Waste Recycling Group Ltd v Commissioners for HMRC (Revenue and Customs)

This is an appeal by Waste Recycling Group Ltd (“WRG”) against a decision (“the Decision”) of the Value Added Tax and Duties Tribunal (“the Tribunal”) dated the 8^th March 2007 dismissing WRG’s appeal against the rejection by the Commissioners for HM Revenue and Customs (“HMRC”) of WRG’s voluntary disclosure for recovery of allegedly overpaid landfill tax (“tax”) in the amended sum of £2,120,552. The sum referred to in the Decision is £2,116,892, but it is common ground that this is incorrect.

All the tax was paid in respect of amounts of inert material which were used by WRG on its landfill sites for engineering purposes (for example road making) or in order to provide the required daily cover of the landfill site.

The Tribunal was asked to determine the issues in dispute in principle in the context of eleven sets of facts. These sets, or categories as they have been called, are not mutually exclusive; they may in certain cases overlap.

If any particular disposal of inert material at a WRG landfill site represented a “taxable disposal” within the meaning of section 40 of the Finance Act 1996 then by virtue of section 41(1) of that Act WRG was liable for the relevant tax as the operator of that site.

To be taxable a disposal must fulfil four cumulative conditions:

In the present appeal the only issue relates to the first of these conditions. It is accepted that in regard to all the inert material with which this appeal is concerned the three other conditions are satisfied. Therefore at the heart of this appeal is the question whether, in each of the postulated categories, the relevant disposal of the inert material was “a disposal of material as waste” within the meaning of sub-section 40 (2)(a).

In order to examine that question it is necessary to identify the person who is making the disposal of material by way of landfill at a landfill site after 1 October 1996, then to consider whether the person making that disposal is doing so “on behalf of another person”, which by virtue of sub-sections 64(3) and 64(4) of the Act includes doing so “at the request” or “in pursuance of a contract with another person”, and finally to determine whether the person making the disposal (or, if appropriate, the person who is to be “treated” as so doing by virtue of those sub-sections) is disposing of that material “as waste” ie “with the intention of discarding the material” (section 64(1) ).

If A is identified as the relevant disposer of the material when the relevant disposer is actually B, then things may go wrong because A and B may well have entirely different intentions vis à vis the material. This is the reason why in HM Commissioners of Customs and Excise v Darfish Ltd (unreported judgment of 20 March 2000 referred to in more detail below) Moses J (as he then was) differed from the tribunal in that case.

A Statement of Agreed Facts and two unchallenged witness statements were put before the Tribunal and are available to me. The basic facts are not in dispute, and for present purposes are very clearly set out in the Decision and I set out the relevant paragraphs verbatim.

“1.

As its name suggests, the Appellant (“WRG”) is in the business of waste management. It is the representative member of a group of companies which (among other things) operate landfill sites throughout the United Kingdom. On 30 December 2002 its representatives, PricewaterhouseCoopers, submitted to the Respondents a claim for a refund of landfill tax which, it is said, the group had overpaid during the period from 1 October 1996 to 30 September 2002. After a good deal of correspondence and a number of discussions, in the course of which the claim was modified somewhat, the Respondents refused to make the refund. That refusal was communicated by letter of 26 March 2004. A review was requested, and duly carried out, but the original decision was upheld by way of a letter dated 23 June 2004, and WRG now challenges that review decision. While the appeal was in progress, but before the hearing the Respondents made a modest concession by accepting that, of the original claim, £3,660 had indeed been overpaid, but they maintain their position in respect of the remaining £2,116, 892. [Now agreed to be £2,120,552.]

…

3.

WRG’s group operates about 60 landfill sites across the UK, most accepting both inert and active waste. All the landfill sites are licensed, and must be operated in accordance with the strict conditions of the licences. One condition which, I understood, applies in every case is that the operator must keep sufficient stocks of inert material or suitable substitutes for use as a daily cover, that is to lay over the waste material which has been deposited during the course of a day’s operation in order to contain it, so that it does not blow away in the wind, give off odours or otherwise create a nuisance. Items such as sheeting may be used but the preference, mainly because it is usually the least expensive method, is to use inert material such as soil or builders’ rubble which is not suitable for re-use as aggregate. Inert material is also used for site engineering purposes, particularly the construction of roads within the site which lorries may use in order to reach the point at which their loads are to be discharged.

4.

In addition to landfill sites, WRG operates about 25 transfer stations and 60 civic amenity sites, none of which is a landfill site. They are, instead, facilities at which waste is accepted before it is sorted and either sent for recycling (WRG has some recycling facilities of its own which are not relevant to this appeal) or to one of WRG’s landfill sites. The transfer stations accept waste from local authorities and businesses, in exchange for a charge. The amenity sites are run pursuant to agreements between WRG and the relevant local authority, which pays WRG for its services. Amenity sites accept waste from members of the public, who are not themselves required to make any payment.

5.

WRG’s terms of trade, and in respect of civic amenity sites its agreements with the local authorities, provide that, whether WRG is making a charge for accepting the waste, making a payment for material it needs which is in short supply, or taking the waste without payment on either side, title in the waste materials passes to WRG on acceptance of the waste on site. Although the precise terms differ from one site to another, their effect is the same. Thus once material has been brought to a site, whether it is a landfill site, a transfer station or an amenity site, WRG may deal with that waste as it wishes, though it may be constrained to some extent by the terms of its site operating licence and any agreement with the relevant local authority into which it may have entered.

…

8.

It was common ground that the disposals with which I am concerned were made on or after 1 October 1996, by deposit “on the surface of the land” at landfill sites of which WRG is or was the operator and that they were all of “qualifying material”. The question is whether the disposals were “of material as waste”, so as to come within sections 40(2) (a) and 42(2), as the Commissioners maintain, or they warrant a different description, as WRG contends, such that they do not attract liability for tax at all. Historically, WRG has accounted for landfill tax at the lower rate on all the inert material it receives at its sites. When the material was brought directly to the site by a customer, the tax due was calculated (by reference to the weight of material and its classification as qualifying material liable to the reduced rate, or other material attracting the full rate) and WRG accounted for the tax so calculated to the Commissioners. So much of the material deposited at transfer stations or amenity sites as could not be recycled or disposed of in some other way was removed to one of WRG’s landfill sites, and, in the case of qualifying material, an internal charge of £2 per tonne was raised, representing the tax for which WRG was liable to, and did, account to the Commissioners. I understand a similar arrangement was made in respect of non-qualifying material, but I am not concerned about that material in this appeal.

