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URL: http://www.bailii.org/ew/cases/EWHC/Admin/2002/926.html
Cite as: [2002] Eu LR 394, [2002] STI 682, [2002] 2 CMLR 51, [2002] EWHC 926 (Admin)

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Neutral Citation Number: [2002] EWHC 926 (Admin)
CO/0703/2002

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
The Strand
London
Friday 19 April 2002

B e f o r e :

MR JUSTICE MOSES
____________________

THE QUEEN
on the application of
(1) BRITISH AGGREGATES ASSOCIATES
(2) CLOBURN QUARRY COMPANY LIMITED
(3) SHERBURN MINERALS LIMITED
- v -
HER MAJESTY'S TREASURY

____________________

Computer Aided Transcription by
Smith Bernal, 190 Fleet Street, London EC4
Telephone No: 020 7421 4040
(Official Shorthand Writers to the Court)

____________________

MR GERALD BARLING QC and MISS KELYN BACON (instructed by Messrs
Herbert Smith, London EC2A 2HS) appeared on behalf of THE CLAIMANTS
MR JONATHAN PEACOCK QC and MR FRANCIS FITZPATRICK (instructed by
Customs & Excise Legal Department, London SE2 9PJ) appeared on behalf
of THE DEFENDANT

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Friday 19 April 2002

    MR JUSTICE MOSES:

    Introduction

  1. This is an application for permission to move for judicial review, and, if I grant permission, an application for judicial review. Those applications concern a tax known as aggregates levy.
  2. On 11 May 2001 Royal assent was given to the provisions of the Finance Act 2001 which introduced a levy on aggregate. Proposals to introduce such a tax had been announced in March 2000 following earlier discussions in 1999. The provisions were not, however, implemented until 1 April 2002, pursuant to a power conferred on the Treasury to appoint the commencement date by statutory instrument. General regulations made under the Act were laid before Parliament on 21 March 2002 and came into force on 1 April. Amendments to the primary legislation were announced in the Budget three days ago on 17 April 2002, although they had been announced shortly before and were brought to my attention at the hearing.
  3. Aggregates are used in engineering and building. The Government by the imposition of the levy seek to incorporate within the market price paid for such aggregate the environmental costs of securing aggregate from natural rock. In so doing the legislation distinguishes aggregate from such a source (called by Government witnesses "primary" or "virgin" aggregate) from other material which may be used as aggregate such as certain mineral and industrial waste ("secondary" or "recycled" aggregate). Such material is exempt from the levy. By exempting such material the Government hopes to promote its use as aggregate.
  4. The levy is designed to be revenue neutral, but it is not an hypothecated tax. Receipts from the levy form part of the general account of the Customs and Excise or, if from Northern Ireland, part of the consolidated fund. But, as I have said, it is designed to be revenue neutral. A 1% reduction in employer's National Insurance Contributions has been allowed and a portion of the revenue goes into a sustainability fund designed to provide benefits for the environment.
  5. The first claimant, the British Aggregates Association, is an incorporated association representing smaller and independent quarrying companies in the United Kingdom. It has about 55 members operating over 100 quarrying sites.
  6. The second claimant is the Cloburn Quarry Company Limited which operates a quarry in Lanarkshire in Scotland.
  7. The third claimant, Sherburn Minerals Limited, is the parent company of a quarrying and minerals processing group based in the North East of England.
  8. I have had the benefit of a very large volume of evidence from Mr Durward, the director of the first and second defendants, Mr Allison, the director of Sherburn Minerals Limited, and from Mr Whitehouse, the director of Castle Granite Limited which operates a quarry in Penzance.
  9. There are about 400 private quarrying companies in the United Kingdom producing aggregates. In 1999 it appears there were 1,400 operational sand, gravel, limestone and other mineral workings employing just under 15,500 people. It is estimated that 20,000 are directly employed in quarrying and a further 20,000 indirectly employed, all of whom depend upon the quarrying industry for their livelihoods. It is to be noted that many of these quarries are in rural areas where there are limited employment opportunities.
  10. The total annual aggregates' output within the United Kingdom is said generally to exceed 200 million tonnes; but five major companies now account for around 80% of the output as well as the products of the aggregate downstream; they control some 90%, for example, of the markets in ready-mix concrete and asphalt. Over 90% of the quarry products are used by the construction industry, and a large proportion in public sector products.
  11. The evidence in reply to the claimants comes from Mr Knight, Head of Policy in Customs and Excise, charged with management of the tax, who advises the Treasury; Mr Maxwell, Head of Environment Tax at the Treasury; and Mr Riley, Chief Economist at the Department of Transport and Local Regions. In their evidence they deal with the history, the nature of the scheme and its purpose.
  12. The claimants contend that the scheme is muddled and arbitrary, stemming perhaps from the fact that, as they say, there is no satisfactory definition of "aggregate". They contend that the levy will have disastrous effects, particularly on small quarries in areas dependent upon employment by such quarries. It is submitted that there is no sensible environmental justification for the levy since the damage caused by, for example, exported aggregate which is exempt from the levy, and from recycled aggregate which the Government is determined to encouraged, will be at least equal to the damage caused by those processes which are subject to the levy. Exported aggregate and aggregate used in certain industrial and agricultural processes, which the Government seeks to promote, are exempt.
  13. This deeply-felt and strongly-argued antagonism of the claimants to the levy has given rise to the challenges to the legislation mounted in this case.
  14. The matter came first before me on 13 March 2002 for an oral hearing for permission and an application by the claimants for an interim injunction preventing the Treasury from exercising their power to implement the levy. One day was allotted for the time in which to argue those matters -- a period in which Mr Peacock QC said he could not do justice to the arguments as to why the claim was not arguable. He told me that he was prepared to accept arguability and sought only to argue that the application was out of time and assist me on whether an interim injunction should be granted. It did not seem to me to be sensible to devote time to the not altogether easy question of whether an interim injunction should be granted in the field of public law, relating to the imposition of a tax, since the substantial issues raised had, at least, to be considered in relation to the question of the interim injunction. Rather, as it seemed to me, it was in the interests of everybody that the resolution of the important issues raised in these applications should at least get under way by my hearing argument at the end of term and reaching a conclusion. Accordingly I heard argument on the last three days of term between 25 and 27 March. The hearing was a hearing as to whether permission should be granted and, if so, as to the substantive application. Thus it was not necessary to consider the question of an interim injunction. But all parties acknowledge the urgency of resolution of these issues. I have sought to meet that urgency today with a judgment that is considered but not written.
  15. There are seven issues raised by the claimants:
  16. (1) Is the imposition of the levy on imported aggregate a charge having equivalent effect to a Customs duty contrary to Article 25 of the Treaty establishing the European Community in its consolidated version (The Treaty)?
    (2) Are the charges on imports and repayment of charges on exports prohibited by Article 90, if Article 25 is not applicable?
    (3) Are such charges and exemptions prohibited by Article 90 (a question which turns on whether the levy is a direct or indirect tax)?
    (4) Is the system of exemptions state aid which has not been notified to the Commission contrary to Article 87(1) read with Article 88(3)?
    (5) Is the imposition of the levy a breach of Article 1 of the First Protocol of the European Convention on Human Rights?
    (6) Is it a breach of Article 14 read with Article 1 of the First Protocol?
    (7) Was the implementation premature to the extent that it was irrational or an abuse of power?

