The High Court held that the VAT tribunal erred in law in confirming the Revenue's rejection of the taxpayer's claim for a refund of landfill tax in relation to inert material used by the taxpayer on its own landfill sites for engineering works and daily cover. The tribunal should have asked itself whether any process had taken place to produce useful material from waste at any time up to the disposal of the material at the landfill site.

Facts

The taxpayer was in the business of waste management and the representative member of a group of companies which operated about 60 landfill sites throughout the UK, most accepting both inert and active waste. All the landfill sites were licensed, and had to be operated in accordance with the strict conditions of the licences. One condition was that the operator had to keep sufficient stocks of inert material or suitable substitutes for use as a daily cover, to lay over the waste material which had been deposited during the course of a day's operation. Inert material was also used for site engineering purposes, particularly the construction of roads within the site.

In addition to landfill sites, the taxpayer operated about 25 transfer stations and 60 civic amenity sites at which waste was accepted before it was sorted and either sent for recycling or to one of its landfill sites. The transfer stations accepted waste from local authorities and businesses, in exchange for a charge. The amenity sites were run pursuant to agreements between the taxpayer and the relevant local authority, which paid the taxpayer for its services. Amenity sites accepted waste from members of the public, who were not required to make any payment.

The taxpayer came to the conclusion that the inert material it had used at its landfill sites for engineering works or daily cover was not liable to tax and claimed a refund. It appealed against the rejection by Customs of its voluntary disclosure for recovery of allegedly overpaid landfill tax in the amended sum of £2,120,552. The tribunal dismissed its appeal against that decision. Having considered the decisions in C & E Commrs v Parkwood Landfill Ltd [2002] BTC 8,045 and C & E Commrs v Darfish [2000] BTC 8,003 it concluded that the correct approach to the condition in FA 1996, s. 40(2)(a) was to consider not merely the time when the material was deposited at the landfill site but the process of disposal, and to do so from the perspective of the person relinquishing the material and not from that of the person acquiring it, namely in this case the taxpayer. The taxpayer appealed. The question was whether the disposals were of ‘material as waste’, so as to come within FA 1996, s. 40(2)(a), as Customs maintained, or warranted a different description, as the taxpayer contended, such that they did not attract liability for tax at all.

Issue

Whether the relevant disposal of the inert material was a disposal of material as waste within the meaning of FA 1996, s. 40(2)(a).

Decision

Barling J allowed the appeal.

Passing of property

The fact that property had passed could not have the effect of making the landfill site operator the relevant disposer. There was no reason why making a disposal at someone's request or pursuant to a contract with someone should be treated as limited to cases where legal title was not passed as part of the process of disposing of the material on behalf of that other person. The circumstances in, and stage at, which ownership passed might have some bearing on the question whether the disposer at the site was acting on behalf of another person. The tribunal erred to the extent that it said that such matters were always irrelevant.

Recycling

Both the tribunal and the Revenue had failed to attribute its full effect to the decision of the Court of Appeal in Parkwood. In the light of that decision it was clear that if a disposal was to be a taxable disposal then the material had to be disposed of ‘as waste’ at the time of its deposit at the landfill site. Whether that condition was satisfied depended upon whose was the governing intention and what that intention was. In Parkwood the governing intention was held to be not that of the original waste producer, but of someone else (‘the disposer at the site’) who did not intend to dispose of the material ‘as waste’. The material had been recycled (sorted, mixed and/or crushed) and was no longer being disposed of ‘as waste’. However the Court of Appeal were not intending to limit the concept of recycling but equated recycling with the production (by whatever means) of useful material from waste material. That was consistent with the view the court took of the objectives of the legislation. Therefore there was no justification for denying the description ‘recycled’ to useful material produced by means of processes such as separating out or sorting.

There was no justification for limiting the application of the Court of Appeal's judgment in Parkwood to cases where the recycled material was sold to the landfill site operator. Although the case there happened to involve a sale of the material, the Court of Appeal nowhere stated or implied that a sale was a necessary prerequisite of that kind of recycling. One had to look at the evidence to see what the intention was, and in particular whether there existed an intention to dispose of the material as waste. The very fact of recycling provided strong if not conclusive evidence that there was no intention to dispose of ‘as waste’, regardless of whether the recycler charged for the goods or had simply recycled them in order to render the resultant material attractive to someone who would take them away and use them or sell them. The effect of FA 1996, s. 64(2) was that if a person would otherwise be considered to be disposing of material ‘as waste’ because he or she was discarding it, the potential usefulness of the material to the disposer or to someone else could not be taken as affecting that finding. It did not deal with the separate question of whether the fact of recycling (or indeed any other aspect of the evidence) showed that there was no intention to discard.

It followed that the tribunal misunderstood the effect of the judgment of the Court of Appeal in regard to what ‘recycling’ was to be taken to include in this context. The tribunal ought to have asked itself whether in relation to each of the various categories of factual circumstances under consideration any process had taken place (including sorting or separating out) to produce useful material from waste at any time up to the disposal of the material at the landfill site. If such process had taken place then that would bring the disposal at the site within the scope of the decision in Parkwood. Nor would it be likely to matter whether the recycling was carried out by the taxpayer itself or by someone else, including the original waste producer, nor whether the recycled material was sold to the taxpayer, or given to it.

It would not be right to exclude the possibility that material could be re-used at the landfill site yet still be disposed of there ‘as waste’. Nor, without looking at all the surrounding circumstances, could one exclude the possibility that, notwithstanding engineering use at the site, the governing intention was of someone who was not the landfill site operator and who intended to discard. In Parkwood, the Court of Appeal was not overruling or disapproving the approach taken in Darfish. The facts of that case were completely different. No recycling process was involved. Nor did the case raise any question as to whether the conditions in s. 40(2) were capable of being satisfied at different times, such as arose in Parkwood.

Financial arrangements

The tribunal erred in law in holding that the economic circumstances of a transaction represented an impermissible consideration by virtue of s. 64(2). No factors which served to indicate as a matter of fact whether material was being discarded by the person concerned should be excluded from consideration unless such an interpretation of the provision was unavoidable. The effect of s. 64(2) was that if the material was in fact being discarded a mere potential for usefulness was not to be taken as changing the position. However it was not the inherent usefulness of the material which was being put forward by the taxpayer as relevant to an intention to discard, but the behaviour of the parties to the transaction as reflected in the financial consequences thereof. The latter were not excluded from consideration by s. 64(2). It followed that the tribunal had misdirected itself and it ought not to have excluded from its consideration the financial terms upon which the material in question came to be disposed of at the taxpayer's site.

Chancery Division.
Judgment delivered 20 December 2007