9911796707
TMI Blog2025 (2) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... ract, goods and services received by a taxpayer for construction of immovable property is not eligible for ITC. There are two exceptions in clause (d) to the exclusion from ITC provided in the first part of Clause (d). The first exception is where goods or services or both are received by a taxable person to construct an immovable property consisting of a "plant or machinery". The second exception is where goods and services or both are received by a taxable person for the construction of an immovable property made not on his own account. Construction is said to be on a taxable person's "own account" when (i) it is made for his personal use and not for service or (ii) it is to be used by the person constructing as a setting in which business is carried out. However, construction cannot said to be on a taxable person's "own account" if it is intended to be sold or given on lease or license. When the immovable property is in the nature of plant and machinery, then the works contract, goods and services received for construction of plant and machinery will be eligible for ITC and will not be hit by the restriction under the said clause (c) or (d) of Section 17 (5) of the CGST Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be mentioned as being under the "GST Act". The issue raised by M/s HINDUSTAN ZINC LIMITED, YASHAD BHAWAN, 2nd Floor, UDAIPUR-313004, Rajasthan (hereinafter "the applicant") is fit to pronounce advance ruling as they have deposited prescribed Fee under CGST Act and it falls under the ambit of the Section 97 (2) given as under: (d) Admissibility of input tax credit of tax paid or deemed to have been paid A. SUBMISSION OF THE APPLICANT (in brief):- Brief facts of the case: 1. Hindustan Zinc Ltd. ('Applicant'/'HZL' 'Company'), a subsidiary of Vedanta Ltd., is one of the world's largest and India's only integrated Zinc-Lead-Silver producer. The Applicant is engaged in the business of extracting & processing minerals and manufacturing of metals such as zinc, lead, silver etc. It has captive zinc mines located in the state of Rajasthan, including at Rampura Agucha, Sindesar Khurd, Rajpura Dariba, Bamnia Kalan, Kayadand Zawar. It is registered under the Rajasthan Goods and Service Tax Act, 2017 ('RGST Act') having GSTIN 08AAACH7354K1ZB. 2. The process undertaken by the Company of converting mineral ores into metals largely involves three stages viz. (a) extracting ore from mines, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry form through pipelines to the dam, enter through active pipelines designated for specific zones. The slurry typically comprises of 55% water and 45% tailing. While in the dam, the tailings are positioned such that the water separates. The separated water is drained into a reservoir through a syphoning system for reuse at the nearby milling plant. The dry tailings remaining after separation of water are then moved to an area near the tailing dam specially demarcated for dry stacking, and are covered with liners to minimize the environmental, social, and economic risks. The emptied area within the tailing dam is then again used for further tailings in slurry form, processing water separation, and drying before removal for dry stacking. 6. Tailings are continuously generated and transported to the tailings dam throughout the beneficiation process. As the volume of tailings in the dam grows, its height needs to be incrementally increased. The height of the dam is increased with the use of materials such as rocks, mud, sand, HDPE sheets, etc., a majority of which is waste material from the mining process itself. 7. To raise the height of the tailing dam, the Applicant employs a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax credit shall not be available in respect of the following, namely:- .... (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business." 2. The perusal of the above provision clarifies that GST paid on works contract, goods and services received by a taxpayer for construction of immovable property is not eligible for ITC. The exception, however, is when the immovable property is in the nature of plant or machinery, then the works contract, goods and services received for construction of plant or machinery will be eligible for ITC and will not be hit by the restriction under the said clause (c) or (d). 3. Further, the scope of the term 'plant and machinery' for the purposes of interpretation of the said provision has been explained to mean as follows: "For the purposes of this Chapter and Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, tools, or machines; and (b) has a particular function or intended for a specific use. 7. The Applicant submits that a tailing dam constitutes more than just an earthen embankment or a simple containment structure. It is, in fact, a complex system that integrates various specialized components and technologies to ensure the safe and efficient management of mining waste. The tailing dam incorporates several critical elements, including * Automated Pipelines: These pipelines are essential for the continuous transport of tailings from the milling plant to the dam. They are often equipped with advanced automation systems to regulate flow rates, pressure, and ensure the controlled deposition of tailings, which is crucial for maintaining the stability and safety of the dam. * Drainage Systems: Effective water management is a key aspect of tailing dam safety. The dam includes an intricate network of drainage systems designed to remove excess water that separates from the tailings. These systems typically involve pumps, filters, and other mechanical components that prevent water buildup, reduce hydrostatic pressure, and minimize the risk of dam failure. * Geomembranes or Clay Line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid position, it is to be noted that the activities undertaken inside the tailing dam do not remotely qualify as a building having a structure with walls, roof, etc. in its natural meaning. In DG Gouse & Co. v. State of Kerala [AIR 1980 SC 271], the Hon'ble Apex Court, in the context of interpreting the Kerala Building Tax Act, 1975, observed that the word 'building' must receive its natural and ordinary meaning as "including the fabric or which it is composed, the ground upon which its walls stand and the ground embraced within those walls" and that is the correct meaning of the word 'building'. Further, the phrase "any other civil structures" should be read ejusdum generis to be restricted to immovable property in the nature of land and building, that is, property which is as such only a "place or property where the business is carried on" and "not a place or property with which business is carried on". In other words, "civil structures" should be restricted to structures which are the "location of production" and not "means of production". 