Northumbrian Water Ltd

JurisdictionUK Non-devolved
Judgment Date06 June 2013
Neutral Citation[2013] UKFTT 337 (TC)
Date06 June 2013
CourtFirst Tier Tribunal (Tax Chamber)

[2013] UKFTT 337 (TC)

Judge Swami Raghavan, Jo Neill.

Northumbrian Water Ltd

Rupert Baldry QC and Thomas Chacko, counsel, appeared for the Appellant

Christiaan Zwart, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents

Aggregates levy - aggregate extracted from pit and used in construction of dams and causeway around reservoir - commercial exploitation - whether aggregate "again becomes part of the land at the site from which it was won" (Finance Act 2001 ("FA 2001"),Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e)) - yes - appeal allowed.

The First-tier Tribunal allowed the taxpayer company's appeal against HMRC's decision to register it for aggregates levy in relation to its construction works involved in raising the level of a reservoir. The taxpayer's construction site, which contained both the pit and the locations where the gravel was used, was a "site" for the purposes of the relief under FA 2001,Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e). That FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) applied was consistent with the relief having as a primary purpose the relief from levy where aggregate was sourced and extracted within the construction site.

Summary

The taxpayer provided water and sewerage services in Northumbria and in Essex and Suffolk. In 1998, it decided to raise the level of the Abberton reservoir by 3.2m so as to retain more water from winter rain and from surplus years. Gravel was needed to enlarge the main reservoir dam and the causeway across the dam and to construct further dams around the edge of the reservoir. The gravel was obtained from the Rye Borrow pit some 500m away from the reservoir. The gravel became part of the land by being used in structures which were treated as land.

On 9 September 2010, HMRC decided that the aggregate used in the reservoir enhancement did not again become part of the land at the site at which the aggregate was won. On 18 April 2011, HMRC confirmed that they were registering the taxpayer for aggregates levy.

The taxpayer contended that the dams, causeway and pit were a single "site" for the purposes of FA 2001,Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e). That provision was a relief and was plainly intended for the case where aggregates were being used for construction purposes. Relying on Hochtief Ltd [2009] UKFTT 321 (TC) ("Hochtief") and C & E Commrs v East Midlands Aggregates LtdTAX[2004] BTC 8107, the taxpayer contended that the word "site" naturally covered the construction site, at which the particular works involving the aggregates in question were taking place. Aggregates levy was an environmental tax and the relief served to encourage the use of aggregate sourced within a construction site so as to minimise the environmental impact of transportation. Confining FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) to situations where the aggregate was returned to the exact spot where it was extracted would render the provision otiose in practice and was an unnaturally restrictive construction.

HMRC contended that the term "site" in FA 2001,Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) was conditioned by the subsequent historic term "won". Since FA 2001, Finance Act 2001 section 48 subsec-or-para 3s. 48(3) defined references to "winning" as being separating aggregate "from any land" when Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) referred to "part of the land at the site from which [the aggregate] was won", that incorporated winning "from any land". The term "originating site" was defined in FA 2001, Finance Act 2001 section 20 subsec-or-para 1s. 20(1)(d) as the site "from which the aggregate was won". Thus, "originating site" referred to the land in which aggregate was comprised. That was the Rye Borrow pit, not the construction site.

The Tribunal held that althoughHochtief came to the conclusion that the relevant site in that case was the construction site, it was not to be read as saying that the construction site would be determinative of what the site was. Rather, the construction site was something to be taken account of in ascertaining what the site was for FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) purposes. The need to consider the exploitation to which the relief in FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) was primarily directed towards exploitation in the form of use of aggregate for construction purposes. That suggested that while not conclusive, the issue of what was the construction site was a significant factor to take into account. That was also consistent with how an ordinary person would approach the meaning of "site". The person would ask "site for what?". The notion of site in that context ought to acknowledge that the relief applied primarily to exploitation in the form of use for construction purposes. The activity given in answer to the question "site for what?" had to bear some relation to something other than aggregate winning in order to give FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) some purpose.

In this case, the Tribunal held that the word "site" in FA 2001,Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) did not mean the particular location where the aggregate was won, but should bear a wider meaning in order to reflect its purpose. Whilst the locations were all within the same planning application site, it was not something to which the Tribunal gave any significant weight. In contrast, whether the locations were on the same construction site was of significance, given that FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) had construction purposes firmly within its purview. Taking into account the size and scale of the construction project, the pit and gravel use, locations were on the same one construction site, which was delineated by a fenced off construction boundary. If ordinary persons were asked whether the locations were on one site, they would, in view of the clearly defined construction site, say that it was. The construction site containing both the pit and the locations where the gravel was used was a "site" for the purposes of the relief referred to in FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e). That FA 2001, Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e) applied was consistent with the relief having as a primary purpose the relief from levy where aggregate was sourced and extracted within the construction site, rather than being restricted to construction at the particular area of ground where the aggregate was extracted.

Comment

The Tribunal has emphasised that for the purposes of FA 2001,Finance Act 2001 section 19 subsec-or-para 3s. 19(3)(e), what is of significance is whether the locations involving the exploitation of the aggregates are on the same construction site, not whether the locations are within the same planning application site. HMRC should consider the primary purpose of the legislation in deciding whether to register a taxpayer for aggregates levy. For commentary on aggregates levy, see CCH British VAT Reporter at ¶8-295.

DECISION
Introduction

[1]This is an appeal against HMRC's decision to register the appellant for aggregates levy. The levy is charged on aggregate which is subjected to commercial exploitation but there is an exception available when the aggregate becomes part of the land "at the site from which it was won".

[2]The appellant, a regulated water and sewerage company provides water and sewerage services in Northumbria and in Essex and Suffolk. The appeal concerns the construction works involved in raising the level of Abberton reservoir south of Colchester in order to increase its storage capacity.

[3]Gravel was needed to enlarge the main reservoir dam, the causeway across the dam and to construct further dams around the edge of the reservoir. This was obtained from a pit some 500m away from the reservoir known as the Rye Borrow Pit. It is not in dispute that the gravel became part of the land by being used in structures (the dams and causeway) which are treated as land. The particular issue for consideration is whether the Rye Borrow Pit, the dams and causeway were all part of a single "site" for the purposes of the exception available for when aggregate become part of the land "at the site from which it was won". The appellant argues the dams, causeway and pit were a single "site". HMRC disagree, they say the sites of the dams and causeway are not the site from which the gravel was won i.e. the site of Rye Borrow Pit.

Evidence

[4]On behalf of the appellant we heard oral evidence from Jim Jenkins, a chartered engineer with 31 years experience in the water industry, who worked for the appellant as the programme manager for the scheme of works at Abberton. He had been involved in the scheme for the last 15 years, the last 7 in a full time capacity. Mr Jenkins' evidence covered the background relating to the water supply system, the origin of the scheme to increase the water storage capacity at Abberton, the planning aspects to the scheme, and the construction works. Mr Jenkins was cross-examined by HMRC. On behalf of HMRC we heard oral evidence from HMRC Officers Phillip Hayes and Jim Donnachie. The statements of Mr Hayes and Mr Donnachie related to the correspondence, assessments and reviews which are the subject of the appeal. Mr Hayes' evidence also covered his visit to the surroundings of the reservoir and pit.

[5]We had 2 lever arch bundles which contained various photographs and maps, planning permission and planning application documents, and correspondence between the parties.

Law
Aggregates Levy

[6]Aggregates levy was introduced byFinance Act 2001 part 2Part 2 of the Finance Act 2001 "FA2001". Under Finance Act 2001 section 16 subsec-or-para 2s16(2) of FA2001 the levy is charged whenever a...

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