DFS Furniture Company Plc v Customs & Excise

This is an appeal by the taxpayer, DFS Furniture Company plc (“DFS”), against an order made by the Vice-Chancellor on 16 April 2003 allowing the appeal of the Commissioners of Customs and Excise (“the Commissioners”) from a Decision dated 26 September 2002 of the Value Added Tax and Duties Tribunal (Mr Colin Bishopp), sitting at the Manchester Tribunal Centre. By its Decision, the Tribunal allowed appeals by DFS against two assessments in respect of value added tax (“VAT”).

The first assessment, which is dated 24 September 2001, is for a sum of £13,109,990. It is made under section 80(4A) of the Value Added Tax Act 1994 (“the 1994 Act”), and it relates to sums totalling £13,109,990 repaid to DFS in August and September 1996 in response to two voluntary disclosures by DFS: one in respect of the period from 1 April 1993 to 31 March 1996 (whereby DFS claimed repayment of £11,844,266), and the other in respect of the period from 1 April 1996 to 30 June 1996 (whereby DFS claimed repayment of £1,265,725). The assessment is made on the footing that the Commissioners were not liable to make the repayments.

The second assessment, which is dated 7 December 2001, is made under section 78A of the 1994 Act. It seeks the recovery of a sum of £1,513,800 paid by the Commissioners to DFS in January 1997 in respect of interest, pursuant to section 78(1) of the 1994 Act.

DFS contends (among other things) that the assessments were made out of time and are consequently unenforceable. This is denied by the Commissioners. The issue whether the assessments are out of time (“the limitation issue”) was heard by the Tribunal as a preliminary issue. The Tribunal determined the limitation issue in favour of DFS. The Vice-Chancellor allowed the Commissioners’ appeal.

The limitation issue turns on the true construction of section 78A(2) of the 1994 Act, which was inserted in the 1994 Act by section 45(1) of the Finance Act 1997 (“the 1997 Act”). Section 78A(2) prescribes a limitation period for the making of assessments under sections 78A(1) or 80(4A). It provides that such assessments shall not be made:

“…. more than two years after the time when evidence of facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to the knowledge of the Commissioners.”

DFS contends that all the relevant facts were known to the Commissioners more than two years before the assessments in issue were made, and that the assessments are accordingly out of time.

The Commissioners, on the other hand, contend that the two-year period prescribed by section 78A(2) did not start to run until (at the earliest) 15 May 2001, when the European Court of Justice delivered judgment in Commissioners of Customs and Excise v. Primback Ltd [2001] STC ECJ 803. By its judgment, the European Court of Justice addressed questions which had been referred to it by the House of Lords under (as it then was) Article 177 of the EC Treaty in the course of domestic litigation between the Commissioners and Primback Ltd (“the Primback litigation”). The underlying transactions which were the subject of the Primback litigation were, for all material purposes, indistinguishable from the underlying transactions entered into by DFS in the instant case, and, with the exception of the limitation issue, they gave rise to the same issues as to taxpayer’s liability for VAT.

In its judgment in Primback, the European Court of Justice concluded that the Court of Appeal’s decision in the Primback litigation (on the basis of which the Commissioners had made the payments to DFS which they now seek to recover) was wrong. That led to the House of Lords, on 11 October 2001, allowing the Commissioners’ appeal in the Primback litigation without hearing further argument. In practical terms, the judgment of the European Court of Justice in Primback confirmed what the Commissioners had throughout understood to be the correct interpretation of the law.

The Commissioners contend that the judgment of the European Court of Justice in Primback, when it came to their knowledge, constituted ‘evidence of facts’ within the meaning of section 78A(2), with the consequence that the two-year period prescribed by that subsection did not begin to run until then. Hence, they contend, the assessments were not out of time.

By its Decision, the Tribunal concluded that the effect of the judgment of the European Court of Justice in Primback was a matter of law, not of fact; and that it accordingly did not constitute ‘evidence of facts’ for the purposes of section 78A(2). The Tribunal further concluded that the latest date by which the Commissioners were in possession of all the relevant facts for the purposes of section 78A(2) was January 1997. It accordingly concluded that the assessments were out of time. The Commissioners appealed.

In his judgment allowing the Commissioners’ appeal (which is reported at [2003] STC Ch D 739), the Vice-Chancellor concluded that, construing section 78A(2) in its legislative context, the effect of the judgment of the European Court of Justice, when it came to the knowledge of the Commissioners, was ‘evidence of facts’ within the meaning of the subsection.

DFS now appeals to this court. Permission for a second appeal was granted by Chadwick LJ on the papers on 28 May 2003.

The Vice-Chancellor summarised the factual background in paragraphs 2 to 6 of his judgment, as follows:

“2.

