CENVAT Credit Allowed on Hazardous Waste Disposal under Input Services: CESTAT Holds Waste Removal an Integral Part of Manufacturing Process [Read Order]

The Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal and held that the services used for disposal of hazardous waste qualify as ‘input services’ under Rule 2(l) of the CENVAT Credit Rules, 2004, as waste removal is an integral and statutory part of the manufacturing process.

The appellant, Endurance Technologies Ltd, a manufacturer of parts of motor vehicles, had availed credit of service tax paid on services rendered by Maharashtra Enviro Power Ltd, Maharani Paints Pvt. Ltd, and Maharani Innovative Paints Pvt. Ltd, who were contracted to undertake the processing and disposal of hazardous chemical waste accumulated in the factory.

The disposal was carried out as per the directives of the Maharashtra State Pollution Control Board (MPCB) and the Central Pollution Control Board (CPCB), which required disposal of such waste through authorized agencies.

The proceedings were initiated to disallow the credit, culminating in an order confirming recovery of ₹6,70,274 for the period from November 2010 to February 2015 under Rule 14 of the CENVAT Credit Rules, 2004, along with interest under Section 11AB of theCentral Excise Act, 1944, and a penalty of an equal amount under Rule 15 of the CENVAT Credit Rules, 2004.

The first appellate authority rejected the appeal and held that the waste disposal activity did not fall within the scope of ‘input service’ and had no contribution, directly or indirectly, to the manufacture of final products.

Before the Tribunal, the appellant argued that in an earlier identical case, the Tribunal had already held that such services were eligible for CENVAT credit. The appellant relied on Endurance Technologies Ltd. v. Commissioner of Central Excise & Service Tax (2018), where the Tribunal had ruled that the disposal of hazardous waste and chemicals was an essential activity in relation to the manufacture of excisable goods.

The Revenue contended that waste disposal was a post-manufacturing activity and therefore not connected to the manufacture of finished products on which excise duty is leviable.

The Bench comprising C.J. Mathew (Technical Member) and Ajay Sharma (Judicial Member) observed that removal of effluents and hazardous waste generated during manufacture is a statutory obligation under pollution control laws, and without fulfilling such requirements, manufacturing operations cannot legally continue. Hence, such activities are inextricably linked with factory operations and form part of the manufacturing process.

The Tribunal noted that it would be difficult to conceive of any manufacturing process that is not required to make provision for the disposal of waste. The Tribunal concluded that disposal of hazardous waste is an essential and statutory activity appended to manufacture, squarely falling within the definition of ‘input service’ under Rule 2(l) of the CENVAT Credit Rules, 2004.

Accordingly, the Tribunal held that the impugned order was without merit and set it aside, allowing the appeal and restoring the benefit of CENVAT credit.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates