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EMI Group plc v Revenue & Customs [2007] UKVAT V20211 (27 June 2007)

20211

REFERENCE TO ECJ–Questions to be referred–Scope of questions in context of issues in the appeal–European Communities Act 1972, s 3(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 14 December 2006

Roderick Cordara QC and Paul Key, counsel, instructed by Dorsey & Whitney, solicitors, for the Appellant

Dr Paul Lasok QC and Andrew McNab, counsel, instructed by the Solicitor for the Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

FINAL DECISION

ON THE QUESTION OF REFERRAL TO THE EUROPEAN COURT OF JUSTICE

In the light of our interim decision, arising out of submissions made by both parties by correspondence in January 2007, which were relevant to and affected our decision in respect of the matters dealt with at the hearing in December 2006, we now give what we hope and suppose will be our final decision on the referral of questions in this appeal to the European Court of Justice. No doubt it will return to us after the Court has given its decision.

The broad issues before us at this point are, first, whether we refer any questions relating to the "time issue" to the European Court of Justice, and if so what questions. The Appellant contends that there is neither need nor justification for so doing. Customs are insistent that such questions should be referred. Secondly, it being agreed between the parties that questions relating to the "samples issue" should be referred, what should those questions be? In theory, the question also arises whether or not we should refer the samples issue; however, we have from the beginning taken the view that such questions should be referred, and the only matter left to be determined is what those questions should be.

The time issue

The Appellant's contentions

Mr Cordara, who had supplied us with a very full and helpful outline of argument, first put the Appellant's position briefly, by way of introduction. He pointed out that the majority of the Court of Appeal in Fleming (trading as Bodycraft) v Customs and Excise Commissioners (Condé Nast Publications Ltd intervening) [2006] STC 864 CA, held that the retrospective element of the 1997 amendment to section 80 of the VAT Act 1994 must be disapplied. Then, in Condé Nast Publications Ltd v Customs and Excise Commissioners [2006] ST 1721 CA, the Court of Appeal took the view that it would be inappropriate to refer the question to the ECJ. In each case that is the law, unless the House of Lords should reverse either or both decisions. Therefore, not only is there no point in making a reference on the time issue, but there is no justification for doing so. The choice before the Tribunal was, therefore, either to decide on the present state of the law that there is no question for reference on the time issue, or to decide whether the Tribunal should make a reference on the "samples issue" and await the outcome from the ECJ.

Mr Cordara referred to the Business Brief 13/06, which followed the release of the Court of Appeal's judgment in Fleming. In that Business Brief Customs accepted that, for present purposes (by which, as we understand it, they meant subject always to the decision in Fleming of the House of Lords, to which the appeal is pending), claims under (inter alia) section 80 of the 1994 Act are "effectively uncapped". In Condé Nast, the Court of Appeal unanimously held that the majority decision in Fleming was decisive of the issue. Customs had contended in the Court of Appeal in Condé Nast that the court should refer the matter to the ECJ, mentioning that they intended to invite the House of Lords, in Fleming, to make such a reference. The Court of Appeal considered it wrong in principle that it should take such a course, which would effectively pre-empt the House of Lords' consideration of the necessity for a reference. Reference by the Court of Appeal would therefore be inappropriate. Mr Cordara contended, therefore, that it would be wrong in principle for the Tribunal to take a course which would thus pre-empt consideration by the House of Lords of the need for a reference by referring what would be questions on the same or similar issues before the matter came before the House of Lords for consideration. If the House of Lords were to take the view that a reference was necessary nothing would be gained by the Tribunal making such a reference in anticipation. It therefore followed, Mr Cordara contended, that, if the Court of Appeal, in Condé Nast, thought it inappropriate to make such a reference, none should be made by the Tribunal.

It was the Appellant's case, therefore, that the Tribunal should refer the samples issue and decide the time issue in the Appellant's favour now. Business Brief 13/06 recognised that as a result of the Fleming and Condé Nast decisions the Appellant's claim under section 80 is not subject to the time limitation, and that was a correct analysis of the legal position. Although the Tribunal had held in its earlier, interim, decision, at paragraphs177-179, that the Appellant's situation did not fall within the two Business Briefs (22/02 and 27/02) which were applicable at the time of the Tribunal's decision, the situation had changed following Fleming and Condé Nast and Business Brief 13/06, and the Appellant's position does now fall within the current Business Brief. That is another reason why there is no reason for a reference on the time issue. The Customs Manual, vol VI-33, section 20, after a detailed review of the background to the introduction of the three-year time limit and the two previous Business Briefs following the decision in Marks & Spencer PLC v Customs and Excise Commissioners [2002] STC 1036, instructs officers of Customs to repay tax under claims made before 26 May 2005 in respect of amounts overpaid before 4 December 1996, and amounts overdeclared by way of output tax in respect of periods ending on or before 30 April 1997, on the basis of the Fleming judgment. From the Customs Manual it was clear that notwithstanding an appeal, claims such as those of the Appellant would not be resisted on the grounds of the three-year time limit, even if the matter should still be a live issue before the Tribunal. There is, therefore, no reason why the time issue should not be determined in the Appellant's favour. If the Tribunal should have any doubt as to taking that course, Mr Cordara said, the alternative would be to defer any decision as to the making of a reference on the time issue until after the House of Lords has decided the appeals of Fleming and Condé Nast.

