CENVAT Credit Allowed on Mining Services Used for Bauxite Extraction: CESTAT Dismisses Revenue Appeal Against Bharat Aluminium [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Bharat Aluminium Co. Ltd. (BALCO) was eligible to avail CENVAT credit on service tax paid for mining services used to extract bauxite from its captive mines. The tribunal dismissed the revenue’s appeal.

The department had issued multiple show cause notices alleging that the mining services used for bauxite extraction were not input services under Rule 2(l) of the CENVAT Credit Rules, 2004. It also argued that BALCO was not entitled to credit because its job worker, Vedanta Aluminium Ltd., did not avail the exemption under Notification No. 214/86-C.E., dated March 25, 1986.

The appellant’s counsel argued that the mining services were directly connected to its manufacturing process, as the bauxite extracted from its own mines was sent to Vedanta for conversion into alumina, which was then used to manufacture aluminium.

The company further argued that there was no legal requirement for the job worker to claim exemption under the said notification, as Rule 3(1)(xi)(ii) was only an enabling provision and not a mandatory condition.

The revenue counsel argued that CENVAT credit was a statutory concession and could only be availed after fulfilling the prescribed conditions. They argued that since Vedanta had not claimed exemption under the notification, BALCO could not avail credit.

The counsel also argued that the mining activity had no direct nexus with the manufacturing of aluminium and that the Principal Commissioner had wrongly expanded the meaning of “in or in relation to manufacture.”

The two-member bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) agreed with BALCO’s arguments. The tribunal observed that the extraction of bauxite and its conversion into alumina were essential parts of the aluminium manufacturing process.

It explained that without bauxite there can be no alumina, and without alumina there can be no aluminium, establishing a clear production link. The tribunal also observed that Rule 3(1)(xi)(ii) applied only when a job worker availed the exemption under Notification No. 214/86, which was not the case here, as Vedanta had paid duty.

The tribunal pointed out that the rule was enabling in nature and not restrictive. It explained that CENVAT credit could not be denied when the input service was used directly or indirectly in relation to the manufacture of the final product. Finding no error in the Commissioner’s order, the tribunal dismissed the revenue’s appeal.

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