Taxation – Aggregates levy – Exploitation by use for construction purposes – Part 2 of Finance Act 2001 – Respondent raising sides of reservoir using gravel extracted from pit 500m away – Appellants taking view that works involving “commercial exploitation” of aggregates so as to attract aggregates levy – Whether excluded under section 19(3)(e) on ground that exploitation resulting in aggregates again becoming part of land at site from which they were won – Whether pit and reservoir part of same “site” for that purpose – Appeal dismissed
The respondent, a regulated water and sewerage company, carried out works to raise the sides of a reservoir near Colchester in order to increase its storage capacity. The works involved the use of gravel, obtained from a pit 500m away from the reservoir and transported along a temporary haulage track, to raise dams around the edges of the reservoir. The appellants took the view that the works amounted to the commercial exploitation of aggregates for construction purposes, within the meaning of Part 2 of the Finance Act 2001, with the result that the respondent was required to register for aggregates levy.
The first-tier tribunal (FTT) allowed the respondent’s appeal against that decision, holding that the use of the aggregate did not fall within the definition of “commercial exploitation” in section 19 of the 2001 Act, since it fell within the exclusion in section 19(3)(e) for exploitation that resulted in the aggregate again becoming part of the land at the site from which it was won. The FTT held that the section 19(3)(e) exclusion was most likely to be relevant to exploitation for construction purposes, rather than any of the other kinds of exploitation listed in section 19(1), and that the word “site” should not be construed narrowly for that purpose so as to confine it to the footprint of the pit or quarry from which the aggregate was won. It took into account the distance, scale and size of the project, the site boundaries in the planning application and the construction contract, and the fact that the respondent owned the whole of that site, and it concluded that the pit from which the gravel had been extracted and the reservoir where it ended up were part of the same site for the purposes of section 19(3)(e).
The appellants appealed. They contended that the FTT had misdirected itself by asking whether the pit and the reservoir were both part of the same construction site, rather than whether they were part of the “site”
Held: The appeal was dismissed.
The exploitation of aggregate for construction purposes would not count as “commercial exploitation” for the purposes of the aggregates levy if the only exploitation that took place was exploitation which resulted in the aggregate in its natural form becoming part of the land at the site from which it was won. The FTT had not fallen into the error of regarding the “site” for that purpose as necessarily co-extensive with the construction site where the aggregate was extracted. They had considered a range of factors and had regarded the boundary of the construction site as significant but not determinative. There was no error of law in that approach.
When considering an exploitation by way of use for construction purposes, the effect of section 19(3)(e) was that aggregate used for such purposes would not be exploited commercially if, as a result of its use for construction purposes, it again became part of the land at the site from which it was won. Approaching the issue in that way, the FTT had been right to regard consideration of the construction site as a significant factor, albeit not a determinative one, in identifying the site. When asking whether the particular use of aggregate in a construction project amounted to the commercial exploitation of that aggregate, then the nature of the construction project and the location of the building work in relation to the quarry had to be an important consideration: Customs and Excise Commissioners v East Midlands Aggregates Ltd [2004] EWHC 856 (Ch) and Hochtief Ltd v Commissioners for HM Revenue and Customs [2009] UKFTT 321 (TCC) considered.
The FTT had been entitled to look at the state of the construction site as at the date of the building works, when a temporary haulage road was in place to transport the aggregate to the reservoir, rather than when the work had been completed, when the track would be removed and the land between the pit and the reservoir returned to agricultural use. It was important for a builder to know, at the time when it made use of aggregate, whether the exploitation of the aggregate would be “commercial” and hence whether it was under an obligation to register for aggregates levy. The legislation contemplated that a person would know, at the time of carrying on a particular activity, whether or not it amounted to commercial exploitation of the aggregate. Such a person should not have to predict, on the basis of the initial building plans, whether there was going to be a sufficient nexus between the quarry and the finished project for the exploitation to fall outside the definition of commercial exploitation.
The FTT’s decision did not represent an interference with the appellants’ exercise of their power under section 24(7) of the 2001 Act to delineate the boundaries of a site in the register in such a way as to prevent avoidance of the levy. The FTT was not addressing the issue of the proper scope of the premises to be registered but was considering the prior issue of whether the premises should be registered at all. No other commercial exploitation of the aggregates from the pit was alleged to be taking place other than their use for the reservoir. If, as the FTT found, there was no commercial exploitation taking place there at all, then the question of where the boundary lines should be drawn on the register did not arise. Accordingly, the FTT had made no error of law in failing to explain why the boundaries of the site for the purposes of section 19(3)(e) should be different from those drawn by the appellants under section 24.
Lisa Busch (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Rupert Baldry QC and Thomas Chacko (instructed by Northumbrian Water Ltd) appeared for the respondent.
Sally Dobson, barrister
Read a transcript of Commissioners for HM Revenue and Customs v Northumbrian Water plc here
