SOUTH AFRICA: DIESEL REFUNDS – TO CLAIM OR NOT TO CLAIM
Judgment was handed down by the Supreme Court of Appeal (SCA) on 10 August 2021 in Commissioner, South African Revenue Service v Glencore Operations SA (Pty) Ltd (Case no 462/2020)  ZASCA 111 (10 August 2021).
Glencore Operations SA (Pty) Ltd (Glencore) claimed refunds for diesel fuel levies used for primary production in mining in terms of the provisions of Note 6(f)(iii), Item 670.04 in Part 3 of Schedule 6 to the Customs and Excise Act 91 of 1964 (CE Act).
The claim by Glencore was originally disallowed by SARS on the ground that the activities in respect of which the claim was submitted, did not constitute primary production activities in mining within the ambit of Note 6(f)(iii), but rather that such activities related to secondary activities in mining. During 2020, the High Court overturned the decision by SARS and held that Glencore was entitled to a refund for diesel levies. The Commissioner for SARS’s request for leave to appeal was granted during June 2020.
The SCA primarily had to consider whether the mining operations in relation to which diesel refunds were claimed by Glencore, had been carried on for own primary production in mining. Also, whether the list of activities set out in Note 6(f)(iii), Item 670.04 in Part 3 of Schedule 6 to the CE Act is exhaustive.
Glencore argued that its ‘own primary production in mining’ does not mean that its primary mining activities cease once the ore is extracted from the ground. Glencore further argued that the list of activities in Note 6(f)(iii) is not exhaustive.
The SCA criticised the High Court order made, and the following was specifically noted:
- The list of activities set out in Note 6(f)(iii) is exhaustive as the Commissioner intended. The list covers activities that are inextricably linked to primary mining, therefore the extraction of minerals from the ground. A non-exhaustive list would lead to unbusinesslike or an insensible result;
- All mining activities were not intended to benefit from the diesel rebate scheme, only ‘own primary production activities’;
- ‘Primary production activities’ means mining activities associated with extracting minerals from the ground, which is distinct from activities which occur after minerals have been extracted from the ground, with such latter activities being ‘secondary’;
- Operations, which in the case of Glencore comprised of the mining for coal, would involve various activities, such as crushing, screening, washing and stockpiling to take place after the mineral (being the coal) has been extracted from the ground – such activities are therefore not within the ordinary meaning of ‘own primary production activities’; and
- The main purpose of the list in Note 6(f)(iii) is to identify those activities directly associated with the extraction of minerals from the ground, which are to be included in the rebate scheme.
The SCA (and SARS) further placed heavy reliance on the unreported case of Graspan Colliery (Pty) Ltd v Commissioner for the South African Revenue Service Gauteng Division of the High Court, Pretoria case no 8420/2018, delivered on 20 September 2020, where it was also held that the list in Note 6(f)(iii) is an exhaustive list.
The SCA ruled that the activities in which Glencore used the diesel do not fall within the scope of any of the items listed in Note 6(f)(iii) and therefore the High Court came to an erroneous conclusion. The Commissioner’s determination should hence be reinstated.
While the SCA judgment signals bad news to mining entities, the situation may not be as severe where the mineral being mined requires further processing in order to extract this from the ore. The minority assenting judgment differentiated between circumstances where the mineral itself is extracted from the ground, and circumstances where ore is extracted from the ground and further primary production activities in mining are necessary in order to extract the relevant mineral from the ore.
It is also worthwhile noting that the SCA was quite critical regarding the lack of evidence led by Glencore as to the detailed mining processes involved, and noted that this harmed Glencore’s case. This indicates that significant detail regarding processes is necessary, in litigation on these types of matters.
The implications of the SCA judgment for the mining industry and the relief sought by mining companies through the diesel rebate scheme may be detrimental in an economy already under pressure.