearing in mind that it is asked to take a view on contentions about a non-statutory test that may be irrelevant to the case and on limited evidence. In particular, and in addition to the limitations in the evidence already noted, it received no evidence from the officer of CNP who was responsible for authorising the current claim about why or how the claim came to be made when it did despite previous CNP policy, nor from the individual who made the assertions in the claim letter.

    23. The legal basis of CNP's claim
  23. It is not in dispute that CNP would, as the law is now understood, have been entitled to repayment of any input tax incurred on relevant forms of staff entertainment expenditure during the period to 1999 if it had made a timely repayment claim. But can it claim it now? The key question of entitlement, put in its starkest form, is this: does CNP, on the basis of these facts, have a right in law to claim in 2003 a refund of the input tax it failed to claim as an offset in 1973?

  24. Both parties agree that this depends on what regulation 29 of the Value Added Tax Regulations 1995 (Regulation 29) says or should say. The respondents rely on the current wording of the regulation after amendment. The appellants submit that the amendment is wrong in law and consequently the regulation should be read differently. When the claim was made, however, the prevalent view was that section 80 of the Value Added Tax Act 1994 was the relevant provision.

  25. Regulation 29(1) was amended by SI 1997 No 1086, and regulation 29(1A) added, from 1 May 1997. The amendment and addition are indicated as [ …] in the text, which provides:

    26. (1) [Subject to paragraphs (1A) and (2) below], and save as the Commissioners may allow or direct either generally or specifically, 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 becomes chargeable.
    [(1A) The Commissioners shall not allow or direct such 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.]

    The amendment introduced a three year time limit, or "cap" as it is commonly called, on late claims from 1 May 1997, the date that SI 1987 No 1986 came into effect. Before that date there was no time limit on late claims under this regulation.

  26. Section 80(1) of the Value Added Tax Act 1994 (Recovery of overpaid VAT) provides:

    27. 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.

    The provision became, after enactment, subject to a three year time limit, or "cap", on late claims. That time limit was introduced from July 1996 as set out in the chronology at the head of this decision.

  27. In its combined judgments in the cases of Marks and Spencer plc v Customs and Excise Commissioners and University of Sussex v Customs and Excise Commissioners [2003] EWCA Civ 1448, [2004] STC 1 on 21 October 2003 the Court of Appeal upheld a decision of Neuberger J on 21 October 2002 (that decision reversing a decision of this tribunal) that a claim for repayment of input tax was properly made under Regulation 29 and not under section 80 of the Value Added Tax Act 1994.

  28. That issue was the central issue in the Sussex case. The University of Sussex had on 25 November 1996 submitted a claim for repayment of input tax not claimed between 1973 and 1996. The failure to make earlier claims had been with the full knowledge and agreement of Customs, and reflected in part the way in which universities were then given public funding, and in part the low level of unclaimed input tax in the earlier years. The claim was made after the announcement of the "three year cap" on late claims under section 80, but before the legislation giving effect to that cap. It was treated by Customs as a claim under section 80, and rejected on the grounds that it related to periods more than three years before the claim and so was barred by the cap.

  29. Auld LJ gave the main judgment of the Court. In his judgment, the issue of whether section 80 of the Value Added Tax Act 1994 or Regulation 29 applied to the repayment is essentially a matter of construction of United Kingdom law. He analysed and endorsed the view of Neuberger J, and concluded (paragraph 152):

    30. Accordingly, I agree with Neuberger J's conclusions that the university's claim is not a claim for overpaid tax under section 80, but is a claim for deduction of input tax under regulation 29(1), albeit made late. It follows that it is not subject to the new three-year retrospective time limit in section 80(4), which took effect in July 1996. Nor is the claim, which was made in November 1996, affected by the new retrospective three-year limitation period in regulation 29(1A), which took effect in May 1997. As I have indicated, there are, however, issues whether the claim was validly made under regulation 29 and, if so, whether the commissioners were bound to accept it.

    There was no appeal against that decision. It was on this basis that the respondents rightly took the view in the decision letter of 31 October 2003 that CNP's claim was to be decided under Regulation 29 and not section 80 of the Value Added Tax Act 1994. But CNP, unlike the University of Sussex, had made no claim before the dates on which the caps started operating. Further, again unlike the University of Sussex, there is no evidence that CNP took the approach it did with the knowledge and agreement of the respondents. Nor, so far as relevant, was there any policy feature similar to that under which the University of Sussex was not at first disadvantaged by the failure to claim.

