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Therefore
the legislation had to be disapplied in respect of those
who had accrued rights when the retrospective time limit
was introduced. It was for the legislature and not the
court to introduce an adequate transitional period.
The
House of Lords so held when dismissing: (i) an appeal by
the Commissioners of Revenue and Customs in respect of the
taxpayer, Michael Fleming, trading as Bodycraft, and (ii)
the commissioners’ appeal in respect of the taxpayer,
Conde Nast Publications Ltd.
Lord
Walker dissented in part on the second point.
In
the first case, the commissioners appealed from the Court
of Appeal (Lord Justice Ward, Lady Justice Arden and Lady
Justice Hallett) ( The Times March 1 2006; [2006] STC 864)
which allowed an appeal by Michael Fleming, trading as
Bodycraft, from Mr Justice Evans-Lombe ([2005] STC 707)
who upheld on different grounds the dismissal by a VAT and
Duties Tribunal (Mr John F. Avery Jones, chairman) on
April 23, 2004 of the taxpayer’s appeal from the
commissioners’ refusal of a claim for repayment of input
tax paid on three new Aston Martin cars purchased in 1989
and 1990.
In
the second case, the commissioners appealed from the Court
of Appeal (Lord Justice Chadwick, Lady Justice Arden and
Lady Justice Smith) ( The Times July 28, 2006; [2006] STC
1721) which allowed an appeal by Conde Nast Publications
Ltd from Mr Justice Warren ([2005] STC 1327) who upheld
the dismissal by a VAT and Duties Tribunal (Dr David
Williams, chairman) of the taxpayer’s appeal from the
commissioners’ refusal to pay part of the sums claimed
by the taxpayer in a voluntary disclosure claim dated June
27, 2003 in respect of input tax overpaid between 1973 and
1997.
Mr
Christopher Vajda, QC, Miss Alison Foster, QC and Mr Adam
Robb for the commissioners; Mr David Southern and Mr Denis
Edwards for Bodycraft. Mr Christopher Vajda, QC and Miss
Valentina Sloane for the commissioners; Mr Jonathan
Peacock, QC and Mr Jolyon Maugham for Conde Nast.
LORD
HOPE said that an amendment to section 80(4) of the Value
Added Tax Act 1994 was enacted by section 47 of the
Finance Act 1997 with effect from July 18, 1996. It
reduced the six-year time limit for the recovery of
overpaid tax to three years.
No
provision was made for a transitional period during which
a claim could be made in cases where a right of recovery
of overpaid tax already existed.
A
new regulation 29(1A) was inserted into regulation 29 of
the Value Added Tax Regulations (SI 1995 No 2518) by
regulation 4 of the Value Added Tax (Amendment)
Regulations (SI 1997 No 1086) with effect from May 1,
1997.
Following
decisions of the European Court of Justice in Marks and
Spencer plc v Commissioners of Customs and Excise (Case
C-62/00) ( The Times July 20, 2002; [2003] QB 866; [2002]
ECR I-6325) and Grundig Italiana SpA v Ministerio delle
Finanze (Case C-255/00) ([2002] ECR I-8033) steps were
taken by the commissioners, by means of announcements
contained in business briefs, to introduce a transitional
period for the making of claims for the recovery of
overpaid tax.
It
was common ground in the two appeals that the time limit
in regulation 29(1A) was incompatible with EU law because
it was retrospective and because it made no provision for
any transitional arrangements. Legislation that was
incompatible with EU law had to be disapplied.
But
could the court go further and make good the defect which
had led to its disapplication? Where national legislation
was defective because it lacked the transitional
arrangement that were necessary under EU law, was it for
the national court to make good the deficiency by devising
such transitional arrangements as it might regard as
appropriate? Or was that to be left to the legislature or,
by means of announcements in business briefs, to the
commissioners?
Two
situations could be distinguished, although there was no
difference in principle between them.
One
was where transitional arrangements had been included in a
measure that reduced a preexisting time limit for the
making of claims but those arrangements were found to be
inadequate because the period allowed was too short.
