Government has asked states to exempt local taxes on coal transfers by JV firms from captive coal blocks.
In a letter to chief secretaries, the coal ministry has made it clear that handing over of the raw material to a partner in a joint coal block could not be treated as trading.
"Transfer of coal from JV or SPV mining company to the block allotee cannot be treated as sale of coal as it is an arrangement entered into to facilitate mining operations by the joint allotees," the ministry said.
The ministry is of the view that in case of handing over of coal by JV or SPV mining firm formed in pursuance of the terms and conditions of joint allocations, imposition of sales tax and value-added tax by state governments may not be applicable.
"This is akin to the situation where a single coal block allocatee carries out mining operations in the allocated block for his captive end-use plant and no sales tax is levied by state government," the ministry said.
Batting for withdrawal of taxation, it said some of the captive coal blocks have been allocated on sharing basis to companies in order to encourage conservation of the national resource besides deployment of optimal technology.
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In case of allocation of such blocks on sharing basis, the JV companies jointly take up mining operations, in which the allotee firms hold equity proportionate to their share in coal production from the mine.
Post-mining, the JV firms transfer coal to their joint block allotees for meeting requirement of captive plants.