Marks & Spencer plc v Commissioners of Customs & Excise.

• Jurisdiction: European Union
• Celex Number: 62006CC0309
• ECLI: ECLI:EU:C:2007:785
• Docket Number: C-309/06
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Date: 13 December 2007

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 13 December 2007 (1)

Case C‑309/06

Marks & Spencer plc

v

Her Majesty’s Commissioners of Customs and Excise

(Reference for a preliminary ruling from the House of Lords (United Kingdom))

(Value added tax – Derogation under Article 28 of Directive 77/388 – Principle of neutrality – Principle of equal treatment – Right to obtain a refund of the tax in the event of incorrect interpretation of domestic provisions by the tax authorities – Unjust enrichment)

I – Introduction

1. Under Article 28(2) of the Sixth VAT Directive (2) (‘the Sixth Directive’), the Member States may, subject to certain conditions, maintain in force derogations as a transitional measure. In compliance with that provision, the United Kingdom applies, in respect of the supply of food, a zero-rating for VAT in conjunction with the right to deduct input tax.

2. However, that derogation does not apply to specific items of confectionery. The tax authorities originally placed Marks & Spencer’s teacakes in that category and charged tax on them at the standard rate. Changing their view in 1994, they started to define teacakes as food subject to favourable tax treatment. Marks & Spencer subsequently made a claim for refund of the tax.

3. The distinctive aspect of the present case is that the applicable tax provision is a domestic provision that derogates from the general provisions of the Sixth Directive but may none the less be maintained in force as an exception. The House of Lords therefore seeks to ascertain the extent to which the principles of the common system of value added tax apply in this context and, where appropriate, whether the domestic rules on refunds, in particular the objection of unjust enrichment provided for in those rules in specific circumstances, meet the requirements of Community law.

II – Relevant legislation

A – Community law

4. Article 12 of the Sixth Directive lays down rules on the applicable rate. Article 12(1) accordingly provides that ‘[t]he rate applicable to taxable transactions shall be that in force at the time of the chargeable event’. The standard rate of value added tax is provided for under Article 12(3) thereof; (3) reduced rates may be fixed for certain supplies of goods and services. (4)

5. Under Article 28(2) of the Sixth Directive, Member States may derogate from those rules as a transitional measure; the provision originally read:

‘Reduced rates and exemptions with refund of the tax paid at the preceding stage which are in force on 31 December 1975, and which satisfy the conditions stated in the last indent of Article 17 of the second Council Directive of 11 April 1967, may be maintained until a date which shall be fixed by the Council, acting unanimously on a proposal from the Commission, but which shall not be later than that on which the charging of tax on imports and the remission of tax on exports in trade between the Member States are abolished. Member States shall adopt the measures necessary to ensure that taxable persons declare the data required to determine own resources relating to these operations.

On the basis of a report from the Commission, the Council shall review the abovementioned reduced rates and exemptions every five years and, acting unanimously on a proposal from the Commission, shall, where appropriate, adopt the measures required to ensure the progressive abolition thereof.’

6. Following its replacement by Directive 92/77/EEC, (5) Article 28(2) provides:

‘Notwithstanding Article 12(3), the following provisions shall apply during the transitional period referred to in Article 28l. [(6)]

(a) Exemptions with refund of the tax paid at the preceding stage and reduced rates lower than the minimum rate laid down in Article 12(3) in respect of the reduced rates, which were in force on 1 January 1991 and which are in accordance with Community law, and satisfy the conditions stated in the last indent of Article 17 of the second Council Directive of 11 April 1967, [(7)] may be maintained.

...’

B – Domestic legislation

7. In general, the supply of food is zero-rated for value added tax (‘VAT’) in the United Kingdom (section 30 and Schedule 8, Part II, Group 1, Item No 1, of the Value Added Tax Act 1994). Confectionery is an exception to such favourable tax treatment and is taxed at the full rate. There is an exception to that exception for cakes and biscuits, which are subject to the zero rate of tax applying to food. Biscuits wholly or partly covered with chocolate, however, are regarded as confectionery and taxed accordingly at the full rate.

