Outer House dismisses landfill operator’s action to recover unpaid waste tax from contractor 

Fife Resource Solutions LLP brought the action against Robertson Metals Recycling Ltd to recover monies representing the difference between the amount paid by the defender to the pursuer to cover Scottish landfill tax (SLFT) on their waste and the higher rate that should have paid based on the averred contents of the waste. 

The case was heard in the Outer House of the Court of Session by Lord Tyre. 

Higher rate of tax 

The pursuer carried on business at various sites in Fife under operating agreements with Fife Council. It contracted with the defender to receive waste from a fragmentiser machine for disposal at a landfill site it operated at Lochhead, Dunfermline. Fife Council had statutory liability to pay SLFT on disposals of waste material at the site. 

It was averred that the pursuer undertook to pay the SLFT owed at the site to Revenue Scotland as part of its agreement with Fife Council, and that a term of its contract with the defender was that the defender would pay the pursuer the amount of SLFT chargeable in respect of the waste it disposed of at the Lochhead site, as well as a charge for the service on a per-tonnage basis. 

Between April and December 2015, the defender sent about 7,000 tonnes of waste for disposal at Lochhead, which it claimed consisted mainly of non-hazardous materials including stone and concrete. In January and February 2016, a sampling exercise was carried out by the Scottish Environmental Protection Agency on the defender’s fragmentised waste. The waste was found to consist predominantly of hazardous material, which would attract a higher rate of SLFT than what the defender had paid to the pursuer. 

In March 2018, Revenue Scotland issued notices of assessment to tax to the pursuer and Fife Council. They appealed against the assessments and subsequently reached an agreement that an additional payment of £287,216 was due. That sum represented the difference between the SLFT payable as a result of the rate applicable to the disposals by the defender and the lower rate originally paid. 

It was submitted for the pursuer that Section 27 of the Landfill Tax (Scotland) Act 2014 permitted adjustment of the sum payable under a contract for disposal of waste where, after the making of the contract, there was a change in the tax chargeable. 

The defender denied that the waste it produced mainly consisted of material that did not qualify for the lower rate of SLFT. It was submitted that there was no relevant basis in the 2014 Act for recovery of the additional tax from the defender. The language of Section 27 had to be taken to refer to a change in tax chargeable on the landfill site operator and did not apply to contracts that did not involve them. 

No change in tax chargeable 

In his opinion, Lord Tyre said of the liability to pay SLFT: “Liability for payment of tax is imposed by section 16 of the [2014] Act on the authorised landfill site operator. But the policy underlying SLFT envisages that the economic burden will be passed on by the site operator to the producer of the waste, by increasing the charge for the disposal by the amount of the tax.” 

He continued: “The purpose of Section 27, properly construed in accordance with those principles, is to ensure (unless the parties have agreed otherwise) that any change in the tax regime is neutral so far as the landfill site operator is concerned. In other words, its purpose is to secure that any economic burden of tax falling upon the landfill site operator is not increased by an increase in the tax chargeable on landfill disposals.” 

Applying this interpretation to the facts of the case, he said: “The difficulty for the pursuer is that there has been no change in the tax chargeable on the defender’s landfill disposals. All that has happened is that the investigations carried out by SEPA have revealed that the wrong amount of tax was paid at the time when the pursuer submitted its return to Revenue Scotland.” 

He continued: “The fact that the error was discovered and additional tax has had to be paid does not, in my view, constitute a change in the tax chargeable; it is simply a belated payment of tax that was chargeable from the outset and ought to have been paid when the return was submitted.” 

In respect of what could have be done to address the issue faced by the parties, Lord Tyre said: “If the waste producer wishes to obtain the advantage of a lower price by assuring the landfill site operator that the material he is bringing to the site is qualifying waste, it would be open to the parties to agree that if this turns out to be wrong, the price payable for the disposal will be increased to reflect the additional tax payable when the true composition of the material is discovered.” 

He concluded: “If on the other hand the landfill site operator fails to protect himself against that eventuality, it is not the function of the taxing statute to rewrite the parties’ contract, and in my opinion Section 27 does not do so.” 

For these reasons, the action was dismissed.