United Kingdom VAT & Duties Tribunals Decisions

EMI Group Plc v Revenue and Customs [2006] UKVAT V19417 (9 January 2006)

19417

CLAIM FOR REPAYMENT OF TAX – VAT paid in error – VAT accounted for in respect of free copies of CDs given out for promotional purposes – Whether free copies were "samples" or "business gifts" – EC Sixth Dir, Art 5.6 – VAT Act 1983, Sch 2, para 5(1), (2), (2A) – VAT Act 1994, Sch 4, para 5(1), (2), (3)

CLAIM FOR REPAYMENT OF TAX – Implementation in UK legislation of provisions of EC Sixth Dir, Art 5.6 – Whether last sentence of Art 5.6 properly implemented in view of restrictive wording in VAT Act 1993, Sch 2, para 5(1), (2), (2A) and VAT Act 1994, Sch 4, para 5(1), (2), (3) – Questions referred to ECJ

CLAIM FOR REPAYMENT OF TAX – VAT paid in error – Time limit for claims – Reduction of time limit from 6 years to 3 years – ECJ held (in Marks & Spencer plc v Customs and Excise Commissioners Case 62/00 [2002] STC 1036 ECJ) that UK legislation incompatible with Community law in failing to provide for a transitional period – Commissioners promulgate details of transitional period and conditions for making claims in Business Briefs 22/02 and 27/02 – Whether in those circumstance UK has complied with judgment in Marks & Spencer – Whether Business Briefs effective to provide required transitional period – Questions referred to ECJ – VAT Act 1994, s 80 as amended by FA 1997,(1)

LONDON TRIBUNAL CENTRE

EMI GROUP PLC Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: ANGUS NICOL (Chairman)

LYNNETH SALISBURY

Sitting in public in London on 30 November 2004 to 2 December and 18 February 2005

Roderick Cordara QC and Paul Key, counsel, instructed by KPMG, chartered accountants, for the Appellant

Hugh McNab, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

1. The appeal concerns a refusal by the Commissioners of a claim made by the Appellant for repayment of VAT said to have been overpaid, in the sum of approximately £3,300,000, in respect of the period April 1987 to March 2003. The tax in dispute was accounted for and paid by the Appellant in respect of free gifts of samples of music recordings. As appears from the statement of case, and which is not in dispute, between 1987 and 1994 the Appellant accounted for VAT on such gifts in accordance with the then law which restricted "desupply" of samples to goods provided in a non-retail form to both actual and potential trade customers. From 1993 the Appellant accounted for VAT on most of these gifts, under the provisions then in force which made all but one of a number of identical samples given to any one person a supply for the purposes of VAT. It was the Appellant's view that those restrictions were both in breach of the corresponding European provisions, and that all samples fell to be treated as "desupplied".
2. We were told by Roderick Cordara QC, who appeared, with Paul Key, for the Appellants, that the two issues to be determined were, briefly put, first, whether or not the Appellant ought to be accounting for VAT on the samples; and secondly, the meaning, effect and status of the Customs Business Briefs 22/02 and 27/02, after the European Court of Justice's decision in Marks & Spencer [2002] STC 1036 ECJ; [2004] STC 1 CA, and their effect on the three-year limit on repayment of overpaid tax.
3. Mr Cordara submitted that both those issues merited guidance from the European Court of Justice. But he went on to say that the Tribunal should not refer either issue if it should be completely confident that it can decide that issue itself, but that if the Tribunal was not so confident in respect of critical issues then questions should be referred to the Court of Justice.
4. It was agreed between the parties that the issue relating to Article 5.6 of the EC Sixth Council Directive (77/388/EEC) was not one which the Tribunal could decide, and should be referred in any event. That is the issue as to whether the Appellant should account for VAT in respect of samples of CDs provided free.
5. As to the issue concerning the three-year limit on claiming repayment of overpaid tax, the parties were not agreed whether that should be referred or not. The Commissioners contended that there was a three-year limit. The Appellant said that there was no such limit if that brought it into collision with the Court of Justice's decision in Marks & Spencer; a retrospective limit would be unlawful unless it was introduced with a proper transitional period. The Commissioners' reply to that was that this was an administrative measure introduced in the Business Briefs, that the Appellant's claim was not made by the appropriate date, and it was for a taxpayer to prove knowledge about the existence of its underlying claim during the transitional period had one been introduced. The Appellant's rejoinder was that its claim was made in time, but even if not, the claim still existed. Mr Cordara suggested that if the Appellant could satisfy the Tribunal that the Appellant acted within what was laid down in the Business Briefs there would be no need to refer; but if not, Parliament having remained silent since Marks & Spencer, administrative rules were not sufficient, and the Business Briefs were defective in European law.
6. That, put very briefly, was the position between the parties at the outset of the hearing of this appeal, and the situation with which we have to deal.

The law: trade samples

7. Article 5.6 of the Sixth Directive provides as follows:

"The application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge or more generally their application for purposes other than those of his business, where the value added tax on the goods in question or the component parts thereof was wholly or partly deductible, shall be treated as supplies made for consideration. However, applications for the giving of samples or the making of gifts of small value for the purposes of the taxable person's business shall not be so treated."

8. The United Kingdom legislation relevant to this appeal is to be found in the Value Added Tax Act 1983, which, so far as bears upon this appeal, provided as follows:

"3. Meaning of 'supply'; alteration by Treasury order

(1) Schedule 2 to this Act shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services.

(2) Subject to any provision made by that Schedule and to Treasury orders under subsections (3) to (6) below—

(a) 'supply' in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

. . ."

In section 3 of Schedule 2, which deals with matters to be treated as supplies of goods or services, the following provisions apply:

"5. (1) Subject to sub-paragraph (2) below, where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, that is a supply by him of the goods.

(2) Sub-paragraph (1) above does not apply where the transfer or disposal is—

(a) a gift of goods made in the course or furtherance of the business (otherwise than as one forming part of a series or succession of gifts made to the same person from time to time) where the cost to the donor is not more than £10;

(b) a gift, to an actual or potential customer of the business, of an industrial sample in a form not ordinarily available for sale to the public."

Paragraph 5 was amended by the Finance Act 1993, section 18 and Schedule 11, with effect from the date of Royal Asset to that Act, 27 July 1993, as follows:

Paragraph 5(2)(b) was replaced by the following:

"(b) subject to sub-paragraph (2A) below, a gift to any person of a sample of any goods."

A new subparagraph (2A) was added:

(2A) Where—

(a) a person is given a number of samples by the same person (whether all on one occasion of on different occasions), and

(b) those samples are identical or do not differ in any material respect from each other;

sub-paragraph (1) above shall apply to all except one of those samples or, as the case may be, to all except the first given."

The corresponding provisions of the Value Added Tax 1994, in so far as they differ from those in the 1983 Act, are contained in Schedule 4:

"5. (1) [unchanged]

(2) Sub-paragraph (1) above does not apply where the transfer or disposal is—

(a) a business gift the cost of which, together with the cost of any other business gifts made to the same person in the same year, was not more than £50;

(b) subject to sub-paragraph (3) below, a gift to any person of a sample of any goods.

(2ZA) In sub-paragraph (2) above—

'business gift' means a gift of goods that is made in the course or furtherance of the business in question

. . .

(3) Where—

(a) any person is given a number of samples by the same person (whether all on one occasion or on different occasions), and

(b) those samples are identical or do not differ in any material respect from each other,

sub-paragraph (1) above shall apply to all except one of those samples or, as the case may be, to all except the first to be given.

. . .

(5) Neither sub-paragraph (1) nor sub-paragraph (4) above shall require anything which a person carrying on a business does otherwise than for a consideration in relation to any goods to be treated as a supply except in a case where that person or any of his predecessors is a person who (disregarding this paragraph) has or will become entitled—

(a) under sections 25 and 26, to credit for the whole or any part of the VAT on the supply, acquisition or importation of those goods or of anything comprised in them;

. . ."

Subparagraph (2ZA) came into effect on 30 September 2003.

The law: three-year time limit

9. The relevant statutory provisions are to be found in the Finance Act 1997, which amended section 80 of the Value Added Tax Act 1994:

"47(1) [amended section 80(4) of the Value Added Tax Act 1994: see below]

(2) Subject to subsections (3) and (4) below, subsection (1) above shall be deemed to have come into force on 18th July 1996 as a provision applying, for the purposes of the making of any repayment on or after that date, to all claims under section 80 of the Value Added Tax Act 1994, including claims made before that date and claims relating to payments made before that date."

As a result of the amendment introduced by section 47(1), section 80(4) of the 1994 now provides:

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

Business Briefs 22/02 and 27/02

10. Business Brief 22/02 was dated 5 August 2002, and headed "Three year cap—Marks & Spencer—ECJ judgment, Case C-62/00; [2002] STC 1036". It began by explaining that whereas before 18 July 1996, when a taxpayer found that he had overpaid VAT or had paid when not liable to do so, he had a period of six years from the date of the overpayment or of discovery of the error in which to make a claim for repayment. On 18 July 1996 the Paymaster General announced in Parliament that that period would be reduced to three years. The Business Brief continued:

"This change was applied to all clams made on or after 18 July 1996 and to all claims which had been made before that date but which had not yet been processed and paid. The capping legislation is contained in VATA 1994 s 80.

This change was enacted on 4 December 1996 by a resolution passed by Parliament under the Provisional Collection of Taxes Act 1968, which deemed the change to have had effect from 18 July 1996.

The manner in which this three year time limit was introduced, by FA 1997 s 47(2), was challenged in the courts by Marks & Spencer (M&S) and, during the course of this litigation the Court of Appeal sought the guidance of the ECJ on whether the manner of the introduction of the three year time limit was contrary to the principles of Community law.

Specifically, the Court of Appeal asked the ECJ whether it was permissible in Community law to shorten the time allowed for a person to claim repayment of amounts paid by way of VAT, which they overpaid in breach of directly effective rights conferred on them by the European 6th VAT Directive (the 6th Directive), to which the UK had not given effect in its domestic legislation and to do so with retrospective effect."

The Brief then went on to deal with the judgment of the Court of Justice in the following terms:

"The ECJ delivered its judgment on 11 July 2002 and held that the UK had acted contrary to the principles of Community law in that it had failed to implement properly provisions of the 6th Directive, which conferred directly effective rights on taxpayers, and had then retrospectively shortened the time limit within which taxpayers could exercise their rights to repayment.

The ECJ held that when the UK introduced the new time limit they ought to have introduced it with a transitional period, beginning on the date on which the change was enacted, i.e. 4 December 1996. During this transitional period taxpayers who had directly effective rights under the 6th Directive, which had not been properly implemented in UK law, would have been able to exercise those rights before the new time limits were legitimately imposed.

The ECJ did not hold that it is contrary to Community law to impose time limits on the right to repayment of amounts paid by way of VAT contrary to directly effective provisions of the 6th Directive, but that it is contrary to Community law to impose those time limits with retrospective effect.

It is not the case that the UK capping legislation has been rendered invalid as a result of the fact that we failed to make provision for a transitional period when the three year time limit was introduced. A three year time limit is, and remains, in force.

PRACTICAL EFFECTS OF THE JUDGMENT

Customs will now give effect, albeit retrospectively, to a transitional regime for when the three year time limit was introduced in 1996 to allow taxpayers to make the claims that they ought to have been able to make at the time. The transitional regime will apply from 4 December 1996 to 31 March 1997.

The judgment of the ECJ only actually requires that Customs give effect to this transitional period for those taxpayers who overpaid amounts by way of VAT in breach of directly effective rights of the 6th Directive as a result of the UK's failure to give proper effect to the Directive and were prevented, by the manner in which the three year limit was introduced, from recovering those amounts.

However, if Customs had provided for a transitional regime at the time when the three year time limit was introduced, it would not have been applied in such a selective manner. Customs will not, therefore, restrict payment of claims only to those who would benefit from a strict interpretation of the ECJ's judgment in Marks & Spencer.

Taxpayers can now make claims under VATA 1994 s 80 for repayment of amounts overpaid, regardless of the cause of the overpayment, subject to the following criteria.

CLAIMS

Customs are now inviting all taxpayers to submit claims to their local VAT offices where-

- they made claims before 31 March 1997, which were capped (either by Customs or by them in expectation that no more than three years would be paid); or

- they made claims before 31 March 1997, which were repaid in full and amounts more than three years old were then clawed back by Customs by means of a recovery assessment; or

- they made no claim but can demonstrate that they discovered the error before 31 March 1997; and

- in all cases, the overpayments of VAT were made before 4 December 1996

. . .

CLAIMS WHICH DO NOT FALL WITHIN THE SCOPE OF THIS BUSINESS BRIEF

Claims made after 31 March 1997 will be subject to the three year time limit. For example, if between 1 April 1973 and 4 December 1996 you accounted for VAT at the standard rate on supplies which ought to have been exempted from VAT, and you discovered the error on or after 1 April 1997, it will be limited to the amounts overpaid in the three years before the date on which the claim is made.

Claims relating to overpayments made after 4 December 1996 will be subject to the three year time limit. For example, a claim made after 5 December 1999 in respect of an overpayment made on 5 December 1996 will be out of time.

11. Business Brief 27/02 was dated 8 October 2002, and bore the heading "Extension of transitional period for capping limits-Marks & Spencer Plc v C&E Commissioners, CJEC Case C-62/00 [2002] STC 1036-Addendum to Business Brief 22/2002-Grundig Italiana SpA v Ministero delle Finanze, CJEC Case 255/00". By way of background, it gave a very brief resume of Business Brief 22/02, and then went on to consider the judgment of the Court of Justice in Grundig Italiana:

ECJ JUDGEMENT IN GRUNDIG ITALIANA

The length of the transitional period was based on the opinion of the Advocate General in Grundig Italiana, a case in which the issue before the ECJ was whether a 90 day transitional period was reasonable where the time limit for submitting claims to recover amounts of overpaid tax is reduced from five years to three.

The Advocate General concluded that it was for the national courts to determine, as a question of fact, whether a transitional period rendered it impossible in practice or excessively difficult for a taxpayer to recover tax he had overpaid. The Advocate General held that the question was not one to which the ECJ could give an answer. However, he said nothing to suggest that the 90 day transitional period applied by the Italians was unreasonable.

On 24 September [2002] the ECJ handed down its judgment and, declining to follow the Advocate General, held that where time limits for claiming overpayments of tax are shortened from, for example, five or ten years to three, provision must be made for a transitional period of at least six months.

As a result, the transitional period set out in Business Brief 22/2002 is extended by three months and will now be deemed to have run from 4 December 1996 to 30 June 1997 and taxpayers are now invited to submit, or resubmit, claims where:

- they made claims before 30 June 1997, which were capped (either by Customs or by them in expectation that no more than three years would be paid);

- or they made claims before 30 June 1997, which were repaid in full and amounts more than three years old were then clawed back by Customs by means of a recovery assessment;

- or they made no claim but can demonstrate that they discovered the error before 30 June 1997;

and in all cases the overpayments of VAT were made before 4 December 1996.

The deadline for making claims is also extended by three months to 30 June 2003. Requests for an extension will be given sympathetic consideration where taxpayers can demonstrate that they are experiencing real difficulties in meeting the deadline."

And we observe that a footnote is added to this Business Brief:

"Both Marks & Spencer and Grundig Italiana are landmark cases in this area of Community law. Customs and Excise apologise for any inconvenience caused to taxpayers by the change contained in this Business Brief, but believe that it is right to give taxpayers the benefit of the current thinking of the European Court."

The exhibits

12. The Appellant produced a number of exhibits, which were described in the evidence as follows. These were all compact discs ("CDs") with their packaging, which were examples of the type of thing (to use a neutral expression) sent out by the Appellant in circumstances which fell to be considered in this appeal. The descriptions were given by Mr Mark Terry, a witness called by the Appellant, and from our observation of the exhibits which were handed up. The descriptions are not in dispute.

A1(a)

A white paper jacket enclosing a silver CD that was white on one side with printing on it. The CD is a "watermarked" CD, which means that it has an electronic tag which enabled the CD to be identified digitally in the case of unauthorised use. The printing shewed the name of the intended recipient.

The wording on the disc is as follows:

"This promotional CD has been released by Virgin Records Limited on the express condition that ownership and title remain vested in Virgin Records Limited which may require delivery up of this record at any time. It may not be sold, transferred, altered or copied (including burning or uploading to the Internet) without the express prior written approval of Virgin Records Limited".

A1(a) is sent out externally.

A1(b) This is the same as A1(a), except that both sides were silver, with the addition of the following wording:

"This promotional CD is unique and traceable. Virgin Records Limited is able to monitor its use and to identify the source of any unauthorised copies. Virgin Records Limited will take appropriate action in respect of any misuse of promotional CD releases."

A1(b) is for internal use, and is sent to staff members within the company.

On the sleeves of these CDs seven paragraphs appear which stress the conditions under which they are supplied: These are set out in the statement of facts (see the Appendix to this decision) in paragraph 12.

A2

An unwatermarked CD, contained in a white paper folder., otherwise the same as A1(a), but without the name of the intended recipient.

This is used in the case of an artist who has not sold as many as 100,000 units world-wide, and there is therefore less sensitivity because less demand..

A3

An unwatermarked CD with 14 tracks contained in a paper sleeve bearing art-work. It has the normal copyright statement on it. The CD itself is in its final form that will be sold to the public.

A4

The CD in a plastic container, with a paper insert booklet, as they will be sold to the public, but with a "not for retail sale" notice on it.

Evidence

13. There were two areas in which evidence was adduced by the Appellant. The first was that of the "samples". Mr Terry gave evidence explaining the use to which the exhibits, A1 to A4, and other promotional items, were used, for the purpose of determining the issue of whether the items in respect of which VAT was claimed to have been overpaid fell within the United Kingdom's legislation implementing Article 5.6 of the Sixth Directive.
14. The second evidential area was that relating to the time at which the Appellant had become aware of the error under which the amounts of VAT had been overpaid, and the time at which a claim for repayment had been made. Upon the evidence in this area depended the issue of whether, in the events which occurred, the discovery of the error and the making of the claim fell within the deemed transitional provisions set out in Business Briefs 22/02 and 27/02. Mrs Todd gave evidence covering this aspect of the matter.