9.

It was WRG’s coming to the conclusion that some of the inert material it has accepted on its landfill sites was not in fact liable to tax which led to its claim for a refund. I am now required to decide whether, in principle, it is right, and to do so in respect of each of the eleven categories of material which the parties have identified for this purpose. It is hoped that a determination in principle will enable them to resolve matters of detail themselves.

10.

The eleven categories are as follows:

(a)

purchased material

This consists of material bought by WRG from a supplier of inert materials- that is, cases in which WRG has made an actual payment to the supplier, which has raised an invoice addressed to WRG to reflect that charge. The Commissioners have conceded that this category does not attract tax, but I include it for completeness.

(b)

free tips

In these cases the person depositing the material neither makes nor receives any payment but there is a cost to WRG, if tax is due (since it is WRG, as the landfill site operator, which must pay it), of £2 per tonne. In these cases, WRG raises an invoice to the person making the deposit (its customer), showing a cost of £2 per tonne in respect of tax and a disposal charge of -£2, so that the net charge is nil. The Respondents accept that, if WRG pays for the cost of transport the material does not attract tax, but maintain that it is due if the material is brought to the landfill site at the customer’s expense, since otherwise WRG has suffered no net cost.

(c)

uneconomic tips

Here, WRG accepts material in return for a payment by its customer, but the amount of the payment is less than the tax due (if it is due at all) of £2 per tonne. An invoice is raised by WRG, showing tax of £2 per tonne and a disposal fee between -£1.99 and- £0.01 per tonne, such that the two taken together represent the true net cost to the customer. As WRG must pay the tax, it is required to make a net payment. No distinction is drawn in this category between those cases in which WRG does, and those in which it does not, bear the cost of transport.

(d)

break-even tips

In these cases WRG breaks even (in tax terms) by charging exactly £2 per tonne. Its invoice reflects only the tax due on the material.

(e)

discounted tips

WRG accepts what was described as a “discounted tip” when more than £2 per tonne is charged, but a sum which is nevertheless below the prevailing market rate. I was told that the invoice would reflect the charge and the tax, but no examples were in the bundle and it was not entirely clear how such transactions might occur in the light of the evidence that the market rate for inert material was dictated by supply and demand, unless perhaps WRG found itself in need of inert material when its competitors had adequate supplies and was therefore forced to offer particularly generous terms.

(f)

Civic amenity site deposits

Material deposited by members of the public at amenity sites operated by WRG is segregated (for the most part by the members of the public themselves) into items which can be recycled, active waste and inert waste. Those items which can be recycled are taken away for that purpose, while the waste material is removed by WRG to one of its landfill sites. As I understood it, the payments received by WRG from the local authorities are pitched at a level which results in WRG’s receiving a reward for its services, whether or not it is able in addition to profit from the deposited materials.

(g)

transfer station deposits

The only difference between these deposits and those made at the civic amenity sites is that the depositor makes an individual payment for the acceptance of the material, and there is no local authority subsidy.

(h)

procured material

On occasion WRG approaches a known supplier of inert material, in order to procure a supply. The usual reason for its doing so is that it lacks a sufficient quantity for daily cover. The fact that WRG has asked for a supply would alert the supplier to the fact that WRG had a need for the material, and enable him to negotiate advantageous terms.

(i)

sorted material

Some of the material accepted has been sorted by others into active and inert material. I was told that the greatest source by volume of material accepted by WRG has been sorted in this way by people such as “muck shifters”, who segregate the debris of demolished buildings into salvageable (such as steel and copper) and non-salvageable items, the latter being further separated into active and inert material. The muck shifters, by reason of the pre-separation, are able to negotiate more favourable disposal charges.

(j)

site engineering

This category comprises inert material used by WRG for site engineering, including road-making and similar purposes.

(k)

daily cover

This category consists of the material used by WRG for daily cover and similar purposes.

…

12.

I accept – and it was not disputed - that the operation of landfill sites is closely and strictly regulated for environmental protection reasons, and the regulations under which operators such as WRG must carry on their business are onerous. The requirement of particular relevance in this appeal is that I have mentioned, that at the end of each day, the newly deposited waste must be covered by barrier, usually consisting of a layer of inert material. I was also told, and accept, that WRG endeavours to take no more inert waste than it needs for the purposes described at categories (j) and (k) above, since it is able to charge significantly greater sums to those depositing active waste (which also, unlike inert material, gives off gases which WRG may capture and sell since they can be used in the generation of electricity). If more inert waste than it needs is offered, it charges a high price as a discouragement. Otherwise the price WRG charges or pays for deposits of inert materials is dictated by market conditions. When it is plentiful, a full economic charge can be levied; when there is a shortage, but WRG needs a supply in order to comply with its daily cover obligations, it must offer advantageous terms, such as those in categories (a) to (d) above, and on occasion must actively seek a supply (category (h)). For similar reasons what WRG charges or pays for inert waste may differ from one site to another. By contrast, the price charged for the acceptance of active waste is largely pre-determined, though there may be some negotiation with particularly large customers. In the case of inert material, WRG is in competition not only with other landfill operators but also with golf clubs, farmers, landscapers and others who have a need for such material and are not liable to account for tax.”

The “modest concession” referred to in paragraph 1 of the Decision representing tax to the tune of £3,660 related to material bought by WRG from suppliers of inert materials who raised invoices which WRG paid. HMRC conceded before the Tribunal and also before me that tax is not exigible where WRG purchases inert material for engineering or daily cover purposes.

The Finance Act 1996 provides as follows (so far as relevant to this appeal).

Section 39

(1)

A tax, to be known as landfill tax, shall be charged in accordance with this Part.

(2)

The tax shall be under the care and management of the Commissioners of Customs and Excise.

Section 40

(1)

Tax shall be charged on a taxable disposal.

(2)

A disposal is a taxable disposal if—

(a)

it is a disposal of material as waste,

(b)

it is made by way of landfill,

(c)

it is made at a landfill site, and

(d)

it is made on or after 1st October 1996.

