Marks & Spencer Plc v Customs and Excise (No.5)

Correct transposition of a directive does not prevent direct reliance on it where the national authorities misapply the implementing law. A directly enforceable right to recover VAT cannot be made ineffective by an immediately retrospective limitation period introduced without adequate transitional arrangements.

By contrast, a permissive domestic zero-rating maintained under Article 28.2(a) of the Sixth VAT Directive is not unconditional and sufficiently precise to create a directly enforceable Community right. Unclaimed input tax is a credit claim under regulation 29, not overpaid VAT under section 80. The Commissioners' discretion over late claims is narrow and must be exercised reasonably.

Marks & Spencer appealed from the decisions of Moses J, reported at [1999] STC 205, concerning repayment of VAT charged on gift vouchers and teacakes. The first Court of Appeal, reported at [2000] STC 16, dismissed the later-voucher and teacake claims but referred the retrospective limitation issue to the European Court of Justice. That court answered the reformulated question in [2002] STC 1036.

The present judgment resumed the appeal and reconsidered the effect of that ruling. The Commissioners had conceded the voucher claim and made an extra-statutory concession concerning part of the teacake claim. The court also heard the Commissioners' appeal against Neuberger J's decision in the University of Sussex case, concerning a long-delayed claim for previously unclaimed input tax. The central issues were direct effect, retrospective limitation, unjust enrichment, fiscal neutrality and the proper domestic classification of late input claims.

1. Marks & Spencer: vouchers. The appeal was allowed for the whole vouchers claim. Following the European Court of Justice's ruling at [2002] STC 1036, the first Becker condition was not confined to legislative non-transposition or mis-transposition. It was also satisfied where correctly transposed legislation was misapplied by the national authorities. The right under Article 11A(1) of the Sixth VAT Directive was directly enforceable, and included recovery of VAT wrongly collected. The immediate retrospective three-year limit in section 80(4) of the Value Added Tax Act 1994, introduced without adequate transitional arrangements, rendered that right ineffective and was incompatible with Community law.
2. Marks & Spencer: teacakes. The appeal was dismissed. Article 28.2(a) of the Sixth VAT Directive permitted, but did not require, the United Kingdom to maintain zero-rating during the transitional period. It left the matter to national discretion and was not unconditional and sufficiently precise. Article 12.1 did not independently establish a Community right to zero-rating. The domestic zero-rate was not a Community law rate for these purposes, so the teacake claim lacked direct effect.
3. Contingent unjust enrichment and fiscal neutrality. If a directly enforceable teacake right had existed, section 80(3) could still prevent double recovery where the trader had passed the tax burden to customers. A claim made five years after introduction of the defence would also have been outside any adequate transitional period. The court further considered that differential treatment of payment and repayment traders could infringe fiscal neutrality, although any defect would lie in failing to apply the defence to repayment traders rather than in applying it to payment traders.
4. University of Sussex. The Commissioners' appeal was dismissed. A late claim for previously unclaimed input tax was governed by regulation 29(1) of the Value Added Tax Regulations 1995, not section 80. VAT due for an accounting period was the output tax declared less the input tax claimed in that return. Failure to claim allowable input tax did not make the VAT paid for that period an overpayment. The discretion over late claims was narrow and had to be exercised reasonably with regard to administration and fairness.
5. Alternative issues. If the University claim had fallen under section 80, Articles 17 to 20 of the Sixth VAT Directive would have supplied accrued and directly enforceable rights, making the retrospective three-year limit unlawful without transitional arrangements. The previous six-year regime would nevertheless remain applicable; there was no statutory vacuum. The state-aid argument could not support repayment of tax, since the appropriate remedy would be removal or recovery of the alleged aid.

The formal orders allowed Marks & Spencer's appeal as to vouchers and dismissed it as to teacakes. The Commissioners' appeal in the University of Sussex case was dismissed.

• Court of Appeal (Civil Division): In the present resumed hearing, Marks & Spencer's appeal was allowed as to the entire vouchers claim and dismissed as to teacakes. The Commissioners' appeal in the University of Sussex case was dismissed.
• European Court of Justice: On the first Court of Appeal's reference, reported at [2002] STC 1036, the court held that correct transposition did not prevent reliance on a directive where national measures were misapplied, and that an immediate retrospective limitation without adequate transitional arrangements was incompatible with Community law.
• Court of Appeal (Civil Division): The first judgment, reported at [2000] STC 16, dismissed the later-voucher and teacake claims and referred the retrospective limitation issue.
• Queen's Bench Division: Moses J dismissed Marks & Spencer's appeals from the VAT Tribunal decisions, reported at [1999] STC 205.
• Chancery Division: Neuberger J allowed the University of Sussex's appeal against the VAT and Duties Tribunal. The judgment date was 10 October 2001; no report citation is stated in this judgment.