The relevant circumstances may be shortly stated. DFS is a retailer of furniture and registered for the purposes of VAT. In the accounting periods falling between 1st April 1993 and 31st March 1996 it supplied furniture to its customers on interest free credit terms. The transaction by which such a sale was carried out involved the supply of the furniture by DFS to the customer on terms which required the customer to pay the price by instalments to the finance company introduced by DFS. The amount paid by the finance company to DFS in due course was less than the price paid by the customer to the finance company. In its accounts for those accounting periods DFS accounted for VAT on the price paid by the customer, not the lower amount it received from the finance company.

3.

The question whether the supplier should account for VAT on the price paid by the customer or on the lower sum received from the finance company arose in proceedings between the Commissioners and Primback. The Commissioners established that Primback should account for VAT on the price paid by the customer, not the lower sum received from the finance company both before the VAT Tribunal and, on appeal, before May J. But on 25th April 1996 Primback’s appeal succeeded by a majority in the Court of Appeal. The Court of Appeal gave permission to the Commissioners to appeal to the House of Lords.

4.

On 26th July and 20th August 1996 DFS, at the invitation of the Commissioners, made voluntary disclosures of excess payments of VAT on the difference between the price paid by the customer and the lower sums received by DFS from the finance company. VAT on that difference came to £13.1m and DFS sought its repayment with interest of £1.5m. These sums were paid by the Commissioners to DFS by three payments made between 30th August 1996 and 6th January 1997.

5.

On 1st February 1999 the House of Lords referred three questions to the European Court of Justice for preliminary rulings in relation to the appeal of the Commissioners from the decision of the Court of Appeal in favour of Primback. Both the Advocate-General in his opinion delivered on 28th November 2000 and the European Court of Justice in its judgment given on 15th May 2001 held, in effect, that the Court of Appeal had arrived at the wrong conclusion. Effect to those preliminary rulings was given by the order of the House of Lords made on 11th October 2001 whereby, without further argument, the order of the Court of Appeal was set aside and that of May J upholding the assessment restored.

6.

Meanwhile, on 24th September 2001 the Commissioners issued a recovery assessment on DFS under s.80(4A) in the sum of £13.1m. On 7th December 2001 Customs raised a further assessment under s.78A(1) in respect of the payment of interest in the sum of £1.5m. DFS appealed against both assessments. Following a two-day hearing in Manchester on 11th and 12th June 2002 the decision of the VAT and Duties Tribunal was given on 26th September 2002. The Tribunal concluded (para 91) that the critical feature, which prompted the assessments, was the decision of the European Court of Justice given on 15th May 2001 but that, though the existence of the judgment was a fact, its contents were matters of law (para 101). Accordingly, though the judgment of the European Court of Justice was given within the two-year period permitted by s.78A(2) it was neither a fact nor evidence of a fact for the purposes of that sub-section. As all other relevant matters, primarily the repayments made between 30th August 1996 and 6th January 1997, had occurred more than two years before the assessments raised on 24th September and 7th December 2001 the latter were outside the period permitted by s.78A(2).”

As we shall show in due course, the decision of the Vice-Chancellor involved consideration of the legislative purpose of a number of amendments made in haste to the 1994 Act by the 1997 Act. In the next section of this judgment we propose first to set out the relevant legislation as it was prior to those amendments, then to explain the events which precipitated the need for the amendments and then to identify the amendments which were made in an attempt to deal with those events.

As enacted, the 1994 Act provided as follows (so far as material):

“73 Failure to make returns etc.

(1)

….

(2)

In any case where, for any prescribed accounting period, there has been paid or credited to any person –

(a)

as being a repayment or refund of VAT, or

(b)

….

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.

….

(6)

An assessment under subsections (2) …. of an amount of VAT due for any prescribed accounting period must be made within the time limits prescribed by section 77 and shall not be made after the later of the following –

(a)

2 years after the end of the prescribed accounting period; or

(b)

one year after evidence of facts, sufficient in the opinion of the Commissioners to justify making the assessment, comes to their knowledge,

….

75 Assessments in cases of acquisitions of certain goods by non-taxable persons

(1)

….

(2)

An assessment under this section must be made within the time limits provided for in section 77 and shall not be made after whichever is the later of the following –

(a)

….

(b)

one year after evidence of the facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge.

….

77 Assessments: time limits and supplementary assessments

(1)

Subject to the following provisions of this section, an assessment under section 73 …. shall not be made –

(a)

more than six years after the end of the prescribed accounting period ….

(2)

….

….

78 Interest in certain cases of official error

(1)

Where, due to an error on the part of the Commissioners, a person has –

(a)

accounted to them for an amount by way of output tax which was not output tax due from him and which they are in consequence liable to repay to him, or

…….

then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period

….

80 Recovery of 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.

(2)

The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.

….

(4)

No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) applies.

(5)

Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.

….”

On 18 July 1996 Her Majesty’s Paymaster-General announced in Parliament that, in view of the increasing amounts of revenue at risk as a result of retrospective claims for the refund of sums collected erroneously by way of tax, it was the Government’s intention to introduce with immediate effect (i.e. retrospectively) a three-year limitation period for such claims in place of the existing six-year period. The Paymaster-General further stated that the reason for making the proposed change in the law retrospective was to prevent it being deprived of its effect by the passage of time before the Parliamentary process could be concluded.

