Aggregates levy – Extraction of limestone and fluorspar – Whether limestone exempt from aggregates levy as spoil from process by which fluorspar separated from other rock after being extracted or won with it – Section 17(3)(f)(ii) of Finance Act 2001 – VAT & Duties Tribunal finding claimant liable for aggregates levy – Appeal dismissed
The claimant operated as a joint venture between two mining and quarrying companies, extracting limestone and fluorspar deposits from two sites in Derbyshire. The materials were extracted by digging or blasting, after which the fluorspar was separated from the limestone by various means including the use of an excavator, sieving through a “grizzly screen”, and “coning”, which involved heaping the material into a cone shape in which the coarser material would tend to gravitate to the outside of the pile and the finer material containing the fluorspar to the centre. The claimants sold considerably more limestone than fluorspar. The fluorspar content of the rock varied and the claimant’s only customer for fluorspar set a minimum of 20% fluorspar content for the material it accepted.
Following the introduction of aggregates levy by the Finance Act 2001, the defendants took the view that the limestone extracted by the claimants was subject to the levy. Before the VAT and Duties Tribunal, the claimant contended that the limestone it extracted was not taxable aggregate, but was exempt, under section 17(3)(f)(ii) of the 2001 Act, as aggregate consisting wholly of the spoil from a process by which a substance listed in section 18(3), namely fluorspar, had been separated from other rock after being extracted or won with it. Rejecting that contention, the tribunal held that: (i) physical separation by the breaking of a mechanical or chemical bond was required; (ii) the application of a degree of force was implied; (iii) sorting by excavator or coning was insufficient; and (iv) the exemption applied only so far as the limestone and fluorspar were separated by the use of the grizzly screen. It further found that the claimant was primarily carrying out a limestone quarrying business, to which the sales of fluorspar were merely incidental.
The claimant appealed. It contended that the tribunal had erred in its application of section 17(3)(f) and in embarking upon a general consideration of the nature of the claimant’s business.
Held: The appeal was dismissed.
(1) To qualify for exemption under section 17(3)(f), the material in question had to have undergone a “process” to separate it from the other material with which it had been extracted or won. The claimant needed to show both that the fluorspar had been extracted or won “with” the limestone, and that it had thereafter undergone a “process” that separated it from limestone, the “other rock”. In the present context, the word “extracted” meant removing the material from the ground. The word “winning” placed the emphasis upon having access to the target mineral, although the definition of “winning” a mineral had to be formulated in the context of the geological conditions in which that particular mineral might be found: Lewis v Fothergill (1870) LR 5 Ch App 103, English Clays Lovering Pochin & Co v Plymouth Corporation [1974] 1 WLR 742 applied. Consequently, it was necessary to distinguish between winning the limestone and winning the fluorspar. Although winning the host rock might be a necessary preliminary in order to win fluorspar, it was not the same thing. The fluorspar was not “won” until after the host rock had been removed as part of the process of winning the fluorspar. Consequently, the limestone could not be said to be won “with” the fluorspar: R (on the application of Bleaklow Industries Ltd) v Secretary of State for Communities and Local Government [2008] EWHC 606 (Admin); [2009] EWCA Civ 206 applied.
(2) Further, the nature of the claimant’s business was a relevant consideration in determining whether the limestone could properly be described as “spoil” within the meaning of section 17(3)(f). In the context of an Act dealing with mining operations and mineral extraction, the word “spoil” meant a substance produced as a result of such activities that was not the primary target of the operations. Consequently, limestone was not spoil if the primary target of the claimant’s operations was the quarrying of limestone, simply because, in the course of those operations, the claimant came across valuable fluorspar deposits. The tribunal had been entitled to find that the claimant’s main purpose was the quarrying of limestone and that the sales of fluorspar were incidental to that purpose. It was therefore arguable that the limestone could not be exempt aggregate because none of it was spoil; however, that matter was not the subject of a cross-appeal by the defendants.
(3) The tribunal had not erred in its interpretation of the word “separated” in section 17(3)(f). It had correctly proceeded on the basis that it implied the application of force to break a mechanical or chemical bond. Coning was insufficient since it did not break any such bond. Moreover, the finer material obtained by that process was only material in which fluorspar was found and the fluorspar itself had to be separated from that finer material. While the use of the grizzly screen did break a mechanical bond, it did so in the course of extracting or winning the fluorspar and not after the fluorspar had been won, as required by section 17(3)(f). The same applied to the processses of digging and blasting.
Craig Howell Williams QC and Richard Honey (instructed by Eversheds LLP, of Leeds) appeared for the claimant; James Puzey (instructed by the legal department of HM Revenue & Customs) appeared for the defendants.
Sally Dobson, barrister