(3)

For this purpose a disposal is made at a landfill site if the land on or under which it is made constitutes or falls within land which is a landfill site at the time of the disposal.

Section 41

(1)

The person liable to pay tax charged on a taxable disposal is the landfill site operator.

(2)

The reference here to the landfill site operator is to the person who is at the time of the disposal the operator of the landfill site which constitutes or contains the land on or under which the disposal is made.

Section 42

…

Section 61

(1)

Where—

(a)

a taxable disposal is in fact made on a particular day,

(b)

within the period of 14 days beginning with that day the person liable to pay tax in respect of the disposal issues a landfill invoice in respect of the disposal, and

(c)

he has not notified the Commissioners in writing that he elects not to avail himself of this subsection,

for the purposes of this Part the disposal shall be treated as made at the time the invoice is issued.

…

Section 62

…

Section 63

…

Section 64

(1)

A disposal of material is a disposal of it as waste if the person making the disposal does so with the intention of discarding the material.

(2)

The fact that the person making the disposal or any other person could benefit from or make use of the material is irrelevant.

(3)

Where a person makes a disposal on behalf of another person, for the purposes of subsections (1) and (2) above the person on whose behalf the disposal is made shall be treated as making the disposal.

(4)

The reference in subsection (3) above to a disposal on behalf of another person includes references to a disposal—

(a)

at the request of another person;

(b)

in pursuance of a contract with another person.

Section 65

(1)

There is a disposal of material by way of landfill if—

(a)

it is deposited on the surface of land or on a structure set into the surface, or

(b)

it is deposited under the surface of land.

(2)

Subsection (1) above applies whether or not the material is placed in a container before it is deposited.

(3)

Subsection (1)(b) above applies whether the material—

(a)

is covered with earth after it is deposited, or

(b)

is deposited in a cavity (such as a cavern or mine).

(4)

If material is deposited on the surface of land (or on a structure set into the surface) with a view to it being covered with earth the disposal must be treated as made when the material is deposited and not when it is covered.

(5)

…

(6)…

(7)

In this section “land” includes land covered by water where the land is above the low water mark of ordinary spring tides.

(8)

In this section “earth” includes similar matter (such as sand or rocks).

This legislation has been considered by the Court of Appeal in Customs and Excise Commissioners v Parkwood Landfill Ltd [2002] EWCA Civ 1707, [2002] STC 1536, where Aldous LJ gave a judgment with which both Jonathan Parker LJ and Aikens J agreed. The legislation has also been the subject of a decision at the High Court level by Moses J in HM Commissioners of Customs and Excise v Darfish Ltd (unreported judgment of 20 March 2000). It has in addition been considered on a number of occasions by the VAT and Duties Tribunal.

The decision of the Court of Appeal in Parkwood is heavily relied upon by Mrs Hamilton, who appears for WRG in the present appeal. Mr Puzey, for HMRC, places corresponding weight upon the judgment in Darfish. It is therefore appropriate for me to describe those decisions in a little more detail.

Parkwood Limited (“Parkwood”) operated a landfill site. It owned another company (‘Recycling’) which carried on business as a recycler of waste at a separate facility in the same town. Under the terms of a contract between the local authority and Recycling, the authority delivered waste to Recycling’s site. The local authority paid a fee per tonne of waste delivered. Recycling divided the waste between recyclable material and waste. The recyclable material was processed by separating it into aggregates and fines. The aggregates were then sorted, crushed and mixed so as to form mixed aggregate in pieces of 70mm or less in diameter. Fines were produced by sorting and mixing suitable materials to form a product which has the appearance, and many of the characteristics, of soil. Recycling then sold the aggregates and fines produced by the above process. Amongst its customers was its parent company Parkwood, which bought the recycled material for use in road making and landscaping on its landfill site. Recycling had no transport of its own and Parkwood collected the recycled material it had purchased and delivered it to its own landfill site. The two companies, although associated, dealt with each other at arm’s-length.

The issue in that case was whether the condition in sub-section 40(2)(a) was satisfied ie whether the disposal was “as waste”. Parkwood argued before the Court of Appeal that the condition was not satisfied as it was they who were disposing of the material at their own landfill site and they did not intend to discard it. Whilst accepting that the local authority was making a disposal “as waste” Parkwood contended that if that was the relevant disposal the other conditions required by section 40(2) were not complied with. In order for a disposal to be taxable all the conditions needed to be satisfied in respect of that disposal.

The Commissioners argued that Parkwood were concentrating on the wrong disposal: it was the local authority who were disposing of the material, and they were clearly disposing of it “as waste”; therefore the condition in sub-section 40(2)(a) was satisfied when the material was deposited at Recycling’s premises. It did not matter that that particular disposal did not satisfy the other conditions in section 40(2) as it was not necessary for the same disposal to fulfil all the conditions provided that all the conditions were satisfied. The remaining conditions were satisfied when either Parkwood or Recycling disposed of the material at Parkwood’s landfill site.

The Court of Appeal upheld Parkwood’s submissions. The following paragraphs of the judgment of Aldous LJ contain the essentials of the decision:

“21.

The crux of the dispute between the parties does not turn upon construction of the word "disposal". It depends upon what is a taxable disposal. Is it a disposal made at one time?

22.

I am of the view that the natural meaning of section 40(2) requires a disposal which is a taxable disposal to satisfy the conditions in subsections (a), (b), (c) and (d) at the same time. Those subsections use the word "it" to refer back to the "disposal" which suggests that the disposal has to be made at a landfill site by way of landfill and also to be a disposal of material as waste.

23.

The tax is a landfill tax, not a landfill and recycling tax. The tax is to be paid when waste material is disposed by way of landfill in a landfill site: not on waste material (e.g. fines) which has been recycled (e.g. into blocks) which may be used in a landfill site (e.g. to build a wall or hard standing). The disposal referred to in section 40(2) is a particular disposal.

24.

The Commissioners' submissions that each condition in section 40(2) was self-contained could not have been intended by Parliament. It would mean that once there was a disposal of material as waste by somebody, tax became payable by the site operator if the material was deposited on the ground in a landfill site. Thus liability to pay tax, which in practice will be passed on by the site operator, can depend upon the intention of a person unknown to the site operator at an unknown time, even before 1st October 1996.