The statement of facts: the "samples" issue

15. On the first day of the hearing of this appeal there was argument on the subject of whether there should be an agreed statement of facts. Mr Cordara told us that in or before the week before the hearing the parties had begun to exchange draft statements of facts, based upon the witness statements which had by then been exchanged. It was suggested that the appeal be adjourned for the purposes of agreement by the parties of the facts, leaving any matters in dispute to be resolved. The two witnesses were heard. On the third day of the hearing, it was agreed that the Appellant should draft a proposed statement of facts for agreement between the parties, and also draft questions for referral to the Court of Justice, and the Commissioners should have seven days thereafter to respond and to produce their own proposed questions for referral. It was anticipated that agreement would be reached as to both documents. The matter was adjourned until 18 February 2005 in case of failure to agree or in case there were any other matter to be dealt with.
16. Unfortunately only partial agreement was reached as to the statement of facts, and a number of areas left in which there was disagreement. The adjourned date of 18 February was largely used up in endeavouring, with only partial success, to achieve a greater measure of agreement, and the parties went away after that date to revise the proposed statement of facts. That still left a substantial number of factual matters for the Tribunal to determine.
17. Two factual matters which were central to the statement of facts were, first, the objection by the Commissioners to the use of the word "samples" throughout the statement of facts; and the second was the definition of "the material period" as having been from 1987 onwards.
18. As to the word "samples", the Commissioners objected that that was a tendentious word and begged the question, whether the goods in question were "samples" within the meaning of Article 5.6, which lay at the heart of the questions to be referred to the Court of Justice. The Commissioners suggested that "free copies" was a neutral expression, or possibly "not for resale" or "non-retail". The Appellant contended that "samples" was a normal English word, meaning example, describing accurately what the Appellant actually gave to the various persons concerned, and had been used both in correspondence between the parties in the context of the appeal, and in the statement of case. There is no doubt that the word "sample" in both Article 5.6 and in the United Kingdom legislation is used with a particular meaning. Sometimes the expression "free sample copies" is used. If there is a possibility that the word may be taken to mean something other than simply an example, or an example qualified by the attribute of being given for a specific purpose and therefore falling within the legislative meaning of the word, then in our view it would be desirable, so that there should be no confusion between the shades of meaning, that a different expression should be used. We consider that "goods not for resale" or "non-retail goods" are rather cumbersome; since "free copies" describes exactly what is involved without implying that they are necessarily within the legislative meanings, we take the view that that is a convenient expression.
19. "The material period" if used with the inherent meaning of "from 1987 onwards" is less easy to deal with. The Commissioners' objection is that, first, the material period cannot be defined until the Tribunal has resolved what has been termed the Marks & Spencer issue. They also contend that the material period is from some undefined point in the year 2000 up to the present, and that in any event the period from 4 December 1997 to a date in 2000, being three years before the claim was made, cannot form part of the material period. Further, the Commissioners argue that since the statement of facts is intended to support a reference to the Court of Justice for the interpretation of a rule of Community law in order to enable the Tribunal to give judgment, any question relating to the compatibility of United Kingdom law with that of the Community in a period in respect of which the Appellant has no claim, that is, the period before 2000, would be unnecessary for the purpose of enabling the Tribunal to deliver its decision. The Appellant contended that the material period was that period in respect of which it had wrongly accounted for VAT and, according to its argument, has indeed a claim for repayment. The material period is effectively defined in paragraph 2 of the revised draft statement of facts as being the period in which the Appellant has promoted its artists music recordings by providing free copies of albums and singles to (expressed briefly) various entities that can influence the level of exposure an artist receives, and has accounted for VAT in respect of those free copies. What is the material period appears to us to be related to the Appellant's own definition and is the basis of its claim, and is used in that context. Naturally, it is in dispute. But since this is supposed to be a statement of facts, with the intention that it should be so regarded, rather than a pleading, it seems to us to be appropriate to use the expression "the period from 1987 onwards".
20. The statement was entitled "statement of agreed facts". However, the Commissioners objected to the inclusion of the word "agreed", on the ground that they had been left in the position where they could neither admit nor deny certain assertions made by the Appellant and do not accept that they have been proven. The statement runs to 59 paragraphs over 20 pages. Seven paragraphs were wholly disagreed by the Commissioners as were substantial parts of a further ten. Parts of seven other paragraphs were not agreed by the Appellant. At the hearing on 18 February some further agreement had been reached. We therefore have addressed those parts which remained the subject of disagreement, in order to consider, in the paragraphs which follow, whether the evidence before us established whether those disagreed statements of alleged fact were supported by that evidence or were not. Having reached those conclusions, we have appended the resulting statement of facts, which includes all those parts which had been agreed between the parties, as an appendix to this decision. We consider the disputed parts in the order in which they come in the revised draft statement. We have already dealt with the many times recurring expressions "sample" and "material period", and we omit reference to them below. (In setting out the disputed passages, we have used italic type for those to which the Appellant objected, and bold type for those to which the Commissioners objected.) This statement of facts covers only the "samples" issue, and not the dispute concerning time.
21. Paragraph 2

The Appellant objected to two passages in that paragraph, and the Commissioners to one part. The first sentence read:

"Throughout the [period from 1877 onwards], EMI has promoted its artists' music recordings by providing free [ ] copies of albums and singles (on vinyl, tape and compact disc format) to [, amongst others,] various entities that can influence the level of exposure an artist receives."

The words in italics were objected to by the Appellant. We found that the inclusion of those words was correct in the light of the evidence.

Later in the paragraph appear the words

"EMI also provides copies of forthcoming music recordings to certain of its staff members; such items form no part of the claim which is the subject matter of the case."

which were disputed by the Commissioners. Again, we found that that statement was borne out by the evidence.

The paragraph concluded with the following, all of which was disputed by the Appellant:

"EMI also gives free copies of recordings (CDs, etc) to the following:

(a) certain members of its staff; such goods do not form any part of this claim; and

(b) persons outside EMI, described further below, who are not in a position to influence the level of exposure an artist receives."

This passage also we found had been established by the evidence. All three of those disputed passages were therefore included as found facts in the statement.

22. Paragraph 3

The whole of this paragraph was disputed by the Commissioners. The paragraph falls into three parts for consideration:

"The mechanics of promoting music releases by the use of [free copies] has not changed in any material way during the [period from 1987 onwards]."

It was the Commissioners' contention that no cogent evidence was adduced as to how EMI, as opposed to Virgin, conducted its promotions at any period; there was no witness as to the Appellant's modus operandi except Mrs Todd, who had no first-hand knowledge of the process of distribution. Mr Terry could not speak of any period before 1991, when he joined Virgin. The Appellant relied upon Mr Terry's evidence, that Virgin essentially did exactly the same job as the Appellant when promoting their records. Mrs Todd spoke of her belief that the mechanics of promoting music releases had not changed in any material way during the period covered by the Appellant's claim, and said that she had spoken to a marketing manager at EMI Records Ltd, who had been so employed since 1986, and who had read Mr Terry's statement and confirmed that Mr Terry's evidence in this respect was applicable to all the media/formats used from at least 1987 onwards in distributing samples. That evidence was not significantly challenged, but it was largely a combination of hearsay and presumption. We consider that that sentence should be qualified to reflect the quality of the evidence.

The second passage was:

"The only significant change has been in terms of the actual media/format by which the [free copies] have been provided. For example, vinyl records and cassette tapes have been used at various times."

Much the same observations apply to this passage as to the first. But Mr Terry said that he knew what happened in Virgin, and had no reason to believe that it was not the same in the Appellant. However, it appeared to us to be eminently likely that both vinyl and cassette tapes had been used, and on the balance of probabilities, we considered that this passage was a statement of established fact.

The third passage was:

"However, the differences in the media/format have not made any material difference to the distribution of [free copies]."

We considered that that statement was established by the evidence, which was agreed by the Commissioners so far as the period from 2000 onwards was concerned.

23. Paragraph 4

The first part of this paragraph was disputed by the Commissioners. An alternative was proposed by the Appellant, in the following terms:

"The physical distribution of the [free copies] is controlled in-house by a marketing co-ordinator. Some samples are sent directly from central distribution centres to individuals on bespoke mailing lists. Other goods are passed to each EMI department which undertakes a marketing function and sent out from there to media contacts [various recipients, described further below]."

We considered that that passage accurately reflected the evidence. The words "media contacts" was not accurate in all cases, however, whereas "various recipients" in our view was. The remainder of the paragraph was agreed, with the exception of the inclusion in two places of the expression "sales chart", which was objected to by the Appellant, but which we thought was appropriate and accurate.

24. Paragraph 6

The first sentence of this paragraph was amended at the hearing to read:

"EMI provides free CDs in a number of different forms."

The remainder of that paragraph was not in dispute.

25. Paragraph 7

A part of this paragraph was disputed by the Commissioners, on the ground that there was little cogent evidence of how the Appellant, as opposed to Virgin, operated:

"EMI operates 13 separate recording labels, four of which exist within VRL. VRL is a subsidiary company of EMI. Each label manufactures the same types of samples for promotional purposes and distributes these in a very similar method to that adopted by VRL."

What Mr Terry said in evidence, in answer to the question in cross-examination

"Would it be fair to say that you are unable to speak to the practice of parts of EMI that are not covered by Virgin?"

was:

"I can say that they essentially do exactly the same job that we do when they promote their records. They may deal with slightly different people on their lists and may have a slightly different approach personally than we do, but they will very much have to deal with the same contacts. I know from experience as well they manufacture exactly the same sort of samples that we manufacture."

It was not suggested to him that that answer was only his opinion and as likely to be wrong as right, or challenged in any other way. We consider that there is no reason not to accept his evidence on that point, and we find that that statement was correct.

26. It was agreed at the hearing that the heading "Types of samples" should be amended to "Types of Promotional CDs".
27. Paragraph 8

The draft paragraph was:

"Exhibits A1 to A4 represent the typical sequence of samples distributed by EMI when promoting an album. These exhibits are for an album entitled "This is Music: 92 - 98" by a band called "The Verve", which was released in 2004."

The Commissioners' objection was on the ground that The Verve album was on the Virgin label and not that of EMI, and that there was no evidence to shew that the exhibits were typical of the Appellant's operations. The Appellant relied upon the same answer in cross-examination as is referred to under Paragraph 7 above, and we accept it as to this paragraph. The words disputed by the Appellant are correct according to the evidence.

28. Paragraph 35

The Commissioners objected to the whole of this one-line paragraph, on the ground that no documentary evidence had been produced to substantiate that there had been a complete database naming the recipients of watermarked CDRs. The Appellant relied on Mr Terry's evidence that a full database was kept for every CDR sent out, the Promotional Release Information Sheet (belonging to Virgin), of which one was produced and explained, and of which there was kept one for each promotion, and that EMI used a similar system. We consider that that evidence substantiated paragraph 35.

29. Paragraph 39

The last sentence of this paragraph was objected to by the Commissioners, who queried whether "finished stock" was used promotionally, and whether a finished stock CD was a sample or a gift. It was pointed out by the Commissioners that distribution to artists and to management was not for promotional purposes, though such distribution may be made pursuant to contractual obligations. The sentence was amended to state that "The majority of the Finished Stock CDs are provided by EMI for promotional purpose...." rather than all the finished stock. In that form, in our view, that paragraph should stand.

30. Paragraph 40

The Commissioners objected to the assertion in this paragraph that "in 95 per cent of cases promotional CDs distributed externally (including CDRs) are sent to named individuals." The Appellant relied upon the evidence of Mr Terry. The passage relied upon arose at the end of his examination-in-chief, the important parts of which were:

Q. Dealing with situations in which CDs are sent out without a named individual recipient, can you just tell the Tribunal a little bit about how and why that might happen?

A. The numbers are generally very small.... There are however universities, for example, which have entertainment officers, and the contacts we deal with, they change quite rapidly, and from one year to the next the individuals will be different. So in general ... we will just send it to the university office rather than sending it to an individual and it is then distributed internally.

Q. A difficult question: can you give any feel for a percentage? It is only a broad brush question and therefore I expect only a broad brush answer.

A. It is fairly small. I would say it is probably in the region of 5 per cent.

Chairman: Five per cent of what?

A. The total amount of stock that we mail out.

The Commissioners also expressed the view that the 95 per cent figure did not appear to take account of copies sent to pluggers, internal and external. The Appellant's answer was that the evidence was that the pluggers targeted individuals However, apart from the opening words, paragraph 40 does not refer to pluggers but only to organisations such as universities and the BBC. The above evidence was not challenged, however, and refers specifically to 5 per cent of the whole of the stock mailed out. That, it follows, includes the stock mailed to pluggers. In view of the fact that Mr Terry was unable to be exact as to the percentage, we do not consider that it has been established that 95 per cent of the mailed out stock was sent to named individuals. That figure should be qualified in the terms in which Mr Terry did so: "Probably in the region of 95 per cent of promotional CDs...." would, in our view be an accurate opening sentence.

Also in paragraph 40 there is a passage proposed by the Commissioners and objected to by the Appellant, referring to the sending of CDs to BBC radio and television presenters which "will be sent to them by name rather than sent to the BBC itself". The Commissioners proposed the insertion of a passage stating, "In some cases, such persons are employees of the organisation; in other cases such persons are independent contractors. Their status is not determined before sending and is not known to the parties to this appeal." The Appellant objected to that insertion. We considered that that insertion accorded with the evidence, if the words "may not be" were substituted for "is not".

31. Paragraph 41

The first sentence refers to an extensive centralised mailing list, kept by the Appellant, containing some 7,000 named individuals. The Commissioners objected to this on the ground that they required sight of such a list, and had asked for it at the hearing, and it had not been produced. The Appellant replied that that was the unchallenged evidence of Mr Terry, and a sample mailing list was shewn to the Commissioners. Mr Terry's evidence was as follows:

Q. As you go up the order, do the numbers of recipients increase across the line from A1 up to A4...?

A. It varies. Everything mailing we do it pulls from a menu of names in a universe of names but they are bespoke lists generally. So a radio plugger, for instance, will decide that they may want to send one particular release to 200 people or 500 people. They may decide that on another release they only want to wend it to 300 people. It varies.

Q. Is there any broad feel you can give the Tribunal as to, in the case, say, of a single that you are promoting or an album you are promoting, the order of magnitude overall of the number of sample discs that may be sent out?

A. In the UK it is probably in the region of about 2,500 for a single and a much bigger number, maybe 3,000/ 3,500 to 3,750 for an album.

Q. Again, can you give the Tribunal any overall feel as to the size of the mailing list or the potential number of names and addresses on mailing lists within the organisation from which specific names will be pulled for a specific promotion?

A. There are quite a few lists but I think an approximate number would be somewhere in the region of 7,000 names.

That was the part of the evidence upon which the Appellant relied in answer to the objection. In our view it does not amount to evidence that there is "an extensive centralised mailing list" containing the names of some 7,000 individuals. The evidence seems to us to shew that there are several lists which, between them, contain somewhere in the region of 7,000 names. We do not consider that that evidence establishes that there was an extensive centralised mailing list. Mr Terry also said, in cross-examination that he would be able to produce copies of samples of mailing lists, though none was in fact produced. We find that the evidence was that there were several lists, an unspecified number, which between them contained somewhere in the region of 7,000 names. It follows that, later in the paragraph, the reference to the "centralised list" (to which no objection appears to have been taken, perhaps by an oversight) should be amended to "the mailing lists". It also follows that the reference to the centralised list in paragraph 42 falls to be amended accordingly.

32. Paragraph 43

The first sentence of this paragraph, to which the Commissioners objected, was "Each department will be responsible for compiling its own bespoke list for music that is to be promoted." The objection was on the ground that "a full list of all of the departments to which this statement refers should be included for the same of clarity." The Appellant's reply was that evidence to that effect given by Mr Terry was unchallenged, and that the Commissioners had had a sight of a list of departments at the Tribunal. In any event, whether or not a list of departments is included does not, in our view, negate the fact contained in that sentence.

33. Paragraph 45

This is a long paragraph containing 15 bullet points, 13 of which contain objections by one party or the other. The bullet points correspond with the Promotional Release Information Sheet referred to in Mr Terry's evidence. We will refer to them under the headings used in his evidence and in the document.

• "Management: 150"

The contentious part of this point is "VRL is contractually required to provide a number of free copies to the band and in this case provided more copies than it was contractually obliged to provide. The band and their management are free to do with those copies as they wish. EMI/VRL has no say as to what is done with them."

It was certainly Mr Terry's evidence that the Appellant was contractually required to give the band concerned a certain quantity of CDs, and that 150 was slightly above that quantity. As to whether the Appellant had any say in what was done with them, he said:

A. "It would generally go to the band management. The band - they are obviously very proud of what they have created so I would imagine each member of the band would get 10/15 copies and give a copy to their mum.

Q. It is not a matter that is dealt with by Virgin?

A. It is not something that troubles us."

That suggests to us, and we find, that, whether or not the Appellant has any say in the destination of those CDs, they do not exercise any restrictive control over their destination beyond the band management. Nor was there any other evidence of any such restriction. In our view, the evidence establishes the first sentence of that contentious passage, and we so find. The last sentence is not substantiated in those terms.

• "Marketing: 200"

In this and many of the other points the words "(internal)" or "(external)" are objected to by the Appellant, which says that it is cautious about the use of such words. The Commissioners wish its inclusion for the sake of clarity. It does not appear to us that it is actually disputed in any case that the distribution was internal or external, as the case may be, and it does appear to clarify. We heard what the parties had to say about this, and indicate below whether the words should stand or be deleted. In this point we consider that it should be deleted.

• "Press"

The word "internal" occurs twice. It should be deleted on the first occasion and stand on the second.

• "Art: 5"

The word "internal" should be deleted, and "external" should stand.

The Appellant objected to the inclusion of the sentence "Copies retained within EMI/VRL do not form part of the Appellant's claim."

It was agreed that that sentence should stand, and that after the words "third party designer (external)" there should be added "(a named individual)".

• "James Rollins: 50"

It was agreed that both contentious passages should stand.

• "TV"

• "Sales: 300"

• "Regional Promotions"

• "New Media: 150"

• "College"

It was agreed that the words "internal" and "external" whenever used in all these five points should stand.

• "A&R: 50"

Under this point there were several objections. The first was by the Appellant to the insertion of the word "various" in conjunction with the individuals to whom copes would be sent in this department.

The evidence relating to the distribution of the Artists & Repertoire department, given by Mr Terry, made it clear that "various" was a suitable adjective. There could be no factual objection to substituting those whom Mr Terry enumerated, "the engineer that engineered the record, the producer that produced it, various songwriters, people that we brought in to play strings or trombone or - it is going to a number of different places."

The second objection under this point, also by the Appellant, is to the inclusion of the persons listed by Mr Terry. This differs from Mr Terry's evidence only by the inclusion of "music arrangers".

It was agreed that that passage should remain in the statement.

• The third passage was objected to by the Commissioners, and the fourth suggested by them as a substitute and objected to by the Appellant.

Having read the evidence relating to this part of the statement of facts, our view is that there is little to choose between them, and either is reasonably accurate. Mr Terry's evidence actually was:

"Q. ...you said it may be the case that certain persons get more than one copy. Is that the case?

A. It can be, yes. For instance, on The Thrills album, Van Dyke Park who worked with the Beach Boys did the string arrangement on one of the tracks and it is likely that we would have sent him multiple copies so he not only has copies for himself, but a copy for his manager, his publisher and for people that he works with. It is important that people he works with are aware of the work that he has done.

Q. Right. Is that a common thing to happen?

A. It is fairly common, it is an unwritten rule. We are kind of obliged to help out in this manner."

And Mr Terry instanced further examples. His evidence was not challenged. It seems to us that it would be clearer and satisfy both parties if that part of the statement of facts were modified on those lines.

• The Promotional Release Information Sheet

The Commissioners objected to the sentence in brackets in the following context: "the band's tour manager (who distributes them to contacts he meets whilst on tour)". The Appellant objected to the Commissioners' proposal to add Those 490 copies were broken down as follows: followed by five further indents setting out the distribution of the 490 copies referred to, the text of which were not disputed.

The evidence shewed that the passage objected to by the Commissioners was incorrect, and we so find. The remainder of that bullet point and its subparagraphs was not in dispute.

34. Paragraph 46

The only disputed passage, the last sentence: "Most copies handed over by pluggers are 'Finished Stock'," was agreed. However, the Appellant said that "finished stock" must not be equated with finished CD promos; some of the latter were A3s and some A4s. We consider that that proviso should be inserted in the statement of facts.

35. Paragraph 47

There were two passages in this paragraph which were objected to by the Commissioners. The first was, "Each plugger will keep a record of the individuals to whom they have given CDs". The evidence, that of Mr Terry, in answer to Mr McNab, was as follows:

Q. ... what record is kept [by pluggers] of CDs that have been given out in that way?

A. I would imagine that each of the individual pluggers has their own mailing list; has a record of who they have sent it to.

Q ... We are dealing with the CDs they have actually handed over. Presumably it is pretty much vital that they go around to radio stations and say: you have to listen to this?

A. Absolutely, and subsequently, as they are doing it, they are making a list of who they have given it to....

Q. Are you saying, therefore, that pluggers keep records of CDs that they give out?

A. I would expect so.

Q. You would expect so?

A. Yes.

Q. Do you know so?

A. People do it in different ways. Some people know automatically who they have given CDs to. Other people write down lists of who it has gone to. But I would imagine, because of the number of people they are dealing with, each individual plugger will have their own system of logging exactly who a CD has been given to.

Q. So the fact is that you do not actually know in respect of any given plugger who they have given these CDs to?

A. Only in the sense that they will come back and tell us the kind of people they have serviced to....

Q. But you do not actually know what goes on at the sharp end and how many they are handing over...?

A. In terms of actually looking at the quantities for the Verve, for instance, if we take the Verve as a particular promotion, I could go back onto our files and tell you the breakdown of each of the departments' quantities....

But from there, I could not tell you exactly who they had gone to ... but I would have to rely on the individual pluggers to come back to me with a list of people that those promos had gone to. I would imagine, as I say, that they would have them written down, but maybe not.

Q. But there is no document that you can point to that lists all the recipients of CDs that have gone to pluggers?

A. There is no system in place that actually logs who had been sent an artworked promo, because we have never felt the necessity to do it.

. . .

Q. [Dealing with out-of-house pluggers] And how does the plugging work in that situation?

A. It does not differ. It just means that the person that we are dealing with is actually out-of-house rather than in-house.

Q. Is it a question of handing him 300 samples and saying, okay....

A. No, they have their own mailing lists. I doubt very much whether they differ from our mailing lists....

Q. Is there, as it were, any audit trail with the out-of-house pluggers? Are they required to submit any records to you at all, in relation to their activities?

A. Yes, absolutely. They report to us on a weekly basis, if not a daily basis. It is all about results....

Q. Do they provide you with records of what they have given and to whom?

A. Not specifically, but we would not ever need to really go into that sort of depth. We have to trust, we are giving them responsibility to do the job, so we are asking them to work a record for us. If they come back to us and say, we need 400 copies of this CDR to do this job, then we trust that the 400 CDRs we are giving to them are going to the right people. If they came back and said, we need 2,000, we would go: where are you sending them? And we would question them about it. But it never happens.

