East Midlands Aggregates accepted that the material was squarely within the definition of aggregates under the Finance Act 2001, and the key question of law was whether they fell within one of the exemptions provided in section 17 of the Act.
The relevant exemption applies to aggregates removed from the ground on the site of any building or proposed building in the course of excavations provided this was done both "in connection with the modification or erection of the building" and "exclusively for the purposes of laying foundations or laying any pipe or cable."
The company argued that the levy was essentially intended to apply to true quarrying activities and not to aggregates removed during construction work.
In a case such as the present, the exemption must be intended to encompass any aggregates removed to level the ground in order to provide a base for the foundations of the warehouse. Furthermore, it should also cover the lorry loading site which was integral to the use of the building, and any levelling of the slopes necessary to make the site safe for the lorry operations.
Customs and Excise contended that the exemption did not apply to all material extracted in the course of building construction but was confined only to that required to be extracted to accommodate the foundations and pipes.
In its view, the use of the term "exclusively" demonstrated that the exemptions were intended to be narrow in scope to avoid abuse, and that it was limited to the site of the building as such rather that the lorry park, and confined to the material that was displaced by the foundations of the new warehouse and any necessary pipework. In this case, the raft foundation provided for the warehouse performed two functions, both as a foundation for the warehouse and as its floor, and therefore was not exclusively a foundation within the meaning of the exemption.
The tribunal held that it was apparent from the wording of the exemption that it was intended to exempt from the levy any aggregate which was obtained as a by-product of activities which would not normally be regarded as quarrying.
According to the chairman: "The limitations of the exemption are designed, as I perceive them, to ensure that aggregate so obtained is genuinely a by-product, and that the exemptions are not abused in order that activities which are in truth quarrying escape the levy by being carried on in the pretence that they are something else."
Examining the exemptions, he noted that some, such as those relating to dredging works or highway construction, were in fairly generous terms, but that the exemption relating to building works was more strictly drafted, being confined to the "site" of a building and aggregate removed "exclusively" for the purpose of laying foundations or pipes. It followed that this exemption was intended to be interpreted more narrowly than the others.
However, the tribunal felt that Customs' interpretation, confining the exemption to material displaced by the foundations and pipes, was too strict, and would lead to a result that Parliament could not have intended.
"The exemption is available, in principle, in respect of all the material removed from the site of the new building for the purpose of laying foundations, pipes, or cables, by which I mean material removed in order to make their being laid feasible, and not merely so much of it as is displaced by them."
The term "exclusively" meant that the exemption would not cover material which was not so intimately connected with such works, such as landscaping or the provision of a new access road. Furthermore, the exemption relating to foundations was not confined to the foundations of the building itself but to any foundations installed within the site.
The next question was how much of the site was covered by the exemption. Customs argued that it was confined to the footprint of the warehouse, while the company maintained that it should encompass the lorry park and the exposed slope since the building could not be properly used for its purpose without the lorry park.
The tribunal noted that the legislation contained no definition of the terms "site" or "building". In its view, a building was something which rose above ground level, and clearly encompassed the warehouse, but one could not describe a lorry park as a building.
However, confining the "site" to the footprint of the building was too narrow. Even if one assumed that the foundations of a building were confined to its footprint, pipes and cables would almost inevitably stray beyond the immediate area of the building. The plans showed that drains serving the building were to be laid in part under the lorry park, and the exemption applied to any foundations, pipes or cables installed within the site.
In the tribunal's view, "the word 'site' is to be construed so as to include the whole of the area of the land on which the work of erecting a building is to be undertaken." In the present case, the lorry park came within the immediate area of the building work, and clearly was to be constructed in connection with the building. It followed that the material removed in order to make possible the construction of the foundations of the lorry park and the installation of the drains was also exempt.
However, when it came to material removed to reduce the level of the slope, the tribunal noted this was not required for the laying of foundations or pipes or cables, even if it was to be regarded as part of the site. The exemption did not extend to all material removed from a construction site, and therefore would not cover the material removed from the slope. The result was that while most of the aggregate removed was exempt, the proportion relating to the slope remained subject to the levy.
It is clear from the legislation that the exemptions relating to aggregates removed during building construction were drawn fairly narrowly, and no doubt there will be cases where the prime aim of the works is to extract aggregates for commercial sale rather than construction work. But the ruling in the present case meets with common sense and is in the spirit of the original intentions of the levy.
Richard Macrory, Professor of Environmental Law, University College, London
Transcript kindly supplied by Craig Howell-Williams, barrister, who appeared for East Midland Aggregates.
Richard Macrory is a board member of the Agency but the views expressed here are personal