    Legislative Provisions

  17. I set out those sections of Part 2 of the Finance Act 2001 relevant to my decision. Amendments are to be made, should Parliament so decide, in what is at present the Finance Bill 2002. Those amendments are underlined and the passages I set out show the deletions. Such amendments were already made known at the time of the hearing. Section 16(1) introduces the tax which is chargeable whenever taxable aggregate is subject to commercial exploitation in the United Kingdom (see section 16(2)). The person charged is the person who commercially exploits the aggregate (see section 16(3)). The levy is charged at £1.60 per tonne (see section 16(4)). The commencement date is to be such date as the Treasury appoints by statutory instrument (see section 16(6)).
  18. Section 17 reads:
  19. "17Meanings of 'aggregate' and 'taxable aggregate'
    (1) In this Part 'aggregate' means (subject to section 18 below) any rock, gravel or sand, together with whatever substances are for the time being incorporated in the rock, gravel or sand or naturally occur mixed with it.
    (2) For the purposes of this Part any quantity of aggregate is, in relation to any occasion on which it is subjected to commercial exploitation, a quantity of taxable aggregate except to the extent that --
    (a) it is exempt under this section;
    (b) it has previously been used for construction purposes (whether before or after the commencement date);
    (c) it is, or derives from, any aggregate that has already been subjected to a charge to aggregates levy;
    (d) it is aggregate that was removed from its originating site before the commencement date
    it is aggregate that on the commencement date is on a site other than --
    (i)its originating site, or
    (ii)a site that is required to be registered under the name of a person who is the operator, or one of the operators, of that originating site.
    (3) For the purposes of this Part aggregate is exempt under this section if:
    (a) it is rock that has not been subjected to an industrial crushing process;
    (b) it consists wholly of aggregate won by being removed from the ground on the site of any building in the course of excavation lawfully carried out --
    (i)in connection with the modification or erection of the building; and
    (ii)exclusively for the purpose of laying foundations or of laying any pipe or cable;
    (c) it consists wholly of aggregate won --
    (i)by being removed from the bed of any river, canal or watercourse (whether natural or artificial) or of any channel in or approach to any port or harbour (whether natural or artificial); and
    (ii)in the course of the carrying out of any dredging undertaken exclusively for the purpose of creating, restoring, improving or maintaining that river, canal, watercourse, channel or approach;
    (d) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any highway or proposed highway and in the course of excavations carried out --
    (i)for the purpose of improving or maintaining the highway or of constructing the proposed highway; and
    (ii)otherwise than wholly or mainly not for the purpose of extracting that aggregate; or
    (e) it consists wholly of the spoil, waste or other by-products not including the overburden resulting from the extraction or other separation from any quantity of aggregate of any china clay or ball clay.
    (f) it consists wholly of the spoil from any process by which --
    (i) coal, lignite, slate or shale, or
    (ii) a substance listed in section 18(3) below,
    has been separated from other rock after being extracted or won with that other rock."
  20. Section 17(4) provides:
  21. "For the purposes of this Part a quantity of any aggregate shall be taken to be a quantity of aggregate that is exempt under this section if it consists wholly or mainly of any one or more of the following, or is part of anything so consisting, namely --
    (a) coal, lignite, slate or shale;
    (b) the spoil from any process by which coal has been separated from other rock after being extracted or won with that other rock;
    (c) the spoil or waste from, or other by-products of --
    (i)any industrial combustion process, or
    (ii)the smelting or refining of metal;
    (d) the drill-cutting resulting from any operations carried out in accordance with a licence granted under the Petroleum Act 1998 (c. 17) or the Petroleum (Production) Act (Northern Ireland) 1964 (c.28(N.I.))otherwise than in relation to petroleum situated in the strata in Great Britain;
    (e) anything resulting from works carried out in exercise of powers which are required to be exercised in accordance with, or are conferred by, provision made by or under the New Roads and Street Works Act 1991 (c.22), the Roads (Northern Ireland) Order 1993 (S.I. 1993/3160 (N.I. 15) or the Street Works (Northern Ireland) Order 1995 (S.I. 1995/3210 (N.I. 19));
    (f) clay, soil or vegetable or other organic matter."
  22. Section 18 is concerned with exempt processes. It provides:
  23. "18 Exempt processes
    (1) In this Part references to aggregate --
    (a) include references to spoil, waste, off-cuts and other by-products resulting from the application of any exempt process to any aggregate, but
    (b) do not include references to anything else resulting from the application of any such process to any aggregate.
    (2) In this Part 'exempt process' means --
    (a) the cutting of any rock to produce dimension stone stone with one or more flat surfaces;
    (b) any process by which a relevant substance is extracted or otherwise separated (whether as part of the process of winning it from any land or otherwise) from any aggregate;
    (c) any process for the production of lime or cement from limestone or from limestone and some other substance anything else.
    (3) In this section 'relevant substance' means any of the following --
    (a) anhydrite;
    (b) ball clay;
    (c) barytes;
    (d) calcite;
    (e) china clay;
    (f) feldspar;
    (g) fireclay;
    (h) flint;
    (i) fluorspar;
    (j) fuller's earth;
    (k) gems and semi-precious stones;
    (l) gypsum;
    (m) any metal or the ore of any metal;
    (n) muscovite;
    (o) perlite;
    (p) potash;
    (q) pumice;
    (r) rock phosphates;
    (s) sodium chloride;
    (t) talc;
    (u) vermiculite."
  24. The Treasury may add to the list of relevant "substances" by Statutory Instrument subject to negative resolution but may not remove anything from the list (ie potentially take something outwith the exemption) by virtue of section 17(3)(f)(ii) without positive resolution.
  25. I should pause to consider the scheme for exemptions under sections 17 and 18. A wide variety of natural and artificial material may be used as aggregate. The definition of aggregate depends as much upon the nature of the use of such material as its origin (see Mr Riley at paragraph 8). The taxation of aggregate and exemption from taxation must perforce depend upon use as well as the inherent properties of the material in question. That which is not usable as aggregate is exempt (eg coal: see section 17(4)(a); or clay: see section 17(4)(f)). Spoil or waste under section 17(4)(c)(ii) from, for example, a power station is also exempt). Such spoil or waste may be used as aggregate, but it is not rock, sand, or gravel under section 17(1). It is deemed (in the words of the statute "taken to be" aggregate), but is exempt under section 17(4) because the Government wishes to encourage its use as aggregate. Whether that is permissible is an important issue to which I shall turn later.
  26. The spoil resulting from the process of extraction of, for example, coal will usually itself consist of coal or shale to a large extent, and is exempt under section (4)(a). But if it consists of some other substance it is exempt under section 17(3)(f)(i). Spoil from most of the minerals to which section 18(3) refers will not be of the same substance as the mineral it is sought to extract. For example, spoil which consists of rock derived from the extraction of fluorspar or semi-precious stones will not itself consist of fluorspar or semi-precious stones. But it could be used as aggregate and is referred to as aggregate, which includes a reference to such spoil by virtue of section 18(1)(a) and section 18(2)(b). It is waste resulting from a process by which fluorspar or semi-precious stones are extracted from any aggregate as defined in section 17(1). But although such spoil consisting of rock is aggregate, it is exempt aggregate under section 17(3)(f)(ii).
  27. The wording of section 17(3)(f) reflects the fact that extraction and separation of some minerals may not be simultaneous. The wording of section 17(3)(e) reflects the fact that the process of extraction and separation may be simultaneous.
  28. The chargeable event (that is, subjection to commercial exploitation) is identified in section 19(1). The site to which section 19(1)(a) refers is identified in section 19(2). Section 20 identifies the originating site for the purposes of section 19(2). Section 22 identifies those responsible for exploitation for the purposes of section 16. Section 21 identifies operators of a site for the purposes of section 22 and the regulations made under section 24. Section 23 empowers the Commissioners to make regulations for determining the weight of aggregate. Section 24 imposes a duty to keep a register of those carrying out taxable activities which section 24(3) defines. Section 25 provides for returns by reference to accounting periods under the regulations and penalties for failure to comply with the regulations, subject to a reasonable excuse for non-compliance (see section 25(4)).
  29. Section 44 provides for the destination of the revenue either into the general account of the Commissioners of Customs and Excise or, if from Northern Ireland, into the Consolidated Fund.
  30. Section 30 provides for regulations relating to entitlement to tax credits where, for example, aggregate is exported, or an exempt process is applied to any aggregate. Section 30 provides:
  31. "30 Credit for aggregate levy
    (1) The Commissioners may, in accordance with the following provisions of this section, by regulations make provision in relation to cases where, after a charge to aggregates levy has arisen on any quantity of aggregate --
    (a) any of that aggregate is exported from the United Kingdom in the form of aggregate;
    (b) an exempt process is applied to any of that aggregate;
    (c) any of that aggregate is used in a prescribed industrial or agricultural process;
    ...."
  32. Schedule 6 to the Act deals with civil penalties. Transitional tax credits relating to Northern Ireland are to be introduced under a new section 30A.
  33. Regulation 13 of the Aggregates Levy (General) Regulations 2002, which came into force on 1 April 2002, reads:
  34. "(1) This regulation applies to a person who has commercially exploited taxable aggregate and who has accounted for the AL chargeable on that commercial exploitation.
    (2) Such a person is entitled to a tax credit in respect of any AL accounted for in respect of that commercial exploitation where the taxable aggregate in question --
    (a)is exported or removed from the United Kingdom without further processing;
    (b)is used in an exempt process;
    (c)is used in any of the industrial or agricultural processes listed in the Schedule;
    (d)is disposed of (by dumping or otherwise) in any of the following ways:
    (i)it is returned without further processing to its originating site or any site which is not its originating site but is registered under the same name;
    (ii)it is disposed of to landfill;
    (iii)it is gravel or sand and is used for breach restoration purposes at a site which is not its originating site.
    ...."
  35. The regulation reflects the fact that one cannot know whether aggregate otherwise taxable is in fact exempt unless and until it is known what has happened to it: hence the entitlement to a tax credit rather than an exemption.
  36. Article 25