Finally, Mr Cordara mentioned a question arising on the valuation of the CDs, referred to in a letter from Mr Tongue of 6 October 2006, in which he also accepted that, at least at that time, a claim could be made for two periods before 12/96, applying the Business Brief correctly to a part of the Appellant's claim which would otherwise have been the subject of the time bar.

Customs' contentions

Dr Lasok, who had also provided us with a skeleton argument, began by referring to the letter of 6 October 2006. Paragraphs 18 and 19 of that letter, addressed to the Appellant, make it clear that unless the Appellant were prepared to give a written undertaking that "if the ultimate decision of this litigation has the effect that their claim is put out of time, EMI would make full repayment to HMRC with interest." It was also made clear that if no such undertaking were given no repayment would be made. That, Dr Lasok said, put the Business Brief into perspective: these were administrative measures taken within the context of the care and management of the 1994 Act to cater for a situation in which the law has not been settled definitively. Therefore, as a matter of good administration the Commissioners took the view that payments could appropriately be made; but such payments would not be made in the performance of a legal obligation, whence the requirement of the undertaking.

Dr Lasok pointed out that both Fleming and Condé Nast were cases in which the Appellant was seeking to make a late claim to deduct input tax incurred before 4 December 1996. It was accepted in each case that the claim was based on a right under European Community law. Whether or not Fleming and Condé Nast were rightly decided in the Court of Appeal will be decided by the House of Lords or the ECJ in due course. But it was beyond debate that Fleming and Condé Nast had directly effective rights in Community law. But Fleming and Condé Nast are irrelevant so far as payments made by EMI after 4 December 1996 are concerned, even if those payments were made in breach of a directly effective Community law right.

So far as payments before 4 December 1996 are concerned, Dr Lasok contended, both Fleming and Condé Nast are irrelevant on any view, unless the Appellant can establish that the overpayments were made in breach of a directly effective Community law right. That is the subject of the debate as to the samples issue. However, Customs do not agree with the Appellant's interpretation of Article 5.6; nor do Customs agree that there has been any failure properly to implement Article 5.6 in the United Kingdom; and nor do Customs agree that there has been any failure by them to implement or apply Article 5.6 by administrative decision. The fact that an undertaking to repay, if the outcome of the litigation were adverse to the Appellant, was required shewed that the arrangement set out in the Business Brief was administrative, and that the payment to the Appellant would not have arisen under a legal obligation. The Appellant has not yet established that it has rights under Community law; the purpose of referring the samples issue is to find out if the Appellant has any such rights. The Tribunal cannot, therefore, determine the time issue in either direction until it has received the decision of the ECJ on the samples issue.

If the time issue is not to be referred, Dr Lasok contended, it will give rise to a practical difficulty when the samples issue is argued before the ECJ. Since the Appellant wishes to argue the samples issue on the basis of the legislative provisions in force before 4 December 1996, more than three years before the Appellant made its claim, the Appellant would necessarily be obliged to make submissions on the time issue. That was because it could not assume that the Commission of the European Communities, which would be intervening, would fail to be aware of a problem in respect of the temporal scope of the samples issue. Further, Customs would be obliged to indicate to the Court that the temporal scope of the Appellant's case gave rise to a jurisdictional problem for the ECJ. Dr Lasok referred to two cases before the ECJ which illustrated that: first, Marks & Spencer PLC v Customs and Excise Commissioners (Case C-62/00) [2002] STC 1036. In that case, Dr Lasok said, the Court of Appeal made a reference but refused to refer a particular part of the matter to the ECJ because the Court of Appeal itself had decided the point and considered that there was no need to refer it. Although no submissions had been made on that part of the case, the point was raised by the Commission and by the opposing party, and the ECJ decided the point.

