E01092

HYDROCARBON OIL DUTIES ACT 1979 s12, s27(1) and Schedule 1 —  two tractors on public roads using rebated fuel, red diesel — issue: collection and spreading of paper pulp on farmland was this “solely” for purposes relating to agriculture — appeal allowed in part

MANCHESTER TRIBUNAL CENTRE

 
 	
					NEALES WASTE MANAGEMENT LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: Elsie Gilliland (Chairman)
					 Jon Denny
					
Sitting in public in Manchester on 19 November 2007

Nigel Poole, counsel, for the Appellant 
 
Suzanne Lambert, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2008

DECISION

1.	The appeal before the tribunal was that of Neales Waste Management Ltd (“the Appellant”) against an assessment raised by Customs in the sum of  £1133.80 in respect of the period 14 April 2003 to 7 September 2005.  The Appellant is a company which provides a wide range of waste management services from its principal premises at Aspinall House, Walker Office Park, Blackburn BB1 3BN.  The assessment arose in respect of the use of rebated fuel red diesel in two vehicles operated by Neales Farm Services (“NFS”), the farm services division of the Appellant  and disallowed by Customs. 

2.	Amongst its commercial activities the Appellant had contracts with two mills in Darwen and Blackburn to remove paper crumble a paper pulp waste referred to as pulp as it was produced 52 weeks per year, Monday to Saturday.  The pulp is subsequently used to fertilise farmland the work being undertaken by  NFS at no cost to the farmer.  The tribunal was told that there was no contract between the Appellant  and the individual farms though there was an agreement.  No document was produced to us and our view is merely that there was an arrangement in which being advantageous to them the farmers were willing to participate. 

Legislation
3. 	The relevant Act is the Hydrocarbon Oil Duties Act 1979 (HODA).  It is provided in s.12 that a rebate against duty is not allowed on fuel used in road vehicles.  There is a definition of “road vehicle” in s.27(1) as “… a vehicle constructed or adapted for use on roads, but does not include any vehicle which is an excepted vehicle within the meaning given by Schedule 1 to this Act”.  Schedule 1 provides:

          “2. 	(1) 	A vehicle is an excepted vehicle if it is -            
                		(a) 	an agricultural tractor…
	
	(2) 	in sub-paragraph (1) above “ agricultural tractor” means a tractor used on public roads solely for purposes relating to agriculture, horticulture, forestry or activities falling within sub-paragraph (3) below
	
	(3) 	n/a …”

The issue
4. 	There is no dispute that the two vehicles were used on  public roads.  The issue for the decision of the tribunal is whether the vehicles can fall within the definition of “excepted vehicles” (Schedule1(2(2)) above as being used on the public roads “solely for purposes relating to agriculture …”.  Customs contend that neither vehicle was an “agricultural tractor” within the definition and that in effect they were being used  in the waste management activities of the Appellant; the Appellant claims that both were registered agricultural vehicles being used “solely for purposes relating to agriculture”.  Quantum is not in dispute.

The vehicles
5. 	The two vehicles were Fast-track type tractors.  The first (the first tractor) was a JCB tractor registration number ML02 LVE.  We were told that this was used partly to collect the pulp and partly to spread it.  The second vehicle (the second tractor) was a McCormick tractor registration no. PO53 VGF.  It was in the second tractor that the rebated fuel was first detected when it was stopped on the highway by John Mawdsley, a Customs officer with the Road Fuel Testing Unit, who gave evidence to the tribunal. At that time it was transporting a JCB digger on a trailer to a farm in order to spread pulp.  There is some confusion as to the clarity of Mr Mawdsley’s written note of his first interview with the driver of the second tractor and whether the comments made were general or describing the day’s events.  This was produced to the tribunal.  The view taken by Mr Mawdsley which he confirmed was supported by his line manager was that the second tractor was being used for the haulage of a digger and not for agricultural purposes.  It was seized and restored on payment of £250.  The seizure was not challenged in proceedings.     
                        
6. 	A schedule prepared by Customs based on the Appellant’s fuel monitoring records gave a breakdown of the calculations on which the assessments for the recovery of the fuel rebate were based. In respect of the first tractor the number of litres relevant to public road use was based on 30 per cent of  the total estimated usage putting the tax to be repaid at £951.39.  In the case of the second tractor it was accepted that this vehicle spent 99 per cent of its usage off the road and so the relevant calculation related to 1 per cent only of the total usage resulting in a rebate repayment claim of £182.41.  These two  figures made up the assessed total of £1133.80.

Submissions 
7. 	It was submitted on behalf of the Appellant that that the use was not dual in purpose but purely agricultural.  Both vehicles were licensed as agricultural vehicles and because the Environment Agency accepted that the operation of the vehicles was for an agricultural purpose an exemption was obtained from waste management licensing.  As part of the service the Appellant gave to the farmer a free Adas soil test and nutrient application.  Counsel for the Appellant likened the activities as comparable with those of a farmer using rebated fuel on a public road whilst moving from one agricultural site to another.   It was submitted on behalf of Customs that  the agricultural scope of the activity was secondary only and that there was other motivation on the part of the Appellant in this matter which was the need to collect the product from the mills to fulfil its commercial contract, the one for which it was paid.  Accordingly waste management was the primary purpose.  The initial tasks were the collection and transporting of the pulp to agricultural land and these were not of themselves an agricultural activity even though the spreading constituted an agricultural purpose; and thus the procedure could not qualify as “solely” for agricultural purposes as required by the legislation.  The fact that there was an exemption certificate merely showed an ancillary ecological benefit.  Reference was made also by Counsel for Customs to another vehicle used by the Appellant namely an eight- wheeled wagon used for haulage only in the collection of the pulp from the mills and moving the same to the farms.  It was acknowledged that this used only white diesel. Customs submitted that the appropriate comparison should be made with this vehicle and that any other vehicle such as a tractor collecting from the mills and used because of accessibility or weight restriction problems should be using non-rebated fuel also.  We note from the evidence that the wagon did not take part in the spreading of the material. 

