Aaron Nyarugwe v Dharwizi Transport (Private) Limited

### Preamble
Judgment No. SC 79/25
1
Civil Appeal No. SC 538/24
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REPORTABLE	(79)

ZIMBABWE     REVENUE     AUTHORITY

v

ZIMASCO     (PRIVATE)   LIMITED

SUPREME COURT OF ZIMBABWE

BHUNU JA, CHIWESHE JA & MUSAKWA JA

HARARE: 27 MARCH 2025

S Bhebhe, for the appellant

T Mpofu, for the respondent

MUSAKWA JA:

[1]    This is an appeal against the whole judgment of the High Court (court a quo) wherein it held that the respondent was not liable to pay mining royalties on chrome ore concentrates and ferrochrome.  After hearing submissions from counsel, the Court dismissed the appeal with costs and indicated that full reasons would be availed.  The reasons are provided hereunder.

BACKGROUND FACTS

[2]   The appellant is a statutory administrative body established in terms of s 3 of the Revenue Authority Act [Chapter 23:11] It is responsible for assessing, collecting and enforcing revenue payments on behalf of the State.  The respondent is a corporate entity duly incorporated under the laws of Zimbabwe.  It is engaged in the business of mining and smelting of chromite ore to produce high carbon ferrochrome.

[3]    On 16 May 2023, the respondent filed a court application before the court a quo seeking a declaratory order.  Specifically, it sought a declaration that chrome ore concentrates and ferrochrome qualify as mineral bearing products and as a consequence, were exempt from mining royalties upon disposal.  The court a quo granted the application, ruling that the respondent bore no obligation to remit mining royalties to the appellant in respect of chrome ore concentrates and ferrochrome.  The salient circumstances surrounding the matter are as follows:

[4]   The appellant conducted a tax review of the respondent’s mining royalty obligations and communicated its observations to the respondent in correspondence dated 8 December 2022. It stated that between January 2019 and September 2022, the respondent had erroneously computed its royalties based on the ex-works value of the minerals, thereby excluding distribution costs.  The appellant contended that pursuant to s 37 of the Finance Act              [Chapter 23:04] (the Act), mining royalties should be determined based on the face value of the invoice.  For that reason, the appellant issued an adjusted royalty assessment for the period in question and the reassessed liability, inclusive of penalties, which amounted to ZWL$604 922 007.31 and US$7 052 406.64.

[5]     In a letter dated 13 December 2022, the respondent objected to the appellant’s determination, arguing that transport and logistics costs ought not to be factored into the calculation of royalties.  It also contended that the ex-works value constituted the face value of the invoice. In response, the appellant, by letter dated 16 December 2022, maintained that royalties ought to have been calculated on gross sales value without any deductions.  Subsequently, on                7 February 2023, the respondent wrote correspondence to the appellant wherein it maintained its position.

PROCEEDINGS A QUO

[6]    	Before the court a quo, the respondent contended that there was a distinction between minerals and mineral bearing products and that before the Finance Act 7 of 2021 introduced            s 37B on 1 January 2022, no royalties were imposed on mineral bearing products.  The respondent submitted that the Mines and Minerals Act [Chapter 21:05] did not operate retrospectively, thus it was inapplicable in casu.  It also contended that ferrochrome is not acquired from the earth nor is it formed by a geological process, but is a man-made commodity.

[7]   The respondent also contended that the Schedule to Chapter VII (s 37) of the Act prescribed rates only for minerals and was therefore inapplicable for mineral bearing products.  The respondent further submitted that royalties should be calculated based on the gross fair market value which corresponded to the ex-works value and not the selling price.  The respondent also argued that the term "face value of the invoice" denoted the ex-works value of the mineral, as reflected on the invoice, and not the selling price.  It further maintained that this value could be determined from the invoice itself, without reference to external factors.

[8]    The appellant contested the application on the basis that while the Mines and Minerals Act distinguishes between minerals and mineral bearing products, the governing statute, being the Finance Act 8 of 2020, did not make such a distinction.  It denied that the ferrochrome was a man-made product, seeing as it is a product of the beneficiation of chrome ore to remove impurities and extract chrome metal from the oxide.  It contended that ferrochrome was therefore a mineral bearing product.

