United Kingdom VAT & Duties Tribunals (Landfill Tax) Decisions

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Cite as: [2006] UKVAT(Landfill) L00023, [2006] UKVAT(Landfill) L23

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Coffey v Revenue & Customs [2006] UKVAT(Landfill) L00023 (12 October 2006)

L0023

AGGREGATES LEVY – Northern Ireland – Credit scheme – Operator without credit certificate – Operator took credit in accounting for aggregate levy – Operator assessed to levy without credit – Operator not notified of credit scheme – Appeal dismissed

LONDON TRIBUNAL CENTRE

ERNEST JOHN COFFEY Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: STEPHEN OLIVER QC (Chairman)

Sitting in public in Belfast on 26 September 2006

James H Wells, MLA, for the Appellant

Jonathan Cannan, counsel, instructed by the acting general counsel and solicitor for the Respondents

DECISION

Mr E J Coffey appeals against a decision of the Customs in a letter of 6 October 2005. This decision confirms, following a review undertaken pursuant to section 40 of the Finance Act 2001 ("the Act"), an assessment of aggregates levy made pursuant to paragraph 2 of Schedule 5 to the Act.

Introduction

Aggregates levy is an environmental tax on the commercial exploitation in the UK of virgin aggregate (rock, sand and gravel). It was introduced throughout the UK on 1 April 2002 at a rate of £1.60 per ton. A person who commercially exploits aggregate in the UK is liable to register and account for the levy to the Customs. Some 710 traders are, according to the Business Brief 13/04, currently registered for the tax across the UK, 140 of them being registered in Northern Ireland.

The decision appealed against

The decision appealed against was taken on a review conducted by Mr Alan Donnachie, a higher officer of the Customs who gave evidence at the hearing. This review decision upheld assessments made by Mr Barry Greene, an assurance officer who also gave evidence, for aggregates levy for the five periods 6/04 to 6/05 amounting in aggregate to £11,949 plus interest.

The grounds on which the decision was made were these. Mr Coffey has for some years and throughout the periods covered by the assessments been operating a sand quarry in Kilkeel, County Down; Mr Coffey has been dealing in a taxable aggregate. On 24 August 2005 a Customs officer, Mr Greene, visited Mr Coffey's premises and found that, despite his not having obtained an aggregates levy credit certificate from the Department of the Environment for Northern Ireland (DOENI), Mr Coffey had applied the relief that would otherwise have been available to him and that therefore he had underdeclared his liability to aggregates levy.

The review decision, confirmed by Mr Donnachie's letter of 6 October 2005, recites section 30A of the Act. This had been introduced into the aggregates levy code, found in Part II of the Act, by section 290 of Finance Act 2004. Section 30A was deemed to have come into force on 1 April 2004. Section 30A states that regulations may provide for a person operating a site to be entitled to a tax credit "in respect of a period for which he holds an aggregates levy certificate" and for such certificate to be issued "only if an aggregates levy credit agreement is in force". The review decision cites the relevant part of section 30A and continues as follows:

"This scheme is not compulsory and you may choose when and if to take part. The law clearly states that an operator must be in possession of an aggregates levy credit agreement and credit certificate to take advantage of the 80% credit.

You did not hold an aggregates levy credit certificate for the period from 1 April 2004 to 30 June 2005 but did apply credit to the aggregate levy applying to the aggregate sold during that period. As you did not hold an aggregates levy credit certificate you were not entitled to claim credit for the aggregate sold during the period in question.

I cannot find any reason to withdraw the assessment and accordingly the assessment is upheld."

Mr Coffey's case

The grounds put forward by Mr Coffey in his Notice of Appeal were that he had been advised by the Customs of the reduced rates of aggregates levy chargeable but not of the requirement to obtain an aggregates levy credit certificate. The decision was said to have been unreasonable and Mr Coffey's case was developed in the course of argument by Mr James Wells, MLA for South Down.

The jurisdiction of this Tribunal

The "extent of a person's entitlement to tax credit" is an appealable matter under section 40(1)(h) of the Act. Section 42(2) provides that "The powers of the Tribunal in relation to any decision of the Commissioners shall include a power, where a tribunal allows an appeal on the grounds that the Commissioners could not reasonably have arrived at the decision" either to direct that the decision is to cease to have effect or to require the Commissioners to conduct a further review.

I approach the present case on the basis that the Tribunal has the normal appellate jurisdiction to determine (i) whether the decision to assess is legally correct, and if it is not correct to quash or reduce the assessment and the wider jurisdiction of determining (ii) whether the decision-making process was properly conducted. In this latter context the approach is to determine whether the decision was one that no reasonable body of Commissioners could reach, whether the decision-maker had failed to take all relevant considerations into account or whether the decision-taker had taken into account any irrelevant matter; if the decision can be impugned on those grounds it may be sent back with a direction to conduct a further review.

