Neutral Citation Number: [2002] EWCA Civ 1707    
Case No: A3/2002/0285
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
THE VICE-CHANCELLOR
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28th November 2002

Before:

LORD JUSTICE ALDOUS
LORD JUSTICE JONATHAN PARKER
and 
MR JUSTICE AIKENS
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Between :

	PARKWOOD LANDFILL	Appellant	
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	COMMISSIONERS OF CUSTOMS & EXCISE	Respondent	

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D. Milne QC and R. Barlow (instructed by Nabarro Nathanson) for the Appellant
P. Havers QC and Miss P. Whipple (instructed by Solicitor for Customs & Excise) for the  Respondent

Hearing dates : 12th November 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Aldous:

1.	This is an appeal by Parkwood Landfill Ltd (Parkwood) against the judgment and order of Sir Andrew Morritt VC of 29th January 2002.
2.	These proceedings arise out of an assessment to landfill tax amounting to just over £30,000 plus interest notified by the Commissioners of Customs & Excise (the Commissioners) to Parkwood in respect of accounting periods in 1998 and 1999.  An appeal against that assessment was allowed by the VAT and Duties Tribunal in its decision dated 5th June 2001.  The Commissioners’ appeal against that decision was allowed by the Vice Chancellor.
3.	The Facts – The full facts were set out in detail by the Tribunal.  I therefore need only extract the basic facts necessary to understand the decision of this appeal.
4.	Parkwood is a landfill site operator with a landfill site at Parkwood Road, Neepsend, Sheffield.  Parkwood Recycling Ltd (Recycling) carries on business as recyclers of waste at Salmon Pastures, Sheffield.  The majority of its shares are owned by Parkwood.
5.	Under the terms of a waste recycling agreement between Sheffield City Council (the City Council) and Recycling, the City Council delivers waste to Recycling’s premises at Salmon Pastures.  Property in that waste passes to Recycling and the City Council pays a fee per tonne of waste. 
6.	At Salmon Pastures, Recycling first divides the waste into two types, namely recyclable material and waste.  The waste material is taken to Parkwood’s landfill site where it is deposited in the landfill and the appropriate tax is paid.  The recyclable material is separated into aggregates and fines.  Aggregates are concrete and other materials which are sorted, crushed and mixed so as to form mixed aggregate in pieces of 70mm or less in diameter.  Fines are a soil-like material produced by sorting and mixing suitable materials to form a product which has the appearance of and many of the characteristics of soil, including the ability to support the growth of plants.  It consists of pieces of material 12mm or less in diameter.  Recycling sells the aggregate and fines it produces from the recycling process at an average price of £2.50 per tonne.  
7.	One of Recycling’s customers is Parkwood, which buys recycled material to use at its landfill site for road making and landscaping purposes.  Recycling do not have any lorries.  Therefore Parkwood collects the purchased recycled material and takes it to its landfill site.  Although Recycling is an associate company of Parkwood the Tribunal found that those companies dealt with each other at arm’s length.  
8.	The assessment of landfill tax related to the recycled material sold by Recycling to Parkwood which was used for road making and landscaping.  
9.	The Law – Landfill tax was introduced as from 1st October 1996 by the Finance Act 1996.  The tax is a creature of domestic statute in that it is not a tax required under any provisions of community law.  However the United Kingdom does have obligations in community law to take appropriate steps to encourage the prevention, recycling and processing of waste under EC Council Directive 75/442/EEC.  The Environmental Protection Act 1990 is the key piece of domestic legislation enacted to meet this obligation.  Landfill tax can therefore be seen as a separate domestic initiative aimed at protecting the environment and securing the ambitions of the Directive.  
10.	A government White Paper of December 1995 entitled “Making Waste Work” (CM3040) preceded the imposition of landfill tax.  It examined the strategies to be adopted to reduce the environmental impact of waste disposal.  So far as landfill was concerned, three main objectives were set out.  First, to reduce the amount of waste; second to reduce the amount of material going to landfill and third to place the cost of landfill on the person disposing of the waste.  In that way waste producers would become aware of the cost of their activities.  The central purpose of the landfill tax was stated to be: 
“… to ensure that landfill costs reflect environmental impact thereby encouraging business and consumers in a cost effective and non-regulatory manner, to produce less waste; to recover value from more of the waste that is produced; and to dispose of less waste in landfill sites.”		
11.	The relevant sections of the 1996 Act appear in Part III.  They are as follows:
“39. (1) A tax, to be known as landfill tax, shall be charged in accordance with this Part.

