Environment – Landfill tax – Biomass – Appellant receiving biodegradable material into landfill site and using gas generation from its decomposition to generate electricity to sell to grid – Whether entitled to refund of landfill tax paid on biomass on ground that not “disposed of as waste” so as to incur liability to landfill tax under section 40 of Finance Act 1996 – Respondents refusing refund – Whether appellants disposing of biomass with “intention of discarding” within meaning of section 64 – Appeal dismissed
The appellant operated a landfill site in Mount Vernon, Glasgow, pursuant to a pollution prevention and control permit issued by the Scottish Environment Protection Agency. Biodegradable material deposited in cells at the site decomposed and produced landfill gas, composed of methane with some carbon dioxide, which was captured by the appellant and burned in gas generators to produce electricity. The appellant then profitably sold that electricity on to the Scottish Power Distribution System, transferring it via a cable connecting its site to the grid. The terms of the appellant’s permit required each cell at the site to be operated in accordance with a landfill gas management system, which had to optimise the collection, extraction and disposal or use of the landfill gas generated there.
The appellants sought to reclaim the landfill tax that it had paid on the biomass deposited at the site. It contended that, so far as that material was used to generate electricity, there was no “disposal of material of waste” liable to landfill tax under section 40 of the Finance Act 1996.
The respondents refused to refund the tax and the first-tier tribunal (FTT) upheld that decision on appeal. The issue was whether the biomass was disposed of “with the intention of discarding the material” so as to fall within the definition of waste disposal in section 64(1) of the 1996 Act. The FTT took the view that it was not bound by previous Court of Appeal decisions decided on different facts. It took into account that the appellant was under a regulatory obligation to use the landfill gas produced at the site and that the purpose of the tax was to encourage recycling and discourage putting material into the ground. It also found that it would be too difficult to calculate the amount of any overpaid tax. It held that, for the purposes of section 64(1), there had to be one “intention” in relation to a particular load of waste disposed at the site and that the appellant could not intend to discard an unascertainable proportion of material at the time when it was deposited, while having no such intention with regard to the unascertained balance. It concluded that the material was waste. The appellant appealed.
Held: The appeal was dismissed.
(1) The FTT had correctly concluded that it was not bound to decide the appeal in the appellant’s favour on the authority of Customs and Excise Commissioners v Parkwood Landfill Ltd [2002] EWCA Civ 1707; [2002] PLSCS 265, in which it had been assumed, as a result of a concession by the Commissioners, that there was no intention to discard. The FTT had erred in rejecting Revenue and Customs Commissioners v Waste Recycling Group Ltd [2008] EWCA Civ 849 as a relevant authority. That case was authority for the propositions that: (i) the fact that material went into the void by way of landfill did not of itself mean that it was discarded for the purposes of section 40; (ii) the fact that the use made of the material was pursuant to a regulatory obligation imposed on the landfill operator did not of itself mean that there was no intention to discard it; and (iii) the fact the material would be left in the void after it had performed the useful function for which it was put there, and was therefore abandoned at that point, did not mean that there was an intention to discard at the moment when it was put into the void. However, WRG did not require the appeal to be decided in the appellant’s favour; a decision still had to be made about whether the biomass deposited at the appellant’s site was being discarded.
(2) Although the decision of the FTT could be criticised in some respects, it had correctly held that the material deposited by the appellant was not used by it to generate electricity and that it was instead disposed of with the intention of discarding it for the purposes of section 64 and 40(2) of the 1996 Act. Fine distinctions as to what work was done to separate materials were unhelpful as a test for that purpose. There was no requirement that some act of “retention” or separation out of a part from the whole had to be identified before an operator could be said not to be discarding the waste, and it was possible to have a separate intention in relation to some part of an undifferentiated mass of material. None the less, the fact that the appellant did not segregate or retain the biomass before it was dumped into the void, while not determinative, was an indicator that it was not intending to use the material.
The fact that methane occurred inevitably from the decomposition of the biomass was a further indicator that the electricity generation did not result from the “use” of the biomass. The concept of intending to use something, as opposed to casting it aside or abandoning it, involved some action to harness the properties of an item and direct them towards a purpose of the user. There was no “use” of the biomass to produce landfill gas since methane production was an inevitable consequence of tipping biomass into the landfill site and would occur regardless whether the appellant used the methane to make electricity or disposed of it by flaring. It was the biomass that was disposed of by way of landfill, not the methane.
(3) The appellant was under an obligation to use the landfill gas produced by the biomass to methane to generate electricity. Since it was possible for the landfill gas generated at the suite to be used rather than flared, there was an obligation on the regulator to ensure, through the permit granted, that the operator was obliged to use the gas in that way. The terms of the appellant’s permit required it to maximise the use of gases generated by the degrading waste and the appellant was therefore obliged to use the gas where it was able to do so. However, the fact that a person was under an obligation to use something did not, of itself, turn that use into discarding or abandoning the thing. Therefore if, contrary to the above, the use of the methane had equated to use of the biomass, the fact that the appellant was under an obligation so to use it would not necessarily have meant that it was discarded or abandoned.
(4) The FTT had erred in taking into account problems with assessing quantum as a ground for dismissing the appeal. The suitability or otherwise of models for assessing the amount of biomass was an issue to be addressed as the quantum stage, not the liability stage, and should not play any role in the question of principle as to whether landfill tax applied to biomass. Nor did the apparent difficulty of quantifying the proportion of biomass included in the rubbish tipped into the void support the argument that there had to be an intention to discard that material. Although it might be virtually impossible to work out precisely how much biomass was in each tonne of rubbish or how much would turn into methane, there was nothing unusual in the use of formulae, assumptions and estimations in computing an amount of tax due in the context of both landfill tax and other indirect taxes.
(5) The FTT had not erred in deciding that the policy arguments behind landfill tax favoured its construction of the legislation. Although policy had only a limited role to play in the construction of the clearly-worded statute, the primary policy goal of reducing the amount of waste deposited in landfill was not achieved by the appellant’s activities. So far as there was a policy that landfill gas should go to generate electricity rather than be flared, that goal was achieved both by imposing a requirement on the appellant to use the gas in that way and by allowing it to retain profits from the sale of the electricity to the grid, without any need for an additional tax incentive. Overall, the FTT had reached the correct conclusion and its decision was upheld.
Roderick Cordara QC and Zizhen Yang (instructed by KPMG LLP, of Manchester) appeared for the appellant; Melanie Hall QC and Simon Charles (instructed by the legal department of HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
