United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2005] UKVAT(Excise) E875, [2005] UKVAT(Excise) E00875

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Bryan & Anor v Customs and Excise [2005] UKVAT(Excise) E00875 (14 April 2005)

E00875

HYDROCARBON OILS — agricultural tractor — spreading slurry from creamery on farmer's fields — assessment of duty of £32,085 arising from use of rebated (red) diesel — Schedule 1 paragraph 2 Hydrocarbon Oil Duties Act 1979 requires tractor to be used "solely for purposes of agriculture — Appellants primarily hauling waste — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

EDWARD BRYAN & ANDREW DAVID THOMAS Appellants

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: David S Porter (Chairman)

Marjorie Kostick BA FCA CTA

Sitting in public in Birmingham on 3 March 2005

Sarah Williams of counsel, for the Appellant

James Puzey of counsel for the Respondents

DECISION

This is an appeal by Edward Bryan and Andrew David Thomas trading as J E Thomas & Sons (the Appellants) against an assessment contained in a letter of 19 September 2003 in the sum of £32,085 arising from the use of rebated (red) diesel in their tractors. The Appellants consider that the tractors were used on the roads solely for purposes relating to agriculture. The Respondents consider that the Appellants' tractors were also being used for the purposes of road haulage and they maintain that the Hydrocarbon Oil Duties Act 1979 schedule1 paragraph 2 exemption for a tractor being used solely for agricultural purposes, does not apply.

Mr Puzey of counsel appeared for the Commissioners, called William Wright and Stephen John Hopkins, and produced a bundle of documents for the Tribunal. Ms Williams appeared for the Appellants and called Mr Thomas to give evidence.

We are being asked to decide whether the activity of the Appellants was agricultural, waste disposal, or both. W N Wyke & Co Limited ("Wykes"), are haulage contractors, contracted by Eden Vale Creamery ("the creamery") of Minsterley, Shrewsbury to remove their waste product from the factory and to spread it on agricultural land belonging to some 35 to 40 farms with a radius of ten miles. They paid £3 per load to the farmers. Wykes subcontracted the work to the Appellants who carry on the businesses of agricultural contractors and livestock farmers.

The deregulation of the slurry entailed giving the agricultural contractors the right to distribute the waste, to be used as fertiliser without the need for a waste licence. At the hearing, Mr Thomas conceded that the Milk Marketing Board had deregulated the slurry and negotiated for the contractors to pay the farmers £3 per load. Ms Williams produced to the Tribunal an analysis of the slurry, which revealed that the slurry was high in nitrogen and phosphates and was unlikely to cause a risk to the environment. The tractors towed a slurry tank or spreader, which held 2000 gallons. It was filled up at the creamery and taken around the fields and usually spreading the waste from the rear door.

On 17 July 2003 the Appellants' vehicle, a John Deer Tractor registration number DX51 XTS was collecting slurry from the creamery when the inspector form Customs and Excise checked the tank. This procedure revealed that rebated gas oil (red diesel) was being used and the tractor was duly seized. What was apparent from the evidence was that Mr Wright, the inspector, who gave evidence at the hearing, had allowed the Appellants to remove the slurry and spread it on the fields, if they had not done so the tank holding the waste at the Creamy would have over flowed and cause environmental damage. The Appellants had understood from this action that they were allowed to continue to collect the slurry from the creamery and spread it on the fields using red diesel. The Appellants had heard nothing further from the Commissioners. Mr Wright, the officer involved in the case, said that he had been awaiting a response from Mr Wyke before he could give the Appellants a ruling. He had not heard from Mr Wyke, who had indicated that for family reasons, he would get back to him after Christmas. He had not done so.

Mr Thomas confirmed that the slurry had to be removed from the creamery because of the reasons previously stated. In fact during a period of some 18 months the membrane system at the creamery was not working properly and the Appellants had worked from 6 am to 6 pm to ensure that the waste was removed. During that period they had received over £20,000 per month for the removal of the waste. It was unclear what percentage of the Appellants' overall turnover this represented. Mr Thomas alleged it was not a large amount. We are satisfied that it represented a considerable amount of money. The slurry had to be emptied all the year round. Mr Thomas confirmed that the slurry could be spread on growing crops in the summer by a machine, which injected the slurry below the surface. Evidence was given that on one occasion the slurry had to be tipped into a lagoon and on another it had been put in a tank at one of the farms as there had been no where else to put it.