That evidence, in our judgment, does not establish that all the pluggers maintain lists of the names of individuals to whom they give the CDs. The most, in our view, that could be said is that many, but not all pluggers, will keep a record of the individuals to whom they give CDs.

The second passage in this paragraph, also objected to by the Commissioners, was the last sentence: "A plugger will not send the same individual two identical samples since to do so would be considered to be a waste of money and effort."

That sentence would reflect the evidence given by Mr Terry if preceded by the following words: "Mr Terry was not able to say what went on in face to face meetings between pluggers and their contacts, but considered that he had reason to believe that...."

36. Paragraph 49

The whole of this paragraph was in dispute: the first sentence by the Commissioners, and the remainder, proposed by the Commissioners as a fuller version of the same, by the Appellant. After rereading the evidence and listening to argument on this paragraph, we find that the evidence is more accurately reflected in the following:

"EMI/VRL also uses external pluggers. These may be used, for instance, because they possess a particular expertise or because they have had particular success in promoting a previous recording. The proportion of internal pluggers to external varies. Historically, in recent years 70 to 90 percent of the work was done by in-house pluggers; seven or eight years ago the proportion had gone as low as 50 per cent, while ten years ago it was 70 per cent. In general they try to keep as much of that work in-house as possible. External pluggers are given a quantity of copies. It is expected that pluggers maintain mailing lists similar to those of the Appellant, and many but not all keep records of the persons to whom they give CDs. EMI/VRL trusts the external pluggers to give them to the right people."

37. Paragraph 51

The gravamen of this paragraph, that is to say, the Commissioners' position as to single samples sent to individuals, is, because of the Commissioners' intention to resile from that position, objected to by them, on the ground that such facts should not be included in the statement of facts until and unless their application for leave to do so is determined against them. The objection is on the ground of relevancy rather than accuracy. We deal with Mr McNab's application below. But from the point of view of evidence, it remains the fact that the letter of 26 November 2004 set out a particular view then taken by the Commissioners on what is not a trivial point. It remains also the fact that that same position was stated during the hearing on 30 November and 1 December last. It is a matter which is closely concerned with the subject-matter of this appeal and with the post-1993 domestic legislation in this sphere. In principle, we see no reason why this statement of fact should not be included.

38. Paragraphs 52 to 55

Each of these paragraphs is objected to in toto by the Commissioners on the ground that the periods from April 1987 to August 1993 cannot be relevant until and unless the Marks & Spencer issue has been determined in favour of the Appellant, and that issue must be decided before any reference can be made to the "sample" issue. That point, Mr Cordara said, was a matter of principle rather than of detail, and went to the "material period" issue. It was his contention that that expression meant simply "the period in respect of which the Appellant was seeking a remedy before the Tribunal". As with paragraph 51, we can see no reason in principle why these facts should not be included, since it is only the "material period" aspect of them that is in dispute, not their accuracy.

39. Accordingly, for the purposes of this appeal, we find the facts as set out in the reamended statement of facts. We agree that, in the circumstances, it would not be wholly accurate to call it a statement of agreed facts. In a few places, as will appear in the final statement of facts, it has been necessary to leave matters indefinite or undecided, on the basis that the evidence disclosed no more than a likelihood which might or might not be proved otherwise by further evidence. While this is, on the whole, unsatisfactory and undesirable, in our view it was necessary in order not to leave a gap in the evidence.

Invitation to find specific facts

40. We were invited to find certain specific facts, regardless of the view that we might take of the merits of the parties' arguments on the law. The Commissioners posited the following:

(1) That the Appellant has failed to shew on the balance of probabilities that it thought that it had any claim for repayment of VAT on any basis asserted before the Tribunal, namely a claim based on a directly effective right under Article 5.6, until the end of January 2003 at the earliest.

The Commissioners relied upon Mrs Todd's evidence of her meeting with Mrs Bullock and Mr Tongue on 31 January 2003, which was "the trigger for the Article 5.6 claim". That was confirmed, they say, by the fact that no claim was made before 2003, and that it was not until 2003 that the Appellant stopped accounting for VAT on all supplies.

(2) In those circumstances that, in the language of the Business Briefs, the Appellant did not discover the error which caused it to make overpayments until January 2003 at the earliest.

(3) That, on the basis of Mrs Todd's evidence, the Appellant has not established on the balance of probabilities that it would have made a claim on the basis now asserted even if, in 1996 to 1997, the three-year limit had been introduced with a transitional period of years rather than months.

That, it was contended, must follow from Mrs Todd's evidence. She would not have been involved in any decision to make a claim.

(4) That the above also applies to any possible claim under domestic law; the claim arose late in the day with respect to samples falling within United Kingdom legislation, and no claim has been heard until now.

(5) That there is no evidence to support the allegation that records were destroyed or that there was such a staff turnover that resulted in the claim not being made.

The finding of those proposed facts would go a long way towards deciding this appeal, which was no doubt what the Commissioners had in mind in postulating them. We will deal with them, therefore, after considering the parties contentions.

Facts: the "time" issue

41. The evidence relating to the time issue is contained in Mrs Judith Todd's witness statement and oral evidence, and in correspondence. We cannot avoid the reflexion that it would have been very helpful if Mrs Bullock had been able to give evidence, since some important parts of Mrs Todd's evidence, upon matters which are in issue, appear to depend upon what Mrs Bullock may have said.
42. Mrs Todd has worked for EMI for some 25 years, and at the time of the hearing was Operations Finance Manager, part of her responsibilities being the management of the Appellant's tax liability in the fields of PAYE and VAT. She has been involved with the preparation and submission of the Appellant's VAT returns since 1996, initially doing what she described as leg work for the then Finance Manager, whose responsibility it was to put the VAT returns together. When he was promoted, in 1998, Mrs Todd assumed overall responsibility for these. The Appellant is registered within a VAT group which consists of some 150 companies. Mrs Todd said that the Appellant promoted its artists' recordings by providing free sample copies of albums and singles on vinyl, tape and CD format to various concerns including radio stations and retailers. She believed that the mechanics of promoting the recordings had not changed in any material way from 1987 onwards, and she stated that the distribution of samples had not changed. There had been changes in the media/format of the samples, which had not made any material difference to the distribution.
43. From April 1987 to 26 July 1993, Mrs Todd said, the Appellant accounted for VAT in respect of all the samples that it provided, and similarly from 27 July 1993 onwards. Before 1996 she had had no personal involvement in this.
44. In her witness statement, in paragraph 11, Mrs Todd said:

"Before 30 June 1997 EMI discovered that it was erroneously overpaying VAT in respect of the samples. It is my understanding that had the Appellant known in the period between 18 July 1996 and 30 June 1997 that a three-year time limit would be prospectively imposed with effect from 30 June 1997 it would likely have made a claim before 30 June 1997 for repayment of the erroneously overpaid tax."

45. In or about March or April 2002 the Commissioners informed the Appellant that they wished to carry out a full VAT audit of one of their accounting systems, the EROS system, which recorded sales and also the distribution of sample CDs. During that period, Mrs Todd said, there were several meetings with the Commissioners for the discussion of what they would require for the audit, samples always being one of the topics under discussion. Mrs Todd said that at these meetings Mrs Linda Bullock, who was the Indirect Tax Manager of the Appellant, said to the Commissioners that the Appellant felt that it was overpaying VAT in respect of the samples.
46. On 31 January 2003, which was after the VAT audit by the Commissioners, a meeting took place between Mr Chris Tongue of Customs and Excise, Mrs Bullock, and Mrs Todd, during which the treatment of samples for tax purposes was discussed at length. In the minutes of that meeting, dated 4 February 2003, there is recorded what transpired on the subject of promotional items:

"With regard to promotional items, CT [Mr Tongue] was concerned the items could get into the hands of market traders for example and then no tax would be charged. LB [Mrs Bullock] explained EMI product could only be sold by licensees and if produce [sic] did end up on market stalls it was likely to be pirated and illegal rather than legitimate product.... LB referred CT to Article 5, paragraph 6, Sixth Directive with regard to promotional samples. Basically, there is not a supply of goods in respect of these supplies. CT admitted the UK legislation was ultra vires and that it was likely Customs policy in this area in relation to the music and film industry would be changed. We discussed the different types of promotional samples eg white labels, free product etc. CT requested further information in relation to promotional product which JT/LB will provide."

Mrs Todd's statement added that Mrs Bullock reiterated that with regard to Article 5.6 the Appellant considered that it was overpaying VAT in respect of the samples, and that Mr Tongue appeared to agree.

47. Following that meeting, Mrs Bullock asked Mrs Todd to retrieve all the VAT return files back to 1996 so as to reveal the amount of VAT that the Appellant had paid in respect of samples distributed to staff, and the amount in respect of samples distributed to third parties. It was, she said, intended that repayment of the overpaid VAT would be claimed. Mrs Todd described the meeting of 31 January 2003 as " a trigger for the making of a claim", though she repeated that the overpayment had been mentioned at all the meetings preparatory to the audit, though she had no notes of the meetings. She said that Article 5.6 had only impinged on her mind at some time in 2002-03. She also said that it was possible that she did not specifically remember specific mention of Article 5.6. She recalled Customs policy regarding the matter of promotional samples but said that she could not say in what terms. She would, she said, have taken a back seat during such a discussion. Before 4 February 2003 she was not aware whether Customs agreed that the taxation of samples should be changed. The Appellant ceased accounting for VAT in respect of samples after the audit, in the June 2003 period.
48. Referring to Mrs Bullock's letter of 30 September 2003 to Mr Tongue, Mrs Todd said that she had been aware of that letter at the time when it was written. She agreed that Mrs Bullock expressed in that letter the opinion that the United Kingdom legislation did not follow Article 5.6. Mrs Todd agreed that that was an element of the basis on which Mrs Bullock had instructed her to change the basis on which the Appellant accounted for VAT in respect of promotional samples. Mrs Todd said in cross-examination that the matter of samples had been discussed every time there had been a meeting with Customs, but she said also that she had not fully understood from the beginning why there was such an issue, but had been aware that such an issue existed. There had been meetings since the time of Mr Tongue's predecessor, probably for about six years. Mrs Todd said that, not being a VAT expert, she was more concerned with the figures than with discussions relating to Directives. She knew that samples had always been an issue and had been discussed. She was privy to some of these discussions, but was more concerned with the accounting side of it than the detail of what was being discussed, although she had been aware that there was always an issue with promotional samples. She could not specifically recall mention of Article 5.6, and said that that reference might not have meant anything to her. She said, "Article 5.6 was continually mentioned but because I was more concerned with the figures and the accounting side I possibly would not have fully appreciated the implications." She could not say exactly when she first heard Article 5.6 being discussed. She had not followed the matter up because she took her instructions from Mrs Bullock, and because the department was very busy at that time. That, she said, was during 2002 and 2003, but discussions about the VAT on promotional samples had taken place before that. Article 5.6 first impinged on her mind in about 2002 to 2003. Mrs Todd said that she could not remember when she first heard mention of a claim being made on the ground that the giving of promotional samples did not attract VAT under domestic legislation. She was sure that Mrs Bullock and Mr Tongue had discussed it, but it probably would not have registered with her, as it did not concern her.
49. Mrs Todd said that the claims submitted on behalf of EMI and Virgin had been in respect of promotional samples, and it was the separating of promotional samples and staff samples which had taken so much time. After the meeting in January 2003, when they got all the VAT files from the archives, they tried to separate them. The audit had taken considerable resources and Customs had been there engaged on it for quite a long time. Then immediately after that, at the end of March, the financial year came to an end, and it was the first year in which they had to account for both EMI and Virgin. It was not until the external auditors had left that they managed to deal with the VAT on the promotional samples. At that stage, they were also being threatened with an audit by the Inland Revenue and had to prepare for that as well.
50. As to earlier discussion of the matter of the promotional samples, Mrs Todd said that she had been led to believe that letters or minutes of meetings existed going beck to a time before she became responsible for VAT, but she had never seen any such document. Mrs Todd was referred to the third paragraph of Mrs Bullock's letter to Mr Tongue of 30 September 2003 (see paragraph 53 below), and was asked if there was anything in it with which she disagreed. She said that with her knowledge she would not have picked it up if that paragraph was incorrect, since she would not have known if it was. She added that she was sure that Mr Tongue would have been the first to contradict it, however, if it had been untrue.
51. Referred to paragraph 2(e) of the minute of the meeting of 31 January 2003, Mrs Todd said that the matter of whether the Commissioners accepted the Appellant's position on the illegality of the sample VAT levy was very often discussed, but she was not aware of whether Customs actually agreed that the law would be or was likely to be changed. At that meeting, Mrs Todd said, that matter was discussed, but she said again that was not in a position to comment on it, as she would have taken a back seat at such a discussion. For the same reason, she may not have remembered whether there was a specific discussion relating to Article 5.6.
52. After the audit and the meeting, there followed correspondence. The first letter produced was from Mrs Bullock to Mr Tongue and to Daksha Pandya in the Large Business Group of Customs, dated 26 June 2003, in which she said:

"In the past, we have discussed the issue of samples and agreed a voluntary disclosure should be made to recover the overpaid VAT. We are currently in the process of calculating figures and expect to submit the detailed voluntary disclosure during the next three to four weeks. The approximate amount reclaimable is £500,000.00."

The reply to that was an e-mail from Mr Tongue on 27 June 2003, which said:

"Thanks for the letter, we'll await the final details.

Forgive me if I'm wrong but; I'm assuming that the point of notifying us now of the claim is so that the periods covered will fall within the time limits for making a voluntary disclosure as laid out in VAT Regulation 34(1A) SI 1995/2518. If this is the case, then providing we receive final details of the claim by 1 August 2003, we will accept a claim containing amounts relating to period 06/00 within the claim on this occasion.

In our past conversations, we discussed the time limit of 30 June 2003 for making claims in respect of previous claims made before 30 June 1997 that had been capped at three years (i.e. in line with business briefs 22/02 & 27/02, following the Marks & Spencer ECJ judgment STC 1036). As you don't make mention of this in your letter, I assume that this claim does not include any amounts in that context. I'd be grateful if you could confirm whether my assumptions are correct."

Mrs Bullock replied by e-mail a little over an hour later, to say that the claim "will include periods before 06/00, hence the notification prior to 30 June 2003". A meeting of Mrs Bullock and Daksha Pandya took place on 29 July 2003, and a minute of that meeting records that Mrs Bullock explained that information relating to the promotional samples was proving difficult to retrieve from the IT system, but once obtained the voluntary disclosure would be submitted.

53. Next came a letter (also sent by e-mail) from Mrs Bullock to Mr Tongue, dated 30 September 2003. Mrs Bullock said:

"Further to my letter of 26 June 2003 and out meeting on 4 September, please find attached details of an overpayment of VAT amounting to £1,625,702.00.

The claim is being made following the Marks & Spencer judgment delivered on 11 July 2002.

By way of background, this particular issue has been raised on a number of occasions with officers of HM Customs and Excise going back to 1987. In addition, when the legislation was changed following the Budget in 1993, correspondence and discussions took place with the department on this issue.

I have been of the opinion the U.K. Legislation does not follow Article 5.6 of the Sixth Directive which reads as follows: [Article 5.6 is set out]

Effectively, commercial samples are given away free of charge in order to promote the music as released and distributed by EMI as a business. As such, my understanding is that VAT should not be accounted for on these supplies, hence the claim.

You will note the calculation for years prior to 1996 is based upon the average of the figures we have reconciled to the figures produced by the systems.

As you are aware, prior to 1 July 1996 EMI Group plc was the representative member of a different VAT registration number, 194 2952 34 and was known as Thorn EMI plc."

And Mrs Bullock explained that a separate claim would be made by Thorn UK Ltd. Mr Tongue replied by e-mail on 3 October 2003, suggesting that an early meeting should be held to discuss the matter, and mentioning that one of the issues that needed to be explored further was the basis for the Appellant "claiming amounts outside the normal 3 year time limits". Thorn Ltd also wrote to Customs, on 10 October 2003, sending details of a claim for repayment of £1,721,659.00. In a subsequent exchange of e-mails between Mrs Bullock and Mr Tongue, it was decided that the Commissioners would put their response in writing rather than having an immediate meeting.

54. That response was dated 21 October 2003, referring to a claim for repayment of £3,347,361, which is the sum of the claims by EMI and Thorn. The important parts of Mr Tongue's letter are as follows:

"In your letter [of 30 September 2003] you state that Article 5(6) of the EC 6th Directive leads you to the view that output tax should not be accounted for on commercial samples given away free of charge by EMI in order to promote music released and distributed by the group in the course of its business. Although your letter does not specifically state this, I am assuming at this stage - prior to any examination of the detail behind the figures - that the amount of the claim corresponds to the total value of output tax declared in relation to such samples over the periods concerned. I would be grateful if you can confirm whether or not this is indeed the case."

He added that he was awaiting clarification of the department's position from one of the policy teams before he could give a full reply, and he asked for some further information.

55. In the meantime, the Court of Appeal gave judgment in Marks & Spencer, and Mrs Bullock wrote again on 17 November 2003 to Mr Tongue. Mrs Bullock began by saying that the claim related to overpayment of output tax and fell within section 80 of the 1994 Act. She then addressed questions which Mr Tongue had asked. The relevant parts of her letter were as follows:

"2. VAT was not accounted for on commercial samples prior to 1987, which I consider is the correct interpretation of Article 5(6) of the Sixth Directive. Following a visit by Mr Tom Detain of HM Customs & Excise, the view was made commercial samples fell within Schedule 4 paragraph 5(1), which would appear to be a misdirection by the Department. Mr Detain brought the BPI agreement to the attention of EMI. I understand these were the figures adopted to identify the amount of output tax due. As you are aware, the BPI agreement was not updated on a regular basis and currently, I understand has not been updated since 1998. In addition, further discussions and correspondence occurred during 1993 between EMI and the Department, then the U.K. Legislation was changed. This was due to EMI being unhappy about the VAT liability and revisiting the issue again.

. . .

I believe the point relating to the period of the claim, has now been overtaken by the Court of Appeal Decision dated 21st October 2003. As detailed within the Judgment it appears EMI Group plc has 'a directly effective Community Law right' to the recovery of the overpaid output tax due to HM Customs and Excise implementing Directives incorrectly....

As previously advised, the data relating to the claim needed to be retrieved from the archived computer files. In addition, in order to verify the amounts detailed on the VAT returns, a reconciliation exercise was undertaken with the computer files, which was more time consuming than originally envisaged. I also do not consider there was a legal reason for EMI Group plc to have made a claim prior to the date of my letter. Furthermore the letter sent to you dated 26th June advised a claim was going to be made."

56. The reply to that letter was dated 4 December 2003, and it refused the claim. The ground for the refusal was stated as follows:

"The Commissioner's view is that the legislation within VATA 1994 schedule 4 paragraph 5 is in accordance with article 5(6) of the EC 6th Directive, and in this particular case paragraph 5(3) of schedule 4 applies with the effect that output tax is due on all identical samples given away except the first."

Later, that letter added:

"As the Commissioners consider no overpayment of VAT to have occurred in this case, it is not considered necessary at this time to address the implications of 'capping' and the judgements by the Court of Appeal in the Marks & Spencer and University of Sussex cases."

57. No further correspondence was produced to us earlier than a letter of 25 May 2004, which was from Mrs Bullock to Mr Tongue in response to the statement of case. We set the important parts of it out here because it sets out the Appellant's case as seen by Mrs Bullock at that stage.

"The Statement of Case which the Solicitor's Office has produced, states that EMI did not make a claim by 30 June 2003 and hence is not covered by the terms of the Business Brief Number 27/2002 dated 8 October 2002 (BB). I am rather surprised by this comment, since you will see from your files, EMI wrote to you on 26 June 2003 with details of its estimated claim. The same matter was discussed with Daksha Pandya when she visited on the 29 July 2003 and 19 August 2003. I had mentioned to Daksha the supporting information from the IT System archive was proving difficult to retrieve and that more accurate numbers would be submitted as soon as these were available. You and I also had a meeting on 4 September 2003, at which the samples issue was discussed (among other issues) approximately three weeks before the claim amount was finalised.

Since we had discussed the issue previously, it was clear that the claim was for all the VAT overpaid on commercial samples ie for more than just the three years. EMI had been accounting for VAT by reference to the BPI figures since 1987 and you were aware of my views on the issue. Indeed, EMI have had on going discussions about the output VAT on samples with the Department since some time in 1992. I can confirm from my notes that I discussed it with you and your colleagues on a number of occasions as part of the Eros audit, during 2002 as well as at the final Eros 'wash up' meeting on 31 January 2003, attended by you and my colleague, Judy Todd.