  37. Article 25 provides:
  38. "Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States."
  39. The European Court of Justice has explained that the fundamental objective of this Article is to ensure the free movement of goods: see Commission v Italy (Case 24/68 [1969] ECR 193, paragraph 9). The importance of the measure was stressed in Sociaal Fonds voor de Diamantarbeiders v Brachfeld [1969] ECR 211. At paragraph 11/14 the Court said:
  40. ".... the purpose of the abolition of customs barriers is not merely to eliminate their protective nature, as the Treaty sought on the contrary to give general scope and effect to the rule on the elimination of customs duties and charges having equivalent effect in order to ensure the free movement of goods. It follows from the system as a whole and from the general and absolute nature of the prohibition of any customs duty applicable to goods moving between Member States that customs duties are prohibited independently of any consideration the purpose for which they were introduced and the destination of the revenue obtained therefrom. The justification for this prohibition is based on the fact that any pecuniary charge -- however small -- imposed on goods by reason of the fact that they cross a frontier constitutes an obstacle to the movement of such goods."
  41. At paragraph 15/18 the Court continued:
  42. "The extension of the prohibition of customs duties to charges having equivalent effect is intended to supplement the prohibition against obstacles to trade created by such duties by increasing its efficiency. The use of these two complementary concepts thus tends, in trade between Member States, to avoid the imposition of any pecuniary charge on goods circulating within the Community by virtue of the fact that they cross a national frontier.... Consequently, any pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect within the meaning of [now Article 25], even if it is not imposed for the benefit of the State, is not discriminatory or protective in effect or if the product on which the charge is imposed is not in competition with any domestic product."
  43. However, as the Court pointed out in that case, a charge having equivalent effect does not include internal taxation imposed in the same way on similar products. At paragraph 19/21 the Court said:
  44. ".... It follows from [what is now Article 90] that the concept of a charge having equivalent effect does not include taxation which is imposed in the same way within a State on similar or comparable domestic products, or at least which falls, in the absence of such products, within the framework of general internal taxation, or which is intended to compensate for such internal taxation within the limits laid down by the Treaty."
  45. Such a charge is covered by Article 90. Article 90 and Article 25 are mutually exclusive.
  46. Accordingly, the first question is to identify whether the levy falls within the category of a charge having equivalent effect to Customs' duty within the meaning of Article 25 or is an internal tax within the meaning of Article 90. In Gaston Schul Douane Expediteur BV v Inspecteur der Invoerrechten en Accijnzen, Roosendaal (Case 15/81 [1982] 2 ECR 1409) the Court set out a test for identifying whether internal taxation has been imposed in the same way on similar domestic products. At paragraph 19 it said:
  47. "The essential characteristic of a charge having an effect equivalent to a customs duty, and the one which distinguishes it from internal taxation, is therefore that it affects only imported products as such whereas internal taxation affects both imported products and domestic products."
  48. But it is important to appreciate that a tax can have an effect equivalent to customs duty, even if it is imposed on both domestic and imported goods, if the tax is not imposed in the same manner on both categories of goods.
  49. In the instant case the claimants point to the legislation which imposes the charge when taxable aggregate is subject to commercial exploitation. Section 16(2) of the Finance Act 2001 provides:
  50. "The charge to the levy shall arise whenever a quantity of taxable aggregate is subjected, on or after the commencement date, to commercial exploitation in the United Kingdom."
  51. Commercial exploitation within section 16(2) arises when one of four events occurs under section 19(1). Section 19(1) reads:
  52. "For the purposes of this Part a quantity of aggregate is subjected to exploitation if, and only if --
    (a)it is removed from a site falling within subsection (2) below;
    (b)it becomes subject to an agreement to supply it to any person;
    (c)it is used for construction purposes; or
    (d)it is mixed, otherwise than in permitted circumstances, with any material or substance other than water."
  53. Although those events may take place when taxable aggregate is commercially exploited within the United Kingdom, the most usual event giving rise to the charge will be when the aggregate is removed from the site where the aggregate originates, in other words when it is first excavated. That is the event described in section 19(1)(a) (see Mr Durward's first statement at paragraph 67). This first and, it is said, most common taxation point can never arise in the case of imported aggregate to which the second and third taxation points will usually apply. Indeed, the claimant points out that the creation of the second taxation point in section 19(1)(b) was designed to assist the recovery of the levy on imported aggregate whilst avoiding taxation when the aggregate leaves the wharf, which would create a land boundary contrary to Article 25. Mr Durward draws attention to confirmation of that purpose in the Aggregates Levy Consultation Group on 11 September 2001 at paragraph 23 of his first statement.
  54. In support of this contention, the claimant refers to Denkavit v France (Case 132/78 [1979] ECR 1923). France had imposed a charge when certain animals were slaughtered for the protection of public health and the organisation of markets in meat. It imposed a like charge on imported meat, whether it was processed or not. The Court pointed out that there was no breach of what is now Article 25 if the charge was imposed according to the same criteria. At paragraph 7 the Court said:
  55. "(The charge) also escapes that classification [that is a charge having equivalent to a customs duty] if it relates to a general system of internal dues supplied systematically and in accordance with the same criteria to domestic products and imported products alike."
  56. But the Court continued by stressing that the test as to whether the same criteria had been imposed turns on whether the charge is imposed at the same marketing stage and whether the chargeable event is identical. At paragraph 8 the Court said:
  57. "It is, however, to emphasise that in order to relate to a general system of internal dues the charge to which an imported product is subject must impose the same duty on national products and identical imported products at the same marketing stage and that the chargeable event giving rise to the duty must also be identical in the case of both products. It is therefore not sufficient that the objective of the charge imposed on imported products is to compensate for a charge imposed on similar domestic products or which has been imposed on those products or product from which they are derived at a production or marketing stage prior to that at which the imported products are taxed. To exempt a charge levied at the frontier from the classification of a charge having equivalent effect when it is not imposed on similar national products, or is imposed on them at different marketing stages or again on the basis of a different chargeable event giving rise to duty, because that charge aims to compensate for a domestic fiscal charge applying to the same products .... would make the prohibition on charges having effect equivalent to customs duty emptied and meaningless."
  58. The claimants submit that the chargeable events cannot be said to be identical when the first taxation point could never apply to imports.
  59. It is important, however, to recollect that in Denkavit the first question posed by the referring court was:
  60. "Is it contrary to the prohibition on charges having an effect equivalent to customs duties on imports within the meaning of [Article 25] to apply a charge imposed on imports of lard from another Member State intended for use in animal feeding stuffs in order to compensate for the levying of a domestic charge on the slaughter of swine?" (my emphasis)
  61. France was seeking to impose a charge on imports of lard, that is processed meat, whereas within France the same charge was imposed only on raw meat. The charge was not imposed at the same stage of production in relation to domestic products. The charge was imposed in relation to domestic products by reference to the carcass of freshly-slaughtered meat, whereas it was imposed on imported lard which was produced at a different stage of production (rendering or solvent extraction: see the Advocate General's opinion at 1939). Accordingly the Court concluded at paragraph 9:
  62. "A charge which is imposed on meat, whether or not prepared, when it is imported, and in particular on consignments of lard, even though no charge is imposed on similar domestic products or a charge is imposed on them according to different criteria, in particular by reason of a different chargeable event giving rise to the duty, constitutes a charge having an effect equivalent to a customs duty within the meaning of [Article 25]."
  63. In other words, the charge offended Article 25 because it was imposed on imported meat irrespective of whether it was prepared or not.
  64. The Court cast some light on what is meant by a different marketing stage in Commission v Belgium (Case 314/82 [1984] ECR 1543). The Commission contended that the imposition of inspection charges on various types of imported meat breached what is now Article 25. Inspection charges were levied on imported fresh, dried, salted and smoked poultry meat. In relation to domestic poultry meat, the levy was charged only on fresh meat whether it was before or after slaughter and at subsequent stages of production, that is when it was cut up or distributed. Charges imposed on imported meat were imposed in respect of checks on importation or at the place of destination or, as the Court pointed out, at the same stages as home-produced meat (see paragraph 2 of the judgment at page 1553).
  65. The Belgium Government conceded that charges on imported processed poultry on similar domestic processed poultry breached the Treaty (see paragraphs 14 and 15 of the judgment). In respect of fresh poultry meat, the charges were calculated according to different criteria (see paragraph 19 of the judgment). The Court concluded at paragraph 21:
  66. "An appraisal of the national rules at issue in terms of their form, their content and their effects reveals therefore that the inspection charges levied in respect of home produced meat are not part of a general system of internal views imposing the same charge in accordance with the same criteria to domestic and imported products alike."
  67. The importance of this case is that it reveals that the Court did not find a breach merely because the charges were imposed at the time of importation rather than either before or after slaughter. Charges imposed before or after slaughter would not have been possible in relation to imported poultry that had not yet reached the frontier. Rather the Court held that the breach arose either because there was no charge imposed on similar domestic products (eg smoked poultry meat) or because different calculations were used according to whether the poultry meat was imported or was domestic poultry meat. The fact that in some of the cases the charge would be levied at a different tax point (ie on importation) and could not be charged at all at some of the same taxation points applying to identical domestic products (eg pre-slaughter) did not lead to the conclusion that similar products were taxed at a different marketing stage and therefore according to different criteria.
  68. The essential element of a charge which breaches Article 25 is that it has the same effect upon the free movement of goods as a customs duty (see paragraph 18 of Schul (supra)). The fact that the chargeable event will usually occur later in relation to imported aggregate has no such impact. Indeed, it presents an advantage to importers (see Mr Durward's complaints in his first statement at paragraph 104). I conclude that the mere fact that one of the chargeable events, namely removal of the aggregate from an originating site, cannot apply to imported aggregate does not mean that the levy applies different criteria in relation to the charge on imported aggregate from those imposed on domestic aggregate. The charge is imposed on identical products. The chargeable events are identical, even though the first cannot apply to imports. Moreover, as Mr Knight points out in his second statement (paragraph 19), imported aggregate may become chargeable when it becomes subject to an agreement to supply. This may occur even before it has left the point of landing and thus at as early a stage as removal from an originating site.
  69. For these reasons it seems to me that the other arguments raised by the claimants under Article 25, namely the protectionist purpose of the levy on imported goods, the absence of any advantage in relation to the distribution of the fruits of the levy, and the lack of any deduction for tax borne in the country of origin are more properly to be considered under Article 90. The arguments in relation to Article 90 followed arguments addressed to me by Mr Barling QC on behalf of the claimants in relation to Article 92, but it is more convenient to deal first with Article 90.
  70. Article 90

  71. Article 90 provides:
  72. "No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
    Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products."
  73. Mr Barling QC on behalf of the claimants drew my attention to Commission Communication on Environmental Taxes and Charges in the Single Market OJ 97/C 244/10. In relation to Article 90 the Commission said at paragraph 22:
  74. "If the goods are not 'similar', but still are at least partially or potentially competing with foreign products, the second paragraph of [now Article 90] requires that the levy must not have the effect of protecting domestic products. In the assessment of this aspect, not only the actual situation but also the potential market for foreign products, if no protectionist measures were involved, should be taken into consideration. It is also necessary to take into account how the revenue from the levy is used. The Court ruled that when the revenue from a levy is used to partly offset the burden borne by domestic products, the charge constitutes discriminatory taxation within the meaning of [Article 90] of the Treaty."
  75. Mr Barling firstly submits that the imposition of the levy on imported aggregate was expressly stated to be for the purpose of protecting the competitiveness of domestic aggregate. He drew my attention to the Aggregates Levy Regulatory Impact Assessment, published in March 2000, and to references at pages 35 and 78 in the fourth bundle of exhibits which can be summarised as follows:
  76. "Consultation responses strongly supported the proposal the imports of aggregates be levied to remove the danger of damage to United Kingdom competitiveness and avoid the risk that policy objectives of the levy were undermined by a shift towards imported rather than recycled materials. Imports will therefore be subject to the levy on first sale or use in the United Kingdom. Similarly, the majority of people who expressed an opinion were in favour of exempting exports again in order to protect international competitiveness."
  77. Similarly Mr Allison in his statement refers to that purpose at paragraph 32. Indeed, continued Mr Barling, there is no rational basis for imposing a levy at all when an importer by definition has caused no environmental damage to the United Kingdom. The application of the principle embraced by the government that the polluter should pay ought to lead to the absence, not to the imposition of the levy on imports.
  78. I do not accept that the rationale for the imposition of the levy on imports has direct relevance to the essential question posed by the second paragraph of Article 90, namely whether the effect of such an impost is to afford indirect protection to domestic products. But I do accept that if a protectionist purpose were to be established and there was no other rationale for the levy on imported products, the likely conclusion would be that the levy had achieved or was likely to achieve its purpose. However, it is clear to me that the levy did not have an exclusively protectionist purpose. The responses of consultees referred to in the passages I have cited above did stress the protective purpose of the imposition of the levy on imports, but the Government's purpose was expressed in the consultation document headed "Consultation on a Potential Aggregates Tax" and issued on 15 June 1998. At paragraph 31 it said:
  79. "We also envisage the tax applying to the first sale transfer or use in the United Kingdom of materials brought into the country. There are two principal reasons for this. First, if the effect of a tax was that cheaper imported or EU materials replaced home-produced minerals, that would undermine the objective of encouraging recycling and best use of aggregates. Second, any new environmental tax needs to take into account issues of international sectoral competitiveness."
  80. The first reason given derives from the essential purpose of the levy. There is no point in attempting to shift demands from one domestic source (aggregate from natural rock) to another (for example exempt waste) if cheaper, untaxed imports may provide an alternative source of aggregate. The protective effect of the levy derives from the fundamental environmental rationale. That the levy has some protective effect in the sense that the absence of its imposition might encourage imports does not in the circumstances constitute a breach of Article 90. The imposition of the levy on imports reinforces the environmental purpose of the levy.
  81. Mr Barling relied, secondly, on the fact that the revenue derived from the levy goes to the benefit of those who live within the United Kingdom. It provides no benefit to importers. The revenue is recycled to business generally through the 0.1% cut in employers' National Insurance contributions and a £35 million sustainability fund to which Mr Riley refers at paragraph 22 of his statement. That fund is aimed at delivering benefits to the local environment. In Georges Lornoy en Zonen NV and Others v Belgium State (Case C17/91 [1992] ECR 1-6253), the Court pointed out that this argument was relevant to Article 90 and not Article 25 since the burden of the charge in that case was only partially offset. The Court said at paragraph 20:
  82. "Where a charge is imposed on domestic and imported products according to the same criteria, the Court has consistently held that it may be necessary to take into account the purpose to which the revenue from the charge is put. Thus, if the revenue from such a charge is intended to finance activities for the special advantage of the taxed domestic product, it may follow that the charge imposed on the basis of the same criteria nevertheless constitutes discriminatory taxation in so far as the fiscal burden on the domestic products is neutralized by the advantages which the charge is used to finance, whilst the charge on the imported product constitutes a net burden."
  83. But that principle to my mind is of no application in this case. The use of the revenue provides no specific advantage to the domestic products or producers at all. It does not partially offset the levy borne by the domestic production of aggregate. It is designed to benefit the community as a whole. It cannot be, and is not, sufficient to assert that the revenue goes into a common pot. If that were correct, all internal tax would fall foul of Article 90 in respect of products which were imported, notwithstanding that the revenue formed part of the consolidated fund.
  84. The proposed benefits identified in the Treasury's consultation paper on the objectives of the sustainability fund published in August 2000 were:
  85. "•overcoming market barriers and promoting increased use of alternative material as aggregates;
    •funding research into more sustainable construction and demolition practices;
    •promoting conservation and increased diversity;
    •restoring the natural landscape;
    •promoting environmentally friendly quarrying practices and local community projects."
  86. Thus the benefits suggested are not domestic production or producers at all.
  87. The third submission of the claimants is that the levy amounts to an additional tax burden on those importers who have exported from a Member State of the European Union where a similar levy is imposed. Some Member States do impose a levy, but it appears that it is (so far as it is possible to calculate) at a much lower level (see the answer of the Minister given in the House of Commons, Hansard 18.1.2002 which is at Tab 17, page 215 of Bundle 4 of the exhibits). The argument is derived from Schul in which the Court refers to the argument on behalf of the tax payer:
  88. "The plaintiff in the main action considers that such difference in treatment is contrary to [Article 90] since on the one hand it is detrimental to the supply of products between private persons resident in different Member States as compared to supply by private persons resident in the Member State of importation and on the other hand it gives rise to an overlapping of taxes as regards products delivered by private persons across the frontier for which, unlike products supplied by taxable persons, there is no remission of tax on exportation."
  89. The Court concluded that if no account was taken of a tax that the products had already borne, there would be a breach of Article 90. At paragraph 31 the Court said:
  90. "It may be observed that at the present stage of Community law the Member States are free, by virtue of [Article 90], to charge the same amount on the importation of products as the value-added tax which they charge on similar domestic products. Nevertheless, this compensation is justified only in so far as the imported products are not already burdened with value-added tax in the Member State of exportation since otherwise the tax on importation would in fact be an additional charge burdening imported products more heavily than similar domestic products."
  91. At paragraph 32 the Court continued:
  92. "That view derives in the first place form the terms of [Article 90] of the Treaty which prohibits not only the direct but also the indirect imposition of internal taxation on products from other Member States in excess of that on similar domestic products. That prohibition would not be complied with if imported products could be subject to the value-added tax applicable to similar domestic products without account being taken of the proportion of value-added tax with which those products are still burdened at the time of their importation."
  93. That case concerned VAT, a tax subject to a number of Community rules designed to achieve harmonisation.
  94. In Herbert Scharbatke GmbH v Federal Republic of Germany (Case C-72/92 [1993] ECR 1-5509) Germany had imposed charges on the presentation of carcases of slaughtered meat for the purposes of its sales promotion fund. The Court ruled that the principle that VAT borne in an exporting state must be taken into account, had no application to the charges in question. At paragraph 15 the Court said:
  95. "It must be observed in that regard that although under the system of value added tax (VAT) and on the basis of the harmonisation rules in this field the VAT paid in the exporting Member State must be taken into account, as stated in the judgment in case 15/81 Schul v Inspecteur der Inverrochten en Accijnzen [1982] ECR 1409, that solution cannot be applied to charges regulated by independent national legislation, such as those at issue in the main proceedings."
  96. For the same reason there is to my mind no obligation to take into account any similar charges levied in Member States from which the aggregate is exported.
  97. Finally, it is worth emphasising that although the grounds at paragraph 39 rely upon the exemptions afforded to waste products of a number of minerals, there can be no question of favouring domestically produced aggregate in such respects. The levy applies to exactly the same imported products and affords them exactly the same exemptions. The fact of exemption creates no breach of Article 90.
  98. Article 92