11. Without prejudice, the Appellant submits that in terms of the decision in S.K. Tulsi and Sons v. CIT [(1991) 187 ITR 685 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs can cause blockages, equipment failures, and inefficiencies within the processing plant, ultimately reducing the overall productivity of the mining operation. Therefore, without effective tailings disposal, a mining facility cannot maintain continuous operations. Thus, disposal of tailings is end or tail of one beneficiation cycle and hence it is clear that the tailing dam is an integral part of the mining and milling plant. 17. Further, construction of a tailing dam is mandated by law for conducting mining operations. The Mines and Minerals (Development and Regulation) Act, 1957 provides the laws in relation to development and regulation of mines and minerals in India. In terms of Section 18 of the Act, the Central Government is obligated to implement measures necessary for the conservation and systematic development of minerals in India, as well as for environmental protection. This includes preventing or controlling pollution resulting from prospecting or mining activities. To address these concerns, the Central Government has the authority to establish rules governing the disposal or discharge of waste slime or tailings produced by mining or metallurgical operations. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iles, over burden piles and stock piles and tailings, and other water impoundment structure are maintained in stable and safe conditions. 32. Types of plans and sections (1) The holder of a mining lease shall keep the following digitally prepared plans and sections, namely:- (a) a surface plan showing location and number of the boundary pillars along with its latitude and longitude values, every surface feature within the mining lease boundaries, such as building, telephone, power transmission line, water pipeline, tramline, railway, road, river, water-course, reservoir, tank, bore-hole, shaft and incline opening, opencast working, dumps and dumping ground, the waste land, forest, sanctuaries, agricultural land and grazing land and subsidence on the surface beneficiation plants, tailing ponds and other workings within the lease; 37. Storage of overburden, waste rock, etc. (3) Every holder of a prospecting licence, prospecting license cum mining lease or a mining lease shall take steps so that the overburden, waste rock, rejects and fines generated during prospecting and mining operations or tailings, slimes and fines produced during sizing, sorting and beneficiation or me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs often contain hazardous chemicals used in the beneficiation process. Some of these hazardous chemicals, which when exposed to air and water, can create acid mine drainage that can lead to severe environmental damage if not properly contained. Therefore, effective disposal methods, such as secure tailings ponds or dry stacking, are essential to prevent these contaminants from entering the surrounding environment, including soil and water sources. 22. Hence, in view of its integral function for environmentally safe waste disposal, Tailing Dam should be seen as integral part of overall "manufacturing operations", and therefore be regarded as part of plant and machinery. That the meaning of "apparatus" should not be restricted to such apparatus which is actually used in manufacture of finished goods, instead it should be extended to such apparatus which are used to deposit, manage or treat the waste products/tailings generated during the manufacturing process. 23. Further, the development of tailing dam facilities is an extended plant facility to the Milling Plant run by the Applicant. In this regard reference is drawn to Notification No. 12/2012-Central Excise (S. Nos. 337 & 338 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plant or machinery. Reliance in this regard is placed on the following decisions wherein Courts have held that even if cement is used inlaying foundation and erection of manufacturing plant and machinery, it constitutes part and parcel of 'plant'. Ref. J.K. Cement Works v. State of Karnataka [2017 (7) G.S.T.L. 408 (Kar.)], State of Kerala v. Ambuja Cements Ltd [2020 (1) KHC 884). 27. The Applicant submits that while a tailing dam is commonly referred to as "dam", it is not a dam as normally understood. Tailings dams are typically an embankment built from earth and rock materials. They can be raised over time as more tailings are produced, using either the tailings themselves or additional earth materials for stability. Minor construction activities might happen in the course of development of embankment which is merely incidental to the main development of embankment. This can be demonstrated with the following break up of contract value towards Earth Work (excavation, loading, unloading, transportation, leveling, piling of tailings) and purely construction work: # Type of Activity Approx. % of Contract Value 1. Excavation (Earth Works) and Dry Tailing 76% 2. Mine Waste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board to minimize the pollution under the relevant Pollution Control laws. Compliance with the directions of the State Pollution Control Board if not done by the industry, may result in prosecution of the assessee 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. Hence, credit was allowed. This has also been followed by the Tribunal in the case of CCE, Udaipur v. Hindustan Zinc Limited [2018 (7) TMI 682-CESTAT NEW DELHI]. 