    The nature of CNP's entitlement to repayment
  30. On what legal basis can CNP assert in 2003 that it is entitled to repayment of previously unclaimed input tax incurred by it in 1973? The clear wording of Regulation 29 now imposes a three year limit on late claims. The claims within that three year limit are not under consideration in this case. The tribunal accepts without further argument that on the wording of Regulation 29, as amended, the current claim for the period to 1997 is too late. The decision of the officer in the letter of 31 October 2003 is, to that extent, correct.

  31. Instead, Mr Peacock relies on Community law to postpone the introduction of Regulation 29.

  32. Mr Peacock submits that the underlying principles of Community VAT law, rehearsed fully in the Marks and Spencer 2 judgments, establish an immediate right to the repayment of any overpaid VAT to which national laws must give effect - subject of course to properly imposed time limits for claiming the repayment. In that case the claim was for the repayment of VAT imposed in circumstances when it should not have been imposed. Mr Peacock also submits that the same principle applies to a claim to make good a previous failure to claim in the ordinary way the offset (and if necessary, repayment) of input tax against output tax in any period.

  33. The origin and scope of the right to deduct input tax is laid down in Article 17 of the EC Sixth VAT Directive (Council Directive 77/388/EEC). This creates a right to deduct in clear terms. Article 18 provides rules governing the exercise of the right to deduct. The tribunal takes fully into account the conclusions on the relevance of these provisions set out by Auld LJ in University of Sussex, paragraphs [173] to [177] and the authorities cited in that passage. It therefore accepts that CNP does have an acquired right, subject only to the limitations directed or permitted under Article 18, to claim under Regulation 29 in 2003 the input tax that it failed to claim in 1973.

    34. Does Regulation 29(1A) validly block this claim?
  34. This question did not directly arise in the Marks and Spencer and University of Sussex cases, because of key factual differences, particularly in the application of the time limit. The claim in this case was made after, and that was made before, the time limit in Regulation 29(1A) came into effect. That is a critical difference. Another difference may not be. The respondents were not only aware that the University was not claiming but also agreed with that approach. So far as it is relevant, the tribunal find that there is no evidence that the respondents were in any way consulted about, or aware of, the failure to claim in this case. The tribunal mentions that because it may be relevant to considering whether CNP meets the procedural requirements for a claim.

  35. Once it was determined that the proper procedure was that of Regulation 29, the respondents refused CNP's claim on the grounds that it was made after 1 May 1997, when Regulation 29(1A) came into effect. This is the decision taken on 31 October 2003. There was no exercise at that stage of any discretionary power under Regulation 29(1), so no question at that stage about the extent of that discretion.

  36. For CNP, Mr Peacock challenges the application of Regulation 29(1A) to this claim. He submits that the amendment to the Regulation invalidly seeks to take away the enduring right of CNP to repayment of the unclaimed input tax. He accepted that this did not follow simply because of the introduction of a time limit for claims under Regulation 29. The European Court of Justice confirmed in its decision in Marks and Spencer 1 that member states could impose time limits of their choosing. His challenge was because of the way in which the time limit was introduced in 1997. It was introduced, he argued, in a way that did not provide an adequate transitional period for those minded to make late Regulation 29 claims.

  37. The core of Mr Peacock's contention is that had the respondents properly introduced the new time limits into Regulation 29, they would have provided a transitional period. This would have been similar to that for section 80, outlined in the chronology above. Further, because of the lack of clarity about the procedure to be used, that period should be a double transition, in the sense that it should relate to claims made or that could be made within a reasonable period of the final date (1 May 1997), and a further period in which claims could be renewed or claimed once it was accepted that there should have been a transitional period. The analogy with the section 80 period would indicate a six month period for both stages. If the second period were operated by the respondents on the same basis as the section 80 second period (that is, as set out in the Business Briefs noted in the chronology) then CNP would be able properly to renew its claim. Failure on the part of the respondents to provide a parallel transitional period for the changes to Regulation 29, and a parallel procedure for late claims, deprived CNP of a right to make a claim in breach of its Community legal rights.

