A case for disposal: landfill tax liability

Janine Hurley looks at a court case concerning an appeal by Waste Recycling Group for a landfill tax refund, and examines what lessons can be learnt

The following case debates the question of whether there was a liability to landfill tax in the case of Waste Recycling Group (WRG). In doing so, it examines the proper interpretation and application of the provisions of Part III of the Finance Act 1996 - under which landfill tax was introduced - and, in particular, sections 40(2)(a) and 64 of the Act.

WRG owns and operates 60 landfill sites across the UK - most of these accept both inert and active waste. WRG was liable to pay landfill tax charged in respect of taxable disposals at its sites. All of the sites were licensed under Part II of the Environmental Protection Act 1990 and had to operate in accordance with strict conditions of the licences.

One such condition was that site operators must keep sufficient stocks of inert material for use as daily cover to lay over the waste material that has been deposited during the course of a day's operation. Inert material is also used for site engineering purposes. WRG also operate 25 transfer stations and 60 CA sites.

Whenever waste is accepted at a landfill site, transfer station or CA site, title in the waste materials passes to WRG who deals with the waste as it sees fit.

WRG sought from the appellant, HM Revenue & Customs, a refund of landfill tax paid in respect of inert materials it had used in the period 1 October 1996 to 30 September 2002, either to provide daily cover or in the construction of the roads on its sites.

It contended that such use of inert material could not give rise to a taxable disposal for the purposes of landfill tax and sought a refund of the overpaid tax (in the sum of £2.1M) because the material had not been disposed of "as waste".

Heart of the dilemma
The question to be decided by the court was whether the use of inert materials by WRG for daily cover and road construction was "a disposal of material as waste" pursuant to sections 40(2)(a) of the Act.

In coming to its conclusions, the court considered the decisions of Moses J in Commissioners of Customs & Excise v Darfish Ltd [2000] All ER (D) 361 and of the Court of Appeal in Commissioners of Customs & Excise v Parkwood Landfill Ltd [2002] STC 1536.

The court followed the approach taken previously by Barling J of the High Court in that whether WRG's use of materials constituted "a disposal of material as waste" depended on whose was the governing intention and what that intention was.

The court acknowledged that Parkwood established that all four conditions laid down by section 40(2) must be satisfied at the same time and agreed that moment must be the time when the last of them is satisfied.

This is likely to be the moment when the material is disposed of as landfill in accordance with the provisions of section 65. This is the relevant time for assessing whose was the governing intention and what that intention was.

The court held that the materials were deposited on the landfill site by WRG at a time when the property in them had passed to WRG. Assuming there to have been a disposal at all, the court found that the disposal relevant for the purposes of section 40(2)(a) was made by WRG on its own behalf.

The second question is whether WRG intended to discard the materials. The court held that the word 'discard' must be seen by its ordinary meaning of 'cast aside', 'reject' or 'abandon' and did not comprehend the retention and use of the material for the purposes of the owner of it.

Thus, the materials used by WRG for daily cover and the building of roads were not the subject matter of a taxable disposal as defined in section 40(2) and the appeal was dismissed.

Main conclusions
The case confirms several points. The court appears to have gone further than Parkwood in holding that the relevant time at which the satisfaction of the conditions imposed by section 40(2) had to be considered was the time at which the last of them is satisfied. That is likely to be the moment when the material is disposed of as landfill in accordance with the provisions of section 65.

The person making the disposal does not necessarily have to be the original producer of the materials. There may well be cases in which the deposit by way of landfill is effected by the waste producer tipping it onto the landfill site with the consent of the site operator. In addition, there may be other cases in which the site operator deposits the material on to the landfill site as agent for the producer of the material.

What is clear is that all the circumstances surrounding the disposal must be taken into account. The fact that title to the materials had passed to WRG by the time the materials were deposited clearly was instrumental to the court's decision.

The right intentions
The fact that the person making the disposal does not necessarily have to be the original producer of the materials also means that the relevant intention does not have to be that of the original producer. The court held that there is no principle that material once labelled and intended as 'waste' is always 'waste' just because the original producer of it had thrown it away.

Recycling may indicate a change in the relevant intention, but is not an essential prerequisite. Reuse by the owner of the material for the time being may do likewise. Once again, all the facts of the case must be considered.

Janine Hurley is sector manager at Eversheds

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