31. Therefore, it is clear that the tailing dam has always been considered as an integral part of Applicant's manufacturing operations. Thus, it is covered under the term "plant and machinery", and consequently ITC is available for GST paid in relation to goods and services rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of ore into concentrates at the milling plant, as elaborated by the taxpayer in para-2 of Annexure II. During this second phase of conversion of ore into concentrates at milling plant, hazardous waste, known as tailings, the form of slurry are generated at the tail end of the bifurcation process. These tailings in the form of slurry consist of crushed rock, water, and chemicals. It is binding upon the taxpayer to dispose these tailings in the form of slurry as per environment protection law as detailed in para-3 of Annexure II. The transportation of the tailings in the slurry form from the plant to the tailing dam construction site is conducted through pipelines as mentioned in para 4 of Annexure II. These pipelines are not part of the main plant; instead, they serve the specific purpose of transporting tailings to the construction site of the tailing dam. Therefore, these pipelines do not fall under the definition of "Plant and Machinery." Additionally, the drainage system used for the construction and maintenance of the tailing dam cannot be classified as "Plant and Machinery." The taxpayer has not provided a clear explanation of the tailing dam's construction process. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and qualifies the definition of immovable property. Para-10. The taxpayer has submitted that the Tailing Dam consists of Automated Pipelines, Drainage System and Geomembranes or Clay Liners hence, Tailing Dam qualifies the definition of Plant and machinery. This argument cannot be acceptable as these three elements are being utilized almost in all the civil structure. Hence, mere availability of these three elements, does not qualify the definition of plant and machinery. Para-11. As per reply to para 8 and 9. Para-12. The judgement is not applicable in the instant case as it has been delivered on "functional test" and not on "Immovable property" and "furtherance of business". Para-13. This issue has nothing to deal with building but rather to deal with "Immovable property" and "furtherance of business". Hence, the judgment quoted bythe taxpayer is not mutatis mutandis applicable in the instant case. Para-14. The taxpayer has relied upon the judgments' of Hon'ble Allahabad High Court in the case of S.K. Tulsi and Sons vs. CIT [(1991) 187 ITR 685 (ALL)]. But in the said judgement, the second portion of the judgement produced below, is squarely applicable in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Development Rules, 2017. CSR Activity is also a legal perspective but it is now established that the ITC is blocked for CSR Activity. Hence, any legal perspective is not having binding effect on the CGST Act, 2017. Also, Mines and Minerals (development and regulation) Act, 1957 and Mineral Conservation and Development Rules, 2017 has not any inbuilt overriding effect on the CGST Act, 2017. On plain reading of the Sections and rules of Mines and Minerals (development and regulation) Act, 1957 and Mineral Conservation and Development Rules, 2017 respectively, it is only the obligation on the part of taxpayer to protect the environment and not an essential part of entire mining process. Para-23 & 23. The observation of any technical bulletin cannot override the statutory provisions of any law. Para-24 & 25. The construction of tailing dam is neither" manufacturing operation" nor "apparatus" but is immovable property. Para-26. The notification quoted by the taxpayer is not applicable in this case as the notification deals with the exemption of Excise duty for civil construction and in CGST Act, 2017 the provision for constructions of civil structure is quite different. Para- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property. Para 31: Considering the fact that majorly there is Earth work in construction of Tailing Dam / Increasing the height of Tailing Dam, the argument of Tax Payer that the same does not fall under the definition of construction of immovable property, is not acceptable in the terms of explanation to section 17 (5) (d) where it is clearly explained that any "addition" in the form of Earth etc. would fall under immovable property. Para 32: If the activity of increasing height of the tailing dam involves Earth Work then it also comes under definition of immovable property. Para 33: The judgment quoted in this para was pronounced in the light of provisions of Central Excise Salt Act, 1944. In the Central Excise Salt Act, 1944 there was no concept of block credit. In the pre-GST regime, the input tax credit (ITC) was allowed only when inputs were used in the manufacture of final products. Similarly, under the service tax regime, credit was permissible. However, in the GST regime, ITC can only be utilized for the furtherance of business. It is important to note that, even when inputs are used for business purposes, there are provisions under Section 17 that can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (in furtherance of business), the Supreme Court analyzed the construct of Section 17 (5) (c) and Section 17 (5) (d), including the Explanation thereof. The Supreme Court inter alia held as under: "35. ...It is pertinent to note that clauses (c) and (d) do not altogether exclude every class of immovable property from the applicability of ITC. In the case of clause (c), if the construction is of "plant and machinery" as defined, the benefit of ITC will accrue. Similarly, under clause (d), if the construction is of a "plant or machinery", ITC will be available". In Safari Retreats (supra), the Court, while testing the availability of ITC on a building functioning as a shopping mall, ruled the following: a) Clause (c) and (d) to Section 17 do not exclude every immovable property from eligibility of ITC. Clause (c) uses the expression "plant and machinery" which is specifically