Case law
8.	Each party drew our attention to various authorities copies of which were in the bundles produced to us. Customs relied on the judgment in R v Commissioners of Customs and Excise Ex parte England Environmental Ltd, (unreported 21 March 1996) (England Environmental) involving the disposal of paper effluent sludge cake to agricultural land.  It was held that the prime motivation was concerned with waste collection and removal.  The Appellant submitted that the particular circumstances of usage in the present case could be differentiated from those applying in England Environmental and that the facts were more akin to those in the tribunal case of Andrew Clark (EDN/04/8009) which found on the facts no ancillary contract.  The most recent tribunal decision brought to our attention was that in the case of Jeff Potts (MAN/06/8042) where the tribunal was satisfied that a tractor had been used on a public road by the then  appellant in the case for the purposes of waste collection/disposal.  

Conclusions
9. 	It seems clear to us that the spreading of pulp is of agricultural benefit and thus exempt already from certain general requirements of waste management.  Whilst the view taken by the Environment Agency and the receipt of an exemption certificate is of relevance it is not conclusive as to “sole” purpose as required by the Act and Schedule and can not override the words of  Paragraph 2 of Schedule 1 of HODA.

10. 	The pulp was collected from the mills or the JCB digger from a farm by one or other of the two vehicles the subject of the appeal.  It does not appear to us that the mills the producer of the pulp had any input as to what would happen to it.  We were not told that that was part of the contract.  Nor do we accept that the arrangements to spread the pulp were merely a “dumping” of the product  because the Appellant was paid to do so though unsuitable material will have gone to landfill.  Ian Holden the manager of NFS in his evidence said that there was no shortage of land available for the spreading of the product and that indeed there was a land bank of several months. Should stockpiling be necessary that was done on a farm; the Appellant had no storage facilities for the pulp.  He stated also that the second tractor was not used in collecting pulp from the mills.  It would have been at the Appellant’s Chorley premises overnight but would have collected from the digger from a farm.  We accept his evidence.  A point referred to by counsel  for Customs was that as there was no agreement with any farmer there was no resolution process in place should there be any legal dispute.  The fact that no payment has been made however does not remove from any involved party the obligation to produce a product fit for use and perform any procedure without causing damage.  The general law would not be excluded in such cases.

11. 	In the case of the second tractor its road usage was accepted by Customs as minimal and in our opinion it was used as an inter-farm vehicle parked overnight at the Appellant’s Chorley premises.  We are satisfied that it meets the legal requirement of being used “solely for purposes relating to agriculture”.  The trailer was transporting an item of machinery (the JCB digger) used for agricultural purposes from one farm to another farm where it would again be used for agricultural purposes. The fact that the Appellant carried on a waste management business or a haulage business does not in our view prevent the exception from applying. Paragraph 2(2) of Schedule 1 to HODA does not require that the person using the vehicle on the public road should be a farmer.  It is the use of the tractor on the road which must be solely for purposes relating to agriculture.  At the time the tractor was stopped it was clearly being used for a purpose relating to agriculture and in our view that is the only purpose for which it was being used.

12.	The position in relation to the first tractor is different. First it was agreed that this vehicle had a substantial road use.  The percentage of road usage (apart from the calculation of the refund) is not however the issue.  It is the purpose which is relevant. Secondly the first tractor collects waste pulp from the paper mill and transports it on the public roads to the farm where it is then spread on the land.  We accept that the transportation of the pulp on the public roads is an activity with a purpose relating to agriculture.  The question however is whether this is the sole purpose of the use of the tractor on the public roads.  In England Environmental it was held that the use of tractors on the public roads to collect and distribute sludge for spreading on farmland did not attract the exception in Paragraph 2 of Schedule 1 to HODA because the primary purpose for which the tractors were being used was to collect transport and dispose of waste pursuant to a commercial contract for which the applicant in that case was being paid.  Thus there were in the opinion of the High Court  “plainly other purposes which are not related to agriculture”.  In that case the judge was satisfied that that the applicant’s primary purpose was to dispose of waste  for the owner of the factory and that this purpose  prevented the use of the vehicles from being solely for purposes relating to agriculture.  The facts in the instant case are in our view indistinguishable.  If the question is asked what was the purpose of using the first tractor on the road, it is impossible to say that it was solely for agricultural purposes since it is clear that it was also to transport  and dispose of waste materials as part of the Appellant’s waste management business.  In law this was in the opinion of the High Court sufficient to prevent the exception from applying.  We agree and are bound by the decision of the High Court and accordingly the appeal in relation to the first tractor must be dismissed.    

Appeal
13. 	We allow the appeal in respect of the second tractor but dismiss the appeal in respect of the first tractor.

Costs 
14. 	Customs did not seek costs.  The Appellant sought costs but whilst successful in part it has been unsuccessful on the main item. We direct that Customs shall pay one-quarter of the Appellant’s costs of the appeal.  Should agreement not be reached between the parties liberty to apply on the amount of costs to a Chairman sitting alone is given to each party.

ELSIE GILLILAND
CHAIRMAN
Release Date: 4 March 2008
MAN/2006/8038