Immediately upon the making of that announcement, and in anticipation of the enactment of the proposed legislation, the Commissioners adopted a policy of ceasing to meet repayment claims which would become time-barred on the enactment of the legislation. However, in R. v. Customs and Excise Commissioners ex p Kay & Co Ltd and ors. [1996] STC 1500, Keene J held that the policy was unlawful. (Indeed, in due course, by its decision in Marks and Spencer plc v. Customs and Excise Commissioners [2002] STC ECJ 1036, the European Court of Justice ruled, in answer to a question submitted to it by the Court of Appeal, that the retrospective curtailment of the limitation period from six years to three years was incompatible with the principles of effectiveness and of protection of legitimate expectations. In effect, the European Court of Justice held that the retrospective element in the legislation could not be applied to claims based on directly effective Community law rights.

In the light of the decision in Kay, the judgment in which was delivered on 19 November 1996, the Commissioners reversed their previous policy and proceeded to meet repayment claims which would become time-barred under the proposed legislation. It is to be inferred that in the light of this change of policy it was considered necessary to ensure that the proposed legislation made provision for the Commissioners to claw back such payments once the legislation was enacted. It is also to be inferred from the fact that the legislation as enacted contained new limitation periods that the view was taken that the existing limitation periods prescribed by section 73(6) would or might not achieve this objective.

On 4 December 1996 the House of Commons voted in favour of the Government’s budget proposals, which included the proposal for retrospective legislation announced on 18 July 1996. These proposals were duly given legislative effect by the Finance Act 1997 (“the 1997 Act”), which was enacted on 19 March 1997. As will appear, the relevant provisions of the 1997 Act have a further retrospective element, in that they are deemed to have come into force on 4 December 1996.

Section 45(1) of the 1997 Act inserted a new section (section 78A) in the 1994 Act. Section 78A is in the following terms (so far as material):

“78A Assessment for interest overpayments

(1)

Where –

(a)

any amount has been paid to a person by way of interest under section 78, but

(b)

that person was not entitled to that amount under the section,

the Commissioners may, to the best of their judgment, assess the amount so paid to which that person was not entitled and notify him.

(2)

An assessment made under subsection (1) above shall not be made more than two years after the time when evidence of facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to the knowledge of the Commissioners.

….”

Section 45(4) of the 1997 Act provided as follows:

“(4)

Subsection (1) above shall be deemed to have come into force on 4^th December 1996 in relation to amounts paid by way of interest at any time on or after 18^th July 1996.”

Section 47(1) of the 1997 Act substituted a new subsection (4) for subsections (4) and (5) of section 80 of the 1994 Act, as follows:

“(4)

The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.”

Section 47(6) of the 1997 Act inserted three new subsections (subsections (4A), (4B) and (4C)) into section 80 of the 1994 Act. Those subsections are in the following terms (so far as material):

“(4A) Where –

(a)

any amount has been paid, at any time on or after 18^th July 1996, to any person by way of a repayment under this section, and

(b)

the amount paid exceeded the Commissioners’ repayment liability to that person at that time,

the Commissioners may, to the best of their judgement, assess the excess paid to that person and notify it to him.

(4B) For the purposes of subsection (4A) above the Commissioners’ repayment liability to a person at any time is –

(a)

in a case where any provision affecting the amount which they were liable to repay to that person at that time is subsequently deemed to have been in force at that time, the amount which the Commissioners are to be treated, in accordance with that provision, as having been liable at that time to repay to that person; and

(b)

in any other case, the amount which they were liable at that time to repay to that person.

(4C) Subsections (2) …. of section 78A apply in the case of an assessment under subsection (4A) above as they apply in the case of an assessment under section 78A(1).”

Section 47(9) of the 1997 Act provided as follows:

“(9)

Subsections (6) …. above shall be deemed to have come into force on 4^th December 1996.”

Lastly, for present purposes, section 18 of the Finance Act 1999 inserted a new subsection (subsection (2A)) in section 77 of the 1994 Act. The new subsection (2A) is in the following terms (so far as material):

“(2A) …. an assessment under section 76 of a penalty under section 65 or 66 may be made at any time before the expiry of the period of 2 years beginning with the time when facts sufficient in the opinion of the Commissioners to indicate, as the case may be –

(a)

that the statement in question contained a material inaccuracy, or

(b)

….”

The Tribunal addressed the limitation issue in paragraphs 100 to 110 of the Decision, as follows:

“100.

I turn, therefore, to consider whether the judgment is to be considered to be a fact, or a matter of law, no other possibility having been suggested. To my surprise, neither Mr Cordara nor Dr Lasok referred me to any authority on the matter, and as far as I have been able to ascertain the point is undecided.

101.