The second case to which Dr Lasok referred was GIL Insurance v Customs and Excise Commissioners [2004] STC 961, a case concerning insurance premium tax. In that case, the Tribunal, following the Court of Appeal decision in Ex parte Lunn Poly, R v Customs and Excise Commissioners [1999] STC 350, decided the question in dispute, that there was State aid. Other ancillary questions were referred by the Tribunal to the ECJ. Again, no submissions were made, by either party, as to whether there was State aid, but the Court took the point itself, and decided the case on the basis that there was no State aid. As a result the Court did not answer most of the questions referred to it by the Tribunal. It follows that it cannot be assumed that somebody will not alert the Court to the time issue, and to the fact that a large part of the samples issue questions fall away as having no relevance if the time issue were determined in a way different from the decision of the Court of Appeal in Fleming and Condé Nast. The Appellant's counter-argument, that it cannot be assumed that the Commission will raise the point because it will be making submissions on matters of European law, is not quite accurate, because the time issue arises as a result of the view taken by the Court of Appeal in Fleming and Condé Nast concerning the meaning of two of the ECJ's judgments in Marks & Spencer and Grundig Italiana. Clarifying what Community law requires is the Commission's business. It is also very likely that the Appellant's written submissions to the Court will include arguments justifying the samples issue on the ground that the Court of Appeal correctly understood the time issue in Fleming and Condé Nast nor will Customs refrain from making submissions on that point. It is, therefore, inevitable, Dr Lasok contended, that a reference on the samples issue will spill over into a debate before the ECJ on the time issue. It would therefore be much better if the time issue was brought before the Court I the form of a question or questions properly referred.

It may also be the case that other Member States may wish to air problems arising from Marks & Spencer, and a reference on the time issue by the Tribunal would afford them the opportunity.

Customs did not accept the Appellant's assertion that the Tribunal is bound by the Court of Appeal's decision in Fleming and Condé Nast. However, Dr Lasok said, the position is quite clear from the wording of section 3(1) of the European Communities Act 1972:

"(1) For the purposes of all legal proceedings any question as to the meaning or effect of any of the Treaties, or as to the validity, meaning or effect of any Community instrument, shall be treated as a question of law (and, if not referred to the European Court, be for determination as such in accordance with the principles laid down by and any relevant [decision of the European Court or any court attached thereto])."

Dr Lasok also referred to the judgment of the Court of Appeal in Crehan v Inntrepreneur Pub Company CPC [2004] EWCA Civ 637 and two other Court of Appeal decisions. The effect of those decisions, Dr Lasok contended, was that when faced with the kind of issue that arises in relation to the time issue a court, including this Tribunal, must either refer the matter to the European Court or it must decide the matter by reference to a decision of the European Court. But the Appellant is inviting the Tribunal to reach a decision that is inconsistent with the statutory duty of the Tribunal according to section 3(1). Fleming and Condé Nast involve the drawing of inferences from Marks & Spencer and Grundig Italiana, but they do not set out what those two latter cases decided. There is, in fact, Dr Lasok maintained, no decision of the European Court which enabled the Tribunal to conclude that the inferences drawn by the Court of Appeal were well founded. They were no more than glosses on Marks & Spencer.

Therefore, if the Tribunal were to continue with the approach that it originally took with respect to the time issue, it would be expressing, in the reference to the European Court the issue of Community law that arises in this appeal, with which only the European Court can deal, and with which it must in any event deal. It was therefore Customs' submission that the Tribunal's earlier decision should stand, and the time issue should be referred.

The Appellant's reply

In reply, Mr Cordara said, first, that all the Appellant was saying at this point was that there should be no reference to the ECJ on the question of the administrative behaviour of the United Kingdom, that is, the Business Briefs which followed the Court's decision in Marks & Spencer. The Tribunal was not being asked to deliver a summary judgment.

Secondly, Mr Cordara said that Marks & Spencer was no guide to the present case. In that case Dr Lasok had persuaded the Court of Appeal of a proposition which the Advocate General described as untenable, and which led to infraction proceedings being brought against the United Kingdom (the only time such proceedings had been initiated by the Community as a result of a Court of Appeal decision), though the proceedings did not go further than initial stages. Marks & Spencer was a case which caused the Commission considerable disquiet. The Crown had persuaded the Court of Appeal to refer the question of whether Marks & Spencer would be repaid, but only for the period when the consideration provisions in the Sixth Directive had not been properly implemented in the United Kingdom. The point argued by Customs was that there were no directly effective rights under section 3(1) if the European provision had been properly implemented. That argument was accepted by the Court of Appeal. The Court of Appeal's decision was wrong; it was all about directly effective rights, and it was all on the subject of repayment. But Customs are now seeking, Mr Cordara contended, to engender a fear in the Tribunal that if the present appeal is referred only on the samples issue it would turn into a debate on the time issue, which the Appellant is asking the Tribunal not to refer, and in respect of which the Crown did not persuade the Court of Appeal to refer.