  38. It was in Mr Peacock's submission necessary for the respondents to provide an effective transitional introduction to the capping of claims under Regulation 29 to comply with the Community legal principles of equivalence and effectiveness. These has been the basis on which the European Court of Justice had imposed the transitional periods on section 80 in Marks and Spencer plc v Customs and Excise Commissioners (Case C-62/00) [2002] STC 1036. The European Court accepted that a three year time limit was in principle reasonable. Its ruling, he submitted, should apply equally to Regulation 29. The Court ruled that:

  39. 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 periods allowing an adequate period after the enactment of the legislation for lodging the claimed 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 individual of their right to repayment, or of allowing them to short a period for asserting that right.

  40. 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] ECR I-165, paragraph 20 and Dilexport Srl v Amminstrazione delle Finanze dello Stato [1999] ECR I-579, paragraph 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 interest of legal certainty, as was noted in paragraph 35 hereof. However, in order to serve their purpose of ensuring legal certainty periods must be fixed in advance (see ACF Chemifarmia NV v EC Commission Case 41/69, [1970] ECR 661, paragraph 19.

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

  42. 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 of enabling the state to plan income and expenditure without the disruption caused by major unforeseen liabilities.

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

  44. The European Court further ruled on transitional periods in Grundig Italiana SpA v Ministero delle Finanze, C-255/00, [2003] All ER (EC) 176. This was an Italian case also relating to proceedings for the recovery of sums paid but not due. There had been a five year limitation period, and this had been reduced to a three year period with a three month transitional period. In its judgment the Court expressly endorsed its decision in the Marks and Spencer case. It then stated:

  45. 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.

    46. The Court went on to conclude that in the circumstances of that case a transitional period of 90 days was insufficient and six months must be the minimum period required to ensure that the exercise of rights of recovery is not rendered excessively difficult.

  46. As Mr Peacock pointed out, that decision had led the respondents to increase from three months to six months the transitional period applied to the capping of late section 80 claims. In his submission that approach should be applied by the respondents equally to Regulation 29.

  47. The tribunal's attention was finally drawn to an earlier decision of this tribunal, in Michael Fleming t/a Bodycraft, Decision number 18579, of 5 April 2004.

    48. The Tribunal in that case had been confronted with somewhat similar arguments to those in this case, although with less extended argument, about the input tax on a single purchase of goods. The tribunal expressly agreed with counsel for the taxable person that:

    "on the Marks and Spencer principle the three-year cap cannot be relied upon by the Commissioners in this case. The only reason why the Court did not come to the same conclusion in the University of Sussex was that the claim was made before the introduction of the three-year limit by regulation 29."

    But the tribunal went on to conclude that it should consider whether the Commissioners would be reasonable to refuse the claim on grounds other than that it was made over three years after the relevant accounting period. It concluded:

    Here the claim was made some ten years after the accounting period in which the input tax was incurred and seven years after the original claim to which it was closely related. Even if a three-year transition had been given from 1 May 1997 the claim was made after the end of that time. In the circumstances we consider that the Commissioners were reasonable in refusing the claim. Legal certainty also requires that finality should be achieved after a reasonable period.

    The tribunal's decision is therefore not specific authority for CNP's argument in this case although it clearly assists it in its reasoning.

  48. Mr Vajda, for the respondents, resisted this approach on several grounds. He saw no incompatibility in the amendment of Regulation 29 with Community law. In that he was assisted by the decision of Lawrence Collins J in Local Authorities Mutual Investment Trust v Customs and Excise Commissioners [2003] EWHC 2766 (Ch). In that case Lawrence Collins J decided that Regulation 29(1A) was authorised by article 18(3) of the EC Sixth VAT Directive and that LAMIT's argument that there was no vires for Regulation 29(1A) was unfounded. He further decided that Regulation 29(1A) was not open to challenge on the ground that a three year period was too short. It was neither disproportionate nor unreasonable. Nor was the amendment to the Regulation in breach of article 1 of the First protocol to the European Convention on Human Rights (peaceful enjoyment of possessions).

