Thursday, October 11, 2012

Granite case in news and evasion of 'Seigniorage'


India possesses a wide spectrum of dimensional stones that include granite, marble, sandstone, limestone, slate, and quartzite, spread out all over the country.  Granite rock has become so common in homes and buildings .  Have you heard of  ‘Seigniorage’ ?

Granite is in news daily ~ this purports to be no post about the search by Police for Dayanidhi Alagiri or the reported searches made in the offices of  ‘Cloud 9,’ – the person sought after is in hiding and one of the magazines had mentioned that since he had cine connections, he could be moving incognito.

Granite is a common widely occurring type  igneous rock which is granular and crystalline in texture.  Granites can be pink to gray in color, depending on their chemistry and mineralogy. Granite is usually found in the continental plates of the Earth's crust. Granite is nearly always massive (lacking internal structures), hard and tough, and therefore it has gained widespread use as a construction stone.  There is also the other innately beautiful Marble - Granite and marble, both  are stones that need to be quarried from deep within the Earth’s crust to reach us.  Some say that is where the similarity of both of them ends.

Moving away, today read a report in Indian Express that the  special teams investigating the illegal granite scam have stumbled upon huge tax violations by the firms for which the fine that they would have to pay would run up to around Rs.5,000 crore. The firms apparently evaded seigniorage tax [what !]  payable to the Department of Geology and Mines in granite sales and export.

Madurai Collector Anshul Mishra said the government would impose penalty on the granite firms for the violations. According to official sources, the 18 special teams, headed by special officer John Louis, in course of their evaluation work in the multi-crore granite scam, found the tax violation by the granite companies, particularly PRP Granite, Olympus and Sindhu Granite. “We have found a huge amount of seigniorage tax evasion by PRP Granite while carrying out mining legally in 10 quarries. Approximately, they have mined over one lakh cubic meters of granite blocks but paid very little seigniorage tax to the Geology and wqMines Department. We are measuring the exact mining level in the quarries using Laser geo system,” said an official.

The penalty to be imposed on PRP Granite would be around Rs.3,000 crore. “We will send a notice on the tax violation to PRP Granite soon,” the official added. When contacted, Collector Anshul Mishra said, “The assessment process to identify the illegal quarrying level is nearing completion. As of now, evaluation work for 40 quarries have been completed and the work is going on for the remaining 18 quarries,” he said. According to the assessment made by the special teams so far, PRP Granite had illegally mined around 1.72 lakh cubic metres of granite blocks from quarries spread over 100 acres, in Melur Taluk.
Source : http://newindianexpress.com/states/tamil_nadu/article1294134.

Earlier in April there were reports that  exporters of high quality granite to China evaded crores of rupees of Seigniorage fees to the mines department of the state government by faking the volume measurements of granite blocks. It was  at a time when the director of mines introduced the self-removal system, in which lease holders assess the size and value of the granite by themselves. Sources said this led to the tax evasion.  It was reported at that time that the Vigilance and  ED detected huge anomalies at the seaports of Kakinada, Krishnapatnam in Nellore and Visakhapatnam. Officials realised that in just 20 days, the government lost seigniorage fees of about Rs 7.61 crore as the granite blocks’ measurements were fudged.

Seigniorage  is the difference between the value of money and the cost to produce it.  It was primarily applied to metal coins earlier. It is a term derived from specie—metal coins; Seigniorage  is a tax, added to the total price of a coin (metal content and production costs), that a customer of the mint had to pay to the mint, and that was sent to the sovereign of the political area.

Governments through the ages have appropriated real resources through the monopoly of the  ‘coinage’.  In modern fiat money economies, the monopoly of the issue of legal tender is generally  assigned to an agency of the state, the Central Bank – like the Reserve Bank of India, in India. Seigniorage refers historically, that is, in a world with commodity money, to the difference between the face value of a coin and its costs of production and mintage.  When it comes to the modern day currency notes of paper,  the difference between the face value of a currency note and its marginal printing cost are almost equal to the face value of the note – marginal printing costs are effectively zero.  Printing fiat money is therefore a highly profitable activity – one that has been jealously regulated and often monopolized by the state.  

But in coins, there is the value of the coin less the expenses of coinage i.e., the raw material cost and the processing costs that go into making the hard mound to a coin.   Coins are now issued only as token money, they no longer need to possess a high intrinsic value, and low-standard silver or base-metal alloys are sufficient. The margin between the cost of producing a coin and its currency value is known as seigniorage.

The terms is appropriated in Granite and other mining industries.  The schedule of seigniorage fees are found in the schedule issued as per the G.O of Industries & Commerce Dept. - Mines and Minerals - Amendments to Rule 10 of the Andhra Pradesh Minor Mineral Concession Rules, 1966. 

Though the subject is confusing, it is clear that monies payable to Government in various forms are often cheated and evaded by many involved and only few get caught or exposed. 

With regards – S. Sampathkumar.
11th Oct 2012.

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