Integrated mine services qualify as input service for CENVAT credit even when waste ore is discarded at the mine.

CENVAT credit on service tax paid for handling, transporting and crushing ore in captive mines is treated as admissible input service where those activities form an integrated process for obtaining usable ore for manufacture. Rule 2(l) of the CENVAT Credit Rules, read with Section 2(f) of the Central Excise Act, is applied broadly to services used directly or indirectly, or in relation to manufacture, and the credit is not confined only to ore physically reaching the factory. Discarding waste material at the mine does not break the nexus with manufacture. On that basis, the demand failed and the related interest and penalty also did not survive.

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Issues: Whether CENVAT credit on service tax paid for handling, transporting and crushing ore in captive mines is admissible as input service where a part of the ore is discarded at the mine and only the remaining ore reaches the factory; and whether the demand of interest and penalty can survive if the credit is admissible.

Analysis: Rule 2(l) of the CENVAT Credit Rules, 2004 uses an expansive definition of input service for a manufacturer, covering services used directly or indirectly, and in or in relation to, the manufacture of final products. Read with the definition of manufacture in Section 2(f) of the Central Excise Act, 1944 and the cross-reference in Rule 2(t) of the CENVAT Credit Rules, 2004, the expression is not confined to services applied only to the portion of ore that ultimately reaches the factory. Crushing and handling of mined ore are part of the integrated process by which the usable ore is obtained for manufacture, and the removal of waste material does not sever the nexus with manufacture. The departmental view that credit is allowable only on the quantity physically received in the factory was held to be too narrow and inconsistent with the statutory language.

Conclusion: The credit was admissible in full and the demand was unsustainable. The related interest and penalty also failed.

Final Conclusion: The appeal succeeded, the impugned order was set aside, and consequential relief followed.

Ratio Decidendi: Where a service is integrally connected with the process of obtaining and preparing the usable input for manufacture, it qualifies as input service if it is used directly or indirectly in or in relation to manufacture, even though some material is discarded in the process.

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