Malpractices in computation sale value likely to result huge revenue loss .

Malpractices in computation sale value  likely to result  huge revenue  loss .

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By Bijay Mishra
Bhubaneswar, 13-12-2020

  New lessees of recently auctioned iron ore mines in the State of Odisha are adopting various malpractices in the sale value of the ore being sold by them to compensate their exorbitant high premium. They are attempting to lower the Average Sales Price (ASP) published by IBM on which ad valorem royalty, DMF and NMET are calculated.  The sale price also impacts the high premiums that these players are forced to pay. One big corporate published for auction of the sale of iron ore in the form of ROM instead of ex-mines sale of lumps and fines from their fully mechanized mines, which was later withdrawn on complaints. Some miners have also planned to charge premium from purchasers of ore under head instead of paying themselves. The Minerals (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (MCR 2016) forbids charging premium from purchasers, and if it treated as expenditure within the leasehold area, the same would have been reflected in the sale value and relevant statutory returns to IBM and State Government. The current average sale price published by IBM are not reflecting the prevailing market price for the corresponding months. Further, the manipulation of ex-mines prices can be understood by the fact that for period post auction, average sale prices for July 2020 of all bands of iron ore fines from 55-58%Fe, 58-60%Fe, 62-65%Fe and above 65% Fe has the same value of Rs.2047/tonne whereas for the period prior to the auction, ASP of the ore for Dec’19 for grades 55-58%Fe, 58-60%Fe, 62-65%Fe and above 65%Fe were Rs.1049/t, Rs.1332/t, Rs.1816/t and Rs.2021/t, respectively.

MASS, an organization of concerned social activists, has submitted a representation to the IBM, Nagpur and State Government of Odisha bringing forth the above malpractices adopted by lessees and fair chance of huge revenue loss unless proactive measures are taken. The forum stated that recent auction of 21 iron ore blocks in Odisha under NIT dated 06.12.2019 and 22.01.2020 has resulted in cut-throat competition with exorbitant bids, having lowest bid of 90.9% and the highest bid of 154% of IBM published price. The minimum payment to the Government comes to 107.7% average sale price (90.9+16.8 = 107.7%), more than prevailing market price. This in any financial modelling is unfeasible, but big corporates have taken almost all mines in the auction with the intention of having the rules of the game changed by strong policy advocacy and pressure on the Government.  As any new changes that are being proposed with the intent to make the mines viable, like National Mineral Index etc. met with heavy opposition and hence are delayed, the high premiums are badly impacting these corporates. Presently they are adopting various malpractices lessees to make their business profitable by unfair means. Some practices that are being adopted or are likely to be in adopted will in violation of the provisions of MCDR 2017 and MCR 2016.
The rule 38 of the MCR 2016 specifies the sale value in the sale invoice is the gross amount payable by the purchaser with no deduction towards royalty, DMF and NMET. Rule 42 of the said rules prescribes that the ex-mines price will include all expenditure up to the leasehold area. The Balda iron ore mine of M/s Sirajuddin with a premium value of 118% of the value of IBM price, is adopting the above methodology by charging premium separately and lowering the ex-mines sale price exclusive of premiums. This malafide practice will affect the computation of average sale price under rule 42(3) and rule 43 of MCR 2016 and directly lowering the revenue collection towards premium, royalty, DMF and NMET. This act of Sirajuddin will bring down the ASP of November down by 33% from the market rate.
Similarly, M/s JSW Steel Limited had floated Auction Notice for the sale of iron ore in the form of ROM instead of lumps and fines to lower the average sale price of mineral leading lower payment towards applicable premiums. It may be noted that the size specification of ROM under the Auction Notice is 10-180mm whereas ROM has been defined under rule 2(f) of MCR 2016 as the raw, unprocessed or uncrushed material in its natural state obtained after blasting or digging, from the mineralized zone of a lease area. Thus, ROM consists of material of size below 10mmand size above 180mm beside the size range of 10-180mm. In this, JSW is selling lumps under the garb of ROM. Further, the grade of a lot of iron ore ROM of 1 lakh tonne at Jajang iron ore mine has been shown as 56-60% Fe. In contrast, there is no such grade band of iron ore either in statutory return Form F 1 and Form G1 under rule 45 of Mineral Conservation and Development Rules, 2017.
MASS in its representation has stated about numerous attempts being made for lowering the Average Sale Price (ASP) by adopting measures to sell the ore to related parties or sell the ore (lump and fine) at a discount and then take the balance in cash. Evidently, cash is not visible, but this circular economy is taking shape in Odisha.

The forum has requested the IBM and the State Government of Odisha to examine the monthly returns of auctioned mines with respect to their sale value of mineral so that the above malpractices may be avoided, and actual sale value is furnished to in the statutory returns to prevent any loss of revenue to the Government. IBM should take proactive steps in the interest of the people of India and also to maintain the sanctity of the institution. The forum also suggested to avoid related party transactions and the like. The ASP may exclude all prices that are beyond a range from the highest price, e.g., the price band may have to define such that any price lower than 10-15% from the market price will not be taken into consideration. Every sale transaction should be scrutinized; else it will lead to a revenue loss of thousands of crores. The sale value is the gross amount payable by the purchaser as indicated in the sale invoice where the sale transaction is on arms’ length basis, and the price is the sole consideration for the sale, excluding taxes, if any. The arm’s length definition is the most important aspect, and it should be exhaustive, as this is the area where the big corporates with a voice at levels are aiming to play with and thus have the ASP reduced. The entire momentum of National Mineral Index etc. has the sole objective as above, and this is against national interests.