25.

Mr Havers accepted that upon the Commissioners' construction there could be cases where the history of the material was not known and therefore difficulties could arise. He described them as few in number and at the margin. They were and could be dealt with by the Commissioners in an appropriate manner.

26.

For the purposes of the appeal I accept that such cases are at the margin. But even so, I do not believe that Parliament could have intended to impose a landfill tax upon recycled material with the necessity that the history of the material had to be checked to ascertain whether anybody had the required intention.

27.

The Commissioners also submitted that there was nothing in the statute which suggested that material which had been discarded as waste ceased to be waste because it had been successfully recycled. That submission is contrary to common-sense. Take material which is thrown away. That is waste. Melt it down and mould it into a spare part for a machine and it is not waste. There need be no change in chemical substance to convert waste into a useful product. It is the act of recycling which is important. This is recognised by Parliament in its drive to promote recycling rather than disposal and is recognised by the cumulative effect of section 40(2).

28.

The Commissioners accept that their argument leads to the result that companies such as Parkwood will be liable for tax if they use recycled material for site engineering or building purposes, whereas they would not be liable for tax if they used fresh materials. That cannot have been the intention of Parliament when they introduced the landfill tax. The purpose of the legislation was to tax waste material deposited at landfill sites and not to tax deposits at landfill sites of useful material produced from waste material.

29.

The Commissioners' need to advance their arguments stems from their belief that the requirement that all four conditions of section 40(2) should be satisfied at the same time would allow tax avoidance by the simple mechanism of inserting an intermediary between the originator of the material and the landfill site operator. For example, if X wished to get rid of some soil, he could do so by taking it to a landfill site and disposing of it. The result would be a taxable disposal even if the landfill site used it for road making. However X can avoid the tax by structuring the disposal as a sale. X sells to Y at say 25 pence per tonne. Y sells to the landfill operator at say 50 pence per tonne for site use. If the Commissioners' submissions are wrong, then no tax would be payable.

30.

In the circumstances postulated the intervention of an intermediary would avoid tax being payable. I do not find that surprising as the purpose of the tax has not been avoided. The soil has not been disposed of as waste at the landfill site. It is not the insertion of an intermediary that makes the difference: it is the intention of the disposer at the site. Thus if X wants to get rid of his soil and sells it to the landfill site for road making, no tax will be payable. Thus the tax bites upon the person who discards not who recycles.

31.

The Tribunal were correct to concentrate upon the disposal at Parkwood's landfill site because it was that disposal which was made by way of landfill. They rightly held that that was not a disposal as waste. I would allow the appeal.”

Aldous LJ also referred to the objectives of the legislation at paragraph 10 of his judgment, quoting from the White Paper entitled Making Waste Work (cm 3040):

“The central purpose of the landfill tax was stated to be:

"… to ensure that landfill costs reflect environmental impact thereby encouraging business and consumers in a cost effective and non-regulatory manner, to produce less waste; to recover value from more of the waste that is produced; and to dispose of less waste in landfill sites.” ”

He prayed in aid these purposes of the legislation in rejecting an argument put on behalf of the Commissioners which would have had the result that the use by a landfill site operator of recycled material for engineering at a landfill site would be taxable whereas use of fresh material for the same purpose would not. (See paragraphs 27 and 28 of the judgment, set out above.)

In relation to the identity of the person whose intention was the relevant one, Aldous LJ made clear that this was “the intention of the disposer at the site”. Thus, in a case such as the one before the Court of Appeal it was not the fact that there was an intermediary inserted between the original waste producer and the landfill site operator who intended to use the waste for engineering purposes that was relevant. What was relevant was the fact that the intention of the “disposer at the site” was not to dispose of it “as waste”. (Paragraphs 30 and 31 of his judgment)

Mr Puzey contended that the correct analysis of Parkwood is that there was a new disposal by Recycling who did not intend to dispose of the material “as waste”. Mrs Hamilton argued that the Court of Appeal regarded the relevant disposer to be Parkwood itself.

Aldous LJ did not expressly identify the person whom he considered to be the “disposer at the site”. As I have said, Parkwood had purchased the recycled waste material at arm’s length from Recycling, who operated from a different location and who did not have any transport. Parkwood arranged its own transport of the material to its landfill site where it was used for engineering and like purposes (paragraphs 6-8 of the judgment). In those circumstances it is unreal to regard Recycling as the “disposer at the site” and it is difficult to see how Parkwood could have been disposing of the material there “on behalf of” Recycling from whom it had bought the material for its own engineering purposes. It seems to me that when Aldous LJ said (paragraph 31) that the tribunal “were correct to concentrate upon the disposal at Parkwood’s landfill site” he was not endorsing the tribunal’s view that Recycling made the relevant disposal, but rather he was underscoring the Court of Appeal’s conclusion on the main issue in that appeal, namely that all the conditions in section 40(2) had to be satisfied at the same time so that an earlier disposal “as waste” by the original waste producer other than at the landfill site was not the relevant disposal. On the facts of Parkwood it probably did not matter whether the relevant disposer was Recycling (as Mr Puzey contends) or Parkwood (as Mrs Hamilton contends): if it was Recycling the disposal was not “as waste” because they were not discarding it but selling it as recycled material to Parkwood; the same applied if Parkwood was the disposer, as the material was not being discarded by them but used for engineering.

There is no obstacle in the legislation to the landfill site operator being also the relevant disposer. Indeed that was the position in the decision of the tribunal in ICI Chemicals and Polymers Ltd –v- Commissioners of Customs and Excise dated 18 March 1999. There the manufacturing processes of the appellant ICICP resulted in a by-product which ICICP used on its own landfill site for containment of contaminated waste including mercury. So much of the by-product as it did not use in this way was sold by ICICP. The tribunal clearly regarded ICICP as the relevant disposer. No other candidate existed. Further, in considering whether the by-product when used by ICICP for engineering purposes on the landfill site was disposed of “as waste” the tribunal stated:

“Provision of materials for the construction of such cells must necessarily come within the costing process of manufacture of such materials being disposed of and, whether bought from third parties or produced internally, cannot be considered as waste.”

