Lord Ericht

Barr Environmental Ltd raised the action in the FtT challenging Revenue Scotland’s decision in respect of the Scottish Landfill Tax paid on the materials used. It argued that the FtT had erred in its handling of the evidence and had come to an inappropriate conclusion on the appellant’s intentions.

The appeal was heard by Lord Ericht in the Upper Tribunal for Scotland. Ghosh QC and Bremner QC appeared for the appellant alongside Ruxandu of the English Bar, and Young QC for the respondent.

Retain for use

The appellant was in the practice of processing waste in a materials recovery facility (MRF) and using it to construct walls known as Outer Cell Walls (OCWs) to divide individual cells of waste at landfill sites. Once an individual cell was filled with waste the cell could be capped and then landscaped over to restore the land. Revenue Scotland took the position that this processed material was chargeable to SLT.

The First-tier Tribunal held that substantial quantities of the processed material had been ‘disposed of as waste’ within the meanings of sections 3, 4 and 5 of the Landfill Tax (Scotland) Act 2014 and therefore were taxable. The appellant submitted that the First-tier Tribunal did so on the basis of a serious misreading and mishandling of the relevant evidence and a misreading of the relevant authorities.

It was the appellant’s position that it had given clear and cogent evidence that it did not intend to discard the material used to build OCWs but retain it for use, and this evidence had not been challenged before the FtT. On that basis, it was not open for the Tribunal to conclude that the material had been discarded as waste.

Senior counsel for the respondents submitted that the findings of the FtT disclosed no errors of law and should not be interfered with. A number of factors had pointed towards an intention to discard the material and there was no evidence of elements such as training on how to construct the OCWs or evidence of their functional engineering benefits.

It was agreed by both parties that in the event that the appellant’s arguments succeeded the decision should be re-made by Lord Ericht rather than remitted back to the FtT.

Nothing wrong in principle

In his decision, Lord Ericht observed: “There is nothing wrong in principle with a landfill operator seeking to reduce its liability to landfill tax by recycling waste, and nothing wrong in principle with a landfill operator using the products of recycling. That is not to say that a landfill operator may reduce his landfill tax liability by a mere pretext of recycling: for example a cell which consisted as to 90 % of a wall of recycled waste and only 10% as to the waste surrounded by the wall is unlikely to be genuine recycling. The test of an objective intention to discard is well suited to preventing any such abuse.”

Examining the FtT’s approach to the statutory test, he said: “The First-tier Tribunal has erred in law in applying the test by failing to properly take into account that saving landfill tax by using recycled materials fulfils the objective of the tax. Instead, the Tribunal proceeded on the basis that there was something inherently wrong with reducing tax by using recycled materials.”

He continued: “The appellant invested in the MRFs to retain local authority contracts by saving their local authority clients’ money by reducing their landfill tax charges by recycling waste. There is nothing wrong in principle with such a model, and it matters not whether the model happens to have been written down in a documented business case.”

Re-making the decision, Lord Ericht began: “The appellant made a choice to construct the OCWs differently from the industry norm. It decided to innovate on industry practice and use recycled materials. It had an operational choice as to how to construct OCWs. It could construct them using recycled materials [or] it could construct the OCWs without using recycled materials in the way done on other sites where there had not been investment in recycling facilities and value was not being recovered from waste. Either of these choices would have been a legitimate one for the appellant to make, and neither of them points to an intention to discard.”

He concluded: “Weighing up all these factors, I find that there was no intention to discard in respect of the OCWs. The sole factor in favour of there being such an intention (the increase in the use of clay) is outweighed by the other factors. The appeal on taxable disposals in respect of the OCWs succeeds.”

The appellant further succeeded in relation to issues of penalties and assessments on taxable disposals on roads built on landfill sites, but failed in respect of another argument relating to its handling of filter cake it received from clients for disposal.