The legality of the decision

This calls for an examination of the strict letter of the law. The Aggregates Levy (Northern Ireland Tax Credit) Regulations 2000 (2000/1959) took effect from 1 April 2004. The essential aim of the "Credit Scheme", introduced for Northern Ireland, was to prevent Northern Ireland Aggregates producers from suffering a competitive disadvantage, as compared with producers in the rest of Ireland which is another EC Member State with a common land boundary, as a result of the levy that had been introduced in 2002. The details that follow are extracted from Notice AGL1 published in August 2004. Where the Credit Scheme applies (and it could apply in the case of Mr Coffey's operations) it allows for an 80% relief from the full rate of levy until 31 March 2001. The entitlement to relief is subject to two criteria. First, the aggregate must be extracted in Northern Ireland. Second, the aggregate or processed product must be commercially exploited in Northern Ireland or exported anywhere outside the UK.

The Credit Scheme allows for an 80% relief from the full rate of aggregates levy in exchange for a formal and monitored commitment to implement and maintain environmental improvements. The Credit Scheme is administered for this purpose by the DOENI. The operator submits an application form which DOENI verify and if the DOENI is satisfied, the operator is invited to sign an agreement (an Aggregates Levy Credit Agreement) which will enable him to join the Credit Scheme.

Once such an agreement has been entered into, DOENI issues an Aggregates Levy Credit Certificate entitling the operator to begin claiming relief under the Credit Scheme.

The review decision cannot, I think, be faulted on legality grounds. Throughout the five accounting periods covered by the aggregates levy assessments, Mr Coffey had no Aggregates Levy Credit Certificate. Mr Coffey was not therefore entitled to charge the reduced rate of aggregates levy. The best judgment exercise of the Customs has been conducted as an arithmetical adjustment of aggregates levy to the declared amounts of aggregates extracted by Mr Coffey; it operates to remove the credit and substitute £1.60 per tonne.

In all respects therefore the review decision properly carries out the statutory provisions contained in section 30A of the Act and the regulations. I did not understand Mr Coffey to challenge the decision on those grounds.

Mr Coffey's challenge

Mr Coffey challenges the decision to assess at the full rate without credit on the grounds that the Customs could not reasonably have arrived at that decision: see section 42(2) of the Act. The challenge is based on a sequence of events, which as primary facts are not disputed by the Customs and which I shall now summarize.

In August 2002 an officer of the Customs had called on Mr Coffey and advised that sand and gravel would be "zero-rated" for aggregates levy during the tax year 2002/03. (The term "zero-rated" is the Coffey's recollection of the advice.) For the year 2003/04 the levy would be 32p per tonne and for 2004/05 the levy would be 64p per tonne. It was not part of the officer's advice that Mr Coffey should register in order to charge the lower rates. At this point I note that under the original 2002 scheme there was no statutory requirement that a person charging the lower rates of aggregates levy should have a certificate from the Customs; the person in question was required to have a certificate from the person to whom he supplied the aggregates that they would be used for a relevant purpose.

Mr Coffey heard nothing further from the Customs (or from DOENI) and began charging the levy as advised by the Customs officer in 2002. He sent all returns and payments to the relevant VAT office; Mr Coffey's returns made it clear that he was charging the reduced rate (i.e. 32p per tonne for the four periods in 2003/04 and 64p per tonne for the 2004/05 period).

Mr Coffey's aggregates extraction business involves him delivering one load of sand each day to a firm in Newcastle, County Down; he then works for that firm as a lorry driver for the rest of the day. Mr Coffey is not a member of any trade association (such as the Quarry Producers Association), he has no computer, no e-mail address and no fax machine.

It was contended for Mr Coffey, and this was not challenged by the Customs, that he had not been notified of the Aggregates Levy Credit Scheme by either the Customs or by the DOENI. I heard evidence in this connection that the DOENI, as administrators of the Scheme, notified known operators by fax; and as already noted Mr Coffey had no fax. The Customs sent out aggregates levy returns shortly before the due dates for each period. I was informed that those returns were not accompanied by any letters or leaflets explaining the new 2004 system and how it would effect operators in Northern Ireland.