EMI managed to retrieve the final numbers shortly after the initial claim was submitted in June and these were submitted to you on 30 September 2003. The BB states the 30 June 2003 time limit would be extended, if required, to allow traders more time to submit claims - I guess in recognition of the fact that it would take most large traders time to make reasonably accurate back dated claims since many of them will not have kept records going back years as there was no legal requirement to do so. At no point was any suggestion made that there would be any issue or difficulty in terms of the BB and the timing of the claim, in the above circumstances. I had no reason to believe that there was an issue about our claim not being considered to be within time - indeed neither you nor Daksha had raised it.

However, now the point apparently has been raised, could I please ask you to formally confirm that in line with the BB you are happy either to accept EMI submitted a claim by 30 June 2003 which was subsequently amended, and/or follow on documents received in September as described above, and accordingly that an extension to the BB time limit for EMI's claim has been allowed? It is possible the above arises from misunderstanding of the facts and the solicitor concerned merely reading the files rather than discussing the issue with you and Daksha."

It must be observed, in respect of this letter, that it is apparently being stated that the letter of 26 June 2003 was a claim, or at any rate that it included details of the claim, whereas it simply stated that a voluntary disclosure was to be made and the amount would be approximately £500,000. There was no other evidence of any discussions, still less what precisely was discussed, going back to 1982, nor was Mrs Bullock called to give evidence of those discussions.

58. The reply to that letter was from Rebecca Taylor of the Tax and Excise Litigation Division at New King's Beam House, on 7 July 2004. Dealing with the first of the above paragraphs from Mrs Bullock's letter, Miss Taylor said that the Commissioners accepted none of those representations, and continued:

"EMI's letter of 26 June 2003 did not provide details of the claim but merely indicated that it was being compiled and would be made within the next 3 to 4 weeks. The estimate was in the region of £500,000.00 (rather than the £3.5 million that it turned out to be). Ms Pandya tells me that there was some discussion about a section 80 claim at the meeting of 29 July. The claim in question was one that had been submitted by a different EMI registration and for a different reason: it was not concerned with VAT 'overpaid' on samples. The claim that is at issue in these proceedings was not discussed at either of the meetings that Ms Pandya attended."

Miss Taylor then also rejected the contention that "it was always clear that the claim was for all the VAT overpaid on commercial samples, i.e. for more than just the last three years", since the letter of 26 June made no mention of that circumstance. It was the reply to Mr Tongue's e-mail of 27 June that first apprised the Commissioners of the intention to claim for more than three years. The Commissioners also disagreed as to the ongoing discussions; it was said that Mr Tongue's recollection was that overpayment was discussed in vague terms and he had suggested that details of the claim should be given and the Commissioners would consider it. The Commissioners did not consider that the Appellant had demonstrated that it had experienced "real difficulties in meeting the deadline", and Miss Taylor said that in practice "this means that the Commissioners may allow moderately late claims where, for example, the taxpayer has been hampered by personal or domestic problems, or where a business's accountant has left at short notice and it has proved impossible to secure a replacement for some months, in other words in exceptional circumstances." The Appellant's case did not fall within that definition, and Mr Tongue had allowed an extension until 1 August 2003.

59. We pause to observe that Business Brief 27/02 makes no mention of exceptional circumstances being required to be demonstrated before sympathetic consideration will be given, or of any circumstances such as those mentioned by Miss Taylor.
60. The last letter which has a bearing on the issues in this appeal was that of 26 November 2004, four days before the first day of the hearing. It was in reply to a letter from KPMG, who represented the Appellant, and the material part of the letter was as follows:

"1. In paragraph 9, you state that samples sent to radio stations are sent to an identified recipient in an individual package. If this is the case, then no VAT need be accounted for on these samples. The Commissioners have not been made aware that VAT had been accounted for on such samples. Can you please confirm whether these samples form part of those on which you say VAT has been accounted for incorrectly?"

It was that letter which set out the Commissioners' view as at 26 November, and that is the position from which they now seek to resile. It is not clear, in view of the previous correspondence quoted above, on what basis they say that they were not aware that VAT had been accounted for on such samples. It had been made reasonably clear that the claim was in respect of VAT accounted for on all promotional samples.

The Appellant's contentions: specific findings of fact

61. We consider first the contentions of the parties in respect of the specific findings of fact which the Commissioners invited us to make (see paragraph 40 above). It was the Appellant's basic submission that not only should the Tribunal not find those specific facts, but that we should hold that the opposite was the case. The evidence of knowledge of the error was in all cases allied with the allegation that the Appellant was communicating that knowledge to the Commissioners, at meetings and discussions and in correspondence. That was critical, because if such an allegation as to knowledge is made the Respondent must discredit the witness as a source of reliable information, it must cross-examine on the basis that the evidence is untrue, and or alternatively it must lead evidence in rebuttal. The Commissioners did none of those. It was never suggested that Mrs Todd was other than a truthful witness, doing her best to be careful and accurate. There was no challenge in cross-examination of Mrs Todd as to what was said in Mrs Bullock's letter of 30 September 2003, that the issue of overpaid VAT had been raised on a number of occasions with officers of Customs as far back as 1987. Nor was there any suggestion to Mrs Todd that Mrs Bullock could not have been telling the truth. Nor was any evidence called by the Commissioners in rebuttal of what was said in that letter. That was a clear factual allegation made inter partes which invited an answer. It was also Mrs Todd's evidence that Mr Tongue was not the sort of man who would let such an allegation pass if it were not true. Either Mrs Bullock was telling the truth, or she was making it up. The Commissioners had suggested that there was an extra fact which the Appellant had to prove (see paragraphs 40(1) and (2) above). The Appellant had led credible evidence that it could prove that fact, and had shifted the evidential burden to the Commissioners. On the balance of probabilities, therefore, the Appellant had demonstrated that what Mrs Bullock said in that letter was fact, and that there was only one credible inference that could be drawn, namely that the Appellant was aware of the argument that the United Kingdom legislation was too narrow when viewed in the European context.
62. In her witness statement, Mrs Todd had said that that the Appellant had discovered before 1987 that it was overpaying VAT in respect of promotional samples (see paragraph 44 above). That was evidence which was consistent with the letter of 30 September 2003 from Mrs Bullock that there was knowledge of the error. It was never put to Mrs Todd that that was untrue or was something that she could not have sworn to. Nor was it suggested that she might have been referring to some other, or irrelevant, error than that relating to VAT on samples. Perhaps Mr Tongue was so quick with his admission at the meeting on 31 January 2003, that United Kingdom legislation was ultra vires and that Customs policy was likely to change in this area, because it had been discussed on a number of earlier occasions. Mr Cordara referred also to Mrs Todd's evidence that the Commissioners had been made aware many times by oral statements of Mrs Bullock of the overpayment contention. That was not challenged by the Commissioners, and indeed was not explored at all in cross-examination, and the inference can be drawn that that is the truth. Mrs Todd said that the meeting of 31 January 2003 had been the trigger for the claim. If that is right, the discovery of the error must have been made before that meeting, or at the latest at the time of that meeting. If it is true that Mrs Todd was told of an error by Mrs Bullock, since it was not suggested that there was some other error which had been discussed for some years, it must have been the Article 5.6 error.
63. As to the third specific fact, the Business Brief did not require the Appellant to shew that it would have made a claim for repayment in the 1996-97 period had there been a proper transitional period. The Tribunal would be within its rights not to deal with that point. It was not suggested to Mrs Todd, for instance, that the Appellant was so wealthy and uninterested in the matter that it would simply have allowed the time limit to expire.
64. As to the extension of time for making the claim, Mr Cordara referred to Business brief 27/02, and said that what was required was that the Appellant should establish that it was experiencing real difficulties. There was no clear starting point except the decision of the Court of Justice on 11 June 2002 in Marks & Spencer and the Business Brief in October of that year. It was not suggested that the Appellant had been negligent or lacking in diligence in pursuing the claim, nor any suggestion in cross-examination. The Appellant had done its best to deal with the Inland Revenue inquiry, the VAT audit, the accounting year-end, and the EROS audit; it was not suggested that time was wasted after that. Instead of lumping all the provisions of samples together and making an exaggeratedly large claim, and then subsequently splitting the claim up into internal and external samples, the Appellant separated the two first before making the claim. What are "real difficulties" will depend upon who the taxpayer is and its circumstances. In the circumstances of this case, the Appellant did experience real difficulties.

The Commissioners' response

65. Mr McNab said that he had not put the first point to Mrs Todd in cross-examination because the letter referred to was not written by her but by Mrs Bullock, and Mrs Bullock has given no evidence. The letter itself in this hearing is hearsay, it is not part of the res gestae, and it is not a contemporaneous statement. It was no more than a statement made in a letter by a person who has not been called as a witness. It is a question of the evidential weight that should be given to the information contained in that letter. As to Mrs Todd's statement that "Before 30 June 1997 EMI discovered that it was erroneously overpaying VAT", that was not evidence of an error. Mrs Todd did not use the word "error", she only said "erroneously". It was clear from the course of cross-examination that she had not known about any errors until 2003.

Conclusions as to specific facts

66. We deal with the five specific findings of fact that we were invited to make in the order in which they are set out in paragraph 40 above.

(1) Mrs Todd's evidence was that the Appellant changed the basis on which it accounted for VAT in respect of promotional samples only after the VAT audit, after it had been discussed at various meetings during and after the audit. She also said that the Appellant discovered at some time before 30 June 1997 that it was erroneously overpaying VAT. The approach by the Commissioners with a view to carrying out an audit was made in or about March or April 2002, she said, and during meetings in connexion with that audit the matter of VAT in respect of samples was raised. It was not until after the meeting of 31 January 2003 that Mrs Bullock asked her to retrieve all the VAT return files back to 1996 in order to find out what VAT had been accounted for in respect of internal and external samples. It is unfortunate that Mrs Todd took no notes of the meetings, and tended to switch off during discussion of matters connected with Article 5.6. Nor was she able to be specific as to exactly what was discussed on this topic. We have to consider, first, whether we can accept Mrs Todd as a witness of truth, since she cannot have been unaware of the importance of her evidence. In the first place, it was not suggested to her in cross-examination that she was not telling the truth. In the second, on the matter of Article 5.6, Mrs Todd quite frankly said that that was outwith her area of expertise, and that she had not taken much notice of what was said. She also said that at the various meetings referred to she had not fully understood why the promotional samples were such an issue, but she was aware that there was an issue about them. It would have been very easy for such a witness to have given tailor-made evidence to suit the case. Probably, had she done so, her account of things would have been more definitely supporting the Appellant's case on this point. But she did not. We consider, having seen and heard her give evidence, that she was a witness of truth. The alternative seems to be that she was coached in her evidence and came to the Tribunal prepared and intending to lie on her oath. We reject that alternative. Taking her evidence as a whole on this point, we find that it amounts, on the balance of probabilities, to this: that the Appellant became aware of the fact that it had been paying VAT in respect of promotional samples when none was due at or about the time of the VAT audit. The evidence is lacking in detail, and in view of the Appellant's subsequent action in changing the basis for accounting for VAT in respect of samples, which was after the meeting of 31 January 2003, we consider, on the balance of probabilities that that knowledge came to the Appellant at about the time of the end of that audit, whenever that may have been, which was what caused it to be discussed at the 31 January meeting. We accept Mrs Todd's evidence that that meeting, at which the matter was discussed, was the trigger for the claim. The evidence is not, in our judgment, such as to establish that the intention to make a claim arose at the same time as the knowledge that the Appellant was erroneously paying VAT in respect of samples, nor does it establish exactly what the knowledge was that was discussed at earlier meetings. We find it difficult to accept that, when such large sums are at stake, if the Appellant was aware back in 1987 or before that it was paying VAT which it should not have been paying it did not make any claim some years earlier.

(2) It follows from (1) above, that, in the language of the Business Briefs, we find, on the balance of probabilities, that the Appellant discovered the error which had caused it to make the erroneous payments of VAT at or about the time of the end of the VAT audit.

(3) This falls into two parts. First, did the evidence that Mrs Todd gave establish that the Appellant would have made a claim even if in 1996-97 a transitional period even of a mater of years had been introduced; secondly, was Mrs Todd in a position to give such evidence at all? Mrs Todd's evidence on this point was in paragraph 11 of her witness statement. She does not say how her "understanding" came into being. The suggestion is that at some point in time, and there is no means of knowing when, Mrs Todd, in the course of her employment, became aware of the situation, and that she understood from that that if a claim could be made the Appellant would make one. But she can say no more than that she understood that it was likely. She herself did not take part in the decision making process. We therefore answer the first part of this point by saying that Mrs Todd's evidence is not enough to establish on the balance of probabilities that, in the circumstances postulated, the Appellant would have made a claim. As to the second part, since she did not take part in the decision-making process, and was not in such a position that she would have been concerned with it, we take the view that she was probably not in a position to give any evidence on the point save that which she gave in paragraph 11 of her witness statement.

(4) It was not entirely clear whether, in formulating this specific fact, Mr McNab was referring, in using the expression "domestic law", to statute law alone or also to the two Business Briefs. But that may not matter. The facts as we have found them are the same whether Community law or domestic law is to be applied to them. The way in which this "fact" is formulated makes it appear to be a point of law rather than a matter of fact. If only statute law is referred to, the matter of the time of making the claim does not arise. If the two Business Briefs are also referred to, whether they have the effect contended for by the Commissioners is or will be an issue to be decided either in the domestic courts or the European Court of Justice.

(5) As to the fifth proposed fact that we are asked to find, there was no evidence that records had been destroyed, nor that there was a staff turnover such as to delay the making by the Appellant of a claim for repayment of erroneously paid VAT. However, there was evidence, from Mrs Todd, that the resources of the finance and tax departments were stretched, or even overstretched, at the end of 2002 and the first half of 2003, by a number of demands. These included the VAT audit, the year end accounts, the first year of including the Virgin accounts, an Inland Revenue audit, and the making of the claim the subject of this appeal. We find that that circumstance was at least a part of the reason why the claim was not put in by either 30 June or 1 August 2003. There was also evidence, also from Mrs Todd, that certain files and other data which were needed were not in a format which could be reconciled with the VAT returns, and a special computer programme had to be written in order to enable the information to be recovered, and that had taken until about the middle of July 2003. That was unchallenged evidence, and we find that that, too, must have contributed to the delay.

The Commissioners' application to resile from their concession as to promotional samples sent to named individuals in organisations

67. On 26 November 2004 the Commissioners' position as to samples sent to radio stations addressed to named individuals was as set out in their letter of that date (see paragraph 60 above). That remained their position throughout the hearing. On 18 February 2005, at the adjourned hearing, it was disclosed that the Commissioners had changed their position on that point, and wished to resile from it. They now contend, as they had contended until 26 November 2004, that "where more than one individual employed within an organisation or body receives a sample (of identical goods), all but one of those samples, or all but the first of those samples, is to be treated as a supply. In other words, in that situation, 'person' refers to the organisation or body rather than the individual." Mr McNab submitted that there was no reason why the Commissioners should not be permitted to change their position back to what it had been before 26 November. He contended that it was not a fundamental point and made no change in the way in which the appeal had gone or would go. It was not suggested that the Appellant had relied upon the concession of 26 November, nor did it have any effect upon the evidence that Mr Terry gave or would have given had the concession not been made.
68. It was not suggested, Mr McNab submitted, that the Appellant had intended calling evidence as to the employment of all those employed in organisations to which samples were sent; the appeal had proceeded on a lofty level of principle rather than delving into details. Mr Terry could have given evidence, he understood, that within such organisations there were people working who were independent contractors. A likely situation, to give an example, would be the BBC. Some 200 people in that organisation will receive copies of the same promotional sample. Some of them will be employees and some will be independent contractors, and there may be different treatment of samples sent to the one and to the other. But that is all that it was required to know at present. It was also submitted that the Appellant would suffer no prejudice, and even if there were some prejudice that could be remedied in agreeing a statement of facts.
69. It was better, Mr McNab contended, that European law and domestic law should be interpreted by the relevant courts rather than as the result of a change in position in the Commissioners' argument.

The Appellant's contentions

70. Mr Cordara submitted that in reality this was a fundamental point which the Commissioners sought to minimise. In the first place, it was an important point as to quantum, and would lead to a much larger claim being made than it was thought to be on receipt of the letter of 26 November. Mr Cordara conceded that the Appellant had presumed that everything was in issue until receipt of that letter, and it had come to the Tribunal under the impression that a large part of that claim had been conceded. The other reason why it was important was because of the difficulty, perhaps impossibility, of knowing which of the 200 recipients of samples in the BBC was employed and who was not. It would make it virtually impossible to obtain the protection of Article 5.6 because they would not know who was employed and who was not, and the organisations concerned would not tell them.
71. No explanation had been given by the Commissioners for their change of stance. If a good reason had been shewn for the change, the Appellant might not have opposed the application. As to prejudice, the opportunity of exploring that matter with Mr Terry was now lost, and it was not proposed to recall him, though the position would certainly be reserved for when and if the matter came back to the Tribunal.
72. Further, Mr Cordara contended, the Tribunal was entitled to take into account whether the point would have any effect. There was no reference in Article 5.6 to the identity of the recipient of a promotional sample; it dealt only with disposal, the giving of gifts or samples, the requirement being that it would be for the purposes of the taxable person's business. The European Court of Justice would be unlikely to consider that whether a disc jockey is employed or not made any difference; it is not challenged that the gift is directed to and intended for a particular person.
73. Finally, Mr Cordara submitted that it was too late in the course of the litigation for such an application and such a change of direction.

The Commissioners' reply

74. Mr McNab agreed that the change of position was important on the matter of quantum, but said that in this appeal, at this stage, the Tribunal was not considering quantum. The problem of finding out or working out who was and who was not employed by, for example, the BBC existed before 26 November 2004 in any event, and was not a difficulty created by the change of position. Mr McNab said that the reason for the change of position may have been due to a mistake, and suggested that a "communication breakdown" may have something to do with it. The point was important for the purposes of the reference to the Court of Justice because of the change of meaning of "person" from individual to legal person, that is, the employer of a number of individual recipients.

Conclusions on Commissioners' application

75. We take the view that it is very undesirable that litigation should be carried on in the way in which the Commissioners have chosen to do so. The more so, since neither reason nor any real explanation has been offered for so doing. Our instinct would have been to refuse the application. However, on consideration of all the circumstances we have decided to allow it and grant the leave sought, for the following reasons.
76. Rule 14(1) of the Value Added Tax Tribunals Rules 1986 provides:

"For the purposes of determining the issues in dispute or of correcting an error or defect in an appeal or application or intended appeal, a tribunal may at any time, either of its own motion or on the application of any party to the appeal or application, or any other person interested, direct that a notice of appeal, notice of application, statement of case, defence, reply, particulars or other document in the proceedings be amended in such manner as may be specified in such direction on such terms as it thinks fit."

The statement of case, in paragraph 1 states, inter alia,

"... From 1993 the Appellant accounted for VAT on the bulk of [the free gifts of sample music recordings] in obedience to the current domestic provision, which makes all but one of a number of identical samples given to any one person a supply for VAT purposes. The Appellant had formed the view that [that] restriction[] [was] in breach of the corresponding European provision and that all samples were properly to be treated as 'de-supplies'. The decision is contained in a letter dated 4 December 2003 from Mr Tongue at the Commissioners' Large Business Group to Ms Bullock, Indirect Tax Manager of the Appellant."

The relevant part of that letter, which should clearly be read with the statement of case, says, laconically, as is set out in the first quoted part of paragraph 56 above, which does not take the point much further, but can probably be said to include the contention that where paragraph 5(3) of Schedule 4 to the 1994 Act refers to "a person" or "the same person" it is referring to legal persons and not only to individuals. If that is right, the letter of 26 November 2004 was in the nature of an amendment to the statement of case, made without leave but clearly with the consent of the Appellant to whose advantage is certainly was. In effect, the Commissioners now seek, with leave, to amend their statement of case back to what it originally was. This Tribunal has power to allow such an amendment.

