The Rajasthan Authority for Advance Rulings (AAR) has ruled that Input Tax Credit (ITC) is not available for goods and services used in the construction of a Tailing Dam as it is not considered part of the core business activity.
The decision came in the case of Hindustan Zinc Ltd. and was delivered by Mahipal Singh (Member – Central Tax) and Mahesh Kumar Gowla (Member – State Tax).
Case Overview
- Case Name: Hindustan Zinc Ltd., In re
- Order Date: January 3, 2025
- Advance Ruling No.: RAJ/AAR of 2024 and 2025/24
Background
Hindustan Zinc Ltd. had sought clarity on whether ITC would be available for goods and services received for increasing the height of a Tailing Dam, as per Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017 and Rajasthan GST Act, 2017.
A Tailing Dam is constructed for the safe disposal, treatment, and management of hazardous waste generated from mining operations. The taxpayer argued that since the dam was part of the overall mining process, ITC should be allowed for the construction-related expenses.
AAR’s Decision
The AAR held that:
- Tailing Dam as an Immovable Property
- The Tailing Dam is constructed on a foundation of natural rock or soil using cement and extends over several kilometers.
- Since the dam is fixed to the ground, it qualifies as immovable property under the GST law.
- Not Part of Core Business Activity
- The primary purpose of the Tailing Dam is to provide storage for waste products from mining operations.
- The dam does not influence the quantity or quality of minerals extracted or processed.
- Therefore, it is not directly involved in the core business of mining and metal production.
- Environmental Obligation, Not Business Activity
- The construction of the Tailing Dam is seen as an environmental compliance measure rather than an essential business activity.
- Since it is not directly contributing to the manufacturing process or business output, ITC is not applicable.
- Not a CSR Activity
- The construction of a Tailing Dam does not qualify as a Corporate Social Responsibility (CSR) activity under the GST framework.
- Hence, the claim for ITC under the CSR provision is also not valid.
Also Read: Madras HC: IGST Refund Claim Valid Alongside Duty Drawback Under Sections 74 & 75
Conclusion
The AAR ruled in favor of the revenue, confirming that input tax credit is not available for goods and services used in the construction of a Tailing Dam. The ruling highlights that activities related to environmental protection and waste management, even if necessary for compliance, do not qualify as core business activities under the GST framework.
Implications for Businesses
- Businesses involved in mining and similar operations should carefully evaluate their ITC claims for infrastructure-related expenses.
- Construction of immovable structures primarily for environmental or safety compliance may not qualify for ITC under GST law.
- Proper classification and documentation are essential to avoid disputes with tax authorities.
This ruling sets a significant precedent for mining companies and businesses involved in waste management, reinforcing the principle that ITC is only available for expenses directly linked to core business activities.
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