  99. Article 92 provides:
  100. "In the case of charges other than turnover taxes, excise duties and other forms of indirect taxation, remissions and repayments in respect of exports to other Member States may not be granted and countervailing charges in respect of imports from Member States may not be imposed unless the measures contemplated have been previously approved for a limited period by the Council acting by a qualified majority on a proposal from the Commission."
  101. The Article prohibits the adoption of charges on imports and the repayment of charges on exports in respect of direct taxes (known as BTAs) without approval. No such approval has been sought or received. Whether the levy breaches Article 92, accordingly, turns on whether, as the claimants contend, it is a direct tax.
  102. The classic distinction between direct and indirect taxes was stated by Mill in his Principles of Political Economy, Book V, chapter 3:
  103. "a direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he should indemnify himself at the expense of the other: such as the excise of customs. The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a particular contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price."
  104. John Stuart Mill's distinction was cited in the Privy Council in Atlantic Smoke Shops Ltd v Conlon and Others, Attorney-General of Canada and Others [1943] 2 All ER 393. Viscount Simon LC, giving the opinion of the Board in relation to tobacco tax in Canada said at page 397H:
  105. "If a tax is so devised that (as Mill expresses it) the taxing authority is not indifferent as to which of the parties to the transaction ultimately bears the burden, but intends it as a 'peculiar contribution' upon the particular party selected to pay the tax, such a tax is not proved to be indirect by calling it a sales tax."
  106. The claimant contends that the levy is targeted on particular quarry producers to inhibit their production and is not designed as a tax on consumption. It is not structured so as to be passed on to consumers. There is no one chargeable event. The levy is chargeable on a number of events relevant to the process of production. It is on sale for consumption. The levy may not, indeed, be passed uniformly on to a consumer. Aggregate may be sold, where it will not fetch a good market price, at a price lower than the levy of £1.60 imposed.
  107. Moreover, Mr Barling contends that John Stuart Mill's test is only a starting point. The paradigm of an indirect tax is a sales tax where the taxable event occurs in the country of destination. BTAs are permitted because they avoid the double imposition of a sales tax, and neutralise the effect of different rates of sales tax. No such justification exists in relation to the levy targeted at the generation of environmental harm. Its aim is to prevent harm caused by quarrying and thus the taxable event occurs in the country of origin where the harm takes place. The levy is accordingly analogous to a levy on noxious omissions.
  108. In relation to the nature of a tax on harmful processes, the claimants draw attention to a Commission communication to the Council and to Parliament on trade and environment at paragraph 4.4 in which the Commission enjoins Member States not to discriminate or act in a protectionist manner simply by labelling a measure as environmental. The reference by Mr Barling to the Commission's decision on Netherlands' manure provides no helpful metaphor as to the quality of his argument. In its decision of 21 December 2000 the Commission considered various exemptions from the imposition of that levy in relation to state aid, but it is difficult to reach any conclusion without the opportunity fully to analyse that particular Netherlands tax, or the reason why it was referred to as a direct tax.
  109. I reject Mr Barling's submissions. The structure of the tax suggests an indirect tax. Section 16 charges the levy on goods subject to commercial exploitation. The levy is charged when it is first commercially exploited (see section 19(1)). The purpose is to influence demand by passing the tax on to the consumer who will be influenced to seek aggregate from alternative sources. That is one of the very complaints made by the claimants. Their complaints to a large measure stem from what they fear will result from that shift in demand. True it is that the rationale for the levy cannot determine its character, but the mechanism for achieving the purpose of the levy, namely by passing the levy on to a consumer of aggregate, does, as it seems to me, provide a powerful indication that the levy is an indirect tax. The fact that in some cases the levy will not be passed on does not turn it into a direct tax any more than in the case of excise duty on wine.
  110. That the purpose of the levy does not change its character is shown by the Commission's own view as to climate change levy. This was intended to reduce harm to the environment, but was not treated by the Commission as a direct tax, even though questions relating to exemption for export were referred to by the Commission in relation to its conclusions as to state aid. The Commission specifically noted that which would be prohibited if the climate change levy was a direct tax (see paragraph 3 as to the scope of the levy, recorded in the Official Journal C185/22 under the heading 'STATE AID -- Invitation to submit comments pursuant to Article 88(2) of the EC Treaty, concerning measure C 18/2001 -- Climate change levy').
  111. Nor am I helped as to the correct categorisation of the levy from the references by the Commission to the application of state aid rules in relation to environmental taxes in its notice on direct business taxation (OJ C384, 10.12.98) to which the Commission decision on exemption in relation to Netherlands' tax referred. Clarke LJ derived support for his conclusions in relation to state aid in connection with insurance premium tax from the same Commission notice (OJ C384 of 10.12.98) in R v Customs and Excise Commissioners, ex parte Lunn Poly Ltd [1999] STC 350, yet no one could sensibly suggest that insurance premium tax was a direct tax.
  112. I remain unpersuaded that the aggregates levy is a direct tax. The fact that it is intended to pass that levy on to the consumer is the very foundation of the complaints raised by the claimant producers and the means by which the objective of the levy is sought to be achieved.
  113. State Aid

  114. State aid is defined in Article 87(1) as:
  115. ".... any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods .... insofar as it affects trade between Member States...."
  116. A Member State may not grant aid within Article 87(1), falling outwith the categories in Article 87(2) and (3) unless and until it has been formally notified and approved by the Commission. Article 88(3) provides:
  117. "The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the common market having regard to Article 87, it shall without delay initiate the procedure provided for in paragraph 2 [for investigation of the aid]. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision."
  118. A measure will constitute state aid if it satisfies six criteria:
  119. (1) it is an aid in the sense of a benefit or advantage;
    (2) it is granted by the State or through State resources;
    (3) it favours certain undertakings or products over others (the selectivity principle);
    (4) it distorts or threatens to distort competition;
    (5) it is capable of affecting trade between Member States; and
    (6) it has not been notified to the Commission.
  120. In the instant case the three criteria which are in dispute are (3) whether the levy favours certain undertakings or products over others (selectivity); (4) it distorts or threatens to distort competition; and (5) is capable of affecting trade between Member States. The Commission has not been notified.
  121. The function of the court is to decide whether the levy amounts to state aid. If it does, then it is the exclusive responsibility of the Commission to determine whether the aid is compatible with the common market. National courts must safeguard the rights which individuals enjoy as the result of the direct effect of the last sentence of Article 88(3), by preserving the rights of those faced with a possible breach until the final determination of the Commission: see Lord Woolf MR in R v Customs and Excise Commissions, ex parte Lunn Poly Ltd [1999] STC 350, 358J-359H, where he cites extensively from Fédération Nationale du Commerce Extérieur des Produits Alimentaires and Syndicat National des Négociants et Transformateurs de Saumon v France (Case C354/90 [1991] ECR 1-5505 at paragraphs 10-14).
  122. It is convenient to consider together the general principles applicable to the first criterion, whether the measures amount to aid, and the third criterion, selectivity. A tax exemption for a particular class of undertaking may constitute state aid, for example, the reduction in employers' social security contributions afforded to the Italian textile industry in Italy v Commission (Case 173/72 [1974] ECR 709). But the mere fact that some undertakings benefit from the tax regime and others do not does not necessarily mean that the tax measures infringe the rules against state aid. It is thus necessary to consider and apply the selectivity principle: that is the principle by which the courts distinguish between those tax systems which provide for exemptions which constitute State Aid and those which do not.
  123. This principle was considered recently by Robert Walker LJ in R (on the application of Professional Contractors Group and others) v Inland Revenue Commissioners [2001] STC 629. The Court of Appeal was considering the Revenue's Press Notice IR35 which identified tax measures prohibiting service companies from deducting tax and National Insurance contributions where those service companies provided the services of a worker in circumstances in which, if the services had been provided directly by the worker to the client, without the interposition of the service company, the worker would be regarded for income tax purposes as an employee. These were anti-avoidance provisions designed to prevent the reduction and deferral of tax by the mere device of interposing a service company. Although there were service companies which were not caught by the provisions identified in IR35, the measures did not constitute state aid because they merely imposed tax and National Insurance contributions on those who ought to pay it but had managed to reduce or defer their liabilities by the assumption of a corporate structure. At paragraph 51 Robert Walker LJ said:
  124. "The heart of the matter .... is what sort of 'system' IR35 is concerned with, and (following from that) what is the relevant comparison for the purpose of 'an equal competitive footing' .... the aim of both the tax and the NIC provisions (an aim which they may be expected to achieve) is to ensure that individuals who ought to pay tax and NIC as employees cannot, by the assumption of a corporate structure, reduce and defer the liabilities imposed on employees by the United Kingdom's system of personal taxation."
  125. The whole of the passage in Robert Walker LJ's judgment between paragraphs 30 and 51 provides important guidance as to the principle of selectivity. I hope I may be given if I seek to extract certain important features:
  126. (1) Measures entailing differences in treatment between categories of undertakings or between sectors of activity may be justified by the nature or structure of the system of which they form part (see paragraph 31 of the judgment). In that connection the European Court of Justice in Ferring SA v Agence centrale des organismes de sécurité sociale (Case C53/00, transcript 22.11.2001) also referred to the "logic" of the system (see paragraph 17 of the judgment of the ECJ, cited at paragraph 46 of Professional Contractors Group)
    (2) Any measure intended partially or wholly to exempt firms in a particular sector from the normal application of the general system without there being any justification for this exemption on the basis of the nature or general scheme of this system constitutes state aid (see paragraph 35 of the judgment in Professional Contractors Group citing Commission Notice in OJC384 10 December 1998 at page 3 and Italy v Commission [1974] ECR 709.
    (3) It is not sufficient for public authorities to invoke the legitimacy of the objectives the impugned measure seeks to achieve. Article 87(1) does not distinguish between measures of state intervention by reference to their causes or aims, but defines them in relation to their effects (see paragraph 31 in Professional Contractors Group citing Confederatión Espanola de Transporte de Mercancias v EC Commission (Case T-55/99)).
    (4) But the fact that the effect of general applicable measures is to benefit some sectors more than others does not necessarily mean they constitute state aid (see paragraph 14 of the Commission Notice OJC394 cited at paragraphs 35 and 38 of Professional Contractors Group judgment).
    (5) The principle that Article 87(1) looks to the effect and not to the objectives of the measures does not mean that the reason for the differences in treatment are irrelevant (see Lord Woolf MR in Lunn Poly cited at paragraph 43 of the judgment in Professional Contractors Group). Examination of the objective justification advanced may lead to the conclusion that legislation did not amount to discrimination constituting aid at all but rather that the measures had the effect that one sector apparently favoured was placed on an equal competitive footing with another (in other words, to secure a level playing field between different sectors covered by the legislation in question). At paragraph 44 Robert Walker LJ said:
    "In this important passage .... Lord Woolf MR was not saying that the rectification of a fiscal anomaly was a form of state aid, but was objectively justifiable. What he was saying was that because the apparent discrimination was objectively justifiable in order to prevent tax avoidance, it did not selectively favour those who were not tax-avoiders and was not therefor state aid."
  127. In Ferring SA (Case C-53/2000), pharmaceutical retailers were taxed but not pharmaceutical wholesalers who were required to maintain stocks and guarantee deliveries of various pharmaceutical products. Those measures had the effect of placing both sectors on an equal competitive footing (see paragraph 47 of the judgment in Professional Contractors Group). It is that passage which leads to Robert Walker LJ's analysis at paragraph 51.
  128. Thus in order to determine whether a measure provides an exemption in favour of a certain sector:
  129. (i)the common system applicable must first be determined (see paragraph 16 of the Commission Notice OJC384 and paragraph 51 of Professional Contractors Group: and
    (ii)it must be determined whether the exception to the system derives directly from the basic or guiding principles of the tax system (see paragraph 16 of OJC384).
  130. The claimants contend that there are two main categories of exemption from the levy provided in the Finance Act 2001 and the general regulations which constitute state aid: first, the exemption afforded to exports in section 30, and second, the exemptions for certain minerals, their wastes and other non-aggregate products found in sections 17 and 18 and in the Regulations.
  131. Export Exemption

