The Diesel Refund Scheme: Wet And Dry Contracts, Joint Ventures And New Ways Of Mining In South Africa

For decades, the ‘diesel refund scheme’ has been providing vital fiscal relief to South African producers in mining, farming, forestry and agriculture in the form of ‘diesel refunds’, i.e. refunds of the fuel levy and the Road Accident Fund Levy under Schedule 6, Part 3 (“Schedule 6”) to the Customs and Excise Act, 1964 (“the Act”). However, the scheme’s legislative framework has not kept up with some of the regulatory and commercial realities of mining in South Africa. The difficulty often lies in establishing which activities qualify for a refund, who performs them, who must purchase the diesel and who qualifies for the diesel refunds, within the context of the contractual arrangements between the parties.

Certain Supreme Court of Appeal (“SCA”) judgments and the recent amendments to the Act introduced by Notice R.1893 in Government Gazette No. 46056 on 18 March 2022 (“2022 Amendments”) addressed some of these challenges.

Qualifying activities

The SCA judgment in Commissioner, South African Revenue Service v Glencore Operations SA (Pty) Ltdclarified that all activities listed in note 6(f) to Schedule 6 and conducted on the mine site, qualify for diesel refunds to the point where the mineral is extracted from the ground or from the ore.

Recognising ‘wet contracts’

The Act recognises that in the mining sector, qualifying activities are not always performed by the ‘users’. A ‘user’ is a holder of the mining right, registered for value-added tax (“VAT”) purposes with the South African Revenue Service (“SARS”) as a VAT vendor and as a ‘user’ in order to claim the diesel refunds.

The holder of the mining right might often not be in a position to acquire its own assets in order to conduct the mining activities, it might have financial constraints to do so, or it might not have the technical skills and knowhow to conduct the mining activities, preferring a contractor or joint venture (“JV”) partner to conduct the mining activities, whilst it is still required to purchase the diesel for use by the contractor or JV partner. A JV might also be required to fulfil Broad-Based Black Economic Empowerment requirements.

In the matter of Assmang (Pty) Ltd v Commissioner for the South African Revenue Service and Others decided by the SCA, Assmang argued that it qualified for diesel refunds because it purchased the diesel, supplied it to the contractors and made ‘off-invoice’ calculations of the cost of diesel consumed by the contractor in order to calculate the payment due to the contractor for conducting the mining activities. The SCA dismissed Assmang’s appeal on the basis that the legislation contemplates that, in a dry-rate contract, the diesel must be purchased by the user and supplied to the contractors, without recovery of the cost. The SCA found that such recovery may take place not only on the invoice or through the issuance of credit notes, but also through off-invoice deductions that have the net effect of the fuel not being supplied to the contractor free of charge.

This decision highlights the longstanding difficulty that even in cases where the underlying mining activities are found to be eligible, the contractual arrangement between the parties may prevent the business from accessing the refund. The 2022 Amendments introduced an amended definition of “user” which includes wet contractors. This amendment is a welcome development that would permit wet-contractors to claim diesel refunds. The commencement of these amendments is subject to a date to be determined by the Minister. Until that date, businesses must continue to navigate the existing provisions with the dry-rate requirements and the interpretations given in cases such as Assmang.

Joint ventures in the mining industry

The Act as it currently reads, requires qualifying mining activities to be carried on by the holder of the necessary authorisation granted or ceded in terms of the Mineral and Petroleum Resources Development Act, 2002. SARS has always interpreted this to mean that if the user claiming the diesel refunds does not have the mining right issued in its name, the refund claims must be disallowed. This creates difficulties for JVs where the mining right is held by one party and the mining activities are conducted through the JV.

This issue was most recently addressed by the SCA in Glencore Operations SA (Pty) Ltd and Others v Commissioner for South African Inland Revenue and Another. The case concerned the Goedgevonden JV, established by Glencore and ARM Coal (Pty) Ltd (“ARM Coal”) to conduct coal-mining activities. SARS disallowed the JV’s diesel refund claims on the basis that the mining right was held by Glencore, and not the JV. The High Court agreed. The SCA took a different view, finding that although Glencore was the formal registered holder of the mining right, the right itself was issued under the condition that Glencore would exercise it with ARM Coal as per the JV, thereby authorising mining through the JV.

This decision is significant as it signified the SCA’s move to adopting a purposive and contextual interpretation of the diesel refund provisions, recognising that the relevant question is not necessarily who holds the mining right, but whether the JV had the necessary authorisation to conduct the mining activities. Importantly, however, the conclusion reached by the SCA in this case was in the context of the wording of the JV agreement and the mining right, which expressly incorporated the JV agreement into the mining right and authorised mining through it. The Courts may not reach similar conclusions in cases where the mining rights were issued under different conditions.

The 2022 Amendments broadened the definition of “persons” eligible for registration as a diesel refund user to expressly include a “joint venture of persons ordinarily resident in the Republic”. This amendment does not address the issue highlighted in the Glencore case. However, in light of the prevalence of JVs in the mining industry, this is a welcome extension of the existing permission granted to JVs under the Value-Added Tax Act, 1991 to register as users.

A scheme in transition

The 2022 Amendments represent meaningful progress towards recognising commercial reality, however the journey is incomplete. Assmang highlights the legislated limitations faced by mines using contractors. With the relevant amendments awaiting commencement, mines continue to be affected by the gaps between how they operate and what the law permits.

The Goedgevonden judgment demonstrates how interpreting the diesel refund provisions as strictly excluding JVs for not being formal mining right holders would produce an absurd or irrational outcome that is inconsistent with the purpose of the statutory framework, instead, a purposive and contextual interpretation must be adopted in each case.

SARS has invited diesel refund stakeholders to a webinar on 18 September 2026 to discuss the registration of diesel refund users on the new Refund Registration System on eFiling. Our team will be attending this session to understand how joint ventures and contractors will be affected by these changes.

*Reviewed by Andre Erasmus, Executive in ENS’ Tax practice