Mining Waste No Ground to Deny CENVAT Credit: CESTAT Allows Credit on Ore Crushing and Handling Services

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that services used for handling, transporting, and crushing iron ore in captive mines qualify as “input services” even if a portion of the mined material is discarded during processing. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the definition is deliberately broad and covers services used not only directly in manufacturing but also indirectly, and in processes that are incidental or ancillary to manufacture. The Bench referred to the definition of “manufacture” under Section 2(f) of the Central Excise Act, which includes any process incidental or ancillary to the completion of a manufactured product. The appeal arose from an Order through which the Principal Commissioner, CGST & Central Excise, Indore, had denied and ordered recovery of CENVAT credit amounting to ₹2,41,33,025 availed during the period 2010-11 to 2014-15. The department had also imposed an equivalent penalty and sought recovery of interest. The company manufactures steel and steel products and operates captive iron ore mines that supply raw material to its manufacturing unit. Under the prevailing CENVAT credit regime, these mines were treated as an extension of the factory, allowing the company to avail credit on inputs and input services used there. During a departmental audit, officials observed that the company engaged various service providers for handling, transportation, and crushing of iron ore extracted from the mines. The ore underwent processing at the mining site, where debris and unusable material were removed before the usable ore was transported to the factory. Approximately 15% of the mined material was discarded during this process. The department took the view that the service tax paid on mining-related services could be treated as eligible input service only to the extent of the ore that ultimately reached the factory and was used in manufacturing excisable goods. According to the department, the portion of services attributable to the discarded ore could not be regarded as input services because that material never entered the manufacturing process at the factory. On this basis, the show cause notice was issued and the credit demand was confirmed along with interest and penalty. The Commissioner had reasoned that since the iron ore lost during crushing was neither received in the factory nor used in production, the corresponding mining, handling, loading, and crushing services could not qualify as input services for CENVAT purposes. The Tribunal examined Rule 2(l) of the CENVAT Credit Rules, 2004, which defines “input service” as any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and their clearance up to the place of removal. In a notable observation, the Tribunal explained that manufacturing processes often involve the removal of unwanted material before a usable product emerges. Drawing an analogy from sculpture and industrial production, the Bench observed that manufacturing is not always a process of adding material; rather, it frequently involves removing excess or unwanted matter. It pointed out that mining, crushing, grinding, forging, lapping, and similar industrial activities inherently generate waste or discarded material as part of producing the final usable input. The Tribunal emphasized that the relevant test is not whether every portion of the raw material eventually reaches the factory floor, but whether the service is used directly or indirectly in relation to manufacturing. Rejecting the Commissioner's reasoning, the Tribunal held that the process of crushing mined ore and removing debris was indispensable to the manufacture of the final steel products. According to the Bench, it would be unrealistic to separate the discarded portion from the usable portion while evaluating eligibility for input service credit because the entire process of handling, transporting, and crushing the ore was necessary to obtain the raw material required for production. Without these activities, manufacturing could not proceed. The Tribunal observed that the expression “directly or indirectly, in or in relation to manufacture” has a very wide ambit and clearly covers such mining-related services. Therefore, the services retained their character as eligible input services even though a percentage of the mined material was discarded before reaching the factory. Having concluded that the services qualified as input services under the CENVAT Credit Rules, the Tribunal held that the denial of credit was unsustainable on merits. Consequently, it set aside the entire demand of ₹2.41 crore along with the associated interest liability and equal penalty imposed on the company. The appeal was allowed with consequential relief. Case Details Case Title: M/s. Godawari Power & Ispat Ltd. Versus Principal Commissioner Citation: JURISHOUR-1550-CES-2026(DEL) Case No.: Excise Appeal No. 55463 of 2023 Date: 05.06.2026 Counsel For Appellant: Krishna Mohan K. Menon and Ms. Prerna Jain Kala, Advocates Counsel For Respondent: S. K. Ray, Authorised Representative Click Here To Read Order Read More: DGFT Restriction Can’t Apply Retrospectively to Goods Already Arrived in India: Delhi High Court

Mining Waste No Ground to Deny CENVAT Credit: CESTAT Allows Credit on Ore Crushing and Handling Services

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