  132. Favourable treatment such as a preferential discount rate granted only to exports to enable them to compete on more favourable terms with products originating in another Member State is state aid (see joined cases 6 and 11/69 Commission v France [1969] ECR 523). The same may be said in relation to interest rebates on export credits (as in Greece v Commission Case 57/86 [1988] ECR 2855). The provision of tax credits in section 30 and Regulation 13 of the General Regulations where taxable aggregate is exported is bound, it is submitted, to have a distortive effect on competition in Member States. A United Kingdom quarry producing low grade aggregate may well be unable to offer the aggregate at a realistic price within the United Kingdom, but be in a position to make a profit if it were to sell the aggregate in another Member State, for example, by exporting that aggregate across the land boundary from Northern Ireland to the Republic of Ireland. Moreover, the failure to tax exports runs counter to the rationale for the imposition of the levy. The environment suffers no less damage from the extraction of primary aggregate when it is going to be exported (see Mr Durward's first statement, paragraphs 152-3)
  133. Mr Barling QC draws attention to paragraph 27 of the Commission Communication on Environmental Taxes 97/C 224/04, to which I have already referred. Under the heading "Existence of aid" the Commission says:
  134. "Before deciding on the compatibility of aid with EC State aid provisions, the Commission has to clarify if aid is involved [the very task upon which this court must embark]. Revenues from environmental levies constitute 'State resources'. If such revenues are assigned to the general state budget, its future does not come within the scope of this communication. If, on the other hand, the revenue is destined for a special purpose, State aid may be involved if certain enterprises or productions are favoured. Exemptions from product or emission levies also constitute State aid, even when these exemptions are necessary to prevent domestic firms from being placed at a disadvantage compared with their competitors in countries that do not have such levies."
  135. The short answer to these contentions seems to me to be found in Article 91 which provides:
  136. "Where products are exported to the territory of any Member State, any repayment of internal taxation shall not exceed the internal taxation imposed on them whether directly or indirectly."
  137. Mr Barling responded by submitting that Article 91's only application is in relation to quantum. Article 91 itself provides no warrant for permitting any repayment at all. It assumes that repayment is permitted, but authority for repayment must be found elsewhere. I accept that Article 91, forming as it does part of the congeries of Articles in Chapter 2 of the Consolidated Treaty headed "Tax Provisions" provides no authority for remission of charge on exports where such remission falls foul of Article 90 or Article 92. But if the remission of a charge does not infringe those Articles, then, in my view, it is permitted unless repayment exceeds the amount imposed by the internal tax. I have already considered Articles 90 and 92, for which 91 provides the filling.
  138. In Commission of the European Economic Community v Italian Republic (Case 45/64 [1965] ECR 857) the only matter which raised a question in relation to the export of Italian engineering products in the mind of the court was whether certain duties such as stamp duty imposed on a producer in the course of his general commercial activity was imposed directly or indirectly on the products. It was not suggested that the general repayment was state aid, but the question was whether relief from the particular type of tax, namely stamp duty, fell within what is now Article 91.
  139. If it were necessary to go any further I should add that it cannot be said that repayment distorts or runs the risk of distorting trade between Member States. Those who export aggregate, taxable within the United Kingdom, are attempting to compete in a market where the levy is not imposed. If they seek to compete within the United Kingdom, the aggregate will be charged to the levy. The repayment merely enables those producing aggregate within the United Kingdom to compete on a level footing with producers outside the United Kingdom. As Mr Maxwell points out in paragraph 33 of his statement, relief of tax on exported goods has long been recognised in relation to indirect tax. Excise duties on tobacco and alcohol are not levied on products produced in the United Kingdom but exported to other Member States. Exports are zero rated for VAT purposes. More relevantly, since it is an environmental tax, climate change levy is not charged on electricity generated within the United Kingdom but consumed in another Member State (see section 11 and Schedule 6 of the Finance Act 2000). In the invitation by the Commission to submit comments pursuant to Article 88(2) in relation to climate change levy (OJC185/22 to which I have already referred), the Commission considered exemptions in relation to dual-use fuel and other exemptions and reductions in relation to climate change levy, concluding that certain reductions were compatible and requiring further information in relation to others. But despite the passage at paragraph 27 of OJC224/11, which I have already cited, the Commission did not appear to regard the exemption in relation to export under section 11 of the Finance Act 2000 as constituting state aid, although that exemption was known to them.
  140. The export repayments in the instant case do not, in my view, constitute state aid.
  141. Exemption in relation to certain products and processes

