A coal joint venture (JV) between African Rainbow Minerals (ARM) and Glencore has clashed with the tax man over diesel rebates in a case that will go a long way towards determining the tax benefits enjoyed by JVs that do not have mining rights in their own name.
The Goedgevonden JV in coal-rich Mpumalanga is a thermal coal mine established in 2006 at the height of black empowerment deal-making in the mining industry. Its 6.7-million tonnes annual capacity is split almost equally between Eskom and exports through Richards Bay Coal Terminal.
International commodities trader Glencore holds a 49% stake and ARM, controlled by Patrice Motsepe, has a 51% interest in the JV. In 2009 it signed a 17-year coal supply agreement with Eskom to supply about 60-million tonnes of thermal coal, with 3.5-million tonnes annually destined for Majuba coal-fired power station.
The dispute between the JV and the SA Revenue Service arose nearly 10 years ago when the tax-collecting agency conducted an audit of the JV’s compliance with the diesel refund provisions for June 2012 to September 2014.
After the audit, the receiver of revenue in March 2015 determined that the JV did not comply with the requirements. The determination by Sars was based on several factors. These include that diesel rebates were disallowed for equipment used by the contractor Liketh for “crushing and screening and processing of coal”. They were also disallowed for light delivery vehicles and the JV was not entitled to receive the diesel refund because it did not have a valid mining right in its name.
Sars then hit the JV with a bill of R5m. The JV took umbrage with Sars’ decision and instituted an internal administrative appeal.
However, the JV conceded that the diesel rebates it claimed for light delivery vehicles were not permissible and did not appeal against the relevant findings.
The appeal was initially heard by the regional appeal committee, which later passed it on to the national appeal committee.
Having heard arguments from Sars and the JV, the national appeal committee confirmed the earlier determination by Sars.
The appeal body found that Goedgevonden does not have a valid mining right in its name but that it is held by Glencore. It said the lack of mining rights by the JV as contemplated in the Mineral and Petroleum Resources Development Act meant it did not qualify for any diesel refunds.
Glencore holds three mining rights under which the JV’s mining activities are conducted. The mining rights came into the custody of Glencore in 2013 after one of the largest mergers in recent history when the Switzerland-based firm combined with mining giant Xstrata.
The appeal structure increased the amount owed to the fiscus from R5m to R82m plus interest. The JV, Glencore and ARM Coal then approached the North Gauteng High Court and asked it to set aside the findings of the national appeal committee.
The JV’s high-powered legal team, led by Adv Wim Trengove, argued that the appeal body was not empowered to increase the amount recoverable by Sars beyond the amount referred to in the Sars decision that was appealed against.
This argument and others failed to convince presiding judge Colleen Collis.
Collis, in a judgment handed down last week, ruled that Glencore’s obligation to comply with the joint venture agreement does not convert the JV into the holder of the mining right.
‘Ministerial consent
“The disposal of a controlling interest in a mining right requires ministerial consent in order for it to be valid. In the absence of such ministerial consent, the JV was not a holder of a mining right and it must therefore follow that Sars was not obliged to pay the diesel refund to the JV,” her judgment reads.
“To hold otherwise would constitute a proverbial cross of the divide between interpretation and legislation, the latter falling outside the purview of this court’s functions.”
The diesel refund system provides full or partial relief for the fuel levy and Road Accident Fund levy to primary producers in the agriculture, forestry, fishing and mining sectors. It was introduced from 2000 in a phased approach and is aimed at protecting the international competitiveness of local industries.
However, fishing and mining joint ventures cannot qualify for diesel refunds as the required fishing permit or mining right would be in the name of one of the partners and not the joint venture.
Correction: July 24 2023
This story has been updated.
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