77. Having listened with care to the submissions of the parties, we take the view that although this volte face took the Appellant by surprise and no doubt caused a certain amount of dismay, it does not cause any significant prejudice to the Appellant. In the long run, it may cause considerable difficulties to both parties, if, for instance, it becomes necessary to identify each individual recipient within a large organisation in order to see whether that individual is part of the legal person of a company or is an individual and therefore separate person. We do not see that the return to the status quo ante has caused the Appellant any significant evidential difficulty; if it had there would no doubt have been an application to recall Mr Terry, or even another witness, to deal with the point, and such an application would have received a sympathetic hearing. The point will certainly be relevant on the issue of quantum; as Mr McNab has rightly said, we are not concerned with quantum at this stage. If and when the appeal is returned to this Tribunal after a visit to Luxembourg, probably the issue of quantum will have to be resolved; there should be plenty of time for the parties to reach an agreement as to how quantum should equitably be calculated in such cases.
78. Finally, since the point is taken, and was taken from the start, it seems to be a point which ought to be litigated. It seems to us that it is counterproductive to refuse to allow a point to be taken simply because an amendment is sought at a very late stage in the proceedings. We also bear in mind that the Appellant said during argument that, had more notice been given and reasons advanced for the amendment, the Appellant might have consented to it. For the above reasons we allow the amendment in the terms in which it was put forward on 18 February 2005. We have not been told that there are any costs implications engendered by the amendment. If there are, we will give liberty to apply for the purpose of dealing with that question.

CONTENTIONS RELATING TO THE APPEAL

The Appellant's contentions: (1) The samples issue

79. Mr Cordara began by defining the issues before the Tribunal. The first is the question, whether the Appellant should properly be accounting for VAT in respect of the giving out, free of charge, of promotional samples of the recordings which they will be offering for sale to the public. This has been referred to as "the samples issue". It was in respect of this issue that the parties were agreed that the Tribunal could not answer that question with complete confidence without referring it to the European Court of Justice.
80. The second issue, "the time issue" concerned the question whether the Business Briefs 22/02 and 27/02 have the status of legislation, or at least of being legally binding upon the taxpayer, so as to impose the three-year time limit on section 80 of the 1994 Act if it is incompatible with the Court of Justice's decision in Marks & Spencer that a retrospective time limit is not lawful unless it has been introduced with a proper transitional period. On this issue the Commissioners say that under the Business Briefs there were requirements, first, to make a claim for repayment by a certain date, which was imposed by Business Brief 22/02 and extended by Business Brief 27/02, and that the Appellant did not make a claim by that date. Secondly, that a taxpayer making a claim must prove knowledge, during what would have been a transitional period had one been introduced, that it either had or would have had that it had grounds for making a claim. The Appellant's answer was that it did in fact fit into the Business Brief, but if, contrary to that contention it did not, the Business Briefs did not bind them and could not deprive the Appellant of its claim. However, the Appellant contended that if the Tribunal were satisfied on the facts that the Appellant did fall within them there would be no need to refer the matter to the Court of Justice. If the Appellant were unable to satisfy the Tribunal of that, Mr Cordara said, then the matter ought to be referred, since the decision would involve deciding whether the administrative rules contained in the Business Briefs were or were not sufficient to implement directly effective Community rights, and whether the Business Briefs were defective so as to be incompatible with European law.
81. The balance between preventing the leakage of tax on the one hand and allowing traders to give away samples for business purposes was struck, for the United Kingdom, by the European legislators in Article 5.6. It would have been enough for the United Kingdom to transpose the words of that paragraph into the domestic legislation. No doubt for good reasons, the United Kingdom had not done that, and had, in the result, taken a course which eroded the scope of the last sentence of Article 5.6 and has thereby cut into the directly effective rights which the last sentence afforded to the taxpayer. The Appellant fell squarely into that last sentence.
82. Mr Cordara traced the implementation of Article 5.6 through the 1983 Act and the 1994 Act. Section 3(2) of the 1983 Act provided that "supply" included all forms of supply but not anything done otherwise than for a consideration. That remained the position today. In schedule 2 of the 1983 Act, paragraph 5(1) was the implementation of the first sentence of Article 5.6, and it was expressed to be subject to sub-paragraph (2). Paragraph 5(2)(a) brought the provision into the ambit of the second sentence of Article 5.6, but having excepted "gifts of goods made in the course or furtherance of a business" added a gloss in brackets: "(otherwise than as one forming part of a series or succession of gifts made to the same person from time to time)". Paragraph 5(2) is therefore not the equivalent of Article 5.6. There is an issues as to whether it was legitimate for the United Kingdom, without seeking any derogation or permission from the European authorities, unilaterally to cut down the purport of Article 5.6. Paragraph 5(2)(b) refers to "an industrial sample"; it was contended that the CDs could be described as industrial samples without misuse of language. A4 was clearly not a sample "in a form not ordinarily available to the public", but A1, A2 and A3 were. The third restriction was that the sample had to be given "to an actual or potential customer of the business". Since all the recipients were capable of buying the CDs for themselves, they clearly came, at an individual level, within that category. But the Appellant was also sending them to, for instance, HMV, and that would come within the paragraph too. Mr Cordara considered that the Commissioners would assent to that, and that it would be destructive of the scope of paragraph 5(2)(b) if they did not. As was later seen, although they might have done so during this argument, that is the position from which they resiled. The BBC too was clearly a potential customer.
83. The Finance Act 1993 was given the Royal assent on 27 July 1993, and contains a differently worded version of the United Kingdom's implementation of Article 5.6. The legality of that was challenged, because it has the effect of cutting down the last sentence still further. Paragraph 5(2)(b) of the 1983 Act is amended to read: "Subject to sub-paragraph (2A) below a gift to any person of a sample of any goods." That by itself differs fundamentally from the last sentence of Article 5.6 in that it omits the requirement that the gift would be in the course of the business. Then comes sub-paragraph (2A) (see paragraph 8 above). The restriction is more closely circumscribed by that provision, in that the samples have to be identical or not materially different. It was the Appellant's contention that each of the exhibits A1 to A4 is different in a material respect from each of the others, as is the packaging of each, and would pass that test. If a single person received one of each of them, none of them would be caught by sub-paragraph (2A). The intention of the Government was made clear in a news release dated 16 March 1993. This stated that the Chancellor of the Exchequer's intention was to help businesses to provide samples to encourage future sales, and therefore no distinction would be drawn between actual or potential customers on the one hand and any other recipient of samples. It concluded,

"The amended legislation removes these distinctions, thus providing a simpler rule that all samples are relieved regardless of the status of the recipient and whether or not they are in a form ordinarily for sale but where more than one identical item is supplied to one person, VAT relief will be limited to only one item."

The difficulty, with a large and constantly evolving mailing list, was to keep track of who got a first sample and which sample it was that he received. A huge amount of computer time would be necessary to extract such facts on a regular basis.

84. The 1994 Act came into force on 1 September 1994, and the relevant provisions are in paragraph 5 of schedule 4. This changed the law again. Paragraph 5(1) remained unchanged. Paragraph 5(2) was amended (see paragraph 8 above) and brought in the "business gift", defined in sub-paragraph (2ZA) (see paragraph 8 above). Again, with a high volume business it is difficult to calculate whether an individual recipient has received more or less than £50 worth of goods (production cost, not retail price). Subparagraph (3) (also set out in paragraph 8 above) provides for the case where a recipient receives more than one identical item or more than one which do not differ in any material respect.
85. Mr Cordara referred us to Customs and Excise Notice 700/35, which, he said, threw some light on the implementation of Article 5.6, by explaining the VAT treatment of goods given away by a business. The Notice refers to gifts given to the same person more than once as "a series or succession of gifts", on which VAT would be due in respect of all of them regardless of their cost to the donor. The notice said, "It depends on whether it is your intention to benefit the same person on the successive occasions." Mr Cordara pointed out that it would be in exceptional cases that a disc jockey, for instance, would receive two of any version A4, as there would be no reason to send him more than one, and in such a case it would not be the Appellant's intention to benefit him more than once. Paragraph 1.4 of that Notice stated that if a gift of goods on which VAT was due was made to a person who uses the goods for business purposes, the recipient can claim input tax in respect of it on a tax certificate being issued by the donor, and the Commissioners are left in a neutral position as regards VAT. There would be no risk of a tax leakage.
86. The Appellant's contention was that from at least April 1987 onwards, the Appellant paid large sums of money as VAT in respect of the giving of music samples, not all of which were due, as a result of the second sentence of Article 5.6. The domestic legislation, in the period to 26 July 1993, provided that only gifts of industrial samples in a form not ordinarily available for sale to the public that were relieved from VAT. After that date, domestic legislation provided that only the first sample or gift, of a succession of samples or gifts, to the same person which was not subject to VAT. The Appellant was entitled to rely upon Article 5.6 in preference to domestic legislation against the Commissioners. If a domestic measure did not properly implement the Directive, or if the Member State misapplied it or failed to apply its provisions, it may have direct effect within the Member State which imposed directly enforceable duties and conferred directly enforceable rights: Marks & Spencer plc v Customs and Excise Commissioners [2004] STC 1 CA at page 12. The implementation must be such as to ensure its application in full. Since the United Kingdom's obligation under the Sixth Directive was to achieve the result envisaged by that Directive, it was the United Kingdom's duty to take all appropriate measures to ensure fulfilment of that obligation. That obligation and duty are binding upon all authorities of the United Kingdom. The United Kingdom, or the Commissioners, have failed to implement the provisions of the Directive, and/or failed to implement them correctly, those provisions, and in particular those of Article 5.6, being unconditional and sufficiently prefaced. The Appellant may therefore rely upon them as against the Commissioners. See also Marks & Spencer [2002] STC 1036, 1056-57 ECJ.

The Appellant's contentions: (2) The time bar issue

87. Between 1 January 1990 and 18 July 1996 there was a six-year time limit, introduced by section 24 of the Finance act 1989 on claiming repayment of overpaid VAT, starting on the date on which the claimant discovered the error which resulted in the overpayment, or could with reasonable diligence have discovered it. From 1 September 1994, that six-year time limit was provided for by section 80 of the 1994 Act. On 18 July 1996 the Paymaster General announced in Parliament that the time limit would be reduced to three years, and that change was enacted in the Provisional Collection of Taxes Act 1968 which deemed the change to have taken effect from 18 July 1996. The three-year limit was enacted in section 47 of the Finance Act 1997, which inserted a new section 80(4) in the 1994 Act, which imposed the three-year limit on claims for repayment of overpaid VAT, and deemed the new time limit to have come into force on 18 July 1996. It applied to all claims under section 80 including claims made before that date and those relating to payments made before that date.
88. In Marks & Spencer ([2002] STC 1036, paragraphs 33, 40) the Court of Justice construed the question referred to it by the Court of Appeal as being whether

"... national legislation retroactively curtailing the period within which repayment may be sought of sums paid by way of VAT collected in breach of provisions of the Sixth Directive with direct effect, such as those contained in Art 11A.1 of that Directive, is compatible with the principles of effectiveness and of the protection of legitimate expectations."

The Court rules in absolute terms that the United Kingdom had acted contrary to the principles of Community law in failing properly to implement provisions of the Sixth Directive, which conferred directly effective rights, and then improperly and retrospectively shortening the time limit within which a taxpayer could exercise the right to claim repayment of overpaid VAT. The United Kingdom cannot, therefore, rely upon the retrospective effect of section 80, the three-year limitation, as against the taxpayer. Paragraph 46 established that the principle of the protection of legitimate expectations applied so as to preclude a national legislative amendment which retroactively deprived a taxpayer of the right, which had been enjoyed before that amendment, to obtain repayment of tax collected in breach of provisions of the Sixth Directive which had direct effect. There has been no legislative change, at statutory or statutory instrument level, since the Court of Justice's decision in Marks & Spencer.

89. Business Brief 22/02 purported to provide for a discretionary retrospective transitional period for the three-year time limit. The second Business Brief, 27/02, purported to extend the discretionary retrospective transitional period, and followed the decision of the Court of Justice in Grundig Italiana SpA v Ministero delle Finanze (2000) Case 255/00, which, inter alia held that where time limits for claiming repayment were shortened from, for instance, five or ten years to three years, there must be provision for a transitional period of at least six months.
90. It was the Appellant's primary case that the United Kingdom had failed to amend the statute following the Marks & Spencer decision, and that therefore there existed currently no applicable time limit for the claiming of repayment where the principles set out in Marks & Spencer were engaged, that is, that the claim related to a period prior to the enactment of the three-year limit and was therefore protected by the terms of the judgment in Marks & Spencer. There was, consequently, no legitimate basis upon which the Commissioners could refuse to repay to the Appellant the overpaid VAT. The only purported statutory (or regulatory) time limit was that of three years provided in section 80 of the 1994 Act, which had been formally introduced by a retrospective amendment to section 80 by section 47 of the Finance act 1997. That retrospective amendment was in breach of Community law: Marks & Spencer, being, in particular, incompatible with the principle of effectiveness and the principle of protection of legitimate expectations: see the answer given by the Court of Justice to the question referred in Marks & Spencer at page 1060.
91. The previous six-year time limit, which was not incompatible with Community law, having been repealed, it cannot be revived without legislative enactment. It is a matter for the United Kingdom Government to enact a new legal time limit for late claims. This can only be done by repealing section 47 of the Finance Act 1997 and then introducing new legislation to introduce a new time limit. This has not been done. The breach by the United Kingdom of Community law principles cannot be remedied by the introduction of a discretionary administrative tool such as is contained in Business Brief 27/02, which is not backed up by legislation and is an insufficient remedy for the breach of Community rights, and also an insufficient means of implementing directly effective rights: European Commission v Italian Republic (Case 360/87) [1991] ECR I - 791, 816, paragraph 13; European Commission v United Kingdom (Case 340/96) [1999] ECR I - 2023, 2051 paragraph 27. What mattered from the taxpayer's point of view was whether the claim had merit and whether it was covered by Marks & Spencer. Both those conditions were satisfied in the present appeal.
92. The Appellant contended that the reliance by the Commissioners on Business Brief 27/02 was unlawful and improper in that, first, the scheme was discretionary and administrative. Secondly, the scheme could not and did not remedy the earlier breaches of Community law by the United Kingdom in introducing retrospectively the three-year time limit. Thirdly, and in any event, the scheme did not comply with Community law principles. The Business Briefs, which might be regarded as extra-statutory concessions, had not the force of law, and cannot cut down either the rights of taxpayers nor the scope of a decision of the Court of Justice. The Commissioners' refusal to repay the erroneously paid VAT was an error of law, and/or ultra vires, and/or irrational, and/or an abuse of the Commissioners' powers. This could be tested, first, by considering whether the Commissioners can make out their case in respect of the pre-4 December 1996 overpayments without relying upon the retrospective effect of section 80. If so, then they can side-step the decision in Marks & Spencer. But if not, and they have to accept that they must rely upon that retrospective effect, then they run into the brick wall of the Marks & Spencer decision. If a Member State purports to reduce the possibilities of taxpayers relying on the effects of a European judgment, it is committing fresh breaches of European law: Deville v Administration des Impots Case 240/97 [1988] ECR 3524. The result is that the Commissioners are faced either with the situation that the Business Briefs have not the force of law, or that as a matter of domestic law the Business Briefs have cut down or terminated the effect of the Marks & Spencer decision.
93. A further or alternative contention was that the retrospective transitional period contained in the two Business Briefs was unlawful and therefore not binding upon the Appellant, and was contrary to the principles of European law. The transitional period set out in Business Brief 27/02 was retrospective, since it purported to run from 4 December 1996 to 30 June 1997. That was not a correct approach as a matter of Community law; a transitional period should be prospective only. Business Brief 27/02 imposed certain conditions: if no claim had been made before 30 June 1997, the retrospective transitional period required taxpayers, which included the Appellant, before they could make a claim, to demonstrate that they had discovered the error leading to the overpayment before 30 June 1997, and, further, to demonstrate that the overpayments of VAT had been made before 4 December 1996. That required analysis and proof of events which had occurred some years ago. The approach adopted in the two Business Briefs involved allowing entertaining claims by reference to events which occurred during the time of what was an unlawful retrospectively imposed three-year limit, up to 30 June 2997, and, further, to assume that such events would have occurred if a prospective limit with a six-month transitional period had been announced in December 1996, and which had been properly publicised. But events which occurred during that time could not properly be used to determine whether repayment of overpaid VAT should be made because, in particular, the existence of the unlawful legislation would affect the course of events. The retrospective analysis and proof of events occurring years before (or which might, hypothetically have occurred years before) required by Business Briefs 22/02 and 27/02 were, in any event, contrary to European law.
94. It followed, the Appellant contended, that during the period from 18 July 1996 until well after 30 June 1997 there was no reason for a taxpayer such as the Appellant to make all the inquiries that would have enabled all overpayments of VAT to be discovered. During that period there was a purported three-year time limit for making a claim, whereas the Commissioners were now prepared, apparently, to accept that a time limit of six years from the date of the taxpayer's knowledge of the error should have been available in the period to 30 June 1997. The Commissioners were in effect making decisions on whether to make repayments on the basis of acts or omissions which occurred during a period when they were not complying with Community law, when they were misinforming the public as to the correct position, and where that non-compliance and misinformation were material to the acts or omissions of the taxpayers concerned. The Appellant discovered before 30 June 1997 that it was erroneously making overpayments of VAT in respect of the promotional samples. In any event, it was argued, the retrospective analysis and proof of events which occurred or might hypothetically have occurred some years before, which was required by the two Business Briefs, was contrary to the principles of European law.
95. From the date of the Paymaster General's statement on 18 July 1996 the Commissioners stopped paying retrospective claims, resulting in an immediate frustration of taxpayers' directly effective rights under the Sixth Directive. As a result, after appeals to the Tribunal, determined in the taxpayers' favour, there was a judicial review application in R v Customs and Excise Commissioners, ex parte Kay & Co Ltd and anor [1996] STC 1500, in which the essential question was whether the Commissioners, having the care and management of the tax in their hands, had a discretion not to pay claims under section 80 which were good in law included in their discretion under paragraph 1 of Schedule 11 to the 1994 Act? The Divisional Court held that they had no discretion to defer payment of sums due to taxpayers once a claim by the taxpayer had been established as well-founded; and it therefore followed that the policy of 18 July 1996 and the Commissioners' decisions following the statement were ultra vires and unlawful. Shortly before the resumed hearing of Marks & Spencer in the Court of Appeal, in February or March 2003, the Commissioners accepted that in the light of the ruling by the Court of Justice the retrospective aspect of the three-year limit did not apply to claims based on a directly enforceable provision of the Sixth Directive. That was what the Court of Justice held. The expression "claims based on a directly enforceable provision of the Sixth Directive" was to be understood mutatis mutandis as a reference to the last sentence of Article 5.6, upon which the Appellant relied. If the Appellant succeeded in its argument on the meaning of Article 5.6, it would fall within the Marks & Spencer reasoning; if the Appellant did not succeed it would not be within it, and that therefore is an issue which must be referred to the Court of Justice.
96. Mr Cordara contended further that if, contrary to his principle argument, the Commissioners were entitled to apply a time limit to claims for repayment, their decision failed to reflect their own stated policy and/or was contrary to the principles of European law, and/or failed to give proper effect to the decision of the Court in Marks & Spencer. He relied on the following matters. The Commissioners' stated policy was contained in the two Business Briefs which informed taxpayers that the latest date for making claims was 30 June 2003, though requests for an extension of time would be given "sympathetic consideration where taxpayers can demonstrate that they are experiencing real difficulties in meeting the deadline". That provision for extension was appropriate since there would be many large traders, such as the Appellant, which had not kept records going back for many years, there being no legal requirement to do so, and it would take time to compile accurate claims. The Appellant had made the Commissioners aware orally on a number of occasions that it had been making overpayments in relation to promotional samples since at least April 1987, and had given details of its estimated claim by the letter of 26 June 2003. The Appellant relied upon all the communications, including meetings, between the Appellant and the Commissioners in July, August and September 2003, when Mrs Bullock had informed Mrs Pandya that the computer archives were difficult to retrieve, and on no occasion had it been suggested by the Commissioners that a time limit would be raised or that the claim was out of time. The final figures were submitted to the Commissioners under cover of a letter of 30 September 2003. In view of those facts, Mr Cordara contended, the Appellant had conducted itself in a manner compatible with its being able to take advantage of the Marks & Spencer decision in the Court of Justice, had submitted a claim such as was provided for by Business Brief 27/02 (which was later amended), and/or had submitted such a claim, after 30 June 2003 for which an extension of time, as mentioned in Business Brief 27/02, should have been allowed.
97. It was contended that, in any event, the Commissioners' refusal of the Appellant's claim, on the purported ground that it was out of time under the Business Briefs was a failure to reflect and give effect to the Commissioners' stated policy and was disproportionate. It was to be noted that the Commissioners had stated publicly, in respect of demonstrator bonus payments to dealers, that they were prepared to accept certain voluntary disclosures for overpayments made before 1996-97 up to 30 November 2004, some 17 months after the deadline stated in Business Brief 27/02. This was set out in a document entitled "New Elida table revision 1.7, updated 01/10/04" which the Commissioners had published.
98. The Appellant's case, simply stated, was that section 80 was the law, the Court of Justice has held that section 80 has no retrospective effect, the domestic law has not been changed, and the Business Briefs have no relevance to that. But assuming that the Tribunal were persuaded that the Business Briefs could, potentially at least, alter the law, the Appellant contended that they could not be given such an effect for five reasons.
99. The first reason was that it is a principle of European law that a Member State cannot cut down the effect of a judgment of the Court of Justice. A Member State cannot do so by seeking to end the period during which the judgment was operative; only the Court can do that. The Member State cannot do so by reference to factors that were not canvassed before the Court: the Commissioners appeared to think that the Marks & Spencer decision was a kind of repair kit for Member States which broke the principles of European law. The condition that the taxpayer must have had knowledge of the existence of the claim no later than 30 June 1997 was a point never mentioned as being relevant or material before the Court of Justice; it appears only in the Business Briefs. In any event, a Member State cannot cut down such a judgment by reference to factors which are inconsistent with the Court's reasoning. The matter of knowledge of the existence of the claim before 30 June 1997 is an example also of that: the Court was dealing with rights which are actually vested in people and said nothing about the need to have knowledge of those rights by any particular date. Further, a measure which purported to cut down or terminate the effect of a judgment of the Court must be of legal effect: if the Court has said that a statute is not to be implemented in a particular way nothing less than a statute or statutory instrument passed by the Member State could rectify the situation. That was not done after Marks & Spencer. The Commissioners cannot go behind that decision, nor may they invite this Tribunal to give retroactive effect to the legislation since to do so would be to fly in the face of a clear decision of the Court of Justice.
100. The second reason, if that submission was wrong, Mr Cordara contended, was that the Business Briefs were neither clear nor certain enough to be an acceptable means of bringing the effect of the Court's decision to an end. They therefore offended the principles of legal certainty.
101. The third reason is that there is a line of Court of Justice authority to the effect that peoples' rights under the Directives cannot be implemented merely by administrative measures.
102. The fourth reason is that the so-called retrospective transitional period was a legal impossibility. It was not possible to have a retrospective transitional period, and one that came five and a half years after the event was nonsensical. If it was the United Kingdom's position that, adopting the "repair kit" approach, what the Court of Justice had said was to the effect that "so long as there is a transitional period all is well", that would certainly not include having a retrospective transitional period.
103. The fifth and last reason was that in any event neither the retrospective transitional period nor the prospective one was long enough. The retrospective period ran originally from 4 December 1996 to 31 March 1997, and was later extended to 30 June 1997. The prospective period may be taken to have run from the date of the respective Business Brief to the cut-off date for claims: in the case of 22/02 of 5 August 2002, an eight-month period to 30 March 2003, and in the case of 27/02, dated 8 October 22002, a nine-month period to 30 June 2003.

