Marks and Spencer plc v. Her Majesty's Commissioners of Customs and Excise

The House of Lords considered whether, under Article 28(2)(a) of the Sixth VAT Directive (both before and after amendment by Directive 92/77), a Member State’s maintenance of a domestic exemption with refund of input tax confers on traders a directly enforceable Community law right to be taxed at the zero rate. The Committee also asked whether, where a Member State has mistakenly taxed supplies that domestically qualified for exemption with refund, Community law principles such as fiscal neutrality and equal treatment give a trader a right to recover sums mistakenly charged. The House formulated and referred a set of questions to the Court of Justice under Article 234 of the Treaty establishing the European Community to resolve these issues and adjourned further consideration of the appeal sine die.

The appellants sought clarity on the interaction between domestic VAT rules providing exemption with refund of input tax and the Sixth VAT Directive, specifically Article 28(2)(a), as amended by Directive 92/77. The matter reached the Appellate Committee of the House of Lords on appeal. The Committee considered whether Community law grants a directly enforceable right to zero-rate taxation where a Member State has retained exemption with refund in domestic law, and whether Community law principles (including fiscal neutrality and equal treatment) permit recovery where domestic law has mistakenly imposed VAT on supplies that ought to have benefited from exemption with refund.

The House identified the legal issues requiring preliminary ruling by the Court of Justice and posed questions covering: (i) the existence of a directly enforceable right to zero-rating; (ii) the applicability of general Community law principles to enable recovery of sums wrongly charged; (iii) whether equal treatment and fiscal neutrality require repayment even where repayment would produce unjust enrichment and domestic law restricts repayment for overpaid tax; (iv) whether evidence of financial disadvantage affects the analysis; and (v) what remedies Community law requires or permits in circumstances where repayment would lead to unjust enrichment.

The Committee concluded these questions were necessary to enable the House to determine the appeal and therefore referred them to the Court of Justice under Article 234 of the Treaty. Further consideration of the appeal was adjourned sine die pending the preliminary ruling.

The House of Lords ordered that questions necessary for determining the appeal be referred to the Court of Justice of the European Communities under Article 234 of the Treaty establishing the European Community. The Committee recorded the specific questions concerning Article 28(2)(a) of the Sixth VAT Directive, fiscal neutrality, equal treatment and remedies where repayment may cause unjust enrichment, and adjourned further consideration of the appeal sine die to await the Court of Justice’s ruling.

Earlier Report of the Committee on 28 July 2005 referred the issues for a preliminary ruling and adjourned further consideration (see [2005] UKHL 53). The present order of 12 July 2006 formulated specific questions to be referred to the Court of Justice under Article 234 and again adjourned the appeal pending that ruling.