In a ruling in case of Hindustan Zinc, the Rajasthan Authority of Advance Ruling ( AAR ) has held that Input Tax Credit ( ITC ) not applicable on on goods/services received for increasing tailing-dam height. The two-member bench of Mahipal Singh and Mahesh Kumar Gowla decided that, in accordance with Section 17(5)(c) and 17(5)(d) of the Central Goods and Service Tax Act, 2017, input tax credit is not available for goods and services received for raising the height of a tailing dam used to dispose of and treat hazardous waste from mining operations.
One of the biggest and only integrated zinc lead-silver producers in the world is the applicant, Hindustan Zinc Ltd, a division of Vedanta Ltd. Mineral extraction and processing, as well as the production of metals including zinc, lead, and silver, are the activities of the applicant. In the state of Rajasthan, it has captive zinc mines in places including Rampura Agucha, Sindesar Khurd, Rajpura Dariba, Bamnia Kalan, and Kayadand Zawar.
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A tailing dam’s only purpose is to treat the tailings produced during the beneficiation process. This procedure begins when tailings arrive through active pipelines assigned to particular zones after being carried to the dam in slurry form via pipelines. Usually, 45% of the slurry is tailing and 55% is water. The tailings are placed in the dam so that the water divides. A syphoning system drains the segregated water into a reservoir so that the adjacent milling plant can use it again.
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After the water is separated, the dry tailings that are left over are transferred to a location close to the tailing dam that has been specifically marked for dry stacking. To reduce the dangers to the environment and the economy, these tailings are covered with liners. The tailing dam’s emptied space is subsequently utilized once again for processing water separation, drying, and more tailings in slurry form before being removed for dry stacking.
Throughout the beneficiation process, tailings are continuously produced and delivered to the tailings dam. The dam’s height must be gradually raised as the amount of tailings inside it increases. The majority of the materials used to raise the dam’s height are waste products from the actual mining process, such as rocks, mud, sand, HDPE sheets, etc.
The applicant hires a contractor to increase the tailing dam’s height; the contractor bills GST in addition to their service charge. Additionally, the applicant purchases products like HDPE sheets and other items that would be needed for height-raising.
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The Applicant capitalizes the costs associated with these products and services in its books of accounts. In this sense, the applicant believes that the tailing dam is an essential component of the milling plant and falls under the category of “plant and machinery” due to the practical and legal necessity of building and maintaining one for the processing of mining waste. Accordingly, Sections 17(5)(c) and 17(5Xd) of the Central Goods and Service Tax Act of 2017 do not prohibit the input tax credit of such GST.
In accordance with Sections 17(5)(c) and 17(5)(d) of the Central Goods and Service Tax Act of 2017, the applicant requested an advance ruling on whether input tax credit is available for goods and services received for raising the height of a tailing dam used to dispose of and treat hazardous waste from mining operations, known as tailings.
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According to the applicable laws, namely the Mines and Minerals (Development and Regulation) Act, 1957 read with the Mineral Conservation and Development Rules, 2017, the AAR determined that the tailing dam is built for the safe disposal, treatment, and management of hazardous waste from mining operations.
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