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Customers paid VAT for 20 years before the authorities accepted the product was a cake, which does not command VAT.
The UK argued that paying back the total sum would "unjustly enrich" M&S as customers had paid the money.
The ECJ ruled that, in principle, VAT had to be repaid in full, but left the final decision to the British courts.
That decision will be taken by the House of Lords and HM Revenue and Customs said it was too early to make a comment.
"This is a very complex judgment on which it would be premature to make any comment until the House of Lords has handed down its judgment," Revenue and Customs said in a statement.
Marks and Spencer also gave a cautious response.
"It does look encouraging. However, it is a complex matter and we are reviewing the decision of the ECJ with our advisers," a spokeswoman said.
(BBC)
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