When the Customs officer, Mr Barry Greene, visited Mr Coffey's premises on 28 August 2005 he was informed by Mrs Coffey, who had always looked after the accounts and returns, that they had been accounting for aggregates levy at 32p per tonne since June 2004. They had been told by the firm in Newcastle to whom daily supplies were made that that was the proper amount of levy. They had been told nothing about registration by the Newcastle firm.

On 30 August 2005 Mr Coffey was notified by the Customs of the underdeclarations for the five periods.

On some date in September 2005 Mr Coffey applied to the DOENI to join the Aggregates Levy Credit Scheme. A letter from DOENI to Mr Coffey dated 4 October 2005 invites him to join the scheme having checked and signed the attached agreement. He was asked to return it by 18 October. The letter says that on being issued with the Certificate Mr Coffey would have "access to relief from 80% of the full rate of aggregates levy … effective from 12 August 2005". I am not clear of the significance of 12 August. It was well before Mr Greene's visit. Mr Greene's letter of 30 August did not invite Mr Coffey to apply for registration or indeed for back-dated registration. On 14 September 2005, when Mr Wells wrote to the Customs on Mr Coffey's behalf, his letter explained the circumstances; he asked for the tax to be deferred but his letter does not ask specifically for registration or back-dating of registration. The idea of applying for registration must, I think, have been given to Mr Coffey by Mr Greene on his visit of 28 August 2005.

Mr Donnachie explained that application for back-dated registration (to 1 April 2004) had been accepted as a matter of course if received by the end of 2004. Some applications for back-dated registration received after then were being granted or at least favourably considered. When Mr Donnachie came to make his review decision (issued by letter of 6 October 2005) he was unaware of any application for back-dated registration by Mr Coffey.

Conclusions on reasonableness

In the absence of any evidence of any application for back-dated registration on the part of Mr Coffey at the time of the review decision, I am satisfied that Mr Donnachie took all relevant considerations into account. He had been informed of the reason why Mr Coffey had not registered; that had been communicated to the Customs in Mr Wells' letter of 14 September 2005. But, so far as Mr Donnachie was concerned, he was reviewing the decision to assess in Barry Greene's letter of 30 August 2005. He knew that Mr Coffey had not entered into any Aggregates Levy Credit Agreement and consequently had received no Aggregates Levy Credit Certificate. He therefore had to deal with the situation in which there was no legal entitlement on Mr Coffey's part to any credit under the Aggregates Levy Credit Scheme.

While Mr Donnachie might well have reflected that Mr Coffey's failure to register was so irrational as to call for an explanation, and possibly a remedy, Mr Donnachie's role was to review the decision and not to exercise any dispensing discretion.

For those reasons I cannot fault Mr Donnachie's decision on "reasonableness" grounds. I therefore dismiss the appeal.

Having heard the evidence and considered all the circumstances, I need to make some further points.

First, immediately after the December 2003 pre-Budget Report, a Business Brief (27/103) was issued outlining the extended relief for Northern Ireland. It explained the proposed system and contains these words:

"Once discussions between DOENI and the Quarry Producers Association of Northern Ireland and the British Aggregates Association have been finalized, all aggregates levy registered businesses in Northern Ireland will be sent details of how to set up a Negotiated Agreement and thus claim relief under the new scheme."

On 10 May 2004 Business Brief 13/04 was released. This explains the details of the system and contains the following paragraph:

"All aggregates levy registered businesses in Northern Ireland have been sent guidance on exactly how the new relief scheme will work."

I accept the evidence of Mr and Mrs Forbes that neither had received a guidance note as promised in the Business Briefs. The Commissioners and DOENI have only communicated concerning the Credit Scheme with Northern Ireland operators through fax. I cannot accept that a promise to send guidance is properly fulfilled when the guidance is disseminated only to those operators who happen to have fax machines.

Secondly, I am satisfied that nothing in the return forms sent out each quarter by the Customs have said anything about the Credit Scheme.

Thirdly, the back-dating of certificates must have been an inevitable consequence of the present Scheme. It was only formally introduced sometime between May and July 2004, but it was to take effect from 1 April. Thus everyone who applied in pursuance of the Business Brief of 11 May 2004 must have received back-dated Certificates.

Fourth, if there has been a policy about back-dating, as appears to have been the case, the position of Mr Coffey will have been an exception to that policy. The merits of his case and the exceptional circumstance of his not having received notice of the Credit Scheme are, as I understand them, compelling and would surely warrant the relevant Government department from departing from the existing policy. I hope that in the light of the outcome of this appeal, sympathetic consideration can be given to Mr Coffey's case. Acknowledging the limitations on my jurisdiction, therefore, I direct that the matter be given a further review.

Appeal dismissed.

STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 12 October 2006

LON/05/1098