The Rajasthan Authority of Advance Ruling (AAR) has held that Hindustan Zinc is not entitled to Input Tax Credit (ITC) on goods/services received for increasing tailing-dam height.

The bench of Mahipal Singh and Mahesh Kumar Gowla observed that input tax credit is not available in relation to goods and services received for increasing the height of Tailing Dam used to disposal and treatment of hazardous waste of mining operations, known as tailings in terms of Section 17(5)(c) and 17(5)(d) of the Central Goods and Service Tax Act, 2017.

The applicant, Hindustan Zinc Ltd is a subsidiary of Vedanta Ltd., is one of the world’s largest and India’s only integrated Zinc Lead-Silver producer. The Applicant is engaged in the business of extracting & processing minerals and manufacturing of metals such as zinc, lead, silver etc. It has captive zinc mines located in the state of Rajasthan, including at Rampura Agucha, Sindesar Khurd, Rajpura Dariba, Bamnia Kalan, Kayadand Zawar. 

The sole function of a tailing dam is to process the tailings generated during the beneficiation process. This process starts when tailings, transported in slurry form through pipelines to the dam, enter through active pipelines designated for specific zones. The slurry typically comprises 55% water and 45% tailing. While in the dam, the tailings are positioned such that the water separates. The separated water is drained into a reservoir through a syphoning system for reuse at the nearby milling plant. 

The dry tailings remaining after separation of water are then moved to an area near the tailing dam specially demarcated for dry stacking, and are covered with liners to minimize the environmental impact. and economic risks. The emptied area within the tailing dam is then again used for further tailings in slurry form, processing water separation, and drying before removal for dry stacking.

Tailings are continuously generated and transported to the tailings dam throughout the beneficiation process. As the volume of tailings in the dam grows, its height needs to be incrementally increased. The height of the dam is increased with the use of materials such as rocks, mud, sand, HDPE sheets, etc.. the majority of which is waste material from the mining process itself.

To raise the height of the tailing dam, the Applicant employs a contractor, who charges GST along with their service consideration. Also, the Applicant procures goods such as HDPE sheets, etc. as may be required for height raising purposes.

The expenses incurred toward such goods and services are capitalized by the Applicant in its books of account. In this regard, given the operational and legal requirement of establishing and maintaining a tailing dam for processing of mining waste, the Applicant is of the opinion that the tailing dam is nothing but an integral part of the milling plant and covered under the term “plant and machinery”. Hence, input tax credit of such GST is not blocked in terms of Section 17(5)(c) and 17(5Xd) of the Central Goods and Service Tax Act, 2017.

The applicant sought the advance ruling on the issue whether input tax credit is available in relation to goods and services received for increasing the height of Tailing Dam used to disposal and treatment of hazardous waste of mining operations, known as tailings in terms of Section 17(5)(c) and 17(5)(d) of the Central Goods and Service Tax Act, 2017.

The AAR ruled that the tailing dam is constructed for safe disposal, treatment, and management of hazardous waste of mining operations, in terms of the applicable laws viz. Mines and Minerals (Development and Regulation) Act, 1957 read with Mineral Conservation and Development Rules, 2017.

“We find that tailing dams can be simply termed as a structure providing storage facility for waste products of mining operations. These storage facilities does not play any role in the quantity as well as quality of the minerals extracted & processed and metals manufactured by the taxpayer. Thus, the tailing dams can not be qualified to be used for carrying on the core business activities,” AAR stated.

Ruling Details

Applicant Name: Hindustan Zinc Ltd.

Date: 03/01/2025

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