Interestingly, the tribunal in ICI recorded by way of postscript to their decision that the Commissioners had conceded prior to the hearing in that case that hardcore transported to the landfill site and used there for engineering purposes was not liable for landfill tax.

Darfish Limited (“Darfish”) operated a landfill site at Huthwaite in Nottinghamshire. Darfish had a subsidiary company referred to as DNS. DNS had agreed with two companies, known as Wilson Bowden and Hallamshire, to remove various types of soil from those companies’ sites. The prices which DNS charged them under the contract for removing the soil reflected the fact that the materials had substantial value to DNS. Property in the soil passed to DNS on removal. DNS transported the material to Darfish’s landfill site at Huthwaite initially for storage but later to be used by Darfish for engineering purposes at the site. The tribunal had found that the disposal was not taxable because it was made by or on behalf of Darfish and the material was not disposed of “as waste”. Moses J did not agree with the tribunal. He stated:

“21.

The material in the instant case, the top soil and subsoil, was removed and transported away from Wilson Bowden’s and Hallamshire’s sites. Those were important processes of disposal. Even if it is accepted that the soil was deposited on behalf of Darfish, nonetheless the disposal was made on behalf of Wilson Bowden and Hallamshire, because it was they who requested the removal and transport of the soil away from their sites and those processes were made in pursuance of contracts with those companies (see section 64(4)). In those circumstances, section 64(3) requires the Tribunal to examine the intentions of Wilson Bowden and Hallamshire.

22.

Since it appears that the Tribunal found that the deposit (and possibly the transport) were made on behalf of Darfish, it is argued that its intention was the only intention which the Tribunal was required to consider. I disagree. I have construed disposal as the antonym of retention. The focus of the provisions is upon the person getting rid of something, not upon the person retaining or acquiring something. DNS was not making a disposal, on my construction, on behalf of Darfish. It was assisting in the acquisition and retention of the material on behalf of Darfish. But it was making a disposal on behalf of Wilson Bowden and Hallamshire, and it is their intention which should have been determined by the Tribunal.”

Mrs Hamilton submitted that the Court of Appeal in Parkwood disapproved of these passages in the judgment of Moses J. Mr Puzey disagreed. I shall return to this point below.

The Tribunal having considered the decisions in Parkwood and Darfish concluded:

Mrs Hamilton on behalf of WRG puts her case under four main heads. The first three arguments relate to matters which in her submission lead to the conclusion that the disposer of the material whose intention is relevant is WRG itself. The fourth head of appeal is on the basis that, contrary to her primary case, the relevant intention is that of a person other than WRG.

Mrs Hamilton, under her first ground of appeal, argues that the landfill site operator will be the relevant disposer whenever the inert material is used by that operator for engineering purposes or for daily cover. Her reasoning is as follows: in the light of the decision of the Court of Appeal in Parkwood, which must be taken to have rejected the approach of Moses J in Darfish, the relevant disposal occurs at the point when the material is deposited at the site by the site operator, or by his customer on the operator’s instructions; by that stage property in the material will have passed to the site operator, with the result that the disposer whose intention is relevant is the site operator; in so far as the operator’s intention is to use the material for engineering or daily cover the operator is not intending to discard it, and so the disposal is not taxable.

In my view Mr Puzey is right in saying that this argument relies too heavily on the passing of ownership of the material. As Moses J pointed out in Darfish, title will almost always have been transferred, so that the landfill site operator would be the relevant disposer at the site in almost every case. That does not seem to be what the legislation has in mind: there is no reference to the passing of title anywhere, and the provisions clearly distinguish between “the person making the disposal” and “the landfill site operator” thus clearly allowing for situations where they are not one and the same person. Further, I see 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. This is not to say that the passing of property, and the circumstances in, and stage at, which ownership passes may not have some bearing on the question whether the disposer at the site is acting on behalf of another person. To the extent that the Tribunal in the present appeal were saying that such matters are always irrelevant in this context I would respectfully disagree. The point is simply that the fact that property has passed cannot in my view be conclusive in the way that Mrs Hamilton’s first argument assumes.

WRG’s next ground of appeal is to the effect that the Tribunal was wrong in law to hold that at the time the material was deposited at the landfill site it was waste rather than recycled, useful material produced from waste material. The Tribunal also erred in holding that the separation out of inert material by WRG or others at its civic amenity sites and transfer stations (paragraph 30 of the Decision), and the separation out of inert material from other waste carried out by muckshifters (paragraph 32 of the Decision), fell short of what the Court of Appeal in Parkwood considered sufficient to transform waste into useful material. The Tribunal ought to have concluded that all the inert material used by WRG for engineering or daily cover was within the principles enshrined in the Court of Appeal judgment, which did not in any event regard recycling as crucial to the production of useful material out of waste.

Mr Puzey sought to uphold the conclusions of the Tribunal by reference to section 64(2) of the Act. He argued that the fact that at the moment of the deposit the material is useful to the landfill site operator does not mean that it is no longer being disposed of “as waste” by the disposer. WRG’s reliance on the Court of Appeal decision was misconceived: in that case the material was sold to Parkwood after processing into a product which was an asset rather than waste to the processor. Mr Puzey accepted that even without any processing material would not be disposed of “as waste” if it was sold to someone. However he argued that absent a sale mere sorting of inert from other material was not sufficient to render the inert material other than waste.

In my view both the Tribunal and Mr Puzey have failed to attribute its full effect to the decision of the Court of Appeal in Parkwood. In the light of that decision it is clear that if a disposal is to be a taxable disposal then the material must be being disposed of “as waste” at the time of its deposit at the landfill site. As we have seen, whether that condition is satisfied depends upon whose is the governing intention and what that intention is. 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”. This was because the material had been recycled (sorted, mixed and/or crushed) and was no longer being disposed of “as waste”. Aldous LJ treated recycling and discarding as mutually exclusive (see paragraph 30, last sentence). However I do not consider that the Court of Appeal were intending to limit the concept of recycling in the way the Tribunal and Mr Puzey have stated. In the hypothetical example discussed at paragraphs 29 and 30 of the judgment of Aldous LJ the material was not even stated to have been subject to separation or sorting, yet it was regarded by the Court as being “recycled” rather than discarded because it was sold to the landfill site for roadmaking.

