Pollution Control Is Integral To Manufacturing: CESTAT Allows Cenvat Credit on Effluent Treatment Plant Services

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed Cenvat credit on civil construction and works contract services used for creation and modernization of effluent treatment infrastructure, holding that pollution control and effluent treatment activities are an integral and indispensable part of manufacturing operations. The bench of Dr. Ajaya Krishna Vishvesha (Judicial Member), set aside the orders passed by the adjudicating authority and Commissioner (Appeals), which had denied Cenvat credit of Rs. 16.67 lakh along with interest and equal penalty to a cooperative sugar factory engaged in manufacture of excisable goods under Chapters 17 and 22 of the Central Excise Tariff Act. The dispute pertained to availment of Cenvat credit on “Civil Construction Services” and “Works Contract Services” used for construction of compost yard, bio-compost yard and lagoon facilities forming part of the Effluent Treatment Plant (ETP). During audit for the period February 2013 to March 2015, the department alleged that such services were excluded from the definition of “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004. The assessee had already reversed credit of Rs. 7.71 lakh relating to civil construction services but contested denial of credit amounting to Rs. 8.95 lakh availed on works contract services used for lagoon yard and effluent treatment infrastructure. The department proceeded to confirm the entire demand of Rs. 16.67 lakh along with interest and penalty. Buy Now: Excise Duty Judgements E-Compilation – April 2026 Earlier, the Tribunal had remanded the matter to verify whether the construction activity related to repair, renovation or modernization of an existing plant or amounted to setting up of a new facility. The adjudicating authority thereafter again denied the credit on the ground that the bio-compost yard was newly constructed and did not qualify as repair or modernization. Before the Tribunal, the assessee argued that the entire infrastructure was mandatorily required under pollution control norms and “Zero Liquid Discharge” requirements, without which the factory could not legally operate. It was contended that effluent treatment is intrinsically connected with manufacturing activity and therefore the related services qualify as input services. The Tribunal accepted the contention and relied heavily on the Supreme Court judgment in Indian Farmers Fertilizers Cooperative Ltd. v. Collector of Central Excise, wherein the apex court held that treatment of effluents is an essential and integral part of the manufacturing process and pollution control apparatus forms part of manufacturing activity itself. The Tribunal further referred to several earlier decisions including UPL Ltd., Cheminova India Ltd., Kanoria Chemicals & Industries Ltd., Wipro Enterprises Pvt. Ltd. and Adroit Pharmachem Pvt. Ltd., wherein Cenvat credit on services relating to effluent treatment plants and pollution control infrastructure had been allowed. CESTAT observed that under pollution control laws, industrial units cannot continue production without proper treatment of industrial waste and compliance with statutory environmental obligations. Therefore, effluent treatment activity is indispensable for uninterrupted manufacturing and forms a vital part of the overall manufacturing process. The Tribunal also examined the amended definition of “input service” effective from 1 April 2011 and held that although construction and works contract services used for new construction were excluded, services relating to modernization, renovation, repair and maintenance of an existing factory continued to remain within the inclusive portion of the definition. It noted that the effluent treatment plant was established within an already existing running factory and therefore amounted to modernization of the factory rather than setting up of a new factory. The Tribunal further held that denial of credit merely on technical interpretation would defeat the purpose of statutory pollution control compliance requirements. It also observed that the show cause notice did not specifically invoke the exclusion clause relating to works contract services, and therefore adjudication on that basis travelled beyond the scope of the notice. The Tribunal held that the appellant was entitled to restoration of the entire Cenvat credit of Rs. 16.67 lakh, including the amount earlier reversed voluntarily. It also granted consequential relief including refund of interest and quashing of equal penalty imposed by the department. Case Details Case Title: Shree Sayan Vibhag Sahakari Khand Udyog Mandali Ltd Versus Commissioner Of Cgst & Central Excise CGST & Central Excise -Surat Citation: JURISHOUR-1115-CES-2026(AHM) Case No.: Service Tax APPEAL NO. 10149 OF 2022 Date: 04.05.2026 Counsel For Appellant: Ankita S Shah, Advocate Counsel For Respondent: Sunita Menon, Superintendent (AR) Click Here To Read Order Read More: GST Portal Restrictions Can’t Override Statute: Gujarat HC Allows Cross-State Transfer Of CGST ITC After Amalgamation

Pollution Control Is Integral To Manufacturing: CESTAT Allows Cenvat Credit on Effluent Treatment Plant Services

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