Mr Wright raised the assessment for £32085 on 19 September 2003. He had by that time had an opportunity to consider all the circumstances of the business. He conceded at the hearing that he had relied on the Commissioners policies in arriving at his decision. That policy allowed, as a concession, that tractors being used by farmers for their farming businesses could use rebate fuel oil. Mr Puzey had requested that Mr Hopkins, who worked for the policy unit, should be asked to give evidence as to that policy. He also indicated that Mr Hopkins had been involved in the case of Ex Parte England Environment Limited and could expand on the facts of that case. Ms Williams objected to Mr Hopkins giving evidence on either matter as no witness statement had been provided and the Commissioners had given no warning that he was to be called. Having considered the matter we decided that Mr Hopkins could give evidence limited to the policy of the Commissioners, which would helpful to the tribunal, and no more, but that he could not give evidence expanding on the facts in Ex Parte England Environment Limited as the tribunal would rely on the facts as contained in the transcript of that case.

Mr Hopkins, who is a senior policy adviser, stated that the National Farmers' Union had expressed concern that farmers going about their own business often used Tractors with red diesel and the road use was incidental to their agricultural activity. It was therefore agreed as a matter of concession that farmers could use tractors and red diesel, when they were using the tractors on the highway to get from their farms to their fields. Hence it was agreed prior to the hearing that where the slurry was collected by the Appellants and spread on their own farmland this would be solely for agricultural purposes and rebated gas oil could be used. Both parties agreed that where the slurry, after collection, was placed in a storage tank this could not be an agricultural purpose and the exemption would not apply. The difficulty arises when the Appellants, as farmers, collected the slurry and spread it on farmland other than their own, particularly when they are on a subcontracted basis.

The law states that any heavy oil on which a rebate has been allowed under section 11 of the Hydrocarbon Oil Duties Act 1979 (the Act) should not be used as fuel in a road vehicle. Schedule 1 paragraph 2 to the Act excepted an agricultural tractor used on public roads solely for purposes relating to agriculture, horticulture, forestry etc.

Mr Puzey in summing up stated that the Appellants were engaged in a waste disposal operation on behalf of a third party. Further and alternatively, if there was some agricultural purpose to their activity it was not the sole purpose and hence the tractors are not excepted vehicles under the Act.

The England Environmental case concerned a company, which contracted with another company to dispose of paper effluent sludge on to agricultural land. The sludge was spread within 25 miles of the point of collection and was deposited on the land in order to benefit the same. In that case the sludge was transferred to spreaders once it reached the farm although the tractors that transported it may have pulled the spreaders from time to time. The applicants argued that the transportation of the sludge was just one part of an agricultural operation that resulted in the sludge being used as fertiliser. Lord Macpherson of Cluny dismissed this argument as follows: -

"I am unable to accept the applicants' argument. The respondents are, in my judgment, right when they say that the applicants' construction of the schedule virtually ignores the operation of the word "solely" … Even if the primary purpose for which the tractors were being used was related to agriculture this would not, in my judgment, be enough. But I accept the respondents' submission which was that upon analysis 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 was paid. In the course of that business the tractors were being used to perform haulage tasks for which a lorry could equally well have been used … These vehicles were on the road for purposes relating to the removal of industrial waste from a factory and for purposes relating to the business of the applicants, namely, transporting or removal or recycling of industrial waste. The primary emphasis is on waste disposal"

The product in question is waste as appears from the Appellants' invoices to Wykes. Whilst it is clear that the Appellants' are not waste management specialist but farmers and agricultural contractors; they had not contracted with the creamery; and they were undertaking waste disposal as sub-contractors to Wykes. The spreading of the waste material is only part of the Appellants' activity, which also includes the haulage of material on public roads. The fact that Wykes were the main contractors and the Appellants spread the waste does not prevent the operation being that of a waste disposal service.