I consider that the Court of Appeal in this context equated recycling with the production (by whatever means) of useful material from waste material. That is what the Court said in paragraph 28, and it is consistent with the view the Court took of the objectives of the legislation. I therefore see no justification for denying the description “recycled” to useful material produced by means of processes such as separating out or sorting. To treat such material differently from material which had been, for example, crushed would produce artificial distinctions which would have no justification based on the objectives of the legislation.

Mrs Hamilton pointed out in argument that in their non-binding guidance in Notice LFT1 dated May 2004, at paragraph 2.2.2., HMRC state as follows under the heading “Recycled material”:

“If waste is processed before its disposal to landfill and the process changes it into useful material, the original producer’s intention is no longer relevant. The landfill tax liability is determined by the intention of the recycler, as evidenced by the nature of the transaction.

The following table gives examples of the processes that may discount the original producer’s intention.”

The table then identifies the following processes: “composting, crushing, bailing, sorting or screening”.

Two points are worth noting about this statement: first it acknowledges that intervening events (in this case recycling) can result in a change in the governing intention. Second, the scope of the recycling envisaged is somewhat wider than the Tribunal were prepared to accept in the present case.

I see no justification for limiting the application of the Court of Appeal’s judgment to cases where the recycled material is 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 is a necessary prerequisite of this kind of recycling. Mr Puzey submitted that you must look at the evidence to see what the intention is, and in particular whether there exists an intention to dispose of the material as waste. I agree. He said that in treating disposals of inert material as non taxable when there had been a sale, his clients were adopting a pragmatic approach. The same applied to their position in relation to disposals where the landfill site operator had paid for the transport to the site where the material was to be used for engineering etc. In my view the very fact of recycling provides strong if not conclusive evidence that there is no intention to dispose of “as waste”, regardless of whether the recycler charges for the goods or has simply recycled them in order to render the resultant material attractive to someone who will take them away and use them or sell them.

It is no answer to the above to point to sub-section 64(2). The effect of this provision is simply that if a person would otherwise be considered to be disposing of material “as waste” because he or she is discarding it, the potential usefulness of the material to the disposer or to someone else cannot be taken as affecting that finding. It does not deal with the separate question of whether the fact of recycling (or indeed any other aspect of the evidence) shows that there is no intention to discard.

It follows that in my view the Tribunal misunderstood the effect of the judgment of the Court of Appeal in regard to what “recycling” is 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 the answer was that such process had indeed taken place then in my view that would bring the disposal at the site within the scope of the Court of Appeal’s decision in Parkwood. Nor would it be likely to matter whether the recycling was carried out by WRG itself or by someone else, including the original waste producer, nor whether the recycled material was sold to WRG, or given to it. Moreover, where the material disposed of at the site had been recycled it would not matter whether the disposer at the site was WRG or the recycler (if someone other than WRG): the disposal would not be “as waste” in either case, as in Parkwood.

However, Mrs Hamilton’s argument under her second ground of appeal goes further than this: her contention is that it is sufficient for the material to be re-used to bring it within the concept of “recycling”. Thus, she argues that inert material within either category (j) or category (k), having been re-used by WRG, ipso facto falls to be treated as re-cycled and therefore disposed of other than “as waste”. In other words one need have regard merely to what happens to the material at the landfill site. If it is dumped in the cell as waste, then it is disposed of, “as waste”; if on the other hand it is used for road making or daily cover, it is not.

I do not think that this is correct. If it were then in Parkwood the Court of Appeal would not have needed to consider the circumstances in which the waste material came to be recycled prior to being brought to the landfill site for engineering purposes. It would have been sufficient just to look at the use made of the material at the site. I do not consider that it is right to exclude the possibility that material can be re-used at the landfill site yet still be disposed of there “as waste”, nor (which amounts to much the same thing) that without looking at all the surrounding circumstances one can exclude the possibility that, notwithstanding engineering use at the site, the governing intention is of someone who is not the landfill site operator and who intends to discard.

Mrs Hamilton’s third ground of appeal largely overlaps with her first, in that she again criticises the Tribunal’s finding that the assumption of title by WRG was irrelevant. I have already dealt with that point. Mrs Hamilton argues in particular that the Tribunal’s reliance in that context upon the judgment of Moses J in Darfish, and in particular the passages at paragraph 22 of the judgment, is misplaced because this was in effect overruled by the Court of Appeal in Parkwood.

However I do not consider that the Court of Appeal was 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 section 40(2) were capable of being satisfied at different times, such as arose in Parkwood. The issue in Darfish was whether in delivering the soil in question to the landfill site DNS were acting on behalf of the landfill site operator or on behalf of the person with whom DNS had contracted for the removal of the material. Moses J held that the disposal was on behalf of the latter and that the latter’s intention was therefore the relevant one. I agree with Mr Puzey and the Tribunal that Moses J was not saying anything inconsistent with the Court of Appeal as to the time when the disposal conditions must all be satisfied. Nor do I understand him to be saying that one should ignore what happens at the site. He pointed out that in order to ascertain who is the relevant disposer (ie on whose behalf DNS was disposing of the material) one needed to have regard to the whole process culminating in the deposit at site and not just the moment of deposit. This is consistent with the approach adopted by the Court of Appeal. Further, in drawing the distinction in that case between disposal and retention I do not understand Moses J to be intending to exclude the possibility that the relevant disposal at the site might in certain circumstances be made by or on behalf of the landfill site operator himself, so that the governing intention would be his. For the reasons I have given I consider that such cases are not excluded by the legislation. ICI is an example of such a case.

In the context of Mrs Hamilton’s fourth head of appeal it is of relevance that in Darfish the learned judge did not make any finding as to what the intention of the original producers of the material actually was, and that in remitting the matter to the tribunal he identified the fact that the contract price paid to DNS for removal of the material reflected the material’s substantial value as a factor that was relevant in determining whether the disposer intended to discard the material (see paragraph 27 of the judgment).