  142. The claimants contend that the exemption from levy afforded for example to china clay or ball clay constitutes state aid. It favours a particular sector, namely the industry producing such products to the detriment of, for example, producers of limestone.
  143. China and ball clay are not aggregate within section 17(1). They are relevant substances listed in section 18(3). Accordingly the process by which they are extracted or separated from aggregate is an exempt process under section 18(2)(b). China and ball clay are "something" which results from the application of an exempt process to any aggregate under section 18(1)(b).
  144. The argument turns on the waste or spoil left as a result of the production of china or ball clay. The waste or spoil left after the separation of china or ball clay, which is not overburden, is aggregate but is exempt under section 17(3)(e). By way of contrast, whilst the production of lime or cement from limestone is an exempt process under section 18(2)(c), the waste or spoil produced from the production of limestone is taxable aggregate. Mr Durward asserts that the waste such as sand arising from the production of china or ball clay is no different from waste such as sand produced when quarrying limestone. The exemption thus favours producers of china and ball clay, enabling savings to be deployed on transporting the waste further and enabling such producers to sell the waste as aggregate more cheaply (see, for example, paragraphs 76 and 77 in Mr Whitehouse's statement as to the impact in Cornwall). Further, the exemption for waste produced from china and ball clay will merely have the effect of swapping one heap of waste (now commercially unviable by reason of the levy) for another. Where in the past waste from limestone was disposed of with efficiency, such waste will now remain in heaps, unsold. The waste from exempt processes, on the other hand, will be sold in substitution. Swapping one heap of waste for another merely creates an alternative deleterious environmental impact, aggravated by the likelihood of the aggregate travelling increased distances by road (see, for example, Mr Whitehouse at paragraph 17). Indeed, the damaging effect on the environment from the production of clay and ball waste cannot sensibly be regarded as any the less than that which is produced from the production of limestone. Waste is produced from the production of clay in the proportion of 1:8, whereas from limestone the proportion is 1:6-7. There is no environmental justification, it is said, for the exemption of such waste from the production of clay. The exemption merely favours those who in the past have been cavalier in their disposal of waste to the detriment of those such as limestone producers who have exhibited care and efficiency (see Mr Durward's first statement, paragraphs 85-87). Mr Durward fears and explains the considerable impact on local employment due to closure of local quarries (see his first statement at paragraph 108).
  145. Similar arguments have been advanced in relation to exemption for slate waste (see section 17(3)(f). Slate production produces waste in the proportion of 1:114-500. The exemption will enable the largest producer of natural slate to transport up to four million tonnes of slate waste from Welsh quarries to the Midlands and the North West of England. The effect of transport across the internal border between the Republic of Eire and Northern Ireland is observed by Mr Durward at paragraphs 180 and 199. Similar effects, he points out, are likely to arise in relation to the mainland of the United Kingdom.
  146. Mr Allison provides evidence of the effect of exemption for blast furnace slag to the detriment of those who produce limestone waste in North East England. In short, what is described as arbitrary and muddled provisions in respect of waste that is taxable and that which is not favours one product over another without any environmental justification. The production of taxable aggregate such as limestone and that which is not aggregate such as clay or slate gives rise to waste which is often indistinguishable and which is suitable for use as aggregate. There was some factual dispute as to the mineral qualities of the waste produced by both processes (limestone quarrying and clay production), but that does not seem to me to matter once it is appreciated that the waste is equally suitable for use as aggregate. Yet one type of waste is taxable and the other is not.
  147. This arbitrary distinction, it is argued, will distort competition, enabling one type of damaging waste to be sold as aggregate in place of another.
  148. Mr Barling derives support in relation to these submissions from Adria-Wien Pipeline v Finanzlandesdirektion fur Karnten (C-143/99, 11 August 2001). In that case Austria had granted a rebate of an energy tax for manufacturers of goods. The court ruled:
  149. "52. ... the ecological considerations underlying the national legislation at issue do not justify treating the consumption of natural gas or electricity by undertakings supplying services differently than the consumption of such energy by undertakings manufacturing goods. Energy consumption by each of those sectors is equally damaging to the environment.
    53. It follows from the foregoing considerations that, although objective, the criterion applied by the national legislation at issue is not justified by the nature or general scheme of that legislation, so that it cannot save the measure at issue from being in the nature of State aid."
  150. The primary response of the Government is that the distinction is inherent in the system; it is justified by the nature and general scheme of the levy and by the objective difference between the material which gives rise to waste which is taxable as aggregate and that which is not.
  151. In support of that submission Mr Peacock QC, for the Government, identifies three stages in the imposition of the levy: stage 1, the policy choices made by Government as to whether to tax one type of product and not another; stage 2, the implementation of the policy by introducing different classifications according to which some aggregate is taxable and others not in the Finance Act; and stage 3, the effect of implementation. State aid relates only to effects. The claimants' challenge, he submits, relates only to stages 1 and 2 and not stage 3; the effects merely flow from the policy and its implementation and are thus inherent in the system.
  152. Elegant though the propositions are, I believe there to be grave dangers in that approach. Many distinctions giving rise to state aid will be the result of a Member State's policy decisions and their implementation. No doubt the same could be said of the exemption for manufacturers from Austrian energy tax. What is required is analysis of the scheme and of the justification for the exemptions on the basis of the nature of the scheme (see paragraph 16 of the Commission's Notice in Official Journal OJC384, cited at paragraph 35 of Professional Contractors). There is a danger in merely referring to the code words such as "inherent in the system" or "logic of the system". The Government cannot escape merely by asserting that the exemption reflects its own policy decision.
  153. Unlike the example of tax avoidance given by Lord Woolf MR, or the examples in Ferring and Professional Contractors Group, the instant case is not concerned with placing those who produced waste capable of being used as aggregate on an equal footing. Quite the contrary, the essence of the scheme in the instant case is to make distinctions between materials such as limestone, quarried for use as aggregate, and waste, capable of being used as aggregate, so as to shift demand from one to the other.
  154. The purpose of the levy, as described by Government witnesses (particularly Mr Knight in his second statement at paragraphs 6-9, and Mr Maxwell) is to see that the costs of aggregate reflect not just market costs but the cost to the environment. This is what they describe, in an expression calculated to make the mouth water of even the most jaded judge, as "internalising the externalities". This it seeks to achieve by taxing virgin aggregate (an expression used in the Budget Statement of 2000 but not in the statute) and thereby shifting demand to the use of alternative materials such as industrial waste. This is designed to promote the efficient use of virgin aggregate and reduction of piles of waste material which may otherwise be used as landfill. The exemptions increase the incentives to use waste material, which is not subject to the levy, as aggregate.
  155. These essential aims are to be achieved by the definition adopted in the statute of aggregate and by the exemption for non-aggregate. However, the definitions and exemptions are created not so much by reference to the nature of the substance but rather by reference to their use. For example, clay or shale and coal and lignite are not generally used as aggregate and are exempt. Certain processes are also exempt by reason of their use such as agricultural and industrial processes.
  156. The key to the legislative scheme seems to me to lie in the distinction between the extraction of aggregate from natural rock (described as primary aggregate (see Mr Riley at paragraph 8) or virgin aggregate) and other aggregate: secondary aggregate such as clay or slate waste, and recycled waste such as that emerging from blast furnace slag. A key objective (see Mr Knight's second statement at paragraph 14) is to minimise the unnecessary extraction of primary aggregate. The waste produced in the extraction of such primary aggregate may also be used as aggregate, and it is taxable. That seems to me consistent with the objective of reducing demand for limestone quarried from natural rock to be used as aggregate. The demand would not be reduced to the same extent if the waste from that process was itself exempt from levy.
  157. The production of, for example, clay is not a process concerned with primary aggregate at all. It is a process for the production of a substance which is not aggregate and cannot be used as aggregate, but (as Mr Knight in his second statement accepts) it produces waste which may be used as aggregate. This leads to an important passage in his second statement at paragraph 14 where he says:
  158. "It is a key objective of the levy to minimise the unnecessary extraction of virgin aggregate. The processes by which non-aggregate minerals are produced often involve the creation of waste materials that have the potential to be used as aggregate. Since they are unavoidable wastes from the production of these non-aggregate materials, taxing them would not minimise their creation. [My emphasis] They are specifically encouraged as alternatives to virgin aggregates in the Government Mineral Planning Guidance notes. Their exemption from the levy is therefore entirely consistent with the aim of minimising the unnecessary extraction of virgin aggregates."
  159. Accordingly, the distinction made between waste, the use of which the Government encourages by providing for their exemption (for example, waste from clay) and waste which is taxed (for example, waste from limestone), stems from the objective of discouraging the extraction of limestone for aggregate whilst not discouraging the production of non-aggregate material. Further, the Government encourages the use of unavoidable waste derived from the production of non-aggregate substances in substitution for other waste which may be used as aggregate by exempting such waste from the levy. Some waste such as waste from shale will consist mainly of shale; it is exempted (see section 17(4)(a)). Some waste will differ from the non-aggregate material, the extraction of which gives rise to the waste, for example clay or fluorspar. Such waste may indeed be geologically indistinguishable from waste produced in extracting a primary aggregate. It is exempt by virtue of the operations of sections 18(3),(2)(b) and (1)(b). But to my mind that reflects the basis of a scheme designed to discourage the extraction of aggregate from natural rock and increases the disincentive to do so by taxing the waste product therefrom whilst encouraging the use of alternative supplies of aggregate.
  160. This analysis reveals, to my mind, a scheme which cannot be described as a tax on aggregates at all. It is a tax on rock, sand or gravel extracted for the purpose of use as aggregate. It is not a tax on all aggregates. Aggregates for the purposes of, for example, the construction industry must be found somewhere and, as it seems to me, the Government was entitled to promote the use of alternative sources for aggregate. The underlying purpose is to reduce damage to the environment caused by the extraction of primary or virgin aggregates (see Mr Maxwell's statement at paragraph 9). It is not the purpose or nature of the scheme to inhibit all environmental damage caused by the extraction of all minerals in the process of quarrying or winning those minerals. Non-aggregates and their waste are not taxed. Non-aggregates cause environmental damage no doubt, but the levy is not aimed at environmental damage caused by such processes as the quarrying of slate. The waste product of non-aggregates is not taxed because there are environmental reasons for using them as an alternative source of aggregates and thus encourage their disposal other than by landfill from originating sites. There are factual disputes as to the environmental damage which will result from the shift in demand. The claimants refer increased transport costs, lower quality of restoration and the accumulation of additional waste by substituting one pile of waste, which may now be dispelled by sale as aggregate, for another which can no longer be, as a matter of plain economics, used for such purpose. But, as it seems to me, such arguments do not remove the justification for shifting demand away from primary aggregate to alternative sources such as waste unavoidably produced in the extraction of a non-aggregate. To my mind the claimants would have to establish that there is no justification for reducing demand for primary aggregate to inhibit environmental damage. This, as it seems to me, they have failed to do. They do not contend that the extraction of primary aggregate does not cause environmental damage. They contend that further alternative damage will be caused. It may be (but I do not decide) that one waste pile is no longer commercially viable with the result that one waste pile may be swapped for another now commercially viable as aggregate. That as it seems to me is part of the intention of the legislation. But it does not follow that the aim of reducing demand for primary aggregate, which carries with it reduction in demand for waste arising therefrom, is unjustified.
  161. Any consideration of the justification for the distinctions made runs the risk that it might present the appearance of assessing an objective justification for state aid. But consideration of the rationale for the distinctions made is inevitable in order to determine whether the distinctions are justified by the nature or general scheme of the system. It is not enough merely to establish objective criteria unless those criteria are so justified (see paragraph 15 in Adria-Wien Pipeline cited above). The scheme taxes the extraction of aggregate from natural rock so as to reduce demand for aggregate from that source. As part of the process of reducing demand for such aggregate it taxes waste derived from such extraction. The purpose of a levy of that nature is to reduce environmental damage caused by particular processes, not every process which might cause environmental damage.
  162. Such an analysis of the scheme demonstrates to my satisfaction that it is a scheme which focuses on the environmental damage caused by the extraction of rock, sand or gravel from natural rock for use as aggregate. By shifting demand to alternative sources of aggregate in circumstances where, in any event, alternative sources must be found, that purpose may be more readily achieved. Those alternative sources are not selectively favoured, but their exemption from levy derives from the basic principles underlying the scheme. The use of such alternative sources will not remove all environmental damage caused by such processes, but at least it can be said that unavoidable waste from the production of non-aggregate is more likely to be removed from the originating site and not used as landfill. I conclude that the differentiation between non-aggregate and its waste, and primary aggregate and its waste, does not constitute state aid.
  163. Such a conclusion makes it unnecessary to consider in depth the Government's second argument that in any event there is no distortion of competition. Whether there is such a risk depends on looking at the nature of the relevant market, the nature of the recipient of the aid, the nature of that person's competitors and the nature of the aid itself (see Vlaams Gewest (Flemish Region) v Commission of the European Communities [1998] ECR II-717 at paragraphs 42-53).
  164. If it were necessary to reach any conclusion, I am satisfied that there could be an effect on trade in aggregates, in particular in respect of Northern Ireland. But in any event, the trade is not confined to mainland United Kingdom.
  165. Article 1 of the First Protocol

