The Court of Appeal upheld a decision of the High Court ([2008] BTC 8,003) that inert material used by the taxpayer on its own landfill sites for engineering works and daily cover was not the subject matter of a taxable disposal as defined in FA 1996, s. 40(2).

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 [2002] BTC 8,003 and applied those judgments to the 11 categories of transaction carried out by the taxpayer, the tribunal concluded that the correct approach 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 High Court allowed the taxpayer's appeal against that decision concluding that, in principle the disposals were not ‘of material as waste’ within FA 1996, s. 40(2)(a) ([2008] BTC 8,003). Customs appealed, contending, inter alia, that the judge was wrong to have considered that processes of recycling, such as sorting and separating, precluded the material earlier discarded by the producer from being disposed of as waste at the later stage when it was deposited on the surface of the landfill site so as to be disposed of by way of landfill. Furthermore the judge was wrong to consider that the intention of the original producer of the material to dispose of it as waste could be subsumed in or replaced by the site operator's use of the material on the landfill site.

Issue

Whether the judge had erred in law in concluding that the relevant disposal of the inert material was not ‘a disposal of material as waste’ within the meaning of FA 1996, s. 40(2)(a).

Decision

Sir Andrew Morritt C (Arden and Smith L JJ agreeing) (dismissing the appeal) said that the decisions of both the tribunal and the judge were open to criticism that too much time had been taken up with the application of the judgments in Parkwood and Darfish to the 11 categories of transaction and not enough to the application of the legislation to the facts of the case.

The question was whether there was a taxable disposal of the materials used by the taxpayer for daily cover and road construction. That depended on whether there was a disposal which satisfied all four conditions for liability laid down in s. 40(2). Though elements of the taxable disposal might occur sequentially, the decision of the Court of Appeal in Parkwood established that all four conditions had to be satisfied at the same time. That moment had to be the time at which the last of them was satisfied and was likely to be when the material was disposed of as landfill in accordance with the provisions of FA 1996, s. 65. Plainly the condition imposed by s. 40(2)(d) was satisfied (made on or after 1 October 1996). The conditions imposed by s. 40(2)(b) and (c) (made by way of landfill and made at a landfill site) could only be satisfied at the end of the process and therefore it was at that time that the condition imposed by s. 40(2)(a) had to be satisfied. There might be some cases in which the deposit by way of landfill was effected by the producer of the waste tipping it onto the landfill site with the consent of the site operator. In other cases, the site operator might deposit the materials on to the landfill site as agent for or at the request of the producer of the materials. However, on the findings of the tribunal in this case, the materials in question were deposited on the landfill site by the taxpayer at a time when the property in them had passed to the taxpayer. In those circumstances, it was clear, assuming there to have been a disposal at all, that the disposal relevant for the purposes of s. 40(2)(a) was made by the taxpayer on its own behalf.

Thus the question posed by s. 64(1) was whether the taxpayer then intended to ‘discard’ the materials using that word in its ordinary meaning of ‘cast aside’, ‘reject’ or ‘abandon’ without the retention and use of the material for the purposes of the owner of it. Section 64(2) did not apply in such circumstances because there was, at the relevant time, either no disposal or no disposal with the intention of discarding the material.

It followed that the relevant intention might well not be that of the original producer of the materials. There was no principle that material once labelled as ‘waste’ was always ‘waste’ just because the original producer of it threw it away. That was not the relevant time at which the satisfaction of the conditions imposed by s. 40(2) was to be considered. Recycling might indicate a change in the relevant intention but was not an essential prerequisite; re-use by the owner of the material for the time being might do likewise. Thus although the passing of title was not conclusive, it was of greater relevance than Moses J in Darfish, the tribunal or the judge below were prepared to attribute to it.

It might be that the economic circumstances surrounding the acquisition of the materials in question by the ultimate disposer of them would cast light on his intention at the relevant time. However, they could not affect the decision on this appeal because the use of the relevant materials by the taxpayer was clear and such use was conclusive of its intention at the relevant time by whatever means and on whatever terms the taxpayer had acquired them.

Accordingly, the materials used by the taxpayer for daily cover and building roads were not the subject matter of a taxable disposal as defined in s. 40(2).

Court of Appeal (Civil Division).
Judgment delivered 22 July 2008.