That, Mr Cordara maintained, will not happen. Whether or not the Crown intends to raise the time issue in its submissions, it was preposterous to suggest that the Court would take part in a time limit point in a case where the question referred was entirely discrete and concerned samples. Mr Cordara referred to Article 234 (ex Article 177) of the Treaty Establishing the European Community. The Court will have before it a reference on Article 5.6 in relation to samples, and will find no reference on the time issue, and will have no jurisdiction to pursue the time issue.

Mr Cordara pointed out that Member States have no directly effective rights under community law, only taxpayers have them. The Appellant did not need to rely upon directly effective rights because it had Court of Appeal decisions upon which to rely. There was nothing in the Appellant's case which would involve, in particular on the samples issue reference, any threshold question of directly effective rights. The ECJ has ruled on the approach to section 80, and that has settled the position as to what the directly effective rights of United Kingdom taxpayers are. The United Kingdom has decided not to legislate, and is fighting a rearguard action, but what is actually happening is that the United Kingdom wants to know whether section 80 can now be treated as applicable; that is, whether the period of the disapplication of the retrospective provisions is now over. The Court will simply say that no such question is in the reference, and that no party is asserting directly effective rights, and that it is not its job to interpret domestic legislation. The Court will consider that it has done all that was necessary in Marks & Spencer, and it is for the national courts to deal with the matter now.

Having looked briefly at the proposed questions for referral on the samples issue, Mr Codara referred to Crehan. One of the Court of First Instance cases mentioned in that case predated the relevant Court of Appeal cases, but was not determinative of the issue before the Court of Appeal. The two decisions that were determinative post-dated the Court of Appeal cases, and therefore had not been considered by the Court of Appeal. In the present case the reverse is true: there are two Court of Appeal decisions which post-date the ECJ decision. It is the normal course for ECJ decisions to be debated in the national courts. If Customs' argument is right no court or tribunal would be bound by any other. Crehan is of no assistance in this case.

It was not correct to suggest that Customs have an administrative discretion whether or not to repay monies in accordance with the Business Brief (13/06); they have no such discretion to disobey the Court of Appeal. Customs asked the Appellant to sign an undertaking (over which there is some controversy), but they have no discretion to hold the monies back.

Customs' contentions

Dr Lasok first replied to the Appellant's submissions on Article 234. That Article set out the scope of the ECJ's jurisdiction to entertain references. Any court has power to control its own jurisdiction. The ECJ is thus used to dealing with situations in which something that may have been referred does not fall within its jurisdiction. Any difficulty in that regard was resolved by the Tribunal by formulating questions for referral on the time issue, which made it quite clear on what basis the samples issue questions were being referred. The ECJ would therefore know that the Tribunal had addressed the questions before formulating them and making the reference. But if the time issue questions are going to be suppressed this will raise a problem so far as Article 234 is concerned, because anyone reading the Tribunal's decision will see that there was an issue that has not been referred. It is obvious that the factual basis for the samples issue questions proceeds on the basis that the time issue has to be resolved. If it is resolved in one way, the whole of the samples issue questions are relevant; if in another way certain aspects of the samples issue would disappear: nothing would be relevant but the period of three years immediately prior to the making of the claim. If, therefore, the samples issue alone were referred there would remain the contextual question going to the jurisdiction of the ECJ centred round the time issue. It is difficult to see how the samples issue can be argued before the ECJ without reference to the time issue.

Dr Lasok acknowledged that in February 2006 Customs had appealed to the High Court against the Tribunal's then decision to refer time issue questions to the ECJ, on the basis that the Tribunal had no jurisdiction to refer any question on that issue of domestic law. But the Court of Appeal having given its decision in Fleming and Condé Nast, put a different complexion on the matter. Fleming and Condé Nast have generated a debate which did not exist at the time when Customs intended to appeal. One is left with the situation in which it would be consistent and logical for the Tribunal to make a reference on both issues. The parties will have to address the time issue in their written submissions to the ECJ. This was so whether or not the House of Lords make a reference in Fleming or Condé Nast. Dr Lasok referred to a decision of the ECJ in Rheinmühlen-Dusseldorf v Einfuhr- und Vorratsstelle für Getreide und Futtermittel Case 166/73 [1974] ECR 33 [1974] 1 CMLR 523 in which the Court ruled that there could not be domestic rules in any Member State which precluded its lower courts making references. What the House of Lords might do could not be predicted. But the case before the Tribunal could not be decided in favour of the Appellant until an answer had been received from the ECJ on the samples issue, and because the samples issue, covering a long stretch of time, brings in the time issue.