[9]   The appellant argued that the gross fair market value of a mineral is its price on the international market without deductions.  It averred that gross value denotes a value prior to any cost deductions and that the face value of the invoice corresponds to the explicit selling price on the invoice rendering further deductions unnecessary.  In addition, the appellant asserted that the legislature’s intent was to impose royalties on the mineral content within the ore, regardless of whether it was refined.  It contended that the respondent’s interpretation of the legal framework is remiss and would lead to an absurdity if royalties applied solely to refined minerals.

[10]   The court a quo upheld that the respondent’s argument that the introduction of s 37B through the Finance Act 7 of 2021 strongly supported the view that no royalties were fixed for mineral-bearing products prior to 1 January 2022.  The court a quo further opined that it would be a considerable stretch of both the letter and spirit of the law to regard the processes involved in the creation of chrome ore concentrates and ferrochrome from chrome ore as a geological process under the definition of a mineral.  Thus, the court a quo found that chrome ore concentrates and ferrochrome are indeed mineral-bearing products as defined in the Mines and Minerals Act.

[11]   The court a quo reasoned that since the previous Finance Act (s 37A) made no reference to royalty rates for mineral-bearing products, no royalties were payable on such products before 1 January 2022.  The court a quo rejected the appellant's interpretation, asserting that while royalties on mineral-bearing products were not precluded, the absence of fixed rates prior to the specified date rendered the respondent not liable to pay royalties.  The court a quo further emphasised that it was unnecessary to invoke purposive interpretation, as the legislature’s intention was unmistakably clear from the wording of ss 244 and 245 of the Mines and Minerals Act, when read together with s 37A of the Finance Act prior to its amendment.

[12]   The court a quo held that the law required the appellant to distinguish between minerals and mineral-bearing products and establish separate royalty rates for each.  It determined that the appellant could not extend royalty rates for minerals to mineral-bearing products when the legislature had explicitly acknowledged the distinction but failed to set specific rates for such products.  Accordingly, the court a quo granted the application for review and ordered that the respondent was not liable to pay mining royalties to the appellant on the chrome ore concentrates and ferrochrome.  Dissatisfied with the determination of the court a quo, the appellant noted an appeal to this Court on the following grounds of appeal:

GROUNDS OF APPEAL

“1. The court a quo erred in finding that mining royalties were not payable for ferrochrome and/or chrome ore concentrates disposed during the period between January 2019 to September 2022 when the provisions of ss 244 and 245 of the Mines and Minerals Act [Chapter 21:05] are clear that mining royalties are payable on all minerals and mineral-bearing products won from a registered mining location, and which had been disposed of by a miner, such as the respondent.

The court a quo erred in law in finding that ferrochrome and/or chrome ore concentrates were not minerals, for purposes of liability for the payment of mining royalties, when such definition was never contemplated or intended by the provisions of the Mines and Minerals Act [Chapter 21:05].

The court a quo erred in law in finding that ferrochrome and/or chrome ore concentrates were not minerals‘, for purposes of liability for the payment of mining royalties, because they would have been subjected to human intervention when it is common cause that minerals‘ can only be found after refining and/or removing impurities from their ore and when such removal of impurities does not exclude them from the definition of minerals‘ as contemplated or intended by the Mines and Minerals Act [Chapter 21:05].

The Court a quo erred and misdirected itself in law and in fact in finding, as it did or taken to have done, that the introduction of s 37B of the Finance Act [Chapter 23:04], by the Finance Act No. 7 of 2021, introduced a new mining royalty payment regime not hitherto provided by ss 244 and 245 of the Mines and Minerals Act [Chapter 21:05], as read together with s 37 (Schedule to Chapter VII) of the Finance Act [Chapter 23:04].

The court a quo erred in law in failing to adopt a purposive approach to the interpretation of s 37 of the Finance Act [Chapter 23:04] in circumstances where a literal interpretation of the provision yielded an absurd result, not intended by the legislature, as most of the country’s minerals are sold after human intervention, in one form or the other.”