The judgment of the Court of Justice in Marks & Spencer

104. In a detailed analysis of the Court's judgment ([2002] STC 1036), Mr Cordara began by contending that the Crown could not go behind the Court's decision, nor invite the Tribunal to do so, because to do so would be to fly in the face of a clear decision of that Court.
105. The Court had expressed the answer to the question put to it in this form (at (g), page 1053):

"Where a Member State has received overpayment of tax as a result of the incorrect transposition and/or application of directly effective provisions of the Sixth Directive such as Article 11A.1 the retrospective shortening of the limitation period laid down for recovery of such overpayment is incompatible with the principle of effectiveness and with the principle of a protection of legitimate expectations."

It was expressed in absolute terms. The Appellant's case was that wherever Article 11 was mentioned in the judgment that would apply, in the present case, to Article 5.6. The Court reminded itself that it was a Member State's obligation to achieve the result envisaged by a Directive, and "to take all appropriate measures whether general or particular to ensure fulfilment of the obligation" was a duty binding on all authorities of the Member State. The judgment continued, in paragraph 24,

"It follows that in applying domestic law the national court called upon to interpret that law is required to do so as far as possible in the light of the wording and purpose of the directive in order to achieve the purpose of the directive and thereby to comply with the third paragraph of Article 189 of the EC Treaty."

Mr Cordara pointed out that the only domestic law before the Tribunal was section 80 of the 1994 Act: the decisions of the Court of Justice and of the Court of Appeal were of assistance as to how that section should be interpreted. He conceded that in some respects the United Kingdom had correctly implemented Article 5.6, but in other respects it had not; wherever the line was between correct implementation and incorrect, if the appellant could bring itself within Article 5.6 then it was referring to a directly effective community right.

106. The Court had (in paragraph 33) distilled the question which it had to answer in the following terms:

"... The question must be construed as asking essentially whether national legislation retroactively curtailing the period within which repayment may be sought of the sums paid by way of VAT collected in breach of provisions of the Sixth Directive with direct effect such as those contained in Article 11A.1 of that directive is compatible with the principles of effectiveness and of the protection of legitimate expectations."

The Court's answer, to be found at page 1060, was that such national legislation was incompatible with the principles of effectiveness and of the protection of legitimate expectations. In paragraph 36, the Court elaborated on that:

"Moreover it is clear from the judgments in Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) [2000] 1 WLR 126, paragraph 28, and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR I-579, paragraphs 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."

Applying that to the present appeal, Mr Cordara said, either the Crown had to accept that the Business Brief, not having the force of law, cannot alter the legal position in the United Kingdom, or the Crown is saying that the Business Briefs have altered the legal position. If they have, or purport to have, altered the legal position then it was clear that their intention had been "specifically to limit the consequences of a judgment of the Court to the effect that the national legislation concerning specific tax was incompatible with Community law", because the Business Briefs will have made it impossible for the Appellant to rely upon the decision in M&S.

107. The Court held, also, that the time set for the application of the transitional period "must be sufficient to ensure that the right to repayment is effective". In M&S it was held that the period, or lack of it, was inadequate. It was contended that in the present case both the prospective and retrospective purported transitional periods were too short.
108. Mr Cordara contended that paragraphs 37 and 38 of the judgment contained the central point. The Court said,

"37. It is plain, however, that that condition is not satisfied by national legislation, such as that in issue, which reduced 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 is still pending on that date.

38. Whilst the national legislation reducing the period within which payment 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 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 rights to repayment or relying on too short a period for asserting that right."

If, Mr Cordara contended, the M&S judgment were treated as a kind of repair kit, giving the United Kingdom liberty to patch up the legal provisions without bothering with any new legislation, that was not what paragraph 38 envisaged. What that paragraph said was that legislation has to include transitional arrangements, and it focused on a period of time such as would give taxpayers a fair opportunity of making claims. It followed from paragraph 38 that the inclusion of a transitional period had to be done by legislation; there had to be a legal framework, not a discretionary framework, in which taxpayers' rights were given and in respect of which the court could decide whether the rights given could be enforced.

109. In paragraph 38 the Court was talking about a situation involving new legislation. The opportunity for that has gone for ever for the United Kingdom because the Commissioners took a policy decision instead of trying to amend the law back again after the challenges to their actions began. They chose to hold that position, through the courts, for nearly five years. And what the Court was looking at, in paragraph 38, was a new situation; by 2002 the United Kingdom was focusing on a five and a half year old situation, a very different thing.
110. Mr Cordara contended that the "repair kit" approach should be rejected in any event. The Court had formulated the question, which it had answered, which was entirely in the past tense. The reason why they held that the legislation was invalid, was expressed in paragraph 38. That cannot be transmuted into some general liberty to curtail the effects of the decision by administrative fiat by means of such measures as the Business Briefs. The Court was not asked, What should the United Kingdom do next? If it had been, it would no doubt have said "We are not the government of the United Kingdom, we do not give advice and we do not answer hypothetical questions. Here are the principles of European law, now go and consider what you ought to do."
111. Moving on to paragraphs 39 and 40, Mr Cordara observed that in paragraph 39 it was noted that "Member States are required as a matter of principle to repay taxes collected in breach of Community law"; but that as an exception fixing a reasonable period for claiming repayment was compatible with Community law in the interests of legal certainty. But the Court said, "in order to serve their purpose of ensuring legal certainty, limitation periods must be fixed in advance." In the present case, the United Kingdom was trying to fix a partly retrospective limitation period, in the shape of the retrospective transitional period, and invite taxpayers then to shew whether they would have fallen retrospectively into it had it been in force five and a half years earlier. Further, this had been done by means of non-legally binding documentation. It was neither legally certain, nor did its content fall within the principle of legal certainty in that it was backward-looking and was not a limitation period which had been fixed in advance. It must be prospective, as taxpayers are entitled to have time to put their affairs in order. It is a matter of fairness.
112. Paragraph 40 contained an absolute finding which, Mr Cordara said was binding upon this Tribunal as it had been on the Court of Appeal, and also upon the Commissioners. In that paragraph the Court said,

"Accordingly, legislation such as that in issue in the main proceedings retrospective effect of which deprives individuals 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."

So long as the Commissioners rely upon that legislation's retrospective effect in order to block the Appellant's claim, they would run up against that point. The Court went on to say, in paragraph 42, that while the purpose of striking a due balance between the individual and the collective interest may serve to justify fixing reasonable limitation periods for bringing claims for repayment, "it cannot permit them to be so applied that rights conferred on individuals by Community law are no longer safeguarded".

113. The Court then went on to repeat their decision in paragraph 40 under the heading of "Legitimate Expectations".
114. Mr Cordara contended that Kay (supra) remained the governing United Kingdom decision. Therefore the Commissioners had no discretion to refuse the Appellant's claim. They relied on their discretionary Business Briefs; but the Appellant invites this Tribunal to ignore the Business Briefs, which have no legal status. They are extra-statutory concessions. The taxpayer can rely upon them, but the Commissioners cannot rely upon them as against the taxpayer.
115. Dealing with the Business Briefs themselves, the Appellant agreed with that part of the third paragraph under the heading "The Judgment of the ECJ" in Business Brief 22/02 when it said that the Court had held not that it was contrary to Community law to impose time limits on the right to repayment, but that it is contrary to Community law to impose those time limits with retrospective effect. The Business Brief went on to point out that the three-year limit had not been rendered invalid, and that limitation period remained in force. What the Business Brief could not do, however, was to point backwards to any period before it came into effect.
116. After that the language of the Business Brief changed: it referred to "Customs" instead of "the United Kingdom". That, Mr Cordara contended, followed necessarily from the fact that what followed was not a change in the law of any kind, but simply a statement of Customs practice. He referred to those parts of the Business Brief headed "Practical effects of the Judgment" and "Claims"(see paragraph 10 above). Those parts comprise a statement of what the Commissioners will accept, but that does not in any sense represent the law as to what the courts must refuse: that is contained in the Court of Justice's decision in M&S. The opening words, "Customs will now give effect, albeit retrospectively, to a transitional regime for when the three year time limit was introduced in 1996....", shew that this was not a transitional regime of any kind, but was a patch-up in so far as it was sought by the Commissioners to rely upon it against the taxpayer.
117. The Brief continued by saying "Taxpayers can now make claims under VATA 1994 section 80 for repayment of amounts overpaid, regardless of the cause of the overpayment, subject to the following criteria:" Essentially, that should be read as "Taxpayers can only now make claims...." The word "only" is made express by the heading "Claims which do not fall within the scope of this Business Brief", and what follows under it, which refers to those which will be subject to the three-year limit. It begins by saying "Claims made after 31 March 1997 will be subject to the three year time limit." At that point, the Commissioners are, Mr Cordara contended, in breach of the principle in Deville, in that they are endeavouring to reduce the possibilities of the taxpayer enjoying the fruits of a Court of Justice decision. In reality, a new breach of Community law is taking place. The example that follows, "if, between 1 April 1973 and 4 December 1996 you accounted for VAT....", that is an example of a retrospective claim of the kind at which the Court was looking, and Customs are simply saying "We are going to apply section 80." But they cannot do that.
118. The second Business Brief, 27/02, following Grundig Italiana, extended the transitional period. Then it said that requests for an extension of the deadline would be given sympathetic consideration where taxpayers can demonstrate that they are experiencing real difficulties in meeting the deadline." That, Mr Cordara said, was a statement of intent by Customs. Essentially, it meant that the Commissioners were reserving a discretion as to who got past the post and who did not. But in the present case it was implicit in the correspondence that, the Appellant, having lodged its claim before the end of June, was quite open about the fact that it was still struggling to calculate the figures. The Commissioners' correspondence shewed a lack of rejection, or an implicit acceptance of the fact that the Appellant was experiencing real difficulties in meeting the deadline.
119. The proper way in which to construe a Business Brief, Mr Cordara contended, if it was said in some way to alter a person's legal rights, must be that it should be construed purposively in line with the objectives of the VAT system. One overriding objective was to give direct effect. It should be construed so as to give the best possible effect to both parts of Article 5.6. Another purposive element, as held in M&S, was that where charges are levied wrongly the taxpayer was entitled to get his money back. Member States have a liberty, but not a duty, to impose limitation periods, so long as they are legally certain. Therefore they must be set in advance; their terms must be clear and they must have a legal effect. It was the Appellant's case that the Business Briefs failed each of those tests.
120. If that submission were wrong, Mr Cordara said, then the question for determination by the Tribunal was whether the Appellant came within the spirit of the Business Briefs or the Court of Justice's decision? The Appellant had a pre-1996 claim; for some years it was understood that that claim had gone. The events of 2002 proclaimed that the retrospective time bar did not work. Then from early 2003 the Appellant was getting the figures together, and it was not suggested that there was any reason why it should have started earlier. It was never suggested that it was not done with diligence. An intimation of the claim with a fairly substantial figure was put in before 30 June. Then that date ceases to be important since the Appellant had real difficulties in getting the figures together. So, if the Business Briefs have any legal effect, then the Appellant falls within their provisions.
121. In the context of the construction of the Business Briefs, Mr Cordara referred to C R Smith Glaziers (Dunfermline) Ltd v Customs and Excise Commissioners [2003] STC 410 HL, in which Lord Hope of Craighead, talking about the purposive approach to construction, said in paragraph 51:

"The matter is put beyond doubt, however, by applying the approach indicated by the decisions of the Court of Justice to the words used in Note 5B. Lord Hoffmann has reviewed these decisions and I adopt with gratitude all he has said about them. The essence of the matter lies in the strict form which the principal of proportionality assumes where a measure derogates from an exemption in a directive designed to harmonise the laws of Member States. The words of the note must be construed in a way that is least detrimental to the taxpayer. They should not be allowed to deprive him of the exemption unless it is strictly necessary for achieving the aim indicated by the opening words of Article 13B. The test as to whether the words go further than was necessary in each case lies in the facts."

And in paragraph 49H, he had said:

"In Ampafrance the Court observed that in order for a Community measure concerning the VAT system to be compatible with the principle of proportionality, the provisions which it embodies must be necessary for the obtainment of the specific objective which it pursues and have the least possible effect on the objectives and principles of the Sixth Directive."

In those passages, his Lordship was speaking of legislation, and of not construing it so that taxpayers failed to get an exemption. At the very lowest, the views that he expressed must apply to a Business Brief. That, Mr Cordara submitted, was the proper approach to the construction of the Business Briefs.

122. There was also assistance to be found in Deville, a case with some similarity to the present. In that case, the Court of Justice held, in paragraph 13, that

"... a national legislature may not, subsequent to a judgment of the Court from which it follows that certain legislation is incompatible with the Treaty, adopt a procedural rule which specifically reduces the possibilities of bringing proceedings for recovery of taxes which were wrongly levied under that legislation."

And the Court added, in paragraph 17, that it was for the national court to determine whether the second paragraph of Article 18-V of the Law of 11 July 1985 (the French Statute under consideration) reduced the possibilities of bringing proceedings for recovery of tax which would otherwise have been available.

123. Turning to the period allowed by the Business Briefs for making claims, Mr Cordara contended that in the circumstances the time allowed was inadequate. The ultimate retrospective transitional period was seven months, from December 1996 to June 1997, and that was allowed nearly six years later. There was also the period from 5 August to 8 October 2002, which ran eventually to June 2003, and then a discretionary further extension. It was not long enough. In the first place, the facts shew that it was not long enough, because the Appellant, a perfectly diligent taxpayer, was unable to get the detailed claim in in that time. Secondly, the Appellant was five and half years from the time when they thought they had any rights. Records can be lost, memories fade. It is wrong for the United Kingdom to say that in Grundig the Court said that the period should be at least six months, so we will add two or three months; in Grundig the Court was considering how long the period should be if introduced right at the beginning, not five and a half years later. Thirdly, in effect, the change was not from ten or five years to three, but from up to 30 years, since what was abolished in 1996-97 were claims back 20 or 22 years from that time. There was also the additional requirement that taxpayers must prove that they discovered the error, or that they had a claim, before 31 March 1997, or later 30 June 1997, together with the eight bullet points in Business Brief 22/02 containing the prerequisites for making valid claims. That simply makes it even more difficult for taxpayers to make valid claims. No European Court could have sanctioned such obstacles.
124. The "Final version of the 'Elida table'", produced by the Commissioners, shewed a situation in which the Commissioners had extended time for claiming until 20 November 2004, and waived the requirement to prove knowledge of an error before 30 June 1997. That shewed the true nature of the Business Briefs as being extra-statutory concessions and no more. But if that were wrong, it did emphasise the fact that the Business Brief did not satisfy the test of legal certainty.
125. In Commission v Italy Case 116/86, the Court held, in paragraph 15, that mere administrative practices which may be changed as the administration sees fit and which had not received appropriate publicity could not be regarded as constituting valid implementation of the obligation imposed on Member States to which a directive was addressed under Article 189 of the Treaty. So administrative practices were not enough; and a further point stems from that, that if one starts in an area at legislative level one should finish in that area at legislative level.
126. Referring to Article 1 of the First Protocol to the Convention on Human Rights, Mr Cordara said that the Advocate General, in M&S, in paragraph 73 stated that the Commission and M&S itself "maintain that the conferral of retroactive effect on the contested legislative amendment also conflicts with Article 6.1 of the Convention and Article 1 of the First Protocol". The same was true in the present appeal.
127. As to whether the Tribunal should refer the matter to the Court of Justice, Mr Cordara directed us to the Stock Exchange case, in which the Master of the Rolls said

"If the facts have been found and the Community law issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can, with complete confidence, resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself, the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community, and of the great advantages enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt it should ordinarily refer."

128. There were several options open to the Tribunal, Mr Cordara submitted. One was to refer; the opposite extreme was to deal, with complete confidence, with all the issues in a fully reasoned judgment. There were also mid-points, such as indicating that the Tribunal is minded to refer and to indicate a provisional view. Mr Cordara then indicated the kind of issues in respect of which the guidance of the Court of Justice might be of assistance. Later, after the hearing, each side submitted to the other draft questions for reference to the Court of Justice with a view to agreeing a set of questions. Unfortunately no agreement was reached in this area, and the Tribunal was left with the decisions to make, first, whether or not to refer, and secondly, if the decision were to refer, what the questions to be referred should be.