Under the fourth head of appeal WRG submits that even if the governing intention in relation to each of the 11 categories was not that of WRG, nevertheless the intention of the disposer was not to discard the material, and in holding to the contrary the Tribunal misdirected itself particularly in relation to the meaning of sub-sections 64 (1) and (2). An intention to divest oneself of something was not to be equated with an intention to discard it. Nor are the economic consequences of the transaction irrelevant, as the Tribunal held. In considering whether the disposer was intending to discard the material Mrs Hamilton argued that the correct approach was to consider whether he was exploiting the inherent value of the material by obtaining payment for it or by negotiating more advantageous terms ie paying less for disposal than would otherwise be the case. If there was some financial benefit of that kind to the disposer then that was sufficient to establish that the material was not being disposed of “as waste”. She submitted that this was the case in each of the eleven categories.

Mr Puzey contended that if the economic consequences of the disposal were relevant this would be importing the words “as useless” after “discard” in the statute. There was no justification for that gloss, and it was inconsistent with sub-section 64(2). Inert material was almost always useful. Further, any businessman will want to get rid of waste as cheaply or advantageously as possible but the concept of relative financial benefit does not appear in the legislation. Whilst HMRC agreed that a sale would not result in a taxable disposal, any lesser form of financial advantage was not relevant to the issue whether the material was being discarded. The agreement by HMRC not to tax material brought to landfill at the site operator’s expense was by way of a concession not a principled stance. Mr Puzey submitted that in such a case the material was still discarded. He also contended that if WRG’s argument about a financial advantage less than sale was correct it would render administration of the tax unworkable, as it would require HMRC to investigate in detail the background to each transaction. It would also have a “knock-on” effect on the taxability of deposits of active waste, as there was value in the methane which arose from such waste.

In reply Mrs Hamilton said that she was not arguing that a concept of “uselessness” should be added as a gloss to the statutory words: the word “discard” has inherent in it the idea that the material is useless to the person who is discarding it. This is to be contrasted with merely wishing to be rid of something. As for the alleged unworkability of the tax if financial consequences are relevant to intention, Mrs Hamilton stated that the types of transactions in question were relatively limited in number, and the documents which were kept by the site operator would provide the necessary details. Nor was there anything in Mr Puzey’s point that if financial consequences were relevant the principle would also apply to active waste in that valuable methane was produced; although it was true that methane may be produced, that would not, she argued, affect the fact that active waste would be disposed of “as waste”, as section 64(2) would apply in those circumstances. Mrs Hamilton said that her approach was completely within the objectives of the regime as it would encourage recycling by waste producers, and encourage them to find sites where the inert materials were used for site engineering, as the disposal would then be tax free.

Both parties also addressed me, in the light of the general points they made, on each of the eleven categories of factual circumstances. As I have said, Mrs Hamilton’s fourth ground of appeal represented her fall-back position and was on the assumption that the relevant intention was of someone other than WRG. To that extent the structure of her argument appeared to assume that if she was wrong about the significance of (1) the assumption of title by the landfill operator and (2) the actual re-use of the material for engineering by the landfill operator, then the relevant intention would be that of someone else. Whilst this may well be so in many cases, it does not seem to me that it will inevitably be the case. In my view all the circumstances will still need to be examined in order to see whether events have occurred which shift the governing intention from, for example, the waste producer, to some intermediary, or to the landfill site operator.

The Tribunal’s conclusions in relation to the relevance of financial terms of supply/disposal of inert material are set out at paragraphs 28 and 29 of the Decision. It is appropriate to quote the relevant passages.

“28.

In the case of material within categories (b) to (e) and, so far as there is any real difference, category (h), it is certainly true that the supplier exploits WRG’s need for inert material in order to negotiate the best possible terms for disposal of the material, but I do not accept Mrs Hamilton’s argument that his doing so transforms what would otherwise, in his hands, be waste into useful material. It remains material of which he wishes to rid himself: he has no use for it, and it is an encumbrance. Section 64(2), in my judgment, makes it impossible to argue that the fact that the recipient can make use of it, and is prepared to accept it on terms which are advantageous to the supplier, is a relevant factor. The only permissible consideration is the supplier’s desire to divest himself of the (as he perceives it) waste material. If he does dispose of it, and it goes to landfill at a landfill site on or after 1 October 1996, all the conditions of section 40(2) are satisfied, and the tax is due. It does not seem to me to make any difference whether the supplier receives or makes a payment, or whether the recipient pays for the transport. The economic consequences of the disposal are, in my view, irrelevant to the incidence of tax (and are not touched upon, at all, in the legislation). The only difference between categories (b) to (e) and (h) is that the supplier has been able to negotiate more or less advantageous terms for the disposal but the fact remains that he is disposing of waste. So far as the incidence of tax is concerned, I see no basis on which one might discriminate between the categories.

29.

I recognise that if that conclusion is right, material within category (a), too, would be subject to tax. Left to myself, that would be my view: the distinction should, I think, be made between those who dispose of material which is of no use to them, and those who produce material for the purpose of exploiting it commercially. It strikes me as illogical that material which, this week, is waste which one must pay to dispose of becomes, next week, a useful commodity because a landfill site operator is short of such material, yet is waste again in the following week because there is a market surplus. However, the comment made by Aldous LJ in Parkwood, at [30], that “if X wants to get rid of his soil and sells it to the landfill site for road making, no tax will be payable”, though not strictly necessary for the decision, is in clear terms and was agreed to by the other members of court. I cannot ignore it, and the respondents were right to accept that material within category (a) is not subject to tax, I would, however, not extend the exclusion beyond those cases in which the supplier receives an actual payment in return for the material.”

In my view the Tribunal erred in law in holding that the economic circumstances of a transaction represent an impermissible consideration by virtue of section 64 (2). No factors which serve to indicate as a matter of fact whether material is being discarded by the person concerned should be excluded from consideration unless such an interpretation of the provision is unavoidable. As I have already said, the effect of section 64 (2) is that if the material is in fact being discarded a mere potential for usefulness is not to be taken as changing the position. However it is not the inherent usefulness of the material which is being put forward by WRG 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 are not, in my view, excluded from consideration by section 64 (2). As I have pointed out (paragraph 44 above), Moses J in Darfish also took the view that a reduced disposal charge was a factor which was relevant to the intention of the disposer.