It seems to me to be an uncontroversial proposition that the content of the judgment – that is, the explanation of the law set out in it – is a matter of law or, at least, “evidence of the law”, as was said by Lord Hobhouse in the Brockhill Prison case. On the other hand, the date of its pronouncement, and its pronouncement itself, seem to me to be equally uncontroversially matters of fact. Mr Cordara’s case was that the Commissioners were not waiting for an explanation of the law: they already knew (or, at the least, thought they knew) what it was. Neither the law nor the facts changed because of the judgment and the Commissioners were still in precisely the position they had been in all along. Dr Lasok, of course, concentrated on the event – the pronouncement of the judgment - arguing that it was that event which, in the opinion of the Commissioners in the person of assessing officers such as Mr Gibson, justified the making of the assessment.

102.

The problem for the Commissioners appears to me to lie not in Mr Cordara’s hypothesis of a compromise of the Primback litigation before it reached the Court of Justice (that would have led only to unresolved questions) but in the much simpler question: what would have been the Commissioners’ position if the Court of Justice had decided against them? The answer is obvious: they would have been forced to accept that, as a matter of law, they were not entitled to recover the repayments made to the appellant. In my judgment that answer can lead only to the conclusion that what the Commissioners were waiting for, and the factor on which their decision to issue assessments against taxpayers such as this appellant was truly based, was the content of the judgment which, if I may repeat what Lord Hobhouse said, is “evidence of law”.

103.

I cannot accept Dr Lasok’s, if I may say so somewhat convoluted, argument that a judgment is a “fact which is evidence of the law.” One has only to put that phrase in the context of s 78A(2) to arrive at the phrase “evidence of facts which are evidence of the law.” If Parliament had intended that the coming to the Commissioners’ knowledge of evidence of the law was relevant to the running of time, it could easily have said so without resorting to gymnastics of this kind.

104.

It does not seem to me that the Commissioners can salvage their position by contending, true though I accept it to be, that they believed that the law was as it was ultimately found to be, that they have throughout conducted themselves upon the basis that their view would ultimately be vindicated, and that all they required to make the assessments was the delivery of the judgment. The event – the physical act of delivering the judgment – and incidental details such as the date on which that happened were irrelevant to the making of the assessments; what mattered was the content of the judgment, for the simple reason that if it was in their favour, the Commissioners could assess, and if it was against them, they could not.

105.

It was not suggested for the Commissioners that any other facts came to their knowledge between 1997 and the making of the assessments (save for the appellant’s failure to make a voluntary disclosure, which I have already determined to be irrelevant) and it follows therefore that the assessments were made outside the two year period prescribed by section 78A(2), provided, of course that the time limit applied in the circumstances of this case.

106.

Dr Lasok’s further argument was that, if the trigger for an assessment is not “evidence of facts” but something else, the time limit imposed by s 78A(2) is not engaged. As I understood it, his point was that if an assessment was based on facts alone, the time limit applied; but if it was dependent in whole or in part on other factors the condition which set time running – “evidence of facts sufficient … to justify the making of the assessment” coming to the Commissioners’ knowledge – was never satisfied, because the facts alone were not sufficient to justify the assessment; and correspondingly time never began to run if, as I have found, the judgment which triggered the assessments cannot be considered to be “evidence of facts.”

107.

Ingenious though that argument is, it does not seem to me to stand up to scrutiny. No assessment is ever based on fact alone; there is always a legal framework. One may take a simple example: it might be established that, as a matter of fact, a trader has sold goods for a particular consideration but he has not declared and paid tax to the Commissioners. But that is not enough to assess him; the Commissioners must show in addition that he was liable, as a matter of law, to declare and pay the tax – that he was liable to be registered (a mixed question of fact and law) and that his supplies were taxable, often a question of legal rather than factual debate.

108.

In my view s 78A(2) proceeds upon the basis that every assessment must be based on legal liability (using a mathematical analogy, a constant), but the facts of the case (the variables to which the constant is applied) have to be ascertained. The law is assumed always to have been known; therefore once the facts are ascertained, time begins to run. It could not even be said here, in an attempt to take the case out of that rule, that the law was not a constant. This is not a case of a legislative change in the law, nor one in which a court has concluded that a hitherto accepted interpretation of the law is incorrect. As Mr Cordara correctly put it, the law relevant to this case has not altered at all.

109.

I turn, last, to the principles of European law to which I have referred. These considerations were raised by Mr Cordara in support of the appellant’s position and not, I think, as primary arguments. Since I have determined the appeal in its favour on other grounds, they are now of only minor relevance; certainly the appellant cannot complain that there is any prejudice to it by reason of disproportionate remedy, or because its legitimate expectations have been infringed. Dr Lasok spent some time dealing with the Court’s jurisprudence on time limits but since I have not determined the appeal upon the basis that an open-ended, or non-existent, time limit offends any principle, I do not think I need say any more.

110.