The
other, which was the present case, was where there was
originally no time limit for the making of claims at all
and no transitional arrangements had been included in the
measure that introduced one.
In
both cases the retrospective time limit was unenforceable
as there was no adequate transitional period. But there
was a difference in degree between them which affected the
ability of the court to make good the defect.
The
decision in Grundig dealt with the first situation. It
said that the fact that the national court had found that
a transitional period fixed by the legislature was
insufficient did not necessarily mean that the reduced
period for initiating claims could not be applied at all.
The
national court could not apply the inadequate transitional
period to claims made with regard to rights accrued before
the entry into force of the legislation which introduced
the time limit.
But
it was open to the court to make its own assessment of
what, in accordance with EU law, was an adequate
transitional period during which the new time limit was
not to apply retrospectively. The making of a relatively
modest adjustment to the prescribed period was not
inconsistent with the principle of effectiveness.
The
other situation was that which applied in the instant two
appeals. There too the guiding principle was
effectiveness. Account had also to be taken of protection
of legitimate expectations.
The
principle of legitimate expectations was infringed by the
retrospective introduction of a time limit for the making
of claims retrospectively.
But
that would not be in breach of EU law so long as
transitional arrangements were included which allowed an
adequate period for the lodging of claims which persons
were entitled to submit under the original legislation.
Sufficient
notice of those transitional arrangements had to be given
to ensure that the exercise of those accrued rights was
not rendered virtually impossible or excessively
difficult. Unless that was done, there would be a breach
of the principle of effectiveness.
His
Lordship would not rule out the possibility in a suitable
case of the court reaching its own decision as to what
would be a reasonable time for the making of claims and
rejecting claims that were made after a period which it
held to be reasonable.
But
the situation disclosed by the instant appeals did not
lend itself to that treatment. That was a step too far for
the court to take.
The
issue was not one of statutory interpretation for which
the court had to accept responsibility. There was a gap in
the legislation which was unfilled.
The
infringement of EU law in that respect could not be said
to have been comparatively minor or inadvertent, such as
would enable greater weight to be attached to the
state’s need for legal certainty in matters of taxation.
The
primary responsibility for giving a clear indication to
taxpayers as to where they stood with regard to the making
of claims despite the retrospective introduction of the
time limit lay with the legislature and the executive.
To
be compatible with EU law, taxpayers were entitled to be
told in advance of any transitional arrangements that
would enable them to submit late accrued claims for the
deduction of input tax despite the introduction of the
time limit.
They
were entitled to be given sufficient notice to familiarise
themselves with the new regime, including the period of
grace that was to be allowed for the submission of accrued
claims during a transitional period. That was necessary to
give effect to the principle of effectiveness.
Not
all taxpayers affected by a system whose reach was as wide
as VAT could be assumed to have been aware of the
development of the relevant case law, or even if they were
aware of the case law, to have understood the effect of
it.
Some
might have appreciated that they could claim a period of
disapplication, but some might not. The gap in the
legislation could not be made good on a case-by-case
basis. The nature of the defect was such that a single
solution was required that could reasonably be applied to
all taxpayers.
It
was for Parliament or the commissioners, if they chose to
do so by means of an announcement disseminated to all
taxpayers, to introduce prospectively an adequate
transitional period.
Until
that was done, the three-year time limit had to be
disapplied in the case of all claims for the deduction of
input tax that had accrued before the introduction of the
time limit.
Lord
Scott, Lord Carswell and Lord Neuberger delivered speeches
agreeing with Lord Hope. LORD WALKER, dissenting in part,
said that a transitional period should be substituted by
the court and that period should be six months from the
date on which an average taxpayer would or should have
been aware that EU law required a reasonable transitional
period. That date should be January 11, 2003, which was
six months from the date of the judgment in the Marks and
Spencer case.
Solicitors:
Solicitor, Revenue and Customs; Hepburns. Solicitor,
Revenue and Customs; Forbes Hall.
Source
: Times Online - UK, dated 25/01/2008
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