  166. Article 1 of the First Protocol provides:
  167. "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
    The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
  168. The claimants' submissions that the levy breaches those provisions of the European Convention on Human Rights is founded on the decision in Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank [2001] 3 All ER 393. In that case the court concluded that the legitimate aim of taxation in the public interest must be pursued by aims which are not completely arbitrary and/or out of all proportion to their purpose. Liability for chancel repairs which attached to glebe land had no rationale whatever and had vanished into history. The measure therefore violated Article 1 and Article 14 read with Article 1. There is no doubt that, despite the wide margin of appreciation the European Court of Human Rights affords the high contracting parties, there must be a reasonable relation of proportionality between the tax and the public interest (see, for example Gasus Dosier und Fordertechnik GmbH v Netherlands (1995) 20 EHRR 403.
  169. The claimants contend that the rationale for imposing a levy of £1.60 was arbitrary and ineffective.
  170. Before considering the many detailed criticisms of the levy I should recall the approach of the European Court of Human Rights to this Article in the context of taxation. In Wasa Liv (1988) 58 DR 163 the Court was concerned with a once and for all property tax imposed on life insurance companies. In finding the complaint manifestly inadmissible, the Commission concluded in relation to a complaint under Article 14:
  171. ".... the Commission is of the opinion that in the field of taxation it is for the national authorities to make the initial assessment of the aims and the means by which they are pursued. Accordingly, a margin of appreciation is left to them and it must be wider in this area than it is in many others. The Commission recalls in this respect that systems of taxation inevitably differentiate between different groups of taxpayers and that the implementation of any taxation system creates marginal situations. Also, attitudes as to the social and economic goals to be pursued by the State in its revenue policy may vary considerably from place to place and time to time. A government may often may have to strike a balance between the need to raise revenue and other objectives in its taxation policies. The national authorities are obviously in a better position than the Commission to assess those needs and requirements."
  172. Those words, in the mind of the Commission, applied to the complaint in relation to Article 1 on its own. Such a conclusion has been echoed in many domestic decisions. There is, I hope, no need to lengthen this judgment with any citation from the well-known passages in R v DPP, ex parte Kibilene [2000] 2 AC 326, 375 in the speech of Lord Hope, and in the judgment of Lord Woolf CJ in Poplar Housing and Regeneration Community Association Limited v Donaghue [2001] 3 WLR 183 at paragraph 69 as to the degree of deference to be paid to the decisions of Parliament in this field.
  173. The claimants firstly contend that the levy was based on a defective and unrealistic survey. The first survey, by means of questionnaires, sought to measure the willingness of those nearby to a quarry to accept compensation for the environmental impact of quarrying. A second report was obtained when a review criticised the methods used in that first survey. The second survey sought by questionnaires to measure the willingness of those in the vicinity of a quarry to pay for specified improvement to the environment. This too is criticised. It is said that the survey was slanted in that it concentrated only on problems and not on advantages. It included a wholly unrealistic scenario. The respondents were being asked to assume that no jobs would be lost as a result of paying for the discontinuance for the quarrying work. Further, the second highest figure the survey revealed which respondents were willing to pay related to the removal of environmental damage was that caused by recycling waste for use as aggregate -- one of the very processes that the Government seeks to encourage. It revealed that people were prepared to pay £9.57 per tonne, whereas what they were prepared to pay, for example, for the removal of hard rock quarries or sand and gravel pits was only £0.34 per tonne or £1.96 per tonne.
  174. In my view it was for Parliament to consider the cogency and effect of the survey. True it is that that survey ignored the effects on local economy. But since the purpose of the survey was to assess the cost of environmental impact, had it included effects on local economy it would have distorted the purpose of the survey by reflecting non-environmental matters such as the effect on local economy. The survey was not concerned with that issue which it was for Parliament to consider.
  175. The survey is explained by Mr Riley in paragraphs 10-14 of his statement. It adopted a recognised method of contingent valuation. The conclusions adopted were a matter for policy decision by Parliament and not for the courts. The £1.60, Parliament was entitled to consider, was not arbitrary but was derived from the average £1.80 figure of willingness to pay produced by the survey (see Mr Riley at paragraph 66).
  176. The claimants criticise the failure of the survey to assess benefits in quarrying and its discontinuance described by Mr Durward in his first statement at paragraph 150. He refers to the recreational facilities and wildlife habitats, for example. Mr Riley accepts that such issues are capable of separate valuation but, as the survey itself said, any survey would be site specific and general conclusions would be difficult to draw.
  177. Fundamental to the claimants' attack is their contention that there is no environmental rationale for the levy. To a large extent I have already considered the criticisms on that basis in relation to state aid. The assertion that additional transportation will occur is rejected by Mr Riley at paragraph 71. In any event the Government takes the view that there are considerable advantages in reducing waste which would otherwise be used for landfill and that those advantages outweigh the risk of additional damage. It is impossible for this court to weight the rival arguments. It is a matter of judgment for the democratically elected representatives.
  178. The claimants drew specific attention to the answers of the Minister, Mr Boeteng, to the Northern Ireland Affairs Committee. It seems to me dangerous to rely on such material. In any event the answers related to particular problems of transport over the land border with the Republic. The court must assess these complaints in accordance with the evidence adduced by the parties and not by reference to answers given in response to questions raised in a committee of Parliament.
  179. Much of the criticism stems from what is described as the muddled and arbitrary distinctions made between primary and secondary or byproduct aggregates. Mr Durward himself accepts that there is a difficulty in definition (see his first statement at paragraph 122), but the definition, the exemptions and the reliefs for reasons I have already given were designed to serve the underlying rationale of the legislation. If, as I have already concluded, the differences in treatment derive from the attempt to inhibit environmental damage from one source while encouraging the use of aggregate from alternative sources, such distinctions cannot be described as arbitrary or outwith the scope of the judgment to be exercised by Parliament.
  180. The creation of a new waste pile by encouraging the disposal of another as an alternative source of aggregate has, contends the claimants, no environmental rationale (see Mr Durward's first statement, paragraph 157-8). I have already sought to explain the purpose underlying the encouragement of alternative sources of aggregate consisting of waste created unavoidably by the extraction of non-aggregate. In any event Mr Riley records an alternative view: that the effects will be limited and are offset by the wider benefits of the levy (see paragraph 78 of his statement). It seems to me that two views may sensibly be taken in relation to advantages and disadvantages. It is not for the court to choose between them.
  181. There is further disagreement as to the likelihood that the levy will increase the use of recycled aggregates (see Mr Durward, paragraph 160 of his first statement). Mr Riley accepts that the prospects for recycling aggregate are limited, but asserts that they are significant (paragraph 21-30). That is a matter of judgment for Parliament. The claimants further point out that there will be damage to the environment due to the very process of recycling (see Mr Durward's first statement, paragraphs 169-175). The defendant asserts that that cannot be assessed by reference to the figure in the survey, as the authors of that survey point out. Mr Riley records the views of Government that any disadvantage is outweighed by the advantages (see paragraphs 68-69 of his statement. Again those are matters of judgment, but not the judgment of this court.
  182. I conclude that the levy cannot be described as arbitrary or out of proportion to the aim of diminishing environmental damage due to the extraction of minerals from natural rock for use as aggregate. That aim, as I remarked when considering state aid, is no less justified because the Government does not seek to impose a levy on other quarrying activities which may cause environmental damage and seeks to ameliorate the effects of spoil or waste unavoidably produced by such activity.
  183. Article 14 read with Article 1 of the First Protocol

  184. Article 14 provides:
  185. "The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion,political or other opinion, national or social origin, association with a national minority, property, birth or other status."
  186. Mr Barling returns under this head to exemptions for exports and specific waste products. The rationale underlying the relief in relation to exports was to maintain competitiveness in markets where no levy is imposed (see Mr Maxwell at paragraph 34). Mr Durward points out that the environmental effects of extracting aggregate for export are no less than for extracting the same products which are taxable for use within the United Kingdom. That is true, but under Article 14 the need to maintain international competitiveness is a justification for the distinction. Were it otherwise, it would not be open to any high contracting party to organise tax which it imposes by reference to international boundaries.
  187. As to the exemptions in relation to specific waste products, the discrimination between waste from, for example, slate and waste from limestone is justified for the reasons I gave in relation to the question of state aid. If such discrimination did not constitute state aid, it is not surprising that it cannot constitute unlawful discrimination under Article 14 where by reason of the degree of deference due to Parliament the Government has a lower hurdle to overcome in responding to the challenge. I reject the complaint under Article 14.
  188. My conclusions must seem dispiriting to Mr Durward and his colleagues who have devoted such time and energy in mounting lengthy and detailed criticisms of the Government's approach. But I hope that he will understand that much of the basis of his attack seems to me to be matters of fact and opinion in areas of social and economic policy. Certainly his expertise and devotion to his industry must command respect, but in the field of taxation the court cannot weigh competing policy considerations without trespassing on the proper province of Parliament.
  189. Premature implementation of levy

  190. At the time of the argument before me the law was not in force. The Government had, however, announced its intention to bring the levy into effect on 1 April 2002 in pursuance of the Treasury's power under section 16(6) which provides that the commencement date will be:
  191. "such date as the Treasury may by order made by statutory instrument appoint...."
  192. The exercise of such a power is accepted by Mr Peacock to be justiciable. Such acceptance derives from the decision in R v Secretary of State for the Home Department, ex parte Fire Brigades Union and Others [1995] 2 AC 513. The union sought to challenge the decision of the Minister not to bring into force provision of the Criminal Injuries Compensation scheme in the Criminal Justice Act 1988. The House of Lords ruled that the relevant government department or Secretary of State was under a legal duty to keep under consideration the question of whether or not to bring the legislation into force. Their Lordships' House further held that the Government was entitled to decide not to bring provisions into force if circumstances arose or became known which rendered it undesirable to do so. In his speech at page 574F Lord Nicholls of Birkenhead remarked:
  193. "A wide measure of flexibility may be needed. So the decision can best be left to the minister whose department will be giving effect to the legislation when it is in operation. He is given a power to select the most suitable date, in the exercise of his discretion."
  194. Later in his speech Lord Nicholls pointed out that the Secretary of State was under a legal duty to consider whether or not to exercise the power and to consider in good faith whether he should exercise the power. The Minister, he concluded, could not abrogate it (see page 575F-F).
  195. A more analogous case was R v Secretary of State for Education and Employment, ex parte Liverpool Hope University College NC No [2001] EWCA CIV 362. In that case the claimant sought to challenge the premature implementation of a provision which prevented Liverpool Hope from using the name "University College". It was said that the premature implementation of such legislation was an abuse of power substantially unfair and disproportionate. It is in those circumstances that it is accepted by the Government that it is open to the claimants to seek to argue that to implement the legislation on 1 April 2002 was premature. The Government recognised defects in the original legislation contained in the Finance Act 2001. A number of amendments proposed for inclusion in the Finance Act 2002 will take effect as announced in the Budget two days ago on 1 April 2002. Those additions and deletions have been shown to me in a copy of the legislation either underlined in red or deleted in red. Five of the eight amendments were announced in general terms on 12 March 2002, but those acting on behalf of the claimants only received them on 22 March. At the time the proceedings were launched, only draft regulations were published. Until argument before me, Regulation 11 under the rubric "other tax credits entitlement" merely said "to be drafted". The Regulations as in fact introduced were first seen on 22 March. They were, it is submitted, very different from those seen earlier on 23 November 2001. There was a new exemption, for example, in relation to gravel or sand used for beach protection in Regulation 13(2)(d)(iii). Further, Mr Durward points out it remained, and remains, unclear how water content is to be measured. Water incorporated within aggregate when it is extracted is to form part of the weight of that aggregate to be taxed, but not water added in the process of extraction or, for example, washing or dampening waste. There is no guidance as to how in practice such distinctions are to be made. The best a late witness on behalf of the Government, Mr Romanski, can do is to say that the matter can be agreed with local and no doubt friendly Customs officers (see paragraph 11).
  196. The claimants point out that the Government's own policy expressed in guidance on implementation periods states that guidance on new legislation should be issued to businesses at least twelve weeks before the legislation comes into force. Where legislation is very complex, as this undoubtedly is, earlier guidance may be required.
  197. Thus complex provisions have until the last minute been the subject of revision and discussion. Producers have been left in a state of anxiety and uncertainty, aggravated by the risk of imposition of criminal and civil penalties in the event of inaccurate disclosure. It is, says Mr Durward (and I agree), unsatisfactory to rely upon a benign approach to be exhibited by local officials.
  198. In Northern Ireland there is even greater uncertainty. The Government has determined to provide temporary exemption for aggregate used in processed products and has sought approval from the Commission for what is accepted to be state aid. At the time of consideration of this judgment no answer has been forthcoming.
  199. I have some sympathy with those faced with a novel, complex and technical tax the terms of which are redolent of the Schleswig Holstein question. But I do not believe the complaints lead to the conclusion that the decision to implement is irrational or an abuse of power. The legislation in draft has been open to comment at least in April 1999 and June 2000. Although it received Royal assent in May 2001 a considerable period of discussion has followed, culminating in what might fairly be called a process of refinement without substantial change. The problems exposed in discussion with the industry have led to changes in response. Mr Knight's first witness statement between paragraphs 11-44 provides a detailed answer to the complaints. The general guide published in January 2002, which Mr Durward complains is but a draft, will become the Public Notice when Parliament has formally approved the changes. It contains, for example, comprehensive details as to how to claim relief.
  200. It is not enough, in my judgment, to show that details of the statutory scheme have been promulgated shortly before implementation or that changes are to be made after implementation. It is necessary, in my judgment, to show that those late details and changes have rendered it not reasonably practicable for those affected by the levy to prepare for its implementation. I shall apply that test in favour of the claimants, although I am not to be taken as reaching any firm conclusion as to whether a less favourable test to the claimants should be adopted. I have received no argument on that point. Any new tax is bound to require refinement once it is in effect. A landfill tax introduced in 1996 required amendment in 1997. The courts have ever been occupied with points where tax legislation is imprecise or even incomprehensible. Yet that does not justify a delay in implementation. Practical and difficult questions are bound to arise. I cannot see how mistakes due to those difficulties could lead to the imposition of penalties where, in relation to innocent errors there is provision for a defence of reasonable excuse, for example in section 46(3), Schedule 4 at paragraph 1(5), and Schedule 6 at paragraph 9.
  201. I do not accept that it has not been reasonably practicable to prepare for the essential features of the levy. The changes to the primary legislation and the regulations do not seem to me to have prevented the industry from making necessary adjustments to contracts with purchasers since an announcement as long ago as March 2000 or to prevent reconfiguration of software. There is a dispute as to the extent to which this is possible (see, for example, Mr Durward's fourth statement, paragraphs 122 and 125). But the essential requirements have been known for a long time. It seems to me that many of the proposed changes and refinements have taken place as a result of the extensive discussions with the industry during the long period between announcement of the levy in March 2000 and its implementation. The proposed changes, if not their precise detail, have been known since the Customs Business Brief 17/01 issued on 28 November 2001.
  202. On the other hand, delay will cause considerable loss of revenue occasioned by the implementation of the provisions reducing the National Insurance Contribution by 0.1% (although that point takes on a certain piquancy in the light of the recent announcements in the Budget). The damage caused by such loss is described by Mr Maxwell in paragraphs 38-39. 345 out of the 400 companies in the United Kingdom, representing 80% of the industry by output volume, have not mounted any challenge. It is fair to assume that they have prepared for the introduction of the levy and made commercial arrangements to that end.
  203. I do not think the decision to implement can possibly be described as an abuse of power. The decision as to timing of implementation is an essential feature of fiscal policy. The reluctance of the courts to interfere in matters of fiscal policy must surely be no less in relation to the timing of its implementation. The challenge based on prematurity fails.
  204. Delay

