The decision means subcontractor PJ Thory Limited cannot get a repayment from HM Revenue & Customs (HMRC) of over £170,000 of aggregates levy paid on aggregate extracted from a site adjacent to the River Nene in Northamptonshire in the course of the construction of a marina. Before the construction, the site consisted of open fields and a river inlet.
"This case shows the difficulties in applying the patchy and sometimes illogical aggregates levy exemptions which result in too many infrastructure projects being caught by the levy," said Steven Porter, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.
"HMRC seems to be taking an increasingly aggressive line on aggregates levy compliance where no avoidance is involved, presumably in an attempt to maximise tax revenues, even where the public policy for doing so is not obvious. This is reflected in a very broad approach to the circumstances where the tax applies, and a narrow approach to exemptions and credits," he said.
Aggregates levy is a UK tax on the commercial exploitation of rock, sand and gravel, which is designed to encourage the recycling of aggregate. It is charged at a flat rate of £2 for every tonne of rock, sand or gravel extracted. There is no general exemption from the levy when aggregate is extracted in the course of an infrastructure project. However, a number of exemptions may apply to infrastructure projects in limited circumstances. These include a limited exemption for material extracted in the course of dredging.
The Upper Tribunal dismissed the company's argument that a broad and purposive construction should be given to the meaning of the word 'dredging' so that it would cover the construction of a new watercourse. The tribunal said that 'dredging' should bear its normal meaning and that for dredging to occur, there must be some existing water feature, not fields that required to be excavated. It said that because parliament had used specific and not general words to create the exemptions from the levy, the general purpose of the legislation could not be used to construe the exemption more widely.
The tribunal also rejected an argument that the marina constituted a 'watercourse'. It said that word should also bear its ordinary meaning, which it said was not wide enough to include "an artificial marina built near to a river and connecting to the river only by a narrow channel".
"We consider that a watercourse is, for the purposes of the FA 2001, at minimum a linear feature (natural or artificial) that carries naturally arising water from one part or end of it to or towards the other, such as a stream, culvert or ditch," the tribunal said in its decision.
The upper tribunal also confirmed the first-tier tribunal's previous decision that the marina was not a 'channel in a port or harbour'. The company had argued that as the first-tier tribunal had accepted that the marina could be a 'port or harbour' for the purposes of the aggregates levy legislation, all navigable parts of the marina should be regarded as a channel that had been created by dredging its bed.
"It was the marina (i.e. the port or harbour) that was constructed, not a channel in a port or harbour. In our view, in agreement with the Tribunal, it is an inappropriate use of language to describe virtually the entirety of the port or harbour as a channel on the basis that all of it is navigable," the upper tribunal said.