India is weighing in on the possibility of “phasing out” its “transit pass” system for mineral transport, and replace the same with mandatory GST invoicing for every truckload of (iron) ore.
Taken up for discussion at recent high-level stakeholder meetings, the shift is being signalled as a major reform in the sector ending a decades old system that has often been pulled up for being opaque, rigged through forged permits, issuance of duplicate passes and under-reporting, causing loss to the exchequer.
For instance, Odisha is estimated to have lost nearly ₹1,400 crore of iron ore royalty due to such inconsistencies in 2022, as per a CAG analysis.
“Moving to GST means greater central control over the items being moved out of mines,” said a senior government functionary who attended the meeting.
It could also lead to some changes in the GST invoicing system so that “all details that are there in transit passes be noted”.
A government document reviewed by businessline notes “…may issue an advisory to phase out transit passes and accept GST invoices as valid transport documentation”.
Sources said, discussions need to be taken up with line ministries like Mines, the Department of Revenue (under Ministry of Finance) and respective mineral bearing states.
Present System Versus GST Invoicing
Currently in mining trucks carrying ore need a transit pass from the state mining department to move material. This acts as proof that the ore is legally mined, royalty is paid, and the truck is allowed to transport. However, on moving to the GST invoicing system, there will a single document. It reduces duplication; and also “automates the dispatch process”. Digital tracking of the same would be possible.
“GST invoices may be made mandatory for all dispatch quantities…. which can serve as mining permit…. avoid duplication and prevent corruption,” another note reviewed by businessline mentioned.
The Playbook
The common thread emerging during the high level meetings held over the last few weeks noted that paper trails can be manipulated.
For instance, one truck could carry 40 tonnes of ore, but a pass would be issued for just 20. The “excess” would be sold off without royalty or tax. Such a scenario has been noticed in many cases.
How CAG caught whiff of the inconsistencies
In fact, the Comptroller and Auditor General (CAG) audit in Odisha previously flagged how such leakages cost thousands of crores in royalty.
In a report for March 2022, the CAG in its recommendations suggested: “…investigate the cases of unchecked e-passes generated for the MCVs (mineral carrying vehicles) and revamp the existing mechanism to ensure control over unchecked passes for end to end monitoring of movement of mineral resources.”
E-passes are Odisha’s digital equivalent of a transit pass.
In fact, the report noted, 37,958 e-passes were generated for the vehicles. Audit cross-checked the vehicle details for 23,266 e-passes, generated by the licensees with the VAHAN database. Around 16 per cent of e-passes (3,697) were for vehicles that had been registered three-wheelers. And these could not be mineral carrying vehicles.
At least, 14 per cent of another set of e-passes generated had no valid records at exit gates (or check posts).
The report mentioned, “non-checking of 16,79,220 e-passes generated for MCVs resulted in absence of end to end tracking of transportation of a minimum of 1.48 crore tonne of iron ore (by taking into account 8.83 tonne per MCV), valuing at least ₹1,473.26 crore (calculated by taking the average ASP of five years in respect of lowest grade of iron-ore i.e. below 55 per cent fines).”
