Miners contest forest tax while exchequer begets record revenues

Iron ore miners are contesting the levy of a forest development tax by the forest department in Karnataka, but the levy has been incredibly beneficial for the exchequer’s coffers.

Selling Karnataka’s forest produce like grass, amla, bark, lac, honey, silk cocoons and bamboo to industries attracts a 12 per cent forest development tax or FDT. Forest officials also levy the tax on the mining of iron ore from reserve forest areas, which happens in Bellary, Chitradurga and Tumkur districts of Karnataka.

But, many miners who operate in forest areas have fought against the levy of the tax in court for about two years. They argue that ore and minerals cannot be classified as forest produce because it was not specifically mentioned in the Karnataka Forest Act. The forest department believes otherwise.

In August 2008 the government issued a notification listing ore and minerals under forest produce. Since then, the department has enthusiastically collected revenues from miners, amassing 1,204.78 crore over the last three years.

The total FDT collected till September 15 is Rs 1,065.96 crore from Bellary and Rs 138.82 crore from Chitradurga. Prior to 2008, the tax was not collected in a scientific manner, said officials.

Interestingly, one of the mining lessees who has fought against the imposition of forest development tax is the state-owned mining major, NMDC. As an interim arrangement, NMDC is allowed to pay FDT at six per cent.

Even at this lower rate, the forest department collected Rs 221 crore in revenue from NMDC since 2008, according to officials. Attorney General for India Goolam E Vahanvati argued NMDC’s case before the Karnataka High Court. As an interim arrangement, the court allowed FDT collection until it delivers the final judgement in the matter.

According to a decision taken by the government on August 6, FDT has to be recovered based on the value shown in the bills or invoices when ore and minerals are dispatched from forest areas. For exports, the valuation method used is the same as that used by Customs Department.

Though the government has not yet penalised many miners for illegal mining and export, it has met with unprecedented success in tax collection because of the e-auction system put in place by the Supreme Court last August. State-run MSTC Limited conducts the e-auction on behalf of a monitoring committee formed by the Supreme Court. The three-member committee is headed by forest officer Deepak Sharma.

To avoid paying FDT, many miners used to undervalue their iron ore. This became impossible to do after all sales were compulsorily routed through the e-auction method. Besides FDT, miners have not been able to evade paying royalty and value added tax (VAT), said officials. About 60 miners were registered with MSTC for auctioning ore at the time of writing.

From September 20, 2011 to August 31, 2012, Rs 640.23 crore was collected as FDT. During this time 26 million metric tons of iron ore was auctioned. Royalty on the ore collected was Rs 645.48 crore, and VAT collection stands at Rs 315.97 crore. Prior to the e-auctioning, collections were about 50 per cent, according to officials in the department of mines and geology.

Forest department officials continue to believe levying FDT at 12 per cent on ore is logical, since the same was collected from the sale of grass or tulsi. The budget and audit wing of the forest department found Rs 519 crore of FDT was due from various miners as on July 31, last year.

Till the court’s final verdict, officials said they were determined to collect FDT at 12 per cent. The collected taxes are being deposited into the Consolidated Fund of Karnataka.