Mr Cordara had pointed out that Article 234 contained the answer to Customs' point. In the second paragraph it is clear that a court can only make a reference if it considers that a decision on the question is necessary in order to enable it to give judgment. The Tribunal had a discretion not to refer; it could consider that it was necessary but not refer, but it cannot refer unless it considers that it is necessary. Mr Cordara described that as "a very high threshold". Customs will not be able to provoke the time issue argument, which does not relate to any of the matters that article 234 describes as being the jurisdiction of the Court. Article 234 is echoed in section 3(1) of the European Communities Act, which provides that what it is concerned with is the validity, meaning and effect of any Community instrument, which section 80 of the 1994 Act is not. The United Kingdom is not implementing any European Union policy in introducing a time bar, which is purely a domestic matter. There is therefore no basis on which the ECJ would consider the time issue and will take no interest in an issue which is not referred.

Dr Lasok rejoined that Mr Cordara had misread Article 234. He referred to the second paragraph of Article 234. What it actually says, he maintained, is, that "the national court or tribunal may, (and he stressed that there was a comma there), if it considers that a decision on the request is necessary to enable it to give judgment, request the Court of Justice to give a ruling thereon." That means that there must be, before the referring court, a decision on a question of Community law that it, the referring court, must decide; it must be necessary for the referring court to decide that question. The Tribunal must therefore look at the issues before it and ask itself, in respect of each one, "Is it necessary for the Tribunal to make a decision on that issue?" If it is, then the Tribunal must ask itself, "Is that issue a matter of Community law?" If it is, the Tribunal may make a reference. So, in the present appeal, the Tribunal will look at the samples issues and ask itself "Is it necessary for the Tribunal to make a decision on the samples issue?" The answer, Dr Lasok said, is "No" in relation to the period prior to 4 December 1996 if the answer to the time limit question is as the appellant contends. It is, therefore, necessary for the Tribunal to answer the time issue questions, which are not questions of domestic law but about Community law because the time limit issues arise only because of the European Court judgments in Marks & Spencer and Grundig Italiana, and the debate that has arisen following them in the Court of Appeal.

The samples issue

The Appellant's contentions

Mr Cordara then resumed his submissions, and referred to the draft questions on the samples issue. (We have set the draft questions out in an appendix to this decision.) Customs, he said, object to the mention of "gifts of small value", which is a phrase which occurs in the critical sentence of Article 5.6: "However, applications for the giving of samples or the making of gifts of small value for the purposes of taxable business shall not be so treated." That is the question upon which the guidance of the ECJ is needed. It would be a waste of time to go to Luxembourg to ask a question about "giving of samples" without also asking about "the making of gifts of small value". Gifts of small value can be samples; but samples can be of any value.

(26. In our Interim Decision, the need for which was raised by issues raised by the parties in correspondence and which we dealt with as a preliminary issue (Decision 20142) we came to the conclusion that, as contended by the Appellant and opposed by Customs, it would indeed be a waste of time, and unhelpful to both parties, if the question relating to "gifts of small value" were omitted from the reference. We therefore continue with this issue by considering the parties' contentions on other matters relating to the samples issue.)

The draft questions were dealt with by Mr McNab. He began by referring again to Article 234 of the Treaty, and emphasised that the Tribunal must have regard to those questions which need to be answered in order to enable it to come to a decision, and that it is only those questions which need to be answered which should be referred. Customs were content with both questions (a) and (b). Since question (c)(i) raised the question of the time issue, Customs were not content with it, but they were with question (c)(ii). The objection to question (d) was that it included small gifts in the reference to the Court. The concept of "small gifts" had had only fleeting mention in the Tribunal's previous decision; the point was never put by the Appellant to the Commissioners nor was it, therefore, ruled on by the Commissioners. It was never suggested that by handing over samples the Appellant was making gifts of goods at all. It was not raised in the notice of appeal, nor was it raised in the further and better grounds of appeal. It was not the subject of evidence, nor was it mentioned until Mr Cordara's closing speech. At first it was suggested that the handing over of a sample was a gift of small value and therefore desupplied. But the context in which the issue now seems to be raised is that the Appellant has made a series of supplies of gifts of small value which should be desupplied; the matter as raised now is different from the matter raised before. There is no factual context in which it could be considered or in which the domestic legislation can be tested. The Appellant has completed its case and should be confined to the case which they have made. Mr McNab said that Customs agreed with question (e) subject to amendment if the Tribunal agreed with their objections to question (d). Customs objected to question (f) on the basis that nothing raised in that question could possibly arise on the wording of Article 5.6. Question (f)(i) was a matter of argument relied upon by the Appellant in support of its contention on the interpretation of Article 5.6, and was not a question about the correct interpretation. Question (f)(ii) was unnecessary in the absence of any allegation of fraud on the part of the Appellant.