THE APPELLANT SUBMISSIONS ON APPEAL

[13] At the hearing, Mr Bhebhe, counsel for the appellant, argued that the Finance (No. 2) Act, 2024, which amended s 36 of the Finance Act to introduce s 37B, resolved the present dispute.  He contended that the amendment clarifies that the definition of "mineral" includes mineral-bearing products, with this provision applying retrospectively with effect from           1 January 2010.  Consequently, he asserted that wherever the Finance Act imposes royalties on minerals, the same applies to mineral-bearing products.

[14] The Court enquired whether the decision of the court a quo was correct under the law applicable at the time.  Counsel submitted that it was not, arguing that the Legislature never intended to exempt a mineral undergoing purification from paying royalties.  The Court further enquired whether ferrochrome is an alloy, to which counsel responded affirmatively, while maintaining that its status as an alloy does not diminish its classification as a mineral.

Counsel further argued that defining minerals solely as those extracted from the earth was an untenable interpretation, as it would exclude ferrochrome from being considered a mineral-bearing product.  He asserted that the applicable rate was prescribed in the Schedule to Chapter VII (s 37) of the Finance Act.

THE RESPONDENT’S SUBMISSIONS ON APPEAL

[15]  	Per contra, Mr Mpofu, counsel for the respondent, contended that the correctness of a decision on appeal must be assessed based on the law in force at the time the decision was made.  He submitted that, at the relevant time, the applicable statute only imposed royalties on minerals.  The introduction of s 37B, he argued, unequivocally demonstrates that the Legislature had not intended royalties to be levied on mineral-bearing products before the amendment.

Furthermore, he contended that royalty rates for mineral-bearing products must be expressly set out in the statute.  He asserted that ferrochrome, being a chemically and physically altered product, is man-made and should be assigned a specific rate.

[16]  	The Court enquired whether a processed mineral loses its properties.  In response, counsel submitted that s 244 of the Mines and Minerals Act distinguishes between minerals and mineral-bearing products and mandates separate rate allocations for royalties.  The Court enquired whether the 2024 amendment to the Finance Act was retroactive.  Counsel conceded that it was but maintained that this was irrelevant to the present appeal, as it was not the law before the court a quo made its decision.

ISSUE FOR DETERMINATION

[17] 	At the heart of this appeal lies the interpretation of the applicable Finance Acts during the period and the definition of “minerals” versus “mineral-bearing products” within the mining fiscal regime.  In light of the above, this Court is called upon to determine whether, between January 2019 and September 2022, the respondent was under a statutory obligation to pay royalties on chrome ore concentrates and ferrochrome products classified as mineral-bearing products.

THE LAW AND APPLICATION

[18] 	This issue falls to be resolved by interpreting the relevant provisions of the Mines and Minerals Act and the Finance Act.  At the heart of the dispute is the legal characterisation of ferrochrome and chrome ore concentrates and the scope of royalty obligations under the governing statutory framework.

[19]   The appellant argued that royalties were payable under s 244 of the Mines and Minerals Act, which imposes an obligation to pay royalties on minerals and mineral-bearing products won from a registered mining location.  It further contended that ferrochrome and chrome ore concentrates fall within the purview of this provision either as "minerals" or as "mineral-bearing products" and that royalties were due despite the absence of an expressly fixed rate for such products during the relevant period.  In the alternative, it argued for a purposive interpretation to avoid what it perceived would be an absurdity.

[20]  	The court a quo rejected the appellant’s contention, holding that no royalty rate had been fixed under the Schedule to Chapter VII of the Finance Act for mineral-bearing products at the material time.  It also found, based on the evidence, that ferrochrome is not a naturally occurring mineral but a man-made product resulting from deliberate metallurgical transformation, and therefore falls outside the definition of “mineral”.

[21] 	The legal framework is clear.  Section 244 of the Mines and Minerals Act establishes the basis for imposing royalties.  It provides in part as follows:

“Subject to this Part, the miner of a registered mining location shall pay royalty on all minerals or mineral-bearing products won from such location which have been disposed of by him or on his behalf, whether within or outside Zimbabwe, during any month, at such rate per unit of mass as may be fixed in terms of section two hundred and forty-five.”