Unless the tractors in this case are used solely for agricultural purposes they are not excepted vehicles. The spreading of fertiliser on farmland can be an agricultural purpose but the material here is creamery waste which must be removed from a third party's site and transported to one of the farms which has agreed to take it. The principal or primary activity is a commercial waste disposal contract for the benefit of the creamery, not the spreading of fertiliser. On this basis the appeal must fail and the assessment stands.

Ms Williams submitted that the case related to the carriage of fertiliser by tractors to spread onto farmland for agricultural purposes. The activity represents a substantial part of the Appellants' farming business. At the time that the membrane at the Creamery was malfunctioning the Appellants had 1½ tractors operating on a daily basis for the entire day. The waste is used as fertiliser and the operation is agricultural and involved travelling a short distance for the creamery to the fields with the fertiliser. It is artificial to argue that the operation must have included some haulage whilst the tractors were on the roads. Access to all farm fields require access on the public highway. The operation is solely for agricultural purposes. If that were not the case how would any farmer come within the exception? The Commissioners agree that the collection of waste by a farmer for use on his own farm is excepted and she maintains that there is no differentiation between this activity and the delivery of fertiliser to another farm. It is agreed that delivery to a tank would not be agricultural.

The England Environmental case is quite different. The case concerned a waste disposal operation by waste management specialists. The policy was designed to benefit farmers for their agricultural operations. The Appellants are agricultural contractors, which has not been seriously challenged, their activity is delivering fertiliser to fields. In the circumstances the appeal must be dismissed.

My colleague and I have considered the evidence and have decided that the operation carried out by the Appellants is primarily waste disposal and not solely agricultural. Our reasons for this are as follows: -

a. The original contract was made with W N Wyke and N J Wyke who were required by the creamery to dispose of its waste.

b. They chose to sub-contract that work to the Appellants who were farmers and agricultural contractors.

c. Mr Andrews made it abundantly clear that on two occasions the slurry had to be moved from the creamery. Mr Wright had allowed it to be moved on a further occasion to prevent the tank over-flowing. Mr Andrews also confirmed that the slurry had to be emptied all the year round.

d. We are satisfied that the slurry is a fertiliser and does some good when spread on the fields. That, in itself would be an agricultural activity - that however, is not enough as the activity must be " solely" agricultural, which in the present case it was not..

e. We can do no better than refer to the decision of MR Justice McPherson of Cluny in the England Environmental case when he states:-

"Once it is accepted that, as, in my judgement, it has to be, that the use of these tractors was for more than one purpose, the case for the applicants collapses. If it cannot be said that the only purpose of the tractor's use was agricultural then there is no case because the word "solely" creates an immoveable barrier to the applicants' case. In my judgment there was, plainly, a second commercial use, namely waste management, the applicants' main activity as well as any agricultural-related use

There are four possible circumstances: -

(i) Wykes could have carried out the activity themselves. As a waste disposal company it would not fall within the exception

(ii) Wykes could, as here, sub-contract the activity. In our view this is still a waste disposal contract

(iii) The Appellants could collect the waste and put it on their own fields. So long as that was done as and when the Appellants chose and not as demanded by the creamery the tractors would be excepted and could use red diesel

(iv) The Appellants could collect the waste and spread it on the fields for other farmers. Again we consider that they could use "red" diesel in those circumstances, as the use would be within the terms of the commissioner's policy. They would merely be doing the same as a farmer delivering fertiliser to their own fields thereby removing the necessity for the farmers to deliver the fertiliser to their own fields. The emphasis would be that the deliveries were for agricultural purposes. As soon as further elements, namely the necessity to remove the waste come what may and the payment to the farmers to persuade them to take the slurry, are introduced in to the activity it ceases to be solely for agricultural purposes and the exception no longer applies.

We therefore dismiss the appeal and confirm the assessment. The Commissioners did not ask for any cost and we award none

DAVID PORTER

CHAIRMAN
Release Date: 12 April 2005

MAN/04/8012