I accept Dr Lasok’s point that the repayments were made for reasons of good management and fair dealing to taxpayers generally, and I recognise that the Commissioners had made their position clear throughout, that the appellant knew perfectly well that it had, at best, a doubtful right to retain the money and that the outcome of this appeal will result in its receiving, or retaining, an unwarranted windfall. Nevertheless, I am satisfied that Mr Cordara is right in saying that the Commissioners could and should have made assessments within the two years after the repayments were made, and that their failure to do so can lead to only one result.”

The Tribunal accordingly concluded that the effect of the judgment of the European Court of Justice in Primback was not ‘evidence of facts’ within the meaning of section 78A(2), and that the assessments were out of time.

After summarising the facts and the arguments, the Vice-Chancellor expressed his conclusions as follows (in paragraphs 23 to 28 of his judgment):

“23.

The proper construction of the time bar contained in s.78A(2) must be ascertained in the light of its context. The particular context is its application to claims made by the Commissioners under s.80(4A) for sums repaid in excess of the repayment liability of the Commissioners under s.80(1) at the time of repayment. Repayment liability is defined by s.80(4B) to include sums for which the Commissioners were not liable at the time of repayment because of legislation enacted thereafter. If such legislation, its contents and effect are not facts for the purposes of the time bar then in many, if not most, cases the effect of s.78A(2) would be to negate the evident purpose of s.80(4B)(a). It may be, but it is not necessary for me to decide, that the reference in s.80(4B)(a) to a ‘provision’ is wide enough to comprehend a subsequent decision of the court as to the true interpretation and application of a statute, directive or regulation. It is sufficient for present purposes to recognise that if, as I think, the reference in s.78A(2) to evidence of facts, when applied to s.80(4A), is wide enough to encompass retrospective legislation, its contents and effect then it would be capricious to adopt an interpretation which excluded a subsequent judgment and its contents and effect.

24.

In this connection it is necessary to have in mind that the time bar applied to claims under s.80(4A) is in the same terms as applied to claims under s.78A(1) and in similar terms to the time bars contained in ss.73(6)(b), 75(2)(b) and 77(2A). Moreover whilst ss.78A(2) and 77(2A) were introduced by the Finance Act 1997 ss.73(6)(b) and 75(2)(b) were contained in the VAT Act 1994 as originally enacted. In none of these other contexts is there any provision comparable to s.80(4B)(a). Nevertheless I see nothing in those contexts to suggest that an interpretation of the relevant time bars so as to include as facts the existence, contents and effect of either subsequent legislation or decisions of the European Court of Justice or superior courts in England would be inconsistent with the purpose of those provisions. Indeed in the case of the time bar contained in s.73(6)(b) it would further the purpose of the assessments authorised by s.73(2) that there should be such an inclusion.

25.

The context of s.80(4A) is relevant in another way. It was evidently intended to be all embracing and to introduce a statutory mechanism for the recovery of sums repaid by the Commissioners in excess of the amount for which they were legally liable, for whatever reason. If the time bar is interpreted in the manner for which DFS contends then it will not be comprehensive in its operation. It will not cover situations in which the Commissioners have a prima facie claim for restitution for sums paid under a mistake of law, as envisaged in Kleinwort Benson Ltd v Birmingham City Council [1999] 2 AC 349, where the mistake is discovered two years after the repayment, albeit within the limitation period appropriate to such claims generally.

26.

In my view not only the context of s.80(4A) but also the wording of s.78A(2) support the contention of the Commissioners. There can be no doubt that the existence of a judgment is a fact. Likewise its contents are facts. In my view, unless it is an entirely hypothetical issue, in which case the court should not have given a judgment at all, its effect is a fact too. The existence and effect of a judgment may also be relevant to the purpose of s.78A(2), namely the justification for the assessment. The contrary view appears to stem from an assumption that if a judgment is evidence of the law then its existence, contents and effect cannot be facts or evidence of facts as well.

27.

Lord Hobhouse of Woodborough, in the passage in his speech in R v Governor of Brockhill Prison, ex parte Evans (No.2) [2001] 2 AC 19, 45 which I have quoted in paragraph 18 above, was dealing with the argument that at the time the Governor calculated the release date the existing decisions supported his calculations. It had been submitted that those decisions represented the law until overruled. He disagreed for the reasons apparent from the passage in his speech I have quoted. But the contrast he drew was not between a judgment as law and a judgment as fact but between a judgment as the law in the sense that a statute is and as evidence of the law. It was irrelevant to any issue in that case whether in addition to being evidence of the law the judgment, its contents or effect were also facts or evidence of facts.

28.

In my view, the existence of a judgment, its contents and its effect are facts or evidence of facts for the purpose of the time bar contained in s.78A(2), notwithstanding that they may for other purposes be evidence of the law. This at least is demonstrated by the decision in R v Jagdev [2002] 1 WLR 3017. I do not accept the submission of counsel for DFS that so to hold is to deny to taxpayers the protection against tardy assessments to which Woolf J and Aldous LJ referred. The time bar operates in relation to the retrospective legislation or the subsequent decision of the court in the same way as it operates in the case of any other fact. Similarly the suggestion that taxpayers will never be able safely to close their books if the time bar is interpreted in this way contributes nothing to the argument because they are always vulnerable to the discovery of any other fact.”

