The issue was whether the commissioners were entitled to refuse a claim by the appellant for repayment of VAT paid since 1973 which, it was agreed, was not payable.

The appellant, a wholly-owned subsidiary of General Motors Corp, was engaged in the sale of vehicles on hire purchase. In February 2004, the High Court delivered its judgment in favour of the appellant in relation to the VAT treatment to be applied when hire purchase agreements were terminated prematurely (C & E Commrs v General Motors Acceptance Corp (UK) plc [2004] BVC 611). On the basis of the court's findings, the appellant submitted a claim for overpaid VAT on sales made between April 1973 and December 1996 in the sum of £31,638,301. The commissioners rejected the claim on the ground that it was barred by the three-year time-limit under VATA 1994, s. 80(4). During the hearing, the commissioners contended that if, contrary to their submissions, the three-year time-limit fell to be disapplied, then the six year limit introduced by the Finance Act 1989 applied.

However, the commissioners later conceded this point with the result that if the appellant were to succeed in its contention that the absence of a transitional period under the Finance Act 1997 stopped the commissioners from relying on the three-year time, limit, then the six-year time-limit would not bar the claim because s. 80(5) of the 1994 Act, as it stood before the Finance Act 1997, was satisfied. A separate issue arose in respect of tax paid before 1 January 1978 in that the commissioners submitted that art. 8A of the second directive, applicable before the sixth directive took effect, did not have direct effect so that he appellant could not rely on any Community law right to repayment in respect of pre-1978 tax payments and s. 80(4) of the 1994 Act applied. The appellant's principal contention was that it was entitled to adjust its tax under reg. 38 of the Value Added Tax Regulations 1995 (SI 1995/2518) and that reg. 38 adjustments were not covered by s. 80, so that the time-limit under s. 80(4) could not apply.

The appellant submitted that it was entitled under reg. 38 to adjust its tax to take account of the decrease in consideration for its supplies under hire purchase agreements going back to the introduction of VAT in the UK in 1973. VAT was due on the full amount of the selling price under what is now reg. 88 of the Value Added Tax Regulations 1995, so that s. 80(1) of the 1994 Act did not apply; the events giving rise to the adjustments occurring subsequently. The appellant added that, although reg. 38 did not specify how it would obtain the money, the regulation should be interpreted to fully implement art. 11(C)(1) of the sixth directive. Regulation 38(6) provided for adjustments to the VAT account for earlier periods, but although there was a duty to adjust the VAT account once the business accounts had been altered, failure to comply with reg. 38(2)-(6) did not mean that a taxpayer lost its right to adjust; there was no time-limit for a reg. 38 adjustment. According to the appellant, the question of whether an amendment had been made to the VAT account did not affect the underlying rights under art. 11(C)(1).

The appellant referred to the commissioners’ argument that the failure to operate reg. 38 when the decreases in consideration were effected in the business accounts resulted in VAT being overpaid, thereby bringing s. 80 into play. In the appellant's view, this was only relevant to the period from 1 January 1990 when the Value Added Tax (Accounting and Records) Regulations 1989 took effect. Before then, there was no specific implementation by the UK of art. 11(C)(1) and the appellant had an over-arching right under Community law to be taxed only on the price paid by the customer. Article 8(a) of the second directive also gave directly effective rights and there was no difference in fundamental meaning between that article and art. 11(A)(1)(a) of the sixth directive. All that happened on 1 January 1990, argued the appellant, was that procedural requirements were introduced for amending the VAT account. The appellant was, therefore, able to access its directly effective rights without making a claim under s. 80 of the 1994 Act.

The vested right accruing under art. 11(C)(1) could not be retrospectively abolished by the time-limit in s. 80. The commissioners applied to the tribunal for matters to be referred to the European Court of Justice in relation to Community law rights under the second directive in respect of the period before 1 January 1978 and the effect in Community law of the failure to prescribe a transitional period when shortening the time-limit for repayment claims to three years. However, the tribunal considered that it was not necessary to make a reference at this stage of the litigation.

The commissioners submitted that the reduction in the taxable amount occurs at the time when the price is reduced and since the appellant did not make an adjustment at that time, it overpaid VAT for the periods when the adjustments should have been made, with the result that s. 80 applied. In order to succeed, it was necessary for the appellant to identify a directly effective right to the repayments claimed. From 1 January 1998, art. 11(C)(1) of the sixth directive generated that right, but the previously effective art. 8 of the second directive did not. Further, a directly effective right only arose under art. 11(C)(1) if the appellant was able to show some action on the part of the UK which prevented it from reducing the taxable amount at the time when the price was reduced. The evidence for the appellant was that adjustments had not been made because there was no financial incentive, not because the UK had stopped the adjustments. In the commissioners’ opinion, the appellant's only claim was under s. 80. Since there was no breach by the UK of the appellant's Community law rights, the question of compatibility of the absence of transitional relief did not arise. The appellant responded that a directly effective right under EU law could be exercised whether or not there had been an error by the member state. Its rights under art. 8 of the second directive and art. 11 of the sixth directive became vested at various times and those rights were sufficient to enable it to acquire a right to a transitional period when the time-limit was shortened.

The commissioners submitted that if they were wrong and the appellant did have directly effective rights under Community law because of some wrong by the UK, it would be necessary to consider the effects of Marks & Spencer plc v C & E Commrs (Case C-62/00) [2002] BVC 622 and Grundig Italiana SpA v Ministero delle Finanze (Case C-255/00) [2002] ECR I-8003. In the former case, the court focused on the obligation of member states to achieve the result intended by the directive by all appropriate measures. Here, the commissioners had issued a Business Brief to address the requirement for transitional relief. In the latter case, the court said that where a time-limit is shortened, there must be a transitional period of at least six months. If the administrative remedy fell short of a claimant's legal entitlement he could go to the court with jurisdiction over the claim in s. 80 cases, this being the tribunal. In Grundig Italiana SpA, it was clearly stated that a directly enforceable right did not give complete immunity from a shortened time-limit. The court said that a new time-limit could be applied after the expiry of an adequate transitional period, assessed there at six months. In the commissioners’ view, the appellant's claim was brought after what would have been an adequate transitional period from December 1996 and was out of time.

The tribunal held, that:

1. Regulation 38 was mandatory and required adjustment to the VAT account in the period when the business accounts reflected the change. Failure by the appellant to make timeous adjustments resulted in overpayments and s. 80, therefore, applied to the appellant's claims.
2. The failure of the UK to implement the mandatory requirement in art. 11(C)(1) before 1990 had the effect that the appellant could rely on the direct effect of that article from 1 January 1978 when the sixth directive took effect. Consequently, the appellant did not overpay VAT as a result of not making adjustments before 1990 and s. 80 did not apply.
3. The appellant had no claim before 1 January 1978 because the relevant provisions of the second directive did not have effect.
4. In order to rely on the direct effect of the sixth directive it was not necessary to show that the UK stopped the appellant from exercising its rights.
5. The provisions of s. 80(4) fell to be disapplied in respect of the appellant's claim from 1 January 1978.
6. The decisions of the tribunal established certain principles but did not decide the appeal because they did not determine the amount of VAT repayable.

No. 19,989