On the other hand, s 245 provides the mechanism by which royalty rates are to be fixed.  In particular, s 245(5) provides that:

“In fixing the rate of royalty payable in terms of subs (1), the House of Assembly may fix different rates of royalty in respect of different minerals and mineral-bearing products.”

[22]   It is apparent that s 245 (5) recognises that minerals and mineral-bearing products are distinct categories.  Critically, the enabling provision in s 245(5) is not self-executing.  It does not in itself impose a liability to pay royalties but merely empowers the legislature to fix rates for different categories of products.  It is the Schedule to Chapter VII of the Finance Act which serves as the charging provision.  During the material period, that Schedule did not prescribe any royalty rate for mineral-bearing products.  The absence of a prescribed rate is dispositive of the issue.  This is where the Finance Act assumes decisive importance.  While the Mines and Minerals Act sets out the power to levy royalties, it is Chapter VII of the Finance Act that constitutes the charging framework.  Without a prescribed rate fixed in the Schedule to that Chapter, no fiscal obligation could lawfully arise.

[23]  	In matters of taxation and fiscal obligations, it is a fundamental principle that no tax or royalty can be imposed without clear and express statutory authority.  This accords with what was held in R v Board of Inland Revenue, ex parte MFK Underwriting Agencies Ltd & Ors [1990] 1 All ER 91; that a tax payer expects to be taxed according to law.  This principle ensures that the power of the State to demand money from individuals or entities is exercised strictly in accordance with the law.  For a royalty obligation to be legally enforceable, the relevant statute or statutory instrument must explicitly identify the subject of the royalty and prescribe the precise rate or a clear mechanism for determining that rate.  Without such clarity, the obligation cannot arise.  Courts consistently apply a strict interpretation of fiscal legislation.  This means that any ambiguity or silence in the legislation must be resolved in favour of the taxpayer rather than the taxing authority.  If the statutory instrument, such as the Schedule to the Finance Act, prescribes royalty rates for “minerals” but is silent on “mineral-bearing products,” the omission cannot be treated as an oversight or filled by inference. Instead, it signifies that no royalty is owed on those mineral-bearing products during the period in question.  The enabling legislation, like the Mines and Minerals Act, may provide the general power to levy royalties, but the actual imposition of a royalty must come from a specific and clear legislative instrument that fixes the rates.  If such a charging provision does not prescribe a rate for a particular category, no fiscal obligation exists for that category.

[24] 	Furthermore, courts reject attempts to impose taxes or royalties by implication or analogy. Taxation must be imposed by express words: it cannot be created through inference or by stretching the meaning of statutory terms.  Therefore, if the statute distinguishes between “minerals” and “mineral-bearing products” and only prescribes rates for the former, the taxing authority cannot lawfully demand royalties on the latter.  This approach protects taxpayers from arbitrary or expansive interpretations and ensures legal certainty.  In summary, unless the law clearly and specifically prescribes a royalty rate for mineral-bearing products, no legal liability to pay such royalties arises.  The burden lies with the revenue authority to demonstrate an explicit statutory basis, including a prescribed rate, for any claimed fiscal obligation.

[25]   Between January 2019 and September 2022, the Schedule to Chapter VII of the Finance Act prescribed royalty rates only for “minerals”.  It was entirely silent on “mineral-bearing products”.  This was not an oversight, thus reflecting a conscious legislative omission.  As a result, the law did not create any enforceable obligation to remit royalties for products such as chrome concentrates or ferrochrome during that period.

[26]  	This legislative position changed only with the enactment of Finance Act No. 7 of 2021, which introduced s 37B with effect from 1 January 2022.  That provision expressly brought “mineral-bearing products” within the royalty framework, marking the first instance where such products became chargeable under the Act.  The fact that a new provision was introduced reinforces the legal conclusion that prior to that amendment, no liability existed.