The Vice-Chancellor accordingly allowed the Commissioners’ appeal.

For DFS, Mr Roderick Cordara QC (leading Mr Mark V. Smith) submits that the Tribunal was right, for the reasons which it gave, to conclude that the effect of the judgment of the European Court of Justice in Primback is not a fact for the purposes of section 78A(2). Accordingly, he submits, the manner in which that judgment came to the knowledge of the Commissioners is not ‘evidence of facts’ within the meaning of the subsection.

He submits that since all the relevant facts were known to the Commissioners when they made the payments which they now seek to recover, time began to run under section 78A(2) when they made those payments. He submits that the making of the payment which the assessment seeks to recover is itself a relevant fact within the meaning of the subsection; that is to say, it is a fact which must be known to the Commissioners before time can start running against them under the subsection.

He submits that there is no warrant for construing the expression ‘evidence of facts’ in section 78A(2) as including evidence of law, since repayments made by the Commissioners under a mistake of law are recoverable under section 73(2), subject to the limitation period of ‘2 years after the end of the prescribed accounting period’ prescribed by section 73(6)(a). He further relies on the words ‘evidence of’ in section 78A(2) as providing a clear indication that the subsection is concerned with provable facts, as opposed to legal concepts.

Mr Cordara submits that the judgment of the European Court in Primback was only relevant to the instant case because of its legal content; that is to say, because of the legal principle which it established. He points out that it was not binding in the instant case, nor does it make findings as to the facts of the instant case.

As to the Vice-Chancellor’s reliance, as support for his conclusion, on section 80(4B)(a) (retrospective legislation), Mr Cordara submits firstly that it is unnecessary to construe section 78A(2) with a view to limiting its effect on possible future retrospective legislation since the retrospective legislation may itself contain provisions in relation to limitation. Secondly, he relies on the two-year limitation period prescribed by section 73(6)(a). He submits that, in the regime resulting from the amendments made to the 1994 Act by the 1997 Act, that is the applicable limitation period where the Commissioners make a repayment under a mistake of law. He submits, relying on the decision of this court in Customs and Excise Commissioners v. Croydon Hotel and Leisure Co Ltd [1996] STC CA 1105, that the relevant ‘prescribed accounting period’ for the purposes of section 73(6)(a) is the accounting period current when the payments in issue were made. Thus, he submits, where a payment has been made by the Commissioners under a mistake of law they have two years from the end of that accounting period to, as he put it, get the law right. Thirdly he submits, relying on Marks and Spencer, that section 80(4B) is concerned not with what the Commissioners can claim, but with what they cannot claim. He submits that on the true construction of section 80(4B) the Commissioners could not say that they had paid too much on 1 January 1997, if subsequent legislation had provided that they were indeed liable on that date. A retrospective rebate to the taxpayer is one thing, he submits; a retrospective tax is entirely another.

Mr Cordara also relies on Marks and Spencer for the general propositions that limitation periods in the context of claims in respect of VAT must not offend against legal certainty; must be proportionate; must be set in advance; and must be no less favourable than limitation periods governing similar domestic actions. He submits that if the judgment of the Vice-Chancellor is correct, the Commissioners will be able to reopen repayment claims in reliance on the judgment of a court in a different case involving different parties, no matter how far in the future that judgment may be delivered. That, he submits, would conflict with each of the above principles.

He submits that the decision of the House of Lords in Evans, and especially the passage in the speech of Lord Hobhouse at p.45, provides guidance on the distinction between fact and law which is of assistance in the instant case, and that the Vice-Chancellor was in error in not recognising that. Mr Cordara also relies on the references by Lord Woolf CJ in Parekh v. Commissioners of Customs and Excise [1984] STC CA 284 at 288a-b and by Aldous LJ in Pegasus Birds Ltd v. Commissioners of Customs and Excise [2000] STC CA 91 at 97b to the purpose of a provision in similar terms to section 73(6) of the 1994 Act being to protect the taxpayer from tardy assessments.

Mr Cordara submits that in the instant case the Commissioners could have protected their position in relation to limitation by the simple expedient of issuing of protective assessments. Alternatively, they could have insisted, as a condition of making the payments, on an undertaking by DFS to make full repayment should the Court of Appeal’s decision in Primback be reversed (as in the event it was).

For the Commissioners, Dr Paul Lasok QC (leading Mr Peter Mantle) reminds us that, in contrast to a dispute between private parties, the limitation issue in the instant case arises because Parliament has created a statutory power for the return of money paid under the statutory regime. We are concerned, therefore, with the true effect of the statutory regime in relation to limitation.

