Mining industry worried over charges on transfer of captive mining lease

Experts have said such charges have had a chilling effect on all industries linked with mining

While the mining industry’s demand to exempt the transfer of captive mining leases from the levy of transfer charges is yet to be considered by the government, experts are of the view that the demand is crucial for the industry.

Industry association Assocham has requested the Centre for an exemption from the blanket levy of transfer charges on any transfer of a captive mining lease not obtained through an auction without any exemption on such levies on transfers within group companies where the effective management control of the mining lease does not change.

It said that the blanket ban imposed on the transfer of mineral concessions granted otherwise than through auctions had a chilling effect on all industries linked with mining as even transfers for genuine business reasons were completely frozen. It is a cause for concern for industry segments which hold and depend on captive mines for their continued operations.  

There is ambiguity prevailing on transfer charges between group companies, which is impeding business restructuring exercises and synergies of operations, Shailendra Singh, Principal-Infrastructure & Projects, Advaita Legal, said.

At this juncture, it may be relevant to peruse the Minerals (Transfer of Mining Lease Granted Otherwise than through Auction for Captive Purpose) Rules, 2016 ("Transfer Rules, 2016"), which inter-alia provides for payment of transfer charges in the case of transfer of captive mining lease granted otherwise than through an auction.

The transfer rules do not mention whether such transfer charges shall be payable where the effective management control of the mining lease does not change ( transfers within the same group) and could be amenable to interpretation.

Should an exemption of transfer charges be granted for transfers within group companies, it will spur industrial growth and development, lead to greater synergy of operations, further diversification of resources, and leverage capital and operating expertise, Singh said.

The provisions of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 ("Mineral Concession Rules"), provide a broad framework for regulating the grant of reconnaissance permits, prospecting licenses, and mining leases with respect of all minerals, except mineral oils.

Under the said Mineral Concession Rules, the transfer provisions for all such mining leases or prospecting licence-cum-mining leases granted through auction do not envisage payment of transfer charges. Thus, there seems to be no apparent justification for inclusion of transfer charges under the transfer rules resting solely on the grounds that the mining leases were granted otherwise than through auction, Singh added.

The original Mines and Minerals (Development and Regulation) Amendment in Section 12 A, which was brought in in 2015, did not allow transfers of non-auctioned mines. The subsequent amendment in 2016 allowed the transfer of "captive non-auctioned mines" with the state government's permission and on the payment of transfer charges (to meet some specific cases).

Prior to the 2015 amendment, transfers were governed by Rule 37 of the Mineral Concession Rules and required the approval of the state government and payment of a fee of Rs 500. The issue revolved around government policies regarding mining revenues. Much depends on how the transfer fees are fixed. If the government is keen on extracting maximum revenue out of the mining sector then it will see no logic in the industry's plea, according to a former government official.

The entire mining law is increasingly ad-hoc and reactive, without an understanding of the need for a policy to promote efficient mining, the aforementioned ex-official said. Transfer of mining leases happens all the time in other countries for taking advantage of economies of scale through amalgamation or to bring in better and more efficient mining practices, such moves should be encouraged, the former official added.

However, there are some voices which are of the opinion that the government is right in levying charges on the transfer of such captive mines because the beneficiary of the preferential award should not unduly profit from it.

“The levies on transfer are comparable to that one would incur in an auction, and so the levy broadly maintains a level playing field for old and new players. Further, the rules are the same for public sector and private companies,” said Kameswara Rao, Partner, PwC.

Rao also pointed out that while one could make a case for exempting these levies where the management control remained the same, there was an equal argument for valuing these mineral rights at market prices. On the whole, the current policy position avoids loss of potential taxes and ensures a fair market competition, Rao added.