(2) The tax shall be under the care and management of the Commissioners of Customs and Excise.

40. - (1) Tax shall be charged on a taxable disposal.

(2) A disposal is a taxable disposal if—
(a) it is a disposal of material as waste,
(b) it is made by way of landfill,
(c) it is made at a landfill site, and
(d) it is made on or after 1st October 1996.
(3) For this purpose a disposal is made at a landfill site if the land on or under which it is made constitutes or falls within land which is a landfill site at the time of the disposal.
41. - (1) The person liable to pay tax charged on a taxable disposal is the landfill site operator.

(2)  The reference here to the landfill site operator is to the person who is at the time of the disposal the operator of the landfill site which constitutes or contains the land on or under which the disposal is made.
…
61. - (1) Where –
(a) a taxable disposal is in fact made on a particular day,
(b) within the period of 14 days beginning with that day the person liable to pay tax in respect of the disposal issues a landfill invoice in respect of the disposal, and
(c) he has not notified the Commissioners in writing that he elects not to avail himself of this subsection,
for the purposes of this Part the disposal shall be treated as made at the time the invoice is issued.
(2) The reference in subsection (1) above to a landfill invoice is to a document containing such particulars as regulations may prescribe for the purposes of that subsection.

(3) The Commissioners may at the request of a person direct that subsection (1) above shall apply – 
(a) in relation to disposals in respect of which he is liable to pay tax, or
(b) in relation to such of them as may be specified in the direction,
as if for the period of 14 days there were substituted such longer period as may be specified in the direction.
…
64. - (1) A disposal of material is a disposal of it as waste if the person making the disposal does so with the intention of discarding the material.

(2) The fact that the person making the disposal or any other person could benefit from or make use of the material is irrelevant.

(3) Where a person makes a disposal on behalf of another person, for the purposes of subsections (1) and (2) above the person on whose behalf the disposal is made shall be treated as making the disposal.

