20142

PROCEDURE – Withdrawal by Customs of argument, on instructions – Instructions given in error – Application (in correspondence) to reinstate argument – Opposed on ground that hearing was over and it was too late – Application granted

REFERRAL TO ECJ – Disagreement between parties as to questions to be referred – Exchange of submissions in correspondence – Issue as to whether subject-matter of disputed draft question was before the Tribunal – Yes – Issue treated as preliminary issue

LONDON TRIBUNAL CENTRE

	EMI GROUP PLC	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	ANGUS NICOL (Chairman)
						LYNNETH SALISBURY

Sitting in public in London on 

Roderic Cordara  QC and Paul Key, counsel, instructed by KPMG, chartered accountants, for the Appellant 

Dr Paul Lasok QC and Hugh McNab, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

INTERIM DECISION ON PRELIMINARY ISSUES

1.	This appeal has come before us again on the vexed matter of what questions should be referred to the European Court of Justice. There are two principal issues in the appeal. The first (“the time issue”) is, to put it very briefly, since the issues are set out in our earlier decision (No 19417), whether the judgment of the Court of Justice in Marks & Spencer [2002] STC 1036 ECJ has been implemented properly in the United Kingdom by the issue of two Business Briefs by the Commissioners of Customs and Excise, as they then were, for the purpose of amending the legislative provisions which were found by the Court of Justice to be incompatible with Community law. The second (“the samples issue”) is as to the meaning of the word “samples” in Article 5.6 of the Sixth Directive, and the effect and reflexion of the provisions of Article 5.6, of the provisions as to the giving of samples and gifts of small value in the course of a business, in paragraph 5 of Schedule 3 to the Value Added Tax Act 1983 and later paragraph 5 of Schedule 4 to the 1994 Act. It was and remains agreed between the parties that the samples issue should be referred to the Court of Justice; there remains a subsidiary issue as to the questions to be referred. As to the time issue, Customs has taken the view from the beginning that it should not be referred, while the Appellant was content that it should be referred but suggested that it might not be necessary.  In our first decision, we took the view that it would be appropriate for both issues to be referred. However, the parties had been at loggerheads as to the questions to be put to the Court of Justice.  We suggested questions on each issue, and gave leave for the parties to make further submissions on these if so advised. What happened next was that Customs took the matter to the Chancery Division contending that the Tribunal had no jurisdiction to refer the issues in any event. 

2.	Further submissions were made, after a greater measure of agreement had been reached between the parties as to the samples issue. The matter came before us again on 14 December 2006. At this hearing, the parties’ positions had changed somewhat. The Appellant now submitted that there was no need to refer the time issue, and Customs was insistent that that issue should be referred. We heard their submissions on those questions, and also on a disagreement as to one part of one of the questions suggested on the subject of the samples issue.

Preliminary issue raised in correspondence

3.	On 9 January 2007 there began an exchange of correspondence, effectively between the parties, but addressed to the Tribunal. This touched upon the referral of the time issue, and upon two aspects of the samples issue and the draft questions for the Court of Justice which we were also considering. It was also revealed to us, which we had not known before, that there exists a second appeal (LON/05/526) against an assessment to VAT. This assessment relates to the free distribution of “samples” since March 2003, and covers, therefore, a period outwith that (April 1987 to March 2003) with which the first appeal is concerned. We have considered this correspondence in considerable detail.  It had a direct bearing upon what had transpired at the hearing in December 2006 and upon which we now have to reach a decision, and, in effect, made it necessary for us to reconsider parts of the hearing and parts of our decision. This Further Decision is, therefore, the outcome of the hearing in December 2006 together with the matters raised in the recent correspondence.

4.	The first letter, addressed to the proper Officer at the Tribunal, came from Customs and related to a submission made by Mr McNab in support of Customs’ contention that draft question (d)(ii) of the Appellant’s draft questions on the samples issue should not be referred to the ECJ. Mr McNab withdrew that submission at the hearing on instructions from behind him which later proved to have been wrong as the result of an “administrative error” by Customs. The letter stated that, therefore, Customs repeated their original submission, that question (d)(ii) should not be referred because it did not relate to any matter in issue in the appeal.  The letter went on to say that Customs repeated their objections to question (d) in its entirety, the matters raised in that draft question never having been before the Tribunal and had not been the subject of evidence or other factual inquiry.

5.	The letter was answered by the Appellant’s solicitors on 10 January 2007, requesting that their letter be put before the Tribunal. They objected to the reinstatement of the argument that had been withdrawn, on two grounds, one procedural and one substantive. First, that that argument had been withdrawn, the hearing had been completed, and it was therefore too late to seek to reinstate it.  Secondly, the substantive ground, that Customs had withdrawn their contention because they had understood that that the present appeal did cover periods subsequent to October 2003. In respect of a further assessment relating to periods after October 2003 there is a second appeal (LON/05/526) (“the second appeal”) which has now been stood over pending the reference to the ECJ in the present appeal. It had at first been intended that the second appeal should be consolidated with the present appeal.  The Appellant’s reasoning was that because of the assessment giving rise to the second appeal, post-October 2003 periods “are in play in an appeal by EMI”. The decision to issue that assessment was made on the same basis as the decision under appeal in the present appeal. The decision in the present appeal was therefore likely to be determinative of the second appeal, and it would therefore be proper to refer question (d)(ii), and not to do so would not be in the interests of a speedy and just determination of the present appeal. The Appellant further argued that Customs’ contention provided grounds for consolidating the two appeals: if that were done before the reference the argument would disappear.