Replying, Mr Cordara said that while not all gifts of small value were samples, all samples were gifts of small value, that is, in the context of Article 5.6, gifts in the sense of something for which no consideration is given in return. It followed, he said, that any case concerning the giving away of samples involved the making of gifts. That was illustrated by the way that United Kingdom legislation had been worded. There was no subcategory, as Customs appeared to be suggesting, of gifts which are not within this context. Customs suggested that they had no knowledge of what was encompassed in the Appellant's case relating to gifts of small value. Mr Cordara said that everyone in court knew exactly what the case was about, because it was covered thoroughly in evidence. Not only that, but it was made clear in the Appellant's original skeleton argument; it has always been the Appellant's approach that the CDs referred to were samples and/or gifts of small value. Nor had there been any word of argument in the Tribunal that the word "sample" or the word "gift" did not apply to the CDs concerned. Not only that, but both expressions are used in the last sentence of Article 5.6. As to question (f), Mr Cordara said that (f)(i) had been included precisely because it was one of the Appellant's arguments, and it was asked because it was important that the Court should focus upon it.

Conclusions

The matters which we have to determine are, first, whether or not we should refer any questions on the time issue to the European Court of Justice, and if so, what questions? Secondly, it being agreed between the parties that the samples issue should be referred, what questions should be referred? We agree with the parties that in order to determine this appeal, the answers of the Court to certain questions relating to the samples issue are necessary. Subsidiary questions as to the samples issue are: draft question having been submitted to us, are those the questions to which answers are necessary for the decision of this appeal? If not, what questions should be referred? If the draft questions cover those matters upon which the Tribunal needs answers, do we include or exclude those to which Customs object?

The time issue

The state of play within the jurisdiction at present is that there are two Court of Appeal decisions, Fleming and Condé Nast, which appear to us to answer the questions which will enable us to determine this appeal as to that issue. Both those decisions are presently under appeal to the House of Lords, and may even be referred back by the House of Lords to the Court of Justice.

The Court of Appeal gave judgment in Fleming on 15 February 2006. In that case, as in the present, what was principally in issue was the position with regard to regulation 29(1A) of the Value Added Tax Regulations 1995. That was another case in which the taxpayer had the right to claim repayment of input tax and had an accrued vested right to recover the tax when regulation 29(1A) came into force, imposing a tie limit of three years. It had been held in Marks & Spencer plc v Customs and Excise Commissioners (Case C-62/00) [2002] STC 1036 ECJ that the imposition of such a limit where there had been none before, without the intervention of a transitional period, was incompatible with the Community law principles of effectiveness and the protection of legitimate expectation; it therefore fell to be disapplied. In his judgment, Ward LJ dealt first with the question that arose, whether a transitional period could be implied or read into regulation 29(1A) of the Value Added Tax Regulations 1995. He referred to the passage in the judgment of the ECJ dealing with the point:

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

…

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 … must be held to be incompatible with the principle of effectiveness."

(The emphasis, and double emphasis, were added by his Lordship.)

Ward LJ continued, at page 890d,

"[75] If section 47 was incompatible with Community law in [Marks & Spencer] then regulation 29(1A) must be equally incompatible because the two cases are indistinguishable. In both cases the legislation failed to provide an adequate period after enactment for lodging the claims for repayment. If section 47 had to be disapplied, then regulation 29(1A) must also be disapplied …

[76] For my part I do not see how the case of Grundig Italiana SpA v Ministero delle Finanze (Case C-255/000) [2002] ECR I-8003 can alter this conclusion. It is important, in my view, to note that in Grundig, the Italian legislation did provide a transitional period of three months before the change came into effect. To that extent the case is different from [Marks & Spencer] and from the case before us where no transitional provision was provided. The question referred to the Court of Justice by the Italian court asked whether the 'national provision', where it lays down a period of grace of 90 days within which the party must bring his action, was compatible with Community law and in particular with the often stated principle of effectiveness. The answer, and in my judgment it is important to note the answer, was that Community law did preclude the retroactive application of a time-limit that is shorter and, as the case may be, more restrictive for the claimant, for the period for initiating proceedings that was previously applicable to claims for the recovery of national taxes contrary to Community law when no adequate transitional period is provided during which claims relating to sums paid before the entry into force of the legislation introducing the new time limit may still be brought within the old period."