(4) The reference in subsection (3) above to a disposal on behalf of another person includes references to a disposal –
(a) at the request of another person;
(b) in pursuance of a contract with another person.
65. - (1) There is a disposal of material by way of landfill if – 
(a) it is deposited on the surface of land or on a structure set into the surface, or
(b) it is deposited under the surface of land.
…”	
12.	The Appeal - Parkwood’s position is simple.  They submitted that before tax can be charged there must be a taxable disposal (see section 40(1)).  For that to take place, the four conditions in subsection (2) of section 40 must be satisfied.  
13.	Parkwood accept that any relevant disposal took place after 1st October 1996.  Therefore the condition in subsection (2)(d) was satisfied.  They also accept that they made a disposal of material at their landfill site and in consequence of the definition in section 65(1) the disposal was by way of landfill.  However they submit that the condition in subsection (2)(a) of section 40 was not satisfied as the disposal was not “as waste”.  As the definition of waste in section 64(1) makes clear, material used for roads and the like is not waste as the person making the disposal, Parkwood, did not intend to discard the material.  
14.	The Commissioners accept the submission of Parkwood in so far as it goes, but they submitted that Parkwood’s submission concentrated upon the wrong disposal.  Upon the facts as found, the City Council disposed of the material.  The legislation requires regard to be had to “any” disposal of material as waste.  It followed that the first condition in subsection (2)(a) of section 40 was satisfied when the City Council deposited the material at Recycling’s premises.  The Commissioners accept that that disposal by the City Council did not meet the conditions in section 40(2)(b) or (c).  That, they submitted, did not matter as it was not necessary for the same disposal to fulfil all the conditions.  They submitted that the conditions in section 40(2)(b) and (c) were satisfied when either Parkwood or Recycling, it did not matter which, disposed of the material at Parkwood’s premises.  
15.	Parkwood accept that the City Council made a disposal “of material as waste”, but contend that if that is the relevant disposal then the conditions required by s. 40(2)(b) and (c) were not complied with.  It follows that the difference between the parties turns upon whether section 40(2) requires the disposal, which is the taxable disposal, to satisfy all the conditions of the subsection.  
16.	The submission of the Commissioners was accepted by the Vice Chancellor.  He said:
“35. I turn then to the fourth issue. I agree that on a literal construction of s.65(1) there was a disposal by way of landfill. The condition is expressed in the passive. That which must be disposed of by way of landfill is not waste but material subject to a disposal as waste. It matters not by whom the disposal is made. As Moses J pointed out in Darfish the requirement of s.40(2)(b) refers to a point of time not necessarily the same as that at which the disposal as waste takes place. Likewise the disposal as waste may in accordance with the terms of the contract take place otherwise than at the landfill site. These considerations indicate that the "disposal" for the purposes of the Act is more than the legal transaction by which it is effected or property in the material passes. Provided that the material can be identified as having been subject to a disposal as waste I can see no basis on which it is possible to exclude material which was waste but has been recycled before a disposal by way of landfill. 
36. There remains the underlying question what is comprehended in the word "disposal". For the reasons I have given it cannot be limited to the legal transaction by which property in the material passes. S.64(3) and (4) extend the identity of the person making the disposal beyond the ambit of principal and agent. Thus it is envisaged, as Moses J pointed out in Darfish, that there may be more than one person making the disposal. A disposal may be made in more than one place, at more than one time and by more than one legal transaction. In the absence of clarification in further legislation the proper application of s.40(2) will have to be ascertained on a case by case basis.”
17.	To complete the background it is necessary to refer to the judgment of Moses J in The Commissioners of Customs & Excise v Darfish Limited [2000] Times 8 March.  In that case Darfish were developing the landfill site at Hathwaite.  It had a subsidiary company referred to as DNS, which agreed with the two companies referred to as Wilson Bowden and Hallamshire to receive soil.  Although DNS were paid to do this, the price reflected the fact that the soil had substantial value to DNS.  The soil was moved by DNS to Huthwaite where it was stored and subsequently used by Darfish for engineering purposes.  The Tribunal found that tax was not chargeable as the relevant disposal was by or on behalf of Darfish and it did not dispose of the material as waste.  
18.	Moses J disagreed.  I believe it is sufficient for the purpose of this appeal to cite just two paragraphs from his judgment.
“21. The material in the instant case, the top soil and subsoil, was removed and transported away from Wilson Bowden's and Hallamshire's sites. Those were important processes of disposal. Even if it is accepted that the soil was deposited on behalf of Darfish, nonetheless the disposal was made on behalf of Wilson Bowden and Hallamshire, because it was they who requested the removal and transport of the soil away from their sites and those processes were made in pursuance of contracts with those companies (see section 64(4)). In those circumstances, section 64(3) requires the Tribunal to examine the intentions of Wilson Bowden and Hallamshire. 
22. Since it appears that the Tribunal found that the deposit (and possibly the transport) were made on behalf of Darfish, it is argued that its intention was the only intention which the Tribunal was required to consider. I disagree. I have construed disposal as the antonym of retention. The focus of the provisions is upon the person getting rid of something, not upon the person retaining or acquiring something. DNS was not making a disposal, on my construction, on behalf of Darfish. It was assisting in the acquisition and retention of the material on behalf of Darfish. But it was making a disposal on behalf of Wilson Bowden and Hallamshire, and it is their intention which should have been determined by the Tribunal.”