defined in the Explanation. If the construction is of plant and machinery, the benefit of ITC will accrue [at para 35] b) The philosophy of the GST regime is to incorporate a consumption and destination-based test. The emphasis is on taxing supplies of goods and services [at para 41]. c) The expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... throughout the process. In its absence tailings generated in the process would lead to blockages, equipment failures, and inefficiencies within the milling plant, ultimately halting the mining operation. b) Function 2: Towards processing of wet tailings: Another function of a tailing dam is to process the tailings generated during the beneficiation process of metal ores, which can be subsequently used to backfill the ore extracted portion of the underground mines. The tailing dam consists of a complex system of different components and technologies, including automated pipelines, drainage systems, geo membranes and clay liners, to process the wet tailing generated in the milling plant. c) Function 3: Towards treatment and storage of waste tailings: Another critical function of the tailing dam is its contribution towards environmental protection, i.e., to contain the waste tailings and prevent them from contaminating the surrounding environment. A tailing dam is specially designed for safe disposal, treatment, and management of hazardous waste generated during mining operations. d) Function 4: Towards ensuring mandatory compliance with mining laws: A tailing dam is necessary f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm of slurry is generated at the tail end of the benefication process. These tailings in the form of slurry consist of crushed rock, water, and chemicals left over after the extraction of minerals. We also found that applicant submitted that it is binding upon them to dispose these tailings in the form of slurry as per environment protection law. We found that the taxpayer has increased the height of the tailing dam with the use of materials such as rocks, mud, sand, cement, HDPE sheets, etc.,. Further, Taxpayer submitted and believes that the tailing dam is an integral part of the milling plant and covered under the term "plant and machinery". Hence, input tax credit of such GST is not blocked in terms of Section 17 (5) (c) and 17 (5) (d) of the Central Goods and Service Tax Act, 2017 ('CGST Act'). 5. Before proceeding, we find it imperative to go through the relevant portion of Section 17 (5) (c) and 17 (5) (d) of CGST Act, 2017 is extracted hereunder: "17. Apportionment of credit and blocked credits. .... (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on foundation of natural rock or soil with the help of cement and is stretch over several kilometers, it is clear that they are immovable and are thus covered under definition of "immovable property". We find that the term 'civil structure' has also not been defined in the GST law. A general understanding of the term can be derived from the definition of 'civil engineering' given as: "The profession of designing and executing structural works that serve the general public, such as dams, bridges, aqueducts, canals, highways, power plants, sewerage systems and other infrastructure". Further, a 'structure' in the context of civil engineering refers to anything that is constructed or built from different inter-related parts with a fixed location on the ground. Accordingly, a civil structure would be any man-made structure which is built by applying the science of civil engineering. A civil structure can be built with cement and steel or by means of other materials depending on the purpose of the structure and its feasibility. The materials used for construction of structure does not play a vital role in defining it as a "civil structure" or otherwise. In view of above discussion, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service for further supply of works contract service, or (ii) when the immovable property is in nature of plant & machinery. Further, Section 17 (5) (d) denies ITC in respect of goods and services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Thus, clearly the intent is to deny ITC when goods or services or both are used for construction of immovable property (other than plant or machinery), even in cases when they are used in the course or furtherance of business. The rationale behind this is due to the fact that GST cannot be imposed on immovable property. It may be seen that in both section 17 (5) (c) and 17 (5) (d), the intent is same i.e. the denial of ITC when goods or services or both are used for construction of immovable property, as discussed above. However, an exception has been provided in respect of construction of immovable property, which is in nature of plant and/ or machinery. However, there is a minor difference in the wordings in clause (c) and clause (d) of section 17 (5), due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt including when such goods or services or both are used in the course or furtherance of business; It is pertinent to mention here that vide press release of Ministry of Finance, the GST council in their 55th meeting held on 21.12.2024 has recommended to align the provisions of section 17 (5) (d) of CGST Act, 2017 with the intent of the said section, by amending section 17 (5) (d) of CGST Act, 2017, to replace the phrase "plant or machinery" with "plant and machinery", retrospectively, with effect from 01.07.2017, so that the said phrase may be interpreted as per the Explanation at the end of section 17 of CGST Act, 2017. 10. We find that the core business activity of the taxpayer is extracting & processing minerals and manufacturing of metals such as zinc, lead, silver etc. Mineral processing is the process of separating commercially valuable minerals from their ores in the field of extractive metallurgy. Also the above process of benefication improves the economic value of the ore by removing the gangue minerals, which results in a higher grade product (ore concentrate) and a waste stream (tailings). These gangue minerals and waste stream (tailings) are the commercially worth ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