The Commissioners' contentions: the samples issue

129. Mr McNab supplied the Tribunal with a skeleton argument, which dealt only with the time limit issue. He said that at that stage in the second day of the hearing it was not entirely clear what the Appellant's case was or what the Appellant was asking the Tribunal to find. It appeared, from the letter of 30 September 2002, that the claim was put on the basis that the United Kingdom did not follow Article 5.6 of the Sixth Directive. The legislation, whether from 1987 to 1993 or from 1993 onwards, failed to implement Article 5.6 in relation to what "samples" were. It appeared that the Appellant was saying that since 1987 it had been accounting for VAT on the basis that none of the "samples" qualified as a sample for the purposes of the United Kingdom legislation, and was, therefore, a supply of goods. But they say that they should not have accounted for VAT because under Article 5.6 they were samples and the Appellant had a directly effective right to treat them as such, as has been done since some time in 1993. If that was the Appellant's position, then the Commissioners agreed that a reference to the Court of Justice would be appropriate.
130. The evidence of Mr Terry was that not all of the "promos" went as single samples to named individuals, but that a significant proportion of them had. It therefore appeared that the Appellant was contending that a significant proportion of them were not subject to VAT in any event under the legislation after 1993. The Commissioners, Mr McNab said, would probably agree with that. That situation under the post-1993 legislation would apply regardless of Article 5.6, and there was therefore no need to rely upon European law to that extent. However, some of the promos were probably taxable under the post-1993 legislation on the ground that they were not samples in the way in which one would normally describe samples, or that they were supplied in quantities of more than one. Under the European legislation only one of such a quantity would have been a sample and the rest would not under the United Kingdom legislation. However, the Appellant contends that they would have been samples under Article 5.6. It was, Mr McNab said, difficult to say what would and would not be samples, because there had been no set out case from the Appellant was to what are samples and why: until this hearing it was said that everything had been accounted for on the basis that they were not samples and did not fall within the United Kingdom legislation. But now it was being said that many samples were given out to individuals, so that people were receiving single samples of CDs. They would be treated as samples for the purpose of the United Kingdom legislation and European law would not be engaged.
131. However, Mr McNab said, there were still promos that had been given out that would not be samples in the way in which one might properly describe them. Neither party had gone into the question of the meaning of a "sample" in that regard. So there were some promos that would not qualify under United Kingdom law or, they would say, under the Directive, and some that would qualify as samples but were excluded from being samples by United Kingdom legislation because they had been provided in bulk. It had never been explained why this error was made under the post-1993 legislation. But under that legislation there remained a significant proportion of promos which the Appellant said were samples for the purposes of Article 5.6 but which were made subject to VAT by the post-1993 legislation. Mr McNab reviewed in some detail the evidence relating to the persons and bodies to whom and to which the promotional CDs were sent. He said that he had raised the matter in order to identify the difficulties which he had in dealing with the samples issue. He considered that there remained an issue that was appropriate for referral, notwithstanding the evidence in the case,. Had the matters raised by Mr Terry in his witness statement been raised with the Commissioners earlier, it might have been possible to narrow the scope of the inquiry.
132. During the Appellant's opening it was suggested that between 1987 and 1993 everything that had been given out by way of promotion had actually fallen within the scope of the United Kingdom legislation at that time, and was a sample for the purposes of that legislation. There had been no claim in relation to that period until then, and it could be inferred from the fact that VAT had been accounted for on all those samples that the Appellant had considered, in relation to that period, that the terms of the legislation in effect between 1987 and 1993 were not known. Mr Terry described the situation from 1992 onwards, but there had been no evidence relating to the period from 1987 to 1992. Mr McNab contended that everything in relation to that period was not a supply within the United Kingdom legislation. The Appellant would say that it was a supply for the purposes of Article 5.6, and that what Mr Terry described was the same as what was going on between 1987 and 1992-93. But Mr Terry's knowledge went back only to 1992, and it was for the Tribunal to infer what was proper from Mr Terry's evidence. However, there remained in relation to the 1987 to 1993 period matter which was suitable for reference.

The Commissioners' contentions: the time issue

133. It was in relation to the time issue that Mr McNab invited the Tribunal to find specific facts. We have dealt with that request in paragraphs 40 and 61 to 66 above. Mr McNab then continued with legal argument.
134. The Appellant's primary case, Mr McNab said, was that in the absence of an amendment to the United Kingdom statute in the wake of the Court of justice's decision in M&S there was no applicable time limit on the making of a claim for repayment of VAT overpaid where the principles in M&S were engaged; specifically, a claim related to a period prior to the enactment of the three-year limit and was therefore protected by the terms of the M&S judgment. It followed from that that the Appellant accepted that part of the claim was in any event barred by section 80, namely any VAT overpaid between 4 December 1997 and a date in 2002, being three years before the Appellant says that a claim was made. But that date would be 30 June 2003 if the Appellant was right, and 29 September if the Commissioners were right. The Commissioners contended that the Appellant's case was wrong and was based upon a misunderstanding of the relationship between domestic and Community law, and a misunderstanding of the scope of the protection required to be given to directly effective Community law rights.
135. Mr McNab contended that the Business Briefs, whatever might be their status in law, accurately set out the correct position under Community law having regard to the judgments in M&S and Grundig Italiana, and also having regard to the scope of the protection that is required to be given to directly effective rights. The Business Briefs accurately set out the extent to which the three-year limit provisions of section 80(4) as from 1997 are required to be disapplied by the state, which included, for present purposes, this Tribunal and the Commissioners.
136. Mr McNab agreed with the Appellant that nothing in the Business Briefs could cut down the scope of any conflicting directly effective Community law right to which effect had to be given. He also agreed that the central issue in this appeal was primarily the Community law issue: the question was, Does the Appellant have a directly effective right under Community law which requires the Tribunal to disapply section 80, and, if so, to what extent? The Appellant says that M&S answers the Community law question conclusively in its favour in respect of the period before 4 December 1997, and that it has a Community law right to have section 80 disapplied in respect of that period. It follows, therefore, that if the Appellant is right and the position stated in the Business Briefs is based upon a misunderstanding of Community law, it must follow that the Appellant has a Community law right to which effect must be given by the Tribunal.
137. If, therefore, the Tribunal were to agree that the Business Briefs set out Community law correctly, or if not setting out what Community law requires does not restrict what Community law requires, then the Commissioners must succeed on the facts of this appeal. If the Tribunal should be in doubt about whether the Business Briefs have correctly set out what Community law requires, or it they may seek to restrict Community law rights, then the matter should be referred to the Court of Justice.
138. At the present time, Mr McNab said, the only statutory time limit in force is the three-year limit set out in section 80(4), which provides that the Commissioners shall not be liable on a claim made under section 80 to repay any amount overpaid to them more than three years before the making of the claim. The validity of section 80 cannot be called into question by the Tribunal or by any other domestic court.
139. It was important, Mr McNab maintained, to bear in mind the factual circumstances of M&S. The company had made a claim in 1995, before any announcement that the time limit would be changed, in respect of VAT that it had been paying in respect of teacakes since 1973. A second claim was made in 1996 in relation to gift vouchers., and it was made after the announcement by the Government that it was going to introduce the three-year limit, but before that measure was enacted. In both cases, therefore, the legislation was applied retrospectively, so as to snuff out claims that had been made before the legislation came into force. The claim in respect of the teacakes was made in February 1995, and the Commissioners applied the new limit retrospectively to snuff out that part of the claim. Mr McNab referred to paragraphs 8 to 11 of the judgment. The Court of Appeal's question concentrated upon the removal of the right to repayment with retrospective effect, rather than the removal of the right itself. Mr McNab then referred us again to paragraphs 33 and following (see paragraphs 106 and onwards above). What the Court of Justice was saying was, that there was nothing wrong in having a three-year time limit, nor was there anything wrong in reducing the time limit. But Community law required that individuals must have a sufficient time before the new limit is brought into effect in which to assert their claims. The Court also specified, in paragraph 39, that limitation periods must be fixed in advance. Mr McNab then referred to paragraphs 40 to 42:

"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 VAT collected in breach of provisions of the Sixth Directive with direct effect must be held to by incompatible with the principle of effectiveness.

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.

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 individuals by Community law are no longer safeguarded."

Then in paragraph 46, to which Mr McNab referred:

"... in a situation such as that in the main proceedings, the principle of the protection of legitimate expectations applies so as to preclude a national legislative amendment which retroactively deprives a taxable person of the right enjoyed prior to that amendment to obtain repayment of taxes collected in breach of provisions of the Sixth directive with direct effect."

140. The Court was saying, Mr McNab submitted, that the particular provisions under consideration, in so far as they applied to the M&S situation were incompatible with Community law. The United Kingdom could not simply say, after such claims had been submitted, that the claims could not be brought because the law had been changed retrospectively. The taxpayer therefore had a claim at that time, or others who had a claim then but had not made the claim, had as a matter of Community law a right which required protection to a certain period before the new rule could be applied to them.
141. In Grundig Italiana, in paragraph 38, the Court said,

"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."

Having held that a transitional period of 90 days prior to the retroactive period application of a period of three years was clearly insufficient, in paragraph 40 the Court said,

"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."

142. Mr McNab contended that the principle of supremacy, or primacy, did not render incompatible any national provision and did require national courts to strike down such a measure for all purposes. National courts were required to apply and enforce the relevant Community law and to disapply a national measure to the extent that it was incompatible with Community law, so as to give effect to the obligation to safeguard enforceable Community law rights. The authority for that was a passage in the judgment of the Court in Ministero delle Finanze v IN. CO. GE. '90 Srl and others Joined Cases C-10/97 to C-22/97, in paragraphs 18 to 21. In Imperial Chemical Industries plc v Colmer (HMIT) [1999] STC 1089, HL, in which Lord Nolan cited R v Secretary of State for Transport, ex parte Factortame Ltd [1990] 2 AC 85, 140, HL, the effect was that the national provision remained valid, and the Tribunal had a duty to give effect to any enforceable Community law right to the extent that it could be established. A decision of the Divisional Court in W H Smith Do-It-All Ltd v Peterborough Council [1991] 1 QB 304, 332 DC, established that the question whether a Community law right was being infringed had to be established in each individual case.
143. Mr McNab said that the Commissioners accepted that if the Appellant could assert some directly effective Community law right the Tribunal would be obliged to apply and enforce the relevant Community law, and to disapply section 80 it its current form to the extent necessary to give effect to that Community law right. That did not involve any issue arising as to the validity of section 80 itself. The obligation to disapply a national measure to the extent that it was incompatible with the Community law right was imposed upon the national courts and also on the Commissioners: Larsy v Institut national d'assurances sociales pour travailleurs independants ("Inasti") Case C-118/00. The important paragraphs of that judgment were:

"52. That principle of the primacy of Community law means that not only the lower courts but all the courts of the Member State are under a duty to give full effect to Community law....

So to the extent that national procedural rules precluded effective protection of Mr Larsy's rights derived under the direct effect of Community law, Inasti should have disapplied those provisions."

Inasti was, as Mr McNab pointed out, an administrative body. So the Commissioners, as much as the Tribunal, were required to disapply national law. That point emerged also from M&S: see paragraph 24. And in paragraph 27 the Court said,

"The adoption of national measures correctly implementing a directive does not exhaust the effect of the directive. Member States remain bound actually to ensure full application of the directive even after adoption of those measures."

The Commissioners, therefore, are required to apply the law properly. The Member State may not simply claim to have enacted it properly. Whether the Commissioners have not applied it properly is neither here nor there. It gives rise to no directly effective rights.

144. Therefore, the time limit for bringing claims for overpaid VAT is as set out in section 80(4) of the 1994 Act as amended. As a matter of domestic law, unless that law is required to be disapplied, to whatever extent, the Commissioners shall not be obliged to repay on a claim made under section 80(4) any amount paid to them more than three years before the making of that claim. (The same was the situation under the previous six-year limit.) But the manner in which the new time limit was introduced, and specifically the failure to provide for a transitional period, were incompatible with the Community law principles of effectiveness and the doctrine of protection of legitimate expectations. In the light of M&S and Grundig Italiana taxpayers may have directly effective rights under Community law, to which, if those rights cold be established, effect must be given by the Commissioners, the Tribunal, and the courts, by means of disapplication of the domestic provisions, to the extent necessary to give effect to the directly effective right. The incompatibility with which M&S was concerned lay essentially in not having given taxpayers who had claims for repayment of overpaid VAT in 1996 a sufficient opportunity to make those claims under the prior six-year regime. Grundig Italiana stated what was the minimum transition period required for those taxpayers. In those circumstances, Community law requires the current national provision to be disapplied to the extent necessary to give effect to taxpayers' Community law rights; in effect, to treat those who had a claim in 1996 and who would or might or may have made that claim within the appropriate transitional period as if they have brought a claim under the old six-year regime. That disapplication did not require that the old provision had to be re-enacted, nor the enactment of any new provision. It required no more than the pro tanto disapplication of the current provisions.
145. The headnote to the report of Deville v Administration des impots Case 240/87, stated, repeating the Court's answer to the question referred:

"A national legislature may not, subsequent to a judgment of the Court from which it follows that certain legislation is incompatible with the Treaty, adopt a procedural rule which specifically reduces the possibilities of bringing proceedings for recovery of taxes which were wrongly levied under that legislation."

The Court's answer continued and concluded:

"It is for the national court to determine whether the procedural rule at issue reduces the possibilities of bringing proceedings for recovery which would otherwise have been available."

Mr McNab submitted that that answer was an uncontroversial proposition, and that the Commissioners were not seeking to do what was thereby forbidden by means of the Business Briefs. What they were doing was to enable taxpayers to assert rights to recover tax in the wake of the M&S decision. Having referred to the facts in Deville, Mr McNab contended that that case could be contrasted with the present appeal. By the Business Briefs, the Commissioners had allowed a further period, or disapplied section 80 to the extent that a further period was permitted in which claims could be made on the M&S basis. Also, in contrast to Deville, Mr McNab said (Day 3, page 52, line 11) there had been no ruling by the Court of Justice that Article 5.6 was incompatible with European law, and consequently there had been no legislation specifically brought in by the United Kingdom to try to limit the effect of any such judgment". A fortiori, the legislation that restricted the right to claim was already there, not specifically targeted on individual taxes nor on individual taxes after a judgment of the Court of Justice.

146. Mr McNab agreed that the Business Briefs could not cut down a taxpayer's Community law rights. If a taxpayer were able to establish a Community law right greater than that which was apparently provided by the Business Briefs, the Tribunal was obliged to give effect to the overriding Community law right. Conversely, if a Business Brief went further than was required by Community law, that would be of assistance to the taxpayer. The Tribunal has no jurisdiction as a matter of domestic law to consider whether or not the Commissioners exercised a discretion or failed to exercise a discretion reasonably to apply something under the Business Brief. That was a matter of domestic administrative law and would have to be decided by the High Court.
147. The Appellant had contended, Mr McNab said, that the United Kingdom's breach of Community law principles could not be remedied by the introduction of a discretionary administrative tool such as the Business Brief 27/02; an administrative practice which was not backed up by legislation was an insufficient remedy for such a breach, and an insufficient means of implementing directly effective rights. That point was answered by Larsy v Inasti and paragraphs 24 and 27 of M&S, which deal with who is required to disapply domestic law. The Appellant had ignored the principle of supremacy on which the Community law claim was based. The Commissioners, in the same way as the United Kingdom government and the Tribunal, were under an obligation to give effect to directly effective Community law rights by disapplying conflicting national provisions. Following the judgments in M&S and Grundig they had had no choice, and the fact they chose to do so by means of Business Briefs was irrelevant. If the Commissioners' view of the law as set out in the Business Briefs was correct, there was no need to have the Business Briefs in order to assert Community law rights. Further, the Business Briefs were clear in their terms. Mr McNab contended that they went beyond what was required by M&S and Grundig so far as concerned taxpayers whose rights were infringed by the introduction of the three year limit, and the time limits set for making new applications of claims exceeded the minimum of six months specified in Grundig.
148. The authorities cited by the Appellant, Mr McNab said, were all concerned with the transposition or implementation of directives which did not confer directly effective rights. The argument that in effect it is necessary for there to be further legislation in order to correct what had happened in M&S stood the whole of direct effect and the doctrine of supremacy on its head, and amounted to saying that no claim could be submitted before new legislation had been passed. It was not the case that that had to be done. What is being debated in this appeal is what the Court of Justice meant in M&S, and how far section 80 was required to be disapplied. The real question was, whether the Appellant had a Community law right which was directly effective; if so, what was its nature or extent? If the Appellant had a claim under European law which the three-year limit could not restrict, then that was an end of the matter, and no textual analysis of Business Brief 27/02 was necessary.
149. Mr McNab reminded the Tribunal that its jurisdiction was statutory, and did not include any inherent power to review the Commissioners' decision. Any such judicial review was the province of the High Court.
150. The Appellant argued that the retrospective transitional period, from 4 December 1996 to 30 June 1997, contained in Business Brief 27/02 was unlawful and not binding upon the Appellant. Mr McNab agreed that the Business Brief did set out such a transitional period, and that was, he contended, effectively the period required by Grundig. But it was not correct, as the Appellant had said, that that transitional period was a retrospective transitional period for the making of a claim for repayment of tax. It was actually the transitional period that should have been included in the legislation when the amended version of section 80 was enacted. It was not, therefore, a retrospective transitional period, but defined or identified the period during which directly effective Community rights were infringed and which were required to be protected. It identified those whose rights were infringed by the failure to include a transitional period in the first place. Although described by the Business Brief as a transitional period, it was not really a transitional period for the making of claims, which was the prospective period allowed by Business Brief 27/02 from its publication date in October 2002 to 30 June 2003, almost nine months, and exceeding the minimum period referred to in Grundig. Taxpayers who in 1996-97 had rights which were curtailed now were given the opportunity to make a claim during a time which exceeded the minimum transitional period required. No authority had been cited in support of the proposition that the matters set out in Business Brief 27/02 were incompatible with Community law.
151. The Appellant had complained that the time allowed for making a claim was too short, and that there had been considerable difficulties in doing so. It was said that what had happened was a long time ago, in 1996. But Mrs Todd had given evidence that the Appellant had records going back that far, and the real difficulty had been in separating the internal distribution of samples from the external, since in the records they had all been lumped together. There was no evidence that records had disappeared or that staff having left had created any difficulty.
152. The Appellant had argued that it was necessary to consider taxpayers as a whole, and see whether Business Brief 27/02 might operate unfairly for all taxpayers in all circumstances, and if so strike it down in some way. Mr McNab submitted that the correct question was, whether or not the Appellant was able to establish that it had a Community law right which was directly effective and to which effect must be given.
153. It was contended that the Appellant had not satisfied the third of the conditions set out in Business Brief 27/02, that the Appellant could demonstrate that it had discovered the error giving rise to the overpayment before 30 June 1997. The evidence did not establish that that condition was satisfied. Further, Mr McNab said, that condition was not unduly onerous, and did not render virtually impossible or excessively difficult the exercise of the rights conferred by Community law. It imposed no restriction on or obstacle to the ability to exercise such rights. All it did was to impose a burden of establishing that the Appellant actually had such a right. The condition was in fact more generous to taxpayers than was required by the judgment in Grundig or M&S, since the taxpayer was not required to prove that he would in fact have brought a claim within the transitional period, but only that he was aware that he had such a claim. Since no claim was made until 2003, although the Appellant states that it had been overpaying since 1987, the suggestion that it considered that it had a clam in 1996, and that it would have been able to make such a claim under the previous provisions if there had been a transitional period, should be looked at sceptically in the absence of evidence. Such evidence as there was was that of Mrs Todd, not of Mrs Bullock; and Mrs Todd made it clear that VAT law was not her field and that she would not have been involved in any decision to bring a claim. If the Appellant had not realised that any error had occurred, the transitional period would just pass away and it would be unable to make any claim. Further, it could not be contended that such a condition, requiring the Appellant to establish whether a fact existed less than six years previously contravened some Community law right in circumstances where the Appellant was claiming to be entitled to assert a claim relating back to 1987.
154. The failure to submit the claim by 30 June was a peripheral issue, Mr McNab said. From the correspondence, a claim was not submitted within the deadline given by the Business brief. A letter was sent dated 26 June, which was not a claim but an indication that a claim would be made. It was only if Community law required that a longer period should be permitted in which to submit a claim that the Tribunal's jurisdiction is engaged. If the Appellant argues that as a matter of Community law a longer period ought to have been allowed, the Commissioners would reply that according to Grundig the period allowed was appropriate; there was no Community law right to have any longer period.
155. With respect to the time bar issue, if the Tribunal considers that there is merit in the Appellant's argument on that point, then a reference to the Court of Justice would be inappropriate. Mr McNab said that he had not attempted to draft any appropriate questions for referral. But he repeated his request that we should make the specific findings of fact that he had indicated (and which we have done: see paragraph 66 above).
156. Referring to the samples issue, Mr McNab contended that Mr Terry's evidence amounted to a very limited cross-section of material which had done no more than scratch the surface of the matter; if the Tribunal was not satisfied with the quality of the evidence given, and took the view that the matter had not been canvassed in sufficient depth, the Commissioners remained amenable to seeking to resolve the matter further with the Appellant. It would remain open to the Tribunal to stand over any question of resolution of the facts so as to allow the parties to try to determine such matters as they might consider appropriate. There were areas in which the Appellant contended that a particular item was a sample within Article 5.6 and the Commissioners say that it was not, or if it were it was not within the United Kingdom legislation, which properly implements Article 5.6. What might be encompassed within such areas of dispute had not been explored in any depth.

The Appellant's reply

157. (Having dealt with the procedure proposed for making an attempt to achieve an agreed statement of facts, Mr Cordara turned to the Commissioners' contentions as to the time issue.) He said that it appeared to be common ground, at this stage of the hearing, that the Commissioners were not saying that the Business Briefs had legal effect per se, and accepted that the two critical matters were, first, section 80, that being the statute, and secondly the true interpretation of the Court of Justice's decision in M&S. The Commissioners were now saying that the Appellant had not got an effective European law right to rely upon the M&S case, for two reasons: a knowledge-based reason and a time-based reason. As to the knowledge-based reason, the Commissioners say that the Appellant must demonstrate that it had knowledge of the underlying Article 5.6 right, within a time period ending on 30 June 1997. The time-based reason, the Commissioners say, is that the Appellant needed to have made their claim by 30 June 1997. The Commissioners then say that because the Appellant cannot demonstrate one or both of those conditions it had no European law right to rely upon the M&S case, if the Appellant had ever had such a right. It follows, the Commissioners contend, that therefore the United Kingdom can once again rely upon the retrospective dimension of section 80 against the Appellant, the three-year time limit. The Appellant contended that the essence of the case was an understanding of what the Court of Justice was saying in M&S and, from that, an identification of the ingredients which the Appellant had to present and prove in order to succeed. It was the Appellant's contention that the only ingredients which it needed to demonstrate was, first, that it had accrued Article 5.6 claims, accrued before 4 December 1996, and, secondly, that the Appellant can meet the time-bar point with the M&S decision.