6.	In answer to Customs’ objection to the whole of question (d), the Appellant said that both appeals were concerned with specific factual situations, and the Tribunal had heard evidence as to the type of samples concerned, which was reflected in the Statement of Facts.  Customs’ objection was therefore wrong in principle.

7.	On 17 January 2007 Customs replied, taking issue with the Appellant on its first contention and pointing out that the present appeal covered the period from April 1987 to March 2003.  As to Customs’ objection to question (d) as a whole, they said that they were “not addressing the samples issue”, which was the only issue before the Tribunal apart from the time issue, and which had been the subject of evidence.  But the question whether any particular transactions between the Appellant and another person should have been treated as a matter of EC law, as the making of a gift of small value for the purposes of the Appellant’s business but was not so treated as a matter of United Kingdom law, was never formally before the Tribunal and had not been the subject of evidence.

8.	The Appellant replied on the same day, stating that its case was that every sample was a gift of small value, that it was accepted by both parties that they were of low value as defined by United Kingdom legislation, that evidence had been adduced as to specific samples and that there had been full discussion at the hearings concerning samples sent to more than one employee of the same entity (see question (e)).  That issue was, therefore, before the Tribunal.

9.	Having read this correspondence and discussed it, it seems to us proper and expedient to treat these exchanges as the submissions on a preliminary point, and that we should come to a decision thereon before turning to the principle issues before us.

Conclusion on preliminary point

10.	In the first place, it seems to us, regarding the appeal as a whole, that it would be in the interests of neither party if any issue were excluded which might properly have been included or which might properly be raised at some future time, if such an issue is one which ought to be determined.  It seems clear to us that, since the samples issue is before the Tribunal and will be referred to the European Court of Justice, all relevant issues should be dealt with as expeditiously as possible. To omit consideration of any issue on procedural grounds would, it seems to us, result in the possibility of that issue being raised again at some later date with the probability that still further time will elapse before its determination. The procedural ground of objection to Customs’ application (in effect) to reinstate an argument that had been withdrawn apparently per incuriam, simply because the hearing had been completed and it was therefore too late, seems to us to have little merit.  Had an application been made in the normal form, followed by a contested hearing before us, that ground alone would not have succeeded. This is not so rigidly formal a tribunal that flexibility cannot be applied.  We assume that the matter was raised in correspondence in order to save the time which might have been taken by an application followed by a hearing, though it is perhaps not an ideal method of raising a contested issue, even of procedure.

11.	As to the substantive ground for the Appellant’s opposition to the application, that has raised the matter, of which we had had no knowledge, of the second appeal.  We can see good practical reasons why an application to consolidate the two appeals might have been made and (on the basis of what is known to us at this moment) would have been inclined to have directed such consolidation.  As the Appellant said in the letter of 10 January 2007, such consolidation would (probably) have caused the withdrawal of Customs’ submission, which need never to have been made, since there could then have been no doubt that post-October 2003 periods were before the Tribunal.

12.	However, no such consolidation has taken place, and we must therefore look at the Appellant’s substantive ground of objection on the basis only of the present appeal.  Draft question (d) asks:

“Is a Member State permitted to limit the interpretation of ‘gifts of small value’ in the last sentence of Article 5.6 of the Sixth Directive in such a way as to exclude—

(i)	a gift of goods forming part of a series or succession of gifts made to the same person from time to time (to October 2003)

(ii)	any business gifts made to the same person in any 12-month period where the total cost exceeds £50 (October 2003 onwards)”

The question is therefore expressly divided between pre- and post-October 2003 periods. However, as became plain during the evidence, the concepts of “samples” and “gifts of small value” overlap, if, indeed, they do not coincide.  It appears to us to be inherent in the wording of Article 5.6 that that is the case.  Further, in our view it would make little sense if the two concepts were not considered together, and it was not made plain during the hearings that this was not the intention of the parties.

13.	In those circumstances, the consideration of both “samples” and “gifts of small value”, or the consideration of them as aspects of the same concept, is clearly a matter which is before the Tribunal. Since, as we were told, the assessment the subject of the second appeal was raised on the same basis as that in the present appeal, the nature and legal position relating to “samples” and “gifts of small value” would appear to be the same within the ambit of each of the present appeal and the second appeal.  The concept is, or the concepts are, therefore, the same in both appeals.  We see no reason why, in that case, the matter of the “gifts of small value” should not be referred as part of the samples issue, nor why the same issue referring to similar factual matters differing only in time, arising in respect of post-October 2003 periods should not form part of the reference.

14.	For the above reasons, therefore, we give leave to Customs to reinstate the submissions that they withdrew at the hearing. Correspondingly, we reject Customs objection to draft question (d)(ii) specifically or (d) in toto.

15.	We would add that, in view of our conclusion on this preliminary point, if the parties or either of them wish to renew or make an application for the two appeals to be consolidated, we direct that they may do so, and should notify the Tribunal whether they propose to do so, or whether or not they both consent to such consolidation, within 14 days after the date of release of this decision on the preliminary point.

ANGUS NICOL
CHAIRMAN

RELEASED: 10 May 2007

LON/03/1218