2017 (7) TMI 387 - AT - Central Excise

CENVAT credit - service availed in relation to disposal of waste - services for raising the height of tailing dam - Rule 2(1) of the CCR - Held that - the appellant/assessee cannot operate their business or manufacturing facility of dutiable / excisable goods without compliance with the directions given by State Pollution Control Board to minimise the pollution under the relevant Pollution Control laws. Compliance with the directions of the State Pollution Control Board if not done by the appellant industry, may result in prosecution of the appellant company and its key personnel under the various Pollution Control laws for violation - the cenvat credit received on the services for raising the height of tailing dam and maintenance service for pipeline work of tailing dam, used for disposal of industrial waste and polluted water in compliance with Environmental laws is an input service within the meaning of Rule 2(1) of Cenvat Credit Rules, 2004 used by the manufacturer indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal - credit allowed. Similarly, the cenvat credit on services procured for construction of secured land fill and jerofix storage pond, which are used for disposal of industrial waste and polluted water in compliance with Environmental laws is an input service received by the manufacturer indirectly in relation to the manufacture of final products - credit allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of Cenvat credit on services related to tailing dams and maintenance work for pipelines.
2. Eligibility of Cenvat credit on services related to construction of Secured Land Fills and Jerofix Storage Ponds.
3. Invocation of extended period of limitation for demand and imposition of penalties.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Services Related to Tailing Dams and Maintenance Work for Pipelines:
The appellant is engaged in the manufacture of Zinc & Lead Concentrates and avails Cenvat credit on various inputs, capital goods, and input services under the Cenvat Credit Rules, 2004. During the beneficiation process, hazardous industrial waste and polluted water are generated, which must be disposed of in compliance with Environmental Laws. The appellant constructed a tailing dam to collect this waste and availed services for raising its height, claiming Cenvat credit on the service tax paid under Rule 2(1) of the Credit Rules.

The appellant also created a facility to draw recycled water from the tailing dam to the captive mine through pipelines, which requires periodic maintenance. The appellant claimed Cenvat credit on the maintenance services for these pipelines under Rule 2(1) of the Credit Rules.

The department disputed the credit, arguing that these services have no nexus with the manufacturing process of the appellant and thus do not qualify for credit under Rule 2(1).

2. Eligibility of Cenvat Credit on Services Related to Construction of Secured Land Fills and Jerofix Storage Ponds:
The appellant also engaged in the manufacture of Zinc, Lead, and Sulphuric Acid, with an ore concentration facility where mined ores are washed and concentrated. The beneficiation process generates hazardous waste, which must be disposed of in Secured Land Fills and Jerofix Storage Ponds as per Environmental Laws. The appellant procured various input services for constructing these facilities and claimed Cenvat credit on the service tax paid.

The department similarly disputed this credit, asserting that these services are not connected with the manufacturing process of the final products.

3. Invocation of Extended Period of Limitation for Demand and Imposition of Penalties:
During the audit, disputes arose regarding the input service credit availed on services related to tailing dams, pipeline maintenance, and construction of Secured Land Fills and Jerofix Storage Ponds. The department issued Show Cause Notices (SCNs) invoking the extended period of limitation, arguing that the appellant had no nexus with the manufacturing process and thus was not entitled to the credit.

The appellant contended that the disposal of hazardous waste is integral to the manufacturing operations, as non-compliance with Pollution Control measures would result in the plant being shut down by the State Pollution Control Board. The appellant argued that these services are essentially connected to the manufacturing activity and thus qualify as input services eligible for credit under Rule 2(1).

The Adjudicating Authority denied the credit, stating that the services in question were used to fulfill an obligation for hazardous waste disposal, not connected with the manufacturing activities of the final products.

Judgment:
The Tribunal found that the appellant could not operate its manufacturing facility without complying with Pollution Control laws. Compliance with these laws is essential to avoid prosecution and ensure the continuation of manufacturing activities. Therefore, the services for raising the height of the tailing dam and maintaining the pipeline work, used for disposing of industrial waste and polluted water, qualify as input services under Rule 2(1) of the Cenvat Credit Rules, 2004. Similarly, services procured for constructing Secured Land Fills and Jerofix Storage Ponds are also considered input services.

The Tribunal allowed the appeals, set aside the impugned orders, and granted the appellant consequential relief. The extended period of limitation and penalties were not justified, given that the appellant acted in accordance with legislative provisions and without dishonest intentions.

Conclusion:
The Tribunal held that the Cenvat credit on services related to tailing dams, pipeline maintenance, and construction of Secured Land Fills and Jerofix Storage Ponds is allowable as these services are integrally connected with the manufacturing process. The extended period of limitation and penalties were not applicable, and the appellant was entitled to consequential relief.