  205. The Finance Act 2001 received Royal Assent on 11 May 2001. The defendant submits that the claimants' real challenge is to the primary legislation. Accordingly proceedings should have been brought promptly after Royal Assent and at the latest three months thereafter. The British Aggregates Association proposed policy, as at May 2000 and again as at June 2001, referred to questioning the compatibility of legislation with European law (see the supplementary bundle at page 133).
  206. The claimants assert that there was no obligation to bring proceedings until the statute came into force. Before that time their claim ran the risk that any challenge would be considered premature.
  207. In any event, they submit, their challenge is as to what they describe as a package of primary and secondary legislation. Time ran from 6 December 2001. Only by then had the list of intended amendments to the primary legislation and the list of proposed reliefs been circulated. There were still outstanding areas of uncertainty. Those areas of uncertainty related in part to the problems of dealing with long-term contracts under section 43(1). Further uncertainty was caused in relation to section 43(2), preventing landlords from making windfall gains where rents and royalties were linked to the amount of a quarry operator's turnover or sales. The problem of such rents and royalties which are index linked has not been dealt with.
  208. Details of proposed exemptions from the levy for processed products in Northern Ireland remained in doubt.
  209. In my view, the only substantial change which adds substantially to the challenge is that contained within section 17(3)(f): the distinction made between waste from non-aggregate or exempt processes and waste from taxable aggregate, a theme which runs throughout the challenge. The exemption for exports detailed in the general regulations at 13, left blank in the earlier draft in what was then paragraph 11, had been foreshadowed in section 30(1)(a) of the primary legislation conferring power to the Commissioners to grant a tax credit.
  210. It seems to me contrary to good administration which founds the rules as to the need for speedy application that the claimants should seek to delay bringing claims until implementation or by pegging their applications to secondary legislation which does not substantially affect the gravamen of its complaints. I conclude that time did start to run from the date of Royal Assent.
  211. But I do have power to extend the period for bringing claims. To my mind in this case there are substantial grounds for doing so. The claimants have been far from idle. The long lead-in time has been used for substantial consultation and negotiation between April and November 2001, which has benefited not only those involved in the industry but also Government. It is trite to observe that claimants cannot delay making claims merely because they are seeking to persuade the decision maker to change its mind. But such negotiations are a relevant factor (see R v Customs and Excise, ex parte Eurotunnel [1995] CLC 392). Secondly, the issues are of great importance. Thirdly, the suggestion advanced by the Government that these issues could be raised in enforcement proceedings seems to me to be a recipe for uncertainty and delay, wholly adverse to good administration.
  212. I accept that the fact of collateral challenge is not dispositive (see ex parte Eurotunnel at page 401B). But the fact that issues of European law arise may itself call for prompt action and not delay (see the decision of Richards J in R v London Borough of Hammersmith and Fulham, ex parte CPRE [2000] Env LR 532 and in the Court of Appeal at page 549, 560). The combined impact of the three considerations I have identified compels me to the conclusion that it is right to extend time.
  213. I grant permission in relation to all the issues which the claimants have advanced, though I should say that had the issue of prematurity stood alone I would not have regarded it as arguable. However, I refuse these applications. There has been:
  214. (1) no breach of Article 25;
    (2) no breach of Article 92;
    (3) no breach of Article 90'
    (4) no breach of Article 87(1);
    (5) no breach of Article 1 of the First Protocol;
    (6) no breach of Article 15 read with Article 1;
    (7) implementation on 1 April 2002 was not irrational or an abuse of power.

    MR PEACOCK: My Lord, that would only leave two issues: first, that the application be dismissed?

    MR JUSTICE MOSES: Yes.

    MR PEACOCK: And secondly costs.

    MISS BACON: My Lord, I would oppose my learned friend's application for costs, if not wholly then at least in part, for a number of reasons. First, as your Lordship has just stated, the bringing of this appeal raised issues of great importance, not only in European law but also human rights law. Secondly, and perhaps more significantly, this entire application was precipitated by the tardy and piecemeal way in which the Government has introduced the legislation. I bear in mind your Lordship's comment a minute ago that many of the changes made were not material, but in respect of one matter I would say that there was an extremely material change and that is the issue to which your Lordship has already referred under section 17(3)(f) --

    MR JUSTICE MOSES: Yes.

    MISS BACON: -- which made the distinction between primary and secondary aggregates. Now that distinction, your Lordship's judgment makes clear, goes to the heart of the rationale for the levy. That affects not only the state aid arguments in particular but also the Article 1 --

    MR JUSTICE MOSES: That is why I said there was no delay.

    MISS BACON: My Lord, yes, but that distinction was never made in the original legislation. In fact, a great deal of the witness statements were devoted to explaining why there should be an exemption for secondary aggregates. Your Lordship has mentioned that the announcement of the exemptions in secondary aggregates in relation to extraction of non-aggregate material such as fluorspar, which Mr Allison relied upon in his witness statement -- that announcement was not made until 12 March and the claimants did not get the proposed exemptions until 22 March, only three days before the hearing before your Lordship. That is a long time after the proceedings had been commenced by the claimants. If for none other, that exemption alone -- that change alone -- did not occur until after proceedings had been commenced. Had that change existed, a great deal of the witness evidence could have been spared and many of the issues raised by the claimants, in particular under the state aid arguments and Article 1 and the First Protocol in conjunction with Article 14, would have been drawn differently, certainly because some of those arguments fell away once the change was made in the proposed legislation. So that is the second reason why, in my submission, the failure of the Government to draw the legislation properly from the start, and the significant amendments made right at the end, only days before the levy was due to be implemented, should be reflected in the amount of costs to be recovered by the Government in this application.

    MR JUSTICE MOSES: I think that is very good.

    MR PEACOCK: My Lord, in relation to that I say three things. As your Lordship has appreciated, there were seven challenges made and they have failed on all seven. Absent any particular reason, that would lead to the conclusion that the claimants should pay the costs.

    MR JUSTICE MOSES: What does strike me is that a lot of the arguments about exemption and discrimination under different heads were certainly much more graphic and more readily, insofar as they were comprehensible -- and that is not a criticism of the arguments, but rather of me -- made more comprehensible once 17(3)(f) was in the legislation.

    MR PEACOCK: But the fundamental dividing line between the parties was the same on 11 February when the claimant started as it was when your Lordship had finished hearing the matter, if not indeed today.

    MR JUSTICE MOSES: Yes.

    MR PEACOCK: Yes, the argument may have moved; there may have been refinements in the parties' positions and the way things were put. All that has been resolved.

    MR JUSTICE MOSES: Yes.

    MR PEACOCK: The fundamental divide between the parties is the same now as it was when we started. We have not spent time arguing about and dealing with matters where time has apparently been wasted.

    MR JUSTICE MOSES: Yes.

    MR PEACOCK: For those reasons I ask for our costs.

    MR JUSTICE MOSES: Thank you. Do you want to say anything else?

    MISS BACON: My Lord, my learned friend said that there were seven arguments and that is true, but two out of those seven were fundamentally centred on the interpretations in the levy.

    MR JUSTICE MOSES: Yes, thank you very much. Despite Miss Bacon's powerful arguments as to costs, and despite the fact that the dividing line between the parties became much clearer on the very late introduction of section 17(3)(f), I think that, looking at the matter as a whole, the claimants have lost and they should pay the Government's costs.

    MISS BACON: My Lord, that leaves one further matter on my part and that is permission to appeal.

    MR JUSTICE MOSES: Yes. I am minded to give you that.

    MR PEACOCK: My Lord, we say nothing about that.

    MR JUSTICE MOSES: Then you shall have permission to appeal. In that connection, Miss Bacon, if you are pursuing the appeal I have no objection to using the unrevised transcript. Do not hesitate to ask for it even though you have not got my revised one. I will revise it as soon as I get it and as quickly as I can. But I do not think it should inhibit you from using the unrevised in discussing and preparing your grounds of appeal.

    MISS BACON: My Lord, I am very grateful.

    MR JUSTICE MOSES: I should record, although I think it is obvious, that I was not asked to refer this case and so I have not considered that point. Thank you all very much indeed for the assistance that you have all given me.


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