Draft questions for reference to the European Court of Justice

158. Each party submitted a schedule of draft questions for reference to the Court of Justice. The two drafts did not essentially coincide with each other, and were in some respects disparate. Nor, it appeared, was there any reasonable possibility of the parties producing agreed drafts if time were given for discussion or further discussion. The parties were content to leave the matter in the hands of the Tribunal.

The Tribunal's consideration and conclusions

159. Bearing in mind the consistent disagreement between the parties on all points except one (that the "samples" issue should be referred to the Court of Justice in any event), it seems to us that our best and proper course would be, as we said at the end of the hearing, to approach this case on the basis that we are going to decide the issues before us, and then see whether we can do so without the assistance of the Court of Justice, and, if not, what questions need to be decided to enable us to come to the necessary decision. This we should do, in our view, notwithstanding that there was agreement that the "samples" issue should be referred, in particular because, as was frequently said during argument, an important part of that issue is concerned with the ordinary English word "samples" and its meaning.

The "samples" issue

160. There is a dispute as to the meaning, for the purposes of this appeal, of the word "samples". At first sight, that may seem surprising, since the concept of a sample is common enough. However, when consideration is given to the various types and uses of the free copies of CDs with which we are concerned, this becomes less surprising. We have been informed, and it is said more than once in the statement of facts, that there were certain distributions of free CDs which do not enter into the subject-matter of this appeal. Those are CDs distributed free to certain members of the Appellant's staff. Apart from those, the CDs which are distributed free comprise those which are sent out externally to individuals. Of these, some 90 per cent of promotional CDs are sent to named individuals. Those include CDs sent to organisations such as the BBC, the CDs being sent to named individuals within such organisations. In a small number of cases CDs are sent to, e.g., the Entertainment Officer, of a university or college, since they tend to change quite often and the name of that officer might not be known. Some CDs are distributed free to the artist, the artist's manager, the publisher, agents, and certain media contacts; these are not for the purposes of promotion. The Promotional Release Information Sheet shews that substantial numbers of CDs are distributed free internally for the purpose of being sent out to external contacts for promotional purposes. There are also distributions to "pluggers", both internal and external. The internal pluggers in turn, send the CDs out to their own contacts in radio of television. The distribution system is set out in detail in paragraphs 32 to 50 of the statement of facts in the Appendix.
161. The statement of facts relates that the Appellant "has promoted its artists' recordings by providing free copies of albums and singles ... to, amongst others, various entities that can influence the level of exposure an artist receives:" in other words, to influence the level of sales. But the purpose of distribution of free CDs is not always promotional. Some, as has already been mentioned, are distributed to the artists and to people connected with the artist and publisher. It is contemplated, as Mr Terry said, that the artists may give copies to their friends and families. That was a very small proportion of those distributed. Of those distributed for promotional purposes, it was intended that the recipient should assist the Appellant to assess the commercial quality of the music recording in the market-place, and that would have a direct effect upon sales.
162. If the true meaning of the word "sample", in a commercial context, and specifically in the context of the Appellant's business, is "an example of something (in this case a musical recording) which the giver of the sample wishes to sell and the giving out of the sample is in order to promote sales", then it seems to us that those CDs distributed free to people who are in a position to promote sales are "samples" for this purpose. Those distributed free for any other purpose may not be samples, but may be free gifts, and may, or may not, have a business purpose.
163. We now turn to the legislation. Article 5.6, in its last sentence, provides that the application of goods forming part of a taxable person's business for the giving of samples or the making of gifts of small value for the purposes of the taxable person's business shall not be treated as supplies made for consideration. Then in Schedule 2 to the 1983 Act,

"5. (1)...where goods forming part of the assets of a business are transferred or disposed of by or under the direction s of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, that is a supply by him of the goods."

But:

"(2) Sub-paragraph (1) above does not apply where the transfer or disposal is—

(a) a gift of goods made in the course or furtherance of the business ... where the cost to the donor is not more than £10;

(b) a gift to an actual or potential customer of the business, of an industrial sample in a form not ordinarily available for sale to the public."

Subparagraph (2)(b) was amended in July 1993 to apply to "a gift to any person of a sample of any goods", qualified by the new subparagraph (2A) which related to a number of identical samples given to the same person.

164. The domestic legislation was again amended in the provisions of Schedule 4 to the 1994 Act. Paragraph 5, the equivalent to paragraph 5 of Schedule 3 to the 1983 Act, disapplied subparagraph (1) where the transfer or disposal is

"(a) a business gift the cost of which ... was not more than £50;

(b) subject to paragraph (3) below, a gift to any person of a sample of any goods."

"Business gift" is defined in subparagraph (2ZA) as "a gift of goods that is made in the course of furtherance of the business in question". There was also, in subparagraph (3) a similar qualification with regard to successive gifts as that in the 1983 Act.

165. The first thing that springs to the mind is that, as appears from the statement of facts, the CDs exemplified in exhibits A1(a), A1(b), A2, and A3, and possibly A5, A6, and A7 (though we were not specifically told so) are all expressly stated to remain at all times the property of Virgin Records Ltd, and have notices upon them to that effect, and with the caveat that Virgin Records may require the return of the CD at any time. No point was taken as to that fact; it was not argued that therefore the CDs corresponding to those exhibits were not gifts but remained the Appellants property at all times. Yet if that is the case, those CDs would not fall into the provisions of either the 1983 or the 1994 Act. Under Article 5.6 there would be a supply of services, not of goods, since what would be applied or disposed of would be a loan, or bailment, of the CDs or other promotional material; such a disposal would not fall within the wording of Article 5.6. There was also no evidence that that right to require the return of the CDs, or any of them, (except under the provisions of the notice, referred to in paragraph 11 of the statement of facts, which is attached to exhibits A1(a) and A1(b), in the case of a recipient who was not prepared to accept the terms on which the CD was sent to him) had ever been exercised.
166. In the case of any promotional CDs to which that reservation and caveat did not apply, it appears that, if our definition of "samples" above is correct, that the CDs the subject of this appeal fall within that Article. Some of those which are not within that definition would also fall within Article 5.6 as being small gifts, provided that they were given for the purposes of the Appellant's business.
167. The next question is, what is the effect of the domestic legislation? Starting with Schedule 2 to the 1983 Act, those CDs covered by the reservation referred to in paragraph 12 of the statement of case would clearly not fall within subparagraph 5(1), since they would continue to form part of the assets of the business. That paragraph remains unchanged in its equivalent in the 1994 Act.
168. So far as concerns the promotional CDs not subject to the reservation, the disapplication of subparagraph 5(1) applies in the case of "a gift of goods" (of a stated low value) or "an industrial sample in a form not ordinarily available for sale to the public", which latter was amended in the 1983 Act to "a gift to any persons of a sample of any goods", and in the 1994 Act remained unchanged. The "gift of goods" was amended in the 1994 Act to "a business gift" of a stated low value. "Sample" was not defined in the 1983 Act, but in the 1994 Act "business gift" was.
169. Returning to the provisions of domestic legislation relating to what we have termed "successive gifts of identical goods", subparagraph 5(2A) of Schedule 3 to the 1983 Act applied subparagraph 5(1), where

"(a) a person is given a number of samples by the same person (whether all on one occasion or on different occasions), and

(b) those samples are identical or do not differ in any material respect from each other."

to all except one of the samples or to all except the first given. That provision is repeated in the 1994 Act. (This is the matter which is the subject of the Commissioners' application to resile from their position during the first days of the hearing.)

170. The Appellant contends that the domestic legislation does not implement Article 5.6, and that under Article 5.6 the Appellant was not and is not liable to account for VAT in respect of any free CDs distributed. The domestic legislation departed from the provisions of the Directive in both the 1983 and 1994 Acts, in the following manners. In the 1983 Act, paragraph 5(2)(a) and (b) of Schedule 3 had the effect of cutting down the last sentence of Article 5.6. There therefore arose an issue as to whether it was lawful for the United Kingdom unilaterally to restrict the effect of Article 5.6 without seeking any derogation or permission from the European authorities. The restriction was the limitation that a gift forming part of a series or succession of gifts to the same person was not desupplied. A further restriction was that the sample had to be given "to an actual or potential customer of the business". Then paragraph 5(2)(b) was further amended by the Finance Act 1993 with the effect of restricting the application of the last sentence of Article 5.6 still further. In any case, the Appellant contended, paragraph 5(2)(b) differed fundamentally from the last sentence of Article 5.6 in that it omitted the requirement that a gift of a sample had to be made in the course of the business. But paragraph 5(2A), to which 5(2)(b) was subject, provided that the samples had to be identical or not materially different, thereby defining the restriction more narrowly. The law was changed again by the 1994 Act, by the introduction of the "business gift" in paragraph 5(2) defined in subparagraph 5(2ZA).
171. The result was that until 26 July 1993 domestic legislation relieved only gifts of industrial samples in a form not ordinarily available for sale to the public. After 26 July 1993 only the first sample or gift of a series made to the same person was relieved. But, it was contended, the Appellant was entitled to rely upon the provisions of Article 5.6 in preference to the domestic provisions, as against the Commissioners. The domestic provisions did not properly implement those of the Directive. In M&S [2004] STC 1 at page 12 the Court of Appeal said that if domestic legislation did not properly implement a Directive, or if a Member State failed to apply its provisions, the Directive may have direct effect within the Member State which imposed directly enforceable duties and conferred directly enforceable rights. The United Kingdom had an obligation to ensure the Directive's application in full.
172. That argument was disputed by the Commissioners, basically on the ground that the United Kingdom legislation properly implemented the Directive. However, the argument has been put before the Tribunal that it does not, for the reasons briefly outlined above, and dealt with more fully in paragraphs 78 to 85 above. It is for that reason, no doubt, that the parties agreed that this issue should be referred to the Court of Justice. The evidence suggests to us that there were probably CDs provided free which would be relieved from the incidence of VAT and others which would not, under the United Kingdom legislation. If that legislation is at variance with the provisions of the Directive it would not be proper for this Tribunal to try to decide the point. We have, therefore, come with some reluctance to the conclusion that the matter ought to be referred to the Court of Justice.
173. At the same time, we cannot avoid reflecting that the state of the evidence on this point is far from satisfactory. Mr Terry's evidence was limited in time and did not cover the whole of the period which the Appellant contends is the material or relevant period, nor was any other evidence adduced that would cover the whole period. Nor has the matter of the effect of the retention by the Appellant of the property in some of the promotional CDs, though not all, been canvassed; it is not known, for instance, whether that reservation is adhered to strictly or at all or whether it is waived, in the light of the apparent fact that all the promotional CDs were assumed to have been supplied. Then again, in order to determine exactly which issues of promotional CDs should be relieved from the incidence of VAT it would be of great assistance, indeed essential, to a tribunal to which the Court of Justice might remit this matter to know the detail of the distributions by all members of the VAT group under the EMI umbrella; it may be that that is a matter that could be resolved inter partes in the interim.
174. We leave the matter of the question or questions to be referred until later in this decision.

The time-bar issue

175. The essence of this issue, it seems to us, is whether, in the aftermath of the judgment of the Court of Justice in M&S, the United Kingdom did what was necessary and of legal effect in complying with that judgment, so that the reduction of the time bar for making claims for repayment of tax which should not have been paid complies with European law. There was no transitional period when the reduction was effected, and the Court held that there should be in such a case. In Grundig the Court gave an indication of the kind of length that such a transitional period ought to be: it did not lay down a specific length, but suggested as minimum, implying, it seemed, that the proper length of the transitional period would vary according to circumstances. Following the judgment in M&S, there was no amending legislation, either primary or secondary, introducing a transitional period. Instead, there was an announcement by the Commissioners in each of the two Business Briefs of what appeared to be a decision reached by them rather than by central government that they would administer the matter of claims for repayment according to their own decision, without consultation or debate. It is argued by the Appellant that the two Business Briefs are not capable of replacing or amending legislation, and that as a consequence no transitional period has been introduced so as to conform with the judgment in M&S. Further, it is argued, it is not competent to introduce a retrospective transitional period; any such measure must always be prospective. For that reason also, there is, as a result, no transitional period, and therefore the Commissioners cannot rely upon a measure introduced which was incompatible with Community law as against the taxpayer.
176. To resolve that matter would require the interpretation of the Court's judgment in M&S and the determination of whether what the Commissioners had done in purported compliance with that judgment did in fact comply with it. We do not think that we should undertake such a resolution without the assistance of the Court of Justice.
177. However, it was represented to us that if we were able to find that the Appellant had, as a matter of fact, done all that was necessary to comply with the measures set out in the Business Briefs, then there would be no need to refer the issues mentioned above to the Court of Justice. That is clearly right, and we must, therefore, go on to consider whether we can so find. We therefore return to the evidence of Mrs Todd, and to the specific facts that Mr McNab invited us to find (see paragraph 65(1) to (5) above).
178. In order to fit into the requirements of the Business Briefs, the Appellant must establish by evidence

(1) that its claim was made before 30 June 1997, or

(2) that it had made no claim but could demonstrate that it had discovered the error before 30 June 1997, and

(3) that the overpayments of VAT were made before 3 December 1996

(4) that it made its claim before the deadline date of 30 June 2003, or could demonstrate that real difficulties had been experienced in meeting that deadline.

The claw-back condition clearly did not apply in this case.

179. From the facts that we have found, the claim was not made before 30 June 1997, and therefore conditions numbered (above) (2), (3) and (4) have to be met, numbers (2) and (4) being of particular importance. We find that the evidence did establish that the error had been discovered at some time not specifically defined, before 31 January 2003. We find that the claim was not made before 30 June 2003, but that the Appellant did experience real difficulties which caused the making of the claim to be delayed after that deadline and the extended deadline of 1 August 2003. We do not consider that the Business Brief makes it clear that the "real difficulties" are required to be of exceptional severity, as was suggested on behalf of the Commissioners. Before 30 June all that happened was that there was an announcement that it was intended to make a claim, and a figure was suggested in round terms of £500,000, which was far short of the eventual claim of some £3,300,000. Therefore it follows that the Appellant did not precisely comply with the conditions set out in the Business briefs, in that its claim was not made by the deadline date as extended.
180. We have therefore concluded that both issues should be referred to the European Court of Justice,

The questions to be referred to the European Court of Justice

181. It was unfortunate that there was such complete disagreement between the parties, each of whom submitted draft questions for referral, that, apparently, no common ground could be reached. The parties left it to the Tribunal to decide upon the questions to be referred. We have read the draft questions submitted, and have listened with care to the observations of each party as to the questions submitted by the other. We consider that the proper approach is to refer such questions as will assist the Tribunal, on the appeal being remitted, to decide such issues as may remain. We propose to give the parties the opportunity of considering the questions relating to each of the issues set out below and, if so advised, making further submissions to us (either written or at a further hearing). We therefore turn once more, first, to the samples issue.

The samples issue

182. The principal matter in this issue, so far as European law was concerned appeared to be that the United Kingdom domestic legislation, in both the 1983 and 1994 Acts, failed fully or properly to implement Article 5.6 of the Sixth Directive, in the manner set out in the Appellant's contentions in paragraphs 78 to 85 above. We take the view that resolution of that disagreement (together with any further necessary evidence) would enable us to decide this matter. The following questions therefore appear to us to be appropriate:

Having regard to

(1) Article 5.6 of the Sixth VAT Directive of 17 May 1977 (77/388/EEC), and

(2) paragraphs 5(1), 5(2) and 5(2A) of Schedule 2 to the United Kingdom Value Added Tax Act 1983, and

(3) paragraphs 5(1), 5(2) and 5(3) of Schedule 4 to the United Kingdom Value Added Tax Act 1994,

(4) the statement of facts in this case,

Does the last sentence of Article 5.6 of the Sixth Directive have direct effect?

Is the implementation of the last sentence of Article 5.6 of the Sixth Directive properly and fully effected by a Member State if that Member State restricts or limits the application thereof to

(a) an industrial sample in a form not ordinarily available for sale to the public,

(b) a gift in the course or furtherance of a business where the cost to the donor does not exceed a specified sum,

(c) a gift of a sample of any goods,

(d) only one, or only the first, of a number of samples given by the same person to the same recipient where those samples are identical or do not differ in any material respect from each other,

as in paragraphs 5(1), 5(2) and 5(2A) of Schedule 2 to the Value Added Tax Act 1983?

Is the implementation of the last sentence of Article 5.6 of the Sixth Directive properly and fully effected by a Member State if that Member State restricts or limits the application thereof to

(a) a "business gift" (as defined in subparagraph 5(2ZA) of Schedule 4 to the Value Added Tax Act 1994) the cost of which, together with the cost of any other business gifts made to the same person in the same year, was not more than a specified sum,

(b) only one, or only the first, of a number of samples given by the same person to the same recipient where the samples are identical or do not differ in any material respect from each other,

as in subparagraphs 5(1), 5(2), 5(2ZA) and 5(3) of Schedule 4 to the Value Added Tax Act 1994?

What is the meaning of the word "sample" in the last sentence of Article 5.6 of the Sixth Directive, if it differs by being broader or narrower, than the expressions "sample", "industrial sample", "gift", or "business gift", or any of those expressions, referred to in the United Kingdom legislation referred to above?

With respect to Questions 2(d) and 3(b) above, is the last sentence of Article 5.6 properly implemented if the words "a person is given a number of samples" (in subparagraph 5(2A) of Schedule 3 to the 1983 Act) and "any person is given a number of samples" (in subparagraph 5(3) of Schedule 3 to the 1994 Act) in the United Kingdom statutes are construed as referring to and being limited to one only of the employees of a corporate recipient, where samples are given for business purposes to a number of such employees, on the basis that the corporate person is the recipient and not the employee or employees individually?

The time issue

183. In respect of this issue, no draft questions were submitted to the Tribunal. The principal question which the Tribunal has to solve is whether, in the events which occurred after the delivery by the Court of Justice of its decision in M&S, the United Kingdom government has provided a valid transitional period, or any transitional period, in respect of the curtailment of the limitation period from six to three years for making claims for repayment of tax. That involves the questions of whether this can properly be done retrospectively or can only be achieved prospectively, and whether the promulgation of the two Business Briefs had the effect, or was capable of having the effect, of amending the United Kingdom legislation or providing, within the legislation, the transitional period which would render the legislative provisions relating to the curtailment of the time limit compatible with Community law.
184. We have endeavoured to formulate a series of questions which will cover the several matters that arise under this issue, in the following terms:

Having regard to the judgment of the Court in Marks & Spencer Case C-62/00 [2002] STC 1036 and to the legislative history in the United Kingdom relating to the right to repayment of value added tax which the taxpayer was not liable to pay

And having regard to the principle of legitimate expectations

Has the United Kingdom government complied with the judgment in Marks & Spencer by means of the Business Briefs 22/02 and 27/02, and in the absence of legislation, with respect to the provision of a sufficient transitional period for the reduction of the time limit laid down by statute (section 80 of the Value Added Tax Act 1994 as amended)?

Has the United Kingdom, by means of the Business Briefs 22/02 and 27/02, remedied or failed to remedy the breaches by the United Kingdom of Community law in introducing retrospectively a reduction of the six-year time limit for making claims for repayment of tax paid erroneously to a three-year limit?

Has the United Kingdom acted contrary to the principles of Community law in introducing, by means only of the Business Briefs 22/02 and 27/02, a retrospective transitional period for the reduction of the time limit from six years to three?

In the events which have occurred, are the conditions set out in the Business Briefs under which a taxpayer will be eligible to make such a claim, compatible with Community law?

185. We therefore refer the above questions, subject to any further submissions, and any amendments that may result therefrom, by the parties for which we have already given leave.

Costs

186. No mention was made at the hearing about costs. It may be that the parties will wish to leave the matter of costs until after the reference and the return of the appeal to the Tribunal. However, we will give liberty to both parties to apply to the Tribunal on the matter of costs, and of what procedure should be adopted in respect of any application for costs.
187. Each party shall be at liberty to make further submissions, if so advised, as to the questions to be referred. Any application to be heard on this matter should be made not later than 3 February 2006.

ANGUS NICOL

CHAIRMAN

RELEASED: 9 January 2006

LON/03/1218