8. Section 80 of the Value Added Tax Act 1994 provides for a right, in specific circumstances, to recover overpaid VAT:

‘(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.

…

(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.’

9. In the period material to the dispute in the main proceedings, the above rules applied to net payers only, that is to say, to taxable persons who, in a given tax period, owe the tax authorities a greater amount of output tax than they are able to offset by way of input tax deduction. Repayment traders, by contrast, are entitled to a tax refund because their deductible input tax in a given tax period exceeds their output tax. A rule comparable to that laid down in section 80(3) did not exist for repayment traders. (8)

III – Facts, procedure and questions referred for a preliminary ruling

10. Since 1973, the Commissioners of Customs and Excise had charged VAT on the teacakes sold by Marks & Spencer plc at the standard rate as they treated them as chocolate-covered biscuits. In September 1994, however, the Commissioners acknowledged that the teacakes ought to have been classified as cakes and, as such, zero-rated for tax purposes. Marks & Spencer made a claim in that respect for repayment of the full amount of VAT, namely GBP 3.5 million, for which it had wrongly accounted over the years.

11. On the basis of section 80(3) of the Value Added Tax Act, the Commissioners submitted as a defence that Marks & Spencer had passed on 90% of the VAT to its customers. The VAT and Duties Tribunal upheld that defence and ruled that Marks & Spencer was entitled to recover only 10% of the sum claimed. It also applied a limitation provision that had been introduced with retroactive effect.

12. Marks & Spencer pursued the dispute further to the Court of Appeal. In addition to the tax refund for the teacakes, the proceedings before that court also concerned a further claim for a refund in connection with the tax treatment of gift vouchers. The Court of Appeal made a reference to the Court of Justice for a preliminary ruling on the question of whether the limitation provisions were compatible with Community law. As far as the Court of Appeal was concerned, only the treatment of the gift vouchers was still in question in those proceedings. As regards the teacakes, the Court of Appeal evidently assumed that no requirements could be derived from Community law in the absence of harmonisation of the tax rate in the Sixth Directive.

13. In its judgment of 11 July 2002 (‘Marks & Spencer I judgment’), (9) the Court, responding to the questions referred, did not concern itself with the tax refund for the teacakes. In his Opinion in that case, Advocate General Geelhoed none the less remarked incidentally on the teacakes and expressed the view that the non-reimbursement of VAT was a manifest breach of Community law. (10) That view notwithstanding, the Court of Appeal dismissed the action in relation to the VAT on the teacakes.

14. The House of Lords, as the court of law currently seised of the dispute, felt compelled, in the light of the Commission’s observations and the Opinion of Advocate General Geelhoed in Marks & Spencer I , to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Where, under Article 28(2)(a) of the Sixth VAT Directive (both before and after its amendment in 1992 by Directive 92/77), a Member State has maintained in its domestic VAT legislation an exemption with refund of input tax in respect of certain specified supplies, does a trader making such supplies have a directly enforceable Community law right to be taxed at a zero rate?

(2) If the answer to Question 1 is in the negative, where, under Article 28(2)(a) of the Sixth VAT Directive (both before and after its amendment in 1992 by Directive 92/77), a Member State has maintained in its domestic VAT legislation an exemption with refund of input tax in respect of certain specified supplies but has mistakenly interpreted its domestic legislation with the consequence that certain supplies benefiting from exemption with refund of input tax under its domestic legislation have been subject to tax at the standard rate, do the general principles of Community law, including fiscal neutrality, apply so as to give a trader who made such supplies a right to recover the sums mistakenly charged in respect of them?

(3) If the answer to Question 1 or Question 2 is in the affirmative, do the Community law principles of equal treatment and fiscal neutrality in principle apply with the result that they would be infringed if the trader in question is not repaid the entire amount mistakenly charged on the supplies made by him in circumstances where:

(i) the trader would be unjustly enriched by repayment to him of the entire amount;

(ii) domestic legislation provides that overpaid tax cannot be repaid to the extent that repayment would lead to unjust enrichment of the trader; but

(iii) domestic legislation makes no provision similar to that referred to in (ii) in the case of claims by “repayment traders”? (A...