The Tribunal acknowledged that the logical consequence of its conclusion was that material within category (a) (i.e. material which had been sold to WRG) is also taxable. I agree that this would be the logical consequence if the economic circumstances of the disposal were impermissible considerations. For in this context there is no obvious distinction between a sale and all other financial terms upon which inert material may be transferred. In my view it would be an extraordinary if not perverse situation if the fact of a sale were to be a permissible, indeed conclusive, consideration whereas all other financial terms were excluded from being taken into account. All such terms can and should be considered, although their respective weights will no doubt vary considerably. It might well be said, for example, that the more the financial terms are weighted in favour of the supplier, the less that aspect of the evidence would be held to point to an intention on his part to discard. Conversely the fact that a supplier, who brings material to a landfill site at his own expense and without the supply having been specifically requested by the site operator, is able to negotiate a small discount off the operator’s normal tipping charge, may not in itself provide much support for an argument that the intention was not to discard. However, I do not think one can avoid the need to assess the evidence in each case.

It follows from this that the Tribunal misdirected itself in its consideration of categories (b) to (e) and (h). It ought not to have excluded from its consideration of those categories the financial terms upon which the material in question came to be disposed of at WRG’s site.

Although it appears that the Tribunal reached its conclusion in relation to categories (b) to (e) and (h) mainly because it felt driven to it by virtue of sub-section 64(2), the Tribunal also said, when looking at category (a):

“It strikes me as illogical that material which this week is waste which one must pay to dispose of becomes next week a useful commodity because a landfill site operator is short of material yet is waste again in the following week because there is a market surplus.”

However, I see no logical reason why a supplier’s or site operator’s intentions should not be conditioned by fluctuations in supply and demand and their effect on prices and availability, so as to be reflected in the financial terms of the transactions they enter into.

As for Mr Puzey’s suggestion that the need to examine the financial terms relating to a disposal would render the administration of the tax unworkable, I do not see why this should be so. It will be for the landfill site operator to ensure that the necessary records of transactions are available - the operator will no doubt wish to preserve them in its own interests regardless of any legal obligations in that regard. I do not see why it should be more difficult to keep details in categories (b) to (e) and (h) than in category (a).

Nor was I impressed by Mr Puzey’s argument that there would be a knock-on effect on active waste because of the potential value of methane; that seems highly improbable for the reasons given by Mrs Hamilton and noted above. In any event the question whether a particular factor is relevant to intention, or is prevented from being treated as relevant by virtue of section 64(2), is a question of law the resolution of which is not greatly assisted by speculation as to the possible knock-on effects.

Having reached those conclusions in relation to the grounds of appeal argued it may be helpful for me to comment briefly on the specific categories of factual circumstances. In doing so I am conscious that this appeal is on points of law only.

No money changes hands and WRG accounts for any tax levied. HMRC accept that if WRG pays for transport of the material to the landfill site then the HMRC will treat the disposal as non-taxable, presumably on the basis that there is a net payment by or cost to WRG, making the transaction analogous to a sale. Although Mr Puzey emphasised that this was by way of a concession, the HMRC approach appears to me to be entirely appropriate. It is difficult in the case of a sale or where WRG has waived its normal tipping charge and incurred a net cost by paying for transport, to regard the disposal at site as being a disposal “as waste”. Moreover, in my view those circumstances also call into question whether the “disposer at the site” is the original waste producer or WRG. As in Parkwood it seems to me to be somewhat unreal to suggest that where WRG is so keen to obtain the material that it is willing to pay for it or pay for its transport, nevertheless the material is being disposed of at site “on behalf of” the original supplier. In my view it may well make more sense to say that in such cases the governing intention is that of WRG, since it is WRG who wants the material at its site and who has taken steps to achieve this.

Similarly in relation to cases such as category (h), where WRG needs inert material for engineering purposes and approaches known suppliers in order to procure the required amounts, I find it difficult to regard such material as being disposed of “as waste” or disposed of “on behalf of” anyone other than WRG, even in the absence of a sale or payment for transport. The reality is that WRG needs material for its own purposes, locates a willing supplier and brings the material or arranges for it to be brought to its site for those purposes. The transaction has its origin in WRG’s own requirements and in WRG’s request for the material. If in these circumstances the supplier of the material disposes of it at the landfill site he or she surely does so “at the request of” WRG and therefore “on behalf of” WRG for the purposes of sub-sections 64(3) and (4). It seems to me that there is a distinction between such a case and the circumstances confronting Moses J in Darfish, where a significant feature was the existence of a contract requiring DNS to remove and dispose of the material on behalf of the supplier, even though the material was in the event useful to the landfill site operator. In such circumstances it is not perhaps surprising that Moses J considered the governing intention to be that of the supplier. Even so the learned Judge left open the possibility that the latter may not have been discarding the material given the reduced disposal charge.

Free tips (transport not being paid by WRG), (c) uneconomic tips (d) break-even tips, (e) discounted tips

On the assumption that these disposals at the landfill site are not specifically requested by WRG it may be less likely that the governing intention would be held to be that of WRG. That does not of course mean that the disposal is inevitably a taxable one; the disposer at the site may not in these circumstances be discarding the material. As I have said, the harder the commercial bargain the disposer drives in the knowledge of the requirements of the landfill operator for material for engineering purposes, the less likely it is that the disposer will be intending to discard. However, as Moses J said in Darfish, the financial terms will be but one factor in that assessment. All the circumstances must be considered.

I have already said that it is not clear that the Tribunal directed its mind to what the intention in categories (b) to (e) and (h) would have been absent the constraint the Tribunal felt by reason of section 64 (2), which does appear to have been central to the Tribunal finding that the relevant disposals were all “as waste”. Subject to hearing counsel it seems to me that those categories are therefore matters which should probably be remitted to the Tribunal for determination on the evidence if they cannot be agreed in the light of the contents of this judgment.

As far as categories (f), (g) and (i) (and any other categories where the evidence shows that sorting, separating out, screening or other recycling to produce useful inert material has taken place) are concerned, it will be for the parties to consider whether in the light of this judgment there is any need for the matters to be remitted to the Tribunal for reconsideration, or whether the result can be agreed.

I therefore allow this appeal to the extent stated and will hear counsel on the precise form of relief which I should give in the light of the conclusions I have reached.