Taking note of the Supreme Court’s ruling in Safari Retreats, Rajasthan’s Authority for Advance Ruling (RAAR) held that Hindustan Zinc is not eligible for Input Tax Credit (ITC) on goods/services received for raising the height of tailings dams.
The basic question before RAAR was whether tailings dams are considered part of plant and machinery or immovable property. The company converts mineral ores into metals through three stages – extracting ore from mines, converting ores into concentrates at milling plants, and processing concentrates at smelting plants to manufacture metal in various forms such as ingots and sheets. During the second phase, when ore is converted into concentrates at milling plants, hazardous waste, known as ‘tailings’, is generated at the tail end of this beneficiation process.
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Tailings contain toxic materials and pose significant environmental risks if released into nearby ecosystems and communities. As mandated by law, these tailings are either used to backfill the extracted portions of underground mines or the remaining quantity is deposited in a tailings dam, which contains these waste materials and prevents them from contaminating the surrounding environment.
Tailings are continuously generated and transported to a 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 raised using materials such as rocks, mud, sand, and HDPE sheets, the majority of which are waste materials from the mining process. To facilitate this, the company hires a contractor, who charges GST along with service fees. It also procures materials, including HDPE sheets, for this purpose.
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“Given the operational and legal requirement of establishing and maintaining a tailing dam for processing of mining waste, the Applicant is of the opinion that the tailing dam is nothing but 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 CGST Act,” the application said.
After reviewing all the facts and arguments presented, RAAR observed that since tailings dams rest on a foundation of natural rock or soil with the help of cement and are stretched over several kilometres, “it is clear that they are immovable and are thus covered under definition of immovable property.” Further, “we find that the tailing dam is a civil structure and qualifies in the definition of immovable property. Therefore, the submission of the applicant that it is covered under ‘Plant and Machinery’ is not tenable,” RAAR observed.
The quasi-judicial body concluded that tailings dams can simply be termed as structures providing storage facilities for waste products of mining operations. These storage facilities do not play any role in either the quantity or the quality of the minerals extracted and processed, or the metals manufactured by the taxpayer. Thus, “the tailings dams cannot be qualified to be used for carrying on the core business activities,” RAAR said while answering in the negative on the question of the availability of ITC.