A recent landfill tax decision highlights the pitfalls of statutory construction.
Landfill tax rarely receives the attention it deserves. While many practitioners will have heard of the more high-profile cases such as the ‘fluff’ case (Devon Waste Management Ltd [2021] EWCA Civ 584), most landfill tax decisions cause little commotion. However, as the first enacted environmental tax and especially in the current landscape of frequent ESG-related headlines, landfill tax deserves more publicity.
The recent case of Singleton Birch Ltd & FCC Recycling (UK) Ltd v HMRC [2023] UKFTT 619 (TC) considered whether a type of waste produced by a titanium dioxide manufacturer, treated and deposited at a landfill site, could be described as a ‘calcium based reaction waste from titanium dioxide production’ under the Landfill Tax (Qualifying Material) Order, SI 2011/1017, (‘the QMO’) and qualified for the lower rate. The titanium dioxide waste was treated with air pollution control residues (APCR), a material resulting from the incineration of waste. HMRC decided the higher rate applied to the waste, as it was not a ‘calcium based reaction waste’. By contrast, waste resulting from the treatment of titanium dioxide waste with a virgin calcium-based product attracted the lower rate.
The taxpayer argued that the statute should be read broadly to include the waste treated with APCR, as treating a waste with another waste is in accordance with the underlying environmental objective. The First-tier Tribunal (FTT) disagreed and held that environmental policy cannot override the wording of the statute, which it considered to be clear. However, the FTT went on to find that the starting point for deciding whether a material was a ‘calcium based reaction waste’ was to consider the ‘essence’ or ‘purpose’ of the process by which the waste was produced. On that view, the waste treated with a virgin product fell to be lower rated, whereas the waste treated with another waste did not.
This decision confirms that the tribunal will not unnecessarily engage in statutory construction. The first rule of statutory interpretation is the literal rule, which requires courts to interpret legislation in its plain and ordinary sense; judges should only look behind the legislation where a literal interpretation would lead to an absurd outcome.
The difficulty here is that a literal interpretation did result in an absurdity, as no waste could ever be described as being strictly a ‘calcium based reaction waste’; there are always other side reactions and impurities in the reacting materials. The FTT seemed to realise this and attempted to remedy the defect by reading in a purpose test. This resulted in an internal inconsistency in its decision: having held there was no need to construe the statute, the FTT immediately proceeded to read in a particular test without providing any justification for that approach.
Nevertheless, this may mean other types of material listed in the QMO should be interpreted in their literal sense and, if necessary, their meaning should be established by reference to the essence of the process resulting in that type of waste. One also wonders whether, had the tribunal held from the start that statutory construction was needed, it would have taken into account the underlying environmental policy, such that a waste could be treated with another waste and still benefit from the lower rate.
Those involved in or with an interest in the waste management industry will wish to consider whether the tribunal’s findings impact them.
The authors’ firm acted for the taxpayer in this case.
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Landfill tax and statutory construction
A recent landfill tax decision highlights the pitfalls of statutory construction.
Landfill tax rarely receives the attention it deserves. While many practitioners will have heard of the more high-profile cases such as the ‘fluff’ case (Devon Waste Management Ltd [2021] EWCA Civ 584), most landfill tax decisions cause little commotion. However, as the first enacted environmental tax and especially in the current landscape of frequent ESG-related headlines, landfill tax deserves more publicity.
The recent case of Singleton Birch Ltd & FCC Recycling (UK) Ltd v HMRC [2023] UKFTT 619 (TC) considered whether a type of waste produced by a titanium dioxide manufacturer, treated and deposited at a landfill site, could be described as a ‘calcium based reaction waste from titanium dioxide production’ under the Landfill Tax (Qualifying Material) Order, SI 2011/1017, (‘the QMO’) and qualified for the lower rate. The titanium dioxide waste was treated with air pollution control residues (APCR), a material resulting from the incineration of waste. HMRC decided the higher rate applied to the waste, as it was not a ‘calcium based reaction waste’. By contrast, waste resulting from the treatment of titanium dioxide waste with a virgin calcium-based product attracted the lower rate.
The taxpayer argued that the statute should be read broadly to include the waste treated with APCR, as treating a waste with another waste is in accordance with the underlying environmental objective. The First-tier Tribunal (FTT) disagreed and held that environmental policy cannot override the wording of the statute, which it considered to be clear. However, the FTT went on to find that the starting point for deciding whether a material was a ‘calcium based reaction waste’ was to consider the ‘essence’ or ‘purpose’ of the process by which the waste was produced. On that view, the waste treated with a virgin product fell to be lower rated, whereas the waste treated with another waste did not.
This decision confirms that the tribunal will not unnecessarily engage in statutory construction. The first rule of statutory interpretation is the literal rule, which requires courts to interpret legislation in its plain and ordinary sense; judges should only look behind the legislation where a literal interpretation would lead to an absurd outcome.
The difficulty here is that a literal interpretation did result in an absurdity, as no waste could ever be described as being strictly a ‘calcium based reaction waste’; there are always other side reactions and impurities in the reacting materials. The FTT seemed to realise this and attempted to remedy the defect by reading in a purpose test. This resulted in an internal inconsistency in its decision: having held there was no need to construe the statute, the FTT immediately proceeded to read in a particular test without providing any justification for that approach.
Nevertheless, this may mean other types of material listed in the QMO should be interpreted in their literal sense and, if necessary, their meaning should be established by reference to the essence of the process resulting in that type of waste. One also wonders whether, had the tribunal held from the start that statutory construction was needed, it would have taken into account the underlying environmental policy, such that a waste could be treated with another waste and still benefit from the lower rate.
Those involved in or with an interest in the waste management industry will wish to consider whether the tribunal’s findings impact them.
The authors’ firm acted for the taxpayer in this case.
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