As to the distinction between law and fact, he submits that these are overlapping concepts. As an illustration of this, he points to section 80(4A) itself, and to the two prerequisites for making an assessment under that subsection. In the first place, a payment must have been made (see paragraph (a)): a pure question of fact. In the second place, the amount of the payment must have exceeded the Commissioners’ repayment liability: a mixed question of fact and law.

Turning to the amendments to the 1994 Act effected by the 1997 Act, Dr Lasok submits that the draftsman of the amendments must have had in mind the fact that in the period between 18 July 1996 and 4 December 1996 a number of repayment claims had been met which were (retrospectively) rendered out of time by the reduction in the limitation period for repayment claims from six to three years by the new section 80(4). That, he submits, was the mischief which the draftsman must have had in mind when drafting the amendments to section 80. He submits, therefore, that there is a very strong legislative context for construing the expression ‘evidence of facts’ in section 78A(2) as including at the very least retrospective legislation.

Dr Lasok goes on to submit that once it is acknowledged (as he submits it should be) that ‘evidence of facts’ in section 78A(2) includes retrospective legislation, then logically subsequent judicial decisions must also be included.

He further submits that the two-year limitation period prescribed by section 73(6)(b) is not applicable where a repayment has been made pursuant to a repayment claim under section 80, since such repayment claims are restitutionary in nature, are not made on a VAT return form, and do not relate to any particular accounting period. Accordingly, such repayments are not ‘for any prescribed accounting period’ for the purposes of section 73(2).

Dr Lasok submits that there are three possible ways of interpreting the statutory regime in relation to limitation. The first is the Vice-Chancellor’s interpretation, which (he submits) produces a comprehensive time limit which applies irrespective of the nature of the event which generates the assessment. The second is the interpretation urged by Mr Cordara, which focuses on the facts surrounding the original claim, coupled with the fact of payment, with mistakes of law being covered by section 73(6)(b). The third (theoretical) possibility would be to interpret section 78A(2) as restricted to pure facts only, with (if he is right in his submission that section 73(6)(b) does not apply to payments made in response to repayment claims) no limitation period being prescribed in relation to mistakes of law. He submits that the third possibility is not one which should be accepted, and that of the other two the Vice-Chancellor’s interpretation is clearly to be preferred.

In our judgment if the word ‘facts’ in section 78A(2) is given its natural meaning, regardless of context, it plainly will not include the legal effect of either a statute or a judicial decision. The enactment of a statute, or the pronouncement of a judicial decision, are undoubtedly facts, as are the form which they take and the words in which they are expressed; but, without entering into any kind of philosophical discussion, their legal effect seems to us to be of an entirely different, non-factual, character.

The inclusion of the words ‘evidence of’, so that the whole expression becomes ‘evidence of facts’, only serves to reinforce this prima facie conclusion.

As to the legislative context, we reject Mr Cordara’s suggestion that section 80(4B) was designed to cater for the possibility that future legislation might give the taxpayer a retrospective rebate. It seems to us that the provision was specifically designed to enable the Commissioners to claw back the repayments which had been between 18 July and 4 December 1996 (see paragraph 18 above). In so concluding we accept the submission of Dr Lasok.

The problem then arises as to whether the repayment claims contemplated by section 80(4A) and (4B) are rendered out of time by section 78A(2). The problem arises because the only matter which renders the payment which is sought to be recovered one which ‘exceeded the Commissioners’ repayment liability’ (see section 80(4A)(b)) is the fact that the payment related to matters over three years old, coupled with the introduction of the retrospective reduction in the limitation period to three years.

As it seems to us, there are two ways in which section 78A(2) might be massaged so as to permit recovery of the sums contemplated by section 80 (4A) and (4B). The first is by treating the coming into force of the retrospective legislation as ‘evidence of facts’, so that the prescribed two-year limitation period runs from that date when the legislation came into force. Alternatively the payments themselves, made as they were between 18 July and 4 December 1996, might be treated as one of the ‘facts’ within the expression ‘evidence of facts’ in section 78A(2). The Vice-Chancellor concluded that the former was the appropriate way to construe the subsection in order to give effect to the legislative intention with which the various provisions were introduced. Mr Cordara, on the other hand, submitted that the latter alternative was the appropriate manner of achieving this end. In our judgment, however, neither alternative accords with the natural meaning of the language of the subsection. We conclude that both should be rejected.

In any event, even if it be assumed (contrary to our conclusion) that the Vice-Chancellor was correct to adopt the former approach, we find it a startling proposition that such an interpretation of section 78A(2) can be regarded as a stepping-stone to treating a judicial decision which clarifies the law as constituting ‘evidence of facts’ within the meaning of section 78A(2). In our judgment such a proposition is unsustainable.

Firstly, there is an important distinction between statutes and judicial decisions. The distinction is identified and explained by Lord Hobhouse, albeit in a different context, in his judgment in Evans. At p.45E-G he said this:

“[Judicial decisions] are a source of law but not a conclusive source. Judicial decisions are only conclusive as between parties to them and their privies. The doctrine of precedent may give certain decisions a more authoritative status but this is relative …. A decision or judgment may on examination be shown to be inconsistent with other decisions. The value, force and effect of any decision is a matter to be considered and assessed. They are not statutes which (subject to European Union law) have an absolute and incontrovertible status.”

