Mined Coal is used to Produce Electricity for manufacturing Dutiable Goods: CESTAT Allows Hindalco to avail Cenvat Credit on Mining Service [Read Order]

The Kolkata bench of  Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Hindalco can avail of cenvat credit on mining services as the Mined Coal is used to Produce Electricity for manufacturing Dutiable Goods.

Hindalco Ltd filed an appeal to question whether they are eligible to avail of CENVAT Credit on Mining Services received from Avian Overseas Pvt. Ltd. for the period from April 2006 to June 2011.

The appellant submitted that they have received mining services from Avian Overseas Private Limited (‘AOPL’) at their Talabira-I mines, Sambalpur, which are captive mines obtained on lease from the government. 

The services ancillary to the mining of coal in the Appellant’s mine were used for the generation of electricity at their Captive Power Plant located in their factory at Hirakud, Sambalpur, Orissa. The said electricity is supplied to their manufacturing unit for use in the manufacture of dutiable goods. Thus, the Appellant claimed the Cenvat credit on the said services since the same have an intricate nexus with manufacturing.  The Appellant also stated that to the extent the electricity is not used in production, the Cenvat credit was reversed.

The adjudicating authority observed that AOPL was providing ‘site formation services’ and not ‘mining services’.  Hence, it has no nexus with the manufacturing process of excisable goods. The adjudicating authority has also observed that AOPL issued the invoices on the Appellant’s mines and not the factory address/ registered premise and denied the credit availed by the Appellant.

 The Show Cause Notice (SCN) only alleged that the ‘mining services’ are not specified in the ‘inclusive clause’ of the definition of ‘input services’ as a reason for denying the credit thereon.  Thus, the findings of the impugned order being beyond the SCN, the same is liable to be set aside.

Further submitted the nexus between the services at mines and the manufacturing of final products at their manufacturing unit is evident since as per the admitted facts, the coal mined is used to generate electricity, which is used in the factory to run machines for the production of final products.

It was evident that the services have intricate nexus with the manufacturing of dutiable goods. The Appellant cited a plethora of decisions in support of their contention that the input services used in captive mines are available as credit to the manufacturing unit. 

In the case of India Cements Ltd. v. CCE, the tribunal has held that the input services used in captive mines are available as credit.

A division bench of Shri R Muralidhar, Member(Judicial) and Shri K Anpazhakan, Member(Technical)  observed that the Appellant is eligible for the Cenvat credit of the input services received and used in the captive mines as the said services were used in mining of coal which was used for generation of electricity at their Captive Power Plant and the electricity was used in the manufacturing unit for manufacture of dutiable goods.

Since there is a clear nexus between the input services on which Cenvat credit was availed and the manufacturing activity undertaken by the Appellant, the CESTAT held that the impugned order demanding reversal of such credit along with interest and penalty is not sustainable and set aside the same.

To Read the full text of the Order CLICK HERE

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