Lovie Ltd v Revenue & Customs (Aggregates Levy - rock extracted from quarry)

Factual and Procedural Background

The Appellant appeals against the decision of the Respondents dated 26 February 2018 rejecting a claim for repayment of aggregates levy relating to activities at a quarry (the Quarry). The claim concerned repayment for periods from July 2002 to October 2016. The Respondents rejected the claim on the basis that the material extracted did not consist mainly of slate, and therefore did not qualify for exemption under Section 17(4)(a) of the Finance Act 2001 (FA 2001). Prior to the hearing, a preliminary issue was resolved by striking out the claim for sums paid before 7 February 2013, leaving the appeal focused on amounts paid after that date.

Aggregates levy is a tax on commercial exploitation of sand, gravel and rock, introduced in 2002. The Appellant had paid the levy since its inception. The claim arose after the Appellant, upon investigation prompted by a competitor’s slate quarry status, contended that the Quarry’s rock was slate and therefore exempt from the levy. Geological expert reports were commissioned by both parties, leading to disagreement over the classification of the rock.

Legal Issues Presented

1. Whether the stone quarried at the Quarry is wholly or mainly 'slate' within the meaning of section 17(4)(a) FA 2001.
2. If so, whether the Appellant is entitled to repayment of aggregates levy under section 31 FA 2001.
3. What test or criteria should be applied in defining ‘slate’ for the purposes of the aggregates levy exemption, given that the legislation does not define the term.

Arguments of the Parties

Appellant's Arguments

• The rock at the Quarry is geologically slate, as supported by the Appellant’s expert geologist’s reports and detailed lithological logging.
• Slate should be defined broadly, including rocks with weak slaty cleavage, consistent with the commissioned British Geological Survey (BGS) Merriman report and a 2019 research report (99-02) cited in Omagh Minerals Ltd v HMRC.
• Grain size up to 63 microns, as per Wentworth’s scale and British Standards (BS 5930), should be used as the upper limit for slate, rather than the narrower 32 micron limit preferred by HMRC.
• The Appellant’s managing director was credible in explaining the timing and basis of the claim.

Respondents' Arguments

• The Respondents’ expert geologist classified the rock as mainly sandstone, siltstone, and mudstone, with only about 19% slate, applying Merriman’s 32 micron grain size limit and requiring well-developed slaty cleavage.
• HMRC’s guidance (Excise Notice AGL1) and internal practice relied on Merriman, emphasizing well-developed cleavage and a narrower grain size limit.
• The Respondents contended that the definition of slate should be limited to high-quality slate with well-developed cleavage, as used in roofing and flagstones, excluding weaker cleavage materials.
• HMRC argued that the 63 micron grain size limit was only relevant in disputes about mudstone, shale, or siltstone, not slate.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal carefully examined the expert evidence and the definitions of slate presented. It highlighted the lack of statutory definition for slate in the Finance Act 2001 and the resulting reliance on external geological standards and reports, primarily the Merriman report commissioned by HMRC. The Tribunal identified inconsistencies within Merriman, particularly regarding grain size limits (32 microns vs. 63 microns) and the role of cleavage in defining slate.

The Tribunal found that the Respondents’ expert witness was not independent in the sense required by Scottish law, as he sought to be consistent with HMRC’s internal practice rather than providing an unbiased opinion. This diminished the weight of his evidence.

The Tribunal considered the Appellant’s expert evidence, including detailed lithological logging and petrographic analysis, and accepted the broader geological definition of slate that includes rocks with weak slaty cleavage and grain sizes up to 63 microns, consistent with Wentworth and BS 5930 standards.

The Tribunal also found the Appellant’s managing director to be a credible witness, accepting his explanation for the timing of the claim. It rejected the Respondents’ argument that the delay in claiming indicated the rock was not slate.

After reviewing the evidence, including the 2019 research report (99-02) cited in Omagh Minerals Ltd v HMRC, the Tribunal concluded that the rock quarried at the site is mainly slate within the meaning of section 17(4)(a) FA 2001.

Holding and Implications

The appeal is allowed.

The Tribunal held that the Appellant’s quarry rock qualifies as slate under the aggregates levy exemption, entitling the Appellant to repayment of the levy paid for the relevant periods after 7 February 2013. The decision directly affects the parties by overturning HMRC’s rejection of the repayment claim. No broader precedent beyond this case was established, and the ruling clarifies the application of geological definitions of slate in the context of the aggregates levy.