Secondly, the practical consequences of such an extended interpretation of the expression ‘evidence of facts’ in section 78A(2) would be far-reaching and, in our judgment, highly undesirable. If the perceived legal effect of a decision of the European Court of Justice were to be regarded as a ‘fact’ for this purpose, we are unable to see why the perceived legal effect of any other judicial decision, at whatever level, should not equally be a ‘fact’. So also, we would suppose, would be the expression of an opinion as to the current state of the law by, for example, leading counsel or a distinguished academic. Given that judicial decisions by even the most eminent courts, and opinions expressed by even the most eminent leading counsel and academics, may later come to be perceived as erroneous by superior courts or by other leading counsel or academics, the consequence of (in effect) treating opinion as fact for the purposes of section 78A(2) would be that claims by the Commissioners in respect of excessive repayments would not in practice be subject to any effective limitation period, in that the Commissioners would be in a position to revisit such claims at any time in the future on the basis of a judicial decision or expression of opinion to the effect that the law at the relevant date was not as the Commissioners had believed it to be. In our judgment that plainly cannot have been Parliament’s intention when enacting section 78A(2).

Thirdly, there is in our judgment no need to extend the meaning of ‘evidence of facts’ in section 78A(2) beyond retrospective legislation, since section 73(6)(a) provides a limitation period applicable to cases where money has been paid under a mistake of law. The expression ‘for any prescribed accounting period’ in section 73(2) refers, in our judgment, to the prescribed accounting period current when the (allegedly excessive) repayment was made.

This interpretation is supported by the decision of this court in Croydon. In that case the taxpayer received a credit against his liability for VAT in an earlier prescribed accounting period. The Commissioners later made an assessment in respect of that credit. The taxpayer sought to argue that the assessment was out of time, on the basis that the expression ‘for any prescribed accounting period’ in paragraph 4(2) of Schedule 7 to the Value Added Tax Act 1983 (the precursor of section 73(2)) referred to the prescribed accounting period to which the credit related. Rejecting that contention, Thorpe LJ (with whom Auld LJ agreed) said this (at 1109f-g):

“For the purposes of para 4(2) it is, in my judgment, the exercise of the right to claim rather than the bare right to repayment that provides the essential commencement for limitation periods. For the purposes of para 4(2) the prescribed accounting period is the period in which the right to claim was duly exercised by inclusion within the total in box two on the issued return. The use of the word ‘credited’ in the first line of para 4(2) is a clear pointer to that construction. Furthermore, I cannot see that the phrase ‘for that period’ in the penultimate line can be a reference to any period other than that covered by the return in which the tax was reclaimed.” (Emphasis supplied)

By parity of reasoning, the relevant prescribed accounting period in relation to an assessment under section 73(2) to recover an excessive repayment of VAT is, in our judgment, the prescribed accounting period in the course of which the allegedly excessive repayment was made. Accordingly, where the reason for the alleged excess is an erroneous view of the law, as opposed to lack of knowledge of a relevant fact, the applicable relevant limitation period is the two-year period prescribed by section 73(6)(a); and that limitation period will run from the expiry of the prescribed accounting period in which the allegedly excessive repayment was made. This accords with the three-year limitation period prescribed by section 77(1), which is expressed to run from ‘the end of the prescribed accounting period concerned’.

Accordingly, unlike the Vice-Chancellor (see paragraph 23 of his judgment), we can see nothing capricious in concluding that even if (contrary to our earlier conclusion) section 78A(2) is wide enough to encompass retrospective legislation, it does not extend to the effect of a subsequent judicial decision.

Fourthly, we respectfully disagree with the Vice-Chancellor when he indicated (in paragraph 23 of his judgment) that the word ‘provision’ in section 80(4B)(a) may be capable of including “a subsequent decision of the court as to the true interpretation and application of a statute, directive or regulation”. In our judgment the word ‘provision’ in section 80(4B)(a) is simply not capable of bearing such a wide meaning.

It remains, therefore, to address the limitation issue directly, in the light of our conclusions as to the meaning and effect of the relevant statutory provisions.

The latest of the repayments which the Commissioners seek to recover was made in January 1997. The assessments were made in September and December 2001. Although we were not told the termination date of the prescribed accounting period (or periods) current when the respective repayments were made, it would appear inevitable that in the case of each repayment the two-year period prescribed by section 73(6)(a) had long since expired by the time the assessment in respect of that repayment was made. The only other limitation period which might possibly have been available to the Commissioners is the two-year period prescribed by section 78A(2), but since it is common ground that (judicial decisions apart) the Commissioners at all material times knew all the relevant facts, that limitation period has also on any basis long since expired.

We accordingly agree with the Tribunal that the assessments were out of time.

We allow this appeal, and determine the limitation issue in favour of DFS.