19.	Mr Havers QC, who appeared for the Commissioners, supported the reasoning of the Vice Chancellor.  He submitted that the scheme of the relevant sections of the 1996 Act was to tax all waste material going to landfill unless specifically excepted, e.g. material used for restoration.  That was apparent from the width of section 64 which required tax to be paid even if the person making the disposal obtained a benefit; also from section 65 which included all deposited material whatever form it took.  It therefore did not matter that the disposal of material was recycled material.  
20.	I do not believe that the scheme of the Act is that submitted by Mr Havers.  The Act must, in my view, be construed against the background of its purpose.  There is no dispute that one of the purposes of the Act was to promote recycling and to reduce the amount of waste going to landfill.  To tax recycled material used for road making and the like at landfill sites would be contrary to that purpose.  If that had been part of the scheme of the Act, then I would have expected there to be a clearer indication in the relevant sections.
21.	  The crux of the dispute between the parties does not turn upon construction of the word “disposal”.  It depends upon what is a taxable disposal.  Is it a disposal made at one time?
22.	I am of the view that the natural meaning of section 40(2) requires a disposal which is a taxable disposal to satisfy the conditions in subsections (a), (b), (c) and (d) at the same time.  Those subsections use the word “it” to refer back to the “disposal” which suggests that the disposal has to be made at a landfill site by way of landfill and also to be a disposal of material as waste. 
23.	The tax is a landfill tax, not a landfill and recycling tax.  The tax is to be paid when waste material is disposed by way of landfill in a landfill site: not on waste material (e.g. fines) which has been recycled (e.g. into blocks) which may be used in a landfill site (e.g. to build a wall or hard standing).  The disposal referred to in section 40(2) is a particular disposal.
24.	The Commissioners’ submissions that each condition in section 40(2) was self-contained could not have been intended by Parliament.  It would mean that once there was a disposal of material as waste by somebody, tax became payable by the site operator if the material was deposited on the ground in a landfill site.  Thus liability to pay tax, which in practice will be passed on by the site operator, can depend upon the intention of a person unknown to the site operator at an unknown time, even before 1st October 1996.
25.	Mr Havers accepted that upon the Commissioners’ construction there could be cases where the history of the material was not known and therefore difficulties could arise.  He described them as few in number and at the margin.  They were and could be dealt with by the Commissioners in an appropriate manner.  
26.	For the purposes of the appeal I accept that such cases are at the margin.  But even so, I do not believe that Parliament could have intended to impose a landfill tax upon recycled material with the necessity that the history of the material had to be checked to ascertain whether anybody had the required intention.   
27.	The Commissioners also submitted that there was nothing in the statute which suggested that material which had been discarded as waste ceased to be waste because it had been successfully recycled. That submission is contrary to common-sense.  Take material which is thrown away.  That is waste.  Melt it down and mould it into a spare part for a machine and it is not waste.  There need be no change in chemical substance to convert waste into a useful product.  It is the act of recycling which is important.  This is recognised by Parliament in its drive to promote recycling rather than disposal and is recognised by the cumulative effect of section 40(2).  
28.	The Commissioners accept that their argument leads to the result that companies such as Parkwood will be liable for tax if they use recycled material for site engineering or building purposes, whereas they would not be liable for tax if they used fresh materials.  That cannot have been the intention of Parliament when they introduced the landfill tax.  The purpose of the legislation was to tax waste material deposited at landfill sites and not to tax deposits at landfill sites of useful material produced from waste material.
29.	The Commissioners’ need to advance their arguments stems from their belief that the requirement that all four conditions of section 40(2) should be satisfied at the same time would allow tax avoidance by the simple mechanism of inserting an intermediary between the originator of the material and the landfill site operator.  For example, if X wished to get rid of some soil, he could do so by taking it to a landfill site and disposing of it.  The result would be a taxable disposal even if the landfill site used it for road making.  However X can avoid the tax by structuring the disposal as a sale.  X sells to Y at say 25 pence per tonne.  Y sells to the landfill operator at say 50 pence per tonne for site use.  If the Commissioners’ submissions are wrong, then no tax would be payable.  
30.	In the circumstances postulated the intervention of an intermediary would avoid tax being payable.  I do not find that surprising as the purpose of the tax has not been avoided.  The soil has not been disposed of as waste at the landfill site.  It is not the insertion of an intermediary that makes the difference: it is the intention of the disposer at the site.  Thus if X wants to get rid of his soil and sells it to the landfill site for road making, no tax will be payable.  Thus the tax bites upon the person who discards not who recycles.  
31.	The Tribunal were correct to concentrate upon the disposal at Parkwood’s landfill site because it was that disposal which was made by way of landfill.  They rightly held that that was not a disposal as waste.  I would allow the appeal.  

Lord Justice Jonathan Parker:
32.	I agree.
Mr Justice Aikens:
33.	I also agree.