The retailer said it had the support of the EC in its battle with Customs.
Furthermore, an M&S spokesman told AccountancyAge.com: ‘The Commission is considering infraction proceedings against the UK government’ for acting outside European Law.
M&S is claiming backdated VAT thought to be worth as much as £12m, going back to April 1973 – the date VAT was introduced in the UK on bottled water, biscuits, teacakes and gift vouchers.
The matter has been referred to the European court after M&S appealed a High Court ruling which found in favour of Customs & Excise.
The government office admits overcharging M&S on the four line items, but refused to repay the VAT – thought to be worth as much as Pounds 12m.
Its defence is based on the ‘three-year cap’ ruling on VAT repayments introduced in 1996. The rule allows Customs to withhold backdated VAT repayments on claims dating back more than three years.
M&S argues the rule was introduced only a year after its original claim and is therefore invalid as a defence against repayment in this case.
But HM Customs & Excise has defended its decision not to reimburse M&S. A spokesman told AccountancyAge.com it believed it ‘had acted quite properly’and had ‘a strong case’.
He said the matter had been referred to the European court on ‘one small point’.
Customs said it was fairly common for the EC to make submissions to the court, as it was the right of the EC and all 15-member states to apply to the court to do so if they wished.
He said the three year capping rule had been implemented to put Customs on an ‘equal footing’ with businesses.
‘Prior to the ruling, companies could reclaim VAT from Customs where they felt they were overcharged, dating back to April 1973, when VAT was first introduced in the UK. But Customs could only demand unpaid VAT bills going back six years.’
HM Customs said it believes the ruling was fair and had taken European law into account when it was introduced in 1996.
‘We won the High Court case on all counts and believe we have a good case,’ the spokesperson added.
The court hearing is set for 18 October.
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