[27]  	Additionally, the Finance (No. 2) Act, 2024 retrospectively amended the definition of “mineral” to include mineral-bearing products with effect from 1 January 2010.  However, this definition, even if framed as retrospective, cannot substitute for the absence of a fixed royalty rate.  In tax law, liability arises not merely from definitional inclusions but from clearly articulated charging provisions.  As no rate had been fixed for such products in the Schedule at the relevant time, the retrospective amendment cannot impose an obligation that did not previously exist.

[28] 	This Court reiterates that in fiscal matters, clarity and specificity are paramount.  The statutory framework must be read as a whole.  Liability to remit royalties must rest on a clearly prescribed rate in an effective charging provision.  In this case, that requirement was not met during the period in question.  As emphasised in Zimbabwe Revenue Authority v Murowa Diamonds (Pvt) Ltd SC 85/23 p 14:

“In the Zimbabwean context, a mineral royalty payable in terms of s 244 of the Mines and Minerals Act constitutes a fee paid by the holder of a mining right to the mining commissioner for the right to dispose the mineral resources from a mining location. The royalty is payable on the value (ad valorem) of the mineral resources extracted from the mining location.”

[29] 	Tax and royalty obligations are statutory in nature and cannot arise by inference or implication.  The strict construction rule mandates that any ambiguity or silence in the taxing statute must be resolved in favour of the taxpayer.  This is a long-settled principle in Zimbabwean tax law: where there is clear language in a taxing statute, the Court is not at liberty to depart from the ordinary meaning under the guise of avoiding absurdity.

[30]  	Turning to the classification of ferrochrome, the respondent led clear and unchallenged evidence that ferrochrome is produced by subjecting chromite ore to smelting processes in electric arc furnaces, using reductants and fluxes, and that the resultant product is an alloy chemically and physically distinct from the ore.  It is not formed by or subjected to a geological process and does not occur naturally.  Section 5 of the Mines and Minerals Act defines a "mineral" as any substance occurring naturally in or on the earth, which has been formed by or subjected to a geological process.  Ferrochrome alloys do not fall into the definition of minerals in the Mines and Minerals Act.  This Court agrees with the analysis in ITC 1249 (1976) 38 SATC 74, where Gubbay P (as he then was) stated at p 77:

“Where a mineral is processed to the extent that it is converted into something-an alloy   which is not to be found within the earth’s crust, it no longer retains its character as a mineral.  This does not mean that any treatment of the mineral obtained would cause it to lose its character.  For example, the separation of dirt from a mineral by sluicing would clearly not do so.”

[31]  	The same reasoning applies to ferrochrome.  It is a distinct product not found in nature and cannot be categorised as a mineral for purposes of royalty obligations.  As for chrome ore concentrates, even if they qualify as mineral-bearing products, no rate was fixed for such products during the relevant period.

[32] 	The appellant further relies on the Finance (No. 2) Act of 2024, which retrospectively amended the definition of "mineral" to include mineral-bearing products with effect from          1 January 2010.  However, this argument is untenable.  The correctness of the court a quo’s decision must be determined based on the law as it stood at the time judgment was passed. A retrospective definitional amendment cannot create liability where none existed before. The legal correctness of a decision falls to be determined according to the law that was in force at the time the decision was made.  Furthermore, the enactment of s 37B of the Finance Act through Finance Act No. 7 of 2021, effective 1 January 2022, confirms that royalties on mineral-bearing products were first introduced from that date.  This legislative development negates any suggestion that such royalties were previously due.

DISPOSITION

[33]   In light of the foregoing, it is manifest that the appeal lacks merit.  The court a quo correctly interpreted the governing statutory provisions.  It correctly characterised ferrochrome as a non-mineral, and correctly concluded that in the absence of a prescribed royalty rate for mineral-bearing products during the relevant period, no liability to pay royalties could arise. It is for the above reasons that the court dismissed the appeal.

BHUNU JA		:	I agree

CHIWESHE JA	:    	I agree

Kantor & Immerman, appellant’s legal practitioners.

Maguchu & Muchada Business Attorneys, respondent’s legal practitioners.