  49. Mr Vajda also submitted that, at least in so far as CNP was concerned, there was no incompatibility between the manner of implementation of the capping of Regulation 29 and CNP's claim. The fault in CNP's argument was in arguing for a retrospective transitional period in the absence of a contemporaneous period. The application of the relevant Community legal principles in Grundig Italiano was designed to prevent retroactively depriving individuals of their claims or of allowing them too short a period to claim. The issue was not whether Regulation 29(1A) was valid, or otherwise, in the abstract, but whether it should be applied or disapplied in this case. That approach was also confirmed by the decision in LAMIT.

  50. He did not invite the tribunal, if it accepted the appellant's arguments, to decide the matter in the same way as in Michael Fleming. In his submission the proper approach was to refer the matter back to the respondents for decision under regulation 29(1). As the tribunal do not accept the appellant's arguments, it does not need to consider that step.

    51. The tribunal's decision
  51. The appellant's case was put most attractively by Mr Peacock in terms of applying the whole of the reasoning of the courts in the Marks and Spencer cases together with the whole of the practical consequences in terms of the immediate and retrospective claim periods under section 80, the way in which the respondents invited those claims in Business Briefs, and how an analogy with those announcements would apply if the section 80 approach were adopted and adapted fully to the introduction of Regulation 29(1A). The approach is that the tribunal must decide that regulation 29 (1A) to be in breach of European Community law. Only having done so should the tribunal then evaluate the facts of the particular case by reference to the assumed likely official response to its decision on the general issue.

  52. The tribunal does not accept that approach. Its concern is not with whether the amended form of regulation 29 is, in the abstract, open to criticism by reference to European Community law but whether this appellant has a ground for criticising it and so disapplying it in connection with this appeal. Nor should the tribunal be unduly distracted by the way in which both parties first made and considered the claim under section 80. Assuming for the moment - but not deciding - that the argument presented by Mr Peacock is correct in law, this tribunal nonetheless must focus on whether this appellant has been disadvantaged by that illegality.

  53. The claim was originally put to the respondents in terms that assumed a detriment to the appellant. It was "inconceivable" that it could have been otherwise. The tribunal does not accept that. It was mere speculation on the part of the writer of the claim letter, backed in part by reference to documents of which the appellant was entirely unaware, contradicted by the appellant's evidence of the documents of which it was aware and by its views on those documents at that time, and apparently not based on any actual investigation of the appellant's records or usual VAT claims processes. The evidence comes nowhere near establishing the assertions in the claim letter. On the contrary, the tribunal was told of the appellant's approach in terms that suggested that any detriment to the appellant was one of which it was fully aware and about which it took a conscious decision to its own detriment because, on a balanced view, that detriment was insignificant and the alternative approach of a full claim was not. Further, the terms in which the claim was advanced in 2003 are in the view of the tribunal such as to confirm the absence of any stronger approach to this claim that mere assertion. And assertion of what might have happened if certain other things might have happened is not evidence of what did happen. What happened was that the appellant took a fully considered view that it was not worth the appellant 's management or other time to claim this particular form of unclaimed input tax. The appellant considered this through its usual decision making channels and as part of that consideration took into account outside advice both from the respondents and from its then advisers. And it decided not to take any further advice nor to approach the respondents, but to write off the amounts as of no significance.

  54. Put at its simplest, there is no evidence that the amendments introduced to regulation 29 stopped the appellant making any claim that they were minded to make, or had done any work on making, at that time, nor any clear evidence of any other detriment to this appellant's consideration of any claim for unrecovered input tax at that time. There is therefore no disadvantage shown to this appellant in the introduction of the time limit without a transitional period.

  55. It follows that the appellant's unclaimed input tax on staff entertainment is now the other side of a time limit that has been tested and found valid. The appellant cannot in 2003 revisit its earlier decisions not to claim.

  56. The tribunal therefore rejects the appeal. In doing so, it sets out the arguments put to it by the appellant in full in deference to the attractive way in which Mr Peacock presented them, to explain what the tribunal considered to be the proper focus for its findings of fact, and because other cases said to be awaiting the outcome of this case are not bound by those facts but might give rise to a valid claim on the basis argued. There being no substance to this claim on the facts, we do not find it necessary to express either agreement or disagreement with the views expressed by the tribunal in Michael Fleming. Nor do we consider it appropriate to speculate on what would have been a proper result of the application of regulation 29(1) to the facts.

    57. DR DAVID WILLIAMS
    CHAIRMAN
    RELEASED: 7 December 2004

    LON/03/1149

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