Bharat Aluminium Entitled To CENVAT Credit On Mining Services Used For Bauxite Extraction: CESTAT

Dilip Gupta (President) and P. Anjani Kumar (Technical Member) agreed with the Principal Commissioner that since mining services were used for the extraction of bauxite from the mines owned by BALCO, and this bauxite was sent to Vendanta for conversion into alumina, which is a basic raw material used in the manufacture of aluminium by BALCO, there is a direct nexus between extraction of bauxite from the mines and the production of aluminium.

In this case, M/s Bharat Aluminium Co. Ltd. (BALCO), the assessee, engaged the services of a service provider for the extraction of bauxite, and the service provider charged service tax under the category of mining service.

It is a credit of this service tax that was availed by BALCO for payment of central excise duty on the final product, i.e. aluminium removed by BALCO from its factory.

The bauxite extracted from the mine was directly dispatched to Vedanta for the purpose of conversion of bauxite into alumina on a job work basis. The converted alumina was returned by Vedanta to BALCO and was used by BALCO for the manufacture of the final product.

The case of the department is that the mining services on which credit has been availed by BALCO are not an “input service” as the same is not “in or in relation” to the manufacture of the final product, i.e. aluminium.

It was also alleged that Vedanta had not availed the benefit of Notification No. 214/86 dated 25.03.1986 and so BALCO would not be entitled to avail “input service” credit in terms of rule 3(1)(xi)(ii) of the CENVAT Credit Rule, 2004.

The department argued that input tax credit is not an inherent right but is a statutory concession subject to the conditions contained in the 2004 Credit Rules. The assessee failed to comply with the requirements of rule 3(1)(xi)(ii) of the 2004 Credit Rules and, therefore, became disqualified from claiming input tax credit on mining services.

The counsel for BALCO submitted that BALCO had correctly availed CENVAT credit on input services in respect of service tax charged by the service provider for the extraction of bauxite from the captive mines owned by BALCO.

It was argued that there was no legal compulsion for Vedanta to claim the exemption benefit from payment of central excise duty by availing the benefit of the Exemption Notification. The provisions of rule 3(1)(xi)(ii) of the 2004 Credit Rules are not applicable in the case.

The issue before the bench was whether BALCO was justified in availing the CENVAT credit of the service tax paid on mining services.

The Tribunal, after analysing rule 3(1)(xi)(ii), noted that it is applicable in situations where a job worker has opted to avail the benefit from payment of excise duty under the Exemption Notification, in which case the principal manufacturer can avail CENVAT credit of duty paid on input used by a job worker.

The impugned order, therefore, going by the enlarged definition of input service in rule 2(l) of the 2004 Credit Rules, held that all processes which are incidental or ancillary to the manufacture of a final product would be input services, noted the bench.

The Exemption Notification is optional, which may or may not be claimed by the job worker. Merely because the job worker had not opted to avail the exemption benefit under the Exemption Notification, CENVAT credit, which is otherwise available to BALCO, cannot be denied, added the bench.

The bench agreed with the Principal Commissioner that rule 3(1)(xi)(ii) of the 2004 Credit Rules would not apply to the case.

In view of the above, the Tribunal dismissed the revenue's appeal.

Case Title: The Commissioner, & Central Excise v. M/s Bharat Aluminium Co. Ltd.

Case Number: EXCISE APPEAL NO. 55659 OF 2023

Counsel for Appellant/ Department: Rakesh Agarwal and S.K. Ray

Counsel for Respondent/ Assessee: Rajeev Agarwal

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