Having referred to the passage in the Court's judgment in Grundig Italiana in paragraph 41, in which the Court said that where there was a transitional period fixed by legislation it was permissible to apply the new limitation period retroactively. Ward LJ continued:

"[79] I can see (though I confess with difficulty) that it is possible to read this judgment as laying down a rule that if there is a transitional period provided by the national legislation and if it happens to be inadequate, it will none the less still be permissible to apply the new time bar after the expiration of what the court decides is in fact an adequate transitional period. Assuming that favourable interpretation of the case in the Commissioners' favour, it still gives no assistance to the Commissioners where the legislation fails to allow any transitional time at all.

[80] Indeed, it would come as a surprise to me to imply a reasonable transitional period in legislation which provides none. Whilst a benign purposive construction of an inadequate transitional time may possibly lead to the implication of a period of grace which is judged to be reasonable, I simply cannot see how one can construe something out of nothing. If it were possible, [Marks & Spencer] would surely have been decided differently.

[81] In my judgment, the failure of the Commissioners to include any transitional time limit in regulation 29(1A) is fatal to their case. The regulation as it is without any transitional period fails the Marks & Spencer test. Consequently, in my judgment, it must be disapplied … ."

In Condé Nast, the Court of Appeal held that it should not substitute it own view as to the effect of a judgment of the Court of Justice for the view of a differently constituted Court of Appeal in an earlier case (i.e. Fleming) but considering the same judgment when the Court of Justice had had no opportunity to review its judgment. It declined to refer the matter to the Court of Justice in case the House of Lords should itself decide to refer the questions arising to the ECJ. Consequently, it allowed the appeal of Condé Nast. Both cases await hearing, together as we understand, by the House of Lords.

In view of the passages from Fleming cited above, it is difficult to see how that decision can be properly described as a mere gloss on the Court of Justice's decision in Marks & Spencer. With great respect to the Court of Appeal, it is clearly an application of the decision in Marks & Spencer, and, in our view, states with clarity the way in which Marks & Spencer must be applied. It provides this Tribunal, as it seems to us, with exactly what is necessary to fulfil our obligation under section 3(1) of the European Communities Act 1972, in that, if we were to decide the matter on that basis we would be doing so in accordance with the principles laid down by, and any relevant decision of, the European Court. If, between now and the return of this case from Luxembourg after a decision on the samples issue, a further decision should have emanated from the European Court, for example on a reference in Fleming or Condé Nast, the principles of which we are bound to follow may conceivably have changed. But as things are now, in our judgment the Court of Appeal has applied the principles of the Court's decision in Marks & Spencer and we would now be able to determine this appeal. We await only the answers to the reference on the samples issue. For us to refer the time issue would, it appears to us, be asking in effect for another decision on Marks & Spencer.

The argument relating to Customs' letter of 6 October 2006 (see paragraph 7 above), offering repayment in return for a written undertaking to pay the amount back to Customs if the ultimate decision went against the Appellant, was that that offer shewed that Business Brief 13/06 was no more than an administrative measure to cater for a situation in which the law has not been settled definitely. Payments could be made, but not under a legal obligation. There seems to us to be a flavour of post hoc ergo propter hoc about that argument. Because the law has not been settled, there is no legal obligation: the fact that the offer is made in such a form shews that the law has not been settled. We did not find that argument persuasive in support of the contention that the time issue should be referred so as to settle the law. Marks & Spencer seems already to have done that.

We do not think that the decision in Crehan v Inntrepreneur Pub Company CPC (supra) gives us any real assistance on this point. There the dilemma was whether a national court was obliged to follow a decision of the Court of First Instance rather than the Court of Appeal, and the Court of Appeal held that it was so obliged. But the situation is not the same in this present matter, as what we would be doing is to decide the time issue in accordance with the decision in Marks & Spencer as applied by the Court of Appeal in Fleming.

For those reasons we have come to the conclusion, on further consideration since our first decision in this appeal, and in the light of Fleming as well as Marks & Spencer that there is no need to refer any questions on the time issue. We do not accept Dr Lasok's prophecies of doom in respect of the possibility of the Court of Justice roaming widely from the ambit of the questions which we do propose to refer, on the samples issue. If the Court were minded to stray from the questions specifically referred to it, that would be a matter which this Tribunal could not influence; it would make little or no difference, in such a case, whether or not we were to refer the time issue. We do not accept that the samples issue cannot be argued before the ECJ without reference to the time issue; the samples issue could, if need be, be argued on either time hypothesis. The argument, that the case before the Tribunal cannot be decided for the Appellant until the ECJ has decided the samples issue, and the samples issue, covering a long stretch of time, necessarily brings in the time issue, seems to us to be circular.

The samples issue

We ask ourselves first, to what questions do we need the answers before we can determine the samples issue? The issues and the submissions made on those issues within the samples issue are referred to in paragraphs 7 and 8, 78 to 85, and 128 to 131 of our first decision. The several subsidiary issues within the samples issue seem to us to be the following:

(1) What is the proper construction of the last sentence of Article 6.5?

(2) What is a "sample" in that context?

(3) Is the concept of a "sample" in the VAT Act 1994 the same as that in Article 5.6?

(4) Is a "sample" essentially, in this context, the same as a "gift of small value"?

(5) Is the limitation of the word "sample" in the VAT Act 1994 compatible with Article 5.6?

(6) Where the Appellant gives a number of "samples" to several employees of the same employer, for the purposes of the Appellant's business and because each of those employees is expected as an individual to be able to promote the sales of the goods exemplified by the sample, are those gifts all made to the employee for this purpose, or is each made to a separate individual?

(7) What, in the context of this appeal, is the meaning in paragraph 5(2)(b) of the VAT Act 1994, before its amendment by the Finance Act 1993, of the expression "an actual or potential customer of the business"? Does it include those to whom samples are given not for themselves but for the purpose of promoting the sales to the public of the Appellant's goods?

It was our purpose to cover those issues in the draft questions which, in default of agreement by the parties as to the questions to be referred, we suggested. There is now a considerably greater degree of agreement, as indicated above, as to the questions for referral. It seems to us, incidentally, that the draft questions now before us, produced by the Appellant, cover much the same ground as those which we had suggested. Since that is the case, we consider that these draft questions (set out in the Appendix hereto) should be referred to the European Court of Justice. We propose to leave in both limbs of each of question (c) and (d), for the reasons outlined above. We have also considered the matter of question (f). Question (f)(i) seems to us to be relevant to the matters in hand. However, we do not think that question (f)(ii) has any bearing on it, since the matter of fraud or abuse does not come into this appeal, nor has anything arisen which might have made it relevant. It is not a question the answer to which is necessary to the determination of the issues. We therefore exclude (f)(ii), and question (f) will be referred in the form in which it appears in the Appendix. In case any difficulty should arise, we grant liberty to each party to apply.

Costs

There was a brief discussion at the end of the hearing as to the costs thereof, at the end of which it was agreed that costs should be reserved to the hearing of the appeal on its return from Luxembourg, and we so direct.

ANGUS NICOL

CHAIRMAN

RELEASED: 27 June 2007

LON 2003/1218

APPENDIX

DRAFT QUESTIONS FOR REFERRAL ON SAMPLES ISSUE

(a) How is the last sentence of Article 5.6 of the Sixth Directive to be interpreted in the context of the circumstances of the present case?

(b) In particular, what are the essential characteristics of a "sample" within the meaning of the last sentence of Article 5.6 of the Sixth Directive?

(c) Is a Member State permitted to limit the interpretation of "sample" in the last sentence of Article 5.6 of the Sixth Directive to–

(i) an industrial sample in a form not ordinarily available for sale to the public given to an actual or potential customer of the business (until 1993),

(ii) 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 (from 1993)?

(d) Is a Member State permitted to limit the interpretation of "gifts of small value" in the last sentence of Article 5.6 of the Sixth Directive in such a way as to exclude–

(i) a gift of goods forming part of a series or succession of gifts made to the same person from time to time (to October 2003),

(ii) any business gifts made to the same person in any 12-month period where the total cost exceeds £50 (October 2003 onwards)?

(e) If the answer to question (c)(ii) above or any part of question (d) above is "yes", where a taxable person gives a similar or identical gift of recorded music to two or more different individuals because of their personal qualities in being able to influence the level of exposure the artist in question receives, is the Member State permitted to treat those items as given to the same person solely because those individuals are employed by the same person?

(f) Would the answers to questions (a) to (e) above be affected by the recipient being, or being employed by, a fully taxable person, who would be (or would have been) able to deduct any input tax payable on the provision of the goods consisting of the sample?